<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27314
CITYSCAPE FINANCIAL CORP.
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DELAWARE 11-2994671
<S> <C>
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
565 TAXTER ROAD, ELMSFORD, NEW YORK 10523-2300 (ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(914) 592-6677
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------------------------------
(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:
64,878,969 SHARES $.01 PAR VALUE,
OF COMMON STOCK, WERE OUTSTANDING AS OF NOVEMBER 6, 1998
<PAGE> 2
CITYSCAPE FINANCIAL CORP.
(DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
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PAGE
----
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition at September 30, 1998 and
December 31, 1997 2
Consolidated Statements of Operations for the three months and
the nine months ended September 30, 1998 and 1997 3
Consolidated Statements of Cash Flows for the nine months ended September 30,
1998 and 1997 4
Notes to Consolidated Financial Statements 5-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13-31
PART II - OTHER INFORMATION 32-38
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CITYSCAPE FINANCIAL CORP.
(DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 24,839,839 $ 2,594,163
Cash held in escrow 7,179,480 24,207,517
Mortgage servicing receivables 7,461,648 9,524,535
Trading securities 76,586,673 126,475,656
Mortgage loans held for sale, net 124,090,229 93,290,024
Mortgages held for investment, net 4,969,176 6,530,737
Equipment and leasehold improvements, net 4,524,605 6,058,206
Investment in discontinued operations, net 24,763,569 84,232,000
Income taxes receivable 1,698,166 18,376,574
Other assets 29,854,395 27,267,770
------------- -------------
Total assets $ 305,967,780 $ 398,557,182
============= =============
LIABILITIES
Warehouse financing facilities $ 110,913,223 $ 77,479,007
Accounts payable and other liabilities 66,394,368 63,427,810
Allowance for losses 7,461,648 4,555,373
Income taxes payable 2,034,098 300,000
Notes and loans payable 300,000,000 300,000,000
Convertible subordinated debentures 129,620,000 129,620,000
------------- -------------
Total liabilities 616,423,337 575,382,190
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000,000 shares authorized;
5,177 shares issued and outstanding; Liquidation
Preference - Series A Preferred Stock, $7,416,016; Series B Preferred
Stock, $64,850,476 at September 30, 1998; 5,295 shares issued and
outstanding; Liquidation Preference - Series A Preferred Stock,
$6,820,800; Series B Preferred Stock, $47,046,745 at December 31, 1997 52 53
Common stock, $.01 par value, 100,000,000 shares authorized; 64,948,969
and 47,648,738 shares issued at September 30, 1998 and December 31, 1997 649,489 476,487
Treasury stock, 70,000 shares at September 30, 1998 and December 31,
1997, at cost (175,000) (175,000)
Additional paid-in capital 175,304,103 175,477,104
Retained earnings (accumulated deficit) (486,234,201) (352,603,652)
------------- -------------
Total stockholders' equity (deficit) (310,455,557) (176,825,008)
------------- -------------
COMMITMENTS AND CONTINGENCIES ------------- -------------
Total liabilities and stockholders' equity (deficit) $ 305,967,780 $ 398,557,182
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
CITYSCAPE FINANCIAL CORP.
(DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Gain on sale of loans $ 2,228,984 $ 20,073,841 $ 926,772 $ 81,830,010
Net unrealized loss on valuation of residuals (7,817,022) (72,149,611) (26,303,825) (72,149,611)
Interest 3,948,955 22,229,287 10,035,360 56,338,464
Mortgage origination income 593,325 1,390,507 2,046,651 3,604,777
Other 728,270 3,071,146 1,227,588 5,278,472
------------- ------------- ------------- -------------
Total revenues (317,488) (25,384,830) (12,067,454) 74,902,112
------------- ------------- ------------- -------------
EXPENSES
Salaries and employee benefits 8,569,729 12,264,996 25,876,102 33,770,753
Interest expense 15,126,427 18,102,327 43,280,304 53,755,859
Selling expenses 1,179,260 1,139,014 3,171,811 2,634,476
Other operating expenses 16,472,620 9,765,738 40,806,921 24,047,900
Provision for loan losses 4,728,073 11,964,919 4,728,073 11,964,919
Restructuring charge -- -- 3,233,760 --
------------- ------------- ------------- -------------
Total expenses 46,076,109 53,236,994 121,096,971 126,173,907
------------- ------------- ------------- -------------
(Loss) earnings from continuing operations
before income taxes (46,393,597) (78,621,824) (133,164,425) (51,271,795)
Income tax (benefit) provision 166,067 (31,250,496) 466,126 (18,860,828)
------------- ------------- ------------- -------------
(Loss) earnings from continuing operations (46,559,664) (47,371,328) (133,630,551) (32,410,967)
Discontinued operations:
(Loss) earnings from discontinued operations, net of
income tax benefit of $14,218,420 and $9,970,915
for the three and nine months ended September 30,
1997 and net of extraordinary item of $425,000 -- (22,271,374) -- (16,425,467)
------------- ------------- ------------- -------------
Net (loss) earnings (46,559,664) (69,642,702) (133,630,551) (48,836,434)
Preferred stock dividends paid in common stock -- 1,035,315 -- 2,102,189
Preferred stock dividends - increase in liquidation
preference 2,436,488 -- 6,097,567 --
Preferred stock - default payments 5,792,899 -- 13,615,115 --
------------- ------------- ------------- -------------
NET (LOSS) EARNINGS APPLICABLE TO COMMON STOCK $ (54,789,051) $ (70,678,017) $(153,343,233) $ (50,938,623)
============= ============= ============= =============
Earnings (loss) per common share:
Basic
(Loss) earnings from continuing operations $ (0.84) $ (1.50) $ (2.71) $ (1.12)
(Loss) earnings from discontinued operations -- (0.69) -- (0.53)
------------- ------------- ------------- -------------
Net (loss) earnings $ (0.84) $ (2.19) $ (2.71) $ (1.65)
============= ============= ============= =============
Diluted
(Loss) earnings from continuing operations $ (0.84) $ (1.50) $ (2.71) $ (1.12)
(Loss) earnings from discontinued operations -- (0.69) -- (0.53)
------------- ------------- ------------- -------------
Net (loss) earnings (1) $ (0.84) $ (2.19) $ (2.71) $ (1.65)
============= ============= ============= =============
Weighted average number of common shares outstanding:
Basic 64,878,969 32,346,059 56,566,295 30,936,205
============= ============= ============= =============
Diluted (1) 64,878,969 32,346,059 56,566,295 30,936,205
============= ============= ============= =============
</TABLE>
(1) For the three months and nine months ended September 30, 1998 and 1997, the
incremental shares from assumed conversions are not included in computing
the diluted per share amounts because their effect would be antidilutive
since an increase in the number of shares would reduce the amount of loss
per share. Therefore, basic and diluted EPS figures are the same amount.
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
CITYSCAPE FINANCIAL CORP.
(DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---- ----
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Cash flows from operating activities:
(Loss) earnings from continuing operations $ (133,630,551) $ (32,410,967)
Adjustments to reconcile net (loss) earnings from continuing
operations to net cash used in continuing operating activities:
Depreciation and amortization 2,553,173 847,563
Income taxes payable 18,412,506 (31,679,643)
Increase in accounts receivable and due from broker for
securities transactions (1,354,940) (1,374,298)
Decrease in mortgage servicing receivables 4,969,162 19,981,522
Decrease (increase) in trading securities 49,888,983 (75,441,477)
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 370,326,000 1,275,509,452
Mortgage origination funds disbursed (418,629,718) (1,301,928,103)
Other, net 34,830,604 34,980,195
--------------- ---------------
Net cash used in continuing operating activities (72,634,781) (110,164,949)
--------------- ---------------
Net cash used in discontinued operating activities -- (108,711,510)
--------------- ---------------
Net cash used in operating activities (72,634,781) (218,876,459)
--------------- ---------------
Cash flows from investing activities:
Sale from discontinued operations, net 59,468,431 --
Purchases of equipment (1,019,572) (4,632,678)
Proceeds from equipment sale and lease-back financing -- 1,776,283
Proceeds from sale of available-for-sale securities -- 2,254,232
Proceeds from sale of mortgages held for investment 2,997,382 --
--------------- ---------------
Net cash provided by (used in) investing activities 61,446,241 (602,163)
--------------- ---------------
Cash flows from financing activities:
Increase in warehouse financings 33,434,216 1,004,327
Decrease in standby facility -- (7,966,292)
Proceeds from notes and loans payable -- 49,000,000
Repayment of notes and loans payable -- (161,405,843)
Net proceeds from issuance of preferred stock -- 98,249,950
Net proceeds from issuance of common stock -- 321,319
Net proceeds from issuance of Notes -- 290,758,908
--------------- ---------------
Net cash provided by financing activities 33,434,216 269,962,369
--------------- ---------------
Net increase in cash and cash equivalents 22,245,676 50,483,747
Cash and cash equivalents at beginning of period 2,594,163 446,285
--------------- ---------------
Cash and cash equivalents at end of period $ 24,839,839 $ 50,930,032
=============== ===============
Supplemental disclosure of cash flow information: Income
taxes paid during the period:
Continuing operations $ 1,230 $ 4,856,056
=============== ===============
Discontinued operations $ -- $ --
=============== ===============
Interest paid during the period:
Continuing operations $ 6,928,187 $ 27,269,967
=============== ===============
Discontinued operations $ -- $ 441,000
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
CITYSCAPE FINANCIAL CORP.
(DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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. CSC
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 originated, sold and serviced loans in England, Scotland and
Wales in which the Company initially held a 50% interest and subsequently
purchased the remaining 50%. CSC-UK had no operations and no predecessor
operations prior to May 1995. In April 1998, the Company sold all of the assets,
and certain liabilities, of CSC-UK (see Note 4).
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 three and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997.
The Company's unaudited consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and the liquidation of liabilities and commitments in the
normal course of business. The Filings (see Note 3), related circumstances and
the losses from operations raise substantial doubt about the Company's ability
to continue as a going concern. The appropriateness of using the going concern
basis is dependent upon, among other things, confirmation of a plan of
reorganization, which hearing is presently scheduled for November 13, 1998 (and
may be adjourned), the successful sale of loans in the whole loan sales market,
the ability to access warehouse lines of credit and future profitable
operations. While under the protection of chapter 11, the Company may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the accompanying consolidated financial
statements. Should the Plan (as defined in Note 3) be confirmed, the Company
will adopt fresh-start accounting in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). The
accompanying consolidated financial statements do not include any adjustments
that may result from the adoption of SOP 90-7, or in the event of the Plan not
being confirmed. The consolidated financial statements do not include any
adjustments relating to the Company's ability to continue as a going concern.
The consolidated unaudited financial statements of the Company include the
accounts of CSC and its wholly-owned subsidiaries. The Company has restated its
prior financial statements to present the operating results of CSC-UK as a
discontinued operation as discussed in Note 4. All significant intercompany
balances and transactions have been eliminated in consolidation.
Certain amounts in the statements have been reclassified to conform with
the 1998 classifications.
5
<PAGE> 7
3. Chapter 11 Proceedings
The Company has determined that the best alternative for recapitalizing the
Company over the long-term and maximizing the recovery of creditors and senior
equity holders of the Company is through a prepackaged plan of reorganization
for the Company and its wholly-owned subsidiary, CSC, pursuant to chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code"). Toward that end,
during the second and third quarters of 1998, the Company engaged in
negotiations, first, with holders of a substantial majority of the Notes (as
defined below) and, second, with holders of a substantial majority of the
Convertible Debentures (as defined below) on the terms of a plan of
reorganization that both groups would find acceptable. Those negotiations have
resulted in acceptance by both groups by the requisite majorities of the terms
of a plan of reorganization (the "Plan").
On October 6, 1998, the Company and CSC (the "Debtors") filed voluntary
petitions (the "Petitions") in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court"). The Company had
solicited the holders of its Notes, Convertible Debentures and Preferred Stock.
The Plan received the requisite approval from all classes except for the holders
of the Company's Series B Preferred Stock (as defined below).
In summary, the Plan, if confirmed by the Bankruptcy Court, would provide
that: (i) holders of Notes would receive in exchange for all of their claims, in
the aggregate, 90.5% of the new common stock of the reorganized company and $75
million in initial principal amount of 10-year senior notes (on which interest
could be paid in kind at the reorganized company's option); (ii) holders of the
Convertible Debentures would receive in exchange for all of their claims, in the
aggregate, 9.5% of the new common stock of the reorganized company and warrants
to purchase additional common stock representing 5% of the new common stock of
the reorganized company on a fully diluted basis, which warrants would be
exercisable if and when the enterprise value of the reorganized company reached
$300 million; (iii) holders of Series A Preferred Stock (as defined below) would
receive in exchange for their interests in the Company, in the aggregate, 10.5%
of the warrants to purchase common stock representing 10% of the new common
stock of the reorganized company on a fully diluted basis, all of which warrants
would be exercisable if and when the enterprise value of the reorganized company
reached $430 million; (iv) holders of Series B Preferred Stock will receive or
retain no property; and (v) existing Common Stock (as defined below) and
warrants of the Company would be extinguished and holders thereof would receive
no distributions under the Plan. Consummation of the Plan is conditioned upon,
among other things, the Company obtaining sufficient post-reorganization
warehouse financing facilities. The Company is currently in discussions with
potential lenders regarding post-reorganization warehouse financing facilities.
The Debtors are currently operating their business as debtors-in-possession.
On October 27, 1998, the Bankruptcy Court entered a final order approving
debtor-in-possession financing arrangements (see Note 11). Under the Bankruptcy
Code, the Debtors may elect to assume or reject real estate leases and other
pre-petition executory contracts, subject to Bankruptcy Court approval. Upon
rejection, under Section 502 of the Bankruptcy Code, a lessor's claim for
damages resulting from the rejection of a real property lease is limited to the
rent to be received under such lease, without acceleration, for the greater of
one year, or 15%, not to exceed three years, of the remaining term of the lease
following the earlier of the date of the Petitions or the date on which the
property is returned to the landlord. On October 30, 1998, the Debtors filed a
schedule with the Bankruptcy Court listing executory contracts and real estate
leases to be rejected.
By a motion dated October 6, 1998 (the "Motion"), Elliott Associates L.P. and
Westgate International, L.P. sought the entry of an order, pursuant to section
1104(c) of the Bankruptcy Code, directing the appointment of an Examiner. By
order dated October 30, 1998 (the "Order"), this Court granted the Motion and
directed the United States Trustee for the Southern District of New York to
appoint an Examiner. The Order authorized the Examiner to conduct a preliminary
investigation and issue a written report regarding the facts and circumstances
surrounding certain releases given by the Debtors under the Plan.
On November 9,1998 the Examiner filed the Examiner Report Pursuant to Order
of October 20, 1998 (the "Examiner Report"). The Examiner Report stated, among
other things, that (i) there was no evidence that any representative of the
Company or CSC acted in bad faith, recklessly or unreasonably with respect to
the Company's and CSC's accounting issues for the second quarter of 1996; (ii)
no material misstatements, omissions or delays were found with respect to the
Company's and CSC's public disclosures concerning the developments in United
Kingdom during the period from March 1997 through August 1997, (iii) with the
exception of the ongoing SEC investigation, there were no investigations,
regarding the restatements of the Company's financial statements and write-downs
of assets performed by the Company, CSC or anyone else; (iv) no evidence was
found that the Company's or CSC's current or former officers or directors
engaged in any short sales of the Company's common stock of any kind during 1997
and 1998 (or at any other time); (v) there was no evidence of bad faith, lack of
integrity, self-dealing, falsification or manipulation of corporate records or
other impropriety; and (vii) the Plan contained third party releases that should
be removed.
Liabilities subject to compromise as of September 30, 1998, pursuant to the
Plan are summarized as follows:
6
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C>
12 3/4% Senior Notes $ 300,000,000
6% Convertible Subordinated Debentures 129,620,000
Accrued interest related to Senior Notes
and Convertible Debentures 39,004,100
==============
$ 468,624,100
==============
</TABLE>
Other potential consequences of reorganization under chapter 11 that have not
been recorded including the effect of the determination as to the disposition of
executory contracts and leases as to which a final determination by the
Bankruptcy Court as to rejection had not yet been made. Trade creditors,
pursuant to the Plan, are unimpaired. Pursuant to an order of the Bankruptcy
Court signed October 7, 1998, prepetition amounts owed to such trade creditors
are being paid in the ordinary course of business.
In connection with the Company's restructuring efforts, the Company
deferred the June 1, 1998 and May 1, 1998 interest payments on its Notes and
Convertible Debentures, respectively. The continued deferral of the interest
payments on the Notes and Convertible Debentures constitutes an "Event of
Default" pursuant to the respective Indenture under which the securities were
issued. The Company stopped accruing interest on the Notes and Convertible
Debentures on October 6, 1998, the date the Company filed the Petitions in the
Bankruptcy Court.
4. The CSC-UK Sale; Discontinued Operations
As a result of liquidity constraints, the Company adopted a plan in March
1998 to sell the assets of CSC-UK. CSC-UK focused on lending to individuals who
are generally unable to obtain mortgage financing from conventional UK sources
such as banks and building societies because of impaired or unsubstantiated
credit histories and/or unverifiable income, or who otherwise choose not to seek
financing from conventional lenders. CSC-UK originated loans in the UK through a
network of independent mortgage brokers and, to a lesser extent, through direct
marketing to occupants of government-owned residential properties in the UK.
In April 1998, pursuant to an Agreement for the Sale and Purchase of the
Business of CSC-UK and its Subsidiaries and the Entire Issued Share Capital of
City Mortgage Receivables 7 Plc, dated March 31, 1998 (the "UK Sale Agreement"),
the Company completed the sale to Ocwen Financial Corporation ("Ocwen") and
Ocwen Asset Investment Corp. ("Ocwen Asset") of substantially all of the assets,
and certain liabilities, of CSC-UK (the "UK Sale"). The sale did not include the
assumption by Ocwen of all of CSC-UK's liabilities, and therefore, no assurances
can be given that claims will not be made against the Company in the future
arising out of its former UK operations. Such claims could have a material
adverse effect on the Company's financial condition and results of operations.
The UK Sale included the acquisition by Ocwen of CSC-UK's whole loan portfolio
and loan origination and servicing businesses for a price of pound sterling
249.6 million, the acquisition by Ocwen Asset of CSC-UK's securitized loan
residuals for a price of pound sterling 33.7 million and the assumption by Ocwen
of pound sterling 7.2 million of CSC-UK's liabilities. The price paid by Ocwen
is subject to adjustment to account for the actual balances on the closing date
of the loan portfolio and the assumed liabilities. As a result of the sale, the
Company received proceeds, at the time of the closing, of $83.8 million, net of
closing costs and other fees.
Accordingly, the operating results of CSC-UK and its subsidiaries have
been segregated from continuing operations and reported as a separate line item
on the Company's financial statements. In addition, net assets of CSC-UK have
been reclassified on the Company's financial statements as investment in
discontinued operations. The Company has restated its prior financial statements
to present the operating results of CSC-UK as a discontinued operation.
As of September 30, 1998, the Company's net investment in discontinued
operations totaled $24.8 million, representing cash on hand in the discontinued
operation of approximately $16.1 million and net receivables (net of
liabilities) due of approximately $8.7 million. The Company expects to maintain
a balance of cash on hand in the discontinued operation to cover existing and
potential liabilities and costs until the dissolution of the existing legal
entities of CSC-UK and its subsidiaries. Additionally, as of
7
<PAGE> 9
September 30, 1998, there were liabilities related to the discontinued
operations of approximately $555,000 included in accounts payable and other
liabilities.
Included in such net receivables is approximately $10.0 million due from
Ocwen under the terms of the UK Sale Agreement. The Company, however, received a
letter from Ocwen in which Ocwen has taken the position that the Company owes
approximately $21.4 million in connection with the transaction. The Company and
Ocwen are currently in dispute over these amounts. See "Legal Proceedings."
5. New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 defines
internal-use software and establishes accounting standards for the costs of such
software. The Company has not completed its analysis of SOP 98-1.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company has not completed its analysis of SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 requires that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. SFAS No. 134 is effective for the first fiscal quarter beginning
after December 15, 1998. The Company has not completed its analysis of this
statement.
6. Earnings Per Share
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No. 128
simplifies the standards for computing earnings per share ("EPS") previously
found in Accounting Principles Board Opinion No. 15 and makes them comparable to
international earnings per share standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator for the basic EPS computation to the numerator and denominator
of the diluted EPS computation.
Basic EPS is computed by dividing net earnings applicable to Common Stock
by the weighted average number of shares of Common Stock outstanding during the
period. Diluted EPS is based on the net earnings applicable to Common Stock
adjusted to add back the effect of assumed conversions (e.g., after-tax interest
expense of convertible debt) divided by the weighted average number of shares of
Common Stock outstanding during the period plus the dilutive potential shares of
Common Stock that were outstanding during the period.
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the three and nine months ended September 30, 1998
and 1997 is as follows:
8
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1998 1997
---------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing operations $(46,559,664) $ (47,371,328)
Less: Preferred stock dividends 2,436,488 1,035,315
Preferred stock - default payments 5,792,899 -
------------- --------------
BASIC EPS
Earnings (loss) applicable to common stock (54,789,051) 64,878,969 $ (0.84) (48,406,643) 32,346,059 $ (1.50)
======== ========
EFFECT OF DILUTIVE SECURITIES
Warrants - -
Stock options - -
Convertible preferred stock - -
Convertible Debentures - -
------------- ----------- -------------- -----------
DILUTED EPS
Earnings (loss) applicable to common stock+
assumed conversions $(54,789,051) 64,878,969 $ (0.84) $ (48,406,643) 32,346,059 $ (1.50)
============= =========== ======== ============== =========== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing operations $(133,630,551) $(32,410,967)
Less: Preferred stock dividends 6,097,567 2,102,189
Preferred stock - default payments 13,615,115 -
-------------- -------------
BASIC EPS
Earnings (loss) applicable to common stock (153,343,233) 56,566,295 $(2.71) (34,513,156) 30,936,205 $(1.12)
======= =======
EFFECT OF DILUTIVE SECURITIES
Warrants - -
Stock options - -
Convertible preferred stock - -
Convertible Debentures - -
-------------- ----------- ------------- -----------
DILUTED EPS
Earnings (loss) applicable to common stock +
assumed conversions $(153,343,233) 56,566,295 $(2.71) $(34,513,156) 30,936,205 $(1.12)
============== =========== ======= ============= =========== =======
</TABLE>
For the three and nine months ended September 30, 1998 and 1997, the
incremental shares from assumed conversions are not included in computing the
diluted per share amounts because their effect would be antidilutive since an
increase in the number of shares would reduce the amount of loss per share.
Securities outstanding at September 30, 1998 that could potentially dilute basic
EPS in the future are as follows: Series A Warrants; Series B Warrants (as such
terms are defined below); Convertible Debentures; Series A Preferred Stock;
Series B Preferred Stock; and options to purchase the Company's Common Stock,
par value $0.01 per share (the "Common Stock"). If the Plan is confirmed by a
bankruptcy court, there would be severe impairment of the Company's preferred
equity and complete impairment of the Company's Common Stock (see Note 3).
7. Streamlining and Downsizing
In February 1998, the Company announced that it had begun implementing a
restructuring plan that includes streamlining and downsizing its operations. The
Company has closed its branch operation in Virginia and significantly reduced
its correspondent originations for the foreseeable future and has exited
9
<PAGE> 11
its conventional lending business. Accordingly, in the first quarter of 1998,
the Company has recorded a restructuring charge of $3.2 million. Of this amount,
$1.1 million represents severance payments made to 142 former employees and $2.1
million represents costs incurred in connection with lease obligations and
write-offs of assets no longer in service. At September 30, 1998, the Company
had available a reserve of $2.1 million for these restructuring charges. See
also Note 12.
8. Valuation of Residuals
The interests that the Company receives upon loan sales through its
securitizations are in the form of interest-only and residual mortgage
securities which are classified as trading securities. The Company's trading
securities are comprised of interests in home equity mortgage loans and
"Sav*-A-Loan(R)" mortgage loans (loans generally made to homeowners with little
or no equity in their property but who possess a favorable credit profile and
debt-to-income ratio and who often use the proceeds from such loans to repay
outstanding indebtedness as well as make home improvements).
The table below summarizes the value of the Company's trading securities
by product type.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C> <C>
Home Equity $ 25,855,753 $ 75,216,390
Sav*-A-Loan(R) 50,730,920 51,259,266
============ ============
$ 76,586,673 $126,475,656
============ ============
</TABLE>
In accordance with SFAS No. 115, the Company classifies the interest-only
and residual certificates as "trading securities" and, as such, they are
recorded at their fair value. Fair value of these certificates is determined
based on various economic factors, including loan types, sizes, interest rates,
dates of origination, terms and geographic locations. The Company also uses
other available information such as reports on prepayment rates, interest rates,
collateral value, economic forecasts and historical loss and prepayment rates of
the portfolio under review. If the fair value of the interest-only and residual
certificates is different from the recorded value, the unrealized gain or loss
will be reflected on the Consolidated Statements of Operations.
During the first quarter of 1998, the Company recorded an unrealized loss
on valuation of residuals of $7.1 million which reflected an increase in the
expected loss rate on the Company's home equity securitized loans. As a result
of the increase in the volume of home equity loan liquidations during the first
quarter resulting from the Company's increased liquidation efforts, and
corresponding higher losses experienced than previously expected on such
liquidations, the Company increased its loss rate assumption to 3.3% per annum
at March 31, 1998 from 1.7% per annum at December 31, 1997. At March 31, 1998
and December 31, 1997, the Company used a weighted average discount rate of 15%
and a weighted average prepayment speed of 31.8%.
In the second quarter of 1998, the Company recorded an additional $11.4
million unrealized loss on valuation of residuals resulting from continued
higher than expected losses and increased prepayment speeds experienced on its
home equity securitized loans. As of June 30, 1998, the Company increased its
weighted average loss rate to 4.35% per annum and increased its weighted average
prepayment speed to 34.8% for its home equity securitized loans and maintained
its use of a 15% discount rate.
In the third quarter of 1998, the Company recorded a further unrealized
loss on valuation of residuals of $7.8 million consisting of a $5.5 million
unrealized loss on its home equity residuals and $2.3 million on its
Sav*-A-Loan(R) residuals. This unrealized loss was primarily a result of the
Company increasing the weighted average discount rate used to value its
residuals to 17% at September 30, 1998 from 15% at June 30, 1998 for both its
home equity and Sav*-A-Loan(R) residuals. The increase in the discount rate
reflects the changes in market conditions experienced in the overall
mortgage-backed securities markets since the second quarter of 1998.
10
<PAGE> 12
In addition to the discount rate noted above, as of September 30, 1998 the
assumptions used to value the Company's home equity residuals included a
weighted average loss rate of 4.95% per annum and a weighted average constant
prepayment speed of 34.8%. For the Company's Sav*-A-Loan(R) residuals, the
Company used a weighted average loss rate of 3.3% and a weighted average
constant prepayment speed of 16.8% for the periods ended September 30, 1998 and
December 31, 1997.
In order to enhance the Company's liquidity position, in January 1998, the
Company sold residual certificates and associated mortgage servicing receivables
relating to certain of the Company's home equity loan products for net proceeds
of $26.5 million (which equated to the book value at December 31, 1997).
9. Comprehensive Income
During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. The financial statements reflect
the adoption of SFAS No. 130.
Total comprehensive loss for the three months ended September 30, 1998 and
1997 was $54.8 million and $75.7 million, respectively. Total comprehensive loss
for the nine months ended September 30, 1998 and 1997 was $153.3 million and
$60.0 million, respectively. For the three months ended September 30, 1997,
comprehensive loss represented net loss of $70.7 million and other comprehensive
loss of $5.0 million. For the nine months ended September 30, 1997,
comprehensive loss represented net loss of $50.9 million and other comprehensive
loss of $9.1 million. The table below details the comprehensive loss for the
three and nine months ended September 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
Tax Benefit/
Before Tax (Provision) After Tax
---------- ----------- ---------
<S> <C> <C> <C>
Unrealized holding gain (losses) $ 718,765 $ (285,709) $ 433,056
Foreign currency translation (9,015,788) 3,583,776 (5,432,012)
----------- ----------- -----------
$(8,297,023) $ 3,298,067 $(4,998,956)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
Before Tax Tax Benefit After Tax
---------- ----------- ---------
<S> <C> <C> <C>
Unrealized holding gain (losses) $ (1,218,032) $ 448,114 $ (769,918)
Foreign currency translation (13,107,589) 4,822,282 (8,285,307)
------------ ------------ ------------
$(14,325,621) $ 5,270,396 $ (9,055,225)
============ ============ ============
</TABLE>
10. Subservicing Agreements
Due to the Company exceeding the delinquency rates permitted under the terms
of the pooling and servicing agreements with respect to the Company's 1995-2,
1995-3, 1996-1, 1996-2, 1996-3 and 1996-4 home equity securitizations, during
the third quarter of 1998 the Company entered into subservicing agreements with
respect to such loans with Fairbanks Capital Corp. ("Fairbanks"). As of
September 30, 1998, the outstanding amount of such loans was $605.5 million or
46.7% of the Company's total servicing portfolio and 97.5% of the Company's home
equity servicing portfolio. Under the terms of the subservicing agreements,
Fairbanks as subservicer retains all rights, including the normal servicing fee
and any ancillary income, and obligations of the servicer as provided for under
the terms of the applicable securitizations and servicing agreements.
11. Debtor-in-Possession Financing Arrangements
11
<PAGE> 13
Subsequent to the filing of the Petitions and pursuant to a final order of
the Bankruptcy Court dated October 27, 1998 authorizing the Company to obtain
post-petition financing, the Company paid Greenwich (as defined below), as
lender under the Greenwich Facility (as defined below) which had provided
commitments aggregating approximately $150 million, approximately $99 million to
extinguish Greenwich's prepetition security interest. The Greenwich Facility was
replaced by a debtor-in-possession facility (the "Greenwich DIP Facility") with
Greenwich that is guaranteed by the Company and is secured by substantially all
of the assets of CSC and the capital stock of CSC, pari passu with the lien
granted to CIT (as defined below) under the CIT DIP Facility (as defined below).
The Greenwich DIP Facility bears interest at a rate of LIBOR plus 2.75% and
provides a $100.0 million commitment. The Greenwich DIP Facility terminates on
the earlier of (i) the date that the chapter 11 case has been confirmed by an
order of the Bankruptcy Court or (ii) March 1, 1999.
Subsequent to the filing of the Petitions and pursuant to an interim order of
the Bankruptcy Court dated October 13, 1998 authorizing the Company to obtain
post-petition financing, the Company paid CIT (as defined below), as lender
under the CIT Facility (as defined below) which had provided commitments
aggregating $30 million, approximately $14 million to extinguish CIT's
prepetition security interest. On October 27, 1998, a final order was granted by
the Bankruptcy Court. The CIT Facility was replaced by a debtor-in-possession
facility (the "CIT DIP Facility") with CIT and Nomura Asset Capital Corporation
that is guaranteed by the Company and is secured by substantially all of the
assets of CSC and the capital stock of CSC, pari passu with the lien granted to
Greenwich under the Greenwich DIP Facility. The CIT DIP Facility bears interest
at a rate of LIBOR plus 2.75% or the Prime Rate and provides a $150.0 million
commitment. The CIT DIP Facility terminates on the earlier of (i) the date that
the chapter 11 case has been confirmed by an order of the Bankruptcy Court or
(ii) March 1, 1999.
12. Subsequent Events
As part of its restructuring plan that includes streamlining and downsizing
its operations, on October 22, 1998, the Company reduced its workforce by 243
employees (24 of which will remain employed for up to ten weeks), representing
53.5% of its workforce, from 454 employees to 211 employees. In connection with
this reduction, the Company has closed its branch operations in California and
Illinois, while maintaining its offices in New York and Georgia. Accordingly,
the Company anticipates that it will record a restructuring charge of
approximately $8 million to $10 million in the fourth quarter of 1998.
Based on the Company's discussions with potential lenders regarding
post-reorganization warehouse financing facilities, the Company has determined
that it is unlikely that such financing will be provided for its Sav*-A-Loan(R)
products. Therefore, on November 13, 1998, the Company decided to suspend
indefinitely the origination and purchase of its Sav*-A-Loan(R) products. As a
result, the Company expects to further streamline and downsize its operations
and reduce its workforce and will record an additional restructuring charge in
the fourth quarter of 1998 as noted above.
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, the ability to access loan
warehouse or purchase facilities in amounts, if at all, necessary to fund the
Company's loan production, the successful implementation of loan sales in the
whole loan sales market, the confirmation and consummation of the Company's plan
of reorganization under Chapter 11 of the Bankruptcy Code, the ability of the
Company to successfully restructure its balance sheet, the initiative to
streamline the Company's operations, the ability of the Company to retain an
adequate number and mix of its employees, legal proceedings and other matters,
adverse economic conditions and other risks detailed from time to time in the
Company's Securities and Exchange Commission (the "Commission") 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
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 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 and financing of home improvements and
educational expenditures, among others. The Company is licensed or registered to
do business in 46 states and the District of Columbia.
For the last year, the Company has been operating in an increasingly
difficult environment, and the Company expects to continue to operate in this
environment for the foreseeable future. The Company's operations for 1997 and
the first nine months of 1998 have consumed substantial amounts of cash and have
generated significant net losses, which have reduced stockholders' equity to a
deficit of $310.5 million at September 30, 1998. The Company is unable to access
the capital markets and has experienced difficulties in securing loan warehouse
or purchase facilities. The Company's ability to operate is dependent upon
continued access to loan warehouse facilities and loan purchase facilities. The
terms of the Company's current loan warehouse and purchasing facilities are less
advantageous to the Company than the terms of the Company's previous facilities.
The Company expects that its difficulties in accessing capital, which has had a
negative impact on liquidity as well as profitability, will continue for the
foreseeable future. The profitability of the Company has been and will continue
to be adversely affected by an inability to sell its loan production through
securitizations. Furthermore, primarily due to a reduction in the Company's
Correspondent Loan Acquisition Program, through which the Company originated a
significant portion of its loan production from selected financial institutions
and mortgage bankers known as loan correspondents, and the discontinuation of
many of the loan products previously offered by the Company, the Company
anticipates that its revenues will be substantially lower in 1998 than in 1997.
Revenues will be further negatively effected by the Company's decision on
November 13, 1998 to suspend the origination and purchase of its Sav*-A-Loan(R)
products. There is substantial doubt about the Company's ability to continue as
a going concern. The Company believes that its future success is dependent upon,
among other things, confirmation of a plan of reorganization, which hearing was
originally scheduled for November 13, 1998 and has been adjourned to November
19, 1998 (and may be further adjourned) (see " - Chapter 11 Proceedings"), the
successful sale of loans in the whole loan sales market, the ability to access
warehouse lines of credit and future profitable operations. The Company has
concluded that the best way to recapitalize the Company over the long-term and
maximize the recovery of creditors and senior equity interest holders of the
Company is through a prepackaged plan of reorganization for the Company and its
wholly-owned subsidiary, CSC. See " -- Chapter 11 Proceedings." No assurance can
be given that the Company will be able to achieve these results.
The Company's stockholders' deficit, recent losses and need to restructure
its balance sheet create serious risks of loss for the holders of the Company's
debt and equity securities. No assurances can be given that the Company will be
successful in its restructuring efforts, or, that as a result of such efforts,
the value of the Company's debt and equity securities will not be materially
impaired. In particular, the Company can give no assurances that a successful
restructuring will not result in a material impairment of the value of the Notes
or the Convertible Debentures or a severe or complete impairment of the value of
the
13
<PAGE> 15
Company's preferred and common equity. The Company's current restructuring plans
provide for severe impairment of the Company's preferred equity and complete
impairment of the Company's common equity. See "-- Chapter 11 Proceedings." The
extent of any such impairment will depend on many factors including the
Company's reorganization plan discussed below as well as other factors set forth
in the paragraph discussing forward-looking statements above.
CHAPTER 11 PROCEEDINGS
The Company has determined that the best alternative for recapitalizing the
Company over the long-term and maximizing the recovery of creditors and senior
equity holders of the Company is through a prepackaged plan of reorganization
for the Company and its wholly-owned subsidiary, CSC, pursuant to the Bankruptcy
Code. Toward that end, during the second and third quarters of 1998, the Company
engaged in negotiations, first, with holders of a substantial majority of the
Notes and, second, with holders of a substantial majority of the Convertible
Debentures on the terms of a plan of reorganization that both groups would find
acceptable. Those negotiations have resulted in acceptance by both groups by the
requisite majorities of the terms of the Plan.
On October 6, 1998, the Debtors filed the Petitions in the Bankruptcy Court.
The Company had solicited the holders of its Notes, Convertible Debentures and
Preferred Stock. The Plan received the requisite approval from all classes
except for the holders of the Company's Series B Preferred Stock.
In summary, the Plan, if confirmed by the Bankruptcy Court, would provide
that: (i) holders of Notes would receive in exchange for all of their claims, in
the aggregate, 90.5% of the new common stock of the reorganized company and $75
million in initial principal amount of 10-year senior notes (on which interest
could be paid in kind at the reorganized company's option); (ii) holders of the
Convertible Debentures would receive in exchange for all of their claims, in the
aggregate, 9.5% of the new common stock of the reorganized company and warrants
to purchase additional common stock representing 5% of the new common stock of
the reorganized company on a fully diluted basis, which warrants would be
exercisable if and when the enterprise value of the reorganized company reached
$300 million; (iii) holders of Series A Preferred Stock would receive in
exchange for their interests in the Company, in the aggregate, 10.5% of the
warrants to purchase common stock representing 10% of the new common stock of
the reorganized company on a fully diluted basis, all of which warrants would be
exercisable if and when the enterprise value of the reorganized company reached
$430 million; (iv) holders of Series B Preferred Stock, will receive or retain
no property; and (v) existing Common Stock and warrants of the Company would be
extinguished and holders thereof would receive no distributions under the Plan.
Consummation of the Plan is conditioned upon, among other things, the Company
obtaining sufficient post reorganization warehouse financing facilities. The
Company is currently in discussions with potential lenders regarding
post-reorganization warehouse financing facilities.
The Debtors are currently operating their business as debtors-in-possession.
On October 27, 1998, the Bankruptcy Court entered a final order approving
debtor-in-possession financing arrangements (see "-- Liquidity and Capital
Resources"). Under the Bankruptcy Code, the Debtors may elect to assume or
reject real estate leases and other pre-petition executory contracts, subject to
Bankruptcy Court approval. Upon rejection, under Section 502 of the Bankruptcy
Code, a lessor's claim for damages resulting from the rejection of a real
property lease is limited to the rent to be received under such lease, without
acceleration, for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease following the earlier of the date of the
Petitions or the date on which the property is returned to the landlord. On
October 30, 1998, the Debtors filed a schedule with the Bankruptcy Court listing
executory contracts and real estate leases to be rejected.
By the Motion dated October 6, 1998, Elliott Associates L.P. and Westgate
International, L.P. sought the entry of an order, pursuant to section 1104(c) of
the Bankruptcy Code, directing the appointment of an Examiner. By the Order
dated October 30, 1998, this Court granted the Motion and directed the United
States Trustee for the Southern District of New York to appoint an Examiner. The
Order authorized the Examiner to conduct a preliminary investigation and issue a
written report regarding the facts and circumstances surrounding certain
releases given by the Debtors under the Plan.
On November 9,1998 the Examiner filed the Examiner Report Pursuant to Order
of October 20, 1998 (the "Examiner Report"). The Examiner Report stated, among
other things, that (i) there was no evidence that any representative of the
Company or CSC acted in bad faith, recklessly or unreasonably with respect to
the Company's and CSC's accounting issues for the second quarter of 1996; (ii)
no material misstatements, omissions or delays were found with respect to the
Company's and CSC's public disclosures concerning the developments in United
Kingdom during the period from March 1997 through August 1997, (iii) with the
exception of the ongoing SEC investigation, there were no investigations,
regarding the restatements of the Company's financial statements and write-downs
of assets performed by the Company, CSC or anyone else; (iv) no evidence was
found that the Company's or CSC's current or former officers or directors
engaged in any short sales of the Company's common stock of any kind during 1997
and 1998 (or at any other time); (v) there was no evidence of bad faith, lack of
integrity, self-dealing, falsification or manipulation of corporate records or
other impropriety; and (vii) the Plan contained third party releases that should
be removed.
Liabilities subject to compromise as of September 30, 1998, pursuant to the
Plan are summarized as follows:
14
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
12 3/4% Senior Notes $ 300,000,000
6% Convertible Subordinated Debentures 129,620,000
Accrued interest related to Senior Notes
and Convertible Debentures 39,004,100
==============
$ 468,624,100
==============
</TABLE>
Other potential consequences of reorganization under chapter 11 that have not
been recorded including the effect of the determination as to the disposition of
executory contracts and leases as to which a final determination by the
Bankruptcy Court as to rejection had not yet been made. Trade creditors,
pursuant to the Plan, are unimpaired. Pursuant to an order of the Bankruptcy
Court signed October 7, 1998, prepetition amounts owed to such trade creditors
are being paid in the ordinary course of business.
In connection with the Company's restructuring efforts, the Company
deferred the June 1, 1998 and May 1, 1998 interest payments on its Notes and
Convertible Debentures, respectively. The continued deferral of the interest
payments on the Notes and Convertible Debentures constitutes an "Event of
Default" pursuant to the respective Indenture under which the securities were
issued. The Company stopped accruing interest on the Notes and Convertible
Debentures on October 6, 1998, the date the Company filed the Petitions in the
Bankruptcy Court.
THE CSC-UK SALE; DISCONTINUED OPERATIONS
As a result of liquidity constraints, the Company adopted a plan in March
1998 to sell the assets of CSC-UK. CSC-UK focused on lending to individuals who
are generally unable to obtain mortgage financing from conventional UK sources
such as banks and building societies because of impaired or unsubstantiated
credit histories and/or unverifiable income, or who otherwise choose not to seek
financing from conventional lenders. CSC-UK originated loans in the UK through a
network of independent mortgage brokers and, to a lesser extent, through direct
marketing to occupants of government-owned residential properties in the UK.
In April 1998, pursuant to the UK Sale Agreement, the Company completed
the sale to Ocwen and Ocwen Asset of substantially all of the assets, and
certain liabilities, of CSC-UK. The sale did not include the assumption by Ocwen
of all of CSC-UK's liabilities, and therefore, no assurances can be given that
claims will not be made against the Company in the future arising out of its
former UK operations. Such claims could have a material adverse effect on the
Company's financial condition and results of operations. The UK Sale included
the acquisition by Ocwen of CSC-UK's whole loan portfolio and loan origination
and servicing businesses for a price of pound sterling 249.6 million, the
acquisition by Ocwen Asset of CSC-UK's securitized loan residuals for a price of
pound sterling 33.7 million and the assumption by Ocwen of pound sterling 7.2
million of CSC-UK's liabilities. The price paid by Ocwen is subject to
adjustment to account for the actual balances on the closing date of the loan
portfolio and the assumed liabilities. As a result of the sale, the Company
received proceeds, at the time of the closing, of $83.8 million, net of closing
costs and other fees.
Accordingly, the operating results of CSC-UK and its subsidiaries have
been segregated from continuing operations and reported as a separate line item
on the Company's financial statements. In addition, net assets of CSC-UK have
been reclassified on the Company's financial statements as investment in
discontinued operations. The Company has restated its prior financial statements
to present the operating results of CSC-UK as a discontinued operation.
As of September 30, 1998, the Company's net investment in discontinued
operations totaled $24.8 million, representing cash on hand in the discontinued
operation of approximately $16.1 million and net receivables (net of
liabilities) due of approximately $8.7 million. The Company expects to maintain
a balance of cash on hand in the discontinued operation to cover existing and
potential liabilities and costs until the dissolution of the existing legal
entities of CSC-UK and its subsidiaries. Additionally, as of September 30, 1998,
there were liabilities related to the discontinued operations of approximately
$555,000 included in accounts payable and other liabilities.
15
<PAGE> 17
Included in such net receivables is approximately $10.0 million due from
Ocwen under the terms of the UK Sale Agreement. The Company, however, received a
letter from Ocwen in which Ocwen has taken the position that the Company owes
approximately $21.4 million in connection with the transaction. The Company and
Ocwen are currently in dispute over these amounts. See "Legal Proceedings."
LAWSUITS
Beginning in September 1997, a number of class action lawsuits have been
filed against the Company and certain of its officers and directors on behalf of
all purchasers of the Common Stock. In these actions, plaintiffs allege that the
Company and its senior officers engaged in securities fraud by affirmatively
misrepresenting and failing to disclose material information regarding the
lending practices of the Company's UK subsidiary, and the impact that these
lending practices would have on the Company'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, as amended (the "Exchange Act"). Plaintiffs seek unspecified damages,
including pre-judgment interest, attorneys' and accountants' fees, and court
costs.
On or about September 14, 1998, Elliott Associates, L.P. and Westgate
International, L.P. filed a lawsuit against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of New York. In the complaint, plaintiffs describe the lawsuit as "an
action for securities fraud and breach of contract arising out of the private
placement, in September 1997, of the Series B Preferred Stock of Cityscape."
Plaintiffs allege violations of Section 10(b) of the Exchange Act (Count I);
Section 20(a) of the Exchange Act (Count II); and two breach of contract claims
against the Company (Counts III and IV). Plaintiffs allege to have purchased a
total of $20 million of such preferred stock. Plaintiffs seek unspecified
damages, including pre-judgement interest, attorneys' fees, other expenses and
court costs. The Company and its defendant officers and directors have moved to
dismiss this action.
See Part II, Item 1 for these and other legal proceedings. Although no
assurance can be given as to the outcome of these lawsuits, the Company believes
that the allegations in each of the actions are without merit and that its
disclosures were proper, complete and accurate. The Company intends to defend
vigorously against these actions and seek their early dismissal. These lawsuits,
however, if decided in favor of plaintiffs, could have a material adverse effect
on the Company.
DILUTION OF COMMON STOCK
In April 1997 and again in September 1997, the Company issued Preferred
Stock in exchange for aggregate gross proceeds of $100.0 million. The Company's
Preferred Stock may be converted into Common Stock based on a conversion price
related to a discounted market price of the Common Stock. As a result of the
drop in the trading price of the Common Stock, the number of shares of Common
Stock outstanding has increased substantially from 29,744,322 as of March 25,
1997 to 64,878,969 as of November 6, 1998, primarily as a result of such
conversions. As of November 6, 1998, an aggregate of 4,374 shares and 449 shares
of Series A Preferred Stock and Series B Preferred Stock, respectively, had been
converted (626 shares and 4,551 shares, respectively remain outstanding) into an
aggregate of 34,151,645 shares of Common Stock. As of November 6, 1998 all of
the Series A Warrants and Series B Warrants were outstanding. If all of the
Series A Preferred Stock and Series B Preferred Stock were converted into Common
Stock, the Company would not have sufficient authorized shares of Common Stock
to satisfy all of such conversions. In addition, based on changes in the trading
price of the Common Stock and the shares of Preferred Stock that remain
outstanding, substantial dilution could occur in the future. See "Liquidity and
Capital Resources -- Convertible Preferred Stock." In addition, if the Plan is
confirmed by the Bankruptcy Court, existing Common Stock and related warrants
would be extinguished and the holders thereof would receive no distributions
under the Plan. See "-- Chapter 11 Proceedings."
NASDAQ DELISTING
In December 1997, the Company was notified by Nasdaq that the Common Stock
would be delisted from the Nasdaq National Market as a result of the Company's
non-compliance with Nasdaq's
16
<PAGE> 18
listing requirements and corporate governance rules. In January 1998, the
Company received notice from Nasdaq that the Common Stock would be moved from
the Nasdaq National Market to the Nasdaq SmallCap Market subject to the Company
achieving a $1.00 per share bid price on or before May 22, 1998. As a result of
the delisting from the Nasdaq National Market, the Company is subject to certain
unfavorable provisions pursuant to the Certificates of Designations of the
Company's Preferred Stock.
On May 1, 1998, the Company was informed by Nasdaq that the Company's
Common Stock would be delisted from the Nasdaq SmallCap Market effective with
the close of business on May 1, 1998, and that the Company does not meet the
criteria necessary for immediate eligibility for quotation on the OTC Bulletin
Board. As a result of this delisting, it is likely that the liquidity of the
Company's Common Stock will be materially impaired which is likely to materially
and adversely affect the price of the Common Stock.
EMPLOYEE ATTRITION
As a result of the difficult environment the Company has been operating
in, the Company is experiencing an increase in the rate of attrition of its
employees and an inability to attract, hire and retain qualified replacement
employees. On December 31, 1997, the Company had 837 employees. As part of its
initiatives designed to improve the efficiency and productivity of the Company's
operations, the Company reduced its workforce by 142 employees in February 1998.
On October 22, 1998, of 454 employees then remaining, the Company reduced its
workforce by 243 additional employees (24 of which will remain employed for up
to ten weeks) to 211 employees. The Company expects to further reduce its
workforce as a result of its decision on November 13, 1998 to suspend
indefinitely the origination and purchase of its Sav*-A-Loan(R) products.
Further attrition may hinder the ability of the Company to operate efficiently,
which could have a material adverse effect on the Company's results of
operations and financial condition. No assurance can be given that such
attrition will not occur.
In order to retain key executive officers through the restructuring
period, the Company or CSC has entered into new employment agreements that
extend through December 31, 1998 or December 31, 1999. Such agreements provide
for stay bonuses, ranging from $100,000 to $400,000, portions of which were paid
upon signing the agreements, with the balance of such payments, accrued and
payable on a monthly basis through December 31, 1998.
LIQUIDITY CONCERNS
During the third quarter of 1998, turmoil in the financial markets greatly
affected the stock price and profits of U.S. finance companies. This was
especially true for companies in the subprime home equity sector. Many companies
in this sector have historically sold their loans through securitizations.
However, due to the global economic turmoil, investors sought safe haven and
securities such as U.S. Treasury securities, shunning other types of bonds.
Consequently, the demand for mortgage-backed securities decreased significantly,
causing credit spreads to widen substantially. This was exacerbated by the fact
that many subprime home equity companies have credit facilities to fund their
operations with banks and brokerage firms that were hit hard with emerging
market and hedge fund losses. As a result, funding became more costly and scarce
causing a liquidity crunch in the sector. This forced many of the subprime home
equity companies to seek strategic partners of buyers. The companies have been
unsuccessful in these efforts.
As a result of the disarray in the mortgage-backed securities market, the
Company is experiencing difficulty in successfully implementing loan sales in
the increasingly competitive whole loan sales market. The lack of funding
sources in the sector is having a negative effect on the Company's ability to
continue to access loan warehouse or purchase facilities. In addition, based on
the Company's discussions with potential lenders regarding post-reorganization
warehouse financing facilities, the Company has determined that it is unlikely
that such financing will be provided for its Sav*-A-Loan(R) products. As a
result, on November 13, 1998, the Company decided to suspend originating and
purchasing its Sav*-A-Loan(R) products. There can be no assurance as to when, if
ever, the Company will again originate or purchase Sav*-A-Loan(R) product.
BUSINESS OVERVIEW
The Company primarily generates revenue from gain on sale of loans
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. Historically, the Company also recognized
gain on sale of loans sold through securitizations. Gain on sale of loans
through securitizations includes the present value of the
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<PAGE> 19
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. Commencing in the fourth quarter of 1997, however, the Company
has redirected its efforts to actively pursue the sale of its loans through
whole loan sales rather than through securitizations. By employing whole loan
sales, the Company is better able to manage its cash flow as compared to
disposition of loans through securitizations. During the first nine months of
1998, all loans were sold through whole loan sales as compared to the first nine
months of 1997, when all loans were sold into securitizations. The Company
anticipates that substantially all of its loan production volume will be sold
through whole loan sales in 1998. Whole loan sales produce lower margins than
securitizations and, therefore, have and will negatively impact the Company's
earnings.
The following table sets forth selected operating data for the Company for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Origination and Sale Data:
Loan originations and purchases:
Core Products(1) $ 36,684 $ 198,855 $ 169,024 $ 652,201
Sav*-A-Loan(R) Products(2) 65,967 181,998 241,989 512,926
Discontinued Products(3) -- 69,565 4,336 126,321
---------- ---------- ---------- ------------
$ 102,651 $ 450,418 $ 415,349 $ 1,291,448
========== ========== ========== ============
Average principal balance per loan
originated and purchased $ 49.7 $ 56.4 $ 51.5 $ 55.7
Weighted average coupon:
Core Products:
Fixed rate loans 10.1% 11.3% 10.2% 11.6%
Variable rate loans 9.2% 10.4% 9.1% 10.4%
Sav*-A-Loan(R) Products 12.7% 14.2% 12.9% 14.1%
Discontinued Products -- 9.1% 9.0% 9.5%
Loans sold $ 75,174 $ 445,096 $ 370,327 $ 1,274,947
</TABLE>
(1) Fixed and adjustable rate residential mortgage loans for refinancing,
educational, home improvement and debt consolidation purposes and fixed
adjustable rate purchase money loans.
(2) Loans generally made to homeowners with little or no equity in their
property but who possess a favorable credit profile and debt-to-income
ratio and who often use the proceeds from such loans to repay outstanding
indebtedness as well as make home improvements. On November 13, 1998 the
Company decided to suspend indefinitely originating and purchasing such
products. There can be no assurance as to when, if ever, the Company will
again originate or purchase such products.
(3) Discontinued in April 1998, includes jumbo loans, conventional home loans,
Title I loans and loans on small multi-family and mixed-use properties.
The following table sets forth selected portfolio data for the Company for
the periods indicated:
18
<PAGE> 20
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
DOLLARS IN % OF SERVICED DOLLARS IN % OF SERVICED
THOUSANDS PORTFOLIO THOUSANDS PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Portfolio Data:
Serviced portfolio(1) $1,297,810(2) 100.0% $2,231,519 100.0%
============ ===== ========== =====
Delinquencies:
30-59 days delinquent $ 55,319 4.3% $ 65,063 2.9%
60-89 days delinquent 21,746 1.7% 30,479 1.4%
90 days or more delinquent 36,780 2.8% 27,808 1.3%
---------- ----- ---------- -----
Total delinquencies $ 113,845 8.8% $ 123,350 5.6%
============ ===== ========== =====
Defaults:
Bankruptcies $ 34,360 2.6% $ 25,131 1.1%
Foreclosures 74,961 5.8% 100,901 4.5%
---------- ----- ---------- -----
Total defaults $ 109,321 8.4% $ 126,032 5.6%
============ ===== ========== =====
REO property $ 17,744 1.4% $ 8,549 0.4%
============ ===== ========== =====
Charge-offs for the nine months
months ended September 30,
1998 the twelve months
ended December 31, 1997 $ 22,109 1.7% $ 4,734 0.2%
============ ===== ========== =====
</TABLE>
(1) Excludes loans serviced pursuant to contract servicing agreements.
(2) Includes $605.5 million of loans (representing the Company's 1995-2,
1995-3, 1996-1, 1996-2, 1996-3 and 1996-4 home equity securitizations)
serviced by Fairbanks under subservicing agreements entered into during
the third quarter of 1998. The loans serviced under the Fairbanks
subservicing agreements represent 46.7% of the Company's total servicing
portfolio and 97.5% of the Company's home equity servicing portfolio.
Under the terms of the subservicing agreements, Fairbanks as subservicer
retains all rights, including the normal servicing fee and any ancillary
income, and obligations of the servicer as provided for under the terms of
the applicable securitizations and servicing agreements.
The servicing portfolio decreased to $1.3 billion as of September 30, 1998
from $2.2 billion as of December 31, 1997, primarily as a result of the sale of
the 1997-A, 1997-B and 1997-C securitizations and the associated servicing
rights and the sale of loans through whole loan sales with servicing released
during the first nine months of 1998. During the remainder of 1998, the Company
anticipates continuing to sell substantially all of its loan production through
whole loan sales with servicing released. As a result of such sales, as well as
loan prepayments and defaults on existing loans, the Company anticipates that
the size of the servicing portfolio will substantially decrease in the future.
IMPACT OF YEAR 2000
Issues surrounding the Year 2000 arise out of the fact that many existing
computer programs use only two digits to identify a year in the date field. With
the approach of the Year 2000, computer hardware and software that are not made
Year 2000 ready might interpret "00" as Year 1900 rather than Year 2000. The
Year 2000 problem is not just a technology issue; it also involves the Company's
customers, suppliers and third parties.
The Company's information systems are networked and client server based.
The Company believes that all of its information processing infrastructure, from
desktop computers to the servers including the network, desktop and applications
server operating systems are Year 2000 ready.
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<PAGE> 21
Although the Company believes it will not suffer any interruption of service or
impairment of functionality, if such interruption or impairment were to occur,
it could have a material adverse effect on the Company's results of operations
and financial condition. There can be no assurance that such impairment or
interruption will not occur.
The Company's loan servicing computer operations are performed by
CPI/Alltel ("CPI"). CPI provides the Company with quarterly updates regarding
CPI's progress and schedule for Year 2000 readiness. If CPI is not Year 2000
ready by the end of the second quarter of 1999, the Company believes it will
be able to transfer its servicing platform to a Year 2000 ready service
provider, although no assurance can be given of such transfer. The failure to
achieve such compliance or transfer of the servicing platform in a timely manner
could have an adverse effect on the servicing operations conducted by the
Company.
The Company's loan origination system is not currently Year 2000
ready. The Company is currently reviewing these systems and the costs
associated with remediating these systems to ensure Year 2000 readiness. The
Company is currently reviewing contingency plans and in the event the above
system is not Year 2000 ready, the Company believes that it will be able to
purchase, install and implement a Year 2000 ready "off the shelf"
origination system. The Company plans to complete a review such systems before
the end of the first quarter of 1999. The Company's financial reporting systems
are currently believed to be Year 2000 ready.
The Company is currently reviewing the expected costs to complete its
assessment of its Year 2000 readiness. The costs incurred to date have not been
material; however, there can no assurances that such costs in the future will
not be material. Even if the Company is Year 2000 ready, failures by
significant third parties to address their Year 2000 readiness may disrupt the
Company's operations and cause it to incur financial losses. These third parties
include financial counterparties, telecommunications companies, vendors, and
utilities.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
During the three months ended September 30, 1998, the Company recorded
negative revenues of $317,488 primarily as a result of the recording of a $7.8
million net unrealized loss on the Company's trading securities which are in the
form of interest-only and residual mortgage securities. This represents a $25.1
million increase in revenues from the three months ended September 30, 1997
primarily as a result of a lower net unrealized loss of $7.8 million recorded on
the Company's trading securities during the third quarter of 1998 as compared to
an unrealized loss of $72.1 million for the same quarter in 1997.
For the three months ended September 30, 1998, the Company recorded a gain
on sale of loans totaling $2.2 million. This gain was due primarily to the sale
of $75.2 million of whole loans at an average net premium received of 3.6% as
compared to the average premium paid on such loans of 0.7%. Additionally,
included in the gain on sale during the third quarter is approximately $347,000
of gain representing the profit participation realized during the quarter on
$14.6 million of loans sold during the first quarter of 1998 into the Company's
purchase facility. For the three months ended September 30, 1997, gain on sale
of loans also included gain on securitization representing the fair value of the
interest-only and residual certificates that the Company received upon the sale
of loans through securitizations. During the third quarter of 1997, the Company
recognized $20.1 million of gain on sale of loans representing a weighted
average gain of 4.5% on $445.1 million of loans sold into securitizations. The
Company expects that it will continue to sell the majority of loans through
whole loan sales and therefore expects to continue to recognize lower net
margins as compared to the margins recognized in 1997. The Company expects that
gain on sale of loans will be further negatively impacted in the future as a
result of its decision to suspend indefinitely the origination and purchase of
its Sav*-A-Loan(R) products. The Company expects that such suspension will
negatively impact the Company's originations and, therefore, in term reduce the
volume of loan sales in future periods.
In the third quarter of 1998, the Company recorded a unrealized loss on
valuation of residuals of $7.8 million, consisting of a $5.5 million unrealized
loss on its home equity residuals and $2.3 million on its Sav*-A-Loan(R)
residuals. This unrealized loss was primarily a result of the Company increasing
the
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<PAGE> 22
weighted average discount rate used to value its residuals to 17% at September
30, 1998 from 15% at June 30, 1998 for both its home equity and Sav*-A-Loan(R)
residuals. The increase in the discount rate reflects the changes in market
conditions experienced in the mortgage-backed securities markets since the
second quarter of 1998 (see "-- Liquidity Concerns"). In addition to the
discount rate noted above, as of September 30, 1998 the assumptions used to
value the Company's home equity residuals included a weighted average loss rate
of 4.95% per annum and a weighted average constant prepayment speed of 34.8%.
For the Company's Sav*-A-Loan(R) residuals, the Company used a weighted average
loss rate of 3.3% and a weighted average constant prepayment speed of 16.8% for
the periods ended September 30, 1998 and December 31, 1997.
Interest income decreased $18.3 million or 82.4% to $3.9 million for the
three months ended September 30, 1998 from $22.2 million for the comparable
period in 1997. This decrease was due primarily to the cessation of the
recognition of accreted interest on the Company's residuals in the second
quarter of 1998 as a result of the devaluation of the residuals, as well as
lower weighted average coupons on the loans originated during 1998. The Company
expects that the interest income related to its securitizations will continue to
be lower than interest recognized in the comparable periods in 1997.
Additionally, the Company expects to record lower interest income due to
expected lower weighted average coupons on the loans originated.
Mortgage origination income decreased $797,182 or 57.3% to $593,325 for
the three months ended September 30, 1998 from $1.4 million for the comparable
period in 1997. This decrease was due primarily to a lower volume of loan
originations for the three months ended September 30, 1998 as compared to the
same period in 1997.
Other income decreased $2.3 million or 74.2% to $728,270 for the three
months ended September 30, 1998 from $3.1 million for the comparable period in
1997. This decrease was due primarily to decreased servicing income primarily
due to the continued attrition of the loans that were sold with servicing
retained prior to the Company's adoption of SFAS No. 122, "Accounting for
Mortgage Servicing Rights." The Company expects that servicing revenues will be
lower in the future as a result of the subservicing agreements entered into with
Fairbanks.
Total expenses decreased $7.1 million or 13.4% to $46.1 million for the
three months ended September 30, 1998 from $53.2 million for the comparable
period in 1997. This decrease was due primarily to decreased salaries and
benefits due to a lower number of employees, decreased interest expense due to
the discontinuance of the Company's interest rate management strategy, and
decreased provision for loan losses due to a lower balance of mortgages held for
investment resulting from lower originations for the three months ended
September 30, 1998 as compared to the same period in 1997.
Salaries and employee benefits decreased $3.7 million or 30.1% to $8.6
million for the three months ended September 30, 1998 from $12.3 million for the
comparable period in 1997. This decrease was due primarily to decreased staffing
levels to 471 employees at September 30, 1998, as compared to 916 employees as
of September 30, 1997. This decrease was primarily a result of the Company's
restructuring and streamlining efforts as well as employee attrition. The
Company expects salaries and employee benefits to decrease in the future due to
the recent reduction in staffing levels to 211 employees in October 1998 and
expected additional reductions in staffing levels during the fourth quarter of
1998 as a result of the Company's decision to suspend indefinitely the
origination and purchase of its Sav*-A-Loan(R) products.
Interest expense decreased $3.0 million or 16.6% to $15.1 million for the
three months ended September 30, 1998 from $18.1 million for the comparable
period in 1997. This decrease was due primarily to the discontinuance during
1998 of the Company's interest rate management strategy.
Selling and other expenses increased $6.8 million or 62.4% to $17.7
million for the three months ended September 30, 1998 from $10.9 million for the
comparable period in 1997. This increase was due primarily to increased
professional fees as a result of the Company's restructuring and streamlining
efforts.
Provision for loan losses decreased $7.3 million or 60.8% to $4.7 million
for the three months ended September 30, 1998 from $12.0 million for the
comparable period in 1997. For the three months ended September 30, 1998, the
Company recorded a $3.1 million charge against the Company's Sav*-A-
21
<PAGE> 23
Loan(R) mortgages included in the mortgage loans held for sale portfolio. This
charge reflects the decreased market value of the Company's approximate $31.0
million of Sav*-A-Loan(R) mortgages with FICO scores of less than 640. While the
Company believes that the $3.1 million charge is adequate based on current
market conditions, there can be no assurance that future changes in market
conditions or other factors will not require additional charges against the
Company's Sav*-A-Loan(R) mortgage portfolio. (See "Liquidity Concerns"). In
October 1998, the Company has adjusted its underwriting guidelines regarding its
Sav*-A-Loan(R) mortgages to require a FICO score of above 640. During the third
quarter, the Company recorded an additional $1.6 million writedown on its
mortgages held for investment as compared to a $12.0 million writedown during
the comparable period in 1997. This decrease was due primarily to a decreased
balance of mortgages held for investment resulting from decreased loan
production volume during the third quarter of 1998.
For the three months ended September 30, 1998, the Company recorded an
income tax provision of $166,067 representing the recognition of state taxes for
the period as compared to an income tax benefit of $32.2 million recorded in the
comparable period in 1997. The $32.2 million income tax benefit recorded in 1997
reflects the losses incurred during the third quarter of 1997.
The Company recorded a net loss applicable to common stock of $54.8
million for the three months ended September 30, 1998 as compared to net loss
applicable to common stock of $70.7 million for the three months ended September
30, 1997. This loss was due primarily to a $46.6 million loss from continuing
operations as compared to a loss of $47.4 million from continuing operations for
the three months ended September 30, 1997. The loss recorded for the three
months ended September 30, 1998 was primarily due to decreased loan
originations, a net unrealized loss on valuation of residuals of $7.8 million,
as well as lower gain on sale of loans due to the Company's strategy of selling
loans through whole loan sales instead of through securitizations. Additionally,
the Company recorded a loss from discontinued operations $22.3 million during
the third quarter of 1997. An increase in the liquidation preference of the
preferred stock in lieu of dividends and default payments of $8.2 million was
recorded during the third quarter of 1998 further increasing the net loss
applicable to common stock.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
During the first nine months of 1998, the Company recorded negative
revenues of $12.1 million primarily as a result of the recording of a $26.3
million net unrealized loss on the Company's trading securities. This represents
a $87.0 million decrease from the first nine months of 1997 primarily as a
result of the lower gain recorded on its sale of loans.
For the first nine months of 1998, the Company recorded a net gain on sale
of loans totaling $926,772. This gain was primarily due to the sale of $370.3
million of whole loans at an average net premium received of 1.6% as compared to
the average premium paid on such loans of 1.4%. For the nine months ended
September 30, 1997, gain on sale of loans also included gain on securitization
representing the fair value of the interest-only and residual certificates that
the Company received upon the sale of loans through securitizations. During the
first nine months of 1997, the Company recognized $81.8 million of gain on sale
of loans representing a weighted average gain of 6.4% on $1.3 billion of loans
sold into securitizations. The Company expects that it will continue to sell the
majority of loans through whole loan sales and therefore expects to continue to
recognize lower net margins as compared to the margins recognized in 1997. The
Company expects that gain on sale of loans will be further negatively impacted
in the future as a result of its decision to suspend indefinitely the
origination and purchase of its Sav*-A-Loan(R) products. The Company expects
that such suspension will negatively impact the Company's originations and,
therefore, in term reduce the volume of loan sales in future periods.
The unrealized loss on valuation of residuals of $26.3 million recorded
for the nine months ended September 30, 1998 is a result of the Company
increasing its discount rate, prepayment speed and loss assumptions used to
calculate the value of the residuals, reflecting continued higher than expected
losses and increased prepayment speeds experienced on its home equity and
Sav*-A-Loan(R) securitized loans. As a result of a recent increase in the volume
of liquidations, and corresponding losses experienced on such liquidations, the
Company determined that the loss rates implied by the liquidation values at
December 31, 1997, should be revised from 1.7% per annum to 4.95% per annum for
home equity loans. Additionally, during the first nine months of 1998, the
Company experienced an increase in the prepayment speeds on its home equity
securitized loans and accordingly increased the prepayment speeds used to value
the home equity residuals to 34.8% per annum at September 30, 1998 from 31.8%
per annum at December 31, 1997. The $7.8 million loss on valuation of both the
home equity and Sav*-A-Loan(R) residuals during the third
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<PAGE> 24
quarter of 1998 resulted from the Company increasing its weighted average
discount rate to 17% at September 30, 1998 from 15% at December 31, 1997. This
increase in the discount rate reflects the changes in market conditions
experienced in the mortgage-backed securities markets since the second quarter
of 1998 (see "--Liquidity Concerns").
Interest income decreased $46.3 million or 82.2% to $10.0 million for the
nine months ended September 30, 1998 from $56.3 million for the comparable
period in 1997. This decrease was due primarily to the cessation of the
recognition of accreted interest on the Company's residuals in the second
quarter of 1998 as a result of the devaluation of the residuals, as well as
lower weighted average coupons on the loans originated in 1998. The Company
expects that the interest income related to its securitizations will continue to
be lower than interest recognized in the comparable periods in 1997.
Additionally, the Company expects to record lower interest income due to
expected lower weighted average coupons on the loans originated.
Mortgage origination income decreased $1.6 million or 44.4% to $2.0
million for the nine months ended September 30, 1998 from $3.6 million for the
comparable period in 1997. This decrease was due primarily to a lower volume of
loan originations for the nine months ended September 30, 1998 as compared to
the same period in 1997.
Other income decreased $4.1 million or 77.4% to $1.2 million for the nine
months ended September 30, 1998 from $5.3 million for the comparable period in
1997. This decrease was due primarily to decreased servicing income mainly due
to the continued attrition of the loans that were sold with servicing retained
prior to the Company's adoption of SFAS No. 122, "Accounting for Mortgage
Servicing Rights." The Company expects that servicing revenues will be lower in
the future as a result of the subservicing agreements entered into with
Fairbanks.
Total expenses decreased $5.1 million or 4.0% to $121.1 million for the
nine months ended September 30, 1998 from $126.2 million for the comparable
period in 1997. This decrease was due primarily to lower salaries and interest
expense offset by increased other operating expenses relating to increased
professional fees as well as $3.2 million of restructuring charges and $2.0
million relating to the settlement of a lawsuit.
Salaries and employee benefits decreased $7.9 million or 23.4% to $25.9
million for the nine months ended September 30, 1998 from $33.8 million for the
comparable period in 1997. This decrease was due primarily to decreased staffing
levels to 471 employees at September 30, 1998 as compared to 916 employees as of
September 30, 1997. This decrease was primarily a result of the Company's
restructuring and streamlining efforts as well as employee attrition. The
Company expects salaries and employee benefits to decrease in the future due to
the recent reduction in staffing levels to 211 employees in October 1998 and
expected additional staff reductions in staffing levels in the fourth quarter
of 1998 as a result of the Company's decision to suspend indefinitely the
origination and purchase of its Sav*-A-Loan(R) products.
Interest expense decreased $10.5 million or 19.5% to $43.3 million for the
nine months ended September 30, 1998 from $53.8 million for the comparable
period in 1997. This decrease was due primarily to the discontinuance during
1998 of the Company's interest rate management strategy. In addition, during
1997 a charge of $4.7 million was recorded related to the inducement of the
Convertible Debentures.
Selling and other expenses increased $17.3 million or 64.8% to $44.0
million for the nine months ended September 30, 1998 from $26.7 million for the
comparable period in 1997. This increase was due primarily to increased
operating costs of $16.8 million or 70.0% to $40.8 million for the nine months
ended September 30, 1998 from $24.0 million for the comparable period in 1997
from increased professional fees as a result of the Company's restructuring and
streamlining efforts as well as a $2.0 million charge due to the settlement of a
lawsuit.
Provision for loan losses decreased $7.3 million or 60.8% to $4.7 million
for the three months ended September 30, 1998 from $12.0 million for the
comparable period in 1997. For the three months ended September 30, 1998, the
Company recorded a $3.1 million charge against the Company's Sav*-A-Loan(R)
mortgages included in the mortgage loans held for sale portfolio. This charge
reflects the decreased market value of the Company's approximate $31.0 million
of Sav*-A-Loan(R) mortgages with FICO scores of less than 640. In October 1998,
the Company has adjusted its underwriting guidelines regarding its
23
<PAGE> 25
Sav*-A-Loan(R) mortgages to require a FICO score of above 640. While the
Company believes that the $3.1 million charge is adequate based on current
market conditions, there can be no assurance that future changes in market
conditions or other factors will not require additional charges against the
Company's Sav*-A-Loan(R) mortgage portfolio. (See "Liquidity Concerns"). During
the third quarter, the Company recorded an additional $1.6 million writedown on
its mortgages held for investment as compared to a $12.0 million writedown
during the comparable period in 1997. This decrease was due primarily to a
decreased balance of mortgages held for investment resulting from decreased loan
production volume during the third quarter of 1998.
During the nine months ended September 30, 1998, the Company recorded a
restructuring charge of $3.2 million. This charge was related to a restructuring
plan that includes streamlining and downsizing the Company's operations. During
the nine months ended September 30, 1998, the Company closed its branch
operation in Virginia and significantly reduced its correspondent originations
and exited its conventional lending business. Of the $3.2 million, $1.1 million
represents severance payments made to 142 former employees and $2.1 million
represents costs incurred with lease obligations and write-offs of assets no
longer in service. As part of its restructuring plan that includes streamlining
and downsizing its operations, on October 22, 1998, the Company reduced its
workforce by 243 employees (24 of which will remain employed for up to ten
weeks), representing 53.5% of its workforce, from 454 employees to 211
employees. In connection with this reduction, the Company has closed its branch
operations in California and Illinois, while maintaining its offices in New York
and Georgia. Accordingly, the Company anticipates that it will record a
restructuring charge of approximately $8 million to $10 million in the fourth
quarter of 1998. On November 13, 1998, the Company decided to suspend
indefinitely the origination and purchase of its Sav*-A-Loan(R) products. As a
result, the Company expects to further streamline and downsize its operations
and reduce its workforce and will record an additional restructuring charge in
the fourth quarter of 1998.
For the nine months ended September 30, 1998, the Company recorded an
income tax provision of $466,126 representing the recognition of state taxes for
the period as compared to an income tax benefit of $18.9 million recorded in the
comparable period in 1997. The $18.9 million income tax benefit recorded in 1997
reflects the losses incurred during the first nine months of 1997.
The Company recorded a net loss applicable to common stock of $153.3
million for the nine months ended September 30, 1998 as compared to net loss
applicable to common stock of $50.9 million for the nine months ended September
30, 1997. This loss was due primarily to a $133.6 million loss from continuing
operations due to decreased loan originations, as well as decreased gain on sale
of loans due to the Company's strategy of selling loans through whole loan sales
instead of through securitizations. Additionally, the Company recorded a loss
from discontinued operations of $16.4 million during the first nine months of
1997. An increase in the liquidation preference of the preferred stock in lieu
of dividends and default payments of $19.7 million was recorded during the first
nine months of 1998 further increasing the net loss applicable to common stock.
FINANCIAL CONDITION
September 30, 1998 Compared to December 31, 1997
Cash and cash equivalents increased $22.2 million to $24.8 million at
September 30, 1998 from $2.6 million at December 31, 1997. This increase was
primarily due to the cash proceeds from the sale of CSC-UK.
Mortgage servicing receivables decreased $2.0 million or 21.1% to $7.5
million at September 30, 1998 from $9.5 million at December 31, 1997. This
decrease was primarily the result of the sale of the mortgage servicing
receivables associated with the sale of the residuals in January 1998.
Trading securities, which consist of interest-only and residual
certificates, decreased $49.9 million or 39.4% to $76.6 million at September 30,
1998 from $126.5 million at December 31, 1997. This decrease was partially due
to the Company's sale of residual certificates and related mortgage servicing
receivables relating to certain of the Company's home equity loan products for
net proceeds of $26.5 million during the first quarter of 1998 to enhance the
Company's liquidity position. Additionally, the Company recorded a write-down of
$26.3 million during the first nine months of 1998 primarily resulting from an
increase in the expected loss rate used to value such residuals reflecting the
Company's recent increase in losses on liquidation of non-performing loans in
its home equity portfolio and Sav*-A-Loan(R) portfolios, as well as an increased
weighted average discount rate reflecting the changes in market conditions
experienced in the overall mortgage-backed securities market (see "-- Liquidity
Concerns").
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Mortgage loans held for sale, net increased $30.8 million or 33.0% to
$124.1 million at September 30, 1998 from $93.3 million at December 31, 1997.
This increase was due primarily to the volume of loans originated exceeding the
volume of loans sold during the first nine months of 1998.
Mortgage loans held for investment, net decreased $1.5 million or 23.1% to
$5.0 million at September 30, 1998 from $6.5 million at December 31, 1997. This
decrease was due primarily to $449,013 of loans reclassified from mortgages held
for investment, net to real estate owned, as well as $3.2 million of mortgage
loans held for investment, net sold during the first nine months of 1998 at a
price equated to the book value. This was partially offset by $2.7 million of
loans reclassified from mortgages held for sale to mortgages held for
investment, net due to the Company's inability to sell such loans. As a
percentage of total assets, mortgage loans held for investment, net at September
30, 1998 and at December 31, 1997 was 1.6%.
Investment in discontinued operations, net decreased by $59.4 million or
70.5% to $24.8 million at September 30, 1998 from $84.2 million at December 31,
1997. The decrease represented net cash proceeds from the sale of discontinued
operations during the first nine months of 1998. The balance at September 30,
1998 primarily consisted of cash on hand in the discontinued operation of
approximately $16.1 million and net receivables (net of liabilities) due of
approximately $8.7 million. The Company expects to maintain a balance of cash on
hand in the discontinued operation to cover existing and potential liabilities
and costs until the dissolution of the existing legal entities of CSC-UK and its
subsidiaries. Additionally, as of September 30, 1998, there were liabilities
related to the discontinued operations of approximately $555,000 included in
accounts payable and other liabilities.
Income taxes receivable decreased $16.7 million or 90.8% to $1.7 million
at September 30, 1998 from $18.4 million at December 31, 1997. This decrease was
due primarily to the receipt of a $15.8 million tax refund offset by
approximately $300,000 of state income taxes receivable recorded at September
30, 1998.
Other assets increased $2.6 million or 9.5% to $29.9 million at September
30, 1998 from $27.3 million at December 31, 1997. This increase was due
primarily to an increase in prepaid expenses and accounts receivable partially
offset by decreases in accrued interest receivable and deferred debt issuance
costs.
Warehouse financing facilities outstanding increased $33.4 million or
43.1% to $110.9 million at September 30, 1998 from $77.5 million at December 31,
1997. This increase was due primarily to the volume of loans originated
exceeding the volume of loans sold during the first nine months of 1998.
Accounts payable and other liabilities increased $3.0 or 4.7% to $66.4
million at September 30, 1998 from $63.4 million at December 31, 1997. This
increase was due primarily to the increased accrued interest payable relating to
the Notes and Convertible Debentures, partially offset by decreased accrued
liabilities relating to the UK Sale and decreased other accrued expenses.
Allowance for losses increased $2.9 million or 63.0% to $7.5 million at
September 30, 1998 from $4.6 million at December 31, 1997. This increase was due
primarily to an increase in the expected losses on the Company's home equity
loan pools and the costs associated with servicing such pools.
Income taxes payable increased $1.7 million to $2.0 million at September
30, 1998 from $300,000 at December 31, 1997. This increase was due primarily to
obligations related to alternative minimum taxes.
The stockholders' deficit increased $133.7 million or 75.6% to a deficit
of $310.5 million at September 30, 1998 as compared to a stockholders' deficit
of $176.8 million at December 31, 1997. This increase in the deficit was the
result of a net loss of $133.6 million for the nine months ended September 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's business requires substantial cash to support its operating
activities. The Company's principal cash requirements include the funding of
loan production, payment of interest expenses, operating expenses and income
taxes. The Company uses its cash flow from whole loan sales, loan origination
fees, processing fees, net interest income and borrowings under its loan
warehouse and purchase facilities to meet its working capital needs. 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 obligations.
In October 1997, the Company announced that it was exploring strategic
alternatives for the Company's ability to continue as a going concern. In April
1998, the Company completed the UK Sale and received proceeds, at the time of
the closing, of $83.8 million, net of closing costs and other fees. In addition,
the Company will be required to restructure its balance sheet in the near term
in order to meet its longer term liquidity needs. The Company has concluded that
the best way to recapitalize the Company over the long-term and maximize the
recovery of creditors and senior equity interest holders of the Company is
through a prepackaged plan of reorganization for the Company and its
wholly-owned subsidiary, CSC. The Company believes that its future success is
dependent upon, among other things, confirmation of a plan of reorganization,
which hearing is scheduled for November 13, 1998, (see "-- Chapter 11
Proceedings"), the successful sale of loans in the whole loan sales market,
ability to access warehouse lines of credit and future profitable operations. No
assurance can be given that the Company will be able to achieve these results.
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.
The Company has operated, and expects to continue to operate, on a
negative cash flow basis. During the nine months ended September 30, 1998 and
1997, the Company used net cash of $72.6 million and $110.2 million from
continuing operations, respectively. Additionally, in the nine months ended
September 30, 1998 and 1997, the Company was provided $61.4 million and used
$602,163, respectively, in investing activities. During 1997, the Company's sale
of loans through securitizations resulted in a gain on sale of loans through
securitizations recognized by the Company. The recognition of this gain on sale
had 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 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 nine months ended September 30, 1998 and 1997, the Company received
cash from financing activities of $33.4 million and $270.0 million,
respectively. During the nine months ended September 30, 1997, the Company used
net cash in discontinued operations of $108.7 million.
The Company is required to comply with various operating covenants as
defined in the Greenwich DIP Facility and CIT DIP Facility. The covenants
include restrictions on, among other things, the ability to (i) modify, stay,
vacation or amend the bankruptcy court order, (ii) create, incur, assume or
suffer to exist any lien upon or with respect to any of the Company's
properties, (iii) create, incur, assume, or suffer to exist any debt, (iv) wind
up, liquidate or dissolve itself, reorganize, merge or consolidate with or into,
or convey, sell, assign, transfer, lease or otherwise dispose of all or
substantially all of their assets, (v) acquire all or substantially all of the
assets or the business of any Person, (vi) create, incur, assume, or suffer to
exist any obligation as lessee for the rental or hire of any real or personal
property, (vii) sell, transfer, or otherwise dispose of any real or personal
property to any Person and thereafter directly or indirectly leaseback the same
or similar property, (viii) pay any dividends or other distributions, (ix) sell,
lease, assign, transfer or otherwise dispose of any of the Company's now owned
or hereafter acquired assets, (x) sell any mortgage loans on a recourse basis,
(xi) make any loan or advance to any Person, or purchase or otherwise acquire
any capital stock, assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any Person,
or participate as a partner or joint venturer with any other Person, (xii)
engage in derivatives or hedging transactions, (xiii) assume, guarantee or
become directly or contingently responsible for the obligations of another
Person, (xiv) enter into transactions with any affiliate, (xv) use any part of
the proceeds for the purpose of purchasing or carrying margin stock, (xvi)
purchase any subwarehouse mortgage loan, (xvii) make bulk purchases of mortgage
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loans and (xvii) make any payments of principal or interest on account of any
indebtedness or trade payable prior to the filing date with certain exceptions.
In May 1998, Moody's lowered its rating of the Company's Notes to Ca from
Caa3, as well as its ratings on the Company's Convertible Debentures to C from
Ca. Also, in May 1998, S&P withdrew its CCC counterparty credit rating on the
Company and placed its CCC rating on the Company's Notes on "CreditWatch". In
June 1998, S&P further lowered its rating on the Company's Notes to D/default.
These reductions in the ratings of the Company's debt increase the Company's
borrowing costs.
Credit Facilities
Greenwich Warehouse Facility. In January 1997, CSC entered into a secured
warehouse credit facility with 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 CSC borrowed funds on a short-term basis to support the accumulation of
loans prior to sale (as amended, the "Greenwich Facility"). Advances under the
Greenwich Facility bore interest at a rate of LIBOR plus 150 basis points. The
Greenwich Facility was guaranteed by the Company and was secured by the mortgage
loans and related assets financed under the Greenwich Facility and by a pledge
(on a pari passu basis with the CIT Facility of the capital stock of certain
subsidiaries of CSC holding certain residual securities, as well as by a reserve
fund (containing approximately $8.1 million as of July 31, 1998) to cover
certain losses of Greenwich under a related whole loan sale agreement. This
facility was scheduled to expire on December 31, 1997, at which time CSC and
Greenwich entered into an extension agreement through October 8, 1998 (as
amended, the "Extension Agreement"). The Extension Agreement provided for a
maximum credit line of $150.0 million, subject to adjustment by Greenwich, at an
interest rate of LIBOR plus 200 basis points (7.38% at September 30, 1998) and a
fee of 0.25% of the aggregate principal balance of loans to be paid to Greenwich
in connection with any sale or securitization or any other transfer to any third
party of loans funded under this agreement. As of September 30, 1998, $96.7
million was outstanding under the Extension Agreement.
Subsequent to the filing of the Petitions and pursuant to a final order of
the Bankruptcy Court dated October 27, 1998 authorizing the Company to obtain
post-petition financing, the Company paid Greenwich, as lender under the
Greenwich Facility which had provided commitments aggregating approximately $150
million, approximately $99 million to extinguish Greenwich's prepetition
security interest. The Greenwich Facility was replaced by the Greenwich DIP
Facility with Greenwich that is guaranteed by the Company and is secured by
substantially all of the assets of CSC and the capital stock of CSC, pari passu
with the lien granted to CIT under the CIT DIP Facility. The Greenwich DIP
Facility bears interest at a rate of LIBOR plus 2.75% and provides a $100.0
million commitment. The Greenwich DIP Facility terminates on the earlier of (i)
the date that the chapter 11 case has been confirmed by an order of the
Bankruptcy Court or (ii) March 1, 1999.
CIT Warehouse Facility. On February 3, 1998, CSC entered into a revolving
credit facility with the CIT Group/Equipment Financing, Inc. (as amended, the
"CIT Facility") to finance CSC's origination and purchase of mortgage loans, the
repayment of certain indebtedness and, subject to certain limitations, other
general corporate purposes. The CIT Facility was guaranteed by the Company, and
bore interest at the prime rate plus 50 basis points (8.75% at September 30,
1998). Pursuant to the CIT Facility, CSC had available a secured revolving
credit line in an amount equal to the lesser of (i) $30.0 million or (ii) a
commitment calculated as a percentage (generally 80% or 85%) of the mortgage
loans securing the CIT Facility. The CIT Facility was also subject to sub-limits
on the amount of certain varieties of mortgage loan products that may be used to
secure advances thereunder. In addition, the CIT Facility was secured by the
mortgage loans and related assets financed under the CIT Facility or self-funded
by CSC, by a pledge of 65% of the capital stock of CSC-UK, by a pledge (on a
pari passu basis with the Greenwich Facility) of the capital stock of certain
subsidiaries of CSC holding certain residual securities and by certain other
assets. As of September 30, 1998, the outstanding balance on the CIT Facility
was $14.2 million.
Subsequent to the filing of the Petitions and pursuant to an interim order of
the Bankruptcy Court dated October 13, 1998 authorizing the Company to obtain
post-petition financing, the Company paid CIT, as lender under the CIT Facility,
which had provided commitments aggregating $30 million, approximately
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$14 million to extinguish CIT's prepetition security interest. On October 27,
1998, a final order was granted by the Bankruptcy Court. The CIT Facility was
replaced by the CIT DIP Facility with CIT and Nomura Asset Capital Corporation
that is guaranteed by the Company and is secured by substantially all of the
assets of CSC and the capital stock of CSC, pari passu with the lien granted to
Greenwich under the Greenwich DIP Facility. The CIT DIP Facility bears interest
at a rate of LIBOR plus 2.75% or the Prime Rate and provides a $150.0 million
commitment. The CIT DIP Facility terminates on the earlier of (i) the date that
the chapter 11 case has been confirmed by an order of the Bankruptcy Court or
(ii) March 1, 1999.
LOAN SALES
The Company disposes of all of its loan production through whole loan
sales where the Company receives a cash premium at the time of sale. In the
first nine months of 1998 and in the years 1997, 1996 and 1995, the Company sold
$370.3 million, $518.4 million, $73.5 million and $105.8 million, respectively,
in whole loan sales, accounting for 100.0%, 31.7%, 5.6% and 24.8% of all loan
sales in the respective periods. As a result of the Company's financial
condition, the Company is currently unable to sell its loans through
securitizations and expects to sell its loans only through whole loan sales
during 1998.
Historically, the Company used overcollateralization accounts as a means
of providing credit enhancement for its securitizations. This mechanism slows
the flow of cash to the Company and causes some or all of the amounts otherwise
distributable to the Company as cash flow in excess of amounts payable as
current interest and principal on the securities issued in its securitizations
to be deposited in an overcollateralization account for application to cover
certain losses or to be released to the Company later if not so used. This
temporary or permanent redirection of such excess cash flows reduces the present
value of such cash flows, which are the principal component of the gain on the
sale of the securitized loans recognized by the Company in connection with each
securitization.
Prior to adopting a whole loan sales strategy for liquidity purposes, the
Company derived a significant portion of its income by recognizing gains upon
the sale of loans through securitizations based on the fair value of the
interest-only and residual certificates that the Company receives upon the sale
of loans through securitizations and on sales into loan purchase facilities. In
loan sales through securitizations, the Company sells loans that it has
originated or purchased to a trust for a cash purchase price and interests in
such trust consisting of interest-only regular interest and the residual
interest which are represented by the interest-only and residual certificates.
The cash purchase price is raised through an offering by the trust of
pass-through certificates representing regular interests in the trust. Following
the securitization, the purchasers of the pass-through certificates receive that
principal collected and the investor pass-through interest rate on the principal
balance, while the Company recognizes as current revenue the fair value of the
interest-only and residual certificates.
Since it adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights"
in October 1995, the Company recognizes as an asset the capitalized value of
mortgage servicing receivables based on their fair value. The fair value of
these assets is determined based on various economic factors, including loan
types, sizes, interest rates, dates of origination, terms and geographic
locations. The Company also uses other available information applicable to the
types of loans the Company originates and purchases (giving consideration to
such risks as default and collection) such as reports on prepayment rates,
interest rates, collateral value, economic forecasts and historical loss and
prepayment rates of the portfolio under review. The Company estimates the
expected cash flows that it will receive over the life of a portfolio of loans.
These expected cash flows constitute the excess of the interest rate payable by
the obligors of loans over the interest rate passed through to the purchaser,
less applicable recurring fees and credit losses. The Company discounts the
expected cash flows at a discount rate that it believes is consistent with the
required risk-adjusted rate of return of an independent third party purchaser of
the interest-only and residual certificates or mortgage servicing receivables.
As of September 30, 1998, the Company's balance sheet reflected the fair value
of interest-only and residual certificates and mortgage servicing receivables of
$76.6 million and $7.5 million less an allowance for losses of $7.5 million,
respectively.
Realization of the value of these interest-only and residual certificates
and mortgage servicing receivables in cash is subject to the prepayment and loss
characteristics of the underlying loans and to the timing and ultimate
realization of the stream of cash flows associated with such loans. If actual
experience
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differs from the assumptions used in the determination of the asset value,
future cash flows and earnings could be negatively affected and the Company
could be required to write down the value of its interest-only and residual
certificates and mortgage servicing receivables. In addition, if prevailing
interest rates rose, the required discount rate might also rise, resulting in
impairment of the value of the interest-only and residual certificates and
mortgage servicing receivables.
CONVERTIBLE DEBENTURES
In May 1996, the Company issued $143.8 million of 6% Convertible
Subordinated Debentures due 2006 (the "Convertible Debentures"), convertible at
any time prior to redemption of maturity, at the holder's option, into shares of
the Company's Common Stock at a conversion price of $26.25, subject to
adjustment. The Convertible Debentures may be redeemed, at the option of the
Company, in whole or in part, at any time after May 15, 1999 at predetermined
redemption prices together with accrued and unpaid interest to the date fixed
for redemption. The coupon at 6% per annum, is payable semi-annually on each May
1 and November 1, having commenced November 1, 1996. 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. The Company deferred the May 1, 1998 interest
payment as part of its plan to reorganize the business. The continued deferral
of the interest payment on the Convertible Debentures constitutes an "Event of
Default" pursuant to the Indenture under which such securities were issued. As
of October 6, 1998, due to the filing of the Petitions, the Company stopped
accruing interest on the Convertible Debentures. As of November 6, 1998, there
were $129.6 million of Convertible Debentures outstanding. If the Plan is
confirmed by the Bankruptcy Court, holders of the Convertible Debentures will
receive in exchange for all their claims, in the aggregate, 9.5% of the new
common stock of the reorganized company and warrants to purchase additional
common stock representing 5% of the new common stock of the reorganized company
on a fully diluted basis, which warrants would be exercisable if and when the
enterprise value of the reorganized company reached $300 million.
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. Such notes are not
redeemable prior to maturity except in limited circumstances. The coupon at
12-3/4% per annum, is payable semi-annually on each June 1 and December 1,
having commenced December 1, 1997. In September 1997, the Company completed the
exchange of such notes for a like principal amount of 12-3/4% Series A Senior
Notes due 2004 (the "Notes") which have the same terms in all material respects,
except for certain transfer restrictions and registration rights. In connection
with its restructuring efforts, the Company determined to defer the June 1, 1998
interest payment on the Notes. The continued deferral of the interest payment on
the Notes constitutes an "Event of Default" pursuant to the Indenture under
which such securities were issued. As of October 6, 1998, due to the filing of
the Petitions, the Company stopped accruing interest on the Notes. If the Plan
is confirmed by the Bankruptcy Court, the holders of the Notes will receive in
exchange for all of their claims, in the aggregate, 90.5% of the new common
stock or the reorganized company and $75 million in initial principal amount of
10-year senior notes (on which interest could be paid in kind, at the
reorganized company's option).
CONVERTIBLE PREFERRED STOCK
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 an initial liquidation preference (the "Liquidation Preference")
of $10,000 per share, and related five-year warrants (the "Series A Warrants")
to purchase 500,000 shares of Common Stock with an exercise price of $20.625 per
share. Dividends on the Series A Preferred Stock are cumulative at the rate of
6% of the Liquidation Preference per annum payable quarterly. Dividends are
payable, at the option of the Company, (i) in cash, (ii) in shares of Common
Stock valued at the closing price on the day immediately preceding the dividend
payment date or (iii) by increasing the Liquidation Preference in an amount
equal to and in lieu of the cash dividend payment.
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In March, June and September 1998, the Company elected to add an amount
equal to the dividend to the Liquidation Preference of the Series A Preferred
Stock in lieu of payment of such dividend. In addition, amounts equal to 3% of
the Liquidation Preference for each 30-day period (prorated for shorter periods)
was added to the Liquidation Preference due to the delisting of the Company's
Common Stock from the Nasdaq National Market on January 29, 1998 (as discussed
below). As of September 30, 1998, the new Liquidation Preference varies up to
$14,212 per share.
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
(or with respect to conversions from December 24, 1997 through the earlier of
the tenth day after the effective date of a registration statement or July 24,
1998, 187 calendar days) immediately preceding such conversion, discounted by up
to 4% and subject to certain adjustments.
As of November 6, 1998, an aggregate of 4,374 shares of the Series A
Preferred Stock had been converted (626 shares remain outstanding) into an
aggregate of 12,681,270 shares of Common Stock. As of November 6, 1998, all
Series A Warrants were outstanding.
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 an initial Liquidation Preference of $10,000 per share, and
related five-year warrants (the "Series B Warrants") to purchase 500,000 shares
of Common Stock with an exercise price per share equal to the lesser of (i)
$14.71 or (ii) 130% of the average closing sales prices over the 20 trading day
period ending on the trading day immediately prior to the first anniversary of
the original issuance of the Series B Warrants. Dividends on the Series B
Preferred Stock are cumulative at the rate of 6% of the Liquidation Preference
per annum payable quarterly. Dividends are payable, at the option of the
Company, (i) in cash, (ii) in shares of Common Stock valued at the closing price
on the day immediately preceding the dividend payment date or (iii) by
increasing the Liquidation Preference in an amount equal to and in lieu of the
cash dividend payment.
In March, June and September 1998, the Company elected to add an amount
equal to the dividend to the Liquidation Preference of the Series B Preferred
Stock in lieu of payment of such dividend. In addition, amounts equal to 3% of
the Liquidation Preference for each 30-day period (prorated for shorter periods)
was added to the Liquidation Preference due to the delisting of the Company's
Common Stock from the Nasdaq National Market on January 29, 1998. As of
September 30, 1998, the new Liquidation Preference is $14,250 per share.
The Series B Preferred Stock is redeemable at the option of the Company at
a redemption price equal to 120% of the Liquidation Preference under certain
circumstances. In addition, the Series B Preferred Stock is redeemable at a
redemption price equal to 115% of the Liquidation Preference upon notice of, or
the announcement of the Company's intent to engage in a change of control event,
or, if such notice or announcement occurs on or after March 14, 1998, the
redemption price will equal 125% of the Liquidation Preference. 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 6, 1998, an aggregate of 449 shares of Series B Preferred
Stock had been converted (4,551 shares remain outstanding) into an aggregate of
21,470,375 shares of Common Stock. As of November 6, 1998, all Series B Warrants
were outstanding.
As of November 6, 1998, if all of the outstanding shares of the Series A
Preferred Stock and Series B Preferred Stock were converted into Common Stock,
the Company would not have sufficient authorized shares of Common Stock to
satisfy such conversions.
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Pursuant to the terms of the Company's Series A Preferred Stock and the
Company's Series B Preferred Stock (together the "Preferred Stock"), the Company
is required to continue the listing or trading of the Common Stock on Nasdaq or
certain other securities exchanges. As a result of the delisting of the Common
Stock from the Nasdaq National Market, (i) the conversion restrictions that
apply to the Series B Preferred Stock are lifted (prior to the delisting, no
more than 50% of the 5,000 shares of Series B Preferred Stock initially issued
could be converted) and (ii) the conversion period is increased to 15
consecutive trading days and the conversion discount is increased to 10% (prior
to the delisting, the conversion price was equal to the lowest daily sales price
of the Common Stock during the four consecutive trading days immediately
preceding conversion, discounted by up to 5.5%). In addition, as a result of the
delisting of the Common Stock and during the continuance of such delisting, (i)
the dividend rate is increased to 15% and (ii) the Company is obligated to make
monthly cash payments to the holders of the Preferred Stock equal to 3% of the
$10,000 liquidation preference per share of the Preferred Stock, as adjusted,
provided that if the Company does not make such payments in cash, such amounts
will be added to the Liquidation Preference. Based on the current market price
of the Common Stock, the Company does not have available a sufficient number of
authorized but unissued shares of Common Stock to permit the conversion of all
of the shares of the Preferred Stock.
The Plan, if confirmed by the Bankruptcy Court, would provide that holders
of the Series A Preferred Stock would receive in exchange for their interests in
the Company, in the aggregate, 10.5% of the warrants to purchase common stock
representing 10% of the new common stock of the reorganized company on a fully
diluted basis, all of which warrants would be exercisable if and when the
enterprise value of the reorganized company reached $430 million and the holders
of Series B Preferred Stock will receive or retain no property.
SALE OF RESIDUAL CERTIFICATES AND MORTGAGE SERVICING RECEIVABLES
In order to enhance the Company's liquidity position, in January 1998, the
Company sold residual certificates and associated mortgage servicing receivables
relating to certain of the Company's home equity loan products for net proceeds
of $26.5 million (which equated to the book value at December 31, 1997).
The description above of the covenants contained in the Company's credit
facilities and other sources of funding does not purport to be complete and is
qualified in its entirety by reference to the actual agreements, which are filed
by the Company with the Commission and can be obtained from the Commission. The
continued availability of funds provided to the Company under these agreements
is subject to the Company's continued compliance with these covenants. In
addition, the Notes, the Convertible Debentures, the Series A Preferred Stock
and the Series B Preferred Stock permit the holders of such securities to
require the Company to purchase such securities upon a change of control (as
defined in the respective Indenture or Certificate of Designations, as the case
may be).
All references herein to "$" are to United States dollars; all references
to "pound sterling" 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.
31
<PAGE> 33
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about September 29, 1997, a putative class action lawsuit (the
"Ceasar Action") 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 "Eastern District") on behalf of all purchasers of the Company's
Common Stock during the period from April 1, 1997 through August 15, 1997.
Between approximately October 14, 1997 and December 3, 1997, nine additional
class action complaints were filed against the same defendants, as well as
certain additional Company officers and directors. Four of these additional
complaints were filed in the Eastern District and five were filed in the United
States District Court for the Southern District of New York (the "Southern
District"). On or about October 28, 1997, the plaintiff in the Ceasar Action
filed an amended complaint naming three additional officers and directors as
defendants. The amended complaint in the Ceasar Action also extended the
proposed class period from November 4, 1996 through October 22, 1997. The
longest proposed class period of any of the complaints is from April 1, 1996
through October 22, 1997. On or about February 2, 1998, an additional lawsuit
brought on behalf of two individual investors, rather than on behalf of a
putative class of investors, was filed against the Company and certain of its
officers and directors in federal court in New Jersey (the "New Jersey Action").
In these actions, plaintiffs allege that the Company and its senior
officers engaged in securities fraud by affirmatively misrepresenting and
failing to disclose material information regarding the lending practices of the
Company's UK subsidiary, and the impact that these lending practices would have
on the Company'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 putative class action complaints, plaintiffs have asserted
violations of Section 10(b) and Section 20(a) of the Exchange Act. Plaintiffs
seek unspecified damages, including pre-judgment interest, attorneys' and
accountants' fees and court costs.
On December 5, 1997, the Eastern District plaintiffs filed a motion for
appointment of lead plaintiffs and approval of co-lead counsel. On September 23,
1998, the court granted this motion. On March 25, 1998, the Company and its
defendant officers and directors filed a motion with the federal Judicial Panel
for Multidistrict Litigation ("JPML"), seeking consolidation of all current and
future securities actions, including the New Jersey Action, for pre-trial
purposes before Judge Sterling Johnson in the Eastern District. On June 12,
1998, the JPML granted this motion.
In November 1997, Resource Mortgage Banking, Ltd., Covino and Company,
Inc. and LuxMac LLC filed against the Company, CSC and two of the Company's
officers and directors in state court in Connecticut an application for a
prejudgment remedy. The object of the application for the prejudgment remedy was
to obtain a court order granting these plaintiffs prejudgment attachment against
assets of the Company and CSC in Connecticut pending resolution of plaintiffs'
underlying claims. Plaintiffs proposed to file an 18 count complaint against the
defendants seeking $60 million in purported damages, injunctive relief, treble
damages and punitive damages in an unspecified sum. In February 1998, Judge
William B. Lewis orally granted defendants' motion to dismiss on the ground of
forum non conveniens and entered a judgment of dismissal, and shortly
thereafter, set in a memorandum of decision his reasons for granting the motion
to dismiss. Plaintiffs did not file an appeal of the order of dismissal.
In February 1998, Resource Mortgage Banking, Ltd., Covino and Company,
Inc. and LuxMac LLC filed an action against the Company, CSC and two of the
Company's officers and directors in state court in New York seeking $60 million
in purported damages, injunctive relief, treble damages and punitive damages in
an unspecified sum.
In March 1998, plaintiffs sought a preliminary injunction to prevent the
Company and CSC from selling certain assets known as strip, residuals, excess
servicing and/or servicing rights and their substantial equivalent having as
constituent any mortgage loan exceeding $350,000 generated by the Company or CSC
between September 2, 1994, and April 1, 1997, and any mortgage loan exceeding
$500,000 generated by the Company or CSC from April 1, 1997 to the present. The
New York Court signed a temporary restraining order that required the Company
and CSC to refrain from the specified sales.
32
<PAGE> 34
Settlement discussions commenced after plaintiffs' motion for preliminary
injunction was fully submitted. Settlement negotiations were concluded and the
litigation was settled shortly after the New York Court issued a decision in
plaintiffs' favor. The Company paid and expensed $2.04 million to plaintiffs,
and the Company, CSC and the defendant officers and directors gave releases in
favor of the plaintiffs. Plaintiffs agreed to discontinue their claims with
prejudice, withdraw as moot their motion for injunctive relief, consent to
vacatur of injunctive relief in the litigation and gave releases in favor of the
Company, CSC and the defendant officers and directors.
In February 1998, a putative class action lawsuit (the "Simpson Action")
was filed against the Company in the U.S. District Court for the Northern
District of Mississippi (Greenville Division). The Simpson Action is a class
action brought under the anti-kickback provisions of Section 8 of the Real
Estate Settlement Procedures Act ("RESPA"). The complaint alleges that, on
November 19, 1997, plaintiff Laverne Simpson, through the services of Few
Mortgage Group ("Few"), a mortgage broker, obtained refinancing for the mortgage
on her residence in Greenville, Mississippi. Few secured financing for plaintiff
through the Company. In connection with the financing, the Company is alleged to
have paid a premium to Few in the amount of $1,280.00. Plaintiff claims that the
payment was a referral fee and duplicative payment prohibited under Section 8 of
RESPA. Plaintiff is seeking compensatory damages for the amounts "by which the
interest rates and points charges were inflated." Plaintiff also claims to
represent a class consisting of all other persons similarly situated, that is,
persons (a) who secured mortgage financing from the Company through mortgage
brokers from an unspecified period to date (claims under Section 8 of RESPA are
governed by a one year statute of limitations) and (b) whose mortgage brokers
received a fee from the Company. Plaintiff is seeking to recover compensatory
damages, on behalf of the putative class, which is alleged to be "numerous," for
the amounts that "the interest rates and points charges were inflated" in
connection with each class member's mortgage loan transaction. The Company
answered the complaint and plaintiff has not yet moved for class certification.
To date, there has not been a ruling on the merits of either plaintiff's
individual claim or the claims of the putative class.
In April 1998, the Company was named as a defendant in an Amended
Complaint filed against 59 separate defendants in the Circuit Court for
Baltimore City entitled Peaks v. A Home of Your Own, Inc. et al. This action is
styled as a class action and alleges various causes of action (including
Conspiracy to Defraud, Fraud, Violation of Maryland Consumer Protection Act and
Unfair Trade Practices, Negligent Misrepresentation, and Negligence) against
multiple parties relating to 89 allegedly fraudulent mortgages made on
residential real estate in Baltimore, Maryland. The Company is alleged to have
purchased at least eight of the loans (and may have purchased 15 of the loans)
at issue in the Complaint. The Company has not yet been involved in any
discovery and has yet to file its response.
On or about September 14, 1998, Elliott Associates, L.P. and Westgate
International, L.P. filed a lawsuit against the Company and certain of its
officers and directors in the United States District Court for the Southern
District of New York. In the complaint, plaintiffs describe the lawsuit as "an
action for securities fraud and breach of contract arising out of the private
placement, in September 1997, of the Series B Preferred Stock of Cityscape."
Plaintiffs allege violations of Section 10(b) of the Exchange Act (Count I);
Section 20(a) of the Exchange Act (Count II); and two breach of contract claims
against the Company (Counts III and IV). Plaintiffs allege to have purchased a
total of $20 million of such preferred stock. Plaintiffs seek unspecified
damages, including pre-judgement interest, attorneys' fees, other expenses and
court costs. The Company and its defendant officers and directors have moved to
dismiss this action.
Although no assurance can be given as to the outcome of the lawsuits
described above, the Company believes that the allegations in each of the
actions are without merit and that its disclosures were proper, complete and
accurate. The Company intends to defend vigorously against these actions and
seek their early dismissal. These lawsuits, however, if decided in favor of
plaintiffs, could have a material adverse effect on the Company.
In January 1998, the Company commenced a breach of contract action in the
Southern District against Walsh Securities, Inc. ("Walsh"). The action alleges
that Walsh breached certain obligations that it owed to the Company under an
agreement whereby Walsh sold mortgage loans to the Company. The Company claims
damages totaling in excess of $11.9 million. On March 5, 1998, Walsh filed a
motion to
33
<PAGE> 35
dismiss or, alternatively, for summary judgement. On May 4, 1998, the Company
served papers that opposed Walsh's motion and moved for partial summary
judgement on certain of the loans.
On April 24, 1998, the Company filed an action in the US District Court
for the District of Maryland against multiple parties entitled Cityscape Corp.
vs. Global Mortgage Company, et al. The Company is in the process of serving the
complaint on the defendants. To date, the Company has yet to receive any
responsive pleadings. The complaint seeks damages of $4.0 million stemming from
a series of 145 allegedly fraudulent residential mortgages which the Company
previously acquired. The Company has previously reserved for losses against such
loans.
In April 1996, CSC-UK acquired all of the outstanding capital stock of J&J
Securities Limited ("J&J"), a London-based mortgage lender, in exchange for
pound sterling 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 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").
In June 1996, CSC-UK acquired all of the outstanding capital stock of
Greyfriars Group Limited (formerly known as Heritable Finance Limited and
referred to herein as "Greyfriars"), a mortgage lender based in Reading, England
in exchange for pound sterling 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 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").
In October 1996, the Company received a request from the staff of the
Commission for additional information concerning the Company's voluntary
restatement of its financial statements for the quarter ended June 30, 1996. The
Company initially valued the mortgage loans in the J&J Acquisition and the
Greyfriars Acquisition at the respective fair values which were estimated to
approximate par (or historical book value). Upon the subsequent sale of the
mortgage portfolios, the Company recognized the fair value of the mortgage
servicing receivables retained and recorded a corresponding gain for the fair
value of such mortgage servicing receivables. Upon subsequent review, the
Company determined that the fair value of such mortgage servicing rights should
have been included as part of the fair value of the mortgage loans acquired as a
result of such acquisitions. The effect of this accounting change resulted in a
reduction in reported earnings of $26.5 million. Additionally, as a result of
this accounting change, the goodwill initially recorded in connection with such
acquisitions was reduced resulting in a reduction of goodwill amortization of
approximately $496,000 from the previously reported figure for the second
quarter. On November 19, 1996, the Company announced that it had determined that
certain additional adjustments relating to the J&J Acquisition and the
Greyfriars Acquisition should be made to the financial statements for the
quarter ended June 30, 1996. These adjustments reflect a change in the
accounting treatment with respect to restructuring charges and deferred taxes
recorded as a result of such acquisitions. This caused an increase in the amount
of goodwill recorded which resulted in an increase of amortization expense as
previously reported in the second quarter of 1996 of $170,692. The staff of the
Commission has requested additional information from the Company in connection
with the accounting related to the J&J Acquisition and the Greyfriars
Acquisition. The Company is supplying such 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.
As a result of the Company's recent negative operating results, the
Company has received inquiries from the New York State Department of Banking
regarding the Company's qualifications to continue to hold a mortgage banking
license. In connection with such inquiries, the Company was fined $50,000 and
has agreed to provide the banking department with specified operating
information on a timely basis and to certain restrictions on its business.
Although the Company believes it complies with its licensing requirements, no
assurance can be given that additional inquiries by the banking department or
similar regulatory bodies will not have an adverse effect on the licenses that
the Company holds which in turn could have a negative effect on the Company's
results of operations and financial condition.
34
<PAGE> 36
Pursuant to the UK Sale Agreement, Ocwen is required to pay certain sums
to the Company. On August 5, 1998, the Company made formal demand on Ocwen for
payment of those sums which arise (i) from the Final Portfolio Completion
Statement and (ii) items deemed to be Excluded Assets, each as defined in the UK
Sale Agreement. Ocwen has failed to pay the sums owed to the Company and,
accordingly, on September 4, 1998, the Company commenced proceedings in the High
Court of Justice, London for the recovery of those sums (the "Proceedings"). The
Company pleads its claim on two alternative bases and claims the sum of $7.6
million on the first basis; alternatively $2.7 million on the second basis. The
Company has applied for an order for summary judgement (the "Application") of
the sums due and that Application is scheduled to be heard on December 11, 1998.
Ocwen has informed the Company that they will defend the Proceedings and the
Application and it is anticipated that they will outline the basis of their
defense by late November 1998. Prior to the Company initiating the Proceedings,
Ocwen informed the Company that it would be defending any proceedings commenced
by the Company on the basis that any sums owed by Ocwen to the Company should be
set off and extinguished against the sum which Ocwen claims is due or
alternatively, is recoverable by it from the Company on the grounds of the
Company's breach of warranty or misrepresentation. The sum which Ocwen claims is
due to it from the Company is approximately $21.4 million. (the "Liabilities
Figure") of which $5.7 million is being held by Ocwen in a bank account pursuant
to the terms of the UK Sale Agreement. With respect to the Liabilities Figure,
Ocwen claims that approximately $21.2 million relates to matters concerning the
loans of Greyfriars, including the Company's alleged excessive charging to
borrowers, alleged failure to notify borrowers of interest rate rises and
alleged failure to advise borrowers of increased repayment. The Company denies
that any sum is due Ocwen whether under the UK Sale Agreement or as a result of
a breach of warranty or misrepresentation or otherwise. The Company believes
that the total amount payable to Ocwen in respect to the Liabilities Figure is
approximately $74,000. Pursuant to the UK Sale Agreement, the Company and Ocwen
are required, in the event that they cannot agree upon the Liabilities Figure,
to refer the matter to a firm of Chartered Accountants to make final
determination on the matter. Arthur Andersen has been appointed as experts for
the purpose of determining the Liabilities Figure, and the Company has now
proposed the directions to be followed by it and Ocwen for the purpose of the
determination. Although there can be no assurance of the outcome of the
determination, the Company believes the Ocwen claim regarding the Liabilities
Figure is without merit.
In the normal course of business, aside from the matters discussed above,
the Company is subject to various legal proceedings and claims, the resolution
of which, in management's opinion, will not have a material adverse effect on
the consolidated financial position or the results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company deferred the May 1, 1998 interest payment on its 6%
Convertible Subordinated Debentures due 2006 (the "Convertible Debentures"). The
continued deferral of the interest payment on the Convertible Debentures
constitutes an "Event of Default" pursuant to the Indenture under which such
securities were issued. The interest payment due on May 1, 1998 was in the
amount of $3.9 million. The Company stopped accruing interest on the Convertible
Debentures on October 6, 1998, the date the Company filed the Petitions in the
Bankruptcy Court.
The Company deferred the June 1, 1998 interest payment on its $300.0
million aggregate principal amount of 12-3/4% Series A Senior Notes due 2004
(the "Notes"). The continued deferral of the interest payment on the Notes
constitutes an "Event of Default" pursuant to the Indenture under which such
securities were issued. The interest payment due on June 1, 1998 was in the
amount of $19.1 million. The Company stopped accruing interest on the Notes on
October 6, 1998, the date the Company filed the Petitions in the Bankruptcy
Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 29, 1998, the Company and CSC distributed their Solicitation and
Disclosure Statement dated August 28, 1998 and related materials (the
"Disclosure Statement") to the holders as of
35
<PAGE> 37
August 28, 1998 of the Company's Notes, Convertible Debentures, Series A
Preferred Stock and Series B Preferred Stock. The Disclosure Statement was
distributed in connection with the prepetition solicitation of votes with
respect to a proposed restructuring of the Company and CSC, the terms of which
are embodied in a joint prepackaged Chapter 11 Plan of Reorganization. The
solicitation expired on September 30, 1998.
<TABLE>
<CAPTION>
Accepting Rejecting Not Voting
--------- --------- ----------
<S> <C> <C> <C>
Class A4 Senior Notes ($) $249,077,000 $ 11,167,000 $39,756,000
Class B4 Senior Notes Guarantee ($) $247,345,000 $ 11,152,000 $41,503,000
Class A6 Subordinated Debentures ($) $ 95,856,000 $ 6,115,000 $27,649,000
Class A8 Series A Preferred Stock (# of shares) 549 0 77
Class A10 Series B Preferred Stock (# of shares) 2,171 1,590 790
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------ ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 as declared
effective by the Commission on December 20, 1995.
3.2 Bylaws of the Company, as amended, incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form
S-1 as declared effective by the Commission on December 20,
1995.
4.1 Indenture, dated as of May 7, 1996, between the
Company and The Chase Manhattan Bank, N.A.,
incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q filed with the
Commission on May 15, 1996.
4.2 Indenture, dated as of May 14, 1997, among the Company, CSC
and The Chase Manhattan Bank, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-4 filed with the Commission on June 26, 1997.
4.3 Certificate of Designation of 6% Convertible Preferred
Stock, Series A, incorporated by reference to Exhibit
4.1 to the Company's Form 8-K filed with the
Commission on April 11, 1997.
4.4 Certificate of Designation of 6% Convertible Preferred Stock,
Series B, incorporated by reference to Exhibit 4.1 to the
Company's Form 8-K filed with the Commission on September 17,
1997.
10.1* Post-Petition Loan and Security Agreement, dated as of
October 12, 1998, between CSC and Greenwich Capital
Financial Products, Inc.
10.2* Revolving Credit and Security Agreement dated as of
October 12, 1998, between the Company and The CIT
Group/Equipment Financing, Inc.
11.1* Computation of Earnings Per Share
27.1* Financial Data Schedule
99.1 Solicitation and Disclosure Statement dated August 28,
1998, incorporated by reference to Exhibit 99.1 to the
Company's Form 8-K filed with the Commission on September 4,
1998.
</TABLE>
- - ---------------------------
* Filed herewith
(b) Reports on Form 8-K
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<PAGE> 38
1. Form 8-K dated September 4, 1998 reporting that the Company distributed their
Solicitation and Disclosure Statement and related materials to the holders of
the Company's Senior Notes, Convertible Debentures and Preferred Stock.
2. Form 8-K dated September 23, 1998 reporting that Elliott Associates, L.P. and
Westgate International, L.P. filed a lawsuit against the Company and certain
of its officers and directors.
37
<PAGE> 39
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.
(Registrant)
Date: November 16, 1998 By: /s/ Tim S. Ledwick
------------------- -------------------------------------
Tim S. Ledwick
Title: Vice President and
Chief Financial Officer
(as chief accounting officer and
on behalf of the registrant)
38
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------ ----------------------
<S> <C>
10.1* Post-Petition Loan and Security Agreement, dated as of
October 12, 1998, between CSC and Greenwich Capital
Financial Products, Inc.
10.2* Revolving Credit and Security Agreement dated as of
October 12, 1998, between the Company and The CIT
Group/Equipment Financing, Inc.
11.1* Computation of Earnings Per Share
27.1* Financial Data Schedule
</TABLE>
- - ---------------------------
* Filed herewith
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
POST-PETITION LOAN AND SECURITY AGREEMENT
-----------------------------
DATED AS OF OCTOBER 12, 1998
------------------------------
CITYSCAPE CORP.
AS BORROWER
AND
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
AS LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS 1
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS 1
1.01 CERTAIN DEFINED TERMS 1
1.02 ACCOUNTING TERMS AND DETERMINATIONS 16
SECTION 2. LOANS AND PREPAYMENTS 16
2.01 LOANS 16
2.02 EVIDENCE OF INDEBTEDNESS 16
2.03 PROCEDURE FOR BORROWING 16
2.04 LIMITATION ON TYPES OF LOANS; ILLEGALITY 17
2.05 REPAYMENT OF LOANS; INTEREST 18
2.06 MANDATORY PREPAYMENTS OR PLEDGE 18
2.07 OPTIONAL PREPAYMENTS 19
2.08 INDEMNITY 19
2.09 REQUIREMENTS OF LAW 19
2.10 TAXES 20
2.11 EXTENSION OF TERMINATION DATE 22
2.12 ADDITIONAL FEES 22
SECTION 3 PAYMENTS; COMPUTATIONS; ETC. 22
3.01 PAYMENTS 22
3.02 COMPUTATIONS 23
SECTION 4. COLLATERAL SECURITY 23
4.01 COLLATERAL; SECURITY INTEREST 23
4.02 FURTHER DOCUMENTATION 24
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
4.03 CHANGES IN LOCATIONS, NAME, ETC. 25
4.04 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT 25
4.05 PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS 26
4.06 PROCEEDS 26
4.07 REMEDIES 27
4.08 LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL 27
4.09 POWERS COUPLED WITH AN INTEREST 27
4.10 RELEASE OF SECURITY INTEREST 28
4.11 CERTAIN BANKRUPTCY ISSUES 28
SECTION 5. CONDITIONS PRECEDENT 28
5.01 CONDITIONS TO INTERIM FUNDING 28
5.02 CONDITIONS TO FINAL FUNDING 31
5.03 INITIAL AND SUBSEQUENT LOANS 31
SECTION 6. REPRESENTATIONS AND WARRANTIES 32
6.01 EXISTENCE 32
6.02 LITIGATION 32
6.03 NO BREACH 32
6.04 ACTION 33
6.05 APPROVALS 33
6.06 GOOD STANDING 33
6.07 COLLATERAL; COLLATERAL SECURITY 34
6.08 CHIEF EXECUTIVE OFFICE 34
6.09 INSURANCE 34
6.10 FINANCIAL STATEMENTS 34
6.11 ERISA 35
6.12 ACCURACY OF INFORMATION 35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
6.13 LOAN DOCUMENTS 35
6.14 COMPLIANCE WITH LAW, ETC 35
6.15 FRAUDULENT CONVEYANCE 35
6.16 INVESTMENT COMPANY ACT COMPLIANCE 35
6.17 TAXES 35
6.18 MARGIN REGULATIONS 35
6.19 ORDER EXPENSES 35
6.20 EFFECTIVENESS OF ORDERS 36
6.21 EXISTING OBLIGATIONS 36
6.22 EXISTING PURCHASE AGREEMENTS 36
6.23 REQUIRED CREDITOR APPROVAL 36
SECTION 7. COVENANTS OF THE BORROWER 36
7.01 FINANCIAL STATEMENTS 36
7.02 REPORTS 37
7.03 COMPLIANCE WITH LAWS 37
7.04 EXISTENCE, ETC. 37
7.05 NOTICES 37
7.06 COMPLIANCE WITH CUSTODIAL AGREEMENT 38
7.07 BORROWING BASE DEFICIENCY; MAXIMUM CREDIT EXCESS 38
7.08 INSPECTION OF BOOKS AND RECORDS 38
7.09 NO ASSIGNMENT 38
7.10 NO AMENDMENT TO CORPORATE DOCUMENTS 38
7.11 NO CHANGE OF CONTROL 39
7.12 LIMITATION ON LINES OF BUSINESS 39
7.13 LIMITATION ON DISTRIBUTIONS 39
7.14 LIMITATION ON GUARANTEES 39
7.15 LIMITATION ON LIENS 39
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
7.16 FINANCIAL CONDITION COVENANTS 39
7.17 NOTICE IF MORTGAGE ASSET IS FOUND DEFECTIVE 40
7.18 PROHIBITION OF FUNDAMENTAL CHANGES 40
7.19 LIMITATION ON TRANSACTIONS WITH AFFILIATES 40
7.20 UNDERWRITING GUIDELINES 40
7.21 SERVICING TAPE 40
7.22. BORROWING BASE CERTIFICATE 40
7.23. AUTHORIZED OFFICERS 40
7.24. EXISTING OBLIGATIONS 40
7.25. CIT FACILITY 41
7.26. PURCHASED LOANS 41
7.27. SELECTION CRITERIA 41
SECTION 8. EVENTS OF DEFAULT 42
SECTION 9. REMEDIES UPON DEFAULT 44
SECTION 10. NO DUTY OF LENDER 45
SECTION 11. MISCELLANEOUS 45
11.01 WAIVER 45
11.02 NOTICES 45
11.03 INDEMNIFICATION AND EXPENSES 45
11.04 AMENDMENTS 47
11.05 SUCCESSORS AND ASSIGNS 47
11.06 SURVIVAL 47
11.07 CAPTIONS 47
11.08 COUNTERPARTS 47
11.09 LOAN AGREEMENT CONSTITUTES SECURITY AGREEMENT; GOVERNING LAW 47
11.10 WAIVER OF JURY TRIAL 47
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
11.11 ACKNOWLEDGMENTS 48
11.12 HYPOTHECATION OR PLEDGE OF LOANS 48
11.13 ASSIGNMENTS, PARTICIPATIONS 48
11.14 SERVICING 49
11.15 PERIODIC DUE DILIGENCE REVIEW 50
</TABLE>
SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Assets
SCHEDULE 2 Filing Jurisdictions and Offices
SCHEDULE 3 List of Settlement Agents
SCHEDULE 4 Authorized Representatives of the Borrower
SCHEDULE 5 Other Existing Liens
SCHEDULE 6 Existing Purchase Agreements
EXHIBIT A Form of Custodial Agreement
EXHIBIT B Form of Opinion of Counsel to Borrower
EXHIBIT C Underwriting Guidelines for Home Equity Loans
EXHIBIT D Underwriting Guidelines for High LTV Mortgage Assets
EXHIBIT E Whole Loan Agreement
EXHIBIT F Form of Borrowing Base Certificate
EXHIBIT G Document Exception Codes
EXHIBIT H Form of Request for Borrowing
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<PAGE> 7
POST-PETITION LOAN AND SECURITY AGREEMENT
POST-PETITION LOAN AND SECURITY AGREEMENT, dated as of October 12,
1998, between CITYSCAPE CORP., a New York corporation and a debtor-in-possession
(the "Borrower"), and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware
corporation (the "Lender").
RECITALS
The Borrower and the Lender are parties to a certain Master Loan and
Security Agreement, dated as of January 1, 1997 (as amended from time to time,
the "Existing Loan Agreement").
Each of the Borrower and Cityscape Financial Corp., a Delaware
corporation and a debtor-in-possession (the "Guarantor") have filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York, White
Plains Division (the "Bankruptcy Court") commencing cases (respectively, the
"Borrower's Case" and the "Guarantor's Case"; collectively, the "Chapter 11
Cases") on October 5, 1998 (the "Petition Date"), after having obtained
acceptances from a majority in number and at least 66.67% in dollar amount of
those creditors voting in each class of creditors entitled to vote to confirm a
joint plan of reorganization for the Borrower and the Guarantor.
The Borrower has requested that, during the pendancy of the Chapter
11 Cases, the Lender from time to time make revolving credit loans to it to
finance certain Eligible Assets (as defined below) owned by the Borrower, and
the Lender is prepared to make such loans upon the terms and conditions hereof.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Affiliate" shall mean any "affiliate" of the Borrower or Lender, as
applicable, as such term is defined in the Bankruptcy Code in effect from time
to time.
"Affiliate Guaranty" shall mean that certain guaranty dated as of
the date hereof, made by the Guarantor in favor of the Lender, as amended from
time to time.
Applicable Collateral Percentage" shall mean the applicable
percentages set forth below:
<TABLE>
<CAPTION>
Product %
------- ----
<S> <C>
Home Equity Mortgage Assets 95%
High LTV Mortgage Assets
</TABLE>
-1-
<PAGE> 8
<TABLE>
<CAPTION>
Product %
------- ----
<S> <C>
FICO < 620 0%
FICO 620-640 80%
FICO > 640 90%
</TABLE>
"Applicable Margin" shall mean 2.75% per annum.
"Appraised Value" shall mean the value set forth in an appraisal
made in connection with the origination of the related Mortgage Asset as the
value of the Mortgaged Property.
"Approval Order" shall mean any of the Interim Order, the Final
Order and the Guarantor Order.
"Avoidance Action" shall mean any action which seeks (a) to
invalidate, avoid, subordinate or otherwise impair any claims of the Lender
under the Existing Loan Agreement or under this Loan Agreement or any liens
created by either facility, (b) to challenge the ownership by the Lender of the
Purchased Loans or (c) to recover any transfer made to the Lender by or on
behalf of the Borrower or the Guarantor.
"Avoided Payments" shall have the meaning provided in Section
2.06(g).
"Bankruptcy Code" shall mean the United States Bankruptcy Code of
1978, as amended from time to time.
"Bankruptcy Court" shall have the meaning provided in the recitals
hereto or any other court having jurisdiction over the Chapter 11 Cases.
"Borrower" shall have the meaning provided in the heading hereof.
"Borrower Carve Out Expenses" shall mean fees payable to the United
States Trustee pursuant to 28 U.S.C. Section 1930(a)(6), and the allowed Fees
and expenses of attorneys, accountants and other professionals retained by the
Borrower and any Official Committee appointed in the Borrower's Case; provided,
that Borrower Carve Out Expenses shall not include fees and expenses incurred at
any time in connection with any Avoidance Actions.
"Borrower's Case" shall have the meaning provided in the recitals
hereto.
"Borrowing Base" shall mean the aggregate Collateral Value of all
Eligible Assets.
"Borrowing Base Certificate" shall mean the certificate delivered
pursuant to Section 7.23 hereof, substantially in the form of Exhibit F attached
hereto.
"Borrowing Base Deficiency" shall have the meaning provided in
Section 2.06 hereof.
"Business Day" shall mean any day other than (i) a Saturday or
Sunday or (ii) a day on which the New York Stock Exchange, the Federal Reserve
Bank of New York, banking and savings and loans institutions in the states of
New York or Connecticut or the Custodian is authorized or obligated by law or
executive order to be closed.
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<PAGE> 9
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Carve Out Expenses" shall mean the collective reference to the
Borrower Carve Out Expenses and the Guarantor Carve Out Expenses; provided, that
upon the occurrence and during the continuance of an Event of Default
(regardless of whether or not the Lender elects to exercise any remedies
hereunder), and following notice from the Lender to the Borrower, the Guarantor
and the Official Committee appointed in the Chapter 11 Cases, the maximum amount
of Carve Out Expenses that shall be entitled to priority over the DIP
Obligations shall be limited to $575,000 (the "Carve Out Cap"); provided,
further, that after the termination of the CIT Facility and (a) the payment in
full of all obligations under the CIT Facility, (b) the termination of all
commitments under the CIT Facility and (c) the release of all Liens in favor of
CIT, the Carve Out Cap shall be increased by the unused portion of the
Professional Expense Cap (as defined in the CIT Facility) under the CIT
Facility, the aggregate amount of the Carve Out Cap following any such increase
not to exceed $1,150,000.
"Case Orders" shall have the meaning provided in Section 8(n).
"Change of Control" shall mean either (i) either Cheryl Carl or
Steve Miller leave the employ of Borrower or (ii) there occurs a change of
"control" of Borrower or the Guarantor, as such term is defined in the
Securities Exchange Act of 1934, as amended.
"Chapter 11 Cases" shall have the meaning provided in the
recitals hereto.
"CIT" shall mean the CIT Group/Business Credit, Inc., or an
Affiliate thereof, as lender or as agent for a syndicate of lenders.
"CIT Commitment Fee Percentage" shall mean the highest commitment
fee percentage (or other comparable fee) charged by CIT pursuant to the CIT
Facility on the unused portion of the maximum credit available under the CIT
Facility.
"CIT Facility" shall mean any financing facility between the
Borrower and CIT or the Guarantor and CIT entered into on or after the Petition
Date.
"CIT Facility Documents" shall mean all documents evidencing or
executed in connection with the CIT Facility.
"CIT Facility Fee Percentage" shall mean the highest facility fee
percentage (or other comparable fee) charged by CIT pursuant to the CIT
Facility, calculated by dividing the amount of facility fee charged under the
CIT Facility by the maximum credit available thereunder.
"CIT Mortgage Loan" shall mean any mortgage loan pledged to CIT
pursuant to, and financed by, the CIT Facility in which CIT is granted a first
priority security interest.
"CIT Mortgage Loan Collateral" shall have the meaning provided in
Section 4.01(c) hereof.
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<PAGE> 10
"Collateral" shall mean the collective reference to the Primary
Collateral, the CIT Mortgage Loan Collateral and the Other Collateral; provided,
that Collateral shall not include any causes of action or proceeds of claims
pursuant to Chapter 5 of the Bankruptcy Code.
"Collateral Value" shall mean, with respect to each Mortgage Asset,
the lesser of (a) the Applicable Collateral Percentage multiplied by the
outstanding principal balance of such Mortgage Asset and (b) the Market Value of
such Mortgage Asset; provided, that
(i) the aggregate Collateral Value of High LTV Mortgage Assets shall
not exceed the lesser of (A) $50,000,000 and (B) 50% of the Maximum Credit as in
effect;
(ii) the aggregate Collateral Value of Delinquent Mortgage Assets
that are Home Equity Mortgage Assets shall not exceed the lesser of (A)
$5,000,000 and (B) 5% of the Maximum Credit as in effect; and
(iii) the Collateral Value shall be deemed to be zero with respect
to each Mortgage Asset as to which the Lender reasonably determines:
(1) in respect of which there is a material breach of a
representation and warranty set forth on Schedule 1 (assuming each
representation and warranty is made as of the date Collateral Value
is determined),
(2) in respect of which there is a delinquency in the payment
of principal and/or interest which continues for a period in excess
of 59 days (without regard to any applicable grace periods),
(3) which remains pledged to the Lender hereunder later than
90 days after the date on which it is first included in the
Collateral,
(4) which has been released from the possession of the
Custodian under the applicable Custodial Agreement to the Borrower
for a period in excess of 14 days,
(5) as to which (A) the related Mortgage Note or the related
Mortgage is not genuine or is not the legal, valid, binding and
enforceable obligation of the maker thereof, subject to no right of
rescission, set-off, counterclaim or defense, or (B) such Mortgage,
is not a valid, subsisting, enforceable and perfected first, second
or third lien on the Mortgaged Property,
(6) in respect of which the related Mortgage Note has been
extinguished under relevant state law in connection with a judgment
of foreclosure or foreclosure sale or otherwise,
(7) in respect of which the related Mortgaged Property is the
subject of a foreclosure proceeding,
(8) in respect of which the related Mortgagor is the subject
of a bankruptcy proceeding, or
(9) which is a Delinquent Mortgage Asset that is a High LTV
Mortgage Asset.
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<PAGE> 11
"Consolidated Unsecured Indebtedness" shall mean, for any Person, as
of any date of determination, all obligations and liabilities of such Person and
its consolidated Subsidiaries which (i) in accordance with GAAP, would be
included in determining total liabilities of such Person and its Consolidated
Subsidiaries as shown on the liability side of such Person's balance sheet and
(ii) are not secured by the grant of a lien upon, or security interest in, any
interest in property. For the purpose of this determination: (x) Consolidated
Unsecured Indebtedness of the Borrower shall include all outstanding principal
and accrued and unpaid interest on Indebtedness of the Borrower to the Guarantor
and (y) the Consolidated Unsecured Indebtedness of the Guarantor shall include
all outstanding principal and accrued and unpaid interest on Indebtedness owed
by the Guarantor under the 12 -3/4% senior notes due 2004 and under the 6%
subordinated convertible debentures due 2006 issued by the Guarantor.
"Costs" shall have the meaning provided in Section 11.03(a)
hereof.
"Custodial Agreement" shall mean either (i) the First Trust
Custodial Agreement or (ii) the U.S. Bank Trust Custodial Agreement.
"Custodian" shall mean (i) with respect to the First Trust Custodial
Agreement, First Trust National Association and its successors and permitted
assigns thereunder and (ii) with respect to the U.S. Bank Trust Custodial
Agreement, U.S. Bank Trust and its successors and permitted assigns thereunder.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Delinquent Mortgage Asset" shall mean an Eligible Asset for which
the applicable Monthly Payment is more than 29 days, but no more than 59 days
delinquent and with respect to which the related Mortgaged Property is not the
subject of a foreclosure proceeding and with respect to which the related
Mortgagor is not the subject of a bankruptcy proceeding.
"DIP Obligations" shall have the meaning provided in Section
4.01(e) hereof.
"Disposition" shall mean, with respect to any Mortgage Asset, any of
the following: (i) the sale or securitization of such Mortgage Asset; (ii) the
release of such Mortgage Asset from the Lien securing the DIP Obligations in
connection with the termination of this Loan Agreement for any reason whatsoever
(including the final maturity thereof); and (iii) the release of such Mortgage
Asset from the Lien securing this Loan Agreement in connection with a full or
partial payment of the Loans outstanding under this Loan Agreement or a
substitution therefor of other Mortgage Assets.
"Disposition Date" shall mean the date on which a Disposition is
consummated.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Due Date" means the day of the month on which the Monthly Payment
is due on a Mortgage Asset, exclusive of any days of grace.
"Due Diligence Review" shall mean the performance by the Lender of
any or all of the reviews permitted under Section 11.15 hereof with respect to
any or all of the Mortgage Assets, as desired by the Lender from time to time.
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<PAGE> 12
"Eligible Asset" shall mean a Mortgage Asset secured by a first,
second or third mortgage lien on a one-to-four family residential property, as
to which the representations and warranties in Section 6.07 and in Schedule 1,
as applicable, hereof are correct in all material respects.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Borrower is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Borrower is a member.
"Event of Default" shall have the meaning provided in Section 8
hereof.
"Exception" shall have the meaning provided for such term in the
First Trust Custodial Agreement.
"Exception Report" shall mean the exception report prepared by the
Custodian pursuant to the applicable Custodial Agreement.
"Existing Loan" shall mean, at any time, any then outstanding loan
made by the Lender to the Borrower pursuant to the Existing Loan Agreement.
"Existing Loan Agreement" shall have the meaning provided in the
recitals hereto.
"Existing Obligations" shall mean the obligations of the Borrower to
the Lender under the Existing Loan Agreement and all related documents and
instruments.
"Existing Pledge Agreement" shall mean the Pledge Agreement, dated
as of February 3, 1998, between the Borrower and CIT, and acknowledged by the
Lender, as it may have been amended from time to time.
"Existing Purchase Agreement" shall mean each of the agreements
listed on Schedule 6 hereto.
"Federal Funds Rate" shall mean, for any day, the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"Final Effective Date" shall mean the date on which the conditions
precedent set forth in Section 5.02 have been satisfied.
"Final Maximum Credit" shall mean, during the period covered by the
Final Order, the excess, if any, of $100,000,000 over the sum of (i) the
aggregate outstanding principal balance of Existing Loans (after giving effect
to any repayment of such Existing Loans which will be made in conjunction and
contemporaneously with any borrowing pursuant to this Loan Agreement) and (ii)
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<PAGE> 13
without duplication, the aggregate outstanding principal amount of Purchased
Loans that have not been resold by the Lender and with respect to which the
Borrower has not yet transferred servicing rights to a successor servicer.
"Final Order" shall mean the order of the Bankruptcy Court in the
Borrower's Case granting final approval for this Loan Agreement.
"Final Period" shall mean the period of time during which the Final
Order is in effect.
"Financial Statements" shall mean those documents to be delivered
pursuant to Section 7.01 hereof.
"First Trust Custodial Agreement" shall mean that certain Custodial
Agreement, dated as of the date hereof, among the Borrower, First Trust National
Association and the Lender, substantially in the form of Exhibit A-1, as the
same shall be modified and supplemented and in effect from time to time.
"Funding Date" shall mean the date on which a Loan is made
hereunder.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the Borrower,
any of its Subsidiaries or any of its properties.
"Guarantee" shall mean, as to any Person, any obligation of such
Person directly or indirectly guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, or to take-or-pay or otherwise);
provided that the term "Guarantee" shall not include (i) endorsements for
collection or deposit in the ordinary course of business, or (ii) obligations to
make servicing advances for delinquent taxes and insurance or other obligations
in respect of a Mortgaged Property, to the extent required by the Lender. The
amount of any Guarantee of a Person shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have
correlative meanings.
"Guarantor" shall have the meaning provided in the recitals
hereof.
"Guarantor Carve Out Expenses" shall mean fees payable to the United
States Trustee pursuant to 28 U.S.C. Section 1930(a)(6), and the allowed Fees
and expenses of attorneys, accountants and other professionals retained by the
Guarantor and any Official Committee appointed in the Guarantor's Case;
provided, that Guarantor Carve Out Expenses shall not include fees and expenses
incurred at any time in connection with any Avoidance Action.
"Guarantor Obligations" shall have the meaning provided in
Section 5.01(c)(ii).
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<PAGE> 14
"Guarantor's Case" shall have the meaning provided in the
recitals hereof.
"Guaranty Order" shall mean an order of the Bankruptcy Court in form
and substance acceptable to the Lender that approves the Affiliate Guaranty.
"High LTV Mortgage Asset" shall mean a Mortgage Asset underwritten
in accordance with the Borrower's Sav-a-Loan underwriting guidelines attached as
Exhibit D hereto.
"Home Equity Mortgage Asset" shall mean all of Borrower's right,
title and interest in and to a mortgage loan secured by a mortgage on a one-to
four-family residence, which shall bear either fixed or adjustable rates of
interest and shall have been underwritten in accordance with the underwriting
guidelines attached as Exhibit C or otherwise approved by Lender, other than a
High LTV Mortgage Asset.
"Indebtedness" shall mean, for any Person: (i)(a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 120 days of the date the respective goods
are delivered or the respective services are rendered; (c) Indebtedness of
others secured by a Lien on the Property of such Person, whether or not the
respective Indebtedness so secured has been assumed by such Person; (d)
obligations (contingent or otherwise) of such Person in respect of letters of
credit or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of such
Person; (f) obligations of such Person under repurchase agreements or like
arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all
obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner minus (ii) securities
sold but not yet purchased.
"Indemnified Person" shall have the meaning provided in Section
11.03(a).
"Insured Closing Letter" shall mean a closing letter issued by the
Settlement Agent with respect to the funding of a Mortgage Asset by the
Borrower.
"Interest Period" shall mean, with respect to any Loan, each period
commencing on the date such Loan is made and ending on the date one month
thereafter, except that each Interest Period that commences on the last Business
Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month. Notwithstanding
the foregoing: (i) no Interest Period may begin before and end after the
Termination Date; (ii) each Interest Period that would otherwise end on a day
that is not a Business Day shall end on the next succeeding Business Day (or, if
such next succeeding Business Day falls in the next succeeding calendar month,
on the next preceding Business Day); and (iii) notwithstanding clause (i) above,
no Interest Period for any Loan of one month shall have a duration of less than
one month and, if the Interest Period for any Loan would otherwise be a shorter
period, such Loan shall not be available for such period.
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<PAGE> 15
"Interest Rate Protection Agreement" shall mean, with respect to any
or all of the Mortgage Assets, any interest rate swap, cap or collar agreement
or similar arrangements or any other transaction including, without limitation,
the sale of United States treasury securities, providing for, in each case,
protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies, entered
into by the Borrower with an Affiliate of the Lender or such other Person
acceptable to the Lender and reasonably acceptable to the Lender.
"Interim Effective Date" shall mean the date on which the conditions
precedent set forth in Section 5.01 have been satisfied.
"Interim Maximum Credit" shall mean, during the period covered by
the Interim Order, the lesser of (i) the excess, if any, of $100,000,000 over
the sum of (A) the aggregate outstanding principal balance of Existing Loans
(after giving effect to any repayment of such Existing Loans which will be made
in conjunction and contemporaneously with any borrowing pursuant to this Loan
Agreement) and (B) without duplication, the aggregate outstanding principal
amount of Purchased Loans that have not been resold by the Lender and with
respect to which the Borrower has not yet transferred servicing rights to a
successor servicer and (ii) the amount authorized by the Interim Order.
"Interim Order" shall mean the order of the Bankruptcy Court in the
Borrower's Case granting interim approval for this Loan Agreement.
"Interim Period" shall mean the period of time during which the
Interim Order is in effect (but shall not include the Final Period).
"Lender" shall have the meaning provided in the heading hereto.
"LIBO Reserve Requirements" shall mean for any Interest Period for
any Loan and for any Lender as to which LIBO Reserve Requirements are actually
required to be maintained, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
or during such Interest Period, as applicable (including, without limitation,
basic, supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto), dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member
bank of such Governmental Authority.
"LIBO Base Rate" shall mean for any Loan, with respect to each day
during each Interest Period pertaining to such Loan, the rate per annum equal to
the rate appearing at page 3750 of the Telerate Screen as the one-month LIBOR on
the first day of such Interest Period, and if such rate shall not be so quoted,
the rate per annum at which the Reference Banks are offered Dollar deposits at
or about 11:00 a.m., New York City time, on such date by prime banks in the
interbank eurodollar market where the eurodollar and foreign currency exchange
operations in respect of its Loans are then being conducted for delivery on such
day for a period of one month, and in an amount comparable to the amount of the
Loans to be outstanding on such day.
"LIBO Rate" shall mean with respect to each day during each Interest
Period pertaining to a Loan, a rate per annum determined by the Lender in its
sole good-faith discretion in accordance
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<PAGE> 16
with the following formula (rounded upwards to the nearest 1/100th of one
percent), which rate as determined by the Lender shall be conclusive absent
manifest error by the Lender equal to:
LIBO Base Rate
---------------------------------
1.00 - LIBO Reserve Requirements
"Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.
"Loan" shall have the meaning provided in Section 2.01(a) hereof.
"Loan Agreement" shall mean this Post-Petition Loan and Security
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.
"Loan Balance" shall mean, with respect to each Mortgage Asset and
any related Loan, the original principal balance of such Loan made in respect of
such Mortgage Asset reduced in accordance with Section 2.06 hereof.
"Loan Documents" shall mean, collectively, this Loan Agreement,
the First Trust Custodial Agreement, the U.S. Bank Trust Custodial Agreement,
any Note and the Affiliate Guaranty.
"Management Book" shall have the meaning provided in Section
7.02(d).
"Market Value" shall mean, as of any date in respect of an Eligible
Asset, the price at which such Eligible Asset could readily be sold as
determined in good faith by the Lender, which price may be determined to be zero
taking into account such factors as are usual and customary in the Borrower's
industry. The Lender's determination of Market Value shall be conclusive upon
the parties absent manifest error on the part of the Lender.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform its obligations under any
of the Loan Documents to which it is a party, (c) the validity or enforceability
of any of the Loan Documents, (d) the rights and remedies of the Lender under
any of the Loan Documents, (e) the timely payment of the principal of or
interest on the Loans or other amounts payable in connection therewith or (f)
the Collateral.
"Material Exception" shall mean, with respect to any Mortgage Loan,
any Exception listed on an Exception Report consisting of the absence from the
Mortgage File, or deficiency in respect of, any of the fatal exceptions for
Mortgage Asset Documents as set forth with an "F" in the document exception
codes attached as Exhibit G hereto.
"Maximum Credit" shall mean the Final Maximum Credit or the Interim
Maximum Credit, as the context shall require; provided, that the Maximum Credit
shall be permanently reduced by the amount of any Avoided Payments which are
repaid or disgorged by the Lender after the Interim Effective Date.
"Monthly Payment" means the scheduled monthly payment of principal
and interest on a Mortgage Asset as adjusted in accordance with changes in the
Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an
adjustable rate Mortgage Asset.
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<PAGE> 17
"Mortgage" shall mean the mortgage, deed of trust or other
instrument securing a Mortgage Note, which creates a first, second or third lien
on the fee in real property or in a leasehold interest securing the Mortgage
Note and, if applicable, the assignment of rents and leases related thereto.
"Mortgage Asset" shall mean a Home Equity Mortgage Asset or a High
LTV Mortgage Asset which the Custodian has been instructed to hold for the
Lender hereunder pursuant to the applicable Custodial Agreement, and which
Mortgage Asset includes, without limitation, (i) a Mortgage Note and related
Mortgage and (ii) all right, title and interest of the Borrower in and to the
Mortgaged Property covered by such Mortgage.
"Mortgage Asset Documents" shall mean, with respect to a Mortgage
Asset, the documents comprising the Mortgage File for such Mortgage Asset.
"Mortgage Asset Schedule" shall mean a schedule of Mortgage Assets
containing the following information with respect to each Mortgage Asset, to be
delivered by the Borrower to the Lender pursuant to Section 2.03(a) hereof: (i)
the Borrower's Mortgage Asset number; (ii) the Mortgagor's name and the street
address; (iii) a code indicating whether such Mortgage Asset is a Home Equity
Mortgage Asset or a High LTV Mortgage Asset; (iv) the current principal balance
of the Mortgage Note; (v) the original principal amount of the Mortgage Note
with respect to any Mortgage Asset originated by the Borrower and the principal
amount of the Mortgage Note purchased by the Borrower with respect to a Mortgage
Asset acquired by the Borrower subsequent to its origination; (vi) the combined
loan-to-value ratio as of the date of the origination of the related Mortgage
Asset; (vii) the paid through date; (viii) the mortgage interest rate; (ix) the
final maturity date under the Mortgage Note; (x) the Monthly Payment; (xi) the
lien position of such Mortgage Asset; (xii) a field indicating whether the
Mortgage Asset is a Delinquent Mortgage Asset; and (xiii) such other tape fields
as shall be mutually agreed upon by Borrower and Lender.
"Mortgage File" shall have the meaning assigned thereto in the First
Trust Custodial Agreement.
"Mortgage Interest Rate" means the annual rate of interest borne on
a Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Assets.
"Mortgage Note" shall mean the original executed promissory note or
other evidence of the indebtedness of a mortgagor/borrower with respect to a
Mortgage Asset.
"Mortgaged Property" shall mean the real property (including all
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagor" shall mean the obligor on a Mortgage Note.
"Multiemployer Plan" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been or are required to be
made by the Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA.
"Non-Excluded Taxes" shall have the meaning provided in Section
2.10 hereof.
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"Note" shall have the meaning provided in Section 2.02 hereof.
"Official Committee" shall mean any committee appointed by the
United States Trustee pursuant to Section 1102 of the Bankruptcy Code.
"Other Agreements" shall mean any other agreement between Borrower
and the Lender or any of its Affiliates, whether now existing or hereafter
entered into, as any such agreement may be amended, supplemented or otherwise
modified from time to time.
"Other Collateral" shall have the meaning provided in Section
4.01(d) hereof.
"Other Existing Liens" shall mean all Liens listed on Schedule 5
hereto.
"Payoff" shall mean, with respect to any Mortgage Asset, repayment
by the applicable Mortgagor of all outstanding principal thereunder together
with all interest accrued thereon to the date of such repayment and any penalty
or premium thereon.
"Payoff Proceeds" shall mean, with respect to any Mortgage Asset,
all funds received from the applicable Mortgagor in connection with a Payoff.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean:
(1) Liens in favor of the Lender;
(2) Liens in connection with any taxes or assessments or other
governmental charges or levies if not yet due and payable or, if due and
payable, if they are stayed by the Bankruptcy Court or the Bankruptcy
Code;
(3) Liens imposed by Law, such as mechanics' materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than thirty days or, if due and payable, if they are
stayed by the Bankruptcy Court or the Bankruptcy Code;
(4) Liens under workers' compensation, unemployment insurance,
Social Security or similar legislation;
(5) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money),
leases (permitted under the terms of this Agreement), public or statutory
obligations, surety, indemnity, performance, or other similar bonds, or
other similar obligations arising in the ordinary course of business, and
the pledge of assets for the purpose of securing an appeal, stay or
discharge in the course of any legal proceedings, provided that the
aggregate amount of liabilities of the Borrower and/or the Guarantor
secured by a pledge of assets permitted under this clause, including
interest and penalties thereon, if any, shall not be in excess of $500,000
at any one time outstanding;
(6) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use, and enjoyment by
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<PAGE> 19
the Borrower of the property or assets encumbered thereby in the normal
course of the Borrower's business or materially impair the value of the
property subject thereto;
(7) Purchase-money Liens on any property hereafter acquired or
the assumption of any Lien on property existing at the time of such
acquisition, (and not created in contemplation of such acquisition) or a
Lien incurred in connection with any conditional sale or other title
retention agreement or a capital lease;
(8) Liens on real estate acquired and owned as a result of
foreclosure of a mortgage held by the Borrower;
(9) Liens in favor of CIT to the extent such Liens are subject
to the terms of the Post-Petition Pledge Agreement or the Post-Petition
Intercreditor Agreement; and
(10) Other Existing Liens.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).
"Petition Date" shall have the meaning provided in the recitals
hereof.
"Plan" shall mean an employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and covered by Title IV of
ERISA, other than a Multiemployer Plan.
"Plan Effective Date" shall mean the date on which a Plan of
Reorganization is substantially consummated within the meaning of Bankruptcy
Code Section 1101.
"Plan of Reorganization" shall mean "Cityscape Financial Corp.'s and
Cityscape Corp.'s Joint Plan of Reorganization" attached to the Solicitation and
Disclosure Statement of the Borrower and the Guarantor dated August 28, 1998, as
amended or modified in a manner reasonably acceptable to the Lender, and any
other plan of reorganization which shall (i) provide for the repayment of all
Existing Obligations, (ii) if any releases or covenants not to sue or
indemnities (or similar provisions) are contained therein, provide for releases
by the Borrower and the Guarantor of the Lender from any claims against the
Lender, in form and substance acceptable to the Lender, and (iii) otherwise be
reasonably acceptable to the Lender.
"Post-Default Rate" shall mean, in respect of any principal of any
Loan or any other amount under this Loan Agreement or any other Loan Document
that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2.5% per annum plus the Prime
Rate except that payments made one Business Day late shall bear interest at the
Federal Funds rate then in effect plus any customary margin.
"Post-Petition Intercreditor Agreement" shall mean that certain
Intercreditor Agreement, dated as of October 12, 1998, between CIT and the
Lender.
"Post-Petition Pledge Agreement" shall mean that certain Pledge
Agreement, dated as of October 12, 1998, among the CIT, the Lender, the
Guarantor and the Borrower.
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<PAGE> 20
"Pre-Petition Collateral" shall mean all "collateral", as such term
is used under the Existing Loan Agreement.
"Pre-Petition Intercreditor Agreement" shall mean Section 9 of the
Existing Pledge Agreement, as it may have been amended.
"Primary Collateral" shall have the meaning provided in Section
4.01(b) hereof.
"Prime Rate" shall mean the prime rate announced to be in effect
from time to time, as published as the average rate in The Wall Street Journal.
"Principal Paydowns" shall mean, with respect to any Mortgage Asset,
any payment or other recovery of principal on such Mortgage Asset (other than
Payoff Proceeds), which is received by or on behalf of the Borrower, including
any penalty or premium thereon.
"Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchased Loan" shall mean a residential mortgage loan purchased by
the Lender from the Borrower pursuant to any of the Existing Purchase
Agreements.
"Reference Bank" shall mean three major banks that are engaged in
the London interbank market, as selected by the Lender.
"Request for Borrowing" shall have the meaning provided in
Section 2.03(a) hereof.
"Requirement of Law" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject; provided, that the foregoing shall not include
the organizational or governing documents of the Lender.
"Responsible Officer" shall mean, as to any Person, the chief
executive officer or, with respect to financial matters, the chief financial
officer of such Person.
"Retained Yield" shall have the meaning provided in the Existing
Purchase Agreements.
"Servicer" shall mean the servicer of the Mortgage Assets pursuant
to the Servicing Agreement or any other servicing agreement.
"Servicing Agreement" shall have the meaning provided in Section
11.14(a) hereof.
"Servicing Records" shall have the meaning provided in Section
11.14(e) hereof.
"Settlement Agent" shall mean the settlement agent or closing
attorney with respect to the funding of a Mortgage Asset.
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<PAGE> 21
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Tangible Shareholders' Equity" shall mean the sum of (i) the
aggregate "assets" of Borrower or Guarantor, as applicable, less the aggregate
"liabilities" of Borrower or Guarantor, as applicable, with the term "asset"
having the meaning ascribed to such term by GAAP and the term "liabilities"
being those obligations or liabilities of Borrower or Guarantor, as applicable,
which, in accordance with GAAP, would be included on the liability side of
Borrower's, or Guarantor's, as applicable, balance sheet plus (ii) in the case
of the Borrower, advances or loans from the Guarantor, minus (a) any surplus
from the write-up of assets subsequent to December 31, 1997; (b) goodwill,
including any amounts (however designated on the balance sheet) representing the
cost of acquisitions of Subsidiaries in excess of underlying tangible assets;
(c) patents, trademarks, copyrights; (d) leasehold improvements not recoverable
at the expiration of a lease; (e) deferred charges (including, but not limited
to, unamortized debt discount and expense, organization expenses and
experimental and development expenses, but excluding prepaid expenses); and (f)
advances or loans to shareholders, officers or Affiliates (other than any
Subsidiary of the Borrower) of such Person.
"Termination Date" shall mean either (a) the earliest to occur of
(i) the Plan Effective Date in either Chapter 11 Case that has been confirmed by
an order of the Bankruptcy Court, (ii) March 1, 1999, (iii) the thirtieth (30th)
day following the Petition Date, unless the Final Order has been entered by the
Bankruptcy Court on or prior to such day and (iv) such earlier date on which
this Loan Agreement shall terminate in accordance with the provisions hereof or
by operation of law or (b) such later date as established in accordance with
Section 2.11 hereof.
"Underwriting Guidelines" shall mean the underwriting guidelines as
in effect on the Interim Effective Date, attached as Exhibits C and D hereto,
except that with respect to Schedule 1, "Underwriting Guidelines" shall mean the
underwriting guidelines in effect as of the date of origination of the Mortgage
Asset.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect on the date hereof in the State of New York; provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.
"United States Trustee" shall mean the trustee appointed pursuant to
the Bankruptcy Code in connection with the Chapter 11 Cases.
"U.S. Bank Trust Custodial Agreement" shall mean that certain
Custodial Agreement, dated as of the date hereof, among the Borrower, U.S. Bank
Trust and the Lender, substantially in the form of Exhibit A-2, as the same
shall be modified and supplemented and in effect from time to time.
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<PAGE> 22
1.02 Accounting Terms and Determinations. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
Section 2. Loans and Prepayments.
2.01 Loans.
(a) Subject to fulfillment of the conditions precedent set forth in
Sections 5.01 and 5.02 hereof, as applicable, and provided that no Default shall
have occurred and be continuing hereunder, the Lender agrees from time to time,
on the terms and conditions of this Loan Agreement, to make loans (individually,
a "Loan"; collectively, the "Loans") to the Borrower in Dollars, from and
including the Interim Effective Date or the Final Effective Date, as applicable,
to and including the Termination Date in an aggregate principal amount at any
one time outstanding up to but not exceeding the Maximum Credit as in effect
from time to time.
(b) Subject to the terms and conditions of this Loan Agreement,
during such period the Borrower may borrow, repay and reborrow hereunder.
(c) Unless waived by the Lender in writing, in no event shall a Loan
be made when any Default or Event of Default has occurred and is continuing.
2.02 Evidence of Indebtedness.
The Loans made by the Lender shall be evidenced by notation thereof
by the Lender on its books and records, which notation of books and records
shall be deemed conclusive evidence of the indebtedness owed Lender by Borrower
hereunder absent manifest error. The date, amount and interest rate of each Loan
made by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books; provided that
the failure of the Lender to make any such recordation shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
hereunder in respect of the Loans. Upon request of the Lender, the Borrower
shall execute and deliver a promissory note (a "Note") evidencing the
indebtedness of the Borrower incurred hereunder. The failure of the Lender to
make such a request shall in no way impair the Lender's rights or reduce the
Borrower's obligations hereunder.
2.03 Procedure for Borrowing.
(a) The Borrower may request a borrowing hereunder, on any Business
Day during the period from and including the Interim Effective Date or the Final
Effective Date, as applicable, to and including the Termination Date, by
delivering to the Lender, with a copy to the Custodian, an irrevocable written
request for borrowing substantially in the form of Exhibit H hereto ("Request
for Borrowing"), which Request for Borrowing must be received by the Lender
prior to 4:00 p.m., New York City time at least one (1) Business Day prior to
the requested Funding Date. Such Request for Borrowing shall (i) attach a
Mortgage Asset Schedule (in hard copy, accompanied by a data transmission in a
form agreed to by the Borrower and the Lender) identifying the Eligible Assets
that the Borrower proposes to pledge to the Lender and to be included in the
Borrowing Base in connection with such borrowing (ii) specify the requested
Funding Date, (iii) include such other matters as may be specified on the form
of the Request for Borrowing or as may be reasonably requested by
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<PAGE> 23
Lender from time to time in accordance with the terms hereof and (iv) shall be
signed by one of the officers of the Borrower identified in Schedule 4 hereto as
it may be amended from time to time in accordance with Section 7.23 hereof. Each
Loan shall be in a minimum amount equal to $1,000,000. Borrower shall indemnify
Lender and hold it harmless against any Losses incurred by Lender as a result of
any failure by Borrower to timely deliver the Eligible Assets subject to such
Request for Borrowing.
(b) Upon the Borrower's Request for Borrowing pursuant to Section
2.03(a), the Lender shall, provided that all conditions precedent set forth in
Section 5.01 or 5.02, as applicable, and 5.03 have been met and provided no
Default shall have occurred and be continuing, make a Loan to the Borrower on
the requested Funding Date, in the amount so requested.
(c) The Borrower shall deliver (or cause to be delivered) and
release to the Custodian no later than 4:00 p.m., New York City time, three (3)
Business Days prior to the requested Funding Date, the Mortgage File pertaining
to each Eligible Asset to be pledged to the Lender and included in the Borrowing
Base on such requested Funding Date, in accordance with the terms and conditions
of the applicable Custodial Agreement.
(d) Pursuant to the First Trust Custodial Agreement, First Trust
shall deliver to the Lender and the Borrower, no later than 1:00 p.m., New York
City time, on a Funding Date, a Trust Receipt (as defined in the applicable
Custodial Agreement) in respect of all Mortgage Assets pledged to the Lender on
such Funding Date, and a Mortgage Asset Schedule and Exception Report. Provided
that such delivery shall have occurred and subject to Section 5 hereof, such
borrowing will then be made available to the Borrower by the Lender
transferring, via wire transfer to the account designated by the Borrower, in
the aggregate amount of such borrowing in funds immediately available to the
Borrower.
(e) Upon the Borrower's request, the Lender shall deliver to the
Borrower (i) prior to the close of business on each Business Day, by fax, a
daily activity report with respect to the activity under the facility provided
for hereunder, in such form and containing such information as the Borrower and
Lender may from time to time mutually agree, and (ii) not less frequently than
weekly, by fax, a summary of the activity disclosed for such week in the daily
activity reports delivered pursuant to clause (i) of this Section 2.03(e).
2.04 Limitation on Types of Loans; Illegality. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of any LIBO
Base Rate:
(a) the Lender determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "LIBO Base Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Loans as provided herein; or
(b) the Lender determines, in good faith, which determination shall
be conclusive, that the relevant rate of interest referred to in the
definition of "LIBO Base Rate" in Section 1.01 hereof upon the basis of
which the rate of interest for Loans is to be determined is not likely
adequately to cover the cost to the Lender of making or maintaining Loans;
or
(c) it becomes unlawful for the Lender to honor its obligation to
make or maintain Loans hereunder using a LIBO Rate;
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<PAGE> 24
then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall, following discussions with
the Borrower, select in good faith an index that approximates as closely as
reasonably practicable the LIBO Base Rate.
2.05 Repayment of Loans; Interest.
(a) The Borrower hereby promises to repay in full on the Termination
Date the then aggregate outstanding principal amount of the Loans and all other
DIP Obligations.
(b) The Borrower hereby promises to pay to the Lender interest on
the unpaid principal amount of each Loan for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full, at
a rate per annum equal to the greater of (i) the LIBO Rate plus the Applicable
Margin and (ii) the highest pre-default interest rate charged to the Borrower or
the Guarantor, as applicable, by CIT pursuant to the CIT Facility.
Notwithstanding the foregoing, the Borrower hereby promises to pay to the Lender
interest at the applicable Post-Default Rate on any principal of any Loan and on
any other amount payable by the Borrower hereunder or under any other Loan
Document that shall not be paid in full when due (whether at stated maturity, by
acceleration or by mandatory prepayment or otherwise) for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable monthly on the 25th
calendar day of each month and for the last month of the Loan Agreement on the
25th calendar day of such last month and on the Termination Date, except that
interest payable at the Post-Default Rate shall accrue and be payable daily.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Lender shall give notice thereof to the Borrower.
(c) From the Petition Date until the repayment in full of the
Existing Obligations, the Existing Obligations shall bear interest in accordance
with Section 7.24(c) hereof.
2.06 Mandatory Prepayments or Pledge.
(a) If at any time the aggregate outstanding principal amount of
Loans exceeds the Borrowing Base (such excess, a "Borrowing Base Deficiency"),
as determined by the Lender and notified to the Borrower on any Business Day,
the Borrower shall no later than one Business Day after receipt of such notice,
either prepay the Loans in part or in whole or pledge additional Eligible Assets
(which Collateral shall be in all respects acceptable to the Lender) to the
Lender, such that after giving effect to such prepayment or pledge the aggregate
outstanding principal amount of the Loans does not exceed the Borrowing Base.
(b) No later than two (2) Business Days following the Borrower's
receipt of any Payoff Proceeds, the Borrower shall prepay all Loans and accrued
and unpaid interest thereon in respect of the Mortgage Assets subject to such
Payoff.
(c) The Borrower shall prepay the Loans on the 25th calendar day of
each month (or if such 25th calendar day is not a Business Day, the next
succeeding Business Day), in an amount equal to all Principal Paydowns received
by the Borrower from the 19th calendar day of the preceding month through and
including the 18th calendar day of the month during which such prepayment is
due. Each Principal Paydown received with respect to a particular Mortgage Asset
shall be applied to reduce the Loan Balance with respect to such Mortgage Asset.
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(d) The Borrower shall apply the proceeds (net of underwriting fees)
of any securitization of pledged Mortgage Assets to prepay the Loan Balance with
respect to such Mortgage Assets and accrued and unpaid interest thereon, on the
date of settlement of any securitization of Mortgage Assets; provided, that any
proceeds in excess of the Loan Balance with respect to such Mortgage Assets may
be retained by the Borrower.
(e) The Borrower shall apply the proceeds (net of broker's fees) of
any sale of any Mortgage Asset (other than pursuant to Section 2.06(d) to prepay
the Loan Balance with respect to such Mortgage Asset, and accrued and unpaid
interest thereon, on the date of settlement of any such sale. The amount to be
paid to the Lender pursuant to this Section 2.06(e) shall be paid directly to
the Lender by the purchaser of such Mortgage Asset; provided, that any proceeds
in excess of the Loan Balance with respect to such Mortgage Assets may be paid
to and retained by the Borrower.
(f) The Borrower shall pay the Loan Balance for any Mortgage Asset
in respect of which the related Mortgage Note has been extinguished under
relevant state law in connection with a judgment of foreclosure or foreclosure
sale or otherwise, no later than one (1) Business Day after the date such
Mortgage Note is extinguished.
(g) If the Lender, for any reason, after the Petition Date is
required by the Bankruptcy Court or by any other court of competent jurisdiction
to repay or disgorge all or part of any repayment of Existing Loans or other
amounts owing to the Lender under the Existing Loan Agreement (collectively,
"Avoided Payments"), the amount of such Avoided Payments shall be subtracted
from the Maximum Credit then in effect. To the extent that such calculation
results in the Loans then outstanding exceeding the Maximum Credit, the Borrower
shall prepay such excess no later than one Business Day following receipt of
notice from the Lender.
(h) Amounts repaid may be reborrowed in accordance with the terms of
this Loan Agreement.
2.07 Optional Prepayments. The Loans are prepayable at the end of
any Interest Period without premium or penalty, in whole or in part, and may be
prepaid on any other date subject to Section 2.08 hereof. Any amounts prepaid
shall be applied to repay the outstanding principal amount of any Loans
(together with interest thereon) until paid in full. Amounts repaid may be
reborrowed in accordance with the terms of this Loan Agreement. If the Borrower
intends to prepay a Loan in whole or in part from a source other than the
proceeds of the Mortgage Assets, the Borrower shall give three (3) Business
Days' prior written notice thereof to the Lender. If such notice is given, and
the amount specified in such notice is not paid on the date specified therein,
the Borrower shall indemnify the Lender and hold the Lender harmless from any
loss or expense which the Lender may sustain or incur as a result of such notice
to prepay.
2.08 Indemnity. If the Borrower makes a prepayment of the Loans on
any day which is not the last day of the Interest Period with respect to such
Loan, the Borrower shall indemnify the Lender and hold the Lender harmless from
any actual loss or expense which the Lender may sustain or incur arising from
the reemployment of funds obtained by the Lender to maintain the Loans hereunder
(but excluding loss of profit) or from fees payable to terminate the deposits
from which such funds were obtained. This Section 2.08 shall survive for ninety
(90) days following termination of Loan Agreement and payment of the Note.
2.09 Requirements of Law.
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<PAGE> 26
(a) If any Requirement of Law or any change in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made after the date that any Lender becomes a Lender
party to this Loan Agreement:
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to this Loan Agreement, the Note or any Loan made by it (excluding
net income and franchise taxes) or change the basis of taxation of
payments to the Lender in respect thereof;
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of the Lender which is not otherwise included in the determination
of the LIBO Base Rate hereunder;
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Loan or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay the Lender such
additional amount or amounts as will compensate the Lender for such increased
cost or reduced amount receivable.
(b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by the Lender or any
corporation controlling the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made after the date that any Lender becomes a Lender party to this
Loan Agreement shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation could have
achieved but for such adoption or change (taking into consideration the Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by the Lender to be material, then from time to time, the Borrower shall
promptly pay to the Lender such additional amount or amounts as will compensate
the Lender for such reduction.
(c) If the Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower of the event
by reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this subsection submitted by the Lender to the
Borrower shall be conclusive in the absence of manifest error.
(d) The Lender represents and warrants to the Borrower that it is a
United States Person (as defined in Section 7701(a)(30) of the Code) for federal
income tax purposes.
2.10 Taxes. (a) All payments made by the Borrower under this Loan
Agreement and the Note shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Lender as a result of a present or
former connection between the Lender and the
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jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, this Loan
Agreement or any Note). If any such non-excluded taxes, levies, imposts, duties,
charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to
be withheld from any amounts payable to the Lender hereunder or under the Note,
the amounts so payable to the Lender shall be increased to the extent necessary
to yield to the Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Loan Agreement, provided, however, that the Borrower shall not be required
to increase any such amounts payable to the Lender that is not organized under
the laws of the United States of America or a state thereof if the Lender fails
to comply with the requirements of clause (b) of this Section. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the Lender for any
incremental taxes, interest or penalties that may become payable by the Lender
as a result of any such failure. The agreements in this Section shall survive
the termination of this Loan Agreement and the payment of the Loans and all
other amounts payable hereunder.
(b) If the Lender hereunder (or an assignee or participant that
acquires an interest hereunder in accordance with Section 11.13 hereof) that is
not incorporated under the laws of the United States of America or a state
thereof shall:
(i) deliver to the Borrower (A) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor applicable
form, as the case may be, and (B) an Internal Revenue Service Form W-8 or
W-9, or successor applicable form, as the case may be;
(ii) deliver to the Borrower two further copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously delivered by it to
the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower. Such Lender
shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to
receive payments under this Loan Agreement without deduction or withholding of
any United States federal income taxes and (ii) in the case of a Form W-8 or
W-9, that it is entitled to an exemption from United States backup withholding
tax. Each Person that shall become a Lender or a participant pursuant to Section
11.13 hereof shall, upon the effectiveness of the related transfer, be required
to provide all of the forms and statements required pursuant to this Section,
provided that in the case of a participant, such participant shall
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furnish all such required forms and statements to the Lender from which the
related participation shall have been purchased.
2.11 Extension of Termination Date. At the request of the Borrower,
received no later than 30 days prior to the then current Termination Date, the
Lender may in its sole discretion extend the Termination Date for an additional
period of time, to be determined by the Lender in its sole discretion, by giving
written notice of such extension to the Borrower no later than 20 days prior to
the then current Termination Date.
2.12 Additional Fees.
(a) Facility Fee: The Borrower shall pay to the Lender a facility
fee in an amount equal to the product of (i) the greater of (A) 1.75% and (B)
the CIT Facility Fee Percentage and (ii) $100,000,000. Such facility fee shall
be payable in three installments as follows:
(x) one-third of such facility fee shall have been paid on or prior
to the execution and delivery of the commitment letter and term sheet
relating to this Loan Agreement (which amount the Lender acknowledges has
previously been paid by the Borrower);
(y) one-third of such facility fee shall be payable on or prior
to the Interim Effective Date; and
(z) one-third of such facility fee shall be payable on or prior to
the Final Effective Date.
(b) Commitment Fee: On the last day of each fiscal quarter, or if
such day is not a Business Day, the next succeeding Business Day, the Borrower
shall pay to the Lender a commitment fee in an amount equal to the product of
(i) the greater of (A) .50% and (B) the CIT Commitment Fee Percentage, and (ii)
the average daily unused portion of the Maximum Credit under this Loan Agreement
during such fiscal quarter.
(c) Exit Fee: In connection with any Disposition, on the related
Disposition Date, the Borrower shall pay to the Lender a collateral release fee
in an amount equal to the product of (i) .25% and (ii) the aggregate outstanding
principal balance of the Mortgage Asset subject to such Disposition; provided,
however, that the aggregate amount of all such collateral release fees paid
after the Petition Date (without counting any such collateral release fees which
are waived by the Lender) shall not exceed $375,000; provided, further, that
such collateral release fee shall be waived in the case of (x) a Disposition
pursuant to clause (i) of the definition of "Disposition" in which the Lender
acts as purchaser, lead underwriter or lead placement agent with respect to the
Mortgage Assets subject to the Disposition or (y) a Disposition pursuant to
clause (ii) of the definition of "Disposition" in which the Mortgage Assets
subject to the Disposition are pledged to the Lender pursuant to a replacement
revolving credit facility entered into between the Lender and the Borrower, on
terms acceptable to the Lender in its sole discretion.
Section 3. Payments; Computations; Etc.
3.01 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement, shall be made in
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Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Lender at the account designated by the Lender, not later
than 1:00 p.m., New York City time, on the date on which such payment shall
become due (and each such payment made after such time on such due date shall be
deemed to have been made on the next succeeding Business Day). The Borrower
acknowledges that it has no rights of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the
due date of any payment under this Loan Agreement would otherwise fall on a day
that is not a Business Day, such date shall be extended to the next succeeding
Business Day, and interest shall be payable for any principal so extended for
the period of such extension.
3.02 Computations. Interest on the Loans shall be computed on the
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
Section 4. Collateral Security.
4.01 Collateral; Security Interest.
(a) Pursuant to the applicable Custodial Agreement, the Custodian
shall hold the Mortgage Asset Documents as exclusive bailee and agent for the
Lender pursuant to the terms of the applicable Custodial Agreement and shall
deliver to the Lender Trust Receipts (as defined in the applicable Custodial
Agreement) each to the effect that it has reviewed such Mortgage Asset Documents
in the manner and to the extent required by the applicable Custodial Agreement
and identifying any deficiencies in such Mortgage Asset Documents as so
reviewed.
(b) All of the Borrower's right, title and interest in, to and under
each of the following items of property, (including any and all such property
described in clauses (i) through (xi) below to the extent that such property was
formerly Pre-Petition Collateral in which the Lien granted under the Existing
Loan Agreement was released by virtue of payments in respect of the Existing
Obligations) whether now owned or hereafter acquired, now existing or hereafter
created and wherever located, is hereinafter referred to as the "Primary
Collateral":
(i) all Mortgage Assets which either Custodian has been instructed
to hold for the Lender hereunder pursuant to the applicable Custodial
Agreement;
(ii) all Mortgage Asset Documents for such Mortgage Assets,
including without limitation all promissory notes, and all Servicing
Records, servicing agreements and any other collateral pledged or
otherwise relating to such Mortgage Assets, together with all files,
documents, instruments, surveys, certificates, correspondence, appraisals,
computer programs, computer storage media, accounting records and other
books and records relating thereto;
(iii) all mortgage guaranties and insurance (issued by governmental
agencies or otherwise) and any mortgage insurance certificate or other
document evidencing such mortgage guaranties or insurance relating to any
such Mortgage Asset and all claims and payments thereunder;
(iv) all other insurance policies and insurance proceeds relating to
any such Mortgage Asset or the related Mortgaged Property;
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(v) all Interest Rate Protection Agreements relating to such
Mortgage Assets;
(vi) any account established by either Custodian for the benefit of
the Lender hereunder pursuant to either Custodial Agreement and the
balance from time to time standing to the credit of such account and all
rights with respect thereto;
(vii) all "collateral", however defined, under any Other Agreements,
other than any such collateral which is Pre-Petition Collateral, for so
long as such collateral is Pre-Petition Collateral;
(viii) all Insured Closing Letters and rights relating thereto;
(ix) all rights under any errors and omissions policies of the
Settlement Agents;
(x) all "general intangibles" as defined in the Uniform Commercial
Code relating to or constituting any and all of the foregoing; and
(xi) any and all replacements, substitutions, distributions on or
proceeds of any and all of the foregoing.
(c) All of the Borrower's right, title and interest in, to and under
each of the CIT Mortgage Loans, whether now owned or hereafter acquired, now
existing or hereafter created, and wherever located (hereinafter referred to as
the "CIT Mortgage Loan Collateral").
(d) All of the Borrower's right, title and interest in, to and under
each of the following items of property, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located (hereinafter
referred to as the "Other Collateral"):
(i) all accounts; bank accounts; chattel paper; contracts; documents
and letters of credit; equipment; general intangibles; instruments;
inventory; investment property; vehicles; (each as defined in the Uniform
Commercial Code) and any other real or personal property of the Borrower
(including without limitation, residual securities and servicing rights),
however described, including without limitation, Pre-Petition Collateral;
and
(ii) all books and records pertaining to the foregoing; and to the
extent not otherwise included, any and all replacements, substitutions,
distributions on or proceeds or products of any and all of the foregoing.
(e) The Borrower hereby assigns, pledges and grants a security
interest in all of its right, title and interest in, to and under the Collateral
to the Lender to secure the repayment of principal of and interest on all Loans
and all other amounts owing to the Lender hereunder, under the Note and under
the other Loan Documents (collectively, the "DIP Obligations"); provided, that
Carve Out Expenses may be paid from the Collateral as contemplated herein. The
Borrower agrees to mark its computer records and tapes to evidence the interests
granted to the Lender hereunder.
4.02 Further Documentation. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Borrower, the
Borrower will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein
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granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the Liens created hereby. The Borrower also hereby
authorizes the Lender to file any such financing or continuation statement
without the signature of the Borrower to the extent permitted by applicable law.
A carbon, photographic or other reproduction of this Loan Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall not (i)
change the location of its chief executive office/chief place of business from
that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed necessary by the Lender to continue its perfected status in the
Collateral with the same or better priority.
4.04 Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the Borrower or in its
own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Loan Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Loan Agreement, and,
without limiting the generality of the foregoing, the Borrower hereby gives the
Lender the power and right, on behalf of the Borrower, without assent by, but
with notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
mortgage insurance or with respect to any other Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any such mortgage insurance
or with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; provided that if such taxes are being
contested in good faith and by appropriate proceedings, the Lender shall
consult with the Borrower before making any such payment; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to
ask or demand for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against the
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Borrower with respect to any Collateral; (F) to settle, compromise or
adjust any suit, action or proceeding described in clause (E) above and,
in connection therewith, to give such discharges or releases as the Lender
may reasonably deem appropriate; and (G) generally, to sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the Lender were the
absolute owner thereof for all purposes, and to do, at the Lender's option
and the Borrower's expense, at any time, and from time to time, all acts
and things which the Lender reasonably deems necessary to protect,
preserve or realize upon the Collateral and the Lender's Liens thereon and
to effect the intent of this Loan Agreement, all as fully and effectively
as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time and from
time to time, to execute, in connection with any sale provided for in Section
4.07 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrower for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.05 Performance by Lender of Borrower's Obligations. If the
Borrower fails to perform or comply with any of its agreements contained in the
Loan Documents, the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, and the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute DIP
Obligations. The Lender shall use its reasonable efforts to give the Borrower
prior notice (but in any event prompt notice) of any actions taken pursuant to
this Section 4.05.
4.06 Proceeds. If an Event of Default shall occur and be continuing,
(a) all proceeds of Collateral received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall forthwith upon
receipt by the Borrower be turned over to the Lender in the exact form received
by the Borrower (duly endorsed by the Borrower to the Lender, if required) and
(b) any and all such proceeds received by the Lender (whether from the Borrower
or otherwise) may, in the sole discretion of the Lender, be held by the Lender
as collateral security for, and/or then or at any time thereafter may be applied
by the Lender against, the DIP Obligations (whether matured or unmatured),
except as provided in the Orders, it being understood that until the Existing
Obligations are paid in full, all proceeds relating to the Pre-Petition
Collateral shall be used to repay the Existing Obligations, such application to
be in such order as the Lender shall elect. Any balance of such proceeds
remaining after the DIP Obligations shall have been paid in full and this Loan
Agreement shall have been terminated shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive the same. For purposes hereof,
proceeds shall include, but not be limited to, all principal and interest
payments, all prepayments and payoffs, insurance claims, condemnation awards,
sale proceeds, real estate owned rents and any other income and all other
amounts received with respect to the Collateral.
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4.07 Remedies. If an Event of Default shall occur and be continuing,
the Lender may exercise, in addition to all other rights and remedies granted to
it in this Loan Agreement and in any other instrument or agreement securing,
evidencing or relating to the DIP Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. Without limiting the generality
of the foregoing, the Lender without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(each and all of which demands, presentments, protests, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give an option or options to purchase,
or otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels or as an entirety
at public or private sale or sales, at any exchange, broker's board or office of
the Lender or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Borrower,
which right or equity is hereby waived or released. The Borrower further agrees,
at the Lender's request, to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Borrower's premises or elsewhere. The Lender shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including
without limitation reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the DIP Obligations, in such order as the Lender may
elect, and only after such application and after the payment by the Lender of
any other amount required or permitted by any provision of law, including
without limitation Section 9-504(1)(c) of the Uniform Commercial Code, need the
Lender account for the surplus, if any, to the Borrower. To the extent permitted
by applicable law, the Borrower waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by the Lender of any of
its rights hereunder, other than those claims, damages and demands arising from
the gross negligence or willful misconduct of the Lender. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. The Borrower shall remain liable for any
deficiency (plus accrued interest thereon as contemplated pursuant to Section
2.05(b) hereof) if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the DIP Obligations and the fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.
4.08 Limitation on Duties Regarding Preservation of Collateral. The
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
4.09 Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
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4.10 Release of Security Interest. If no Default has occurred and is
continuing or will occur as a result of the following, the Lender agrees to
cooperate with the Borrower with respect to any sale not prohibited by this Loan
Agreement and promptly take such action and execute and deliver such instruments
and documents necessary to release the Liens and security interests created
hereby relating to any of the assets or property affected by any such sale,
including, without limitation, any necessary Uniform Commercial Code amendment,
termination or partial amendment. Upon termination of this Loan Agreement and
repayment to the Lender of all DIP Obligations and the performance of all
obligations under the Loan Documents the Lender shall release its security
interest in any remaining Collateral; provided that if any payment, or any part
thereof, of any of the DIP Obligations is rescinded or must otherwise be
restored or returned by the Lender this Loan Agreement, all rights hereunder and
the Liens created hereby shall continue to be effective, or be reinstated, as
though such payments had not been made.
4.11 Certain Bankruptcy Issues. The DIP Obligations shall constitute
allowed administrative expenses in the Borrower's Case having priority over all
other administrative expenses of the kinds specified in Sections 503(b) or
507(b) of the Bankruptcy Code and unsecured claims, other than Borrower
Carve-Out Expenses, and, subject to the terms of the Post-Petition Pledge
Agreement and the Post-Petition Intercreditor Agreement, shall be pari passu as
to priority with the obligations of the Borrower under the CIT Facility and
shall be paid as ordinary course expenses during the Borrower's Case without
notice, hearing or court approval. The doctrine of marshaling shall not be
available or applicable with respect to the payment of any DIP Obligations or
any enforcement of remedies by the Lender.
Section 5. Conditions Precedent.
5.01 Conditions to Interim Funding. The obligation of the Lender to
make its initial Loan during the Interim Period hereunder is subject to the
satisfaction or written waiver by the Lender, prior to or concurrently with the
making of such Loan, but in any event no later than October 15, 1998, of the
following conditions precedent to the satisfaction of the Lender and its
counsel:
(a) Loan Documents.
(i) Loan Agreement. The Lender shall have received this
Loan Agreement, executed and delivered by a duly authorized
officer of the Borrower;
(ii) Custodial Agreements. The Lender shall have received the
First Trust Custodial Agreement and the U.S. Bank Trust Custodial
Agreement, duly executed and delivered by the Borrower and the
applicable Custodian. In addition, the Borrower shall have taken
such other action as the Lender shall have reasonably requested in
order to perfect the security interests created pursuant to this
Loan Agreement;
(b) Organizational Documents. The Lender shall have received
certified copies of the charter and by-laws (or equivalent documents) of
the Borrower and of all corporate or other authority for the Borrower with
respect to the execution, delivery and performance of the Loan Documents
and each other document to be delivered by the Borrower from time to time
in connection herewith (and the Lender may conclusively rely on such
certificate until it receives notice in writing from the Borrower to the
contrary);
(c) Affiliate Guaranty.
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(i) The Lender shall have received the Affiliate Guaranty,
duly completed and executed by a duly authorized officer of the
Guarantor and approved in a Guaranty Order; and
(ii) The obligations of the Guarantor under the Affiliate
Guaranty (the "Guarantor Obligations") shall constitute allowed
administrative expenses in the Guarantor's Case having priority over
all other administrative expenses of the kinds specified in Sections
503(b) or 507(b) of the Bankruptcy Code and unsecured claims, other
than Guarantor Carve-Out Expenses, and shall be paid as ordinary
course expenses during the Guarantor's Case without notice, hearing
or court approval. The doctrine of marshaling shall not be available
or applicable with respect to the payment of any Guarantor
Obligations or any enforcement of remedies by the Lender.
(d) Legal Opinions. The Lender shall have received:
(i) a legal opinion of Latham & Watkins, outside counsel to
the Borrower, covering the entry of the Interim Order; and
(ii) a legal opinion of the in-house counsel to the Borrower,
covering, general corporate matters not covered by the opinion of
Latham & Watkins;
which, when read together, are substantially in the form attached
hereto as Exhibit B;
(e) Mortgage Asset Schedule and Exception Report. The Lender shall
have received a Mortgage Asset Schedule and Exception Report, dated the
Interim Effective Date, from the Custodian, duly completed;
(f) Servicing Agreement(s). The Lender shall have received any
servicing agreement with a third party servicer with respect to the
Mortgage Assets, certified as a true, correct and complete copy of the
original, with the letter of any applicable third-party servicer
consenting to termination of such servicing agreement upon the occurrence
of an Event of Default attached;
(g) Interim Order. An Interim Order, in form and substance
satisfactory to the Lender, shall be in effect and provide that no
Avoidance Action may be commenced by any person after 60 days following
the Petition Date;
(h) Fees and Expenses. The Lender shall have received all fees and
expenses due and payable to the Lender on or prior to the Interim
Effective Date;
(i) Review of Bankruptcy Filings. The Lender shall have reviewed and
approved all documents and pleadings submitted to the Bankruptcy Court
with respect to the interim and final approval of this Loan Agreement and
of the CIT Facility;
(j) Cash Budget. The Lender shall have reviewed and approved the
cash budget of the Borrower covering, on a week-by-week basis, a period of
at least thirty (30) days from the Petition Date;
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(k) Liens. The Liens in favor of the Lender shall be valid and
perfected Liens of the priority indicated in Section 6.07(e), subject to
no other Liens, except as expressly permitted hereunder;
(l) Plan of Reorganization. The Borrower and the Guarantor shall
have obtained acceptances from a majority in number and not less than
66.67% in dollar amount of those creditors voting in each class of
creditors entitled to vote to confirm the Plan of Reorganization for the
Borrower and the Guarantor, and the Plan of Reorganization shall (i)
provide for the repayment of all outstanding Existing Obligations and the
DIP Obligations on or prior to the Plan Effective Date, (ii) if any
releases or covenants not to sue or indemnities (or similar provisions)
are contained in the Plan of Reorganization, provide for releases by the
Borrower and the Guarantor of the Lender from any claims against the
Lender, in form and substance acceptable to the Lender, and (iii)
otherwise be reasonably acceptable to the Lender;
(m) CIT Facility. The Lender shall have received and approved all
documents evidencing the CIT Facility, and the CIT Facility shall provide
for committed financing during the Interim Period of not less than the
lesser of (A) $100,000,000 and (B) the amount approved by the Interim
Order, and otherwise on terms reasonably acceptable to the Lender (and all
conditions precedent thereto shall have been satisfied or waived by CIT);
(n) Employment Agreements. The Lender shall have received copies of
employment agreements between the Borrower and each of Cheryl Carl, Steven
Miller and Peter Kucma, each in form and substance reasonably acceptable
to the Lender;
(o) No Distributions. The Borrower shall not have made any
distribution of cash or cash equivalents (excluding mortgage loans owned
by the Borrower) to the Guarantor in excess of $100,000 in the aggregate,
and the Guarantor shall not have made any distribution of cash or cash
equivalents to any equity owner of the Guarantor in excess of $100,000 in
the aggregate, in each case during the period from the date which is 90
days prior to the Interim Effective Date to and including the Interim
Effective Date;
(p) Post-Petition Pledge Agreement. The Lender shall have received
the Post-Petition Pledge Agreement, executed and delivered by a duly
authorized officer of the Borrower and CIT, which shall be in form and
substance satisfactory to the Lender and shall include, without
limitation, provisions which (i) give effect to this Loan Agreement, (ii)
provide for the Lender and CIT to have pari passu priority in the Other
Collateral, (iii) provide for a standstill agreement on the part of CIT in
form and substance acceptable to the Lender with respect to the Primary
Collateral (to the extent that CIT (as a lender or an agent) is granted a
second (or other subordinate) lien on such Primary Collateral) and (iv)
provide for a standstill agreement on the part of the Lender in form and
substance acceptable to the Lender with respect to the CIT Mortgage Loan
Collateral;
(q) Post-Petition Intercreditor Agreement. The Lender shall have
received the Post-Petition Intercreditor Agreement, executed and delivered
by a duly authorized officer of CIT, which shall be in form and substance
satisfactory to the Lender; and
(r) Other Documents. The Lender shall have received such other
documents as the Lender may reasonably request.
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5.02 Conditions to Final Funding. The obligation of the Lender to
make its initial Loan during the Final Period hereunder is subject to the
satisfaction or written waiver by the Lender, prior to or concurrently with the
making of such Loan, but in any event no later than October 31, 1998, of the
following conditions precedent to the satisfaction of the Lender and its
counsel:
(a) Interim Funding Conditions. All conditions precedent
contained in Section 5.01 hereof shall have been satisfied;
(b) Fees and Expenses. The Lender shall have received all fees and
expenses due and payable to the Lender on or prior to the Final Effective
Date;
(c) Legal Opinion. The Lender shall have received a legal opinion of
Latham & Watkins, outside counsel to the Borrower, covering the entry of
the Final Order; substantially in the form attached hereto as Exhibit B;
(d) Orders. Neither the Interim Order nor the Guaranty Order shall
have been stayed, reversed, revoked or otherwise modified without the
consent of the Lender;
(e) Final Order. A Final Order, in form and substance
satisfactory to the Lender, shall be in effect;
(f) No Relief Motions. No motion shall be pending seeking any of the
relief described in paragraphs (m) and (n) of Section 8 hereto;
(g) CIT Facility. The Lender shall have received and approved all
documents evidencing the CIT Facility, and the CIT Facility shall provide
for committed financing during the Final Period of not less than
$100,000,000, and otherwise on terms reasonably acceptable to the Lender
(and all conditions precedent thereto shall have been satisfied or waived
by CIT); and
(h) Existing Obligations. The Existing Obligations shall have been
repaid in full (with the proceeds of the initial Loan made during the
Final Period or otherwise).
5.03 Initial and Subsequent Loans. The making of each Loan to the
Borrower (including the initial Loan during either the Interim Period or the
Final Period) on any Business Day is subject to the satisfaction of the
following further conditions precedent, both immediately prior to the making of
such Loan and also after giving effect thereto and to the intended use thereof:
(a) no Default or Event of Default shall have occurred and be
continuing;
(b) both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof, the representations
and warranties made by the Borrower in Section 6 hereof, and elsewhere in
each of the Loan Documents, shall be true and complete on and as of the
date of the making of such Loan in all material respects (in the case of
the representations and warranties in Section 6.07(a) and Schedule 1,
solely with respect to Mortgage Assets included in the Borrowing Base)
with the same force and effect as if made on and as of such date (or, if
any such representation or warranty is expressly stated to have been made
as of a specific date, as of such specific date). The Lender shall have
received a Request for Borrowing, with a certification thereon, signed by
a Responsible Officer of the Borrower certifying as to the truth and
accuracy of the above, which Request for Borrowing shall
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specifically include a statement that the Borrower is in compliance with
all governmental licenses and authorizations and is qualified to do
business in all required jurisdictions.
(c) the aggregate outstanding principal amount of the Loans shall
not exceed the Borrowing Base or the Maximum Credit at such time;
(d) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 11.15 hereof, the Lender shall have
completed its due diligence review of the Mortgage Asset Documents for
each Loan and such other documents, records, agreements, instruments,
mortgaged properties or information relating to such Loans as the Lender
in its sole discretion deems appropriate to review and such review shall
be satisfactory to the Lender in its sole discretion;
(e) the Lender shall have received from the Custodian a Trust
Receipt with exceptions acceptable to the Lender in its sole discretion in
respect of Eligible Assets to be pledged hereunder on such Business Day
and a Mortgage Asset Schedule and Exception Report, in each case dated
such Business Day and duly completed;
(f) all applicable conditions set forth in Section 2.03 hereof have
been complied with.
Each borrowing by the Borrower hereunder shall constitute a certification by the
Borrower that all the conditions set forth in this Section 5 have been satisfied
as of the date of such borrowing.
Section 6. Representations and Warranties. The Borrower
represents and warrants to the Lender that as of the Interim Effective Date
and throughout the term of this Loan Agreement:
6.01 Existence. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and is duly authorized and qualified to transact any and all business
contemplated by this Loan Agreement and the Loan Documents to be conducted by
the Borrower in any state in which a Mortgaged Property is located to the extent
necessary to ensure the enforceability of each Eligible Asset and the servicing
of the Eligible Asset in accordance with the terms of this Loan Agreement;
6.02 Litigation. Except as disclosed to the Lender prior to the
Interim Effective Date or, in the case of actions arising after the Interim
Effective Date, subsequently disclosed to the Lender in writing thereafter,
there are no actions, suits, arbitrations, investigations or proceedings pending
or, to the Borrower's actual knowledge, overtly threatened against the Borrower
or any of its Affiliates or affecting its Property that are reasonably likely to
materially and adversely affect the execution, delivery or enforceability of
this Loan Agreement or the Loan Documents or the ability of the Borrower to
service the Eligible Assets or for the Borrower to perform any of its other
obligations hereunder in accordance with the terms hereof;
6.03 No Breach. The execution and delivery of this Loan Agreement
and the Loan Documents by the Borrower, the servicing of the Eligible Assets by
the Borrower hereunder, the consummation by the Borrower of the transactions
herein contemplated and the fulfillment by the Borrower of or compliance by the
Borrower with the terms hereof will not (A) result in a breach of any term or
provision of the charter or by-laws of the Borrower or (B) conflict with, result
in a breach, violation or acceleration of, or result in a default under, the
terms of any other material agreement or
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instrument entered into after the Petition Date to which the Borrower is a party
or by which it may be bound or, after entry of the Interim Order and Final
Order, any statute, order or regulation applicable to the Borrower of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Borrower, which breach, violation, default or non-compliance would have
a material adverse effect on (a) the business, operations, financial condition,
properties or assets of the Borrower or (b) the ability of the Borrower to
perform its obligations under this Loan Agreement or the Loan Documents; and the
Borrower is not a party to, bound by, or in breach or violation of any material
indenture or other material agreement or instrument entered into after the
Petition Date, or after entry of the Interim Order and Final Order, subject to
or in violation of any statute, order or regulation of any court, regulatory
body, administrative agency or governmental body having jurisdiction over it,
which materially and adversely affects or, to the Borrower's knowledge, would in
the future reasonably be expected to materially and adversely affect, (x) the
ability of the Borrower to perform its obligations under this Loan Agreement or
the Loan Documents or (y) the business, operations, financial condition,
properties or assets of the Borrower, or result in the creation or imposition of
any Lien (except for the Liens created pursuant to, or contemplated under, this
Loan Agreement) upon any Property of the Borrower pursuant to the terms of any
such agreement or instrument;
6.04 Action. Upon entry of the Interim Order or the Final Order, as
applicable, the Borrower has the full corporate power and authority to service
each Eligible Asset, and to execute, deliver and perform, and to enter into and
consummate the transactions contemplated by this Loan Agreement and the Loan
Documents and the execution, delivery and performance of this Loan Agreement and
the Loan Documents by the Borrower has been duly authorized by all necessary
corporate action on the part of the Borrower; and this Loan Agreement and the
Loan Documents, assuming the due authorization, execution and delivery thereof
by the Lender and the entry of the Interim Order or the Final Order, as
applicable, constitutes a legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its respective terms, except
to the extent that (a) the enforceability thereof may be limited by federal or
state bankruptcy, insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
the equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought;
6.05 Approvals. After entry of the Interim Order and the Final
Order, no consent, approval, authorization or order of any court or governmental
agency or body is required for the execution, delivery and performance by the
Borrower of, or compliance by the Borrower with, this Loan Agreement or the Loan
Documents or the consummation of the transactions contemplated hereby (except
for such consents, approvals, authorizations, or orders to be obtained following
each Funding Date with respect to future transactions to be consummated
hereunder), or if any such consent, approval, authorization or order not
relating to a future transaction is required, the Borrower has obtained the same
thereof, except for (i) such consents, applications, authorizations and orders,
the failure to obtain or perform which would not have a material adverse effect
on the business, operations, condition, properties or assets of Borrower or its
Subsidiaries; and (ii) filings and recordings in respect of the Liens created
pursuant to the Loan Documents and the CIT Facility Documents;
6.06 Good Standing . The Borrower is in good standing and qualified
to do business in each jurisdiction where failure to be so qualified or licensed
would have a material adverse effect on (a) the business, operations, financial
condition, properties or assets of the Borrower or (b) the
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enforceability of any Eligible Asset or the servicing of the Eligible Assets in
accordance with the terms of this Loan Agreement;
6.07 Collateral; Collateral Security.
(a) No Mortgage Asset is assigned, pledged, or otherwise conveyed or
encumbered by the Borrower to any Person other than the Lender and CIT on a
subordinated basis as contemplated herein, and immediately prior to the pledge
of such Mortgage Asset to the Lender, the Borrower was the sole owner of such
Mortgage Asset and had good and marketable title thereto, free and clear of all
Liens, in each case except for Liens to be released simultaneously with the
Liens granted in favor of the Lender. No Mortgage Asset pledged to the Lender
hereunder was acquired by the Borrower from an Affiliate of the Borrower.
(b) After entry of the Interim Order or the Final Order, as
applicable, the provisions of this Loan Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and interest
of the Borrower in, to and under the Collateral.
(c) Upon entry of the Interim Order or the Final Order, as
applicable:
(i) the Lender shall have a first priority perfected security
interest with respect to the Primary Collateral;
(ii) the Lender shall have a second priority perfected
security interest with respect to the CIT Mortgage Loan Collateral,
subject only to the Lien of CIT; and
(iii) the Lender shall have a perfected security interest
which is pari passu with CIT with respect to all Other Collateral, which
shall be subject only to Permitted Liens.
6.08 Chief Executive Office. The Borrower's chief executive office
on the Interim Effective Date is located at 565 Taxter Road, Elmsford, New York
10523. The location where the Borrower keeps its books and records, including
all computer tapes and records relating to the Collateral is either its chief
executive office or 8 Skyline Drive, Hawthorne, New York 10532. Schedule 2
hereto lists the appropriate jurisdictions in which the Lender should file UCC-1
financing statements in order to make precautionary filings to perfect the
Lender's security interest in Collateral which may be perfected by filing.
6.09 Insurance. The Borrower has caused to be performed any and all
acts required to preserve the rights and remedies of the Lender in any insurance
policies of the Borrower or a Mortgagee applicable to the Eligible Assets sold
by the Borrower.
6.10 Financial Statements. The Financial Statements of Borrower,
copies of which have been furnished to Lender, (i) are, as of the dates and for
the periods referred to therein, complete and correct in all material respects,
(ii) present fairly the financial condition and results of operations of the
Borrower as of the dates and for the periods indicated and (iii) have been
prepared in accordance with generally accepted accounting principles
consistently applied, except as noted therein (subject as to interim statements
to normal year-end adjustments). Except as otherwise disclosed to the head
trader or chief credit officer of the Lender, since the date of the most recent
Financial Statements or Management Book, there has been no material adverse
change in such financial condition or results of operations. Except as disclosed
in the Financial Statements, Borrower is not subject to any contingent
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liabilities or commitments that, individually or in the aggregate, have a
material possibility of causing a material adverse change in the business or
operations of Borrower.
6.11 ERISA. Borrower is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan during the term of
this Loan Agreement.
6.12 Accuracy of Information. None of the documents or information
provided by Borrower to Lender in connection with the Loan Documents or the
transactions thereunder contain any statement of a material fact with respect to
Borrower or the Loans that was untrue or misleading in any material respect when
made; mortgage loan legal and servicing files shall not constitute such
documents or information for this purpose. Since the furnishing of such
documents or information, there has been no change, nor any development or event
involving a prospective change known to Borrower that would render any of such
documents or information untrue or misleading in any material respect. There is
no fact known to Borrower, and not previously disclosed to the head trader or
chief credit officer of the Lender, which has a material possibility of causing
a Material Adverse Effect with respect to Borrower.
6.13 Loan Documents. Each of the representations and warranties
(other than the representations and warranties set forth in Schedule 1, which
shall be considered solely for the purpose of determining the Collateral Value
of the Mortgage Assets; unless the Borrower shall have made any such
representations and warranties with knowledge that they were materially false or
misleading at the time made) of the Borrower contained in the Loan Documents is
true and correct in all material respects.
6.14 Compliance With Law, Etc. No practice, procedure or policy
employed by Borrower in the conduct of its businesses violates any law,
regulation, judgment, agreement, order or decree applicable to it, which
violation is reasonably likely to result in a Material Adverse Effect.
6.15 Fraudulent Conveyance. The Borrower is not transferring any
Mortgage Assets with any intent to hinder, delay or defraud any of its
creditors.
6.16 Investment Company Act Compliance. The Borrower is neither
required to be registered as an "investment company" as defined under the
Investment Company Act nor under the control of an "investment company" as
defined under the Investment Company Act.
6.17 Taxes. The Borrower has filed all federal and state tax returns
which are required to be filed by it and paid all taxes, including any material
assessments received by it, to the extent that such taxes have become due. Any
taxes, fees and other governmental charges payable by the Borrower in connection
with the transactions contemplated hereby and the execution and delivery of the
Loan Documents have been paid.
6.18 Margin Regulations. Neither the making of any Loan hereunder,
nor the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System.
6.19 Order Expenses.
(a) During the Interim Period, upon the entry of the Interim Order,
the DIP Obligations shall constitute allowed administrative expenses in the
Borrower's Case having priority in
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payment over all other administrative expenses and unsecured claims, other than
certain statutory fees of the United States Trustee and the Borrower's Carve Out
Expenses.
(b) During the Final Period, upon the entry of the Final Order, the
DIP Obligations shall constitute allowed administrative expenses in the
Borrower's Case having priority in payment over all other administrative
expenses and unsecured claims, other than certain statutory fees of the United
States Trustee and the Borrower's Carve Out Expenses.
6.20 Effectiveness of Orders. Each of the Interim Order, the Final
Order and the Guaranty Order, as applicable, are in full force and effect from
the time after the date on which each was entered and has not been stayed,
reversed, modified or amended without the consent of the Lender.
6.21 Existing Obligations. The Borrower is not aware of any defense
to the Existing Loan Agreement or the Existing Obligations thereunder or to the
validity, priority or perfection of the Lender's Lien on the collateral for the
Existing Loan Agreement.
6.22 Existing Purchase Agreements. The Borrower is not aware of (i)
any claim or defense to the Lender's ownership of the Purchased Loans (including
without limitation, all servicing rights relating thereto) free and clear of any
claim to any ownership or other interest in such Purchased Loans (other than the
Borrower's interest in the Retained Yield), (ii) any claim that it has or will
have as a debtor-in possession against the Lender or to the Purchased Loans
(other than the Borrower's interest in the Retained Yield), or (iii) any basis
for the avoidance in the Borrower's Case of any transfer of property from the
Borrower to the Lender.
6.23 Required Creditor Approval. The Borrower has obtained valid
acceptances from a majority in number and at least 66.67% in dollar amount of
those creditors voting in each class of creditors entitled to vote to confirm
the Plan of Reorganization, such acceptances were solicited and received in
compliance with Section 1126 of the Bankruptcy Code and such acceptances have
not been withdrawn or invalidated.
Section 7. Covenants of the Borrower. The Borrower covenants and
agrees with the Lender that, so long as any Loan is outstanding and until
payment in full of all DIP Obligations and occurrence of the Termination Date:
7.01 Financial Statements. Until the later to occur of (i) the
discharge and payment of all of Borrower's obligations under this Loan Agreement
and (ii) the Termination Date of this Loan Agreement, Borrower shall promptly
upon preparation, but in no event later than 60 days following the end of each
such party's first three fiscal quarters, deliver to Lender its unaudited
company-prepared financial statements as of the end of each such fiscal quarter,
prepared in accordance with GAAP. Borrower shall promptly upon preparation, but
in no event later than 90 days following the end of such party's fourth fiscal
quarter, deliver to Lender its audited and certified financial statements,
prepared in accordance with GAAP, as of the end of the most recently ended
fiscal year, which audits and certifications shall each be prepared by a
nationally recognized independent accounting firm or by a regionally recognized
independent accounting firm with the prior written consent of Lender, which
consent shall not be unreasonably withheld. In all cases, financial statements
shall include, without limitation, a balance sheet, a profit and loss statement
and a statement of cash flows. Notwithstanding anything in this Loan Agreement
to the contrary, if the audited and certified financial statements described in
the immediately preceding sentence are (x) not delivered within the
above-specified 90
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days, (y) Borrower is diligently using its best efforts to deliver such
financial statements, and (z) Borrower provides Lender with a notice specifying
the reason for the delay and a date, within a reasonable time period (as
determined by Lender), on which such financial statements will be delivered, and
they are so delivered; then failure to deliver such financial statements within
the above-specified 90 days, as the case may be, shall not be deemed to be an
Event of Default under this Loan Agreement.
7.02 Reports. (a) The Borrower shall, within 5 Business Days of
filing, deliver to Lender copies of all material public filings made by the
Borrower with any governmental or quasi-governmental body.
(b) The Borrower shall (i) with respect to any Mortgage Assets
serviced by the Borrower or any of its Affiliates or otherwise use its best
efforts to cause to be delivered to Lender monthly, the report, if any, prepared
by the relevant trustee or servicer setting forth payment activity, defaults and
delinquencies with respect to each Eligible Asset pledged to the Lender, (ii)
prepare and deliver reports each month, detailing, with respect to all Mortgage
Assets pledged to the Lender, such information as the Lender may from time to
time reasonably request and (iii) deliver to the Lender on the fifth day of each
month a Mortgage Asset Schedule.
(c) The Borrower shall deliver to the Lender, concurrently with
their delivery to the Bankruptcy Court, all monthly operating reports which are
filed with the Bankruptcy Court with respect to either the Borrower or the
Guarantor.
(d) The Borrower shall deliver to the Lender, within thirty (30)
days following the end of each calendar month, a copy of the monthly management
book of the Borrower (each, a "Management Book"), which monthly management book
shall be substantially in the form previously delivered by the Borrower to the
Lender and reasonably acceptable to the Lender.
7.03 Compliance With Laws. The Borrower shall comply in all material
respects with all laws, rules and regulations that relate to it or to the
Eligible Assets or that materially and adversely affect the operations or
financial conditions of the Borrower.
7.04 Existence, etc. Borrower shall do all things necessary to
remain duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted except where failure to maintain such authority would not have a
material adverse effect on the ability of Borrower to conduct its business or to
perform its obligations under this Loan Agreement.
7.05 Notices. Borrower will notify Lender in writing of any of the
following promptly upon learning of the occurrence thereof, describing the same
and, as applicable, any remedial steps being taken with respect thereto:
(A) The occurrence of a Default or Event of Default;
(B) The institution of any litigation, arbitration proceeding or
governmental proceeding which, in the opinion of counsel to Borrower,
could have a material adverse effect on Borrower or the Eligible Assets;
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(C) All legal or arbitrable proceedings affecting the Guarantor, the
Borrower or any of their respective Subsidiaries that questions or
challenges the validity or enforceability of any of the Loan Documents or
as to which there is a reasonable likelihood of adverse determination
which would result in a Material Adverse Effect;
(D) The entry of any judgment or decree against Borrower if the
aggregate amount of all judgments and decrees then outstanding against
Borrower exceeds $1,000,000 after deducting (i) the amount with respect to
which Borrower is insured and with respect to which the insurer has
assumed responsibility in writing, and (ii) the amount for which Borrower
is otherwise indemnified if the terms of such indemnification are
reasonably satisfactory to Lender;
(E) The occurrence or reasonable likelihood of any event which would
allow the obligee under any material loan agreement to which Borrower is
bound to declare an event of default or accelerate the obligations of
Borrower thereunder;
(F) The occurrence or reasonable likelihood of any event or
circumstance which could reasonably be expected to prevent the entry of an
order confirming the Plan of Reorganization by not later than December 31,
1998,
(G) Any proposed modification or amendment to the Plan of
Reorganization; and
(H) The occurrence of (1) any "Default" or "Event of Default" (as
such term is used under the CIT Facility) under the CIT Facility, (2) the
exercise of remedies under the CIT Facility, (3) any reduction,
termination or any cessation of any commitment under the CIT Facility or
(4) any modification or proposal for modification by CIT or the Borrower
of any provision of the CIT Facility.
7.06 Compliance With Custodial Agreement. With respect to each
Eligible Asset, the Borrower shall comply with all document delivery
requirements set forth in the applicable Custodial Agreement.
7.07 Borrowing Base Deficiency; Maximum Credit Excess. If at any
time there exists a Borrowing Base Deficiency or the outstanding Loans exceed
the Maximum Credit, the Borrower shall cure same in accordance with Section 2.06
hereof.
7.08 Inspection of Books and Records. Borrower shall permit the
Lender or its accountants, attorneys or other agents reasonable access to all of
their books and records relating to Eligible Assets for inspection and copying
during normal business hours at all places where Borrower conducts business.
7.09 No Assignment. Borrower shall not assign or attempt to assign
this Loan Agreement or any rights hereunder, without first obtaining the
specific written consent of Lender.
7.10 No Amendment to Corporate Documents. Borrower shall not amend
its Articles of Incorporation or By-laws, which amendment shall have or is
likely to have a material adverse effect upon Lender or its interests under this
Loan Agreement, without the prior written consent of Lender.
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7.11 No Change of Control. There shall be no Change of Control, and
Borrower shall not merge or consolidate with or into, any other entity without
the prior written consent of Lender, which consent shall not be unreasonably
withheld.
7.12 Limitation on Lines of Business. During the term of this Loan
Agreement, Borrower shall not engage in any business other than the business of
the Borrower in existence as of the date hereof, except with the prior written
consent of Lender which consent shall not be unreasonably withheld.
7.13 Limitation on Distributions. The Borrower shall not, except as
otherwise expressly permitted or contemplated hereby or by the Plan of
Reorganization, declare any dividends on any shares of any class of stock, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, retirement or other acquisition of
any shares of any class of stock, or any warrants or options to purchase such
stock, whether now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash or property or
in obligations of the Company, except (unless a Default shall have occurred and
be continuing) dividends to the Guarantor only to the extent necessary to pay
administrative expenses of the Guarantor's Case.
7.14 Limitation on Guarantees. Except to Guarantee Indebtedness under
the Indenture dated May 14, 1997, between Cityscape Financial Corp. and Chase
Manhattan Bank as trustee relating to $300,000,000 of 12 3/4% senior notes due
2004, Borrower shall not Guarantee, endorse or otherwise in any way become or be
responsible for any obligations of any other person, entity or Affiliate,
including without limitation, whether directly or indirectly by agreement to
purchase the indebtedness of any other person or through the purchase of goods,
supplies or services, or maintenance of working capital or other balance sheet
covenants or conditions, or by way of stock purchase, capital contribution,
advance or loan for the purposes of paying or discharging any indebtedness or
obligation of such other person or otherwise; provided, however, that nothing
contained herein shall prevent Borrower from indemnifying its officers,
directors and agents pursuant to its By-laws and its Articles of Incorporation.
7.15 Limitation on Liens. The Borrower will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien,
security interest or claim on or to the Collateral, other than the security
interests created under this Loan Agreement or otherwise expressly permitted
under this Loan Agreement, and the Borrower will defend the right, title and
interest of the Lender in and to any of the Collateral against the claims and
demands of all persons whomsoever, other than CIT to the extent that CIT's Liens
are permitted thereon and, in the case of Other Collateral, holders of Permitted
Liens.
7.16 Financial Condition Covenants.
(a) Maintenance of Net Worth of Borrower. The Borrower shall maintain
at all times the sum of (i) the Borrower's Tangible Shareholders' Equity plus
(ii) the Consolidated Unsecured Indebtedness of the Borrower of least
$130,000,000; and
(b) Maintenance of Liquidity. The Borrower shall maintain cash and cash
equivalents, subject to no Lien or other encumbrance other than the Liens in
favor of CIT or the Lender, of at least $15,000,000.
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7.17 Notice if Mortgage Asset is Found Defective. Upon discovery by the
Borrower or the Lender of any breach of any representation or warranty listed on
Schedule 1 hereto applicable to any Mortgage Asset, the party discovering such
breach shall promptly give notice of such discovery to the other.
7.18 Prohibition of Fundamental Changes. Neither the Borrower nor any
of its Subsidiaries shall enter into any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation, winding up or dissolution) or sell all or substantially all of its
assets, without the prior written consent of the Lender.
7.19 Limitation on Transactions with Affiliates. Neither the Borrower
nor any of its Subsidiaries shall enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Affiliate unless such transaction is (a) not otherwise
prohibited under this Loan Agreement, (b) in the ordinary course of the
Borrower's business (as a debtor-in-possession) and (c) upon fair and reasonable
terms no less favorable to the Borrower, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person which is not an
Affiliate.
7.20 Underwriting Guidelines. Without prior written consent of the
Lender, the Borrower shall not materially amend or otherwise materially modify
the Underwriting Guidelines with respect to the Mortgage Assets. In the event
that the Borrower proposes to amend the Underwriting Guidelines with respect to
the Mortgage Assets, the Borrower shall submit the proposed amendment to the
Lender in writing. The Lender shall notify the Borrower whether or not it
approves such proposed amendment, which approval shall not be unreasonably
withheld. If the Borrower wishes to finance a Mortgage Asset hereunder that does
not comply in all respects with the Underwriting Guidelines, the Borrower shall
request prior approval thereof from the Lender and will deliver to the Lender,
no later than three (3) Business Days prior to the requested Funding Date, the
related underwriting file. The Lender shall notify the Borrower promptly (i)
whether or not it chooses to finance any such Mortgage Asset and, if so, (ii)
whether it chooses to treat such Mortgage Asset as an Eligible Asset. In the
case of choice (ii) of the preceding sentence, the Lender hereby agrees to make
such determination reasonably.
7.21 Servicing Tape. The Borrower shall provide to the Lender on a
monthly basis a computer readable magnetic tape containing servicing
information, including without limitation those fields specified by the Lender
from time to time, on a loan-by-loan basis and in the aggregate, with respect to
the Mortgage Assets serviced hereunder by the Borrower or any third-party
servicer.
7.22 Borrowing Base Certificate. The Borrower shall provide to the
Lender on a monthly basis, and otherwise upon the request of the Lender, a
Borrowing Base certificate in the form of Exhibit F attached hereto.
7.23 Authorized Officers. If at any time the list of authorized
officers listed on Schedule 4 hereto becomes incomplete or incorrect, the
Borrower shall promptly deliver to the Lender an updated complete and correct
copy of Schedule 4. Until such updated copy of Schedule 4 is delivered, the
Lender shall be entitled to rely exclusively upon the most recently delivered
copy of Schedule 4. Accordingly, the Borrower's failure to deliver such updated
copy shall not constitute an Event of Default.
7.24 Existing Obligations.
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(a) The obligations of the Borrower in respect of the Existing
Obligations and the validity, perfection, priority and non-avoidability of
the Lender's Lien on the collateral securing the Existing Obligations shall
be reaffirmed by the Borrower in the Interim Order and the Final Order,
including the lack of any grounds for the subordination thereof; and
(b) The Borrower shall repay the Existing Obligations on or prior to
the earlier to occur of (i) one Business Day following the effective date of
the Final Order and (ii) the date which is thirty (30) days following the
Petition Date.
(c) As adequate protection in respect of the Existing Obligations, as
more fully described in the Interim Order, (i) the Lender shall be paid the
reasonable fees and disbursements of its counsel incurred in connection with
preserving, protecting and monitoring the Existing Obligations and
Pre-Petition Collateral, (ii) be paid interest on the Existing Obligations
in the manner and at the times specified in the Existing Agreement at the
following rates: (A) from the Petition Date until the earlier to occur of
(1) the effective date of the Final Order and (2) the date which is thirty
(30) calendar days following the Petition Date, the non-default rate
specified in the Existing Loan Agreement and (B) thereafter, at the LIBO
Rate (as defined in the Existing Loan Agreement) plus 3.75% per annum and
(iii) the Existing Obligations shall be afforded, to the extent of any
diminution in the value of the Pre-Petition Collateral (except such
diminution resulting from collections or proceeds applied to repayment of
the Existing Obligations), (A) a security interest on the Collateral (other
than the Pre-Petition Collateral), subject only to the security interests on
such Collateral in favor of the Lender (in its capacity as such under this
Loan Agreement) and CIT (in the case of any similar adequate protection
security interest afforded to CIT in its capacity as pre-petition lender,
such security interests shall be pari passu) and (B) an administrative
expense priority in Borrower's Case having priority over all other
administrative expenses of the kinds specified in Section 503(b) or 507(b)
of the Bankruptcy Code, subject only to the Borrower's Carve-Out Expenses,
the DIP Obligations and the obligations under the CIT Facility (in the case
of any similar adequate protection administrative expense priority afforded
to CIT in its capacity as pre-petition lender, such administrative expense
priorities shall be pari passu).
7.25 CIT Facility.
(a) The Borrower shall not, without the prior written consent of the
Lender, materially amend or otherwise modify the CIT Facility Document in
any material respect (other than amendments not adverse to the Lender with
respect to administrative matters); and
(b) The Borrower shall not terminate the CIT Facility, nor agree to any
reduction in availability under the CIT Facility in excess of $50,000,000.
7.26 Purchased Loans. The Borrower shall not assert any claim or
defense to the Lender's ownership of the Purchased Loans (other than the
Borrower's interest in the Retained Yield).
7.27 Selection Criteria. The Mortgage Assets shall be selected from
among the outstanding one to four family residential mortgage loans in the
Borrower's portfolio which meet the eligibility criteria hereunder. Such
selection shall not be made in any manner which adversely affects the interests
of the Lender.
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Section 8. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") hereunder:
a) Failure to Perform. Failure of Borrower to comply with Section 7.07
or Section 7.24(b) hereof; or failure of Borrower to pay when due any sums
or amount equal to or greater than $100,000 payable hereunder or under any
Loan or to pay within one Business Day of the due date any sums or amount
less than $100,000 payable hereunder or under any Loan; or
b) Failure of Representation or Warranty. Any representation, warranty
or certification made or deemed made herein or in any other Loan Document by
the Borrower or any certificate furnished to the Lender pursuant to the
provisions hereof or thereof shall prove to have been false or misleading in
any material respect as of the time made or furnished (other than the
representations and warranties set forth in Schedule 1, which shall be
considered solely for the purpose of determining the Collateral Value of the
Mortgage Assets; unless the Borrower shall have made any such
representations and warranties with knowledge that they were materially
false or misleading at the time made); or
c) Failure of Covenant.
(i) Failure of Borrower to observe and perform any material
non-monetary covenant, condition or other agreement on its
part to be observed or performed hereunder and such default
shall continue unremedied for five Business Days; or
(ii) Failure of Borrower to observe and perform any other
covenant, condition or other agreement on its part to be
observed or performed hereunder and such default shall
continue unremedied for ten Business Days following the
Borrower's receipt of notice from the Lender; or
d) Borrower Default. A default by Borrower whether as principal,
guarantor or surety, in the payment of any principal or interest on any
post-Petition Date indebtedness or any other post-Petition Date obligation
of Borrower in the amount of $1,000,000 or more; or
e) Material Adverse Change. Any materially adverse change in the
Property, business, financial condition or prospects of the Borrower, the
Guarantor or any of their respective Subsidiaries as of the Petition Date
shall occur from and after the Petition Date, in each case as determined by
the Lender in its sole and reasonable discretion, including without
limitation, (i) the exercise of remedies under the CIT Facility, (ii) the
reduction of any commitment under the CIT Facility in excess of $50,000,000
without the Lender's prior consent, or (iii) any termination of any
commitment under the CIT Facility in excess of $50,000,000; or
f) Cross-Default. The occurrence and continuance of an "event of
default" or of an "event of termination" on the part of Borrower or the
Guarantor under either (i) any material post-Petition Date agreement of
Borrower or Guarantor, or (ii) any other material post-Petition Date
agreement between Borrower, on the one hand, and Lender or any of its
Affiliates on the other hand, which has not been waived by the Lender; or
g) Change of Control. Any Change of Control of the Borrower or the
Guarantor shall occur; or
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h) Pre-Existing Condition. (i) The discovery by the Lender during its
continuing due diligence of the Borrower of a condition or event which
existed at or prior to the execution hereof and which the Lender, in its
reasonable discretion, determines materially and adversely affects: (1) the
condition (financial or otherwise) of the Borrower, its Subsidiaries or
Affiliates; or (2) the ability of either the Borrower or the Lender to
fulfill its respective obligations under this Loan Agreement; or (ii) the
discovery by the Lender of information not previously known to the head
trader or chief credit officer of the Lender relating to the Collateral, the
Guarantor, the Borrower or the Plan of Reorganization which the Lender
reasonably believes has or could impair the value of the Collateral or have
a material adverse effect on the ability of the Borrower or the Guarantor to
comply with or obtain timely confirmation of the Plan of Reorganization or
the occurrence of the Plan Effective Date; or
i) Unsatisfied Judgment. A final judgment or judgments for the payment
of money or the granting of relief from the automatic stay allowing any
creditor to exercise rights against any property of the bankruptcy estate,
individually or in the aggregate, in excess of $1,000,000 after subtracting
any amounts for which an insurer or indemnitor with a financial standing
reasonably satisfactory to the Lender has assured liability in writing for
discharge thereof shall be rendered against the Borrower or any of its
Subsidiaries by one or more courts, administrative tribunals or other bodies
having jurisdiction and the same shall not be discharged (or provision shall
not be made for such discharge) or bonded, or a stay of execution thereof
shall not be procured, within 60 days from the date of entry thereof, and
the Borrower or any such Subsidiary shall not, within said period of 60
days, or such longer period during which execution of the same shall have
been stayed or bonded, appeal therefrom and cause the execution thereof to
be stayed during such appeal; or
j) Other Liens. The Borrower shall grant, or suffer to exist, any Lien
on any Collateral except the Liens contemplated hereby; or the Liens
contemplated hereby shall cease to be perfected Liens on the Collateral in
favor of the Lender of the priority contemplated by the Loan Agreement or
shall be Liens in favor of any Person other than the Lender, except as
contemplated by this Loan Agreement; or
k) Termination of Loan Documents. The applicable Custodial Agreement or
any Loan Document shall for whatever reason be terminated or cease to be in
full force and effect, or the enforceability thereof shall be contested by
the Borrower, except as consented to by the Lender in writing; or
l) Failure to Answer. The Lender shall reasonably request, specifying
the reasons for such request, information, and/or written responses to such
requests, regarding the financial well-being of the Borrower and such
information and/or responses shall not have been provided within five
Business Days of such request; or
m) Avoidance Actions. (i) Any Avoidance Action with respect to the
Existing Obligations or the Pre-Petition Collateral shall be commenced by
any party (including any creditors' committee) after the 60th day following
the Petition Date, or (ii) any Avoidance Action with respect to the DIP
Obligations, the Existing Obligations or any payments in respect of either
or with respect to Pre-Petition Collateral or the Collateral is commenced by
either the Borrower or the Guarantor against the Lender; or
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n) Chapter 11 Case Orders. Any order shall be entered in either Chapter
11 Case which (i) provides for the appointment of a trustee or an examiner
with expanded powers which is not reversed within thirty (30) days of the
entry thereof; (ii) dismisses such Chapter 11 Case or converts such Chapter
11 Case into a Chapter 7 case; (iii) confirms a plan of reorganization that
is not a Plan of Reorganization as defined herein; (iv) without the consent
of the Lender, revokes, reverses, stays or otherwise modifies any Approval
Order, including without limitation, any order approving the granting of any
Lien on the Collateral (other than a permitted Lien in favor of CIT) or
granting any expense a priority equal to or greater than the priority
granted to the Lender (other than the permitted priority of the CIT Facility
and the Carve Out Expenses) (any of (i) through (iv), a "Case Order"); (v)
in the reasonable judgment of the Lender, impairs or adversely affects the
Collateral, the Affiliate Guaranty, or the likelihood that the Borrower will
discharge in full its obligations to the Lender under this Loan Agreement in
a timely manner; or (vi) stays or restrains the effectiveness of any
provision of this Loan Agreement or the pledge of the Collateral hereunder;
or
o) Chapter 11 Case Motions. A motion for any Case Order shall be made
by (i) the Official Committee, which is not withdrawn within thirty (30)
days following the date on which such motion is made, (ii) the Borrower or
the Guarantor or (iii) any other Person and (x) the Official Committee shall
have consented thereto or shall have failed to contest such motion within
thirty (30) days following the date on which such motion is made or (y) the
Borrower or the Guarantor shall have consented thereto or shall have failed
to contest such motion within thirty (30) days following the date on which
such motion is made; or
p) Maintenance of Net Worth of Guarantor. The Guarantor shall cease to
maintain at all times the sum of (i) the Guarantor's Tangible Shareholders'
Equity plus (ii) the Guarantor's Consolidated Unsecured Indebtedness of
least $130,000,000.
Notwithstanding any other provision of this Section 8, any grace or
notice period provided in this Section 8 in respect of a notice to be given or
action to be taken by the Lender may be shortened or eliminated by the Lender
if, in its sole good faith discretion, it is reasonable to do so under the
circumstances, taking into consideration, among other things, the volatility of
the market for the Mortgage Assets or other securities involved, the extent and
nature of any Event of Default (or events which with the giving of such notice
and passage of time would constitute Events of Default) and the risks inherent
in deferring the exercise of remedies for the otherwise applicable grace or
notice period.
Section 9. Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default (unless
otherwise expressly waived in writing by the Lender), the Lender may immediately
declare the principal amount of the Loans then outstanding under the Note to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Loan Agreement. Upon such declaration, the balance
then outstanding hereunder shall become immediately due and payable, without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
(b) Upon the occurrence of one or more Events of Default (unless
otherwise expressly waived in writing by the Lender), the Lender shall have the
right to obtain physical possession of the Servicing Records and all other files
of the Borrower relating to the Collateral and all
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documents relating to the Collateral which are then or may thereafter come in to
the possession of the Borrower or any third party acting for the Borrower and
the Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement. The Lender shall be authorized
to exercise its remedies hereunder without notice to any Person and without
application to or approval of the Bankruptcy Court; provided, that the
foreclosure upon or seizure of any Collateral other than the Primary Collateral
shall require three (3) Business Days prior notice to the Borrower and the
Official Committee (unless the Lender has evidence that the Borrower has engaged
in fraudulent conduct, in which case no notice shall be required).
Section 10. No Duty of Lender. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Lender to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under any
Loan Document preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by this Loan
Agreement, all notices, requests and other communications provided for herein
and under the applicable Custodial Agreement (including without limitation any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including without limitation by telecopy)
delivered to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof or thereof; or, as to any party, at such
other address as shall be designated by such party in a written notice to each
other party. Except as otherwise provided in this Loan Agreement and except for
notices given under Section 2 (which shall be effective only on receipt), all
such communications shall be deemed to have been duly given when transmitted by
telex or telecopy or personally delivered or, in the case of a mailed notice,
upon receipt, in each case given or addressed as aforesaid.
11.03 Indemnification and Expenses.
(a) The Borrower agrees to hold the Lender and each of its directors,
officers, employees, affiliates and agents (including without limitation its
counsel) (each an "Indemnified Person") harmless from and indemnify the Lender
against all losses, claims, damages, liabilities or other expenses of any kind
which may be imposed on, incurred by or asserted against any Indemnified Person
(collectively "Costs") in any way relating to or arising out of this Loan
Agreement, the Note, any other Loan Document, the Chapter 11 Cases, or any
transaction contemplated hereby or thereby, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this Loan
Agreement, the Note, any other Loan Document or any transaction contemplated
hereby or thereby; provided, that the foregoing shall not apply to Costs which
are found by a final decision of a
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court of competent jurisdiction to have resulted from such Indemnified Person's
gross negligence or willful misconduct. Without limiting the generality of the
foregoing, the Borrower agrees to hold each Indemnified Person harmless from and
indemnify such Indemnified Person against all Costs with respect to Mortgage
Assets relating to or arising out of any breach, violation or alleged breach of
violation of any consumer credit laws, including without limitation the Truth in
Lending Act and/or the Real Estate Settlement Procedures Act. In any suit,
proceeding or action brought by such Indemnified Party in connection with any
Mortgage Asset for any sum owing thereunder, or to enforce any provisions of any
Mortgage Asset, the Borrower will save, indemnify and hold such Indemnified
Person harmless from and against all expense, loss or damage suffered by reason
of any defense, set-off, counterclaim, recoupment or reduction or liability
whatsoever of the account debtor or obligor thereunder, arising out of a breach
by the Borrower of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor of such
account debtor or obligor or its successors from the Borrower. The Borrower also
agrees to reimburse each Indemnified Person as and when billed by the Lender for
all of such Indemnified Person's costs and expenses incurred in connection with
the enforcement or the preservation of the Lender's rights under this Loan
Agreement, any other Loan Document or any transaction contemplated hereby or
thereby, including without limitation the reasonable fees and disbursements of
its counsel (including all fees or disbursements incurred in connection with
investigating, defending or participating in any legal proceeding relating to
any of the foregoing (whether or not such Indemnified Person is a party
thereto)). Should any Indemnified Person be involved (whether as a party,
witness or otherwise) in any litigation or other proceeding in connection with
the transactions contemplated hereby, the Borrower hereby agrees to compensate
such Indemnified Person in an amount equal to its customary per diem charges for
each day the such Indemnified Person is involved in preparation, discovery
proceedings or testimony pertaining to any such litigation or other proceeding.
The Borrower hereby acknowledges that, notwithstanding the fact that the
Borrower's obligations hereunder are secured by the Collateral, the obligation
of the Borrower hereunder is a recourse obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the Lender all of
the reasonable out-of-pocket costs and expenses incurred by the Lender in
connection with the preparation and execution of, and any amendment, supplement
or modification to, this Loan Agreement, the Note, any other Loan Document or
any other documents prepared in connection herewith or therewith. The Borrower
agrees to pay as and when billed by the Lender all of the reasonable
out-of-pocket costs and expenses incurred in connection with the consummation
and administration of the transactions contemplated hereby and thereby
(including without limitation the monitoring of and participation in the Chapter
11 Cases) including without limitation (i) all the reasonable fees,
disbursements and expenses of Cadwalader, Wickersham & Taft and Wachtell,
Lipton, Rosen & Katz, counsel to the Lender (which the parties hereby agree
shall not be subject to allowance by the Bankruptcy Court under Section 330 of
the Bankruptcy Code or otherwise) and (ii) all the due diligence, inspection,
testing and review costs and expenses incurred by the Lender with respect to
Collateral under this Loan Agreement, including, but not limited to, those costs
and expenses incurred by the Lender pursuant to Sections 11.03(a), 11.14 and
11.15 hereof.
(c) The obligations of this Section 11.03 shall be paid as ordinary
course expenses during the Chapter 11 Cases upon request of the Lender and
without notice, hearing or court approval and shall have priority over all
administrative expenses of the kind specified in Sections 503(b) and 507(b) of
the Bankruptcy Code and unsecured claims, other than Carve Out Expenses, and
shall be reaffirmed in the Plan of Reorganization and shall not be discharged in
the Chapter 11 Cases (except by reason of payment in full in cash).
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(d) Notwithstanding anything to the contrary contained herein, from and
after the Petition Date, Costs and other amounts reimbursable hereunder shall
not include Costs and other amounts arising solely out of, or solely in
connection with, the Existing Loan Agreement, or any other agreement between the
Lender and the Borrower or the Guarantor executed prior to the Petition Date
("Pre-Petition Costs"). Such Pre-Petition Costs shall be reimbursed and
reimbursable to the extent provided under the terms of the Existing Loan
Agreement, such other agreement between the Borrower and the Lender executed
prior to the date hereof or any order of the Bankruptcy Court entered in either
of the Chapter 11 Cases.
(e) Neither the Lender nor any other Indemnified Person shall be
responsible or liable to the Borrower, the Guarantor or any of their respective
Affiliates or Subsidiaries for incidental or consequential damages which may be
alleged as a result of the Loan Documents and the transactions contemplated
thereby.
11.04 Amendments. Except as otherwise expressly provided in this Loan
Agreement, any provision of this Loan Agreement may be modified or supplemented
only by an instrument in writing signed by the Borrower and the Lender and any
provision of this Loan Agreement may be waived by the Lender.
11.05 Successors and Assigns. This Loan Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of the Borrower under Section 11.03
hereof shall survive the repayment of the Loans and the termination of this Loan
Agreement. In addition, each representation and warranty made or deemed to be
made by a request for a borrowing, herein or pursuant hereto shall survive the
making of such representation and warranty, and the Lender shall not be deemed
to have waived, by reason of making any Loan, any Default that may arise because
any such representation or warranty shall have proved to be false or misleading,
notwithstanding that the Lender may have had notice or knowledge or reason to
believe that such representation or warranty was false or misleading at the time
such Loan was made.
11.07 Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Loan Agreement.
11.08 Counterparts. This Loan Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Loan Agreement by
signing any such counterpart.
11.09 Loan Agreement Constitutes Security Agreement; Governing Law.
This Loan Agreement shall be governed by New York law, except as preempted by
the Bankruptcy Code, without reference to choice of law doctrine, and shall
constitute a security agreement within the meaning of the Uniform Commercial
Code.
11.10 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS LOAN AGREEMENT, ANY
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OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.11 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Loan Agreement, and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrower; and
(c) no joint venture exists between the Lender and the Borrower.
11.12 Hypothecation or Pledge of Loans. The Lender shall have free and
unrestricted use of all Collateral and nothing in this Loan Agreement shall
preclude the Lender from engaging in repurchase transactions with the Collateral
or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement shall
obligate the Lender to segregate any Collateral delivered to the Lender by the
Borrower.
11.13 Assignments; Participations.
(a) The Borrower may not assign any of its rights or obligations
hereunder without the prior consent of the Lender. The Lender may not assign any
of its rights or obligations hereunder other than to an Affiliate without the
prior consent of the Borrower.
(b) The Lender may, in accordance with applicable law, at any time sell
to one or more lenders or other entities ("Participants") participating
interests in any Loan, or any other interest of the Lender hereunder and under
the other Loan Documents. In the event of any such sale by the Lender of
participating interests to a Participant, the Lender's obligations under this
Loan Agreement to the Borrower shall remain unchanged, the Lender shall remain
solely responsible for the performance thereof, the Lender shall remain the
lender for all purposes under this Loan Agreement and the other Loan Documents,
the Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under this Loan Agreement
and the other Loan Documents, and the Participants shall not have any rights of
consent regarding any of the Loan Documents. The Borrower agrees that if amounts
outstanding under this Loan Agreement are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Loan Agreement
to the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Loan Agreement; provided, that such
Participant shall only be entitled to such right of set-off if it shall have
agreed in the agreement pursuant to which it shall have acquired its
participating interest to share with the Lender the proceeds thereof. Each Loan
Party also agrees that each Participant shall be entitled to the benefits of
Sections 2.08 and 11.03 with respect to its participation in the Loans
outstanding from time to time; provided, that no Participant shall be entitled
to receive any greater amount pursuant to such Sections than the Lender would
have been entitled to receive in respect of the amount of the participation
transferred by the Lender to such Participant had no such transfer occurred.
(c) The Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants);
provided that each such recipient shall have previously agreed
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in writing, to which the Borrower shall be an intended third party beneficiary,
to protect the confidentiality of any confidential information concerning the
Borrower and any of its Subsidiaries received by such recipient.
(d) The Borrower agrees to cooperate with the Lender in connection with
any such assignment and/or participation, to execute and deliver such
replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents necessary solely to give effect to such assignment and/or
participation. The Borrower further agrees to furnish to any Participant
identified by the Lender to the Borrower copies of all reports and certificates
to be delivered by the Borrower to the Lender hereunder, as and when delivered
to the Lender.
11.14 Servicing.
(a) The Borrower, as independent contract servicer, shall service and
administer the Mortgage Assets in accordance with the terms and provisions set
forth in Articles V, VI, VII and VIII of the Whole Loan Agreement attached
hereto as Exhibit E which sections are hereby incorporated in this Loan
Agreement in their entirety (with, however, the changes and adjustments as
provided in this Loan Agreement) as if the same were contained in this Section
(such servicing provisions as incorporated and adjusted, the "Servicing
Agreement").
(b) With respect to the following provisions set forth in the Whole
Loan Agreement attached hereto as Exhibit E, the Borrower shall service the
Mortgage Assets as it is required to service "Mortgage Loans" thereunder and be
subject to all of the obligations as required by the "Seller" pursuant to the
Whole Loan Agreement and the Lender shall have all the rights as afforded the
"Certificateholder" thereunder:
5.01 Seller to Act as Servicer.
5.02 Liquidation of Mortgage Loans.
5.03 Collection of Mortgage Loan Payments.
5.04 Establishment of Certificate Accounts; Deposits in
Certificate Accounts.
5.05 Withdrawals from the Certificate Account.
5.06 Transfer of Accounts.
5.07 Maintenance of Hazard Insurance.
5.08 Fidelity Bond; Errors and Omissions Insurance.
5.09 Liquidation Reports.
5.10 Notification of Adjustments (to the extent the
Mortgage Loans are Adjustable Rate Mortgage Loans).
6.01 Distributions.
6.02 Statements to the Certificateholders.
6.03 Advances by the Seller.
7.01 Assumption Agreements.
7.02 Satisfaction of Mortgages and Release of Mortgage
Files.
7.03 Servicing Compensation.
7.04 Annual Statement as to Compliance.
7.05 Annual Independent Certified Public Accountants'
Servicing Report.
7.06 Certificateholders' Right to Examine Seller Records.
8.01 Seller Shall Provide Access and Information as
Reasonably Required.
8.02 Financial Statements.
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<PAGE> 56
(c) Any cross references in Exhibit H in the sections listed above to
other sections set forth in Exhibit H are likewise incorporated herein and made
a part hereof.
(d) To the extent any provision or definition set forth in Exhibit H
shall conflict with any provision set forth in this Loan Agreement, the
provision or definition in this Loan Agreement shall govern.
(e) The Borrower agrees that the Lender is the owner of all servicing
records, including but not limited to any and all servicing agreements, files,
documents, records, data bases, computer tapes, copies of computer tapes, proof
of insurance coverage, insurance policies, appraisals, other closing
documentation, payment history records, and any other records relating to or
evidencing the servicing of Mortgage Assets (the "Servicing Records"); and the
Borrower grants the Lender a security interest in all servicing fees and rights
relating to the Mortgage Assets and all Servicing Records to secure the
obligation of the Borrower or its designee to service in conformity with this
Section and any other obligation of the Borrower to the Lender. The Borrower
covenants to safeguard such Servicing Records and to deliver them promptly to
the Lender or its designee (including the Custodian) at the Lender's request.
(f) The Borrower hereby agrees that upon the occurrence of an Event of
Default (unless otherwise expressly waived in writing by the Lender), the Lender
may terminate the Borrower as servicer and transfer servicing to the Lender's
designee, at no cost or expense to the Lender, it being agreed that the Borrower
will pay any and all fees required to effectuate the transfer of servicing to
the designee of the Lender.
(g) After the Funding Date, until the pledge of any Mortgage Asset is
relinquished by the Custodian, the Borrower will have no right to modify or
alter the terms of such Mortgage Asset and the Borrower will have no obligation
or right to repossess such Mortgage Asset or substitute another Mortgage Asset,
except as provided in the applicable Custodial Agreement.
(h) The Borrower shall permit the Lender to inspect the Borrower's
servicing facilities, as the case may be, for the purpose of satisfying the
Lender that the Borrower has the ability to service the Mortgage Assets as
provided in this Loan Agreement.
11.15 Periodic Due Diligence Review.
The Borrower acknowledges that the Lender has the right to perform
continuing due diligence reviews with respect to the Mortgage Assets, for
purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Borrower agrees that upon
reasonable (but no less than one (1) Business Day's) prior notice to the
Borrower, the Lender or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make copies and extracts of, the
Mortgage Files and any and all documents, records, agreements, instruments or
information relating to such Mortgage Assets in the possession or under the
control of the Borrower and/or the Custodian. The Borrower also shall make
available to the Lender a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Mortgage Files and the Mortgage
Assets. Without limiting the generality of the foregoing, the Borrower
acknowledges that the Lender may make Loans to the Borrower based solely upon
the information provided by the Borrower to the Lender in the Mortgage Asset
Schedule and the
-50-
<PAGE> 57
representations, warranties and covenants contained herein, and that the Lender,
at its option, has the right at any time to conduct a partial or complete due
diligence review on some or all of the Mortgage Assets securing such Loan,
including without limitation ordering new credit reports and new appraisals on
the related Mortgaged Properties and otherwise re-generating the information
used to originate such Mortgage Asset. The Lender may underwrite such Mortgage
Assets itself or engage a mutually agreed upon third party underwriter to
perform such underwriting. The Borrower agrees to cooperate with the Lender and
any third party underwriter in connection with such underwriting, including, but
not limited to, providing the Lender and any third party underwriter with access
to any and all documents, records, agreements, instruments or information
relating to such Mortgage Assets in the possession, or under the control, of the
Borrower. The Borrower further agrees that the Borrower shall reimburse the
Lender for any and all reasonable out-of-pocket costs and expenses incurred by
the Lender in connection with the Lender's activities pursuant to this Section
11.15.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered as of the day and year first above written.
BORROWER
CITYSCAPE CORP.
By /s/ Cheryl P. Carl
Title: Executive Vice President,
Treasurer and Secretary
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
Attention: Cheryl Carl
Telecopier No.: (914) 592-7060
Telephone No.: (914) 592-6677
LENDER
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.
By /s/ Paul Stevelman
Title: General Counsel
Address for Notices:
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Paul Stevelman
Telecopier No.: (203) 629-5718
Telephone No.: (203) 625-2756
With a copy to:
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: General Counsel
Telecopier No.: (203) 629-5718
Telephone No.: (203) 625-6065
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<PAGE> 59
SCHEDULE 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE ASSETS
Part I. Eligible Assets
As to each Mortgage Asset included in the Borrowing Base on a
Funding Date (and the related Mortgage, Mortgage Note, Assignment of Mortgage
and Mortgaged Property), the Borrower shall be deemed to make the following
representations and warranties to the Lender as of such date and as of each date
Collateral Value is determined. With respect to any representations and
warranties made to the best of the Borrower's knowledge, in the event that it is
discovered that the circumstances with respect to the related Mortgage Asset are
not accurately reflected in such representation and warranty notwithstanding the
knowledge or lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Asset shall be assigned a Collateral Value of zero:
(1) Mortgage Asset Schedule. The information set forth on the Mortgage
Asset Schedule with respect to such Eligible Asset is true and correct
as of the Funding Date in all material respects;
(2) Payments Current. As of the applicable Funding Date, no payment
required under the Mortgage Asset is delinquent in excess of 29 days
and thereafter no payment required under the Mortgage Asset is
delinquent in excess of 59 days;
(3) Valid Lien. Each related Mortgage is a valid and enforceable first,
second or third lien on the Mortgaged Property subject only to (a) the
lien of nondelinquent current real property taxes and assessments, (b)
covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally or specifically reflected in
the appraisal made in connection with the origination of such Eligible
Asset, and (c) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage;
(4) No Delinquent Taxes. To the best of the Borrower's knowledge there was
no delinquent tax or assessment lien against any related Mortgaged
Property;
(5) No Defenses. To the best of the Borrower's knowledge, there is no valid
offset, defense or counterclaim to any related Mortgage Note or
Mortgage, including the obligation of the Mortgagor to pay the unpaid
principal of or interest on such Mortgage Note;
(6) No Mechanics' Liens. To the best of the Borrower's knowledge, there are
no mechanics' liens or claims for work, labor or material affecting any
related Mortgaged Property which are or may be a lien prior to, or
equal with, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (11) below;
Schedule 1-1
<PAGE> 60
(7) Mortgaged Property Undamaged. To the best of the Borrower's knowledge,
each related Mortgaged Property is free of material damage and is in
good repair;
(8) Compliance With Applicable Laws. The origination of such Eligible Asset
complied in all material respects with applicable state and federal
laws, including, without limitation, usury, equal credit opportunity,
real estate settlement procedures, truth-in-lending and disclosure
laws, relating to the origination of mortgage loans, and consummation
by the Borrower of the transactions contemplated hereby will not
involve the violation of any such laws;
(9) No Modifications. Neither the Borrower nor any prior holder of any
related Mortgage has modified such Mortgage in any material respect
(except that such an Eligible Asset may have been modified by a written
instrument which has been recorded, if necessary, to protect the
interests of the Lender and which has been delivered to the Custodian);
satisfied, canceled or subordinated such Mortgage in whole or in part;
released the related Mortgaged Property in whole or in part from the
lien of such Mortgage except for the subordination of a Mortgage
securing a Mortgage Loan, with respect to which the related superior
lien was released in connection with the refinancing of the mortgage
loan relating to such superior lien; or executed any instrument of
release, cancellation, modification or satisfaction with respect
thereto except as has been disclosed to Lender prior to Funding Date,
in which case a copy of such modification agreement will have been
delivered to the Borrower and the Custodian;
(10) Title Insurance. Except with respect to High LTV Mortgage Assets, a
lender's policy of title insurance together with a condominium
endorsement, if applicable, and extended coverage endorsement and, if
applicable, an adjustable rate mortgage endorsement in an amount at
least equal to the principal balance as of the related Funding Date of
each such Eligible Asset or a commitment (binder) to issue the same was
effective on the date of the origination of such Eligible Asset, each
such policy is valid and remains in full force and effect, and each
such policy was issued by a title insurer qualified to do business in
the jurisdiction where the related Mortgaged Property is located and
acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC,
which policy insures the Borrower and successor owners of indebtedness
secured by the insured related Mortgage, as to the first, second or
third priority lien of such Mortgage; to the best of the Borrower's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of such Mortgage, including the Borrower,
has done, by act or omission, anything which would impair the coverage
of such mortgage title insurance policy;
(11) Origination. Such Eligible Asset was originated by the Borrower or, if
not originated by the Borrower, was purchased by the Borrower and, in
either case, was underwritten substantially in accordance with the
Underwriting Guidelines then in effect;
(12) No Encroachments. To the best of the Borrower's knowledge, all of the
improvements which were included for the purpose of determining the
Appraised Value of the related Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon such Mortgaged
Property unless the applicable title insurance policy for such
Mortgaged Property affirmatively insures against loss or damage by
reason of any encroachment that is disclosed or would have been
disclosed by an accurate survey;
Schedule 1-2
<PAGE> 61
(13) Occupancy. To the best of the Borrower's knowledge, no improvement
located on or being part of related Mortgaged Property is in violation
of any applicable zoning law or regulation. To the best of the
Borrower's knowledge, all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of
such Mortgaged Property and, with respect to the use and occupancy of
the same, including but not limited to certificates of occupancy and
fire underwriting certificates, have been made or obtained from the
appropriate authorities and to the best of the Borrower's knowledge,
such Mortgaged Property was lawfully occupied under applicable law at
origination and is lawfully occupied under applicable law;
(14) Doing Business. To the best of the Borrower's knowledge, all parties
which have had any interest in any related Mortgage, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the
laws of the state wherein the related Mortgaged Property is located,
and (2)(A) organized under the laws of such state, (B) qualified to do
business in such state, (C) federal savings and loan associations or
national banks having principal offices in such state, or (D) not doing
business in such state;
(15) Mortgage Documents Genuine. The related Mortgage Note and the related
Mortgage are genuine, and each is the legal, valid and binding
obligation of the Mortgagor, enforceable in accordance with its terms
and with applicable laws except to the extent that the enforceability
thereof may be limited by (a) federal or state bankruptcy, insolvency,
moratorium and other similar laws relating to creditors' rights
generally and (b) the availability of the remedy of specific
performance and injunctive and other forms of equitable relief and by
the discretion of the court before which any proceeding therefor may be
brought. All parties to the related Mortgage Note and the related
Mortgage had legal capacity to execute such Mortgage Note and such
Mortgage and such Mortgage Note and such Mortgage have been duly and
properly executed by such parties;
(16) Full Disbursement of Proceeds. The proceeds of such Eligible Asset have
been fully disbursed. All costs, fees and expenses incurred in making,
closing or recording such Eligible Assets were paid;
(17) Customary Provisions. The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the related
Mortgaged Property of the benefits of the security, including, (i) if
such Mortgage is designated as a deed of trust, by trustee's sale and
(ii) otherwise by judicial foreclosure;
(18) Deeds of Trust. With respect to any related Mortgage constituting a
deed of trust, a trustee, duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by, the Lender to the trustee under the deed of trust, except
in connection with a trustees sale after default by the related
Mortgagor;
(19) Form of Documents. The related Mortgage Note and the related Mortgage
is in substantially the form attached as Exhibit I hereto with such
revisions as are necessary to comply with applicable state law;
(20) Escrow Payments. There exist no deficiencies with respect to escrow
deposits and payments, if such are required by the related Mortgage or
Mortgage Note, for which customary
Schedule 1-3
<PAGE> 62
arrangements for repayment thereof have not been made, and no escrow
deposits or payments of other charges or payments due the Borrower have
been capitalized under the related Mortgage or the related Mortgage
Note;
(21) Collection Practices. The collection practices used by the Borrower
with respect to such Eligible Asset have been in all respects legal,
proper, prudent and customary in the mortgage lending and servicing
business with respect to mortgage loans similar to such Eligible Asset;
(22) No Additional Collateral. The related Mortgage Note is not secured by
any collateral, pledged account or other security except for the lien
of the related Mortgage and certain personalty relating thereto or a
third party guaranty;
(23) No Shared Appreciation; No Contingent Interests. Such Eligible Asset
does not have a shared appreciation feature, or other contingent
interest feature;
(24) Due on Sale. Such Eligible Asset contains a "due-on-sale" clause unless
prohibited by applicable law;
(25) Hazard Insurance. The improvements upon the related Mortgaged Property
are covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire extended coverage
and such other hazards as are customary in the area where the Mortgaged
Property is located representing coverage not less than the lesser of
(i) the minimum amount required to compensate for damage or loss on a
replacement cost basis, (ii) the outstanding principal balance of the
related Eligible Asset or (iii) the maximum allowed. All individual
insurance policies and flood policies referred to in clause (27) below
contain a standard mortgagee clause naming the Borrower or the original
mortgagee, and its successors in interest, as mortgagee, and the
Borrower has received no notice that any premiums due and payable
thereon have not been paid; the related Mortgage obligates the related
Mortgagor thereunder to maintain all such insurance, including flood
insurance, at the Mortgagor's cost and expense, and upon the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to
obtain and maintain such insurance at the Mortgagor's cost and expense
and to seek reimbursement therefor from the Mortgagor;
(26) Flood Insurance. If the related Mortgaged Property is in a Federal
Flood Hazard Zone, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property
with a generally acceptable carrier in an amount representing coverage
not less than the least of (A) the original outstanding principal
balance of the Eligible Asset, (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (C) the
maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973;
(27) No Condemnation. To the best of the Borrower's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation
of the related Mortgaged Property, nor is such a proceeding currently
occurring, and such property is undamaged by waste, fire, earthquake or
earth movement except for normal wear and tear;
(28) No Defaults. As of the applicable Funding Date, the scheduled monthly
payment for the Mortgage Asset is no more than 29 days delinquent.
Except with respect to any delinquent scheduled payment which is not
more than 59 days delinquent as of the date of determination,
Schedule 1-4
<PAGE> 63
to the best of Borrower's knowledge, there is no material default,
breach, violation or event of acceleration existing under the related
Mortgage or the related Mortgage Note that would have a material
adverse effect on the value of the related Mortgage Asset; and, the
Borrower has not waived any default, breach, violation or event of
acceleration;
(29) Type of Mortgaged Property. The related Mortgaged Property is improved
by either (i) a one- to four-family residential dwelling, including
condominium units, dwelling units in PUDs and manufactured housing,
which, to the best of the Borrower's knowledge, does not include
cooperatives and does not constitute other than real property or
personalty related to the Mortgaged Property under state law or (ii) a
small residential multi-family residence and mixed-use structure;
(30) Servicing. Unless otherwise specified in the related Request for
Borrowing, each Eligible Asset is being serviced by the Borrower;
(31) No Future Advances. There is no obligation on the part of the Borrower
or any other party under the terms of the related Mortgage or related
Mortgage Note to make payments in addition to those made to the related
Mortgagor;
(32) Consolidation of Future Advances. Any future advances made prior to the
related Funding Date have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the Mortgage Asset Schedule. The
consolidated principal amount does not exceed the original principal
amount of such Eligible Asset. The related Mortgage Note does not
permit or obligate the Borrower to make future advances to the related
Mortgagor at the option of the Mortgagor;
(33) No Assessments. To the best of the Borrower's knowledge, there are no
defaults in complying with the terms of the Mortgage that would have a
Material Adverse Effect on the value of the related Mortgage Loan, and
all taxes, governmental assessments, insurance premiums, water, sewer
and municipal charges, leasehold payments or ground rents that would
have a Material Adverse Effect on the value of the related Mortgage
Loan which previously became due and owing have been paid, or an escrow
of funds has been established in an amount sufficient to pay for every
such item which remains unpaid. The Borrower has not advanced funds, or
induced, solicited or knowingly received any advance of funds by a
party other than the related Mortgagor, directly or indirectly, for the
payment of any amount required by the related Mortgage except for (A)
payments in the nature of escrow payments, including without
limitation, taxes and insurance payments, and (B) interest accruing
from the date of the related Mortgage Note or date of disbursement of
the related Mortgage proceeds, whichever is later, to the day which
precedes by one month the Due Date of the first installment of
principal and interest;
(34) Application of Proceeds. All amounts received with respect to such
Eligible Assets to which the Lender is entitled have been transferred
to the Lender;
(35) Underwriting. Such Eligible Asset was underwritten in accordance with
the Borrower's underwriting guidelines no less stringent than the
Underwriting Guidelines; provided, however, that from time to time the
Borrower may propose reasonable changes to such Underwriting
Schedule 1-5
<PAGE> 64
Guidelines and with Lender's written consent thereto (which consent
shall not be unreasonably withheld), may amend such Underwriting
Guidelines;
(36) Appraisal. Except with respect to certain High LTV Mortgage Assets, the
related Mortgage File contains an appraisal of the related Mortgaged
Property signed by an appraiser which meets the minimum FNMA or FHLMC
requisite qualifications for appraisers, duly appointed by the
originator, who had no interest, direct or indirect in the related
Mortgaged Property or in any loan made on the security thereof, and
whose compensation is not affected by the approval or disapproval of
such Eligible Asset; the appraisal is in a form acceptable to FNMA and
FHLMC, with such riders as are acceptable to FNMA or FHLMC, as the case
may be, and satisfies the requirements of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989;
(37) No Graduated Payments; No Buydowns; No Convertible Mortgage Assets.
Unless otherwise specified in the related Request for Borrowing, such
Eligible Asset is not a graduated payment mortgage loan or a growing
equity mortgage loan, nor is such Eligible Asset subject to a temporary
buydown or similar arrangement. If the Eligible Asset has an adjustable
rate, it is not convertible at the option of the related Mortgagor to a
fixed rate mortgage loan;
(38) No Subordinate Liens at Origination. With respect to such Eligible
Asset, no loan junior in lien priority to such Eligible Asset and
secured by the related Mortgaged Property was originated by the
Borrower at the time of origination of such Eligible Asset unless
specifically set forth on the Request for Borrowing and expressly
approved by the Lender;
(39) Environmental Matters. To the best of Borrower's knowledge at
origination either (i) the related Mortgaged Property was not located
within a 1 mile radius of any site with environmental or hazardous
waste of which the Borrower had actual knowledge, or (ii) as to any
related Mortgaged Property located within a 1 mile radius of any site
as to which the Borrower has actual knowledge of environmental or
hazardous waste, the related Eligible Asset was reviewed in accordance
with the Borrower's established environmental review procedures;
(40) No Fraud. To the best of the Borrower's knowledge, no error, omission,
misrepresentation, negligence, fraud or similar action occurred on the
part of any person in connection with the origination of any Eligible
Asset; and
(41) Ownership. The Borrower is the sole owner of record and holder of the
Mortgage Asset; (ii) the Mortgage Asset is not assigned or pledged
(other than as contemplated under the Loan Agreement), and the Borrower
has good indefeasible and marketable title thereto, and has full right
to transfer and pledge the Mortgage Asset therein to the Lender free
and clear of any encumbrance, equity, participation interest, lien,
pledge, charge, claim or security interest, and has full right and
authority subject to no interest or participation of, or agreement
with, any other party, to pledge and assign each Mortgage Asset
pursuant to this Loan Agreement.
Schedule 1-6
<PAGE> 65
Part II. Eligible Home Equity Mortgage Assets
As to each Home Equity Mortgage Asset included in the
Borrowing Base on a Funding Date (and the related Mortgage, Mortgage Note,
Assignment of Mortgage and Mortgaged Property), the Borrower shall be deemed to
make the following representations and warranties to the Lender as of such date
and as of each date Collateral Value is determined (in addition to the
representations and warranties set forth in Part I of this Schedule 1). With
respect to any representations and warranties made to the best of the Borrower's
knowledge, in the event that it is discovered that the circumstances with
respect to the related Mortgage Asset are not accurately reflected in such
representation and warranty notwithstanding the knowledge or lack of knowledge
of the Borrower, then, notwithstanding that such representation and warranty is
made to the best of the Borrower's knowledge, such Mortgage Asset shall be
assigned a Collateral Value of zero:
(1) Conformance With Underwriting Guidelines. Borrower represents and
warrants to Lender with respect to each Home Equity Mortgage Asset
consisting of an interest in a residential property in a pool of
Eligible Assets that each such Eligible Asset shall have been
originated in conformity with and meets, as of the Funding Date,
underwriting guidelines no less stringent than those specified in
Exhibit E attached hereto; provided, however, that from time to time
the Borrower may propose reasonable changes to such Underwriting
Guidelines and with Lender's written consent thereto (which consent
shall not be unreasonably withheld), may amend such Underwriting
Guidelines.
Schedule 6-7
<PAGE> 66
SCHEDULE 2
FILING JURISDICTIONS AND OFFICES
Elmsford, New York,
State of New York
Schedule 2-1
<PAGE> 67
SCHEDULE 3
LIST OF SETTLEMENT AGENTS
Schedule 3-1
<PAGE> 68
SCHEDULE 4
AUTHORIZED REPRESENTATIVES OF THE BORROWER
Schedule 4-1
<PAGE> 69
SCHEDULE 5
OTHER EXISTING LIENS
Schedule 5-1
<PAGE> 70
SCHEDULE 6
EXISTING PURCHASE AGREEMENTS
1. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-1, closing date: March 31,
1997.
2. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-2, closing date: June 30,
1997.
3. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-4, closing date: October 30,
1997.
4. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-5, closing date: December 5,
1997.
5. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-6, closing date: January 21,
1998.
6. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-7, closing date: February 2,
1998.
7. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-8, closing date: February
17, 1998.
8. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-9, closing date: March 2,
1998.
9. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-10, closing date: March 19,
1998.
10. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-11, closing date: March 31,
1998.
11. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group HE-12, closing date: April 13,
1998.
12. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-1, closing date: March 31,
1997.
13. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-2, closing date: June 30,
1997.
14. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-5, closing date: November 6,
1997.
Schedule 6-1
<PAGE> 71
15. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-6, closing date: December 5,
1997.
16. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-7, closing date: December
31, 1997.
17. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-8, closing date: January 21,
1998.
18. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-9, closing date: February 2,
1998.
19. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-10, closing date: February
17, 1998.
20. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-11, closing date: March 2,
1998.
21. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-12, closing date: March 19,
1998.
22. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-13, closing date: March 31,
1998.
23. Seller's Warranties and Servicing Agreement, the Purchase Agreement,
and their accompanying documents, Group SL-14, closing date: April 13,
1998.
24. Retained Yield Fund Agreement, dated as of December 31, 1997.
25. Servicing Rights Purchase and Assumption Agreement, dated as of
December 31, 1997.
26. Amendment No. 1 to the Servicing Rights Purchase and Assumption
Agreement, dated as of January 21, 1998.
27. Amendment No. 2 to the Servicing Rights Purchase and Assumption
Agreement, dated as of February 2, 1998.
28. Amendment No. 3 to the Servicing Rights Purchase and Assumption
Agreement, dated as of February 17, 1998.
29. Assignment and Assumption of the Retained Rights and Amendment of the
Retained Yield Fund Agreement, dated as of February 26, 1998.
30. Assignment and Assumption of the Retained Rights and Amendment of the
Retained Yield Fund Agreement, dated as of March 10, 1998.
31. Amendment #3 to the Retained Yield Fund Agreement, dated as of
April 8, 1998.
Schedule 6-2
<PAGE> 72
32. Amendment #4 to the Retained Yield Fund Agreement, dated as of April
30, 1998 (unsigned copy).
33. Amendment No. 1 to Pledge Agreement, dated as of April 8, 1998.
34. Amendment No. 2 to Pledge Agreement, dated as of April 30, 1998
(unsigned copy).
Schedule 6-3
<PAGE> 73
EXHIBIT A-1/A-2
FORM OF CUSTODIAL AGREEMENT
(stored as a separate document)
<PAGE> 74
EXHIBIT B
FORM OF OPINION OF COUNSEL TO BORROWER
[To be provided]
C-1
<PAGE> 75
EXHIBIT C
UNDERWRITING GUIDELINES FOR HOME EQUITY LOANS
(on file with Greenwich Capital Financial Products, Inc.)
E-1
<PAGE> 76
EXHIBIT D
UNDERWRITING GUIDELINES FOR HIGH LTV MORTGAGE ASSETS
(on file with Greenwich Capital Financial Products, Inc.)
G-1
<PAGE> 77
EXHIBIT E
WHOLE LOAN AGREEMENT
[TO BE PROVIDED]
H-1
<PAGE> 78
EXHIBIT F
FORM OF BORROWING BASE CERTIFICATE
[TO BE PROVIDED]
C-1
<PAGE> 79
EXHIBIT G
DOCUMENT EXCEPTION CODES
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
ASMP ASSUMPTION AGREEMENT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
5500 Assumption agreement is missing
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5501 Assumption agreement is not recorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5502 Copy of assumption is unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5504 Assumption is missing borrower signature
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5505 Copy of recorded assumption
- - ------------------- ------------------------------------------------------------------------------ ---------------------
ASSC CORPORATE ASSIGNMENT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2500 Assignment is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2504 Assignee is missing or incorrect
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2508 Recording information is missing or does not agree with DOT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2509 Notary information is missing
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2510 Name of issuer is missing or incorrect F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2513 Legal description is missing or does not agree with DOT F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2515 Authorized signature is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2529 Assignment is a copy - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2530 Original assignment - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2531 Unexecuted copy in file - original out for signature
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2534 Uncertified copy of a recorded Assignment F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-2
<PAGE> 80
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
ASSN INTERIM ASSIGNMENT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
2600 Interim assignment is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2604 Assignee is missing or does not agree with endorsement
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2608 Recording information or legal description is missing or does not agree with
DOT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2609 Notary information is missing or incorrect
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2610 Name of issuer is missing or incorrect F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2616 Authorized signature is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2617 Interim assignment is a company certified copy
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2619 Copy of recorded interim assignment
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2620 Document is a copy - unrecorded F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
2621 Original unrecorded interim assignment
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
DOFT DEED OF TRUST
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3102 Recording information is incomplete
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3103 Date does not agree with note F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3106 Beneficiary is missing or does not agree with note F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3107 County of property does not match county recorded in
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3108 Legal description is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3109 Loan amount is missing or does not agree with note F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3111 Deed of Trust/Mortgage is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3113 Notary information is missing or incorrect
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3115 Rider(s) references herein not attached F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3116 Rider does not have original signature(s)
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3119 Document has "white cuts" no borrower initials F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3120 Interest rate is missing or does not agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3122 Paid amount does not agree with note
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-2
<PAGE> 81
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
DOFT DEED OF TRUST
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
3124 Date of first payment is missing or does not agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3125 Date of last payment is missing or does not agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3128 Property address does not match schedule F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3129 Rider to DOFT is not recorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3130 Deed of Trust/Mortgage is not recorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3131 Mortgage amount does not match schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3134 Mortgage amount written and numeric do not match
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3135 Document missing borrower(s) signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3136 Copy of ARM rider is unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3138 Copy of 1-4 family rider is unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3140 Copy of CONDO rider is unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3142 Copy of PUD rider is unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3144 Copy of BALLOON rider is unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3146 Copy of recorded ARM rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3147 Copy of recorded 1-4 family rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3148 Original CONDO rider - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3149 Copy of recorded CONDO rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3150 CONDO rider is missing borrower signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3151 Missing PUD rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3152 Original PUD rider - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3153 Copy of recorded PUD rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3154 Copy of recorded BALLOON rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3181 Copy of recorded Mortgage F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3182 Missing ARM rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3183 Original ARM rider - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3184 ARM rider is missing borrower signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3185 Missing 1-4 family rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3186 Original 1-4 family rider - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3187 1-4 family rider is missing borrower signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3188 Missing CONDO rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-3
<PAGE> 82
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
DOFT DEED OF TRUST
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
3189 PUD rider is missing borrower signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3190 Missing BALLOON rider F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3191 Original BALLOON rider - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3192 BALLOON rider is missing borrower signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3195 Deed of Trust/Mortgage is a copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3197 Deed of Trust/Mortgage is a cc'd copy
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
MOD MODIFICATION AGREEMENT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5800 MOD is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5801 MOD is original - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5802 MOD is a copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5804 MOD is missing borrower signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5805 Copy of recorded MOD F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
NOTE NOTE
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3700 Note is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3703 Note amount is missing or does not agree with schedule F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3704 Date of last payment is missing or doesn't agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3705 Interest rate is missing or does not agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3706 PU is missing or does not agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3707 Date of first payment is missing or does not agree with schedule
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3708 Mortgagor name is missing or does not agree with schedule F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3709 Loan amount, alpha and numeric do not agree
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3711 Interest rate, alpha and numeric do not agree
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3712 PU, alpha and numeric do not agree
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-4
<PAGE> 83
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
NOTE NOTE
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
3716 Endorsements are missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3718 Property address is missing or does not agree with schedule F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3719 Endorsements are incorrect F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3720 Note is incomplete (see text for details) F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3721 Note is a copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3722 Note has "white out" no borrower initials F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3723 Endorsement(s) missing authorized signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3724 Lost note affidavit with copy of note
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3725 Incorrect note in file F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3728 Lost note affidavit - no note copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
PACT PARTICIPATION CERTIFICATE
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
3800 Participation certificate is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
PMI PRIVATE MORTGAGE INSURANCE
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4000 PMI is missing
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4012 Authorized signature is missing
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4014 PMI is a copy
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-5
<PAGE> 84
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
POFA POWER OF ATTORNEY
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
4100 Power of attorney is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4104 Power of attorney is a copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4105 Power of attorney is original - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4107 Recorded Power of attorney is a copy
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
SECA SECURITY AGREEMENT
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4800 Security agreement is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
STCT STOCK CERTIFICATE
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
9030 Stock certificate is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
TPOL TITLE POLICY
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4900 Title policy is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4902 Amount of insurance does not match deed F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4904 Name of insured is not the beneficiary of its assigns F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4905 Vesting information does not match deed F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4906 Sch A - mortgage description has incorrect mortgage amount F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4907 Sch A - mortgage description has incorrect date of mortgage F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4908 Sch A - mortgage description has incorrect trustor
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4909 Sch A - mortgage description has incorrect trustee F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4910 Sch A - mortgage description has incorrect beneficiary F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-6
<PAGE> 85
<TABLE>
<CAPTION>
- - ------------------- ------------------------------------------------------------------------------ ---------------------
TPOL TITLE POLICY
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
4911 Sch A - mortgage description has incorrect recording date
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4912 Sch A - mortgage description has incorrect recording data
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4913 Sch A - mortgage description has incorrect assignment information (if shown) F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4915 Legal description does not match deed F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4916 Schedule B parts I and II are missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4920 Title policy is missing authorized signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4921 Endorsement(s) to policy is missing signature F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4923 Schedule A is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4925 Title policy is missing cover F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4926 Date of Title policy (see text for details)
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4933 Title policy is missing recording information
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4934 Document is a commitment/preliminary report F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
4935 Title policy is a copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
- - ------------------- ------------------------------------------------------------------------------ ---------------------
XCON EXTENSION & CONSOLIDATION & MODIFICATION
- - ------------------- ------------------------------------------------------------------------------ ---------------------
Exception # Description Fatal Exception
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5600 Original extension/consolidation - unrecorded
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5601 XCON is a copy F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
5602 XCON is missing F
- - ------------------- ------------------------------------------------------------------------------ ---------------------
</TABLE>
K-7
<PAGE> 86
EXHIBIT H
FORM OF REQUEST FOR BORROWING
C-1
<PAGE> 1
EXHIBIT 10.2
REVOLVING CREDIT AND SECURITY AGREEMENT
dated as of October 12, 1998
among
CITYSCAPE CORP.,
as debtor and debtor-in-possession,
as Borrower
and
CITYSCAPE FINANCIAL CORP.,
as debtor and debtor-in-possession,
as Guarantor
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Agent
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS............................1
Section 1.01. Definitions.........................................1
Section 1.02. Accounting Terms...................................19
Section 1.03. Computation of Time Periods........................19
Section 1.04. Rules of Construction..............................20
ARTICLE II. LOANS.....................................................20
Section 2.01. Commitment.........................................20
Section 2.02. Notes..............................................20
Section 2.03. Notice of Borrowing; Making of Loans...............20
Section 2.04. Payment of Principal...............................23
Section 2.05. Interest...........................................24
Section 2.06. Reduction of Total Commitment; Prepayment of Loans.24
Section 2.07. Payments...........................................26
Section 2.08. Use of Proceeds....................................28
Section 2.09. Reliance Upon Instructions.........................28
Section 2.10. Eurodollar Rate Not Determinable; Illegality
or Impropriety ....................................28
Section 2.11. Reserve Requirements; Capital Adequacy
Circumstances .....................................29
Section 2.12. Indemnity..........................................30
Section 2.13. Sharing of Setoffs.................................31
Section 2.14. Continuation and Conversion of Loans...............31
Section 2.15. Taxes..............................................32
ARTICLE III. ACKNOWLEDGMENT, RATIFICATION, SECURITY AND ADMINISTRATIVE
PRIORITY...............................................35
Section 3.01. Pre-Petition Obligations...........................35
Section 3.02. Acknowledgment of Security Interests...............35
Section 3.03. Binding Effect of Documents........................35
Section 3.04. Collateral; Grant of Lien and Security Interest....36
Section 3.05. Administrative Priority............................39
Section 3.06. Grants, Rights and Remedies........................39
Section 3.07. No Filings Required................................39
Section 3.08. Survival...........................................39
Section 3.09. Responsibility for Collateral......................40
Section 3.10. Representations and Warranties Concerning
Collateral ........................................40
Section 3.11. Release of Security Interest.......................42
Section 3.12. Covenants and Agreements Concerning Collateral.....43
Section 3.13. Agent's Approval of Investors......................45
Section 3.14. Uniform Commercial Code Financing Statements.......45
Section 3.15. Collection Rights..................................45
<PAGE> 3
Page
Section 3.16. Attorney-in-Fact...................................45
Section 3.17. The Borrower Remains Liable........................46
ARTICLE IV. BORROWING BASE............................................46
Section 4.01. Condition of Lending...............................46
Section 4.02. Mandatory Prepayment...............................46
Section 4.03. Rights and Obligations Unconditional...............47
Section 4.04. Borrowing Base Certificate.........................47
Section 4.05. General Provisions.................................47
ARTICLE V. CONDITIONS PRECEDENT.......................................47
Section 5.01. Conditions Precedent to Initial Loan...............47
Section 5.02. Conditions Precedent to All Loans..................50
Section 5.03. Loan Requests......................................51
Section 5.04. Disbursing Loans...................................52
Section 5.05. Wet Mortgage Loan Closings.........................52
Section 5.06. Investor Requirements; Other Approvals.............54
Section 5.07. [Intentionally Omitted]............................54
Section 5.08. Temporary Release of Collateral Documents:
Delivery of Collateral Documents...................54
Section 5.09. Deemed Representation..............................55
ARTICLE VI. REPRESENTATIONS AND WARRANTIES............................55
Section 6.01. Formation, Good Standing and Due Qualification.....55
Section 6.02. Power and Authority................................55
Section 6.03. Execution and Binding Effect.......................55
Section 6.04. Absence of Conflicts...............................56
Section 6.05. Litigation.........................................56
Section 6.06. Financial Statements...............................56
Section 6.07. Ownership and Liens................................56
Section 6.08. Taxes..............................................56
Section 6.09. ERISA..............................................56
Section 6.10. Subsidiaries.......................................57
Section 6.11. Operation of Business; Prior or Existing
Restrictions, Etc .................................57
Section 6.12. Labor Disputes and Acts of God.....................57
Section 6.13. Environmental Protection...........................57
Section 6.14. Compliance with Laws...............................58
Section 6.15. Licenses...........................................58
Section 6.16. Chief Executive Office.............................58
Section 6.17. Year 2000..........................................58
Section 6.18. Administrative Priority; Lien Priority.............59
Section 6.20. Bankruptcy Court Order.............................59
ARTICLE VII. AFFIRMATIVE COVENANTS....................................59
Section 7.01. Maintenance of Existence...........................59
ii
<PAGE> 4
Page
Section 7.02. Conduct of Business................................59
Section 7.03. Maintenance of Properties..........................59
Section 7.04. Maintenance of Records.............................60
Section 7.05. Maintenance of Insurance...........................60
Section 7.06. Compliance with Laws...............................60
Section 7.07. Right of Inspection................................60
Section 7.08. Reporting Requirements.............................60
Section 7.09. Compliance With Environmental Laws.................64
Section 7.10. Purchase Commitments...............................64
Section 7.11. Pledge of Mortgage Loans...........................64
Section 7.12. Taxes..............................................65
Section 7.13. [Intentionally Omitted]............................65
Section 7.14. ERISA..............................................65
Section 7.15. Borrowing Base.....................................65
Section 7.16. Compliance With Custodian Agreement................66
Section 7.17. Availability.......................................66
Section 7.18. Underwriting Guidelines............................66
Section 7.19. Wet Closing Agents.................................66
Section 7.20. Year 2000 Compatibility............................66
ARTICLE VIII. NEGATIVE COVENANTS......................................66
Section 8.01. Interim Bankruptcy Court Order; Final Bankruptcy
Court Order; Administrative Priority; Lien
Priority; Payment of Claims; Greenwich
DIP Facility.......................................66
Section 8.02. Liens..............................................67
Section 8.03. Debt...............................................69
Section 8.04. Mergers, Etc.......................................69
Section 8.05. Leases.............................................69
Section 8.06. Sale and Leaseback.................................69
Section 8.07. Distributions......................................70
Section 8.08. Sale of Assets.....................................70
Section 8.09. Investments........................................70
Section 8.10. Financial Hedge Instruments........................71
Section 8.11. Guaranties, Etc....................................71
Section 8.12. Transactions With Affiliates.......................71
Section 8.13. Margin Regulations.................................71
Section 8.14. Subwarehousing.....................................71
Section 8.15. Bulk Purchases of Mortgage Loans...................71
Section 8.16. Payments...........................................71
ARTICLE IX. EVENTS OF DEFAULT.........................................72
Section 9.01. Events of Default..................................72
Section 9.02. Remedies...........................................74
Section 9.03. The Agent May Perform..............................75
Section 9.04. The Agent's Duties.................................75
iii
<PAGE> 5
Page
Section 9.05. Transfer of Note...................................76
Section 9.06. Defaulting Lender..................................76
ARTICLE X. AGENT......................................................77
Section 10.01. Appointment.......................................77
Section 10.02. Nature of Duties..................................77
Section 10.03. Rights, Exculpation, Etc. ........................78
Section 10.04. Reliance..........................................79
Section 10.05. Indemnification...................................79
Section 10.06. CIT Individually..................................79
Section 10.07. Successor Agent...................................79
Section 10.08. Collateral Matters................................80
ARTICLE XI. MISCELLANEOUS.............................................81
Section 11.01. Holidays..........................................81
Section 11.02. Records...........................................81
Section 11.03. Amendments and Waivers............................82
Section 11.04. No Implied Waiver; Cumulative Remedies............83
Section 11.05. Notices...........................................83
Section 11.06. Expenses; Taxes; Attorneys' Fees; Indemnification.83
Section 11.07. Application.......................................85
Section 11.08. Severability......................................85
Section 11.09. Governing Law.....................................85
Section 11.10. Prior Understandings..............................85
Section 11.11. Duration; Survival................................85
Section 11.12. Counterparts......................................86
Section 11.13. Assignments; Participations.......................86
Section 11.14. Successors and Assigns............................88
Section 11.15. Agent as Party in Interest........................88
Section 11.16. Confidentiality...................................88
Section 11.17. Waiver of Jury Trial..............................89
Section 11.18. Right of Setoff...................................89
Section 11.19. Headings..........................................90
Section 11.20. Periodic Due Diligence Review.....................90
iv
<PAGE> 6
Exhibit A Form of Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Custodian Agreement
Exhibit E Form of Pledge Agreement
Exhibit F Description of Collateral Documents
Exhibit G Form of Assignment and Acceptance
Exhibit H Form of Interim Bankruptcy Court Order
Exhibit I Underwriting Guidelines -- High LTV Mortgage Loans
Exhibit J Underwriting Guidelines -- Home Equity Mortgage Loans
Exhibit K Servicing Terms and Provisions
Exhibit L Mortgage Loan Schedule
Exhibit M Form of Mortgage and Mortgage Note
Exhibit N Mortgage Loan Audit Report
SCHEDULES
Schedule 1.01(A) Commitments
Schedule 2.03 Designated Borrowing Officers
Schedule 3.10(7) Additional Representations and Warranties for Mortgage
Loans
Schedule 6.05 Litigation
Schedule 6.10 Subsidiaries
Schedule 8.02(A)(10) Liens
Schedule 8.11 Guaranties, Etc.
<PAGE> 7
REVOLVING CREDIT AND SECURITY AGREEMENT, dated as of October 12,
1998 among CITYSCAPE CORP., as debtor and debtor-in-possession, a New York
corporation (the "Borrower"), CITYSCAPE FINANCIAL CORP., as debtor and
debtor-in-possession, a Delaware corporation (the "Guarantor"), the financial
institutions from time to time party hereto (individually, a "Lender" and
collectively, the "Lenders"), and The CIT GROUP/EQUIPMENT FINANCING, INC.
("CIT"), as agent for the Lenders (in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrower engages in the business of originating,
purchasing, selling and servicing Mortgage Loans (as hereinafter defined);
WHEREAS, the Borrower and the Guarantor have commenced cases (the
"Chapter 11 Cases") under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"), and the Borrower and the
Guarantor have retained possession of their assets and are authorized under the
Bankruptcy Code to continue the operation of their businesses as
debtors-in-possession; and
WHEREAS, prior to the commencement of the Chapter 11 Cases by the
Borrower and the Guarantor, CIT and certain other lenders (the "Pre-Petition
Lenders") made loans and advances to the Borrower secured by substantially all
assets and properties of the Borrower and such loans and advances were
guaranteed by the Guarantor; and
WHEREAS, the Borrower has requested that the Lenders make
post-petition loans and advances to the Borrower in an aggregate principal
amount not to exceed $150,000,000 (which facility shall be limited to
$50,000,000 until the Final Bankruptcy Court Order (as hereinafter defined)
shall have been signed by the Bankruptcy Court), which loans and advances shall
be guaranteed by the Guarantor, and, subject to the terms and conditions set
forth herein, the Lenders have agreed to provide such facility;
NOW, THEREFORE, in consideration of the promises and the agreements
hereinafter set forth and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Definitions. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular are to have a
correlative meaning when used in the plural and vice versa):
<PAGE> 8
"Affiliate" means, with respect to the Borrower, any Person: (1)
which directly or indirectly controls, or is controlled by, or is under common
control with the Borrower; (2) which directly or indirectly beneficially owns or
holds ten percent or more of any equity or partnership interest of the Borrower;
or (3) ten percent or more of the equity or partnership interest of which is
directly or indirectly beneficially owned or held by Borrower.
"Agencies" means FNMA or FHLMC.
"Agent" has the meaning specified in the first paragraph of this
Agreement and any successor(s).
"Agent Account" shall mean an account in the name of the Agent
designated to the Borrower from time to time into which the Borrower shall make
all payments to the Agent for the account of the Agent or the Lenders, as the
case may be, under this Agreement.
"Agent Advances" shall have the meaning given that term in Section
10.08(a) hereof.
"Agreed Administrative Expense Priorities" shall mean that
administrative expenses with respect to the Borrower and the Guarantor and, with
respect to sub-clause (ii) of clause "first", any official committee appointed
by the Bankruptcy Court, shall have the following order of priority:
first, (i) amounts payable pursuant to 28 U.S.C. Section 1930(a)(6)
and fees payable to the Clerk of the Bankruptcy Court and (ii) allowed fees and
expenses of attorneys, accountants and other professionals retained in the
Chapter 11 Cases pursuant to Sections 327 and 1103 of the Bankruptcy Code
(except to the extent that such fees and expenses were incurred in the
prosecution of actions, claims or causes of action seeking to invalidate, avoid,
subordinate or otherwise impair any claims of the Agent or the Lenders under the
Loan Documents or the claims of the Pre-Petition Lenders under the Pre-Petition
Agreements or any Liens created by the Loan Documents or the Pre-Petition
Agreements or which seeks to recover any transfer made to the Agent, the Lenders
or the Pre-Petition Lenders); provided, however, that after the occurrence and
during the continuance of an Event of Default hereunder or under the Interim
Bankruptcy Court Order or the Final Bankruptcy Court Order (x) the amount
entitled to priority under sub-clause (ii) of this clause first ("Priority
Professional Expenses") shall not exceed $575,000 outstanding in the aggregate
at any time (inclusive of any holdbacks required by the Bankruptcy Court) (the
"Professional Expense Cap"), provided that after (1) payment in full of all
obligations under the Greenwich DIP Facility, (2) the termination of all
commitments under the Greenwich DIP Facility and (3) the release of all of
Greenwich's Liens on the Collateral, the Professional Expense Cap shall be
increased by the unused portion of the professional expense cap provided under
the Greenwich DIP Facility but shall in no event exceed $1,150,000, and (y) any
payments actually made to such professionals after such occurrence or during
such continuance, under Sections 330 and 331 of the Bankruptcy Code or
otherwise, shall reduce the Professional Expense Cap on a dollar-for-dollar
basis,
second, all Obligations and, subject to the terms of the
Intercreditor Agreement, all obligations of the Borrower and the Guarantor under
the Greenwich DIP Facility, and
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third, all other allowed administrative expenses.
"Agreement" means this Revolving Credit and Security Agreement, as
amended, supplemented or modified from time to time.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Agent and, in the
absence of a continuing Event of Default, consented to by the Borrower,
substantially in the form of Exhibit G hereto.
"Availability" means, at any time, the sum of (i) the difference
between (A) the lesser of (x) the Borrowing Base and (y) the Total Commitment
and (B) the aggregate outstanding principal amount of all Loans and (ii) the
amount of cash in the Operating Account at such time.
"Avoided Payments" shall have the meaning given that term in Section
2.06(h) hereof.
"Bank" shall mean The Chase Manhattan Bank or The Dai-Ichi Kangyo
Bank, Limited, New York Branch, or their respective successors.
"Bankruptcy Code" shall have the meaning given that term in the
RECITALS to this Agreement.
"Bankruptcy Court" shall have the meaning given that term in the
RECITALS to this Agreement.
"Borrower" has the meaning specified in the first paragraph of this
Agreement.
"Borrower's DIP Account" shall have the meaning given that term in
Section 2.07(a) hereof.
"Borrowing Base" means, as of the date of determination, the
difference between (i) the Collateral Value of Eligible Mortgages for all
Eligible Residential Mortgage Loans and (ii) such reserves as the Agent, in its
reasonable business judgment, may deem appropriate from time to time.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit C hereto, properly completed, executed and delivered to the Agent and
the Lenders.
"Business Day" means any day other than Saturday, Sunday or any
other day on which banking institutions are authorized or obligated to close in
New York, New York and, with respect to any action under this Agreement that
requires the participation of the Custodian, the city in which the relevant
office of the Custodian is located, provided, that with respect to the
borrowing, payment, conversion to or continuation of Eurodollar Loans, Business
Day shall also mean a day on which dealings in Dollars are carried on in the
interbank eurodollar market where the eurodollar and foreign currency and
exchange operations in respect of the Bank's eurodollar loans are then being
conducted.
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"Capital Lease" means any obligation under any lease which has been
or should be capitalized on the books of the lessee in accordance with GAAP.
"Carve-Out Expenses" means those amounts, fees, expenses and claims
set forth in clause "first" of the definition of the term "Agreed Administrative
Expense Priorities."
"Certificate of No Default" shall have the meaning specified in
Section 7.08(5) hereof.
"Change of Control" means (i) the Guarantor shall cease to directly
own and control, of record and beneficially, 100% of the then-outstanding
capital stock of the Borrower free and clear of all Liens other than Permitted
Liens or (ii) the person holding the office of the Chief Executive Officer and
President, Chief Financial Officer and Executive Vice President or Treasurer of
the Borrower, and of the President of the Guarantor, on the Closing Date shall
cease to be actively involved in the day to day operations and management of the
Borrower or the Guarantor, as applicable, except to the extent any changes in
such management personnel are deemed reasonably acceptable to the Lenders.
"Chapter 11 Cases" shall have the meaning given that term in the
RECITALS to this Agreement.
"CIT" shall have the meaning given to that term in the introductory
paragraph to this Agreement.
"Closing Agent" means a title company, a closing attorney or other
entity which conducts the settlement of a Mortgage Loan and which has not been
disapproved by the Agent upon written notice to the Borrower.
"Closing Date" means such date on which all of the conditions set
forth in Section 5.01 shall be satisfied.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, together with all rules and regulations promulgated in connection
therewith.
"Collateral" means the collateral described in Section 3.04(b)
hereof and any other collateral granted to the Agent and the Lenders in any
other Loan Document.
"Collateral Documents" means the documents described in the
Description of Collateral Documents.
"Collateral Market Value" means the price obtainable for any Pledged
Mortgage, as determined in good faith by the Agent, in the commercial markets
regularly trading Mortgage Loans of a similar nature. The Agent's determination
of Collateral Market Value shall be conclusive upon the parties absent manifest
error on the part of the Agent.
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"Collateral Sale Proceeds" shall mean all proceeds of the
refinancing, sale or other disposition of Pledged Mortgages and other Collateral
whether by securitization, whole loan sales or otherwise.
"Collateral Value of Eligible Mortgages" means, as of any date of
determination, an amount equal to the percentage specified below for the
appropriate category into which each Eligible Residential Mortgage Loan falls
applied to the least of, with respect to each such Eligible Residential Mortgage
Loan: (1) the outstanding principal amount of the Eligible Residential Mortgage
Loan, (2) the Collateral Market Value of the Eligible Residential Mortgage Loan,
(3) the price at which the Borrower purchased the Eligible Residential Mortgage
Loan or (4) Five Hundred Thousand Dollars ($500,000):
(i) with respect to each High LTV Mortgage Loan included in the
Borrowing Base which has a FICO score equal to or greater than 620 but less than
or equal to 640, seventy percent (70%);
(ii) with respect to each High LTV Mortgage Loan included in the
Borrowing Base which has a FICO score greater than 640, eighty percent (80%);
and
(iii) with respect to each Home Equity Mortgage Loan included in the
Borrowing Base, ninety percent (90%).
The percentages specified in paragraphs (i), (ii) and (iii) above may be
adjusted downward from time to time by the Agent, in its sole discretion, based
upon criteria such as a decrease in the yield on the Borrower's portfolio of
Mortgage Loans, an increase in the rate of delinquencies under the Borrower's
portfolio of Mortgage Loans, a decrease in the turn-over rate of the Borrower's
portfolio of Mortgage Loans, or such other criteria deemed appropriate by the
Agent.
"Commitment" shall mean, with respect to each Lender, the commitment
set forth on Schedule 1.01(A) to this Agreement or assigned to such Lender in
accordance with Section 11.13, as such amounts may be reduced from time to time
pursuant to the terms of this Agreement.
"Custodian" means U.S. Bank National Association and/or any other
financial institution acceptable to the Agent and the Lenders as well as, in the
absence of a continuing Event of Default, acceptable to the Borrower, and their
respective successors.
"Custodian Agreement" means that certain Custodian Agreement dated
as of June 5, 1998 among the Borrower, the Custodian and the Agent,
substantially in the form of Exhibit D hereto, as the same may be modified and
supplemented and in effect from time to time and any other or replacement
custodian agreement acceptable to the Agent.
"Debt" means, without duplication, (1) indebtedness or liability for
borrowed money; (2) obligations evidenced by bonds, debentures, notes, or other
similar instruments; (3) obligations for the deferred purchase price of property
or services (other than current trade payables incurred in the ordinary course
of business and payable in accordance with customary
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practices); (4) obligations as lessee under Capital Leases; (5) current
liabilities in respect of unfunded vested benefits under Plans covered by ERISA;
(6) reimbursement obligations with respect to letters of credit; (7) obligations
under acceptance facilities; (8) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), and other contingent
obligations to purchase, to provide funds for payment, to supply funds to invest
in any Person or entity, or otherwise to assure a creditor against loss; (9)
obligations or liabilities secured by a Lien upon property owned by such Person,
whether or not owing by such Person and even though such Person has not assumed
or become liable for the payment thereof, and (10) net liabilities of such
Person under interest rate cap agreements, interest rate swap agreements,
foreign currency exchange agreements and other hedging agreements or
arrangements calculated on a basis satisfactory to the Agent and in accordance
with accepted practice. The term "Debt" shall not include deferred loan
origination fees of the Borrower.
"Default" means any event which with the giving of notice or lapse
of time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to the rate of interest
which would otherwise be applicable hereunder plus two percent (2%) or, if no
rate of interest would otherwise be applicable hereunder, the Prime Rate plus
2%.
"Defaulting Lender" has the meaning specified in Section 9.06.
"Description of Collateral Documents" means the documents described
on Exhibit F attached hereto.
"Designated Borrowing Officer" shall mean any officer of the
Borrower identified on Schedule 2.03 attached hereto, or such other officer as
shall be designated from time to time in writing by the Borrower to the Agent.
"Designated Financial Officer" of a Person shall mean the individual
designated from time to time by the Board of Directors or governing body
performing like functions of such Person to be the chief financial officer or
treasurer of such Person (and individuals designated from time to time by the
Board of Directors or governing body performing like functions of such Person to
act in lieu of the chief financial officer or the treasurer).
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Distribution" means, for any Person, any dividend on, or any
purchase or acquisition for value of, any of its capital stock now or hereafter
outstanding, any return of capital to its stockholders as such, or any other
purchase, distribution, advance, draw, fees or other transfers of cash or other
assets by such Person to its stockholders.
"Eligible Residential Mortgage Loan" means the following
Non-Conforming Mortgage Loans each of which (i) must be made pursuant to the
requirements and limitations set forth in the applicable Underwriting Guidelines
and (ii) meets each of the following criteria, as applicable:
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(1) complies with all requirements (including all covenants,
representations and warranties) of this Agreement for the inclusion of
such Mortgage Loan in the Borrowing Base, including all documentary
requirements;
(2) is effectively pledged to the Agent and in respect of
which the Agent has a first perfected Lien not subject to any other Liens
or claims of any kind other than Permitted Liens;
(3) except in the case of a Wet Mortgage Loan, the related
Mortgage Note, assignment in recordable form and a certified copy of the
Mortgage are held by the Custodian pursuant to the Custodian Agreement and
the Custodian has delivered one or more trust receipts for such documents
to the Agent;
(4) if the Mortgage Loan was originated by a Person other than
the Borrower, such Mortgage Loan was not purchased by the Borrower more
than five Business Days prior to the date of the Custodian's receipt of
the related Mortgage Note, assignment and Mortgage;
(5) will fully amortize within thirty years or less after the
date of origination, is not subject to any negative amortization and is
not a balloon Mortgage Loan the amortization of which the Agent finds
unacceptable;
(6) is a valid, subsisting, enforceable and perfected first or
second Lien, provided that the Collateral Value of Eligible Mortgages of
second Lien Home Equity Mortgage Loans included in the Borrowing Base
shall not exceed the Second Mortgage Loan Sublimit;
(7) is secured by a premise which is (1) an owner-occupied
primary residence, or (2) a second home or investor property;
(8) not more than fourteen Business Days have elapsed from the
date a Collateral Document with respect to such Mortgage Loan was
delivered to the Borrower for correction or completion without the return
thereof to the Custodian;
(9) in the case of a Wet Mortgage Loan (a) the Wet Closing
Agent has received all Collateral Documents required to be delivered to
the Custodian prior to the funding of such Wet Mortgage Loan, (b) the
Custodian has received all Collateral Documents required to be delivered
to the Custodian within five Business Days, or such longer period agreed
to by the Agent pursuant to Section 5.05(2) hereof, after the funding of
such Wet Mortgage Loan, and (c) the Borrower fully complies with the Wet
Closing provisions enumerated in Section 5.05 hereof, and (d) the
Collateral Value of Eligible Mortgages of such Wet Mortgage Loan when
added to the Collateral Value of Eligible Mortgages of all other Wet
Mortgage Loans included in the Borrowing Base shall not exceed the Wet
Mortgage Loan Sublimit;
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(10) in the case of (a) a High LTV Mortgage Loan, has not
remained as Collateral for more than sixty days from the date of delivery
to the Custodian, and (b) a Home Equity Mortgage Loan, has not remained as
Collateral for more than ninety days from the date of delivery to the
Custodian;
(11) there is not a delinquency in any payment under the
related Mortgage Note and Mortgage;
(12) each of the related Mortgage Note and Mortgage is genuine
and is the legal, valid, binding and enforceable obligations of the maker
thereof, not subject to a right of recission, set-off, counterclaim or
defense;
(13) the related Mortgage Note has not been extinguished under
relevant state law in connection with a judgment of foreclosure or
foreclosure sale or otherwise;
(14) the related mortgaged property is not subject to a
foreclosure proceeding;
(15) the mortgagor is not subject to a bankruptcy or
insufficiency proceedings;
(16) in the case of a High LTV Mortgage Loan (a) the loan to
value ratio of the Mortgage Loan is not greater than 125%, (b) the FICO
score of the Mortgage Loan is not less than 620, and (c) the Collateral
Value of Eligible Mortgages of such High LTV Mortgage Loan when added to
the Collateral Value of Eligible Mortgages of all other High LTV Mortgage
Loans included in the Borrowing Base shall not exceed the High LTV
Mortgage Loan Sublimit;
(17) except in the case of a High LTV Mortgage Loan, without
the consent of the Agent, the loan to value ratio of the Mortgage Loan is
not greater than 90%; and
(18) is not a Mortgage Loan which the Agent notifies the
Borrower that, in the Agent's reasonable business judgment, is not
satisfactory as Collateral.
If a Mortgage Loan that initially satisfies all of the required conditions for
inclusion as an Eligible Residential Mortgage Loan and for inclusion in the
Borrowing Base ceases to satisfy such conditions and be included in the
Borrowing Base, such Mortgage Loan may subsequently be included as an Eligible
Residential Mortgage Loan and be included in the Borrowing Base if at such
subsequent time the Mortgage Loan satisfies all of the required conditions.
"Entry Date" means the date the Interim Bankruptcy Court Order is
entered.
"Environmental Discharge" means any discharge or release of any
Hazardous Materials in violation of any applicable Environmental Law.
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<PAGE> 15
"Environmental Law" means any Law relating to pollution or the
environment, including, without limitation, Laws relating to noise or to
emissions, discharges, releases or threatened releases of Hazardous Materials
into the workplace, the community or the environment, or otherwise relating to
the generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"Environmental Liabilities and Costs" shall mean all liabilities,
monetary obligations, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including all reasonable fees, disbursements
and expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any directive, order, litigation, judicial or administrative
proceeding, judgment, letter or other written communication from any
Governmental Authority relating to any environmental condition, violation of
Environmental Law or Environmental Discharge from or onto (i) any property
presently or formerly owned by the Borrower or any of its Subsidiaries or (ii)
any facility which received Hazardous Materials generated by the Borrower or any
of its Subsidiaries.
"Environmental Lien" shall mean any Lien securing Environmental
Liabilities and Costs incurred by a Governmental Authority.
"Environmental Notice" means any complaint, order, citation, letter,
inquiry, notice or other written communication from any Person (1) affecting or
relating to Borrower's compliance with any Environmental Law in connection with
any activity or operations at any time conducted by such Borrower, (2) relating
to the occurrence or Presence of or exposure to or possible or threatened or
alleged occurrence or Presence of or exposure to Environmental Discharges or
Hazardous Materials at any of the locations or facilities of any of the
Borrower, including, without limitation (a) the existence of any contamination
or possible or threatened contamination at any such location or facility and (b)
remediation of any Environmental Discharge or Hazardous Materials at any such
location or facility or any part thereof; and (3) any violation or alleged
violation of any relevant Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Escrow Deposits" means all monies held by the Borrower representing
principal, interest, tax, insurance and other deposits or payments made by
mortgagors under Mortgage Loans.
"Eurodollar Base Rate" shall mean, with respect to a Eurodollar Loan
for the relevant Interest Period, the rate determined by the Agent to be the
rate at which deposits in Dollars are offered by the Bank to first-class banks
in the interbank eurodollar market where the eurodollar
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<PAGE> 16
and foreign currency and exchange operations in respect of its eurodollar loans
are then being conducted at approximately 11:00 a.m., New York City time, two
Business Days prior to the first day of such Interest Period, in the approximate
amount of the relevant Eurodollar Loan and having a maturity equal to such
Interest Period.
"Eurodollar Loan" shall mean a Loan bearing interest at the
Eurodollar Rate.
"Eurodollar Rate" means with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/32 of 1%):
Eurodollar Base Rate
--------------------
1.00 - Reserve Requirements
"Event of Default" has the meaning specified in Section 9.01.
"Exception Report" shall mean the exception report prepared by the
Custodian pursuant to the Custodian Agreement.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"Fee Letters" means, collectively, (i) the letter agreement, dated
as of September 25, 1998, between the Borrower and The CIT Group/Business
Credit, Inc. (an affiliate of CIT) and (ii) the letter agreement, dated as of
September 25, 1998, between the Borrower and Nomura Asset Capital Corporation,
each obligating the Borrower to pay certain fees to the respective Lender in
connection with this Agreement, as such letter agreements may be modified,
supplemented or amended from time to time.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FICO" means the Fair Isaac Company Odds which is a credit risk
scoring system developed by Fair, Isaac & Co. that provides a numerical
weighting of a borrower's credit profile and permits lenders to evaluate the
credit risk a borrower presents and the likelihood that a loan will be repaid.
"Filing Date" means the date on which the Chapter 11 Cases were
commenced.
"Final Bankruptcy Court Order" means the order of the Bankruptcy
Court approving the Loans made and to be made to the Borrower and the Guaranty
of the Guarantor in accordance with this Agreement, substantially in the form of
the Interim Bankruptcy Court Order, as the same
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<PAGE> 17
may be amended, modified or supplemented from time to time with the express
written joinder or consent of the Agent, the Lenders and the Borrower.
"Financial Assets" has the meaning specified therefor in the UCC.
"Fiscal Year" means each period from January 1 to December 31.
"FNMA" means the Federal National Mortgage Association and its
successors.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time.
"Governmental Authority" means any nation or government, any
federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Greenwich" means Greenwich Capital Financial Products, Inc., a
Delaware corporation.
"Greenwich DIP Facility" shall have the meaning specified therefor
in Section 5.01(17) hereof.
"Guaranty" means the guaranty referred to in Section 5.01(6).
"Guarantor" has the meaning specified in the first paragraph of this
Agreement.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any relevant Environmental
Law, including, without limitation, asbestos fibers and friable asbestos,
polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or
derivatives.
"High LTV Mortgage Loans" means those Mortgage Loans having a loan
to value ratio in excess of 85% and not in excess of 125% which are underwritten
in accordance with the Borrower's Sav* A Loan Underwriting Guidelines attached
hereto as Exhibit I.
"High LTV Mortgage Loan Sublimit" means $30,000,000.
"Home Equity Mortgage Loan" means a Mortgage Loan, other than a High
LTV Mortgage Loan, which fails to satisfy all of the requirements for sale to
FNMA or FHLMC under their standard Mortgage Loan purchase programs, but which
satisfies all of the applicable requirements of the Underwriting Guidelines set
forth on Exhibit J hereto.
"Indemnified Parties" shall have the meaning specified therefor in
Section 11.06 hereof.
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"Intercreditor Agreement" means that certain Intercreditor Agreement
dated as of the date hereof among the Agent, the Lenders and Greenwich, and
acknowledged by the Borrower and the Guarantor, as the same may be amended,
modified and supplemented and in effect from time to time.
"Interim Bankruptcy Court Order" shall mean the order of the
Bankruptcy Court with respect to the Borrower and the Guarantor substantially in
the form of Exhibit H hereto, as the same may be amended, modified or
supplemented from time to time with the express written joinder or consent of
the Agent, the Lenders and the Borrower.
"Interest Period" shall mean, with respect to any Eurodollar Loan,
the period commencing on the borrowing date for, or the date of any continuation
of or conversion to, such Eurodollar Loan, as the case may be, and ending one
month thereafter as the Borrower may elect in the applicable notice given to the
Agent pursuant to Section 2.03 or Section 2.14, as appropriate; provided that
(i) any Interest Period that would otherwise end on a day that is not a Business
Day shall be extended to the next succeeding Business Day, unless such Business
Day falls in another calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (ii) any Interest Period that begins on
the last Business Day of a calendar month or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period shall end on the last Business Day of the applicable calendar month, and
(iii) no Interest Period for any Loan shall end after the Termination Date.
Interest shall accrue from and include the first date of an Interest Period, but
exclude the last day of such Interest Period.
"Investment Property" has the meaning specified therefor in the UCC.
"Investor(s)" means FNMA, FHLMC, and any other Person that has
delivered to the Borrower a Purchase Commitment and may include banks, insurance
companies, mortgage bankers, pension funds, investment bankers, securities
dealers, and state, county or municipal housing agencies.
"Law" means any federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority, including any
judicial or administrative order, consent decree or judgment.
"Lender Default" has the meaning specified in Section 9.06.
"Lenders" shall have the meaning given that term in the introductory
paragraph to this Agreement.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same
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<PAGE> 19
economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or comparable law of any jurisdiction to evidence any of
the foregoing).
"Loan" or "Loans" shall mean any and all loan or loans made by the
Lenders, or by the Agent on behalf of the Lenders, to the Borrower or made as a
result of charges made to the Borrower's DIP Account, in each case pursuant to
the terms of this Agreement.
"Loan Documents" shall mean this Agreement, the Notes, the Pledge
Agreement, the Guaranty, the Interim Bankruptcy Court Order, the Final
Bankruptcy Court Order, the Fee Letters, the Custodian Agreement, the
Intercreditor Agreement, each Notice of Borrowing, each Borrowing Base
Certificate, and all other instruments, agreements and documents from time to
time delivered in connection with or otherwise relating to any Loan Document,
excluding, however, the Greenwich DIP Facility and any custodian agreement,
promissory note or guaranty relating to the Greenwich DIP Facility.
"Loan Party" means one or, if plural, both of the Borrower and the
Guarantor.
"Majority Lenders" means those Lenders whose Pro Rata Shares
aggregate not less than 66-2/3%.
"Material Adverse Change" means (1) a material adverse change in the
status of the business, results of operations, condition (financial or
otherwise), property or prospects of either of the Loan Parties, (2) any event
or occurrence of whatever nature which will have a material adverse effect on
either of the Loan Parties' ability to perform their obligations under the Loan
Documents, (3) a material adverse change in the Lien arising under this
Agreement on any Collateral or (4) any event or occurrence of whatever nature
which will have a material adverse effect or result in an adverse change in the
legality, validity or enforceability of this Agreement or any Loan Document, the
rights or remedies of the Agent and the Lenders under any Loan Document, or the
value, collectability or the nature of the Collateral.
"Minority Lender" shall have the meaning specified therefor in
Section 11.03(b) hereof.
"Mortgage" means a mortgage, deed of trust, security deed or similar
lien encumbering real property securing a Mortgage Loan.
"Mortgage Loan" means a loan which is secured by a first or second
mortgage.
"Mortgage Loan Closing Date" means the date that a Mortgage Loan is
scheduled to settle.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans
containing the information specified in Exhibit L hereto with respect to each
Mortgage Loan to be delivered by the Borrower to the Agent pursuant to Section
2.03(a) hereof.
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"Mortgage Note" means the note or other evidence of indebtedness of
a mortgagor on a Mortgage Loan.
"Multiemployer Plan" means Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"New Lending Office" shall have the meaning specified therefor in
Section 2.15(g) hereof.
"Non-Conforming Mortgage Loan" means either a Home Equity Mortgage
Loan or a High LTV Mortgage Loan.
"Non-Defaulting Lender" has the meaning specified therefor in
Section 9.06 hereof.
"Non-U.S. Lender" shall have the meaning specified therefor in
Section 2.15(g) hereof.
"Notes" shall mean the promissory notes of the Borrower executed and
delivered to the Lenders under this Agreement and substantially in the form of
Exhibit A hereto, as modified or restated from time to time and any promissory
note or notes issued in exchange or replacement thereof under this Agreement,
including all extensions, renewals, refinancings or refundings under this
Agreement in whole or part.
"Notice of Borrowing" shall have the meaning given to that term in
Section 2.03(a) hereof.
"Notices" shall have the meaning specified therefor in Section 11.05
hereof.
"Obligations" means (1) each and every obligation, covenant and
agreement of the Borrower to the Lenders now or hereafter existing contained in
this Agreement, and any of the other Loan Documents, whether for principal,
interest, fees, expenses, indemnities or otherwise, and any amendments or
supplements thereto, extensions or renewals thereof or replacements therefor
under this Agreement, including but not limited to all indebtedness, obligations
and liabilities of such Borrower to the Agent and the Lenders now existing or
hereafter incurred under or arising out of or in connection with the Notes, this
Agreement, the other Loan Documents, and any documents or instruments executed
in connection therewith, (2) all sums advanced in accordance with this Agreement
by or on behalf of the Agent to protect any of the Collateral purported to be
covered hereby, and (3) any amounts paid by the Agent in preservation of any of
the Agent's and the Lenders' rights or interest in the Collateral, together with
interest on such amounts from the date such amounts are paid until reimbursement
in full at a rate per annum equal at all times to the Prime Rate or Default
Rate, as applicable, pursuant to the terms of this Agreement; in each case
whether direct or indirect, joint or several, absolute or contingent, liquidated
or unliquidated, now or hereafter existing, renewed or restructured, whether or
not from time to time decreased or extinguished and later increased, created or
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incurred, and including all indebtedness of the Borrower under any instrument
now or hereafter evidencing or securing any of the foregoing.
"Office" when used in connection with the Agent shall mean its
office located at 650 CIT Drive, Livingston, New Jersey 07039 or at such other
office or offices of the Agent as may be designated in writing from time to time
by the Agent to the Borrower and when used in connection with the Bank shall
mean the office of such entity designated in writing from time to time by the
Agent to the Borrower. In the event The Chase Manhattan Bank shall be the Bank,
the Office for such entity shall until further written notice from the Agent to
the Borrower be its office located at 55 Water Street, New York, New York 10004.
"Operating Account" means a demand deposit account established by
the Borrower with the Custodian for use by the Borrower for its general business
operations.
"Other Taxes" shall have the meaning given to that term in Section
2.15(b) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" has the meaning specified in Section 8.02.
"Person" means an individual, partnership, limited liability
company, corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA or to which Section
412 of the Code applies.
"Plan of Reorganization" shall mean "Cityscape Financial Corp.'s and
Cityscape Corp.'s Joint Plan of Reorganization" attached to the Solicitation and
Disclosure Statement of the Borrower and the Guarantor dated August 28, 1998.
"Pledge Agreement" means that certain Pledge Agreement, dated as of
the date hereof, among the Borrower, the Guarantor, the Agent and Greenwich, as
collateral agent for the Lenders and Greenwich, substantially in the form of
Exhibit E hereto, as the same may be amended, supplemented and otherwise
modified from time to time.
"Pledged Mortgages" means all Mortgages and Mortgage Notes (1)
covered by or referred to or intended to be included, in a loan request, or (2)
for which any of the documentation related thereto is received by the Custodian
under or pursuant to the Custodian Agreement or any of the Loan Documents, or
(3) which are the subject of the Wet Closing provisions of this Agreement.
"Pre-Petition Agreements" shall mean the Pre-Petition Credit
Agreement and the Pre-Petition Loan Documents.
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"Pre-Petition Collateral" shall mean all "Collateral" as such term
is defined in the Pre-Petition Credit Agreement and all other security for the
Pre-Petition Obligations as provided in the Pre-Petition Agreements immediately
prior to the Filing Date.
"Pre-Petition Collateral Agreements" shall mean the Pre-Petition
Credit Agreement and the "Pledge Agreement)" and the "Pledge Agreement (UK)" as
such terms are defined in the Pre-Petition Credit Agreement.
"Pre-Petition Credit Agreement" shall mean the Revolving Credit and
Security Agreement, dated as of February 3, 1998, as amended, among the
Borrower, the Guarantor, the Pre-Petition Lenders, and The CIT Group/Equipment
Financing, Inc., as agent for the Pre-Petition Lenders.
"Pre-Petition Lenders" shall have the meaning given that term in the
RECITALS to this Agreement.
"Pre-Petition Loan Documents" shall have the meaning given to the
term "Loan Documents" in the Pre-Petition Credit Agreement.
"Pre-Petition Loans" shall mean all loans made by the Pre-Petition
Lenders to the Borrower under the Pre-Petition Credit Agreement and outstanding
on the Filing Date.
"Pre-Petition Obligations" shall mean all indebtedness, obligations
and liabilities of the Borrower to the Pre-Petition Lenders incurred prior to
the Filing Date arising from or related to the Pre-Petition Agreements plus
interest thereon accruing both before and after the Filing Date, whether such
indebtedness, obligations or liabilities are direct or indirect, secured or
unsecured, joint or several, absolute or contingent, due or to become due,
whether for payment or performance, now existing or hereafter arising.
"Presence", when used in connection with any Environmental Discharge
or Hazardous Materials, means and includes presence, generation, manufacture,
installation, treatment, use, storage, handling, repair, encapsulation,
disposal, transportation, spill, discharge and release.
"Prime Loan" means a Loan bearing interest at the Prime Rate.
"Prime Rate" shall mean the interest rate per annum publicly
announced from time to time by the Bank in New York, New York as its Prime Rate,
such interest rate to change automatically from time to time effective as of the
announced effective date of each change in the Prime Rate. The Prime Rate is not
intended to be the lowest rate of interest charged by the Bank to its borrowers.
"Priority Professional Expenses" shall mean those expenses entitled
to a priority as set forth in sub-clause (ii) of the clause "first" of the
definition of the term "Agreed Administrative Expense Priorities".
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"Professional Expense Cap" shall have the meaning given that term in
clause (ii) of the clause "first" of the definition of the term "Agreed
Administrative Expense Priorities".
"Prohibited Transaction" means any non-exempt transaction set forth
in Section 406 of ERISA or Section 4975 of the Code.
"Pro Rata Share" shall mean, with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Commitment and the denominator of which shall be the Total Commitment,
as adjusted from time to time in accordance with the provisions of Section 11.13
hereof, provided that, if the Total Commitment has been terminated, the
numerator shall be the unpaid amount of such Lender's Loans and the denominator
shall be the aggregate amount of all unpaid Loans.
"Purchase Commitments" means valid and enforceable written
commitments issued by Investors to purchase Mortgage Loans from the Borrower at
a fixed price.
"Register" shall have the meaning given that term in Section
11.13(c) hereof.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA (other than an event not subject to provision for the 30-day
notice to the PBGC under the regulations promulgated under such Section).
"Reserve Requirements" shall mean, for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Federal Reserve Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of the
Federal Reserve System. Eurodollar Loans shall be deemed to constitute
Eurocurrency Liabilities and to be subject to such reserve requirements without
benefit of or credit for proration, exceptions or offsets which may be available
from time to time to any Lender or the Affiliate of any Lender under Regulation
D.
"Restricted Accounts" means one or more demand deposit accounts
established by the Agent with the Custodian or any other commercial bank to
which there may be deposited from time to time monies paid in connection with a
release of Collateral, which account shall be restricted in that the Borrower
shall not be entitled to withdraw money therefrom and the Agent shall be
authorized to make withdrawals from such account in accordance with the terms of
this Agreement in connection with a refinancing, sale or other disposition of
Collateral.
"Retained Interest" means, with respect to a pool of Mortgage Loans
that have been transferred by the Borrower to a trust or other Person through a
sale or securitization, the direct or indirect rights with respect to such pool,
including any rights to receive payments attributable to such pool, retained by
the Borrower subsequent to such transfer, whether such rights are security,
contractual, arise through the holding of an interest in such trust, or other
Person, or otherwise.
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"Retained Interest Receivables" means the direct or indirect right
to Retained Interests that would be capitalized on a Person's balance sheet (in
accordance with GAAP), including, without limitation, subordinated and
interest-only certificates and any similar rights arising by virtue of the
holding of capital stock or any other equity interest in any entity to which
Mortgage Loans have been transferred in a sale or securitization.
"Second Mortgage Loan Sublimit" means $10,000,000.
"Securities Account" has the meaning specified therefor in the UCC.
"Securities Entitlement" has the meaning specified therefor in the
UCC.
"Settlement Period" shall have the meaning set forth in Section
2.03(f) hereof.
"Single Family Mortgage Loan" means a Mortgage Loan which is secured
by a Mortgage which is a first or second Lien on a Single Family Residence.
"Single Family Residence" means a completed one (1) to four (4)
family residential dwelling and the property related thereto.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited or general partnership, limited liability company, limited
liability partnership, trust, association or other business entity of which an
aggregate of 50% or more of the outstanding stock or other interests entitled to
vote in the election of the board of directors of such corporation (irrespective
of whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency), managers, trustees or other controlling persons, or an equivalent
controlling interest therein, of such Person is, at the time, directly or
indirectly, owned or controlled by such Person and/or one or more Subsidiaries
of such Person.
"Subwarehouse Mortgage Loan" means a mortgage loan originated as a
result of the Borrower's Subwarehousing activities.
"Subwarehousing" means an arrangement pursuant to which the Borrower
extends credit to a mortgage lender (the "Subwarehouse Borrower") in order to
fund a mortgage loan to be made by the Subwarehouse Borrower pursuant to a
credit agreement between the Borrower, as lender and the Subwarehouse Borrower,
as borrower.
"Taxes" shall have the meaning given to that term in Section 2.15
hereof.
"Termination Date" shall have the meaning given to that term in
Section 2.01.
"Total Commitment" means the aggregate Commitments of the Lenders as
set forth on Schedule 1.01(A) which may be reduced or increased pursuant to the
terms of this Agreement.
"Transferee" shall have the meaning specified therefor in Section
2.15(a) hereof.
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"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of New York.
"Underwriting Guidelines" means the Underwriting Guidelines as in
effect on the Closing Date, attached as Exhibits I and J hereto.
"Unused Line Fee" shall have the meaning given to that term in
Section 2.07(e)
"Value" has the meaning specified in the Pledge Agreement.
"Warehouse Account" means a demand deposit account established by
the Borrower with the Custodian into which proceeds of a Loan may be deposited
and from which Mortgage Loan proceeds may be disbursed, in accordance with
instructions from the Borrower to the Custodian, directly to the Closing Agent
in connection with the settlement of Mortgage Loans.
"Wet Closing" means a Wet Mortgage Loan closing where the Agent is
requested to make a Loan prior to, on the date of, or after, the closing of the
Wet Mortgage Loan, but prior to the delivery of the documentation related
thereto required pursuant to the terms of this Agreement and the Custodian
Agreement to be delivered to the Custodian in all such cases in accordance with
the procedures outlined therefor under this Agreement.
"Wet Closing Agent" means each Closing Agent who (1) is designated
by the Borrower as responsible for the closing of a Wet Mortgage Loan and (2) is
not disapproved by the Agent, in its sole discretion.
"Wet Closing Agent Agreement" means an agreement executed by each
Wet Closing Agent in connection with the funding of each Wet Mortgage Loan
whereby such Wet Closing Agent agrees to act as the agent of the Agent in
accordance with the provisions of Section 5.05(3) hereof.
"Wet Collateral" has the meaning specified in Section 3.04(b)(6).
"Wet Loans" means Loans the proceeds of which are used to originate
Wet Mortgage Loans.
"Wet Mortgage Loan" means any Eligible Residential Mortgage Loan
that is pledged to the Agent pursuant to the Wet Closing provisions contained in
this Agreement.
"Wet Mortgage Loan Sublimit" means $5,000,000.
Section 1.02. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be delivered hereunder shall be prepared in
accordance with GAAP, consistently applied.
Section 1.03. Computation of Time Periods. Except as otherwise
provided in this Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".
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Section 1.04. Rules of Construction. When used in this Agreement:
(1) a reference to time shall be the time in New York City; (2) a reference to
an agreement, instrument or document shall include such agreement, instrument or
document as the same may be amended, modified or supplemented from time to time
in accordance with its terms and as permitted by the Loan Documents; (3) a
reference to a day shall be a calendar day unless Business Day is specified.
ARTICLE II.
LOANS
Section 2.01. Commitment. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth and subject to
the terms of the Interim Bankruptcy Court Order and the Final Bankruptcy Court
Order, each Lender severally agrees to make Loans to the Borrower at any time
and from time to time on or after the date hereof and to, but not including, the
Termination Date, in an aggregate principal amount at any time outstanding to
the Borrower not to exceed the amount of such Lender's Commitment, as such
Commitment may be reduced in accordance with the provisions of this Agreement.
Notwithstanding the foregoing the aggregate principal amount of Loans
outstanding at any time to the Borrower shall not exceed the lesser of (A) the
Total Commitment and (B) the then current Borrowing Base. The Total Commitment
and the Commitment of each Lender shall automatically and permanently be reduced
to zero on the earliest of (1) October 12, 1998, if the Interim Bankruptcy Court
Order has not been entered on or prior to such date, (2) 30 days from the Entry
Date if the Final Bankruptcy Court Order shall not have been entered during such
30 day period, (3) 30 days from the Entry Date if the final order of the
Bankruptcy Court with respect to the Greenwich DIP Facility shall not have been
entered during such 30 day period, (4) the date of the substantial consummation
(as defined in Section 1101(2) of the Bankruptcy Code) of a plan of
reorganization in the Chapter 11 Cases that has been confirmed by an order of
the Bankruptcy Court, and (5) March 1, 1999 (the "Termination Date"). Within the
limits of time and amount set forth in this Section 2.01, the Borrower may
borrow, repay and reborrow hereunder subject to the provisions of this
Agreement.
Section 2.02. Notes. The obligation of the Borrower to repay the
unpaid principal amount of the Loans made to it by each Lender and to pay
interest thereon shall be evidenced by a Note dated the date of this Agreement
in the principal amount of such Lender's Commitment with the blanks
appropriately filled in. An executed Note for each Lender shall be delivered by
the Borrower to the Agent on the date of the execution and delivery of this
Agreement and in accordance with Section 11.13 hereof.
Section 2.03. Notice of Borrowing; Making of Loans.
(a) Whenever the Borrower desires to borrow, it shall provide
notice to the Agent of such proposed borrowing (a "Notice of Borrowing"), each
such notice, to be given not later than 10:00 a.m. (New York City time) on the
date of such proposed borrowing in the case of a Prime Loan and not later than
12:00 noon (New York City time) on the third Business Day before the date of
such proposed borrowing in the case of a Eurodollar Loan, setting forth: (i) the
date,
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which shall be a Business Day, on which such borrowing is to occur, (ii) whether
such Loan is requested to be a Prime Loan or a Eurodollar Loan, (iii) the
principal amount of the Loan being borrowed, the use of proceeds of such Loan
and, if the proceeds of such Loan are to be used to originate Mortgage Loans,
whether or not such Loan is a Wet Loan, (iv) the account information where such
Loan is to be received, which shall be either the Warehouse Account or the
Operating Account, and (v) the other information required by Sections 5.03,
5.04, and 5.05, as applicable. If the proceeds of the Loan are to be used to
originate or purchase Mortgage Loans, the Notice of Borrowing shall also have
attached a Mortgage Loan Schedule identifying the Mortgage Loans the Borrower
proposes to pledge to the Agent and to include in the Borrowing Base. Such
notice shall be given in writing by a Designated Borrowing Officer,
substantially in the form of Exhibit B hereto, containing the original or
facsimile signature of a Designated Borrowing Officer. Except for a Notice of
Borrowing when the Agent will fund the related Loan pursuant to Section 2.03(e)
hereof, the Agent shall provide each Lender with prompt notice of each Notice of
Borrowing. Except as otherwise provided in Section 2.03(e), on the date
specified in such notice, each Lender shall, subject to the terms and conditions
of this Agreement, make its Pro Rata Share of such Loan in immediately available
funds by wire transfer to the Agent at its Office not later than 12:00 noon (New
York City time). Unless (i) the Agent determines that any applicable conditions
in Article V have not been satisfied or (ii) the Borrower fails to deliver the
applicable Collateral Documents and any other certificates or documents to the
Custodian before the date of the proposed borrowing as required under this
Agreement and the Custodian Agreement, the Agent shall make the funds so
received from the Lenders available to the Borrower not later than 4:00 p.m.
(New York City time), on the date specified in such notice in immediately
available funds by initiating a wire transfer.
(b) The Agent and each Lender shall be entitled to rely
conclusively on each Designated Borrowing Officer's authority to request a Loan
on behalf of the Borrower until the Agent receives written notice to the
contrary. The Agent and the Lenders shall have no duty to verify the
authenticity of the signature appearing on any written Notice of Borrowing.
(c) The Agent and the Lenders shall not incur any liability to
the Borrower in acting upon any Notice of Borrowing referred to above which the
Agent and the Lenders believe in good faith to have been given by a Designated
Borrowing Officer or for otherwise acting in good faith under this Section 2.03
and, upon the funding of a Loan by the Lenders (or by the Agent on behalf of the
Lenders) in accordance with this Agreement pursuant to any such notice, the
Borrower shall have effected a Loan hereunder.
(d) Each Notice of Borrowing pursuant to this Section 2.03
shall be irrevocable and the Borrower shall be bound to make a borrowing in
accordance therewith except as otherwise provided in Section 2.10(a) hereof.
Each Prime Loan shall be in a minimum amount of $100,000 and in multiples of
$50,000 if in excess thereof, and each Eurodollar Loan shall be in a minimum
amount of $1,000,000 and in multiples of $100,000 if in excess thereof, provided
that the Borrower shall not be entitled to request any Loan that, if made, would
result in an aggregate of more than six separate Eurodollar Loans being
outstanding hereunder at any one time.
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(e) (i) Except as otherwise provided in this subsection 2.03(e), all
Loans under this Agreement shall be made by the Lenders simultaneously and
proportionately to their Pro Rata Shares, it being understood that no Lender
shall be responsible for any default by any other Lender in that other Lender's
obligations to make a Loan requested hereunder, nor shall the Commitment of any
Lender be increased or decreased as a result of the default by any other Lender
in that other Lender's obligation to make a Loan requested hereunder.
(ii) Notwithstanding any other provision of this Agreement, and in
order to reduce the number of fund transfers among the Borrower, the Lenders and
the Agent, the Borrower, the Lenders and the Agent agree that the Agent may (but
shall not be obligated to), and the Borrower and the Lenders hereby irrevocably
authorize the Agent to, fund, on behalf of the Lenders, Loans pursuant to
Section 2.01, subject to the procedures for settlement set forth in subsection
2.03(f); provided, however, that (a) the Agent shall in no event fund such Loans
if the Agent shall have received written notice from the Majority Lenders on the
Business Day prior to the day of the proposed Loan that one or more of the
conditions precedent contained in Sections 5.02, 5.03, 5.04 and 5.05, as
applicable, will not be satisfied on the day of the proposed Loan, and (b) the
Agent shall not otherwise be required to determine that, or take notice whether,
the conditions precedent in Section 5.02, 5.03, 5.04 and 5.05, as applicable,
have been satisfied.
(iii) Unless (A) the Agent has notified the Lenders that the Agent,
on behalf of the Lenders, will fund a particular Loan pursuant to subsection
2.03(e)(ii), or (B) the Agent shall have been notified by any Lender on the
Business Day prior to the day of a proposed Loan that such Lender does not
intend to make available to the Agent such Lender's Pro Rata Share of the Loan
requested on such day, the Agent may assume that such Lender has made such
amount available to the Agent on such day and the Agent, in its sole discretion,
may, but shall not be obligated to, cause a corresponding amount to be made
available to the Borrower on such day. If the Agent makes such corresponding
amount available to the Borrower and such corresponding amount is not in fact
made available to the Agent by such Lender, the Agent shall be entitled to
recover such corresponding amount on demand from such Lender together with
interest thereon, for each day from the date such payment was due until the date
such amount is paid to the Agent, at the Federal Funds Rate for three Business
Days and thereafter at the Prime Rate. During the period in which such Lender
has not paid such corresponding amount to the Agent, notwithstanding anything to
the contrary contained in this Agreement or any other Loan Document, the amount
so advanced by the Agent to the Borrower shall, for all purposes hereof, be a
Loan made by the Agent for its own account. Upon any such failure by a Lender to
pay the Agent, the Agent shall promptly thereafter notify the Borrower of such
failure and the Borrower shall immediately pay such corresponding amount to the
Agent for its own account.
(iv) Nothing in this subsection 2.03(e) shall be deemed to relieve
any Lender from its obligations to fulfill its Commitment hereunder or to
prejudice any rights that the Agent or the Borrower may have against any Lender
as a result of any default by such Lender hereunder.
(f) (i) With respect to all periods for which the Agent has funded
Loans pursuant to subsection 2.03(e), on Friday of each week, or if the
applicable Friday is not a
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Business Day, then on the following Business Day, or such shorter period as the
Agent may from time to time select (any such week or shorter period being herein
called a "Settlement Period"), the Agent shall notify each Lender of the average
daily unpaid principal amount of the Loans outstanding during such Settlement
Period. In the event that such amount is greater than the average daily unpaid
principal amount of the Loans outstanding during the Settlement Period
immediately preceding such Settlement Period (or, if there has been no preceding
Settlement Period, the amount of the Loans made on the date of such Lender's
initial funding), each Lender shall promptly make available to the Agent its Pro
Rata Share of the difference in immediately available funds. In the event that
such amount is less than such average daily unpaid principal amount, the Agent
shall promptly pay over to each Lender its Pro Rata Share of the difference in
immediately available funds. In addition, if the Agent shall so request at any
time when a Default or an Event of Default shall have occurred and be
continuing, or any other event shall have occurred as a result of which the
Agent shall determine that it is desirable to present claims against the
Borrower for repayment, each Lender shall promptly remit to the Agent or, as the
case may be, the Agent shall promptly remit to each Lender, sufficient funds to
adjust the interests of the Lenders in the then outstanding Loans to such an
extent that, after giving effect to such adjustment, each Lender's interest in
the then outstanding Loans will be equal to its Pro Rata Share thereof. The
obligations of each Lender under this subsection 2.03(f) shall be absolute and
unconditional. Each Lender shall only be entitled to receive interest on its Pro
Rata Share of the Loans which have been funded by such Lender.
(ii) In the event that any Lender fails to make any payment
required to be made by it pursuant to subsection 2.03(f)(i), the Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from the date such payment was due
until the date such amount is paid to the Agent, at the Federal Funds Rate for
three Business Days and thereafter at the Prime Rate. During the period in which
such Lender has not paid such corresponding amount to the Agent, notwithstanding
anything to the contrary contained in this Agreement or any other Loan Document,
the amount so advanced by the Agent to the Borrower shall, for all purposes
hereof, be a Loan made by the Agent for its own account. Upon any such failure
by a Lender to pay the Agent, the Agent shall promptly thereafter notify the
Borrower of such failure and the Borrower shall immediately pay such
corresponding amount to the Agent for its own account. Nothing in this
subsection 2.03(f)(ii) shall be deemed to relieve any Lender from its obligation
to fulfill its Commitment hereunder or to prejudice any rights that the Agent or
the Borrower may have against any Lender as a result of any default by such
Lender hereunder.
Section 2.04. Payment of Principal. To the extent not due and
payable earlier pursuant to the terms of this Agreement, the entire unpaid
principal amount of each of the Loans shall be due and payable on the
Termination Date. The Borrower shall take all actions required so that all
Collateral Sale Proceeds will be paid directly to the Agent for the benefit of
the Lenders. Without limiting the generality of the foregoing, the Borrower
shall cause all Persons making such payments to remit directly to the Agent, by
way of wire transfer into a Restricted Account, from such proceeds, as payments
of principal hereunder, an amount equal to all Collateral Sale Proceeds.
Notwithstanding the foregoing (i) as long as the Borrower is required to pay to
Greenwich 50% of the proceeds of the sale of any Retained Interest Receivables
and/or the
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capital stock of the Subsidiaries of the Borrower that own such Retained
Interested Receivables, only 50% of the proceeds of the sale of any Retained
Interest Receivables and/or the capital stock of the Subsidiaries of the
Borrower that own such Retained Interest Receivables shall be required to be
paid directly to the Agent for the benefit of the Lenders, (ii) the Borrower
shall pay the proceeds from the sale of any Collateral subject to the
Intercreditor Agreement in accordance with the terms of the Intercreditor
Agreement and (iii) the Borrower shall only be required to pay directly to the
Agent for the benefit of the Lenders proceeds from the sale of real estate owned
by the Borrower, which are the proceeds of Pledged Mortgages released by the
Agent pursuant to Section 3.11(c) hereof, to the extent such proceeds exceed
$1,700,000, in the aggregate, in any calendar year, provided that after the
occurrence and during the continuance of an Event of Default all such proceeds
shall be paid to the Agent for the benefit of the Lenders. In the event that
notwithstanding the foregoing any such Collateral Sale Proceeds required to be
paid to the Agent shall be paid to the Borrower, the Borrower shall immediately
upon such receipt pay same over directly to the Agent; and while in such
Borrower's possession, such amounts shall be held in trust for the Agent.
Section 2.05. Interest.
(a) Interest Rate.
(i) Each Prime Loan shall bear interest at a rate per
annum for each day until paid equal to the Prime Rate.
(ii) Each Eurodollar Loan shall bear interest at a rate
per annum equal to the Eurodollar Rate plus 2.75% for the Interest Period in
effect for such Eurodollar Loan.
(b) Interest Payment Dates. The Borrower shall pay to the
Agent for the account of each Lender interest in arrears on the unpaid principal
amount of each Loan, from the date on which such Loan is advanced until such
principal amount has been repaid in full, which interest shall be payable (i) if
such Loan is a Prime Loan, monthly in arrears on the first day of each month,
commencing November 1, 1998, and (ii) if such Loan is a Eurodollar Loan on the
last day of the Interest Period of such Eurodollar Loan. After maturity of any
principal amount of any Loan (by acceleration, at scheduled maturity or
otherwise), interest on such amount shall be due and payable on demand.
Section 2.06. Reduction of Total Commitment; Prepayment of Loans.
(a) The Borrower may, reduce the Total Commitment to an amount
(which may be zero) not less than the sum of (i) the aggregate unpaid principal
amount of all Loans then outstanding and (ii) the aggregate principal amount of
all Loans not yet made as to which notice has been given by the Borrower under
Section 2.03 hereof. Each such reduction shall be in an amount which is an
integral multiple of $1,000,000, shall be requested by providing not less than
three Business Days' prior written notice to the Agent and shall be irrevocable
and may not be reinstated. Each such reduction of the Total Commitment shall
reduce the Commitment of each Lender on a pro rata basis.
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(b) Subject to the terms of Section 2.12 hereof, the Borrower
shall have the right to prepay, in whole or in part, all Loans.
(c) To the extent that the outstanding Loans exceed the lesser
of the Total Commitment and the Borrowing Base, the Borrower shall immediately
either (i) make a prepayment on the Loans in an amount equal to such excess or
(ii) provide additional Eligible Residential Mortgage Loans so that the
outstanding Loans do not exceed the Borrowing Base.
(d) Except as permitted in Section 2.04, all Collateral Sale
Proceeds shall be paid directly to the Agent by the Person making such payment,
provided that, any such Collateral Sale Proceeds paid to the Agent when no Loans
are outstanding and no other Obligations are due and payable under this
Agreement, shall be promptly paid to the Borrower.
(e) If for any reason a Wet Mortgage Loan is not closed and
funded on or before the second Business Day immediately following its Mortgage
Loan Closing Date, the Borrower will prepay the Wet Loan made in respect of such
Wet Mortgage Loan on the third Business Day immediately following such Mortgage
Loan Closing Date.
(f) Immediately upon receipt by the Borrower of all
outstanding principal under a Mortgage Note, the Borrower shall prepay the Loans
in an amount equal to the amount of such principal payment under such Mortgage
Note together with all interest accrued under such Mortgage Note and any penalty
or premium paid under such Mortgage Note.
(g) Subject to the terms of Section 2.12 hereof, without
limiting any other provision of this Agreement or any other Loan Document
permitting or requiring prepayment of the Loans in whole or part, the Borrower
shall prepay the Loans in whole without premium or penalty on the thirtieth
(30th) day following the Entry Date in the event the Final Bankruptcy Court
Order shall not have been entered on or before such date.
(h) In the event that the Pre-Petition Lenders are required to
repay or disgorge to the Borrower, or any representatives of the Borrower 's
estate, all or any portion of the Pre-Petition Obligations authorized and
directed to be repaid pursuant to the Interim Bankruptcy Court Order or the
Final Bankruptcy Court Order, as the case may be, or any payment on account of
the Pre-Petition Obligations made to any Pre-Petition Lender is rescinded for
any reason whatsoever, including, but not limited to, as a result of any action,
suit, proceeding or claim brought in connection with or pursuant to 11 U.S.C.
Sections 105, 510, 544, 547, 548, 549, 550 or 553, or any other provision
of the Bankruptcy Code or any applicable state law, or any other similar
provisions under any other state or federal statutory or common law (all such
amounts being hereafter referred to as the "Avoided Payments"), then, in such
event, (i) the Borrower shall prepay the Loans in an amount equal to 100% of
such Avoided Payments immediately upon receipt of the Avoided Payments by the
Borrower or any representative of the Borrower's estate and (ii) the Total
Commitment of the Lenders shall be permanently reduced by an amount equal to
100% of such Avoided Payments.
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Section 2.07. Payments.
(a) Time, Place and Manner. All payments and prepayments to be
made in respect of principal, interest, fees or other amounts due from the
Borrower hereunder, under the Fee Letter, the Notes or any other Loan Document
shall be payable at or before 12:00 noon, New York City time, on the day when
due without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. Such payments shall be made to the Agent for the
account of the Agent, or the Lenders, as the case may be, at the Agent Account
in Dollars in funds immediately available at the Bank's Office without setoff,
counterclaim or other deduction of any nature. Any payment received by the Agent
after 12:00 noon, New York City time, will be deemed to have occurred on the
next Business Day. The Agent shall maintain a separate loan account (the
"Borrower's DIP Account") on its books in the name of the Borrower in which the
Borrower will be charged with Loans made by the Agent or the Lenders to the
Borrower hereunder and with any other Obligations. The Borrower and the Lenders
hereby authorize the Agent to, and the Agent may, from time to time charge the
Borrower's DIP Account with any interest, fees, expenses and other Obligations
that are due and payable under this Agreement or any Loan Document. The Borrower
and the Lenders confirm that any charges which the Agent may so make to the
Borrower's DIP Account as herein provided will be made as an accommodation to
the Borrower and solely at the Agent's discretion and shall constitute a Loan to
the Borrower funded by the Agent on behalf of the Lenders and subject to
subsections 2.03(e) and 2.03(f) of this Agreement. Each of the Lenders and the
Borrower agrees that the Agent shall have the right to make such charges
regardless of whether any Event of Default or Default shall have occurred and be
continuing or whether any of the conditions precedent in Section 5.02 have been
satisfied. The Borrower's DIP Account will be credited upon receipt of "good
funds" in the Agent Account with all amounts actually received by the Agent from
the Borrower or others for the account of the Borrower. Interest on all Loans
and all fees that accrue on a per annum basis shall be computed on the basis of
the actual number of days elapsed in the period during which interest or such
fee accrues and a year of 360 days. In computing interest on any Loan, the date
of the making of such Loan shall be included and, if received by 12:00 noon (New
York City time), the date of payment shall be excluded; provided, however, that
if a Loan is repaid on the same day on which it is made, one day's interest
shall be paid on such Loan.
(b) Periodic Statements. The Agent shall provide the Lenders
and the Borrower promptly after the end of each calendar month a summary
statement (in the form from time to time used by the Agent) of (A) the opening
and closing daily balances in the Borrower's DIP Account during such month, (B)
the amounts and dates of all Loans made during such month, (C) the amounts and
dates of all payments on account of the Loans made during such month and each
Lender's interest in the Loans, (D) the amount of interest accrued on the Loans
during such month, and (E) the amount and nature of any charges to the
Borrower's DIP Account made during such month on account of interest, fees and
expenses and other Obligations. All entries on any such statement shall, 30 days
after the same is sent, be presumed to be correct and shall constitute prima
facie evidence of the information contained in such statement, subject to the
Borrower's and each Lender's express right to rebut such presumption by
conclusively demonstrating the existence of any error on the part of the Agent.
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(c) Apportionment of Payments. Except as otherwise provided in
this subsection, aggregate principal and interest payments shall be apportioned
among all outstanding Loans to which such payments relate and payments of the
Unused Line Fee required to be paid by the Borrower to the Lenders under
subsections 2.07(e) shall be apportioned ratably among the Lenders, in each case
according to their Pro Rata Shares. All payments shall be remitted to the Agent
and all such payments and any other amounts, including, without limitation,
proceeds of Collateral received by the Agent from or on behalf of the Borrower
shall be applied subject to the provisions of this Agreement first, to pay
principal of and interest on any Loans funded by the Agent on behalf of the
Lenders and any fees, expense reimbursements or indemnities then due to the
Agent from the Borrower; second, to pay any fees, expense reimbursements or
indemnities then due to the Lenders; third, to pay interest due in respect of
Loans; fourth, to pay or prepay principal of Loans; and fifth, to the Borrower
or to such Person as may be lawfully entitled to receive such surplus proceeds.
The Agent shall promptly distribute to each Lender at its primary address set
forth on the appropriate signature page hereof, or at such other address as such
Lender may designate in writing, such funds as it may be entitled to receive.
The foregoing apportionment of payments is solely for the purpose of determining
the obligations of the Borrower hereunder and, notwithstanding such
apportionment, any Lender may on its books and records allocate payments
received by it in a manner different from that contemplated hereby. No such
different allocation shall alter the rights and obligations of the Borrower
under this Agreement determined in accordance with the apportionments
contemplated by this Section 2.07(c). To the extent that the Borrower makes a
payment or payments to the Agent or the Agent receives any payment or other
amount, which payment(s) or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause then, to the
extent of such payment or proceeds received, the Obligations or part thereof
intended to be satisfied shall be revived and continue in full force and effect,
as if such payment or proceeds had not been received by the Agent.
(d) Interest Upon Events of Default. To the extent permitted
by law, after there shall have occurred and so long as there is continuing an
Event of Default pursuant to Section 9.01, all principal, interest, fees,
indemnities or any other Obligations of the Borrower hereunder, under the Fee
Letter or under any Note or any other Loan Document (and including interest
accrued under this subsection 2.07(d)) shall bear interest until paid (before
and after judgment), payable on demand, at the Default Rate such interest rate
to change automatically from time to time effective as of the announced
effective date of each change in the Prime Rate.
(e) Unused Line Fee. From and after the Closing Date until the
Termination Date, the Borrower shall pay to the Agent, for the account of each
Lender in accordance with such Lender's Pro Rata Share, an unused line fee (the
"Unused Line Fee") accruing at the rate of three-eighths percent (3/8%) per
annum, on the excess, if any, of the Total Commitment over the aggregate of the
Loans outstanding from time to time. All Unused Line Fees shall be payable
monthly in arrears on the first day of each month commencing November 1, 1998.
(f) Fees. The Borrower shall pay to the Agent the fees set
forth in the Fee Letter at the times set forth in the Fee Letter. All fees
required to be paid to the Agent pursuant
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to the Fee Letter, this Agreement or the other Loan Documents, shall be paid to
the Agent for its own account as described therein. All fees under this
Agreement, the Fee Letter and the other Loan Documents are non-refundable under
all circumstances.
Section 2.08. Use of Proceeds. The Borrower will use the proceeds of
the Loans only for the following purposes: (1) to repay the Pre-Petition
Obligations under the Pre-Petition Credit Agreement, (2) to originate or
purchase Mortgage Loans which will be Eligible Residential Mortgage Loans, and
(3) for general corporate purposes of the Borrower (including, without
limitation, payments of fees and expenses to professionals under Sections 330
and 331 of the Bankruptcy Code and administrative expenses of the kind specified
in Section 503(b) of the Bankruptcy Code incurred in the ordinary course of
business of the Borrower and the Guarantor).
Section 2.09. Reliance Upon Instructions. Without limiting the
coverage of any other indemnities provided in this Agreement, the Borrower
hereby indemnifies and agrees to hold harmless the Agent and each of the
Lenders, and their respective officers, employees and agents from and against
any and all liabilities, damages, losses, costs and expenses, including
reasonable counsel fees, however arising out of any actions taken in reliance
upon telephonic, telecopier or other instructions believed in good faith to have
been given under this Agreement on the Borrower's behalf by a Designated
Borrowing Officer.
Section 2.10. Eurodollar Rate Not Determinable; Illegality or
Impropriety.
(a) In the event, and on each occasion, that on or before the
day on which the Eurodollar Rate is to be determined for a borrowing that is to
include Eurodollar Loans, the Agent has determined in good faith that, or has
been advised by the Bank that, the Eurodollar Rate cannot be determined for any
reason or the Eurodollar Rate will not adequately and fairly reflect the cost of
maintaining Eurodollar Loans or Dollar deposits in the principal amount of the
applicable Eurodollar Loans are not available in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations in respect of
the Bank's eurodollar loans are then being conducted, the Agent shall, as soon
as practicable thereafter, give written notice of such determination to the
Borrower and the other Lenders. In the event of any such determination, any
request by the Borrower for a Eurodollar Loan pursuant to Section 2.03 shall,
until the Agent shall have advised the Borrower and the other Lenders that the
circumstances giving rise to such notice no longer exist, be deemed to be a
request for a Prime Loan unless the Borrower provides written notice to the
Agent revoking its request for such Eurodollar Loans. Each determination by the
Agent hereunder shall be conclusive and binding absent manifest error.
(b) In the event that it shall be unlawful or improper for any
Lender to make, maintain or fund any Eurodollar Loan as contemplated by this
Agreement, then such Lender shall forthwith give notice thereof to the Agent and
the Borrower describing such illegality or impropriety in reasonable detail.
Effective immediately upon the giving of such notice, the obligation of such
Lender to make Eurodollar Loans shall be suspended for the duration of such
illegality or impropriety and, if and when such illegality or impropriety ceases
to exist, such suspension shall cease, and such Lender shall notify the Agent
and the Borrower. If any such change shall make it unlawful or improper for any
Lender to maintain any outstanding Eurodollar
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Loan as a Eurodollar Loan, such Lender shall, upon the happening of such event,
notify the Agent and the Borrower, and the Borrower shall immediately, or if
permitted by applicable law, rule, regulation, order, decree, interpretation,
request or directive, no later than the date permitted thereby, convert each
such Eurodollar Loan into a Prime Loan.
Section 2.11. Reserve Requirements; Capital Adequacy Circumstances.
(a) Notwithstanding any other provision herein, if any change
in applicable law or regulation or in the interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) shall impose any
tax on or change the basis of taxation of payments to any Lender or any
Affiliate of a Lender of the principal of or interest on any Eurodollar Loan
made by such Lender or of any amounts payable hereunder (other than taxes
imposed on the overall net income of such Lender or such Affiliate by the
jurisdiction in which such Lender or such Affiliate has its principal office or
by any political subdivision or taxing authority therein), or shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of or credit extended by
such Lender or Affiliate of such Lender (except any such reserve requirement
that is reflected in Reserve Requirements) or shall impose on such Lender or
such Affiliate any other condition affecting this Agreement or any Eurodollar
Loans made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan or
to reduce the amount of any sum received or receivable by such Lender hereunder
(whether of principal, interest or otherwise) in respect thereof by an amount
deemed by such Lender to be material, then the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered.
(b) If any Lender shall have reasonably determined that the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by such Lender
(or any lending office of such Lender) or by any Affiliate of such Lender, as
the case may be, with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's Affiliate, as the case may
be, as a consequence of such Lender's obligations under this Agreement and the
Loan Documents to a level below that which such Lender or such Lender's
Affiliate, as the case may be, could have achieved but for such adoption, change
or compliance (taking into consideration such Lender's policies or such Lender's
Affiliate's policies, as the case may be, with respect to capital adequacy) by
an amount deemed by such Lender to be material, then, from time to time, the
Borrower shall reimburse such Lender for such reduction.
(c) Any amount or amounts payable by the Borrower to any
Lender in accordance with the provisions of paragraphs (a) or (b) of this
Section 2.11 shall be paid by the Borrower to such Lender within ten (10) days
after receipt by the Borrower from such Lender of a statement setting forth (i)
in reasonable detail the amount or amounts due, (ii) the basis for the
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determination from time to time of such amount or amounts, (iii) that such
amount(s) have been determined in good faith and (iv) that such Lender is using
reasonable efforts to receive comparable amounts from similarly situated
borrowers having similar relationships with such Lender under documentation
which gives such Lender substantially the same rights with respect to such
increased costs or reductions or payments as required in this Section 2.11,
which statement shall be conclusive and binding absent manifest error.
(d) Any Lender may demand compensation for any increased costs
or reduction in amounts received or receivable or reduction in return on capital
with respect to any period; provided that such Lender shall provide to the
Borrower a certificate setting forth the basis on which such demand is made. The
protection of this Section 2.11 shall be available to any Lender regardless of
any possible contention of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred or
been imposed.
(e) If the Borrower shall be obligated to pay amounts to any
Lender under this Section 2.11, then, any time within 30 days after the Borrower
shall become so obligated, the Borrower may request such Lender to assign its
rights and obligations under the Loan Documents to one or more Persons
designated by the Borrower (a) that are acceptable to the Agent and (b) to which
the Borrower reasonably expects that it will be obligated to pay lesser amounts
under such Section than the amounts it reasonably expects that the Borrower will
be obligated to pay such Lender. If the Borrower shall so request such an
assignment, such Lender shall cooperate to consummate such assignment, and shall
execute and deliver to the Borrower and the Agent an Assignment and Acceptance
with respect thereto, no later than 30 days after such request, if the proposed
assignee (x) unconditionally purchases all of such Lender's rights and
obligations under the Loan Documents, without recourse to or representation or
warranty by such Lender other than as provided in the Assignment and Acceptance,
for an amount equal to the aggregate amount owing to such Lender thereunder at
the time of such assignment (including such Lender's aggregate outstanding
Loans, accrued interest thereon and all fees and other amounts accrued or
payable to such Lender), (y) reimburses such Lender for all reasonable costs
incurred under this Section 2.11 as a result of such assignment to the extent
not reimbursed by the Borrower, and (z) executes and delivers to the Borrower
and the Agent such Assignment and Acceptance.
Section 2.12. Indemnity. The Borrower shall indemnify each Lender
against any loss or expense that such Lender actually sustains or incurs as a
consequence of (a) any failure by the Borrower to fulfill on the date of any
borrowing hereunder the applicable conditions set forth in Article V, (b) any
failure by the Borrower to borrow any Eurodollar Loan hereunder (except as
provided in Section 2.10(a) hereof) or to convert any Prime Loan into a
Eurodollar Loan after notice of such borrowing or conversion has been given
pursuant to Section 2.03 or Section 2.14, as the case may be, (c) any payment,
prepayment (mandatory or optional) or conversion of a Eurodollar Loan required
by any provision of this Agreement or otherwise made on a date other than the
last day of the Interest Period applicable thereto, (d) any default in payment
or prepayment of the principal amount of any Eurodollar Loan or any part thereof
or interest accrued thereon, as and when due and payable (at the due date
thereof, by notice of prepayment or otherwise), or (e) the occurrence of any
Event of Default, including, in each such case, any loss (including, without
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limitation, loss of margin) or reasonable expense sustained or incurred in
liquidating or employing deposits from third parties acquired to effect or
maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or
reasonable expense shall include but not be limited to an amount equal to the
excess, if any, as reasonably determined by such Lender, of (i) its cost of
obtaining the funds for the Loan being paid, prepaid or converted or not
borrowed or converted (based on the Eurodollar Rate applicable thereto) for the
period from the date of such payment, prepayment, conversion or failure to
borrow or convert to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow or convert, the last day of the Interest Period
for such Loan that would have commenced on the date of such failure to borrow or
convert) over (ii) the amount of interest (as reasonably determined by such
Lender) that would be realized by such Lender in re-employing the funds so paid,
prepaid or converted or not borrowed or converted for such Interest Period. A
certificate of any Lender setting forth in reasonable detail any amount or
amounts that such Lender is entitled to receive pursuant to this Section 2.12
and the basis for the determination of such amount or amounts shall be delivered
to the Borrower and shall be conclusive and binding absent manifest error.
Section 2.13. Sharing of Setoffs. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower or other security or interest arising from, or in lieu of,
such secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) in respect of any Obligation as a result of
which the aggregate unpaid amount of the Obligations owing to it shall be
proportionately less than the aggregate unpaid amount of the Obligations owing
to any other Lender, it shall simultaneously purchase from such other Lender at
face value a participation in the Obligations owing to such other Lender, so
that the aggregate unpaid amount of the Obligations and participations in
Obligations held by each Lender shall be in the same proportion to the aggregate
unpaid amount of all Obligations owing to such Lender prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the aggregate unpaid
amount of all Obligations outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.13 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustments restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in an Obligation deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a loan directly to the Borrower in
the amount of such participation.
Section 2.14. Continuation and Conversion of Loans. Subject to
Section 2.03 and Section 2.10 hereof, the Borrower shall have the right, at any
time (i) on three (3) Business Days' prior irrevocable written or telecopy
notice to the Agent, to continue any Eurodollar Loan or any portion thereof into
a subsequent Interest Period or, to convert any Prime Loan or portion thereof
into a Eurodollar Loan, or (ii) on one (1) Business Day's prior irrevocable
written or telecopy notice to the Agent, to convert any Eurodollar Loan or
portion thereof into a Prime Loan, subject to the following:
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(A) in the case of a continuation of a Eurodollar Loan or
portion thereof as such or a conversion of a Prime Loan
or portion thereof into a Eurodollar Loan (1) no Event
of Default or Default shall have occurred and be
continuing at the time of such continuation or
conversion and (2) Eurodollar Loans resulting from this
Section 2.14 shall be limited in number as provided in
Section 2.03(d);
(B) in the case of a continuation or conversion of less than
all Loans, the aggregate principal amount of any
Eurodollar Loan continued or converted shall not be less
than $1,000,000 and in multiples of $100,000 if in
excess thereof;
(C) each conversion shall be effected by the Lenders by
applying the proceeds of the new Loan to the Loan (or
portion thereof) being converted; and, in the case of a
conversion from a Eurodollar Loan to a Prime Loan,
accrued interest on the Eurodollar Loan (or portion
thereof) being converted shall be paid by the Borrower
at the time of conversion;
(D) if the new Loan made in respect of a conversion shall be
a Eurodollar Loan, the first Interest Period with
respect thereto shall commence on the date of
conversion;
(E) no portion of any Loan shall be continued or converted
to a Eurodollar Loan with an Interest Period ending
later than the Termination Date; and
(F) if any conversion of a Eurodollar Loan shall be effected
on a day other than the last day of an Interest Period,
the Borrower shall reimburse each Lender on demand for
any loss incurred or to be incurred by it in the
reemployment of the funds released by such conversion as
provided in Section 2.12 hereof.
In the event that the Borrower shall not give notice to continue any Eurodollar
Loan into a subsequent Interest Period, such Loan (unless repaid) shall
automatically become a Prime Loan at the expiration of the then current Interest
Period.
Section 2.15. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.07, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding (i) income taxes imposed on the net income of the Agent or any Lender
(or any transferee or assignee thereof, including a participation holder (any
such entity a "Transferee")) and (ii) franchise taxes imposed on the net income
of the Agent or any Lender (or Transferee), in each case by the jurisdiction
under the laws of which the Agent or such Lender (or Transferee) is organized or
any political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges withholdings and liabilities, collectively or individually,
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"Taxes"). If the Borrower shall be required to deduct any Taxes from or in
respect of any sum payable hereunder to any Lender (or any Transferee) or the
Agent, (i) the sum payable shall be increased by the amount (an "additional
amount") necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.15) such
Lender (or Transferee) or the Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay to the relevant
Governmental Authority in accordance with applicable law any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document ("Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee)
and the Agent for the full amount of Taxes and Other Taxes paid by such Lender
(or Transferee) or the Agent, as the case may be, and any liability (including
penalties, interest and expenses (including reasonable attorney's fees and
expenses)) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability prepared
by a Lender, or the Agent on its behalf, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date the Lender (or Transferee) or the Agent, as the
case may be, makes written demand therefor.
(d) If a Lender (or Transferee) or the Agent shall become
aware that it is entitled to claim a refund from a Governmental Authority in
respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower, or with respect to which the Borrower has paid additional amounts,
pursuant to this Section 2.15, it shall promptly notify the Borrower of the
availability of such refund claim and shall, within 30 days after receipt of a
request by the Borrower, make a claim to such Governmental Authority for such
refund at the Borrower's expense. If a Lender (or Transferee) or the Agent
receives a refund (including pursuant to a claim for refund made pursuant to the
preceding sentence) in respect of any Taxes or Other Taxes as to which it has
been indemnified by the Borrower or with respect to which the Borrower has paid
additional amounts pursuant to this Section 2.15, it shall within 30 days from
the date of such receipt pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.15 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of such Lender (or Transferee)
or the Agent and without interest (other than interest paid by the relevant
Governmental Authority with respect to such refund); provided, however, that the
Borrower, upon the request of such Lender (or Transferee) or the Agent, agrees
to repay the amount paid over to the Borrower (plus penalties, interest or other
charges) to such Lender (or Transferee) or the Agent in the event such Lender
(or Transferee) or the Agent is required to repay such refund to such
Governmental Authority.
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(e) As soon as practicable after the date of any payment of
Taxes or Other Taxes by the Borrower to the relevant Governmental Authority, the
Borrower will deliver to the Agent, at its address referred to in Section 11.05,
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.15
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(g) Each Lender (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Agent two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224,
or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions thereof
or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a
certificate representing that such Non-U.S. Lender is not a bank for purposes of
Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of Section
864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S.
Lender claiming complete exemption from U.S. Federal withholding tax on payments
by the Borrower under this Agreement and other Loan Documents. Such forms shall
be delivered by each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of a Transferee that is a participation holder,
on or before the date such participation holder becomes a Transferee hereunder)
and on or before the date, if any, such Non-U.S. Lender changes its applicable
lending office by designating a different lending office (a "New Lending
Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly
upon the obsolescence or invalidity of any form previously delivered by such
Non-U.S. Lender. Notwithstanding any other provision of this Section 2.15(g), a
Non-U.S. Lender shall not be required to deliver after the date hereof any form
pursuant to this Section 2.15(g) that such Non-U.S. Lender is not legally able
to deliver.
(h) The Borrower shall not be required to indemnify any
Non-U.S. Lender, or pay any additional amounts to any Non-U.S. Lender, in
respect of United States Federal withholding tax pursuant to paragraph (a) or
(c) above to the extent that (i) the obligation to withhold amounts with respect
to United States Federal withholding tax existed on the date such Non-U.S.
Lender became a party to this Agreement (or, in the case of a Transferee that is
a participation holder, on the date such participation holder became a
Transferee hereunder) or, with respect to payments to a New Lending Office, the
date such Non-U.S. Lender designated such New Lending Office with respect to a
Loan; provided, however, that this clause (i) shall not apply to any Transferee
or New Lending Office that becomes a Transferee or New Lending Office as a
result of an assignment, participation, transfer or designation made at the
request of or with the consent of the Borrower; and provided further, however,
that this clause (i) shall not apply to the extent the indemnity payment or
additional amounts any Transferee, or Lender (or Transferee) through a New
Lending Office, would be entitled to receive (without regard to this
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clause (i)) do not exceed the indemnity payment or additional amounts that the
person making the assignment, participation or transfer to such Transferee, or
Lender (or Transferee) making the designation of such New Lending Office, would
have been entitled to receive in the absence of such assignment, participation,
transfer or designation, (ii) the obligation to pay such additional amounts
would not have arisen but for a failure by such Non-U.S. Lender to comply with
the provisions of paragraph (g) above or (iii) the obligation to pay such
additional amounts does not result from a change in applicable tax law
(including, without limitation, applicable judicial decisions, statutes,
regulations or other administrative interpretations) occurring after the date
hereof.
(i) Any Lender (or Transferee) claiming any indemnity payment
or additional payment amounts payable pursuant to this Section 2.15 shall use
reasonable efforts (consistent with legal and regulatory restrictions) to file
any certificate or document reasonably requested in writing by the Borrower or
to change the jurisdiction of its applicable lending office if the making of
such a filing or change would avoid the need for or reduce the amount of any
such indemnity payment or additional amount which may thereafter accrue and
would not, in the sole determination of such Lender (or Transferee), be
otherwise disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.15 shall require any
Lender (or Transferee) or the Agent to make available any of its tax returns (or
any other information which it deems to be confidential or proprietary).
ARTICLE III.
ACKNOWLEDGMENT, RATIFICATION,
SECURITY AND ADMINISTRATIVE PRIORITY
Section 3.01. Pre-Petition Obligations. Each of the Borrower and the
Guarantor hereby acknowledges, confirms and agrees that the Borrower and the
Guarantor are indebted to the Pre-Petition Lenders for the Pre-Petition
Obligations, as of October 13, 1998, in respect of Pre-Petition Loans in the
aggregate principal amount of $15,659,459.47, together with interest accrued and
accruing thereon, and costs, expenses, fees (including attorneys' fees) and
other charges now or hereafter owed by the Borrower and the Guarantor to the
Pre-Petition Lenders, all of which are unconditionally owing by the Borrower to
the Lenders, without offset, defense or counterclaim of any kind, nature and
description whatsoever.
Section 3.02. Acknowledgment of Security Interests. The Borrower
hereby acknowledges, confirms and agrees that the Pre-Petition Lenders have and
shall continue to have valid, enforceable and perfected first priority and
senior liens upon and security interests in all Pre-Petition Collateral pursuant
to the Pre-Petition Agreements as in effect on the Filing Date to secure all of
the Pre-Petition Obligations.
Section 3.03. Binding Effect of Documents. Each of the Borrower and
the Guarantor hereby acknowledges, confirms and agrees that: (a) each of the
Pre-Petition Agreements
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to which it is a party is in full force and effect as of the date hereof, (b)
the agreements and obligations of the Borrower and the Guarantor contained in
the Pre-Petition Agreements constitute the legal, valid and binding obligations
of the Borrower and the Guarantor enforceable against it in accordance with
their respective terms and the Borrower and the Guarantor have no valid defense,
offset or counterclaim to the enforcement of such obligations and (c) the
Pre-Petition Lenders are and shall be entitled to all of the rights, remedies
and benefits provided for in the Pre-Petition Agreements, except as clauses (b)
and (c) above are subject to the automatic stay under the Bankruptcy Code upon
commencement of the Chapter 11 Cases.
Section 3.04. Collateral; Grant of Lien and Security Interest.
(a) Pursuant to the Custodian Agreement, the Custodian shall
hold the Collateral Documents as the exclusive bailee and agent for the Agent
and the Lenders pursuant to the terms of the Custodian Agreement and shall
deliver to the Agent trust receipts each to the effect that it has reviewed such
Collateral Documents in the manner and to the extent required by the Custodian
Agreement and identifying any deficiencies in such Collateral Documents so
reviewed.
(b) As security for the full and timely payment and
performance of all of the Obligations, the Borrower hereby assigns and pledges
to the Agent for the benefit of the Lenders and hereby grants to the Agent for
the benefit of the Lenders, a security interest in and to all of the property,
assets or interests in property or assets of the Borrower, of any kind or nature
whatsoever, real or personal, now existing or hereafter acquired or created
(including without limitation all property of the estate (within the meaning of
the Bankruptcy Code), and all causes of action arising under the Bankruptcy Code
or otherwise other than under Sections 544, 545, 547, 548, 549, 550, 551 or 553
of the Bankruptcy Code), and all proceeds, rents, products and profits of any of
the foregoing, including, without limitation, a security interest in and to the
following (all property of the Borrower subject to the security interest
referred to in this Section 3.04 being hereinafter referred to as the
"Collateral"):
(1) all Mortgage Loans now or hereafter made, including,
without limitation, all Mortgage Loans which have been pledged to
the Agent (whether by delivery to the Agent or to the Custodian on
the Agent's behalf or otherwise) or upon which any Loan is made by
the Agent or the Lenders, the Mortgage Note and Mortgage and the
other Collateral Documents evidencing said Mortgage Loans, all
servicing rights and servicing fees and other income arising from or
relating to such Mortgage Loans, and all instruments, documents,
loan agreements, guarantees, interest rate swap, cap or collar
agreements or similar agreements, contract rights, general
intangibles, property rights, proceeds and payments arising
therefrom or relating thereto, including without limitation the
following:
(a) all payments and prepayments of principal,
interest, and other income due or to become due thereon and
all proceeds
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therefrom, and all the right, title and interest of every
nature whatsoever of the Borrower in and to such property;
(b) all Liens with respect thereto or as security
therefor;
(c) all hazard insurance policies, title insurance
policies or condemnation proceeds with respect thereto
including, without limitation, any FHA mortgage insurance; and
(d) all prepayment premiums and late payment
charges with respect thereto;
(2) all real estate acquired by the Borrower by deed in
lieu of foreclosure or by foreclosure attributable to any such
Mortgage Loan;
(3) all Purchase Commitments issued with respect to any
such Mortgage Loan and all rights of the Borrower with respect
thereto;
(4) all right, title and interest of the Borrower in and
to all files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records, and
other records, information, and related data of the Borrower with
respect to such Mortgage Loans;
(5) all business records, computer tapes, software and
microfiche necessary or useful to identify and locate the
Collateral;
(6) each Wet Mortgage Loan and all documents and
agreements delivered in connection therewith or relating thereto
including, without limitation, the Mortgage Note, Mortgage and
Collateral Documents related thereto (such Wet Mortgage Loan and all
such documents, instruments and agreements and Collateral Documents
related thereto, being herein collectively called, the "Wet
Collateral") immediately upon the funding of the Loan in respect
thereof and the creation of the Wet Mortgage Loan;
(7) all cash from time to time deposited in any deposit
account of the Borrower with the Custodian, including, without
limitation, the Warehouse Account, the Restricted Account, and the
Operating Account;
(8) (a) all moneys, securities and other property and
the proceeds thereof, now or hereafter held or received by, or in
transit to, the Agent or any Lender from or for the Borrower,
whether for safekeeping, pledge, custody, transmission, collection
or otherwise, and all of the Borrower's sums and credits with, and
all of the Borrower's claims against the Agent or any Lender at any
time existing; (b) all rights, interests, choses in action, causes
of actions, claims and all other intangible property of every kind
and nature, in each instance whether now owned or hereafter acquired
by the Borrower, including, without limitation, all
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corporate and other business records, all loans, royalties,
servicing rights and all other forms of obligations receivable
whatsoever; (c) all computer programs, software, printouts and other
computer materials, credit files, correspondence, advertising
materials and other source or business identifiers; (d) all rights
under license and franchise agreements, servicing contracts and
other contracts and contract rights; (e) all interests in
partnerships, limited liability companies and joint ventures,
including all moneys due from time to time in respect thereof; (f)
all federal, state and local tax refunds and federal, state and
local tax refund claims and all judgments in favor of Borrower and
all of Borrower's rights with respect thereto; (g) all right, title
and interest under leases, subleases, licenses and concessions and
other agreements relating to personal property, including all moneys
due from time to time in respect thereof; (h) all lock-box and all
deposit accounts (general or special) or other accounts with any
bank or other financial institution, including, without limitation,
all depository or other accounts maintained by the Borrower at any
Lender and all funds on deposit therein; (i) all rights to
indemnification; (j) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual
interests in trusts; (k) all proceeds of insurance of which the
Borrower is the beneficiary; (l) all letters of credit, guaranties,
liens, security interests and other security held by or granted to
the Borrower; (m) all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral; and (n) all
present and future accounts, contract rights, chattel paper,
documents, instruments, general intangibles and other obligations of
any kind, whether or not similar to the foregoing, in each instance,
however and wherever arising;
(9) all Investment Property, securities, Securities
Accounts, Financial Assets and all Securities Entitlements of the
Borrower in any and all of the foregoing, excluding all such
property to the extent it is Collateral pursuant to the terms of the
Pledge Agreements; and
(10) all proceeds of any and all of the foregoing
Collateral (including, without limitation, proceeds which constitute
property of the types described in any of the clauses of this
Section 3.04 and, to the extent not otherwise included, all payments
under insurance (whether or not the Agent or the Borrower is the
loss payee thereof), or any indemnity, warranty, guaranty or insured
closing letter, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral);
in each case howsoever the Borrower's interest therein may arise or
appear (whether by ownership, security interest, claim or
otherwise).
The Borrower agrees to mark its computer records and
tapes to evidence the interests granted to the Agent and the Lenders
hereunder.
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(c) Upon entry of the Interim Bankruptcy Court Order, the
Liens and security interests in favor of the Agent referred to in Section
3.04(b) hereof shall be valid and perfected Liens and security interests, prior
to all other Liens and interests hereafter arising, except for Permitted Liens.
Such Liens and security interests and their priority shall remain in effect
until the Total Commitment has been terminated and all Obligations have been
repaid in cash in full.
(d) Notwithstanding anything herein to the contrary, no Person
entitled to Carve-Out Expenses shall be entitled to sell or otherwise dispose,
or seek or object to the sale or other disposition, of any Collateral.
(e) Nothing contained in this Agreement shall prevent the
payment by the Borrower and the Guarantor of any Priority Professional Expenses
in accordance with the provisions set forth in clause "first" of the definition
of the term "Agreed Administrative Expense Priorities."
Section 3.05. Administrative Priority. Each of the Borrower and the
Guarantor hereby agrees that the Obligations of the Borrower shall constitute
allowed administrative expenses in the Chapter 11 Cases having priority over all
administrative expenses of and unsecured claims against the Borrower and the
Guarantor now existing or hereafter arising, of any kind or nature whatsoever,
including without limitation all administrative expenses of the kind specified
in Sections 503(b) and 507(b) of the Bankruptcy Code, subject, as to priority,
only to Carve-Out Expenses having priority over the Obligations to the extent
set forth in the definition of Agreed Administrative Expense Priorities and,
subject to the terms of the Intercreditor Agreement and the Pledge Agreement,
the obligations of the Borrower and the Guarantor under the Greenwich DIP
Facility.
Section 3.06. Grants, Rights and Remedies. The Liens and security
interests granted pursuant to Section 3.04(b) hereof and administrative priority
granted pursuant to Section 3.05 hereof may be independently granted by the Loan
Documents and by other Loan Documents hereafter entered into. This Agreement,
the Interim Bankruptcy Court Order, the Final Bankruptcy Court Order and such
other Loan Documents supplement each other, and the grants, priorities, rights
and remedies of the Agent and the Lenders hereunder and thereunder are
cumulative.
Section 3.07. No Filings Required. The Liens and security interests
referred to herein shall be deemed valid and perfected by entry of the Interim
Bankruptcy Court Order and the Final Bankruptcy Court Order, as the case may be,
and entry of the Interim Bankruptcy Court Order shall have occurred on or before
the date of the initial Loan hereunder. The Agent shall not be required to file
any financing statements, notices of Lien or similar instruments in any
jurisdiction or filing office or to take any other action in order to validate
or perfect the Lien and security interest granted by or pursuant to this
Agreement, the Interim Bankruptcy Court Order, the Final Bankruptcy Order or any
other Loan Document.
Section 3.08. Survival. The Liens, Lien priority, administrative
priorities and other rights and remedies granted to the Lenders pursuant to this
Agreement, the Interim Bankruptcy Court Order, the Final Bankruptcy Court Order
and the other Loan Documents (specifically including but not limited to the
existence, perfection and priority of the Liens and
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security interests provided herein and therein, and the administrative priority
provided herein and therein) shall not be modified, altered or impaired in any
manner by any other financing or extension of credit or incurrence of debt by
the Borrower (pursuant to Section 364 of the Bankruptcy Code or otherwise), or
by any dismissal or conversion of the Chapter 11 Cases, or by any other act or
omission whatever. Without limitation, notwithstanding any such order,
financing, extension, incurrence, dismissal, conversion, act or omission:
(a) except for the Carve-Out Expenses having priority over the
Obligations to the extent set forth in the definition of Agreed Administrative
Expense Priorities and, subject to the terms of the Intercreditor Agreement and
the Pledge Agreement, the obligations of the Borrower and the Guarantor under
the Greenwich DIP Facility, no costs or expenses of administration which have
been or may be incurred in the Chapter 11 Cases or any conversion of the same or
in any other proceedings related thereto, and no priority claims, are or will be
prior to or on a parity with any claim of the Agent and the Lenders against the
Borrower and the Guarantor in respect of any Obligation,
(b) the Liens in favor of the Lenders set forth in Section
3.04 hereof shall constitute valid and perfected Liens, subject only to the
Permitted Liens, to which such Liens and security interests shall or may be
subordinate and junior, and shall be prior to all other Liens and interests, now
existing or hereafter arising, in favor of any other creditor or any other
Person whatever, and
(c) the Liens in favor of the Lenders set forth herein and in
the Loan Documents shall continue valid and perfected without the necessity that
the Agent file financing statements or otherwise perfect its Lien under
applicable nonbankruptcy law.
Section 3.09. Responsibility for Collateral. To the extent required
by Section 9-207 of the applicable UCC or other applicable law, the Agent shall
use reasonable care in the care, transmittal, custody and preservation of
Collateral in its possession; reasonable care shall be deemed to be such care
that the Agent exercises in the transmittal, care, preservation and custody of
its own property of a similar nature. Notwithstanding the foregoing, the Agent
shall have (1) no responsibility with respect to the risk of accidental loss or
damage to Collateral in its possession, (2) no obligation to provide insurance
for or in respect of the Collateral and (3) no responsibility for Collateral not
in its possession. The Agent shall have no fiduciary responsibility or duty to
the Borrower with respect to the care, preservation, holding, maintenance or
transmittal of the Collateral delivered to the Agent, the Custodian or any other
Person.
Section 3.10. Representations and Warranties Concerning Collateral.
The Borrower hereby represents and warrants to the Agent and the Lenders and by
submitting each Loan request shall be deemed to have represented and warranted
to the Agent and the Lenders that as of the date of such Loan request and as to
each Pledged Mortgage included or to be included as an Eligible Residential
Mortgage Loan:
(1) Ownership; No Liens; Pledge to the Agent. The Borrower is
(or, in the case of a Wet Loan, will be upon the funding of the related
Wet Mortgage Loan)
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the legal and equitable owner of such Pledged Mortgage and all other items
of Collateral related thereto, free and clear of all Liens, except for the
Liens permitted under this Agreement. Such Pledged Mortgage and other
items of Collateral (a) comply (or, in the case of a Wet Loan, will comply
upon the funding of the related Wet Mortgage Loan), as applicable, with
all of the requirements of this Agreement, including those required for
the inclusion in the Borrowing Base, and (b) have been (or, in the case of
a Wet Loan, will be upon the funding of the related Wet Mortgage Loan)
validly pledged or assigned to the Agent, subject to no other Liens other
than Liens permitted under this Agreement, and the Agent has and, upon
entry of the Interim Bankruptcy Court Order, will have (or, in the case of
a Wet Loan, will have upon the funding of the related Wet Mortgage Loan) a
first perfected Lien thereon, within the meaning of the applicable UCC.
Such Borrower has the full right and authority to pledge the Collateral
pledged by it hereunder and has not pledged the Collateral, or any part
thereof, to any other Person other than in connection with Permitted
Liens.
(2) Compliance with Laws; Enforceability; Modification;
Required Documents, Etc. Each such Pledged Mortgage and documents related
thereto (a) has been made (or, in the case of a Wet Loan, will be made
upon the funding of the related Wet Mortgage Loan) in compliance, in all
respects, with all requirements of the Real Estate Settlement Procedures
Act, the Equal Credit Opportunity Act, the Federal Truth-In-Lending Act
and all other applicable Laws, (b) is (or, in the case of a Wet Loan, will
be upon the funding of the related Wet Mortgage Loan) genuine, valid, duly
authorized, properly executed, properly recorded (or duly delivered to the
appropriate recording office for recordation) and enforceable in
accordance with its terms, without defense or offset, (c) has not been
modified or amended and has not had any requirements thereof waived except
for minor modifications in the ordinary course of the Borrower's business
which do not in any event adversely affect the value or marketability of
the relevant item of Collateral, (d) complies with the terms of this
Agreement, (e) has been (or, in the case of a Wet Loan, will be upon the
funding of the related Wet Mortgage Loan) fully advanced in the respective
face amounts thereof and (f) is (or, in the case of a Wet Loan, will be
upon the funding of the related Wet Mortgage Loan) secured by a Mortgage
which is a first or second Lien on the respective Single Family Residence
described therein. With respect to each such Pledged Mortgage, the
Borrower has (or, in the case of a Wet Loan, will have upon the funding of
the related Wet Mortgage Loan) in its possession all documents and
instruments required to be possessed by the Borrower (x) under this
Agreement, (y) under FNMA's or FHLMC's rules, regulations or guidelines,
if applicable, and (z) under a Purchase Commitment, if any, other than
those documents and instruments which are in the possession of the
Custodian.
(3) Defaults. No default, nor any event which would become a
default with notice or lapse of time or both, has occurred and is
continuing under such Pledged Mortgage.
(4) [Intentionally Omitted]
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(5) Insurance Relating to Pledged Mortgages. All fire and
casualty policies covering the premises encumbered by such Mortgage
included in the Pledged Mortgages (a) name (or, in the case of a Wet Loan,
will name upon the funding of the related Wet Mortgage Loan) such Borrower
as the insured under a standard mortgagee clause not less favorable to the
Borrower than the applicable standard mortgagee endorsement, (b) are (or,
in the case of a Wet Loan, will be upon the funding of the related Wet
Mortgage Loan) in full force and effect, and (c) afford (or, in the case
of a Wet Loan, will afford upon the funding of the related Wet Mortgage
Loan) insurance against fire and such other hazards as are usually insured
against in the broad form of extended coverage insurance from time to time
available. All flood, title and other insurance policies (including
required private mortgage insurance) (i) name (or, in the case of a Wet
Loan, will name upon the funding of the related Wet Mortgage Loan) the
Borrower as an additional insured under a standard mortgagee clause not
less favorable to the Borrower than the applicable standard mortgagee
endorsement, or in the case of title insurance, the Borrower is the
insured mortgagee thereunder by virtue of being the assignee or assign
under the policy, (ii) are (or, in the case of a Wet Loan, will be upon
the funding of the related Wet Mortgage Loan) in full force and effect,
and (iii) afford (or, in the case of a Wet Loan, will afford upon the
funding of the related Wet Mortgage Loan) insurance against the hazards
and risks required to be insured against by any Agency or prudent
underwriting practices. The Borrower has (or, in the case of a Wet Loan,
will have upon the funding of the related Wet Mortgage Loan) (a) caused to
be performed all acts required to preserve the rights and remedies of the
Agent and the Lenders in any insurance policies of the Borrower or any
mortgagor applicable to a Mortgage Loan and (b) complied with all
requirements of the Agencies or any Investor for obtaining insurance with
respect to such Pledged Mortgage.
(6) Escrow Deposits. Any Escrow Deposits are held by the
Borrower in accordance with applicable Laws and any agreements relating to
same and have been and will be applied to the obligations for which they
were deposited in accordance with any agreements relating to same.
(7) Additional Representations. The additional representations
and warranties set forth in Schedule 3.10(7) attached hereto are true and
correct.
Section 3.11. Release of Security Interest. (a) With respect to
Collateral that constitutes Eligible Residential Mortgage Loans, the Agent
shall, promptly after the receipt of a request from the Borrower in connection
with any sale or refinancing of such Collateral, release such Collateral
specified in the Borrower's request from the Lien granted hereby and thereupon
deliver the same to the Borrower; provided, however, that any such release shall
be subject to the consent of the Agent if (i) either before or after giving
effect to such release and the transactions in connection therewith, the
aggregate amount of Loans outstanding shall exceed the then current Borrowing
Base or (ii) either before or after giving effect to such release a Default or
Event of Default has occurred and is continuing.
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(b) With respect to Collateral that does not constitute
Eligible Residential Mortgage Loans, the Agent shall, promptly after the receipt
of a request from the Borrower in connection with any sale or refinancing of
such Collateral, release such Collateral specified in the Borrower's request
from the Lien granted hereby and thereupon deliver the same to the Borrower;
provided, however, that (i) any such release shall be subject to the consent of
the Agent if either before or after giving effect to such release and the
transactions in connection therewith a Default or Event of Default has occurred
and is continuing, and (ii) the release procedures for the capital stock of the
Subsidiaries of the Borrower that own Retained Interest Receivables and the
Retained Interest Receivables themselves (none of which are pledged as
Collateral but which may be pledged as Collateral pursuant to the terms of the
Supplemental Security Agreement, in the form of Annex D to the Pledge Agreement,
signed by such Subsidiaries) shall be as set forth in the Pledge Agreement.
(c) Upon the commencement of a foreclosure proceeding relating
to a Pledged Mortgage, the Agent shall release the related Mortgage Note, the
Mortgage and the other related Collateral Documents with respect to such Pledged
Mortgage promptly after its receipt of a written notice from the Borrower,
certified by its Designated Borrowing Officer, of the need for such Collateral
Documents in connection with such foreclosure proceeding.
(d) Notwithstanding the provisions set forth in subsections
(a) and (b) of this Section 3.11, the obligation of the Agent to release any
Collateral is subject to its receipt of the Collateral Sale Proceeds from such
released Collateral, except to the extent otherwise permitted by Section 2.04.
Section 3.12. Covenants and Agreements Concerning Collateral. The
Borrower covenants and agrees as follows:
(1) Defense of Interests. It will defend the right, title and
interest of the Agent in and to the Pledged Mortgages and all other items
of Collateral against the claims and demands of all Persons other than
those in connection with Permitted Liens.
(2) Modification; Etc. Except as provided in Section 3.10(2),
it shall not amend, modify, or waive any of the terms and conditions of,
or settle or compromise any claim in respect of, any Pledged Mortgages or
other Collateral, or any rights related to any of the foregoing.
(3) Sale or Encumbrance. It shall not sell, option, assign,
transfer or otherwise alienate any Collateral, other than in the ordinary
course of its business and in accordance with the terms and provisions of
this Agreement, or permit any Collateral or any interest therein to be
subject to a Lien, except the Liens permitted by this Agreement.
(4) Performance under Servicing Contracts; Escrow Deposits. It
shall service or cause to be serviced all Mortgages in accordance with the
terms and provisions set forth in Exhibit K attended hereto. The Borrower
hereby agrees that upon the occurrence and during the continuance of an
Event of Default, the Agent may, subject to the prior rights of any
sub-servicer pursuant to a legally binding servicing agreement
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between the Borrower and such sub-servicer, terminate the Borrower as
servicer and transfer servicing to the Agent's designee, at no cost or
expense to the Agent and the Lenders, it being agreed that the Borrower
will pay any and all fees required to effectuate the transfer of servicing
to the designee of the Agent. The Borrower shall permit the Agent or its
designee to inspect the Borrower's servicing facilities, in the absence of
a continuing Event of Default, during normal business hours, for the
purpose of satisfying the Agent that the Borrower has the ability to
service the Mortgage Loans as provided in this Agreement. It shall hold
all Escrow Deposits in accordance with all applicable Laws and all
agreements relating to such Escrow Deposits, without commingling the same
with non-escrow funds, and shall hold and apply the same for the purposes
for which such Escrow Deposits were collected in accordance with all
applicable Laws and agreements.
(5) Failure to Qualify for Inclusion in Borrowing Base and
Related Matters. It shall notify the Agent of (a) any default under any
Pledged Mortgage, (b) the failure of any items of Collateral which are
required by the terms hereof to be covered by a Purchase Commitment to be
so covered, (c) the failure of any Eligible Residential Mortgage Loan that
is included in the Borrowing Base to no longer satisfy the requirements of
this Agreement for inclusion in the Borrowing Base, and (d) any other
matter which has a Material Adverse Effect on the Collateral.
(6) Further Assurances. From time to time, at the expense of
such Borrower (including the payment of all filing fees whether the items
are filed by such Borrower or by the Agent), the Borrower will promptly
execute and deliver all further instruments and documents, and take all
further actions, that may be necessary or desirable, or that the Agent may
reasonably request, in order to preserve, perfect and protect any Lien
granted or purported to be granted hereby or to enable the Agent and the
Lenders to exercise and enforce their rights and remedies hereunder with
respect to any Collateral. The assurances contemplated by this Section
3.12(6) shall be given under applicable nonbankruptcy Law as well as the
Bankruptcy Code, it being the intention of the parties that the Agent may
request assurances under applicable nonbankruptcy Law, and such request
shall be complied with (if otherwise made in good faith by the Agent)
whether or not the Interim Bankruptcy Court Order or the Final Bankruptcy
Court Order, as the case may be, is in force and whether or not dismissal
of the Chapter 11 Cases or any other action by the Bankruptcy Court is
imminent, likely or threatened.
(7) Inspection. The Agent or a representative thereof, shall
have the right (i) to maintain a representative from Arthur Anderson or
any other independent accountant on the premises of the Borrower
commencing on the Closing Date and continuing for so long as the Agent may
require and (ii) thereafter, at any reasonable time, from time to time, to
enter the Borrower's premises to inspect, in the absence of a continuing
Event of Default, during normal business hours the Collateral, documents
and agreements related thereto, the records relating to the Collateral and
the underwriting and other procedures of the Borrower. The Agent and each
of the Lenders shall have the right to make abstracts or photocopies from
or of the Borrower's books and records pertaining
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to the Collateral and the cost and expense of such abstracts and
photocopies shall be borne by the Borrower.
(8) Wet Collateral. The Borrower shall execute any and all
additional documents, agreements, notices or acknowledgments as the Agent
shall request to maintain, preserve, perfect or protect the Agent's Lien
in such Wet Collateral. While the Borrower is in possession of the Wet
Collateral, it will hold same exclusively for the Agent, without authority
to make any other disposition thereof, or of the proceeds thereof.
Section 3.13. Agent's Approval of Investors. With respect to any
Mortgage Loan that is required hereunder to be subject to a Purchase Commitment,
the Agent shall have the right, in its sole discretion, to approve or disapprove
of the Investor that issued the Purchase Commitment.
Section 3.14. Uniform Commercial Code Financing Statements. The
Agent is hereby authorized to file in the name of the Borrower, without the need
for the Borrower's signature thereto, such UCC financing statements, amendments
thereto and continuations thereof which the Agent at any time determines is
necessary to perfect or better assure the Lien and other benefits, intended to
be afforded hereby. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
Section 3.15. Collection Rights. Unless a Default or Event of
Default shall have occurred and be continuing, and except with respect to
Collateral Sale Proceeds which pursuant to the terms of this Agreement shall be
required to be paid to the Agent directly by any Person purchasing or
refinancing a Mortgage Loan or other Collateral, the Borrower shall be entitled
to receive and collect directly all principal and interest payable to such
Borrower in respect of the Collateral and to exercise all voting or consensual
powers in respect of the Collateral in a manner not inconsistent with the terms
of this Agreement. Upon the occurrence and during the continuance of a Default
or an Event of Default, the Agent shall be entitled to receive and collect all
sums payable to the Borrower in respect of the Collateral, and in such case (a)
the Agent may, in the Agent's name or in the name of the Borrower or otherwise,
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but shall be
under no obligation to do so, (b) the Borrower shall forthwith pay to the Agent
at its principal office all amounts thereafter received by the Borrower upon or
in respect of any of the Collateral, advising the Agent as to the source of such
funds, and (c) all amounts so received and collected by the Agent shall be held
by the Agent as part of the Collateral and used to reduce the Obligations.
Section 3.16. Attorney-in-Fact. The Agent is hereby appointed the
agent and attorney-in-fact of the Borrower for the purpose of carrying out the
provisions of this Agreement, taking any action and executing any instruments
which the Agent may deem necessary or advisable to accomplish the purposes
hereof and to obtain for the Agent, on behalf of the Lenders, the benefits of
this Agreement, the other Loan Documents, the Collateral and the security
intended to be provided to the Lenders hereby and thereby, which agency and
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appointment as attorney-in-fact is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, the Agent shall have the right
and power in the place and stead of the Borrower, and in the name of the
Borrower or otherwise (from time to time, upon the occurrence and during the
continuance of an Event of Default and without prior notice to or consent from
the Borrower, and without releasing or in any manner affecting the Borrower's
Obligations hereunder): (a) to receive, endorse and collect all checks, drafts
or chattel paper made payable to the order of the Borrower (provided that all
such endorsements recite that they are made without recourse) representing any
payment of the Pledged Mortgages or other items of Collateral, to give full
discharge for the same and to complete any endorsements or assignments made in
blank or which are updated or otherwise incomplete or to execute new
endorsements (provided that all such endorsements recite that they are made
without recourse) or assignments to any Persons, (b) to ask, demand, collect,
sue for, recover, compound, receive and give, acquittances and receipts for
moneys due and to become due under or in respect of any of the Collateral, (c)
to file any claims or take any action or institute any proceedings which the
Agent may deem necessary or desirable for the collection or completion of, or
perfection of the Agent's interest in any of the Collateral or otherwise to
enforce the rights of the Borrower or the Agent with respect to any of the
Collateral, this Agreement or the other Loan Documents, including, without
limitation, the endorsement of any Mortgage Note, and the creation, execution
and recording of any Assignment of Mortgage for any Pledged Mortgage and (d) if
the Borrower fails to perform any obligation under this Agreement or any Loan
Document or cause performance of such obligation.
Section 3.17. The Borrower Remains Liable. Anything herein to the
contrary notwithstanding: (1) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (2) the exercise by the Agent
of any of its rights hereunder shall not release the Borrower from any of its
duties or obligations under the contracts and agreements included in the
Collateral; and (3) the Agent and the Lenders shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Agent and the Lenders be obligated to
perform any of the obligations or duties of the Borrower thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
ARTICLE IV.
BORROWING BASE
Section 4.01. Condition of Lending. The Agent and the Lenders shall
have no obligation to make a Loan to the extent that the aggregate unpaid
principal amount of the Loans exceeds, or after giving effect to a requested
Loan will exceed, the lesser of the Total Commitment and the then current
Borrowing Base.
Section 4.02. Mandatory Prepayment. Concurrently with the delivery
of any Borrowing Base Certificate, the Borrower shall give notice to the Agent
of any mandatory prepayment pursuant to Section 2.06(c), which notice shall
specify a prepayment date no later than
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the earlier of the date on which such Borrowing Base Certificate is given and
the date on which such Borrowing Base Certificate is required to be provided to
the Lenders.
Section 4.03. Rights and Obligations Unconditional. Without
limitation of any other provision of this Agreement, the rights of the Agent and
the Lenders and the obligations of the Borrower under this Article IV are
absolute and unconditional, and the Agent and the Lenders shall not be deemed to
have waived the condition set forth in Section 4.01 hereof or their right to
payment in accordance with Section 4.02 hereof in any circumstance whatever,
including but not limited to circumstances wherein the Agent or the Lenders
(knowingly or otherwise) make a Loan hereunder in excess of the Borrowing Base.
Section 4.04. Borrowing Base Certificate.
(a) By 12:00 noon, New York City time (i) on Friday of each
week, or if the applicable Friday is not a Business Day, then on the following
Business Day (and on any other date on which the Agent reasonably requests), the
Borrower shall furnish to the Agent a Borrowing Base Certificate, certified as
true and correct by a Designated Financial Officer, setting forth the Borrowing
Base and the other information required therein as of the Borrower's close of
business on the Friday of the preceding week, together with such other
information with respect to any asset included in the Borrowing Base as the
Agent may request.
(b) In the event of any dispute about the eligibility of any
Mortgage Loan for inclusion in the Borrowing Base or the valuation thereof, the
Agent's good faith judgment shall control.
(c) The Agent may dispute the eligibility of any Mortgage Loan
for inclusion in the Borrowing Base or the valuation thereof by notice of such
dispute to the Borrower, in which case the value of such Mortgage Loan shall, at
the discretion of the Borrower, either not be included in the Borrowing Base or
be included in the Borrowing Base with a value reasonably acceptable to the
Agent.
(d) Each Borrowing Base Certificate shall be accompanied by
backup schedules showing the derivation thereof and containing such detail and
such other and further information as the Agent may reasonably request from time
to time.
Section 4.05. General Provisions. Notwithstanding anything to the
contrary in this Article IV, in no event shall any single Mortgage Loan be
counted twice in determining the Borrowing Base.
ARTICLE V.
CONDITIONS PRECEDENT
Section 5.01. Conditions Precedent to Initial Loan. The obligation
of each Lender to make the initial disbursement of its portion of the initial
Loan is subject to the
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condition precedent that the Agent shall have received on or before the Closing
Date each of the following documents, in form and substance satisfactory to the
Agent and its counsel, and each of the following requirements shall have been
fulfilled:
(1) Interim Bankruptcy Order. The Interim Bankruptcy Court
Order or the Final Bankruptcy Court Order shall have been entered by the
Bankruptcy Court and the Agent shall have received a certified copy of
such order, and such order shall be in full force and effect and shall not
have been reversed, stayed, modified or amended absent the consent of the
Agent, the Lenders and the Borrower.
(2) Evidence of Due Organization of and all Corporate Actions
by the Borrower and the Guarantor. A certificate of the respective
Secretary or Assistant Secretary of the Borrower and the Guarantor, dated
the Closing Date, attesting to the certificate of incorporation and
by-laws of the Borrower and the Guarantor and all amendments thereto, and
to all corporate actions taken by the Borrower and the Guarantor,
including, without limitation, resolutions of its board of directors,
authorizing the execution, delivery and performance of the Loan Documents
to which it is a party, and each other document to be delivered by the
Borrower and the Guarantor pursuant to the Loan Documents to which it is a
party.
(3) Incumbency and Signature Certificate of the Borrower and
the Guarantor. A certificate of the respective Secretary or Assistant
Secretary of the Borrower and the Guarantor, dated the Closing Date,
certifying the names and true signatures of the officers of the Borrower
and the Guarantor authorized to sign the Loan Documents to which it is a
party, and the other documents to be delivered by the Borrower and the
Guarantor to which it is a party including, without limitation, each loan
request.
(4) Good Standing Certificates for the Borrower and the
Guarantor. A certificate, dated reasonably near the Closing Date, from the
respective Secretary of State (or other appropriate official) of the
jurisdiction of incorporation of the Borrower and the Guarantor certifying
as to the due incorporation and good standing of the Borrower and the
Guarantor, and certificates, from the Secretary of State (other
appropriate official) of each other jurisdiction where the Borrower and
the Guarantor is required to be qualified to conduct business or where
such qualification is necessary to enforce any Mortgage Loan, certifying
that the Borrower and the Guarantor, as applicable, are duly qualified to
do such business and is in good standing in such state.
(5) Notes. The Notes duly executed by the Borrower.
(6) Guaranty. The Guaranty duly executed by the Guarantor.
(7) Pledge Agreement. The Pledge Agreement duly executed and
delivered by the Borrower, the Guarantor and Greenwich, together with
stock certificates, stock powers, Retained Interest Receivables, bond
powers and other documents and instruments in each case required by the
terms of the Pledge Agreements.
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(8) Material Adverse Change. No Material Adverse Change has
occurred since August 31, 1998, except as disclosed in the Form 10-Q and
8-K statements filed with the Securities and Exchange Commission after
such date, copies of which have been provided to the Agent, and other than
events that customarily occur as a result of events leading up to and
following the commencement of a case under Chapter 11 of the Bankruptcy
Code.
(9) Fees. All fees, costs and expenses payable to the Agent
and its legal counsel required to be paid at or prior to the closing of
the transactions contemplated hereby including, without limitation, the
fees set forth in the Fee Letter, shall have been paid in full on the
Closing Date.
(10) Opinion of Counsel for the Borrower and Guarantor. A
favorable opinion of internal and external counsel for the Borrower and
Guarantor, dated the Closing Date, in form and substance satisfactory to
the Agent, covering, among other things, entry of the Interim Bankruptcy
Court Order or the Final Bankruptcy Court Order, as appropriate, and as to
such other matters as the Agent may reasonably request.
(11) Certificate. The following statements shall be true and
the Agent shall have received a certificate signed by the President or
Senior Vice President of the Borrower dated the Closing Date stating that:
(a) The representations and warranties contained in this
Agreement and in each of the other Loan Documents are correct on and
as of the Closing Date as though made on and as of such date; and
(b) No Default or Event of Default has occurred and is
continuing.
(12) Custodian Agreement. An amendment to the Custodian
Agreement duly executed and delivered by the Borrower and the Custodian.
(13) Mortgage Loan Schedule and Exception Report. A Mortgage
Loan Schedule and Exception Report, dated the Closing Date, from the
Custodian duly completed relating to the Pledged Mortgages on the Closing
Date.
(14) Receipt of Financial Statements. Unaudited financial
statements of the Borrower for the eight months ended August 31, 1998, in
accordance with the requirements of subsection 7.08(2).
(13) Insurance. A certificate of insurance evidencing
insurance as is required by Section 7.05 hereof, naming the Agent and the
Lenders as loss payee or additional insured, as appropriate.
(14) Wet Closing Agent Agreement. A form of the Wet Closing
Agent Agreement shall be delivered to and approved by the Agent.
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(15) Lien Priority. The Liens in favor of the Agent pursuant
to Section 3.05 hereof shall be valid and perfected Liens prior to all
other Liens on the Collateral, except for Permitted Liens.
(16) Payment of Pre-Petition Obligations. All Pre-Petition
Obligations outstanding as of the Closing Date shall be repaid in full
(which may be with the proceeds of the initial Loans made hereunder) and
the Borrower shall have obtained and delivered to the Agent an order
signed by the Bankruptcy Court, in form and substance satisfactory to the
Agent, providing for such payment.
(17) Greenwich DIP Facility. Evidence satisfactory to the
Agent that Greenwich has provided the Borrower with a debtor-in-possession
financing facility substantially similar to its pre-petition financing
facility (the "Greenwich DIP Facility") for such amount as approved by the
Bankruptcy Court in its interim order relating to the Greenwich DIP
Facility.
(18) Intercreditor Agreement. The Intercreditor Agreement duly
executed and delivered by Greenwich.
(19) Availability. After giving effect to all Loans
outstanding on the Closing Date (including all Loans made on the Closing
Date), the Availability shall not be less than $20,000,000 and the
Borrower shall deliver to the Agent a certificate of its Designated
Financial Officer certifying that the Availability is not less than
$20,000,000 and containing the calculation thereof.
(20) Additional Documentation. Such other approvals, opinions
or documents as the Agent any reasonably request.
Section 5.02. Conditions Precedent to All Loans. As a condition
precedent to the Agent or the Lender making any Loan (including the initial
Loan), each of the following conditions precedent shall be true, and the
submission by the Borrower to the Agent of a Notice of Borrowing and the
Borrower's acceptance of the proceeds of such Loan shall be deemed to be a
representation and warranty by the Borrower on the date of such Loan that:
(a) all the representations and warranties contained in
this Agreement and in each of the other Loan Documents are correct
on and as of the date of providing such Loan as though made on and
as of such date (other than those which expressly speak only as of a
different date, which must be correct as of such date);
(b) no Default or Event of Default has occurred and is
continuing, or could result from providing such Loan;
(c) since August 31, 1998 there has been no Material
Adverse Change, except as disclosed in Form 8-K statements filed
after such date and on or before the Closing Date with the
Securities and Exchange Commission, copies
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of which have been provided to the Agent, and other than events that
customarily occur as a result of events leading up to and following
the commencement of a case under Chapter 11 of the Bankruptcy Code;
(d) on the date of such Loan, the Interim Bankruptcy
Court Order or the Final Bankruptcy Court Order, as the case may be,
and the interim order or the final order, as the case may be, of the
Bankruptcy Court relating to the Greenwich DIP Facility shall have
been entered by the Bankruptcy Court, and the Agent shall have
received a certified copy of the same and such order shall be in
full force and effect and shall not have been reversed, stayed,
modified or amended absent the consent of the Agent, the Lenders and
the Borrower; and
(e) with respect to any Loan to be made on or after the
thirtieth day following the Entry Date, (i) the Final Bankruptcy
Court Order shall be in full force and effect and shall not have
been reversed, stayed, modified or amended absent the consent of the
Agent, the Lenders and the Borrower, and (ii) the final order of the
Bankruptcy Court relating to the Greenwich DIP Facility shall be in
full force and effect and shall not have been reversed, stayed,
modified or amended absent prior written notice of such action given
by the Borrower to the Agent and the Lenders.
Section 5.03. Loan Requests. In connection with each request for a
Loan, the Borrower shall deliver to the Agent a signed Notice of Borrowing and a
Mortgage Loan Schedule attached thereto. For each Loan requested, the Agent
shall receive the written Notice of Borrowing request not later than (i) 10:00
a.m. (New York City time) on the Business Day of the proposed borrowing in the
case of a Prime Loan and (ii) not later than 12:00 noon (New York City time) on
the third Business Day before the date of such proposed borrowing in the case of
a Eurodollar Loan. Prior to the funding of a Loan the proceeds of which shall be
used to originate a Mortgage Loan, other than a Wet Mortgage Loan (and during
the rescission period required by the Truth in Lending Act), the Borrower or the
Closing Agent on behalf of the Borrower shall deliver to the Custodian all of
the Collateral Documents as listed on Exhibit F attached hereto (the
"Description of Collateral Documents"), including, without limitation, each of
the following:
(a) written wire instructions advising the Custodian to wire
Loan proceeds from the Borrower's account to the Closing Agent reflecting
the intended amount of the Mortgage Loans to be financed and giving other
wiring instructions as needed by the Custodian;
(b) the original of each Mortgage Note duly executed at
settlement, and duly endorsed by the Borrower in blank and containing any
necessary intervening endorsements on a Mortgage purchased by the
Borrower;
(c) a copy of each Mortgage duly executed at settlement and in
recordable form, certified in writing by the Closing Agent as being a true
and accurate copy of the original Mortgage;
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(d) original assignment of each Mortgage, in recordable form
and executed by the Borrower in blank, and with respect to a Mortgage
purchased by the Borrower, the original recorded intervening assignment or
a copy thereof certified in writing by the Borrower as being a true and
accurate copy of the original intervening assignment delivered for
recording; and
(e) with respect to each Mortgage Loan to be pledged by the
Borrower hereunder which was funded by the Borrower with the Borrower's
own funds or purchased by the Borrower, the Borrower will deliver the
documents required by this Section 5.03 at or prior to the time of making
its loan request.
Upon receipt thereof, the Custodian shall review all documents and instruments
to determine whether on their face only they are satisfactory pursuant to the
terms of the Custodian Agreement. Not later than 3:00 p.m., New York City time,
on the date of the proposed Loan, the Custodian shall deliver to the Agent and
the Borrower an Exception Report and a trust receipt with respect to the
Collateral Documents for the Mortgage Loans to be pledged to the Agent.
Section 5.04. Disbursing Loans. Upon satisfaction of all conditions
for the making of a Loan (other than a Wet Loan) under this Agreement to fund
Mortgage Loans and subject to the limitations contained herein, on the date of
the requested Loan, the Agent shall, subject to the next sentence, wire transfer
to the Warehouse Account the requested Loan amount and instruct the Custodian to
wire transfer such amount to the Closing Agent account designated in the
applicable Mortgage Loan Schedule (or with respect to a requested Loan where the
Pledged Mortgage was previously funded by the Borrower with the Borrower's own
funds, to the Operating Account). To the extent that the amount of funds to be
provided by the Lenders are insufficient to close and fund the applicable
Mortgage Loan, the Custodian shall transfer from the Operating Account to the
Warehouse Account sufficient additional funds, and the Custodian will not
initiate a wire transfer of funds to the applicable Closing Agent until the
Agent has received a confirmation from the Custodian that sufficient additional
funds are on deposit in the Warehouse Account. To the extent that the amount of
funds to be provided by the Lenders exceeds the amount needed to close and fund
the applicable Mortgage Loan, the Custodian shall transfer the excess amount
from the Warehouse Account to the Operating Account for use by the Borrower.
Upon the Agent's wire transfer of the Loan proceeds into the Warehouse Account,
the applicable Loan shall be deemed made.
Section 5.05. Wet Mortgage Loan Closings. (1) The Borrower may,
subject to the Agent's approval, and in the Agent's sole discretion, deliver Wet
Mortgage Loans in pledge under this Agreement for inclusion in the Borrowing
Base up to the Wet Mortgage Loan Sublimit without the prior delivery of all
original Collateral Documents otherwise required by this Agreement. In
connection with the pledge of any such Wet Mortgage Loans, the Borrower shall
deliver to the Agent a Notice of Borrowing which specifies that the requested
Loan shall fund a Wet Mortgage Loan. Upon such receipt of the required Notice of
Borrowing, the Agent shall include any such Wet Mortgage Loan in the Borrowing
Base on the applicable Mortgage Loan Closing Date notwithstanding that such Wet
Mortgage Loan many not yet have been closed and funded for purposes of
permitting the requested Wet Loan to be made in respect thereof. If a Wet
Mortgage Loan shall not be closed and funded on or before the second Business
Day
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immediately following the Mortgage Loan Closing Date specified, or shall be
closed but subsequently rescinded pursuant to the Truth in Lending Act, the
Borrower shall immediately notify the Agent and the Wet Closing Agent to such
effect and such Wet Mortgage Loan shall cease to be included in the Borrowing
Base and the Wet Closing Agent shall on the third Business Day immediately
following the Mortgage Loan Closing Date return to the Agent in immediately
available funds the amount of Loan proceeds advanced in respect thereof.
(2) In connection with each Wet Closing, the Borrower agrees that it
shall deliver all Collateral Documents relating to a Wet Mortgage Loan to the
Custodian not later than five Business Days after the date of the making of the
Wet Loan in respect thereof, provided that the Agent, in its sole discretion,
may extend such five Business Day period to ten Business Days but in no event
shall the aggregate principal amount of Wet Loans with respect to which the
related Collateral Documents have not been delivered to the Custodian within
five Business Days after the date of such Wet Loan exceed at any time $500,000.
In the event that the Agent shall not have received all such Collateral
Documents complying in all respects with the requirements of this Agreement
within such five Business Day period or such extended period (as the case may
be), such Wet Mortgage Loan shall cease to be included in the Borrowing Base.
Promptly after the receipt of the Collateral Documents, the Custodian shall
deliver an Exception Report and trust receipt with respect thereto.
(3) Upon satisfaction of all conditions for the making of a Wet Loan
under this Agreement and subject to the limitations contained herein, Wet Loans
shall be funded in the following manner as directed by the Borrower in each
Notice of Borrowing:
(a) Wire Transfers: On the date of the requested Wet Loan, the
Agent shall, subject to the next sentence, wire transfer to the
Warehouse Account the requested Loan amount and direct the Custodian
to wire transfer such amounts to the Closing Agent account
designated in the applicable Mortgage Loan Schedule. To the extent
that the amount of funds to be provided by the Lenders are
insufficient to close and fund the applicable Wet Mortgage Loan, the
Custodian shall transfer from the Operating Account to the Warehouse
Account sufficient additional funds, and the Custodian will not
initiate a wire transfer of funds to the applicable Wet Closing
Agent until sufficient additional funds are on deposit in the
Warehouse Account. Upon the Agent's wire transfer of the Loan
proceeds into the Warehouse Account, the applicable Wet Loan shall
be deemed made, provided, however, that until the applicable Wet
Mortgage Loan is closed and funded, the Lenders shall have a Lien on
the Wet Loan proceeds as security for all Obligations owed to the
Lenders and the Closing Agent shall hold such Wet Loan proceeds as
agent for and on behalf of the Agent and the Lenders in accordance
with the applicable Wet Closing Agent Agreement.
(b) Upon closing each Wet Mortgage Loan, the Wet Closing Agent
shall, unless advised by the Custodian to the contrary (which advice
may be by telephone), deliver the applicable Collateral Documents to
the Borrower for endorsement of the Note and transmittal to the
Custodian within the five Business
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Day time period provided herein as such period may be extended
pursuant to Section 5.05(2). While the Collateral Documents are in
the Borrower's possession, they shall be held in trust for the
benefit of the Agent and the Lenders and the Borrower shall have no
authority to transfer same to any other Person other than the
Custodian, or, if required by the Agent, at the Agent's direction.
(c) The Borrower will not request the delivery of any wire
transfer Wet Loan proceeds to a Closing Agent who has been
disapproved by the Agent. The Borrower shall obtain at the
Borrower's expense "stand behind," indemnity or similar agreement,
or "insured closing letters," for all Closing Agents in form and
substance acceptable to the Agent from title insurance companies
acceptable to the Agent providing such assurance to the Agent that
the funds delivered to a Closing Agent will be applied only for the
purposes intended in accordance with this Agreement and providing
such other assurances as the Agent shall reasonably require. The
delivery by Borrower of any such agreement or letter from an
approved title insurance company shall not affect the rights that
the Lenders or any other Person would otherwise have with respect to
any Wet Closing Agent.
Section 5.06. Investor Requirements; Other Approvals. For all Loans,
the Borrower shall have possession of all other documents required by the
relevant Investor to be held by the Borrower, and the Custodian shall have
received such other approvals, opinions and documents as the Agent may
reasonably request.
Section 5.07. [Intentionally Omitted]
Section 5.08. Temporary Release of Collateral Documents: Delivery of
Collateral Documents. (1) Return to the Borrower. The Borrower may from time to
time request in writing that the Custodian return Collateral Documents to the
Borrower on a temporary basis for the purpose of correction or completion and
the Custodian may, with the consent of the Agent, which consent may be withheld
in the sole discretion of the Agent, deliver the requested Collateral Documents
to the Borrower. The written request to release shall be in the form of a trust
receipt in form and content satisfactory to the Agent. Promptly upon completion
of such correction or completion, the Borrower shall return such Collateral
Documents to the Custodian, but in no case later than fourteen Business Days
from the date same were shipped to the Borrower. The Agent shall not release to
the Borrower at any given time Collateral Documents related to Pledged Mortgages
with an outstanding principal balance in excess of $500,000. If the Borrower
fails to return any Collateral Documents within fourteen Business Days of the
delivery thereof to the Borrower, or if such Collateral Documents are not
corrected or completed so as to comply with the terms of this Agreement within
such fourteen Business Day period, the Pledged Mortgage to which such Collateral
Documents relate shall not be included in the Borrowing Base.
(2) Delivery to any Investor. Provided that there is no Default or
Event of Default hereunder, the Borrower may from time to time make requests by
written notice to the Custodian to deliver Collateral Documents relating to a
Mortgage Loan to an Investor (or to the
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custodian designated by and acting as the bailee of such Investor) who has
issued a Purchase Commitment to the Borrower, for review prior to purchase.
Provided that there is no Default or Event of Default hereunder, the Custodian
shall deliver the requested Collateral Documents relating to such Mortgage Loan
to the Investor designated by the Borrower, along with a bailee letter in form
and content satisfactory to the Agent. If any Investor fails to return any
Collateral Documents to the Custodian within twenty-one days of the delivery
thereof or on such earlier date requested by the Agent, the Mortgage Loan to
which such Collateral Documents relate shall not be included in the Borrowing
Base.
Section 5.09. Deemed Representation. Each request for a Loan and
acceptance by the Borrower of any Loan proceeds shall constitute a
representation and warranty that the statements contained in Section 5.02 are
true and correct both on the date of such notice and as of the date of the
providing of such Loan.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
Section 6.01. Formation, Good Standing and Due Qualification. The
Borrower is duly formed, validly existing and in good standing under the laws of
the jurisdiction of its formation, has the power and authority to own its assets
and to transact the business in which it is now engaged or proposed to be
engaged, subject to the prior approval of the Bankruptcy Court as required under
the Bankruptcy Code, and is duly qualified and in good standing under the laws
of each other jurisdiction in which the failure to qualify would cause, or
result in, a Material Adverse Change, or where such qualification is necessary
to permit the Borrower to enforce any Mortgage Loan.
Section 6.02. Power and Authority. Each of the Borrower and the
Guarantor has all necessary corporate power to execute and deliver this
Agreement and the other Loan Documents to which it is or is to be a party. As of
the Entry Date, each of the Borrower and the Guarantor will have the power and
authority to perform its obligations hereunder and thereunder, and all such
action has been duly and validly authorized by all necessary corporate and
judicial action other than, during the period between the Entry Date and the
entry date of the Final Bankruptcy Court Order, the Final Bankruptcy Court
Order.
Section 6.03. Execution and Binding Effect. As of the entry of the
Interim Bankruptcy Court Order, this Agreement and each of the other Loan
Documents required to be executed and delivered on or prior to the date hereof
have been duly and validly executed and delivered by each of the Borrower and
the Guarantor which is a party thereto and constitute legal, valid and binding
obligations of each of the Borrower and the Guarantor which is a party thereto
enforceable in accordance with the terms hereof or thereof. Each Loan Document
that is not required to be executed and delivered by the Borrower or the
Guarantor prior to the Entry Date, when executed and delivered, will be validly
executed and delivered by the Borrower and the
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Guarantor party thereto and will constitute legal, valid and binding obligations
of the Borrower and the Guarantor party thereto enforceable in accordance with
the terms thereof.
Section 6.04. Absence of Conflicts. Neither the execution and
delivery of this Agreement or any other Loan Document to which the Borrower or
the Guarantor is a party nor consummation of the transactions herein or therein
contemplated nor performance of or compliance with the terms and conditions
hereof or thereof will (a) violate any Law, (b) conflict with or result in a
breach of or default under its charter or by-laws, or any material agreement or
instrument to which the Borrower or the Guarantor is a party or by which it or
any of its properties (now owned or hereafter acquired) may be subject or bound
(other than conflicts, breaches and defaults the enforcement of which will be
stayed by virtue of the filing of the Chapter 11 Cases) or (c) result in the
creation or imposition of any Lien upon any property (now owned or hereafter
acquired) of the Borrower, except the Lien in favor of the Agent with respect to
the Collateral and the Lien securing the obligations of the Borrower and the
Guarantor under the Greenwich DIP Facility.
Section 6.05. Litigation. Except as set forth in the financial
statements referred to in Section 6.06 hereof and on Schedule 6.05 hereto, there
are no actions, suits or proceedings pending or threatened, against the Borrower
or the Guarantor by any Governmental Authority, which could, in any one case or
in the aggregate, result in a Material Adverse Change.
Section 6.06. Financial Statements. All financial information
furnished to the Lenders concerning the operations of the Borrower and the
Guarantor, their balance sheets and related statements of income and retained
earnings, for all periods prior to August 31, 1998, fairly present the financial
condition of the Borrower at such dates and the results of their operations for
the periods covered by such statements. No information, exhibit, or report
furnished by the Borrower to the Lenders in connection with this Agreement
contain any material misstatement of fact or omit to state a material fact or
any fact necessary to make the statements contained therein not materially
misleading.
Section 6.07. Ownership and Liens. The Borrower has title to, or
valid leasehold interests in, all of the Borrower's properties and assets, real
and personal, including the properties and assets, and leasehold interests
reflected in the financial statements referred to in Section 6.06 (other than
(i) any properties or assets disposed of in the ordinary course of business or
(ii) any property or assets other than Mortgage Loans having an aggregate fair
market value of less than Five Hundred Thousand Dollars ($500,000)), and none of
the properties and assets owned by the Borrower and none of its leasehold
interests is subject to any Lien, except as may be permitted under this
Agreement.
Section 6.08. Taxes. The Borrower has filed all tax returns
(federal, state and local) required to be filed and has paid all taxes,
assessments and governmental charges and levies shown thereon to be due,
including interest and penalties for which the failure to pay could result in a
Material Adverse Change.
Section 6.09. ERISA. The Borrower is in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction has occurred with respect to any Plan; no notice of
intent to terminate a Plan has
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been filed nor has any Plan been terminated; no circumstance exists which
constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Borrower nor any ERISA
Affiliate of the Borrower has completely or partially withdrawn under Sections
4201 or 4204 of ERISA from a Multiemployer Plan; the Borrower has met its
minimum funding requirements under ERISA with respect to all of its Plans and
there are no unfunded vested liabilities; and neither the Borrower nor any ERISA
Affiliate of the Borrower has incurred any liability to the PBGC under ERISA.
Section 6.10. Subsidiaries. Except as set forth on Schedule 6.10
hereto, the Borrower has no Subsidiaries and the Borrower is not a partner in
any partnership, limited liability company or joint venture.
Section 6.11. Operation of Business; Prior or Existing Restrictions,
Etc. The Borrower possesses all material licenses, qualifications (including
licenses and qualifications required in each state where each Single Family
Residence securing each Mortgage Loan acquired or originated by the Borrower is
located), Agency approvals, permits, franchises, patents, copyrights, trademarks
and trade names, or rights thereto, to conduct the Borrower's business
substantially as now conducted and as presently proposed to be conducted and the
Borrower is not in violation of any valid rights of others with respect to any
of the foregoing. The Borrower has disclosed all written reports, actions and/or
sanctions of any nature threatened, and all reviews, investigations,
examinations, audits, actions and/or sanctions that have been undertaken and/or
imposed as of the date of this Agreement and of which it has knowledge, by any
federal or state agency or instrumentality (including any Agency) with respect
to either the lending or related financial operations of the Borrower. The
Borrower is not operating under any type of agreement or order (including,
without limitation, a supervisory agreement, memorandum of understanding, cease
and desist order, capital directive, supervisory directive, or consent decree)
with any state or federal banking department or government banking or other
agency or instrumentality (including any Agency), and the Borrower is in
compliance with any and all capital, leverage or other financial standards and
requirements imposed by any applicable regulatory authority, agency or
instrumentality, including any Agency, except to the extent that the failure to
be in compliance with any such standards or requirements would not result in the
loss of a material license, agency approval, permit or franchise.
Section 6.12. Labor Disputes and Acts of God. Neither the business
nor the properties of the Borrower has been or continues to be affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hurricane, hail, earthquake, embargo, act of God or of the public enemy
or other casualty (whether or not covered by insurance), which could result in a
Material Adverse Change.
Section 6.13. Environmental Protection. The Borrower has obtained
all permits, licenses and other authorizations which are required under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization could not result in a Material Adverse Change. The
Borrower is in compliance with all Environmental Laws and the terms and
conditions of the required permits, licenses and authorizations, and are also in
compliance with
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all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in those Laws or
contained in any plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply could not result in a Material Adverse Change.
The Collateral contains no Hazardous Materials that, under any
Environmental Law currently in effect, (1) would impose liability on the
Borrower that could result in a Material Adverse Change, or (2) could result in
the imposition of a Lien on the Collateral (other than real estate owned by the
Borrower) or any portion thereof or any other assets of the Borrower, in each
case if not properly handled in accordance with applicable Law.
Section 6.14. Compliance with Laws. Subject to Section 6.11 with
respect to licenses, the Borrower and the operation of its business is in
compliance with all material Laws applicable to the Borrower or the Mortgage
Loans except to the extent that any consequential, punitive or remedial action
arising from, or in connection with, noncompliance with any such Laws is stayed
pursuant to the Bankruptcy Code.
Section 6.15. Licenses. Lenders will not be required solely as a
result of taking a pledge of the Mortgage Loans to be licensed, registered or
approved or to obtain permits or otherwise qualify (i) to do business in any
state in which it currently is not so required or (ii) under any state consumer
lending, fair debt collection or other applicable state statute or regulation,
except that the Agent is required to be approved as a lender to a mortgage
banker by the New York State Banking Department.
Section 6.16. Chief Executive Office. The Borrower's chief executive
office on the Closing Date is located at 565 Taxter Road, Elmsford, New York
10523. The location where the Borrower keeps its books and records, including
all computer tapes and records relating to the Collateral is either its chief
executive office or 8 Skyline Drive, Hawthorne, New York 10532.
Section 6.17. Year 2000. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of (A) the Borrower's and
the Guarantor's computer systems and (B) equipment containing embedded
microchips (including systems and equipment supplied by others or with which
Borrower's and the Guarantor's systems interface but excluding software leased
from others) and the testing of all such systems and equipment, as so
reprogrammed, will be completed by October 1, 1999. The cost to the Borrower and
the Guarantor of such reprogramming and testing and of the reasonably
foreseeable consequences of year 2000 to the Borrower and the Guarantor
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in an Event of Default or a Material
Adverse Change. Except for such of the reprogramming referred to in the
preceding sentences of this Section 6.17 as may be necessary, the computer and
management information systems of the Borrower and the Guarantor are and, with
ordinary course upgrading and maintenance, will continue to be, sufficient to
permit the Borrower and the Guarantor to conduct their business without a
Material Adverse Change.
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Section 6.18. Administrative Priority; Lien Priority.
(a) After the Entry Date, the Obligations of the Borrower and
the Guarantor will constitute allowed administrative expenses in the Chapter 11
Case having priority in payment over all other administrative expenses and
unsecured claims against the Borrower and the Guarantor now existing or
hereafter arising, of any kind or nature whatsoever, including without
limitation all administrative expenses of the kind specified in Sections 503(b)
and 507(b) of the Bankruptcy Code, subject, as to priority, only to Carve-Out
Expenses having priority over the Obligations to the extent set forth in the
Agreed Administrative Expense Priorities and, subject to the terms of the
Intercreditor Agreement, the Obligations of the Borrower and the Guarantor under
the Greenwich DIP Facility.
(b) Upon entry of the Interim Bankruptcy Court Order, the
Liens on the Collateral shall be valid and perfected Liens, subject only to
Permitted Liens.
Section 6.20. Bankruptcy Court Order. The Interim Bankruptcy Court
Order or the Final Bankruptcy Court Order, as the case may be, is in full force
and effect, and has not been reversed, stayed, modified or amended absent the
joinder and consent of the Agent, the Lenders and the Borrower.
ARTICLE VII.
AFFIRMATIVE COVENANTS
So long as the Notes shall remain unpaid or the Lenders shall have
any Commitment hereunder, or any other amount is owing by the Borrower hereunder
or under any Loan Document, the Borrower shall:
Section 7.01. Maintenance of Existence. Preserve and maintain (which
may be by virtue of the stay imposed in the Chapter 11 Cases) its existence and
good standing in the jurisdiction of its formation and qualify and remain
qualified in each jurisdiction in which the failure to qualify and/or remain in
good standing would cause, or result in, a Material Adverse Change.
Section 7.02. Conduct of Business. Continue to engage in an
efficient and economical manner in a business of the same general type as
conducted by it on the Closing Date. Use its best efforts to adhere to customary
practices and standards in effect from time to time in the mortgage banking
industry.
Section 7.03. Maintenance of Properties. Maintain, keep and preserve
all of its properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply at all times with the provisions of all
material leases to which it is a party as lessee or under which it occupies
property, so as to prevent any loss or forfeiture thereof or thereunder, in each
case other than
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sales of property or rejection of leases approved by the Bankruptcy Court and
otherwise permitted by this Agreement.
Section 7.04. Maintenance of Records. Keep adequate records and
books of account, in which complete entries will be made in accordance with
GAAP, reflecting all of its financial transactions.
Section 7.05. Maintenance of Insurance. Maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks as are usually carried by companies engaged in
the same or a similar business and similarly situated or required by any
agreement to which the Borrower is a party, including, without limitation, a
standard policy of mortgage bankers' blanket bond insurance. To the extent
permitted under the terms of the policy, the Borrower shall cause the Agent to
be named, and remain named as long as any amounts are outstanding on the Notes,
an additional insured on such mortgage bankers' blanket bond insurance policies.
Such insurance may provide for reasonable deductibility from coverage thereof.
Section 7.06. Compliance with Laws. Comply in all respects with all
Laws and orders applicable to it or the Mortgage Loans, such compliance to
include, without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property,
except to the extent that the failure to so comply would not result in a
Material Adverse Change.
Section 7.07. Right of Inspection. At any reasonable time and from
time to time the Borrower shall permit the Agent or any Lender or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the properties of, the Borrower and to discuss the
affairs, finances and accounts of the Borrower with any of the Borrower's
officers and directors and independent certified public accountants.
Section 7.08. Reporting Requirements. Furnish directly to the Agent
and to each Lender:
(1) Annual Financial Statements of the Borrower and the Guarantor.
As soon as available and in any event within 90 days after the end of each
Fiscal Year of the Borrower and the Guarantor (a) the balance sheet of the
Borrower and the Guarantor as of the end of such Fiscal Year, the
statements of income and retained earnings, and the statements of cash
flows of the Borrower and the Guarantor for such Fiscal Year, both on a
consolidated basis and on a consolidating basis, all prepared in
accordance with GAAP consistently applied and with respect to the
consolidated statements only accompanied by an opinion thereon acceptable
to the Agent by KPMG Peat Marwick or any other independent certified
public accountants of national standing selected by the Borrower and the
Guarantor and acceptable to the Agent, (b) with respect to the foregoing
consolidated statements only, a report of the independent certified public
accountants stating in comparative form the respective figures for the
corresponding date and period in the prior Fiscal Year, and (c) a
Certificate of No Default.
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(2) Quarterly Financial Statements. Each quarter (other than the
fourth quarter), as soon as available and in any event not later than 60
days after the end of the reporting quarter, a balance sheet of the
Borrower and the Guarantor as of the end of such quarter, statements of
income and retained earnings of the Borrower and the Guarantor for the
period commencing at the end of the previous fiscal year and ending with
the end of such quarter, and statements of changes in financial position
of the Borrower and the Guarantor for the portion of the fiscal year ended
with the last day of such quarter, all on a consolidated and consolidating
basis and all in reasonable detail and stating in comparative form the
respective figures of the corresponding date and period in the previous
fiscal year and all prepared in accordance with GAAP consistently applied
and certified by the Designated Financial Officer of the Borrower;
(3) Monthly Financial Statements. Each month, as soon as available
and in any event not later than 30 days after the end of such month, a
balance sheet of the Borrower and the Guarantor as of the end of such
quarter, statements of income and retained earnings of the Borrower and
the Guarantor for the period commencing at the end of the previous fiscal
year and ending with the end of such month, and statements of changes in
financial position of the Borrower and the Guarantor for the portion of
the fiscal year ended with the last day of such month, all on a
consolidated and consolidating basis and all in reasonable detail and
stating in comparative form the respective figures of the corresponding
date and period in the previous fiscal year and all prepared in accordance
with GAAP consistently applied and certified by the Designated Financial
Officer of the Borrower;
(4) Management Letters. As soon as available after the end of each
Fiscal Year, copies of any reports submitted to the Borrower by KPMG Peat
Marwick or any other independent certified public accountants in
connection with the examination of the financial statements of the
Borrower and the Guarantor made by such accountants.
(5) Certificate of No Default. Not later than 60 days after the last
day of each quarter and not later than 90 days after the last day of each
Fiscal Year, a certificate (the "Certificate of No Default") of the chief
financial officer, controller or chief executive officer of the Borrower
certifying that no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto.
(6) Notice of Litigation. Promptly after the commencement thereof,
but in any event within five Business Days after the service of process
with respect thereto on the Borrower or the Guarantor, notice of all
actions, suits, and proceedings before any court or Governmental
Authority, affecting the Borrower or the Guarantor which, if determined
adversely to the Borrower or the Guarantor, could result in a Material
Adverse Change.
(7) Notices of Defaults and Events of Default. As soon as possible
and in any event within three Business Days after the occurrence of each
Default or Event of
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Default, a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken by the
Borrower with respect thereto.
(8) ERISA Reports. As soon as possible and in any event within
thirty days after any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or the PBGC or the Borrower has
instituted or will institute proceedings under Title IV of ERISA to
terminate any Plan, the Borrower will deliver to the Agent a certificate
of the chief financial officer of the Borrower setting forth details as to
such Reportable Event or Prohibited Transaction or Plan termination and
the action the Borrower proposes to take with respect thereto.
(9) Reports to Other Creditors. Promptly after the furnishing
thereof, unless prohibited by law, copies of any statement or report
furnished to any other creditor of the Borrower or the Guarantor pursuant
to the terms of any indenture, loan or credit or similar agreement and not
otherwise required to be furnished to the Agent pursuant to any other
clause of this Agreement.
(10) Reports, Etc. Promptly after the sending or filing thereof,
copies of all financial statements and reports which the Borrower and/or
the Guarantor send to, or receive from, any Governmental Authority or
Agency, and, upon the request of the Agent, copies of all consultants'
reports, investment bankers' reports, business plans and similar
documents.
(11) Pleadings, Etc. The Borrower shall give or cause to be given or
served on the Lenders' respective counsel copies of all pleadings,
motions, applications, financial information and other papers and
documents filed by the Borrower or the Guarantor in the Chapter 11 Cases.
(12) Reports to Committees. Promptly after the sending thereof,
copies of all written reports given by the Borrower and the Guarantor to
any official or unofficial creditors' committee in the Chapter 11 Cases,
provided that the Borrower may redact confidential information contained
in any such report if it provides a summary of the nature of the
information redacted.
(13) Insurance. Upon the occurrence of any casualty, damage or loss,
whether or not giving rise to a claim under any insurance policy of the
Borrower, in an amount greater than Two Hundred Fifty Thousand Dollars
($250,000), notice thereof, together with copies of any document relating
thereto (including copies of any such claim) in possession or control of
the Borrower or any agent of the Borrower.
(14) Material Adverse Change. As soon as possible and in any event
within three Business Days after the occurrence of any event or
circumstances which could result in or has resulted in a Material Adverse
Change, written notice thereof.
(15) Offices. Thirty days prior written notice of any change in the
chief executive office or principal place of business of the Borrower or
the Guarantor.
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(16) Liens. As soon as possible and in any event within three
Business Days after the occurrence of any event that could have a Material
Adverse Change on the value or marketability of the Collateral or the
validity, enforceability or priority of the Liens created under this
Agreement, written notice thereof.
(17) Environmental Notices. As soon as possible and in any event
within five Business Days after receipt, copies of all Environmental
Notices received by the Borrower which are not received in the ordinary
course of the Borrower's business.
(18) Reports Relating to Collateral.
(a) If requested by the Agent, within ten days after such
request:
(1) A schedule satisfactory in form and content to the
Agent of all commitments to make Mortgage Loans, commitments
to purchase Mortgage Loans and other information related to
all Mortgage Loans intended to be or which are pledged under
this Agreement.
(2) A schedule satisfactory in form and content to the
Agent of all Purchase Commitments held by the Borrower grouped
by type of Mortgage Loan (whether or not delivered as
Collateral hereunder) which qualifies for delivery pursuant to
such Purchase Commitments, listing the name of the investor,
the commitment type (i.e., mandatory, optional, standby,
etc.), the commitment amount which remains available for
future deliveries, the yield requirement or the price and
interest rate for which said price is quoted, and the
expiration, delivery or settlement date for each such Purchase
Commitment, and the weighted average yield requirement or the
weighted average price at each applicable interest rate for
each such group of Purchase Commitments and (b) a schedule in
a form satisfactory in form and content to the Agent listing
the mandatory Purchase Commitments held by the Borrower which
shall be satisfied by delivering Mortgage Loans which the
Borrower has committed to purchase;
(3) Not later than fifteen days after the end of a
calendar quarter, a list of the Investors to whom the Borrower
delivered Mortgage Loans during such quarter and a list of the
Investors to whom the Borrower anticipates delivering Mortgage
Loans during the succeeding calendar quarter; and
(4) From time to time, with reasonable promptness, such
further information regarding the Collateral as the Agent or
any Lender may reasonably request.
(b) As soon as available, but in any event not later than the
date that such reports, if any, are delivered to the Agencies,
copies of all annual and
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regularly delivered reports to the Agencies relating to the
Borrower's Mortgage Loan origination and acquisition activities and
other matters requested or required by the Agencies.
(c) As soon as available, but in any event not later than five
Business Days after the receipt thereof by the Borrower any notice
received from an Agency or an Investor relating to a material
default or other deficiency under a Purchase Commitment which could
result in termination thereof.
(19) Mortgage Loan Audit Report. Borrower shall (i) with respect to
any Mortgage Loans originated, purchased or serviced by Borrower, deliver
each month, as soon as available and in any event not later than thirty
days after the end of such month, a report in the form attached hereto as
Exhibit N, (ii) prepare and deliver reports each month, detailing, with
respect to all Mortgage Loans pledged to the Agent, such other information
as the Agent may from time to time reasonably request and (iii) deliver on
the fifth Business Day of each month a Mortgage Loan Schedule as of the
end of the prior month.
(20) Borrowing Base Certificate. Weekly (not later than Friday of
each week) or more frequently if requested by the Agent, a Borrowing Base
Certificate, current as of the last Business Day of the reporting period
in question, signed by the chief financial officer or such other officer
as the Borrower's chief financial officer may designate in writing to the
Agent. The Borrower shall send a copy of the Borrowing Base Certificate to
each Lender at the same time that the Borrower sends the Borrowing Base
Certificate to the Agent.
(21) General Information. Such other information respecting the
condition or operations, financial or otherwise, of the Borrower and/or
the Guarantor as the Agent or any Lender may from time to time reasonably
request.
Section 7.09. Compliance With Environmental Laws. Comply in all
material respects with all applicable Environmental Laws and immediately pay or
cause to be paid all costs and expenses incurred in connection with such
compliance.
Section 7.10. Purchase Commitments. Maintain valid and enforceable
Purchase Commitments where required pursuant to this Agreement sufficient at all
times to (i) satisfy the requirements of this Agreement an (ii) in accordance
with prudent business practices to protect the Borrower against interest rate
risk with respect to Mortgage Loans originated or acquired by it and to permit
the timely sale of Mortgage Loans in accordance with prudent mortgage banking
industry practices.
Section 7.11. Pledge of Mortgage Loans. Within two Business Days
after the origination or purchase of a Mortgage Loan by the Borrower, pledge to
the Agent and the Lenders in accordance with the terms and provisions of this
Agreement and the Custodian Agreement all such Mortgage Loans not otherwise sold
or financed by the Borrower during such two Business Day period, unless such
Mortgage Loans are pledged to Greenwich pursuant to the
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Greenwich DIP Facility; provided, that Wet Mortgage Loans shall be pledged to
the Agent and the Lenders in accordance with the terms and provisions of Section
5.05 hereof and the Custodian Agreement. The Agent may, at any time, in its sole
discretion, upon delivery of a written notice to the Borrower, require all
Mortgage Loans that have not otherwise been pledged to Greenwich to be pledged
to the Agent and the Lenders immediately upon the origination or purchase
thereof by the Borrower.
Section 7.12. Taxes. Pay and discharge all taxes, assessments or
other governmental charges or levies imposed on it or any of its property or
assets for which the failure to pay or discharge could result in a Material
Adverse Change.
Section 7.13. [Intentionally Omitted]
Section 7.14. ERISA.
(A) Comply in all material respects with the provisions of ERISA to
the extent applicable to any employee benefit plan maintained for any of the
Borrower's or a Subsidiary's employees or any multiemployer pension plan to
which the Borrower, any Subsidiary or any ERISA Affiliate is required to
contribute; not incur any accumulated funding deficiency or withdrawal liability
(within the meaning of ERISA), or any liability to the PBGC; and not permit any
Prohibited Transaction or Reportable Event or other event to occur which could
result in a Material Adverse Change with respect to the Borrower or any employee
benefit plan or which may be the basis for the PBGC to assert a material
liability against it or which may result in the imposition of a Lien on the
Borrower's properties or assets.
(B) Notify the Agent and the Lenders in writing promptly after the
assertion or threat of any Prohibited Transaction or Reportable Event, the
existence of any fact or set of facts or event (including without limitation any
change in the actuarial assumptions or funding methods of any employee benefit
plan or the incurrence of any withdrawal liability under any multiemployer plan)
which could have a Material Adverse Change or may be the basis for the PBGC to
assert a material liability against it or impose a Lien on the Borrower's
properties or assets. The Borrower shall also provide to the Agent and the
Lenders promptly after receipt thereof, copies of (i) all notices received by
the Borrower or any ERISA Affiliate of the reorganization of any multiemployer
pension plan or the PBGC's intent to terminate any Plan or Multiemployer Plan,
or to have a trustee appointed to administer any such employee benefit plan; and
(ii) at the request of a Lender each annual report and all accompanying
schedules, the most recent actuarial reports, the most recent financial
information concerning the financial status of each Plan or Multiemployer Plan,
and schedules showing the amounts contributed to each such plan by or on behalf
of the Borrower or any ERISA Affiliate in which any of their personnel
participate or from which such personnel may derive a benefit, and each Schedule
B (Actuarial Information) to the annual report filed by the Borrower or any
ERISA Affiliate with the Internal Revenue Service with respect to each such
plan.
Section 7.15. Borrowing Base. Maintain all Loans in compliance with
the then current Borrowing Base.
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Section 7.16. Compliance With Custodian Agreement. With respect to
each Pledged Mortgage, the Borrower shall comply with all document delivery
requirements set forth in the Custodian Agreement.
Section 7.17. Availability. Maintain at all times Availability of at
least $20,000,000.
Section 7.18. Underwriting Guidelines. Without the prior written
consent of the Agent, the Borrower shall not materially amend or otherwise
materially modify the Underwriting Guidelines. In the event that the Borrower
proposes to amend the Underwriting Guidelines, the Borrower shall submit the
proposed amendment to the Agent in writing. The Agent shall notify the Borrower
whether or not it approves any such proposed material amendment, which approval
shall not be unreasonably withheld. If the Borrower wishes to finance a Mortgage
Loan hereunder that does not comply in all respects with the Underwriting
Guidelines, the Borrower shall request prior approval thereof from the Agent and
will deliver to the Agent, no later than three (3) Business Days prior to the
requested Mortgage Loan Closing Date, the related underwriting file. The Agent
shall notify the Borrower promptly (i) whether or not it chooses to finance any
such Mortgage Loan and, if so, (ii) whether it chooses to treat such Mortgage
Loan as includible in the Borrowing Base.
Section 7.19. Wet Closing Agents. Cause each Wet Closing Agent to
execute a Wet Closing Agent Agreement in which such Wet Closing Agent
acknowledges and agrees to act as the agent for the Agent and the Lenders
pursuant to Section 5.03 hereof in connection with the funding of each Wet
Mortgage Loan.
Section 7.20. Year 2000 Compatibility. Each of the Borrower and the
Guarantor shall take all action reasonably necessary to assure that the
Borrower's and the Guarantor's material computer-based systems are to operate
and effectively process data including datafields requiring references to dates
on and after January 1, 2000. At the request of the Agent, the Borrower and the
Guarantor shall provide to the Agent written assurances and other evidence
acceptable to the Agent and the Lenders of the Borrower's and the Guarantor's
compliance with this Section 7.20.
ARTICLE VIII.
NEGATIVE COVENANTS
So long as the Notes or any Obligations shall remain unpaid or the
Lenders shall have any Commitment hereunder or any other amount is owing by the
Borrower hereunder or under any other Loan Document, the Loan Parties shall not:
Section 8.01. Interim Bankruptcy Court Order; Final Bankruptcy Court
Order; Administrative Priority; Lien Priority; Payment of Claims; Greenwich DIP
Facility.
(A) The Borrower shall not at any time seek, consent to or suffer to
exist any modification, stay, vacation or amendment of the Interim Bankruptcy
Court Order or the Final
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Bankruptcy Court Order except for modifications and amendments agreed to by the
Agent and the Lenders.
(B) The Borrower and the Guarantor shall not at any time suffer to
exist a priority for any administrative expense or unsecured claim against the
Borrower or the Guarantor (now existing or hereafter arising of any kind or
nature whatsoever, including without limitation any administrative expenses of
the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code) equal
or superior to the priority of the Lenders in respect of the Obligations, except
for (i) the Carve-Out Expenses having priority over the Obligations to the
extent set forth in the definition of Agreed Administrative Expense Priorities
and (ii) subject to the terms of the Intercreditor Agreement and the Pledge
Agreement, the obligations of the Borrower and the Guarantor under the Greenwich
DIP Facility.
(C) The Borrower shall not at any time suffer to exist any Lien on
the Collateral having a priority equal or superior to the Lien in favor of the
Lenders in respect of the Collateral except for Permitted Liens.
(D) Prior to the date on which the Obligations have been paid in
full in cash and the Total Commitment has been terminated, the Borrower and the
Guarantor shall not pay any administrative expense claims except (i) Priority
Professional Expenses and other payments pursuant to sub-clause (i) of clause
"first" of the definition of the term "Agreed Administrative Expense
Priorities", (ii) subject to the terms of the Intercreditor Agreement and the
Pledge Agreement, the obligations of the Borrower and the Guarantor under the
Greenwich DIP Facility, (iii) any Obligations due and payable hereunder, and
(iv) other administrative expense claims incurred in the ordinary course of the
business of the Borrower and the Guarantor or their respective Chapter 11 Cases,
in each case to the extent and having the order of priority set forth in the
Agreed Administrative Expense Priorities.
(E) Prior to the date on which the Obligations have been repaid in
full in cash and the Total Commitment has been terminated, the Borrower shall
not modify or amend any term or provision set forth in any document evidencing
or relating to the Greenwich DIP Facility without the prior written consent of
the Agent, to the extent such modification or amendment adversely affects or
diminishes any rights of the Agent or the Lenders.
Section 8.02. Liens.
(A) Create, incur, assume, or suffer to exist, any Lien upon or with
respect to any of their properties (including, without limitation, any of the
Loan Parties' interest in partnerships), now owned or hereafter acquired, except
the following kinds of Liens on properties other than Pledged Mortgages
("Permitted Liens"):
(1) Liens in favor of the Agent, for the benefit of the
Lenders;
(2) Liens in connection with any taxes or assessments or other
governmental charges or levies if not yet due and payable or, if due and
payable, if they are stayed by the Bankruptcy Court or the Bankruptcy
Code;
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(3) Liens imposed by Law, such as mechanics' materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than thirty days or, if due and payable, which are
stayed by the Bankruptcy Court or the Bankruptcy Code;
(4) Liens under workers' compensation, unemployment insurance,
Social Security or similar legislation;
(5) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money),
leases (permitted under the terms of this Agreement), public or statutory
obligations, surety, indemnity, performance, or other similar bonds, or
other similar obligations arising in the ordinary course of business, and
the pledge of assets for the purpose of securing an appeal, stay or
discharge in the course of any legal proceedings, provided that the
aggregate amount of liabilities of the Borrower and/or the Guarantor
secured by a pledge of assets permitted under this clause, including
interest and penalties thereon, if any, shall not be in excess of $500,000
at any one time outstanding;
(6) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use, and enjoyment by the Borrower of the property or assets
encumbered thereby in the normal course of the Borrower's business or
materially impair the value of the property subject thereto;
(7) Purchase-money Liens on any property hereafter acquired or
the assumption of any Lien on property existing at the time of such
acquisition, (and not created in contemplation of such acquisition) or a
Lien incurred in connection with any conditional sale or other title
retention agreement or a Capital Lease;
(8) Liens on real estate acquired and owned as a result of
foreclosure of a Mortgage held by the Borrower;
(9) Liens in favor of Greenwich to the extent such Liens are
subject to the terms of the Pledge Agreement or the Intercreditor
Agreement; and
(10) Liens existing on the Filing Date set forth in Schedule
8.02(A) 10 hereof.
No Liens shall be permitted on the Collateral constituting Pledged
Mortgages and the capital stock of any Subsidiary of the Borrower pledged
to the Agent and the Lenders other than the Liens in favor of the Agent
and the Lenders hereunder, the Liens in favor of Greenwich pursuant to the
Pledge Agreement and, subject to the terms of the Intercreditor Agreement,
the Liens in favor of Greenwich pursuant to the Greenwich DIP Facility.
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(B) After the date hereof, agree with any other Person to prohibit
or otherwise restrict its ability to grant Liens upon, or security interests in,
any of its property to the Agent and the Lenders.
Section 8.03. Debt. Create, incur, assume, or suffer to exist, any
Debt, except:
(1) Debt of the Borrower under this Agreement or the Notes;
(2) Debt existing on the Filing Date;
(3) Accounts payable to trade creditors for goods or services
and current operating liabilities (other than for borrowed money), in each
case incurred in the ordinary course of business, as presently conducted;
(4) Debt of the Borrower secured by purchase-money Liens
permitted by Section 8.02(A)(7);
(5) Debt of the Borrower pursuant to hedging agreements
permitted by Section 8.10;
(6) Debt of the Borrower to Greenwich pursuant to the
Greenwich DIP Facility; and
(7) Debt not otherwise permitted by this Section in an
aggregate amount not to exceed $250,000.
Section 8.04. Mergers, Etc.
(A) Wind up, liquidate or dissolve itself, reorganize, merge or
consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of their assets (whether now owned or hereafter acquired) to
any Person, except sales permitted by Section 8.08 hereof, or
(B) acquire all or substantially all of the assets or the business
of any Person, except with the prior written approval of the Agent, such
approval not to be unreasonably withheld.
Section 8.05. Leases. Create, incur, assume, or suffer to exist any
obligation as lessee for the rental or hire of any real or personal property,
except: (1) Capital Leases permitted under Section 8.02(A)(7); (2) leases
existing on the date of this Agreement and any extensions, renewals or
replacements thereof and (3) new leases for office space and equipment and
similar items used in the ordinary course of the Borrower's or the Guarantor's
business.
Section 8.06. Sale and Leaseback. Sell, transfer, or otherwise
dispose of any real or personal property to any Person and thereafter directly
or indirectly lease back the same or similar property.
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Section 8.07. Distributions. Directly or indirectly declare or pay
any dividends or other Distributions; or purchase, redeem, retire, or otherwise
acquire for value any shares of its capital stock, now or hereafter outstanding;
or make any Distribution of assets to its shareholders whether in cash, assets,
or obligations of the Borrower; or allocate or otherwise set apart any sum for
the payment of any dividend on, or for the purchase, redemption, or retirement
or any of the Borrower's shares of capital stock; or make any other Distribution
by reduction of capital or otherwise in respect of its shares of capital stock;
provided, that, the Borrower may pay dividends or other Distributions to the
Guarantor to pay administrative expenses permitted to be paid pursuant to the
terms of this Agreement.
Section 8.08. Sale of Assets. (A) Sell, lease, assign, transfer, or
otherwise dispose of any of the Borrower's now-owned or hereafter acquired
assets (including, without limitation, receivables, and leasehold interests),
except, subject to Sections 2.06(d) and 3.11 and Subsection (B) of this Section
8.08, (i) the sale or other disposition of assets (x) other than Mortgage Loans,
in the ordinary course of the Borrower's business, (y) consisting of Mortgage
Loans, in the ordinary course of the Borrower's business, including the sale or
refinancing of Pledged Mortgages in accordance with Section 3.11 hereof, or (z)
no longer used or useful in the conduct of its business, and (ii) the sale or
other disposition of Residual Interest Receivables to the extent permitted by
the Pledge Agreement; or
(B) Sell any Mortgage Loans (other than Mortgage Loans financed by
Greenwich under the Greenwich DIP Facility) on a recourse basis except with the
consent of the Majority Lenders.
Section 8.09. Investments. Make any loan or advance to any Person
(other than Mortgage Loans in the ordinary course of business), or purchase or
otherwise acquire any capital stock, assets, obligations, or other securities
of, make any capital contribution to, or otherwise invest in or acquire any
interest in any Person, or participate as a partner or joint venturer with any
other Person, or make any additional investments in the partnerships and
corporations referred to in Schedule 6.10 except: (1) direct obligations of the
United States or any agency thereof with maturities of one year or less from the
date of acquisition; (2) commercial paper of a domestic issuer rated at least
"A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service,
Inc.; (3) certificates of deposit with maturities of one year or less from the
date of acquisition issued by any commercial bank having capital and surplus in
excess of One Billion Dollars ($1,000,000,000); (4) stock, obligations, or
securities received in settlement of debts (created in the ordinary course of
business) owing to the Borrower; (5) investments required to be made or
purchased by any Agency or any applicable provisions of law; (6) loans and
advances to employees of the Borrower in an aggregate principal amount not to
exceed $250,000, provided that no employee shall receive loans and advances
aggregating more than $100,000; (7) advances to pay interest shortfalls on the
Borrower's securitization transactions which are approved by the Bankruptcy
Court; and (8) investments in Persons in an aggregate amount not in excess of
$250,000, provided that the aggregate of such investments in any one Person
shall not exceed $100,000.
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Section 8.10. Financial Hedge Instruments. Engage in or enter into
any derivatives or hedging transactions of any kind other than transactions
regarding the hedging of interest rate or exposure, provided that such
transactions are not entered into for speculative purposes.
Section 8.11. Guaranties, Etc. Assume, guaranty, endorse, or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any obligation, stock,
assets, goods, or services, or to supply or advance any funds, assets, goods, or
services, or an agreement to maintain or cause such Person to maintain a minimum
working capital or net worth, or otherwise to assure the creditors of any Person
against loss) for obligations of any Person other than the Borrower or the
Guarantor, except (i) guaranties by endorsement of negotiable instruments for
deposits or collection or similar transactions in the ordinary course of
business and (ii) as set forth on Schedule 8.11 hereto.
Section 8.12. Transactions With Affiliates. Enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate (other than the
Guarantor or any Subsidiary of the Borrower), except in the ordinary course of
and pursuant to the reasonable requirements of the Borrower's business and upon
fair and reasonable terms no less favorable to the Borrower than would obtain in
a comparable arm's-length transaction with a Person not an Affiliate.
Section 8.13. Margin Regulations. Use any part of the proceeds of
Loans (i) for the purpose of purchasing or carrying any margin stock within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System or (ii) to extend credit to any Person for the purpose of
purchasing or carrying any such margin stock.
Section 8.14. Subwarehousing. Purchase any Subwarehouse Mortgage
Loan or engage in any other Subwarehousing activity.
Section 8.15. Bulk Purchases of Mortgage Loans. Make a bulk purchase
of Mortgage Loans.
Section 8.16. Payments. Each of the Borrower and the Guarantor shall
not make any payment of principal or interest or otherwise on account of any
Indebtedness or trade payable incurred prior to the Filing Date, provided that
such payments may be made: (i) to the holders of, or in respect of, wage,
salary, commission and employee benefit obligations (including expense
reimbursements) which arose prior to the Filing Date; (ii) to landlords in
connection with the assumption of unexpired leases under Section 365 of the
Bankruptcy Code in an aggregate amount not to exceed $250,000; (iii) to lessors
and non-debtor parties to executory contracts in connection with the assumption
of such leases and contracts under Section 365 of the Bankruptcy Code; (iv) to
the Pre-Petition Lenders to repay the Pre-Petition Obligations; (v) to the
trustee of any of the Borrower's securitization transactions in order to cover
an interest payment deficiency thereunder as required under the terms of the
applicable pooling and servicing agreement; (vi) to the holders of "Trade
Claims" (as defined in the Plan of Reorganization) in an aggregate amount not to
exceed $3,000,000; in each case after prior written notice of such payment has
been given by the Borrower to the Agent and subject to approval of the
Bankruptcy Court. Nothing contained in this Section
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8.16 shall prevent the Borrower from making payments with respect to payroll
taxes, garnishment payments or other trust fund disbursements in accordance with
past practice of the Borrower.
ARTICLE IX.
EVENTS OF DEFAULT
Section 9.01. Events of Default. Any of the following events shall
be an "Event of Default":
(1) the Borrower shall: (a) fail to pay the principal of the
Loans as and when due; or (b) fail to make any of the prepayments required
by Section 2.06 as and when required; or (c) fail to fulfill or satisfy
any of the covenants regarding the Collateral in Section 3.12 or the
Collateral or any Residual Securities in Sections 3, 4 or 14(b) of the
Pledge Agreement; or (d) fail to pay within three days after the due date
therefor interest on the Loans or any fee or interest or any other amount
due under this Agreement or any other Loan Document;
(2) any representation or warranty made or deemed made by the
Borrower or the Guarantor in this Agreement or in any other Loan Document
or which is contained in any certificate, document, opinion, or financial
or other statement furnished by the Borrower, the Guarantor or their
respective agents or representatives at any time under or in connection
with any Loan Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made (other than the
additional representations and warranties made pursuant to Section
3.10(7), which shall be considered solely for the purpose of determining
whether such Mortgage Loans will be Eligible Residential Mortgage Loans,
unless the Borrower shall have made any such representations and
warranties with knowledge that they were materially false or misleading at
the time made);
(3) any Loan Party shall fail to perform or observe any
covenant contained in Sections 7.01, 7.05, 7.06, 7.07, 7.10, 7.11, 7.12,
7.14, 7.16, 7.17, 7.18 or 7.19 or in Article VIII of this Agreement;
(4) Any Loan Party shall default in the performance or
observance of (i) the covenants contained in subparagraphs (6), (7), (14),
(16), (18), (19) and (20) of Section 7.08 of this Agreement and such
default shall continue unremedied for a period of 3 Business Days, (ii)
the covenant contained in Section 7.15 of this Agreement and such default
shall continue unremedied for 1 Business Day, or (iii) any other covenants
contained in this Agreement or any other Loan Document not described in
paragraph (3) above or clause (i) of this paragraph (4) and such default
shall continue unremedied for a period of 10 days;
(5) An order with respect to the Chapter 11 Cases shall be
entered by the Bankruptcy Court, or the Borrower or the Guarantor shall
file an application for an order with
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respect to the Chapter 11 Cases, (i) appointing a trustee under Section
1104, or (ii) appointing an examiner with enlarged powers relating to the
operation of the business (powers beyond those set forth in Section
1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the
Bankruptcy Code; or
(6) An order with respect to the Chapter 11 Cases shall be
entered by the Bankruptcy Court converting such Chapter 11 Cases to a
chapter 7 case; or
(7) An order shall be entered by the Bankruptcy Court
confirming a plan of reorganization in the Chapter 11 Cases which does not
contain a provision for termination of the Total Commitment and payment in
full in cash of all Obligations of the Borrower and the Guarantor
hereunder and under the other Loan Documents on or before the effective
date of such plan or plans upon entry thereof; or
(8) An order shall be entered by the Bankruptcy Court
dismissing the Chapter 11 Cases which does not contain a provision for
termination of the Total Commitment and payment in full in cash of all
Obligations of the Borrower and the Guarantor hereunder and under the
other Loan Documents upon entry thereof; or
(9) An order with respect to the Chapter 11 Cases shall be
entered by the Bankruptcy Court without the express prior written consent
of the Agent and the Lenders, (i) to revoke, reverse, stay, modify,
supplement or amend the Interim Bankruptcy Court Order or the Final
Bankruptcy Court Order or (ii) to permit any administrative expense or any
claim (now existing or hereafter arising, of any kind or nature
whatsoever) to have administrative priority as to the Borrower or the
Guarantor equal or superior to the priority of the Agent and the Lenders
in respect of the Obligations, except for allowed administrative expenses
having priority over the Obligations to the extent set forth in the Agreed
Administrative Expense Priorities and, subject to the terms of the
Intercreditor Agreement and the Pledge Agreement, the Obligations of the
Borrower and the Guarantor under the Greenwich DIP Facility, or (iii) to
grant or permit the grant of a Lien on the Collateral, except for any
Permitted Lien; or
(10) An application for any of the orders described in clauses
(5), (6), (7), (8) or (9) above shall be made by a Person other than the
Borrower or, if applicable, the Guarantor and such application is not
contested by the Borrower and the Guarantor in good faith and the relief
requested is granted in an order that is not stayed pending appeal; or
(11) An order shall be entered by the Bankruptcy Court that is
not stayed pending appeal granting relief from the automatic stay to any
creditor of the Borrower or the Guarantor with respect to any claim in an
amount equal to or exceeding $250,000 in the aggregate; provided, however,
that it shall not be an Event of Default if relief from the automatic stay
is granted (i) solely for the purpose of allowing such creditor to
determine the liquidated amount of its claim against the Borrower or the
Guarantor, or (ii) to permit the commencement of and/or prosecution of a
proceeding to collect against an insurance company; or
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(12) any of the following events shall occur or exist with
respect to the Borrower or the Guarantor or any ERISA Affiliate; (a) any
Prohibited Transaction involving any Plan; (b) any Reportable Event shall
occur with respect to any Plan; (c) the filing under Section 4041 of ERISA
of a notice of intent to terminate any Plan or the termination of any
Plan; (d) any event or circumstance exists which might constitute grounds
entitling the PBGC to institute proceedings under Section 4042 of ERISA
for the termination of, or for the appointment of a trustee to administer,
any Plan, or the institution by the PBGC of any such proceedings; (e)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination of
any Multiemployer Plan; and in each case above, such event or condition,
together with all other events or conditions, if any, could in the
reasonable opinion of the Agent subject the Borrower or the Guarantor, as
the case may be, or any ERISA Affiliate to any tax, penalty, or other
liability to a Plan, Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in the aggregate exceeds or may exceed Five
Hundred Thousand Dollars ($500,000);
(13) this Agreement or any Loan Document shall at any time and
for any reason cease to create a valid and perfected first priority Lien
in the Collateral (other than Collateral released pursuant to the terms of
this Agreement and the other Loan Documents and except as otherwise
provided in this Agreement and the other Loan Documents) or the validity
or enforceability of this Agreement or any Loan Document shall be
contested by the Borrower or the Guarantor, or the Borrower or the
Guarantor shall deny it has any further liability or obligation under this
Agreement or any Loan Document to which it is a party;
(14) if there is a Material Adverse Change in the Collateral
subsequent to October 5, 1998 or if there shall occur a Material Adverse
Change (as determined by the Majority Lenders in their sole discretion),
or if the Majority Lenders in good faith believe that the prospects of
payment, performance or realization upon the Collateral is impaired in any
material respect;
(15) a Change of Control shall occur; or
(16) the Custodian Agreement or any other Loan Document or the
Greenwich DIP Facility shall for whatever reason be terminated or cease to
be in full force and effect or an "event of default" shall occur and be
continuing under the Greenwich DIP Facility, in either case other than
with the consent of the Lenders, or the enforceability of any such
agreement shall be contested by the Borrower.
Section 9.02. Remedies. If any Event of Default shall occur and be
continuing, the Agent may and, at the request of the Majority Lenders, shall by
notice to the Borrower, (1) declare the Total Commitment to be terminated,
whereupon the same shall forthwith terminate without further order of, or
application to the Bankruptcy Order; (2) declare the Notes, all interest
thereon, and all other amounts payable under this Agreement, and any other Loan
Documents to be forthwith due and payable, whereupon the Notes, all such
interest, and all such amounts due
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under this Agreement, and under any other Loan Document shall become and be
forthwith due and payable, without further order of, or application to the
Bankruptcy Order, presentment, demand, protest, or further notice of any kind,
all of which are hereby expressly waived by the Borrower; and/or (3) exercise
any remedies provided in any of the Loan Documents at law (including but not
limited to the Bankruptcy Code and the Uniform Commercial Code) or otherwise,
with respect to the Collateral and the Loans.
Upon the occurrence of any Event of Default, the Agent may exercise
in respect of the Collateral, in addition to other rights and remedies provided
for herein, at law or otherwise available to it, all the rights and remedies of
a secured party on default under the applicable UCC (whether or not the
applicable UCC applies to the affected Collateral) and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its expense and upon
request of the Agent forthwith, assemble all or part of the Collateral as
directed by the Agent and make it available to the Agent at a place to be
designated by the Agent, and (ii) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other commercially reasonable terms. The Borrower
agrees that, to the extent notice of sale shall be required by Law, five
Business days prior notice to the Borrower of the time and place of any public
sale or the time after which any private sale is to made shall constitute
reasonable notification. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the Agent, be held by
the Agent in a cash collateral account (which the Agent is hereby authorized to
establish) as Collateral for, and/or then or at any time thereafter applied in
accordance with the terms of Section 2.07(c) in whole or in part by the Agent
against, all or any or the Obligations in such order as the Agent shall elect.
After the occurrence of any Event of Default, the Agent shall have the right to
deliver any Pledged Mortgage into any Purchase Commitment, in any such event
either in the name of the Agent or the Borrower, pursuant to the power of
attorney granted under this Agreement or otherwise.
Section 9.03. The Agent May Perform. If the Borrower fails to
perform any agreement contained in this Agreement, the Agent may itself perform
(but shall not be obligated to perform), or cause performance of, such
agreement, and the expenses of the Agent incurred in connection therewith shall
be payable by the Borrower under Section 11.06.
Section 9.04. The Agent's Duties. The powers conferred on the Agent
under this Agreement are solely to protect its interest and the interests of the
Lenders in the Collateral and shall not impose any duty upon the Agent to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Agent shall not have any duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
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Section 9.05. Transfer of Note. This Agreement creates a continuing
Lien in the Collateral and shall (i) remain in full force and effect until
payment in full of all the Obligations to the Lenders after the Termination
Date, (ii) be binding upon the Borrower, its successors and assigns, and (iii)
inure to the benefit of the Lenders and their successors, transferees and
assigns. Without limiting the generality of the foregoing clause (iii), each
Lender may assign or otherwise transfer any document evidencing any Obligation
held by it to its successors or any Affiliate, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Lender herein or otherwise. Upon the payment in full of the Obligations after
the Termination Date and cancellation of the Total Commitment, the Lien granted
hereby shall terminate and this Agreement shall terminate (except to the extent
set forth in Section 11.11) and all rights to the Collateral shall revert to the
Borrower. Upon any such termination, the Agent will, at the Borrower's expense,
instruct the Custodian pursuant to Section 14 of the Custodian Agreement to
release all Collateral held by it and execute and deliver to the Borrower such
documents as the Borrower shall reasonably request to evidence such termination.
Section 9.06. Defaulting Lender. Notwithstanding anything to the
contrary contained herein, in the event that any Lender (x) refuses (which
refusal constitutes a breach by such Lender of its obligations under this
Agreement and which has not been retracted) to make available its portion of any
Loan or (y) notifies the Agent and/or the Borrower that it does not intend to
make available its portion of any Loan (each, a "Lender Default"), all rights
and obligations hereunder of the Lender (a "Defaulting Lender") as to which a
Lender Default is in effect and of the other parties hereto shall be modified by
this Section 9.06 while such Lender Default remains in effect.
Loans shall be incurred pro rata from the Lenders (the
"Non-Defaulting Lenders") which are not Defaulting Lenders based on their
respective Commitments, and no Commitment shall be increased as a result of such
Lender Default. Amounts received in respect of principal of the Loans shall be
applied to reduce the Loans of each of the Lenders pro rata based on the
aggregate of the outstanding Loans of all of the Lenders at the time of such
application; provided that, such amount shall not be applied to any Loan of a
Defaulting Lender at any time when, and to the extent that, the aggregate amount
of Loans of any Non-Defaulting Lender exceeds such Non-Defaulting Lenders' Pro
Rata Share of all Loans then outstanding.
A Defaulting Lender shall not be entitled to give instructions to
the Agent or to approve, disapprove, consent to or vote on any matters relating
to this Agreement and the other Loan Documents. All amendments, waivers and
other modifications of this Agreement and the other Loan Documents may be made
without regard to a Defaulting Lender and, for purposes of the definition of
"Majority Lenders", a Defaulting Lender shall be deemed not to be a Lender, not
to have a Commitment and not to have Loans outstanding.
Other than as expressly set forth in this Section 9.06, the rights
and obligations of a Defaulting Lender (including the obligation to indemnify
the Agent) and the other parties hereto shall remain unchanged. Nothing in this
Section 9.06 shall be deemed to release any Defaulting Lender from its
Commitment hereunder, shall alter such Commitment, shall operate as a waiver of
any default by such Defaulting Lender hereunder, or shall prejudice any rights
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which the Borrower, the Agent or any Lender may have against any Defaulting
Lender as a result of any default by such Defaulting Lender hereunder.
ARTICLE X.
AGENT
Section 10.01. Appointment. Each Lender (and each subsequent holder
of any Note by its acceptance thereof) hereby irrevocably appoints and
authorizes the Agent (i) to receive on behalf of each Lender any payment of
principal of or interest on the Notes outstanding hereunder and all other
amounts accrued hereunder for the account of the Lenders and paid to the Agent,
and, subject to Section 2.03 of this Agreement, to distribute promptly to each
Lender its Pro Rata Share of all payments so received, (ii) to distribute to
each Lender copies of all material notices and agreements received by the Agent
and not required to be delivered to each Lender pursuant to the terms of this
Agreement, provided that the Agent shall not have any liability to the Lenders
for the Agent's inadvertent failure to distribute any such notice or agreements
to the Lenders, (iii) subject to Section 10.03 of this Agreement, to take such
action as Agent deems appropriate on its behalf to administer the Loans, and the
Loan Documents and to exercise such other powers delegated to the Agent by the
terms hereof or the Loan Documents (including, without limitation, the power to
give or to refuse to give notices, waivers, consents, approvals and instructions
and the power to make or to refuse to make determinations and calculations)
together with such powers as are reasonably incidental thereto to carry out the
purposes hereof and thereof and (iv) to enter into the Pledge Agreement pursuant
to which the capital stock of certain Subsidiaries of the Borrower that own
Retained Interest Receivables have been pledged to Greenwich for the benefit of
Greenwich, the Agent and the Lenders and to enter into the Intercreditor
Agreement. As to any matters not expressly provided for by this Agreement and
the other Loan Documents (including, without limitation, enforcement or
collection of the Notes), the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Lenders, and such instructions of the
Majority Lenders shall be binding upon all Lenders and all holders of Notes;
provided, however, the Agent shall not be required to take any action which, in
the reasonable opinion of the Agent, exposes the Agent to liability or which is
contrary to this Agreement or any Loan Document or applicable law.
Section 10.02. Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of the Agent shall be mechanical and administrative
in nature. The Agent shall not have by reason of this Agreement or any Loan
Document a fiduciary relationship in respect of any Lender. Nothing in this
Agreement or any of the Loan Documents, express or implied, is intended to or
shall be construed to impose upon the Agent any obligations in respect of this
Agreement or any of the Loan Documents except as expressly set forth herein or
therein. Each Lender shall make its own independent investigation of the
financial condition and affairs of the Borrower in connection with the making
and the continuance of the Loans hereunder and shall make its own appraisal of
the creditworthiness of the Borrower and the value of the Collateral, and the
Agent shall have no duty
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or responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether coming
into its possession before the initial Loan hereunder or at any time or times
thereafter, provided that, upon the reasonable request of a Lender, the Agent
shall provide to such Lender any documents or reports delivered to the Agent by
the Borrower pursuant to the terms of this Agreement or any Loan Document. If
the Agent seeks the consent or approval of the Majority Lenders to the taking or
refraining from taking any action hereunder, the Agent shall send notice thereof
to each Lender. The Agent shall promptly notify each Lender any time that the
Majority Lenders have instructed the Agent to act or refrain from acting
pursuant hereto.
Section 10.03. Rights, Exculpation, Etc. The Agent and its
directors, officers, agents or employees shall not be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement or the other Loan Documents, except for their own gross negligence or
willful misconduct as determined by a final judgment of a court of competent
jurisdiction. Without limiting the generality of the foregoing, the Agent (i)
may treat the payee of any Note as the holder thereof until the Agent receives
written notice of the assignment or transfer thereof, pursuant to Section 11.13
hereof, signed by such payee and in form satisfactory to the Agent; (ii) may
consult with legal counsel (including, without limitation, counsel to the Agent
or counsel to the Borrower), independent public accountants, the Custodian, and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants, the Custodian or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, certificates, warranties or representations made in or in connection
with this Agreement or the other Loan Documents; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the other Loan Documents on the
part of any Person, the existence or possible existence of any Default or Event
of Default, or to inspect the Collateral or other property (including, without
limitation, the books and records) of any Person; (v) shall not be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the other Loan Documents
or any other instrument or document furnished pursuant hereto or thereto; and
(vi) shall not be deemed to have made any representation or warranty regarding
the existence, value or collectability of the Collateral, the existence,
priority or perfection of the Agent's Lien thereon, or the Borrowing Base or any
certificate prepared by the Borrower or the Custodian in connection therewith,
nor shall the Agent be responsible or liable to the Lenders for any failure to
monitor or maintain the Borrowing Base or any portion of the Collateral or the
failure of the Custodian to perform its obligations under the Custodian
Agreement. The Agent shall not be liable for any apportionment or distribution
of payments made by it in good faith pursuant to Section 2.07(c), and if any
such apportionment or distribution is subsequently determined to have been made
in error the sole recourse of any Lender to whom payment was due but not made,
shall be to recover from other Lenders any payment in excess of the amount which
they are determined to be entitled. The Agent may at any time request
instructions from the Lenders with respect to any actions or approvals which by
the terms of this Agreement or of any of the Loan Documents the Agent is
permitted or required to take or to grant, and if such instructions are promptly
requested, the Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval under any of the Loan Documents until it
shall have received such instructions from the Majority Lenders. Without
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limiting the foregoing, no Lender shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
under this Agreement, the Notes, or any of the other Loan Documents in
accordance with the instructions of the Majority Lenders.
Section 10.04. Reliance. The Agent shall be entitled to rely upon
any written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.
Section 10.05. Indemnification. To the extent that the Agent is not
reimbursed and indemnified by the Borrower, the Lenders will reimburse and
indemnify the Agent for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising out
of this Agreement or any of the Loan Documents or any action taken or omitted by
the Agent under this Agreement or any of the Loan Documents, in proportion to
each Lender's Pro Rata Share, including, without limitation, advances and
disbursements made pursuant to Section 10.08; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements for which there has been a final judicial determination that such
resulted from the Agent's gross negligence or willful misconduct. The
obligations of the Lenders under this Section 10.05 shall survive the payment in
full of the Loans and the termination of this Agreement.
Section 10.06. CIT Individually. With respect to its Pro Rata Share
of the Total Commitment hereunder, the Loans made by it and the Note issued to
or held by it, CIT shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein for any other Lender or holder of a Note. The terms
"Lenders" or "Majority Lenders" or any similar terms shall, unless the context
clearly otherwise indicates, include CIT in its individual capacity as a Lender
or one of the Majority Lenders. CIT and its Affiliates may accept deposits from,
lend money to, and generally engage in any kind of banking, trust or other
business with the Borrower or any of its Subsidiaries as if it were not acting
as Agent pursuant hereto without any duty to account to the Lenders.
Section 10.07. Successor Agent.
(a) The Agent may resign from the performance of all its
functions and duties hereunder and under the other Loan Documents at any time by
giving at least thirty (30) Business Days' prior written notice to the Borrower
and each Lender. Such resignation shall take effect upon the acceptance by a
successor Agent of appointment pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the Majority Lenders
shall appoint a successor Agent who, in the absence of a continuing Event of
Default, shall be reasonably satisfactory to the Borrower. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the
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rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement
and the other Loan Documents. After any Agent's resignation hereunder as the
Agent, the provisions of this Article X shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.
(c) If a successor Agent shall not have been so appointed
within said thirty (30) Business Day period, the retiring Agent, with the
consent of the Borrower if an Event of Default is not continuing, shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Majority Lenders, with the consent of the Borrower, if an Event of Default
is not continuing, appoint a successor Agent as provided above.
(d) The Borrower, the Guarantor and each Lender consent to The
CIT Group/Business Credit, Inc., an affiliate of CIT, replacing CIT as the Agent
and receiving an assignment of all of CIT's rights and obligations as a Lender
under this Agreement, provided that The CIT Group/Business Credit, Inc. is
approved by the New York State Banking Department as a lender to a mortgage
banker.
Section 10.08. Collateral Matters.
(a) The Agent may from time to time, during the occurrence and
continuance of an Event of Default, make such disbursements and advances ("Agent
Advances") which the Agent, in its sole discretion, deems necessary or desirable
to preserve or protect the Collateral or any portion thereof, to enhance the
likelihood or maximize the amount of repayment by the Borrower of the Loans and
other Obligations or to pay any other amount chargeable to the Borrower pursuant
to the terms of this Agreement, including, without limitation, costs, fees and
expenses as described in Section 11.06. The Agent Advances shall be repayable on
demand and be secured by the Collateral. The Agent Advances shall not constitute
Loans but shall otherwise constitute Obligations hereunder. The Agent shall
notify each Lender and the Borrower in writing of each such Agent Advance, which
notice shall include a description of the purpose of such Agent Advance. Without
limitation to its obligations pursuant to Section 10.05, each Lender agrees that
it shall make available to the Agent, upon the Agent's demand, in Dollars in
immediately available funds, the amount equal to such Lender's Pro Rata Share of
each such Agent Advance. If such funds are not made available to the Agent by
such Lender the Agent shall be entitled to recover such funds, on demand from
such Lender together with interest thereon, for each day from the date such
payment was due until the date such amount is paid to the Agent, at the Federal
Funds Rate for three Business Days and thereafter at the Prime Rate.
(b) The Lenders hereby irrevocably authorize the Agent, at its
option and in its discretion, to release any Lien granted to or held by the
Agent upon any Collateral upon termination of the Total Commitment and payment
and satisfaction of all Loans, and all other Obligations which have matured and
which the Agent has been notified in writing are then due and payable; or
constituting property being sold or disposed of in the ordinary course of the
Borrower's business and in compliance with the terms of this Agreement and the
other Loan Documents; or constituting property in which the Borrower owned no
interest at the time the Lien was granted or
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at any time thereafter; or if approved, authorized or ratified in writing by the
Lenders. Upon request by the Agent at any time, the Lenders will confirm in
writing the Agent's authority to release particular types or items of Collateral
pursuant to this Section 10.08(b).
(c) Without in any manner limiting the Agent's authority to
act without any specific or further authorization or consent by the Lenders (as
set forth in Section 10.08(b)), each Lender agrees to confirm in writing, upon
request by the Agent, the authority to release Collateral conferred upon the
Agent under Section 10.08(b). Upon receipt by the Agent of confirmation from the
Lenders of its authority to release any particular item or types of Collateral,
and upon prior written request by the Borrower, the Agent shall (and is hereby
irrevocably authorized by the Lenders to) execute such documents as may be
necessary to evidence the release of the Liens granted to the Agent for the
benefit of the Lenders upon such Collateral; provided, however, that (i) the
Agent shall not be required to execute any such document on terms which, in the
Agent's opinion, would expose the Agent to liability or create any obligations
or entail any consequence other than the release of such Liens without recourse
or warranty, and (ii) such release shall not in any manner discharge, affect or
impair the Obligations or any Lien upon (or obligations of the Borrower in
respect of) all interests in the Collateral retained by the Borrower.
(d) The Agent shall have no obligation whatsoever to any
Lenders to assure that the Collateral exists or is owned by the Borrower or is
cared for, protected or insured or has been encumbered or that the Lien granted
to the Agent pursuant to this Agreement has been properly or sufficiently or
lawfully created, perfected, protected or enforced or is entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to the Agent in this Section
10.08 or in any of the Loan Documents, it being understood and agreed that in
respect of the Collateral, or any act, omission or event related thereto, the
Agent may act in any manner it may deem appropriate, in its sole discretion,
given the Agent's own interest in the Collateral as one of the Lenders and that
the Agent shall have no duty or liability whatsoever to any other Lender.
ARTICLE XI.
MISCELLANEOUS
Section 11.01. Holidays. Except as otherwise provided herein,
whenever any payment or action to be made or taken hereunder or under the Notes
shall be stated to be due on a day which is not a Business Day, such payment or
action shall be made or taken on the next following Business Day and such
extension of time shall be included in computing interest or fees, if any, in
connection with such payment or action.
Section 11.02. Records. The unpaid principal amount of the Notes,
the unpaid interest accrued thereon, the interest rate or rates applicable to
such unpaid principal amount, the duration of such applicability, the Total
Commitment, and the accrued and unpaid fees set forth in the Fee Letter, Unused
Line Fee and Early Termination Fee shall at all times be ascertained from the
records of the Agent, which shall be conclusive and binding absent manifest
error.
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Section 11.03. Amendments and Waivers. (a) No amendment or
modification of any provision of this Agreement or of any of the Notes or of any
other Loan Document shall be effective without the written agreement of the
Majority Lenders and the Borrower and no termination or waiver of any provision
of this Agreement or of any of the Notes, or consent to any departure by the
Borrower therefrom, shall in any event be effective without the written
concurrence of Majority Lenders, which Majority Lenders shall have the right to
grant or withhold at their sole discretion; except that any amendment,
modification, or waiver (i) of any provision of Article II or III which
amendment, modification or waiver increases the Total Commitment of any Lender,
reduces the principal of, or interest on, the Loans or the amounts payable to
any Lender, reduces the amount of any fee payable for the account of any Lender,
or postpones or extends any date fixed for any payment of principal of, or
interest or fees on, the Loans payable to any Lender, (ii) that increases the
aggregate amount of the Total Commitment, (iii) of the definitions of
"Termination Date", "Majority Lenders" or "Pro Rata Shares", (iv) of the
definitions of "Eligible Residential Mortgage Loan", "Borrowing Base",
"Collateral Value of Eligible Mortgages", "High LTV Mortgage Loan Sublimit", or
"Wet Mortgage Loan Sublimit" if the effect of such amendment, modification or
waiver is to increase the availability of the Borrower under the Borrowing Base,
(v) of any provision of this Agreement or any Loan Document that would release
all or a substantial portion of Collateral or the Guarantor (except as set forth
in Section 10.08 hereof or except as otherwise permitted in a Loan Document),
(vi) of any provision in this Agreement or the Loan Documents which amends,
modifies, waives, releases or subordinates the super priority claim status of
the Obligations (except as permitted in this Agreement and the Loan Documents),
(vii) of any provision in the Intercreditor Agreement or the Pledge Agreement or
(viii) of the provisions contained in this Section 11.03, shall be effective
only if evidenced by a writing signed by or on behalf of (A) any Lender affected
thereby in the case of the amendments, modifications or waivers described in
clause (i) above or (B) all Lenders in the case of the amendments, modifications
or waivers described in clauses (ii) through (viii) above. No amendment,
modification, termination, or waiver of any provision of Article X or any other
provision referring to the Agent shall be effective without the written
concurrence of the Agent. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No notice
to or demand on the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances. Any amendment,
modification, waiver or consent effected in accordance with this Section 11.03
shall be binding on each Lender, each future Lender, and, if signed by the
Borrower, on the Borrower.
(b) Notwithstanding anything to the contrary contained in
subsection 11.03(a), in the event that the Borrower requests that this Agreement
or any other Loan Document be amended or otherwise modified in a manner which
would require the unanimous consent of all of the Lenders and such amendment or
other modification is agreed to by the Majority Lenders, then, with the consent
of the Borrower and the Majority Lenders, the Borrower and the Majority Lenders
may amend this Agreement without the consent of the Lender or Lenders which did
not agree to such amendment or other modification (collectively the "Minority
Lenders") to provide for (i) the termination of the Commitment of each of the
Minority Lenders, (ii) the addition to this Agreement of one or more other
Lenders, or an increase in the Commitment of one or more of the Majority
Lenders, so that the Total Commitment after giving effect to such amendment
shall be in the same aggregate amount as the Total Commitment immediately before
giving effect to such
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amendment, (iii) if any Loans are outstanding at the time of such amendment, the
making of such additional Loans by such new Lenders or Majority Lenders, as the
case may be, as may be necessary to repay in full the outstanding Loans of the
Minority Lenders immediately before giving effect to such amendment and (iv) the
payment of all interest, fees and other Obligations payable or accrued in favor
of the Minority Lenders and such other modifications to this Agreement as the
Borrower and the Majority Lenders may determine to be appropriate.
Section 11.04. No Implied Waiver; Cumulative Remedies. No course of
dealing and no delay or failure of the Lenders or the Agent in exercising any
right, power or privilege under this Agreement, the Notes or any other Loan
Document shall affect any other or future exercise thereof or exercise of any
other right, power or privilege; nor shall any single or partial exercise of any
such right, power or privilege or any abandonment or discontinuance of steps to
enforce such a right, power or privilege preclude any further exercise thereof
or of any other right, power or privilege. The rights and remedies of the
Lenders or the Agent under this Agreement, the Notes and the other Loan
Documents are cumulative and not exclusive of any rights or remedies which the
Lenders or the Agent have thereunder or at law or in equity or otherwise. The
Lenders or the Agent may exercise their rights and remedies against the Borrower
and the Collateral as the Lenders and the Agent may elect, and regardless of the
existence or adequacy of any other right or remedy.
Section 11.05. Notices.
(a) All notices, requests, demands, directions and other
communications (collectively "Notices") under the provisions of this Agreement
or the Notes shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied, or delivered and shall be
effective (i) if mailed, three days after being deposited in the mails, (ii) if
telecopied, when sent, confirmation received and (iii) if delivered, upon
delivery. All notices shall be sent to the applicable party at the address
stated on the applicable signature page hereof or in accordance with the last
unrevoked written direction from such party to the other parties hereto.
(b) Nothing in this Agreement or in any other Loan Document
shall be construed to limit or affect the obligation of the Borrower or any
other Person to serve upon the Agent in the manner prescribed by the Bankruptcy
Code any pleading or notice required to be given to the Agent pursuant to the
Bankruptcy Code.
(c) The Lenders and the Agent may rely, and shall be fully
protected in relying, on any notice purportedly made by or on behalf of the
Borrower and the Lenders and the Agent shall have no duty to verify the identity
or authority of any Person giving such notice. The preceding sentence shall
apply to all notices whether or not made in a manner authorized or required by
this Agreement or any other Loan Document.
Section 11.06. Expenses; Taxes; Attorneys' Fees; Indemnification.
The Borrower agrees to pay or cause to be paid, on demand, and to save the Agent
(and, in the case of clauses (c) through (m) below, the Lenders) harmless
against liability for the payment of, all reasonable out-of-pocket expenses,
regardless of whether the transactions contemplated hereby are consummated,
including but not limited to reasonable fees and expenses of counsel for the
Agent
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(and, in the case of clauses (a) and (b) below, Nomura Asset Capital
Corporation, and, in the case of clauses (c) through (m) below, the Lenders),
accounting, due diligence, periodic field audits, appraisals, lien, judgment and
title searches, filing fees, investigations, monitoring of assets, syndication,
miscellaneous disbursements, examination, travel, lodging and meals, incurred by
the Agent (and, in the case of clauses (c) through (m) below, the Lenders) from
time to time arising from or relating to: (a) the negotiation, preparation,
execution, delivery, performance and administration of this Agreement and the
other Loan Documents, (b) any amendments, waivers or consents to this Agreement
or the other Loan Documents whether or not such documents become effective or
are given, (c) the preservation and protection of any of the Agent's and the
Lenders' rights under this Agreement or the other Loan Documents, (d) the
defense of any claim or action asserted or brought against the Agent or the
Lenders by any Person that arises from or relates to this Agreement, any other
Loan Document, the Agent's or the Lenders' claims against the Borrower, or any
and all matters in connection therewith, (e) the commencement or defense of, or
intervention in, any court proceeding arising from or related to this Agreement
or any other Loan Document, provided that this clause (e) shall apply to all
Lenders only in connection with any defense of any court proceedings or in all
instances during a continuing Event of Default; (f) the filing of any petition,
complaint, answer, motion or other pleading by the Agent or the Lenders, or the
taking of any action in respect of the Collateral or other security, in
connection with this Agreement or any other Loan Document, (g) the protection,
collection, lease, sale, taking possession of or liquidation of, any Collateral
or other security in connection with this Agreement or any other Loan Document,
(h) any attempt to enforce any Lien or security interest in any Collateral or
other security in connection with this Agreement or any other Loan Document, (i)
any attempt to collect from the Borrower any Obligations, (j) the receipt of any
advice with respect to any of the foregoing, provided that this clause (j) shall
apply to all Lenders only with respect to the matters described in clauses (c)
through (i) and clauses (k) through (m) of this Section 11.06, (k) all
Environmental Liabilities and Costs arising from or in connection with the past,
present or future operations of the Borrower or any of its Subsidiaries
involving any damage to real or personal property or natural resources or harm
or injury alleged to have resulted from any Environmental Discharge on, upon or
into such property, (l) any costs or liabilities incurred in connection with the
investigation, removal, cleanup and/or remediation of any Hazardous Materials
present or arising out of the operations of any facility of the Borrower or any
of its Subsidiaries, or (m) any costs or liabilities incurred in connection with
any Environmental Lien. Without limitation of the foregoing or any other
provision of any Loan Document: (x) the Borrower agrees to pay all stamp,
document, transfer, recording or filing taxes or fees (including, without
limitation, mortgage recording taxes) and similar impositions now or hereafter
determined by the Agent or any of the Lenders to be payable in connection with
this Agreement or any other Loan Document, and the Borrower agrees to save the
Agent and the Lenders harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions, and (y) if the
Borrower fails to perform any covenant or agreement contained herein or in any
other Loan Document, the Agent may itself perform or cause performance of such
covenant or agreement, and the expenses of the Agent incurred in connection
therewith shall be reimbursed on demand by the Borrower. The Borrower agrees to
indemnify and defend the Agent and the Lenders and their directors, officers,
agents, employees and affiliates (collectively, the "Indemnified Parties") from,
and hold each of them harmless against, any and all losses, liabilities, claims,
damages, costs or expenses of any nature whatsoever (including reasonable
attorneys' fees
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and amounts paid in settlement) incurred by, imposed upon or asserted against
any of them arising out of or by reason of any investigation, litigation or
other proceeding or claim brought or threatened relating to, or otherwise
arising out of or relating to, the execution of this Agreement or any other Loan
Document, the transactions contemplated hereby or thereby or any Loan or
proposed Loan hereunder (including, but without limitation, any use made or
proposed to be made by the Borrower of the proceeds of any thereof, or the
delivery or use or transfer of or the payment or failure to pay under any Loan)
but excluding any such losses, liabilities, claims, damages, costs or expenses
(i) to the extent finally judicially determined to have resulted from the gross
negligence or willful misconduct of the Indemnified Party, (ii) in connection
with any claim made by the Agent or any Lender against the Agent or another
Lender or (iii) arising under or in connection with any of the Pre-Petition
Agreements.
Section 11.07. Application. Except to the extent, if any, expressly
set forth in this Agreement or in the Loan Documents, the Agent and the Lenders
shall have the right to apply any payment received or applied by it in
connection with the Obligations to such of the Obligations then due and payable
as it may elect.
Section 11.08. Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 11.09. Governing Law. This Agreement and the Notes shall be
deemed to be contracts under the laws of the State of New York, without regard
to choice of law principles, and for all purposes shall be governed by and
construed and enforced in accordance with the laws of said State except as
governed by the Bankruptcy Code.
Section 11.10. Prior Understandings. This Agreement supersedes all
prior understandings and agreements, whether written or oral, among the parties
hereto relating to the transactions provided for herein other than the Fee
Letter.
Section 11.11. Duration; Survival. All representations and
warranties of the Borrower contained herein or made in connection herewith shall
survive the making of the Loans and shall not be waived by the execution and
delivery of this Agreement, the Notes or any other Loan Document, any
investigation by or knowledge of the Agent or the Lenders, the making of any
Loan hereunder, or any other event whatsoever. All covenants and agreements of
the Borrower contained herein shall continue in full force and effect from and
after the date hereof so long as the Borrower may borrow hereunder and until the
Obligations have been paid in full. Without limitation, it is understood that
all obligations of the Borrower to make payments to or indemnify the Agent and
the Lenders (including, without limitation, obligations arising under Section
11.06 hereof) shall survive the payment in full of the Notes and of all other
obligations of the Borrower thereunder and hereunder, termination of this
Agreement and all other events whatsoever and whether or not any Loans are made
hereunder.
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Section 11.12. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
Section 11.13. Assignments; Participations. (a) Each Lender may with
the written consent of the Agent and, in the absence of a continuing Event of
Default, the Borrower, which consent shall not be unreasonably withheld, assign
to one or more commercial banks or other financial institutions a portion of its
rights and obligations under this Agreement (including, without limitation, a
portion of its Commitment and the Loans owing to it) and the other Loan
Documents; provided, however, that (i) each such assignment shall be in a
principal amount of not less than $5,000,000 (or the remainder of such Lender's
Commitment) and (ii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the Register (as
hereinafter defined), an Assignment and Acceptance. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (A) the assignee thereunder shall be a party
hereto and to the other Loan Documents and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and thereunder
and (B) the Assigned Lender shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement.
(b) By executing and delivering an Assignment and Acceptance,
the assigning Lender and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Loan Document
furnished pursuant hereto; (ii) the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or any of its Subsidiaries or the performance or observance by
the Borrower of any of its obligations under this Agreement or any other Loan
Document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with
such other documents and information it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Assigning Lender
or any Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (vi) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender and (vii) such assignee
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represents and warrants that it has been approved as a lender to a mortgage
banker by the New York State Department of Banking.
(c) The Agent shall maintain at its address referred to on the
signature page hereto, a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitment of, and principal amount of the Loans owing to
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower and any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an assignee, together with the Note subject to such
assignment, the Agent shall, if the Agent and, if applicable, the Borrower
consent to such assignment and if such Assignment and Acceptance has been
completed (i) accept such Assignment and Acceptance, (ii) give prompt notice
thereof to the Borrower unless the Borrower has consented to such assignment,
(iii) record the information contained therein in the Register and (iv) prepare
and distribute to each Lender and the Borrower a revised Schedule 1.01(A) hereto
after giving effect to such assignment, which revised Schedule 1.01(A) shall
replace the prior Schedule 1.01(A) and become part of this Agreement. Within
five Business Days after its consent to such assignment or its receipt of notice
thereof from the Agent, as the case may be, the Borrower, at its own expense,
shall execute and deliver to the Agent in exchange for the surrendered Note a
new Note to the order of such assignee Lender in an aggregate principal amount
equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance, and if the assigning Lender has retained any Commitment hereunder, a
new Note to the order of the assigning Lender in an aggregate principal amount
equal to the Commitment retained by it hereunder, in each case prepared by the
Agent. Such new Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note, shall be dated the date of
the Agent's acceptance of such Assignment and Acceptance and shall otherwise be
in substantially the form of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks
or other entities in or to all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without limitation, all
or a portion of its Commitment and the Loans owing to it); provided, that (i)
such Lender's obligations under this Agreement (including, without limitation,
its Commitment hereunder) and the other Loan Documents shall remain unchanged;
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, and the Borrower, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents; and (iii) a participant shall not be entitled to
require such Lender to take or omit to take any action hereunder except (A)
action directly effecting an extension of the maturity dates (other than the
extension of the maturity date for up to 10 days if all the Lenders consent to
such extension) or decrease in the principal amount of the Loans or Obligations,
or (B) action directly effecting an extension of the due dates or a decrease in
the rate of
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interest payable on the Loans or the fees payable under this Agreement, or (C)
actions directly effecting a release of all or a substantial portion of the
Collateral or any Guarantor (except as set forth in Section 11.08 of this
Agreement or any Loan Document).
(f) Notwithstanding the foregoing provisions of this Section
11.13, (i) each Lender may at any time sell, assign, transfer, or negotiate all
or any part of its rights and obligations under this Agreement and the Loan
Documents to any Affiliate of such Lender, and (ii) there shall not be more than
four (4) Lenders under this Agreement at any time.
(g) Each Lender shall have the right to engage in repurchase
transactions in the ordinary course of its business with its Note and may
pledge, transfer, hypothecate or assign its Note in connection therewith with
the prior consent of the Agent, which consent shall not be unreasonably
withheld.
Section 11.14. Successors and Assigns. This Agreement and the other
Loan Documents shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns (including, except for the
right to request Loans, any trustee succeeding to the rights of the Borrower
pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a
case under Chapter 7 of the Bankruptcy Code) except that the Borrower may not
assign or transfer any of its rights hereunder or thereunder without the prior
written consent of all of the Lenders.
Section 11.15. Agent as Party in Interest. Each of the Borrower and
the Guarantor hereby stipulates and agrees that, until all Loans have been paid
in full in cash and the Total Commitment has terminated, the Agent is and shall
remain a party in interest in the Chapter 11 Cases and shall have the right to
participate, object and be heard in any motion or proceeding in connection
therewith. Nothing in this Agreement or any other Loan Document shall be deemed
to be a waiver of any of the Agent's rights or remedies under applicable law or
documentation. Without limitation of the foregoing, the Agent shall have the
right to make any motion or raise any objection it deems to be in its interest
(specifically including but not limited to objections to use of proceeds of the
Loans, to payment of professional fees and expenses or the amount thereof, to
sales or other transactions outside the ordinary course of business or to
assumption or rejection of any executory contract or lease), provided that the
Agent will not exercise such right if the action or inaction by the Borrower
which is the subject of such motion or objection is not prohibited by any
covenant or provision of this Agreement.
Section 11.16. Confidentiality. Upon delivering to any Lender or the
Agent, or permitting any Lender or the Agent to inspect, any written information
pursuant to this Agreement or the other Loan Documents, the Borrower is
delivering or making available such information to the Lenders or the Agent with
the understanding that each Lender and the Agent shall treat such information as
confidential to the extent such information is conspicuously marked
confidential. Each Lender and the Agent agrees to hold such information in
confidence from the date of disclosure thereof. Subject to the other provisions
of this Section 11.16, each Lender and the Agent may disclose confidential
information to its officers, directors, employees, attorneys, accountants or
other professionals engaged by any Lender or the Agent only after determining
that such third party
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has been instructed to hold such information in confidence to the same extent as
if it were a Lender. Notwithstanding the foregoing, the provisions of this
Section 11.16 shall not apply to information within any one of the following
categories or any combination thereof: (i) information the substance of which,
at the time of disclosure by any Lender or the Agent, has been disclosed to or
is known to any creditor of the Borrower or official or unofficial creditors'
committee (other than information as to which such creditor or creditors'
committee is then under an obligation of nondisclosure), or any Person other
than (A) a director, officer, employee or agent of any of the Borrower or a
professional engaged by the Borrower or (B) a Person who is then under an
obligation of nondisclosure (otherwise than as a consequence of a wrongful act
of any Lender or the Agent), (ii) information which any Lender or the Agent had
in its possession prior to receipt thereof from the disclosing party, or (iii)
information received by any Lender or the Agent from a third party having no
obligations of nondisclosure with respect thereto. Nothing contained in this
Section 11.16 shall prevent any disclosure: (x) believed in good faith by any
Lender or the Agent to be required by any law or guideline or interpretation or
application thereof by any Governmental Authority, arbitrator or grand jury
charged with the interpretation or administration thereof or compliance with any
request or directive of any Governmental Authority, arbitrator or grand jury
(whether or not having the force of law), (y) determined by counsel for any
Lender or the Agent to be necessary or advisable in connection with enforcement
or preservation of rights under or in connection with this Agreement or any
other Loan Document or (z) of any information which has been made public by a
Person other than any Lender or the Agent who, to the Agent's or such Lender's
actual knowledge, was then under an obligation of nondisclosure. The Lenders and
the Agent shall have the right to disclose any confidential information
described in this Section 11.16 to an assignee or prospective assignee or to a
participant or prospective participant in Loans hereunder, provided that the
assigning or selling Lender shall have obtained from such assignee or
prospective assignee or participant or prospective participant a written
agreement to hold such information in confidence to the same extent as if it
were a Lender.
Section 11.17. Waiver of Jury Trial. BY ITS EXECUTION AND DELIVERY
OF THIS AGREEMENT, THE AGENT, EACH LENDER, THE GUARANTOR AND THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN
DOCUMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF THE AGENT, THE LENDERS, THE GUARANTOR OR THE BORROWER IN CONNECTION HEREWITH
OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE
LENDERS TO ENTER INTO THIS AGREEMENT.
Section 11.18. Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default any Lender and the Agent may, and is hereby
authorized to, at any time from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower) and to the fullest
extent permitted by law, set off and apply any and all deposits (general or
special, time or demand, provision or final) at any time held and other
indebtedness at any time
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owing by such Lender or the Agent and to or for the credit or the account of the
Borrower against any and all Obligations of the Borrower now or hereafter
existing under the Loan Documents, irrespective of whether or not any Lender and
the Agent shall have made any demand hereunder or thereunder and although such
Obligations may be contingent or unmatured. Each Lender and the Agent agrees
promptly to notify the Borrower after any such setoff and application made by
such Lender or the Agent; provided, however, that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of each Lender and the Agent under this Section 11.18 are in addition to the
other rights and remedies (including, without limitation, other rights of setoff
under applicable law or otherwise) which such Lender or the Agent may have.
Section 11.19. Headings. Section headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
Section 11.20. Periodic Due Diligence Review. The Borrower
acknowledges that the Agent and each Lender have the right to perform continuing
due diligence reviews with respect to the Mortgage Loans, for purposes of
verifying compliance with the representations, warranties and specifications
made hereunder, or otherwise, and the Borrower agrees that on a monthly basis,
the Agent or its authorized representatives (including, without limitation,
Arthur Andersen or any other independent accountants retained by the Agent at
the expense of the Borrower) will be permitted during normal business hours to
examine, inspect, and make copies and extracts of, the Collateral Documents and
any and all documents, records, agreements, instruments or information relating
to such Mortgage Loans in the possession or under the control of the Borrower
and/or the Custodian. The Borrower also shall make available to the Agent a
knowledgeable financial or accounting officer for the purpose of answering
questions respecting the Collateral Documents and the Mortgage Loans. Without
limiting the generality of the foregoing, the Borrower acknowledges that the
Agent and the Lenders may make loans to the Borrower based solely upon the
information provided by the Borrower to the Agent in the Mortgage Loan Schedule
and the representations, warranties and covenants contained herein, and that the
Agent, at its option, has the right at any time to conduct a partial or complete
due diligence review on some or all of the Mortgage Loans securing such Loan,
including without limitation ordering new credit reports and new appraisals on
the related mortgaged properties and otherwise regenerating the information used
to originate such Mortgage Loans. The Agent may underwrite such Mortgage Loans
itself or engage a third party underwriter to perform such underwriting. The
Borrower agrees to cooperate with the Agent and any third party underwriter in
connection with such underwriting, including, but not limited to, providing the
Lender and any third party underwriter with access to any and all documents,
records, agreements, instruments or information relating to such Mortgage Loans
in the possession, or under the control, of the Borrower. The Borrower further
agrees that the Borrower shall reimburse the Agent for any and all reasonable
out-of-pocket costs and expenses incurred by the Agent in connection with the
Agent's activities pursuant to this Section 11.20.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed and delivered as of the day and year first above
written.
BORROWER
CITYSCAPE CORP.,
as debtor and debtor-in-possession
By: /s/ Cheryl P. Carl
----------------------------------------
Name: Cheryl P. Carl
Title: Executive Vice President
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
Attention: Cheryl P. Carl
Telecopier No.: (914) 592-7060
Telephone No.: (914) 784-4343
GUARANTOR
CITYSCAPE FINANCIAL CORP.,
as debtor and debtor-in-possession
By: /s/ Cheryl P. Carl
----------------------------------------
Name: Cheryl P. Carl
Title: Vice President and Secretary
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
Attention: Cheryl P. Carl
Telecopier No.: (914) 592-7060
Telephone No.: (914) 784-4343
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AGENT AND LENDER
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ James Conheeney
----------------------------------------
Name: James Conheeney
Title: Vice President
Address for Notices:
650 CIT Drive
Livingston, New Jersey 07039
Attention: John Fall, Esq.
Telecopier No.: (973) 740-5323
Telephone No.: (973) 740-5494
with copy to
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10017
Attention: Robert Smith
Senior Vice President
Telecopier No.: 212-536-1295
Telephone No.: 212-536-1269
and
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Frederic L. Ragucci, Esq.
Telecopier No.: 212-593-5955
Telephone No.: 212-756-2000
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<PAGE> 99
LENDER
NOMURA ASSET CAPITAL CORPORATION
By: /s/ James K. Lieblich
----------------------------------------
Name: James K. Lieblich
Title: Managing Director
Address for Notices:
2 World Financial Center
Building B
New York, New York 10281-1198
Attention: James K. Lieblich
Managing Director
Telecopier No.: 212-667-1044
Telephone No.: 212-667-2327
with a copy to
Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attention: Jeffrey Schwartz, Esq.
Telecopier No.: 212-594-7167
Telephone No.: 212-736-1000
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SCHEDULE 3.10(7)
ADDITIONAL REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS
Part I. Eligible Residential Mortgage Loans
As to each Mortgage Loan included in the Borrowing Base on the date
of a Loan (and the related Mortgage, Mortgage Note, assignment of mortgage and
mortgaged property), the Borrower shall be deemed to make the following
representations and warranties to the Lender as of such date and as of each date
Collateral Market Value is determined. With respect to any representations and
warranties made to the best of the Borrower's knowledge, in the event that it is
discovered that the circumstances with respect to the related Mortgage Loan are
not accurately reflected in such representation and warranty notwithstanding the
knowledge or lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Loan may, at the option of the Agent, be excluded from the
Borrowing Base or be assigned a Collateral Market Value lower than that set
forth in the Agreement:
(1) Mortgage Loan Schedule. The information set forth on the Mortgage Loan
Schedule with respect to such Eligible Residential Mortgage Loan is true
and correct as of the date of each Loan in all material respects;
(2) Payments Current. As of the Date of each Loan, no payment required under
the Mortgage Loan is delinquent;
(3) No Delinquent Taxes. To the best of the Borrower's knowledge there was no
delinquent tax or assessment lien against any related mortgaged property;
(4) No Defenses. To the best of the Borrower's knowledge, there is no valid
offset, defense or counterclaim to any related Mortgage Note or Mortgage,
including the obligation of the mortgagor to pay the unpaid principal of
or interest on such Mortgage Note;
(5) No Mechanics' Liens. To the best of the Borrower's knowledge, there are no
mechanics' liens or claims for work, labor or material affecting any
related mortgaged property which are or may be a lien prior to, or equal
with, the lien of such Mortgage, except those which are insured against by
the title insurance policy referred to in (8) below;
(6) Mortgaged Property Undamaged. To the best of the Borrower's knowledge,
each related mortgaged property is free of material damage and is in good
repair;
(7) No Modifications. Neither the Borrower nor any prior holder of any related
Mortgage has modified such Mortgage in any material respect (except that
such a Mortgage Loan may have been modified by a written instrument which
has been recorded, if necessary, to protect the interests of the Agent and
which has been delivered to the Custodian); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
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mortgaged property in whole or in part from the lien of such Mortgage
except for the subordination of a Mortgage securing a Mortgage Loan, with
respect to which the related superior lien was released in connection with
the refinancing of the mortgage loan relating to such superior lien; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto except as has been disclosed to Agent
prior to the date of the Loan, in which case a copy of such modification
agreement will have been delivered to the Borrower and the Custodian;
(8) Title Insurance. Except with respect to High LTV Mortgage Loans, a
lender's policy of title insurance together with a condominium
endorsement, if applicable, and extended coverage endorsement and, if
applicable, an adjustable rate mortgage endorsement in an amount at least
equal to the principal balance as of the date of the funding of the
related Loan of each such Eligible Residential Mortgage Loan or a
commitment (binder) to issue the same was effective on the date of the
origination of such Eligible Residential Mortgage Loan, each such policy
is valid and remains in full force and effect, and each such policy was
issued by a title insurer qualified to do business in the jurisdiction
where the related mortgaged property is located and acceptable to FNMA or
FHLMC and in a form acceptable to FNMA or FHLMC, which policy insures the
Borrower and successor owners of indebtedness secured by the insured
related Mortgage, as to the first or second priority lien of such
Mortgage; to the best of the Borrower's knowledge, no claims have been
made under such mortgage title insurance policy and no prior holder of
such Mortgage, including the Borrower, has done, by act or omission,
anything which would impair the coverage of such mortgage title insurance
policy;
(9) Origination. Such Eligible Residential Mortgage Loan was originated by the
Borrower or, if not originated by the Borrower, was purchased by the
Borrower and substantially in accordance with the Underwriting Guidelines
then in effect;
(10) No Encroachments. To the best of the Borrower's knowledge, all of the
improvements which were included for the purpose of determining the
Collateral Market Value of the related mortgaged property lie wholly
within the boundaries and building restriction lines of such property, and
no improvements on adjoining properties encroach upon such mortgaged
property unless the applicable title insurance policy for such mortgaged
property affirmatively insures against loss or damage by reason of any
encroachment that is disclosed or would have been disclosed by an accurate
survey;
(11) Occupancy. To the best of the Borrower's knowledge, no improvement located
on or being part of related mortgaged property is in violation of any
applicable zoning law or regulation. To the best of the Borrower's
knowledge, all inspections, licenses and certificates required to be made
or issued with respect to all occupied portions of such mortgaged property
and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy and fire underwriting certificates,
have been made or obtained from the appropriate authorities and to the
best of the Borrower's knowledge, such mortgaged property was lawfully
occupied under applicable law at origination and is lawfully occupied
under applicable law;
ii
<PAGE> 102
(12) Doing Business. To the best of the Borrower's knowledge, all parties which
have had any interest in any related Mortgage, whether as mortgagee,
assignee, pledgee or otherwise, are (or, during the period in which they
held and disposed of such interest, were) (1) in compliance with any and
all applicable licensing requirements of the laws of the state wherein the
related mortgaged property is located, and (2)(A) organized under the laws
of such state, (B) qualified to do business in such state, (C) federal
savings and loan associations or national banks having principal offices
in such state, or (D) not doing business in such state;
(13) Customary Provisions. The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the holder
thereof adequate for the realization against the related mortgaged
property of the benefits of the security, including, (i) if such Mortgage
is designated as a deed of trust, by trustee's sale and (ii) otherwise by
judicial foreclosure;
(14) Deeds of Trust. With respect to any related Mortgage constituting a deed
of trust, a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in such
Mortgage, and no fees or expenses are or will become payable by, the Agent
to the trustee under the deed of trust, except in connection with a
trustees sale after default by the related mortgagor;
(15) Form of Documents. The related Mortgage Note and the related Mortgage is
in substantially the form attached as Exhibit M hereto with such revisions
as are necessary to comply with applicable state law;
(16) Collection Practices. The collection practices used by the Borrower with
respect to such Eligible Residential Mortgage Loan have been in all
respects legal, proper, prudent and customary in the mortgage lending and
servicing business with respect to mortgage loans similar to such Eligible
Residential Mortgage Loan;
(17) No Additional Collateral. The related Mortgage Note is not secured by any
collateral, pledged account or other security except for the lien of the
related Mortgage and certain personalty relating thereto or a third party
guaranty;
(18) No Shared Appreciation; No Contingent Interests. Such Eligible Residential
Mortgage Loan does not have a shared appreciation feature, or other
contingent interest feature;
(19) Due on Sale. Such Eligible Residential Mortgage Loan contains a
"due-on-sale" clause unless prohibited by applicable law;
(20) No Condemnation. To the best of the Borrower's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation of
the related mortgaged property, nor is such a proceeding currently
occurring, and such property is undamaged by waste, fire, earthquake or
earth movement except for normal wear and tear;
iii
<PAGE> 103
(21) Type of Mortgaged Property. The related mortgaged property is improved by
a one to four-family residential dwelling, including condominium units,
dwelling units in "PUDs" or planned unit developments and manufactured
housing, which, to the best of the Borrower's knowledge, does not include
cooperatives and does not constitute other than real property or
personalty related to the mortgaged property under state law;
(22) Servicing. Unless otherwise specified in the related Notice of Borrowing,
each Eligible Residential Mortgage Loan is being serviced by the Borrower;
(23) No Future Advances. There is no obligation on the part of the Borrower or
any other party under the terms of the related Mortgage or related
Mortgage Note to make payments in addition to those made to the related
Mortgagor;
(24) Consolidation of Future Advances. Any future advances made prior to the
funding date of the related Loan have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the
secured principal amount, as consolidated, bears a single interest rate
and single repayment term reflected on the Mortgage Loan Schedule. The
consolidated principal amount does not exceed the original principal
amount of such Eligible Residential Mortgage Loan. The related Mortgage
Note does not permit or obligate the Borrower to make future advances to
the related Mortgagor at the option of the Mortgagor;
(25) No Assessments. To the best of the Borrower's knowledge, there are no
defaults in complying with the terms of the Mortgage that would have a
material adverse effect on the value of the related Mortgage Loan, and all
taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents that would have a
material adverse effect on the value of the related Mortgage Loan which
previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid. The Borrower has not advanced funds, or induced, solicited
or knowingly received any advance of funds by a party other than the
related Mortgagor, directly or indirectly, for the payment of any amount
required by the related Mortgage except for (A) payments in the nature of
escrow payments, including without limitation, taxes and insurance
payments, and (B) interest accruing from the date of the related Mortgage
Note or date of disbursement of the related Mortgage proceeds, whichever
is later, to the day which precedes by one month the due date of the first
installment of principal and interest;
(26) Application of Proceeds. All amounts received with respect to such
Eligible Residential Mortgage Loan to which the Agent is entitled have
been transferred to the Agent;
(27) Underwriting. Such Eligible Residential Mortgage Loan was underwritten in
accordance with the Borrower's underwriting guidelines no less stringent
than the Underwriting Guidelines; provided, however, that from time to
time the Borrower may propose reasonable changes to such Underwriting
Guidelines and, in the case of any material changes to such Underwriting
Guidelines, with Agent's written consent thereto, may materially amend
such Underwriting Guidelines;
iv
<PAGE> 104
(28) Appraisal. Except with respect to High LTV Mortgage Loans, the related
Mortgage File (as defined in the Custodian Agreement) contains an
appraisal of the related mortgaged property signed by an appraiser which
meets the minimum FNMA or FHLMC requisite qualifications for appraisers,
duly appointed by the originator, who had no interest, direct or indirect
in the related mortgaged property or in any loan made on the security
thereof, and whose compensation is not affected by the approval or
disapproval of such Eligible Residential Mortgage Loan; the appraisal is
in a form acceptable to FNMA and FHLMC, with such riders as are acceptable
to FNMA or FHLMC, as the case may be, and satisfies the requirements of
the Financial Institutions Reform, Recovery and Enforcement Act of 1989;
(29) No Graduated Payments; No Buydowns: No Convertible Mortgage Assets. Unless
otherwise specified in the related Notice of Borrowing, such Eligible
Residential Mortgage Loan is not a graduated payment mortgage loan or a
growing equity mortgage loan, nor is such Eligible Residential Mortgage
Loan subject to a temporary buydown or similar arrangement. If the
Eligible Residential Mortgage Loan has an adjustable rate, it is not
convertible at the option of the related mortgagor to a fixed rate
mortgage loan;
(30) Environmental Matters. To the best of Borrower's knowledge at origination
either (i) the related mortgaged property was not located within a 1 mile
radius of any site with environmental or hazardous waste of which the
Borrower had actual knowledge, or (ii) as to any related mortgaged
property located within a 1 mile radius of any site as to which the
Borrower has actual knowledge of environmental or hazardous waste, the
related Eligible Residential Mortgage Loan was reviewed in accordance with
the Borrower's established environmental review procedures; and
(31) No Fraud. To the best of the Borrower's knowledge, no error, omission,
misrepresentation, negligence, fraud or similar action occurred on the
part of any person in connection with the origination of any Eligible
Residential Mortgage Loan.
v
<PAGE> 105
Part II. Eligible Home Equity Mortgage Loans
As to each Home Equity Mortgage Loans included in the Borrowing Base
on the date of a Loan (and the related Mortgage, Mortgage Note, assignment of
mortgage and mortgaged property), the Borrower shall be deemed to make the
following representations and warranties to the Lender as of such date and as of
each date Collateral Market Value is determined (in addition to the
representations and warranties set forth in Part I of this Schedule 3.10(7)).
With respect to any representations and warranties made to the best of the
Borrower's knowledge, in the event that it is discovered that the circumstances
with respect to the related Mortgage Loan are not accurately reflected in such
representation and warranty notwithstanding the knowledge or lack of knowledge
of the Borrower, then, notwithstanding that such representation and warranty is
made to the best of the Borrower's knowledge, such Mortgage Loan may, at the
option of the Agent, be excluded from the Borrowing Base or be assigned a
Collateral Market Value lower than that set forth in the Agreement:
Conformance With Underwriting Guidelines. Borrower represents
and warrants to the Agent and the Lenders with respect to each Home
Equity Mortgage Loan consisting of an interest in a residential
property in a pool of Eligible Residential Mortgage Loan that each
such Eligible Residential Mortgage Loan shall have been originated
in conformity with and meets, as of the date of the related Loan,
underwriting guidelines no less stringent than the Underwriting
Guidelines; provided, however, that from time to time the Borrower
may propose reasonable changes to such Underwriting Guidelines and,
in the case of the material changes to the Underwriting Guidelines,
with Agent's written consent thereto, may materially amend such
Underwriting Guidelines.
vi
<PAGE> 106
Schedule 1.01(A)
Lenders and Lenders' Commitments
During the period while the Interim Order is in effect:
<TABLE>
<CAPTION>
Lender Commitment Percentage
------ ---------- ----------
<S> <C> <C>
The CIT Group/Equipment $ 25,000,000 50%
------------
Financing, Inc.
Nomura Asset Capital Corporation $ 25,000,000 50%
============ ===
$ 50,000,000 100%
------------ -------
</TABLE>
During the period following the effective date of the Final Order:
<TABLE>
<CAPTION>
Lender Commitment Percentage
------ ---------- ----------
<S> <C> <C>
The CIT Group/Equipment $ 75,000,000 50%
Financing, Inc.
Nomura Asset Capital Corporation $ 75,000,000 50%
============ ===
$150,000,000 100%
</TABLE>
<PAGE> 1
Exhibit 11.1 CITYSCAPE FINANCIAL CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations ($ 46,559,664) ($ 47,371,328) ($133,630,551) ($ 32,410,967)
Preferred stock dividends (2,436,488) (1,035,315) (6,097,567) (2,102,189)
Preferred stock default payments (5,792,899) -- (13,615,115) --
------------- ------------- ------------- -------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK (54,789,051) (48,406,643) (153,343,233) (34,513,156)
Earnings (loss) from discontinued operations -- (22,271,374) -- (16,425,467)
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK ($ 54,789,051) ($ 70,678,017) ($153,343,233) ($ 50,938,623)
------------- ------------- ------------- -------------
ADJUSTMENT TO NET EARNINGS (LOSS):
Add: After-tax interest expense from Convertible
Debentures -- -- -- --
Preferred stock dividends -- -- -- --
------------- ------------- ------------- -------------
TOTAL ADJUSTMENTS -- -- -- --
------------- ------------- ------------- -------------
Earnings (loss) applicable to common stock ($ 54,789,051) ($ 48,406,643) ($153,343,233) ($ 34,513,156)
Earnings (loss) from discontinued operations -- (22,271,374) -- (16,425,467)
------------- ------------- ------------- -------------
ADJUSTED NET EARNINGS (LOSS) APPLICABLE TO COMMON
STOCK ($ 54,789,051) ($ 70,678,017) ($153,343,233) ($ 50,938,623)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES 64,878,969 32,346,059 56,566,295 30,936,205
Effect of dilutive securities:
Warrants -- -- -- --
Stock options -- -- -- --
Convertible preferred stock -- -- -- --
Convertible Debentures -- -- -- --
------------- ------------- ------------- -------------
ADJUSTED WEIGHTED AVERAGE COMMON SHARES 64,878,969 32,346,059 56,566,295 30,936,205
============= ============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE: (1)
BASIC
Continuing operations ($0.84) ($1.50) ($2.71) ($1.12)
Discontinued operations -- (0.69) -- (0.53)
------------- ------------- ------------- -------------
NET (LOSS) EARNINGS ($0.84) ($2.19) ($2.71) ($1.65)
============= ============= ============= =============
DILUTED
Continuing operations ($0.84) ($1.50) ($2.71) ($1.12)
Discontinued operations -- (0.69) -- (0.53)
------------- ------------- ------------- -------------
NET (LOSS) EARNINGS ($0.84) ($2.19) ($2.71) ($1.65)
============= ============= ============= =============
</TABLE>
(1) For the three and nine months ended September 30, 1998 and 1997, the
incremental shares from assumed conversions are not included in computing
the diluted share amounts because their effect would be antidilutive since
an increase in the number of shares would reduce the amount of loss per
share. Therefore, basic and diluted EPS figures are the same amount.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,839,839
<SECURITIES> 76,586,673
<RECEIVABLES> 7,461,648
<ALLOWANCES> 0
<INVENTORY> 124,090,229
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,092,726
<DEPRECIATION> 4,568,121
<TOTAL-ASSETS> 305,967,780
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 429,620,000
0
52
<COMMON> 649,489
<OTHER-SE> (311,105,098)
<TOTAL-LIABILITY-AND-EQUITY> 305,967,780
<SALES> 0
<TOTAL-REVENUES> (12,067,454)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 77,816,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,280,304
<INCOME-PRETAX> (133,164,425)
<INCOME-TAX> 466,126
<INCOME-CONTINUING> (133,630,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,343,233)<F2>
<EPS-PRIMARY> (2.71)
<EPS-DILUTED> (2.71)
<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>
