<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 JUNE 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.
DELAWARE 11-2994671
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 AUGUST 3, 1998
<PAGE> 2
CITYSCAPE FINANCIAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition at June 30, 1998 and
December 31, 1997 2
Consolidated Statements of Operations for the three months and
the six months ended June 30, 1998 and 1997 3
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1997 4
Notes to Consolidated Financial Statements 5-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12-28
PART II - OTHER INFORMATION 29-34
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 35,500,425 $ 2,594,163
Cash held in escrow 15,964,358 24,207,517
Mortgage servicing receivables 6,501,873 9,524,535
Trading securities 84,720,318 126,475,656
Mortgage loans held for sale, net 102,360,038 93,290,024
Mortgages held for investment, net 7,656,606 6,530,737
Equipment and leasehold improvements, net 5,261,266 6,058,206
Investment in discontinued operations, net 25,423,417 84,232,000
Income taxes receivable 18,376,574 18,376,574
Other assets 28,557,908 27,267,770
------------- -------------
Total assets $ 330,322,783 $ 398,557,182
============= =============
LIABILITIES
Warehouse financing facilities $ 91,145,833 $ 77,479,007
Accounts payable and other liabilities 64,244,916 63,427,810
Allowance for losses 6,501,872 4,555,373
Income taxes payable 2,706,057 300,000
Notes and loans payable 300,000,000 300,000,000
Convertible subordinated debentures 129,620,000 129,620,000
------------- -------------
Total liabilities 594,218,678 575,382,190
------------- -------------
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,
$6,716,481; Series B Preferred Stock, $57,320,619 at June 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 June 30, 1998 and December 31, 1997 649,489 476,487
Treasury stock, 70,000 shares at June 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) (439,674,539) (352,603,652)
------------- -------------
Total stockholders' equity (deficit) (263,895,895) (176,825,008)
------------- -------------
COMMITMENTS AND CONTINGENCIES
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 330,322,783 $ 398,557,182
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Gain (loss) on sale of loans $ 3,122,835 $ 34,980,579 $ (1,302,212) $ 61,756,169
Net unrealized loss on valuation of residuals (11,386,803) -- (18,486,803) --
Interest 2,884,477 16,413,954 6,086,405 34,109,177
Mortgage origination income 554,018 1,430,140 1,453,326 2,214,270
Other 266,306 1,912,886 499,318 2,207,326
------------ ------------ ------------ ------------
Total revenues (4,559,167) 54,737,559 (11,749,966) 100,286,942
------------ ------------ ------------ ------------
Expenses
Salaries and employee benefits 7,534,494 10,749,513 17,306,373 21,505,757
Interest expense 13,972,347 20,028,264 28,153,877 35,653,532
Selling expenses 1,022,648 848,564 1,992,551 1,495,462
Other operating expenses 8,649,832 7,908,817 24,334,301 14,282,162
Restructuring charge -- -- 3,233,760 --
------------ ------------ ------------ ------------
Total expenses 31,179,321 39,535,158 75,020,862 72,936,913
------------ ------------ ------------ ------------
(Loss) earnings from continuing operations
before income taxes (35,738,488) 15,202,401 (86,770,828) 27,350,029
Income tax provision 150,000 7,728,135 300,059 12,389,668
------------ ------------ ------------ ------------
(Loss) earnings from continuing operations (35,888,488) 7,474,266 (87,070,887) 14,960,361
Discontinued operations:
(Loss) earnings from discontinued operations, net of
income tax (benefit) provision of ($2,287,489) and
$4,247,505 for the three and six months ended June 30,
1997 and net of extraordinary item of $425,000 -- (3,462,789) -- 5,845,907
------------ ------------ ------------ ------------
Net (loss) earnings (35,888,488) 4,011,477 (87,070,887) 20,806,268
Preferred stock dividends - increase in liquidation
preference 2,090,723 1,066,874 3,661,079 1,066,874
Preferred stock - default payments 4,805,442 -- 7,822,216 --
------------ ------------ ------------ ------------
Net (loss) earnings applicable to common stock $(42,784,653) $ 2,944,603 $(98,554,182) $ 19,739,394
============ ============ ============ ============
Earnings (loss) per common share:
Basic
(Loss) earnings from continuing operations $ (0.75) $ 0.21 $ (1.88) $ 0.46
(Loss) earnings from discontinued operations -- (0.11) -- 0.19
------------ ------------ ------------ ------------
Net (loss) earnings $ (0.75) $ 0.10 $ (1.88) $ 0.65
============ ============ ============ ============
Diluted
(Loss) earnings from continuing operations $ (0.75) $ 0.20 $ (1.88) $ 0.44
(Loss) earnings from discontinued operations -- (0.11) -- 0.19
------------ ------------ ------------ ------------
Net (loss) earnings $ (0.75)(1) $ 0.09(2) $ (1.88)(1) $ 0.63(2)
============ ============ ============ ============
Weighted average number of common shares
outstanding:
Basic 57,051,065 30,718,839 52,341,068 30,224,293
============ ============ ============ ============
Diluted 57,051,065(1) 31,703,725(2) 52,341,068(1) 31,258,535(2)
============ ============ ============ ============
</TABLE>
(1) For the three months and six months ended June 30, 1998, 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.
(2) For the three months and six months ended June 30, 1997, Convertible
Debentures and convertible preferred stock are antidilutive and are not
included in the computation of diluted EPS. Earnings from continuing
operations is used as the "control number" in determining whether these
potential common shares are dilutive or antidilutive.
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
(Loss) earnings from continuing operations $ (87,070,887) $ 14,960,361
Adjustments to reconcile net (loss) earnings from continuing
operations to net cash used in continuing operating activities:
Depreciation and amortization 1,365,012 650,121
Income taxes payable 2,406,057 7,082,512
Increase in accounts receivable and due from broker for
securities transactions (687,447) (107,809,096)
Decrease in mortgage servicing receivables 4,969,162 11,600,812
Decrease (increase) in trading securities 41,755,338 (105,865,201)
Net purchases of securities under agreements to resell -- 154,176,608
Proceeds from securities sold but not yet purchased -- (47,555,851)
Proceeds from sale of mortgages 298,107,000 829,851,541
Mortgage origination funds disbursed (315,435,183) (838,082,300)
Other, net 12,592,492 17,153,513
------------- -------------
Net cash used in continuing operating activities (41,998,456) (63,836,980)
------------- -------------
Net cash used in discontinued operating activities -- (86,542,305)
------------- -------------
Net cash used in operating activities (41,998,456) (150,379,285)
------------- -------------
Cash flows from investing activities:
Sale from discontinued operations, net 58,808,583 --
Purchases of equipment (568,073) (3,568,854)
Proceeds from equipment sale and lease-back financing -- 1,516,983
Proceeds from sale of available-for-sale securities -- 838,622
Proceeds from sale of mortgages held for investment 2,997,382 --
------------- -------------
Net cash provided by (used in) investing activities 61,237,892 (1,213,249)
------------- -------------
Cash flows from financing activities:
Increase (decrease) in warehouse financings 13,666,826 (20,752,569)
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 -- 49,249,950
Net proceeds from issuance of common stock -- 221,280
Net proceeds from issuance of Notes -- 290,758,908
------------- -------------
Net cash provided by financing activities 13,666,826 199,105,434
------------- -------------
Net increase in cash and cash equivalents 32,906,262 47,512,900
Cash and cash equivalents at beginning of period 2,594,163 446,285
------------- -------------
Cash and cash equivalents at end of period $ 35,500,425 $ 47,959,185
============= =============
Supplemental disclosure of cash flow information:
Income taxes paid during the period:
Continuing operations $ 1,200 $ 4,783,796
============= =============
Discontinued operations $ -- $ --
============= =============
Interest paid during the period:
Continuing operations $ 3,566,045 $ 23,208,810
============= =============
Discontinued operations $ -- $ 441,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
CITYSCAPE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 47 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 six months ended June 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 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 Company's operations for 1997 and the first six months of 1998
have consumed substantial amounts of cash and have generated significant net
losses which have reduced stockholders' equity to a deficit of $263.9 million at
June 30, 1998. The Company is unable to access the capital markets, which
negatively affects profitability, as well as liquidity. The profitability of the
Company has been and will be adversely affected due to an inability to sell its
loan production through securitizations. Furthermore, many of the loan products
previously offered by the Company have been discontinued, and the Company
anticipates that its revenues will be substantially lower in 1998 than in 1997.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management believes that the Company's future success is
dependent upon its ability to (i) streamline its operations, (ii) successfully
sell loans in the whole loan sales market, (iii) restructure its balance sheet
(see Note 3), (iv) access warehouse lines of credit and (v) retain an adequate
number and mix of its employees. The Company has begun reducing costs and has
expanded its secondary marketing and sales efforts to pursue whole loan sales
opportunities. The Company has also investigated a variety of alternatives for
reorganization and 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 Note 3). The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
The consolidated 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
5
<PAGE> 7
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.
3. Restructuring/Reorganization
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 interest 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 has 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 agreements in principle with both groups on the terms of a plan of
reorganization (the "Plan").
In summary, the Plan, if accepted by certain classes of creditors whose
votes will be solicited and, if confirmed by a 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, at the reorganized company's option, in kind); (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
(provided that the class of Convertible Debentureholders votes to accept the
Plan) 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) provided that (a) the applicable class of holders of
Preferred Stock (as defined below) votes to accept the Plan, and (b) no class
senior to such class votes (or is deemed to have voted) to reject the Plan,
holders of Preferred Stock would receive in exchange for their interests in the
Company, in the aggregate, warrants to purchase common stock representing 10% of
the new common stock of the reorganized company on a fully diluted basis, with
10.5% of such warrants going to holders of Series A Preferred Stock (as defined
below) and 89.5% of such warrants going to holders of Series B Preferred Stock
(as defined below), all of which warrants would be exercisable if and when the
enterprise value of the reorganized company reached $430 million; and (iv)
existing Common Stock (as defined below) and warrants of the Company would be
extinguished and holders thereof would receive no distributions under the Plan.
The Company is currently preparing documentation to reflect the terms
of the Plan and to solicit acceptances of the Plan from holders of Notes,
Convertible Debentures, Series A Preferred Stock and Series B Preferred Stock.
The Company expects to be in a position to commence such solicitation shortly
and anticipates that such solicitation will be conducted over a period of
approximately one month. Immediately following the completion of the
solicitation, assuming the requisite acceptances by certain classes of creditors
are obtained, the Company and CSC expect to commence cases under chapter 11 of
the Bankruptcy Code. Upon such filing, the Company intends to ask the bankruptcy
court to set a hearing on confirmation of the Plan as expeditiously as possible,
which the Company anticipates to be one to two months following the commencement
of the chapter 11 cases. Notwithstanding the foregoing, there can be no
assurance that the Company will be in a position to commence the chapter 11
proceedings as expeditiously as contemplated; that requisite acceptances of the
Plan will be obtained; that the terms of the Plan will not change; that the
bankruptcy court, if and when chapter 11 proceedings are commenced, will confirm
the Plan (whether or not requisite acceptances are obtained) within the
anticipated time frame or at all; or that the Plan will be consummated (even if
it is confirmed). Furthermore, even if the Company is successful in implementing
the Plan or any of its other strategic alternatives and initiatives, no
assurance can be given as to the effect of any such success on the Company's
results of operations or financial condition.
In connection with the Company's restructuring efforts, the Company has
deferred the June 1, 1998 and May 1, 1998 interest payments on its Notes and
Convertible Debentures, respectively. The
6
<PAGE> 8
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.
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 June 30, 1998, the Company's net investment in discontinued
operations totaled $25.4 million, representing cash on hand in the discontinued
operation of approximately $16.4 million and net receivables (net of
liabilities) due of approximately $9.0 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 June 30, 1998,
there were liabilities related to the discontinued operations of approximately
$1.4 million 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,
recently received a letter for 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.
6. Earnings Per Share
7
<PAGE> 9
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 six months ended June 30, 1998 and
1997 is as follows:
8
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
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 ($35,888,488) $7,474,266
Less: Preferred stock dividends 2,090,723 1,066,874
Preferred stock -default payments 4,805,442 --
------------ ----------
BASIC EPS
Earnings (loss) applicable to
common stock (42,784,653) 57,051,065 $ (0.75) 6,407,392 30,718,839 $ 0.21
============= =============
EFFECT OF DILUTIVE SECURITIES
Warrants -- --
Stock options -- 984,886
Convertible preferred stock- -- --
Convertible Debentures -- --
------------ ---------- ---------- ----------
DILUTED EPS
Earnings (loss) applicable to
common stock+
assumed conversions ($42,784,653) 57,051,065 $ (0.75) $6,407,392 31,703,725 $ 0.20
============ ========== ============= ========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------------------------------------------------------
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 ($87,070,887) $14,960,361
Less: Preferred stock dividends 3,661,079 1,066,874
Preferred stock - default payments 7,822,216 --
------------ -----------
BASIC EPS
Earnings (loss) applicable to
common stock (98,554,182) 52,341,068 $ (1.88) 13,893,487 30,224,293 $ 0.46
============= =============
EFFECT OF DILUTIVE SECURITIES
Warrants - -
Stock options - 1,034,242
Convertible preferred stock - -
Convertible Debentures - -
------------ ----------- ----------- ----------
DILUTED EPS
Earnings (loss) applicable to
common stock +
assumed conversions ($98,554,182) 52,341,068 $ (1.88) $13,893,487 31,258,535 $ 0.44
============ =========== ============= =========== ========== =============
</TABLE>
For the three and six months ended June 30, 1998, 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 June 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"). For the three months and six months ended
June 30, 1997, the Convertible Debentures and Series A Preferred Stock are
antidilutive and are not included in the computation of diluted EPS.
7. Streamlining and Downsizing
9
<PAGE> 11
In February 1998, the Company announced that it has 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 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 June 30,
1998, the Company had available a reserve of $2.2 million for these
restructuring charges.
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 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>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Home Equity $ 31,661,052 $ 75,216,390
Sav*-A-Loan(R) 53,059,266 51,259,266
------------ ------------
$ 84,720,318 $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.
For the periods ended June 30, 1998 and December 31, 1997, the
assumptions used to value the Sav*-A-Loan(R) trading securities included a
weighted average discount rate of 15%, a weighted average loss rate of 3.3% and
a weighted average constant prepayment speed of 16.8%.
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
10
<PAGE> 12
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 income (loss) for the three months ended June
30, 1998 and 1997 was ($42.8) million and $5.1 million, respectively. Total
comprehensive income (loss) for the six months ended June 30, 1998 and 1997 was
($98.6) million and $15.7 million, respectively. For the three months ended June
30, 1997, comprehensive income represented net income of $2.9 million and other
comprehensive income of $2.2 million. For the six months ended June 30, 1997,
comprehensive income represented net income of $19.7 million and other
comprehensive income (loss) of ($4.1) million. The table below details the
comprehensive income for the three and six months ended June 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
-----------------------------------------
Tax Benefit/
Before Tax (Provision) After Tax
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized holding losses $ (316,675) $ 160,966 $ (155,709)
Foreign currency translation 4,751,023 (2,414,945) 2,336,078
----------- ----------- -----------
$ 4,434,348 $(2,253,979) $ 2,180,369
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
-----------------------------------------
Before Tax Tax Benefit After Tax
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized holding losses $(2,446,561) $ 1,243,587 $(1,202,974)
Foreign currency translation (5,802,918) 2,949,623 (2,853,295)
----------- ----------- -----------
$(8,249,479) $ 4,193,210 $(4,056,269)
=========== =========== ===========
</TABLE>
10. Subsequent Events
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 and 1996-3 home equity securitizations, the
Company has been in ongoing discussions regarding the servicing of the related
loans with Financial Security Assurance Inc. and Financial Guaranty Insurance
Company, certificate insurers under such securitizations. As a result of these
discussions, the Company entered into subservicing agreements (which became
effective on August 1, 1998) with respect to such loans with Fairbanks Capital
Corp. As of June 30, 1998, the outstanding amount of such loans was $462.6
million or 33.4% of the servicing portfolio. The Company expects to enter into a
similar subservicing agreement for its 1996-4 home equity securitization which,
as of June 30, 1998, has approximately $146.3 million of loans outstanding. The
total of these transfers would represent, as of June 30, 1998, approximately
44.0% of the total servicing portfolio and 90.1% of the Company's home equity
securitized loans. As a result of the significant reduction of the Company's
servicing portfolio, the Company expects to restructure its servicing operations
and incur costs of approximately $500,000 and record such charge during the
third quarter of 1998.
11
<PAGE> 13
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 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 47 states and the District of Columbia.
For the last several months, 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 market price of the
Common Stock has fallen from a high during the first quarter of 1997 of $32.00
to a low during the second quarter of 1998 of $0.02. The Company's operations
for 1997 and the first six months of 1998 have consumed substantial amounts of
cash and have generated significant net losses, which have reduced stockholders'
equity to a deficit of $263.9 million at June 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 prior
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 due to 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. 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 its ability to (i) access loan warehouse or purchase facilities, (ii)
successfully sell loans in the whole loan sales market, (iii) restructure its
balance sheet (see "--Restructuring/Reorganization"), (iv) streamline its
operations and (v) retain an adequate number and mix of its employees. The
Company has also investigated a variety of alternatives for reorganization and
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 "--Restructuring/Reorganization." 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
12
<PAGE> 14
the value of the Convertible Debentures or a severe or complete impairment of
the value of the 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
"--Restructuring/Reorganization." 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.
RESTRUCTURING/REORGANIZATION
The Company has announced a number of initiatives and the
exploration of strategic alternatives. These initiatives include the disposal of
loans through whole loan sales and increased focus on the Company's higher
margin product lines. The Company has announced a restructuring plan that
includes streamlining and downsizing its operations. The Company has reduced its
workforce and has closed its branch operation in Virginia, significantly reduced
its correspondent originations for the foreseeable future and exited its
conventional lending business. Accordingly, the Company has recorded a
restructuring charge during the first quarter of 1998 of $3.2 million. At June
30, 1998, the Company had available a reserve of $2.2 million for these
restructuring charges. In addition, 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. Additionally, 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 has retained CIBC Oppenheimer Corp. and Jay
Alix & Associates to explore strategic alternatives. 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 interest 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 has 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 agreements in principle with both groups on
the terms of the Plan.
In summary, the Plan, if accepted by certain classes of creditors
whose votes will be solicited, and if confirmed by a 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, at the reorganized company's option, in kind);
(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 (provided that the class of Convertible Debentureholders votes to
accept the Plan) 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) provided that (a) the applicable
class of holders of Preferred Stock votes to accept the Plan, and (b) no class
senior to such class votes (or is deemed to have voted) to reject the Plan,
holders of Preferred Stock would receive in exchange for their interests in the
Company, in the aggregate, warrants to purchase common stock representing 10% of
the new common stock of the reorganized company on a fully diluted basis, with
10.5% of such warrants going to holders of Series A Preferred Stock and 89.5% of
such warrants going to holders of Series B Preferred Stock, all of which
warrants would be exercisable if and when the enterprise value of the
reorganized company reached $430 million; and (iv) existing Common Stock and
warrants of the Company would be extinguished and holders thereof would receive
no distributions under the Plan.
The Company is currently preparing documentation to reflect the
terms of the Plan and to solicit acceptances of the Plan from holders of Notes,
Convertible Debentures, Series A Preferred Stock and Series B Preferred Stock.
The Company expects to be in a position to commence such solicitation shortly
and anticipates that such solicitation will be conducted over a period of
approximately one month. Immediately following the completion of the
solicitation, assuming the requisite acceptances by certain classes of creditors
are obtained, the Company and CSC expect to commence cases under chapter 11 of
the
13
<PAGE> 15
Bankruptcy Code. Upon such filing, the Company intends to ask the bankruptcy
court to set a hearing on confirmation of the Plan as expeditiously as possible,
which the Company anticipates to be one to two months following the commencement
of the chapter 11 cases. Notwithstanding the foregoing, there can be no
assurance that the Company will be in a position to commence the chapter 11
proceedings as expeditiously as contemplated; that requisite acceptances of the
Plan will be obtained; that the terms of the Plan will not change; that the
bankruptcy court, if and when chapter 11 proceedings are commenced, will confirm
the Plan (whether or not requisite acceptances are obtained) within the
anticipated time frame or at all; or that the Plan will be consummated (even if
it is confirmed). Furthermore, even if the Company is successful in implementing
the Plan or any of its other strategic alternatives and initiatives, no
assurance can be given as to the effect of any such success on the Company's
results of operations or financial condition.
In connection with the Company's restructuring efforts, the Company
has 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 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 classified 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 June 30, 1998, the Company's net investment in discontinued
operations totaled $25.4 million, representing cash on hand in the discontinued
operation of approximately $16.4 million and net receivables due (net of
liabilities) of approximately $9.0 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 June 30, 1998,
there were liabilities related to the discontinued operations of approximately
$1.4 million 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,
recently 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.
14
<PAGE> 16
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. See Part II, Item 1 for this 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 August 3, 1998, primarily as a result
of such conversions. As of August 3, 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
August 3, 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 chapter 11 cases for the Company and CSC are
commenced and the Plan is confirmed by the bankruptcy court and consummated,
existing Common Stock and related warrants would be extinguished and the holders
thereof would receive no distributions under the Plan. See
"--Restructuring/Reorganization."
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 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.
15
<PAGE> 17
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 recently
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. Due to additional attrition, however, the
Company's workforce was reduced to 507 employees as of June 30, 1998. 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.
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. Recently, 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 six months of
1998, all loans were sold through whole loan sales as compared to the first six
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, will negatively impact the Company's earnings.
Gain on sale of loans through securitizations includes the present
value of the differential between the interest rate payable by an obligor on a
loan over the interest rate passed through to the purchaser acquiring an
interest in such loan, less applicable recurring fees, including the costs of
credit enhancements and trustee fees. For the three and six months ended June
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 which are
reflected as trading securities.
The following table sets forth selected operating data for the
Company for the periods indicated:
16
<PAGE> 18
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Origination and Sale Data:
Loan originations and purchases:
Core Products(1) $ 51,314 $ 222,299 $ 132,340 $ 453,346
Sav*-A-Loan(R) Products(2) 77,703 191,017 176,022 330,928
Discontinued Products(3) -- 39,643 4,336 56,754
---------- ---------- ---------- ----------
$ 129,017 $ 452,959 $ 312,698 $ 841,028
========== ========== ========== ==========
Average principal balance per loan
originated and purchased $ 51.8 $ 55.2 $ 52.1 $ 55.4
Weighted average coupon:
Core Products:
Fixed rate loans 10.0% 11.7% 10.1% 11.7%
Variable rate loans 9.0% 10.4% 9.2% 10.4%
Sav*-A-Loan(R) Products 12.9% 14.1% 13.0% 14.1%
Discontinued Products -- 9.3% 9.0% 9.9%
Loans sold $ 46,874 $ 456,633 $ 298,107 $ 829,851
</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 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.
(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:
17
<PAGE> 19
<TABLE>
<CAPTION>
As of June 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) $1,384,775 100.0% $2,231,519 100.0%
========== ===== ========== =====
Delinquencies:
30-59 days delinquent $ 39,318 2.8% $ 65,063 2.9%
60-89 days delinquent 17,665 1.3% 30,479 1.4%
90 days or more delinquent 23,154 1.7% 27,808 1.3%
---------- ----- ---------- -----
Total delinquencies $ 80,137 5.8% $ 123,350 5.6%
========== ===== ========== =====
Defaults:
Bankruptcies $ 31,087 2.2% $ 25,131 1.1%
Foreclosures 89,089 6.4% 100,901 4.5%
---------- ----- ---------- -----
Total defaults $ 120,176 8.7% $ 126,032 5.6%
========== ===== ========== =====
REO property $ 14,793 1.1% $ 8,549 0.4%
========== ===== ========== =====
Charge-offs $ 13,265 1.0% $ 4,734 0.2%
========== ===== ========== =====
</TABLE>
(1) Excludes loans serviced pursuant to contract servicing agreements.
As of June 30, 1998, the servicing portfolio decreased to $1.4
billion 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 six 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 the subservicing of loans as discussed below, and loan prepayments and
defaults on existing loans, the Company anticipates that the size of the
servicing portfolio will substantially decrease in the future.
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 and 1996-3 home equity securitizations, the
Company has been in ongoing discussions regarding the servicing of the related
loans with Financial Security Assurance Inc. and Financial Guaranty Insurance
Company, certificate insurers under such securitizations. As a result of these
discussions, the Company entered into subservicing agreements (which became
effective on August 1, 1998) with respect to such loans with Fairbanks Capital
Corp. As of June 30, 1998, the outstanding amount of such loans was $462.6
million or 33.4% of the servicing portfolio. The Company expects to enter into a
similar subservicing agreement for its 1996-4 home equity securitization which,
as of June 30, 1998, has approximately $146.3 million of loans outstanding. The
total of these transfers would represent, as of June 30, 1998, approximately
44.0% of the total servicing portfolio and 90.1% of the Company's home equity
securitized loans. As a result of the significant reduction of the Company's
servicing portfolio, the Company expects to restructure its servicing operations
and incur costs of approximately $500,000 and record such charge during the
third quarter of 1998.
IMPACT OF YEAR 2000
As described in its 1997 Annual Report on Form 10-K, the Company's
information systems are networked and client server based. The Company believes
that all of its information processing infrastructure, from the desktop
computers to the servers including the network, desktop and applications server
operating systems are Year 2000 compliant. 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
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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 compliance. If such compliance is not
achieved in a timely manner, the Year 2000 issue could have a material adverse
effect on the servicing operations conducted by the Company.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
During the three months ended June 30, 1998, the Company recorded
negative revenues of $4.6 million primarily as a result of the recording of a
$11.4 million net unrealized loss on the Company's trading securities. This
represents a $59.3 million decrease from the three months ended June 30, 1997
primarily as a result of the lower gain recorded on its sale of loans and the
net unrealized loss on the Company's trading securities.
For the three months ended June 30, 1998, the Company recorded a
gain on sale of loans totaling $3.1 million. This gain was primarily due to the
sale of $46.9 million of whole loans at an average net premium received of 2.6%
as compared to the average premium paid on such loans of 1.1%. Additionally,
included in the gain on sale during the second quarter is approximately $2.4
million of gain representing the profit participation realized during the
quarter on $111.1 million of loans sold during the first quarter of 1998 into
the Company's purchase facility. Approximately $19.8 million of the whole loan
sales during the second quarter represented loans sold on a non-recourse basis
into the Company's purchase facility. The Company retains a participation in
future profits on these loans but has not recorded any gain related to this
profit participation. There can be no assurance that the Company will realize
any future profits on these loans. As a result of the Company's significant
reduction in the volume of correspondent originations, the Company expects to
continue to experience a reduction in the weighted average premiums paid. During
the second quarter of 1997, the Company recognized $35.0 million of gain on sale
of loans representing a weighted average gain of 7.5% on $465.6 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 unrealized loss on valuation of residuals of $11.4 million
recorded for the three months ended June 30, 1998 is a result of the Company
increasing both its 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 securitized loans. As
of June 30, 1998, the Company increased its weighted average loss rate to 4.35%
per annum at June 30, 1998 from 3.3% per annum at March 31, 1998 and increased
its weighted average prepayment speed to 34.8% per annum at June 30, 1998 from
31.8% per annum at March 31, 1998 for its home equity securitized loans. The
Company used a weighted average discount rate of 15% at both June 30, 1998 and
March 31, 1998.
Interest income decreased $13.5 million or 82.3% to $2.9 million for
the three months ended June 30, 1998 from $16.4 million for the comparable
period in 1997. This decrease was due primarily to lower average balances of
mortgage loans held for sale and the elimination of the recognition of accreted
interest on the Company's residuals in the second quarter of 1998. The Company
expects to continue to have lower average balances of mortgage loans held for
sale resulting in lower interest income in the future as a result of the
Company's whole loan sales initiatives. Additionally, 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.
Mortgage origination income decreased $876,122 or 61.3% to $554,018
for the three months ended June 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 June 30, 1998 as compared to the same
period in 1997.
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Other income decreased $1.6 million or 86.1% to $266,306 for the
three months ended June 30, 1998 from $1.9 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."
Total expenses decreased $8.3 million or 21.0% to $31.2 million for
the three months ended June 30, 1998 from $39.5 million for the comparable
period in 1997. This decrease was due primarily to decreased salaries and
benefits due to a lower number of employees, as well as decreased interest
expense due to a lower average balance of loans on the warehouse finance lines
due to lower originations during the three months ended June 30, 1998 as
compared to the same period in 1997.
Salaries and employee benefits decreased $3.2 million or 29.9% to
$7.5 million for the three months ended June 30, 1998 from $10.7 million for the
comparable period in 1997. This decrease was due primarily to decreased staffing
levels to 507 employees at June 30, 1998, as compared to 924 employees as of
June 30, 1997. This decrease was primarily a result of the Company's
restructuring and streamlining efforts as well as employee attrition.
Interest expense decreased $6.0 million or 30.0% to $14.0 million
for the three months ended June 30, 1998 from $20.0 million for the comparable
period in 1997. This decrease was due primarily to a lower average balance of
loans on the warehouse finance lines due to lower originations during the three
months ended June 30, 1998 as compared to the same period in 1997.
Selling and other expenses increased $915,099 or 10.4% to $9.7
million for the three months ended June 30, 1998 from $8.8 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.
The Company recorded a net loss applicable to common stock of $42.8
million for the three months ended June 30, 1998 as compared to net earnings
applicable to common stock of $2.9 million for the three months ended June 30,
1997. This loss was due primarily to a $35.9 million loss from continuing
operations as compared to earnings of $7.5 million from continuing operations
for the three months ended June 30, 1997. The loss recorded for the three months
ended June 30, 1998 was primarily due to decreased loan originations, 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 $3.5 million during the
second quarter of 1997. An increase in the liquidation preference of the
preferred stock in lieu of dividends and default payments of $6.9 million was
recorded during the second quarter of 1998 further increasing the net loss
applicable to common stock.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
During the first six months of 1998, the Company recorded negative
revenues of $11.7 million primarily as a result of a loss on sale of loans of
$1.3 million and the recording of a $18.5 million net unrealized loss on the
Company's trading securities. This represents a $112.0 million decrease from the
first six months of 1997 primarily as a result of the lower gain recorded on its
sale of loans.
For the first six months of 1998, the Company recorded a net loss on
sale of loans totaling $1.3 million. This loss was primarily due to the sale of
$285.2 million of whole loans at an average net premium received of 1.5% as
compared to the average premium paid on such loans of 2.4%. Approximately $45.0
million of the whole loan sales represented loans sold on a non-recourse basis
into the Company's purchase facility whereby the Company retains a participation
in future profits on these loans but has not recorded any gain related to this
profit participation. There can be no assurance that the Company will realize
any future profits on these loans. As a result of the Company's significant
reduction in the volume of correspondent originations, the Company expects to
continue to experience a reduction in the weighted average premiums paid. During
the first six months of 1997, the Company recognized $61.8 million of gain on
sale of loans representing a weighted average gain of 7.5% on $829.8 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.
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The unrealized loss on valuation of residuals of $18.5 million
recorded for the six months ended June 30, 1998 is a result of the Company
increasing both its 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 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 values at December 31, 1997, should be revised from 1.7%
per annum to 4.35% per annum. Additionally, during the second quarter 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 residuals to 34.8% per annum at June 30, 1998 from 31.8% per annum at
December 31, 1997.
Interest income decreased $28.0 million or 82.1% to $6.1 million for
the six months ended June 30, 1998 from $34.1 million for the comparable period
in 1997. This decrease was due primarily to lower average balances of mortgage
loans held for sale and the elimination of the recognition of accreted interest
on the Company's residuals in the second quarter of 1998. The Company expects to
continue to have lower average balances of mortgage loans held for sale
resulting in lower interest income in the future as a result of the Company's
whole loan sales initiatives. Additionally, 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.
Mortgage origination income decreased $760,944 or 34.4% to $1.5
million for the six months ended June 30, 1998 from $2.2 million for the
comparable period in 1997. This decrease was due primarily to a lower volume of
loan originations for the six months ended June 30, 1998 as compared to the same
period in 1997.
Other income decreased $1.7 million or 77.4% to $499,318 for the six
months ended June 30, 1998 from $2.2 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."
Total expenses increased $2.1 million or 2.9% to $75.0 million for
the six months ended June 30, 1998 from $72.9 million for the comparable period
in 1997. This increase was due primarily to 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, offset by
lower salaries and benefits and interest expense.
Salaries and employee benefits decreased $4.2 million or 19.5% to
$17.3 million for the six months ended June 30, 1998 from $21.5 million for the
comparable period in 1997. This decrease was due primarily to decreased staffing
levels to 507 employees at June 30, 1998 as compared to 924 employees as of June
30, 1997. This decrease was primarily a result of the Company's restructuring
and streamlining efforts as well as employee attrition.
Interest expense decreased $7.5 million or 21.0% to $28.2 million
for the six months ended June 30, 1998 from $35.7 million for the comparable
period in 1997. This decrease was due primarily to a lower average balance of
loans on the warehouse finance lines due to lower originations during the six
months ended June 30, 1998 as compared to the same period in 1997.
Selling and other expenses increased $10.5 million or 66.5% to $26.3
million for the six months ended June 30, 1998 from $15.8 million for the
comparable period in 1997. This increase was due primarily to increased
operating costs of $9.7 million or 67.8% to $24.0 million for the six months
ended June 30, 1998 from $14.3 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.
During the six months ended June 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
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Company's operations. The Company has closed its branch operation in Virginia
and significantly reduced its correspondent originations for the foreseeable
future and has 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.
The Company recorded a net loss applicable to common stock of $98.6
million for the six months ended June 30, 1998 as compared to net earnings
applicable to common stock of $19.7 million for the six months ended June 30,
1997. This loss was due primarily to a $87.1 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 earnings
from discontinued operations of $5.8 million during the first six months of
1997. An increase in the liquidation preference of the preferred stock in lieu
of dividends and default payments of $11.5 million was recorded during the first
six months of 1998 further increasing the net loss applicable to common stock.
FINANCIAL CONDITION
June 30, 1998 Compared to December 31, 1997
Cash and cash equivalents increased $32.9 million to $35.5 million at
June 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 $3.0 million or 31.6% to $6.5
million at June 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 $41.8 million or 33.0% to $84.7 million at June 30, 1998
from $126.5 million at December 31, 1997. This decrease was due primarily 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
$18.5 million during the first six months of 1998 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.
Mortgage loans held for sale, net increased $9.1 million or 9.8% to
$102.4 million at June 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 six months of 1998.
Mortgage loans held for investment, net increased $1.2 million or 18.5%
to $7.7 million at June 30, 1998 from $6.5 million at December 31, 1997. This
increase was due primarily to $1.7 million of loans reclassified from mortgages
held for sale primarily due to the Company's inability to sell such loans offset
by $449,013 of loans reclassified from mortgages held for investment, net to
real estate owned. During the first six months of 1998, the Company sold $3.2
million of mortgage loans held for investment, net at a price equated to the
book value. As a percentage of total assets, mortgage loans held for investment,
net increased to 2.3% at June 30, 1998 from 1.6% at December 31, 1997.
Investment in discontinued operations, net decreased by $58.8 million
or 69.8% to $25.4 million at June 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 six months of 1998. The balance at June 30, 1998
primarily consisted of cash on hand in the discontinued operation of
approximately $16.4 million and net receivables (net of liabilities) due of
approximately $9.0 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 June 30, 1998, there were liabilities related
to the discontinued operations of approximately $1.4 million included in
accounts payable and other liabilities.
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Other assets increased $1.3 million or 4.8% to $28.6 million at June
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 $13.6 million
or 17.5% to $91.1 million at June 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 six months of 1998.
Accounts payable and other liabilities increased $817,106 or 1.3% to
$64.2 million at June 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, partially offset by decreased accrued expenses relating to the UK
Sale and decreased other accrued expenses.
Allowance for losses increased $1.9 million or 41.3% to $6.5 million
at June 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.
The stockholders' deficit increased $87.1 million or 49.3% to a
deficit of $263.9 million at June 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 $87.1 million for the six months ended June 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial cash to support its
operating activities. The Company's principal cash requirements include the
funding of loan 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. The
Company believes that its future success is dependent upon its ability to (i)
access loan warehouse or purchase facilities, (ii) successfully sell loans in
the whole loan sales market, (iii) restructure its balance sheet (see
"--Restructuring/Reorganization"), (iv) streamline its operations and (v) retain
an adequate number and mix of its employees. 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. 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 also investigated a variety of alternatives for
reorganization and 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
"--Restructuring/Reorganization."
The Company has operated, and expects to continue to operate, on a
negative cash flow basis. During the six months ended June 30, 1998 and 1997,
the Company used net cash of $42.0 million and $63.8 million from continuing
operations, respectively. Additionally, in the six months ended June 30, 1998
and 1997, the Company was provided $61.2 million and used $1.2 million,
respectively, in investing activities. During 1997, the Company's sale of loans
through securitizations has resulted in a gain on sale of loans through
securitizations recognized by the Company. The recognition of this gain on sale
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
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periods as the related loans are repaid or otherwise collected. During the six
months ended June 30, 1998 and 1997, the Company received cash from financing
activities of $13.7 million and $199.1 million, respectively. During the six
months ended June 30, 1997, the Company used net cash in discontinued operations
of $86.5 million.
The Company is required to comply with various operating covenants
as defined in the agreements described below. The covenants include
restrictions, on among other things, the ability to (i) incur or suffer the
existence of indebtedness, (ii) incur or suffer to exist liens or other
encumbrances on certain assets, (iii) to engage in dissolutions, consolidations,
reorganizations, mergers, sales, transfers of assets or certain changes of
control, (iv) incur or suffer to exist any lease obligations on real or personal
property, (v) engage in sale-leaseback transactions, (vi) declare, pay or set
apart funds for dividends, distributions or the acquisition of capital stock, or
redeem, repurchase or otherwise acquire for value the capital stock of the
Company, CSC or certain affiliates, (vii) make investments, loans or purchase or
otherwise acquire an interest in another Person, (viii) engage in derivatives or
hedging transactions, (ix) assume, guarantee or become directly or contingently
responsible for the obligations of another Person, (x) enter into transactions
with any affiliate, (xi) make bulk purchase of mortgage loans, (xii) forgive
indebtedness, (xiii) create subsidiaries, (xiv) limit the transfer of property
or assets, the payment of dividends or the lending of funds among affiliates and
(xv) change its line of business.
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 will likely
increase the Company's future 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 borrows 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 is guaranteed by the Company and is 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 (as defined below))
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 currently
through September 8, 1998 (as amended, the "Extension Agreement"). The Extension
Agreement provides for a maximum credit line of $150.0 million, subject to
adjustment by Greenwich, at an interest rate of LIBOR plus 200 basis points
(7.78% at June 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 June 30, 1998, $87.8 million was outstanding under the Extension
Agreement. There can be no assurance that CSC can extend the term of the
Greenwich Facility or obtain any replacement financing beyond September 8, 1998.
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 is guaranteed by
the Company, and bears interest at the prime rate plus 50 basis points (9.0% at
June 30,1998). Pursuant to the CIT Facility, CSC has 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 is 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 is secured
by the mortgage loans
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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. The CIT
Facility terminates on February 3, 2000. As of June 30, 1998, the outstanding
balance on the CIT Facility was $3.3 million.
Loan Sales
The Company disposed of all of its loan production through whole
loan sales where the Company received a cash premium at the time of sale. In the
first six months of 1998 and in the years 1997, 1996 and 1995, the Company sold
$298.1 million, $518.4 million, $73.5 million and $185.8 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.
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.
The Company has 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 June 30, 1998, the Company's balance sheet reflected the fair value of
interest-only and residual certificates and mortgage servicing receivables of
$84.7 million and $6.5 million less an allowance for losses of $6.5 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 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
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<PAGE> 27
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 August 3, 1998, there were $129.6 million of Convertible Debentures
outstanding.
Senior Notes
In May 1997, the Company issued $300.0 million aggregate principal
amount of 12-3/4% Senior Notes due 2004 in a private placement. 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.
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.
In March and June 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 June 30, 1998, the new Liquidation Preference varies up to $12,562 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.
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<PAGE> 28
As of August 3, 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 August 3, 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 and June 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 June 30, 1998,
the new Liquidation Preference is $12,595 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 August 3, 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 August 3, 1998, all Series
B Warrants were outstanding.
As of August 3, 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.
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
27
<PAGE> 29
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.
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.
28
<PAGE> 30
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. The court
has not yet ruled on plaintiffs' 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
29
<PAGE> 31
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.
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.
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
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<PAGE> 32
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 sterling15.3 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 sterling41.8 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.
31
<PAGE> 33
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. The sum claimed by the Company totals approximately $4.3 million
together with interest calculated pursuant to the UK Sale Agreement. Ocwen has
failed to pay the sums due and, accordingly, the Company intends to commence
proceedings in the High Court of Justice, London for the recovery of those sums
(the "proposed proceedings"). Ocwen disputes approximately $1.6 million of the
sum claimed by the Company, although, pending further investigations, the
Company is unable to determine on what basis the claim is disputed. Ocwen has
informed the Company that it will be defending the proposed proceedings on the
basis that any sums owed by Ocwen to the Company should be set off and
extinguished as 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. In respect of the Liabilities Figure, Ocwen claims that
approximately $21.2 million relates to matters concerning the loans of
Greyfriars, includes 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 repayments. The Company denies that any sum is
due to Ocwen whether under the UK Sale Agreement or as a result of a breach of
warranty or misrepresentation or otherwise and will defend any proceedings
commenced by Ocwen in this connection. The remainder of the Liabilities Figure,
namely, approximately $211,000, is the subject of ongoing correspondence between
the Company and Ocwen. The Company believes that the total amount payable to
Ocwen in respect of the Liabilities Figure is approximately $74,000. Although
there can be no assurance of the outcome of such dispute, the Company believes
the Ocwen claim 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. Since such date, an additional $2.2 million of interest
has accrued.
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. Since such date, an additional $7.5 million of interest
has accrued.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
32
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
2.1 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 by and among CSC-UK, J&J
Securities Limited, City Mortgage Financial Services Limited,
Greyfriars Group Limited, Greyfriars Financial Services Limited,
Assured Funding Corporation Limited, Cityscape (UK) Limited, Home and
Family Finance Limited, Home Funding Corporation Limited, Home Mortgage
Corporation Limited, Home Mortgages Limited, Homestead Finance Limited,
Homeowners Finance Limited, Mortgage Management Limited, Secured
Funding Limited, City Mortgage Servicing Limited, Midland & General
Direct Limited, Ocwen, the Company, City Mortgage Funding 1 Limited and
City Mortgage Collateral Reserve No. 1 Limited, incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed April 3, 1998.
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.
10.1* Third Renewal Agreement, dated as of May 29, 1998, between CSC and
Greenwich Financial Products, Inc.
10.2* Fourth Renewal Agreement, dated as of June 30, 1998, between CSC and
Greenwich Financial Products, Inc.
10.3* Fifth Renewal Agreement, dated as of July 15, 1998, between CSC and
Greenwich Financial Products, Inc.
10.4* Employment Agreement, dated July 2, 1998, between CSC and Cheryl P.
Carl.
10.5* Employment Agreement, dated July 2, 1998, between CSC and Peter Kucma.
10.6* Employment Agreement, dated June 24, 1998, between CSC and Jonah L.
Goldstein.
10.7* Employment Agreement, dated June 24, 1998, between CSC and Robert C.
Patent.
10.8* Employment Agreement, dated July 2, 1998, between CSC and Tim S.
Ledwick.
10.9* Employment Agreement, dated July 21, 1998, between CSC and Steven
Weiss.
10.10* Employment Agreement, dated July 2, 1998, between CSC and Robert J.
Blackwell.
10.11* Employment Agreement, dated July 2, 1998, between the Company and
Steven M. Miller.
11.1* Computation of Earnings Per Share
27.1* Financial Data Schedule
</TABLE>
- ---------------------------
* Filed herewith
(b) Reports on Form 8-K
1. Form 8-K dated March 31, 1998 reporting that the Company has entered into
definitive agreements for the sale of substantially all of the businesses
and assets, and certain liabilities of CSC-UK.
2. Form 8-K dated May 1, 1998 reporting that pursuant to an agreement for the
sale and purchase of CSC-UK, the Company has completed the sale of
substantially all of the assets, and certain liabilities of CSC-UK.
3. Form 8-K dated June 1, 1998 reporting that the Company entered into a
non-binding letter of intent with representatives of holders of a majority
of the Company's Notes to support a proposed restructuring of the Company.
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<PAGE> 35
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: August 12, 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)
34
<PAGE> 1
EXHIBIT 10.1
THIRD RENEWAL AGREEMENT
This THIRD RENEWAL AGREEMENT, dated as of May 29, 1998 (this
"Agreement"), is made by and between Greenwich Capital Financial Products, Inc.
("GCFP") and Cityscape Corp. ("Cityscape").
Reference is made to the Master Loan and Security Agreement, dated as
of January 1, 1997 (the "Loan Agreement"), by and between Cityscape, as
Borrower, and GCFP, as Lender, whereby GCFP has agreed to make certain loans to
Cityscape, which loans are secured by, among other things, certain mortgage
loans, owned by Cityscape, as provided in the Loan Agreement and the other
agreements entered into in connection with the execution of the Loan Agreement
(collectively, the "Loan Facility"). As provided in the Loan Agreement, the term
of the Loan Facility expired on December 31, 1997. Pursuant to the December 31,
1997 Extension Agreement (the "Extension Agreement") GCFP and Cityscape agreed
to extend the term of the Loan Facility as modified by the Extension Agreement
for the period commencing on January 1, 1998 and ending on March 31, 1998 (the
"Extension Period"). Pursuant to the terms of the First Renewal Agreement, dated
as of March 27, 1998, and the Second Renewal Agreement dated as of April 30,
1998, GCFP and Cityscape agreed to further extend the Extension Period to May
31, 1998. GCFP and Cityscape wish to further extend the Extension Period to July
15, 1998.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used, but not otherwise defined,
herein shall have the meaning ascribed thereto in the Loan Agreement, including
by way of reference to any other documents or agreements.
2. RENEWAL. Notwithstanding anything contained in Section 1 or in the
notice provisions of Section 2.11 of the Loan Agreement, GCFP and Cityscape
hereby agree, upon the terms and conditions set forth in the Loan Facility, the
Extension Agreement, the First Renewal Agreement and the Second Renewal
Agreement to extend the Extension Period through June 30, 1998 which term may be
extended for an additional period or periods in the sole discretion of GCFP upon
the written request of Cityscape.
3. AMENDMENT. The "Maximum Credit" available under the Loan Facility
will be $150,000,000 minus the sum of the aggregate principal balance of loans
which GCFP has purchased from Cityscape pursuant to one of the various Mortgage
Loan Purchase Agreements executed between the parties and which (i) have not
been sold to third parties; and/or (ii) for which servicing has not yet been
transferred to a third party.
<PAGE> 2
4. FURTHER ASSURANCES. The parties hereto hereby agree to execute and
deliver such additional documents, instruments or agreements as may be
reasonably necessary and appropriate to effectuate the purposes of this
Agreement. In addition, the parties agree to negotiate in good faith with
respect to proposed amendments to the Retained Yield Fund Agreement between the
parties.
5. CONFLICTS. Unless specifically amended or revised herein, all the
terms and conditions of the Loan Agreement, the Loan Facility, the Extension
Agreement, the First Renewal Agreement and the Second Renewal Agreement shall
remain in full force and effect. In the event of a conflict of any provision
hereof with any provision or definition set forth in the Loan Agreement or the
Loan Facility, the Extension Agreement, the First Renewal Agreement, or the
Second Renewal Agreement, the provisions and definitions of this Second Renewal
Agreement shall control.
6. AMENDMENT. The provisions of this Third Renewal Agreement may only
be amended, revised, modified or supplemented by a written agreement executed by
the parties hereto.
7. GOVERNING LAW. This agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York without
regard to its conflicts of law principles.
IN WITNESS WHEREOF, GCFP and Cityscape have caused this Third Renewal
Agreement to be duly executed and delivered by their respective authorized
officers as of the date first above written.
CITYSCAPE CORP.
By: /s/ Cheryl P. Carl
----------------------
Name: Cheryl P. Carl
Title: Senior VP
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By: /s/ Peter McMullin
----------------------
Name: Peter McMullin
Title: Vice President
<PAGE> 1
EXHIBIT 10.2
FOURTH RENEWAL AGREEMENT
This FOURTH RENEWAL AGREEMENT, dated as of June 30, 1998 (this
"Agreement"), is made by and between Greenwich Capital Financial Products, Inc.
("GCFP") and Cityscape Corp. ("Cityscape").
Reference is made to the Master Loan and Security Agreement, dated as
of January 1, 1997 (the "Loan Agreement"), by and between Cityscape, as
Borrower, and GCFP, as Lender, whereby GCFP has agreed to make certain loans to
Cityscape, which loans are secured by, among other things, certain mortgage
loans, owned by Cityscape, as provided in the Loan Agreement and the other
agreements entered into in connection with the execution of the Loan Agreement
(collectively, the "Loan Facility"). As provided in the Loan Agreement, the term
of the Loan Facility expired on December 31, 1997. Pursuant to the December 31,
1997 Extension Agreement (the "Extension Agreement") GCFP and Cityscape agreed
to extend the term of the Loan Facility as modified by the Extension Agreement
for the period commencing on January 1, 1998 and ending on March 31, 1998 (the
"Extension Period"). Pursuant to the terms of the First Renewal Agreement, dated
as of March 27, 1998, and the Second Renewal Agreement dated as of April 30,
1998, and the Third Renewal Agreement dated as of May 29, 1998 GCFP and
Cityscape agreed to further extend the Extension Period to June 30, 1998. GCFP
and Cityscape wish to further extend the Extension Period to July 15, 1998.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used, but not otherwise defined,
herein shall have the meaning ascribed thereto in the Loan Agreement, including
by way of reference to any other documents or agreements.
2. RENEWAL. Notwithstanding anything contained in Section 1 or in the
notice provisions of Section 2.11 of the Loan Agreement, GCFP and Cityscape
hereby agree, upon the terms and conditions set forth in the Loan Facility, the
Extension Agreement, the First Renewal Agreement and the Second Renewal
Agreement and the Third Renewal Agreement to extend the Extension Period through
July 15, 1998 which term may be extended for an additional period or periods in
the sole discretion of GCFP upon the written request of Cityscape.
3. AMENDMENT. The "Maximum Credit" available under the Loan Facility
will be $150,000,000 minus the sum of the aggregate principal balance of loans
which GCFP has purchased from Cityscape pursuant to one of the various Mortgage
Loan Purchase Agreements executed between the parties and which (i) have not
been sold to third parties; and/or (ii) for which servicing has not yet been
transferred to a third party.
<PAGE> 2
4. FURTHER ASSURANCES. The parties hereto hereby agree to execute and
deliver such additional documents, instruments or agreements as may be
reasonably necessary and appropriate to effectuate the purposes of this
Agreement.
5. CONFLICTS. Unless specifically amended or revised herein, all the
terms and conditions of the Loan Agreement, the Loan Facility, the Extension
Agreement, the First Renewal Agreement and the Second Renewal Agreement and the
Third Renewal Agreement shall remain in full force and effect. In the event of a
conflict of any provision hereof with any provision or definition set forth in
the Loan Agreement or the Loan Facility, the Extension Agreement, the First
Renewal Agreement or the Second Renewal Agreement or the Third Renewal
Agreement, the provisions and definitions of this Fourth Renewal Agreement shall
control.
6. AMENDMENT. The provisions of this Fourth Renewal Agreement may only
be amended, revised, modified or supplemented by a written agreement executed by
the parties hereto.
7. GOVERNING LAW. This agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York without
regard to its conflicts of law principles.
IN WITNESS WHEREOF, GCFP and Cityscape have caused this Fourth Renewal
Agreement to be duly executed and delivered by their respective authorized
officers as of the date first above written.
CITYSCAPE CORP.
By: /s/ Cheryl P. Carl
----------------------
Name: Cheryl P. Carl
Title: Executive VP
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By: /s/ Paul Stevelman
----------------------
Name: Paul Stevelman
Title: Secretary
<PAGE> 1
EXHIBIT 10.3
FIFTH RENEWAL AGREEMENT
This FIFTH RENEWAL AGREEMENT, dated as of July 15, 1998 (this
"Agreement"), is made by and between Greenwich Capital Financial Products, Inc.
("GCFP") and Cityscape Corp. ("Cityscape").
Reference is made to the Master Loan and Security Agreement, dated as
of January 1, 1997 (the "Loan Agreement"), by and between Cityscape, as
Borrower, and GCFP, as Lender, whereby GCFP has agreed to make certain loans to
Cityscape, which loans are secured by, among other things, certain mortgage
loans, owned by Cityscape, as provided in the Loan Agreement and the other
agreements entered into in connection with the execution of the Loan Agreement
(collectively, the "Loan Facility"). As provided in the Loan Agreement, the term
of the Loan Facility expired on December 31, 1997. Pursuant to the December 31,
1997 Extension Agreement (the "Extension Agreement") GCFP and Cityscape agreed
to extend the term of the Loan Facility as modified by the Extension Agreement
for the period commencing on January 1, 1998 and ending on March 31, 1998 (the
"Extension Period"). Pursuant to the terms of the Fourth Renewal Agreement,
dated as of June 30, 1998 GCFP and Cityscape agreed to further extend the
Extension Period to July 15, 1998. GCFP and Cityscape wish to further extend the
Extension Period to September 8, 1998.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used, but not otherwise defined,
herein shall have the meaning ascribed thereto in the Loan Agreement, including
by way of reference to any other documents or agreements.
2. RENEWAL. Notwithstanding anything contained in Section 1 or in the
notice provisions of Section 2.11 of the Loan Agreement, GCFP and Cityscape
hereby agree, upon the terms and conditions set forth in the Loan Facility, the
Extension Agreement, the First Renewal Agreement and the Second Renewal
Agreement and the Third Renewal Agreement and the Fourth Renewal Agreement to
extend the Extension Period through September 8, 1998 which term may be extended
for an additional period or periods in the sole discretion of GCFP upon the
written request of Cityscape.
3. AMENDMENT. The "Maximum Credit" available under the Loan Facility
will be $150,000,000 minus the sum of the aggregate principal balance of loans
which GCFP has purchased from Cityscape pursuant to one of the various Mortgage
Loan Purchase Agreements executed between the parties and which (i) have not
been sold to third parties; and/or (ii) for which servicing has not yet been
transferred to a third party.
<PAGE> 2
4. FURTHER ASSURANCES. The parties hereto hereby agree to execute and
deliver such additional documents, instruments or agreements as may be
reasonably necessary and appropriate to effectuate the purposes of this
Agreement.
5. CONFLICTS. Unless specifically amended or revised herein, all the
terms and conditions of the Loan Agreement, the Loan Facility, the Extension
Agreement, the First Renewal Agreement and the Second Renewal Agreement and the
Third Renewal Agreement and the Fourth Renewal Agreement shall remain in full
force and effect. In the event of a conflict of any provision hereof with any
provision or definition set forth in the Loan Agreement or the Loan Facility,
the Extension Agreement, the First Renewal Agreement or the Second Renewal
Agreement or the Third Renewal Agreement or the Fourth Renewal Agreement, the
provisions and definitions of this Fifth Renewal Agreement shall control.
6. AMENDMENT. The provisions of this Fifth Renewal Agreement may only
be amended, revised, modified or supplemented by a written agreement executed by
the parties hereto.
7. GOVERNING LAW. This agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York without
regard to its conflicts of law principles.
IN WITNESS WHEREOF, GCFP and Cityscape have caused this Fifth Renewal
Agreement to be duly executed and delivered by their respective authorized
officers as of the date first above written.
CITYSCAPE CORP.
By: /s/ Cheryl P. Carl
----------------------
Name: Cheryl P. Carl
Title: Executive VP
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By: /s/ Paul Stevelman
----------------------
Name: Paul Stevelman
Title: Secretary
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 2, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Cheryl P. Carl residing at 182
Kneeland Avenue, Yonkers, New York 10705 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of Executive Vice President, Treasurer. Employee hereby
accepts such employment with the Company upon the terms and conditions
hereinafter set forth.
(b) The duties of the Employee shall include responsibility
for capital markets and corporate treasury functions, including developing and
maintaining investor, warehouse, banking, product, regulatory, and other
secondary and funding relationships. These duties and services shall at all
times be subject to the direction, approval and control of the Company and shall
include such other duties as may be assigned by the Board of Directors of the
Company (the "Board") commensurate with the responsibilities normally associated
with Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses, with the exception of Advanced
Abstract Corporation; provided that the Employee may engage in passive
investments in businesses in which the Employee does not participate. The
Employee will always use Employee's best efforts to promote the interests of the
Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1999, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$275,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with the
Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $200,000. Of that sum,
$96,295 shall be received by the Employee in the form of a signing bonus,
payable within forty-eight hours of the date that the Employee executes this
Agreement. So long as the Employee remains actively employed (but not if the
Employee fails to remain employed because of, inter alia, the Company's failure
to continue its operations) through the end of the month to which the payment
relates, the remainder of the Stay Bonus shall be paid in seven installments of
$14,815 with each payment made on the fifth day following the end of the month
to which it relates.
(ii) As additional compensation for services
rendered, the Employee shall be eligible to receive a Bonus for 1998 of up to
$75,000. The Employee's entitlement to this amount shall be based on the
following factors as evaluated by the Board and compared with goals to be
established by the Company within two months of the execution of this Agreement
and disclosed to the Employee in writing:
- 25% shall be based on the expansion of
warehouse lines and the reduction in
borrowing rates and fees;
- 50% shall be based on the expansion of the
Company's investor base and improved
executions; the negotiation of product
availability, and the determination of daily
loan pricing;
- 10% shall be based on the management of the
Company's banking and custodial
relationships; the improvement in service;
and the reduction in operating costs;
- 5% shall be based on the successful
management of the Company's regulatory
relationships; and
- the remaining 10% shall be based on the
Company's net income goals (a function of
management expense targets).
Any bonus for periods following 1998 shall be the subject of separate
discussions.
(c) Stock Options.
2
<PAGE> 3
Stock options may be awarded to the Employee, subject
to the discretion of, and on terms and conditions determined by the Board.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other receipts, the
Company shall reimburse Employee for gas, tolls, and car phone charges. Employee
shall submit vouchers or other receipts once per calendar month and shall be
reimbursed by the Company within thirty days of submission. Expenses shall
further include reimbursement for monthly car payments of up to $1,000.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
8. CAUSE.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature
3
<PAGE> 4
and consistent with Employee's position described in Section 1(b), or the
refusal or failure by the Employee to perform a material part of the Employee's
duties hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however, that (i)
any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term shall be considered periodic, continual or
repeated and shall constitute "Cause" within the meaning of this Section 8.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment due to a Continued Company Breach, and except for a "Permitted
Contact" as defined below, the Employee shall not, without the prior written
consent of the Company, directly or indirectly, (i) solicit, request, cause or
induce any person who is at the time, had been, an employee of or a consultant
to the Company to leave the employ of or terminate Employee's relationship with
the Company or (ii) employ, hire,
4
<PAGE> 5
engage, or endeavor to entice away from the Company any such person, or any
customer of the Company or its affiliates or (iii) attempt to limit or interfere
with any business agreement or relationship existing between the Company and/or
its affiliates with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each such breach within
ten days of the receipt of such notice; and (ii) "Permitted Contact" shall mean
an unpersonalized mass mailing to at least 1000 persons or an advertisement in a
periodical of general circulation.
10. SEVERANCE.
If the Company terminates this Employee's employment without
Cause or Employee terminates his employment due to a Continued Company Breach,
and Employee executes a general release in the Company's customary form, the
Company shall pay to the Employee for the duration of the Term hereof (1) all
remaining salary, as described in Section 4(a), (2) all remaining payments of
the Stay Bonus as described in Section 4(b)(i), and (3) Employee's Bonus, to the
extent earned, as described in Section 4(b)(ii). In addition, if the conditions
described in this Section are satisfied, the Company shall make payments to
cause Employee's health insurance to remain in effect for the duration of the
Term of this Agreement. Upon making such payments and any other accrued salary
or expenses, Company shall have no further obligation to Employee hereunder. In
the event of a termination under this Agreement by the Company for Cause as
defined in Section 8 or by Employee for any reason except Continued Company
Breach as defined in Section 9(c), all salary and benefits shall cease as of the
date of termination, provided that all accrued salary, bonus and expenses shall
be paid to Employee or Employee's estate or legal representative as the case may
be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
5
<PAGE> 6
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to pay
over to the Company all damages suffered by the Company (including consequential
and incidental damages) as the result of any transactions constituting a breach
of any of the provisions of Sections 9 and 11, and Employee hereby agrees to
account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that the
Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
6
<PAGE> 7
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term or pursuant to
any previous Employment Agreement between the Company and Employee, to the
extent permitted by the laws of the State of New York. The Employee hereby
agrees to indemnify and hold harmless the Company from any and all loss or
liability which the Company suffers as a result of Employee's material breach of
Employee's obligations hereunder to the extent permitted by the laws of the
State of New York. When the Company assumes its obligation to indemnify and hold
harmless the Employee in connection with a claim or litigation, its obligation
with respect to such claim or litigation shall be limited to holding the
Employee harmless from and against any judgment or settlement approved by the
Company in connection with the claim or litigation. The Company reserves the
right to select counsel of its choosing to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
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15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
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CITYSCAPE CORP.
By: /s/ Steven Miller
-----------------------
Name Steven Miller
Title Sr VP
/s/Cheryl P. Carl
-----------------------
Cheryl Carl
9
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 2, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Peter Kucma, residing at 6
Cobbler Court, Medford, New Jersey 08055 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of President and Chief Operating Officer. Employee hereby
accepts such employment with the Company upon the terms and conditions
hereinafter set forth.
(b) The duties of the Employee shall include responsibility
for management, operation and strategic planning of the Company. These duties
and services shall at all times be subject to the direction, approval and
control of the Company and shall include such other duties as may be assigned by
the Board of Directors of the Company (the "Board") commensurate with the
responsibilities normally associated with Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses; provided that the Employee may
engage in passive investments in businesses in which the Employee does not
participate. The Employee will always use Employee's best efforts to promote the
interests of the Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1999, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$300,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with the
Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $250,000. Of that sum,
$120,367 shall be received by the Employee in the form of a signing bonus,
payable within forty-eight hours of the date that the Employee executes this
Agreement. So long as the Employee remains actively employed (but not if the
Employee fails to remain employed because of, inter alia, the Company's failure
to continue its operations) through the end of the month to which the payment
relates, the remainder of the Stay Bonus shall be paid in seven installments of
$18,519 with each payment made on the fifth day following the end of the month
to which it relates.
(ii) As additional compensation for services
rendered, the Employee shall be eligible to receive a Bonus for 1998 of up to
$450,000. The Employee's entitlement to $200,000 of this amount shall be
determined by the Board in its discretion. The Employee's entitlement to the
remaining $250,000 of this amount shall be based on the following factors as
evaluated by the Board and compared with goals to be established by the Company
within two months of the execution of this Agreement and disclosed to the
Employee in writing:
- 25% shall be based upon the attainment of sales
objectives;
- 25% shall be based upon the attainment of
operations/risk objectives;
- 25% shall be based upon the attainment of capital
market objectives; and
- 25% shall be based upon other factors, to be defined.
Any bonus for periods following 1998 shall be the subject of separate
discussions.
(c) Stock Options.
Stock options may be awarded to the Employee, subject
to the discretion of, and on terms and conditions determined by, the Board.
5. BENEFITS.
The Company shall continue to provide the Employee with the
fringe benefits which Employee was receiving pursuant to the Employment
Agreement immediately prior to the date
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hereof, including, without limitation, benefits with respect to a car, health
club membership, moving and relocation expenses, and long-term disability
insurance. The Company shall continue to pay Employee's housing expenses until
the resolution of his status with the Company. To the extent not inconsistent
with the foregoing, the Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other receipts, the
Company shall reimburse Employee for gas, tolls, and car phone charges. Employee
shall submit vouchers or other receipts once per calendar month and shall be
reimbursed by the Company within thirty days of submission. Expenses shall
further include reimbursement for monthly car payments of up to $650.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
8. CAUSE AND GOOD REASON.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the
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<PAGE> 4
Employee of a fraudulent or dishonest act in Employee's relations with the
Company or any of its affiliates, or with any customer or business contact of
the Company or any of its affiliates ("dishonest" for these purposes shall mean
that Employee knowingly or recklessly made a material misstatement or omission
or took a material action for Employee's personal benefit); (d) the conviction
of the Employee for a felony or any crime involving an act of moral turpitude;
(e) any act of insubordination or the willful failure to carry out a written
directive of the Board of Directors which does not violate the terms of this
Agreement; (f) any breach under Sections 9 and 11 of this Agreement; or (g) the
Employee's gross incompetence. Notwithstanding the foregoing, no "Cause" for
termination shall be deemed to exist with respect to the Employee's acts
described in clauses (a) or (b) above, unless the Company shall have given
written notice to the Employee specifying the "Cause" with reasonable
particularity and, within ten business days after such notice, Employee shall
not have cured or eliminated the problem or thing giving rise to such "Cause";
provided, however, that (i) any periodic breach or continual breaching after
notice and cure of any provision of clauses (a) or (b) above, or (ii) a repeated
breach after notice and cure, of any provision of clauses (a) or (b) above,
involving the same or substantially similar actions or conduct, shall be grounds
for termination for cause without any additional notice from the Company. The
parties hereto agree that three separate instances of a breach by the Employee
of the provisions of this Agreement during the Term shall be considered
periodic, continual or repeated and shall constitute "Cause" within the meaning
of this Section 8.
The Employee may terminate his employment hereunder for Good
Reason. For purposes of this Agreement, Good Reason is defined as any adverse
change in the Employee's job responsibilities, duties, functions, reporting
relationships, status, offices, title, perquisites, or support staff; provided,
however, that the Employee shall give the Company written notice of any actions
alleged to constitute Good Reason, and the Company shall have ten days to cure
any such alleged Good Reason.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment for Good Reason or due to a Continued Company Breach, and except
for a "Permitted Contact" as defined below, the Employee
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<PAGE> 5
shall not, without the prior written consent of the Company, directly or
indirectly, (i) solicit, request, cause or induce any person who is at the time,
or twelve months prior thereto had been, an employee of or a consultant to the
Company to leave the employ of or terminate Employee's relationship with the
Company or (ii) employ, hire, engage or be associated with, or endeavor to
entice away from the Company any such person, or any customer of the Company or
its affiliates or (iii) attempt to limit or interfere with any business
agreement or relationship existing between the Company and/or its affiliates
with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each such breach within
ten days of the receipt of such notice; and (ii) "Permitted Contact" shall mean
an unpersonalized mass mailing to at least 1000 persons or an advertisement in a
periodical of general circulation.
10. SEVERANCE.
If the Company terminates the Employee's employment without
Cause or Employee terminates his employment due to a Continued Company Breach or
for Good Reason, and Employee executes a general release in the Company's
customary form, the Company shall pay to the Employee for the duration of the
Term hereof (1) all remaining salary, as described in Section 4(a), (2) all
remaining payments of the Stay Bonus as described in Section 4(b)(i), and (3)
Employee's Bonus, to the extent earned, as described in Section 4(b)(ii). In
addition, if the conditions described in this Section are satisfied, the Company
shall make payments to cause Employee's health insurance to remain in effect for
the duration of the Term of this Agreement. Upon making such payments and any
other accrued salary or expenses, Company shall have no further obligation to
Employee hereunder. In the event of a termination under this Agreement by the
Company for Cause as defined in Section 8 or by Employee for any reason except
Continued Company Breach as defined in Section 9(c), all salary and benefits
shall cease as of the date of termination, provided that all accrued salary,
bonus and expenses shall be paid to Employee or Employee's estate or legal
representative as the case may be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the
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<PAGE> 6
"Confidential Materials") and, upon the Company's request in writing, Employee
shall immediately return to the Company all such Confidential Materials (and
copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to pay
over to the Company all damages suffered by the Company (including consequential
and incidental damages) as the result of any transactions constituting a breach
of any of the provisions of Sections 9 and 11, and Employee hereby agrees to
account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that
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<PAGE> 7
the Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term or pursuant to
any previous Employment Agreement between the Company and Employee, to the
extent permitted by the laws of the State of New York. The Employee hereby
agrees to indemnify and hold harmless the Company from any and all loss or
liability which the Company suffers as a result of Employee's material breach of
Employee's obligations hereunder to the extent permitted by the laws of the
State of New York. When the Company assumes its obligation to indemnify and hold
harmless the Employee in connection with a claim or litigation, its obligation
with respect to such claim or litigation shall be limited to holding the
Employee harmless from and against any judgment or settlement approved by the
Company in connection with the claim or litigation. The Company reserves the
right to select counsel of its choosing to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not
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accepted, the date indicated that delivery was attempted, and (b) in the case of
delivery by hand, upon delivery or attempted delivery as shown on the records of
the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed
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on the day and year first above written.
CITYSCAPE CORP.
By: /s/ Steven Miller
-----------------------
Name Steven Miller
Title Sr VP
/s/ Peter S. Kucma
-----------------------
Peter Kucma
9
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 24th, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Jonah L. Goldstein, residing at 7
Briarcliff Lane, Glen Cove, New York 11542 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of General Counsel. Employee hereby accepts such employment
with the Company upon the terms and conditions hereinafter set forth.
(b) The duties of the Employee shall include acting as the
Company's internal legal counsel, coordinating all of the Company's legal
affairs, and overseeing the Company's United Kingdom issues. In addition, the
Employee shall be a Director of both Cityscape Corp. and City Mortgage
Corporation Limited. These duties and services shall at all times be subject to
the direction, approval and control of the Company and shall include such other
duties as may be assigned by the Board of Directors of the Company (the "Board")
commensurate with the responsibilities normally associated with Employee's
position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's time and efforts to the
business and affairs of the Company four days per week and shall not during the
term of this Agreement be engaged in any other businesses, with the exception of
the Samboy Financial Corporation and Advance Abstract Corporation; provided that
the Employee may engage in passive investments in businesses in which the
Employee does not participate. The Company acknowledges that the Employee is the
Chairman of Advance Abstract Corporation. The Employee will always use
Employee's best efforts to promote the interests of the Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1998, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$250,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with the
Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $200,000. Of that sum,
the Company has paid to the Employee $96,295. So long as the Employee remains
actively employed (but not if the Employee fails to remain employed because of,
inter alia, the Company's failure to continue its operations) through the end of
the month to which the payment relates, the remainder of the Stay Bonus shall be
paid in seven installments of $14,815 with each payment made on the fifth day
following the end of the month to which it relates.
(ii) As additional compensation for services
rendered, the Employee shall receive a Bonus of $75,000 for the sale of the
Company's United Kingdom operations and the Employee's ongoing management of the
United Kingdom operations wind down. This Bonus shall be payable within ten days
following the end of the term of this Agreement.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other receipts, the
Company shall reimburse Employee for gas, tolls, and car phone charges. Employee
shall submit vouchers or other receipts once per calendar month and shall be
reimbursed by the Company within thirty days of submission. Expenses shall
further include reimbursement for monthly car payments of up to $956.60.
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7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
8. CAUSE AND GOOD REASON.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however, that (i)
any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term shall be considered periodic, continual or
repeated and shall constitute "Cause" within the meaning of this Section 8.
The Employee may terminate his employment hereunder for Good
Reason. For purposes of this Agreement, Good Reason is defined as any adverse
change in the Employee's job
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<PAGE> 4
responsibilities, duties, functions, reporting relationships, status, offices,
title, perquisites, or support staff; provided, however, that the Employee shall
give the Company written notice of any actions alleged to constitute Good
Reason, and the Company shall have ten days to cure any such alleged Good
Reason.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business, with the exception of
Samboy Financial Corporation, operating or providing services in any State in
which the Company or its affiliates are operating or providing services as of
the date of termination which directly or indirectly, through subsidiaries or
otherwise, manages or performs the following business activities and services:
residential and commercial and real estate lending; servicing loan portfolios
and/or mortgage or real estate brokerage services (a "Competing Entity");
provided that the Employee may own up to one percent of the outstanding equity
securities of any Competing Entity that is subject to the public reporting
requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment due to a Continued Company Breach or for Good Reason, and except
for a "Permitted Contact" as defined below, the Employee shall not, without the
prior written consent of the Company, directly or indirectly, (i) solicit,
request, cause or induce any person who is at the time, or twelve months prior
thereto had been, an employee of or a consultant to the Company to leave the
employ of or terminate Employee's relationship with the Company or (ii) employ,
hire, engage or be associated with, or endeavor to entice away from the Company
any such person, or any customer of the Company or its affiliates or (iii)
attempt to limit or interfere with any business agreement or relationship
existing between the Company and/or its affiliates with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each such breach within
ten days of the receipt of such notice; and (ii) "Permitted Contact" shall mean
an unpersonalized mass mailing to at least 1000 persons or an advertisement in a
periodical of general circulation.
10. SEVERANCE.
If the Company terminates the Employee's employment without
Cause or Employee terminates his employment due to a Continued Company Breach or
for Good Reason, and the Employee executes a general release in the Company's
customary form, the Company shall pay to the Employee (1) all remaining salary,
as described in Section 4(a), (2) all remaining payments of the
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Stay Bonus as described in Section 4(b)(i), and (3) Employee's Bonus, to the
extent earned, as described in Section 4(b)(ii). In addition, if the conditions
described in this Section are satisfied, the Company shall make payments to
cause Employee's health insurance to remain in effect for the duration of the
Term of this Agreement. Upon the Company's making such payments and any other
accrued salary or expenses, the parties shall have no further obligation to each
other hereunder. In the event of a termination under this Agreement by the
Company for Cause as defined in Section 8 or by Employee for any reason except
Continued Company Breach as defined in Section 9(c) or Good Reason as defined in
Section 8, all salary and benefits shall cease as of the date of termination,
provided that all accrued salary, bonus and expenses shall be paid to Employee
or Employee's estate or legal representative as the case may be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided,
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<PAGE> 6
however, that Employee shall be entitled to retain copies of such documents
reasonably necessary to document Employee's financial relationship (both past
and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to pay
over to the Company all damages suffered by the Company (including consequential
and incidental damages) as the result of any transactions constituting a breach
of any of the provisions of Sections 9 and 11, and Employee hereby agrees to
account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that the
Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term, or pursuant
to any previous Employment Agreement between the Company and Employee, to the
extent permitted by the laws of the State of New York. The Employee hereby
agrees to indemnify and hold
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harmless the Company from any and all loss or liability which the Company
suffers as a result of Employee's material breach of Employee's obligations
hereunder to the extent permitted by the laws of the State of New York. When the
Company assumes its obligation to indemnify and hold harmless the Employee in
connection with a claim or litigation, its obligation with respect to such claim
or litigation shall be limited to holding the Employee harmless from and against
any judgment or settlement approved by the Company in connection with the claim
or litigation. The Company reserves the right to select counsel of its choosing
to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
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17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CITYSCAPE CORP.
By: /s/ Steven Miller
-----------------------
Name Steven Miller
Title CEO & Pres
/s/ Jonah L. Goldstein
-----------------------
Jonah L. Goldstein
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 24th, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Robert C. Patent, residing at 44
Colby Lane, Scarsdale, New York 10583 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of Executive Vice President. Employee hereby accepts such
employment with the Company upon the terms and conditions hereinafter set forth.
(b) The duties of the Employee shall include responsibility
for coordinating the Company's United Kingdom activities and advising the
Company with respect to negotiations with noteholders and other outside parties.
These duties and services shall at all times be subject to the direction,
approval and control of the Company and shall include such other duties as may
be assigned by the Board of Directors of the Company (the "Board") commensurate
with the responsibilities normally associated with Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses; provided that the Employee may
engage in passive investments in businesses in which the Employee does not
participate. The Employee will always use Employee's best efforts to promote the
interests of the Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1998, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$250,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with
the Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $200,000. Of that sum,
the Company has paid to the Employee $96,295. So long as the Employee remains
actively employed (but not if the Employee fails to remain employed because of,
inter alia, the Company's failure to continue its operations) through the end of
the month to which the payment relates, the remainder of the Stay Bonus shall be
paid in seven installments of $14,815 with each payment made on the fifth day
following the end of the month to which it relates.
(ii) As additional compensation for services
rendered, the Employee shall receive a Bonus of up to $150,000 for the sale of
the Company's United Kingdom operations and the ongoing management of the wind
down of the United Kingdom operations. This Bonus shall be payable within ten
days following the end of the term of this Agreement.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
Both of the following agreements are deemed canceled upon the
execution of this Agreement, without any liability from either party to the
other: the Split Dollar Agreement Dated December 1, 1996 between Cityscape
Financial Corp., Cityscape Corp. and Robert C. Patent and the Trustees of the
Patent Family Irrevocable Trust; and the Deferred Compensation Agreement Dated
October 1, 1996 between Cityscape Financial Corp., Cityscape Corp. and Robert C.
Patent.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other
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<PAGE> 3
receipts, the Company shall reimburse Employee for gas, tolls, and car phone
charges. Employee shall submit vouchers or other receipts once per calendar
month and shall be reimbursed by the Company within thirty days of submission.
Expenses shall further include reimbursement for monthly car payments of up to
$1060.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
8. CAUSE AND GOOD REASON.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however, that (i)
any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term
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<PAGE> 4
shall be considered periodic, continual or repeated and shall constitute "Cause"
within the meaning of this Section 8.
The Employee may terminate his employment hereunder for Good
Reason. For purposes of this Agreement, Good Reason is defined as any adverse
change in the Employee's job responsibilities, duties, functions, reporting
relationships, status, offices, title, perquisites, or support staff; provided,
however, that the Employee shall give the Company written notice of any actions
alleged to constitute Good Reason, and the Company shall have ten days to cure
any such alleged Good Reason.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment for Good Reason or due to a Continued Company Breach, and except
for a "Permitted Contact" as defined below, the Employee shall not, without the
prior written consent of the Company, directly or indirectly, (i) solicit,
request, cause or induce any person who is at the time, or twelve months prior
thereto had been, an employee of or a consultant to the Company to leave the
employ of or terminate Employee's relationship with the Company or (ii) employ,
hire, engage or be associated with, or endeavor to entice away from the Company
any such person, or any customer of the Company or its affiliates or (iii)
attempt to limit or interfere with any business agreement or relationship
existing between the Company and/or its affiliates with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each such breach within
ten days of the receipt of such notice; and (ii) "Permitted Contact" shall mean
an unpersonalized mass mailing to at least 1000 persons or an advertisement in a
periodical of general circulation.
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<PAGE> 5
10. SEVERANCE.
If the Company terminates this Employee's employment without
Cause or Employee terminates his employment for Good Reason or due to a
Continued Company Breach, and Employee executes a general release in the
Company's customary form, the Company shall pay to the Employee for the duration
of the Term hereof (1) all remaining salary, as described in Section 4(a), (2)
all remaining payments of the Stay Bonus as described in Section 4(b)(i), and
(3) Employee's Bonus, to the extent earned, as described in Section 4(b)(ii). In
addition, if the conditions described in this Section are satisfied, the Company
shall make payments to cause Employee's health insurance to remain in effect for
the duration of the Term of this Agreement. Upon making such payments and any
other accrued salary or expenses, Company shall have no further obligation to
Employee hereunder. In the event of a termination under this Agreement by the
Company for Cause as defined in Section 8 or by Employee for any reason except
Continued Company Breach as defined in Section 9(c), all salary and benefits
shall cease as of the date of termination, provided that all accrued salary,
bonus and expenses shall be paid to Employee or Employee's estate or legal
representative as the case may be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court
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order or other government process, and (y) permit the Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to
pay over to the Company all damages suffered by the Company (including
consequential and incidental damages) as the result of any transactions
constituting a breach of any of the provisions of Sections 9 and 11, and
Employee hereby agrees to account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that the
Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
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13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term or pursuant to
any previous Employment Agreement between the Company and Employee, to the
extent permitted by the laws of the State of New York. The Employee hereby
agrees to indemnify and hold harmless the Company from any and all loss or
liability which the Company suffers as a result of Employee's material breach of
Employee's obligations hereunder to the extent permitted by the laws of the
State of New York. When the Company assumes its obligation to indemnify and hold
harmless the Employee in connection with a claim or litigation, its obligation
with respect to such claim or litigation shall be limited to holding the
Employee harmless from and against any judgment or settlement approved by the
Company in connection with the claim or litigation. The Company reserves the
right to select counsel of its choosing to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
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<PAGE> 8
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CITYSCAPE FINANCIAL CORP. CITYSCAPE CORP.
By: /s/ Steven Miller By: /s/ Steven Miller
Name: Steven Miller Name Steven Miller
Title: CEO & Pres. Title Sr VP
/s/ Robert C. Patent
Robert C. Patent
8
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 2, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Tim S. Ledwick, residing at 66
Merry Lane, Weston, Connecticut 06883 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of Chief Financial Officer. Employee hereby accepts such
employment with the Company upon the terms and conditions hereinafter set forth.
(b) The duties of the Employee shall include responsibility
for overseeing the Company's financial operations and ensuring compliance with
all laws and regulations relating to taxes, reporting requirements, and the
Securities and Exchange Commission. These duties and services shall at all times
be subject to the direction, approval and control of the Company and shall
include such other duties as may be assigned by the Board of Directors of the
Company (the "Board") commensurate with the responsibilities normally associated
with Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses; provided that the Employee may
engage in passive investments in businesses in which the Employee does not
participate. The Employee will always use Employee's best efforts to promote the
interests of the Company. Unless terminated by the Company for Cause, upon the
expiration of this Agreement, the Company shall irrevocably and unconditionally
release, acquit and forever discharge the Employee from any and all claims which
the Company now has, may have, or has ever had against the Employee.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1999, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$210,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with
the Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $100,000. Of that sum,
$48,147 shall be received by the Employee in the form of a signing bonus,
payable within forty-eight hours of the date that the Employee executes this
Agreement. So long as the Employee remains actively employed (but not if the
Employee fails to remain employed because of, inter alia, the Company's failure
to continue its operations) through the end of the month to which the payment
relates, the remainder of the Stay Bonus shall be paid in seven installments of
$7,407 with each payment made on the fifth day following the end of the month to
which it relates.
(ii) As additional compensation for services
rendered, the Employee shall be eligible to receive a Bonus for 1998 of up to
$40,000. The Employee's entitlement to this amount shall be based on the
following factors as evaluated by the Board and compared with goals to be
established by the Company within two months of the execution of this Agreement
and disclosed to the Employee in writing:
- 50% shall be based on the successful
implementation of the Oracle Financial
System, the HR System, and the 1998 and 1999
Budget Process;
- 25% shall be based on the successful
department reorganization, attainment of
staffing objectives, and implementation of a
revised corporate-wide financial policy,
procedure and control system;
- 15% shall be based on the Company's net
income goals (a function of management
expense targets); and
- the remaining 10% shall be based on the
development of a formal external reporting
process; improvement in vendor relations;
and an evaluation of the appropriateness of
internalizing vendor costs.
Any bonus for periods following 1998 shall be the subject of separate
discussions.
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<PAGE> 3
(c) Stock Options.
Stock options may be awarded to the Employee, subject
to the discretion of, and on terms and conditions determined by, the Board.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other receipts, the
Company shall reimburse Employee for gas, tolls, and car phone charges. Employee
shall submit vouchers or other receipts once per calendar month and shall be
reimbursed by the Company within thirty days of submission. Expenses shall
further include reimbursement for monthly car payments of up to $670.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
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<PAGE> 4
8. CAUSE.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however, that (i)
any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term shall be considered periodic, continual or
repeated and shall constitute "Cause" within the meaning of this Section 8.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment due to a Continued
4
<PAGE> 5
Company Breach, and except for a "Permitted Contact" as defined below, the
Employee shall not, without the prior written consent of the Company, directly
or indirectly, (i) solicit, request, cause or induce any person who is at the
time, or twelve months prior thereto had been, an employee of or a consultant to
the Company to leave the employ of or terminate Employee's relationship with the
Company or (ii) employ, hire, engage or be associated with, or endeavor to
entice away from the Company any such person, or any customer of the Company or
its affiliates or (iii) attempt to limit or interfere with any business
agreement or relationship existing between the Company and/or its affiliates
with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each such breach within
ten days of the receipt of such notice; and (ii) "Permitted Contact" shall mean
an unpersonalized mass mailing to at least 1000 persons or an advertisement in a
periodical of general circulation.
10. SEVERANCE.
If the Company terminates the Employee's employment without
Cause or Employee terminates his employment due to a Continued Company Breach,
and Employee executes a general release in the Company's customary form, the
Company shall pay to the Employee for the duration of the Term hereof (1) all
remaining salary, as described in Section 4(a), (2) all remaining payments of
the Stay Bonus as described in Section 4(b)(i), and (3) Employee's Bonus, to the
extent earned, as described in Section 4(b)(ii). In addition, if the conditions
described in this Section are satisfied, the Company shall make payments to
cause Employee's health insurance to remain in effect for the duration of the
Term of this Agreement. Upon making such payments and any other accrued salary
or expenses, Company shall have no further obligation to Employee hereunder. In
the event of a termination under this Agreement by the Company for Cause as
defined in Section 8 or by Employee for any reason except Continued Company
Breach as defined in Section 9(c), all salary and benefits shall cease as of the
date of termination, provided that all accrued salary, bonus and expenses shall
be paid to Employee or Employee's estate or legal representative as the case may
be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
5
<PAGE> 6
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to
pay over to the Company all damages suffered by the Company (including
consequential and incidental damages) as the result of any transactions
constituting a breach of any of the provisions of Sections 9 and 11, and
Employee hereby agrees to account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such
6
<PAGE> 7
breach or threatened breach may cause substantial and irreparable injury to the
Company and that money damages will not provide an adequate remedy to the
Company. Employee further agrees that the Company in any such equitable
proceeding shall not have to prove irreparable harm. (However, in a suit for
damages, Company shall be required to prove the amount of damages actually
sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties, including the
Securities and Exchange Commission, as a result of the proper performance of
Employee's duties hereunder during the Term or pursuant to any previous
Employment Agreement between the Company and Employee, to the extent permitted
by the laws of the State of New York. The Employee hereby agrees to indemnify
and hold harmless the Company from any and all loss or liability which the
Company suffers as a result of Employee's material breach of Employee's
obligations hereunder to the extent permitted by the laws of the State of New
York. When the Company assumes its obligation to indemnify and hold harmless the
Employee in connection with a claim or litigation, its obligation with respect
to such claim or litigation shall be limited to holding the Employee harmless
from and against any judgment or settlement approved by the Company in
connection with the claim or litigation. The Company reserves the right to
select counsel of its choosing to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
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<PAGE> 8
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
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<PAGE> 9
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CITYSCAPE CORP.
By: /s/ Steven Miller
Name Steven Miller
Title Sr VP
/s/ Tim S. Ledwick
Tim S. Ledwick
9
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 21, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Steven Weiss, residing at 40 Sail
Harbour Dr., New Fairfield, CT 06812 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of Executive Vice President, Sales. Employee hereby accepts
such employment with the Company upon the terms and conditions hereinafter set
forth.
(b) The duties of the Employee shall include responsibility
for management and performance measurement of the Company's sales force and the
management and development of the marketing department and product development
areas. These duties and services shall at all times be subject to the direction,
approval and control of the Company and shall include such other duties as may
be assigned by the Board of Directors of the Company (the "Board") commensurate
with the responsibilities normally associated with Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses; provided that the Employee may
engage in passive investments in businesses in which the Employee does not
participate. The Employee will always use Employee's best efforts to promote the
interests of the Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1998, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES, STOCK OPTIONS, AND LOAN.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$225,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with
the Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $100,000. Of that sum,
$48,147 shall be received by the Employee in the form of a signing bonus,
payable within forty-eight hours of the date that the Employee executes this
Agreement. So long as the Employee remains actively employed (but not if the
Employee fails to remain employed because of, inter alia, the Company's failure
to continue its operations) through the end of the month to which the payment
relates, the remainder of the Stay Bonus shall be paid in seven installments of
$7,407 with each payment made on the fifth day following the end of the month to
which it relates.
(ii) As additional compensation for services
rendered, the Employee shall be eligible to receive a Bonus of up to $340,000.
The Employee's entitlement to $25,000 of this amount shall be determined by the
Board in its discretion. The Employee's entitlement to $65,000 of this amount
shall be based on the following factors as evaluated by the Board and compared
with goals to be established by the Company within two months of the execution
of this Agreement and disclosed to the Employee in writing:
- one-third shall be based on the Company's
net income goals (a function of management
expense targets);
- one-third shall be based on productivity (to
be determined by examining (A) the number of
funded loans per business development
representative, (B) the preparation of a
customer management plan and (C) the
preparation of a sales management plan);
- one-third shall be based on quality of
production (to be determined by examining
quality control results and the percentage
of loan rejections made by investors).
The Employee's entitlement to the remaining $250,000 shall be a function of the
Company's volume during the period of January 1, 1998 to December 31, 1998 (the
"Calculation Period") on the basis of the following table:
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<PAGE> 3
<TABLE>
<CAPTION>
Loans Funded During Calculation Period Additional Bonus Owed to Employee
-------------------------------------- ---------------------------------
<S> <C>
Less than $565 million $0
$565 million to $629,999,999 $110,000
$630 million to $674,999,999 $140,000
$675 million to $699,999,999 $190,000
$700 million or more $250,000
</TABLE>
(c) Stock Options.
Stock options may be awarded to the Employee, subject
to the discretion of, and on terms and conditions determined by, the Board.
(d) Loan
The Company has loaned to Employee $150,000, at the
prime rate of interest. Employee shall repay this loan out of any Bonuses earned
by him (excluding the first payment of $48,147), which Bonus payments the
Company shall be authorized to withhold from Employee until the Loan has been
repaid.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other
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<PAGE> 4
receipts, the Company shall reimburse Employee for gas, tolls, and car phone
charges. Employee shall submit vouchers or other receipts once per calendar
month and shall be reimbursed by the Company within thirty days of submission.
Expenses shall further include reimbursement for monthly car payments of up to
$600.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
8. CAUSE.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however, that (i)
any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term
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shall be considered periodic, continual or repeated and shall constitute "Cause"
within the meaning of this Section 8.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment due to a Continued Company Breach, and except for a "Permitted
Contact" as defined below, the Employee shall not, without the prior written
consent of the Company, directly or indirectly, (i) solicit, request, cause or
induce any person who is at the time, or twelve months prior thereto had been,
an employee of or a consultant to the Company to leave the employ of or
terminate Employee's relationship with the Company or (ii) employ, hire, engage
or be associated with, or endeavor to entice away from the Company any such
person, or any customer of the Company or its affiliates or (iii) attempt to
limit or interfere with any business agreement or relationship existing between
the Company and/or its affiliates with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each such breach within
ten days of the receipt of such notice; and (ii) "Permitted Contact" shall mean
an unpersonalized mass mailing to at least 1000 persons or an advertisement in a
periodical of general circulation.
10. SEVERANCE.
If the Company terminates this Employee's employment without
Cause or Employee terminates his employment due to a Continued Company Breach,
and Employee executes a general release in the Company's customary form, the
Company shall pay to the Employee for the duration of the Term hereof (1) all
remaining salary, as described in Section 4(a), (2) all remaining payments of
the Stay Bonus as described in Section 4(b)(i), and (3) Employee's Bonus, to the
extent earned, as described in Section 4(b)(ii). In addition, if the conditions
described in this Section are satisfied, the
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Company shall make payments to cause Employee's health insurance to remain in
effect for the duration of the Term of this Agreement. Upon making such payments
and any other accrued salary or expenses, Company shall have no further
obligation to Employee hereunder. In the event of a termination under this
Agreement by the Company for Cause as defined in Section 8 or by Employee for
any reason except Continued Company Breach as defined in Section 9(c), all
salary and benefits shall cease as of the date of termination, provided that all
accrued salary, bonus and expenses shall be paid to Employee or Employee's
estate or legal representative as the case may be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
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(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to
pay over to the Company all damages suffered by the Company (including
consequential and incidental damages) as the result of any transactions
constituting a breach of any of the provisions of Sections 9 and 11, and
Employee hereby agrees to account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that the
Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term or pursuant to
any previous Employment Agreement between the Company and Employee, to the
extent permitted by the laws of the State of New York. The Employee hereby
agrees to indemnify and hold harmless the Company from any and all loss or
liability which the Company suffers as a result of Employee's material breach of
Employee's obligations hereunder to the extent permitted by the laws
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of the State of New York. When the Company assumes its obligation to indemnify
and hold harmless the Employee in connection with a claim or litigation, its
obligation with respect to such claim or litigation shall be limited to holding
the Employee harmless from and against any judgment or settlement approved by
the Company in connection with the claim or litigation. The Company reserves the
right to select counsel of its choosing to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
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17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CITYSCAPE CORP.
By: /s/ Steven Miller
Name Steven Miller
Title Sr VP
/s/ Steven Weiss
Steven Weiss
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<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 2, 1998, by and between CITYSCAPE CORP.,
having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Robert J. Blackwell residing at
1421 Ratzer Road, Wayne, NJ 07470 (hereinafter referred to as the "Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of Executive Vice President, Operations. Employee hereby
accepts such employment with the Company upon the terms and conditions
hereinafter set forth.
(b) The duties of the Employee shall include responsibility
for Branch Operations (processing; underwriting; closings; funding; and
warehousing) for a combined core home equity and Sav-a-loan operation. These
duties and services shall at all times be subject to the direction, approval and
control of the Company and shall include such other duties as may be assigned by
the Board of Directors of the Company (the "Board") commensurate with the
responsibilities normally associated with Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses; provided that the Employee may
engage in passive investments in businesses in which the Employee does not
participate. The Employee will always use Employee's best efforts to promote the
interests of the Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
1, 1998, and shall continue until December 31, 1998, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided; provided, however, that the Employee is entitled to
terminate his employment (which termination shall be treated as a termination by
the Company without Cause) upon thirty days notice to the Company if the
Company's headquarters move more than twenty-five miles from the Employee's
existing residence.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of
$250,000 per annum, payable monthly or more frequently in accordance with the
Company's practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with the
Company during the remainder of calendar year 1998, the Employee shall be
entitled to receive a Stay Bonus in the total amount of $150,000. Of that sum,
$72,222 shall be received by the Employee in the form of a signing bonus,
payable within forty-eight hours of the date that the Employee executes this
Agreement. So long as the Employee remains actively employed (but not if the
Employee fails to remain employed because of, inter alia, the Company's failure
to continue its operations) through the end of the month to which the payment
relates, the remainder of the Stay Bonus shall be paid in seven installments of
$11,111 with each payment made on the fifth day following the end of the month
to which it relates.
(ii) As additional compensation for services
rendered, the Employee shall be eligible to receive a Bonus for 1998 of up to
$250,000. The Employee's entitlement to $100,000 of this amount shall be
determined by the Board in its discretion. The Employee's entitlement to the
remaining $150,000 of this amount shall be based on the following factors as
evaluated by the Board and compared with goals to be established by the Company
within two months of the execution of this Agreement and disclosed to the
Employee in writing:
- 15% shall be based on achievement of the
Company's volume and product mix goals;
- 10% shall be based on the Company's net
income goals (a function of management
expense targets);
- 35% shall be based on productivity (to be
determined by examining (A) the number of
funded loans per employee and (B) the number
of loans which are funded versus the number
of loan applications received);
- 30% shall be based on quality of work (to be
determined by examining achievement of
quality control results, the percentage of
loan rejections made by investors, and the
percentage of funding department errors);
and
- the remaining 10% shall be based on the
Company's reorganization, automation,
productivity improvement and performance
tracking in funding and warehousing.
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Any bonus for periods following 1998 shall be the subject of separate
discussions.
(c) Stock Options.
Stock options may be awarded to the Employee, subject
to the discretion of, and on terms and conditions determined by, the Board.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employee and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other receipts, the
Company shall reimburse Employee for gas, tolls, and car phone charges. Employee
shall submit vouchers or other receipts once per calendar month and shall be
reimbursed by the Company within thirty days of submission. Expenses shall
further include reimbursement for monthly car payments of $1000.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
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8. CAUSE.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however, that (i)
any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term shall be considered periodic, continual or
repeated and shall constitute "Cause" within the meaning of this Section 8.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in (c) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder, other than a termination by the Company
without Cause or termination by the Employee due to a Continued Company Breach,
and except for a "Permitted Contact" as defined
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below, the Employee shall not, without the prior written consent of the Company,
directly or indirectly, (i) solicit, request, cause or induce any person who is
at the time, or twelve months prior thereto had been, an employee of or a
consultant to the Company to leave the employ of or terminate Employee's
relationship with the Company or (ii) employ, hire, engage or be associated
with, or endeavor to entice away from the Company any such person, or any
customer of the Company or its affiliates or (iii) attempt to limit or interfere
with any business agreement or relationship existing between the Company and/or
its affiliates with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean,
after the Company has received written notice from the Employee regarding each
such breach and the Company fails to cure each such breach within ten days of
the receipt of such notice, either three separate instances of a material breach
during the Term by the Company of the obligations it owes the Employee pursuant
to Section 1, Section 4 and Section 5 hereof, or two consecutive such instances
pursuant to Section 4 hereof; and (ii) "Permitted Contact" shall mean (a) an
unpersonalized mass mailing to at least 1000 persons, (b) an advertisement in a
periodical of general circulation, or (c) an unsolicited contact of Employee by
any present or current Company employee; provided, however, that Employee shall
have the right to solicit brokers, lenders, title companies, attorneys, and loan
servicers (the "Lending Entities") regardless of whether the Lending Entities
have a business relationship with the Company, so long as such contact does not
constitute an attempt to tortiously interfere with any business agreement or
relationship existing between the Company and/or its affiliates with Lending
Entity.
10. SEVERANCE.
If the Company terminates this Employee's employment without
Cause or Employee terminates his employment due to a Continued Company Breach,
and Employee executes a general release in the Company's customary form, the
Company shall pay to the Employee $100,000 and, for the duration of the Term
hereof, (1) all remaining payments of the Stay Bonus as described in Section
4(b)(i), and (2) Employee's Bonus, to the extent earned, as described in Section
4(b)(ii). In addition, if the conditions described in this Section are
satisfied, the Company shall make payments to cause Employee's health insurance
to remain in effect for the duration of the Term of this Agreement and for six
months thereafter. Upon making such payments and any other accrued salary or
expenses, Company shall have no further obligation to Employee hereunder. In the
event of a termination under this Agreement by the Company for Cause as defined
in Section 8 or by Employee for any reason except Continued Company Breach as
defined in Section 9(c), all salary and benefits shall cease as of the date of
termination, provided that all accrued salary, bonus and expenses shall be paid
to Employee or Employee's estate or legal representative as the case may be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel,
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suppliers, customers, costs, profits and pricing policies, "know how" and
certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to
pay over to the Company all damages suffered by the Company (including
consequential and incidental damages) as the result of
6
<PAGE> 7
any transactions constituting a breach of any of the provisions of Sections 9
and 11, and Employee hereby agrees to account for and pay over such damages to
the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that the
Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term, to the extent
permitted by the laws of the State of New York. The Employee hereby agrees to
indemnify and hold harmless the Company from any and all loss or liability which
the Company suffers as a result of Employee's material breach of Employee's
obligations hereunder during the Term or pursuant to any previous Employment
Agreement between the Company and the Employee, to the extent permitted by the
laws of the State of New York. When the Company assumes its obligation to
indemnify and hold harmless the Employee in connection with a claim or
litigation, its obligation with respect to such claim or litigation shall be
limited to holding the Employee harmless from and against any judgment or
settlement approved by the Company in connection with the claim or litigation.
The Company reserves the right to select counsel of its choosing to defend the
Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
7
<PAGE> 8
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
8
<PAGE> 9
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CITYSCAPE CORP.
By: /s/ Steven Miller
Name Steven Miller
Title Sr VP
/s/ Robert J. Blackwell
Robert J. Blackwell
9
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 2, 1998, by and between CITYSCAPE FINANCIAL
CORP., having an office address at 565 Taxter Road, Elmsford, New York 10523
(hereinafter referred to as the "Company") and Steven M. Miller, residing at 613
Round Hill Road, Greenwich, Connecticut 06831 (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to hire and retain the Employee as an
employee to perform certain services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Employee hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(a) The Company hereby employs the Employee in the capacity
and for the position of President and Chief Executive Officer. Employee hereby
accepts such employment with the Company upon the terms and conditions
hereinafter set forth.
(b) The duties of the Employee shall include responsibility
for overseeing the Company's corporate operations and negotiating with
noteholders and equity holders. These duties and services shall at all times be
subject to the direction, approval and control of the Company and shall include
such other duties as may be assigned by the Board of Directors of the Company
(the "Board") commensurate with the responsibilities normally associated with
Employee's position.
2. SERVICES TO BE RENDERED.
The Employee will devote Employee's full time and efforts to
the business and affairs of the Company and shall not during the term of this
Agreement be engaged in any other businesses; provided that the Employee may
engage in passive investments in businesses in which the Employee does not
participate. The Employee will always use Employee's best efforts to promote the
interests of the Company.
3. TERM.
The term of this Agreement (the "Term") shall commence on May
31, 1998, and shall continue until December 31, 1998, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION: BASE SALARY, BONUSES AND STOCK OPTIONS.
(a) Base Salary.
The Employee shall receive a base salary at a rate of $250,000
per annum, payable monthly or more frequently in accordance with the Company's
practice as applied to other senior officers.
(b) Bonuses.
(i) As consideration for continued service with the Company
during the remainder of calendar year 1998, the Employee shall be entitled to
receive a Stay Bonus in the total amount of $400,000. Of that sum, the Company
has paid to the Employee $192,590. So long as the Employee remains actively
employed (but not if the Employee fails to remain employed because of, inter
alia, the Company's failure to continue its operations) through the end of the
month to which the payment relates, the remainder of the Stay Bonus shall be
paid in seven installments of $29,630 with each payment made on the fifth day
following the end of the month to which it relates.
(ii) As additional compensation for services rendered in
connection with the sale of Company's United Kingdom operations, the Employee
shall be eligible to receive a Bonus of up to $600,000. The Employee has
received $200,000 of this amount. Any Bonus paid or payable pursuant to this
Section 4(b)(ii) shall be in addition to, and not included within, any Stay
Bonus paid or payable pursuant to Section 4(b)(i) above or any Bonus paid or
payable pursuant to Section 4(b)(iii) below.
(iii) As additional compensation for services rendered in
connection with the reorganization of the Company under chapter 11 of the
Bankruptcy Code, the Employee shall be entitled to receive a Bonus of $400,000,
conditioned upon the successful completion of the reorganization of the Company
under chapter 11 of the Bankruptcy Code, through a "pre-packaged" filing or
otherwise. Any Bonus paid or payable pursuant to this Section 4(b)(iii) shall be
in addition to, and not included within, any Stay Bonus paid or payable pursuant
to Section 4(b)(i) or any Bonus paid or payable pursuant to Section 4(b)(ii)
above.
5. BENEFITS.
The Employee shall be entitled to participate in the regular
pension, profit sharing, health, disability, and other benefit programs of the
Company in effect from time to time on the same basis that other senior officers
of the Company participate therein. The Employee shall be entitled, for the term
hereof, to annual vacations to be taken in accordance with the policies of the
Company in effect from time to time for senior officers. The Employee shall be
entitled to all vacation which has accrued but remained unused pursuant to this
Agreement or any previous Employment Agreement between the Employment and the
Company. In lieu of taking his vacation, the Employee may elect to receive a
cash payment for any vacation which remains unused upon the termination of this
Agreement.
2
<PAGE> 3
6. EXPENSES.
The Company shall reimburse the Employee against appropriate
vouchers or other receipts for business expenses reasonably incurred by Employee
in the performance of Employee's duties pursuant to the terms hereof. In
addition, upon the submission of appropriate vouchers or other receipts, the
Company shall reimburse Employee for gas, tolls, and car phone charges. Employee
shall submit vouchers or other receipts once per calendar month and shall be
reimbursed by the Company within thirty days of submission. Expenses shall
further include reimbursement for monthly car payments of up to $600.
7. DEATH AND DISABILITY.
The Employee's employment hereunder shall terminate upon his
death. In the event of the total disability of the Employee, the Employee's
employment hereunder may terminate at the option of the Board. For purposes of
this Agreement, "total disability" shall mean the Employee's inability to
perform Employee's regular and customary duties on behalf of the Company for a
period of no less than 120 consecutive days, or any 180 days during any twelve
month period, with such total disability being established by a written
certification submitted by a medical doctor agreed to by the Employee and the
Company. In the absence of agreement, the Company and the Employee shall each
nominate a qualified medical doctor and these two doctors shall select a third
qualified medical doctor, which third doctor shall make the determination as to
total disability. During the aforementioned 120 and 180 day periods, Employee
shall receive his regular salary less any Company provided disability insurance
proceeds Employee may receive. After the termination of these time periods, no
salary will be payable.
8. CAUSE AND GOOD REASON.
By notice to the Employee, the President of the Company or the
Board may terminate this Agreement for Cause. As used herein, "Cause" shall be
defined as: (a) the refusal or failure by the Employee to carry out specific
directions of the Board of Directors which are of a material nature and
consistent with Employee's position described in Section 1(b), or the refusal or
failure by the Employee to perform a material part of the Employee's duties
hereunder; (b) the commission by the Employee of a breach of any of the
provisions of this Agreement; (c) the commission by the Employee of a fraudulent
or dishonest act in Employee's relations with the Company or any of its
affiliates, or with any customer or business contact of the Company or any of
its affiliates ("dishonest" for these purposes shall mean that Employee
knowingly or recklessly made a material misstatement or omission or took a
material action for Employee's personal benefit); (d) the conviction of the
Employee for a felony or any crime involving an act of moral turpitude; (e) any
act of insubordination or the willful failure to carry out a written directive
of the Board of Directors which does not violate the terms of this Agreement;
(f) any breach under Sections 9 and 11 of this Agreement; or (g) the Employee's
gross incompetence. Notwithstanding the foregoing, no "Cause" for termination
shall be deemed to exist with respect to the Employee's acts described in
clauses (a) or (b) above, unless the Company shall have given written notice to
the Employee specifying the "Cause" with reasonable particularity and, within
ten business days after such notice, Employee shall not have cured or eliminated
the problem or thing giving rise to such "Cause"; provided, however,
3
<PAGE> 4
that (i) any periodic breach or continual breaching after notice and cure of any
provision of clauses (a) or (b) above, or (ii) a repeated breach after notice
and cure, of any provision of clauses (a) or (b) above, involving the same or
substantially similar actions or conduct, shall be grounds for termination for
cause without any additional notice from the Company. The parties hereto agree
that three separate instances of a breach by the Employee of the provisions of
this Agreement during the Term shall be considered periodic, continual or
repeated and shall constitute "Cause" within the meaning of this Section 8.
The Employee may terminate his employment hereunder for Good
Reason. For purposes of this Agreement, Good Reason is defined as any adverse
change in the Employee's job responsibilities, duties, functions, reporting
relationships, status, offices, title, perquisites, or support staff; provided,
however, that the Employee shall give the Company written notice of any actions
alleged to constitute Good Reason, and the Company shall have ten days to cure
any such alleged Good Reason.
9. NON-COMPETITION.
(a) During the Term except if the Employee terminates
Employee's employment hereunder as a result of a Continued Company Breach (as
such term is defined in ((c)) below) the Employee agrees that Employee will not,
directly or indirectly, enter into or participate (whether as owner, partner,
shareholder, officer, director, salesman, consultant, employee, principal, or in
any other relationship or capacity) in any business operating or providing
services in any State in which the Company or its affiliates are operating or
providing services as of the date of termination which directly or indirectly,
through subsidiaries or otherwise, manages or performs the following business
activities and services: residential and commercial and real estate lending;
servicing loan portfolios and/or mortgage or real estate brokerage services (a
"Competing Entity"); provided that the Employee may own up to one percent of the
outstanding equity securities of any Competing Entity that is subject to the
public reporting requirements of the Securities Exchange Act of 1934.
(b) During the Term and for one year after the termination of
the Employee's employment hereunder for any reason, and unless the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment due to a Continued Company Breach or for Good Reason, and except
for a "Permitted Contact" as defined below, the Employee shall not, without the
prior written consent of the Company, directly or indirectly, (i) solicit,
request, cause or induce any person who is at the time, or twelve months prior
thereto had been, an employee of or a consultant to the Company to leave the
employ of or terminate Employee's relationship with the Company or (ii) employ,
hire, engage or be associated with, or endeavor to entice away from the Company
any such person, or any customer of the Company or its affiliates or (iii)
attempt to limit or interfere with any business agreement or relationship
existing between the Company and/or its affiliates with a third party.
(c) As used herein, (i) "Continued Company Breach" shall mean
three separate instances of a material breach during the Term by the Company of
the obligations it owes the Employee pursuant to Section 1, Section 4(a) and
Section 5 hereof after the Company has received written notice from the Employee
regarding each such breach and the Company fails to cure each
4
<PAGE> 5
such breach within ten days of the receipt of such notice; and (ii) "Permitted
Contact" shall mean an unpersonalized mass mailing to at least 1000 persons or
an advertisement in a periodical of general circulation.
10. SEVERANCE.
If the Company terminates the Employee's employment without
Cause or the Employee terminates his employment due to a Continued Company
Breach or for Good Reason, and the Employee executes a general release in the
Company's customary form, the Company shall pay to the Employee for the duration
of the Term hereof (1) all remaining salary, as described in Section 4(a), (2)
all remaining payments of the Stay Bonus as described in Section 4(b)(i), and
(3) Employee's Bonus, to the extent earned, as described in Section 4(b)(ii). In
addition, if the conditions described in this Section are satisfied, the Company
shall make payments to cause Employee's health insurance to remain in effect for
the duration of the Term of this Agreement. Upon making such payments and any
other accrued salary or expenses, Company shall have no further obligation to
Employee hereunder. In the event of a termination under this Agreement by the
Company for Cause as defined in Section 8 or by Employee for any reason except
Continued Company Breach as defined in Section 9(c), all salary and benefits
shall cease as of the date of termination, provided that all accrued salary,
bonus and expenses shall be paid to Employee or Employee's estate or legal
representative as the case may be.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of Employee's
employment by the Company, the Employee, both during and after the Term, will
obtain secret and confidential information concerning the business of the
Company and its affiliates, including, without limitation, financial
information, trade secrets, information concerning the operations, sales,
personnel, suppliers, customers, costs, profits and pricing policies, "know how"
and certain business methodologies (the "Confidential Information").
(b) During the Term and thereafter, the Employee shall
exercise all due and diligent precautions to protect the integrity of the
customer lists, mailing lists and sources thereof, statistical data and
compilations, agreements, contracts, manuals, memoranda, notes, records, reports
or other documents and any and all other materials embodying any Confidential
Information (the "Confidential Materials") and, upon the Company's request in
writing, Employee shall immediately return to the Company all such Confidential
Materials (and copies thereof) then in Employee's possession or control.
(c) The Employee agrees that Employee will not at any time,
either during the Term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information or deliver or permit any person or entity to
obtain any Confidential Materials except (i) when required in the course of
performing Employee's duties hereunder, (ii) with the Company's express written
consent; (iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) any information which is in the public domain. If
the Employee shall be required to make disclosure pursuant to the provisions of
clause (iii) of the preceding sentence, the Employee promptly, but in no event
more than forty-eight hours after learning of such subpoena, court order, or
5
<PAGE> 6
other governmental process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Employee
shall: (x) take all reasonably necessary steps required by the Company to defend
against the enforcement of such subpoena, court order or other government
process, and (y) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof.
(d) Upon termination of Employee's employment with the
Company, the Employee will promptly deliver to the Company all Confidential
Materials relating to the Company and its affiliates, which Employee may then
possess or have under Employee's control; provided, however, that Employee shall
be entitled to retain copies of such documents reasonably necessary to document
Employee's financial relationship (both past and future) with the Company.
(e) The Employee acknowledges that (i) any breach of the
provisions of these Sections 9 and 11 may cause substantial and irreparable harm
to the Company for which the Company would have no adequate remedy at law, and
(ii) the provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company and its affiliates.
12. REMEDIES
(a) If Employee commits a material breach, or threatens to
commit a material breach, of any of the provisions of Sections 9 and 11, the
Company shall have the right and remedy:
(i) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction; and
(ii) to require Employee to account for and to
pay over to the Company all damages suffered by the Company (including
consequential and incidental damages) as the result of any transactions
constituting a breach of any of the provisions of Sections 9 and 11, and
Employee hereby agrees to account for and pay over such damages to the Company;
(b) The Employee acknowledges and agrees that the services
being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach may cause
substantial and irreparable injury to the Company and that money damages will
not provide an adequate remedy to the Company. Employee further agrees that the
Company in any such equitable proceeding shall not have to prove irreparable
harm. (However, in a suit for damages, Company shall be required to prove the
amount of damages actually sustained.)
(c) Each of the rights and remedies enumerated in Section
12(a) shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of any other
rights and remedies available to the Company under law or equity.
(d) If any provision of Section 9 or 11 is held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
6
<PAGE> 7
13. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Employee, both during and after the expiration of the Term, from and against
any and all loss or liability including reasonable legal fees and legal
disbursements which the Employee may have to third parties as a result of the
proper performance of Employee's duties hereunder during the Term or pursuant to
any previous Employment Agreement between the Company and Employee, to the
extent permitted by the laws of the State of New York. The Employee hereby
agrees to indemnify and hold harmless the Company from any and all loss or
liability which the Company suffers as a result of Employee's material breach of
Employee's obligations hereunder to the extent permitted by the laws of the
State of New York. When the Company assumes its obligation to indemnify and hold
harmless the Employee in connection with a claim or litigation, its obligation
with respect to such claim or litigation shall be limited to holding the
Employee harmless from and against any judgment or settlement approved by the
Company in connection with the claim or litigation. The Company reserves the
right to select counsel of its choosing to defend the Employee.
(b) Whenever a claim shall arise for which any party may be or
become entitled to indemnification hereunder, the indemnified party shall notify
the indemnifying party promptly, and in the case of a third party claim, in
writing within ten days of the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
may be legally required for the indemnifying party or parties to take
appropriate action to resist such claim. The failure to give a timely notice, as
provided in the preceding sentence, shall not operate as a waiver of an
indemnified party's right to indemnification, provided that the failure to give
such notice did not materially prejudice the legal rights of the indemnifying
party. Such notice shall specify all facts known to the indemnified party giving
rise to such indemnity rights and shall estimate (to the extent determinable)
the amount of the liability arising therefrom.
14. NOTICE.
Any notice required hereunder shall be delivered by hand, or
sent by registered or certified mail, addressed to the other party hereto at its
address set forth above or at such other address as notice thereof shall have
been given in accordance with the provisions of this Section 14. Any such notice
shall become effective (a) if mailed, on the date indicated on the receipt or if
not accepted, the date indicated that delivery was attempted, and (b) in the
case of delivery by hand, upon delivery or attempted delivery as shown on the
records of the deliveries.
15. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which instrument is signed by the party against whom enforcement of
any such amendment, supplement, modification or waiver is sought. Any waiver of
any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
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<PAGE> 8
16. SEVERABILITY.
In the event of the invalidity or unenforceability of any one
or more provisions of this Agreement, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall be deemed to remain in full force and effect.
17. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable by Employee without the prior
written consent of the Company. This Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
18. SECTION HEADINGS.
The Section Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. GOVERNING LAW; VENUE.
THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE THAT ANY
ACTIONS OR PROCEEDINGS INSTITUTED TO ENFORCE RIGHTS HEREUNDER SHALL BE INITIATED
IN THE FEDERAL OR STATE COURTS LOCATED IN WESTCHESTER COUNTY, NEW YORK.
20. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CITYSCAPE FINANCIAL CORP.
By: /s/ Robert C. Patent
Name
Title
/s/ Steven M. Miller
Steven M. Miller
8
<PAGE> 1
CITYSCAPE FINANCIAL CORP.
COMPUTATION OF EARNINGS PER SHARE
Exhibit 11.1
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1998 (1) 1997 (2) 1998 (1) 1997 (2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations $(35,888,488) $ 7,474,266 $(87,070,887) $ 14,960,361
Preferred stock dividends (2,090,723) (1,066,874) (3,661,079) (1,066,874)
Preferred stock default payments (4,805,442) -- (7,822,216) --
------------ ------------ ------------ ------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK (42,784,653) 6,407,392 (98,554,182) 13,893,487
Earnings (loss) from discontinued operations -- (3,462,789) -- 5,845,907
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $(42,784,653) $ 2,944,603 $(98,554,182) $ 19,739,394
------------ ------------ ------------ ------------
ADJUSTMENT TO NET EARNINGS (LOSS):
Add: After-tax interest expense from Convertible
Debentures -- -- -- --
Preferred stock dividends -- -- -- --
------------ ------------ ------------ ------------
TOTAL ADJUSTMENTS -- -- -- --
------------ ------------ ------------ ------------
Earnings (loss) applicable to common stock $(42,784,653) $ 6,407,392 $(98,554,182) $ 13,893,487
Earnings (loss) from discontinued operations -- (3,462,789) -- 5,845,907
------------ ------------ ------------ ------------
ADJUSTED NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $(42,784,653) $ 2,944,603 $(98,554,182) $ 19,739,394
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 57,051,065 30,718,839 52,341,068 30,224,293
Effect of dilutive securities:
Warrants -- -- -- --
Stock options -- 984,886 -- 1,034,242
Convertible preferred stock -- -- -- --
Convertible Debentures -- -- -- --
------------ ------------ ------------ ------------
ADJUSTED WEIGHTED AVERAGE COMMON SHARES 57,051,065 31,703,725 52,341,068 31,258,535
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
BASIC
Continuing operations $( 0.75) $ 0.21 $( 1.88) $ 0.46
Discontinued operations -- (0.11) -- 0.19
------------ ------------ ------------ ------------
NET (LOSS) EARNINGS $( 0.75) $ 0.10 $( 1.88) $ 0.65
============ ============ ============ ============
DILUTED
Continuing operations $( 0.75) $ 0.20 $( 1.88) $ 0.44
Discontinued operations -- (0.11) -- 0.19
------------ ------------ ------------ ------------
NET (LOSS) EARNINGS $( 0.75) $ 0.09 $( 1.88) $ 0.63
============ ============ ============ ============
</TABLE>
(1) For the three and six months ended June 30, 1998, 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.
(2) For the three and six months ended June 30, 1997, the effect of the
Convertible Debentures and convertible preferred stock are antidilutive
and are not included in the computation of diluted EPS. Earnings from
continuing operations is used as the "control number" in determining
whether these potential common shares are dilutive or antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 35,500,425
<SECURITIES> 84,720,318
<RECEIVABLES> 6,501,873
<ALLOWANCES> 0
<INVENTORY> 102,360,038
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,641,225
<DEPRECIATION> 3,379,959
<TOTAL-ASSETS> 330,322,783
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 429,620,000
0
52
<COMMON> 649,489
<OTHER-SE> (264,545,436)
<TOTAL-LIABILITY-AND-EQUITY> 330,322,783
<SALES> 0
<TOTAL-REVENUES> (11,749,966)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,866,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,153,877
<INCOME-PRETAX> (86,770,828)
<INCOME-TAX> 300,059
<INCOME-CONTINUING> (87,070,887)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (98,554,182)<F2>
<EPS-PRIMARY> (1.88)
<EPS-DILUTED> (1.88)
<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>
