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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1997
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number: 0-27314
CITYSCAPE FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Delaware 11-2994671
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
565 Taxter Road, Elmsford, New York 10523-2300
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(Address of principal executive offices, including zip code)
(914) 592-6677
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01 per share.
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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of March 6, 1998, the aggregate market value of the registrant's Common
Stock held by nonaffiliates of the registrant was $20,788,195 based on the
closing sales price of the registrant's Common Stock as reported on the Nasdaq
SmallCap Market on such date. For purposes of this calculation, shares owned by
officers, directors and 5% stockholders known to the registrant have been deemed
to be owned by affiliates. As of March 6, 1998, the number of shares of
the registrant's Common Stock outstanding was 47,578,738.
Documents Incorporated by Reference
None.
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PART I
This report on Form 10-K contains forward-looking statements which involve
risk and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors including, but not limited to, risks related to the completion
of a sale of its UK operation, the ability to access loan warehouse or purchase
facilities in amounts, if at all, necessary to fund the Company's loan
production, the successful execution of loans sales in the whole loan sales
market, the ability of the company to successfully restructure its balance
sheet, the initiatives to streamline the company's legal proceedings and other
operations, the ability to of the Company to retain an adequate number and mix
of its employees, legal proceedings and other matters discussed in Item 3 of
this report, adverse economic conditions, competition and other risks detailed
from time to time in the Company's SEC reports. The Company undertakes no
obligation to release publicly any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of anticipated or unanticipated events.
Item 1. Business
General(1)
Cityscape Financial Corp. (the "Company") is a consumer finance company
engaged in the business of originating, 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. Through its
wholly-owned subsidiary Cityscape Corp. ("CSC"), the Company is licensed or
registered to do business in 46 states and the District of Columbia.
The Company's principal executive office and mailing address is 565 Taxter
Road, Elmsford, New York 10523-2300 and its telephone number is (914) 592-6677.
The Company
The Company was incorporated under the laws of the State of Delaware in
December 1988. CSC, the Company's principal operating subsidiary, was
incorporated under the laws of the State of New York in March 1985. In January
1994, CSC acquired Astrum Funding Corp. ("Astrum") which had operated as a
mortgage banker in 11 states. In April 1994, the Company acquired all of the
capital stock of CSC in an acquisition in which the shareholders of CSC acquired
beneficial ownership of approximately 92% of the Company's common stock (the
"CSC Acquisition"). In connection with the CSC Acquisition, the Company changed
its name to Cityscape Financial Corp.
In May 1995, the Company and three principals of a privately held UK-based
mortgage lender formed City Mortgage Corporation Limited, a company organized
under English law ("CSC-UK"). CSC-UK operates in the United Kingdom (excluding
Northern Ireland, the "UK"), and lends to individuals who are unable or
unwilling to obtain mortgage financing from conventional mortgage sources such
as banks and building societies ("Conventional UK Lenders") primarily because of
impaired or unsubstantiated credit histories and/or unverifiable income. In
September 1995, the Company acquired the 50% interest in CSC-UK not then owned
by the Company through the issuance to the three other shareholders of an
aggregate of 3.6 million shares of Common Stock valued at $21.6 million.
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)15.3 million ($23.3 million based on the Noon Buying Rate on the date of
such acquisition) in cash and 548,000 shares of Common Stock valued at $9.8
million based upon the closing price of the Common Stock on the date of such
acquisition less a discount for restrictions on the resale of such stock and
incurred closing costs of $788,000 (the "J&J Acquisition"). J&J provides
primarily second lien mortgage loans to UK borrowers who, similar to the
Company's UK borrowers, are unable or unwilling to obtain mortgage financing
from Conventional UK Lenders.
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(1) All references herein to "$" are United States dollars; all references
to "(pound)" are to British Pounds Sterling. Unless otherwise specified,
translation of amounts from British Pounds Sterling to United States dollars has
been made herein using exchange rates at the end of the period for which the
relevant statements are prepared for balance sheet items and the weighted
average exchange rates for the relevant period for statement of operations
items, each based on the noon buying rate in New York City for cable transfers
in foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York.
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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)41.8 million ($64.1 million based on the Noon Buying Rate
on the date of such acquisition) in cash and 99,362 shares of Common Stock
valued at $2.5 million based upon the closing price of the Common Stock on the
date of such acquisition and incurred closing costs of $2.3 million (the
"Greyfriars Acquisition") resulting in the recognition of $25.4 of goodwill.
Greyfriars provides mortgage loans to borrowers that generally have higher
quality credit profiles than the Company's typical UK borrowers.
In May 1997, CSC-UK acquired the assets of Midland & General PLC, a
London-based mortgage broker ("M&G") in exchange for (pound)6.5 million ($10.6
million based on the Noon Buying Rate on the date of such acquisition) (the "M&G
Acquisition"). Pursuant to the M&G Acquisition, the Company acquired assets with
a fair value of $764,000, consisting primarily of property, plant and equipment.
The M&G Acquisition resulted in the recognition of $10.2 million of goodwill. In
connection with the M&G Acquisition, the company entered into a five-year
non-compete agreement with the former principals of M&G for (pound)3.0 million
($4.9 million), which is being amortized using the straight-line method over
five years.
Recent Developments
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 fourth quarter of 1997 of $0.25. The Company's operations
for 1997 have consumed substantial amounts of cash and have generated
significant net losses, which have reduced stockholders' equity to a deficit of
$176.8 million at December 31, 1997. Because the Company has been operating on a
negative cash flow basis over the last few years, the Company's ability to
operate has been dependent upon continued access to capital through the issuance
of debt securities, loan warehouse facilities and loan purchase facilities. The
Company is unable to access the capital markets and is experiencing great
difficulties in maintaining or securing loan warehouse or purchase facilities.
The terms of the Company's current loan warehouse and purchase facilities are
much 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 Corresponded 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. As discussed in Note 1 to the Consolidated Financial Statements,
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) complete a sale of its UK operation, (ii) access loan warehouse
or purchase facilities, (iii) successfully sell loans in the whole loan sales
market, (iv) restructure its balance sheet, (v) streamline its US operations and
(vi) retain an adequate number and mix of its employees. No assurance can be
given that the Company will be able to achieve these results.
OFT. Beginning in March of 1997, CSC-UK received various correspondence
from the Office of Fair Trading (the "OFT") which has the responsibility for the
granting of consumer credit licenses in the UK to mortgage lenders and for the
subsequent monitoring of their activities to ensure continued fitness to hold
such licenses. The OFT has set forth certain practices deemed by the OFT to be
inappropriate, regardless of their legality, including the use of
standard/concessionary rate structures and, with respect to unregulated loans,
the calculation of prepayments using the Rule of 78s method. During 1997, CSC-UK
eliminated from the loans it was originating the concessionary/standard rate
structure and, with respect to regulated loans, the Rule of 78s method. Such
elimination had a negative impact on profit margins for CSC-UK's loans. In
January 1998, as a result of discussions and correspondence between CSC-UK and
the OFT, the Company agreed, with respect to its existing loans containing such
provisions, to lower the differential between the standard rate of interest and
the concessionary rate of interest to not more than 2.5% and, with respect to
unregulated loans, to eliminate the use of the Rule of 78s method. As a result
of these revisions to the terms of the applicable UK loans, the Company
recognized an impairment in the value of its mortgage servicing receivables in
the UK of $106.2 million and wrote off unamortized goodwill of $52.7 million
recorded in connection with its UK operations. See Item 3 for a discussion
regarding the OFT. In March 1998, as a result of significant losses in the UK
stemming from such regulatory changes and due to the inability of the Company to
fund such losses from its cash flows due to other negative recent developments,
the Company adopted a plan to sell the operations of CSC-UK. See Item 7 -
Discontinued Operations.
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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 Item 3 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 an 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 precipitous 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 47,578,738 as of March 6,
1998 primarily as a result of such conversions. As of March 6, 1998, an
aggregate of 4,328 shares and 377 shares of Series A Preferred Stock and Series
B Preferred Stock, respectively, had been converted (672 shares and 4,623
shares, respectively remain outstanding) into an aggregate of 16,851,414 shares
of Common Stock. As of March 6, 1997 all of the Series A Warrants and Series B
Warrants were outstanding. If all of the Series A Warrants 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. Assuming the Company had a sufficient number of authorized shares
of Common Stock to satisfy such conversions, as of March 6, 1998 the shares of
Common Stock issuable upon conversion of the outstanding shares of Series A
Preferred Stock would represent approximately 75% of the Common Stock on a
fully diluted basis. 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 "Item 7 - Liquidity and
Capital Resources-Convertible Preferred Stock."
Nasdaq Delisting. In December 1997, the Company was notified by the Nasdaq
Stock Market, Inc. ("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. See "Item 7 - Liquidity and Capital Resources -
Convertible Preferred Stock." No assurance can be given that the Company will be
able to comply with the listing requirements of the Nasdaq SmallCap Market.
Failure to so comply, additional violations of Nasdaq corporate governance rules
or an adverse finding following the review of the decision moving the Common
Stock from the Nasdaq National Market to Nasdaq SmallCap Market will likely
result in the Common Stock being delisted from the SmallCap Market, which will
likely have an adverse effect on the price and trading of the Common Stock.
Restructuring. The Company has announced a number of initiatives,
including having retained Bear, Stearns & Co. Inc. ("Bear Stearns") to explore
strategic alternatives for the Company. These initiatives include the disposal
of loans through whole loan sales, the sale of interest-only and residual
certificates and increased focus on the Company's higher margin product lines.
The Company has announced that it has begun implementing a restructuring plan
that includes streamlining and downsizing its operations. The Company is
reducing its workforce and has closed its branch operations in Virginia,
significantly reduced its correspondent originations for the foreseeable future
and exited its conventional lending business. The Company expects to record a
restructuring charge of $2.6 million in the first quarter of 1998.
In addition, the Company has retained CIBC Oppenheimer Corp. ("CIBC") to
explore strategic alternatives. CIBC is advising the Company with respect to
strategic alternatives including the restructuring, refinancing,
recapitalization or reorganization of the Company and exploration of the sale of
all or part of the Company's UK business. No assurance can be given that the
Company will be successful in pursuing strategic alternatives or in implementing
any of its initiatives. Furthermore, even if the Company is successful in
implementing its 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.
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
136 employees in February 1998. Due to additional attrition, however, the
Company's workforce was reduced to 577 employees as of March 1, 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.
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Discontinued Operations
As a result of liquidity constraints, the Company adopted a plan in March
1998 to sell the assets of CSC-UK (the "CSC-UK Sale"). CSC-UK focuses 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 such 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.
Accordingly, the operating results of CSC-UK and it 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 a result of revisions to the terms of certain of CSC-UK's loans as
required by the OFT, CSC-UK has recognized in the fourth quarter of 1997 an
impairment in the value of its mortgage servicing receivables of $106.2 million
and has written off unamortized goodwill of $52.7 million recorded in connection
with its UK acquisitions. See Item 3 for a discussion regarding the OFT.
On March 31, 1998, the Company announced that it had entered into
definitive agreements with Ocwen Financial Corporation ("Ocwen") for the sale
of substantially all of the businesses and assets, and certain liabilities of
the UK operations of CSC-UK. The acquisition includes the purchase of CSK-UK's
whole loan portfolio, securitized loan residuals and loan origination and
servicing businesses for a price of approximately (pound) 285 million, subject
to adjustment as of closing based on an agreed upon formula (currently
estimated to result in an upward or downward adjustment of approximately (pound)
5 million). Closing, which is anticipated to occur in April 1998, is subject to
satisfaction of a number of conditions, including obtaining rating agency
consents and various substitutions in connection with the transfer of the
securitized residual and related servicing rights (which will require the
consents of the trustees of several securitizations). As a result, there can be
no assurance that the transaction will be consummated.
As a result of the Company's adoption of a plan to institute the UK Sale,
the Company's net interest in its UK discontinued operations represents
expected proceeds of $102.2 million, net of accrued losses of $18.0 million.
Expected costs related to the disposal of UK discounted operations of $16.4
million is included in accounts payable and other liabilities at December 31,
1997.
Business Strategy
The Company's near-term priorities are to improve liquidity and to
reestablish profitability in order to restore confidence in the Company. The
Company's business strategy is to continue its focus on lending to borrowers who
are unable or unwilling to obtain mortgage financing from conventional mortgage
sources. The Company primarily originates loans through an extensive network of
independent mortgage brokers.
Improve Liquidity. The Company has taken a number of steps to improve
liquidity. 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. Although no
assurance can be given regarding its completion, the CSC-UK Sale, should it
occur, will substantially improve the Company's near-term cash position. In
addition, the Company has redirected its efforts to actively pursue the sale of
its loans through whole loan sales rather than through securitizations. Whole
loan sales are immediately cash flow positive because, when the Company sells
loans through whole loan sales, it receives a cash premium at the time of sale.
Streamline Operations. As part of its initiatives designed to improve the
efficiency and productivity of the Company's operations, the Company reduced its
workforce by 136 employees in February 1998. Due to additional attrition,
however, the Company's workforce was reduced to 577 employees as of March 1,
1998. In addition, the Company has closed its branch processing operations in
Virginia and plans to process loans originated from this region through the
Company's New York and Atlanta offices.
Maintain Geographic Coverage. The Company intends to maintain its current
independent mortgage broker network on a nationwide basis. The Company currently
has an extensive independent broker network covering 46 states and the District
of Columbia utilizing the Company's New York headquarters and three regional
processing centers located in California, Georgia and Illinois. The Company's
strategy involves (i) maintaining existing markets where the Company has been
successful in originating and
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purchasing loans, (ii) searching for and retaining business development
representatives for each area who have (or have the ability to develop) contacts
with the independent mortgage brokers originating loans in that area and (iii)
marketing to the independent mortgage brokers through the business development
representatives in order to generate loan originations. The Company intends to
increase the number of business development representatives to further penetrate
the eastern seaboard states as well as to broaden the depth and breadth of its
coverage in the western states.
Maintain Independent Mortgage Broker Relationships. The Company seeks to
maintain, and then to grow, its loan origination capability from its network of
independent mortgage brokers by restoring confidence in the Company by providing
consistent underwriting and prompt and efficient service at competitive prices.
The Company offers 20 loan products to its independent mortgage brokers to meet
the needs of the diverse borrower market. The Company targets brokers with a
smaller volume of loans, a segment of the mortgage market the Company believes
has typically been underserved by traditional sources, and attempts to retain
and grow these relationships by providing quality and reliable products and
services as well as consistent underwriting and substantial funding sources. The
Company processes and underwrites loans for its brokers, generally making
preliminary decisions within 24 hours of receipt of an application and funding
within 15-25 days thereafter.
Improve Servicing Performance. In the first quarter of 1998, the Company
retained an affiliate of Ocwen Financial Corporation (including its affiliates,
"Ocwen"), an established leader in the management and resolution of
underperforming loans, as a special loan servicer to sub-service the Company's
90-day-plus delinquent loans. The Company intends to deliver such non-performing
loans to Ocwen on an ongoing basis. In the first quarter of 1998, the Company
transferred to Ocwen 993 non-performing loans with an aggregate unpaid principal
balance of $66.4 million. The Company is evaluating arrangements for the use of
additional sub-servicers in the future and will attempt to continuously resolve
loans more than 90 days delinquent.
Overview
The Company primarily focuses on lending to individuals who are unable or
unwilling to obtain mortgage financing from conventional mortgage sources such
as thrift institutions and commercial banks. These conventional lending sources,
as compared to the Company, generally impose stringent and inflexible loan
underwriting guidelines and require a longer period of time to approve and fund
loans. The Company's customers are individuals who often have impaired or
unsubstantiated credit histories and/or unverifiable income (for example,
because they are self-employed) and require or seek a high degree of
personalized service and prompt response to their loan applications. As a
result, the Company's customers generally are not averse to paying the higher
interest rates that the Company charges for its loan programs as compared to the
interest rates charged by conventional lending sources. Because its customers
generally borrow for reasons other than the purchase of homes, the Company
believes that it is not as dependent as traditional mortgage bankers on general
levels of home sales and refinancing activity. The Company also offers
"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 to make home improvements).
The Company originates loans principally through an extensive network of
independent mortgage brokers utilizing the Company's New York headquarters and
three regional processing offices located in California, Georgia and Illinois.
The Company's highest producing broker accounted for 1.1% of the total
origination and purchase volume in 1997. The Company strives to process each
loan application received from mortgage brokers as quickly as possible in
accordance with the Company's loan application approval procedures. Accordingly,
most loan applications receive preliminary decisions within 24 hours of receipt
and are funded within 15-25 days thereafter. Additionally, during 1997, the
Company originated a significant portion of its loan production through its
Correspondent Loan Acquisition Program from selected financial institutions and
mortgage bankers known as loan correspondents, in accordance with the Company's
underwriting guidelines. The Company purchases such loans in the form of
complete loan
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packages. The highest producing loan correspondent in the Correspondent Loan
Acquisition Program accounted for 2.8% of the total origination and purchase
volume in 1997. The Company has significantly reduced its correspondent
originations and will continue to do so for the foreseeable future.
The Company offers a wide range of loan products, including fixed and
adjustable rate residential mortgage loans for refinancing, educational, home
improvement and debt consolidation purposes and fixed and adjustable rate
purchase money mortgage loans ("Core Products"). The Company also offers
"Sav*-A-Loan(R)" mortgage loans. Due to the Company's decision to focus on
higher margin products, the Company recently discontinued offering jumbo loans,
conventional home loans, Title I loans (loans partially insured by the Federal
Housing Administration (the "FHA"), an agency of the US Department of Housing
and Urban Development ("HUD"), pursuant to the Title I credit insurance program
of the National Housing Act of 1934) and loans on small multi-family and
mixed-use properties ("Discontinued Products").
As a result of the Company's liquidity inititatives, the Company
anticipates selling substantially all of its loan production through whole loan
sales with servicing released in private placements to a variety of
institutional purchasers. Accordingly, the Company anticipates that the size of
its servicing portfolio will decrease over time. During 1997, 1996 and 1995,
however, the Company sold its loan production primarily through securitizations
and, to a lesser extent, through whole loan sales. Through 1994, the Company had
sold virtually all of its loan production through whole loan sales. The Company
funds its originations and purchases through warehouse lines of credit. During
1997, 1996 and 1995, the Company sold $518.4 million, $73.5 million and $209.0
million of its loan production in whole loan sales to institutional investors
and sold $1.1 billion, $993.6 million and $235.0 million, respectively, of its
loan production through securitizations.
Although the Company releases the servicing rights to substantially all of
the loans it sells through whole loan sales, the Company had retained the
servicing rights to the loans it sold through securitizations prior to the
fourth quarter of 1997. Loan servicing involves the collection of payments due
under a loan, the monitoring of the loan, the remitting of payments to the
holder of the loan, the furnishing of reports to such holder and the enforcement
of the lender's rights, including attempting to recover delinquencies and
instituting loan foreclosures. During 1997, the Company sold the servicing
rights to $408.2 million of loans in connection with its whole loan sales. In
the first quarter of 1998, the Company sold the servicing rights to $407.3
million of loans in connection with its sale of residual certificates.
Loans
Overview
The Company's consumer finance activities primarily consist of
originating, selling and servicing mortgage loans. The loans are secured by
first mortgages or junior mortgages on one- to four-family residences. Once a
loan application has been received, the underwriting process completed and the
loan funded or purchased, the Company typically will package the loans in a
portfolio and sell the portfolio on a whole loan basis to institutional
purchasers. The Company releases the right to service the loan origination and
purchase volume that it sells through whole loan sales. The Company also acts as
a contract loan servicer for other financial institutions.
Loan Originations and Purchases
The Company is licensed or registered to originate loans in 46 states and
the District of Columbia through a network of independent mortgage brokers and
through its three branch offices. To a lesser extent, the Company also purchases
loans on a wholesale basis from selected financial institutions and mortgage
bankers. The Company expects that, during 1998, loan purchases through its
Correspondent Loan Acquisition Program will continue to become a less
significant portion of the Company's loan production. The Company believes that
its strategy of originating loans through independent mortgage
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brokers is efficient as it allows the Company to maintain lower overhead
expenses than competing companies utilizing a more extensive branch office
system.
Channels of Loan Originations and Purchases
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996 1995
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(Dollars in thousands)
<S> <C> <C> <C>
Independent Mortgage Brokers:
Principal balance.............. $ 985,823 $ 548,242 $ 291,907
Number of loans................ 17,850 9,173 4,161
Average principal balance
per loan....................... $ 55.2 $ 59.8 $ 70.2
Correspondent Loan Acquisition
Program:
Principal balance.............. $ 669,209 $ 741,113(1) $ 125,957
Number of loans................ 11,752 11,960(1) 1,847
Average principal balance
per loan....................... $ 56.9 $ 62.0(1) $ 68.2
Total Loan Originations and
Purchases:
Principal balance.............. $1,655,032 $1,289,355 $ 417,864
Number of loans................ 29,602 20,863 6,008
Average principal balance
per loan....................... $ 55.9 $ 61.8 $ 69.6
</TABLE>
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(1) Includes a one-time bulk purchase of $129.1 million bulk purchase of 2,259
loans with an average principal balance of $57,100.
Independent Mortgage Brokers. During 1997, 1996 and 1995, $985.8 million
(59.6%), $548.2 million (42.5%) and $291.9 million (69.9%), respectively, of the
Company's loan originations and purchases were sourced through the independent
mortgage broker network. All independent mortgage brokers submitting loan
applications to the Company must be registered or licensed as required by the
jurisdiction in which they operate. The Company believes that not only are
independent mortgage brokers the most efficient way to reach borrowers, but also
that the use of these brokers minimizes the Company's staffing requirements and
marketing expenses. The Company anticipates that a substantial majority of the
Company's future loan origination volume will be derived from independent
mortgage brokers due to the Company's initiatives to refocus its efforts on the
more profitable broker loans.
The Company receives credit application packages from mortgage brokers. As
independent mortgage brokers may submit loan applications to several prospective
lenders simultaneously, the Company strives to provide a quick response to the
loan application (in most instances a preliminary response is given on the same
day that the application is received). In addition, the Company emphasizes
personal service to both the broker and loan applicant by having consultants and
loan processors follow the loan application through the application and closing
process. The Company believes that consistent underwriting, quick response times
and personal service are critical to successfully originating loans through
independent mortgage brokers. During 1997, 1996 and 1995, the single highest
producing independent mortgage broker accounted for 1.1%, 1.9% and 6.4%,
respectively, of the Company's production volume, and the ten highest producing
independent mortgage brokers accounted for 5.3%, 7.8% and 21.0%, respectively,
of the Company's loan production volume. The Company periodically reviews the
performance of the loans produced by each independent broker and any pattern of
higher than expected delinquency or documentation deficiencies will result in
the elimination of that broker from the Company's approved list.
Correspondent Loan Acquisition Program. In addition to originating loans
through its network of independent mortgage brokers, the Company historically
purchased loans on a flow basis through its Correspondent Loan Acquisition
Program. These loan purchases are in the form of complete loan packages
originated by loan correspondents. Commenced in 1994, the Correspondent Loan
Acquisition Program
8
<PAGE> 9
accounted for $669.2 (40.4%), $612.0 million (47.5%) and $126.0 million (30.1%)
of the Company's total loan origination and purchase volume for 1997, 1996 and
1995, respectively. No single financial institution or other mortgage banker in
the Correspondent Loan Acquisition Program accounted for more than 2.8%, 7.4% or
6.4% of the Company's loan originations and purchases during 1997, 1996 or 1995,
respectively. As part of the Company's liquidity initiatives, the Company
anticipates that this program will account for substantially less of the
Company's total loan origination and purchase volume in the future because of
higher costs and lower positive cash flows associated with purchases under this
program as compared to originations through independent mortgage brokers.
Geographic Distribution of Loans. Although the Company is licensed or
registered in 46 states and the District of Columbia, it has historically
concentrated its business in the eastern seaboard states and the midwest. New
York contributed 14.9%, 17.7% and 37.0% of the Company's total loan production
volume for 1997, 1996 and 1995. The Company intends to maintain its loan
origination and purchase activities within the states it currently serves
through independent mortgage brokers. The Company intends to increase the number
of business development representations to further penetrate the eastern
seaboard states as well as to broaden the depth and breadth of its coverage in
the western states.
Geographic Distribution of Loan Originations
and Purchases
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
States: 1997 1996 1995
------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
New York................. 14.9% 17.7% 37.0%
Maryland................. 10.3 7.0 7.6
New Jersey............... 7.5 10.9 6.4
Illinois................. 7.1 10.0 17.6
Georgia.................. 6.3 4.9 4.2
Florida.................. 6.0 2.0 0.6
Pennsylvania............. 5.7 8.4 5.8
Virginia................. 5.6 4.6 2.5
Michigan................. 4.5 5.8 1.1
California............... 4.1 2.5 --
Ohio..................... 3.7 1.3 2.3
North Carolina........... 3.4 1.9 1.6
South Carolina........... 3.4 3.8 1.7
Massachusetts............ 3.2 3.8 1.9
Indiana.................. 2.6 1.7 4.1
All others............... 11.7 13.7 5.6
------ ------ ------
Total................. 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
The following table highlights certain selected information relating to
the origination and purchase of loans by the Company during the periods shown.
Loan Originations and Purchases
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Type of mortgage securing loan:
Core Products:
First mortgage............ 91.7% 94.0% 89.0%
Second mortgage........... 8.3% 6.0% 11.0%
Sav*-A-Loan(R) Products.....
First mortgage............ 1.4% 0.8% N/A
Second mortgage........... 98.6% 98.2% N/A
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Weighted average interest rate:
Core Products............... 11.2% 11.8 11.9
Sav*-A-Loan(R)Products...... 14.0% 14.4% N/A
Discontinued Products....... 9.0% 10.5% 12.8%
Weighted average initial
loan-to-value ratio (Core
Products)(1) 73.6% 72.5% 66.4%
</TABLE>
- ----------
(1) The loan-to-value ratio of a loan secured by a first mortgage is
determined by dividing the amount of the loan by the appraised value of
the mortgaged property at origination. The loan-to-value ratio of a loan
secured by a second mortgage is determined by taking the sum of the loans
secured by the first and second mortgages and dividing by the appraised
value of the mortgaged property at origination.
Loan Underwriting
Underwriting Guidelines for Core Products. The following is a description
of the underwriting guidelines customarily and currently employed by the Company
with respect to Core Products which it originates. The Company revises such
guidelines from time to time in connection with changing economic and market
conditions. These underwriting guidelines are applied consistently with respect
to all of the Company's Core Products.
The principal balance of the loans purchased or originated by the Company
generally ranges from a minimum of $10,000 to a maximum of $500,000. Under the
Company's current policy, the majority of the mortgage loans the Company
acquires or originates have loan-to-value ratios which do not exceed 90%. Such
ratio may exceed 90% in the future.
The Company specializes in mortgage loans that do not conform to the
underwriting standards of FNMA or FHLMC and typically applied by banks and other
primary lending institutions, particularly with regard to a prospective
borrower's credit history. In analyzing loan applications, the Company analyzes
both the borrower's credit and the value of the underlying property which will
secure the loan, including the characteristics of the underlying first lien, if
any.
The Company considers factors pertaining to the borrower's current
employment, stability of employment and income, financial resources, and
analysis of credit, reflecting not only the ability to pay, but also the
willingness to repay contractual obligations. The property's age, condition,
location, value and continued marketability are additional factors considered in
each risk analysis.
The Company's underwriting standards are designed to provide a program for
all qualified applicants in an amount and for a period of time consistent with
their ability to repay. All of the Company's underwriting determinations are
made without regard to sex, marital status, race, color, religion, age or
national origin. Each application is evaluated on its individual merits,
applying the guidelines set forth below, to ensure that each application is
considered on an equitable basis.
The Company originates mortgage loans with different credit
characteristics depending on the credit profiles of individual borrowers. Except
for "Balloon Loans" (i.e., mortgage loans that provide on the date of
origination for scheduled monthly payments in level amounts substantially lower
than the amount of the final scheduled payment), the mortgage loans originated
by the Company generally have amortization schedules ranging from 15 years to 30
years and require monthly payments which are due as of a scheduled day of each
month which is fixed at the time of origination. Balloon Loans generally provide
for scheduled amortization over 30 years with a due date and a balloon payment
at the end of the fifteenth year. The collateral securing loans acquired or
originated by the Company are generally one- to four-family residences,
including condominiums, manufactured housing and townhomes and such properties
may or may not be occupied by the owner. It is the Company's policy not to
accept mobile or commercial properties or unimproved land as collateral.
10
<PAGE> 11
The Company's mortgage loan programs include: (i) a full documentation
program and (ii) a non-income verification program. Under the full documentation
program, the borrower's total monthly debt obligations (which include principal
and interest on the new loan and all other mortgages, loans, charge accounts and
scheduled indebtedness) generally cannot exceed 50% of the borrower's monthly
gross income. Loans to borrowers who are salaried employees must be supported by
current employment information in addition to employment history which
information is generally verified based on written confirmation from employers,
one or more pay-stubs, recent W-2 tax forms or telephone confirmation from the
employer. For the Company's non-income verification program, proof of employment
or self-employment is required.
The Company requires that a full appraisal of the property used as
collateral for any loan that it acquires or originates be performed in
connection with the origination of the loan. All appraisals are performed by
third party, fee-based appraisers and generally conform to current FNMA/FHLMC
secondary market requirements for residential property appraisals. Each such
appraisal generally includes, among other things, an inspection of the exterior
and interior of the subject property and, where available, data from sales
within the preceding 12 months of similar properties within the same general
location as the subject property.
Credit reports by two independent, nationally recognized credit reporting
agency (or a merged report) reflecting the applicant's complete credit history
is also required. The credit report typically contains information reflecting
delinquencies, repossessions, judgments, foreclosures, bankruptcies and similar
instances of adverse credit that can be discovered by a search of public
records. An applicant's recent credit performance weighs heavily in the
evaluation of risk by the Company. The credit report is used to evaluate the
borrower's record and must be current (within 45 days) at the time of closing. A
lack of credit history will not necessarily preclude a loan if the borrower has
sufficient equity in the property. Serious delinquent payments on the borrower's
credit report must be satisfactorily explained and will normally reduce the
amount of the loan for which the applicant can be approved.
The Company requires title insurance coverage issued by an approved ALTA
title insurance company on all property securing mortgage loans it originates or
purchases. The Company and its assignees are generally named as the insured.
Title insurance policies indicate the lien position of the mortgage loan and
protect the Company against loss if the title or lien position is not as
indicated. The applicant is also required to secure hazard and, in certain
instances, flood insurance in an amount sufficient to cover the lesser of (i)
the new loan and any senior mortgage and (ii) an amount sufficient to cover
replacement costs of the mortgaged property.
The Company has established classifications with respect to the credit
profiles of loans based on certain of the borrower's characteristics. Each loan
applicant is placed into one of four letter ratings ("A" through "D," with
subratings within those categories), depending upon a number of factors
including the applicant's credit history, based on credit bureau reports and
employment status. Terms of loans made by the Company, as well as the maximum
loan-to-value ratio and debt service to income coverage (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
classification of the borrower. Borrowers with lower credit ratings generally
pay higher interest rates and loan origination fees.
The following table sets forth certain information with respect to loan
applicants for Core Products based on the Company's internal borrower
classification, along with weighted average coupons, during the years ended
December 31, 1997, 1996 and 1995.
11
<PAGE> 12
<TABLE>
<CAPTION>
Core Products Originations
For the Year Ended
-----------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996 December 31, 1995
--------------------------- --------------------------- --------------------------
The Company's Weighted Weighted Weighted
Borrower % of Average % of Average % of Average
Classification Total Total Coupon Total Total Coupon Total Total Coupon
- -------------- ----- ----- -------- ----- ----- -------- ----- ----- --------
(Dollars in million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
"A" Risk $347.6 42.3% 10.3% $ 546.2 49.6% 11.2% $ 181.2 44.6% 11.2%
"B" Risk 363.8 44.3% 11.2% 364.4 33.1% 11.6% 152.0 37.4% 12.0%
"C" Risk 72.2 8.8% 12.2% 107.4 9.7% 12.8% 46.0 11.3% 13.2%
"D" Risk 38.5 4.7% 13.2% 83.8 7.6% 14.8% 27.1 6.7% 14.2%
------ ----- ----- -------- ----- ----- -------- ----- -----
Total $822.1 100.0% 11.0% $1,101.8 100.0% 11.8% $ 406.3 100.0% 11.9%
====== ===== ===== ======== ===== ===== ======== ===== =====
</TABLE>
The criteria currently used by the Company in classifying loan applicants
for Core Products can be generalized as follows:
"A" Risk. Under the "A" risk category, a loan applicant must have
generally repaid installment or revolving debt according to its terms.
o Existing mortgage loans: required to be current at the time the
application is submitted, with a maximum of two 30-day late payment(s)
within the last 12 months being acceptable.
o Non-mortgage credit: minor derogatory items are allowed; any recent open
collection accounts or open charge-offs, judgments or liens would
generally disqualify a loan applicant from this category.
o Bankruptcy filings: must have been discharged more than four years for
Chapter 7 filings and more than two years for Chapter 13 filings prior to
closing with credit re-established.
o Maximum loan-to-value ratio: up to 90% is permitted for a loan secured
by an owner-occupied one-to-four family residence; 85% for a loan secured
by an owner-occupied condominium; and 80% for a loan secured by a
non-owner occupied one- to four-family residence.
o Debt service-to-income ratio: generally 50% or less.
"B" Risk. Under the "B" risk category, a loan applicant must have
generally repaid installment or revolving debt according to its terms.
o Existing mortgage loans: required to be current at the time the
application is submitted, with a maximum of two 60-day late payments
within the last 12 months being acceptable.
o Non-mortgage credit: some prior defaults may have occurred, but major
credit paid or installment debt paid as agreed may offset some
delinquency.
o Chapter 7 bankruptcy filings: must have been discharged more than two
years prior to closing with credit re-established.
o Chapter 13 bankruptcy filings: must be open a minimum of two years and
be paid with no 30-day delinquencies.
12
<PAGE> 13
o Maximum loan-to-value ratio: up to 80% (or 90% with no more than three
30-day mortgage delinquencies) is permitted for a loan secured by an
owner-occupied one- to four-family residence; and 70% (or 80% with no more
than three 30-day mortgage delinquencies) for a loan secured by a
non-owner-occupied one- to four-family residence.
o Debt service-to-income ratio: generally 50% or less (45% or less for 90%
loan-to-value ratios).
"C" Risk. Under the "C" risk category, a loan applicant may have
experienced significant credit problems in the past.
o Existing mortgage loans: must be brought current from loan proceeds;
applicant is allowed a maximum of one 90-day late payment within the last
12 months.
o Non-mortgage credit: significant prior delinquencies may have occurred,
but major credit paid or installment debt as agreed may offset some
delinquency; all delinquent credit must be current or paid off (with the
exception of $2,000 in major credit card charge-offs or collections and
$2,000 in medical charge-offs or collections).
o Chapter 7 bankruptcy filings: must have been discharged for a minimum of
two years, and a history of re-established credit is required.
o Chapter 13 bankruptcy filings: must be open a minimum of two years and
be paid with no 30-day delinquencies.
o Maximum loan-to-value ratio: up to 75% is permitted for a loan secured
by an owner-occupied one- to four-family residence; 70% for a loan secured
by an owner-occupied condominium; and 65% for a non-owner-occupied one- to
four-family residence.
o Debt service-to-income ratio: generally 50% or less.
"D" Risk. Under the "D" risk category a loan applicant may have
experienced significant credit problems in the past.
o Existing mortgage loans: must be brought current from loan proceeds and
no more than 120 days delinquent at closing; an explanation for such
delinquency is required.
o Non-mortgage credit: significant prior defaults may have occurred, but
the applicant must be able to demonstrate regularity in payment of some
credit obligations; all charge-offs, judgments, liens or collection
accounts must be paid off (with the exception of $2,000 in major credit
card charge-offs or collections and $2,000 in medical charge-offs or
collections).
o Bankruptcy filings: Chapter 13 bankruptcies open a minimum of one year
will be considered with evidence that the plan is being paid according to
terms with one 30 day delinquency; outstanding balance must be paid in
full and discharged from loan proceeds.
o Maximum loan-to-value ratio: up to 70% is permitted for a loan secured
by an owner-occupied one- to four-family residence; 60% for a loan secured
by an owner-occupied condominium; and 60% for a non- owner-occupied one-
to four-family residence.
o Debt service-to-income ratio: generally 50% or less.
Exceptions. As described above, the Company uses the foregoing categories
and characteristics only as guidelines. On a case-by-case basis, the Company may
determine that the prospective mortgagor warrants a risk category upgrade, a
debt service-to-income ratio exception, a pricing exception, a loan-to-value
13
<PAGE> 14
exception or an exception from certain requirements of a particular risk
category (collectively called an "Upgrade" or an "Exception"). An Upgrade or
Exception may generally be allowed if the application reflects certain
compensating factors, among others: low loan-to-value ratio; pride of ownership;
stable employment or length of occupancy at the applicant's current residence.
An Upgrade or Exception may also be allowed if the applicant places a down
payment equal to at least 20% of the purchase price of the mortgaged property,
or if the new loan reduces the applicant's monthly aggregate debt load.
Accordingly, the Company may classify in a more favorable risk category certain
mortgage loans that, in the absence of such compensating factors, would satisfy
only the criteria of a less favorable risk category.
Underwriting Guidelines for Sav*-A-Loans(R). The Company's
"Sav*-A-Loan(R)" program is designed for homeowners who may have little or no
equity in their property, but who possess good to excellent credit histories and
provable income, who use the proceeds for home improvements and/or debt
consolidation. Under the "Sav*-A-Loan(R)" program, the Company obtains credit
information from two sources or a merged report and generally does not permit
the ratio of total monthly debt obligations to monthly gross income to exceed
45%. The borrower must generally fall within one of the two highest credit
classifications established by the Company. The principal amount of the
"Sav*-A-Loans(R)" purchased or originated by the Company generally ranges from a
minimum of $10,000 to a maximum of $100,000, with interest rates generally
ranging from 11.75% to 14.25%. Under current policy, the majority of the
mortgage loans the Company acquires or originates have loan-to-value ratios
which do not exceed 125%. The loan may be secured by a first, second or third
lien on the related property. Each property must be an owner occupied, one- to
two-family residence.
Loans of $10,000 to $25,000 require a title report. Loans of more than
$25,000 require a full title insurance policy. To establish property value, the
Company requires the original documentation reflecting the sales price (HUD-IA)
for properties purchased within the last 12 months. All others require a
drive-by appraisal or an existing appraisal if dated less than six months prior
to application. Third liens or loans of more than $75,000 require full
appraisals. The Company will consider the property value stated on the
application for certain A Grade borrowers with a minimum industry credit score
("Credit Score") of 660. The maximum loan amount accepted under this program is
$35,000.
Certain criteria currently used by the Company in classifying loan
applicants for Sav*-A-Loan(R) products can be generalized as follows:
"A" Grade:
o Existing Mortgage Loans: Required to be current at the time the
application is submitted, with no 30-day late payment(s) within
the last 12 months; or a maximum of one 30-day late payment within
the last 24 months.
o Non-Mortgage Credit: Up to a maximum of three 30-day late payments
within the last 24 months.
o There must be no bankruptcies, judgements, tax liens, charge-offs
or foreclosures.
"B" Grade:
o Existing Mortgage Loans: Required to be current at the time the
application is submitted, with one 30-day late payment within the
last 12 months; or a maximum of two 30-day late payments within
the last 24 months.
o Non-Mortgage Credit: Up to a maximum of four 30-day late payments
within the last 24 months.
o There must be no foreclosures or bankruptcies in the last three
years; tax liens, minor judgements or charge-offs are acceptable
(but must be paid) with reasonable explanations.
The Company currently offers three Sav*-A-Loan(R) programs: Platinum, Gold
and Silver. Certain criteria currently used by the Company in classifying loan
applicants with such Sav*-A-Loan(R) programs is as follows:
Platinum Program:
o Credit Score: Minimum qualifying score of 700
o Loan Limits: Minimum of $10,000, maximum of $100,000
o Debt Ratio: 40% maximum
o Disposable Income: Minimum of $2,000 monthly
o Grade: A only
o Loan Purpose: Debt consolidation and home improvement (minimum of
50% of loan must be used for debt consolidation)
o Cash Out: Maximum of 25% of loan may be used for other purposes
14
<PAGE> 15
Gold Program:
o Credit Score: A Grade - minimum qualifying score of 620, B Grade -
minimum qualifying score 640
o Loan Limits: Minimum of $10,000, maximum of $75,000
o Debt Ratio: A Grade - 42% maximum (fixed income applicants maximum
of 40%), B Grade - 40% maximum
o Disposable Income: Minimum of $1,500 monthly
o Loan Purpose: 100% of debt consolidation
o Cash out: maximum of 15% of loan may be used for other purposes
Silver Program:
o Credit Score: A Grade - minimum qualifying score of 620, B Grade -
minimum qualifying score 640
o Loan Limits: Minimum of $10,000, maximum of $60,000
o Debt Ratio: A Grade - 45% maximum, B Grade - 42% maximum, Fixed
income applicants - 40% maximum
o Disposable Income: Minimum of $1,200 monthly
o Loan Purpose: Debt consolidation (maximum of 65% must be used for
debt consolidation) and home improvement
o Cash out: Maximum of 10% of loan may be used for other purposes
Loan Sales
The Company sells substantially all of its loan production volume. During
1997, 1996 and 1995, the Company sold $1.6 billion, $1.3 billion and $359.0
million of loans, representing 98.9%, 99.1%, 85.9% of total originations and
purchases during these periods, respectively. In the fourth quarter of 1997,
as result of the Company's liquidity initiatives, the Company's strategy
shifted from emphasizing the sale of its loan production volume through
securitizations to the use of whole loan sales.
Whole Loan Sales. By employing whole loan sales, the Company is better
able to manage its cash flow. Whole loan sales, unlike loan sales through
securitization, are immediately cash flow positive but produce lower margins
and, therefore, will negatively impact the Company's earnings. Whole loan sales
represented all of the Company's loan sales during 1994, but with the Company's
prior emphasis on the sale of loans through securitizations, had represented
31.7%, 5.8% and 24.8%, respectively, of all loan sales in 1997, 1996 and 1995.
The Company anticipates that the disposition of substantially all of its loan
production volume in 1998 will be through whole loan sales. No assurance can be
given, however, that the Company will be successful in selling all of its loan
production through whole loan sales or otherwise.
Loans are generally sold in portfolios. Upon the sale of a loan portfolio,
the Company generally receives a "premium," representing a cash payment in
excess of the par value of the loans (par value representing the unpaid balance
of the loan amount given to the borrower) or in a few instances a "yield
differential" whereby the Company receives a portion of the interest paid by the
borrower for the life of the loan. Premiums on whole loan sales represented
4.5%, 1.6% and 22.8%, respectively, of the Company's total revenues and 9.7%
($8.1 million), 2.2% ($1.7 million) and 31.6% ($8.3 million), respectively, of
the Company's total gain on sale of loans in 1997, 1996 and 1995.
The Company sells substantially all of its loan production volume to
various institutional purchasers on a non-recourse basis with customary
representations and warranties covering loans sold. The Company, therefore, may
be required to repurchase loans pursuant to its representations and warranties
and may have to return a portion of the premium earned if a loan is prepaid
during a limited period of time after sale, usually six months and not greater
than one year. The Company typically repurchases a loan if a default occurs
within the first month following the date the loan was originated or if the loan
documentation is alleged to contain misrepresentations made by the borrower.
15
<PAGE> 16
Securitizations. During 1997, 1996 and 1995, the Company sold $1.1
billion, $993.6 million and $235.0 million, respectively, of its loan production
volume in securitizations. Due to the Company's current financial condition and
its inability to access the capital markets and in order to improve its cash
flow, the Company does not anticipate selling its loan production volume in
securitizations for the foreseeable future.
In loan sales through securitizations, the Company sells its loans into a
trust for a cash purchase price and interests in such trust consisting of
interest-only regular interests and the residual interest which are represented
by the interest-only and residual certificates. The Company retains no interest
in the loans sold into such trust other than its interest as a holder of the
interest-only and residual certificates issued by such trust. 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 the 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. An interest-only certificate represents an interest in a
trust with fixed terms that unconditionally entitles the holder to receive
interest payments that are either fixed or derived from a formula. A residual
certificate represents the interest in the trust which has no principal amount
and does not unconditionally entitle the holder to receive payments. A holder of
the residual certificate is entitled only to the remainder, if any, of the
interest cash flow from the mortgage loans sold to the trust after payment of
all other interests in such trust and as such bears the greatest degree of risk
regarding the performance of such mortgage loans. Securitizations take the form
of pass-through certificates which represent undivided beneficial ownership
interests in a portfolio consisting of the Company's loans that the Company has
sold to a trust. The servicer of the loan portfolio remits the principal and
part of the interest payments on such loans to the trust which in turn passes
them to investors in the pass-through certificates. A portion of the Company's
securitizations have also included the payment of pre-funded amounts.
The Company recognizes as current revenue the fair value of the
interest-only and residual certificates and, in future periods, may adjust the
value of such certificates to reflect the Company's estimate of the fair value
of such certificates at such time. Fair value is determined based on various
economic factors, including loan type, balance, interest rate, date of
origination, term and geographic location. The Company also uses other available
information such as reports on prepayment rates, collateral value, economic
forecasts and historical default and prepayment rates of the portfolio under
review, as well as actual valuations resulting from the sale of such
certificates. 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 paid on the related securities, less applicable fees and credit losses. The
Company discounts the expected cash flows at a discount rate which it believes
to be consistent with the required risk-adjusted rate of return to an
independent third party purchaser of the interest-only and residual
certificates. Realization of the value of these residual interests 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.
In a securitization, the Company purchases credit enhancements to the
senior interest in the related trusts in the form of insurance policies provided
by insurance companies. The pooling and servicing agreements that govern the
distribution of cash flows from the loans included in the trusts require either
(i) the establishment of a reserve that may be funded with an initial cash
deposit by the Company or (ii) the over-collateralization of the trust intended
to result in receipts and collections on the loans that exceed the amounts
required to be distributed to holders of senior interests. To the extent that
borrowers default on the payment of principal or interest on the loans, losses
will be paid out of the reserve account or will reduce the
over-collateralization to the extent that funds are available and will result in
a reduction in the value of the interest-only and residual certificates held by
the Company.
16
<PAGE> 17
If payment defaults exceed the amount in the reserve account or the amount of
over-collateralization, as applicable, the insurance policy maintained by the
Company will pay any further losses experienced by holders of the senior
interests in the related trust. The delinquency rates on the pool of loans sold
in five of the Company's 14 securitizations as of December 31, 1997 have
exceeded the permitted limits set forth in the related pooling and servicing
agreements. As a result of the exceeded limits, the Company has been required to
maintain in the related reserve account all funds that would have otherwise been
paid to the Company in respect of the interest-only and residual certificates.
In securitizations, the Company may be required either to repurchase or to
replace loans which do not conform to the representations and warranties made by
the Company in the pooling and servicing agreements entered into when the
portfolios of loans are sold through a securitization. During 1997, 1996 and
1995, the Company repurchased 63 loans for $5.4 million, 73 loans for $4.7
million and seven loans for $623,300, respectively, primarily due to first month
defaults that remain uncured for 90 days.
Loan Servicing and Collections
Loan servicing is the collection of payments due under a loan, the
monitoring of the loan, the remitting of payments to the holder of the loan,
furnishing reports to such holder and the enforcement of such holder's rights,
including attempting to recover delinquencies and instituting loan foreclosures.
In order to maximize the premium earned on the sale of loans through whole
loan sales, the Company will release servicing rights on substantially all of
the loan origination and purchase volume it sells through whole loan sales. The
Company expects that as a result of its selling loans through whole loan sales
with servicing released, the size of its managed servicing portfolio will
decrease in the future. The Company anticipates that such decrease will permit
the Company to better service the loans for which servicing rights are retained.
The Company retained the servicing rights to 75.1% of the $1.6 billion in loans
it sold during 1997, 97.8% of the $1.3 billion in loans it sold during 1996 and
74.2% of the $359.0 million in loans it sold during 1995.
As of December 31, 1997, the Company was servicing 47,020 loans
representing an aggregate of $2.6 billion. The Company's servicing portfolio was
decreased to $1.8 billion at February 28, 1998 primarily as a result of the sale
of its 1997 home equity residual certificates with the accompanying servicing
rights and the sale through whole loan sales with servicing related loans
originated in 1997 but sold in 1998. Revenue generated from loan servicing
amounted to 0.9% (excluding $148.0 million of net unrealized losses), 2.6% and
2.0% of total revenues for 1997, 1996 and 1995, respectively.
The Company utilizes loan servicing software which enables it to implement
servicing and collection procedures and to provide a series of adaptable custom
designed reports including a trial balance, a remittance report, a paid-off
report and a delinquency report. The Company maintains its loan servicing
computer operations with CPI/Alltel ("CPI"), a service bureau located in
Jacksonville, Florida. The CPI system provides additional capacity for the
Company's increased loan origination and purchase volume and provides greater
flexibility in monitoring the various types of loan product the Company offers.
Company collectors have computer access to telephone numbers, payment histories,
loan information and all past collection notes. In the first quarter of 1997,
the Company implemented a "predictive dialer" program, whereby delinquent
accounts are automatically telephoned and the call transferred immediately to
the next available collector whose computer will simultaneously provide the
relevant information on the account.
Recently, the Company retained Ocwen, an established leader in the
management and resolution of underperforming loans, as a special loan servicer
to sub-service the Company's 90-day-plus delinquent loans. The Company has the
right to deliver non-performing loans to Ocwen on an ongoing basis. In the
first quarter of 1998, the Company transferred to Ocwen 993 non-performing
loans with an aggregate unpaid principal balance of $66.4 million.
The Company has a specific policy which sets forth actions to be taken at
various stages of delinquency beginning on the tenth and extending to the
ninetieth day after the payment due date. Between 90-105 days of delinquency, it
is decided whether to foreclose or to take other action. All collection
activity, including
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the date collection letters were sent and detailed notes on the substance of
each collection telephone call, is entered into a permanent collection history
for each account.
The CPI system tracks and maintains homeowners' insurance information.
Expiration reports are generated weekly listing all policies scheduled to expire
within 30 days. When policies lapse, a letter is issued advising the borrower of
the lapse and that force placed insurance will be obtained at the borrower's
expense. The Company also has an insurance policy in place that provides
coverage automatically for the Company in the event that the Company fails to
obtain force placed insurance.
The Company funds and closes loans throughout the month. Most of the
Company's loans require a first payment 30 days after funding. Accordingly, the
Company's servicing portfolio consists of loans with payments due at varying
times each month. This system alleviates the cyclical highs and lows that some
servicing companies experience as a result of heavily concentrated due dates.
The following table provides data on delinquency experience and real
estate owned ("REO") properties for the Company's serviced portfolio (excluding
loans for which the Company acted as sub-servicer for others).
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------
1997 1996 1995
---------------------- ------------------------ ------------------------
% of % of % of
Dollars in Serviced Dollars in Serviced Dollars in Serviced
Thousands Portfolio Thousands Portfolio Thousands Portfolio
---------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Serviced portfolio ...... $2,231,519 100.0% $1,470,344 100.0% $ 311,649 100.0%
========== ===== ========== ===== ========== ======
Delinquencies:
30-59 days delinquent . $ 65,063 2.9% $ 54,733 3.7% $ 5,479 1.8%
60-89 days delinquent . 30,479 1.4 19,733 1.4 1,580 0.5
90 days or more
delinquent .......... 27,808 1.3 24,800 1.7 4,968 1.6
---------- ----- ---------- ----- ---------- ------
Total delinquencies . $ 123,350 5.6% $ 99,266 6.8% $ 12,027 3.9%
========== ===== ========== ===== ========== ======
Defaults:
Bankruptcies .......... $ 25,131 1.1% $ 4,269 0.3% $ -- --
Foreclosures .......... 100,901 4.5 27,689 1.9 -- --
---------- ----- ---------- ----- ---------- ------
Total defaults ...... $ 126,032 5.6% $ 31,958 2.2% $ -- --
========== ===== ========== ===== ========== ======
REO property ............ $ 8,549 0.4% $ 1,328 0.1% $ 141 --
========== ===== ========== ===== ========== ======
Charge-offs ............. $ 4,734 0.2% $ 36 0.0% $ -- --
========== ===== ========== ===== ========== ======
</TABLE>
Foreclosure Regulation and practices regarding the liquidation of
properties (e.g., foreclosure) and the rights of the mortgagor in default vary
greatly from state to state. Loans originated or purchased by the Company are
secured by mortgages, deeds of trust, trust deeds, security deeds or deeds to
secure debt, depending upon the prevailing practice in the state in which the
property securing the loan is located. Depending on local law, foreclosure is
effected by judicial action and/or non-judicial sale, and is subject to various
notice and filing requirements. If foreclosure is effected by judicial action,
as in New York and Illinois for example, the foreclosure proceedings may take
several months.
In general, the borrower, or any person having a junior encumbrance on the
real estate, may cure a monetary default by paying the entire amount in arrears
plus other designated costs and expenses incurred in enforcing the obligation
during a statutorily prescribed reinstatement period. Generally, state law
controls the amount of foreclosure expenses and costs, including attorneys'
fees, which may be recovered by a lender.
After the reinstatement period has expired without the default having been
cured, in certain states the borrower or junior lienholder has the right of
redemption of the property by paying the loan in full to prevent the scheduled
foreclosure sale. For example, in Illinois the right of redemption exists for 90
days from the date of foreclosure judgment; New York law does not recognize a
right of redemption.
There are a number of restrictions that may limit the Company's ability to
foreclose on a property. A lender may not foreclose on the property securing a
second mortgage loan unless it forecloses subject to
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each senior mortgage, in which case the junior lender or purchaser at such a
foreclosure sale will take title to the property subject to the lien securing
the amount due on the senior mortgage. Moreover, if a borrower has filed for
bankruptcy protection, a lender may be stayed from exercising its foreclosure
rights. Also, certain states provide a homestead exemption which may restrict
the ability of a lender to foreclose on residential property. In such states,
the Company requires the borrower to waive his or her right of homestead. While
such waivers are generally enforceable in Illinois, waivers of homestead rights
may not be enforceable in other states. Due to these restrictions, as the
Company has experienced an increase in the number of loans serviced and in the
percentage of such loans that are delinquent, there has been a substantial
increase in the number of properties pending foreclosure.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien due to several factors,
including the difficulty of determining the exact status of title to the
property, the possible deterioration of the property during the foreclosure
proceedings and a requirement that the purchaser pay for the property in cash or
by cashier's check. Thus, the foreclosing lender often purchases the property
from the trustee or referee for an amount equal to the principal amount
outstanding under the loan, accrued and unpaid interest and the expenses of
foreclosure. Depending upon market conditions, the ultimate proceeds of the sale
may not equal the lender's investment in the property. If, after determining
that purchasing a property securing a loan will minimize the loss associated
with the defaulted loan, the Company may bid at the foreclosure sale for such
property or accept a deed in lieu of foreclosure.
Except when subcontracted, loan foreclosures are the responsibility of the
Company's loan servicing operations. Prior to a foreclosure, the Company
performs a foreclosure analysis with respect to the mortgaged property to
determine the value of the mortgaged property and the bid that the Company will
make at the foreclosure sale. This is based on (i) a current valuation of the
property obtained through a drive-by appraisal conducted by an independent
appraiser, (ii) an estimate of the sale price of the mortgaged property obtained
by sending two local realtors to inspect the property, (iii) an evaluation of
the amount owed, if any, to a senior mortgagee and for real estate taxes and
(iv) an analysis of marketing time, required repairs and other costs, such as
real estate broker fees, that will be incurred in connection with the
foreclosure sale. The Company has established a committee comprised of members
of senior management to perform the foreclosure analyses.
The Company assigns all foreclosures to outside counsel located in the
same state as the mortgaged property. Bankruptcies filed by borrowers are also
assigned to appropriate local counsel who are required to provide monthly
reports on each loan file.
Marketing
The Company focuses its marketing efforts on sources of loan originations,
as opposed to individual borrowers, through six regional managers and more than
50 business development representatives. These business development
representatives and regional managers seek to establish and maintain the
Company's relationships with its principal sources of loan originations --
independent mortgage brokers, other mortgage bankers and financial institutions.
Through its focus on sources of originations as opposed to loan applicants, the
Company avoids additional fixed costs associated with a large network of retail
offices and retail advertising.
The business development representatives provide various levels of
information and assistance to the Company's sources of loan originations
depending on the sophistication and resources of the particular customer, and
are primarily responsible for maintaining the Company's relationships with its
sources of loan originations. The business development representatives endeavor
to increase the volume of loan originations from independent mortgage brokers,
financial institutions and other mortgage bankers located within the geographic
territory assigned to such representative through, among other actions, visits
to customer offices and attendance at trade shows, as well as print
advertisements in broker trade magazines. These representatives also provide the
Company with information relating to customers, competitive
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products and pricing and new market entrants, all of which assist the Company in
refining its programs and its classifications of borrowers in order to meet
competitive needs. The business development representatives are compensated with
a base salary and commissions based on the volume of loans that are originated
as a result of their efforts.
Competition
As a consumer finance company, the Company faces intense competition.
Negative recent developments have caused the Company to be competitively
disadvantaged. Competitors use information about the Company's losses and market
valuation to attract customers away from the Company. Traditional competitors in
the financial services business include other mortgage banking companies,
commercial banks, credit unions, thrift institutions, credit card issuers and
finance companies. Many of these competitors in the consumer finance business
are substantially larger and have considerably greater financial, technical and
marketing resources than the Company. In addition, many financial service
organizations have formed national networks for loan origination substantially
similar to the Company's loan programs. Furthermore, certain large national
finance companies and conforming mortgage originators have announced their
intention to adapt their conforming origination programs and allocate resources
to the origination of non-conforming loans. In addition, certain of these larger
mortgage companies and commercial banks have begun to offer products similar to
those offered by the Company, targeting customers similar to those of the
Company. Competition can take many forms including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and term of
the loan, and interest rates.
The Company competes on the basis of providing prompt and responsive
service, consistent underwriting and competitive loan programs to borrowers
whose needs are not met by traditional financial institutions.
Regulation
The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended ("ECOA"), the Fair
Credit Reporting Act of 1970, as amended, the Federal Real Estate Settlement
Procedures Act ("RESPA"), and Regulation X, the Home Mortgage Disclosure Act,
the Federal Debt Collection Practices Act and the National Housing Act of 1934,
as well as other federal and state statutes and regulations affecting the
Company's activities. The Company is also subject to the rules and regulations
of, and examinations by, HUD and state regulatory authorities with respect to
originating, processing, underwriting, selling, securitizing and servicing
loans. These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investment and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, termination or suspension of servicing contracts without compensation to
the servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.
The Company believes that it is in compliance in all material respects
with applicable federal and state laws and regulations.
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Environmental Matters
To date, the Company has not been required to perform any investigation or
clean up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.
In the course of its business, the Company has acquired, and may acquire
in the future, properties securing loans which are in default. Although the
Company primarily lends to owners of residential properties, there is a risk
that the Company could be required to investigate and clean up hazardous or
toxic substances or chemical releases at such properties after acquisition by
the Company, and may be held liable to a governmental entity or to third parties
for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination. In addition, the
owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property. On all loan applications where the
Company believes there may exist, or an appraisal may indicate, a possible
environmental problem, the Company requires a Phase I Environmental Report.
Employees
As part of the Company's cost saving initiatives, the Company has reduced
its workforce from 924 employees as of June 30, 1997 to 837 employees as of
December 31, 1997, 13 of whom were part-time employees and 824 of whom were
full-time employees. Of the Company's employees, 5.5% were in management, 57.5%
were in sales and marketing, 24.3% were in administrative support and 12.7% were
in servicing. The Company had 579 employees working at its New York headquarters
as of December 31, 1997. None of the Company's employees is covered by a
collective bargaining agreement. As a result of negative recent developments,
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. 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. As of March 1, 1998, the Company's workforce was
reduced to 577 employees. The Company considers its relations with its employees
to be satisfactory.
Item 2. Properties
The Company's executive and administrative offices and the majority of its
mortgage banking operations are located at 565 Taxter Road in Elmsford, New
York, where the Company leases approximately 40,000 square feet of office space
at an aggregate annual rent of approximately $564,000. The leases expire on
August 31, 2000. The Company has leased an additional 17,000 square feet of
office space at 8 Skyline Drive, Hawthorne, New York and an additional 36,000
square feet of office space at 555 White Plains Road, Tarrytown, New York. The
Hawthorne lease provides for an initial aggregate annual rent of approximately
$246,500 and for scheduled increases in square footage up to an aggregate of
approximately 35,000 square feet and annual rent up to an aggregate annual rent
of approximately $510,000 and expires in 2001. The Tarrytown lease provides for
an initial aggregate rent of approximately $750,000 and for scheduled increases
in annual rent up to an aggregate rent of approximately $810,000 and expires in
2001. The Company is evaluating and anticipates reducing its office space to
meet its needs for the next 12 months. The anticipated loss related to the
reduction of the Company's office space has been included in the $2.6 million
restructuring charge taken in the first quarter of 1998.
Item 3. Legal Proceedings
In March 1997, CSC-UK received a letter from the OFT which has
responsibility for the granting of consumer credit licenses in the UK to
mortgage lenders and for the subsequent monitoring of their activities to ensure
continued fitness to hold such licenses. The Company believes the letter was
also sent to other lenders, as well as intermediaries and other entities
involved directly or indirectly in the non-status lending market. The letter
provides that, when determining the fitness of licensees, the OFT would
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consider whether the licensee or its associates have engaged in business
practices which appear to be inappropriate, regardless of their legality. The
letter specified certain practices deemed by the OFT to fall within such
categories, including the appropriateness of standard/concessionary rate
structures, as well as the calculation of prepayments using the Rule of 78s
method which were two material aspects of the Company's UK loan programs at that
time. Following the receipt of the letter, the Company commenced a review and
evaluation of its practices with respect to each issue raised in the letter and
entered into discussions with the OFT regarding its concerns.
In July 1997, the Director General of the OFT issued "Non-Status Lending
Guidelines for Lenders and Brokers" (the "July Non-Status Guidelines") that are
applicable to mortgage lenders like CSC-UK that focus on lending to individuals
who are unable or unwilling to obtain mortgage financing from conventional
mortgage sources. The July Non-Status Guidelines highlighted some of the main
practices that the OFT considered to be inappropriate, whether or not lawful.
The OFT stated that if lenders and/or brokers continued these practices, the OFT
would take regulatory action against them. The majority of these practices were
either (i) not applicable to CSC-UK's operations or (ii) practices in which the
Company believed CSC-UK to be in compliance with the July Non-Status Guidelines.
In the July Non-Status Guidelines, however, the OFT announced that (i) dual
interest rate structures involving a large differential between the two interest
rates are inappropriate and should be discontinued and (ii) the Rule of 78s
method of calculating prepayments is inappropriate in the non-status lending
market, should be discontinued at the earliest opportunity and should not be
applied to existing loan agreements without some form of cap to ensure payments
are not excessive. Furthermore, the July Non-Status Guidelines stressed that
lenders seeking to recoup administrative costs associated with defaults should
do so in accordance with a published scale of charges and with respect to
prepayments, charges for early redemption should do no more than cover the
lender's unrecovered administrative and other costs incurred to the date of
prepayment.
In response to the changes in the regulatory environment being brought
about by the OFT, CSC-UK eliminated the concessionary/standard rate in its new
loan programs and replaced it with a single rate. The average single rate that
CSC-UK charges is higher than the average concessionary rate and lower than the
average standard rate that CSC-UK had charged previously. In August 1997, CSC-UK
discontinued originating loans that calculate prepayments using the Rule of 78s
method. CSC-UK is calculating prepayments using alternative methods in
accordance with the July Non-Status Guidelines.
In December 1997, the Company received from the OFT "Non-Status Lending
Guidelines for Lenders and Brokers Revised November 1997" (the "Revised
Non-Status Guidelines"), which revise the July Non-Status Guidelines, and a
letter from the OFT (the "OFT Letter") expressing the OFT's views on the
Company's compliance with the Unfair Terms in Consumer Contracts Regulations
1994 (the "Consumer Contracts Regulations") with respect to loan originated by
the Company prior to August 1997.
In the Revised Non-Status Guidelines, the OFT announced revisions which
affected a significant portion of the Company's loans that were originated prior
to the issuance of such guidelines. With respect to loans that provide for dual
interest rates, it is the OFT's belief that dual interest rate structures (i)
may be unenforceable through the courts where the sum payable from the higher
rate exceeds a genuine estimate of the lender's loss arising from a breach of
the borrower's contractual duty and (ii) in substance provide for payment of
compensation upon a breach of an obligation and may be challenged under the
Consumer Contracts Regulations as unfair and non-binding on the borrower if such
compensation is disproportionately high. With respect to unregulated loans that
provide for the Rule of 78s method for calculating prepayments (regulations
currently promulgated under the CCA specify the use of Rule of 78s for
calculating prepayments for regulated loans) it is the OFT's belief that such
calculation similarly may result in a borrower paying a disproportionately high
sum to redeem a mortgage and may be challenged under the Consumer Contracts
Regulations as being unfair and therefore non-binding on the borrower.
The Consumer Contracts Regulations set forth various terms which are
considered unfair in consumer contracts and therefore can be challenged as
unenforceable against the consumer. In the Revised Non-Status Guidelines, the
OFT stated that it believed dual interest rate structures and Rule of 78s
calculations
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are two such unfair terms. In the OFT Letter, the OFT requested assurances from
the Company that it would discontinue with respect to its existing loans the use
of certain contract terms, including the Rule of 78s for unregulated loans and
the standard/concessionary rate structure, and the OFT stated that, in the
absence of receipt of suitable assurances, it will seek an injunction intended
to restrain the Company from using such terms.
In January 1998, as a result of discussions and correspondence between
CSC-UK and the OFT regarding the OFT's Revised Non-Status Lending Guidelines,
the Company agreed to take action with respect to the use of certain contract
terms in CSC-UK's existing loan agreements. CSC-UK agreed to eliminate the use
of the Rule of 78s method for calculating prepayment fees on unregulated loans
and revise the standard/concessionary rate structure, and has provided
assurances to the OFT regarding CSC-UK's future use of such revised terms.
With respect to the use of the Rule of 78s method on existing unregulated
loans, CSC-UK agreed that it would not use such a formula to calculate
prepayments. Instead, CSC-UK will collect prepayment fees by reference to a
sliding scale whereby six months' interest will be charged for prepayments
occurring during the first three years of a loan, reducing to one month's
interest in the eighth year of a loan. There will be no prepayment fee levied
after the eighth year of a loan. Such prepayment fees will be based on the
concessionary rate of interest.
With respect to the standard/concessionary rate structure on existing
loans, CSC-UK agreed that it would lower the differential between the standard
rate of interest and the concessionary rate of interest to not more than 2.5%.
For example, on a loan where the standard/concessionary rates had been 18% and
9.9%, respectively, the loan agreement will now provide for the
standard/concessionary rates to be 12.4% and 9.9%, respectively.
The elimination of the concessionary/standard rate structure and Rule of
78s method on loan products offered has had a material negative impact on profit
margins for CSC-UK's loans and the results of operations and financial condition
of the Company. In addition, as a result of revisions to the terms of UK loans
containing such provisions, CSC-UK recognized in the fourth quarter of 1997 an
impairment in the value of its mortgage servicing receivables of $106.2 million,
wrote off unamortized goodwill of $52.7 million and wrote off the unamortized
commitment fee of $32.4 million in connection with its UK operations.
Additionally, CSC-UK and the OFT continue discussions with respect to
CSC-UK's borrowers who, at the time their loans were made, were vulnerable due
to undue pressure from brokers or others or inability to understand the loan
terms. CSC-UK has undertaken a review of its UK borrowers to ascertain to what
extent its borrowers were vulnerable. The OFT has indicated that, in appropriate
cases involving vulnerable borrowers, additional modifications of loan terms
beyond those discussed above may be required. The OFT has indicated that those
modifications may include termination of the loan without prepayment fee or
application of the concessionary rate to the loan with the right to terminate
subsequently without prepayment fee. As a result of CSC-UK's ongoing review of
its borrowers and its continuing discussions with the OFT, no assurance can be
given that the value of CSC-UK's mortgage servicing receivables in the UK will
not be further impaired which could have a material adverse effect on the
Company's results of operations and financial condition.
In September 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
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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 of 1934.
Plaintiffs seek unspecified damages, including pre-judgment interest, attorneys'
and accountants' fees, and court costs.
The complaints filed in the Southern District actions have all been
transferred to the Eastern District. 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. The Company
anticipates that, at a minimum, all of the putative class action complaints will
be consolidated with the Ceasar Action in the Eastern District. In addition,
plaintiffs in the New Jersey Action have consented to pre-trial consolidation of
their case with the class actions currently pending in the Eastern District.
Accordingly, on March 25, 1998, the company and its defendant officers and
directors filed a motion with the federal Judicial Panel for Multidistrict
Litigation, which seeks 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.
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 that allegedly result from
an asserted breach of an alleged five-year oral contract. The proposed complaint
also sought 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. Shortly thereafter, in a memorandum of decision Judge
Lewis set forth his reasons for granting the motion to dismiss. Plaintiffs have
not filed an appeal of the order of dismissal and their time to do so has
expired.
In February 1998, Resource Mortgage Banking, Ltd., Covino and Company,
Inc. and LuxMac LLC filed an action against the Company, CSC, and two of the
Company's officers and directors in state court in New York. Plaintiffs'
complaint asserts 17 causes of action, including breach of contract, fraud and
conversion. Plaintiffs seek $60 million in purported damages that allegedly
result primarily from an asserted breach of an alleged five-year oral contract,
and also seek injunctive relief, treble damages and punitive damages in an
unspecified sum.
In March 1998, Plaintiffs filed papers seeking to have the New York court
direct the Company and CSC to refrain 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 present. The New York Court has not yet determined whether Plaintiffs
are entitled to the relief that they have requested, but has signed a temporary
restraining order that, pending the Court's decision on Plaintiffs' motion,
requires the Company and CSC to refrain from the specified sales. The time for
the Company to respond to the complaint has not expired.
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<PAGE> 25
The Company intends to file a motion seeking dismissal of Plaintiffs' claims and
also an answer denying all liability.
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 Cityscape. In connection with the financing, Cityscape 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 Cityscape 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) to whose mortgage broker
Cityscape paid a fee to the mortgage broker who originated the class member's
loan. 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. Cityscape anticipates answering the
complaint on April 2, 1998. Plaintiff has not yet moved for class certification.
As of March 25, 1998, there had been no ruling on the merits of either
plaintiff's individual claim or the claims of the putative class.
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.
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 dismiss or, alternatively, for summary judgment. The Company is
currently preparing papers in opposition to Walsh's motion, which papers must be
filed by May 4, 1998. After the Company files its opposition, Walsh will have
thirty days to reply.
In August 1997, the Company commenced an action in the Queen's Bench
Division of the English High Court against the proprietor and publisher of The
Times newspaper, an English national daily, Peter Stothard, the Editor of The
Times, and Gavin Lumsden, a journalist employed by The Times. This action is a
libel claim and arises from the publication of what the Company believes to be
untrue defamatory allegations in an article written by Gavin Lumsden and
published in The Times in August 1997. The Company claims damages and requests
an injunction against repetition of the defamatory allegations. The Times has
stated it will defend the proceedings.
In October 1996, the Company received a request from the staff of the
Securities and Exchange Commission (the "Commission") for additional information
concerning the Company's voluntary restatement of its financial statements for
the quarter ended June 30, 1996. The 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 acquisition. 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 Securities and Exchange 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.
In October 1997, the Company received requests from Nasdaq for information
regarding the Company's compliance with Nasdaq's listing requirements and
corporate governance rules. The Company requested a hearing to review its
compliance with the Nasdaq listing requirements and the findings of the Listing
Qualifications Staff. In January 1998, the Company received notice from Nasdaq
that the Common
25
<PAGE> 26
Stock would be moved from the Nasdaq National Market to the Nasdaq SmallCap
Market effective with the opening of business on January 29, 1998. The Company
believes that it meets all of the initial inclusion requirements for listing on
The Nasdaq SmallCap Market, with the exception of the $4.00 per share bid price
requirement. Nasdaq has adopted new maintenance standards, which become
effective on February 23, 1998, requiring a minimum $1.00 per share bid price
which the Company's Common Stock currently does not meet. Accordingly, the
Nasdaq Listing Qualifications Panel has informed the Company that the securities
were moved to The Nasdaq SmallCap Market pursuant to a waiver of the $4.00 per
share initial inclusion requirement and an exception to the $1.00 per share
maintenance requirement. The exception requires the Company to achieve a bid
price of at least $1.00 per share on or before May 22, 1998. There can be no
assurance that the Company will be able to meet the terms of such exception. For
the duration of the exception, the Company's Nasdaq symbol will be "CTYSC."
In March 1998, the Company received notice from the Nasdaq Hearing and
Review Council (the "Review Council") that it will review the decision of the
Nasdaq Listing Qualifications Panel and whether it was appropriate to move the
Company to the Nasdaq SmallCap Market. The Review Council stated that it will
issue its decision after the NASD Board of Governors has had an opportunity to
review the Review Council's decision, which will likely occur at the June NASD
Board meeting. There can be no assurance that the Company will be successful in
such review. If at some future date the Company's Common Stock should cease to
be listed on The Nasdaq SmallCap Market, the Common Stock may be listed on the
OTC Bulletin Board. Should the Common Stock be de-listed from the Nasdaq
SmallCap Market, it is likely that the liquidity of the Company's securities
will be impaired, delays will occur in the processing of purchase and sale
transactions in the Common Stock and coverage of the Company by security
analysts and the media will be reduced, all of which likely will result in lower
prices for the Company's securities than would otherwise prevail.
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.
In addition, the Company is a party to various legal proceedings arising
out of the ordinary course of its business. Management believes that none of
these ordinary course actions, individually or in the aggregate, will have a
material adverse affect on the results of operations or financial condition of
the Company.
Item 4. Submission Of Matters To A Vote Of Security Holders
None.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters
Effective with the opening of business on January 29, 1998, the Company's
Common Stock began to trade on the Nasdaq SmallCap Market under the symbol
"CTYSC." Previously, the Company's Common Stock traded on the Nasdaq National
Market under the symbol "CTYS."
The following table sets forth the range of high and low trading prices
per share for the Common Stock for the periods indicated as reported by Nasdaq
and reflects the 100% stock dividend paid by the Company in July 1996.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Year ended December 31, 1996:
First quarter........................... $17.75 $9.88
Second quarter.......................... 25.63 18.88
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
Third quarter........................... 36.00 24.75
Fourth quarter.......................... 29.50 19.00
Year ended December 31, 1997:
First quarter........................... 31.50 17.75
Second quarter.......................... 19.94 12.50
Third quarter........................... 18.38 9.25
Fourth quarter.......................... 10.13 0.34
</TABLE>
As of March 25, 1998, there were 512 stockholders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company intends to retain all of its future earnings to finance its operations
and does not anticipate paying cash dividends in the foreseeable future. Any
decision made by the Company's Board of Directors to declare dividends in the
future will depend upon the Company's future earnings, capital requirements,
financial condition and other factors deemed relevant by the Company's Board of
Directors. In addition, certain agreements to which the Company is a party
restrict the Company's ability to pay dividends on common equity. The Company
conducts substantially all of its operations through its subsidiaries.
Accordingly, the Company's ability to pay dividends is also dependent upon the
ability of its subsidiaries to make cash distributions to the Company. The
payment of dividends to the Company by its subsidiaries is and will continue to
be restricted by or subject to, among other limitations, applicable provisions
of laws of national or state governments, contractual provisions, the earnings
of such subsidiaries and various business considerations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Recent Sales of Unregistered Securities
In April 1997, the Company completed the private placement to accredited
investors pursuant to Regulation D of the Securities Act of 1933, as amended
("Reg D"), of 5,000 shares of its 6% Convertible Preferred Stock, Series A (the
"Series A Preferred Stock"), with a liquidation preference (the "Liquidation
Preference") of $10,000 per share, and related five-year warrants to purchase
500,000 shares of Common Stock (the "Series A Warrants") for an aggregate gross
consideration of $50.0 million. 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 April 24, 1998, 127 calendar days) immediately preceding such
conversion, discounted by up to 4% and subject to certain adjustments. See "Item
7 - Liquidity and Capital Resources - Convertible Preferred Stock."
In September 1997, the Company completed the private placement to
accredited investors pursuant to Reg D of 5,000 shares of 6% Convertible
Preferred Stock, Series B (the "Series B Preferred Stock"), with a Liquidation
Preference of $10,000 per share, and related five-year warrants to purchase
500,000 shares of Common Stock (the "Series B Warrants") for an aggregate gross
consideration of $50.0 million. 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. See "Item 7 - Liquidity
and Capital Resources - Convertible Preferred Stock."
27
<PAGE> 28
Item 6. Selected Financial Data
The selected consolidated financial data set forth below as of December
31, 1997, 1996, 1995 and 1994 and for the years then ended have been derived
from the consolidated financial statements of the Company, of which the balance
sheet data at December 31, 1997 and 1996 and the operating results data for the
years ended December 31, 1997, 1996 and 1995 have been derived from audited
consolidated financial statements and notes thereto included in this Report. The
selected consolidated financial data set forth below as of December 31, 1993 and
for the year then ended have been derived from the audited consolidated
financial statements of CSC. The following data should be read in conjunction
with the Consolidated Financial Statements of the Company and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Report.
<TABLE>
<CAPTION>
Company CSC (1)
------------------------------------------------------ -------------
Year Ended
Year Ended December 31, December 31,
------------------------------------------------------ -------------
1997 1996 1995 1994 (2) 1993
----------- ----------- ----------- --------- ---------
(Dollars in thousands, except for share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Gain on sale of loans ............... $ 83,365 $ 76,820 $ 26,305 $ 5,691 $ 2,088
Net unrealized loss on valuation of
residuals ........................ (148,004) -- -- -- --
Mortgage origination income ......... 4,849 2,812 2,751 2,551 1,455
Interest ............................ 73,520 24,535 6,110 1,900 536
Other ............................... 20,302 3,681 1,306 1,032 378
----------- ----------- ----------- --------- ---------
Total revenues ................. 34,032 107,848 36,472 11,174 4,457
Costs and expenses:
Salaries and benefits ............... 41,089 26,288 10,861 4,280 1,939
Other costs and expenses ............ 129,526 38,360 11,080 5,041 2,195
----------- ----------- ----------- --------- ---------
Total costs and expenses ....... 170,615 64,648 21,941 9,321 4,134
(Loss) earnings from continuing
operations before extraordinary
item and income taxes ............... (136,583) 43,200 14,531 1,853 323
Income taxes (benefit provision) ...... (18,077) 19,325 6,410 1,450(3) 8
----------- ----------- ----------- --------- ---------
(Loss) earnings from continuing
operations before
extraordinary item ...................... (118,506) 23,875 8,121 403 315
Discontinued operations:
(Loss) earnings from discontinued
operations, net of income tax
(benefit) provision, net of
extraordinary item, net of tax ..... (245,906) 26,806 3,750 -- --
Loss on disposal of discontinued
operations ........................ (49,940) -- -- -- --
----------- ----------- ----------- --------- ---------
(Loss) earnings before extraordinary
item ............................... (414,352) 50,681 11,871 403 315
Extraordinary item .................... -- -- (296) -- --
----------- ----------- ----------- --------- ---------
Net (loss) earnings ................... (414,352) 50,681 11,575 403 315
Preferred stock dividends paid in
Common Stock ........................ 905 -- -- -- --
Preferred stock - increase in
Liquidation Preference .............. 917 -- -- -- --
Preferred stock - beneficial discount . 2,725 -- -- -- --
----------- ----------- ----------- --------- ---------
Net (loss) earnings applicable to
Common Stock ........................ $ (418,899) $ 50,681 $ 11,575 $ 403 $ 315
=========== =========== =========== ========= =========
Earnings (loss) per
Common share (9):
Basic:
Continuing operations before
Extraordinary item ................ $ (3.70) $ 0.81 $ 0.38 $ 0.02 $ 0.02
Discontinued operations ............. (7.40) 0.91 0.18
Disposal of discontinued operations . (1.50) -- --
Extraordinary item .................. -- -- (0.02) -- --
----------- ----------- ----------- --------- ---------
Net (loss) earnings ................. $ (12.60) $ 1.72 $ 0.54 $ 0.02 $ 0.02
=========== =========== =========== ========= =========
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C>
Diluted (10):
Continuing operations before
extraordinary item ................ $ (3.70) $ 0.78 $ 0.34 $ 0.02 $ N/A
Discontinued operations ............. (7.40) 0.88 0.16 -- N/A
Disposal of discontinued operations . (1.50) -- -- -- N/A
Extraordinary item .................. -- -- (0.01) -- N/A
----------- ----------- ----------- --------- ---------
Net (loss) earnings ................. $ (12.60) $ 1.66 $ 0.49 $ 0.02 $ N/A
=========== =========== =========== ========= =========
Weighted average number of shares
Outstanding equivalents:
Basic ............................... 33,244 29,405 21,244 20,042 20,000
=========== =========== =========== ========= =========
Diluted ............................. 33,244 30,538 23,839 20,561 N/A
=========== =========== =========== ========= =========
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
Company CSC(1)
--------------------------------------------------- --------------
December 31, December 31,
--------------------------------------------------- --------------
1997 1996 1995 1994(2) 1993
----------- ----------- ----------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets.................. $ 398,559 $ 673,904 $ 138,077 $ 21,816 $ 13,605
Mortgage servicing receivables 9,525 50,130 5,567 -- --
Trading securities(5)......... 126,476 103,200 15,571 -- --
Mortgage loans held for sale,
net......................... 93,290 88,127 73,852 16,681 10,271
Investment in discontinued
operations, net............. 84,232 212,590 26,832 -- --
Total debt(6)................. 507,099 335,479 72,942 16,100 10,165
Total liabilities............. 575,382 535,072 80,980 18,030 11,207
Total stockholders' equity
(deficit)................... (176,825) 138,832 57,099 3,177 2,398
</TABLE>
<TABLE>
<CAPTION>
Company CSC(1)
--------------------------------------------------- --------------
Year Ended
Year Ended December 31, December 31,
--------------------------------------------------- --------------
1997 1996(7) 1995 1994(2) 1993
----------- ----------- ----------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Statistics:
Loan originations and purchases:
One- to four-family products.. $ 818,023 $ 1,115,959 $ 417,864 $ 154,410 $ 77,586
Sav*-A-Loan(R)products........ 669,119 137,318 -- -- --
Discontinued products......... 167,890 36,078 -- -- --
---------- ----------- ------------ ---------- ---------
Total...................... $1,655,032 $ 1,289,355 $ 417,864 $ 154,410 $ 77,586
Average principal balance per
loan originated and purchased:... $ 56 $ 62 $ 70 $ 77 $ 74
Weighted average initial
loan-to-value ratio(7): 73.6% 72.5% 66.4% 59.7% --
Loan sales:...................... $1,637,387 $ 1,270,897 $ 358,997 $ 138,041 $ 61,293
Loans serviced(8):............... $2,590,479 $ 1,519,395 $ 386,720 $ 56,340 --
Loans 30+ days past due as a
percentage of serviced portfolio: 11.2% 8.9% 3.9% 3.4% --
Charge-offs:..................... $ 4,734 $ 167 $ 52 -- --
</TABLE>
- ----------
(1) The historical financial data presented have been derived exclusively from
the financial statements of CSC, which was acquired by the Company on
April 27, 1994.
(2) Gives effect to the Company's purchase of the capital stock of CSC as if
such purchase occurred on January 1, 1994. On April 27, 1994, the Company
acquired all of the capital stock of CSC in an acquisition in which the
shareholders of CSC acquired beneficial ownership of approximately 92% of
the Company's Common Stock. The CSC Acquisition was accounted for as a
reverse acquisition for financial reporting purposes with CSC being deemed
to have acquired a 100% interest in the Company as of the date of the
acquisition. From the date of its formation in 1988 through the date of
the CSC Acquisition, the Company's activities were limited to (i) the sale
of initial shares in connection with its organization, (ii) a registered
public offering of securities and (iii) the pursuit of a combination, by
merger or acquisition. The Company presently has no business operations
other than those incidental to its ownership of all the capital stock of
CSC.
(3) Includes a one-time charge of $680,000 related to the change in tax status
in 1994 from an "S" corporation to a "C" corporation.
(4) Represents a loss, net of taxes, related to the early extinguishment of
subordinated debentures in December 1995.
(5) Represents the interest-only and residual mortgage securities that the
Company receives upon loan sales through securitizations.
30
<PAGE> 31
(6) Includes short-term borrowings due under warehouse facilities. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
(7) Excludes the Company's Sav*-A-Loan products and Discontinued Products.
(8) Includes contract servicing operations by the Company. See "Business --
Loans -- Loan Servicing and Collections."
(9) Earnings per share figures for the effected periods reflect the 100% stock
dividends paid in September 1995 and July 1996.
(10) For the year ended December 31, 1997, the incremental shares from assumed
conversions are not included in computing the diluted per share amounts
because their effect would be antidilutive since an increase in the number
of shares would reduce the amount of loss per share. Therefore, basic and
diluted earnings per share figures are of equal amount.
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying notes for the
years ended December 31, 1997, 1996 and 1995. The following Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors including, but not
limited to, risks related to the completion of a sale of its UK operation, the
ability to access loan warehouse or purchase facilities in amounts, if at all,
necessary to fund the Company's loan production, the successful execution of
loans sales in the whole loan sales market, the ability of the Company to
successfully restructure its balance sheet, the initiatives to streamline the
Company's operations, the ability too of the Company to retain an adequate
number and mix of its employees, legal proceedings and other matters discussed
in Item 3 of this report, adverse economic conditions, competition and other
risks detailed from time to time in the Company's SEC reports. The Company
undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated or unanticipated events.
General
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 focuses 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 such 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.
Accordingly, the operating results of CSC-UK and it 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 a result of revisions to the terms of certain of CSC-UK's loans as
required by the OFT, CSC-UK has recognized in the fourth quarter of 1997 an
impairment in the value of its mortgage servicing receivables of $106.2 million
and has written off unamortized goodwill of $52.7 million and $32.4 million of
unamortized commitment fee recorded in connection with its UK acquisitions. See
Item 3 for a discussion regarding the OFT.
31
<PAGE> 32
On March 31, 1998, the Company announced that it had entered into
definitive agreements with Ocwen for the sale of substantially all of the
businesses and assets, and certain liabilities of the UK operations of CSC-UK.
The acquisition includes the purchase of CSC-UK's whole loan portfolio,
securitized loan residuals and loan origination and servicing businesses for a
price of approximately (pound) 285 million, subject to adjustment as of closing
based on an agreed upon formula (currently estimated to result in an upward or
downward adjustment of approximately (pound) 5 million). Closing, which is
anticipated to occur in April 1998, is subject to satisfaction of a number of
conditions, including obtaining rating agency consents and various substitutions
in connection with the transfer of the securitized residual and related
servicing rights (which will require the consents of the trustees of several
securitizations). As a result, there can be no assurance that the transaction
will be consummated.
As a result of the Company's adoption of a plan to institute the UK Sale,
the Company's net interest in its UK discontinued operations represents
expected proceeds of $102.2 million, net of accrued losses of $18.0 million.
Expected costs related to the disposal of UK discontinued operations of $16.4
million is included in accounts payable and other liabilities at December 31,
1997.
UK Facilities. In March 1996, CSC-UK entered into a mortgage loan purchase
agreement with Greenwich International Ltd. (together with its affiliates,
"Greenwich") effective as of January 1, 1996 (the "UK Greenwich Facility").
Pursuant to the UK Greenwich Facility, with certain exceptions, CSC-UK sells all
of the loans it originates to Greenwich which must buy such loans. CSC-UK and/or
Greenwich will subsequently resell these loans through whole loan sales or
securitizations. This agreement expires on December 31, 2015. CSC-UK paid a fee
to Greenwich in connection with the UK Greenwich Facility in the aggregate
amount of $38.0 million, which was being amortized over the life of the
agreement. During the first quarter of 1998, Greenwich indicated to the Company
that the Company could not access the UK Greenwich Facility pursuant to its
terms, and no assurance could be given that the Company would be able to access
it at any time in the future. Due to the uncertainty of the Company's ability to
access the UK Greenwich Facility in the future, the Company determined that it
was necessary to write off the unamortized portion of the prepaid commitment fee
to Greenwich resulting in a charge of $32.4 million during the fourth quarter of
1997.
In February 1998, CSC-UK, Mortgage Management Limited, a wholly-owned
subsidiary of CSC-UK ("MML"), and Greenwich entered into a loan facility (the
"MML Facility"). The MML Facility makes available (i) a term loan in an amount
of (pound)187.0 million and (ii) a revolving credit facility in an amount of
(pound)35.0 million. Amounts outstanding under the MML facility bear interest at
the rate of LIBOR plus 200 basis points and mature at the earlier to occur of
(i) 180 days from the date of the advance or (ii) December 30, 1998. Funds
advanced under the term loan and (pound)21.0 million of the revolving credit
facility are to finance the purchase of mortgage loans previously sold to
Greenwich under the UK Greenwich Facility. The balance of the revolving credit
facility is available to CSC-UK and certain affiliates to finance the
origination and purchase of mortgage loans. As of March 13,1998, MML has drawn
(pound) 24.0 million under the revolving credit facility of the MML Facility to
finance the origination and purchase of mortgage loans, leaving (pound) 11.0
million available for future originations and purchases.
Restructuring. The Company has announced a number of initiatives,
including having retained Bear Stearns to explore strategic alternatives for the
Company. These initiatives include the disposal of loans through whole loan
sales, the sale of interest-only and residual certificates and increased focus
on the Company's higher margin lines of business. The Company has announced that
it has begun implementing a restructuring plan that includes streamlining and
downsizing its operations. The Company is reducing its workforce and has closed
its branch operations in Virginia, significantly reduced its correspondent
originations for the foreseeable future and exited its conventional lending
business. The Company expects to record a restructuring charge of $2.6 million
in the first quarter of 1998.
In addition, the Company has retained CIBC Oppenheimer Corp. ("CIBC") to
explore strategic alternatives. CIBC is advising the Company with respect to
strategic alternatives including the restructuring, refinancing,
recapitalizition or reorganization of the Company and exploration of the sale of
all or part of the Company's UK business. No assurance can be given that the
Company will be successful in pursuing strategic alternatives or in implementing
any of its initiatives. Furthermore, even if the Company is successful in
implementing its 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.
Overview
32
<PAGE> 33
The Company is a consumer finance company engaged in the business of
originating, purchasing, selling and servicing mortgage loans secured by one- to
four-family residences. The majority of the Company's loans are made to owners
of single family residences who use the loan proceeds for such purposes as debt
consolidation and financing of home improvements and educational expenditures,
among others. The Company is licensed or registered to do business in 46 states
and the District of Columbia.
The Company primarily generates income 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. Whole loan sales represented all
of the Company's loan sales during 1994, but with the Company's prior emphasis
on the sale of loans through securitizations, had represented 31.7%, 5.8% and
24.8%, respectively, of all loan sales in 1997, 1996 and 1995. The Company
anticipates that substantially all of its loan production volume will be sold
through whole loan sales in 1998. Whole loan sales, unlike loan sales through
securitization, are immediately cash flow positive but produce lower margins
and, therefore, will negatively impact the Company's earnings.
Gain on sale of loans 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 prior three fiscal years, 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. During 1997,
1996 and 1995, gain on sale of loans constituted approximately 45.8% (excluding
a net unrealized loss on valuation of residuals of $148.0 million), 71.2% and
72.1%, respectively, of total revenues.
Loan Originations and Purchases
The following table highlights certain selected information relating to
the origination and purchase of loans by the Company during the periods shown.
Loan Origination and Purchases
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Loan originations and purchases:
Core Products:
Independent mortgage brokers $ 392,330 $ 364,168 $ 291,907
Correspondent Loan Acquisition Program 425,693 572,484 125,957
------------ ------------ ------------
Total Core Products................ 818,023 936,652 417,864
Sav*-A-Loan(R) Products:
Independent mortgage brokers 429,126 97,753 --
Correspondent Loan Acquisition Program 239,993 39,565 --
------------ ------------ ------------
Total Sav*-A-Loan(R)Products........ 669,119 137,318
Discontinued Products.................. 167,890 86,321 --
Bulk purchases......................... -- 129,064 --
------------ ------------ ------------
Total originations and purchases..... $ 1,655,032 $ 1,289,355 $ 417,864
============ =========== ===========
Weighted average interest rate:
Core Products.......................... 11.2% 11.8% 11.9%
Sav*-A-Loan(R)Products.................. 14.0% 14.4% --
Discontinued Products.................. 9.0% 10.5% 12.8%
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C> <C>
Bulk purchases......................... -- 12.0% ---
Overall weighted average interest rate.... 12.0% 12.0% 11.9%
Weighted average initial loan-to-value
ratio(1)............................... 73.6 72.5 66.4
Percentage of loans secured by first mortgages:
Core Products.......................... 91.7% 94.0% 89.0%
Sav*-A-Loan(R)Product................... 1.4% 0.8% --
</TABLE>
- ----------
(1) Excludes the Company's Sav*-A-Loan(R) products and Discontinued Products.
The loan-to-value ratio of a loan secured by a first mortgage is
determined by dividing the amount of the loan by the appraised value of
the mortgaged property at origination. The loan-to-value ratio of a loan
secured by a second mortgage is determined by taking the sum of the loans
secured by the first and second mortgages and dividing by the appraised
value of the mortgaged property at origination.
The Company increased its loan originations and purchases in 1997 to $1.7
billion from $1.3 billion in 1996. The average principal balance of the
Company's loans for 1997 was $55,910 as compared to $61,801 in 1996. This
decrease was due primarily to a larger percentage of the Company's originations
consisting of Sav*-A-Loan(R) product, which typically has a lower principal
balance than Core Product originations. Primarily due to a reduction in the
Correspondent Loan Acquisition Program and the discontinuation of many of the
loan products previously offered by the Company, the Company anticipates that
its loan production volume will be substantially lower in 1998 than in 1997.
The Company's originations of Core Products from brokers increased in 1997
to $392.3 million from $364.2 million in 1996, representing an increase of $28.1
million (or 7.7%). This increase reflects the Company's geographic expansion and
its increased emphasis on attracting and maintaining broker relationships. The
Company's Correspondent Loan Acquisition Program for Core Products substantially
decreased in 1997 to $425.7 million from $572.5 million in 1996, representing a
decrease of $146.8 million (or 25.6%). This reflects management's decision to
focus its efforts on the more profitable and less cash intensive broker
business.
The Company's originations of Sav*-A-Loan(R) products from brokers
increased in 1997 to $429.1 million from $97.8 million in 1996, representing an
increase of $331.3 million (or 339.0%). Additionally, the Company's
Correspondent Loan Acquisition Program for Sav*-A-Loan(R) product increased
$200.4 million (506.1%) to $240.0 million in 1997 from $39.6 million in 1996.
These results reflect a full year of Sav*-A-Loan(R) originations, as compared to
only a partial year in 1996, as well as the Company's efforts to expand both its
broker and correspondent Sav*-A-Loan(R) business.
The weighted average coupon of Core Products decreased to 11.2% in 1997
from 11.8% in 1996. Additionally, the Sav*-A-Loan(R) product weighted average
coupon has decreased to 14.0% in 1997 from 14.4% in 1996. These decreases result
from increased competition within the financial services industry and the
interest rate environment.
Loan Sales
The Company sells, without recourse, virtually all of the loans it
originates in loan sales through whole loan sales. See "Item 1 -- Loans-- Loan
Sales." During 1997, 1996 and 1995, the Company sold $1.6 billion, $1.3 billion
and $359.0 million of loans, respectively, of which $518.4 million, $73.5
million and $105.8 million, respectively, were sold in whole loan sales. Gains
on the sale of loans through securitizations and into loan purchase facilities
were $75.3 million, $75.1 million and $17.6 million, or 41.3%, 69.6% and 48.1%
of the Company's total revenues in 1997, 1996 and 1995, respectively. Gains on
whole loan sales represented 4.5%, 1.6% and 22.8% of the Company's total
revenues in 1997, 1996 and 1995, respectively. The Company expects that it will
sell substantially all of its loans through whole loan sales for the foreseeable
future. Whole loan sales, unlike loan sales through securitization, are
immediately cash flow positive but produce lower margins and, therefore, will
negatively impact the Company's earnings.
34
<PAGE> 35
During 1997, 1996 and 1995, gains on loan sales totaled $83.4 million
(5.1% weighted average gain), $76.8 million (6.0% weighted average gain) and
$26.3 million (7.3% weighted average gain), respectively.
Loan Servicing
Prior to 1994, the Company typically sold loans with servicing rights
released. In 1997, 1996 and 1995, however, the Company retained the servicing
rights for approximately 75.1%, 98.4% and 74.2%, respectively, of the loans it
sold. The Company anticipates that it will continue to sell whole loans on a
servicing released basis. As of December 31, 1997, the Company was servicing
47,020 loans with an aggregate principal balance of $2.6 billion, representing a
73.3% increase over an aggregate principal balance of $1.5 billion serviced as
of December 31, 1996. Revenue generated from loan servicing amounted to 0.9%
(excluding $148.0 million of net unrealized losses), 2.6% and 2.0% of total
revenues for 1997, 1996 and 1995, respectively. The servicing portfolio was
reduced to $1.8 billion during the first two months of 1998 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 through whole loan sales with servicing
released of loans originated in 1997 but sold in 1998. The Company anticipates
selling substantially all of its loan production through whole loan sales with
servicing released. Also, the Company may sell interest-only and residual
certificates with the associated servicing rights. As a result of these factors,
as well as loan prepayments and defaults on existing loans, the Company
anticipates that the size of the servicing portfolio will continue to decrease
in the future.
In January 1998, the Company retained Ocwen, an established leader in the
management and resolution of underperforming loans, as a special loan servicer
to sub-service the Company's 90-day-plus delinquent loans. The Company delivers
such non-performing loans to Ocwen on an ongoing basis. The Company transferred
to Ocwen 993 non-performing loans with an aggregate unpaid principal balance of
$66.4 million. In the future, the Company expects to sell its loans as whole
loans with servicing released.
The following table provides data on delinquency experience and REO
properties for the Company's serviced portfolio (excluding loan balances under
contract servicing agreements). Because the Company has only expanded into the
business of loan servicing during 1994, the Company's serviced portfolio was
relatively unseasoned in 1995. Accordingly, during 1997 and 1996 the Company
experienced an increase in total delinquencies as a percentage of the serviced
portfolio as a result of the seasoning of the serviced portfolio. No assurances,
however, can be given as to the Company's future delinquency experience.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------
1997 1996 1995
------------------------- ----------------------- ------------------------
% of % of % of
Dollars in Serviced Dollars in Serviced Dollars in Serviced
Thousands Portfolio Thousands Portfolio Thousands Portfolio
----------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Serviced portfolio........ $2,231,519 100.0% $1,470,344 100.0% $ 311,649 100.0%
---------- ------ ---------- ------- --------- ------
Delinquencies:
30-59 days delinquent.. $ 65,063 2.9% $ 54,733 3.7% $ 5,479 1.8%
60-89 days delinquent.. 30,479 1.4 19,733 1.4 1,580 0.5
90 days or more
delinquent........... 27,808 1.3 24,8004 1.7 4,968 1.6
---------- ------ ---------- ------- --------- ------
Total delinquencies.. $ 123,350 5.6% $ 99,266 6.8% $ 12,027 3.9%
========== ====== ========== ======= ========= ======
Defaults:
Bankruptcies........... $ 25,131 1.1% $ 4,269 0.3% $ -- %
Foreclosures........... 100,901 4.5 27,689 1.9 -- --
---------- ------ ---------- ------- --------- ------
Total Defaults....... $ 126,032 5.6 $ 31,958 2.2 $ -- --%
========== ====== ========== ======= ========= ======
REO property.............. $ 8,549 0.4% $ 1,328 0.1% $ 141 --%
========== ====== ========== ======= ========= ======
Charge-Offs............... $ 4,734 0.2% $ 36 -- $ -- --%
========== ====== ========== ======= ========= ======
</TABLE>
Impact of Year 2000
Many existing software programs use only two digits to identify the year
in the date field. If such programs are not corrected, date data concerning the
Year 2000 could cause many computer applications to fail or generate erroneous
results. 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 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. 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 and, as a result, have a material
adverse effect on the results of operations and the financial condition of the
Company.
Results Of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
35
<PAGE> 36
Total revenues decreased $73.8 million or 68.5% to $34.0 million in 1997
from $107.8 million in 1996. This decrease was due primarily to a net unrealized
loss on valuation of residuals of $148.0 million during 1997, offset by
increased gain on sale of loans of $6.6 million, increased interest income of
$49.0 million resulting primarily from an increase in intercompany income from
CSC-UK, and a gain on sale of available-for-sale securities of $18.0 million.
Gain on sale of loans increased $6.6 million or 8.6% to $83.4 million in
1997 from $76.8 million in 1996. The increase was due to increased volume of
loan sales at lower average gains ($1.6 billion of loan sales at a weighted
average gain of 5.1% in 1997 as compared to $1.3 billion of loan sales at a
weighted average gain of 6.0% in 1996). The lower average gain on sale of loans
recognized in 1997 was due primarily to lower margins from correspondent loans,
as well as a higher percentage of the Company's loan originations and purchases
being sold as whole loan sales to enhance the Company's liquidity position.
Whole loans sales result in lower margins than loans sold in securitizations,
but are immediately cash flow positive. The Company expects that it will sell
the majority of its loans through whole loan sales and therefore expects to
continue to recognize lower net margins in the future.
During 1997, the Company recognized an unrealized loss on valuation of
residuals of $148.0 million. This unrealized loss consists of $89.8 million of
losses on its home equity residuals, $35.9 million on its Sav*-A-Loan(R)
residuals and $22.3 million on its mortgage servicing receivables. At December
31, 1997, the Company determined the fair value of its home equity residuals
based upon the net realizable value as implied by the first quarter 1998 sale of
certain of its home equity residuals and recorded net unrealized losses of $89.8
million. The unrealized loss related to the Sav*-A-Loan(R) residuals reflects
the Company's change in the assumptions used to value such residuals as follows:
the discount rate was increased to 15% from 12%; constant prepayment speed was
increased to 16.8% from 14% after the twelfth month; and the default rate was
increased to a weighted average of 306 basis points per annum from a weighted
average default rate of 175 basis points per annum. The Company valued its
mortgage servicing receivables on a net realizable value assuming a liquidation
price based upon the value implied by the servicing rights sold in conjunction
with the January 1998 home equity residual sale.
Mortgage origination income increased $2.0 or 71.4% to $4.8 million in
1997 from $2.8 million in 1996. This increase was due primarily to higher
originations during 1997 partially offset by lower fees earned on the Company's
broker originations. It is anticipated that the Company's origination fees as a
percentage of loans originated will continue to decrease in the future.
Interest income increased $49.0 million or 200.0% to $73.5 million in 1997
from $24.5 million in 1996. This increase was due primarily to the increased
intercompany note interest charged on a higher average note balance with CSC-UK
from $149.3 million at December 31, 1996 to $309.3 million at December 31, 1997,
as well as interest earned on a higher average balance of mortgage loans held
for sale balance resulting from increased loan production volume in excess of
loans sold during the period.
Other income increased $16.6 million or 448.6% to $20.3 million in 1997
from $3.7 million in 1996. This increase was due primarily to the inclusion of
$18.0 million of gain on the sale of IMC Mortgage Company ("IMC") Common Stock
owned by the Company. The increase was offset by the decrease in servicing
income of $1.2 million or 42.9% to $1.6 million in 1997 from $2.8 million in
1996. The Company expects servicing income to continue to decrease in the future
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 increased $106.0 million or 164.1% to $170.6 million in
1997 from $64.6 million in 1996. This increase was due primarily to increased
salaries, selling expenses and operating expenses related to increased loan
origination and purchase volume during 1997. Excluding the net unrealized loss
on valuation of residuals, total expenses as a percentage of total revenues
increased to 93.7% in 1997 from 59.9% in 1996. As a result of streamlining
efforts begun by the Company during the first quarter of 1998, the Company
expects total expenses to decrease in the future.
36
<PAGE> 37
Salaries and benefits increased $14.8 million or 56.3% to $41.1 million in
1997 from $26.3 million in 1996. This increase was due primarily to increased
staffing levels to 838 US employees at December 31, 1997 compared to 638
employees at December 31, 1996, with an average of 844 employees for the year of
1997. This increase in average employees resulted from the growth in loan
production volume and geographic expansion and increased loans serviced. As a
result of the Company's restructuring and streamlining efforts, the number of
employees has decreased to 577 at March 15, 1998.
Interest expense increased $53.4 million or 308.7% to $70.7 million in
1997 from $17.3 million in 1996. This increase was due primarily to increased
interest expense related to $300.0 million of Senior Notes issued in May 1997 as
well as the increased balance of loans held pending sale during 1997, resulting
from the increased loan production volume during 1997. Also included in interest
expense for the year ended December 31, 1997 is a one-time charge of $4.7
million related to the $14.0 million induced conversion of the Convertible
Debentures in April 1997.
Selling and other expenses increased $25.7 million or 125.4% to $46.2
million in 1997 from $20.5 million in 1996. This increase was due primarily to
increased other operating expenses of $23.9 million or 131.3% to $42.1 million
in 1997 from $18.2 million in 1996 resulting from increased professional fees,
travel and entertainment and occupancy costs incurred to support the increased
loan production volume. Additionally, the increase was due to increased selling
costs of $1.8 million or 78.3% to $4.1 million in 1997 from $2.3 million in 1996
as a result of increased loan production volume in 1997 as compared to 1996.
Provision for loan losses of $12.6 million was recorded for the year ended
December 31, 1997 as compared to $532,396 for the year ended December 31, 1996.
This increase was due primarily to an increased balance of mortgages held for
investment resulting from increased loan production volume during 1997.
Income tax benefit (expense) changed from an expense of $19.3 million in
1996 to an income tax benefit of $18.1 million in 1997 due to pretax losses of
$136.6 million. The 1997 tax benefit was reduced due to a valuation reserve
established in 1997 due to the uncertainty of the Company's ability to continue
as a going concern.
The Company recorded a loss from continuing operations of $118.5 million
for the year ended December 31, 1997 as compared to earnings from continuing
operations of $23.9 million for the year ended December 31, 1996. This loss was
primarily due to the Company recognizing a net unrealized loss on valuation of
residuals of $148.0 million during 1997 as well as increased total expenses
during 1997 and lower average gains.
The Company recorded a loss from discontinued operations of $245.9 million
for the year ended December 31, 1997 as compared to earnings from discontinued
operations of $26.8 million for the year ended December 31, 1996. This loss from
discontinued operations in 1997 was due primarily to a valuation adjustments
related to the OFT initiatives and the write-off of unamortized goodwill and
commitment fees. See " - Discontinued Operations."
The Company adopted a plan in March 1998 to sell the assets of CSC-UK. As
a result, the Company recorded a $49.9 million loss on disposal of discontinued
operations.
The Company recorded a net loss applicable to common stock of $418.9
million for the year ended December 31, 1997 as compared to net earnings
applicable to common stock of $50.7 million in 1996. This loss was due primarily
to the loss from discontinued operations of $245.9 million, the $148.0 million
net unrealized loss on the valuation of residuals, as well as the loss on the
disposal of discontinued operations of $49.9 million.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues increased $71.3 million or 195.3% to $107.8 million in 1996
from $36.5 million in 1995. This increase was due primarily to higher gains on
sale of loans resulting from the increased loan origination and purchase volume
and volume of loans sold compared to the prior period and increased interest
income resulting from higher average balances of loans held for sale, as well as
increased discount accretion recognized on higher average balances of mortgage
servicing receivables.
37
<PAGE> 38
Gain on sale of loans increased $50.5 million or 192.0% to $76.8 million
in December 31, 1996 from $26.3 million in 1995. The increase was due primarily
to increased volume of loan sales at lower average gains ($1.3 billion of loan
sales at a weighted average gain of 6.0% in 1996 as compared to $359.0 million
of loan sales at a weighted average gain of 7.3% in 1995). The lower average
gain on sale of loans recognized in 1996 was due primarily to the lower average
margins from bulk purchases which occurred during the second quarter of 1996,
lower margins from correspondent loans, as well as lower margins from changes in
interest rates during the second quarter of 1996.
Mortgage origination income increased $60,733 or 2.2% to $2.8 million in
1996 from $2.7 million in 1995. This increase was due primarily to the increase
in loan production volume to $1.3 billion in 1996 from $417.9 million in 1995,
partially offset by lower average origination fees earned.
Interest income increased $18.4 million or 301.6% to $24.5 million in 1996
from $6.1 million in 1995. This increase was due primarily to the increased
balance of loans held for sale during 1996 resulting from the increased loan
production volume in excess of loans sold during the period, as well as interest
income resulting from the accretion of the discount recorded on mortgage
servicing receivables.
Other income increased $2.4 million or 184.6% to $3.7 million in 1996 from
$1.3 million in 1995. This increase was due primarily to increased servicing
income of $2.1 million or 281.4% to $2.8 million in 1996 from $731,862 in 1995.
This increased income was due primarily to an increase in the average balances
of loans serviced to $933.6 million in 1996 from $140.3 million in 1995.
Additionally, earnings from partnership interest increased $272,211 or 56.5% to
$754,000 in 1996 from $481,789 in 1995. This increase was due primarily to
increased earnings recognized from the equity interest in IMC during 1996. In
June 1996, IMC converted from partnership to corporate form and effected a
public offering of its common stock. As a result of the offering, the Company's
interest in IMC is no longer accounted for under the equity method of
accounting, whereby the Company recognized its relative portion of the
partnership's earnings as revenues, but rather as available-for-sale securities
in accordance with SFAS No. 115.
Total expenses increased $42.7 million or 195.0% to $64.6 million in 1996
from $21.9 million in 1995. This increase was due primarily to increased
salaries, selling expenses and operating expenses related to increased loan
production volume during 1996. Total expenses as a percentage of total revenues
decreased to 59.9% in 1996 from 60.0% in 1995.
Salaries and benefits increased $15.4 million or 141.3% to $26.3 million
in 1996 from $10.9 million in 1995. This increase was due primarily to increased
staffing levels to 638 employees at December 31, 1996 compared to 264 employees
at December 31, 1995 resulting from the growth in loan production volume and
geographic expansion and increased loans serviced.
Interest expense increased $12.8 million or 284.4% to $17.3 million in
1996 from $4.5 million in 1995. This increase was due primarily to the interest
costs associated with the $143.8 million of Convertible Debentures issued during
the second quarter of 1996, as well as an increased balance of loans held
pending sale during 1996, resulting from the increased loan production volume
during 1996.
Selling and other expenses increased $14.0 million or 215.4% to $20.5
million in 1996 from $6.5 million in 1995. This increase was due primarily to
the increased loan production volume during 1996 as compared to 1995.
Earnings from continuing operations before extraordinary item increased
$15.8 million or 195.1% to $23.9 million in 1996 from $8.1 million in 1995. This
increase was due primarily to increased revenues resulting from an increase in
loan production volume and volume of loans sold during 1996 as the Company
expanded its geographic base to 42 states and the District of Columbia and
further penetrated existing markets.
38
<PAGE> 39
Earnings from discontinued operations increased $23.0 million or 605.3% to
$26.8 million in 1996 from $3.8 million in 1995. This increase was due primarily
to increased revenues resulting from an increase in UK loan origination and
purchase volume and volume of loans sold during 1996.
Net earnings increased $39.1 million or 337.1% to $50.7 million in 1996
from $11.6 million in 1995. This growth in net earnings was due primarily to
increased revenues resulting from an increase in loan production volume and
volume of loans sold during 1996 as the Company expanded its geographic base to
42 states and the District of Columbia and further penetrated existing markets.
Financial Condition
December 31, 1997 Compared to December 31, 1996
Cash and cash equivalents increased $2.1 million or 481.3% to $2.6 million
at December 31, 1997 from $446,285 at December 31, 1996.
Securities purchased under agreements to resell represent US Treasury
securities borrowed from the repo desk of a counterparty to facilitate the
delivery of US Treasury securities sold short as part of the Company's strategy
to manage interest rate risk on loan originations. There were no securities
purchased under agreements to resell at December 31, 1997 as compared to $154.2
million at December 31, 1996 due to the closing of all open positions. The
Company no longer employs this strategy because it typically holds loans
pending whole loan sales for less time than it holds loans pending sale through
securitization.
Available-for-sale securities in the amount of $14.6 million were recorded
as an asset at December 31, 1996 as a result of the Company's equity interest in
IMC. During 1997, the Company sold its equity interest in IMC for net proceeds
of $18.0 million. Prior to June 1996, the Company had recorded a 9.1% limited
partnership interest in IMC. Available-for-sale securities were reported on the
Company's statement of financial condition at fair market value with any
corresponding change in value reported as an unrealized gain or loss (if
assessed to be temporary) as an element of stockholders' equity after giving
effect for taxes.
Mortgage servicing receivables decreased $40.6 million or 81.0% to $9.5
million at December 31, 1997 from $50.1 million at December 31, 1996. This
decrease was due primarily to a $22.3 million valuation adjustment during 1997,
the securitization of pools of mortgages that had $34.6 million of mortgage
servicing receivables associated with such loans and amortization of $3.4
million. These decreases were offset by the recognition of $19.6 million of
mortgage servicing receivables primarily resulting from loans sold with
servicing retained during the first three quarters of 1997.
Trading securities, which consist of interest-only and residual
certificates, increased $23.3 million or 22.6% to $126.5 million at December 31,
1997 from $103.2 million at December 31, 1996. This increase was due to the $1.1
billion of US securitizations completed during 1997, offset by valuation
adjustments of $125.7 million.
Mortgage loans held for sale, net increased $5.2 million or 5.9% to $93.3
million at December 31, 1997 from $88.1 million at December 31, 1996. This
increase was due primarily to the volume of loans originated exceeding loan sale
volume in 1997.
Mortgage loans held for investment, net increased $1.3 million or 25.0% to
$6.5 million at December 31, 1997 from $5.2 million at December 31, 1996. This
increase was due primarily to the Company's increased loan production volume. As
a percentage of total assets, mortgage loans held for investment increased to
1.7% at December 31, 1997 from 0.8% at December 31, 1996.
Other assets decreased $1.3 million or 4.5% to $27.3 million at December
31, 1997 from $28.6 million at December 31, 1996. This decrease was due
primarily to a $14.9 million decrease in loans receivable -
39
<PAGE> 40
subwarehousing at December 31, 1997, partially offset by a $9.2 million increase
in deferred debt issuance costs related to the issuance of $300.0 million Senior
Notes.
Investment in discontinued operations, net decreased $128.4 million or
60.4% to $84.2 million at December 31, 1997 from $212.6 million at December 31,
1996. This decrease was due primarily to the impact of the OFT guidelines
resulting in an impairment in the value of CSC-UK's mortgage servicing
receivables of $106.2 million and the write-off of unamortized goodwill of $52.7
million and commitment fees of $32.4 million.
Warehouse financing facilities outstanding increased $5.2 million or 7.2%
to $77.5 million at December 31, 1997 from $72.3 million at December 31, 1996.
This increase was due primarily to the increased origination and purchase volume
in excess of the volume of loans sold as reflected in the increase in mortgages
held for sale, net.
Securities sold but not yet purchased represent US Treasury securities
sold short as part of the Company's strategy to manage interest rate risk on
loan originations. There was no balance at December 31, 1997 as compared to
$152.9 million at December 31, 1996 due to the closing of all open positions.
Accounts payable and other liabilities increased $36.2 million or 133.1%
to $63.4 million at December 31, 1997 from $27.2 million at December 31, 1996.
This increase was due primarily $16.4 million of accrued expenses related to the
sell of CSC-UK as well as increased escrow balances associated with the
increased servicing portfolio and increased accrued professional fees.
Allowance for losses decreased $5.5 million or 54.5% to $4.6 million at
December 31, 1997 from $10.1 million at December 31, 1996. This decrease was due
primarily to the securitization of pools of mortgages previously recorded as
mortgage servicing receivables. Upon securitization of such loans, the allowance
for loss is embedded in the value of the trading security rather than classified
as a separate liability.
Notes and loans payable totaled $300.0 million at December 31, 1997
representing the Senior Notes as compared to $111.5 million at December 31, 1996
which represented $100.0 million outstanding under a senior secured facility,
$6.5 million of advances under the US Greenwich Facility (as defined below) and
a $5.0 million term loan with The First National Bank of Boston. The $111.5
million outstanding at December 31, 1996 was repaid in May 1997 with proceeds
from the $300.0 million Senior Notes.
A stockholders' deficit of $176.8 million was recorded at December 31,
1997 as compared to stockholders' equity of $138.8 million at December 31, 1996.
This deficit was primarily the result of a net loss of $414.4 million for the
year ended December 31, 1997, as well as $4.5 million of preferred stock
dividends, offset by $98.0 million of net proceeds received from the 1997
issuance of preferred stock and $18.2 million from the induced conversion of the
Convertible Debentures.
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, loans sold through
securitizations, loan origination fees, processing fees, net interest income and
borrowings under its loan warehouse and purchase facilities to meet its working
capital needs. The Company's business requires continual access to short- and
long-term sources of debt. 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. The Company believes that its future success is
dependent upon its ability to (i) complete a sale of its UK operation, (ii)
access loan warehouse or purchase facilities, (iii) successfully sell loans in
the whole loan sales market, (iv) restructure its balance sheet, (v) streamline
its operations and (vi) 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 Company must successfully implement a number of initiatives to generate cash
(such as the use of whole loan sales which, unlike loan sales through
securitizations, are immediately cash flow positive from the cash premium paid
at the time of sale, but will produce lower margins and, therefore, will
negatively impact the Company's earnings). Other potential initiatives include
the sale for cash of the Company's home equity interest-only and residual
interests. The implementation of any of these or other liquidity initiatives is
likely to have a negative impact on the Company's profitability. The Company's
liquidity is dependent upon its continued access to funding sources and can be
negatively affected by a number of factors including conditions in the whole
loan sale market and the Company's ability to sell certain assets. No assurances
can be given as to such continued access or the occurrence of such factors
Absent successful implementation of the Company's liquidity initiation, the
Company's current sources of liquidity are not adequate to meet the Company's
liquidity needs. 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.
There can be no assurance that the CSC-UK Sale will be consummated or that the
Company will be successful in such restructuring.
The Company has operated, and expects to continue to operate, on a
negative cash flow basis. During 1997, 1996 and 1995, the Company used net cash
in continuing operations of approximately $124.7 million, $105.9 million, and
$70.3 million,
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respectively. Additionally, in 1996 and 1995, the Company used $3.5 million and
$277,041, respectively, in investing activities. During 1997, the Company was
provided $30.2 million of cash from investing activities, primarily the sale of
available-for-sale securities and mortgages held for sale. The Company's sale of
loans through securitizations has resulted in a gain on sale of loans through
securitizations recognized by the Company. The recognition of this gain on sale
has a negative impact on the cash flow of the Company because significant costs
are incurred upon closing of the transactions giving rise to such gain and the
Company is required to pay income taxes on the gain on sale in the period
recognized, although the Company does not receive the cash representing the gain
until later periods as the related loans are repaid or otherwise collected.
During 1997, 1996 and 1995, the Company received cash from financing activities
of $273.9 million, $255.5 million and $73.5 million, respectively. During 1997,
1996 and 1995, the Company used net cash in discontinued operations of $177.3
million, $149.3 million and $262,654 million, respectively.
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 purchases 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. 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).
In October 1997, Moody's lowered its rating of the Company's Notes (as
defined below) to Caa1 and of the Company's Convertible Debentures (as defined
below) to Caa3. Also, in October 1997, S&P
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<PAGE> 42
lowered its ratings of the Company's Notes and long-term counterparty credit
to CCC. S&P's ratings remain on "CreditWatch" with developing implications.
These reductions in the ratings of the Company's debt will likely increase the
Company's future borrowing costs.
Credit Facilities
Greenwich Warehouse Facility. In January 1997, the Company 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 the Company borrows funds on a short-term basis to support
the accumulation of loans prior to sale (the "Greenwich Facility"). Advances
under the Greenwich Facility bore interest at a rate of LIBOR plus 150 basis
points (7.34% at December 31, 1997). The Greenwich Facility is secured by
certain residual securities pledged by the Company. This facility was terminated
on December 31, 1997, at which time the Company and Greenwich entered into an
extension agreement through April 30, 1998 (as amended, the "Extension
Agreement"). The Extension Agreement provides for a maximum credit line of
$100.0 million, subject to adjustment by Greenwich, at an interest rate of LIBOR
plus 200 basis points and a fee of 0.25% of the aggregate principal balance of
loans to be paid to Greenwich in connection with any sale, securitization of any
other transfer to any third party of loans funded under this agreement. As of
March 26, 1998, $24.8 was outstanding under this arrangement. There can
be no assurance that CSC can extend the term of the Greenwich Facility or obtain
any replacement financing beyond April 30, 1998.
CIT Warehouse Facility. On February 3, 1998, CSC entered into a revolving
credit facility with The CIT Group/Equipment Financing, Inc. (the "CIT
Facility") to finance CSC's origination and purchase of mortgage loans, the
repayment of certain indebtedness and, subject to certain limits, other general
corporate purposes. The CIT Facility is guaranteed by the Company, and bears
interest at the prime rate plus 50 basis points. 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 sublimits 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 a pledge of 65% of the capital stock of
CSC-UK and certain residual securities pledged by the Company. The CIT Facility
terminates on February 3, 2000. As of March 26, 1998, the outstanding balance
on the CIT Facility was $4.7 million.
Loan Sales
The Company disposes of loans through whole loan sales which are
immediately cash flow positive. In 1997, 1996 and 1995, the Company sold $518.4
million, $73.5 million and $105.8 million, respectively, in whole loan sales,
accounting for 31.7%, 5.6% and 24.8% of all loan sales in the respective
periods.
The Company uses 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. See "-- General -- Loan Sales."
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
42
<PAGE> 43
cash purchase price is raised through an offering by the trust of
pass-through certificates representing regular interests in the REMIC trust.
Following the securitization, the purchasers of the pass-through certificates
receive the 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 rights (including normal servicing and other ancillary fees)
as a mortgage servicing receivable based on their fair values. 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 default 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 to an independent third party purchaser of
the interest-only and residual certificates or mortgage servicing receivables.
As of December 31, 1997, the Company's balance sheet reflected the fair value of
interest-only and residual certificates and mortgage servicing receivables of
$126.5 million and $9.5 million less an allowance for losses of $4.6 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 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. See "Business -- Loan Sales --
Securitizations."
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 or 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.
In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of its Convertible Debentures resulting in the
issuance upon conversion of 533,332 shares of the Common Stock (at a conversion
price of $26.25 per share) pursuant to the terms of the Convertible Debentures.
To induce conversion, the Company issued an additional 342,708 shares of Common
Stock and paid the holders of the induced Convertible Debentures $420,000 in
cash. In the second quarter of 1997, these transactions resulted in the
reduction of Convertible Debentures by $14.0 million, a charge to interest
expense of $4.7 million related to the fair market value of the 342,708
inducement shares ($4.3 million) and the cash payment and an increase in
stockholders' equity of $18.2 million due to the issuance of the conversion
shares and the inducement shares. The net effect of these transactions was an
increase of $13.6 million to stockholders' equity in the second quarter of 1997.
During 1997, an aggregate of $14.1 million of
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<PAGE> 44
Convertible Debentures had been converted into Common Stock, including the
induced conversion described above. As of March 6, 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 September 1, 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.
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.
During 1997, preferred stock dividends of $904,531 were paid to the
holders of the Series A Preferred Stock in the form of 67,863 shares of the
Common Stock. For the December 31, 1997 dividend, the Company elected to add an
amount equal to the dividend to the Liquidation Preference of the Series A
Preferred Stock in lieu of payments of such dividend. The new Liquidation
Preference is $10,150 per share. During 1997, there was also recognition of the
effect of a beneficial conversion feature related to the Series A Preferred
Stock of $1.1 million.
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 April 24,
1998, 127 calendar days) immediately preceding such conversion, discounted by up
to 4% and subject to certain adjustments.
As of March 6, 1998, an aggregate of 4,328 shares of the Series A
Preferred Stock had been converted (672 shares remain outstanding) into an
aggregate of 10,570,119 shares of Common Stock. As of March 6, 1998, all
Series A Warrants were outstanding.
In September 1997, the Company completed the private placement of 5,000
shares of 6% Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), with an initial Liquidation Preference of $10,000 per share, and
related five-year warrants (the "Series B Warrants") to purchase 500,000 shares
of Common Stock with an exercise price per share equal to the lesser of (i)
$14.71 or (ii) 130% of the average closing sales prices over the 20 trading day
period ending on the trading day immediately prior to the first anniversary of
the original issuance of the Series B Warrants. Dividends on the Series B
Preferred Stock are cumulative at the rate of 6% of the Liquidation Preference
per annum payable quarterly. Dividends are payable, at the option of the
Company, (i) in cash, (ii) in shares of Common Stock valued at the closing price
on the day immediately preceding the dividend payment date or (iii) by
increasing the Liquidation Preference in an amount equal to and in lieu of the
cash dividend payment.
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The first dividend payment date was December 31, 1997. For this dividend,
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.
The new Liquidation Preference is $10,177. During 1997, there was also
recognition of the effect of a beneficial conversion feature related to the
Series B Preferred Stock of $1.6 million.
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 March 6, 1998, an aggregate of 377 shares of Series B Preferred
Stock had been converted (4,623 shares remain outstanding) into an aggregate of
6,281,295 shares of Common Stock. As of March 6, 1998, all Series B Warrants
were outstanding.
In addition, 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 the Nasdaq National Market 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 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 delisting the conversion price
was equal to the lowest daily sale s 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 market price of the Common Stock as of March 6,1998, the Company
did not have available a sufficient number of authorized but unissued shares of
Common Stock to permit the conversion of all of the shares of the Preferred
Stock.
The 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).
Accounting Considerations
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In June 1997, the FASB issued SFAS No. 130, "Reporting on Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
historical statements issued for periods beginning after December 15, 1997. The
Company has not completed its analysis of this statement.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
<TABLE>
<CAPTION> Page
------
<S> <C>
Cityscape Financial Corp. Financial Statements:
Report of Independent Auditors by KPMG Peat Marwick LLP......... 47
Report of Independent Auditors by BDO Stoy Hayward,
Registered Auditors........................................... 48
Consolidated Statements of Financial Condition at December 31,
1997 and 1996................................................. 49
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995............................... 50
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995........................ 51
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.............................. 52
Notes to Consolidated Financial Statements...................... 53
</TABLE>
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cityscape Financial Corp.:
We have audited the accompanying consolidated statements of financial
condition of Cityscape Financial Corp. and Subsidiary (the "Company") as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the three-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the 1995 financial statements
of City Mortgage Corporation Limited, a wholly-owned subsidiary, which
statements reflect total revenues constituting 26 percent of the Company's total
revenue for the year ended December 31, 1995. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for City Mortgage Corporation Limited, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
1996, and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
The accompanying 1997, 1996 and 1995 consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the Company has suffered a
significant net loss for the year ended December 31, 1997, and has a net capital
deficiency as of December 31, 1997. At December 31, 1997, these circumstances
raise substantial doubt about the entity's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The 1997 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Because of the significance of the uncertainty discussed in the preceding
paragraph, we are unable to express, and we do not express, an opinion on the
accompanying 1997 financial statements.
KPMG Peat Marwick LLP
New York, New York
March 31, 1998
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<PAGE> 48
CITY MORTGAGE CORPORATION LIMITED
REPORT OF THE AUDITORS
To the shareholders of City Mortgage Corporation Limited.
We have audited the consolidated financial statements of City Mortgage
Corporation Limited (the "Company") and its subsidiaries as of and for the
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of City Mortgage Corporation
Limited and its subsidiaries as of December 31, 1995 and the results of their
operations and their cash flows for the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
27 March 1996
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CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,594,163 $ 446,285
Cash held in escrow 24,207,517 12,762,992
Securities purchased under agreements to resell -- 154,176,608
Available-for-sale securities -- 14,618,194
Mortgage servicing receivables 9,524,535 50,130,313
Trading securities 126,475,656 103,199,936
Mortgage loans held for sale, net 93,290,024 88,127,184
Mortgages held for investment, net 6,530,737 5,206,618
Equipment and leasehold improvements, net 6,058,206 4,062,037
Investment in discontinued operations, net 84,232,000 212,589,597
Income taxes receivable 18,376,574 --
Other assets 27,267,770 28,584,620
------------- -------------
Total assets $ 398,557,182 $ 673,904,384
============= =============
LIABILITIES
Warehouse financing facilities $ 77,479,007 $ 72,262,291
Securities sold but not yet purchased -- 152,862,526
Accounts payable and other liabilities 63,427,810 27,216,650
Allowance for losses 4,555,373 10,062,614
Income taxes payable 300,000 9,451,099
Standby financing facility -- 7,966,292
Notes and loans payable 300,000,000 111,520,719
Convertible subordinated debentures 129,620,000 143,730,000
------------- -------------
Total liabilities 575,382,190 535,072,191
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000,000 shares authorized;
5,295 shares issued and outstanding at December 31, 1997;
Liquidation Preference - Series A Preferred Stock, $10,150 per
share; Series B Preferred Stock, $10,177 per share 53 --
Common stock, $.01 par value; 100,000,000 shares authorized;
47,648,738 and 29,649,133 issued at December 31, 1997
and 1996, respectively 476,487 296,491
Treasury stock, 70,000 shares at December 31, 1997, at cost (175,000) --
Additional paid-in capital 175,477,104 57,782,609
Unrealized gain on available-for-sale securities, net of taxes -- 8,328,950
Retained earnings (accumulated deficit) (352,603,652) 72,424,143
------------- -------------
Total stockholders' equity (deficit) (176,825,008) 138,832,193
------------- -------------
COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders' equity (deficit) $ 398,557,182 $ 673,904,384
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
49
<PAGE> 50
CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Revenues
Gain on sale of loans $ 83,365,502 $ 76,820,290 $ 26,304,663
Net unrealized loss on valuation of residuals (148,004,447) -- --
Interest 73,520,473 24,535,115 6,110,258
Mortgage origination income 4,848,613 2,811,534 2,750,801
Other 20,301,883 3,680,938 1,305,980
------------- ------------ ------------
Total revenues 34,032,024 107,847,877 36,471,702
------------- ------------ ------------
Expenses
Salaries and employee benefits 41,088,956 26,287,642 10,861,363
Interest expense 70,689,198 17,279,836 4,505,893
Selling expenses 4,136,812 2,337,544 1,737,246
Other operating expenses 42,085,275 18,210,714 4,836,741
Provision for loan losses 12,614,269 532,396 --
------------- ------------ ------------
Total expenses 170,614,510 64,648,132 21,941,243
------------- ------------ ------------
(Loss) earnings from continuing operations before
income taxes and extraordinary item (136,582,486) 43,199,745 14,530,459
Income tax (benefit) provision (18,076,574) 19,324,460 6,410,078
------------- ------------ ------------
(Loss) earnings from continuing operations before
extraordinary item (118,505,912) 23,875,285 8,120,381
Discontinued operations:
(Loss) earnings from discontinued operations, net
of income tax (benefit) provision of
($37,188,000), $15,102,974 and $2,105,155 and
net of extraordinary item of $425,000 (245,906,000) 26,805,597 3,750,227
Loss on disposal of discontinued operations (49,939,996) -- --
------------- ------------ ------------
(Loss) earnings before extraordinary item (414,351,908) 50,680,882 11,870,608
Extraordinary item:
Loss from extinguishment of debt, net of taxes -- -- (295,943)
------------- ------------ ------------
Net (loss) earnings (414,351,908) 50,680,882 11,574,665
Preferred stock dividends paid in common stock 904,531 -- --
Preferred stock - increase in liquidation preference 917,530 -- --
Preferred stock - beneficial discount 2,725,000 -- --
------------- ------------ ------------
Net (loss) earnings applicable to common stock $(418,898,969) $ 50,680,882 $ 11,574,665
============= ============ ============
Earnings (loss) per common share(1):
Basic
(Loss) earnings from continuing operations
before extraordinary item $ (3.70) $ 0.81 $ 0.38
(Loss) earnings from discontinued operations (7.40) 0.91 0.18
Loss on disposal of discontinued operations (1.50) -- --
Extraordinary item -- -- (0.02)
------------- ------------ ------------
Net (loss) earnings (12.60) $ 1.72 $ 0.54
============= ============ ============
Diluted(2)
(Loss) earnings from continuing operations
before extraordinary item $ (3.70) $ 0.78 $ 0.34
(Loss) earnings from discontinued operations (7.40) 0.88 0.16
Loss on disposal of discontinued operations (1.50) -- --
Extraordinary item -- -- (0.01)
------------- ------------ ------------
Net (loss) earnings $ (12.60) $ 1.66 $ 0.49
============= ============ ============
Weighted average number of common shares outstanding(1):
Basic 33,244,212 29,404,557 21,243,536
============= ============ ============
Diluted 33,244,212(2) 30,537,991 23,838,617
============= ============ ============
</TABLE>
(1) EPS figures for the effected periods reflect the 100% stock dividends paid
in September 1995 and July 1996.
(2) For the year ended December 31, 1997, the incremental shares from assumed
conversions are not included in computing the diluted per share amounts
because their effect would be antidilutive since an increase in the number
of shares would reduce the amount of loss per share. Therefore, basic and
diluted EPS figures are the same amount.
See accompanying notes to consolidated financial statements.
50
<PAGE> 51
CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Shares Common Shares(1)
-------------------- ------------------------- Additional
Number Number Paid-in
of Shares Amount of Shares Amount Capital(1)
--------- ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 -- $ -- 20,214,980 $ 202,149 $ 2,571,130
Issuance of common stock -- -- 5,085,752 50,858 20,680,513
UK Acquisition -- -- 3,600,000 36,000 21,586,500
Foreign currency translation adjustment,
net of taxes -- -- -- -- --
Net earnings -- -- -- -- --
----- ------ ---------- ---------- -------------
Balance at December 31, 1995 -- -- 28,900,732 289,007 44,838,143
Unrealized gain on available-for-sale
securities, net of taxes -- -- -- -- --
Issuance of common stock -- -- 101,039 1,010 672,246
J & J Acquisition -- -- 548,000 5,480 9,789,164
Greyfriars Acquisition -- -- 99,362 994 2,483,056
Foreign currency translation adjustment,
net of taxes -- -- -- -- --
Net earnings -- -- -- -- --
----- ------ ---------- ---------- -------------
Balance at December 31, 1996 -- -- 29,649,133 296,491 57,782,609
Issuance of common stock -- -- 204,288 2,043 829,864
Induced conversion of convertible
subordinated debentures -- -- 876,040 8,760 18,170,749
Issuance of preferred stock 10,000 100 -- -- 97,958,497
Conversion of preferred stock (4,705) (47) 16,851,414 168,514 (168,467)
Preferred stock dividends paid in
common stock -- -- 67,863 679 903,852
Changes in unrealized gain on available-
for-sale securities, net of taxes -- -- -- -- --
Purchase of treasury stock -- -- (70,000) -- --
Foreign currency translation adjustment,
net of taxes
Net loss -- -- -- -- --
----- ------ ---------- ---------- -------------
Balance at December 31, 1997 5,295 $ 53 47,578,738 $ 476,487 $ 175,477,104
===== ====== ========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings
Unrealized Accumulated Treasury
Gain (Deficit) Stock Total
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ -- $ 403,459 $ -- $ 3,176,738
Issuance of common stock -- -- -- 20,731,371
UK Acquisition -- -- -- 21,622,500
Foreign currency translation adjustment,
net of taxes -- (6,219) -- (6,219)
Net earnings -- 11,574,665 -- 11,574,665
---------- ------------- ----------- -------------
Balance at December 31, 1995 -- 11,971,905 -- 57,099,055
Unrealized gain on available-for-sale
securities, net of taxes 8,328,950 -- -- 8,328,950
Issuance of common stock -- -- -- 673,256
J & J Acquisition -- -- -- 9,794,644
Greyfriars Acquisition -- -- -- 2,484,050
Foreign currency translation adjustment,
net of taxes -- 9,771,356 -- 9,771,356
Net earnings -- 50,680,882 -- 50,680,882
---------- ------------- ----------- -------------
Balance at December 31, 1996 8,328,950 72,424,143 -- 138,832,193
Issuance of common stock -- -- -- 831,907
Induced conversion of convertible
subordinated debentures -- -- -- 18,179,509
Issuance of preferred stock -- -- -- 97,958,597
Conversion of preferred stock -- -- -- --
Preferred stock dividends paid in
common stock -- (904,531) -- --
Changes in unrealized gain on available-
for-sale securities, net of taxes (8,328,950) -- -- (8,328,950)
Purchase of treasury stock -- -- (175,000) (175,000)
Foreign currency translation adjustment,
net of taxes (9,771,356) (9,771,356)
Net loss -- (414,351,908) -- (414,351,908)
---------- ------------- ----------- -------------
Balance at December 31, 1997 $ -- $(352,603,652) $ (175,000) $(176,825,008)
========== ============= =========== =============
</TABLE>
(1) All amounts have been restated to reflect the 100% stock dividends paid in
September 1995 and July 1996.
See accompanying notes to consolidated financial statements.
51
<PAGE> 52
CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) earnings from continuing operations $ (118,505,912) $ 23,875,285 $ 8,120,381
Adjustments to reconcile net earnings from continuing
operations to net cash used in continuing operations:
Depreciation and amortization 2,846,394 3,110,200 176,738
Income taxes payable (27,527,673) 5,251,091 (2,904,746)
Earnings from partnership interest -- (753,663) (481,789)
Unrealized gain on securities -- (429,688) --
Decrease (increase) in mortgage servicing receivables 40,605,778 (42,432,634) (5,195,625)
Increase in trading securities (23,275,720) (87,628,481) (15,571,455)
Provision for losses 12,614,269 7,931,660 --
Net purchases (sales) of securities under agreement
to resell 154,176,608 (153,796,920) --
(Repayment of) proceeds from securities sold
but not yet purchased (152,862,526) 152,862,526 --
Proceeds from sale of mortgages 1,637,387,344 1,270,897,455 358,997,000
Mortgage origination funds disbursed (1,655,191,573) (1,289,354,776) (417,864,000)
Other, net 5,061,521 4,590,793 4,400,528
--------------- --------------- ---------------
Net cash used in continuing operating activities (124,671,490) (105,877,152) (70,322,968)
--------------- --------------- ---------------
Net cash used in discontinued operating activities (177,259,754) (149,317,683) (262,654)
--------------- --------------- ---------------
Net cash used in operating activities (301,931,244) (255,194,835) (70,585,622)
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from equipment sale & lease-back financing 1,776,283 -- --
Purchases of equipment (5,134,122) (4,578,368) (705,515)
Proceeds from sale of mortgages held for investment 15,248,227 -- --
Proceeds from sale of available-for-sale securities 18,288,999 -- --
Net distributions from partnership -- 1,099,488 428,474
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 30,179,387 (3,478,880) (277,041)
--------------- --------------- ---------------
Cash flows from financing activities:
Increase in warehouse facility 5,216,716 91,745 54,810,450
(Decrease) increase in standby financing facility (7,966,292) 7,194,931 --
Proceeds from notes and loan payable 49,000,000 144,520,719 --
Repayment of notes and loans payable (161,405,843) (33,000,000) --
Proceeds from issuance of preferred stock 98,249,950 -- --
Proceeds from issuance of convertible subordinated debentures -- 136,060,800 --
Proceeds (redemption) of subordinated debentures -- -- (2,000,000)
Net proceeds from issuance of common stock 221,296 653,256 20,731,371
Purchase of treasury stock (175,000) -- --
Net proceeds from issuance of senior notes 290,758,908 -- --
--------------- --------------- ---------------
Net cash provided by financing activities 273,899,735 255,521,451 73,541,821
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,147,878 (3,152,264) 2,679,158
Cash and cash equivalents at beginning of the year 446,285 3,598,549 919,291
--------------- --------------- ---------------
Cash and cash equivalents at end of the year $ 2,594,163 $ 446,285 $ 3,598,449
=============== =============== ===============
Supplemental disclosure of cash flow information:
Income taxes paid during the year:
Continuing operations $ 5,904,507 $ 14,699,560 $ 9,049,002
Discontinued operations 767,335 5,012,017 --
Interest paid during the year:
Continuing operations $ 57,194,601 $ 11,625,526 $ 6,601,382
Discontinued operations 867,394 1,231,438 104,293
</TABLE>
See accompanying notes to consolidated financial statements.
52
<PAGE> 53
CITYSCAPE FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Organization and Recent Events
Organization
Cityscape Financial Corp. ("Cityscape" or the "Company") is a consumer
finance company that, through its wholly-owned subsidiary, Cityscape Corp.
("CSC"), engages in the business of originating, purchasing, selling and
servicing mortgage loans secured primarily by one- to four-family residences.
The majority of the Company's loans are made to owners of single family
residences who use the loan proceeds for such purposes as debt consolidation,
financing of home improvements and educational expenditures, among others. In
the US, the Company is licensed or registered to do business in 46 states and
the District of Columbia. The Company commenced operations in the United Kingdom
in May 1995 with the formation of City Mortgage Corporation Limited ("CSC-UK"),
an English corporation that originates, sells and services loans in England,
Scotland and Wales in which the Company initially held a 50% interest and
subsequently purchased the remaining 50% (see Note 2). CSC-UK had no operations
and no predecessor operations prior to May 1995. In March 1998, the Company's
Board of Directors adopted a plan to sell the operations of CSC-UK (See Note 2).
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 have consumed substantial amounts
of cash and have generated significant net losses which have reduced
stockholders' equity to a deficit of $176.8 million at December 31, 1997. 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 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 then 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) complete a sale of its UK assets, (ii) streamline its US
operations, (iii) successfully sell loans in the whole loan sales market, (iv)
restructure its balance sheet, (v) access warehouse lines of credit and (vi)
retain an adequate number and mix of its employees. The Company has begun
reducing costs (see Note 28) and has expanded its secondary marketing and sales
efforts to pursue whole loan sales opportunities. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company adopted a plan in March 1998 to sell the assets of CSC-UK
(the "CSC-UK Sale"). See Note 2 below. As a result, the Company has restated
its prior financial statements to present the operating results of CSC-UK as a
discontinued operation. On March 31, 1998, the Company announced that it had
entered into definitive agreements with Ocwen Financial Corporation ("Ocwen")
for the sale of substantially all of the business and assets, and certain
liabilities of the UK operations of CSC-UK. The acquisition includes the
purchase of CSC-UK's whole loan portfolio, securitized loan residuals and loan
origination and servicing businesses for a price of approximately (pound) 285
million, subject to adjustment as of closing based on an agreed upon formula
(currently estimated to result in an upward or downward adjustment of
approximately (pound) 5 million). Closing, which is anticipated to occur in
April 1998, is subject to satisfaction of a number of conditions, including
obtaining rating agency consents and various substitutions in connection with
the transfer of the securitized residual and related servicing rights (which
will require the consents of the trustees of several securitizations). As a
result, there can be no assurance that the transaction will be consummated.
As a result of the Company's adoption of a plan to institute the UK Sale,
the Company's net interest in its UK discontinued operations represents expected
proceeds of $102.2 million, net of accrued losses of $18.0 million. Expected
costs related to the disposal of UK discontinued operations of $16.4 million is
included in accounts payable and other liabilities at December 31, 1997.
Recent Events
UK Recent Events. As a result of discussions and correspondence, which
began in March of 1997, between the Company and the United Kingdom's Office of
Fair Trading (the "OFT") regarding the OFT's revised Non-Status Lending
Guidelines for Lenders and Brokers received by the Company in December 1997 (the
"Revised Non-Status Guidelines"), the Company has agreed to take action with
respect to the use of certain contract terms in the Company's existing UK loan
agreements. The Company has agreed to eliminate the use of the Rule of 78s
method for calculating prepayment fees on unregulated loans and revise the
standard/concessionary rate structure, and has provided assurances to the OFT
regarding the Company's future use of such revised terms.
With respect to the use of the Rule of 78s method on existing unregulated
loans, the Company agreed that it would not use such formula to calculate
prepayments. Instead, the Company will collect prepayment fees by reference to a
sliding scale whereby six months' interest will be charged for prepayments
occurring during the first three years of a loan, reducing to one month's
interest in the eighth year of a loan. There will be no prepayment fee levied
after the eighth year of a loan. Such prepayment fees will be based on the
concessionary rate of interest.
With respect to the standard/concessionary rate structure on existing
loans, the Company agreed that it would lower the differential between the
standard rate of interest and the concessionary rate of interest to not more
than 2.5%. For example, on a loan where the standard/concessionary rates had
been 18.0% and 9.9%, respectively, the loan agreement will now provide for the
standard/concessionary rates to be 12.4% and 9.9%, respectively.
53
<PAGE> 54
As a result of these revisions to the terms of the applicable UK loans,
during the fourth quarter of 1997 the Company recognized an impairment in the
value of its mortgage servicing receivables in the UK of $106.2 million and has
written-off unamortized goodwill of $52.7 million recorded in connection with
its UK acquisitions.
US Recent Events. In order to enhance the Company's liquidity position, in
January 1998 the Company sold interest-only and residual certificates and
associated mortgage servicing receivables relating to certain of the Company's
home equity loan products with a book value of $38.4 million for net proceeds of
$26.5 million. As a result of the expected net realizable values implied by such
sale, the Company recognized an impairment of the value of its interest-only and
residual certificates and mortgage servicing receivables relating to the
Company's home equity loan products of $112.1 million during the second half of
1997. Additionally, due to the continual review of the assumptions underlying
the valuation of its interest-only and residual certificates relating to the
Company's Sav*-A-Loan(R) product, including the loss expectations and discount
rate of such certificates, the Company recognized an impairment of $35.9
million of such certificates during 1997.
Additionally, the Company has redirected its efforts to actively pursue
the sale of its loans through whole loan sales rather than through
securitizations. Whole loan sales are immediately cash flow positive because,
when the Company sells loans through whole loan sales, it receives a cash
premium at the time of sale.
2. Discontinued Operations
In May 1995, the Company and three principals of a privately held UK-based
mortgage banker formed CSC-UK. CSC-UK operates in the United Kingdom (excluding
Northern Ireland, the "UK"), and lends to individuals who are unable to obtain
mortgage financing from conventional mortgage sources such as banks and building
societies ("Conventional UK Lenders") because of impaired or unsubstantiated
credit histories and/or unverifiable income. On September 29, 1995, the Company
entered into an agreement with the three other shareholders of CSC-UK to acquire
their 50% interest in CSC-UK not then owned by the Company through the issuance
of 3,600,000 shares of the Company's Common Stock valued at $21.6 million (the
"UK Acquisition"). The UK Acquisition was completed as of September 30, 1995.
The UK Acquisition resulted in the recognition of $19.7 million of goodwill.
In April 1996, CSC-UK acquired all the outstanding capital stock of J&J
Securities Limited, a London-based mortgage banker ("J&J"), in exchange for
(pound)15.3 million ($23.3 million based on the Noon Buying Rate on the date of
such acquisition) in cash and 548,000 shares of Common Stock valued at $9.8
million based upon the closing price of the Common Stock on the date of such
acquisition less a discount for restrictions on the resale of such stock and
incurred closing costs of $788,000 (the "J&J Acquisition"), resulting in the
recognition of $5.2 million of goodwill. J&J provides primarily second lien
mortgage loans to UK borrowers who, similar to the Company's UK borrowers, are
unable or unwilling to obtain mortgage financing from Conventional UK Lenders.
In June 1996, CSC-UK acquired all of the outstanding capital stock of
Greyfriars Group Limited, a mortgage banker based in Reading, England (formerly
known as Heritable Finance Limited and referred to herein as "Greyfriars"), in
exchange for (pound)41.8 million ($64.1 million based on the Noon Buying Rate on
the date of such acquisition) in cash and 99,362 shares of Common Stock valued
at $2.5 million based upon the closing price of the Common Stock on the date of
such acquisition and incurred closing costs of $2.3 million (the "Greyfriars
Acquisition"), resulting in the recognition of $25.4 million of goodwill.
Greyfriars provides mortgage loans to borrowers that generally have higher
quality credit profiles than the Company's typical UK borrowers.
In May 1997, CSC-UK acquired the assets of Midland & General PLC, a
London-based mortgage broker ("M&G"), in exchange for (pound)6.5 million ($10.6
million based on the Noon Buying Rate on the date of such acquisition) (the "M&G
Acquisition"). Pursuant to the M&G Acquisition, the Company acquired assets with
a fair value of approximately $764,000, consisting primarily of property, plant
and equipment. The M&G Acquisition resulted in the recognition of $10.2 million
of goodwill. In connection with the M&G Acquisition, the Company entered into a
five-year non-compete agreement with the former principals of M&G for (pound)3.0
million ($4.9 million), which was being amortized using the straight-line method
over a life of five years.
As a result of the issuance of the OFT guidelines (see Note 1), the
Company determined that the earnings of CSC-UK would be significantly reduced
thereby impairing the recoverability of the remaining $52.7 million in recorded
goodwill which, accordingly, was written off at
December 31, 1997.
54
<PAGE> 55
As a result of these revisions to the terms of the applicable UK loans,
during the fourth quarter of 1997 the Company also recognized an impairment in
the value of its mortgage servicing receivables in the UK of $106.2 million.
In March 1998, the Company's Board of Directors adopted a plan to sell the
operations of CSC-UK. It is management's intention to complete this transaction
by April 30, 1998 and accordingly has included the loss on disposal and
operating losses from January 1, 1998 to April 30, 1998 in its estimated loss on
disposal of discontinued operations in 1997. The operating results of CSC-UK
have been segregated from continuing operations and reported as a separate line
item on the Consolidated Statements of Operations. In addition, net assets of
CSC-UK have been reclassified on the Consolidated Statements of Financial
Condition 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.
Summarized financial information for the discontinued operations is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Summarized Statements of Operations:
Revenues
Gain on sale of loans $ 27,797,000 $ 79,432,000 $ 11,893,458
Net unrealized loss on
valuation of mortgage
servicing receivables (106,153,000) - -
Interest income 18,811,000 12,333,000 595,417
Other income 21,444,000 7,167,000 550,061
------------- ------------- -------------
(38,101,000) 98,932,000 13,038,936
Expenses
Interest expense 26,599,000 7,564,334 -
Write-off and amortization of
goodwill 58,185,000 3,775,176 493,794
Write-off and amortization of
prepaid commitment fees 35,245,000 1,800,000 -
Other operating expenses 125,389,000 43,883,919 6,689,760
------------- ------------- -------------
(Loss) earnings before income
taxes and extraordinary item (283,519,000) 41,908,571 5,855,382
Extraordinary item, gain on
extinguishment of debt,
net of taxes 425,000 - -
------------- ------------- -------------
(Loss) earnings before income
taxes (283,094,000) 41,908,571 5,855,382
Income tax (benefit) provision (37,188,000) 15,102,974 2,105,155
------------- ------------- -------------
(Loss) earnings from discontinued
operations $(245,906,000) $ 26,805,597 $ 3,750,227
============= ============= =============
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Investment in discontinued
operations:
Mortgage servicing receivables, net of reserves $ 169,112,000
Credit enhancement deposits 35,082,000
Prepaid commitment fee 35,917,000
Goodwill 47,466,835
Other assets 37,656,737
Liabilities (112,644,975)
-------------
Investment in discontinued operations $ 212,589,597
=============
</TABLE>
On March 31, 1998, the Company entered into an agreement with Ocwen
pursuant to which it will sell substantially all of the assets of CSC-UK,
including the shares of certain of CSC-UK's subsidiaries, to Ocwen. Accordingly,
the Company's net interest in discontinued operations represents expected
proceeds of $102.2 million, net of accrued losses of $18.0 million. Expected
costs related to the disposal of discontinued operations of $16.4 million is
included in accounts payable and other liabilities at December 31, 1997.
UK Financing Facilities. In March 1996, CSC-UK entered into a mortgage loan
purchase agreement with Greenwich Capital Markets, Inc. (referred to herein,
including any affiliates, as "Greenwich") effective as of January 1, 1996 (the
"UK Greenwich Facility"). Pursuant to the UK Greenwich Facility and with certain
exceptions, CSC-UK sold all of the loans it originated to Greenwich which was
obligated to buy such loans. CSC-UK and/or Greenwich will subsequently resell
these loans through whole loan sales or securitizations. This agreement was
terminated in February 1998. CSC-UK paid a fee to Greenwich in connection with
the UK Greenwich Facility in the aggregate amount of $38.0 million evidenced by
two notes bearing interest at a rate of 6.2%, $13.0 million of which was paid in
December 1996 and $25.0 million which was due in December 1997, but was paid in
May 1997. This fee was being amortized over the life of the agreement. Due to
the early extinguishment of debt, an extraordinary gain of $425,000, net of
taxes, was recognized in the second quarter of 1997.
During the first quarter of 1998, Greenwich indicated to the Company that the
Company could not access the UK Greenwich Facility pursuant to its terms, and no
assurance could be given that the Company would be able to access it at any time
in the future. Additionally in February 1998, the Company entered into a
(pound)35.0 million UK Warehouse Facility with Greenwich to fund the Company's
UK originations. Due to the Company's inability to access the UK Greenwich
Facility in the future, the Company has determined that the asset is impaired
and wrote off the unamortized portion of the prepaid commitment fee to Greenwich
resulting in a charge of $32.4 million during the fourth quarter of 1997.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of CSC and its wholly-owned subsidiaries. The consolidated statements of
operations include the accounts of CSC-UK with a corresponding minority interest
for the earnings from May 2, 1995 to September 29, 1995, representing the 50%
interest not held by the Company during this period. The Company has restated
its prior financial statements to present the operating results of CSC-UK as a
discontinued operation as discussed in Note 2. All significant intercompany
balances and transactions have been eliminated in consolidation.
56
<PAGE> 57
Revenue Recognition
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." SFAS No. 125 requires prospective
implementation only; however, certain reclassifications have been made to prior
year's financial statements to conform to the current year's presentation.
Gains and losses on sale of mortgage loans are recognized when mortgage
loans are sold to investors. The Company primarily sells loans on a non-recourse
basis, at a price above the face value of the loan. Gain on the sale of loans is
recorded on the settlement date. Included in gain on sale of loans is the
present value of the differential between the interest rate payable by an
obligor on a loan over the interest rate passed through to the purchaser
acquiring an interest in such loan, less applicable recurring fees including the
costs of credit enhancements and trustee fees and, in the case of CSC-UK loans
sold prior to January 1, 1996, a third party investment bank's significant
participation in the cash flows associated with such loans. In the case of a UK
securitization, or a sale into a loan purchase facility, the Company records a
mortgage servicing receivable.
In connection with the Company's pre-funding commitments in its
securitization transactions, investors deposit in cash a pre-funded amount into
the related trust to purchase loans the Company commits to sell on a forward
basis. This pre-funded amount is invested pending subsequent transfers of loans
to the trusts in short term obligations which pay a lower interest rate than the
interest the trust is obligated to pay the certificate investors on the
outstanding balance of the pre-funded amount. The Company is required to deposit
at the closing of the related transaction an amount sufficient to make up the
difference between these rates. The amount of the deposit which is not recovered
by the Company is recorded as an expense of the transaction and a reduction of
the gain recognized.
Included in the gain on sale of loans is gain on US securitizations
representing the fair value of the interest-only and residual certificates
received by the Company which are reflected as trading securities. Gains on
sales from securitization represents the difference between the proceeds
received from the trust plus the fair value of the interest-only and residual
certificates less the carrying value of the loans sold. 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, collateral value, economic forecasts and historical default
and prepayment rates of the portfolio under review.
Interest income includes income from mortgage loans held for sale and
mortgage loans held for investment, in each case, calculated using the interest
method and recognized on an accrual basis.
Servicing income includes servicing fees, prepayment penalties and late
payment charges earned for servicing mortgage loans owned by investors. All fees
and charges are recognized into income when collected.
Valuation of Residuals
In initially valuing its trading securities and mortgage servicing
receivables, the Company establishes an allowance for expected losses and
calculates that allowance on the basis of historical experience and management's
best estimate of future credit losses likely to be incurred. In the case where
the securitization of loans results in the retention by the Company of
interest-only and/or residual certificates, such allowance is embodied in the
fair value of such certificates. In the case where the sale of loans into a loan
purchase facility results in the retention of mortgage servicing rights, such
allowance is reported in the liability section of the statement of financial
condition. The amount of this provision is reviewed quarterly and adjustments
are made if actual experience or other factors indicate management's estimate of
losses should be revised. While the Company retains a substantial amount of risk
of default on the loan portfolios that it sells, such risk has been
substantially reduced through the sales of loans through securitization.
Through the Company's loan sales through securitizations and loan purchase
facilities, the Company has provided investors with a variety of additional
forms of credit enhancements. In a securitization, the Company purchases credit
enhancements to the senior interest in the related securitization trusts in the
form of insurance policies provided by insurance companies. The pooling and
servicing agreements that govern the distribution of cash flows
57
<PAGE> 58
from the loans included in the securitization trusts require either (i) the
establishment of a reserve that may be funded with an initial cash deposit by
the Company or (ii) the over-collateralization of the securitization trust
intended to result in receipts and collections on the loans that exceed the
amounts required to be distributed to holders of senior interests. To the extent
that borrowers default on the payment of principal or interest on the loans,
losses will be paid out of the reserve account or will reduce the
over-collateralization to the extent that funds are available and will result in
a reduction in the value of the interest-only and residual certificates held by
the Company.
Although the Company believes it has made reasonable estimates of the fair
value of the interest-only and residual certificates and mortgage servicing
receivables likely to be realized, the rate of prepayment and the amount of
defaults utilized by the Company are estimates and actual experience may vary
from its estimates. The fair value of the interest-only and residual
certificates and mortgage servicing receivables recorded by the Company upon the
sale of loans through securitizations will have been overstated if prepayments
or losses are greater than anticipated. Higher than anticipated rates of loan
prepayments or losses would require the Company to write down the fair value of
the interest-only and residual certificates, adversely impacting earnings.
Similarly, if delinquencies, liquidations or interest rates were to be greater
than was initially assumed, the fair value of the interest-only and residual
certificates would be negatively impacted which would have an adverse effect on
income for the period in which such events occurred. The Company reviews these
factors and, if necessary, adjusts the remaining asset to the fair value of the
interest-only and residual certificates, pursuant to SFAS No. 115. Should the
estimated average loan life assumed for this purpose be shorter than the actual
life, the amount of cash actually received over the lives of the loans would
exceed the gain previously recognized at the time the loans were sold through
securitizations and would result in additional income. In the second half of
1997, the Company has valued its interest-only and residual certificates on its
US Home Equity securitizations based upon the expected net realizable value upon
a liquidation sale. This change in valuation policy is a result of the Company's
initiative to enhance liquidity by potential sale of such securities.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and money market funds.
Such funds are deemed to be cash equivalents for purposes of the statements of
cash flows.
Interest Rate Risk Management
From time to time, to manage interest rate risk on loan originations, the
Company sells short United States Treasury securities which approximately match
the duration of the mortgage loans held for sale and invests the proceeds in
securities purchased under agreements to resell.
Securities sold but not yet purchased are recorded at trade date and are
initially carried at their sale amount. At the financial statement date, the
securities are marked to market and any resultant gain or loss is recognized in
income. Interest expense on the securities sold but not yet purchased is
recorded as incurred.
Securities purchased under agreements to resell are recorded at trade date
and are carried at the amounts at which the securities will be resold, plus
accrued interest income.
Available-for-Sale Securities
Available-for-sale securities are reported on the Consolidated Statements
of Financial Condition at fair market value with any corresponding change in
value reported as an unrealized gain or loss (if assessed to be temporary) as an
element of stockholders' equity after giving effect for taxes.
Mortgage Servicing Rights
Effective October 1, 1995, the Company adopted SFAS No. 122, "Accounting
for Mortgage Servicing Rights." The Statement amends SFAS No. 65 to require that
a mortgage banking enterprise recognize as separate assets the rights to service
mortgage loans for others, however those servicing rights are acquired. The
Statement, as amended by SFAS No. 125, requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current fair value
of those rights. Mortgage servicing rights are amortized in proportion to and
over the period of the estimated net servicing income.
58
<PAGE> 59
Mortgage Loans Held for Sale, Net
Mortgage loans held for sale, net, are reported at the lower of cost or
market value, determined on an aggregate basis. Market value is determined by
current investor yield requirements in accordance with SFAS No. 65 "Accounting
for Certain Mortgage Banking Activities."
Mortgage Loans Held for Investment, Net
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114
requires lenders to measure the impairment based on the present value of
expected future cash flows discounted at the loan's effective interest rate. As
an alternative approach, SFAS No. 114 permits recognition of impairment based on
an observable market price for the loan or on the fair value of the collateral
of the loan if the loan is collateral dependent. An allowance for loan losses is
to be maintained if the measure of the impaired loan is less than its recorded
value.
SFAS No. 114 was amended by SFAS No. 118 which allows for existing income
recognition practices to continue. As required, the Company adopted these
standards effective January 1, 1995, with no material impact on the financial
statements.
Real Estate Owned, Net
Real estate owned consists of real estate acquired through foreclosure or
deed-in-lieu of foreclosure on defaulted loan receivables. These properties are
carried at the lower of fair values less estimated selling costs or the
acquisition cost of the properties.
Equipment and Leasehold Improvements, Net
Equipment and leasehold improvements, net, are stated at original cost
less accumulated depreciation and amortization. Depreciation is computed
principally by using the straight-line method based on the estimated lives of
the depreciable assets.
Expenditures for maintenance and repairs are charged directly to the
appropriate operating account at the time the expense is incurred. Expenditures
determined to represent additions and betterments are capitalized. Cost of
assets sold or retired and the related amounts of accumulated depreciation are
eliminated from the accounts in the year of sale or retirement. Any resulting
profit or loss is reflected in the statement of earnings.
Deferred Debt Issuance Costs
The Company capitalizes costs incurred related to the issuance of
long-term debt. These costs are deferred and amortized on a straight-line basis
over the life of the related debt and recognized as a component of interest
expense.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement and tax
reporting bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax laws. Deferred tax liabilities and
assets are adjusted for the effect of a change in tax laws or rates.
Goodwill Amortization
The Company recognizes goodwill for the purchase price in excess of the
fair market value of net assets acquired in a business combination accounted for
as a purchase transaction. Goodwill is amortized as an expense on a
straight-line basis over a period of ten years. The carrying value of goodwill
is analyzed quarterly by the Company based upon the expected revenue and
profitability levels of the acquired enterprise to determine whether the value
and
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<PAGE> 60
future benefit may indicate a decline in value. If the Company determines that
there had been a decline in the value of the acquired enterprise, the Company
writes down the value of the goodwill to the revised fair value.
Earnings Per Share
Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings
per Share". SFAS No. 128 simplifies the standards for computing earnings per
share ("EPS") previously found in Accounting Principles Board ("APB") 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 of 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 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 Common Stock
outstanding during the period plus the dilutive potential Common Stock that were
outstanding during the period.
For the year ended December 31, 1997, the Company has a net loss
applicable to Common Stock. Including potential Common Stock in the denominator
of a diluted EPS calculation would be antidilutive since an increase in the
number of shares outstanding would reduce the amount of loss per share. Thus,
there is no difference between basic and diluted EPS for this period.
EPS figures for prior periods have been restated and reflect the 100%
stock dividends paid in September 1995 and July 1996.
Reclassifications
Certain amounts in the statements have been reclassified to conform to the
1997 classifications.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change relate to the
valuation of the interest and residual certificates included in trading
securities, the valuation of mortgage sevicing receivables, and the valuation
of the loss on the sale of the Company's UK operations.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting on Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
historical statements issued for periods beginning after December 15, 1997. The
Company has not completed its analysis of this statement.
4. Available-for-Sale Securities
Available-for-sale securities at December 31, 1996 represent the fair
value of the 1,090,910 shares (after giving effect to a February 1997 100% stock
dividend) of IMC Mortgage Company, including its predecessor Industry Mortgage
Company, L.P., ("IMC") Common Stock owned by the Company at December 31, 1996.
During 1997, the Company sold all shares of IMC for net proceeds of $18.1
million and a pre-tax gain of $18.0 million, which was included in other income
on the Consolidated Statements of Operations. Such securities were marked to
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<PAGE> 61
market at December 31, 1996, resulting in an unrealized gain of $8.3 million
(net of deferred taxes) which, in accordance with SFAS No. 115, was reflected as
a component of stockholders' equity.
5. Mortgage Servicing Receivables
This represents the unamortized net present value of the mortgage
servicing rights retained by the Company taking into account several factors
including industry practices. The amount is amortized over the estimated lives
of the underlying receivables sold.
Effective October 1, 1995, the Company adopted SFAS No. 122 "Accounting
for Mortgage Servicing Rights." This statement changed the methodology used to
measure impairments of its mortgage servicing receivable. The new accounting
methodology, as amended by SFAS No. 125, measures the asset's impairment on a
disaggregate basis based on the predominant risk characteristic of the
portfolio and discounts the asset's estimated future cash flow using a current
market rate. The Company has determined the predominant risk characteristics to
be interest rate risk and prepayment risk. On a quarterly basis, the Company
reviews the mortgage servicing receivables for impairment.
The activity in the mortgage servicing receivables for the years ended
December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Balance, beginning of year $ 50,130,313 $ 6,001,161
Additions from operations 19,583,586 49,687,033
Valuation adjustments (22,266,661) -
Securitizations (34,571,269) -
Amortization (3,351,434) (5,557,881)
---------------------------
Balance, end of year $ 9,524,535 $ 50,130,313
===========================
</TABLE>
At December 31, 1996, the fair value was determined by estimating the
present value of future cash flows related to the mortgage servicing
receivables. In using this valuation method, the Company incorporated
assumptions that market participants would use in estimating future cash flows
which included estimates of the cost of servicing per loan, the discount rate,
an inflation rate, ancillary income per loan, prepayment speeds and default
rates.
The weighted average rate used to discount the cash flows for the year
ended December 31, 1996 was approximately 11.0%. The weighted average constant
prepayment speed was 24% per annum, and the weighted average default rates was
0.5% per annum. The mortgage servicing receivable is amortized using the same
discount rate used to determine the original servicing recorded.
As a result of the Company's liquidity concerns (see Note 1), the Company
sold trading securities during the first quarter of 1998 for net proceeds of
$26.5 million (see Note 6). Included in the sale of the trading securities were
the mortgage servicing rights. Accordingly, at December 31, 1997, the Company
valued its mortgage servicing receivable on a net realizable value assuming a
liquidation of such assets and recognized an impairment to the value of the
mortgage servicing receivables of $22.3 million.
During 1997, $34.6 million of mortgage servicing receivables were
transferred to trading securities reflecting the Company's securitization of its
excess servicing rights on a pool of mortgage loans resulting in the Company
recording interest-only and residual certificates.
At December 31, 1997 and 1996, the carrying amount of existing mortgage
servicing rights is considered to be a reasonable estimate of fair value.
6. Trading Securities
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The interests that the Company receives upon loan sales through its US
securitizations are in the form of interest-only and residual mortgage
securities which are classified as trading securities.
The table below summarizes the value of the Company's trading securities
by product type.
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Home Equity $ 75,216,390 $103,199,936
Sav*-A-Loan(R) 51,259,266 -
---------------------------
Total $126,475,656 $103,199,936
===========================
</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 default 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.
At December 31, 1997, the Company determined the fair value of its home
equity securitizations based upon the net realizable value as implied by the
first quarter 1998 sale of three of its home equity residuals see (Note 1).
Accordingly, the Company recorded net unrealized losses of $89.8 million during
1997 related to its home equity securitizations.
The unrealized loss of $35.9 million related to the Sav*-A-Loan(R)
residuals reflects the Company's change in the assumptions used to value such
residuals as follows: discount rate increased to 15% from 12%, constant
prepayment speed increased to 16.8% from 14% after the twelfth month, and the
annual default rate increased from a weighted average default rate of 175 basis
points to a weighted average default rate of 306 basis points per annum.
For the period ended December 31, 1996, the assumptions used to value the
home equity trading securities included a weighted average discount rate of 10%,
a weighted average default rate of 0.5% and a weighted average constant
prepayment speed of 24%. For the period ended 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 default rate of 3.0% and a weighted
average constant prepayment speed of 16.8%.
During the years ended December 31, 1997, 1996 and 1995, the Company sold
$1.1 billion, $993.6 million and $235.0 million of its loan origination and
purchase volume in various securitizations. In loan sales through
securitizations, the Company sells loans that it has originated or purchased to
a real estate trust for a cash purchase price and interests in such trusts which
are represented by the interest-only and residual certificates. The cash
purchase price is raised through an offering of pass-through certificates by the
trust.
7. Mortgage Loans Held for Sale, Net
The following table summarizes the carrying values of the Company's
mortgage loans held for sale at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Home Equity $ 40,992,381 $ 80,332,329
Sav*-A-Loan(R) 52,297,643 7,794,855
---------------------------
Total $ 93,290,024 $ 88,127,184
===========================
</TABLE>
Substantially all of the mortgages are pledged as collateral for the
Company's warehouse financing facilities. Mortgage loans held for sale, net are
reported at the lower of cost or market value; determined on an aggregate basis.
There was no allowance for market losses on mortgage loans held for sale at
December 31, 1997 and 1996, respectively.
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8. Mortgage Loans Held for Investment, Net
The following table summarizes the carrying values of the Company's
mortgage loans held for investment, net, at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Mortgage loans held for investment $ 11,906,032 $ 5,270,402
Allowance for loan losses (5,375,295) (63,784)
---------------------------
Mortgage loans held for investment, net $ 6,530,737 $ 5,206,618
===========================
</TABLE>
During 1997, the allowance for loan losses was increased by provisions
through the statement of operations of $12.6 million and decreased by
charge-offs of $7.3 million. There was no significant activity in the allowance
for loan loss account during 1996 and 1995.
9. Equipment and Leasehold Improvements, Net
Equipment and leasehold improvements, net, at cost, are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------------------
<S> <C> <C>
Office equipment $ 6,049,157 $ 4,063,375
Leasehold improvements 672,713 208,347
Capitalized leases 1,351,283 673,535
---------------------------
8,073,153 4,945,257
Accumulated depreciation (2,014,947) (883,220)
---------------------------
Balance, end of year $ 6,058,206 $ 4,062,037
===========================
</TABLE>
10. Other Assets
Other assets at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Prepaid expenses $ 548,952 $ 1,630,238
Deferred debt issuance costs 13,509,074 4,305,001
Loans receivable - subwarehousing, net - 14,888,497
Accrued interest receivable 1,175,234 1,353,274
Accounts receivable 6,297,270 3,067,557
Premium due on sales 2,072,457 -
Servicing advances 2,600,776 1,188,831
Real estate owned, net 328,064 220,782
Other 735,943 1,930,440
---------------------------
Total $ 27,267,770 $ 28,584,620
===========================
</TABLE>
Loans receivable - subwarehousing represented funds lent on a short-term
basis to assist in the funding of loans by certain of the Company's loan
correspondents. Each borrowing under these subwarehouse credit lines had a term
of not more than 30 days.
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<PAGE> 64
Deferred debt issuance costs represent the deferred expenses for the
Convertible Debentures (see Note 14), issued in May 1996, and the Senior Notes
(see Note 13) which were issued in May 1997.
11. Financing Facilities and Loan Purchase Agreements
Bear Stearns Facility. In September 1997, the Company entered into a $300.0
million warehouse facility with Bear Stearns Mortgage Capital Corporation (the
"Bear Stearns Facility") under which the Company borrows funds on a short-term
basis to support the accumulation of loans prior to sale. The Bear Stearns
Facility bears interest at LIBOR plus 125 basis points (7.10% at December 31,
1997) and is for a term of one year, subject to certain provisions. Each
borrowing under the facility is subject to the lender's approval, and the
facility may be terminated by the lender upon 30 days prior notice. At December
31, 1997, there was no outstanding balance under the Bear Stearns Facility.
CoreStates Warehouse Facility. The Company borrows funds on a short-term
basis to support the accumulation of loans prior to sale. These short-term
borrowings were made under a warehouse line of credit with a group of banks for
which CoreStates Bank N.A. served as agent (the "Warehouse Facility"). Pursuant
to the Warehouse Facility, the Company had available a secured revolving credit
line of $20.0 million as of December 31, 1997 to finance the Company's
origination or purchase of loans, pending sale to investors or for holding
certain loans in its own portfolio (the "Revolving Credit Line"). The Revolving
Credit Line was settled on a revolving basis in conjunction with ongoing loan
sales and bore interest at a variable rate based on 25 basis points over the
higher of either the prime rate or the federal funds rate plus 50 basis points
(8.75% at December 31, 1997). The outstanding balance of this portion of the
Warehouse Facility was $13.9 million at December 31, 1997 as compared to $66.3
million at December 31, 1996. The Revolving Credit Line was terminated in
January 1998.
Greenwich Warehouse Facility. In January 1997, the Company 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 the Company borrows funds on a short-term basis to support
the accumulation of loans prior to sale (the "Greenwich Facility"). Advances
under the Greenwich Facility bore interest at a rate of LIBOR plus 150 basis
points (7.34% at December 31, 1997). This facility was terminated on December
31, 1997, at which time the Company and Greenwich entered into an extension
agreement through April 30, 1998 (as amended, the "Extension Agreement"). The
Extension Agreement provides for a maximum credit line of $100.0 million,
subject to adjustment by Greenwich, at an interest rate of LIBOR plus 200 basis
points and a fee of 0.25% of the aggregate principal balance of loans to be paid
to Greenwich in connection with any sale, securitization of any other transfer
to any third party of loans funded under this agreement. As of December 31,
1997, $63.5 million was outstanding under this agreement.
CIT Warehouse Facility. On February 3, 1998, CSC entered into a revolving
credit facility with The CIT Group/Equipment Financing, Inc. (the "CIT
Facility") to finance CSC's origination and purchase of mortgage loans, the
repayment of certain indebtedness and, subject to certain limits, other general
corporate purposes. The CIT Facility is guaranteed by the Company, and bears
interest at the prime rate plus 50 basis points. 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 sublimits 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 a pledge of 65% of the capital stock of
CSC-UK and certain residual securities pledged by the Company.
The carrying amount of the financing facilities is considered to be a
reasonable estimate of fair value.
12. Interest Rate Risk Management
From time to time, to manage interest rate risk on loan originations, the
Company sells short United States Treasury securities which approximately match
the duration of the mortgage loans held for sale and invests the proceeds in
securities purchased under agreements to resell.
At December 31, 1996, the carrying amount of securities purchased under
agreements to resell was $154,176,608, consisting of principal of $152,980,010
and accrued interest receivable of $1,196,598. There were no
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<PAGE> 65
open positions at December 31, 1997. During the years ended December 31, 1997
and 1996, the Company recognized interest income on securities purchased under
agreements to resell of $4,174,561 and $1,528,797, respectively.
At December 31, 1996, securities sold but not yet purchased had a market
value of $152,862,526, consisting of principal of $150,085,938 and accrued
interest payable of $2,776,588. There were no open positions at December 31,
1997. During the years ended December 31, 1997 and 1996, the Company recognized
interest expense on securities sold but not yet purchased of $5,155,695 and
$1,844,403, respectively.
During the years ended December 31, 1997 and 1996, the Company recognized
gains on these transactions of $453,086 and $429,688, respectively.
13. Notes and Loans Payable
In May 1997, the Company issued $300.0 million aggregate principal amount
of 12 3/4% Senior Notes due September 1, 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
which 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.
At December 31, 1996, notes and loans payable of $111.5 million were
outstanding. This represented $100.0 million outstanding under a senior
secured facility, $6.5 million of advances under the US Greenwich Facility and
a $5.0 million term loan with the First National Bank of Boston. The $111.5
million was repaid with proceeds from the Notes.
14. Convertible Subordinated 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 or 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 which 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. During 1996, $20,000 of the Convertible Debentures
was converted into shares of Common Stock.
In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of its Convertible Debentures resulting in the
issuance upon conversion of 533,332 shares of the Common Stock (at a conversion
price of $26.25 per share) pursuant to the terms of the Convertible Debentures.
To induce conversion, the Company issued an additional 342,708 shares of Common
Stock and paid the holders of the induced Convertible Debentures $420,000 in
cash. In the second quarter of 1997, these transactions resulted in the
reduction of Convertible Debentures by $14.0 million, a charge to interest
expense of $4.7 million related to the fair market value of the 342,708
inducement shares ($4.3 million) and the cash payment and an increase in
stockholders' equity of $18.2 million due to the issuance of the conversion
shares and the inducement shares. The net effect of these transactions was an
increase of $13.6 million to stockholders' equity in the second quarter of 1997.
During 1997, an aggregate of $14.1 million of Convertible Debentures had been
converted into Common Stock, including the induced conversion described above.
As of December 31, 1997, there were $129.6 million of Convertible Debentures
outstanding.
15. Convertible Preferred Stock
Series A 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.
65
<PAGE> 66
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.
During 1997, preferred stock dividends of $904,531 were paid to the
holders of the Series A Preferred Stock in the form of 67,863 shares of the
Common Stock. For the December 31, 1997 dividend, the Company elected to add an
amount equal to the dividend to the Liquidation Preference of the Series A
Preferred Stock in lieu of payments of such dividend. The new Liquidation
Preference is $10,150 per share. During 1997, there was also recognition of the
effect of a beneficial conversion feature related to the Series A Preferred
Stock of $1.1 million.
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 April 24,
1998, 127 calendar days) immediately preceding such conversion, discounted by up
to 4% and subject to certain adjustments.
As of December 31, 1997, an aggregate of 4,328 shares of the Series A
Preferred Stock had been converted (672 shares remain outstanding) into an
aggregate of 10,570,119 shares of Common Stock. As of December 31, 1997, all
Series A Warrants were outstanding.
Series B Preferred Stock
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.
The first dividend payment date was December 31, 1997. For this dividend,
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.
The new Liquidation Preference is $10,177 per share. During 1997, there was also
recognition of the effect of a beneficial conversion feature related to the
Series B Preferred Stock of $1.6 million.
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 December 31, 1997, an aggregate of 377 shares of Series B Preferred
Stock had been converted (4,623 shares remain outstanding) into an aggregate of
6,281,295 shares of Common Stock. As of December 31, 1997, all Series B Warrants
were outstanding.
As of December 31, 1997, if all of the outstanding shares of the Series A
Preferred Stock and those shares of the Series B Preferred Stock not subject to
conversion restrictions, were converted into Common Stock, the Company would not
have sufficient authorized shares of Common Stock to satisfy all of these
conversions.
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<PAGE> 67
In addition, 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 (see Note 28), (i)
the conversion restrictions that apply to the Series B Preferred Stock are
lifted (prior to the delisting, no more than 50% of the 5,000 shares of Series B
Preferred Stock initially issued could be converted) and (ii) the conversion
period is increased to 15 consecutive trading days and the conversion discount
is increased to 10% (prior to the delisting, the conversion price was equal to
the lowest daily sales price of the Common Stock during the four consecutive
trading days immediately preceding conversion, discounted by up to 5.5%). In
addition, as a result of the delisting of the Common Stock and during the
continuance of such delisting, (i) the dividend rate is increased to 15% and
(ii) the Company is obligated to make monthly cash payments to the holders of
the Preferred Stock equal to 3% of the $10,000 liquidation preference per share
of the Preferred Stock, as adjusted, provided that if the Company does not make
such payments in cash, such amounts will be added to the Liquidation Preference.
Based on the current market price of the Common Stock, the Company does not have
available a sufficient number of authorized but unissued shares of Common Stock
to permit the conversion of all of the shares of the Preferred Stock. At
December 31, 1997, the Company is precluded from paying dividends under Delaware
law.
16. Stockholders' Equity (Deficit)
During 1995, the Company issued 21,438 shares (85,752 after giving effect
to the 1995 Dividend and 1996 Dividend as discussed below) of Common Stock
resulting in an increase to Stockholders' equity of $158,568.
On September 29, 1995, the Company effected a 2 for 1 Common Stock split
in the form of a 100% stock dividend increasing the shares of Common Stock
outstanding by 5,075,183 (the "1995 Dividend"). As more fully described in Note
2 in conjunction with the UK Acquisition, the Company issued an additional
1,800,000 (3,600,000 after giving effect to the 1996 Dividend as discussed
below) shares of Common Stock resulting in an increase of $21.6 million to
Stockholders' equity.
In December 1995, the Company completed a public offering of its Common
Stock in which the Company sold 1,250,000 (2,500,000 after giving effect to the
1996 Dividend as discussed below) shares of Common Stock at a public offering
price of $18.00 ($9.00 after giving effect to the 1996 Dividend as discussed
below) per share and the former warrant holders (as more fully described above)
sold 1,250,000 (2,500,000 after giving effect to the 1996 Dividend as discussed
below) shares at the same price resulting in net proceeds of approximately $20.7
million to the Company.
During April and June 1996, the Company issued 274,000 (548,000 after
giving effect to the 1996 Dividend as discussed below) and 49,681 (99,362 after
giving effect to the 1996 Dividend as discussed below) shares of Common Stock,
respectively, in exchange for all of the capital stock of J&J and Greyfriars
(see Note 2) resulting in an increase of $12.3 million to Stockholders' equity.
On July 1, 1996, the Company effected a 2 for 1 Common Stock split in the
form of a 100% stock dividend, increasing the shares of Common Stock outstanding
by 14,806,709 (the "1996 Dividend").
During 1996, the Company issued 101,039 shares of Common Stock resulting
in an increase to Stockholders' equity of $673,256.
During 1997, the Company issued 204,288 shares of Common Stock resulting
in an increase to Stockholders' equity of $831,907.
In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of its Convertible Debentures resulting in the
issuance of 876,040 shares of Common Stock (see Note 14). The net result of this
transaction was an increase of $18.2 million to Stockholders' equity.
In April and September 1997, the Company issued 5,000 shares,
respectively, (10,000 shares in total) of preferred stock (see Note 15). During
1997, 4,705 shares of preferred stock were converted into 16,851,414 shares of
67
<PAGE> 68
Common Stock. In addition, 67,863 shares of Common Stock were issued as
preferred stock dividends. The net result of these transactions was an increase
of $98.0 million to Stockholders' equity.
During 1997, the Company purchased 70,000 shares of Common Stock which
resulted in a decrease in Stockholders' equity of $175,000.
17. Employee Benefit Plans
The Company has a defined contribution plan (401(k)) for all eligible
employees. Contributions to the plan are in the form of employee salary
deferrals which may be subject to an employer matching contribution up to a
specified limit at the discretion of the Company. In addition, the Company may
make a discretionary annual profit sharing contribution on behalf of its
employees. The Company's contribution to the plan amounted to $155,011, $87,126
and $25,319 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Stock Purchase Plan
Effective December 1994, the Board of Directors adopted, and the
stockholders of the Company approved, the Company's 1995 Employee Stock Purchase
Plan (the "Stock Purchase Plan"). The Stock Purchase Plan permits eligible
employees of the Company to purchase Common Stock through payroll deductions of
up to ten percent of their base salary, up to a maximum of $25,000 for all
purchase periods ending within any calendar year. The price of Common Stock
purchased under the Stock Purchase Plan will be 85% of the lower of the fair
market value of a share of Common Stock on the commencement date or the
termination date of the relevant offering period as determined by the bid price
listed on the National Quotation Bureau, Inc. OTC Bulletin Board or the Nasdaq
National Market System, as applicable.
For the plan periods ending June 30, 1995 and December 31, 1995, employees
purchased 43,752 and 23,524 shares at a price of $0.77 and $2.34 per share,
respectively. For the plan periods ending June 30, 1996 and December 31, 1996,
employees purchased 13,034 and 8,921 shares at a price of $8.82 and $22.31 per
share, respectively. For the plan periods ending June 30, 1997 and December 31,
1997, employees purchased 11,754 and 17,345 shares at a price of $16.95 and
$0.43 per share, respectively. In accordance with APB No. 25, "Accounting for
Stock Issued to Employees", the Stock Purchase Plan is deemed to be
non-compensatory and results in no expense.
The Directors Plan
Directors who are not employees of the Company receive stock options
pursuant to the Company's 1995 Non-Employee Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan provides for automatic grants of an option
to purchase 40,000 shares of Common Stock to the Company's eligible non-employee
directors upon their election to the Board of Directors of the Company. Each
eligible non-employee director is granted an additional option, subject to
certain restrictions, to purchase 15,000 shares of Common Stock on each
anniversary of his or her election so long as he or she remains an eligible
non-employee director of the Company. Initial options granted under the
Directors Plan generally vest 50% upon the first anniversary of the grant date
and 50% upon the second anniversary of the grant date. Additional options
generally vest upon the first anniversary of the grant date. The exercise price
of any options granted under the Directors Plan is the fair market value of the
Common Stock on the date of grant. No more than 400,000 shares of Common Stock
may be issued upon exercise of options granted under the Directors Plan, subject
to adjustment to reflect stock splits, stock dividends and similar capital stock
transactions. Options may be granted under the Directors Plan until June 1,
2005.
Stock Option Plans
Effective June 1, 1995, the Board of Directors adopted, and the
stockholders of the Company approved, the 1995 Stock Option Plan (the "1995
Stock Option Plan"). No more than 3,600,000 shares of Common Stock may be issued
upon exercise of options granted under the 1995 Stock Option Plan, and no
eligible person may receive options to purchase more than 600,000 shares of
Common Stock during any calendar year, subject to adjustment to reflect stock
splits, stock dividends and similar capital stock transactions. Options granted
under the 1995 Stock Options Plan vest over periods not exceeding six years. The
exercise price of the options granted under the 1995 Stock Option Plan
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<PAGE> 69
cannot be less than the fair market value of the Common Stock on the date of
grant. Options may be granted under the 1995 Stock Option Plan until June 1,
2005.
Effective April 17, 1997, the Board of Directors adopted, and the
stockholders of the Company approved, the 1997 Stock Option Plan (the "1997
Stock Option Plan"). No more than 1,500,000 shares of Common Stock may be issued
upon exercise of options granted under the 1997 Stock Option Plan, and no
eligible person may receive options to purchase more than 500,000 shares of
Common Stock during any calendar year, subject to adjustment to reflect stock
splits, stock dividends and similar capital stock transactions. Options granted
under the 1997 Stock Option Plan vest over periods not exceeding one year. The
exercise price or the options granted under the 1997 Stock Option Plan cannot be
less than the fair market value of the Common Stock on the date of grant.
Options may be granted under the 1997 Stock Option Plan until April 17, 2007.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by the
FASB in October 1995. SFAS No. 123 encourages the adoption of a new fair-value
based accounting method for employee stock-based compensation plans. SFAS No.
123 also permits companies to continue accounting for stock-based compensation
plans as prescribed by APB Opinion No. 25. However, companies electing to
continue accounting for stock-based compensation plans under the APB Opinion No.
25, must make pro forma disclosures as if the company adopted the cost
recognition requirements under SFAS No. 123. The Company has continued to
account for stock-based compensation under the APB Opinion No. 25 and therefore,
pro forma disclosure is provided below.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively: (1) dividend
yield of zero; (2) expected volatility of 51%, 51% and 50%; (3) risk-free
interest rates of 6.7%, 6.1% and 6.0% and (4) expected lives of 4.9, 5.2 and 4.8
years.
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on these dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,988,200 $10.17 940,000 $2.52 - $ -
Granted 1,764,850 13.35 1,104,000 16.40 940,000 2.52
Exercised (101,000) 3.31 (54,800) 4.50 - -
Canceled (68,547) 17.92 (1,000) 10.00 - -
--------- --------- -------
Outstanding at end of year 3,583,503 $11.78 1,988,200 $10.17 940,000 $2.52
========= ========= =======
Options exercisable at year-end 1,344,503 540,200 180,000
Weighted average fair value of
options granted during the year $6.89 $9.21 $1.26
========= ========= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
69
<PAGE> 70
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Number Weighted
Outstanding Average
at Remaining Number
December Contractual Weighted Exercisable at Weighted
31, Life Average December 31, Exercise
1997 (Years) Exercise Price 1997 Price
------------ ------------ -------------- ------------ -----------
Range of Exercise Prices
- ------------------------
<S> <C> <C> <C> <C> <C>
$2.50 to $2.63 810,000 6.7 $2.52 690,000 $2.52
$10.00 to $10.88 429,200 3.4 10.04 199,200 10.08
$13.03 to $15.50 1,726,303 7.5 13.33 417,303 13.57
$20.50 to $23.13 618,000 5.6 20.77 38,000 22.86
------------ ------------
$2.50 to $23.13 3,583,503 6.5 $11.78 1,344,503 $7.65
============ ============
</TABLE>
Had compensation costs for the Company's 1997, 1996 and 1995 grants for
its stock-based compensation plans been determined consistent with SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
As reported $ (418,899) $ 50,681 $ 11,575
Net earnings (loss) Pro forma $ (424,670) (1) $ 49,229 $ 11,404
Basic earnings (loss) per share As reported $ (12.60) $ 1.72 $ 0.54
Pro forma $ (12.77) $ 1.67 $ 0.54
Diluted earnings (loss) per share As reported $ (12.60) $ 1.66 $ 0.49
Pro forma $ (12.77) $ 1.61 $ 0.48
</TABLE>
(1) As a result of its significant loss in 1997, the Company is in a tax loss
carryforward position and has taken a valuation allowance against its net
deferred tax asset (see Note 20). Therefore, the pro forma compensation
cost for 1997 is not tax effected.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. There were no awards prior to 1995, and additional
awards in future years are anticipated.
18. Other Income
Other income includes the following for the years ended December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Servicing income $ 1,640,288 $ 2,791,348 $ 731,862
Earnings from partnership interest - 753,663 481,789
Gain on sale of available-for-sale securities 17,957,258 - -
Other income 704,337 135,927 92,329
----------- ----------- -----------
20,301,883 3,680,938 1,305,980
=========== =========== ===========
</TABLE>
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<PAGE> 71
Gain on sale of available-for-sale securities represent the pre-tax gain
on the sale of 1,090,910 shares of IMC during 1997 (see Note 4). Prior to IMC's
conversion to corporate form, the Company recorded its investment under the
equity method of accounting and as such recognized earnings from partnership
interest of $753,663 and $481,789 in 1996 and 1995, respectively.
19. Other Operating Expenses
Other operating expenses include the following for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Professional fees $ 12,272,453 $ 5,754,908 $ 1,170,135
Travel and entertainment 2,656,336 2,069,164 855,615
Telephone 2,055,482 1,335,232 587,078
Foreclosure costs 3,266,222 161,490 34,388
Occupancy 2,476,794 1,186,797 533,896
Office and computer supplies 2,560,059 1,186,447 386,892
Temporary help 1,267,265 437,150 52,612
Equipment leasing 1,386,113 416,397 133,726
Depreciation 1,361,670 553,941 176,738
Reserves and allowances 7,054,969 642,244 159,019
Other 5,727,912 4,466,944 746,642
------------------------------------------
Total $ 42,085,275 $ 18,210,714 $ 4,836,741
------------------------------------------
</TABLE>
20. Income Taxes
The provision for income taxes from continuing operations for the years
ended December 31, 1997, 1996 and 1995 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------
Current
<S> <C> <C> <C>
Federal $ (14,558,408) $13,436,306 $ 5,295,717
State 300,000 3,638,803 1,388,288
------------------------------------------
(14,258,408) 17,075,109 6,684,005
Deferred
Federal (3,818,166) 1,999,996 (224,620)
State - 249,355 (49,307)
------------------------------------------
(3,818,166) 2,249,351 (273,927)
------------------------------------------
Provision for income taxes
from continuing operations $ (18,076,574) $19,324,460 $ 6,410,078
==========================================
</TABLE>
71
<PAGE> 72
The reconciliation of income tax computed at the US federal statutory tax
rate to the effective income tax rate for the years ended December 31, 1997,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate (35.0%) 35.0% 35.0%
State and local taxes, net of federal
tax benefit - 5.5% 5.6%
Unrecognized deferred tax asset 19.3% - -
Other, net 2.5% 4.2% 3.5%
------------------------------
(13.2%) 44.7% 44.1%
==============================
</TABLE>
Deferred income taxes included in the Consolidated Statements of Financial
Condition reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax reporting purposes primarily resulting from the use of
the cash basis for tax reporting purposes.
Deferred taxes as of December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Gross deferred tax assets $ 69,914,468 $10,293,342 $ 868,406
Less: valuation allowance (26,376,554) - (284,779)
---------------------------------------
Net deferred assets 43,537,914 10,293,342 583,627
---------------------------------------
Deferred tax liabilities 43,537,914 14,111,508 785,702
---------------------------------------
Net deferred tax liabilities $ - $ 3,818,166 $ 202,075
=======================================
</TABLE>
The major components of the gross deferred tax assets and the gross
deferred tax liabilities are the net operating loss and the book versus tax
differences relating to the gain on sale of loans.
The net change in the total valuation allowance for the year ended
December 31, 1995 was an increase of $284,779 representing a 100% valuation
allowance taken against the excess foreign tax credits from UK source income.
The Company has certain federal and state net operating loss carryforwards
of $31.4 million which maybe subject to certain limitations and will expire at
2012. The valuation allowance in 1997 primarily relates to the uncertainty
associated with the future realization of the net operating loss carryforwards
and other deferred tax assets.
21. Extraordinary Item
In December 1995, the Company extinguished senior subordinated debentures
with proceeds from the public offering of its Common Stock (as more fully
described in Note 16). As a result of this early extinguishment of debt, the
Company recorded an extraordinary loss of $295,943, net of taxes.
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<PAGE> 73
22. (Loss) Earnings per Share
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended December 31, 1997, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
1997 (Numerator) (Denominator) Amount
- ------------------------------------------ -------------- ------------- ---------
<S> <C> <C> <C>
Earnings (loss) from continuing operations $(118,505,912)
Less: Preferred stock dividends 4,547,061
-------------
Basic EPS
Earnings (loss) applicable to Common Stock (123,052,973) 33,244,212 $(3.70)
======
Effect of Dilutive Securities
Stock options - -
Warrants - -
Convertible preferred stock - -
Convertible Debenture - -
------------- ----------
Diluted EPS
Earnings (loss) applicable to Common Stock +
assumed conversions $(123,052,973) 33,244,212 $(3.70)
============= ========== ======
1996
- ------------------------------------------
Earnings (loss) from continuing operations $23,875,285
Basic EPS
Earnings (loss) applicable to Common Stock $23,875,285 29,404,557 $0.81
======
Effect of Dilutive Securities
Stock options - 1,133,434
Convertible Debentures - -
------------- ----------
Diluted EPS
Earnings (loss) applicable to Common Stock +
assumed conversions $23,875,285 30,537,991 $0.78
============= ========== ======
1995
- ------------------------------------------
Basic EPS
Earnings (loss) from continuing operations
before extraordinary item $8,120,381 21,243,536 $0.38
======
Effect of Dilutive
Securities
Warrants - 2,260,419
Stock options - 334,662
------------- ----------
Diluted EPS
Earnings (loss) applicable to Common Stock +
assumed conversions $8,120,381 23,838,617 $0.34
============= ========== ======
</TABLE>
For the year ended December 31, 1997, the incremental shares from assumed
conversions are not included in computing the diluted per share amounts because
their effect would be antidilutive since an increase in the number of shares
would reduce the amount of loss per share. Securities outstanding at December
31, 1997 that could potentially dilute basic EPS in the future are as follows:
Convertible Debentures; stock options; Series A Preferred Stock; Series B
Preferred Stock; Series A Warrants; and Series B Warrants. For the year ended
December 31, 1996, the effect of the Convertible Debentures is antidilutive and
is not included in the computation of diluted EPS.
EPS figures for the effected periods have been restated to reflect the
100% stock dividends paid in September 1995 and July 1996.
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<PAGE> 74
23. Commitments and Contingencies
Leases
The Company leases premises and equipment under operating leases with
various expiration dates. Minimum annual rental payments at December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998 $ 3,651,115
1999 3,662,610
2000 3,048,558
2001 1,757,345
2002 71,150
-----------
Total $12,190,778
===========
</TABLE>
Rent expense for office space amounted to $2.3 million, $1.1 million and
$484,426 for the years ended December 31, 1997, 1996 and 1995, respectively.
Obligations under capital leases total $7.1 million and represent leases
for office furniture, equipment, motor vehicles, and computer hardware and
software. Minimum annual capital lease payments at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998 $ 2,551,773
1999 2,486,158
2000 1,681,250
2001 360,000
-----------
Total $ 7,079,181
===========
</TABLE>
Litigation
In the normal course of business, aside from the matters discussed below,
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.
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
74
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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.
The complaints filed in the Southern District actions have all been
transferred to the Eastern District. 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. The Company
anticipates that, at a minimum, all of the putative class action complaints will
be consolidated with the Ceasar Action in the Eastern District. In addition,
plaintiffs in the New Jersey Action have consented to pre-trial consolidation of
their case with the class actions currently pending in the Eastern District.
Accordingly, on March 25, 1998, the company and its defendant officers and
directors filed a motion with the federal Judicial Panel for Multidistrict
Litigation, which seeks 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.
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 that allegedly result from
an asserted breach of an alleged five-year oral contract. The proposed complaint
also sought 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. Shortly thereafter, in a memorandum of decision Judge
Lewis set forth his reasons for granting the motion to dismiss. Plaintiffs have
not filed an appeal of the order of dismissal and their time to do so has
expired.
In February 1998, Resource Mortgage Banking, Ltd., Covino and Company,
Inc. and LuxMac LLC filed an action against the Company, CSC, and two of the
Company's officers and directors in state court in New York. Plaintiffs'
complaint asserts 17 causes of action, including breach of contract, fraud and
conversion. Plaintiffs seek $60 million in purported damages that allegedly
result primarily from an asserted breach of an alleged five-year oral contract,
and also seek injunctive relief, treble damages and punitive damages in an
unspecified sum.
In March 1998, Plaintiffs filed papers seeking to have the New York court
direct the Company and CSC to refrain 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 present. The New York Court has not yet determined
whether Plaintiffs are entitled to the relief that they have requested, but has
signed a temporary restraining order that, pending the Court's decision on
Plaintiffs' motion, requires the Company and CSC to refrain from the specified
sales. The time for the Company to respond to the complaint has not expired.
The Company intends to file a motion seeking dismissal of Plaintiffs' claims
and also an answer denying all liability.
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.
Other
In October 1996, the Company received a request from the staff of the
Securities and Exchange Commission (the "Commission") for additional information
concerning the Company's voluntary restatement of its financial statements for
the quarter ended June 30, 1996. The 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
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<PAGE> 76
result of such acquisition. 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 Securities and Exchange 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.
Employee Agreements
The Company has employment agreements with 9 officers of the Company. The
Company guarantees annual compensation ranging from $200,000 to $260,000 per
year, plus bonuses (where applicable) in amounts as defined in the agreements.
The officers' compensation will be increased each year by an amount approved by
the Board of Directors. The agreements terminate upon the occurrence of certain
events as defined by the respective agreements.
24. Concentrations
For the years ended December 31, 1997, 1996 and 1995, revenues from loan
sales and loan servicing constituted the primary source of the Company's
revenues. For the years ended December 31, 1997 and 1995, there were no
institutional purchasers who accounted for more than 10% of the total revenues.
For the year ended December 31, 1996, there was one institutional purchaser who
acted as a conduit to securitize the Company's loan originations that accounted
for 10% or more (36.7%) of the total revenues.
25. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition, for which it
is practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based upon estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts do not represent the
underlying value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents: The carrying amount of cash on hand and money
market funds is considered to be a reasonable estimate of fair market value.
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<PAGE> 77
Securities purchased under agreements to resell: The carrying amount of
securities purchased under agreements to resell is considered to be a reasonable
estimate of fair value.
Available-for-sale securities: The fair value was determined based upon
the market value of the securities less a discount for restrictions on the
resale of such securities.
Mortgage servicing receivables: The fair value was determined by using
estimated discounted future cash flows taking into consideration the current
interest rate environment, current prepayment rates and default experience. The
carrying amount is considered to be a reasonable estimate of fair market value.
Trading securities: The fair value on the Company's Sav*-A-Loan(R) trading
securities was determined by using estimated discounted future cash flows taking
into consideration the current interest rate environment, current prepayment
rates and default experience. Such securities are carried at fair value. The
fair value on the Company's home equity trading securities was based upon net
realizable value.
Mortgage loans held for sale, net: The fair values were estimated by using
current institutional purchaser yield requirements. The fair value of the
mortgage loans held for sale, net totaled $95.2 million and $94.3 million at
December 31, 1997 and 1996, respectively.
Mortgage loans held for investment, net: The fair value has been estimated
using a combination of the current interest rate at which similar loans with
comparable maturities would be made to borrowers with similar credit ratings,
and adjustments for the additional credit risks associated with loans of this
type. Since the loans have a weighted average coupon rate of 12.2% and 16.7% at
December 31, 1997 and 1996, respectively, and since additional credit risk
adjustments have been provided through reserves for loan losses, the carrying
value is a reasonable estimate of fair value.
Warehouse financing facilities: This facility has an original maturity of
less than 120 days and, therefore, the carrying value is a reasonable estimate
of fair value.
Securities sold but not yet purchased: The carrying amount of securities
purchased under agreements to resell is considered to be a reasonable estimate
of fair value.
Standby financing facilities: The carrying amount of standby financing
facilities is considered to be a reasonable estimate of fair market value.
Notes and loans payable: The carrying amount of notes and loans payable is
considered to be a reasonable estimate of fair market value.
Convertible subordinated debentures and Senior Notes: Fair value was based
on quoted market prices. As of December 31, 1997, the fair values were less than
the carrying values for 1997 and 1996 by $123.1 million and $156.0 million,
respectively.
26. Supplemental Schedule of Noncash Investing and Financing Activities
The following is a summary of the significant noncash investing and
financing activities during the years ended 1997 and 1996:
<TABLE>
<S> <C>
1997:
----
Reclassification of mortgages held for sale to
mortgages held for investment $14,641,389
Conversion of Convertible Debentures into
Common Stock 14,110,000
Preferred Dividends paid in the form of
Common Stock 904,531
1996:
----
Available-for-sale securities received $14,618,194
Reclassification of morgages held for sale to
morgages held for investment 4,182,414
Conversion of Convertible Debentures into
Common Stock 20,000
</TABLE>
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27. Selected Quarterly Data (Unaudited)
The following represents selected quarterly financial data for the
Company:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
1996
Revenues $15,832,612 $20,887,927 $ 32,873,161 $ 38,254,177
Earnings from continuing operations 3,433,928 7,111,505 8,193,845 5,136,007
Earnings from discontinued operations, net of taxes 5,839,216 4,014,491 6,220,992 10,730,898
Net earnings $ 9,273,144 $11,125,996 $ 14,414,837 $ 15,866,905
Earnings per common share(1)(2):
Basic
Continuing operations $ 0.12 $ 0.24 $ 0.28 $ 0.18
Discontinued operations 0.20 0.14 0.21 0.36
----------- ----------- ------------ -------------
Net earnings $ 0.32 $ 0.38 $ 0.49 $ 0.54
=========== =========== ============ =============
Diluted
Continuing operations $ 0.11 $ 0.24(3) $ 0.26 $ 0.16(3)
Discontinued operations 0.20 0.13 0.17 0.35
----------- ----------- ------------ -------------
Net earnings $ 0.31 $ 0.37 $ 0.43 $ 0.51
=========== =========== ============ =============
1997
Revenues $45,549,383 $54,737,559 $(25,384,830) $(40,870,088)
Earnings (loss) from continuing operations 7,486,095 7,474,266 (47,371,328) (86,094,945)
Earnings (loss) from discontinued operations
net of taxes 9,308,696 (3,462,789) (22,271,374) (229,480,533)
Loss on disposal of discontinued operations - - - (49,939,996)
Net earnings (loss) 16,794,791 4,011,477 (69,642,702) (365,515,474)
Preferred stock dividends - 1,066,874 1,035,315 2,444,872
Net earnings (loss) applicable to common stock $16,794,791 $ 2,944,603 $(70,678,017) $(367,960,346)
Earnings (loss) per common share(1)(2):
Basic
Continuing operations $ 0.25 $ 0.21 $ (1.50) $ (2.21)
Discontinued operations 0.32 (0.11) (0.69) (5.72)
Disposal of discontinued operations - - - (1.25)
----------- ----------- ------------ -------------
Net (loss) earnings $ 0.57 $ 0.10 $ (2.19) $ (9.18)
=========== =========== ============ =============
Diluted
Continuing operations $ 0.24(3) $ 0.20(4) $ (1.50) $ (2.21)
Discontinued operations 0.30 (0.11) (0.69) (5.72)
Disposal of discontinued operations - - - (1.25)
----------- ----------- ------------ -------------
Net (loss) earnings $ 0.54 $ 0.09 $ (2.19)(5) $ (9.18) (5)
=========== =========== ============ =============
</TABLE>
(1) In the fourth quarter of 1997, the Company adopted SFAS No. 128. Prior
period amounts have been restated to comply with the requirements of SFAS
No. 128 (see Notes 3 and 22).
(2) The total of the four quarters' earnings (loss) per share may not equal
the annual earnings (loss) per share.
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(3) For these quarters, the Convertible Debentures 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.
(4) For this quarter, 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.
(5) For these quarters, 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
28. Subsequent Events
Reorganization. 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 operations in Virginia and
significantly reduced its correspondent originations for the foreseeable future
and has exited its conventional lending business. Accordingly, the Company
expects to record a restructuring charge in the first quarter of 1998 of
approximately $2.6 million. Of this amount, $525,000 represents severance
payments made to 136 former employees and $2.1 million represents costs incurred
with lease obligations and write-offs of assets no longer in service.
Nasdaq National Market. On October 27, 1997, the Company received requests
from the Nasdaq Stock Market, Inc. ("Nasdaq") for information regarding the
Company's compliance with Nasdaq's listing requirements and corporate governance
rules. Following submission to Nasdaq of the requested information, the Company
was notified on December 5, 1997 by Nasdaq that the Company's Common Stock (the
"Common Stock") would be delisted from the Nasdaq National Market. On January
28, 1998, the Company received notice from Nasdaq that the Common Stock would be
moved from the Nasdaq National Market to the Nasdaq SmallCap Market effective
with the opening of business on January 29, 1998.
The Company believes that it meets all of the initial inclusion
requirements for the listing on the Nasdaq SmallCap Market, with the exception
of the $4.00 per share bid price requirement. Nasdaq has adopted new maintenance
standards, which became effective on February 23, 1998, requiring a minimum
$1.00 per share bid price which the Company's Common Stock currently does not
meet. Accordingly, Nasdaq has informed the Company that the securities were
moved to the Nasdaq SmallCap Market pursuant to a waiver of the $4.00 per share
initial inclusion requirement and an exception to the $1.00 per share
maintenance requirement. The exception requires the Company to achieve a bid
price of at least $1.00 per share on or before May 22, 1998. If the Company is
deemed to have met the terms of the exception, the Common Stock shall continue
to be listed on the Nasdaq SmallCap Market.
The Company believes that it can meet this condition; however, there can
be no assurances that it will be able to do so. If at some future date the
Company's Common Stock should cease to be listed on the Nasdaq SmallCap Market,
the Common Stock may be listed on the OTC Bulletin Board. For the duration of
the exception, the Company's Nasdaq symbol will be (CTYSC).
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<PAGE> 80
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age and position with the Company
of each person who is an executive officer or director of the Company or its
subsidiaries.
<TABLE>
<CAPTION>
Name Age Positions with the Company
- ---- --- --------------------------
<S> <C> <C>
Steven M. Miller 42 Chief Executive Officer, President and Director;
Senior Vice President and Director of CSC
Robert C. Patent 47 Vice Chairman of the Board, Executive Vice
President, Treasurer and Director; Executive
Vice President, Treasurer, Assistant Secretary
and Director of CSC
Robert Grosser 40 Chairman of the Board and Director; Director
of CSC
Jonah L. Goldstein 62 General Counsel and Director; General Counsel
and Director of CSC
Arthur P. Gould 80 Director
Hollis W. Rademacher 62 Director
Peter S. Kucma 48 President and Director of CSC
Cheryl P. Carl 45 Vice President and Secretary; Senior Vice
President, Secretary and Director of CSC
Steven P. Weiss 41 Senior Vice President/Sales and Director of CSC
Tim S. Ledwick 40 Vice President and Chief Financial Officer;
Senior Vice President, Chief Financial Officer
of CSC
Robert J. Blackwell 59 Senior Vice President/Special Products Division
of CSC
Gregg L. Armbrister 42 Senior Vice President/Operations of CSC
</TABLE>
Director and officer positions of CSC and CSC-UK are currently for a term
of one year. Effective with the Company's 1996 annual meeting of stockholders
held on June 12, 1996, the Board of Directors of the Company has been divided
into three classes as nearly equal in size as is practicable and directors of
the Company serve staggered terms of three years. Executive officers of the
Company and CSC are appointed by their respective Boards of Directors. The name
and business experience during the past five years of each director and
executive officer of the Company are described below:
Steven M. Miller has been Chief Executive Officer and President since
November 1997. Mr. Miller has also served as Senior Vice President and Director
of CSC since March 1997. Previously, Mr. Miller was Senior Vice President and
Co-Head of the Asset Backed Group of Greenwich Capital Markets, Inc. Mr. Miller
became a Senior Vice President at Greenwich Capital Markets, Inc. in 1992 and in
May 1995 he was given the additional role of Co-Head of the Asset Backed Group.
Prior to that time, Mr. Miller was a Vice President at Greenwich Markets, Inc.
Robert C. Patent has been Executive Vice President and a Director of the
Company since April 1994, Treasurer since June 1995 and the Vice Chairman of its
Board since September 1995. Mr. Patent also has served as Executive Vice
President and as Director of CSC since October 1990 and as Treasurer since
January 1994 and Assistant Secretary since January 1995. Mr. Patent has served
as a Director of CSC-UK since its formation. Mr. Patent currently serves as
President of Colby Capital Corp.
Robert Grosser has been a Director of the Company since April 1994 and its
Chairman of the Board since September 1995. Mr. Grosser has also served as a
Director of CSC since its inception. Until
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<PAGE> 81
resigning from such positions in November 1997, Mr. Grosser had also served as
Chief Executive Officer and President of the Company and CSC. Mr. Grosser has
served as a Director of CSC-UK since its formation. Mr. Grosser currently serves
on the board of the National Home Equity Mortgage Association.
Jonah L. Goldstein has been General Counsel of the Company since September
1995 and a Director since June 1995. Mr. Goldstein served as a consultant to CSC
from December 1993 through June 1995 and has served as a Director since January
1995 and as General Counsel since January 1996. Effective July 1, 1995, Mr.
Goldstein entered into an employment agreement with the Company. Mr. Goldstein
also has served as Secretary and as a Director of CSC-UK. From its formation in
1980 until its acquisition by CSC in 1994, Mr. Goldstein was President and
Chairman of Astrum, a mortgage banker. Mr. Goldstein currently serves as
Chairman and Director of Advance Abstract Corp., a company that sells title
insurance. He is also sole shareholder of Jonah L. Goldstein, P.C.
Arthur P. Gould has been a Director of the Company since June 1995. Since
1973, Mr. Gould has served as President of Arthur P. Gould & Co., an investment
firm (formerly a division of Inter-Regional Financial Group Inc.). Previously,
Mr. Gould was President of Golden Shield Corporation, a subsidiary of General
Telephone & Electronics Corporation and then President, Corporate Development
Division of Laidlaw & Co. Incorporated and Vice President and Director of
Laidlaw & Co. Incorporated.
Hollis W. Rademacher has been a Director of the Company since June 1995.
Currently, Mr. Rademacher is actively involved in a variety of financial
consulting and corporate director capacities. Mr. Rademacher serves as a
director of four suburban Chicago area banks, Hinsdale Bank and Trust, Hinsdale,
Illinois, North Shore Community Bank and Trust, Wilmette, Illinois, Lake Forest
Bank and Trust, Lake Forest, Illinois and Libertyville Bank and Trust,
Libertyville, Illinois, and several other closely held organizations in the
financial service, distribution and real estate industries. He also serves as
Director of Schawk, Inc., a public company engaged in producing molded plastic
products and pre-press services and products for printed packaging applications,
and as Director of Wintrust Financial Corp. From 1988 to 1993, Mr. Rademacher
served as Chief Financial Officer of Continental Bank Corp.
Peter S. Kucma has been President and a Director of CSC since November
1997. Previously he served as Senior Vice President and Chief Operating Officer
of CSC since May 1997. Prior to joining the Company, Mr. Kucma was employed by
GE Capital Mortgage Services, Inc., serving as Vice President (General Manager)
- - GE Capital Home Equity Services from 1996 through April 1997, Vice President -
Operations Management/Business Development from 1994 to 1996, Vice President -
Asset and Risk Management from 1991 to 1994 and Vice President of Finance and
Chief Financial Officer from 1990 to 1991. From 1985 to 1990, Mr. Kucma served
as Vice President of Finance and Chief Financial Officer of Travelers Mortgage
Services, Inc.
Cheryl P. Carl has been Secretary of the Company since June 1994 and Vice
President since June 1996. Ms. Carl also has served as Vice President of CSC
since January 1994, Secretary of CSC since June 1994 and as Assistant Treasurer
and as Director of CSC since January 1995. Ms. Carl was promoted to Senior Vice
President/Operations of CSC in June 1996. From its formation in 1980 until its
acquisition by CSC in 1994, Ms. Carl was Executive Vice President and Director
of Astrum, a mortgage banker specializing in non-conventional loans. Ms. Carl
also is a Director and Secretary of Advance Abstract Corp., a company that sells
title insurance.
Steven P. Weiss has been Vice President/Sales of CSC since January 1994
and a Director of CSC since January 1995. Mr. Weiss was promoted to Senior Vice
President/Sales of CSC in June 1996. From June 1993 to December 1993, Mr. Weiss
held the position of Vice President of Astrum, a mortgage banker specializing in
non-conventional loans. From 1989 to 1993, Mr. Weiss was founder and President
of Record Research, a title search company, and President of County Seat Capital
Corporation, a broker of non-conventional loans.
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Tim S. Ledwick has been Chief Financial Officer of the Company since March
1995 and Vice President since June 1996. Mr. Ledwick also has served as Vice
President, Chief Financial Officer of CSC since September 1994. Mr. Ledwick was
promoted to Senior Vice President of CSC in March 1997. From 1992 until 1994,
Mr. Ledwick was Vice President/Controller-Subsidiaries and from 1989 until 1992
was Controller-Subsidiaries for River Bank America.
Robert J. Blackwell has been Vice President/Special Products Division of
CSC since January 1996. In August 1996, Mr. Blackwell was promoted to Senior
Vice President/Specialty Products Division of CSC. From 1985 to 1995, Mr.
Blackwell was the Executive Vice President, Chief Operating Officer and a
Director of Alliance Funding Company, presently a division of Superior Bank
F.S.B. Mr. Blackwell is a Director of Colony Mortgage Inc. and Empire Mortgage,
Inc.
Gregg L. Armbrister has been Senior Vice President/Operations of CSC since
May 1997. Prior to joining the Company, Mr. Armbrister served as President and
Managing Director of K. M'Kenzie & Associates Inc. from 1989 through April 1997,
a consulting firm providing services to mortgage brokers, bankers, thrifts and
investment firms in connection with organization structures and controls,
business development, acquisitions, dispositions and loan origination,
underwriting, servicing and secondary marketing. From 1987 to 1989, Mr.
Armbrister served as Senior Vice President and consultant to Norwest Mortgage
Inc., and from 1984 to 1987 he served as President and a mortgage banker for
American First Mortgage Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors and persons who own more than 10% of the
Company's Common Stock to file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the Securities and Exchange Commission (the "Commission").
Executive officers, directors and 10% stockholders are required by the
Commission to furnish the Company with copies of all Forms 3, 4 and 5 that they
file.
Based solely on its review of copies of such forms and such written
representations regarding compliance with such filing requirements as were
received from its executive officers, directors and greater than 10%
stockholders, the Company believes that all such Section 16(a) filing
requirements were complied with respect to the Company's 1997 fiscal year.
Item 11. Executive Compensation
Board Of Directors
The Company maintains a compensation committee, an audit committee, a
stock option plan committee and a stock purchase plan committee of the Board of
Directors. Messrs. Gould and Rademacher serve on the compensation committee,
Messrs. Gould, Rademacher and Patent serve on the audit committee and Messrs.
Gould and Rademacher serve on the stock option plan committee and the stock
purchase plan committee.
Non-Employee Director Compensation
Directors who are not employees of the Company receive stock options
pursuant to the Company's 1995 Non-Employee Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan provides for automatic grants of an option
to purchase 40,000 shares of Common Stock to the Company's eligible non-employee
directors upon their election to the Board of Directors of the Company. Each
eligible non-employee director is granted an additional option, subject to
certain restrictions, to purchase 15,000 shares of Common Stock on each
anniversary of his or her election so long as he or she remains an eligible
non-employee director of the Company. The exercise price of any options granted
under the Directors Plan is the fair market value of the Common Stock on the
date of grant. No more than 400,000 shares of Common
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Stock may be issued upon exercise of options granted under the Directors Plan,
subject to adjustment to reflect stock splits, stock dividends and similar
capital stock transactions. Options may be granted under the Directors Plan
until June 1, 2005. In 1997, Messrs. Gould and Rademacher each were granted
options to purchase 15,000 shares of Common Stock under the Directors Plan.
In addition, non-employee directors of the Company receive an annual
retainer of $30,000 (the "Annual Retainer"), if chairman of a committee of the
Board of Directors, up to an additional $6,000, and are reimbursed for
reasonable expenses incurred in connection with attendance at Board of
Directors' meetings or committee meetings.
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, the Compensation Committee was comprised of Messrs.
Gould and Rademacher, neither of whom are executive officers of the Company.
None of the executive officers of the Company served on the board of directors
or on the compensation committee of any other entity, any of whose officers
served either on the Board of Directors or on the Compensation Committee of the
Company.
Executive Officers' Compensation
The following table sets forth certain information concerning the annual
and long-term compensation earned by the Company's Chief Executive Officers and
each of the four other most highly compensated individuals who were serving as
executive officers on December 31, 1997 and a former executive officer of the
Company who would have been one of such four individuals but for the fact such
individual was not serving as an executive officer on December 31, 1997 whose
annual salary and bonus during the fiscal years presented exceeded $100,000
(the "Named Executive Officers").
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Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
---------------------
Annual Compensation Awards
--------------------------- ---------------------
Name and Fiscal Securities Underlying All Other
Principal Position Year Salary Bonus Options/SARs Compensation
----------------------------- ------- --------- ---------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Steven M. Miller 1997 $201,923 $ -- 500,000 $ 80,000(2)
President and Chief Executive 1996 -- -- -- --
Officer; Senior Vice 1995 -- -- -- --
President of CSC (1)
Robert Grosser 1997 $274,566 $ -- 25,000 $ --
President and Chief Executive 1996 268,068 1,326,997 -- 47,997(4)
Officer; President of CSC (3) 1995 259,155 275,788 -- 3,915(5)
Robert C. Patent 1997 $232,274 $ -- 20,000 $ --
Executive Vice President and
Treasurer; 1996 226,174 884,665 -- 70,990(6)
Executive Vice President and 1995 219,550 183,858 -- 3,915(5)
Treasurer of CSC
Steven P. Weiss 1997 $215,720 $118,000 12,000 $ --
Senior Vice President/Sales 1996 180,235 378,287 -- 3,000(5)
of CSC 1995 187,798 30,000 150,000 3,915(5)
David Steene 1997 $255,899 272,884 16,000 $1,004,100(8)
Managing Director of 1996 218,359 726,038 -- --
CSC-UK (7) 1995 104,867 -- -- --
Gerald Epstein 1997 $253,899 $272,884 16,000 $1,004,100(8)
Financial Director of 1996 218,359 726,038 -- --
CSC-UK (7) 1995 104,867 -- -- --
Martin Brand 1997 $190,876 $272,167 10,750 $956,572(8)
Lending Director of 1996 218,359 726,038 -- --
CSC-UK (9) 1995 104,867 -- -- --
</TABLE>
- ------------------
(1) Mr. Miller has been the President and Chief Executive Officer of the
Company since November 1997.
(2) Represents consulting fees paid to Mr. Miller prior to his joining
the Company.
(3) Mr. Grosser resigned as President and Chief Executive Officer of the
Company and President of CSC effective November 1997.
(4) Represents premium payments of $44,997 made by the Company pursuant to a
split-dollar life insurance policy that provided a benefit of $13,463
and $3,000 paid as qualified matching contributions under the Company's
employee benefit plan.
(5) Reflects amounts paid as qualified matching contributions under the
Company's employee benefit plan.
(6) Represents premium payments of $67,990 made by the Company pursuant to
a split-dollar life insurance policy that provided a benefit of $2,136
and $3,000 paid as qualified matching contributions under the Company's
employee benefit plan.
(7) Resigned effective February 1998.
(8) Payable in connection with the resignation of such person.
(9) Resigned effective September 1997.
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<PAGE> 85
Employment Agreements
The Company has employment agreements with each of the Named Executive
Officers other than Mr. Miller, as well as with certain other executive officers
of the Company and CSC. Each agreement, other than that with Mr. Goldstein,
requires the executive officer to devote his or her full time and best efforts
to the Company during the term of the agreement.
The employment agreements with Messrs. Grosser and Patent are for a term
commencing January 1, 1995 and ending December 31, 1998. The agreements provide
for an annual salary of $260,000 and $220,000, respectively, plus increases
based on the percentage increase, if any, in the Consumer Price Index, or by a
greater amount, at the discretion of the Board of Directors. In addition, the
agreements provide for payment to Mr. Grosser and Mr. Patent of an amount equal
to 1.5% and 1.0%, respectively, of the pre-tax profits of the Company, as
determined by the Company's outside auditors in accordance with generally
accepted accounting principles, in excess of certain scheduled thresholds.
The employment agreements with Ms. Carl and Messrs. Weiss and Goldstein
are for a term commencing on July 1, 1995 and continuing through December 31,
1998. Each agreement provided for an annual salary of $160,000, plus increases
based on the percentage increase, if any, in the Consumer Price Index, or by a
greater amount, in the discretion of the Board of Directors. As of September 1,
1996, the annual salary was increased to $210,000 for the remaining term of each
agreement. In addition, each agreement provided for payment of an annual bonus
of $30,000 if the Company's gross volume of loans originated by the Company in
the case of Ms. Carl and Messrs. Weiss and Goldstein exceeds certain specified
levels for each year during the term of the agreement. Such bonus provision was
amended as set forth below. In addition, each agreement provided for a one-time
grant of 150,000 incentive stock options at an exercise price of $2.50 per share
in accordance with the Company's 1995 Stock Option Plan (the "1995 Stock Option
Plan"). Of the options granted, 40,000 options were exercisable upon grant,
40,000 options as of July 1, 1996, 40,000 options as of July 1, 1997 and 30,000
options as of July 1, 1998.
The employment agreement with Mr. Ledwick is for a term commencing on
January 1, 1996 and continuing until December 31, 1999. The agreement provided
for an annual salary of $150,000 plus increases based on the percentage
increase, if any, in the Consumer Price Index, or by a greater amount, in the
discretion of the Board of Directors. In January 1997, the annual salary was
increased to $200,000. In addition, the agreement provided for payment of an
annual bonus of $15,000 and an additional bonus at the option of the Board of
Directors. Such bonus provision was amended as set forth below. The agreement
also provided for a one-time grant of 100,000 incentive stock options at an
exercise price of $10.00 per share in accordance with the 1995 Stock Option
Plan. Of the options granted, 40,000 options were exercisable upon grant, 30,000
options as of January 1, 1997 and 30,000 options as of January 1, 1998.
As of September 1, 1996, the Board of Directors approved a three year
bonus pool which replaced the existing bonus provisions in the employment
agreements of Messrs. Ledwick, Weiss and Goldstein and Ms. Carl. The pool
provides that each, along with certain others, share in a bonus pool of 5% of
the pre-tax profits of CSC above certain thresholds. The participants in the
pool receives a pro rata portion of the pool based on his or her annual salary
up to 200% of salary with the payment of any excess being deferred and paid over
three years, one-third each year. Any deferred payment will earn interest at the
Citibank N.A. prime rate plus one percent. The CSC earnings threshold for
providing a pool will be increased based on the prior year's pre-tax earnings
plus the percentage increase, if any, in the Consumer Price Index. For 1997,
such threshold was not reached.
The employment agreement with Mr. Blackwell is for a term commencing on
February 1, 1996 and continuing until January 31, 1999. The agreement provides
for an annual salary of $200,000 plus increases based on the percentage
increase, if any, in the Consumer Price Index, or by a greater amount, in the
discretion of the Board of Directors. In addition, the agreement provides for
the payment of a bonus at the option of the Board of Directors. The agreement
also provided for a one-time grant of 300,000 incentive stock options at an
exercise price of $10.00 per share in accordance with the 1995 Stock Option
Plan. Of
85
<PAGE> 86
the options granted, 100,000 options were exercisable as of January 15, 1997,
100,000 options as of January 15, 1998 and 100,000 options as of January 15,
1999.
The employment agreement with Peter S. Kucma is for a term commencing on
May 1, 1997 and continuing until April 30, 2001. The agreement provides for an
annual salary of $250,000 plus increases based on the percentage increase, if
any, in the Consumer Price Index, or by a greater amount, in the discretion of
the Board of Directors. In addition, the agreement provides for the payment of
an annual bonus, equal to not less than the base salary for that year, payable
upon the attainment of certain performance goals. The agreement also provided
for a one-time bonus of $50,000 ($25,000 of which was paid on May 1, 1997 and
$25,000 of which is payable on May 1, 1998) and a one-time grant of 400,000
incentive stock options at an exercise price of $13.25 per share in accordance
with the 1995 Stock Option Plan. Of the options granted, 100,000 options become
exercisable in each of 1998, 1999, 2000 and 2001.
The employment agreement with Gregg L. Armbrister is for a term commencing
on May 1, 1997 and continuing until April 30, 2001. The agreement provides for
an annual salary of $210,000 plus increases based on the percentage increase, if
any, in the Consumer Price Index, or by a greater amount, in the discretion of
the Board of Directors. In addition, the agreement provides for the payment of
an annual bonus, payable upon the attainment of certain performance goals. The
agreement also provided for a one-time grant of 200,000 incentive stock options
at an exercise price of $13.25 per share in accordance with the 1995 Stock
Option Plan. Of the options granted, 50,000 options were immediately exercisable
and 50,000 options become exercisable in each of 1998, 1999 and 2000. In
addition, the agreement provides that, during each year of the term of the
agreement, if the pre-tax profits of the Company exceed those of the previous
year by 20% or more, Mr. Armbrister will receive immediately exercisable options
to purchase no less than 6,750 shares at the then current market price.
CSC-UK entered into employment agreements dated as of April 5, 1995 with
Messrs. Steene, Brand and Epstein which extend through April 5, 1999. Each
agreement provides for an annual salary of L150,000 plus increases based on the
percentage increase, if any, in the Retail Price Index. In addition, each
agreement provides for the payment of an annual bonus related to the pre-tax
profits of CSC-UK not to exceed L500,000 in the aggregate for the term of the
agreement. As of September 1, 1996, the Board of Directors approved a three year
bonus pool which provided that for 1996, because pre-tax profits of CSC-UK
exceeded $8.2 million, each shared in a bonus pool of 3% of the pre-tax profits
of CSC-UK. The participants in the pool received a pro rata portion of the pool
based on his annual salary up to 200% of salary with the payment of any excess
being deferred and paid over three years, one-third each year. Any deferred
payment will earn interest at the Citibank N.A. prime rate plus one percent. For
1997, the CSC-UK earnings threshold for providing a pool was increased based on
the prior year's pre-tax earnings plus the percentage increase, if any, in the
Consumer Price Index.
Employee Stock Plans
Effective June 1995, the Board of Directors adopted, and the stockholders
of the Company approved, the Company's 1995 Stock Option Plan. No more than
3,600,000 shares of Common Stock may be issued upon exercise of options granted
under the 1995 Stock Option Plan, and no eligible person may receive options to
purchase more than 600,000 shares of Common Stock during any calendar year,
subject to adjustment to reflect stock splits, stock dividends, and similar
capital stock transactions. The 1995 Stock Option Plan is administered by a
committee of non-employee directors or the entire Board of Directors as a group
which has the authority to determine the terms and conditions of options granted
under the 1995 Stock Option Plan and to make all other determinations deemed
necessary or advisable for administering the 1995 Stock Option Plan, provided
that the exercise price of the options granted under the 1995 Stock Option Plan
cannot be less than the fair market value of the Common Stock on the date of
grant. As of March 23, 1998, there were 3,259,800 options outstanding under the
1995 Stock Option Plan.
Effective December 1994, the Board of Directors adopted, and the
stockholders of the Company approved, the Company's Stock Purchase Plan. The
Stock Purchase Plan, and the right of participants to make purchases of the
Common Stock thereunder, is intended to qualify under the provisions of Section
421 and 423 of the Code and for persons subject to Section 16 of the Exchange
Act, under the provisions of Rule 16b-3 of the Exchange Act. The Stock Purchase
Plan is generally administered by a committee appointed by the Board of
Directors of the Company which has the authority to make all determinations,
interpretations and rules deemed necessary or advisable for administering the
Stock Purchase Plan. The Stock Purchase Plan permits eligible employees of the
Company to purchase Common Stock through payroll deductions of up to ten percent
of their salary, up to a maximum of $25,000 for all purchase periods ending
within any calendar year. The price of Common Stock purchased under the Stock
Purchase Plan will be 85% of the lower of the fair market value of a share of
Common Stock on the commencement date or the termination date of the relevant
offering period. No more than 1,600,000 shares of Common Stock may be issued
upon exercise of options granted under the Stock Purchase Plan and no more than
400,000 shares plus unissued shares from prior offerings may be issued in each
calendar year under the Stock
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<PAGE> 87
Purchase Plan. To date, 118,330 shares of Common Stock have been issued pursuant
to the Stock Purchase Plan.
Effective June 1997, the Board of Directors adopted, and the stockholders
of the Company approved, the Company's 1997 Stock Option Plan. No more than
1,500,000 shares of Common Stock may be issued upon exercise of options granted
under the 1997 Stock Option Plan, and no eligible person may receive options to
purchase more than 500,000 shares of Common Stock during any calendar year,
subject to adjustment to reflect stock splits, stock dividends, and similar
capital stock transactions. The 1997 Stock Option Plan is administered by a
committee of non-employee directors or the entire Board of Directors as a group
which has the authority to determine the terms and conditions of options granted
under the 1997 Stock Option Plan and to make all other determinations deemed
necessary or advisable for administering the 1997 Stock Option Plan, provided
that the exercise price of the options granted under the 1997 Stock Option Plan
cannot be less than the fair market value of the Common Stock on the date of
grant. As of March 23, 1998, there were 145,000 options outstanding under the
1997 Stock Option Plan.
In April 1997, the compensation committee approved, and the Board Of
Directors ratified, an annual stock option program for certain executive
officers. The program authorizes the grant of options to purchase shares of
Common Stock based on the Company's performance during fiscal years 1996, 1997
and 1998. If the Company's annual earnings exceed those of the previous year by
at least 20%, certain minimum grants are guaranteed and the option committee may
make larger grants. If the Company's earnings do not exceed those of the
previous year by at least 20%, the option committee may make smaller or larger
grants. Annual option grants for certain executive officers may range from
7,500-23,500 shares and all options granted will have an exercise price equal to
the market value on the date of grant.
Option Grants in 1997
Shown below is information concerning grants of options issued by the
Company to the Named Executive Officers during 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Securities % of Total Price Appreciation
Underlying Options Granted Exercise For Option Term (2)
Options to Employees in Price Expiration ------------------------------
Name Granted(#)(1) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---------------------- ------------- --------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Miller 500,000 (3) 29.1% $ 13.25 06/01/05 $ 3,211,016 $ 7,712,276
Robert Grosser 25,000 (4) 1.5 13.25 06/01/05 160,551 385,614
Robert C. Patent 20,000 (4) 1.2 13.25 06/01/05 128,441 308,491
Steven P. Weiss 12,000 (4) 0.7 13.25 06/01/05 77,064 185,095
7,547 (4) 13.25 05/17/98 5,513 11,053
David Steene (5) 8,453 (4) 0.9 13.25 08/17/98 7,334 14,774
7,547 (4) 13.25 05/17/98 5,513 11,053
Gerald Epstein (5) 8,453 (4) 0.9 13.25 08/17/98 7,334 14,774
7,547 (4) 13.25 12/05/97
Martin Brand (5) 3,203 (4) 0.6 13.25 03/05/98 N/A N/A
</TABLE>
- ----------------
(1) All options were granted in April 1997, with an exercise price equal to
the average of the high and low sale prices of the Company's Common Stock
as reported on the Nasdaq National Market on the date of grant.
87
<PAGE> 88
(2) The 5% and 10% assumed rates of appreciation are specified under the rules
of the Commission and do not represent the Company's estimate or
projection of the future price of its Common Stock. The actual value, if
any, which a Named Executive Officer may realize upon the exercise of
stock options will be based upon the difference between the market price
of the Company's Common Stock on the date of exercise and the exercise
price.
(3) Grant vests to the extent of 50,000 shares on the date of grant and
112,500 on each of the first, second, third and fourth anniversary of the
date of grant.
(4) Grant vests on the date of grant.
(5) Resigned effective February 1998.
(6) Resigned effective September 1997.
Aggregated Option Exercises in 1997 and 1997 Year-End Option Values
The following table sets forth for the Chief Executive Officers and the
other Named Executive Officers, information with respect to unexercised options
and year-end option values, in each case with respect to options to purchase
shares of the Company's Common Stock:
<TABLE>
<CAPTION>
Shares Value of Unexercised
Acquired on Value Number of Unexercised Options In-The-Money Options
Exercise Realized Held as of December 31, 1997 at December 31, 1997 (1)
-------- -------- ---------------------------- ------------------------
Name Exercisable Nonexercisable Exercisable Nonexercisable
- ---- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Steven M. Miller --- $ --- 50,000 450,000 $ --- $ ---
Robert Grosser --- --- 25,000 --- --- ---
Robert C. Patent --- --- 20,000 --- --- ---
Steven P. Weiss 40,000 1,160,000 92,000 30,000 --- ---
David Steene --- --- 16,000 --- --- ---
Gerald Epstein --- --- 16,000 --- --- ---
Martin Brand --- --- 3,203 --- --- ---
</TABLE>
- ----------------
(1) No options were in-the-money as of December 31, 1997.
401(k) Plan
The Company sponsors a 401(k) plan, a savings and investment plan intended
to be qualified under Section 401 of the Internal Revenue Code of 1986, as
amended (the "Code"). Participating employees may make pre-tax contributions,
subject to limitations under the Code, of a percentage of their total
compensation. The Company, in its sole discretion, may make matching
contributions for the benefit of all participants with at least one year of
service who make pre-tax contributions. The Board of Directors has not yet
determined if a matching contribution will be made for the 1997 plan year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
88
<PAGE> 89
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to shares of Common Stock of
the Company owned as of March 6, 1997, by (i) each person who, to the extent
known to the Company, beneficially owned more than 5% of such outstanding Common
Stock; (ii) each director; and (iii) each Named Executive Officer of the
Company; and (v) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
-----------------------
Name of Beneficial Owner(1) Number Percent
- ----------------------------------------------------- ------- -------
<S> <C> <C>
Steven M. Miller (2)................................. 162,500 * %
Robert Grosser (3)................................... 3,787,284 8.0
Robert C. Patent (4)................................. 3,927,192 8.3
Steven P. Weiss (5).................................. 92,008 *
Arthur P. Gould...................................... -- --
Hollis W. Rademacher (6)............................. 52,600 *
David Steene (7)..................................... 16,000 *
Gerald Epstein (7)................................... 18,200 *
Martin Brand (8)..................................... 600,000 1.3
All directors and executive officers as a group
(12 persons) (9)................................. 9,756,542 19.6
Franklin Mutual Advisers, Inc. (10).................. 4,140,000 8.7
Elliot Associates, L.P. (11) ........................ 4,998,425 9.9
Westgate International, L.P. (12) ................... 4,998,425 9.9
</TABLE>
- ------------------
* Less than one percent.
(1) Unless otherwise indicated and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting
and investment power with respect to the shares shown as beneficially
owned by it. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date of this
Report upon the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options that are held
by such person (but not those held by any other person) and that are
exercisable within 60 days from the date of this Report have been
exercised. The table, therefore, does not give effect to the conversions
of the outstanding shares of the Company's Preferred Stock (other than as
indicated) and the issuance of Common Stock upon such conversions.
Assuming the Company had a sufficient number of authorized shares of
Common Stock to satisfy such conversions, as of March 6, 1998, the shares
of Common Stock issuable upon conversion of the outstanding shares of
Series A and Series B Preferred Stock would represent approximately 75%
of the Common Stock.
(2) Includes options to purchase 50,000 shares granted pursuant to the 1995
Stock Option Plan.
(3) Includes 640 shares owned by Mr. Grosser's spouse, with respect to all of
which Mr. Grosser disclaims beneficial ownership, 3,200 shares owned by
Mr. Grosser's daughters and options to purchase 25,000 shares granted
pursuant to the 1995 Stock Option Plan. Mr. Grosser's business address is
565 Taxter Road, Elmsford, New York 10523-5200.
(4) Includes 400 shares owned by Mr. Patent's spouse, with respect to all of
which Mr. Patent disclaims beneficial ownership, 40,800 shares owned by
Mr. Patent's two children and options to purchase 20,000 shares granted
pursuant to the 1995 Stock Option Plan. Mr. Patent's business address is
565 Taxter Road, Elmsford, New York 10523-5200.
(5) Represents options to purchase 92,000 shares granted pursuant to the 1995
Stock Option Plan.
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<PAGE> 90
(6) Includes options to purchase 46,000 shares granted pursuant to the
Directors Plan.
(7) Resigned in February 1998. Includes options to purchase 16,000 shares
granted pursuant to the 1995 Stock Option Plan.
(8) Resigned in September 1997.
(9) See Notes (1)-(8).
(10) The number of shares is based on information from Schedule 13G dated
December 10, 1997. The address of Franklin Mutual Advisors, Inc. is 51
John F. Kennedy Parkway, Short Hills, New Jersey 07078.
(11) Limited to 9.9% of the outstanding shares of Common Stock. The address
of Elliot Associates, L.P. is 712 Fifth Avenue, 36th floor, New York, New
York 10019. Schedule 13G, filed jointly with Westgate International,
L.P. and Martley International, Inc. and dated March 6, 1998, indicates
sole voting and dispositive power as to 3,937,600 shares of Common Stock.
(12) Limited to 9.9% of the outstanding shares of Common Stock. The address of
Westgate International, L.P. is c/o Midland Bank Trust Corporation
(Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman
Islands, B.W.I. Schedule 13G, filed jointly with Elliot Associates, L.P.
and Martley International, Inc. and dated March 6, 1998, indicates shared
voting and dispositive power with Martley International, Inc. as to
3,959,806 shares of Common Stock.
Item 13. Certain Relationships and Related Transactions
The Company paid $166,300 in legal fees and $5,000 in director fees during
1997 to Mr. Fensterheim, the father-in-law of Mr. Grosser and a prior director
of the Company.
The Company has granted to Franklin Mutual Advisors, Inc. registration
rights relating to the resale of shares of the Company's Common Stock. These
registration rights required the Company to file a registration statement for
the resale of the shares of Common Stock subject to the options and use its
reasonable efforts to maintain the effectiveness of the registration statement.
During 1997, Samboy sold $11.7 million of loans to the Company and, in the
first three months of 1998, sold $64,000 of loans to the Company. Mr. Jonah
Goldstein owns 20% of the outstanding capital stock of Samboy.
Mr. Eric Goldstein, the son of Mr. Jonah Goldstein is employed as a Senior
Vice President of CSC. During 1997, he received $612,655, including the payment
of $378,287 as a bonus for services rendered in 1996, and was granted 12,000
options pursuant to the 1995 Stock Option Plan at an exercise price per share of
$13.25. Mr. Eric Goldstein is anticipated to receive approximately $240,000 in
compensation during 1998.
Mr. Paul Goldstein, the son of Mr. Jonah Goldstein, was employed as an
Assistant Vice President of CSC. During 1997, Mr. Paul Goldstein received
$673,255, including $617,083 in commissions and compensation recognized from the
exercise of stock options. Mr. Paul Goldstein is no longer employed by the
Company.
The Company loaned to Mr. Weiss $55,000 and $63,000 in August 1997 and
October 1997, respectively. Such amounts were repaid in February 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements included in Item 8:
a) Cityscape Financial Corp. Financial Statements:
Report of Independent Auditors by KPMG Peat Marwick LLP
Report of Independent Auditors by BDO Stoy Hayward,
Registered Auditors
Consolidated Statements of Financial Condition at December 31,
1997 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995
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<PAGE> 91
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: None
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ----------------------
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-4 filed with the
Commission on June 26, 1997
3.2 Bylaws of the Company, as amended, incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form
S-1 as declared effective by the Commission on
December 20, 1995
4.1 Indenture, dated as of May 7, 1996, between the Company and
The Chase Manhattan Bank, N.A., incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q filed with the Commission on May 15, 1996
4.2 Indenture, dated as of May 14, 1997, among the Company, CSC
and The Chase Manhattan Bank, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement
on Form S-4 filed with the Commission on June 26, 1997
10.1 Lease Agreement, dated as of September 30, 1993, between CSC
and Taxter Park Associates, as amended by the First Amendment
to Lease, dated as of April 19, 1994, and the Second Amendment
to Lease, dated as of May 12, 1995, incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 as declared effective by the
Commission on December 20, 1995
10.2 Sublease Agreement between KLM Royal Dutch Airlines and CSC,
dated as of December 5, 1994, incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement
on Form S-1 as declared effective by the Commission on
December 20, 1995
10.3 Employment Agreement, dated as of January 1, 1995, between CSC
and Robert Grosser, incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on
Form S-1 as declared effective by the Commission on December
20, 1995
10.4 Employment Agreement, dated as of January 1, 1995, between CSC
and Robert C. Patent, incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on
Form S-1 as declared effective by the Commission on December
20, 1995
10.5 Employment Agreement, dated as of July 1, 1995, between CSC
and Cheryl P. Carl, incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on
Form S-1 as declared effective by the Commission on December
20, 1995
10.6 Employment Agreement, dated as of July 1, 1995, between CSC
and Steven Weiss,
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<PAGE> 92
incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 as declared effective by
the Commission on December 20, 1995
10.7 Employment Agreement, dated as of July 1, 1995, between CSC
and Jonah L. Goldstein, incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on
Form S-1 as declared effective by the Commission on December
20, 1995
10.8 The Company's 1995 Stock Option Plan, incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 as declared effective by the Commission
on December 20, 1995
10.9 The Company's 1995 Non-Employee Directors Stock Option Plan,
incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1 as declared
effective by the Commission on December 20, 1995
10.10 Third Amendment to Lease, dated as of April 17, 1996, between
CSC and Taxter Park Associates, incorporated by reference to
Exhibit 10.53 to the Company's Quarterly Report
on Form 10-Q filed with the Commission on August 14, 1996
10.11 Lease, dated as of April 18, 1996, among the Standard Life
Assurance Company, City Mortgage Servicing Limited and CSC-UK,
incorporated by reference to Exhibit 10.54 to the
Company's Quarterly Report on Form 10-Q filed with the
Commission on August 14, 1996
10.12 Lease Agreement, dated as of July 7, 1996, between CSC and
Robert Martin Company, incorporated by reference to Exhibit
10.56 to the Company's Quarterly Report on Form
10-Q filed with the Commission on August 14, 1996
10.13 Employment Agreement, dated as of January 1, 1996, between CSC
and Tim S. Ledwick, incorporated by reference to S-3 filed on
September 9, 1996, as amended on January 30,
1997 and March 14, 1997
10.14 Employment Agreement, dated as of February 1, 1996, between
CSC and Robert J. Blackwell, incorporated by reference to S-3
filed on September 9, 1996, as amended on January 30,
1997 and March 14, 1997
10.15 Registration Rights Agreement, dated as of November 22, 1996,
among the Company, Mutual Shares Fund, Mutual Qualified Fund,
Mutual Beacon Fund, Mutual Discovery Fund, Mutual European
Fund, The Orion Fund Limited, Mutual Shares Securities Fund
and Mutual Discovery Securities Fund, incorporated by
reference to Exhibit 10.37 to the Company's Registration
Statement on Form S-3 filed on September 9, 1996, as amended
on January 30, 1997 and March 14, 1997
10.16 Lease, dated as of October 1, 1996, between CSC and Reckson
Operating Partnership, L.P., incorporated by reference to
Exhibit 10.41 to the Company's Annual Report of Form 10-K
filed with the Commission on March 31, 1997
10.17 1997 Stock Option Plan, as amended, incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form
S-8 as filed with the Commission on September
19, 1997
10.18 Registration Rights Agreement, dated as of April 26, 1996,
among the Company, NatWest Securities Limited, Bear Stearns &
Co. Inc., CIBC Wood Gundy Securities Corp. And Wasserstein
Perella Securities, Inc., incorporated by reference to Exhibit
4.3
92
<PAGE> 93
to the Company's Quarterly Report on Form 10-Q filed with the
Commission on May 15, 1996
10.19 Registration Rights Agreement, dated as of May 14, 1997, among
the Company, CSC, CIBC Wood Gundy Securities Corp., Bear,
Stearns & Co. Inc. and Oppenheimer & Co., Inc., incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-4 filed with the Commission on June 26,
1997
10.20* Master Loan and Security Agreement, dated as of January 1,
1997, between CSC and Greenwich Capital Financial Products,
Inc., as amended by the Extensiion Agreement, dated as of
December 31, 1997, and the First Renewal Agreement, dated
March 27, 1998.
10.21* Revolving Credit and Security Agreement, dated as of February
3, 1998, among CSC, CFC and The CIT Group/Equipment Financing,
Inc.
10.22* Employment Agreement, dated as of April 18, 1997, between CSC
and Peter S. Kucma
10.23* Employment Agreement, dated as of April 24, 1997, between CSC
and Gregg Armbrister
10.24* Greenwich Refinancing Agreement, dated as of February 1998,
between CSC-UK and certain of its subsidiaries and Greenwich
10.25 Service Agreement, dated as of April 5, 1995, between CSC-UK
and David Steene, incorporated by reference to Exhibit 10.33
to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995.
10.26 Service Agreement, dated as of April 5, 1995, between CSK-UK
and Martin Brand, incorporated by reference to Exhibit 10.34
to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995.
10.27 Service Agreement, dated as of April 5, 1995, between CSC-UK,
incorporated by reference to Exhibit 10.35 to the Company's
Registration Statement on Form S-1 as declared effective by
the Commission on December 20, 1995.
11.1* Computation of Earnings Per Share
21.1* Subsidiaries of the Company
23.1* Consent of KPMG Peat Marwick LLP
23.2* Consent of BDO Stoy Hayward
27.1* Financial Data Schedule for the year ended December 31, 1997
* Filed herewith.
(a) Reports on Form 8-K:
1. Form 8-K dated October 9, 1997 reporting that a class action was
filed against the Company and two of its officers and directors
alleging violations of the federal securities laws.
2. Form 8-K dated October 22, 1997 reporting the retention of Bear,
Stearns & Co. Inc. as a financial advisor to explore strategic
alternatives for the Company.
3. Form 8-K dated October 29, 1997 reporting two additional class
action complaints against the Company.
4. Form 8-K dated November 18, 1997 reporting selected operating data
for the quarter ending September 30, 1997.
5. Form 8-K dated December 5, 1997 reporting the receipt of revised
Non-Status Lending Guidelines for Lenders and Brokers in the UK from
the Office of Fair Trading.
6. Form 8-K dated December 18, 1997 reporting that the Company's Common
Stock will be de-listed from the Nasdaq National Market pending a
hearing to review the Company's compliance with the Nasdaq Listing
Qualifications.
93
<PAGE> 94
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
CITYSCAPE FINANCIAL CORP.
By: /s/Robert C. Patent
Robert C. Patent
Vice Chairman of the Board,
Executive Vice President and Director
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
Signature Title
--------- -----
/s/Steven M. Miller Chief Executive Officer, President and
- --------------------------------- Director (Principal Executive Officer)
Steven M. Miller
/s/Robert C. Patent
- --------------------------------- Vice Chairman of the Board and Director
Robert C. Patent
/s/Robert Grosser Chairman of the Board and Director
- ---------------------------------
Robert Grosser
/s/Jonah L. Goldstein Director
- ---------------------------------
Jonah L. Goldstein
/s/Arthur P. Gould Director
- ---------------------------------
Arthur P. Gould
/s/Hollis W. Rademacher Director
- ---------------------------------
Hollis W. Rademacher
/s/Tim S. Ledwick Vice President, Chief Financial Officer
- --------------------------------- (Principal financial officer and
Tim S. Ledwick principal accounting officer)
Date: March 31, 1998
94
<PAGE> 95
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
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-4 filed with the
Commission on June 26, 1997
3.2 Bylaws of the Company, as amended, incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form
S-1 as declared effective by the Commission on
December 20, 1995
4.1 Indenture, dated as of May 7, 1996, between the Company and
The Chase Manhattan Bank, N.A., incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
filed with the Commission on May 15, 1996
4.2 Indenture, dated as of May 14, 1997, among the Company, CSC
and The Chase Manhattan Bank, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement
on Form S-4 filed with the Commission on June 26, 1997
10.1 Lease Agreement, dated as of September 30, 1993, between CSC
and Taxter Park Associates, as amended by the First Amendment
to Lease, dated as of April 19, 1994, and the Second Amendment
to Lease, dated as of May 12, 1995, incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 as declared effective by the
Commission on December 20, 1995
10.2 Sublease Agreement between KLM Royal Dutch Airlines and CSC,
dated as of December 5, 1994, incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-1 as declared effective by the Commission on December 20,
1995
10.3 Employment Agreement, dated as of January 1, 1995, between CSC
and Robert Grosser, incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995
10.4 Employment Agreement, dated as of January 1, 1995, between CSC
and Robert C. Patent, incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995
10.5 Employment Agreement, dated as of July 1, 1995, between CSC
and Cheryl P. Carl, incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995
10.6 Employment Agreement, dated as of July 1, 1995, between CSC
and Steven Weiss, incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1 as declared
effective by the Commission on December 20, 1995
10.7 Employment Agreement, dated as of July 1, 1995, between CSC
and Jonah L. Goldstein, incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995
10.8 The Company's 1995 Stock Option Plan, incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 as declared effective by the Commission
on December 20, 1995
95
<PAGE> 96
10.9 The Company's 1995 Non-Employee Directors Stock Option Plan,
incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1 as declared effective by
the Commission on December 20, 1995
10.10 Third Amendment to Lease, dated as of April 17, 1996, between
CSC and Taxter Park Associates, incorporated by reference to
Exhibit 10.53 to the Company's Quarterly Report on Form 10-Q
filed with the Commission on August 14, 1996
10.11 Lease, dated as of April 18, 1996, among the Standard Life
Assurance Company, City Mortgage Servicing Limited and CSC-UK,
incorporated by reference to Exhibit 10.54 to the Company's
Quarterly Report on Form 10-Q filed with the Commission on
August 14, 1996
10.12 Lease Agreement, dated as of July 7, 1996, between CSC and
Robert Martin Company, incorporated by reference to Exhibit
10.56 to the Company's Quarterly Report on Form 10-Q filed
with the Commission on August 14, 1996
10.13 Employment Agreement, dated as of January 1, 1996, between CSC
and Tim S. Ledwick, incorporated by reference to S-3 filed on
September 9, 1996, as amended on January 30, 1997 and March
14, 1997
10.14 Employment Agreement, dated as of February 1, 1996, between
CSC and Robert J. Blackwell, incorporated by reference to S-3
filed on September 9, 1996, as amended on January 30, 1997 and
March 14, 1997
10.15 Registration Rights Agreement, dated as of November 22, 1996,
among the Company, Mutual Shares Fund, Mutual Qualified Fund,
Mutual Beacon Fund, Mutual Discovery Fund, Mutual European
Fund, The Orion Fund Limited, Mutual Shares Securities Fund
and Mutual Discovery Securities Fund, incorporated by
reference to Exhibit 10.37 to the Company's Registration
Statement on Form S-3 filed on September 9, 1996, as amended
on January 30, 1997 and March 14, 1997
10.16 Lease, dated as of October 1, 1996, between CSC and Reckson
Operating Partnership, L.P., incorporated by reference to
Exhibit 10.41 to the Company's Annual Report of Form 10-K
filed with the Commission on March 31, 1997
10.17 1997 Stock Option Plan, as amended, incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form
S-8 as filed with the Commission on September 19, 1997
10.18 Registration Rights Agreement, dated as of April 26, 1996,
among the Company, NatWest Securities Limited, Bear Stearns &
Co. Inc., CIBC Wood Gundy Securities Corp. And Wasserstein
Perella Securities, Inc., incorporated by reference to Exhibit
4.3 to the Company's Quarterly Report on Form 10-Q filed with
the Commission on May 15, 1996
10.19 Registration Rights Agreement, dated as of May 14, 1997, among
the Company, CSC, CIBC Wood Gundy Securities Corp., Bear,
Stearns & Co. Inc. and Oppenheimer & Co., Inc., incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-4 filed with the Commission on June 26,
1997
10.20* Master Loan and Security Agreement, dated as of January 1,
1997, between CSC and Greenwich Capital Financial Products,
Inc., as amended by the Extension Agreement, dated as of
December 31, 1997, and the First Renewal Agreement dated
March 27, 1998.
96
<PAGE> 97
10.21* Revolving Credit and Security Agreement, dated as of February
3, 1998, among CSC, CFC and The CIT Group/Equipment Financing,
Inc.
10.22* Employment Agreement, dated as of April 18, 1997, between CSC
and Peter S. Kucma
10.23* Employment Agreement, dated as of April 24, 1997, between CSC
and Gregg Armbrister
10.24* Greenwich Refinancing Agreement, dated as of February 1998,
between CSC-UK and certain of its subsidiaries and Greenwich
10.25 Service Agreement, dated as of April 5, 1995, between CSC-UK
and David Steene, incorporated by reference to Exhibit 10.33
to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995.
10.26 Service Agreement, dated as of April 5, 1995, between CSK-UK
and Martin Brand, incorporated by reference to Exhibit 10.34
to the Company's Registration Statement on Form S-1 as
declared effective by the Commission on December 20, 1995.
10.27 Service Agreement, dated as of April 5, 1995, between CSC-UK,
incorporated by reference to Exhibit 10.35 to the Company's
Registration Statement on Form S-1 as declared effective by
the Commission on December 20, 1995.
11.1* Computation of Earnings Per Share
21.1* Subsidiaries of the Company
23.1* Consent of KPMG Peat Marwick LLP
23.2* Consent of BDO Stoy Hayward
27.1* Financial Data Schedule for the year ended December 31, 1997
* Filed herewith.
97
<PAGE> 1
EXHIBIT 10.20
MASTER LOAN AND SECURITY AGREEMENT
-----------------------------
DATED AS OF JANUARY 1, 1997
------------------------------
CITYSCAPE CORP.
AS BORROWER
AND
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
AS LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS 1
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS 1
1.01 CERTAIN DEFINED TERMS 1
1.02 ACCOUNTING TERMS AND DETERMINATIONS 12
SECTION 2. LOANS, NOTE AND PREPAYMENTS 12
2.01 LOANS 12
2.02 NOTES 13
2.03 PROCEDURE FOR BORROWING 13
2.04 LIMITATION ON TYPES OF LOANS; ILLEGALITY 14
2.05 REPAYMENT OF LOANS; INTEREST 14
2.06 MANDATORY PREPAYMENTS OR PLEDGE 15
2.07 OPTIONAL PREPAYMENTS 15
2.08 INDEMNITY 16
2.09 REQUIREMENTS OF LAW 16
2.10 TAXES 17
2.11 EXTENSION OF TERMINATION DATE 18
SECTION 3 PAYMENTS; COMPUTATIONS; ETC. 18
3.01 PAYMENTS 18
3.02 COMPUTATIONS 18
SECTION 4. COLLATERAL SECURITY 18
4.01 COLLATERAL; SECURITY INTEREST 18
4.02 FURTHER DOCUMENTATION 20
4.03 CHANGES IN LOCATIONS, NAME, ETC. 20
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
4.04 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT 20
4.05 PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS 21
4.06 PROCEEDS 22
4.07 REMEDIES 22
4.08 LIMITATION ON DUTIES REGARDING PRESENTATION OF COLLATERAL 23
4.09 POWERS COUPLED WITH AN INTEREST 23
4.10 RELEASE OF SECURITY INTEREST 23
SECTION 5. CONDITIONS PRECEDENT 23
5.01 INITIAL LOAN 23
5.02 INITIAL AND SUBSEQUENT LOANS 24
SECTION 6. REPRESENTATIONS AND WARRANTIES 25
6.01 EXISTENCE 25
6.02 LITIGATION 25
6.03 NO BREACH 25
6.04 ACTION 26
6.05 APPROVALS 26
6.06 GOOD STANDING 26
6.07 COLLATERAL; COLLATERAL SECURITY 26
6.08 CHIEF EXECUTIVE OFFICE 27
6.09 INSURANCE 27
6.10 FHA SERVICING 27
6.11 FINANCIAL STATEMENTS 27
6.12 ERISA 27
6.13 ACCURACY OF INFORMATION 27
6.14 LOAN DOCUMENTS 28
6.15 COMPLIANCE WITH LAW, ETC 28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
6.16 SOLVENCY; FRAUDULENT CONVEYANCE 28
6.17 INVESTMENT COMPANY ACT COMPLIANCE 28
6.18 TAXES 28
6.19 LICENSES 28
6.20 MARGIN REGULATIONS 28
SECTION 7. COVENANTS OF THE BORROWER 28
7.01 FINANCIAL STATEMENTS 28
7.02 REPORTS 29
7.03 COMPLIANCE WITH LAWS 29
7.04 EXISTENCE, ETC. 29
7.05 ADEQUATE CAPITAL 29
7.06 NOTICES 29
7.07 COMPLIANCE WITH CUSTODIAL AGREEMENT 30
7.08 BORROWING BASE DEFICIENCY 30
7.09 INSPECTION OF BOOKS AND RECORDS 30
7.10 NO ASSIGNMENT 30
7.11 NO AMENDMENT TO CORPORATE DOCUMENTS 30
7.12 NO CHANGE OF CONTROL 30
7.13 LIMITATION ON LINES OF BUSINESS 30
7.14 LIMITATION ON DISTRIBUTIONS 30
7.15 LIMITATION ON GUARANTEES 31
7.16 LIMITATION ON LIENS 31
7.17 FHA APPROVED MORTGAGEE 31
7.18 FINANCIAL CONDITION COVENANTS 31
7.19 NOTICE IF MORTGAGE ASSET IS FOUND DEFECTIVE 31
7.20 PROHIBITION OF FUNDAMENTAL CHANGES 32
7.21 LIMITATION ON TRANSACTIONS WITH AFFILIATES 32
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
7.22 UNDERWRITING GUIDELINES 32
7.23 SERVICING TAPE 32
7.24 BORROWING BASE CERTIFICATE 32
7.25 AUTHORIZED OFFICERS 32
7.26 PORTFOLIO PERFORMANCE 32
SECTION 8. EVENTS OF DEFAULT 32
SECTION 9. REMEDIES UPON DEFAULT 35
SECTION 10. NO DUTY OF LENDER 35
SECTION 11. MISCELLANEOUS 35
11.01 WAIVER 35
11.02 NOTICES 35
11.03 INDEMNIFICATION AND EXPENSES 36
11.04 AMENDMENTS 37
11.05 SUCCESSORS AND ASSIGNS 37
11.06 SURVIVAL 37
11.07 CAPTIONS 37
11.08 COUNTERPARTS 37
11.09 LOAN AGREEMENT CONSTITUTES SECURITY AGREEMENT; GOVERNING LAW 37
11.10 SUBMISSION TO JURISDICTION; WAIVERS 37
11.11 WAIVER OF JURY TRIAL 38
11.12 ACKNOWLEDGMENTS 38
11.13 HYPOTHECATION OR PLEDGE OF LOANS 38
11.14 ASSIGNMENTS, PARTICIPATIONS 38
11.15 SERVICING 39
11.16 PERIODIC DUE DILIGENCE REVIEW 41
</TABLE>
-iv-
<PAGE> 6
SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Assets
SCHEDULE 2 Filing Jurisdictions and Offices
SCHEDULE 3 List of Settlement Agents
SCHEDULE 4 Authorized Representatives of the Borrower
SCHEDULE 5 Schedule of Non-Performing Loans
EXHIBITS
EXHIBIT A CoreStates Custodial Agreement
EXHIBIT B First Trust Custodial Agreement
EXHIBIT C Form of Opinion of Counsel
to Borrower
EXHIBIT D Form of Request for Borrowing
EXHIBIT E Underwriting Guidelines for Home Equity Loans and Home
Improvement Loans
EXHIBIT F Underwriting Guidelines for SM/MU Assets
EXHIBIT G Underwriting Guidelines for High LTV Assets
EXHIBIT H Whole Loan Agreement
EXHIBIT I Intentionally Omitted
EXHIBIT J Intentionally Omitted
EXHIBIT K Form of Borrowing Base Certificate
EXHIBIT L Document Exception Codes
ANNEXES
Annex I Non-Performing Loan Subline Terms
Annex II Wet Loan Subline Terms
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<PAGE> 7
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of January 1,
1997, between CITYSCAPE CORP., a New York corporation (the "Borrower"), and
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation (the
"Lender").
RECITALS
Heretofore, the Borrower and the Lender have entered into
that certain Amended and Restated Purchase and Sale Agreement, dated as of
February 2, 1996 (the "Existing Agreement"), pursuant to which the Borrower
pledged to the Lender certain Previously Pledged Mortgage Assets. The Borrower
and the Lender are entering into this Agreement, which supersedes the Existing
Agreement and is a continuation of the agreement set forth therein, as amended
and modified herein.
The Borrower has requested that the Lender from time to
time make revolving credit loans to it to finance certain Eligible Assets (as
defined below) owned by the Borrower, and the Lender is prepared to make such
loans upon the terms and conditions hereof and Annexes I and II hereto as
applicable. Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Act" shall mean the National Housing Act, as amended from
time to time.
"Affiliate" shall mean any "affiliate" of the Borrower or
Lender, as applicable, as such term is defined in the Bankruptcy Code in effect
from time to time.
"Affiliate Guaranty" shall mean that certain Affiliate
Guaranty dated as of the date hereof, made by Cityscape Financial Corp. in favor
of the Lender, as amended from time to time.
"Applicable Collateral Percentage" shall mean a percentage
to be agreed between the Lender and Borrower, which percentage shall be as set
forth below:
<TABLE>
<CAPTION>
PRODUCT %
------- -
<S> <C>
Home Equity Mortgage Assets 100
High LTV Assets
FICO LESS THAN 600 (until 12/15/97) 80
FICO LESS THAN 600 (after 12/15/97) 70
FICO 600-620 90
FICO MORE THAN 620 98
SM/MU Assets 100
FHA Assets 100*
Home Improvement Assets 100*
</TABLE>
- 1 -
<PAGE> 8
*Applicable to loans funded by Lender prior to the Effective Date.
"Applicable Margin" shall mean 1.50% per annum.
"Appraised Value" shall mean the value set forth in an
appraisal made in connection with the origination of the related Mortgage Asset
as the value of the Mortgaged Property.
"Attorney Bailee Letter" shall have the meaning assigned to
such term in the First Trust Custodial Agreement.
"Bankruptcy Code" shall mean the United States Bankruptcy
Code of 1978, as amended from time to time.
"Borrower" shall have the meaning provided in the heading
hereof.
"Borrowing Base" shall mean the aggregate Collateral Value
of all Eligible Assets.
"Borrowing Base Certificate" shall mean the certificate
delivered pursuant to Section 7.25 hereof, substantially in the form of Exhibit
K attached hereto.
"Borrowing Base Deficiency" shall have the meaning provided
in Section 2.06 hereof.
"Business Day" shall mean any day other than (i) a Saturday
or Sunday or (ii) a day on which the New York Stock Exchange, the Federal
Reserve Bank of New York, banking and savings and loans institutions in the
states of New York or Connecticut or the Custodian is authorized or obligated by
law or executive order to be closed.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Change of Control" shall mean either (i) either Robert
Patent or Steve Miller leave the employ of Borrower or (ii) there occurs a
change of "control" of Borrower or the Guarantor, as applicable, as such term is
defined in the Securities Exchange Act of 1934, as amended.
"Collateral" shall have the meaning provided in Section
4.01(b) hereof.
"Collateral Value" shall mean, with respect to each
Mortgage Asset, the lesser of (a) the Applicable Collateral Percentage
multiplied by the outstanding principal balance of such Mortgage Asset and (b)
the Market Value of such Mortgage Asset; provided, that
(i) the Collateral Value shall be deemed to be zero with
respect to each Mortgage Asset as to which the Lender reasonably determines:
(1) in respect of which there is a
material breach of a representation and warranty set forth
on Schedule 1 (assuming each representation and warranty is
made as of the date Collateral Value is determined),
- 2 -
<PAGE> 9
(2) in respect of which there is a
delinquency in the payment of principal and/or interest
which continues for a period in excess of 59 days (without
regard to any applicable grace periods),
(3) subject to clause (5) below,
which remains pledged to the Lender hereunder later than
120 days after the date on which it is first included in
the Collateral,
(4) which has been released from the
possession of the Custodian under the applicable Custodial
Agreement to the Borrower for a period in excess of 14
days,
(5) which is a Previously Pledged
Mortgage Asset which remains pledged to the Lender
hereunder later than 120 days after the date on which it
was funded under the Existing Agreement, or December 31,
1997, whichever is later,
(6) which is an FHA Asset pledged to
the Lender hereunder after December 31, 1997,
(7) as to which (A) the related
Mortgage Note or the related Mortgage is not genuine or is
not the legal, valid, binding and enforceable obligation of
the maker thereof, subject to no right of rescission,
set-off, counterclaim or defense, or (B) such Mortgage, is
not a valid, subsisting, enforceable and perfected first,
second or third lien on the Mortgaged Property,
(8) in respect of which the related
Mortgage Note has been extinguished under relevant state
law in connection with a judgment of foreclosure or
foreclosure sale or otherwise,
(9) in respect of which the related
Mortgaged Property is the subject of a foreclosure
proceeding, or
(10) in respect of which the related
Mortgagor is the subject of a bankruptcy proceeding.
(ii) the aggregate Collateral Value of Mortgage Assets
which are SM/MU Assets may not exceed $50,000,000;
(iii) the aggregate Collateral Value of FHA Assets may not
exceed $10,000,000; and
(iv) the aggregate Collateral Value of Delinquent Mortgage
Assets may not exceed $15,000,000.
"Custodial Agreement" shall mean either (i) the First Trust
Custodial Agreement or (ii) the Wet Loan Custodial Agreement.
"Custodian" shall mean (i) with respect to the First Trust
Custodial Agreement, First Trust National Association and its successors and
permitted assigns thereunder and (ii) with respect to the Wet Loan Custodial
Agreement, the Wet Loan Custodian (as defined in Annex II), and its successors
and permitted assigns thereunder.
- 3 -
<PAGE> 10
"Default" shall mean an Event of Default or an event that
with notice or lapse of time or both would become an
Event of Default.
"Delinquent Mortgage Asset" shall mean an Eligible Asset
for which the applicable Monthly Payment is more than 29 days, but no more than
59 days delinquent and with respect to which the related Mortgaged Property is
not the subject of a foreclosure proceeding and with respect to which the
related Mortgagor is not the subject of a bankruptcy proceeding.
"Dollars" and "$" shall mean lawful money of the United
States of America.
"Due Date" means the day of the month on which the Monthly
Payment is due on a Mortgage Asset, exclusive of any days of grace.
"Due Diligence Review" shall mean the performance by the
Lender of any or all of the reviews permitted under Section 11.16 hereof with
respect to any or all of the Mortgage Assets, as desired by the Lender from time
to time.
"Effective Date" shall mean the date upon which the
conditions precedent set forth in Section 5.01 shall have
been satisfied.
"Eligible Asset" shall mean a Mortgage Asset secured by a
first, second or third mortgage lien on a one-to-four family residential
property or small multi-family residence/mixed-use property, as to which the
representations and warranties in Section 6.07 and in Schedule 1, as applicable,
hereof are correct in all material respects.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code of which the Borrower is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Borrower is a member.
"Event of Default" shall have the meaning provided in
Section 8 hereof.
"Exception" shall have the meaning provided for such term
in the First Trust Custodial Agreement.
"Exception Report" shall mean the exception report prepared
by the Custodian pursuant to the applicable Custodial Agreement.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the Lender from
three federal funds brokers of recognized standing selected by it.
- 4 -
<PAGE> 11
"FHA" shall mean the Federal Housing Administration, an
agency within the United States Department of Housing and Urban Development, or
any successor thereto and including the Federal Housing Commissioner and the
Secretary of Housing and Urban Development where appropriate under the FHA
Regulations.
"FHA Approved Mortgagee" shall mean a corporation or
institution approved as a Title I mortgagee by HUD under the Act, and applicable
FHA Regulations, and eligible to own and service mortgage loans such as the FHA
Assets.
"FHA Asset" shall mean a Home Improvement Asset which is
the subject of FHA Mortgage Insurance.
"FHA Mortgage Insurance" shall mean mortgage insurance
authorized under Title I of the Act and provided by the FHA.
"FHA Regulations" shall mean regulations promulgated by HUD
under the National Housing Act, codified in 24 Code of Federal Regulations, and
other HUD issuances relating to FHA Assets, including the related handbooks,
circulars, notices and mortgagee letters.
"Financial Statements" shall mean those documents to be
delivered pursuant to Section 7.02 hereof.
"First Trust Custodial Agreement" shall mean that certain
Custodial Agreement, dated as of the date hereof, among the Borrower, First
Trust National Association and the Lender, substantially in the form of Exhibit
B, as the same shall be modified and supplemented and in effect from time to
time.
"Funding Date" shall mean the date on which a Loan is made
hereunder.
"GAAP" shall mean generally accepted accounting principles
as in effect from time to time in the United States.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any court or arbitrator having
jurisdiction over the Borrower, any of its Subsidiaries or any of its
properties.
"Guarantee" shall mean, as to any Person, any obligation of
such Person directly or indirectly guaranteeing any Indebtedness of any other
Person or in any manner providing for the payment of any Indebtedness of any
other Person or otherwise protecting the holder of such Indebtedness against
loss (whether by virtue of partnership arrangements, by agreement to keep-well,
to purchase assets, goods, securities or services, or to take-or-pay or
otherwise); provided that the term "Guarantee" shall not include (i)
endorsements for collection or deposit in the ordinary course of business, or
(ii) obligations to make servicing advances for delinquent taxes and insurance
or other obligations in respect of a Mortgaged Property, to the extent required
by the Lender. The amount of any Guarantee of a Person shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs
shall have correlative meanings.
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<PAGE> 12
"Guarantor" shall mean Cityscape Financial Corp., its
permitted successors and assigns.
"High LTV Asset" shall mean a Mortgage Asset underwritten
in accordance with the Borrower's Sav-a-Loan underwriting guidelines attached as
Exhibit G hereto.
"Home Equity Mortgage Asset" shall mean all of Borrower's
right, title and interest in and to a mortgage loan secured by a mortgage on a
one- to four-family residence, which shall bear either fixed or adjustable rates
of interest and shall have been underwritten in accordance with the underwriting
guidelines attached as Exhibit E or otherwise approved by Lender, other than a
High LTV Asset, Home Improvement Asset or SM/MU Asset.
"Home Improvement Asset" shall mean all of Borrower's
right, title and interest in and to a conventional or Title I home improvement
loan secured by a mortgage on a one- to four-family residence which shall have
been underwritten in accordance with the underwriting guidelines attached as
Exhibit E or otherwise approved by Lender.
"HUD" shall mean the Department of Housing and Urban
Development, or any federal agency or official thereof which may from time to
time succeed to the functions thereof with regard to FHA Mortgage Insurance. The
term "HUD," for purposes of this Agreement, is also deemed to include
subdivisions thereof such as the FHA.
"Indebtedness" shall mean, for any Person: (i)(a)
obligations created, issued or incurred by such Person for borrowed money
(whether by loan, the issuance and sale of debt securities or the sale of
Property to another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such Property from such Person); (b) obligations of
such Person to pay the deferred purchase or acquisition price of Property or
services, other than trade accounts payable (other than for borrowed money)
arising, and accrued expenses incurred, in the ordinary course of business so
long as such trade accounts payable are payable within 120 days of the date the
respective goods are delivered or the respective services are rendered; (c)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective Indebtedness so secured has been assumed by such Person;
(d) obligations (contingent or otherwise) of such Person in respect of letters
of credit or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of such
Person; (f) obligations of such Person under repurchase agreements or like
arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all
obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner minus (ii) securities
sold but not yet purchased.
"Interest Period" shall mean, with respect to any Loan,
each period commencing on the date such Loan is made and ending on the date one
month thereafter, except that each Interest Period that commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may begin before and end
after the Termination Date; (ii) each Interest Period that would otherwise end
on a day that is not a Business Day shall end on the next succeeding Business
Day (or, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) notwithstanding
clause (i) above, no Interest Period for any Loan of
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one month shall have a duration of less than one month and, if the Interest
Period for any Loan would otherwise be a shorter period, such Loan shall not be
available for such period.
"Interest Rate Protection Agreement" shall mean, with
respect to any or all of the Mortgage Assets, any interest rate swap, cap or
collar agreement or similar arrangements or any other transaction including,
without limitation, the sale of United States treasury securities, providing
for, in each case, protection against fluctuations in interest rates or the
exchange of nominal interest obligations, either generally or under specific
contingencies, entered into by the Borrower with an Affiliate of the Lender or
such other Person acceptable to the Lender and reasonably acceptable to the
Lender.
"Lender" shall have the meaning provided in the heading
hereto.
"LIBO Reserve Requirements" shall mean for any Interest
Period for any Loan and for any Lender as to which LIBO Reserve Requirements are
actually required to be maintained, the aggregate (without duplication) of the
rates (expressed as a decimal fraction) of reserve requirements in effect on
such day or during such Interest Period, as applicable (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto), dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such Governmental Authority.
"LIBO Base Rate" shall mean for any Loan, with respect to
each day during each Interest Period pertaining to such Loan, the rate per annum
equal to the rate appearing at page 3750 of the Telerate Screen as the one-month
LIBOR on the first day of such Interest Period, and if such rate shall not be so
quoted, the rate per annum at which the Lender is offered Dollar deposits at or
about 11:00 a.m., New York City time, on such date by prime banks in the
interbank eurodollar market where the eurodollar and foreign currency exchange
operations in respect of its Loans are then being conducted for delivery on such
day for a period of one month, and in an amount comparable to the amount of the
Loans to be outstanding on such day.
"LIBO Rate" shall mean with respect to each day during each
Interest Period pertaining to a Loan, a rate per annum determined by the Lender
in its sole good-faith discretion in accordance with the following formula
(rounded upwards to the nearest 1/100th of one percent), which rate as
determined by the Lender shall be conclusive absent manifest error by the Lender
equal to:
LIBO Base Rate
----------------------------------------
1.00 - LIBO Reserve Requirements
"Lien" shall mean any mortgage, lien, pledge, charge,
security interest or similar encumbrance.
"Loan" shall have the meaning provided in Section 2.01(a)
hereof.
"Loan Agreement" shall mean this Master Loan and Security
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.
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<PAGE> 14
"Loan Balance" shall mean, with respect to each Mortgage
Asset and any related Loan, the original principal balance of such Loan made in
respect of such Mortgage Asset reduced in accordance with Section 2.06 hereof.
"Loan Documents" shall mean, collectively, this Loan
Agreement, the First Trust Custodial Agreement, the Wet Loan Custodial Agreement
and the Affiliate Guaranty.
"Market Value" shall mean, as of any date in respect of an
Eligible Asset, the price at which such Eligible Asset could readily be sold as
determined in good faith by the Lender, which price may be determined to be zero
taking into account such factors as are usual and customary in the industry. The
Lender's determination of Market Value shall be conclusive upon the parties
absent manifest error on the part of the Lender.
"Material Adverse Effect" shall mean a material adverse
effect on (a) the Property, business, operations, financial condition or
prospects of the Borrower, (b) the ability of the Borrower to perform its
obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability of any of the Loan Documents, (d) the rights and
remedies of the Lender under any of the Loan Documents, (e) the timely payment
of the principal of or interest on the Loans or other amounts payable in
connection therewith or (f) the Collateral.
"Material Exception" shall mean, with respect to any
Mortgage Loan, any Exception listed on an Exception Report consisting of the
absence from the Mortgage File, or deficiency in respect of, any of the fatal
exceptions for Mortgage Asset Documents as set forth with an "F" in the document
exception codes attached as Exhibit L hereto.
"Maximum Credit" shall mean the excess of (i) $400,000,000
over (ii) the aggregate amount of any other indebtedness of the Borrower or its
Affiliates to Lender or its Affiliates.
"Maximum Facility Borrowings" shall mean the maximum
aggregate amount of Loans which may be borrowed by the Borrower over the term of
this Agreement (without taking into account any repayments of Loans by the
Borrower) which shall equal $3,000,000,000.
"Monoline Insurance Company" shall mean Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty Insurance Company
("FGIC"), Capital Markets Assurance Corporation ("CapMAC"), Financial Security
Assurance Inc. ("FSA"), GE Mortgage Insurance Company ("GEMICO") or AMBAC
Indemnity Corporation ("AMBAC").
"Monthly Payment" means the scheduled monthly payment of
principal and interest on a Mortgage Asset as adjusted in accordance with
changes in the Mortgage Interest Rate pursuant to the provisions of the Mortgage
Note for an adjustable rate Mortgage Asset.
"Mortgage" shall mean the mortgage, deed of trust or other
instrument securing a Mortgage Note, which creates a first, second or third lien
on the fee in real property or in a leasehold interest securing the Mortgage
Note and, if applicable, the assignment of rents and leases related thereto.
"Mortgage Asset" shall mean a Home Equity Mortgage Asset, a
High LTV Asset, an FHA Asset or a SM/MU Asset, including without limitation all
Previously Pledged Mortgage Assets which the Custodian has been instructed to
hold for the Lender pursuant to the applicable Custodial Agreement, and which
Mortgage Asset includes, without limitation, (i) a Mortgage Note and related
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<PAGE> 15
Mortgage and (ii) all right, title and interest of the Borrower in and to the
Mortgaged Property covered by such Mortgage.
"Mortgage Asset Documents" shall mean, with respect to a
Mortgage Asset, the documents comprising the Mortgage File for such Mortgage
Asset.
"Mortgage Asset Schedule" shall mean a schedule of Mortgage
Assets containing the following information with respect to each Mortgage Asset,
to be delivered by the Borrower to the Lender pursuant to Section 2.03(a)
hereof: (i) the Borrower's Mortgage Asset number; (ii) the Mortgagor's name and
the street address; (iii) a code indicating whether such Mortgage Asset is a
Home Equity Mortgage Asset, a High LTV Asset, an FHA Asset or an SM/MU Asset;
(iv) the current principal balance of the Mortgage Note; (v) the original
principal amount of the Mortgage Note with respect to any Mortgage Asset
originated by the Borrower and the principal amount of the Mortgage Note
purchased by the Borrower with respect to a Mortgage Asset acquired by the
Borrower subsequent to its origination; (vi) the combined loan-to-value ratio as
of the date of the origination of the related Mortgage Asset; (vii) the paid
through date; (viii) the mortgage interest rate; (ix) the final maturity date
under the Mortgage Note; (x) the Monthly Payment; (xi) the lien position of such
Mortgage Asset; (xii) a field indicating whether the Mortgage Asset is a
Delinquent Mortgage Asset; and (xiii) such other tape fields as shall be
mutually agreed upon by Borrower and Lender.
"Mortgage File" shall have the meaning assigned thereto in
the First Trust Custodial Agreement.
"Mortgage Interest Rate" means the annual rate of interest
borne on a Mortgage Note, which shall be adjusted from time to time with respect
to adjustable rate Mortgage Assets.
"Mortgage Note" shall mean the original executed promissory
note or other evidence of the indebtedness of a mortgagor/borrower with respect
to a Mortgage Asset.
"Mortgaged Property" shall mean the real property
(including all improvements, buildings, fixtures, building equipment and
personal property thereon and all additions, alterations and replacements made
at any time with respect to the foregoing) and all other collateral securing
repayment of the debt evidenced by a Mortgage Note.
"Mortgagor" shall mean the obligor on a Mortgage Note.
"Multiemployer Plan" shall mean a multiemployer plan
defined as such in Section 3(37) of ERISA to which contributions have been or
are required to be made by the Borrower or any ERISA Affiliate and that is
covered by Title IV of ERISA.
"Other Agreements" shall mean any other agreement between
Borrower and the Lender or any of its Affiliates, whether now existing or
hereafter entered into, as any such agreement may be amended, supplemented or
otherwise modified from time to time.
"Pass-Through Transfer" shall mean the sale or transfer of
some or all of the Eligible Assets to a trust to be formed as part of a publicly
or privately traded pass-through transaction, which transaction may contain
certain requirements of and be rated by one or more statistical credit rating
agencies.
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<PAGE> 16
"Payoff" shall mean, with respect to any Mortgage Asset,
repayment by the applicable Mortgagor of all outstanding principal thereunder
together with all interest accrued thereon to the date of such repayment and any
penalty or premium thereon.
"Payoff Proceeds" shall mean, with respect to any Mortgage
Asset, all funds received from the applicable Mortgagor in connection with a
Payoff.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
or any entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, limited liability company,
trust, unincorporated association or government (or any agency, instrumentality
or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan
established or maintained by the Borrower or any ERISA Affiliate and covered by
Title IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal
of any Loan or any other amount under this Loan Agreement or any other Loan
Document that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2.5% per annum plus the Prime
Rate except that payments made one Business Day late shall bear interest at the
Federal Funds rate then in effect plus any customary margin.
"Previously Pledged Mortgage Asset" shall mean a Mortgage
Asset pledged to the Lender on or after January 1, 1997, under the Existing
Agreement, which Mortgage Asset remained pledged to the Lender immediately prior
to the Effective Date.
"Prime Rate" shall mean the prime rate announced to be in
effect from time to time, as published as the average rate in The Wall Street
Journal.
"Principal Paydowns" shall mean, with respect to any
Mortgage Asset, any payment or other recovery of principal on such Mortgage
Asset (other than Payoff Proceeds), which is received by or on behalf of the
Borrower, including any penalty or premium thereon.
"Property" shall mean any right or interest in or to
property of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible.
"Reference Bank" shall mean three major banks that are
engaged in the London interbank market, as selected by the Lender.
"Requirement of Law" shall mean as to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer" shall mean, as to any Person, the
chief executive officer or, with respect to financial matters, the chief
financial officer of such Person.
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<PAGE> 17
"SEC" shall mean the Securities and Exchange Commission and
any successor thereto.
"Secured Obligations" shall have the meaning provided in
Section 4.01(c) hereof.
"Servicer" shall have the meaning provided in Section
11.15(c) hereof.
"Servicing Agreement" shall have the meaning provided in
Section 11.15 hereof.
"Servicing Records" shall have the meaning provided in
Section 11.15(b) hereof.
"Shareholders' Equity" shall mean the sum of (i) the
aggregate "assets" of Borrower or Guarantor, as applicable, less the aggregate
"liabilities" of Borrower or Guarantor, as applicable, with the term "asset"
having the meaning ascribed to such term by GAAP and the term "liabilities"
being those obligations or liabilities of Borrower or Guarantor, as applicable,
which, in accordance with GAAP, would be included on the liability side of
Borrower's, or Guarantor's, as applicable, balance sheet plus (ii) the
Subordinated Debt of Borrower or Guarantor, as applicable, in accordance with
GAAP plus (iii), in the case of the Borrower, advances or loans from the
Guarantor, minus (a) any surplus from the write-up of assets subsequent to
December 31, 1996; (b) goodwill, including any amounts (however designated on
the balance sheet) representing the cost of acquisitions of Subsidiaries in
excess of underlying tangible assets; (c) patents, trademarks, copyrights; (d)
leasehold improvements not recoverable at the expiration of a lease; (e)
deferred charges (including, but not limited to, unamortized debt discount and
expense, organization expenses and experimental and development expenses, but
excluding prepaid expenses); and (f) advances or loans to shareholders, officers
or Affiliates (other than any Subsidiary of the Borrower) of such Person.
"SM/MU Asset" shall mean all of Borrower's right, title and
interest in and to a small residential multi-family residence or mixed-use
mortgage loan which bears a fixed rate of interest and which was underwritten in
accordance with the underwriting guidelines attached as Exhibit F or otherwise
approved by Lender, and which shall not exceed $1,000,000 in original principal
balance, unless otherwise agreed to by Lender and Borrower.
"Subordinated Debt" shall mean Indebtedness of the Borrower
or Guarantor, as applicable, which (a) is subordinated to other Indebtedness and
liabilities of the Borrower or Guarantor, (b) has a maturity of at least three
years and (c) as a percentage of total Shareholder's Equity does not exceed 50%.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Termination Date" shall mean December 31, 1997 or such
earlier date on which this Loan Agreement shall terminate in accordance with the
provisions hereof or by operation of law or such later date established in
accordance with Section 2.11 hereof.
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<PAGE> 18
"Underwriting Guidelines" shall mean the underwriting
guidelines as in effect on the Effective Date, attached as Exhibits E , F and G
hereto, except that with respect to Schedule I, "Underwriting Guidelines" shall
mean the underwriting guidelines in effect as of the date of origination of the
Mortgage Asset.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect on the date hereof in the State of New York; provided that if
by reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.
"Unsecured Debt" shall mean as of any date of
determination, the dollar amount of all obligations and liabilities of Borrower
which, (i) in accordance with GAAP, would be included in determining total
liabilities as shown on the liability side of Borrower's balance sheet and (ii)
are not secured by the grant of a lien upon or security interest in, any
collateral.
"Unsecured Debt to Equity Ratio" shall mean the ratio of
total Unsecured Debt of Borrower to its Shareholders' Equity.
"Wet Loan Custodial Agreement" shall have the meaning set
forth in Annex II.
"Wet Loan Custodian" shall have the meaning set forth in
Annex II.
"Whole Loan Transfer" shall mean the sale or transfer to a
third party of some or all of the Eligible Assets in a whole loan format or a
certificated participation format.
1.02 Accounting Terms and Determinations. Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
Section 2. Loans and Prepayments.
2.01 Loans.
(a) Subject to fulfillment of the conditions precedent set
forth in Sections 5.01 and 5.02 hereof, and provided that no Default shall have
occurred and be continuing hereunder, the Lender agrees from time to time, on
the terms and conditions of this Loan Agreement, to make loans (individually, a
"Loan"; collectively, the "Loans") to the Borrower in Dollars, from and
including the Effective Date to and including the Termination Date in an
aggregate principal amount at any one time outstanding up to but not exceeding
the Maximum Credit as in effect from time to time.
(b) Subject to the terms and conditions of this Loan
Agreement, during such period the Borrower may borrow, repay and reborrow
hereunder.
(c) In no event shall a Loan be made when any Default or
Event of Default has occurred and is continuing.
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<PAGE> 19
(d) In no event shall a Loan be made if making such Loan
would cause the Maximum Facility Borrowings to be exceeded.
2.02 Evidence of Indebtedness.
The Loans made by the Lender shall be evidenced by notation
thereof by the Lender on its books and records, which notation of books and
records shall be deemed conclusive evidence of the indebtedness owed Lender by
Borrower hereunder absent manifest error. The date, amount and interest rate of
each Loan made by the Lender to the Borrower, and each payment made on account
of the principal thereof, shall be recorded by the Lender on its books; provided
that the failure of the Lender to make any such recordation shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
hereunder in respect of the Loans. Upon request of the Lender, the Borrower
shall execute and deliver a promissory note evidencing the indebtedness of the
Borrower incurred hereunder. The failure of the Lender to make such a request
shall in no way impair the Lender's rights or reduce the Borrower's obligations
hereunder.
2.03 Procedure for Borrowing.
(a) The Borrower may request a borrowing hereunder, on any
Business Day during the period from and including the Effective Date to and
including the Termination Date, by delivering to the Lender, with a copy to the
Custodian, an irrevocable written request for borrowing substantially in the
form of Exhibit D hereto ("Request for Borrowing"), which Request for Borrowing
must be received by the Lender prior to 4:00 p.m., New York City time at least
one (1) Business Day prior to the requested Funding Date. Such Request for
Borrowing shall (i) attach a Mortgage Asset Schedule (in hard copy, accompanied
by a data transmission in a form agreed to by the Borrower and the Lender)
identifying the Eligible Assets that the Borrower proposes to pledge to the
Lender and to be included in the Borrowing Base in connection with such
borrowing (ii) specify the requested Funding Date, (iii) such other matters as
may be specified on the form of the Request for Borrowing or as may be
reasonably requested by Lender from time to time in accordance with the terms
hereof and (iv) shall be signed by one of the officers of the Borrower
identified in Schedule 4 hereto as it may be amended from time to time in
accordance with Section 7.26 hereof. Each Loan (A) secured by Home Equity
Mortgage Assets or High LTV Assets shall be in a minimum amount equal to
$1,000,000 and (B) secured by FHA Assets shall be in a minimum amount equal to
$500,000. Unless otherwise agreed to by Lender, no single Request for Borrowing
shall include a pledge of both (i) Home Equity Mortgage Assets, High LTV Assets
and/or FHA Assets and (ii) SM/MU Assets. Borrower shall indemnify Lender and
hold it harmless against any Losses incurred by Lender as a result of any
failure by Borrower to timely deliver the Eligible Assets subject to such
Request for Borrowing.
(b) Upon the Borrower's Request for Borrowing pursuant to
Section 2.03(a), the Lender shall, assuming all conditions precedent set forth
in Section 5.01 and 5.02 have been met and provided no Default shall have
occurred and be continuing, make a Loan to the Borrower on the requested Funding
Date, in the amount so requested.
(c) The Borrower shall deliver (or cause to be delivered)
and release to the Custodian no later than 4:00 p.m., New York City time, three
(3) Business Days prior to the requested Funding Date, the Mortgage File
pertaining to each Eligible Asset to be pledged to the Lender and included in
the Borrowing Base on such requested Funding Date, in accordance with the terms
and conditions of the applicable Custodial Agreement.
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<PAGE> 20
(d) Pursuant to the First Trust Custodial Agreement, First
Trust shall deliver to the Lender and the Borrower, no later than 1:00 p.m., New
York City time, on a Funding Date, a Trust Receipt (as defined in the applicable
Custodial Agreement) in respect of all Mortgage Assets pledged to the Lender on
such Funding Date, and a Mortgage Asset Schedule and Exception Report. Subject
to Section 5 hereof, such borrowing will then be made available to the Borrower
by the Lender transferring, via wire transfer to the account designated by the
Borrower, in the aggregate amount of such borrowing in funds immediately
available to the Borrower.
(e) Upon the Borrower's request, the Lender shall deliver
to the Borrower (i) prior to the close of business on each Business Day, by fax,
a daily activity report with respect to the activity under the facility provided
for hereunder, in such form and containing such information as the Borrower and
Lender may from time to time mutually agree, and (ii) not less frequently than
weekly, by fax, a summary of the activity disclosed for such week in the daily
activity reports delivered pursuant to clause (i) of this Section 2.03(e).
2.04 Limitation on Types of Loans; Illegality. Anything
herein to the contrary notwithstanding, if, on or prior to the determination of
any LIBO Base Rate:
(a) the Lender determines, which determination shall be
conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "LIBO Base Rate" in Section
1.01 hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
Loans as provided herein; or
(b) the Lender determines, in good faith, which
determination shall be conclusive, that the relevant rate of interest
referred to in the definition of "LIBO Base Rate" in Section 1.01
hereof upon the basis of which the rate of interest for Loans is to
be determined is not likely adequately to cover the cost to the
Lender of making or maintaining Loans; or
(c) it becomes unlawful for the Lender to honor its
obligation to make or maintain Loans hereunder using a LIBO Rate;
then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall, following discussions with
the Borrower, select in good faith an index that approximates as closely as
reasonably practicable the LIBO Base Rate.
2.05 Repayment of Loans; Interest.
(a) The Borrower hereby promises to repay in full on the
Termination Date the then aggregate outstanding principal amount of the Loans.
(b) The Borrower hereby promises to pay to the Lender
interest on the unpaid principal amount of each Loan for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full, at a rate per annum equal to the LIBO Rate plus the Applicable
Margin. Notwithstanding the foregoing, the Borrower hereby promises to pay to
the Lender interest at the applicable Post-Default Rate on any principal of any
Loan and on any other amount payable by the Borrower hereunder that shall not be
paid in full when due (whether at stated maturity, by acceleration or by
mandatory prepayment or otherwise) for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable monthly 25th calendar day of each month
and for the last month of the Loan
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Agreement on the 25th calendar day of such last month and on the Termination
Date, except that interest payable at the Post-Default Rate shall accrue daily
and shall be payable upon such accrual. Promptly after the determination of any
interest rate provided for herein or any change therein, the Lender shall give
notice thereof to the Borrower.
2.06 Mandatory Prepayments or Pledge.
(a) If at any time the aggregate outstanding principal
amount of Loans exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as
determined by the Lender and notified to the Borrower on any Business Day, the
Borrower shall no later than one Business Day after receipt of such notice,
either prepay the Loans in part or in whole or pledge additional Eligible Assets
(which Collateral shall be in all respects acceptable to the Lender) to the
Lender, such that after giving effect to such prepayment or pledge the aggregate
outstanding principal amount of the Loans does not exceed the Borrowing Base.
(b) No later than two (2) Business Days following the
Borrower's receipt of any Payoff Proceeds, the Borrower shall prepay all Loans
and accrued and unpaid interest thereon in respect of the Mortgage Assets
subject to such Payoff.
(c) The Borrower shall prepay the Loans on the 25th
calendar day of each month (or if such 25th calendar day is not a Business Day,
the next succeeding Business Day), in an amount equal to all Principal Paydowns
received by the Borrower from the 19th calendar day of the preceding month
through and including the 18th calendar day of the month during which such
prepayment is due. Each Principal Paydown received with respect to a particular
Mortgage Asset shall be applied to reduce the Loan Balance with respect to such
Mortgage Asset.
(d) The Borrower shall apply the net proceeds of any
securitization of pledged Mortgage Assets to prepay the Loan Balance with
respect to such Mortgage Assets and accrued and unpaid interest thereon, on the
date of settlement of any securitization of Mortgage Assets.
(e) The Borrower shall apply the net proceeds of any whole
loan sale of any Mortgage Asset to prepay the Loan Balance with respect to such
Mortgage Asset, and accrued and unpaid interest thereon, on the date of
settlement of any such whole loan sale. The amount to be paid to the Lender
pursuant to this Section 2.06(e) shall be paid directly to the Lender by the
purchaser of such Mortgage Asset.
(f) The Borrower shall pay the Loan Balance for any
Mortgage Asset in respect of which the related Mortgage Note has been
extinguished under relevant state law in connection with a judgment of
foreclosure or foreclosure sale or otherwise, no later than one (1) Business Day
after the date such Mortgage Note is extinguished.
2.07 Optional Prepayments. The Loans are prepayable at the
end of any Interest Period without premium or penalty, in whole or in part, and
may be prepaid on any other date subject to Section 2.08 hereof. Any amounts
prepaid shall be applied to repay the outstanding principal amount of any Loans
(together with interest thereon) until paid in full. Amounts repaid may be
reborrowed in accordance with the terms of this Loan Agreement. If the Borrower
intends to prepay a Loan in whole or in part from a source other than the
proceeds of the Mortgage Assets, the Borrower shall give three (3) Business
Days' prior written notice thereof to the Lender. If such notice is given, and
the amount specified in such notice is not paid on the date specified therein,
the Borrower shall
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indemnify the Lender and hold the Lender harmless from any loss or expense which
the Lender may sustain or incur as a result of such notice to prepay.
2.08 Indemnity.
If the Borrower makes a prepayment of the Loans on any day
which is not the last day of the Interest Period with respect to such Loan, the
Borrower shall indemnify the Lender and hold the Lender harmless from any actual
loss or expense which the Lender may sustain or incur arising from the
reemployment of funds obtained by the Lender to maintain the Loans hereunder
(but excluding loss of profit) or from fees payable to terminate the deposits
from which such funds were obtained. This Section 2.08 shall survive for ninety
(90) days following termination of Loan Agreement and payment of the Note.
2.09 Requirements of Law.
(a) If any Requirement of Law or any change in the
interpretation or application thereof or compliance by the Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority made after the date that any Lender becomes
a Lender party to this Loan Agreement:
(i) shall subject the Lender to any tax of any kind
whatsoever with respect to this Loan Agreement, the Note or any Loan
made by it (excluding net income and franchise taxes) or change the
basis of taxation of payments to the Lender in respect thereof;
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the account
of, advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of the Lender which is not
otherwise included in the determination of the LIBO Base Rate
hereunder;
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Loan or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay the Lender such
additional amount or amounts as will compensate the Lender for such increased
cost or reduced amount receivable.
(b) If the Lender shall have determined that the adoption
of or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by the Lender or any
corporation controlling the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made after the date that any Lender becomes a Lender party to this
Loan Agreement shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation could have
achieved but for such adoption or change (taking into consideration the Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by the Lender to be material, then from time to time, the Borrower shall
promptly pay to the Lender such additional amount or amounts as will compensate
the Lender for such reduction.
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<PAGE> 23
(c) If the Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower of
the event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection submitted by the Lender
to the Borrower shall be conclusive in the absence of manifest error.
(d) The Lender represents and warrants to the Borrower that
it is a United States Person (as defined in Section 7701(a)(30) of the Code) for
federal income tax purposes.
2.10 Taxes. (a) All payments made by the Borrower under
this Agreement and the Note shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on the Lender as a result of a
present or former connection between the Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Lender hereunder or under the Note, the amounts so payable to the
Lender shall be increased to the extent necessary to yield to the Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, provided,
however, that the Borrower shall not be required to increase any such amounts
payable to the Lender that is not organized under the laws of the United States
of America or a state thereof if the Lender fails to comply with the
requirements of clause (b) of this Section. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Agent for its own account or for the account of such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to the
Lender the required receipts or other required documentary evidence, the
Borrower shall indemnify the Lender for any incremental taxes, interest or
penalties that may become payable by the Lender as a result of any such failure.
The agreements in this Section shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
(b) If the Lender hereunder (or an assignee or participant
that acquires an interest hereunder in accordance with Section 11.14 hereof)
that is not incorporated under the laws of the United States of America or a
state thereof shall:
(i) deliver to the Borrower (A) two duly completed copies
of United States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the
case may be;
(ii) deliver to the Borrower two further copies of any such
form or certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of
any event requiring a change in the most recent form previously
delivered by it to the Borrower; and
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<PAGE> 24
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested
by the Borrower;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower. Such Lender
shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes and (ii) in the case of a Form W-8 or W-9,
that it is entitled to an exemption from United States backup withholding tax.
Each Person that shall become a Lender or a participant pursuant to Section
11.14 hereof shall, upon the effectiveness of the related transfer, be required
to provide all of the forms and statements required pursuant to this Section,
provided that in the case of a participant, such participant shall furnish all
such required forms and statements to the Lender from which the related
participation shall have been purchased.
2.11 Extension of Termination Date. At the request of the
Borrower, received no later than 30 days prior to the then current Termination
Date, the Lender may in its sole discretion extend the Termination Date for a
period of 364 days by giving written notice of such extension to the Borrower no
later than 20 days prior to the then current Termination Date.
Section 3. Payments; Computations; Etc.
3.01 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrower
under this Loan Agreement, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the account
designated by the Lender, not later than 1:00 p.m., New York City time, on the
date on which such payment shall become due (and each such payment made after
such time on such due date shall be deemed to have been made on the next
succeeding Business Day). The Borrower acknowledges that it has no rights of
withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided
herein, if the due date of any payment under this Loan Agreement would otherwise
fall on a day that is not a Business Day, such date shall be extended to the
next succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
3.02 Computations. Interest on the Loans shall be computed
on the basis of a 360-day year for the actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable.
Section 4. Collateral Security.
4.01 Collateral; Security Interest.
(a) Pursuant to the applicable Custodial Agreement, the
Custodian shall hold the Mortgage Asset Documents as exclusive bailee and agent
for the Lender pursuant to terms of the applicable Custodial Agreement and shall
deliver to the Lender Trust Receipts (as defined in the applicable Custodial
Agreement) each to the effect that it has reviewed such Mortgage Asset
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<PAGE> 25
Documents in the manner and to the extent required by the applicable Custodial
Agreement and identifying any deficiencies in such Mortgage Asset Documents as
so reviewed.
(b) All of the Borrower's right, title and interest in, to
and under each of the following items of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the "Collateral":
(i) all Mortgage Assets which either Custodian has been
instructed to hold for the Lender pursuant to the applicable
Custodial Agreement;
(ii) all Mortgage Asset Documents for such Mortgage Assets,
including without limitation all promissory notes, and all Servicing
Records (as defined in Section 11.15(b) below), servicing agreements
and any other collateral pledged or otherwise relating to such
Mortgage Assets, together with all files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer programs,
computer storage media, accounting records and other books and
records relating thereto;
(iii) all mortgage guaranties and insurance (issued by
governmental agencies or otherwise) and any mortgage insurance
certificate or other document evidencing such mortgage guaranties or
insurance relating to any such Mortgage Asset and all claims and
payments thereunder;
(iv) all other insurance policies and insurance proceeds
relating to any such Mortgage Asset or the related Mortgaged Property
including without limitation any FHA Mortgage Insurance;
(v) all Interest Rate Protection Agreements relating to
such Mortgage Assets;
(vi) any account established by either Custodian for the
benefit of the Lender pursuant to either Custodial Agreement and the
balance from time to time standing to the credit of such account and
all rights with respect thereto;
(vii) all "collateral", however defined, under any Other
Agreements;
(viii) all Insured Closing Letters and rights relating
thereto;
(ix) all rights under any errors and omissions policies of
the Settlement Agents;
(x) all "general intangibles" as defined in the Uniform
Commercial Code relating to or constituting any and all of the
foregoing; and
(xi) any and all replacements, substitutions, distributions
on or proceeds of any and all of the foregoing.
(c) The Borrower hereby assigns, pledges and grants a
security interest in all of its right, title and interest in, to and under the
Collateral to the Lender to secure the repayment of principal of and interest on
all Loans and all other amounts owing to the Lender hereunder, under the Note
and under the other Loan Documents (collectively, the "Secured Obligations").
The Borrower agrees to mark its computer records and tapes to evidence the
interests granted to the Lender hereunder.
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<PAGE> 26
(d) Solely for purposes of FHA Regulations relating to FHA
Assets appearing at 24 C.F.R. Section 203.430 through 203.438, the Borrower
shall be deemed to have finally sold to the Lender each FHA Asset included from
time to time in the Borrowing Base. The Lender shall be the "purchasing
mortgagee" with respect to each such FHA Asset and shall have all rights of a
purchasing mortgagee with respect thereto; provided that the Borrower shall
remain liable to perform all obligations of the "servicing mortgagee" with
respect thereto. The Borrower shall take all actions the Lender deems necessary
or advisable to give effect to the foregoing. Upon the release by the Lender of
the Lien created by this Loan Agreement on such FHA Asset, the Lender shall be
deemed to have finally sold such FHA Asset to the party designated by the
Borrower as the "purchasing mortgagee" on behalf of the Lender pursuant to the
applicable Custodial Agreement.
4.02 Further Documentation. At any time and from time to
time, upon the written request of the Lender, and at he sole expense of the
Borrower, the Borrower will promptly and duly execute and deliver, or will
promptly cause to be executed and delivered, such further instruments and
documents and take such further action as the Lender may reasonably request for
the purpose of obtaining or preserving the full benefits of this Loan Agreement
and of the rights and powers herein granted, including, without limitation, the
filing of any financing or continuation statements under the Uniform Commercial
Code in effect in any jurisdiction with respect to the Liens created hereby. The
Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of the Borrower to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Loan Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall
not (i) change the location of its chief executive office/chief place of
business from that specified in Section 6 hereof or (ii) change its name,
identity or corporate structure (or the equivalent) or change the location where
it maintains its records with respect to the Collateral unless it shall have
given the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed necessary by the Lender to continue its perfected status in the
Collateral with the same or better priority.
4.04 Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and
appoints the Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Borrower and in the name of
the Borrower or in its own name, from time to time in the Lender's discretion,
for the purpose of carrying out the terms of this Loan Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this Loan
Agreement, and, without limiting the generality of the foregoing, the Borrower
hereby gives the Lender the power and right, on behalf of the Borrower, without
assent by, but with notice to, the Borrower, if an Event of Default shall have
occurred and be continuing, to do the following:
(i) in the name of the Borrower or its own name, or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any mortgage insurance or with respect to any other
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Lender for the purpose of collecting any and all
such
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<PAGE> 27
moneys due under any such mortgage insurance or with respect to any
other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed
on or threatened against the Collateral; provided that if such taxes
are being contested in good faith and by appropriate proceedings, the
Lender shall consult with the Borrower before making any such
payment; and
(iii) (A) to direct any party liable for any payment under
any Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Lender or as the Lender shall direct;
(B) to ask or demand for, collect, receive payment of and receipt
for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (C)
to sign and endorse any invoices, assignments, verifications, notices
and other documents in connection with any of the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding
brought against the Borrower with respect to any Collateral; (F) to
settle, compromise or adjust any suit, action or proceeding described
in clause (E) above and, in connection therewith, to give such
discharges or releases as the Lender may reasonably deem appropriate;
and (G) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Lender were the absolute owner thereof
for all purposes, and to do, at the Lender's option and the
Borrower's expense, at any time, and from time to time, all acts and
things which the Lender reasonably deems necessary to protect,
preserve or realize upon the Collateral and the Lender's Liens
thereon and to effect the intent of this Loan Agreement, all as fully
and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time
and from time to time, to execute, in connection with any sale provided for in
Section 4.07 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to
protect the Lender's interests in the Collateral and shall not impose any duty
upon the Lender to exercise any such powers. The Lender shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither the Lender nor any of its officers, directors, or employees
shall be responsible to the Borrower for any act or failure to act hereunder,
except for its own gross negligence or willful misconduct.
4.05 Performance by Lender of Borrower's Obligations. If
the Borrower fails to perform or comply with any of its agreements contained in
the Loan Documents, the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, and the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute Secured
Obligations. The Lender shall use its reasonable efforts to give the Borrower
prior notice (but in any event prompt notice) of any actions taken pursuant to
this Section 4.05.
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<PAGE> 28
4.06 Proceeds. If an Event of Default shall occur and be
continuing, (a) all proceeds of Collateral received by the Borrower consisting
of cash, checks and other near-cash items shall be held by the Borrower in trust
for the Lender, segregated from other funds of the Borrower, and shall forthwith
upon receipt by the Borrower be turned over to the Lender in the exact form
received by the Borrower (duly endorsed by the Borrower to the Lender, if
required) and (b) any and all such proceeds received by the Lender (whether from
the Borrower or otherwise) may, in the sole discretion of the Lender, be held by
the Lender as collateral security for, and/or then or at any time thereafter may
be applied by the Lender against, the Secured Obligations (whether matured or
unmatured), such application to be in such order as the Lender shall elect. Any
balance of such proceeds remaining after the Secured Obligations shall have been
paid in full and this Loan Agreement shall have been terminated shall be paid
over to the Borrower or to whomsoever may be lawfully entitled to receive the
same. For purposes hereof, proceeds shall include, but not be limited to, all
principal and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.07 Remedies. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Loan Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Lender without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Borrower or any other Person (each and all of which demands, presentments,
protests, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Lender shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Borrower, which right or equity is hereby waived or released.
The Borrower further agrees, at the Lender's request, to assemble the Collateral
and make it available to the Lender at places which the Lender shall reasonably
select, whether at the Borrower's premises or elsewhere. The Lender shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Lender
hereunder, including without limitation reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations, in
such order as the Lender may elect, and only after such application and after
the payment by the Lender of any other amount required or permitted by any
provision of law, including without limitation Section 9-504(1)(c) of the
Uniform Commercial Code, need the Lender account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Borrower shall
remain liable for any deficiency (plus accrued interest thereon as contemplated
pursuant to Section 2.05(b) hereof) if the proceeds of any sale or other
disposition of the
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<PAGE> 29
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.
4.08 Limitation on Duties Regarding Presentation of
Collateral. The Lender's duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Uniform Commercial Code or otherwise, shall be to deal with it in the
same manner as the Lender deals with similar property for its own account.
Neither the Lender nor any of its directors, officers or employees shall be
liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Borrower or
otherwise.
4.09 Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
4.10 Release of Security Interest. If no Default has
occurred and is continuing or will occur as a result of the following, the
Lender agrees to cooperate with the Borrower with respect to any sale not
prohibited by this Loan Agreement and promptly take such action and execute and
deliver such instruments and documents necessary to release the Liens and
security interests created hereby relating to any of the assets or property
affected by any such sale, including, without limitation, any necessary Uniform
Commercial Code amendment, termination or partial amendment. Upon termination of
this Loan Agreement and repayment to the Lender of all Secured Obligations and
the performance of all obligations under the Loan Documents the Lender shall
release its security interest in any remaining Collateral; provided that if any
payment, or any part thereof, of any of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower, or upon
or as a result of the appointment of a receiver, intervenor or conservator of,
or a trustee or similar officer for, the Borrower or any substantial part of its
Property, or otherwise, this Loan Agreement, all rights hereunder and the Liens
created hereby shall continue to be effective, or be reinstated, as though such
payments had not been made.
Section 5. Conditions Precedent.
5.01 Initial Loan. The obligation of the Lender to make its
initial Loan hereunder is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loan, of the condition precedent that the
Lender shall have received all of the following documents, each of which shall
be satisfactory to the Lender and its counsel in form and substance:
(a) Loan Documents.
(i) Loan Agreement. The Lender shall have received this
Loan Agreement, executed and delivered by a duly authorized officer
of the Borrower;
(ii) Custodial Agreements. The First Trust Custodial
Agreement, duly executed and delivered by the Borrower and the
applicable Custodian. In addition, the Borrower shall have taken such
other action as the Lender shall have reasonably requested in order
to perfect the security interests created pursuant to the Loan
Agreement;
(b) Organizational Documents. A good standing certificate
and certified copies of the charter and by-laws (or equivalent
documents) of the Borrower and of all corporate or other
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authority for the Borrower with respect to the execution, delivery
and performance of the Loan Documents and each other document to be
delivered by the Borrower from time to time in connection herewith
(and the Lender may conclusively rely on such certificate until it
receives notice in writing from the Borrower to the contrary);
(c) Affiliate Guaranty. The Affiliate Guaranty, duly
completed and executed.
(d) Legal Opinion. A legal opinion of counsel to the
Borrower, substantially in the form attached hereto as Exhibit C;
(e) Mortgage Asset Schedule and Exception Report. A
Mortgage Asset Schedule and Exception Report, dated the Effective
Date, from the Custodian, duly completed;
(f) Servicing Agreement(s). Any Servicing Agreement,
certified as a true, correct and complete copy of the original, with
the letter of any applicable third-party Servicer consenting to
termination of such Servicing Agreement upon the occurrence of an
Event of Default attached;
(g) Other Documents. Such other documents as the Lender may
reasonably request.
5.02 Initial and Subsequent Loans. The making of each Loan
to the Borrower (including the initial Loan) on any Business Day is subject to
the satisfaction of the following further conditions precedent, both immediately
prior to the making of such Loan and also after giving effect thereto and to the
intended use thereof:
(a) no Default or Event of Default shall have occurred and
be continuing;
(b) both immediately prior to the making of such Loan and
also after giving effect thereto and to the intended use thereof, the
representations and warranties made by the Borrower in Section 6
hereof, and elsewhere in each of the Loan Documents, shall be true
and complete on and as of the date of the making of such Loan in all
material respects (in the case of the representations and warranties
in Section 6.10 and Schedule 1, solely with respect to Mortgage
Assets included in the Borrowing Base) with the same force and effect
as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date,
as of such specific date). The Lender shall have received a Request
for Borrowing, with a certification thereon, signed by a Responsible
Officer of the Borrower certifying as to the truth and accuracy of
the above, which Request for Borrowing shall specifically include a
statement that the Borrower is in compliance with all governmental
licenses and authorizations and is qualified to do business and in
good standing in all required jurisdictions.
(c) the aggregate outstanding principal amount of the Loans
shall not exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more
Due Diligence Reviews pursuant to Section 11.16 hereof, the Lender
shall have completed its due diligence review of the Mortgage Asset
Documents for each Loan and such other documents, records,
agreements, instruments, mortgaged properties or information relating
to such Loans as the Lender in its
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sole discretion deems appropriate to review and such review shall be
satisfactory to the Lender in its sole discretion;
(e) the Lender shall have received from the Custodian a
Trust Receipt with exceptions acceptable to the Lender in its sole
discretion in respect of Eligible Assets to be pledged hereunder on
such Business Day and a Mortgage Asset Schedule and Exception Report,
in each case dated such Business Day and duly completed;
(f) neither (i) the Maximum Facility Borrowings has been
exceeded nor (ii) making the requested Loan shall cause the Maximum
Facility Borrowings to be exceeded;
(g) all applicable conditions set forth in Section 2.03
hereof have been complied with.
Each borrowing by the Borrower hereunder shall constitute a certification by the
Borrower that all the conditions set forth in this Section 5 have been satisfied
as of the date of such borrowing.
Section 6. Representations and Warranties. The Borrower
represents and warrants to the Lender that from and after September 30, 1997 and
throughout the term of this Loan Agreement:
6.01 Existence. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and is duly authorized and qualified to transact any and all business
contemplated by this Agreement and the Loan Documents to be conducted by the
Borrower in any state in which a Mortgaged Property is located to the extent
necessary to ensure the enforceability of each Eligible Asset and the servicing
of the Eligible Asset in accordance with the terms of this Agreement;
6.02 Litigation. Except as disclosed to the Lender prior to
the Effective Date and subsequently disclosed to the Lender in writing
thereafter, there are no actions, suits, arbitrations, investigations or
proceedings pending or, to the Borrower's actual knowledge, overtly threatened
against the Borrower or any of its Affiliates or affecting its Property that are
reasonably likely to materially and adversely affect the execution, delivery or
enforceability of this Agreement or the Loan Documents or the ability of the
Borrower to service the Eligible Assets or for the Borrower to perform any of
its other obligations hereunder in accordance with the terms hereof;
6.03 No Breach. The execution and delivery of this
Agreement and the Loan Documents by the Borrower, the servicing of the Eligible
Assets by the Borrower hereunder, the consummation by the Borrower of the
transactions herein contemplated and the fulfillment by the Borrower of or
compliance by the Borrower with the terms hereof will not (A) result in a breach
of any term or provision of the charter or by-laws of the Borrower or (B)
conflict with, result in a breach, violation or acceleration of, or result in a
default under, the terms of any other material agreement or instrument to which
the Borrower is a party or by which it may be bound, or any statute, order or
regulation applicable to the Borrower of any court, regulatory body,
administrative agency or governmental body having jurisdiction over the
Borrower, which breach, violation, default or non-compliance would have a
material adverse effect on (a) the business, operations, financial condition,
properties or assets of the Borrower or (b) the ability of the Borrower to
perform its obligations under this Agreement or the Loan Documents; and the
Borrower is not a party to, bound by, or in breach or violation of any material
indenture or other material agreement or instrument, or subject to or in
violation of any statute, order or regulation of any court, regulatory body,
administrative agency or
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<PAGE> 32
governmental body having jurisdiction over it, which materially and adversely
affects or, to the Borrower's knowledge, would in the future reasonably be
expected to materially and adversely affect, (x) the ability of the Borrower to
perform its obligations under this Agreement or the Loan Documents or (y) the
business, operations, financial condition, properties or assets of the Borrower,
or result in the creation or imposition of any Lien (except for the Liens
created pursuant to this Loan Agreement) upon any Property of the Borrower
pursuant to the terms of any such agreement or instrument;
6.04 Action. The Borrower has the full corporate power and
authority to service each Eligible Asset, and to execute, deliver and perform,
and to enter into and consummate the transactions contemplated by this Agreement
and the Loan Documents and the execution, delivery and performance of this
Agreement and the Loan Documents by the Borrower has been duly authorized by all
necessary corporate action on the part of the Borrower; and this Agreement and
the Loan Documents, assuming the due authorization, execution and delivery
thereof by the Lender, constitutes a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its respective
terms, except to the extent that (a) the enforceability thereof may be limited
by federal or state bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought;
6.05 Approvals. No consent, approval, authorization or
order of any court or governmental agency or body is required for the execution,
delivery and performance by the Borrower of, or compliance by the Borrower with,
this Agreement or the Loan Documents or the consummation of the transactions
contemplated hereby (except for such consents, approvals, authorizations, or
orders to be obtained following each Funding Date with respect to future
transactions to be consummated hereunder), or if any such consent, approval,
authorization or order not relating to a future transaction is required, the
Borrower has obtained the same thereof, except for (i) such consents,
applications, authorizations and orders, the failure to obtain or perform which
would not have a material adverse effect on the business, operations, condition,
properties or assets of Borrower or its Subsidiaries; and (ii) filings and
recordings in respect of the Liens created pursuant to this Loan Agreement;
6.06 Good Standing . The Borrower is in good standing and
qualified to do business in each jurisdiction where failure to be so qualified
or licensed would have a material adverse effect on (a) the business,
operations, financial condition, properties or assets of the Borrower or (b) the
enforceability of any Eligible Asset or the servicing of the Eligible Assets in
accordance with the terms of this Agreement;
6.07 Collateral; Collateral Security.
(a) No Mortgage Asset is assigned, pledged, or otherwise
conveyed or encumbered by the Borrower to any Person other than the Lender, and
immediately prior to the pledge of such Mortgage Asset to the Lender, the
Borrower was the sole owner of such Mortgage Asset and had good and marketable
title thereto, free and clear of all Liens, in each case except for Liens to be
released simultaneously with the Liens granted in favor of the Lender hereunder.
No Mortgage Asset pledged to the Lender hereunder was acquired by the Borrower
from an Affiliate of the Borrower.
(b) The provisions of this Loan Agreement are effective to
create in favor of the Lender a valid security interest in all right, title and
interest of the Borrower in, to and under the Collateral.
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(c) Upon receipt by the applicable Custodian of each
Mortgage Note endorsed in blank by a duly authorized officer of the Borrower,
the Lender shall have a fully perfected first priority security interest in such
Mortgage Note.
(d) Upon the proper filing of financing statements on Form
UCC-1 naming the Lender as "Secured Party" and the Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording offices listed on
Schedule 2 attached hereto, the security interests granted hereunder in the
Collateral will constitute perfected first priority security interests under the
Uniform Commercial Code in all right, title and interest of the Borrower in, to
and under such Collateral which can be perfected by filing under the Uniform
Commercial Code.
6.08 Chief Executive Office. The Borrower's chief executive
office on the Effective Date is located at 565 Taxter Road, Elmsford, New York
10523. The location where the Borrower keeps its books and records, including
all computer tapes and records relating to the Collateral is either its chief
executive office or 8 Skyline Drive, Hawthorne, New York 10532.
6.09 Insurance. The Borrower has caused to be performed any
and all acts required to preserve the rights and remedies of the Lender in any
insurance policies of the Borrower or a Mortgagee applicable to the Eligible
Assets sold by the Borrower.
6.10 FHA Servicing. The Borrower (or its subcontractor) is
an FHA Approved Mortgagee. The Borrower has the facilities, procedures, and
experienced personnel necessary for the sound servicing of mortgage loans and
properties of the same type as the Mortgage Assets pledged hereunder. The
Borrower is in good standing to service mortgage loans for the FHA, and no event
has occurred, including but not limited to a change in insurance coverage, which
would make the Borrower unable to comply with FHA eligibility requirements or
which would require notification to the FHA.
6.11 Financial Statements. The Financial Statements of
Borrower, copies of which have been furnished to Lender, (i) are, as of the
dates and for the periods referred to therein, complete and correct in all
material respects, (ii) present fairly the financial condition and results of
operations of the Borrower as of the dates and for the periods indicated and
(iii) have been prepared in accordance with generally accepted accounting
principles consistently applied, except as noted therein (subject as to interim
statements to normal year-end adjustments). Since the date of the most recent
Financial Statements, there has been no material adverse change in such
financial condition or results of operations. Except as disclosed in the
Financial Statements, Borrower is not subject to any contingent liabilities or
commitments that, individually or in the aggregate, have a material possibility
of causing a material adverse change in the business or operations of Borrower.
6.12 ERISA. Borrower is in compliance with ERISA and has
not incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan.
6.13 Accuracy of Information. None of the documents or
information provided by Borrower to Lender in connection with the Loan Documents
or the transactions thereunder contain any statement of a material fact with
respect to Borrower or the Loans that was untrue or misleading in any material
respect when made; mortgage loan legal and servicing files shall not constitute
such documents or information for this purpose. Since the furnishing of such
documents or information, there has been no change, nor any development or event
involving a prospective change known to Borrower that would render any of such
documents or information untrue or misleading in any material
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<PAGE> 34
respect. There is no fact known to Borrower which has a material possibility of
causing a Material Adverse Effect with respect to Borrower.
6.14 Loan Documents. Each of the representations and
warranties of Borrower contained in the Loan Documents is true and correct in
all material respects.
6.15 Compliance With Law, Etc. No practice, procedure or
policy employed by Borrower in the conduct of its businesses violates any law,
regulation, judgment, agreement, order or decree applicable to it, which
violation is reasonably likely to result in a Material Adverse Effect.
6.16 Solvency; Fraudulent Conveyance. Borrower is solvent
and will not be rendered insolvent by the Loan and, after giving effect to such
Loan, Borrower will not be left with an unreasonably small amount of capital
with which to engage in its business. Borrower does not intend to incur, or
believe that it has incurred, debts beyond its ability to pay such debts as they
mature. Borrower is not contemplating the commencement of insolvency,
bankruptcy, liquidation or consolidation proceedings or the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect of
Borrower or any of its assets. Borrower is not transferring any Mortgage Assets
with any intent to hinder, delay or defraud any of its creditors.
6.17 Investment Company Act Compliance. Borrower is neither
required to be registered as an "investment company" as defined under the
Investment Company Act nor under the control of an "investment company" as
defined under the Investment Company Act.
6.18 Taxes. Borrower has filed all federal and state tax
returns which are required to be filed by it and paid all taxes, including any
material assessments received by it, to the extent that such taxes have become
due. Any taxes, fees and other governmental charges payable by Borrower in
connection with the transactions contemplated hereby and the execution and
delivery of the Loan Documents have been paid.
6.19 Licenses. Lender will not be required solely as a
result of taking a pledge of the Mortgage Assets to be licensed, registered or
approved or to obtain permits or otherwise qualify (i) to do business in any
state in which it currently is not so required or (ii) under any state consumer
lending, fair debt collection or other applicable state statute or regulation.
6.20 Margin Regulations. Neither the making of any Loan
hereunder, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation G, T, U or X.
Section 7. Covenants of the Borrower. The Borrower
covenants and agrees with the Lender that, so long as any Loan is outstanding
and until payment in full of all Secured Obligations:
7.01 Financial Statements. Until the later to occur of (i)
the discharge and payment of all of Borrower's obligations under this Agreement
and (ii) the Termination Date of this Agreement, Borrower shall promptly upon
preparation, but in no event later than 60 days following the end of each such
party's first three fiscal quarters, deliver to Lender its unaudited
company-prepared financial statements as of the end of each such fiscal quarter,
prepared in accordance with GAAP. Borrower shall promptly upon preparation, but
in no event later than 90 days following the end of such party's fourth fiscal
quarter, deliver to Lender its audited and certified financial statements,
prepared in accordance with GAAP, as of the end of the most recently ended
fiscal year, which audits and certifications shall each be prepared by a
nationally recognized independent accounting firm or by a
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regionally recognized independent accounting firm with the prior written consent
of Lender, which consent shall not be unreasonably withheld. In all cases,
financial statements shall include, without limitation, a balance sheet, a
profit and loss statement and a statement of cash flows. Notwithstanding
anything in this Agreement to the contrary, if the audited and certified
financial statements described in the immediately preceding sentence are (x) not
delivered within the above-specified 90 days, (y) Borrower is diligently using
its best efforts to deliver such financial statements, and (z) Borrower provides
Lender with a notice specifying the reason for the delay and a date, within a
reasonable time period (as determined by Lender), on which such financial
statements will be delivered, and they are so delivered; then failure to deliver
such financial statements within the above-specified 90 days, as the case may
be, shall not be deemed to be an Event of Default under this Agreement.
7.02 Reports. (a) Borrower shall, within 5 Business Days of
filing, deliver to Lender copies of all material public filings made by Borrower
with any governmental or quasi-governmental body.
(b) Borrower shall (i) with respect to any Mortgage Assets
serviced by Borrower or any of its Affiliates or otherwise use its best efforts
to cause to be delivered to Lender monthly, the report, if any, prepared by the
relevant trustee or servicer setting forth payment activity, defaults and
delinquencies with respect to each Eligible Asset pledged to the Lender, (ii)
prepare and deliver reports each month, detailing, with respect to all Mortgage
Assets pledged to the Lender, such information as the Lender may from time to
time reasonably request and (iii) deliver to the Lender on the fifth day of each
month a Mortgage Asset Schedule.
7.03 Compliance With Laws. The Borrower shall comply in all
material respects with all laws, rules and regulations that relate to it or to
the Eligible Assets or that materially and adversely affect the operations or
financial conditions of the Borrower.
7.04 Existence, etc. Borrower shall do all things necessary
to remain duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted except where failure to maintain such authority would not have a
material adverse effect on the ability of Borrower to conduct its business or to
perform its obligations under this Agreement.
7.05 Adequate Capital. At all times during this Agreement,
Borrower shall possess sufficient net capital and liquid assets (or ability to
access the same) to satisfy its obligations as they become due in the normal
course of business.
7.06 Notices. Borrower will notify Lender in writing of any
of the following promptly upon learning of the occurrence thereof, describing
the same and, as applicable, any remedial steps being taken with respect
thereto:
(A) A Default or Event of Default shall have occurred;
(B) The institution of any litigation, arbitration
proceeding or governmental proceeding which, in the opinion of
counsel to Borrower, will have a material adverse effect on Borrower
or the Eligible Assets;
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<PAGE> 36
(C) All legal or arbitrable proceedings affecting the
Borrower or any of its Subsidiaries that questions or challenges the
validity or enforceability of any of the Loan Documents or as to
which there is a reasonable likelihood of adverse determination which
would result in a Material Adverse Effect.
(D) The entry of any judgment or decree against Borrower if
the aggregate amount of all judgments and decrees then outstanding
against Borrower exceeds $1,000,000 after deducting (i) the amount
with respect to which Borrower is insured and with respect to which
the insurer has assumed responsibility in writing, and (ii) the
amount for which Borrower is otherwise indemnified if the terms of
such indemnification are reasonably satisfactory to Lender; or
(E) The occurrence or reasonable likelihood of any event
which would allow the obligee under any material loan agreement to
which Borrower is bound to declare an event of default or accelerate
the obligations of Borrower thereunder.
7.07 Compliance With Custodial Agreement. With respect to
each Eligible Asset, the Borrower shall comply with all document delivery
requirements set forth in the applicable Custodial Agreement.
7.08 Borrowing Base Deficiency. If at any time there exists
a Borrowing Base Deficiency the Borrower shall cure same in accordance with
Section 2.06 hereof.
7.09 Inspection of Books and Records. Borrower shall permit
the Lender or its accountants, attorneys or other agents reasonable access to
all of their books and records relating to Eligible Assets for inspection and
copying during normal business hours at all places where Borrower conducts
business.
7.10 No Assignment. Borrower shall not assign or attempt to
assign this Agreement or any rights hereunder, without first obtaining the
specific written consent of Lender.
7.11 No Amendment to Corporate Documents. Borrower shall
not amend its Articles of Incorporation or By-laws, which amendment shall have
or is likely to have a material adverse effect upon Lender or its interests
under this Agreement, without the prior written consent of Lender.
7.12 No Change of Control. There shall be no Change of
Control, and Borrower shall not merge or consolidate with or into, any other
entity without the prior written consent of Lender, which consent shall not be
unreasonably withheld.
7.13 Limitation on Lines of Business. During the term of
this Agreement, Borrower shall not engage in any business other than the
business of the Borrower in existence as of the date hereof, except with the
prior written consent of Lender which consent shall not be unreasonably
withheld.
7.14 Limitation on Distributions. The Borrower shall not,
except as otherwise expressly permitted or contemplated hereby, declare any
dividends on any shares of any class of stock, or make any payment on account
of, or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, retirement or other acquisition of any shares of any class of stock,
or any warrants or options to purchase such stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in
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obligations of the Company, except (unless a Default shall have occurred and be
continuing) dividends to the Guarantor.
7.15 Limitation on Guarantees. Except in the ordinary
course of business or to fulfill the obligations of wholly owned Subsidiaries,
or to Guarantee Indebtedness under the Indenture dated May 14, 1997, between
Cityscape Financial Corp. and Chase Manhattan Bank as trustee relating to
$300,000,000 of 12 3/4% senior notes due 2004, Borrower shall not Guarantee,
endorse or otherwise in any way become or be responsible for any obligations of
any other person, entity or Affiliate, including without limitation, whether
directly or indirectly by agreement to purchase the indebtedness of any other
person or through the purchase of goods, supplies or services, or maintenance of
working capital or other balance sheet covenants or conditions, or by way of
stock purchase, capital contribution, advance or loan for the purposes of paying
or discharging any indebtedness or obligation of such other person or otherwise;
provided, however, that nothing contained herein shall prevent Borrower from
indemnifying its officers, directors and agents pursuant to its By-laws and its
Articles of Incorporation.
7.16 Limitation on Liens. The Borrower will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on or to the Collateral, other than the
security interests created under this Loan Agreement, and the Borrower will
defend the right, title and interest of the Lenders in and to any of the
Collateral against the claims and demands of all persons whomsoever.
7.17. FHA Approved Mortgagee. The Borrower shall maintain
its status as an FHA Approved Mortgagee. The Borrower shall notify the Lender
promptly of any developments regarding its status as an FHA Approved Mortgagee
and shall send the Lender copies of all correspondence or notices received or
sent by the Borrower regarding its application.
7.18 Financial Condition Covenants.
(a) Maintenance of Ratio of Indebtedness to Shareholders'
Equity. The Borrower shall not permit the ratio of Indebtedness to Shareholders'
Equity at any time to be greater than 8:1;
(b) Maintenance of Shareholders' Equity. Borrower shall
maintain Shareholders' Equity in an amount not less than $150,000,000. As of the
beginning of each subsequent fiscal year, the minimum Shareholders' Equity less
Subordinated Debt to be maintained by the Borrower going forward shall be the
greater of (x) $150,000,000 and (y) 80% of the Shareholders' Equity less
Subordinated Debt and advances or loans from the Guarantor as of the end of the
prior fiscal year; and
(c) Maintenance of Liquidity. The Borrower shall maintain
cash and cash equivalents and undrawn committed secured financial facilities
with available eligible unpledged assets of at least $20,000,000; provided,
however, that from the Effective Date through and including December 31, 1997,
Borrower shall maintain cash and cash equivalents and undrawn committed secured
financial facilities with available eligible unpledged assets of at least
$10,000,000.
7.19 Notice if Mortgage Asset is Found Defective. Upon
discovery by the Borrower or the Lender of any breach of any representation or
warranty listed on Schedule 1 hereto applicable to any Mortgage Asset, the party
discovering such breach shall promptly give notice of such discovery to the
other.
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<PAGE> 38
7.20 Prohibition of Fundamental Changes. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction of merger
or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation, winding up or dissolution) or sell all or substantially
all of its assets, without the prior written consent of the Lender.
7.21 Limitation on Transactions with Affiliates. Neither
the Borrower nor any of its Subsidiaries shall enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(a) not otherwise prohibited under this Loan Agreement, (b) in the ordinary
course of the Borrower's business and (c) upon fair and reasonable terms no less
favorable to the Borrower, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate.
7.22 Underwriting Guidelines. Without prior written consent
of the Lender, the Borrower shall not materially amend or otherwise materially
modify the Underwriting Guidelines. In the event that the Borrower proposes to
amend the Underwriting Guidelines, the Borrower shall submit the proposed
amendment to the Lender in writing. The Lender shall notify the Borrower whether
or not it approves such proposed amendment, which approval shall not be
unreasonably withheld. If the Borrower wishes to finance a Mortgage Asset
hereunder that does not comply in all respects with the Underwriting Guidelines,
the Borrower shall request prior approval thereof from the Lender and will
deliver to the Lender, no later than three (3) Business Days prior to the
requested Funding Date, the related underwriting file. The Lender shall notify
the Borrower promptly (i) whether or not it chooses to finance any such Mortgage
Asset and, if so, (ii) whether it chooses to treat such Mortgage Asset as an
Eligible Asset. In the case of choice (ii) of the preceding sentence, the Lender
hereby agrees to make such determination reasonably.
7.23 Servicing Tape. The Borrower shall provide to the
Lender on a monthly basis a computer readable magnetic tape containing servicing
information, including without limitation those fields specified by the Lender
from time to time, on a loan-by-loan basis and in the aggregate, with respect to
the Mortgage Assets serviced hereunder by the Borrower or any Servicer.
7.24 Borrowing Base Certificate. The Borrower shall provide
to the Lender on a monthly basis, and otherwise upon the request of the Lender,
a Borrowing Base certificate in the form of Exhibit K attached hereto.
7.25 Authorized Officers. If at any time the list of
authorized officers listed on Schedule 4 hereto becomes incomplete or incorrect,
the Borrower shall promptly deliver to the Lender an updated complete and
correct copy of Schedule 4. Until such updated copy of Schedule 4 is delivered,
the Lender shall be entitled to rely exclusively upon the most recently
delivered copy of Schedule 4. Accordingly, the Borrower's failure to deliver
such updated copy shall not constitute an Event of Default.
7.26 Portfolio Performance. The Borrower shall maintain a
delinquency ratio for its servicing portfolio (including, in determining the
delinquency ratio, Mortgage Assets with respect to which the Monthly Payments
are 30 days or more delinquent, Mortgage Assets with respect to which the
related Mortgaged Property is the subject of a foreclosure proceeding and REO
properties) of 12% or less.
Section 8. Events of Default. Each of the following events
shall constitute an event of default (an "Event of Default") hereunder:
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<PAGE> 39
a) Failure to Perform. Failure of Borrower to comply with
Section 7.08 hereof; or failure of Borrower to pay when due any sums
or amount equal to or greater than $100,000 payable hereunder or
under any Loan or to pay within one Business Day of the due date any
sums or amount less than $100,000 payable hereunder or under any
Loan; or
b) Failure of Representation or Warranty. Any
representation, warranty or certification made or deemed made herein
or in any other Loan Document by the Borrower or any certificate
furnished to the Lender pursuant to the provisions hereof or thereof
shall prove to have been false or misleading in any material respect
as of the time made or furnished (other than the representations and
warranties set forth in Schedule 1, which shall be considered solely
for the purpose of determining the Collateral Value of the Mortgage
Assets; unless the Borrower shall have made any such representations
and warranties with knowledge that they were materially false or
misleading at the time made); or
c) Failure of Covenant. Failure of Borrower to observe and
perform any material non-monetary covenant, condition or other
agreement on its part to be observed or performed hereunder and such
default shall continue unremedied for five Business Days; or
d) Bankruptcy Event. (i) the Borrower, the Guarantor or any
of their respective Subsidiaries shall (A) apply for or consent to
the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator or the like of itself or
of all or a substantial part of its property, (B) make a general
assignment for the benefit of its creditors, (C) commence a voluntary
case under the Bankruptcy Code, (D) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up,
or composition or readjustment of debts, or (E) take any corporate or
other action for the purpose of effecting any of the foregoing; or
(ii) a proceeding or case shall be commenced,
without the application or consent of the Borrower, Guarantor or any
of their respective Subsidiaries, in any court of competent
jurisdiction, seeking (A) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (B) the appointment of, or the taking of
possession by, a receiver, custodian, trustee, examiner, liquidator
or the like of the Borrower, the Guarantor or any such Subsidiary or
of all or any substantial part of its property, or (C) similar relief
in respect of the Borrower, the Guarantor or any such Subsidiary
under any law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief
against the Borrower, the Guarantor or any such Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
e) Borrower Default. Default by Borrower whether as
principal, guarantor or surety, in the payment of any principal or
interest on any indebtedness or any other obligation of Borrower in
the amount of $1,000,000 or more; or
f) Material Adverse Change. Any materially adverse change
in the Property, business, financial condition or prospects of the
Borrower, the Guarantor or any of their respective Subsidiaries shall
occur, in each case as determined by the Lender in its sole
discretion.
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g) Cross-Default. The occurrence and continuance of an
"event of default" or of an "event of termination" on the part of
Borrower under either (i) any material agreement of Borrower or
Guarantor, or (ii) any other material agreement between Borrower, on
the one hand, and Lender or any of its Affiliates on the other hand,
which has not been waived by the Lender; or
h) Change of Control. Any Change of Control of the Borrower
or the Guarantor; or
i) Pre-Existing Condition. The discovery by the Lender
during its continuing due diligence of the Borrower of a condition or
event which existed at or prior to the execution hereof and which the
Lender, in its reasonable discretion, determines materially and
adversely affects: (i) the condition (financial or otherwise) of the
Borrower, its Subsidiaries or Affiliates; or (ii) the ability of
either the Borrower or the Lender to fulfill its respective
obligations under this Agreement; or
j) Inability to Pay Debts. The Borrower or the Guarantor
shall admit in writing its inability to pay its debts as such debts
become due; or
k) Unsatisfied Judgment. A final judgment or judgments for
the payment of money in excess of $1,000,000 in the aggregate after
subtracting any amounts for which an insurer or indemnitor with a
financial standing reasonably satisfactory to the Lender has assured
liability in writing for discharge thereof shall be rendered against
the Borrower or any of its Subsidiaries by one or more courts,
administrative tribunals or other bodies having jurisdiction and the
same shall not be discharged (or provision shall not be made for such
discharge) or bonded, or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof, and the
Borrower or any such Subsidiary shall not, within said period of 60
days, or such longer period during which execution of the same shall
have been stayed or bonded, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
l) Other Liens. The Borrower shall grant, or suffer to
exist, any Lien on any Collateral except the Liens contemplated
hereby; or the Liens contemplated hereby shall cease to be first
priority perfected Liens on the Collateral in favor of the Lender or
shall be Liens in favor of any Person other than the Lender; or
m) Regarding FHA Mortgage Assets. Either: (i) the Borrower
shall fail to maintain its status as an FHA Approved Mortgagee; or
(ii) there shall have occurred any event, including without
limitation, an amendment or modification of the Act, which would
reasonably be likely to materially and adversely affect Lender's or
Borrower's rights under the FHA Mortgage Insurance program or the
Lender's ability to receive the proceeds of FHA Mortgage Insurance;
or
n) Termination of Loan Documents. The applicable Custodial
Agreement or any Loan Document shall for whatever reason be
terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by the Borrower; or
o) Failure to Answer. The Lender shall reasonably request,
specifying the reasons for such request, information, and/or written
responses to such requests, regarding the financial well-being of the
Borrower and such information and/or responses shall not have been
provided within five Business Days of such request.
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Notwithstanding any other provision of this Section 8, any
grace or notice period provided herein in respect of a notice to be given or
action to be taken by the Lender may be shortened or eliminated by the Lender
if, in its sole good faith discretion, it is reasonable to do so under the
circumstances, taking into consideration, among other things, the volatility of
the market for the Mortgage Assets or other securities involved, the extent and
nature of any Event of Default (or events which with the giving of such notice
and passage of time would constitute Events of Default) and the risks inherent
in deferring the exercise of remedies for the otherwise applicable grace or
notice period.
Section 9. Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default
other than those referred to in Section 8(d) (unless otherwise expressly waived
in writing by the Lender), the Lender may immediately declare the principal
amount of the Loans then outstanding under the Note to be immediately due and
payable, together with all interest thereon and fees and expenses accruing under
this Loan Agreement. Upon the occurrence of an Event of Default referred to in
Section 8(d), such amounts shall immediately and automatically become due and
payable without any further action by any Person. Upon such declaration or such
automatic acceleration, the balance then outstanding hereunder shall become
immediately due and payable, without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Upon the occurrence of one or more Events of Default
(unless otherwise expressly waived in writing by the Lender), the Lender shall
have the right to obtain physical possession of the Servicing Records and all
other files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to the
possession of the Borrower or any third party acting for the Borrower and the
Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.
Section 10. No Duty of Lender. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under any Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by
this Loan Agreement, all notices, requests and other communications provided for
herein and under the applicable Custodial Agreement (including without
limitation any modifications of, or waivers, requests or consents under, this
Loan Agreement) shall be given or made in writing (including without limitation
by telex or telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on
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the signature pages hereof or thereof; or, as to any party, at such other
address as shall be designated by such party in a written notice to each other
party. Except as otherwise provided in this Loan Agreement and except for
notices given under Section 2 (which shall be effective only on receipt), all
such communications shall be deemed to have been duly given when transmitted by
telex or telecopy or personally delivered or, in the case of a mailed notice,
upon receipt, in each case given or addressed as aforesaid.
11.03 Indemnification and Expenses.
(a) The Borrower agrees to hold the Lender harmless from
and indemnify the Lender against all liabilities, losses, damages, judgments,
and reasonable costs and expenses of any kind which may be imposed on, incurred
by or asserted against the Lender (collectively "Costs") relating to or arising
out of this Loan Agreement, the Note, any other Loan Document or any transaction
contemplated hereby or thereby, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Loan Agreement, the Note,
any other Loan Document or any transaction contemplated hereby or thereby, that,
in each case, results from anything other than the Lender's gross negligence or
willful misconduct. Without limiting the generality of the foregoing, the
Borrower agrees to hold the Lender harmless from and indemnify the Lender
against all Costs with respect to Mortgage Assets relating to or arising out of
any breach, violation or alleged breach of violation of any consumer credit
laws, including without limitation the Truth in Lending Act and/or the Real
Estate Settlement Procedures Act. In any suit, proceeding or action brought by
the Lender in connection with any Mortgage Asset for any sum owing thereunder,
or to enforce any provisions of any Mortgage Asset, the Borrower will save,
indemnify and hold the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction or liability whatsoever of the account debtor or obligor thereunder,
arising out of a breach by the Borrower of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing to or in
favor of such account debtor or obligor or its successors from the Borrower. The
Borrower also agrees to reimburse the Lender as and when billed by the Lender
for all the Lender's costs and expenses incurred in connection with the
enforcement or the preservation of the Lender's rights under this Loan
Agreement, any other Loan Document or any transaction contemplated hereby or
thereby, including without limitation the reasonable fees and disbursements of
its counsel (including all fees or disbursements incurred in any action or
proceeding between the Borrower and the Lender or between the Lender and any
third party). The Borrower hereby acknowledges that, notwithstanding the fact
that the Borrower's obligations hereunder are secured by the Collateral, the
obligation of the Borrower hereunder is a recourse obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the
Lender all of the reasonable out-of-pocket costs and expenses incurred by the
Lender in connection with the preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith.
The Borrower agrees to pay as and when billed by the Lender all of the
reasonable out-of-pocket costs and expenses incurred in connection with the
consummation and administration of the transactions contemplated hereby and
thereby including without limitation (i) all the reasonable fees, disbursements
and expenses of counsel to the Lender and (ii) all the due diligence,
inspection, testing and review costs and expenses incurred by the Lender with
respect to Collateral under this Loan Agreement, including, but not limited to,
those costs and expenses incurred by the Lender pursuant to Sections 11.03(a),
11.15 and 11.16 hereof.
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11.04 Amendments. Except as otherwise expressly provided in
this Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
11.05 Successors and Assigns . This Loan Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of the Borrower under
Section 11.03 hereof shall survive the repayment of the Loans and the
termination of this Loan Agreement. In addition, each representation and
warranty made or deemed to be made by a request for a borrowing, herein or
pursuant hereto shall survive the making of such representation and warranty,
and the Lender shall not be deemed to have waived, by reason of making any Loan,
any Default that may arise because any such representation or warranty shall
have proved to be false or misleading, notwithstanding that the Lender may have
had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Loan was made.
11.07 Captions. The table of contents and captions and
section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Loan Agreement.
11.08 Counterparts. This Loan Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and any of the parties hereto may execute this Loan
Agreement by signing any such counterpart.
11.09 Loan Agreement Constitutes Security Agreement;
Governing Law. This Loan Agreement shall be governed by New York law without
reference to choice of law doctrine, and shall constitute a security agreement
within the meaning of the Uniform Commercial Code.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER
LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
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(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT
SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
11.12 Acknowledgments. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Loan Agreement, and the other Loan
Documents;
(b) the Lender has no fiduciary relationship to the
Borrower, and the relationship between the Borrower and the Lender is
solely that of debtor and creditor; and
(c) no joint venture exists between the Lender and the
Borrower.
11.13 Hypothecation or Pledge of Loans. The Lender shall
have free and unrestricted use of all Collateral and nothing in this Loan
Agreement shall preclude the Lender from engaging in repurchase transactions
with the Collateral or otherwise pledging, repledging, transferring,
hypothecating, or rehypothecating the Collateral. Nothing contained in this Loan
Agreement shall obligate the Lender to segregate any Collateral delivered to the
Lender by the Borrower.
11.14 Assignments; Participations.
(a) The Borrower may not assign any of its rights or
obligations hereunder without the prior consent of the Lender. The Lender may
not assign any of its rights or obligations hereunder other than to an Affiliate
without the prior consent of the Borrower.
(b) The Lender may, in accordance with applicable law, at
any time sell to one or more lenders or other entities ("Participants")
participating interests in any Loan, or any other interest of the Lender
hereunder and under the other Loan Documents. In the event of any such sale by
the Lender of participating interests to a Participant, the Lender's obligations
under this Loan Agreement to the Borrower shall remain unchanged, the Lender
shall remain solely responsible for the performance thereof, the Lender shall
remain the lender for all purposes under this Loan Agreement and the other Loan
Documents, and the Borrower and the Lender shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and obligations
under this Loan Agreement and the other Loan Documents. The Borrower agrees that
if amounts outstanding under this Loan Agreement are due or unpaid, or shall
have been declared or shall have become due and payable
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<PAGE> 45
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Loan Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this Loan
Agreement; provided, that such Participant shall only be entitled to such right
of set-off if it shall have agreed in the agreement pursuant to which it shall
have acquired its participating interest to share with the Lender the proceeds
thereof. Each Loan Party also agrees that each Participant shall be entitled to
the benefits of Sections 2.08 and 11.03 with respect to its participation in the
Loans outstanding from time to time; provided, that no Participant shall be
entitled to receive any greater amount pursuant to such Sections than the Lender
would have been entitled to receive in respect of the amount of the
participation transferred by the Lender to such Participant had no such transfer
occurred.
(c) The Lender may furnish any information concerning the
Borrower or any of its Subsidiaries in the possession of such Lender from time
to time to assignees and participants (including prospective assignees and
participants); provided that each such recipient shall have previously agreed in
writing, to which the Borrower shall be a intended third party beneficiary, to
protect the confidentiality of any confidential information concerning the
Borrower and any of its Subsidiaries received by such recipient.
(d) The Borrower agrees to cooperate with the Lender in
connection with any such assignment and/or participation, to execute and deliver
such replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents necessary solely to give effect to such assignment and/or
participation. The Borrower further agrees to furnish to any Participant
identified by the Lender to the Borrower copies of all reports and certificates
to be delivered by the Borrower to the Lender hereunder, as and when delivered
to the Lender.
11.15 Servicing.
The Borrower, as independent contract servicer, shall
service and administer the Mortgage Assets in accordance with the terms and
provisions set forth in Article V, VI, VII and VIII of the Whole Loan Agreement
attached hereto as Exhibit H which sections are hereby incorporated in this
Agreement in their entirety (with, however, the changes and adjustments as
provided in this Agreement) as if the same were contained in this Section (such
servicing provisions as incorporated and adjusted, the "Servicing Agreement").
With respect to the following provisions set forth in the
Whole Loan Agreement attached hereto as Exhibit H, the Borrower shall service
the Mortgage Assets as it is required to service "Mortgage Loans" thereunder and
be subject to all of the obligations as required by the "Seller" pursuant to the
Whole Loan Agreement and the Lender shall have all the rights as afforded the
"Certificateholder" thereunder:
5.01 Seller to Act as Servicer.
5.02 Liquidation of Mortgage Loans.
5.03 Collection of Mortgage Loan Payments.
5.04 Establishment of Certificate Accounts; Deposits
in Certificate Accounts.
5.05 Withdrawals from the Certificate Account.
5.06 Transfer of Accounts.
5.07 Maintenance of Hazard Insurance.
5.08 Fidelity Bond; Errors and Omissions Insurance.
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<PAGE> 46
5.09 Liquidation Reports.
5.10 Notification of Adjustments (to the extent the
Mortgage Loans are Adjustable Rate Mortgage
Loans).
6.01 Distributions.
6.02 Statements to the Certificateholders.
6.03 Advances by the Seller.
6.04 Prepayment Interest Shortfalls.
7.01 Assumption Agreements.
7.02 Satisfaction of Mortgages and Release of Mortgage
Files.
7.03 Servicing Compensation.
7.04 Annual Statement as to Compliance.
7.05 Annual Independent Certified Public Accountants'
Servicing Report.
7.06 Certificateholders' Right to Examine Seller
Records.
8.01 Seller Shall Provide Access and Information as
Reasonably Required.
8.02 Financial Statements.
Any cross references in Exhibit H in the sections listed
above to other sections set forth in Exhibit H are likewise incorporated herein
and made a part hereof.
To the extent any provision or definition set forth in
Exhibit H shall conflict with any provision set forth in this Agreement, the
provision or definition in this Agreement shall govern.
In addition, with respect to FHA Assets, the Borrower shall
maintain and keep the FHA Mortgage Insurance in full force and effect throughout
the term of this Agreement and discharge its obligations arising out of FHA
Mortgage Insurance. The Borrower will service and administer the FHA Assets in
accordance with the obligations of mortgagees under the Act and the applicable
FHA Regulations thereunder and will discharge all obligations of the mortgagee
under each FHA Asset including, paying all FHA insurance premiums, fees or
charges, as required, and, subject to the right to assign the FHA Asset to the
FHA will take all action reasonably necessary to preserve the lien of such
Mortgage, including, the defense of actions to challenge or foreclose such lien.
The Borrower agrees that the Lender is the owner of all
servicing records, including but not limited to any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing of Mortgage Assets (the "Servicing
Records"); and the Borrower grants the Lender a security interest in all
servicing fees and rights relating to the Mortgage Assets and all Servicing
Records to secure the obligation of the Borrower or its designee to service in
conformity with this Section and any other obligation of the Borrower to the
Lender. The Borrower covenants to safeguard such Servicing Records and to
deliver them promptly to the Lender or its designee (including the Custodian) at
the Lender's request.
The Borrower hereby agrees that upon the occurrence of an
Event of Default (unless otherwise expressly waived in writing by the Lender),
the Lender may terminate the Borrower as servicer and transfer servicing to the
Lender's designee, at no cost or expense to the Lender, it being agreed that the
Borrower will pay any and all fees required to effectuate the transfer of
servicing to the designee of the Lender.
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After the Funding Date, until the pledge of any Mortgage
Asset is relinquished by the Custodian, the Borrower will have no right to
modify or alter the terms of such Mortgage Asset and the Borrower will have no
obligation or right to repossess such Mortgage Asset or substitute another
Mortgage Asset, except as provided in the applicable Custodial Agreement.
The Borrower shall permit the Lender to inspect the
Borrower's servicing facilities, as the case may be, for the purpose of
satisfying the Lender that the Borrower has the ability to service the Mortgage
Assets as provided in this Loan Agreement.
11.16 Periodic Due Diligence Review .
The Borrower acknowledges that the Lender has the right to
perform continuing due diligence reviews with respect to the Mortgage Assets,
for purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Borrower agrees that upon
reasonable (but no less than one (1) Business Day's) prior notice to the
Borrower, the Lender or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make copies and extracts of, the
Mortgage Files and any and all documents, records, agreements, instruments or
information relating to such Mortgage Assets in the possession or under the
control of the Borrower and/or the Custodian. The Borrower also shall make
available to the Lender a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Mortgage Files and the Mortgage
Assets. Without limiting the generality of the foregoing, the Borrower
acknowledges that the Lender may make Loans to the Borrower based solely upon
the information provided by the Borrower to the Lender in the Mortgage Asset
Tape and the representations, warranties and covenants contained herein, and
that the Lender, at its option, has the right at any time to conduct a partial
or complete due diligence review on some or all of the Mortgage Assets securing
such Loan, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Mortgage Asset. The Lender may underwrite
such Mortgage Assets itself or engage a mutually agreed upon third party
underwriter to perform such underwriting. The Borrower agrees to cooperate with
the Lender and any third party underwriter in connection with such underwriting,
including, but not limited to, providing the Lender and any third party
underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Mortgage Assets in the possession,
or under the control, of the Borrower. The Borrower further agrees that the
Borrower shall reimburse the Lender for any and all reasonable out-of-pocket
costs and expenses incurred by the Lender in connection with the Lender's
activities pursuant to this Section 11.16.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this
Loan Agreement to be duly executed and delivered as of
the day and year first above written.
BORROWER
CITYSCAPE CORP.
By /s/ Cheryl P. Carl
Title: Senior Vice President
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
Attention: __________________
Telecopier No.: (914) 592-7060
Telephone No.: (914) 592-6677
LENDER
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By /s/ John C. Anderson
Title: Senior Vice President
Address for Notices:
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Champ Meyercord
Telecopier No.: (203) 629-4640
Telephone No.: (203) 622-5617
With a copy to:
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: General Counsel
Telecopier No.: (203) 629-5718
Telephone No.: (203) 625-6065
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SCHEDULE 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE ASSETS
Part I. Eligible Assets
As to each Mortgage Asset included in the Borrowing Base on
a Funding Date (and the related Mortgage, Mortgage Note, Assignment of Mortgage
and Mortgaged Property), the Borrower shall be deemed to make the following
representations and warranties to the Lender as of such date and as of each date
Collateral Value is determined. With respect to any representations and
warranties made to the best of the Borrower's knowledge, in the event that it is
discovered that the circumstances with respect to the related Mortgage Asset are
not accurately reflected in such representation and warranty notwithstanding the
knowledge or lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Asset shall be assigned a Collateral Value of zero:
(1) Mortgage Asset Schedule. The information set forth on the Mortgage
Asset Schedule with respect to such Eligible Asset is true and
correct as of the Funding Date in all material respects;
(2) Payments Current. As of the applicable Funding Date, no payment
required under the Mortgage Asset is delinquent in excess of 29 days
and thereafter no payment required under the Mortgage Asset is
delinquent in excess of 59 days;
(3) Valid Lien. Each related Mortgage is a valid and enforceable first,
second or third lien on the Mortgaged Property subject only to (a)
the lien of nondelinquent current real property taxes and
assessments, (b) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date of
recording of such Mortgage, such exceptions appearing of record being
acceptable to mortgage lending institutions generally or specifically
reflected in the appraisal made in connection with the origination of
such Eligible Asset, and (c) other matters to which like properties
are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(4) No Delinquent Taxes. To the best of the Borrower's knowledge there
was no delinquent tax or assessment lien against any related
Mortgaged Property;
(5) No Defenses. To the best of the Borrower's knowledge, there is no
valid offset, defense or counterclaim to any related Mortgage Note or
Mortgage, including the obligation of the Mortgagor to pay the unpaid
principal of or interest on such Mortgage Note;
(6) No Mechanics' Liens. To the best of the Borrower's knowledge, there
are no mechanics' liens or claims for work, labor or material
affecting any related Mortgaged Property which are or may be a lien
prior to, or equal with, the lien of such Mortgage, except those
which are insured against by the title insurance policy referred to
in (11) below;
Schedule 1-1
<PAGE> 50
(7) Mortgaged Property Undamaged. To the best of the Borrower's
knowledge, each related Mortgaged Property is free of material damage
and is in good repair;
(8) Compliance With Applicable Laws. The origination of such Eligible
Asset complied in all material respects with applicable state and
federal laws, including, without limitation, usury, equal credit
opportunity, real estate settlement procedures, truth-in-lending and
disclosure laws, relating to the origination of mortgage loans, and
consummation by the Borrower of the transactions contemplated hereby
will not involve the violation of any such laws;
(9) No Modifications. Neither the Borrower nor any prior holder of any
related Mortgage has modified such Mortgage in any material respect
(except that such an Eligible Asset may have been modified by a
written instrument which has been recorded, if necessary, to protect
the interests of the Lender and which has been delivered to the
Custodian); satisfied, canceled or subordinated such Mortgage in
whole or in part; released the related Mortgaged Property in whole or
in part from the lien of such Mortgage except for the subordination
of a Mortgage securing a Mortgage Loan, with respect to which the
related superior lien was released in connection with the refinancing
of the mortgage loan relating to such superior lien; or executed any
instrument of release, cancellation, modification or satisfaction
with respect thereto except as has been disclosed to Lender prior to
Funding Date, in which case a copy of such modification agreement
will have been delivered to the Borrower and the Custodian;
(10) Title Insurance. Except with respect to High-LTV Assets, a lender's
policy of title insurance together with a condominium endorsement, if
applicable, and extended coverage endorsement and, if applicable, an
adjustable rate mortgage endorsement in an amount at least equal to
the principal balance as of the related Funding Date of each such
Eligible Asset or a commitment (binder) to issue the same was
effective on the date of the origination of such Eligible Asset, each
such policy is valid and remains in full force and effect, and each
such policy was issued by a title insurer qualified to do business in
the jurisdiction where the related Mortgaged Property is located and
acceptable to FNMA or FHLMC and in a form acceptable to FNMA or
FHLMC, which policy insures the Borrower and successor owners of
indebtedness secured by the insured related Mortgage, as to the
first, second or third priority lien of such Mortgage; to the best of
the Borrower's knowledge, no claims have been made under such
mortgage title insurance policy and no prior holder of such Mortgage,
including the Borrower, has done, by act or omission, anything which
would impair the coverage of such mortgage title insurance policy;
(11) Origination. Such Eligible Asset was originated by the Borrower or,
if not originated by the Borrower, was purchased by the Borrower and,
in either case, was underwritten substantially in accordance with the
Underwriting Guidelines then in effect;
(12) No Encroachments. To the best of the Borrower's knowledge, all of the
improvements which were included for the purpose of determining the
Appraised Value of the related Mortgaged Property lie wholly within
the boundaries and building restriction lines of such property, and
no improvements on adjoining properties encroach upon such Mortgaged
Property unless the applicable title insurance policy for such
Mortgaged Property affirmatively insures against loss or damage by
reason of any encroachment that is disclosed or would have been
disclosed by an accurate survey;
Schedule 1-2
<PAGE> 51
(13) Occupancy. To the best of the Borrower's knowledge, no improvement
located on or being part of related Mortgaged Property is in
violation of any applicable zoning law or regulation. To the best of
the Borrower's knowledge, all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions
of such Mortgaged Property and, with respect to the use and occupancy
of the same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or obtained from
the appropriate authorities and to the best of the Borrower's
knowledge, such Mortgaged Property was lawfully occupied under
applicable law at origination and is lawfully occupied under
applicable law;
(14) Doing Business. To the best of the Borrower's knowledge, all parties
which have had any interest in any related Mortgage, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the
laws of the state wherein the related Mortgaged Property is located,
and (2)(A) organized under the laws of such state, (B) qualified to
do business in such state, (C) federal savings and loan associations
or national banks having principal offices in such state, or (D) not
doing business in such state;
(15) Mortgage Documents Genuine. The related Mortgage Note and the related
Mortgage are genuine, and each is the legal, valid and binding
obligation of the Mortgagor, enforceable in accordance with its terms
and with applicable laws except to the extent that the enforceability
thereof may be limited by (a) federal or state bankruptcy,
insolvency, moratorium and other similar laws relating to creditors'
rights generally and (b) the availability of the remedy of specific
performance and injunctive and other forms of equitable relief and by
the discretion of the court before which any proceeding therefor may
be brought. All parties to the related Mortgage Note and the related
Mortgage had legal capacity to execute such Mortgage Note and such
Mortgage and such Mortgage Note and such Mortgage have been duly and
properly executed by such parties;
(16) Full Disbursement of Proceeds. The proceeds of such Eligible Asset
have been fully disbursed, except in certain circumstances relating
to SM/MU Assets where Borrower has held back amounts until
improvements to property have been made, such amounts so withheld
will in no case be in excess of $10,000, there is no requirement for
future advances thereunder and any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making, closing or recording
such Eligible Assets were paid;
(17) Customary Provisions. The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the related
Mortgaged Property of the benefits of the security, including, (i) if
such Mortgage is designated as a deed of trust, by trustee's sale and
(ii) otherwise by judicial foreclosure;
(18) Deeds of Trust. With respect to any related Mortgage constituting a
deed of trust, a trustee, duly qualified under applicable law to
serve as such, has been properly designated and currently so serves
and is named in such Mortgage, and no fees or expenses are or will
become payable by, the Lender to the trustee under the deed of trust,
except in connection with a trustees sale after default by the
related Mortgagor;
Schedule 1-3
<PAGE> 52
(19) Form of Documents. The related Mortgage Note and the related Mortgage
is in substantially the form attached as Exhibit I hereto with such
revisions as are necessary to comply with applicable state law;
(20) Escrow Payments. There exist no deficiencies with respect to escrow
deposits and payments, if such are required by the related Mortgage
or Mortgage Note, for which customary arrangements for repayment
thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Borrower have been capitalized
under the related Mortgage or the related Mortgage Note;
(21) Collection Practices. The collection practices used by the Borrower
with respect to such Eligible Asset have been in all respects legal,
proper, prudent and customary in the mortgage lending and servicing
business with respect to mortgage loans similar to such Eligible
Asset;
(22) No Additional Collateral. The related Mortgage Note is not secured by
any collateral, pledged account or other security except for the lien
of the related Mortgage and certain personalty relating thereto or a
third party guaranty. In addition, certain financing statements may
have been filed with respect to the fixtures or furniture contained
in the property securing an SM/MU Asset;
(23) No Shared Appreciation; No Contingent Interests. Such Eligible Asset
does not have a shared appreciation feature, or other contingent
interest feature;
(24) Due on Sale. Such Eligible Asset contains a "due-on-sale" clause
unless prohibited by applicable law;
(25) Hazard Insurance. The improvements upon the related Mortgaged
Property are covered by a valid and existing hazard insurance policy
with a generally acceptable carrier that provides for fire extended
coverage and such other hazards as are customary in the area where
the Mortgaged Property is located representing coverage not less than
the lesser of (i) the minimum amount required to compensate for
damage or loss on a replacement cost basis, (ii) the outstanding
principal balance of the related Eligible Asset or (iii) the maximum
allowed. All individual insurance policies and flood policies
referred to in clause (27) below contain a standard mortgagee clause
naming the Borrower or the original mortgagee, and its successors in
interest, as mortgagee, and the Borrower has received no notice that
any premiums due and payable thereon have not been paid; the related
Mortgage obligates the related Mortgagor thereunder to maintain all
such insurance, including flood insurance, at the Mortgagor's cost
and expense, and upon the Mortgagor's failure to do so, authorizes
the holder of the Mortgage to obtain and maintain such insurance at
the Mortgagor's cost and expense and to seek reimbursement therefor
from the Mortgagor;
(26) Flood Insurance. If the related Mortgaged Property is in a Federal
Flood Hazard Zone, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property
with a generally acceptable carrier in an amount representing
coverage not less than the least of (A) the original outstanding
principal balance of the Eligible Asset, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis
or (C) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973;
Schedule 1-4
<PAGE> 53
(27) No Condemnation. To the best of the Borrower's knowledge, there is no
proceeding pending or threatened for the total or partial
condemnation of the related Mortgaged Property, nor is such a
proceeding currently occurring, and such property is undamaged by
waste, fire, earthquake or earth movement except for normal wear and
tear;
(28) No Defaults. As of the applicable Funding Date, the scheduled monthly
payment for the Mortgage Asset is no more than 29 days delinquent.
Except with respect to any delinquent scheduled payment which is not
more than 59 days delinquent as of the date of determination, to the
best of Borrower's knowledge, there is no material default, breach,
violation or event of acceleration existing under the related
Mortgage or the related Mortgage Note that would have a material
adverse effect on the value of the related Mortgage Asset; and, the
Borrower has not waived any default, breach, violation or event of
acceleration;
(29) Type of Mortgaged Property. The related Mortgaged Property is
improved by either (i) a one- to four-family residential dwelling,
including condominium units, dwelling units in PUDs and manufactured
housing, which, to the best of the Borrower's knowledge, does not
include cooperatives and does not constitute other than real property
or personalty related to the Mortgaged Property under state law or
(ii) a small residential multi-family residence and mixed-use
structure;
(30) Servicing. Unless otherwise specified in the related Request for
Borrowing, each Eligible Asset is being serviced by the Borrower;
(31) No Future Advances. There is no obligation on the part of the
Borrower or any other party under the terms of the related Mortgage
or related Mortgage Note to make payments in addition to those made
to the related Mortgagor;
(32) Consolidation of Future Advances. Any future advances made prior to
the related Funding Date have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the Mortgage Asset Schedule. The
consolidated principal amount does not exceed the original principal
amount of such Eligible Asset. The related Mortgage Note does not
permit or obligate the Borrower to make future advances to the
related Mortgagor at the option of the Mortgagor;
(33) No Assessments. To the best of the Borrower's knowledge, there are no
defaults in complying with the terms of the Mortgage that would have
a Material Adverse Effect on the value of the related Mortgage Loan,
and all taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents that
would have a Material Adverse Effect on the value of the related
Mortgage Loan which previously became due and owing have been paid,
or an escrow of funds has been established in an amount sufficient to
pay for every such item which remains unpaid. The Borrower has not
advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the related Mortgagor,
directly or indirectly, for the payment of any amount required by the
related Mortgage except for (A) payments in the nature of escrow
payments, including without limitation, taxes and insurance payments,
and (B) interest accruing from the date of the related Mortgage Note
or date of disbursement of the related Mortgage proceeds, whichever
is later, to the day which precedes by one month the Due Date of the
first installment of principal and interest;
Schedule 1-5
<PAGE> 54
(34) Application of Proceeds. All amounts received with respect to such
Eligible Assets to which the Lender is entitled have been transferred
to the Lender;
(35) Underwriting. Such Eligible Asset was underwritten in accordance with
the Borrower's underwriting guidelines no less stringent than the
Underwriting Guidelines; provided, however, that from time to time
the Borrower may propose reasonable changes to such Underwriting
Guidelines and with Lender's written consent thereto (which consent
shall not be unreasonably withheld), may amend such Underwriting
Guidelines;
(36) Appraisal. The related Mortgage File contains an appraisal of the
related Mortgaged Property signed by an appraiser which meets the
minimum FNMA or FHLMC requisite qualifications for appraisers, duly
appointed by the originator, who had no interest, direct or indirect
in the related Mortgaged Property or in any loan made on the security
thereof, and whose compensation is not affected by the approval or
disapproval of such Eligible Asset; the appraisal is in a form
acceptable to FNMA and FHLMC, with such riders as are acceptable to
FNMA or FHLMC, as the case may be, and satisfies the requirements of
the Financial Institutions Reform, Recovery and Enforcement Act of
1989;
(37) No Graduated Payments; No Buydowns; No Convertible Mortgage Assets.
Unless otherwise specified in the related Request for Borrowing, such
Eligible Asset is not a graduated payment mortgage loan or a growing
equity mortgage loan, nor is such Eligible Asset subject to a
temporary buydown or similar arrangement. If the Eligible Asset has
an adjustable rate, it is not convertible at the option of the
related Mortgagor to a fixed rate mortgage loan;
(38) No Subordinate Liens at Origination. With respect to such Eligible
Asset, no loan junior in lien priority to such Eligible Asset and
secured by the related Mortgaged Property was originated by the
Borrower at the time of origination of such Eligible Asset unless
specifically set forth on the Request for Borrowing and expressly
approved by the Lender;
(39) Environmental Matters. To the best of Borrower's knowledge at
origination either (i) the related Mortgaged Property was not located
within a 1 mile radius of any site with environmental or hazardous
waste of which the Borrower had actual knowledge, or (ii) as to any
related Mortgaged Property located within a 1 mile radius of any site
as to which the Borrower has actual knowledge of environmental or
hazardous waste, the related Eligible Asset was reviewed in
accordance with the Borrower's established environmental review
procedures;
(40) No Fraud. To the best of the Borrower's knowledge, no error,
omission, misrepresentation, negligence, fraud or similar action
occurred on the part of any person in connection with the origination
of any Eligible Asset; and
(41) Ownership. The Borrower is the sole owner of record and holder of the
Mortgage Asset; (ii) the Mortgage Asset is not assigned or pledged
(other than as contemplated under the Loan Agreement), and the
Borrower has good indefeasible and marketable title thereto, and has
full right to transfer and pledge the Mortgage Asset therein to the
Lender free and clear of any encumbrance, equity, participation
interest, lien, pledge, charge, claim or security interest, and has
full right and authority subject to no interest or participation of,
or agreement with, any other party, to pledge and assign each
Mortgage Asset pursuant to this Loan Agreement.
Schedule 1-6
<PAGE> 55
Part II. Eligible Home Equity Mortgage Assets
As to each Home Equity Mortgage Asset and each Home
Improvement Asset included in the Borrowing Base on a Funding Date (and the
related Mortgage, Mortgage Note, Assignment of Mortgage and Mortgaged Property),
the Borrower shall be deemed to make the following representations and
warranties to the Lender as of such date and as of each date Collateral Value is
determined (in addition to the representations and warranties set forth in Part
I of this Schedule 1). With respect to any representations and warranties made
to the best of the Borrower's knowledge, in the event that it is discovered that
the circumstances with respect to the related Mortgage Asset are not accurately
reflected in such representation and warranty notwithstanding the knowledge or
lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Asset shall be assigned a Collateral Value of zero:
Conformance With Underwriting Guidelines.
Borrower represents and warrants to Lender with respect to
each Home Equity Mortgage Asset consisting of an interest
in a residential property in a pool of Eligible Assets that
each such Eligible Asset shall have been originated in
conformity with and meets, as of the Funding Date,
underwriting guidelines no less stringent than those
specified in Exhibit E attached hereto; provided, however,
that from time to time the Borrower may propose reasonable
changes to such Underwriting Guidelines and with Lender's
written consent thereto (which consent shall not be
unreasonably withheld), may amend such Underwriting
Guidelines.
Non Insured Home Improvement Assets. With
respect to Each home Improvement Asset which is not an FHA
insured Mortgage Asset:
(i) Each Home Improvement Asset was originated or
acquired and underwritten by the Borrower in accordance
with the underwriting criteria established by the Borrower
for its Home Improvement Assets which are not insured by
FHA as specified in Exhibit E attached hereto;
(ii) The related Mortgage Note and, if
applicable, the related Mortgage are on forms acceptable to
the Borrower;
(iii) With respect to each Home Improvement Asset
originated by a dealer or contractor, the Borrower is in
possession of the completion certificate for the related
improvement for the Home Improvement Asset.
Schedule 1-7
<PAGE> 56
Part III. Eligible SM/MU Mortgage Assets
As to each SM/MU Mortgage Asset included in the Borrowing
Base on a Funding Date (and the related Mortgage, Mortgage Note, Assignment of
Mortgage and Mortgaged Property), the Borrower shall be deemed to make the
following representations and warranties to the Lender as of such date and as of
each date Collateral Value is determined (in addition to the representations and
warranties set forth in Part I of this Schedule 1). With respect to any
representations and warranties made to the best of the Borrower's knowledge, in
the event that it is discovered that the circumstances with respect to the
related Mortgage Asset are not accurately reflected in such representation and
warranty notwithstanding the knowledge or lack of knowledge of the Borrower,
then, notwithstanding that such representation and warranty is made to the best
of the Borrower's knowledge, such Mortgage Asset shall be assigned a Collateral
Value of zero:
Conformance With Underwriting Guidelines. Borrower represents and
warrants to Lender with respect to each SM/MU Asset consisting of a
small multi-family residence/mixed-use property in a pool of Eligible
Assets that each such SM/MU Asset shall have been originated in
conformity with and meets underwriting guidelines no less stringent
than those specified in Exhibit E attached hereto; provided, however,
that from time to time, the Borrower may propose reasonable changes
to such Underwriting Guidelines and with Lender's written consent
thereto (which consent shall not be unreasonably withheld), as a
further condition to the pledge of SM/MU Assets.
Non Insured Home Improvement Assets. With respect to Each home
Improvement Asset which is not an FHA insured Mortgage Asset:
(i) Each Home Improvement Asset was originated or acquired
and underwritten by the Borrower in accordance with the underwriting
criteria established by the Borrower for its Home Improvement Assets
which are not insured by FHA as specified in Exhibit E attached
hereto;
(ii) The related Mortgage Note and, if applicable, the
related Mortgage are on forms acceptable to the Borrower;
(iii) With respect to each Home Improvement Asset
originated by a dealer or contractor, the Borrower is in possession
of the completion certificate for the related improvement for the
Home Improvement Asset.
Schedule 1-8
<PAGE> 57
Part IV. Eligible FHA Assets
As to each Home Improvement Mortgage Asset insured by the
FHA included in the Borrowing Base on a Funding Date (and the related Mortgage,
Mortgage Note, Assignment of Mortgage and Mortgaged Property), the Borrower
shall be deemed to make the following representations and warranties to the
Lender as of such date and as of each date Collateral Value is determined (in
addition to the representations and warranties set forth in Part I of this
Schedule 1). With respect to any representations and warranties made to the best
of the Borrower's knowledge, in the event that it is discovered that the
circumstances with respect to the related Mortgage Asset are not accurately
reflected in such representation and warranty notwithstanding the knowledge or
lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Asset shall be assigned a Collateral Value of zero:
(1) FHA Approved. The Borrower is an FHA Approved Mortgagee in good
standing to service mortgages and has not been suspended as a
mortgagee or servicer by the FHA.
(2) Title I Home Improvement Assets. With respect to Home improvement
Assets which are Title I Home Improvement Assets, the Borrower has
complied and shall comply with the applicable provisions of the
National Housing Act, as amended and supplemented, all rules and
regulations issued thereunder, and all administrative publications
published pursuant thereto including all FHA requirements for FHA
Title I loans.
(3) Compliance of Term. The amount and the original term to maturity of
each Home Improvement Asset comply with the FHA Regulations at the
time of origination unless the requirements with respect to such Home
Improvement Asset are specifically waived by HUD with respect to such
Home Improvement Asset;
(4) Underwriting Guidelines. Each Home Improvement Asset was originated
or acquired and underwritten by the Borrower in accordance with the
underwriting criteria established by the Borrower, the FHA and HUD
for FHA Title I loans;
(5) Meets Title I Criteria. Each Home Improvement Asset (i) is an FHA
Title I property improvement loan (as defined in 24 CFR Section
201.2(aa)) underwritten by the Borrower or an entity which at the
time of origination was a lender approved by the FHA for
participation in the programs under Title I of the National Housing
Act, in accordance with the FHA requirements for the Title I loan
program as set forth in 24 CFR Parts 201 and 202, and is the subject
of FHA insurance, (ii) was originated and underwritten in accordance
with applicable FHA requirements, and (iii) was made to provide
financing for eligible home improvements for a residential dwelling;
(6) FHA Acceptable Forms. The related Mortgage Note and, if applicable,
the related Mortgage are on forms acceptable to FHA;
(7) FHA Insured. The Home Improvement Asset was originated and has been
serviced in a manner such that the Loan will be eligible for the
maximum amount of insurance made available by the FHA pursuant to
Title I of the National Housing Act (subject to the aggregate
limitation on the amount of FHA insurance available for the
Borrower), without any right of offset, counterclaim or any other
defense by the FHA. The Borrower has reported the
Schedule 1-9
<PAGE> 58
origination of the Mortgage Asset to the FHA and has obtained or
shall obtain a case number for the Mortgage Asset from the FHA;
(8) Completion Certificate. With respect to each Home Improvement Asset
originated by a dealer or contractor, the Borrower is in possession
of the completion certificate for the related improvement as required
by FHA for the Home Improvement Asset;
(9) FHA Insurance Reserves. Borrower has or will cause an amount of FHA
Insurance Reserves with respect to the Home Improvement Assets equal
to 10% of the outstanding principal balance of such Mortgage Assets
as of the related Funding Date to be transferred or approved for
transfer on or prior to the related Funding Date to the Lender's
account maintained by the FHA; and
(10) Insurance Premiums Paid. No FHA insurance premiums are due and
unpaid, and all such premiums for subsequent periods shall be timely
paid.
Schedule 1-10
<PAGE> 59
SCHEDULE 2
FILING JURISDICTIONS AND OFFICES
Elmsford, New York,
State of New York
Schedule 2-1
<PAGE> 60
SCHEDULE 3
LIST OF SETTLEMENT AGENTS
Schedule 3-1
<PAGE> 61
SCHEDULE 4
AUTHORIZED REPRESENTATIVES OF THE BORROWER
Schedule 4-1
<PAGE> 62
EXHIBIT B
[FORM OF CUSTODIAL AGREEMENT]
(stored as a separate document)
<PAGE> 63
EXHIBIT C
[FORM OF OPINION OF COUNSEL TO BORROWER]
(date)
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to
Cityscape Corp., a New York corporation (the "Borrower"), with respect to
certain matters in connection with that certain Master Loan and Security
Agreement, dated as of January 1, 1997 (the "Loan and Security Agreement"), by
and between the Borrower and Greenwich Financial Products, Inc. (the "Lender"),
being executed contemporaneously with a Promissory Note dated _____ __, 1997
from the Borrower to the Lender (the "Note"), a Custodial Agreement, dated as of
January 1, 1997 (the "Custodial Agreement"), by and among the Borrower, First
Trust National Association (the "Custodian"), and the Lender. Capitalized terms
not otherwise defined herein have the meanings set forth in the Loan and
Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. Custodial Agreement;
4. unfiled copies of the financing statements listed
on Schedule 1 (collectively, the "Financing
Statements") naming the Borrower as Debtor and
the Lender as Secured Party and describing the
Collateral (as defined in the Loan and Security
Agreement) as to which security interests may be
perfected by filing under the Uniform Commercial
Code of the States listed on Schedule 1 (the
"Filing Collateral"), which I understand will be
filed in the filing offices listed on Schedule 1
(the "Filing Offices");
5. the reports listed on Schedule 2 as to UCC
financing statements (collectively, the "UCC
Search Report"); and
6. such other documents, records and papers as we
have deemed necessary and relevant as a basis for
this opinion.
To the extent [we] [I] have deemed necessary and proper,
[we] [I] have relied upon the representations and warranties of the Borrower
contained in the Loan and Security Agreement. [We] [I] have assumed (other than
with respect to the Borrower) the authenticity of all documents submitted
C-1
<PAGE> 64
to me as originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to the originals of all documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. The Borrower is a New York corporation duly organized,
validly existing and in good standing under the laws of New York and is
qualified to transact business in, and is in good standing under, the laws of
the state of New York.
2. The Borrower has the corporate power to engage in the
transactions contemplated by the Loan and Security Agreement, the Note, and the
Custodial Agreement and all requisite [corporate] power, authority and legal
right to execute and deliver the Loan and Security Agreement, the Note, and the
Custodial Agreement and observe the terms and conditions of such instruments.
The Borrower has all requisite corporate power to borrow under the Loan and
Security Agreement and to grant a security interest in the Collateral pursuant
to the Loan and Security Agreement.
3. The execution, delivery and performance by the Borrower
of the Loan and Security Agreement, the Note, and the Custodial Agreement, and
the borrowings by the Borrower and the pledge of the Collateral under the Loan
and Security Agreement have been duly authorized by all necessary corporate
action on the part of the Borrower. Each of the Loan and Security Agreement, the
Note and the Custodial Agreement have been executed and delivered by the
Borrower and are legal, valid and binding agreements enforceable in accordance
with their respective terms against the Borrower, subject to bankruptcy laws and
other similar laws of general application affecting rights of creditors and
subject to the application of the rules of equity, including those respecting
the availability of specific performance, none of which will materially
interfere with the realization of the benefits provided thereunder or with the
Lender's security interest in the Mortgage Assets.
4. No consent, approval, authorization or order of, and no
filing or registration with, any court or governmental agency or regulatory body
is required on the part of the Borrower for the execution, delivery or
performance by the Borrower of the Loan and Security Agreement, the Note and the
Custodial Agreement or for the borrowings by the Borrower under the Loan and
Security Agreement or the granting of a security interest to the Lender in the
Collateral, pursuant to the Loan and Security Agreement.
5. The execution, delivery and performance by the Borrower
of, and the consummation of the transactions contemplated by, the Loan and
Security Agreement, the Note and the Custodial Agreement do not and will not (a)
violate any provision of the Borrower's charter or by-laws, (b) violate any
applicable law, rule or regulation, (c) violate any order, writ, injunction or
decree of any court or governmental authority or agency or any arbitral award
applicable to the Borrower of which I have knowledge (after due inquiry) or (d)
result in a breach of, constitute a default under, require any consent under, or
result in the acceleration or required prepayment of any indebtedness pursuant
to the terms of, any agreement or instrument of which I have knowledge (after
due inquiry) to which the Borrower is a party or by which it is bound or to
which it is subject, or (except for the Liens created pursuant to the Loan and
Security Agreement) result in the creation or imposition of any Lien upon any
Property of the Borrower pursuant to the terms of any such agreement or
instrument.
6. There is no action, suit, proceeding or investigation
pending or, to the best of [our] [my] knowledge, threatened against the Borrower
which, in [our] [my] judgment, either in any one instance or in the aggregate,
would be reasonably likely to result in any material adverse change in the
properties, business or financial condition, or prospects of the Borrower or in
any material impairment of the right or ability of the Borrower to carry on its
business substantially as now conducted or in any material liability on the part
of the Borrower or which would draw into question the validity of the Loan and
Security Agreement, the Note, the Custodial Agreement or the Mortgage
C-2
<PAGE> 65
Assets or of any action taken or to be taken in connection with the transactions
contemplated thereby, or which would be reasonably likely to impair materially
the ability of the Borrower to perform under the terms of the Loan and Security
Agreement, the Note, the Custodial Agreement or the Mortgage Assets.
7. The Loan and Security Agreement is effective to create,
in favor of the Lender, a valid security interest under the Uniform Commercial
Code in all of the right, title and interest of the Borrower in, to and under
the Collateral as collateral security for the payment of the Secured Obligations
(as defined in the Loan and Security Agreement), except that (a) such security
interests will continue in Collateral after its sale, exchange or other
disposition only to the extent provided in Section 9-306 of the Uniform
Commercial Code, (b) the security interests in Collateral in which the Borrower
acquires rights after the commencement of a case under the Bankruptcy Code in
respect of the Borrower may be limited by Section 552 of the Bankruptcy Code.
8. When the Mortgage Notes are delivered to the Custodian,
endorsed in blank by a duly authorized officer of the Borrower, the security
interest referred to in paragraph 7 above in the Mortgage Notes will constitute
a fully perfected first priority security interest in all right, title and
interest of the Borrower therein, in the Mortgage Asset evidenced thereby and in
the Borrower's interest in the related Mortgaged Property.
9. (a) Upon the filing of financing statements on Form
UCC-1 naming the Lender as "Secured Party" and the Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording offices listed on
Schedule 1 attached hereto, the security interests referred to in paragraph 8
above will constitute fully perfected security interests under the Uniform
Commercial Code in all right, title and interest of the Borrower in, to and
under such Collateral, which can be perfected by filing under the Uniform
Commercial Code.
(b) The UCC Search Report sets forth the proper filing
offices and the proper debtors necessary to identify those Persons who have on
file in the jurisdictions listed on Schedule 1 financing statements covering the
Filing Collateral as of the dates and times specified on Schedule 2. Except for
the matters listed on Schedule 2, the UCC Search Report identifies no Person who
has filed in any Filing Office a financing statement describing the Filing
Collateral prior to the effective dates of the UCC Search Report.
10. The Assignments of Mortgage are in recordable form,
except for the insertion of the name of the assignee, and upon the name of the
assignee being inserted, are acceptable for recording under the laws of the
state where each related Mortgaged Property is located.
11. The Borrower is duly registered as a [____________] in
each state in which Mortgage Assets were originated to the extent such
registration is required by applicable law, and has obtained all other licenses
and governmental approvals in each jurisdiction to the extent that the failure
to obtain such licenses and approvals would render any Mortgage Asset
unenforceable or would materially and adversely affect the ability of the
Borrower to perform any of its obligations under, or the enforceability of, the
Loan Documents.
12. Assuming that all other elements necessary to render a
Mortgage Asset legal, valid, binding and enforceable were present in connection
with the execution, delivery and performance of each Mortgage Asset (including
completion of the entire Mortgage Asset fully, accurately and in compliance with
all applicable laws, rules and regulations) and assuming further that no action
was taken in connection with the execution, delivery and performance of each
Mortgage Asset (including in connection with the sale of the related Mortgaged
Property) that would give rise to a defense to the legality, validity, binding
effect and enforceability of such Mortgage Asset, nothing in
C-3
<PAGE> 66
the forms of such Mortgage Assets, as attached hereto as Exhibit A, would render
such Mortgage Assets other than legal, valid, binding and enforceable.
13. Assuming their validity, binding effect and
enforceability in all other respects (including completion of the entire
Mortgage Asset fully, accurately and in compliance with all applicable laws,
rules and regulations), the forms of Mortgage Assets attached hereto as Exhibit
A are in sufficient compliance with New York law and Federal consumer protection
laws so as not to be rendered void or voidable at the election of the Mortgagor
thereunder.
Very truly yours,
C-4
<PAGE> 67
EXHIBIT E
UNDERWRITING GUIDELINES FOR HOME EQUITY LOANS AND HOME IMPROVEMENT LOANS
(on file with Greenwich Capital Financial Products, Inc.)
E-1
<PAGE> 68
EXHIBIT F
UNDERWRITING GUIDELINES FOR SM/MU ASSETS
(on file with Greenwich Capital Financial Products, Inc.)
F-1
<PAGE> 69
EXHIBIT G
UNDERWRITING GUIDELINES FOR HIGH LTV ASSETS
(on file with Greenwich Capital Financial Products, Inc.)
G-1
<PAGE> 70
EXHIBIT H
WHOLE LOAN AGREEMENT
H-1
<PAGE> 71
EXHIBIT K
FORM OF BORROWING BASE CERTIFICATE
K-1
<PAGE> 72
EXHIBIT L
DOCUMENT EXCEPTION CODES
<TABLE>
<CAPTION>
ASMP ASSUMPTION AGREEMENT
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
5500 Assumption agreement is missing
5501 Assumption agreement is not recorded
5502 Copy of assumption is unrecorded
5504 Assumption is missing borrower signature
5505 Copy of recorded assumption
</TABLE>
<TABLE>
<CAPTION>
ASSC CORPORATE ASSIGNMENT
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
2500 Assignment is missing F
2504 Assignee is missing or incorrect
2508 Recording information is missing or does not agree with DOT
2509 Notary information is missing
2510 Name of issuer is missing or incorrect F
2513 Legal description is missing or does not agree with DOT F
2515 Authorized signature is missing F
2529 Assignment is a copy - unrecorded
2530 Original assignment - unrecorded
2531 Unexecuted copy in file - original out for signature
2534 Uncertified copy of a recorded Assignment F
</TABLE>
L-1
<PAGE> 73
<TABLE>
<CAPTION>
ASSN INTERIM ASSIGNMENT
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
2600 Interim assignment is missing F
2604 Assignee is missing or does not agree with endorsement
2608 Recording information or legal description is missing or does not
agree with DOT
2609 Notary information is missing or incorrect
2610 Name of issuer is missing or incorrect F
2616 Authorized signature is missing F
2617 Interim assignment is a company certified copy
2619 Copy of recorded interim assignment
2620 Document is a copy - unrecorded F
2621 Original unrecorded interim assignment
</TABLE>
<TABLE>
<CAPTION>
DOFT DEED OF TRUST
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
3102 Recording information is incomplete
3103 Date does not agree with note F
3106 Beneficiary is missing or does not agree with note F
3107 County of property does not match county recorded in
3108 Legal description is missing F
3109 Loan amount is missing or does not agree with note F
3111 Deed of Trust/Mortgage is missing F
3113 Notary information is missing or incorrect
3115 Rider(s) references herein not attached F
3116 Rider does not have original signature(s)
3119 Document has "white cuts" no borrower initials F
3120 Interest rate is missing or does not agree with schedule
3122 Paid amount does not agree with note
3124 Date of first payment is missing or does not agree with schedule
</TABLE>
L-2
<PAGE> 74
<TABLE>
DOFT DEED OF TRUST
------------------------------------------------------------------------------------------------------------
EXCEPTION # DESCRIPTION FATAL EXCEPTION
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3125 Date of last payment is missing or does not agree with schedule
3128 Property address does not match schedule F
3129 Rider to DOFT is not recorded
3130 Deed of Trust/Mortgage is not recorded
3131 Mortgage amount does not match schedule
3134 Mortgage amount written and numeric do not match
3135 Document missing borrower(s) signature F
3136 Copy of ARM rider is unrecorded
3138 Copy of 1-4 family rider is unrecorded
3140 Copy of CONDO rider is unrecorded
3142 Copy of PUD rider is unrecorded
3144 Copy of BALLOON rider is unrecorded
3146 Copy of recorded ARM rider F
3147 Copy of recorded 1-4 family rider F
3148 Original CONDO rider - unrecorded
3149 Copy of recorded CONDO rider F
3150 CONDO rider is missing borrower signature F
3151 Missing PUD rider F
3152 Original PUD rider - unrecorded
3153 Copy of recorded PUD rider F
3154 Copy of recorded BALLOON rider F
3181 Copy of recorded Mortgage F
3182 Missing ARM rider F
3183 Original ARM rider - unrecorded
3184 ARM rider is missing borrower signature F
3185 Missing 1-4 family rider F
3186 Original 1-4 family rider - unrecorded
3187 1-4 family rider is missing borrower signature F
3188 Missing CONDO rider F
3189 PUD rider is missing borrower signature F
</TABLE>
L-3
<PAGE> 75
<TABLE>
<CAPTION>
DOFT DEED OF TRUST
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
3190 Missing BALLOON rider F
3191 Original BALLOON rider - unrecorded
3192 BALLOON rider is missing borrower signature F
3195 Deed of Trust/Mortgage is a copy F
3197 Deed of Trust/Mortgage is a cc'd copy
</TABLE>
<TABLE>
<CAPTION>
MOD MODIFICATION AGREEMENT
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
5800 MOD is missing F
5801 MOD is original - unrecorded
5802 MOD is a copy F
5804 MOD is missing borrower signature F
5805 Copy of recorded MOD F
</TABLE>
<TABLE>
<CAPTION>
NOTE NOTE
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
3700 Note is missing F
3703 Note amount is missing or does not agree with schedule F
3704 Date of last payment is missing or doesn't agree with schedule
3705 Interest rate is missing or does not agree with schedule
3706 PU is missing or does not agree with schedule
3707 Date of first payment is missing or does not agree with schedule
3708 Mortgagor name is missing or does not agree with schedule F
3709 Loan amount, alpha and numeric do not agree
3711 Interest rate, alpha and numeric do not agree
3712 PU, alpha and numeric do not agree
3716 Endorsements are missing F
</TABLE>
L-4
<PAGE> 76
<TABLE>
<CAPTION>
NOTE NOTE
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
3718 Property address is missing or does not agree with schedule F
3719 Endorsements are incorrect F
3720 Note is incomplete (see text for details) F
3721 Note is a copy F
3722 Note has "white out" no borrower initials F
3723 Endorsement(s) missing authorized signature F
3724 Lost note affidavit with copy of note
3725 Incorrect note in file F
3728 Lost note affidavit - no note copy F
</TABLE>
<TABLE>
<CAPTION>
PACT PARTICIPATION CERTIFICATE
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
3800 Participation certificate is missing F
</TABLE>
<TABLE>
<CAPTION>
PMI PRIVATE MORTGAGE INSURANCE
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
4000 PMI is missing
4012 Authorized signature is missing
4014 PMI is a copy
</TABLE>
L-5
<PAGE> 77
<TABLE>
<CAPTION>
POFA POWER OF ATTORNEY
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
4100 Power of attorney is missing F
4104 Power of attorney is a copy F
4105 Power of attorney is original - unrecorded
4107 Recorded Power of attorney is a copy
</TABLE>
<TABLE>
<CAPTION>
SECA SECURITY AGREEMENT
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
4800 Security agreement is missing F
</TABLE>
<TABLE>
<CAPTION>
STCT STOCK CERTIFICATE
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
9030 Stock certificate is missing F
</TABLE>
<TABLE>
<CAPTION>
TPOL TITLE POLICY
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
4900 Title policy is missing F
4902 Amount of insurance does not match deed F
4904 Name of insured is not the beneficiary of its assigns F
4905 Vesting information does not match deed F
4906 Sch A - mortgage description has incorrect mortgage amount F
4907 Sch A - mortgage description has incorrect date of mortgage F
4908 Sch A - mortgage description has incorrect trustor
4909 Sch A - mortgage description has incorrect trustee F
4910 Sch A - mortgage description has incorrect beneficiary F
4911 Sch A - mortgage description has incorrect recording date
</TABLE>
L-6
<PAGE> 78
<TABLE>
<CAPTION>
TPOL TITLE POLICY
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
4912 Sch A - mortgage description has incorrect recording data
4913 Sch A - mortgage description has incorrect assignment information
(if shown) F
4915 Legal description does not match deed F
4916 Schedule B parts I and II are missing F
4920 Title policy is missing authorized signature F
4921 Endorsement(s) to policy is missing signature F
4923 Schedule A is missing F
4925 Title policy is missing cover F
4926 Date of Title policy (see text for details)
4933 Title policy is missing recording information
4934 Document is a commitment/preliminary report F
4935 Title policy is a copy F
</TABLE>
<TABLE>
<CAPTION>
XCON EXTENSION & CONSOLIDATION & MODIFICATION
Exception # Description Fatal Exception
- ----------- ----------- ---------------
<S> <C> <C>
5600 Original extension/consolidation - unrecorded
5601 XCON is a copy F
5602 XCON is missing F
</TABLE>
L-7
<PAGE> 79
ANNEX I
NON-PERFORMING LOAN SUBLINE TERMS
The Borrower and the Lender agree that notwithstanding and in addition to the
terms of the Agreement, the following terms and conditions apply:
Eligible Collateral: The Mortgage Assets listed on
Schedule 5 to the Agreement.
Applicable Collateral
Percentage: 50% of the aggregate outstanding
principal balance of the Eligible
Collateral as of the Business Day
prior to the Funding Date.
Applicable Margin: 2.50% per annum.
Funding Date: November 24, 1997
Custody: Pursuant to First Trust Custodial
Agreement
Application of Obligor
Interest Payments: In addition to application
of Mortgagor principal payments to
reduction of principal balance of this
Subline in accordance with Section
2.06, interest received from
Mortgagors on the Eligible Collateral,
to the extent such interest is in
excess of the interest due on this
Subline pursuant to Section 2.05,
shall be applied to reduction of the
principal balance of this Subline.
Non-Revolving Subline: Principal amounts repaid under this
Subline may not be reborrowed.
Other Provisions: All other provisions of the Agreement
shall be applicable to this Subline to
the extent such provisions are not
inconsistent with this Annex I.
I-1
<PAGE> 80
ANNEX II
WET LOAN SUBLINE TERMS
The Borrower and Lender agree that notwithstanding and in addition to the terms
of the Agreement, the following terms and conditions shall apply:
Eligible Collateral: Home Equity Mortgage Asset and High
LTV Assets other than purchase money
mortgage loans.
Applicable Collateral The least of (a) 85%, (b) the
Percentage: Applicable Collateral Percentage set
forth in the Agreement for the related
Mortgage Asset, and (c) with respect
to any High LTV Asset to be funded
under this Subline for which no FICO
score has been communicated by the
Borrower to the Wet Loan Custodian,
70%.
Initial To be mutually agreed upon between
Draw Date: Lender and Borrower following Lender's
due diligence of the Wet Loan
Custodian and formal approval of
Lender's Credit Department.
Wet Loan Custodian: CoreStates Bank, N.A. pursuant to the
Wet Loan Custodial Agreement.
Wet Loan Custodial
Agreement: A custodial agreement among Lender,
Borrower and CoreStates Bank, N.A.
dated as of November 24, 1997.
Funding Account: The account held by the Wet Loan
Custodian entitled CoreStates Bank,
N.A., as agent for Greenwich Capital
Financial Products, Inc. Amounts
returned to the Funding Account shall
be applied to the prepayment of the
Loans in accordance with the Wet Loan
Custodial Agreement.
Maximum Subline: $30,000,000
Procedures for Borrowing: 1. Not later than the Business Day prior
to the related Funding Date, the
Borrower will provide the Lender with
a good faith estimate of the Mortgage
Assets to be funded under this Subline
on the related Funding Date.
2. Not later than the related Funding
Date:
(a) The Borrower will deliver and
release to the Wet Loan Custodian
the original Mortgage Note and
all intervening endorsements for
all Mortgage Assets to be funded.
(b) Borrower will deliver to the
Lender the "Green Line Inventory
Report" listing the Mortgage
Assets to be funded.
II-1
<PAGE> 81
(c) Borrower will input wire
instructions to the applicable
Settlement Agents on the Wet Loan
Custodian's cash management
system.
3. On the related Funding Date:
(a) The Wet Loan Custodian, as
Funding Agent for the Lender,
will fund the Settlement Agents
from the Funding Account (with
any amount above the Applicable
Collateral Percentage being
funded out of a Borrower account
held by the Wet Loan Custodian)
pursuant to wire instructions
input by the Borrower, provided
Procedure #2 above has been
satisfied.
(b) The Wet Loan Custodian will fax
to the Lender by 4:00 p.m., New
York City time, a "Daily
Transaction Report" listing all
Mortgage Assets to be funded on
the related Funding Date and a
Trust Receipt stating that the
Wet Loan Custodian is holding in
trust for the Lender the original
Mortgage Note and all intervening
endorsements for each such
Mortgage Asset.
4. Not later than three (3) Business Days
following the related Funding Date,
the Borrower will deliver and release
to the Wet Loan Custodian a complete
Mortgage File for each Mortgage Asset
funded on the related Funding Date (so
that each such Mortgage Asset shall
qualify as a "Dry Mortgage Asset" as
defined below) in accordance with the
terms of the Agreement.
5. Not later than four (4) Business Days
following the related Funding Date,
the custodial division of the Wet Loan
Custodian will deliver to the Lender a
Trust Receipt stating that it is
holding all Mortgage Loan Documents as
defined in the Wet Loan Custodial
Agreement together with a Mortgage
Asset Schedule and Exception Report
with respect to each Mortgage Asset
funded on the related Funding Date in
accordance with the terms and
conditions of the Wet Loan Custodial
Agreement.
Applicable Collateral In the event the Borrower has not
Percentage Reduction: delivered a complete Mortgage File for
a Mortgage Asset within four (4)
Business Days of the related Funding
Date, the Applicable Collateral
Percentage for such Mortgage Asset
will be reduced to 50%. In the event
the Borrower has not delivered a
complete Mortgage File for a Mortgage
Asset within seven (7) Business Days
of the related Funding Date, the
Applicable Collateral Percentage will
be reduced to 0%. After December 31,
1997, the Applicable Collateral
Percentage will be reduced to 0%.
Additional Representations
and Warranties: As to each Mortgage Asset included in
the Borrowing Base on a Funding Date
(and the related Mortgage, Mortgage
Note, Assignment
II-2
<PAGE> 82
of Mortgage and Mortgaged Property), the
Borrower shall be deemed to make the
following representations and warranties to
the Lender as of such date and as of each
date Collateral Value is determined. With
respect to any representations and
warranties made to the best of the
Borrower's knowledge, in the event that it
is discovered that the circumstances with
respect to the related Mortgage Asset are
not accurately reflected in such
representation and warranty notwithstanding
the knowledge or lack of knowledge of the
Borrower, then, notwithstanding that such
representation and warranty is made to the
best of the Borrower's knowledge, such
Mortgage Asset shall be assigned a
Collateral Value of zero:
(a) The Borrower has in its possession an
effective Insured Closing Letter
covering each Settlement Agent to be
used in connection with such funding
or evidence of an errors and omissions
insurance policy acceptable to Lender
in effect with such Settlement Agent.
(b) The escrow instructions for each
Mortgage Asset to be funded under this
Subline advise the Settlement Agent
that the Settlement Agent will be
holding the funds in trust for the
Lender and will instruct the
Settlement Agent to return any funds
as a result of "defundings" to the
Funding Account.
(c) The Settlement Agent has been notified
and instructed, as part of an escrow
instruction letter delivered to such
Settlement Agent by the Borrower, as
follows (and has agreed to act in
accordance therewith):
"The funds to be used for closing this
transaction may be provided via wire
transfer from First Trust National
Association (the "Custodian") on
behalf of Greenwich Capital Financial
Products, Inc. (the "Lender"). You are
to hold the closing funds in trust for
the Custodian for the benefit of the
Lender until such time as the funds
are disbursed in accordance with the
escrow instructions.
If the mortgage loan is not funded by
the close of business on the business
day on which you receive the closing
funds, you should contact Cityscape
Corp. ("Cityscape") immediately for
instructions as to whether to hold the
funds for a rescheduled funding on the
next business day or to return the
funds to the Lender. If, by [2:00
p.m.], New York City time, on the
business day after the initial
scheduled closing date, you have not
received instructions from Cityscape
to hold the funds for a rescheduled
closing, you should return the funds
via federal funds wire transfer to the
Lender as follows: [INSERT WIRE
TRANSFER INSTRUCTIONS TO PAYDOWN
ACCOUNT].
II-3
<PAGE> 83
If you hold the funds for a
rescheduled closing, but the mortgage
loan does not close on the rescheduled
closing date, you are to return the
closing funds via federal funds wire
transfer to the Lender to the account
specified above, no later than [12:00
noon], New York City time, on the
business day after the rescheduled
closing date.
Upon the funding of the mortgage loan,
all of the documents and files
relating to such mortgage loan shall
be subject to the security interest of
the Lender therein, and you hereby
agree to act as the Lender's agent,
custodian and bailee for such time as
you are holding the same. You are
instructed at such time to deliver the
mortgage loan documents and files to
the Custodian in accordance with the
closing instructions. These
instructions shall be irrevocable and
can only be modified with the approval
in writing of the Lender or the
Custodian, as directed by the Lender."
(d) In the case of any Wet-Ink Mortgage
Assets that are or have been
originated by a correspondent
originator in a transaction
table-funded by the Borrower with
respect to which the related Mortgage
Note is payable to the correspondent
originator and the related Mortgage
names the correspondent originator as
the mortgagee, the mortgage asset
purchase agreement (or other similar
agreement or separate instrument)
between such correspondent originator
and the Borrower contains a power of
attorney provision enabling the
Borrower, if necessary, to endorse the
related Mortgage Note and/or execute
the related Assignment of Mortgage,
all in the name of such correspondent
originator and in favor of the
Borrower, and such power of attorney
is enforceable and in full force and
effect and all filings, notices and
other actions necessary or advisable
to obtain the full benefits thereof
(including, if required by any
relevant jurisdiction, any
registration or recording thereof)
have been made or taken.
Definitions:
The following terms shall have the following
meanings:
"Dry Mortgage Asset" shall mean an
Eligible Asset with respect to
which the Mortgage File has been
received by the Custodian and
the Custodian has issued and the
Lender has received a Trust
Receipt and Exception Report
showing no Material Exceptions
in respect thereof.
"Insured Closing Letter" shall mean a
letter of indemnity from a title
insurance company addressed to
the Borrower with coverage that
is customarily acceptable to
Persons engaged in the
origination of mortgage assets
similar to the Mortgage Assets
(the Lender hereby agreeing that
for purposes of this Loan
Agreement, a letter of
II-4
<PAGE> 84
indemnity from a title insurance
company which is in form
acceptable to the Lender shall
be acceptable as an Insured
Closing Letter).
"Settlement Agent" shall mean, with
respect to any Loan, the entity
approved by the Lender, in its
sole discretion (which may be a
title company, escrow company or
attorney in accordance with
local law and practice in the
jurisdiction where the related
Wet-Ink Mortgage Asset is being
originated) to which the
proceeds of all or a portion of
such Loan are to be distributed
by the Custodian pursuant to the
instructions of the Borrower.
Other Provisions: All other provisions of the Agreement
shall be applicable to this Subline to
the extent such provisions are not
inconsistent with this Annex II.
II-5
<PAGE> 85
EXTENSION AGREEMENT
This EXTENSION AGREEMENT, dated as of December 31, 1997 (this
"AGREEMENT"), is made by and between Greenwich Capital Financial Products, Inc.
("GCFP") and Cityscape Corp. ("Cityscape").
Reference is made to the Mortgage 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 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 expires on December 31, 1997. GCFP is willing, upon the
terms and conditions set forth herein, to extend the term of the Loan Facility
for the period commencing on January 1, 1998 and ending on March 31, 1998 (the
"Extension Period").
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 herein and in the Loan Facility, to extend the
Termination Date as provided in the Loan Agreement from
December 31, 1997, to March 31, 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. Eligible Asset. In addition to the terms and conditions set
forth in, and notwithstanding anything to the contrary
contained in, the Loan Agreement, including, without
limitation, the representations and warranties set forth in
Section 6.07 of, and Schedule 1 to the Loan Agreement, Home
Improvement Assets, FHA Assets, High LTV Assets with FICO
scores below 600, and SM/MU Assets will not be Eligible Assets
under the Loan Agreement; provided, that High LTV Assets with
FICO scores between 600-620 will not be Eligible Assets
following February 28, 1998.
4. Maximum Amount of Additional Loans. The definition of "Maximum
Credit" in the Loan Agreement shall hereby be amended to
<PAGE> 86
include the following provision immediately prior to the end
of such definition: "provided, however, that on and after
January 1, 1998, "Maximum Credit" shall mean $100,000,000.00,
which amount shall be subject to review and adjustment by GCFP
at January 31, 1998."
5. Applicable Margin. On and after January 1, 1998, the
Applicable Margin shall be increased from 1.50% to 2.00% per
annum.
6. Collateral Value. The definition of "Collateral Value" in
Section 1.01 of the Loan Agreement is hereby amended by: (a)
deleting in clause (i)(5) thereof "120" and substituting
therefor "60"; and deleting in clause (iv) thereof
"$15,000,000.00" and substituting therefor "$5,000,000.00".
7. Expenses. Cityscape hereby agrees to reimburse GCFP promptly
upon request for all of GCFP's reasonable fees and expenses
incurred in connection with the negotiation and documentation
of the Loan Agreement, this Agreement and any other agreements
or amendments executed in furtherance thereof and hereof. In
connection therewith, Cityscape shall deposit with GCFP in
immediately available funds the following amounts: (a)
$100,000.00 on January 6, 1998; and (b) $100,000.00 on the
Residual Closing Date (as defined below). The foregoing
amounts may be used by GCFP to pay estimated expenses and
disbursements incurred and expected to be incurred by GCFP in
connection with the purposes described in the first sentence
of Section 7 hereof.
8. Extension Fee. In consideration for extending the term of the
Loan Facility, Cityscape shall pay to GCFP a fee of 1.50% (the
"Extension Fee") of the amount of Maximum Credit that is in
effect on January 1, 1998. The Extension Fee shall be paid in
immediately available funds in the following manner: (a)
$500,000.00 shall be due and payable on January 6, 1998; (b)
an additional $500,000.00 shall be due and payable on the
business day following the date on which the closing (the
"RESIDUAL CLOSING DATE") of any purchase of the residual
interests created in connection with Cityscape Corp. Home
Equity Loan Trust, Series 1997-B and/or Cityscape Corp. Home
Equity Loan Trust, Series 1997-C occurs; and (c) any
remaining, unpaid balance of the Extension Fee shall be due
and payable no later than February 15, 1998.
9. Cash Flow Projections. On the last Business Day of each week,
Cityscape shall provide to GCFP cash flow projections showing
weekly and monthly cash flows on a rolling four week and three
month basis.
10. Pledge of Residuals. In consideration for GCFP's agreeing to
extend the term of the Loan Facility upon the terms and
conditions
<PAGE> 87
provided herein and as additional Collateral under the Loan
Agreement to secure the repayment of principal of and interest
on all Loans owning to GCFP thereunder and all other amounts
owing under the Loan Facility, Cityscape will, concurrent with
the execution of this Agreement, enter into a Pledge Agreement
(SPV) dated February 3, 1998 among Cityscape, GCFP and CIT
Group/Equipment Financing Inc. (the "Pledge Agreement"),
pursuant to which Cityscape will pledge and grant to or for
the benefit of GCFP and CIT a security interest in the
"Collateral" and "Additional Collateral" (as defined in, and
subject to, the provisions of the Pledge Agreement.) GCFP
hereby agrees to share a security interest in, and proceeds
of, the Collateral and Additional COLLATERAL with CIT as
described in the Pledge Agreement, and that 50% of the
proceeds from the sale of Collateral and Additional Collateral
may be applied by the Company to its obligations under the CIT
Credit Agreement (as defined in the Pledge Agreement).
11. Whole Loan Trade-Aways. GCFP shall have the right to identify
potential third-party buyers of the Mortgage Loans subject to
the Loan Facility and coordinate negotiations with such third
parties on Cityscape's behalf regarding the terms of purchase
of such Mortgage Loans by such third-parties. In connection
with any sale, securitization or any other transfer of the
Mortgage Loans to any third-party (any of the foregoing, a
"TRADE-AWAY"), regardless of whether GCFP assisted in any such
Trade-Away, Cityscape shall pay to GCFP a fee of 0.25% of the
aggregate principal balance of any such Mortgage Loans subject
to such Trade-Away on or before the date on which such
Trade-Away closes.
12. Conditions to Further Advances. GCFP's obligation to make any
additional Loans to Cityscape under the Loans Agreement, on
and after the dates specified in this section 9, shall be
subject to Cityscape having the ability, on and after February
3, 1998, to draw under a committed line of credit (the terms
of which shall be satisfactory to GCFP) of at least
$30,000,000.00 which facility shall provide a subline for
unsecured wet mortgage loan fundings of at least
$3,000,000.00.
13. Financial Condition Covenants. The covenants set forth in
Section 7.18 and 7.26 of the Loan Agreement are hereby deleted
in their entirety, and Lender hereby waives any past or
current default under those covenants; provided, however, that
Lender's agreement to each of the foregoing is expressly
conditioned upon Lender and Borrower agreeing to a mutually
agreeable substitute financial covenant for the Loan Agreement
on or prior to February 9, 1998.
14. Further Assurances. The parties hereto hereby agree to execute
and deliver such additional documents, instruments or
agreements as may
<PAGE> 88
be reasonably necessary and appropriate to effectuate the
purposes of this Agreement.
15. 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.
16. Conflicts. Unless specifically amended or revised herein, all
the terms and conditions of the Loan Agreement and the Loan
Facility 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 any agreement
constituting the Loan Facility, the provisions and definitions
of this Agreement shall control.
17. Amendment. The provisions of this Agreement may only be
amended, revised, modified or supplemented by a written
agreement executed by the parties hereto.
18. Counterparts. This Agreement may be executed in any number of
counterparts, all of which, when taken together, shall
constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such
counterpart.
19. No Waiver. Unless specifically provided herein, nothing
contained in this Agreement shall be deemed to be a waiver of
any rights that GCFP might have under this Agreement, the Loan
Agreement or otherwise under the Loan Facility, or otherwise
at law or in equity.
IN WITNESS WHEREOF, GCFP and Cityscape have caused this Extension Agreement to
be duly executed and delivered by their respective authorized officers as of the
date first above written:
CITYSCAPE CORP.
By: /s/ Peter S. Kucma
Name: Peter S. Kucma
Title: President
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.
By: /s/ John C. Anderson
Name: John C. Anderson
Title: Senior Vice President
<PAGE> 89
FIRST RENEWAL AGREEMENT
This FIRST RENEWAL AGREEMENT, dated March 27, 1998 (this "Agreement"), is
made by and between Greenwich Capital Financial Products, Inc. ("GCFP") and
Cityscape Corp. ("Cityscape").
Reference is made to the Mortgage 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").
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 and
the Extension Agreement, to extend the Extension Period from March 31, 1998, to
April 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 to Extension Agreement. Section 13, "Financial Condition
Covenants" of the Extension Agreement is hereby amended by adding a period
after the word covenants in the third line thereof and deleting the semi-colon
and the remainder of that section.
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 and the Extension
shall remain in full force and effect. In the event of a conflict of any
provision hereof with any provision
<PAGE> 90
or definition set forth in the Loan Agreement or the Loan Facility or the
Extension, the provisions and definitions of this Agreement shall control.
6. Amendment. The provisions of this 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 First 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: Sr. V.P.
GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC.
By: /s/ John C. Anderson
_____________________
Name: John C. Anderson
Title: ?
<PAGE> 1
EXHIBIT 10.21
REVOLVING CREDIT AND SECURITY AGREEMENT
dated as of February 3, 1998
among
CITYSCAPE CORP.,
as Borrower
and
CITYSCAPE FINANCIAL CORP.,
as Guarantor
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders
and
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Agent
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS...............................1
Section 1.01. Definitions............................................1
Section 1.02. Accounting Terms......................................18
Section 1.03. Computation of Time Periods...........................18
Section 1.04. Rules of Construction.................................19
ARTICLE II. LOANS.........................................................19
Section 2.01. Commitment............................................19
Section 2.02. Notes.................................................19
Section 2.03. Notice of Borrowing; Making of Loans..................20
Section 2.04. Payment of Principal..................................22
Section 2.05. Interest..............................................23
Section 2.06. Reduction of Total Commitment; Prepayment of Loans....23
Section 2.07. Payments..............................................24
Section 2.08. Use of Proceeds.......................................26
Section 2.09. Reliance Upon Instructions............................26
Section 2.10. Capital Adequacy Circumstances........................26
Section 2.11. Sharing of Setoffs....................................27
Section 2.12. Taxes.................................................28
Section 2.13. Increase in Total Commitment..........................31
ARTICLE III. COLLATERAL....................................................31
Section 3.01. Collateral; Grant of Security Interest................31
Section 3.02. Responsibility for Collateral.........................34
Section 3.03. Representations and Warranties Concerning Collateral..34
Section 3.04. Release of Security Interest..........................36
Section 3.05. Covenants and Agreements concerning Collateral........37
Section 3.06. Agent's Approval of Investors.........................39
Section 3.07. Uniform Commercial Code Financing Statements..........39
Section 3.08. Collection Rights.....................................39
Section 3.09. Attorney-in-Fact......................................39
Section 3.10. The Borrower Remains Liable...........................40
ARTICLE IV BORROWING BASE................................................40
Section 4.01. Condition of Lending..................................40
Section 4.02. Mandatory Prepayment..................................41
Section 4.03. Rights and Obligations Unconditional..................41
Section 4.04. Borrowing Base Certificate............................41
Section 4.05. General Provisions....................................41
i
<PAGE> 3
ARTICLE V. CONDITIONS PRECEDENT......................................42
Section 5.01. Conditions Precedent to Initial Loan.............42
Section 5.02. Conditions Precedent to All Loans................44
Section 5.03. Loan Requests....................................44
Section 5.04. Disbursing Loans.................................45
Section 5.05. Wet Mortgage Loan Closings.......................46
Section 5.06. Investor Requirements; Other Approvals...........47
Section 5.07. High LTV Mortgage Loans..........................48
Section 5.08. Temporary Release of Collateral Documents:
Delivery of Collateral Documents..............48
Section 5.09. Deemed Representation............................49
ARTICLE VI. REPRESENTATIONS AND WARRANTIES............................49
Section 6.01. Formation, Good Standing and Due Qualification...49
Section 6.02. Power and Authority; No Conflicts................49
Section 6.03. Legally Enforceable Agreements...................49
Section 6.04. Litigation.......................................50
Section 6.05. Financial Statements.............................50
Section 6.06. Ownership and Liens..............................50
Section 6.07. Taxes............................................50
Section 6.08. ERISA............................................50
Section 6.09. Subsidiaries.....................................51
Section 6.10. Operation of Business; Prior or Existing
Restrictions, Etc..............................51
Section 6.11. No Default on Outstanding Judgments or Orders....51
Section 6.12. No Defaults on Other Agreements..................51
Section 6.13. Labor Disputes and Acts of God...................51
Section 6.14. Environmental Protection.........................51
Section 6.15. Compliance with Laws.............................52
Section 6.16. Licenses.........................................52
Section 6.17. Chief Executive Office...........................52
Section 6.18. FHA Servicing....................................52
Section 6.19. Material Contracts...............................52
Section 6.20. Working Capital Indebtedness.....................53
ARTICLE VII. AFFIRMATIVE COVENANTS...................................53
Section 7.01. Maintenance of Existence.........................53
Section 7.02. Conduct of Business..............................53
Section 7.03. Maintenance of Properties........................53
Section 7.04. Maintenance of Records...........................53
Section 7.05. Maintenance of Insurance.........................53
Section 7.06. Compliance with Laws.............................54
Section 7.07. Right of Inspection..............................54
Section 7.08. Reporting Requirements...........................54
Section 7.09. Compliance With Environmental Laws...............58
Section 7.10. Purchase Commitments.............................58
ii
<PAGE> 4
Section 7.11. Pledge of Mortgage Loans..........................58
Section 7.12. Taxes.............................................58
Section 7.13. Adequate Capital..................................58
Section 7.14. ERISA.............................................59
Section 7.15. Borrowing Base....................................59
Section 7.16. Compliance With Custodian Agreement;
Successor Custodian.............................59
Section 7.17. FHA Approved Mortgagee............................59
Section 7.18. Underwriting Guidelines...........................59
Section 7.19. Wet Closing Agents................................60
Section 7.20. Bankruptcy Event..................................60
ARTICLE VIII. NEGATIVE COVENANTS......................................60
Section 8.01. Liens.............................................60
Section 8.02. Debt..............................................62
Section 8.03. Mergers, Etc......................................62
Section 8.04. Leases............................................62
Section 8.05. Sale and Leaseback................................63
Section 8.06. Distributions.....................................63
Section 8.07. Sale of Assets....................................63
Section 8.08. Investments.......................................63
Section 8.09. Financial Hedge Instruments.......................64
Section 8.10. Guaranties, Etc...................................64
Section 8.11. Transactions With Affiliates......................64
Section 8.12. Margin Regulations................................64
Section 8.13. Subwarehousing....................................65
Section 8.14. Bulk Purchases of Mortgage Loans..................65
ARTICLE IX. EVENTS OF DEFAULT.........................................65
Section 9.01. Events of Default.................................65
Section 9.02. Remedies..........................................67
Section 9.03. The Agent May Perform.............................68
Section 9.04. The Agent's Duties................................69
Section 9.05. Continuing Security Interest; Transfer of Note....69
ARTICLE X. AGENT .............................................69
Section 10.01. Appointment......................................69
Section 10.02. Nature of Duties.................................70
Section 10.03. Rights, Exculpation, Etc.........................70
Section 10.04. Reliance.........................................71
Section 10.05. Indemnification..................................71
Section 10.06. CIT Individually.................................72
Section 10.07. Successor Agent..................................72
Section 10.08. Collateral Matters...............................72
iii
<PAGE> 5
ARTICLE XI MISCELLANEOUS..................................................74
Section 11.01. Holidays.............................................74
Section 11.02. Records..............................................74
Section 11.03. Amendments and Waivers...............................74
Section 11.04. No Implied Waiver; Cumulative Remedies...............75
Section 11.05. Notices..............................................75
Section 11.06. Expenses; Taxes; Attorneys' Fees; Indemnification....76
Section 11.07. Application..........................................77
Section 11.08. Severability.........................................77
Section 11.09. Governing Law........................................77
Section 11.10. Prior Understandings.................................78
Section 11.11. Duration; Survival...................................78
Section 11.12. Counterparts.........................................78
Section 11.13. Assignments; Participations..........................78
Section 11.14. Successors and Assigns...............................80
Section 11.15. Confidentiality......................................80
Section 11.16. Waiver of Jury Trial.................................81
Section 11.17. Right of Setoff......................................81
Section 11.18. Headings.............................................82
Section 11.19. Forum Selection and Consent to Jurisdiction..........82
Section 11.20. Periodic Due Diligence Review........................82
iv
<PAGE> 6
Exhibit A Form of Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Custodian Agreement
Exhibit E-1 Form of Pledge Agreement (SPV)
Exhibit E-2 Form of Pledge Agreement (UK)
Exhibit F Description of Collateral Documents
Exhibit G Form of Assignment and Acceptance
Exhibit H Underwriting Guidelines -- High LTV Mortgage Loans
Exhibit I Underwriting Guidelines -- Home Equity Mortgage Loans
Exhibit J Underwriting Guidelines -- Multifamily/Mixed Use Mortgage Loans
Exhibit K Servicing Terms and Provisions
Exhibit L Mortgage Loan Schedule
Exhibit M Form of Mortgage and Mortgage Note
SCHEDULES
Schedule 1.01(A) Commitments
Schedule 2.03 Designated Borrowing Officers
Schedule 3.01 Restrictive Agreements
Schedule 3.03(7) Additional Representations and Warranties for Mortgage Loans
Schedule 6.04 Litigation
Schedule 6.05 Material Liabilities of Borrower
Schedule 6.09 Subsidiaries
Schedule 6.19 Material Contracts
Schedule 8.02 Debt of Borrower
Schedule 8.10 Guaranties, Etc.
v
<PAGE> 7
REVOLVING CREDIT AND SECURITY AGREEMENT, dated as of February
3, 1998 among CITYSCAPE CORP., a New York corporation (the "Borrower"),
CITYSCAPE FINANCIAL CORP., a Delaware corporation (the "Guarantor"), the
financial institutions from time to time party hereto (individually, a "Lender"
and collectively, the "Lenders"), and The CIT GROUP/EQUIPMENT FINANCING, INC.
("CIT"), as agent for the Lenders (in such capacity, the "Agent").
WHEREAS, the Borrower engages in the business of originating,
purchasing, selling and servicing Mortgage Loans (as hereinafter defined);
WHEREAS, the Borrower and the Guarantor have requested the
Agent and the Lenders to provide to the Borrower a secured $30,000,000 revolving
credit facility, which may be increased to $50,000,000 subject to the terms and
conditions hereinafter set forth, in order to finance (A) the Borrower's
origination or purchase of Mortgage Loans, pending whole loan sales or sales to
investors or for holding certain Mortgage Loans in the Borrower's own portfolio,
(B) the repayment of certain existing indebtedness to CoreStates Bank, N.A., and
(C) other general corporate purposes of the Borrower;
WHEREAS, subject to the terms and conditions of this
Agreement, the Agent and the Lenders have agreed from time to time make advances
to the Borrower, up to the maximum aggregate amount of $30,000,000 outstanding
at any time, as such amount may be increased pursuant to the terms and
conditions hereinafter set forth, with the Borrower's obligations for repayment
to be secured, as hereinafter described, by the Collateral (as hereinafter
defined); and
NOW, THEREFORE, in consideration of the promises and the
agreements hereinafter set forth and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Definitions. As used in this Agreement, the
following terms have the following meanings (terms defined in the singular are
to have a correlative meaning when used in the plural and vice versa):
"Affiliate" means, with respect to the Borrower, any Person:
(1) which directly or indirectly controls, or is controlled by, or is under
common control with the Borrower; (2) which directly or indirectly beneficially
owns or holds ten percent or more of any equity or partnership interest of the
Borrower; or (3) ten percent or more of the equity or partnership interest of
which is directly or indirectly beneficially owned or held by Borrower.
"Agencies" means FNMA or FMLMC.
"Agent" has the meaning specified in the first paragraph of
this Agreement and any successor(s).
<PAGE> 8
"Agent Account" shall mean an account in the name of the Agent
designated to the Borrower from time to time into which the Borrower shall make
all payments to the Agent for the account of the Agent or the Lenders, as the
case may be, under this Agreement.
"Agent Advances" shall have the meaning given that term in
Section 10.08(a) hereof.
"Agreement" means this Revolving Credit and Security
Agreement, as amended, supplemented or modified from time to time.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the Agent
and, in the absence of a continuing Event of Default, consented to by the
Borrower, substantially in the form of Exhibit G hereto.
"Availability" means, at any time, the sum of (i) the
difference between (A) the lesser of (x) the Borrowing Base and (y) the Total
Commitment and (B) the aggregate outstanding principal amount of all Loans and
(ii) the amount of cash in the Operating Account at such time.
"Bank" shall mean The Chase Manhattan Bank or The Dai-Ichi
Kangyo Bank, Limited, New York Branch, or their respective successors.
"Borrower" has the meaning specified in the first paragraph of
this Agreement.
"Borrower's Account" shall have the meaning given that term in
Section 2.07(a) hereof.
"Borrowing Base" means, as of the date of determination, the
difference between (i) the Collateral Value of Eligible Mortgages for all
Eligible Residential Mortgage Loans; provided, that, in no event will Eligible
Residential Mortgage Loans include Conforming Mortgage Loans after April 3, 1998
and (ii) such reserves as the Agent, in its reasonable business judgment, may
deem appropriate from time to time.
"Borrowing Base Certificate" means a certificate in the form
of Exhibit C hereto, properly completed, executed and delivered to the Agent and
the Lenders.
"Business Day" means any day other than Saturday, Sunday or
any other day on which banking institutions are authorized or obligated to close
in New York, New York and, with respect to any action under this Agreement that
requires the participation of the Custodian, the city in which the relevant
office of the Custodian is located.
"Case" shall have the meaning specified in Section 7.20
hereof.
"Capital Lease" means any obligation under any lease which has
been or should be capitalized on the books of the lessee in accordance with
GAAP.
-2-
<PAGE> 9
"Certificate of No Default" shall have the meaning specified
in Section 7.08(5) hereof.
"Change of Control" means the Guarantor shall cease to
directly own and control, of record and beneficially, 100% of the
then-outstanding capital stock of the Borrower free and clear of all Liens other
than Liens permitted under Section 8.01(A)(2) hereof.
"CIT" shall have the meaning given to that term in the
introductory paragraph to this Agreement.
"Closing Agent" means a title company, a closing attorney or
other entity which conducts the settlement of a Mortgage Loan and which has not
been disapproved by the Agent upon written notice to the Borrower.
"Closing Date" means such date on which all of the conditions
set forth in Section 5.01 shall be satisfied.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, together with all rules and regulations promulgated in
connection therewith.
"Collateral" means the collateral described in Section 3.01(b)
hereof and, including any other collateral granted to the Agent and the Lenders
in any other Loan Document.
"Collateral Documents" means the documents described in the
Description of Collateral Documents.
"Collateral Market Value" means the price obtainable for any
Pledged Mortgage, as determined in good faith by the Agent, in the commercial
markets regularly trading Mortgage Loans of a similar nature. The Agent's
determination of Collateral Market Value shall be conclusive upon the parties
absent manifest error on the part of the Agent.
"Collateral Sale Proceeds" shall mean all proceeds of the
refinancing, sale or other disposition of Pledged Mortgages and other Collateral
whether by securitization, whole loan sales or otherwise.
"Collateral Value of Eligible Mortgages" means, as of any date
of determination, an amount equal to the percentage specified below for the
appropriate category into which each Eligible Residential Mortgage Loan falls
applied to the least of, with respect to each such Eligible Residential Mortgage
Loan: (1) the outstanding principal amount of the Eligible Residential Mortgage
Loan, (2) the Collateral Market Value of the Eligible Residential Mortgage Loan,
(3) the price at which the Borrower purchased the Eligible Residential Mortgage
Loan or (4) Five Hundred Thousand Dollars ($500,000):
-3-
<PAGE> 10
Category Percentage
- -------- ----------
Conforming Mortgage Loans 85% prior to April 3,
1998 and 0% thereafter
Home Equity Mortgage Loans 85%
Multifamily/Mixed Use Mortgage Loans 80%
High LTV Mortgage Loans To be determined by
the Agent
The percentages specified above may be adjusted downward from time to time by
the Agent, in its sole discretion, based upon criteria such as a decrease in the
yield on the Borrower's portfolio of Mortgage Loans, an increase in the rate of
delinquencies under the Borrower's portfolio of Mortgage Loans, a decrease in
the turn-over rate of the Borrower's portfolio of Mortgage Loans, or such other
criteria deemed appropriate by the Agent.
"Conforming Mortgage Loan" means either (1) a Traditional
First Mortgage Loan, (2) an FHA Mortgage Loan or (3) a VA Mortgage Loan and
shall not include Jumbo Mortgage Loans.
"Conforming Mortgage Loan Sublimit" means $5,000,000.
"CoreStates" means CoreStates Bank, N.A., a Pennsylvania
banking corporation.
"CoreStates Loan" means the loans made under that mortgage
warehouse credit facility extended to the Borrower by CoreStates and certain
other lenders pursuant to that certain Revolving Credit, Security and Term Loan
Agreement dated as of June 30, 1995, as amended.
"Commitment" shall mean, with respect to each Lender, the
commitment set forth on Schedule 1.01(A) to this Agreement or assigned to such
Lender in accordance with Section 11.13, as such amounts may be reduced from
time to time pursuant to the terms of this Agreement.
"Custodian" means CoreStates and/or any other financial
institution acceptable to the Agent and, in the absence of a continuing Event of
Default, the Borrower, and their respective successors.
"Custodian Agreement" means that certain Custodian Agreement
dated as of the date hereof among the Borrower, the Custodian and the Agent,
substantially in the form of Exhibit D hereto, as the same may be modified and
supplemented and in effect from time to time and any other or replacement
custodian agreement acceptable to the Agent.
"Debt" means, without duplication, (1) indebtedness or
liability for borrowed money; (2) obligations evidenced by bonds, debentures,
notes, or other similar instruments; (3) obligations for the deferred purchase
price of property or services (other than current trade payables incurred in the
ordinary course of business and payable in accordance with customary
-4-
<PAGE> 11
practices); (4) obligations as lessee under Capital Leases; (5) current
liabilities in respect of unfunded vested benefits under Plans covered by ERISA;
(6) reimbursement obligations with respect to letters of credit; (7) obligations
under acceptance facilities; (8) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), and other contingent
obligations to purchase, to provide funds for payment, to supply funds to invest
in any Person or entity, or otherwise to assure a creditor against loss; (9)
obligations or liabilities secured by a Lien upon property owned by such Person,
whether or not owing by such Person and even though such Person has not assumed
or become liable for the payment thereof, and (10) net liabilities of such
Person under interest rate cap agreements, interest rate swap agreements,
foreign currency exchange agreements and other hedging agreements or
arrangements calculated on a basis satisfactory to the Agent and in accordance
with accepted practice. The term "Debt" shall not include deferred loan
origination fees of the Borrower.
"Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to the rate of
interest which would otherwise be applicable hereunder plus two percent (2%).
"Designated Borrowing Officer" shall mean any officer of the
Borrower identified on Schedule 2.03 attached hereto, or such other officer as
shall be designated from time to time in writing by the Borrower to the Agent.
"Designated Financial Officer" of a Person shall mean the
individual designated from time to time by the Board of Directors or governing
body performing like functions of such Person to be the chief financial officer
or treasurer of such Person (and individuals designated from time to time by the
Board of Directors or governing body performing like functions of such Person to
act in lieu of the chief financial officer or the treasurer).
"Description of Collateral Documents" means the documents
described on Exhibit F attached hereto.
"Dollars" and the sign "$" mean lawful money of the United
States of America.
"Distribution" means, for any Person, any dividend on, or any
purchase or acquisition for value of, any of its capital stock now or hereafter
outstanding, any return of capital to its stockholders as such, or any other
purchase, distribution, advance, draw, fees or other transfers of cash or other
assets by such Person to its stockholders.
"Early Termination Fee" means, at any time, a fee equal to the
then existing Total Commitment multiplied by 1%.
"Eligible Residential Mortgage Loan" means the following
Mortgage Loans each of which must be made pursuant to the requirements and
limitations set forth in the applicable Underwriting Guidelines:
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(A) a Conforming Mortgage Loan that is a Single Family
Mortgage Loan and which meets each of the following criteria, as applicable:
(1) complies with all requirements (including all
covenants, representations and warranties) of this Agreement for the
inclusion of such Mortgage Loan in the Borrowing Base, including all
documentary requirements;
(2) is effectively pledged to the Agent and in
respect of which the Agent has a first perfected Lien not subject to
any other Liens or claims of any kind;
(3) is subject to a Purchase Commitment;
(4) except in the case of a Wet Mortgage Loan, the
related Mortgage Note, assignment in recordable form and a certified
copy of the Mortgage are held by the Custodian pursuant to the
Custodian Agreement and the Custodian has delivered a trust receipt for
such documents to the Agent;
(5) has not remained as Collateral for more than
thirty days from the date of delivery to the Custodian;
(6) will fully amortize within thirty years or less
after the date of origination and is not subject to any negative
amortization;
(7) is a valid, subsisting, enforceable and perfected
first Lien on a Single Family Residence;
(8) is secured by a Single Family Residence which is
(a) an owner-occupied primary residence or (b) a second home;
(9) not more than 21 days have elapsed from the date
a Collateral Document with respect to such Mortgage Loan was delivered
to an Investor for examination and purchase;
(10) not more than fourteen Business Days have
elapsed from the date a Collateral Document with respect to such
Mortgage Loan was delivered to the Borrower for correction or
completion without the return thereof to the Custodian;
(11) in the case of a Wet Mortgage Loan (a) the Wet
Closing Agent has received all Collateral Documents required by this
Agreement and the Custodian Agreement to be delivered to the Custodian
prior to the funding of such Wet Mortgage Loan, (b) the Custodian has
received all Collateral Documents required to be delivered to the
Custodian within six Business Days after the funding of such Wet
Mortgage Loan, and (c) the Borrower fully complies with the Wet Closing
provisions enumerated in Section 5.05 hereof;
(12) there is not a delinquency in any payment under
the related Mortgage Note and Mortgage;
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(13) each of the related Mortgage Note and Mortgage
is genuine and is the legal, valid, binding and enforceable obligations
of the maker thereof, not subject to a right of recission, set-off,
counterclaim or defense;
(14) the related Mortgage Note has not been
extinguished under relevant state law in connection with a judgment of
foreclosure or foreclosure sale or otherwise;
(15) the related mortgaged property is not the
subject to a foreclosure proceeding;
(16) the mortgagor is not subject to a bankruptcy
or insolvency proceeding; and
(17) is not a Mortgage Loan which the Agent
notifies the Borrower that, in the Agent's reasonable business
judgment, is not satisfactory as Collateral; and
(B) a Non-Conforming Mortgage Loan which meets each of the
following criteria, as applicable:
(1) complies with all requirements (including all
covenants, representations and warranties) of this Agreement for the
inclusion of such Mortgage Loan in the Borrowing Base, including all
documentary requirements;
(2) is effectively pledged to the Agent and in
respect of which the Agent has a first or second perfected Lien;
(3) except in the case of a Wet Mortgage Loan, the
related Mortgage Note, assignment in recordable form and a certified
copy of the Mortgage are held by the Custodian pursuant to the
Custodian Agreement and the Custodian has delivered a trust receipt for
such documents to the Agent;
(4) if the Mortgage Loan was originated by a Person
other than the Borrower, such Mortgage Loan (other than a High LTV
Mortgage Loan) was not purchased by the Borrower more than five
Business Days prior to the date of the Custodian's receipt of the
related Mortgage Note, assignment and Mortgage;
(5) will fully amortize within thirty years or less
after the date of origination, is not subject to any negative
amortization and is not a balloon Mortgage Loan the amortization of
which the Agent finds unacceptable;
(6) is a valid, subsisting, enforceable and
perfected first or second Lien, provided that Multifamily/Mixed Use
Loans may only be first Liens;
(7) is secured by a premise which is (1) an
owner-occupied primary residence, (2) a second home or investor
property, or (3) a Multifamily/Mixed Use Property;
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(8) not more than fourteen Business Days have
elapsed from the date a Collateral Document with respect to such
Mortgage Loan was delivered to the Borrower for correction or
completion without the return thereof to the Custodian;
(9) in the case of a Wet Mortgage Loan (a) the Wet
Closing Agent has received all Collateral Documents required to be
delivered to the Custodian prior to the funding of such Wet Mortgage
Loan, (b) the Custodian has received all Collateral Documents required
to be delivered to the Custodian within six Business Days, or such
longer period agreed to by the Agent pursuant to Section 5.05(2)
hereof, after the funding of such Wet Mortgage Loan, and (c) the
Borrower fully complies with the Wet Closing provisions enumerated in
Section 5.05 hereof;
(10) has not remained as Collateral for more than
thirty days from the date of delivery to the Custodian;
(11) there is not a delinquency in any payment
under the related Mortgage Note and Mortgage;
(12) each of the related Mortgage Note and Mortgage
is genuine and is the legal, valid, binding and enforceable obligations
of the maker thereof, not subject to a right of recission, set-off,
counterclaim or defense;
(13) the related Mortgage Note has not been
extinguished under relevant state law in connection with a judgment of
foreclosure or foreclosure sale or otherwise;
(14) the related mortgaged property is not
subject to a foreclosure proceeding;
(15) the mortgagor is not subject to a bankruptcy
or insufficiency proceedings;
(16) in the case of a High LTV Mortgage Loan, is
approved by the Agent;
(17) except in the case of a High LTV Mortgage Loan,
without the consent of the Agent, the loan to value ratio of the
Mortgage Loan is not greater than 90%; and
(18) is not a Mortgage Loan which the Agent notifies
the Borrower that, in the Agent's reasonable business judgment, is not
satisfactory as Collateral.
If a Mortgage Loan that initially satisfies all of the required conditions for
inclusion as an Eligible Residential Mortgage Loan and for inclusion in the
Borrowing Base ceases to satisfy such conditions and be included in the
Borrowing Base, such Mortgage Loan may subsequently
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be included as an Eligible Residential Mortgage Loan and be included in the
Borrowing Base if at such subsequent time the Mortgage Loan satisfies all of the
required conditions.
"Environmental Discharge" means any discharge or release of
any Hazardous Materials in violation of any applicable Environmental Law.
"Environmental Law" means any Law relating to pollution or the
environment, including, without limitation, Laws relating to noise or to
emissions, discharges, releases or threatened releases of Hazardous Materials
into the workplace, the community or the environment, or otherwise relating to
the generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"Environmental Liabilities and Costs" shall mean all
liabilities, monetary obligations, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and consultants
and costs of investigation and feasibility studies), fines, penalties, sanctions
and interest incurred as a result of any directive, order, litigation, judicial
or administrative proceeding, judgment, letter or other written communication
from any Governmental Authority relating to any environmental condition,
violation of Environmental Law or Environmental Discharge from or onto (i) any
property presently or formerly owned by the Borrower or any of its Subsidiaries
or (ii) any facility which received Hazardous Materials generated by the
Borrower or any of its Subsidiaries.
"Environmental Lien" shall mean any Lien securing
Environmental Liabilities and Costs incurred by a Governmental Authority.
"Environmental Notice" means any complaint, order, citation,
letter, inquiry, notice or other written communication from any Person (1)
affecting or relating to Borrower's compliance with any Environmental Law in
connection with any activity or operations at any time conducted by such
Borrower, (2) relating to the occurrence or Presence of or exposure to or
possible or threatened or alleged occurrence or Presence of or exposure to
Environmental Discharges or Hazardous Materials at any of the locations or
facilities of any of the Borrower, including, without limitation (a) the
existence of any contamination or possible or threatened contamination at any
such location or facility and (b) remediation of any Environmental Discharge or
Hazardous Materials at any such location or facility or any part thereof; and
(3) any violation or alleged violation of any relevant Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including any rules and regulations
promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower or is under common
control (within the meaning of Section 414(c) of the Code) with the Borrower.
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"Escrow Deposits" means all monies held by the Borrower
representing principal, interest, tax, insurance and other deposits or payments
made by mortgagors under Mortgage Loans.
"Event of Default" has the meaning specified in Section 9.01.
"Exception Report" shall mean the exception report prepared by
the Custodian pursuant to the Custodian Agreement.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by it.
"FHA" means the Federal Housing Administration and its
successors.
"FHA Approved Mortgagee" means a corporation or institution
approved as a Title I mortgagee by the Department of Housing and Urban
Development under the National Housing Act and applicable FHA regulations and
eligible to own and service mortgage loans.
"FHA Mortgage Loan" means a Mortgage Loan which satisfies all
applicable rules and requirements to be insured by the FHA and which is insured
by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association and its
successors.
"Fee Letter" means the letter agreement, dated as of the date
hereof, between the Borrower and the Agent obligating the Borrower to pay
certain fees to the Agent in connection with this Agreement, as such letter
agreement may be modified, supplemented or amended from time to time.
"Financial Assets" has the meaning specified therefor in the
UCC.
"Fiscal Year" means each period from January 1 to December 31.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Good Faith Contest" means the contest of an item if, in the
Agent's sole determination: (1) the item is diligently contested in good faith
by appropriate proceedings timely instituted; (2) adequate reserves are
established on the books of the Borrower with respect to the contested item; (3)
during the period of such contest, the enforcement of any contested item is
effectively stayed and no Lien is imposed on any assets of the Borrower; and (4)
after
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<PAGE> 17
implementation or satisfaction of the conditions described in clauses (1), (2)
and (3) above, the failure to pay or comply with the contested item could not
result in a Material Adverse Change.
"Governmental Authority" means any nation or government, any
federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Greenwich" means Greenwich Capital Financial Products, Inc.,
a Delaware corporation.
"Guarantor" has the meaning specified in the first paragraph
of this Agreement.
"Guarantee" means the guarantee referred to in Section
5.01(6).
"Hazardous Materials" means any pollutant, effluents,
emissions, contaminants, toxic or hazardous wastes or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
Environmental Law, including, without limitation, asbestos fibers and friable
asbestos, polychlorinated biphenyls, and any petroleum or hydrocarbon-based
products or derivatives.
"High LTV Mortgage Loans" means those Mortgage Loans having a
loan to value ratio in excess of 90% which are underwritten in accordance with
the Borrower's Sav* -A- Loan Underwriting Guidelines attached hereto as Exhibit
H.
"High LTV Mortgage Loan Sublimit" means an amount to be
determined by the Agent.
"Home Equity Mortgage Loan" means a Mortgage Loan, other than
a High LTV Mortgage Loan and a Multifamily/Mixed Use Mortgage Loan, which fails
to satisfy all of the requirements for sale to FNMA or FHLMC under their
standard Mortgage Loan purchase programs, but which satisfies all of the
applicable requirements of the Underwriting Guidelines set forth on Exhibit I
hereto.
"Indemnified Parties" shall have the meaning specified
therefor in Section 11.06 hereof.
"Investment Property" has the meaning specified therefor in
the UCC.
"Investor(s)" means FNMA, FHLMC, and any other Person that has
delivered to the Borrower a Purchase Commitment and may include banks, insurance
companies, mortgage bankers, pension funds, investment bankers, securities
dealers, and state, county or municipal housing agencies.
"Jumbo Mortgage Loan" means, with respect to Conforming
Mortgage Loans, an Eligible Residential Mortgage Loan in a principal amount
equal to or greater than the limits
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<PAGE> 18
established from time to time by FNMA or FHLMC for sale to FNMA or FHLMC but
which Eligible Residential Mortgage Loan in all other respects satisfies the
requirements for sale to FNMA and FHLMC.
"Law" means any federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority, including any
judicial or administrative order, consent decree or judgment.
"Lenders" shall have the meaning given that term in the
introductory paragraph to this Agreement.
"Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the UCC or comparable law of any jurisdiction to evidence any of the foregoing).
"Loan" or "Loans" shall mean any and all loan or loans made by
the Lenders, or by the Agent on behalf of the Lenders, to the Borrower or made
as a result of charges made to the Borrower's Account, in each case pursuant to
the terms of this Agreement.
"Loan Documents" shall mean this Agreement, the Notes, each
Pledge Agreement, the Guaranty, the Fee Letter, the Custodian Agreement, each
Notice of Borrowing, each Borrowing Base Certificate, the UCC-1 financing
statements delivered in connection with this Agreement, and all other
instruments, agreements and documents from time to time delivered in connection
with or otherwise relating to any Loan Document.
"Loan Party" means one or, if plural, both of the Borrower and
the Guarantor.
"Majority Lenders" means those Lenders whose Pro Rata Shares
aggregate not less than 66-2/3%.
"Material Adverse Change" means (1) a material adverse change
in the status of the business, results of operations, condition (financial or
otherwise), property or prospects of either of the Loan Parties, (2) any event
or occurrence of whatever nature which will have a material adverse effect on
either of the Loan Parties' ability to perform their obligations under the Loan
Documents, (3) a material adverse change in the Lien arising under this
Agreement on any Collateral or (4) any event or occurrence of whatever nature
which will have a material adverse effect or result in an adverse change in the
legality, validity or enforceability of this Agreement or any Loan Document, the
rights or remedies of the Agent and the Lenders under any Loan Document, or the
value, collectability or the nature of the Collateral.
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"Material Contract" means, with respect to any Person, each
contract or agreement to which such Person is a party involving aggregate
consideration payable to or by such Person of $1,000,000 or more (other than
purchase orders in the ordinary course of the Borrower's business and other than
contracts that by their terms may be terminated by any party thereto in the
ordinary course of its business upon less than 60 days' notice) or otherwise
material to the business, operations, condition (financial or otherwise)
performance or properties of such Person.
"Minority Lender" shall have the meaning specified therefor in
Section 11.03(b) hereof.
"Mortgage" means a mortgage, deed of trust, security deed or
similar lien encumbering real property securing a Mortgage Loan.
"Mortgage Loan" means a loan which is secured by a first or
second mortgage.
"Mortgage Loan Closing Date" means the date that a Mortgage
Loan is scheduled to settle.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans
containing the information specified in Exhibit L hereto with respect to each
Mortgage Loan to be delivered by the Borrower to the Agent pursuant to Section
2.03(a) hereof.
"Mortgage Note" means the note or other evidence of
indebtedness of a mortgagor on a Mortgage Loan.
"Multiemployer Plan" means Plan defined as such in Section
3(37) of ERISA to which contributions have been made by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Multifamily/Mixed Use Mortgage Loan" means a Mortgage Loan
that was underwritten in accordance with the Underwriting Guidelines attached
hereto as Exhibit J and which is secured by a Mortgage which is a first lien on
a Multifamily/Mixed Use Property.
"Multifamily/Mixed Use Mortgage Loan Sublimit" means
$3,000,000.
"Multifamily/Mixed Use Property means a completed small
residential multifamily residence or mixed-use structure which satisfies the
definitions, and fully complies with the guidelines, contained in Exhibit J
hereto.
"New Lending Office" shall have the meaning specified therefor
in Section 2.12(g) hereof.
"Non-Conforming Mortgage Loan" means either a Home Equity
Mortgage Loan, a High LTV Mortgage Loan or a Multifamily/Mixed Use Mortgage
Loan.
"Non-U.S. Lender" shall have the meaning specified therefor in
Section 2.12(g) hereof.
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<PAGE> 20
"Notes" shall mean the promissory notes of the Borrower
executed and delivered to the Lenders under this Agreement and substantially in
the form of Exhibit A hereto, as modified or restated from time to time and any
promissory note or notes issued in exchange or replacement thereof under this
Agreement, including all extensions, renewals, refinancings or refundings under
this Agreement in whole or part.
"Notice of Borrowing" shall have the meaning given to that
term in Section 2.03(a) hereof.
"Notices" shall have the meaning specified therefor in Section
11.05 hereof.
"Obligations" means (1) each and every obligation, covenant
and agreement of the Borrower now or hereafter existing contained in this
Agreement, and any of the other Loan Documents, whether for principal, interest
(including, without limitation, all interest that accrues after the commencement
of any case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of the Borrower), fees, expenses, indemnities or otherwise,
and any amendments or supplements thereto, extensions or renewals thereof or
replacements therefor under this Agreement, including but not limited to all
indebtedness, obligations and liabilities of such Borrower to the Agent and the
Lenders now existing or hereafter incurred under or arising out of or in
connection with the Notes, this Agreement, the other Loan Documents, and any
documents or instruments executed in connection therewith, (2) all sums advanced
in accordance with this Agreement by or on behalf of the Agent to protect any of
the Collateral purported to be covered hereby, and (3) any amounts paid by the
Agent in preservation of any of the Agent's and the Lenders' rights or interest
in the Collateral, together with interest on such amounts from the date such
amounts are paid until reimbursement in full at a rate per annum equal at all
times to the Regular Rate or Default Rate, as applicable, pursuant to the terms
of this Agreement; in each case whether direct or indirect, joint or several,
absolute or contingent, liquidated or unliquidated, now or hereafter existing,
renewed or restructured, whether or not from time to time decreased or
extinguished and later increased, created or incurred, and including all
indebtedness of the Borrower under any instrument now or hereafter evidencing or
securing any of the foregoing.
"Office" when used in connection with the Agent shall mean its
office located at 650 CIT Drive, Livingston, New Jersey 07039 or at such other
office or offices of the Agent as may be designated in writing from time to time
by the Agent to the Borrower and when used in connection with the Bank shall
mean the office of such entity designated in writing from time to time by the
Agent to the Borrower. In the event The Chase Manhattan Bank shall be the Bank,
the Office for such entity shall until further written notice from the Agent to
the Borrower be its office located at 55 Water Street, New York, New York 10004.
"Operating Account" means a demand deposit account established
by the Borrower with the Custodian for use by the Borrower for its general
business operations.
"Other Taxes" shall have the meaning given to that term in
Section 2.12(b) hereof.
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"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" has the meaning specified in Section 8.01.
"Person" means an individual, partnership, limited liability
company, corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA or to which Section
412 of the Code applies.
"Pledge Agreement (SPV)" means that certain Pledge Agreement,
dated as of the date hereof, among the Borrower, Greenwich and the Agent, as
collateral agent for the Lenders and Greenwich, substantially in the form of
Exhibit E-1 hereto, as the same may be further amended, supplemented and
otherwise modified from time to time.
"Pledge Agreement (UK)" means that certain Pledge Agreement,
dated as of the date hereof, between the Borrower and the Agent, substantially
in the form of Exhibit E-2 hereto, as the same may be further amended,
supplemented and otherwise modified from time to time.
"Pledged Mortgages" means all Mortgages and Mortgage Notes (1)
covered by or referred to or intended to be included, in a loan request, or (2)
for which any of the documentation related thereto is received by the Custodian
under or pursuant to the Custodian Agreement or any of the Loan Documents, or
(3) which are the subject of the Wet Closing provisions of this Agreement.
"Presence", when used in connection with any Environmental
Discharge or Hazardous Materials, means and includes presence, generation,
manufacture, installation, treatment, use, storage, handling, repair,
encapsulation, disposal, transportation, spill, discharge and release.
"Prime Rate" shall mean the interest rate per annum publicly
announced from time to time by the Bank in New York, New York as its Prime Rate,
such interest rate to change automatically from time to time effective as of the
announced effective date of each change in the Prime Rate. The Prime Rate is not
intended to be the lowest rate of interest charged by the Bank to its borrowers.
"Pro Rata Share" shall mean, with respect to any Lender, a
fraction (expressed as a percentage), the numerator of which shall be the amount
of such Lender's Commitment and the denominator of which shall be the Total
Commitment, as adjusted from time to time in accordance with the provisions of
Sections 2.13 and 11.13 hereof, provided that, if the Total Commitment has been
terminated, the numerator shall be the unpaid amount of such Lender's Loans and
the denominator shall be the aggregate amount of all unpaid Loans.
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"Prohibited Transaction" means any non-exempt transaction set
forth in Section 406 of ERISA or Section 4975 of the Code.
"Purchase Commitments" means valid and enforceable written
commitments issued by Investors to purchase Mortgage Loans from the Borrower at
a fixed price.
"Register" shall have the meaning given that term in Section
11.13(c) hereof.
"Regular Rate" shall mean, for any day, the Prime Rate for
such day plus .50%.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA (other than an event not subject to provision for the
30-day notice to the PBGC under the regulations promulgated under such Section).
"Retained Interest" means, with respect to a pool of Mortgage
Loans that have been transferred by the Borrower to a trust or other Person
through a sale or securitization, the direct or indirect rights with respect to
such pool, including any rights to receive payments attributable to such pool,
retained by the Borrower subsequent to such transfer, whether such rights are
security, contractual, arise through the holding of an interest in such trust,
or other Person, or otherwise.
"Retained Interest Receivables" means the direct or indirect
right to Retained Interests that would be capitalized on a Person's balance
sheet (in accordance with GAAP), including, without limitation, subordinated and
interest-only certificates and any similar rights arising by virtue of the
holding of capital stock or any other equity interest in any entity to which
Mortgage Loans have been transferred in a sale or securitization.
"Restricted Accounts" means one or more demand deposit
accounts established by the Borrower with the Custodian or any other commercial
bank to which there may be deposited from time to time monies paid in connection
with a release of Collateral, which account shall be restricted in that the
Borrower shall not be entitled to withdraw money therefrom and the Agent shall
be authorized to make withdrawals from such account in accordance with the terms
of this Agreement in connection with a refinancing, sale or other disposition of
Collateral.
"Second Mortgage Loan Sublimit" means $5,000,000.
"Securities Account" has the meaning specified therefor in the
UCC.
"Securities Entitlement" has the meaning specified therefor in
the UCC.
"Senior Note Indenture" means the Indenture dated as of May
14, 1997, as amended, among the Guarantor, the Borrower, as guarantor, and any
other subsidiary guarantor party thereto from time to time and The Chase
Manhattan Bank, as Trustee, with respect to up to $300,000,000 of 12-3/4% Senior
Notes due 2004 of the Guarantor.
"Settlement Period" shall have the meaning set forth in
Section 2.03(f) hereof.
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"Single Family Mortgage Loan" means a Mortgage Loan which is
secured by a Mortgage which is a first or second Lien on a Single Family
Residence.
"Single Family Residence" means a completed one (1) to four
(4) family residential dwelling and the property related thereto.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited or general partnership, limited liability company, limited
liability partnership, trust, association or other business entity of which an
aggregate of 50% or more of the outstanding stock or other interests entitled to
vote in the election of the board of directors of such corporation (irrespective
of whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency), managers, trustees or other controlling persons, or an equivalent
controlling interest therein, of such Person is, at the time, directly or
indirectly, owned or controlled by such Person and/or one or more Subsidiaries
of such Person.
"Subwarehouse Mortgage Loan" means a mortgage loan originated
as a result of the Borrower's Subwarehousing activities.
"Subwarehousing" means an arrangement pursuant to which the
Borrower extends credit to a mortgage lender (the "Subwarehouse Borrower") in
order to fund a mortgage loan to be made by the Subwarehouse Borrower pursuant
to a credit agreement between the Borrower, as lender and the Subwarehouse
Borrower, as borrower.
"Taxes" shall have the meaning given to that term in Section
2.12 hereof.
"Termination Date" shall have the meaning given to that term
in Section 2.01.
"Total Commitment" means the aggregate Commitments of the
Lenders as set forth on Schedule 1.01(A) which may be reduced or increased
pursuant to the terms of this Agreement.
"Traditional First Mortgage Loan" means a Mortgage Loan which
(1) is a first Lien on a Single Family Residence, (2) is neither insured by the
FHA nor guaranteed by the VA, (3) matures in thirty (30) years or less, (4)
bears interest at a current market rate at the time of origination, and (5)
satisfies all requirements for sale to FNMA and FHLMC or any other Investor's
Conforming Mortgage Loan programs.
"Transferee" shall have the meaning specified therefor in
Section 2.12(a) hereof.
"Underwriting Guidelines" means the Underwriting Guidelines as
in effect on the Closing Date, attached as Exhibits H, I and J hereto.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of New York.
"Unused Line Fee" shall have the meaning given to that term in
Section 2.07(e)
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"VA" means the Veterans Administration and its successors.
"Value" has the meaning specified in the Pledge Agreement
(SPV).
"Warehouse Account" means a demand deposit account established
by the Borrower with the Custodian into which proceeds of a Loan may be
deposited and from which Mortgage Loan proceeds may be disbursed, in accordance
with instructions from the Borrower to the Custodian, directly to the Closing
Agent in connection with the settlement of Mortgage Loans.
"Wet Closing" means a Wet Mortgage Loan closing where the
Agent is requested to make a Loan prior to, on the date of, or after, the
closing of the Wet Mortgage Loan, but prior to the delivery of the documentation
related thereto required pursuant to the terms of this Agreement and the
Custodian Agreement to be delivered to the Custodian in all such cases in
accordance with the procedures outlined therefor under this Agreement.
"Wet Closing Agent" means each Closing Agent who (1) is
designated by the Borrower as responsible for the closing of a Wet Mortgage Loan
and (2) is not disapproved by the Agent, in its sole discretion.
"Wet Closing Agent Agreement" means an agreement executed by
each Wet Closing Agent in connection with the funding of each Wet Mortgage Loan
whereby such Wet Closing Agent agrees to act as the agent of the Agent in
accordance with the provisions of Section 5.05(3) hereof.
"Wet Collateral" has the meaning specified in Section
3.01(b)(6).
"Wet Loans" means Loans the proceeds of which are used to
originate Wet Mortgage Loans.
"Wet Mortgage Loan" means any Eligible Residential Mortgage
Loan that is pledged to the Agent pursuant to the Wet Closing provisions
contained in this Agreement.
"Wet Mortgage Loan Sublimit" means, at any time, ten (10%)
percent of the then existing Total Commitment.
"Working Capital Sublimit" means, at any time of
determination, $25,000,000 less the aggregate outstanding principal amount of
Debt of the Guarantor and its Subsidiaries incurred and permitted under Section
4.06(b)(1)(B) of the Senior Note Indenture (other than Debt incurred under this
Agreement).
Section 1.02. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be delivered hereunder shall be prepared in
accordance with GAAP, consistently applied.
Section 1.03. Computation of Time Periods. Except as otherwise
provided in this Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".
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Section 1.04. Rules of Construction. When used in this
Agreement: (1) a reference to time shall be the time in New York City; (2) a
reference to an agreement, instrument or document shall include such agreement,
instrument or document as the same may be amended, modified or supplemented from
time to time in accordance with its terms and as permitted by the Loan
Documents; (3) a reference to a day shall be a calendar day unless Business Day
is specified.
ARTICLE II.
LOANS
Section 2.01. Commitment. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender severally agrees to make Loans to the Borrower at any time and from time
to time on or after the date hereof and to, but not including, the Termination
Date, in an aggregate principal amount at any time outstanding to the Borrower
not to exceed the amount of such Lender's Commitment, as such Commitment may be
reduced in accordance with the provisions of this Agreement. Notwithstanding the
foregoing (i) the aggregate principal amount of Loans outstanding at any time to
the Borrower shall not exceed the lesser of (A) the Total Commitment and (B) the
then current Borrowing Base, (ii) the aggregate principal amount of Wet Loans
shall not at any time exceed the Wet Mortgage Loan Sublimit, (iii) the aggregate
principal amount of Loans the proceeds of which are used by the Borrower to make
Multifamily/Mixed Use Mortgage Loans shall not at any time exceed the
Multifamily/Mixed Use Mortgage Loan Sublimit, (iv) the aggregate principal
amount of Loans the proceeds of which are used by the Borrower to make High LTV
Mortgage Loans shall not at any time exceed the High LTV Mortgage Loan Sublimit,
(v) the aggregate principal amount of Loans the proceeds of which are used by
the Borrower to make Mortgage Loans secured by second mortgages shall not at any
time exceed the Second Mortgage Loan Sublimit, (vi) the aggregate principal
amount of Loans the proceeds of which are used by the Borrower for general
corporate purposes shall not at any time exceed the Working Capital Sublimit,
and (vii) the aggregate principal amount of Loans used by the Borrower to make
Conforming Mortgage Loans shall not exceed the Conforming Mortgage Loan Sublimit
prior to April 3 1998 and shall not exceed zero thereafter. The Total Commitment
and the Commitment of each Lender shall automatically and permanently be reduced
to zero on February 3, 2000 (the "Termination Date"). Within the limits of time
and amount set forth in this Section 2.01, the Borrower may borrow, repay and
reborrow hereunder subject to the provisions of this Agreement.
Section 2.02. Notes. The obligation of the Borrower to repay
the unpaid principal amount of the Loans made to it by each Lender and to pay
interest thereon shall be evidenced by a Note dated the date of this Agreement
in the principal amount of such Lender's Commitment with the blanks
appropriately filled in. An executed Note for each Lender shall be delivered by
the Borrower to the Agent on the date of the execution and delivery of this
Agreement and in accordance with Sections 2.13 and 11.13 hereof.
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Section 2.03. Notice of Borrowing; Making of Loans.
(a) Whenever the Borrower desires to borrow, it
shall provide notice to the Agent of such proposed borrowing (a "Notice of
Borrowing"), each such notice, to be given not later than 10:00 a.m. (New York
City time) on the date of such proposed borrowing, setting forth: (i) the date,
which shall be a Business Day, on which such borrowing is to occur, (ii) the
principal amount of the Loan being borrowed, the use of proceeds of such Loan
and, if the proceeds of such Loan are to be used to originate Mortgage Loans,
whether or not such Loan is a Wet Loan, (iii) the account information where such
Loan is to be received, which shall be either the Warehouse Account or the
Operating Account, and (iv) the other information required by Sections 5.03,
5.04, 5.05 and 5.07, as applicable. If the proceeds of the Loan are to be used
to originate or purchase Mortgage Loans, the Notice of Borrowing shall also have
attached a Mortgage Loan Schedule identifying the Mortgage Loans the Borrower
proposes to pledge to the Agent and to include in the Borrowing Base. Such
notice shall be given in writing by a Designated Borrowing Officer,
substantially in the form of Exhibit B hereto, containing the original or
facsimile signature of a Designated Borrowing Officer. Except for a Notice of
Borrowing when the Agent will fund the related Loan pursuant to Section 2.03(e)
hereof, the Agent shall provide each Lender with prompt notice of each Notice of
Borrowing. Except as otherwise provided in Section 2.03(e), on the date
specified in such notice, each Lender shall, subject to the terms and conditions
of this Agreement, make its Pro Rata Share of such Loan in immediately available
funds by wire transfer to the Agent at its Office not later than 11:00 a.m. (New
York City time). Unless (i) the Agent determines that any applicable conditions
in Article V have not been satisfied or (ii) the Borrower fails to deliver the
applicable Collateral Documents and any other certificates or documents to the
Custodian before the date of the proposed borrowing as required under this
Agreement and the Custodian Agreement, the Agent shall make the funds so
received from the Lenders available to the Borrower not later than 12:00 noon.
(New York City time), on the date specified in such notice in immediately
available funds by initiating a wire transfer.
(b) The Agent and each Lender shall be entitled
to rely conclusively on each Designated Borrowing Officer's authority to request
a Loan on behalf of the Borrower until the Agent receives written notice to the
contrary. The Agent and the Lenders shall have no duty to verify the
authenticity of the signature appearing on any written Notice of Borrowing.
(c) The Agent and the Lenders shall not incur
any liability to the Borrower in acting upon any Notice of Borrowing referred to
above which the Agent and the Lenders believe in good faith to have been given
by a Designated Borrowing Officer or for otherwise acting in good faith under
this Section 2.03 and, upon the funding of a Loan by the Lenders (or by the
Agent on behalf of the Lenders) in accordance with this Agreement pursuant to
any such notice, the Borrower shall have effected a Loan hereunder.
(d) Each Notice of Borrowing pursuant to this
Section 2.03 shall be irrevocable and the Borrower shall be bound to make a
borrowing in accordance therewith. Each Loan, the proceeds of which are to be
used for working capital purposes, shall be in a minimum amount of $100,000.
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(e) (i) Except as otherwise provided in this
subsection 2.03(e), all Loans under this Agreement shall be made by the Lenders
simultaneously and proportionately to their Pro Rata Shares, it being understood
that no Lender shall be responsible for any default by any other Lender in that
other Lender's obligations to make a Loan requested hereunder, nor shall the
Commitment of any Lender be increased or decreased as a result of the default by
any other Lender in that other Lender's obligation to make a Loan requested
hereunder.
(ii) Notwithstanding any other provision
of this Agreement, and in order to reduce the number of fund transfers among the
Borrower, the Lenders and the Agent, the Borrower, the Lenders and the Agent
agree that the Agent may (but shall not be obligated to), and the Borrower and
the Lenders hereby irrevocably authorize the Agent to, fund, on behalf of the
Lenders, Loans pursuant to Section 2.01, subject to the procedures for
settlement set forth in subsection 2.03(f); provided, however, that (a) the
Agent shall in no event fund such Loans if the Agent shall have received written
notice from the Majority Lenders on the Business Day prior to the day of the
proposed Loan that one or more of the conditions precedent contained in Sections
5.02, 5.03, 5.04, 5.05 and 5.07, as applicable, will not be satisfied on the day
of the proposed Loan, and (b) the Agent shall not otherwise be required to
determine that, or take notice whether, the conditions precedent in Section
5.02, 5.03, 5.04, 5.05 and 5.07, as applicable, have been satisfied.
(iii) Unless (A) the Agent has notified
the Lenders that the Agent, on behalf of the Lenders, will fund a particular
Loan pursuant to subsection 2.03(e)(ii), or (B) the Agent shall have been
notified by any Lender on the Business Day prior to the day of a proposed Loan
that such Lender does not intend to make available to the Agent such Lender's
Pro Rata Share of the Loan requested on such day, the Agent may assume that such
Lender has made such amount available to the Agent on such day and the Agent, in
its sole discretion, may, but shall not be obligated to, cause a corresponding
amount to be made available to the Borrower on such day. If the Agent makes such
corresponding amount available to the Borrower and such corresponding amount is
not in fact made available to the Agent by such Lender, the Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from the date such payment was due
until the date such amount is paid to the Agent, at the Federal Funds Rate for
three Business Days and thereafter at the Prime Rate. During the period in which
such Lender has not paid such corresponding amount to the Agent, notwithstanding
anything to the contrary contained in this Agreement or any other Loan Document,
the amount so advanced by the Agent to the Borrower shall, for all purposes
hereof, be a Loan made by the Agent for its own account. Upon any such failure
by a Lender to pay the Agent, the Agent shall promptly thereafter notify the
Borrower of such failure and the Borrower shall immediately pay such
corresponding amount to the Agent for its own account.
(iv) Nothing in this subsection 2.03(e)
shall be deemed to relieve any Lender from its obligations to fulfill its
Commitment hereunder or to prejudice any rights that the Agent or the Borrower
may have against any Lender as a result of any default by such Lender hereunder.
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(f) (i) With respect to all periods for
which the Agent has funded Loans pursuant to subsection 2.03(e), on Friday of
each week, or if the applicable Friday is not a Business Day, then on the
following Business Day, or such shorter period as the Agent may from time to
time select (any such week or shorter period being herein called a "Settlement
Period"), the Agent shall notify each Lender of the average daily unpaid
principal amount of the Loans outstanding during such Settlement Period. In the
event that such amount is greater than the average daily unpaid principal amount
of the Loans outstanding during the Settlement Period immediately preceding such
Settlement Period (or, if there has been no preceding Settlement Period, the
amount of the Loans made on the date of such Lender's initial funding), each
Lender shall promptly make available to the Agent its Pro Rata Share of the
difference in immediately available funds. In the event that such amount is less
than such average daily unpaid principal amount, the Agent shall promptly pay
over to each Lender its Pro Rata Share of the difference in immediately
available funds. In addition, if the Agent shall so request at any time when a
Default or an Event of Default shall have occurred and be continuing, or any
other event shall have occurred as a result of which the Agent shall determine
that it is desirable to present claims against the Borrower for repayment, each
Lender shall promptly remit to the Agent or, as the case may be, the Agent shall
promptly remit to each Lender, sufficient funds to adjust the interests of the
Lenders in the then outstanding Loans to such an extent that, after giving
effect to such adjustment, each Lender's interest in the then outstanding Loans
will be equal to its Pro Rata Share thereof. The obligations of each Lender
under this subsection 2.03(f) shall be absolute and unconditional. Each Lender
shall only be entitled to receive interest on its Pro Rata Share of the Loans
which have been funded by such Lender.
(ii) In the event that any Lender fails
to make any payment required to be made by it pursuant to subsection 2.03(f)(i),
the Agent shall be entitled to recover such corresponding amount on demand from
such Lender together with interest thereon, for each day from the date such
payment was due until the date such amount is paid to the Agent, at the Federal
Funds Rate for three Business Days and thereafter at the Prime Rate. During the
period in which such Lender has not paid such corresponding amount to the Agent,
notwithstanding anything to the contrary contained in this Agreement or any
other Loan Document, the amount so advanced by the Agent to the Borrower shall,
for all purposes hereof, be a Loan made by the Agent for its own account. Upon
any such failure by a Lender to pay the Agent, the Agent shall promptly
thereafter notify the Borrower of such failure and the Borrower shall
immediately pay such corresponding amount to the Agent for its own account.
Nothing in this subsection 2.03(f)(ii) shall be deemed to relieve any Lender
from its obligation to fulfill its Commitment hereunder or to prejudice any
rights that the Agent or the Borrower may have against any Lender as a result of
any default by such Lender hereunder.
Section 2.04. Payment of Principal. To the extent not due and
payable earlier pursuant to the terms of this Agreement, the entire unpaid
principal amount of each of the Loans shall be due and payable on the
Termination Date. The Borrower shall take all actions required so that all
Collateral Sale Proceeds will be paid directly to the Agent for the benefit of
the Lenders. Without limiting the generality of the foregoing, the Borrower
shall cause all Persons making such payments to remit directly to the Agent, by
way of wire transfer into a Restricted Account, from such proceeds, as payments
of principal hereunder, an amount equal to all Collateral Sale
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Proceeds. Notwithstanding the foregoing (i) as long as the Borrower is required
to pay to Greenwich 50% of the proceeds of the sale of any Retained Interest
Receivables and/or the capital stock of the Subsidiaries of the Borrower that
own such Retained Interested Receivables, only 50% of the proceeds of the sale
of any Retained Interest Receivables and/or the capital stock of the
Subsidiaries of the Borrower that own such Retained Interest Receivables shall
be required to be paid directly to the Agent for the benefit of the Lenders and
(ii) the Borrower shall only be required to pay directly to the Agent for the
benefit of the Lenders proceeds from the sale of real estate owned by the
Borrower, which are the proceeds of Pledged Mortgages released by the Agent
pursuant to Section 3.04(c) hereof, to the extent such proceeds exceed
$7,500,000, in the aggregate, in any calendar year. In the event that
notwithstanding the foregoing any such Collateral Sale Proceeds required to be
paid to the Agent shall be paid to the Borrower, the Borrower shall immediately
upon such receipt pay same over directly to the Agent; and while in such
Borrower's possession, such amounts shall be held in trust for the Agent.
Section 2.05. Interest. The Borrower shall pay to the Agent
for the account of each Lender interest in arrears on the unpaid principal
amount of each Loan, from the date on which such Loan is advanced until such
principal amount has been repaid in full, monthly on the first day of each month
commencing with the first day of the first month after this Agreement is
executed at the rate per annum equal to the Regular Rate.
Section 2.06 Reduction of Total Commitment; Prepayment of
Loans.
(a) Subject to the terms of Section 2.07(f)
hereof and to the last sentence of this paragraph, the Borrower may, with the
prior written consent of the Majority Lenders, reduce the Total Commitment to an
amount (which may be zero) not less than the sum of (i) the aggregate unpaid
principal amount of all Loans then outstanding and (ii) the aggregate principal
amount of all Loans not yet made as to which notice has been given by the
Borrower under Section 2.03 hereof. Each such reduction shall be in an amount
which is an integral multiple of $1,000,000, shall be requested by providing not
less than three Business Days' prior written notice to the Agent and, if agreed
to by the Majority Lenders, shall be irrevocable and may not be reinstated. Each
such reduction of the Total Commitment shall reduce the Commitment of each
Lender on a pro rata basis. No consent of the Majority Lenders is required if
the Borrower reduces the Total Commitment to zero in accordance with this
Section 2.06(a).
(b) Subject to the terms of Section 2.07(f)
hereof, the Borrower shall have the right to prepay, in whole or in part, all
Loans.
(c) To the extent that the outstanding Loans
exceed the lesser of the Total Commitment and the Borrowing Base, the Borrower
shall immediately either (i) make a prepayment on the Loans in an amount equal
to such excess or (ii) provide additional Eligible Residential Mortgage Loans so
that the outstanding Loans do not exceed the Borrowing Base.
(d) Except as permitted in Section 2.04, all
Collateral Sale Proceeds shall be paid directly to the Agent by the Person
making such payment, provided that, any such Collateral Sale Proceeds paid to
the Agent when no Loans are outstanding and no other Obligations are due and
payable under this Agreement, shall be promptly paid to the Borrower.
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(e) If for any reason a Wet Mortgage Loan is not
closed and funded on or before the second Business Day immediately following its
Mortgage Loan Closing Date, the Borrower will prepay the Wet Loan made in
respect of such Wet Mortgage Loan on the third Business Day immediately
following such Mortgage Loan Closing Date.
(f) Immediately upon receipt by the Borrower of
all outstanding principal under a Mortgage Note, the Borrower shall prepay the
Loans in an amount equal to the amount of such principal payment under such
Mortgage Note together with all interest accrued under such Mortgage Note and
any penalty or premium paid under such Mortgage Note.
Section 2.07. Payments.
(a) Time, Place and Manner. All payments and
prepayments to be made in respect of principal, interest, fees or other amounts
due from the Borrower hereunder, under the Fee Letter, the Notes or any other
Loan Document shall be payable at or before 12:00 noon, New York City time, on
the day when due without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived. Such payments shall be made to the Agent
for the account of the Agent, or the Lenders, as the case may be, at the Agent
Account in Dollars in funds immediately available at the Bank's Office without
setoff, counterclaim or other deduction of any nature. Any payment received by
the Agent after 12:00 noon, New York City time, will be deemed to have occurred
on the next Business Day. The Agent shall maintain a separate loan account (the
"Borrower's Account") on its books in the name of the Borrower in which the
Borrower will be charged with Loans made by the Agent or the Lenders to the
Borrower hereunder and with any other Obligations. The Borrower and the Lenders
hereby authorize the Agent to, and the Agent may, from time to time charge the
Borrower's Account with any interest, fees, expenses and other Obligations that
are due and payable under this Agreement or any Loan Document. The Borrower and
the Lenders confirm that any charges which the Agent may so make to the
Borrower's Account as herein provided will be made as an accommodation to the
Borrower and solely at the Agent's discretion and shall constitute a Loan to the
Borrower funded by the Agent on behalf of the Lenders and subject to subsections
2.03(e) and 2.03(f) of this Agreement. Each of the Lenders and the Borrower
agrees that the Agent shall have the right to make such charges regardless of
whether any Event of Default or Default shall have occurred and be continuing or
whether any of the conditions precedent in Section 5.02 have been satisfied. The
Borrower's Account will be credited upon receipt of "good funds" in the Agent
Account with all amounts actually received by the Agent from the Borrower or
others for the account of the Borrower. Interest on all Loans and all fees that
accrue on a per annum basis shall be computed on the basis of the actual number
of days elapsed in the period during which interest or such fee accrues and a
year of 360 days. In computing interest on any Loan, the date of the making of
such Loan shall be included and, if received by 12:00 noon (New York City time),
the date of payment shall be excluded; provided, however, that if a Loan is
repaid on the same day on which it is made, one day's interest shall be paid on
such Loan.
(b) Periodic Statements. The Agent shall
provide the Lenders and the Borrower promptly after the end of each calendar
month a summary statement (in the form from time to time used by the Agent) of
(A) the opening and closing daily balances in the Borrower's Account during such
month, (B) the amounts and dates of all Loans made during such month,
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(C) the amounts and dates of all payments on account of the Loans made during
such month and each Lender's interest in the Loans, (D) the amount of interest
accrued on the Loans during such month, and (E) the amount and nature of any
charges to the Borrower's Account made during such month on account of interest,
fees and expenses and other Obligations. All entries on any such statement
shall, 30 days after the same is sent, be presumed to be correct and shall
constitute prima facie evidence of the information contained in such statement,
subject to the Borrower's and each Lender's express right to rebut such
presumption by conclusively demonstrating the existence of any error on the part
of the Agent.
(c) Apportionment of Payments. Except as
otherwise provided in this subsection, aggregate principal and interest payments
shall be apportioned among all outstanding Loans to which such payments relate
and payments of the Unused Line Fee and the Early Termination Fee required to be
paid by the Borrower to the Lenders under subsections 2.07(e) and (f) shall, as
applicable, be apportioned ratably among the Lenders, in each case according to
their Pro Rata Shares. All payments shall be remitted to the Agent and all such
payments and any other amounts, including, without limitation, proceeds of
Collateral received by the Agent from or on behalf of the Borrower shall be
applied subject to the provisions of this Agreement first, to pay principal of
and interest on any Loans funded by the Agent on behalf of the Lenders and any
fees, expense reimbursements or indemnities then due to the Agent from the
Borrower; second, to pay any fees, expense reimbursements or indemnities then
due to the Lenders; third, to pay interest due in respect of Loans; fourth, to
pay or prepay principal of Loans; and fifth, to the Borrower or to such Person
as may be lawfully entitled to receive such surplus proceeds. The Agent shall
promptly distribute to each Lender at its primary address set forth on the
appropriate signature page hereof, or at such other address as such Lender may
designate in writing, such funds as it may be entitled to receive. The foregoing
apportionment of payments is solely for the purpose of determining the
obligations of the Borrower hereunder and, notwithstanding such apportionment,
any Lender may on its books and records allocate payments received by it in a
manner different from that contemplated hereby. No such different allocation
shall alter the rights and obligations of the Borrower under this Agreement
determined in accordance with the apportionments contemplated by this Section
2.07(c). To the extent that the Borrower makes a payment or payments to the
Agent or the Agent receives any payment or other amount, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause then, to the extent of such payment or proceeds
received, the Obligations or part thereof intended to be satisfied shall be
revived and continue in full force and effect, as if such payment or proceeds
had not been received by the Agent.
(d) Interest Upon Events of Default. To the
extent permitted by law, after there shall have occurred and so long as there is
continuing an Event of Default pursuant to Section 9.01, all principal,
interest, fees, indemnities or any other Obligations of the Borrower hereunder,
under the Fee Letter or under any Note or any other Loan Document (and including
interest accrued under this subsection 2.07(d)) shall bear interest until paid
(before and after judgment), payable on demand, at the Default Rate such
interest rate to change automatically from time to time effective as of the
announced effective date of each change in the Prime Rate.
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(e) Unused Line Fee. From and after the Closing
Date until the Termination Date, the Borrower shall pay to the Agent, for the
account of each Lender in accordance with such Lender's Pro Rata Share, an
unused line fee (the "Unused Line Fee") accruing at the rate of one-half percent
(1/2%) per annum, on the excess, if any, of the Total Commitment over the
aggregate of the Loans outstanding from time to time. All Unused Line Fees shall
be payable monthly in arrears on the first day of each month commencing February
1, 1998.
(f) Early Termination Fee. If the Total
Commitment is reduced to zero by the Borrower before the Termination Date, the
Borrower shall pay to the Agent, for the account of each Lender in accordance
with such Lender's Pro Rata Share, the Early Termination Fee.
(g) Fees. The Borrower shall pay to the Agent
the fees set forth in the Fee Letter at the times set forth in the Fee Letter.
All fees required to be paid to the Agent pursuant to the Fee Letter, this
Agreement or the other Loan Documents, shall be paid to the Agent for its own
account as described therein. All fees under this Agreement, the Fee Letter and
the other Loan Documents are non-refundable under all circumstances.
Section 2.08. Use of Proceeds. The Borrower will use the
proceeds of the Loans only for the following purposes: (1) to originate or
purchase Mortgage Loans which will be Eligible Residential Mortgage Loans, (2)
to pay off the CoreStates Loan, and (3) for general corporate purposes of the
Borrower, provided that the aggregate principal amount of Loans the proceeds of
which are used for general corporate purposes of the Borrower shall not, at any
one time, exceed the Working Capital Sublimit.
Section 2.09. Reliance Upon Instructions. Without limiting the
coverage of any other indemnities provided in this Agreement, the Borrower
hereby indemnifies and agrees to hold harmless the Agent and each of the
Lenders, and their respective officers, employees and agents from and against
any and all liabilities, damages, losses, costs and expenses, including
reasonable counsel fees, however arising out of any actions taken in reliance
upon telephonic, telecopier or other instructions believed in good faith to have
been given under this Agreement on the Borrower's behalf by a Designated
Borrowing Officer.
Section 2.10. Capital Adequacy Circumstances. (a) If any
Lender shall have reasonably determined that the adoption of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender (or any lending office of
such Lender) or by any Affiliate of such Lender, as the case may be, with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has the effect
of reducing the rate of return on such Lender's capital or on the capital of
such Lender's Affiliate, as the case may be, as a consequence of such Lender's
obligations under this Agreement and the Loan Documents to a level below that
which such Lender or such Lender's Affiliate, as the case may be, could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies or such Lender's Affiliate's policies, as the case may
be, with respect to capital adequacy) by an amount deemed by such Lender to be
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material, then, from time to time, the Borrower shall reimburse such Lender for
such reduction. Any amount or amounts payable by the Borrower to any Lender in
accordance with the provisions of this Section 2.10(a) shall be paid by the
Borrower to such Lender within ten (10) days after receipt by the Borrower from
such Lender of a statement setting forth (i) in reasonable detail the amount or
amounts due, (ii) the basis for the determination from time to time of such
amount or amounts, (iii) that such amount(s) have been determined in good faith
and (iv) that such Lender is using reasonable efforts to receive comparable
amounts from similarly situated borrowers having similar relationships with such
Lender under documentation which gives such Lender substantially the same rights
with respect to such increased costs or reductions or payments as required in
this Section 2.10, which statement shall be conclusive and binding absent
manifest error.
(b) Any Lender may demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period; provided that such Lender shall
provide to the Borrower a certificate setting forth the basis on which such
demand is made. The protection of this Section 2.10 shall be available to any
Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
(c) If the Borrower shall be obligated to pay
amounts to any Lender under this Section 2.10, then, any time within 30 days
after the Borrower shall become so obligated, the Borrower may request such
Lender to assign its rights and obligations under the Loan Documents to one or
more Persons designated by the Borrower (a) that are acceptable to the Agent and
(b) to which the Borrower reasonably expects that it will be obligated to pay
lesser amounts under such Section than the amounts it reasonably expects that
the Borrower will be obligated to pay such Lender. If the Borrower shall so
request such an assignment, such Lender shall cooperate to consummate such
assignment, and shall execute and deliver to the Borrower and the Agent an
Assignment and Acceptance with respect thereto, no later than 30 days after such
request, if the proposed assignee (x) unconditionally purchases all of such
Lender's rights and obligations under the Loan Documents, without recourse to or
representation or warranty by such Lender other than as provided in the
Assignment and Acceptance, for an amount equal to the aggregate amount owing to
such Lender thereunder at the time of such assignment (including such Lender's
aggregate outstanding Loans, accrued interest thereon and all fees and other
amounts accrued or payable to such Lender), (y) reimburses such Lender for all
reasonable costs incurred under this Section 2.10 as a result of such assignment
to the extent not reimbursed by the Borrower, and (z) executes and delivers to
the Borrower and the Agent such Assignment and Acceptance.
Section 2.11. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against the Borrower or other security or interest arising from, or
in lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Obligation as a
result of which the aggregate unpaid amount of the Obligations owing to it shall
be proportionately less than the aggregate unpaid amount of the Obligations
owing to any other Lender, it shall simultaneously purchase from such other
Lender at face value a participation in the Obligations owing to such other
Lender, so
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that the aggregate unpaid amount of the Obligations and participations in
Obligations held by each Lender shall be in the same proportion to the aggregate
unpaid amount of all Obligations owing to such Lender prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the aggregate unpaid
amount of all Obligations outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.11 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustments restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in an Obligation deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a loan directly to the Borrower in
the amount of such participation.
Section 2.12. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.07, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding (i) income taxes imposed on the net income of the Agent or any Lender
(or any transferee or assignee thereof, including a participation holder (any
such entity a "Transferee")) and (ii) franchise taxes imposed on the net income
of the Agent or any Lender (or Transferee), in each case by the jurisdiction
under the laws of which the Agent or such Lender (or Transferee) is organized or
any political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges withholdings and liabilities, collectively or individually,
"Taxes"). If the Borrower shall be required to deduct any Taxes from or in
respect of any sum payable hereunder to any Lender (or any Transferee) or the
Agent, (i) the sum payable shall be increased by the amount (an "additional
amount") necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.12) such
Lender (or Transferee) or the Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay to
the relevant Governmental Authority in accordance with applicable law any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any other Loan Document ("Other Taxes").
(c) The Borrower will indemnify each Lender (or
Transferee) and the Agent for the full amount of Taxes and Other Taxes paid by
such Lender (or Transferee) or the Agent, as the case may be, and any liability
(including penalties, interest and expenses (including reasonable attorney's
fees and expenses)) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability prepared by a Lender, or the Agent on its behalf, absent manifest
error, shall be final, conclusive and binding for all
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purposes. Such indemnification shall be made within 30 days after the date the
Lender (or Transferee) or the Agent, as the case may be, makes written demand
therefor.
(d) If a Lender (or Transferee) or the Agent
shall become aware that it is entitled to claim a refund from a Governmental
Authority in respect of Taxes or Other Taxes as to which it has been indemnified
by the Borrower, or with respect to which the Borrower has paid additional
amounts, pursuant to this Section 2.12, it shall promptly notify the Borrower of
the availability of such refund claim and shall, within 30 days after receipt of
a request by the Borrower, make a claim to such Governmental Authority for such
refund at the Borrower's expense. If a Lender (or Transferee) or the Agent
receives a refund (including pursuant to a claim for refund made pursuant to the
preceding sentence) in respect of any Taxes or Other Taxes as to which it has
been indemnified by the Borrower or with respect to which the Borrower has paid
additional amounts pursuant to this Section 2.12, it shall within 30 days from
the date of such receipt pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.12 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of such Lender (or Transferee)
or the Agent and without interest (other than interest paid by the relevant
Governmental Authority with respect to such refund); provided, however, that the
Borrower, upon the request of such Lender (or Transferee) or the Agent, agrees
to repay the amount paid over to the Borrower (plus penalties, interest or other
charges) to such Lender (or Transferee) or the Agent in the event such Lender
(or Transferee) or the Agent is required to repay such refund to such
Governmental Authority.
(e) As soon as practicable after the date of any
payment of Taxes or Other Taxes by the Borrower to the relevant Governmental
Authority, the Borrower will deliver to the Agent, at its address referred to in
Section 11.05, the original or a certified copy of a receipt issued by such
Governmental Authority evidencing payment thereof.
(f) Without prejudice to the survival of any
other agreement contained herein, the agreements and obligations contained in
this Section 2.12 shall survive the payment in full of the principal of and
interest on all Loans made hereunder.
(g) Each Lender (or Transferee) that is
organized under the laws of a jurisdiction other than the United States, any
State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to
the Borrower and the Agent two copies of either U.S. Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from U.S. Federal withholding tax on
payments by the Borrower under this Agreement and other Loan Documents. Such
forms shall be delivered by each Non-
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U.S. Lender on or before the date it becomes a party to this Agreement (or, in
the case of a Transferee that is a participation holder, on or before the date
such participation holder becomes a Transferee hereunder) and on or before the
date, if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.12(g), a Non-U.S. Lender
shall not be required to deliver after the date hereof any form pursuant to this
Section 2.12(g) that such Non-U.S. Lender is not legally able to deliver.
(h) The Borrower shall not be required to
indemnify any Non-U.S. Lender, or pay any additional amounts to any Non-U.S.
Lender, in respect of United States Federal withholding tax pursuant to
paragraph (a) or (c) above to the extent that (i) the obligation to withhold
amounts with respect to United States Federal withholding tax existed on the
date such Non-U.S. Lender became a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on the date such participation holder
became a Transferee hereunder) or, with respect to payments to a New Lending
Office, the date such Non-U.S. Lender designated such New Lending Office with
respect to a Loan; provided, however, that this clause (i) shall not apply to
any Transferee or New Lending Office that becomes a Transferee or New Lending
Office as a result of an assignment, participation, transfer or designation made
at the request of or with the consent of the Borrower; and provided further,
however, that this clause (i) shall not apply to the extent the indemnity
payment or additional amounts any Transferee, or Lender (or Transferee) through
a New Lending Office, would be entitled to receive (without regard to this
clause (i)) do not exceed the indemnity payment or additional amounts that the
person making the assignment, participation or transfer to such Transferee, or
Lender (or Transferee) making the designation of such New Lending Office, would
have been entitled to receive in the absence of such assignment, participation,
transfer or designation, (ii) the obligation to pay such additional amounts
would not have arisen but for a failure by such Non-U.S. Lender to comply with
the provisions of paragraph (g) above or (iii) the obligation to pay such
additional amounts does not result from a change in applicable tax law
(including, without limitation, applicable judicial decisions, statutes,
regulations or other administrative interpretations) occurring after the date
hereof.
(i) Any Lender (or Transferee) claiming any
indemnity payment or additional payment amounts payable pursuant to this Section
2.12 shall use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document reasonably requested in
writing by the Borrower or to change the jurisdiction of its applicable lending
office if the making of such a filing or change would avoid the need for or
reduce the amount of any such indemnity payment or additional amount which may
thereafter accrue and would not, in the sole determination of such Lender (or
Transferee), be otherwise disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.12 shall
require any Lender (or Transferee) or the Agent to make available any of its tax
returns (or any other information which it deems to be confidential or
proprietary).
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Section 2.13. Increase in Total Commitment. The Borrower, the
Guarantor and CIT agree that if one or more financial institutions, reasonably
acceptable to the Borrower and CIT, agree in writing to become Lenders under
this Agreement with an aggregate Commitment of not more than $20,000,000, the
Borrower, the Guarantor and CIT will act in good faith to amend this Agreement
to (i) add such financial institutions as Lenders under this Agreement, (ii)
increase the Total Commitment by the amount of the aggregate Commitments of such
financial institutions, and (iii) make such other amendments deemed necessary or
advisable by CIT to effect the amendments described in clauses (i) and (ii)
above. As a condition to any increase in the Total Commitment, the Borrower and
the Guarantor shall execute such additional instruments, documents and
agreements as the Agent shall reasonably request. Nothing contained herein shall
be interpreted to require any increase in the Total Commitment unless the
conditions described in this Section have been satisfied in full to the
satisfaction of CIT.
ARTICLE III.
COLLATERAL
Section 3.01. Collateral; Grant of Security Interest.
(a) Pursuant to the Custodian Agreement, the
Custodian shall hold the Collateral Documents as the exclusive bailee and agent
for the Agent and the Lenders pursuant to the terms of the Custodian Agreement
and shall deliver to the Agent trust receipts each to the effect that it has
reviewed such Collateral Documents in the manner and to the extent required by
the Custodian Agreement and identifying any deficiencies in such Collateral
Documents so reviewed.
(b) In order to secure the payment and
performance in full of the Loans and the other Obligations, the Borrower hereby
assigns and pledges to the Agent for the benefit of the Lenders and hereby
grants to the Agent for the benefit of the Lenders a security interest in and to
the following, whether now owned or hereafter acquired by the Borrower (the
"Collateral"):
(1) all Mortgage Loans now or hereafter made
which have been pledged to the Agent (whether by delivery to
the Agent or to the Custodian on the Agent's behalf or
otherwise) or upon which any Loan is made by the Agent or the
Lenders, the Mortgage Note and Mortgage and the other
Collateral Documents evidencing said Mortgage Loan, all
servicing rights and servicing fees and other income arising
from or relating to such Mortgage Loans, and all instruments,
documents, loan agreements, guarantees, interest rate swap,
cap or collar agreements or similar agreements, contract
rights, general intangibles, property rights, proceeds and
payments arising therefrom or relating thereto, including
without limitation the following:
(a) all payments and prepayments of
principal, interest, and other income due or to
become due thereon and all proceeds
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therefrom, and all the right, title and interest of
every nature whatsoever of the Borrower in and to
such property;
(b) all Liens with respect
thereto or as security therefor;
(c) all hazard insurance
policies, title insurance policies or condemnation
proceeds with respect thereto including, without
limitation, any FHA mortgage insurance; and
(d) all prepayment premiums and
late payment charges with respect thereto;
(2) all real estate acquired by the Borrower
by deed in lieu of foreclosure or by foreclosure attributable
to any such Mortgage Loan;
(3) all Purchase Commitments issued with
respect to any such Mortgage Loan and all rights of the
Borrower with respect thereto;
(4) all right, title and interest of the
Borrower in and to all files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs,
cards, accounting records, and other records, information, and
related data of the Borrower with respect to such Mortgage
Loans;
(5) all business records, computer tapes,
software and microfiche necessary or useful to identify and
locate the Collateral;
(6) each Wet Mortgage Loan and all documents
and agreements delivered in connection therewith or relating
thereto including, without limitation, the Mortgage Note,
Mortgage and Collateral Documents related thereto (such Wet
Mortgage Loan and all such documents, instruments and
agreements and Collateral Documents related thereto, being
herein collectively called, the "Wet Collateral") immediately
upon the funding of the Loan in respect thereof and the
creation of the Wet Mortgage Loan;
(7) all cash from time to time deposited in
any deposit account of the Borrower with the Custodian,
including, without limitation, the Warehouse Account, the
Restricted Account, and the Operating Account;
(8) (a) all moneys, securities and other
property and the proceeds thereof, now or hereafter held or
received by, or in transit to, the Agent or any Lender from or
for the Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of the
Borrower's sums and credits with, and all of the Borrower's
claims against the Agent or any Lender at any time existing;
(b) all rights, interests, choses in action, causes of
actions, claims and all other intangible property of every
kind and nature, in each instance whether now owned or
hereafter acquired by the Borrower, including, without
limitation, all
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corporate and other business records, all loans, royalties,
servicing rights and all other forms of obligations receivable
whatsoever; (c) all computer programs, software, printouts and
other computer materials, credit files, correspondence,
advertising materials and other source or business
identifiers; (d) all rights under license and franchise
agreements, servicing contracts and other contracts and
contract rights; (e) all interests in partnerships, limited
liability companies and joint ventures, including all moneys
due from time to time in respect thereof; (f) all federal,
state and local tax refunds and federal, state and local tax
refund claims and all judgments in favor of Borrower and all
of Borrower's rights with respect thereto; (g) all right,
title and interest under leases, subleases, licenses and
concessions and other agreements relating to personal
property, including all moneys due from time to time in
respect thereof; (h) all lock-box and all deposit accounts
(general or special) or other accounts with any bank or other
financial institution, including, without limitation, all
depository or other accounts maintained by the Borrower at any
Lender and all funds on deposit therein; (i) all rights to
indemnification; (j) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual
interests in trusts; (k) all proceeds of insurance of which
the Borrower is the beneficiary; (l) all letters of credit,
guaranties, liens, security interests and other security held
by or granted to the Borrower; (m) all instruments, files,
records, ledger sheets and documents covering or relating to
any of the Collateral; and (n) all present and future
accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other obligations of any
kind, whether or not similar to the foregoing, in each
instance, however and wherever arising;
(9) all Investment Property, securities,
Securities Accounts, Financial Assets and all Securities
Entitlements of the Borrower in any and all of the foregoing,
excluding all such property to the extent it is Collateral
pursuant to the terms of the Pledge Agreements; and
(10) all proceeds of any and all of the
foregoing Collateral (including, without limitation, proceeds
which constitute property of the types described in any of the
clauses of this Section 3.01 and, to the extent not otherwise
included, all payments under insurance (whether or not the
Agent or the Borrower is the loss payee thereof), or any
indemnity, warranty, guaranty or insured closing letter,
payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral);
in each case howsoever the Borrower's interest therein may
arise or appear (whether by ownership, security interest,
claim or otherwise); provided that, nothing hereunder
constitutes or shall be deemed to constitute the grant of a
security interest in favor of the Agent in the Borrower's
interest in any contract right or any other general intangible
(other than any of the foregoing constituting an account or a
general intangible for money due or to become due to which
Section 9-318(4) of the Code applies) (each such contract
right and other general
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intangible, other than those described in the preceding
parenthesis, being hereinafter referred to as "Excluded
Property"), if the granting of a security interest therein by
the Borrower to the Agent is prohibited by the terms and
provisions of (A) the written agreement, document or
instrument creating or evidencing such Excluded Property or
(B) a written agreement, document or instrument entered into
prior to the date of this Agreement and described on Schedule
3.01 attached hereto, provided, however, that, except for any
promissory notes, account receivables or other payment
obligations made or owing by Cityscape Mortgage Corporation
Limited to the Borrower; if and when the prohibition which
prevents the granting by the Borrower to the Agent of a
security interest in any Excluded Property is removed or
otherwise terminated, the Agent will be deemed to have, and at
all times to have had, a security interest in such Excluded
Property. Notwithstanding anything set forth herein to the
contrary, the Agent will be deemed to have, and at all times
to have had, a security interest in the proceeds of such
Excluded Property to the extent permitted in the respective
documents described in clauses (A) or (B) above.
The Borrower agrees to mark its computer
records and tapes to evidence the interests granted to the
Agent and the Lenders hereunder.
Section 3.02. Responsibility for Collateral. To the extent
required by Section 9-207 of the applicable UCC or other applicable law, the
Agent shall use reasonable care in the care, transmittal, custody and
preservation of Collateral in its possession; reasonable care shall be deemed to
be such care that the Agent exercises in the transmittal, care, preservation and
custody of its own property of a similar nature. Notwithstanding the foregoing,
the Agent shall have (1) no responsibility with respect to the risk of
accidental loss or damage to Collateral in its possession, (2) no obligation to
provide insurance for or in respect of the Collateral and (3) no responsibility
for Collateral not in its possession. The Agent shall have no fiduciary
responsibility or duty to the Borrower with respect to the care, preservation,
holding, maintenance or transmittal of the Collateral delivered to the Agent,
the Custodian or any other Person.
Section 3.03. Representations and Warranties Concerning
Collateral. The Borrower hereby represents and warrants to the Agent and the
Lenders and by submitting each Loan request shall be deemed to have represented
and warranted to the Agent and the Lenders that as of the date of such Loan
request and as to each Pledged Mortgage included or to be included as an
Eligible Residential Mortgage Loan:
(1) Ownership; No Liens; Pledge to the Agent. The
Borrower is (or, in the case of a Wet Loan, will be upon the funding of
the related Wet Mortgage Loan) the legal and equitable owner of such
Pledged Mortgage and all other items of Collateral related thereto,
free and clear of all Liens, except for the Liens permitted under this
Agreement. Such Pledged Mortgage and other items of Collateral (a)
comply (or, in the case of a Wet Loan, will comply upon the funding of
the related Wet Mortgage Loan), as applicable, with all of the
requirements of this Agreement, including those required for
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the inclusion in the Borrowing Base, and (b) have been (or, in the case
of a Wet Loan, will be upon the funding of the related Wet Mortgage
Loan) validly pledged or assigned to the Agent, subject to no other
Liens other than Liens permitted under this Agreement, and the Agent
has (or, in the case of a Wet Loan, will have upon the funding of the
related Wet Mortgage Loan) a first perfected Lien thereon, within the
meaning of the applicable UCC, except that the Agent will not have a
perfected Lien on real estate owned by the Borrower. Such Borrower has
the full right and authority to pledge the Collateral pledged by it
hereunder and has not pledged the Collateral, or any part thereof, to
any other Person.
(2) Compliance with Laws; Enforceability;
Modification; Required Documents, Etc. Each such Pledged Mortgage and
documents related thereto (a) has been made (or, in the case of a Wet
Loan, will be made upon the funding of the related Wet Mortgage Loan)
in compliance, in all respects, with all requirements of the Real
Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the
Federal Truth-In-Lending Act and all other applicable Laws, (b) is (or,
in the case of a Wet Loan, will be upon the funding of the related Wet
Mortgage Loan) genuine, valid, duly authorized, properly executed,
properly recorded (or duly delivered to the appropriate recording
office for recordation) and enforceable in accordance with its terms,
without defense or offset, (c) has not been modified or amended and has
not had any requirements thereof waived except (i) for minor
modifications in the ordinary course of the Borrower's business which
do not in any event adversely affect the value or marketability of the
relevant item of Collateral or (ii) with respect to Conforming Mortgage
Loans, modifications or waivers which are required by FNMA or FHLMC, in
connection with changes to FNMA's or FHLMC's rules, regulations or
regulations, (d) complies with the terms of this Agreement, (e) has
been (or, in the case of a Wet Loan, will be upon the funding of the
related Wet Mortgage Loan) fully advanced in the respective face
amounts thereof and (f) is (or, in the case of a Wet Loan, will be upon
the funding of the related Wet Mortgage Loan) secured by a Mortgage
which is a first or second Lien on the respective Single Family
Residence described therein or a first lien on the Multifamily/Mixed
Use Property described therein, as applicable. With respect to each
such Pledged Mortgage, the Borrower has (or, in the case of a Wet Loan,
will have upon the funding of the related Wet Mortgage Loan) in its
possession all documents and instruments required to be possessed by
the Borrower (x) under this Agreement, (y) under FNMA's or FHLMC's
rules, regulations or guidelines, if applicable, and (z) under a
Purchase Commitment, if any, other than those documents and instruments
which are in the possession of the Custodian.
(3) Defaults. No default, nor any event which would
become a default with notice or lapse of time or both, has occurred and
is continuing under such Pledged Mortgage.
(4) Compliance with Agency Requirements. All Pledged
Mortgages that are Conforming Mortgages comply (or, in the case of a
Wet Loan, will comply upon the funding of the related Wet Mortgage
Loan) in all material respects with all applicable
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requirements for purchase under the FNMA or FHLMC standard form of
selling contract for similar Mortgage Loans and any supplement thereto
then in effect, including, but not limited to, the representations and
warranties made therein, and such Conforming Mortgages comply in all
respects with the requirements of the Investors to whom such Mortgage
Loans are to be sold.
(5) Insurance Relating to Pledged Mortgages. All fire
and casualty policies covering the premises encumbered by such Mortgage
included in the Pledged Mortgages (a) name (or, in the case of a Wet
Loan, will name upon the funding of the related Wet Mortgage Loan) such
Borrower as the insured under a standard mortgagee clause not less
favorable to the Borrower than the applicable standard mortgagee
endorsement, (b) are (or, in the case of a Wet Loan, will be upon the
funding of the related Wet Mortgage Loan) in full force and effect, and
(c) afford (or, in the case of a Wet Loan, will afford upon the funding
of the related Wet Mortgage Loan) insurance against fire and such other
hazards as are usually insured against in the broad form of extended
coverage insurance from time to time available. All flood, title and
other insurance policies (including required private mortgage
insurance) (i) name (or, in the case of a Wet Loan, will name upon the
funding of the related Wet Mortgage Loan) the Borrower as an additional
insured under a standard mortgagee clause not less favorable to the
Borrower than the applicable standard mortgagee endorsement, or in the
case of title insurance, the Borrower is the insured mortgagee
thereunder by virtue of being the assignee or assign under the policy,
(ii) are (or, in the case of a Wet Loan, will be upon the funding of
the related Wet Mortgage Loan) in full force and effect, and (iii)
afford (or, in the case of a Wet Loan, will afford upon the funding of
the related Wet Mortgage Loan) insurance against the hazards and risks
required to be insured against by any Agency or prudent underwriting
practices. The Borrower has (or, in the case of a Wet Loan, will have
upon the funding of the related Wet Mortgage Loan) (a) caused to be
performed all acts required to preserve the rights and remedies of the
Agent and the Lenders in any insurance policies of the Borrower or any
mortgagor applicable to a Mortgage Loan and (b) complied with all
requirements of the Agencies or any Investor for obtaining insurance
with respect to such Pledged Mortgage.
(6) Escrow Deposits. Any Escrow Deposits are held by
the Borrower in accordance with applicable Laws and any agreements
relating to same and have been and will be applied to the obligations
for which they were deposited in accordance with any agreements
relating to same.
(7) Additional Representations. The additional
representations and warranties set forth in Schedule 3.03(7) attached
hereto are true and correct.
Section 3.04. Release of Security Interest. (a) With respect
to Collateral that constitutes Eligible Residential Mortgage Loans, the Agent
shall, promptly after the receipt of a request from the Borrower in connection
with any sale or refinancing of such Collateral, release such Collateral
specified in the Borrower's request from the Lien granted hereby and thereupon
deliver the same to the Borrower; provided, however, that any such release shall
be subject to
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the consent of the Agent if (i) either before or after giving effect to such
release and the transactions in connection therewith, the aggregate amount of
Loans outstanding shall exceed the then current Borrowing Base or (ii) either
before or after giving effect to such release a Default or Event of Default has
occurred and is continuing.
(b) With respect to Collateral that does not
constitute Eligible Residential Mortgage Loans, the Agent shall, promptly after
the receipt of a request from the Borrower in connection with any sale or
refinancing of such Collateral, release such Collateral specified in the
Borrower's request from the Lien granted hereby and thereupon deliver the same
to the Borrower; provided, however, that (i) any such release shall be subject
to the consent of the Agent if either before or after giving effect to such
release and the transactions in connection therewith a Default or Event of
Default has occurred and is continuing, (ii) the release procedures for the
capital stock of the Subsidiaries of the Borrower that own Retained Interest
Receivables and the Retained Interest Receivables themselves (none of which are
pledged as Collateral but which may be pledged as Collateral pursuant to the
terms of the Supplemental Security Agreement, in the form of Annex D to the
Pledge Agreement (SPV), signed by such Subsidiaries) shall be as set forth in
the Pledge Agreement (SPV), and (iii) with respect to the release of the capital
stock of City Mortgage Corporation Limited, subject to clause (i) of this
paragraph (b), the Agent will release the capital stock upon four Business Days
prior written notice of such proposed release.
(c) Upon the commencement of a foreclosure
proceeding relating to a Pledged Mortgage, the Agent shall release the related
Mortgage Note, the Mortgage and the other related Collateral Documents with
respect to such Pledged Mortgage promptly after its receipt of a written notice
from the Borrower, certified by its Designated Borrowing Officer, of the need
for such Collateral Documents in connection with such foreclosure proceeding.
(d) Notwithstanding the provisions set forth in
subsections (a) and (b) of this Section 3.04, the obligation of the Agent to
release any Collateral is subject to its receipt of the Collateral Sale Proceeds
from such released Collateral, except to the extent otherwise permitted by
Section 2.04.
Section 3.05 Covenants and Agreements concerning
Collateral. The Borrower covenants and agrees as follows:
(1) Defense of Interests. It will defend the right,
title and interest of the Agent in and to the Pledged Mortgages and all
other items of Collateral against the claims and demands of all
Persons.
(2) Modification; Etc. Except as provided in Section
3.03(2), it shall not amend, modify, or waive any of the terms and
conditions of, or settle or compromise any claim in respect of, any
Pledged Mortgages or other Collateral, or any rights related to any of
the foregoing.
(3) Sale or Encumbrance. It shall not sell, option,
assign, transfer or otherwise alienate any Collateral, other than in
the ordinary course of its business and in
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accordance with the terms and provisions of this Agreement, or permit
any Collateral or any interest therein to be subject to a Lien, except
the Liens permitted by this Agreement.
(4) Performance under Servicing Contracts; Escrow
Deposits. It shall service or cause to be serviced all Mortgages in
accordance with the terms and provisions set forth in Exhibit K
attended hereto. The Borrower hereby agrees that upon the occurrence
and during the continuance of an Event of Default, the Agent may,
subject to the prior rights of any sub-servicer pursuant to a legally
binding servicing agreement between the Borrower and such sub-servicer,
terminate the Borrower as servicer and transfer servicing to the
Agent's designee, at no cost or expense to the Agent and the Lenders,
it being agreed that the Borrower will pay any and all fees required to
effectuate the transfer of servicing to the designee of the Agent. The
Borrower shall permit the Agent or its designee to inspect the
Borrower's servicing facilities, in the absence of a continuing Event
of Default, during normal business hours, for the purpose of satisfying
the Agent that the Borrower has the ability to service the Mortgage
Loans as provided in this Agreement. It shall hold all Escrow Deposits
in accordance with all applicable Laws and all agreements relating to
such Escrow Deposits, without commingling the same with non-escrow
funds, and shall hold and apply the same for the purposes for which
such Escrow Deposits were collected in accordance with all applicable
Laws and agreements.
(5) Failure to Qualify for Inclusion in Borrowing
Base and Related Matters. It shall notify the Agent of (a) any default
under any Pledged Mortgage, (b) the failure of any items of Collateral
which are required by the terms hereof to be covered by a Purchase
Commitment to be so covered, (c) the failure of any Eligible
Residential Mortgage Loan that is included in the Borrowing Base to no
longer satisfy the requirements of this Agreement for inclusion in the
Borrowing Base, and (d) any other matter which has a Material Adverse
Effect on the Collateral.
(6) Further Assurances. (a) From time to time, at the
expense of such Borrower (including the payment of all filing fees
whether the items are filed by such Borrower or by the Agent), the
Borrower will promptly execute and deliver all further instruments and
documents, and take all further actions, that may be necessary or
desirable, or that the Agent may reasonably request, in order to
preserve, perfect and protect any Lien granted or purported to be
granted hereby or to enable the Agent and the Lenders to exercise and
enforce their rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, such
Borrower will execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Agent or any
Lenders may reasonably request, in order to perfect and preserve the
Lien granted or purported to be granted to the Lenders hereby.
(7) Inspection. The Agent or a representative
thereof, shall have the right (i) to maintain a representative on the
premises of the Borrower commencing on the Closing Date and continuing
for so long as the Agent may require and (ii) thereafter, at any
reasonable time, from time to time, to enter the Borrower's premises to
inspect, in the
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absence of a continuing Event of Default, during normal business hours
the Collateral, documents and agreements related thereto, the records
relating to the Collateral and the underwriting and other procedures of
the Borrower. The Agent and each of the Lenders shall have the right to
make abstracts or photocopies from or of the Borrower's books and
records pertaining to the Collateral and the cost and expense of such
abstracts and photocopies shall be borne by the Borrower.
(8) Wet Collateral. The Borrower shall execute any
and all additional documents, agreements, notices or acknowledgments as
the Agent shall request to maintain, preserve, perfect or protect the
Agent's Lien in such Wet Collateral. While the Borrower is in
possession of the Wet Collateral, it will hold same exclusively for the
Agent, without authority to make any other disposition thereof, or of
the proceeds thereof.
Section 3.06. Agent's Approval of Investors. With respect to
any Mortgage Loan that is required hereunder to be subject to a Purchase
Commitment, the Agent shall have the right, in its sole discretion, to approve
or disapprove of the Investor that issued the Purchase Commitment.
Section 3.07. Uniform Commercial Code Financing Statements.
The Agent is hereby authorized to file in the name of the Borrower, without the
need for the Borrower's signature thereto, such UCC financing statements,
amendments thereto and continuations thereof which the Agent at any time
determines is necessary to perfect or better assure the Lien and other benefits,
intended to be afforded hereby. A carbon, photographic or other reproduction of
this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
Section 3.08 Collection Rights. Unless a Default or Event of
Default shall have occurred and be continuing, and except with respect to
Collateral Sale Proceeds which pursuant to the terms of this Agreement shall be
required to be paid to the Agent directly by any Person purchasing or
refinancing a Mortgage Loan or other Collateral, the Borrower shall be entitled
to receive and collect directly all principal and interest payable to such
Borrower in respect of the Collateral and to exercise all voting or consensual
powers in respect of the Collateral in a manner not inconsistent with the terms
of this Agreement. Upon the occurrence and during the continuance of a Default
or an Event of Default, the Agent shall be entitled to receive and collect all
sums payable to the Borrower in respect of the Collateral, and in such case (a)
the Agent may, in the Agent's name or in the name of the Borrower or otherwise,
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but shall be
under no obligation to do so, (b) the Borrower shall forthwith pay to the Agent
at its principal office all amounts thereafter received by the Borrower upon or
in respect of any of the Collateral, advising the Agent as to the source of such
funds, and (c) all amounts so received and collected by the Agent shall be held
by the Agent as part of the Collateral and used to reduce the Obligations.
Section 3.09. Attorney-in-Fact. The Agent is hereby appointed
the agent and attorney-in-fact of the Borrower for the purpose of carrying out
the provisions of this Agreement,
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taking any action and executing any instruments which the Agent may deem
necessary or advisable to accomplish the purposes hereof and to obtain for the
Agent, on behalf of the Lenders, the benefits of this Agreement, the other Loan
Documents, the Collateral and the security intended to be provided to the
Lenders hereby and thereby, which agency and appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Agent shall have the right and power in the place and stead of
the Borrower, and in the name of the Borrower or otherwise (from time to time,
upon the occurrence and during the continuance of an Event of Default and
without prior notice to or consent from the Borrower, and without releasing or
in any manner affecting the Borrower's Obligations hereunder): (a) to receive,
endorse and collect all checks, drafts or chattel paper made payable to the
order of the Borrower (provided that all such endorsements recite that they are
made without recourse) representing any payment of the Pledged Mortgages or
other items of Collateral, to give full discharge for the same and to complete
any endorsements or assignments made in blank or which are updated or otherwise
incomplete or to execute new endorsements (provided that all such endorsements
recite that they are made without recourse) or assignments to any Persons, (b)
to ask, demand, collect, sue for, recover, compound, receive and give,
acquittances and receipts for moneys due and to become due under or in respect
of any of the Collateral, (c) to file any claims or take any action or institute
any proceedings which the Agent may deem necessary or desirable for the
collection or completion of, or perfection of the Agent's interest in any of the
Collateral or otherwise to enforce the rights of the Borrower or the Agent with
respect to any of the Collateral, this Agreement or the other Loan Documents,
including, without limitation, the endorsement of any Mortgage Note, and the
creation, execution and recording of any Assignment of Mortgage for any Pledged
Mortgage and (d) if the Borrower fails to perform any obligation under this
Agreement or any Loan Document or cause performance of such obligation.
Section 3.10. The Borrower Remains Liable. Anything herein to
the contrary notwithstanding: (1) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (2) the exercise by the Agent
of any of its rights hereunder shall not release the Borrower from any of its
duties or obligations under the contracts and agreements included in the
Collateral; and (3) the Agent and the Lenders shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Agent and the Lenders be obligated to
perform any of the obligations or duties of the Borrower thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
ARTICLE IV
BORROWING BASE
Section 4.01. Condition of Lending. The Agent and the Lenders
shall have no obligation to make a Loan to the extent that the aggregate unpaid
principal amount of the Loans exceeds, or after giving effect to a requested
Loan will exceed, the lesser of the Total Commitment and the then current
Borrowing Base.
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Section 4.02. Mandatory Prepayment. Concurrently with the
delivery of any Borrowing Base Certificate, the Borrower shall give notice to
the Agent of any mandatory prepayment pursuant to Section 2.06(c), which notice
shall specify a prepayment date no later than the earlier of the date on which
such Borrowing Base Certificate is given and the date on which such Borrowing
Base Certificate is required to be provided to the Lenders.
Section 4.03. Rights and Obligations Unconditional. Without
limitation of any other provision of this Agreement, the rights of the Agent and
the Lenders and the obligations of the Borrower under this Article IV are
absolute and unconditional, and the Agent and the Lenders shall not be deemed to
have waived the condition set forth in Section 4.01 hereof or their right to
payment in accordance with Section 4.02 hereof in any circumstance whatever,
including but not limited to circumstances wherein the Agent or the Lenders
(knowingly or otherwise) make a Loan hereunder in excess of the Borrowing Base.
Section 4.04. Borrowing Base Certificate.
(a) By 12:00 noon, New York City time (i) on
Friday of each week, or if the applicable Friday is not a Business Day, then on
the following Business Day (and on any other date on which the Agent reasonably
requests), the Borrower shall furnish to the Agent a Borrowing Base Certificate,
certified as true and correct by a Designated Financial Officer, setting forth
the Borrowing Base and the other information required therein as of the
Borrower's close of business on the Friday of the preceding week, together with
such other information with respect to any asset included in the Borrowing Base
as the Agent may request.
(b) In the event of any dispute about the
eligibility of any Mortgage Loan for inclusion in the Borrowing Base or the
valuation thereof, the Agent's good faith judgment shall control.
(c) The Agent may dispute the eligibility of any
Mortgage Loan for inclusion in the Borrowing Base or the valuation thereof by
notice of such dispute to the Borrower, in which case the value of such Mortgage
Loan shall, at the discretion of the Borrower, either not be included in the
Borrowing Base or be included in the Borrowing Base with a value reasonably
acceptable to the Agent.
(d) Each Borrowing Base Certificate shall be
accompanied by backup schedules showing the derivation thereof and containing
such detail and such other and further information as the Agent may reasonably
request from time to time.
Section 4.05. General Provisions. Notwithstanding
anything to the contrary in this Article IV, in no event shall any single
Mortgage Loan be counted twice in determining the Borrowing Base.
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ARTICLE V.
CONDITIONS PRECEDENT
Section 5.01. Conditions Precedent to Initial Loan. The
obligation of each Lender to make the initial disbursement of its portion of the
initial Loan is subject to the condition precedent that the Agent shall have
received on or before the Closing Date each of the following documents, in form
and substance satisfactory to the Agent and its counsel, and each of the
following requirements shall have been fulfilled:
(1) Evidence of Due Organization of and all Corporate
Actions by the Borrower and the Guarantor. A certificate of the
respective Secretary or Assistant Secretary of the Borrower and the
Guarantor, dated the Closing Date, attesting to the certificate of
incorporation and by-laws of the Borrower and the Guarantor and all
amendments thereto, and to all corporate actions taken by the Borrower
and the Guarantor, including, without limitation, resolutions of its
board of directors, authorizing the execution, delivery and performance
of the Loan Documents to which it is a party, and each other document
to be delivered by the Borrower and the Guarantor pursuant to the Loan
Documents to which it is a party.
(2) Incumbency and Signature Certificate of the
Borrower and the Guarantor. A certificate of the respective Secretary
or Assistant Secretary of the Borrower and the Guarantor, dated the
Closing Date, certifying the names and true signatures of the officers
of the Borrower and the Guarantor authorized to sign the Loan Documents
to which it is a party, and the other documents to be delivered by the
Borrower and the Guarantor to which it is a party including, without
limitation, each loan request.
(3) Good Standing Certificates for the Borrower and
the Guarantor. A certificate, dated reasonably near the Closing Date,
from the respective Secretary of State (or other appropriate official)
of the jurisdiction of incorporation of the Borrower and the Guarantor
certifying as to the due incorporation and good standing of the
Borrower and the Guarantor, and certificates, from the Secretary of
State (other appropriate official) of each other jurisdiction where the
Borrower and the Guarantor is required to be qualified to conduct
business or where such qualification is necessary to enforce any
Mortgage Loan, certifying that the Borrower and the Guarantor, as
applicable, are duly qualified to do such business and is in good
standing in such state.
(4) Notes. The Notes duly executed by the Borrower.
(5) Financing Statements, Etc. (a) Duly executed
financing statements (UCC-1) to be filed under the UCC of all
jurisdictions necessary or, in the opinion of the Agent, desirable to
perfect the Lien created by this Agreement and the other Loan
Documents; (b) duly executed copies of the termination statements
(UCC-3) to be filed under the UCC of all jurisdictions necessary, or in
the opinion of the Agent, desirable to terminate any Liens in favor of
any party other than the Agent and other than
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Liens permitted under Section 8.01 hereof; (c) UCC searches identifying
all of the financing statements on file with respect to the Borrower in
all jurisdictions referred to under (a); and (d) the Borrower shall
have taken all action requested by the Agent to perfect the security
interests created pursuant to this Agreement.
(6) Guarantee. The Guarantee duly executed by the
Guarantor.
(7) Pledge Agreements. Each of the Pledge Agreement
(SPV) and the Pledge Agreement (UK) duly executed and delivered by the
Borrower and, in the case of the Pledge Agreement (SPV), Greenwich,
together with stock certificates, stock powers, Retained Interest
Receivables, bond powers and other documents and instruments in each
case required by the terms of such Pledge Agreements.
(8) Material Adverse Change. No Material Adverse
Change has occurred since December 31, 1996, except as disclosed in the
Form 10-Q and 8-K statements filed with the Securities and Exchange
Commission after such date, copies of which have been provided to the
Agent, and in a writing delivered to the Agent on the date of this
Agreement.
(9) Fees. All fees, costs and expenses payable to the
Agent and its legal counsel required to be paid at or prior to the
closing of the transactions contemplated hereby including, without
limitation, the fees set forth in the Fee Letter, shall have been paid
in full on the Closing Date.
(10) Opinion of Counsel for the Borrower and
Guarantor. A favorable opinion of internal and external counsel for the
Borrower and Guarantor, dated the Closing Date, as to such matters as
the Agent may reasonably request.
(11) Certificate. The following statements shall be
true and the Agent shall have received a certificate signed by the
President or Senior Vice President of the Borrower dated the Closing
Date stating that:
(a) The representations and warranties
contained in this Agreement and in each of the other Loan
Documents are correct on and as of the Closing Date as though
made on and as of such date; and
(b) No Default or Event of Default has
occurred and is continuing.
(12) Custodian Agreement. The Custodian
Agreement duly executed and delivered by the Borrower and the
Custodian.
(13) Mortgage Loan Schedule and Exception Report. A
Mortgage Loan Schedule and Exception Report, dated the Closing Date,
from the Custodian duly completed relating to the Pledged Mortgages on
the Closing Date.
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(14) Receipt of Financial Statements. Audited annual
financial statements of the Borrower for the Fiscal Year ended December
31, 1996, in accordance with the requirements of subsection 7.08(1)
hereto and unaudited financial statements of the Borrower for the third
quarter of Fiscal Year 1997, in accordance with the requirements of
subsection 7.08(2).
(15) Insurance. A certificate of insurance evidencing
insurance as is required by Section 7.05 hereof, naming the Agent and
the Lenders as loss payee or additional insured, as appropriate.
(16) Wet Closing Agent Agreement. A form of the Wet
Closing Agent Agreement shall be delivered to and approved by the
Agent.
(17) Asset Sales. Evidence satisfactory to the Agent
that the Borrower and the Guarantor have received proceeds aggregating
not less than $30,000,000 from the December 1997 whole loan sale of
Mortgage Loans to Lehman Brothers, the sale of Retained Interest
Receivables to Wilshire Funding Corporation and the sale of other
assets.
(18) Additional Documentation. Such other approvals,
opinions or documents as the Agent any reasonably request.
Section 5.02. Conditions Precedent to All Loans. As a
condition precedent to the Agent or the Lender making any Loan (including the
initial Loan), each of the following conditions precedent shall be true, and the
submission by the Borrower to the Agent of a Notice of Borrowing and the
Borrower's acceptance of the proceeds of such Loan shall be deemed to be a
representation and warranty by the Borrower on the date of such Loan that:
(a) all the representations and warranties
contained in this Agreement and in each of the other Loan
Documents are correct on and as of the date of providing such
Loan as though made on and as of such date (other than those
which expressly speak only as of a different date, which must
be correct as of such date);
(b) no Default or Event of Default has
occurred and is continuing, or could result from providing
such Loan; and
(c) since December 31, 1996 there has been
no Material Adverse Change, except as disclosed in Form 10-Q
and 8-K statements filed after such date and on or before the
Closing Date with the Securities and Exchange Commission,
copies of which have been provided to the Agent, and in a
writing delivered to the Agent on the date of this Agreement.
Section 5.03. Loan Requests. In connection with each request
for a Loan, the Borrower shall deliver to the Agent a signed Notice of Borrowing
and a Mortgage Loan Schedule attached thereto. For each Loan requested, the
Agent shall receive the written Notice
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of Borrowing request not later than 10:00 a.m. (New York City time) on the
Business Day of the requested Loan. Prior to the funding of a Loan the proceeds
of which shall be used to originate a Mortgage Loan, other than a Wet Mortgage
Loan (and during the rescission period required by the Truth in Lending Act),
the Borrower or the Closing Agent on behalf of the Borrower shall deliver to the
Custodian all of the Collateral Documents as listed on Exhibit F attached hereto
(the "Description of Collateral Documents"), including, without limitation, each
of the following:
(a) written wire instructions advising the Custodian
to wire Loan proceeds from the Borrower's account to the Closing Agent
reflecting the intended amount of the Mortgage Loans to be financed and
giving other wiring instructions as needed by the Custodian;
(b) the original of each Mortgage Note duly executed
at settlement, and duly endorsed by the Borrower in blank and
containing any necessary intervening endorsements on a Mortgage
purchased by the Borrower;
(c) a copy of each Mortgage duly executed at
settlement and in recordable form, certified in writing by the Closing
Agent as being a true and accurate copy of the original Mortgage;
(d) original assignment of each Mortgage, in
recordable form and executed by the Borrower in blank, and with respect
to a Mortgage purchased by the Borrower, the original recorded
intervening assignment or a copy thereof certified in writing by the
Borrower as being a true and accurate copy of the original intervening
assignment delivered for recording; and
(e) with respect to each Mortgage Loan to be pledged
by the Borrower hereunder which was funded by the Borrower with the
Borrower's own funds or purchased by the Borrower, the Borrower will
deliver the documents required by this Section 5.03 at or prior to the
time of making its loan request.
Upon receipt thereof, the Custodian shall review all documents and instruments
to determine whether on their face only they are satisfactory pursuant to the
terms of the Custodian Agreement. Not later than 11:00 a.m., New York City time,
on the date of the proposed Loan, the Custodian shall deliver to the Agent and
the Borrower an Exception Report and a trust receipt with respect to the
Collateral Documents for the Mortgage Loans to be pledged to the Agent.
Section 5.04. Disbursing Loans. Upon satisfaction of all
conditions for the making of a Loan (other than a Wet Loan) under this Agreement
to fund Mortgage Loans and subject to the limitations contained herein, on the
date of the requested Loan, the Agent shall, subject to the next sentence, wire
transfer to the Warehouse Account the requested Loan amount and instruct the
Custodian to wire transfer such amount to the Closing Agent account designated
in the applicable Mortgage Loan Schedule (or with respect to a requested Loan
where the Pledged Mortgage was previously funded by the Borrower with the
Borrower's own funds, to the Operating Account). To the extent that the amount
of funds to be provided by the Lenders are insufficient to close and fund the
applicable Mortgage Loan, the Custodian shall transfer from the Operating
Account to the Warehouse Account sufficient additional funds, and the Custodian
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will not initiate a wire transfer of funds to the applicable Closing Agent until
the Agent has received a confirmation from the Custodian that sufficient
additional funds are on deposit in the Warehouse Account. To the extent that the
amount of funds to be provided by the Lenders exceeds the amount needed to close
and fund the applicable Mortgage Loan, the Custodian shall transfer the excess
amount from the Warehouse Account to the Operating Account for use by the
Borrower. Upon the Agent's wire transfer of the Loan proceeds into the Warehouse
Account, the applicable Loan shall be deemed made.
Section 5.05 Wet Mortgage Loan Closings. (1) The Borrower may,
subject to the Agent's approval, and in the Agent's sole discretion, deliver Wet
Mortgage Loans in pledge under this Agreement for inclusion in the Borrowing
Base up to the Wet Mortgage Loan Sublimit without the prior delivery of all
original Collateral Documents otherwise required by this Agreement. In
connection with the pledge of any such Wet Mortgage Loans, the Borrower shall
deliver to the Agent a Notice of Borrowing which specifies that the requested
Loan shall fund a Wet Mortgage Loan and shall also deliver to the Custodian
copies of the Collateral Documents proposed to be used in connection with the
funding of the applicable Wet Mortgage Loan. In order for any Wet Mortgage Loan
to be included in the Borrowing Base, and for the Agent to consider disbursing
the Loan proceeds related thereto, the Custodian must receive the copies of the
Collateral Documents not later than 3:00 p.m., New York City time, on the
Business Day preceding the applicable Mortgage Loan Closing Date. Upon such
timely receipt of the required Notice of Borrowing and provided that the
Collateral Documents for such Wet Mortgage Loan are satisfactory to the
Custodian and the Agent receives a written confirmation of such satisfaction,
the Agent shall include any such Wet Mortgage Loan in the Borrowing Base on the
applicable Mortgage Loan Closing Date notwithstanding that such Wet Mortgage
Loan many not yet have been closed and funded for purposes of permitting the
requested Wet Loan to be made in respect thereof. If a Wet Mortgage Loan shall
not be closed and funded on or before the second Business Day immediately
following the Mortgage Loan Closing Date specified, or shall be closed but
subsequently rescinded pursuant to the Truth in Lending Act, the Borrower shall
immediately notify the Agent and the Wet Closing Agent to such effect and such
Wet Mortgage Loan shall cease to be included in the Borrowing Base and the Wet
Closing Agent shall on the third Business Day immediately following the Mortgage
Loan Closing Date return to the Agent in immediately available funds the amount
of Loan proceeds advanced in respect thereof.
(2) In connection with each Wet Closing, the Borrower agrees
that it shall deliver all Collateral Documents relating to a Wet Mortgage Loan
to the Custodian not later than six Business Days after the date of the making
of the Wet Loan in respect thereof, provided that the Agent, in its sole
discretion, may extend such six Business Day period to ten Business Days but in
no event shall the aggregate principal amount of Wet Loans with respect to which
the related Collateral Documents have not been delivered to the Custodian within
six Business Days after the date of such Wet Loan exceed at any time $250,000.
In the event that the Agent shall not have received all such Collateral
Documents complying in all respects with the requirements of this Agreement
within such six Business Day period or such extended period (as the case may
be), such Wet Mortgage Loan shall cease to be included in the Borrowing Base.
Promptly after the receipt of the Collateral Documents, the Custodian shall
deliver an Exception Report and trust receipt with respect thereto.
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(3) Upon satisfaction of all conditions for the making of a
Wet Loan under this Agreement and subject to the limitations contained herein,
Wet Loans shall be funded in the following manner as directed by the Borrower in
each Notice of Borrowing:
(a) Wire Transfers: On the date of the requested Wet
Loan, the Agent shall, subject to the next sentence, wire
transfer to the Warehouse Account the requested Loan amount
and direct the Custodian to wire transfer such amounts to the
Closing Agent account designated in the applicable Mortgage
Loan Schedule. To the extent that the amount of funds to be
provided by the Lenders are insufficient to close and fund the
applicable Wet Mortgage Loan, the Custodian shall transfer
from the Operating Account to the Warehouse Account sufficient
additional funds, and the Custodian will not initiate a wire
transfer of funds to the applicable Wet Closing Agent until
sufficient additional funds are on deposit in the Warehouse
Account. Upon the Agent's wire transfer of the Loan proceeds
into the Warehouse Account, the applicable Wet Loan shall be
deemed made, provided, however, that until the applicable Wet
Mortgage Loan is closed and funded, the Lenders shall have a
Lien on the Wet Loan proceeds as security for all Obligations
owed to the Lenders and the Closing Agent shall hold such Wet
Loan proceeds as agent for and on behalf of the Agent and the
Lenders in accordance with the applicable Wet Closing Agent
Agreement.
(b) Upon closing each Wet Mortgage Loan, the Wet
Closing Agent shall, unless advised by the Custodian to the
contrary (which advice may be by telephone), deliver the
applicable Collateral Documents to the Borrower for
endorsement of the Note and transmittal to the Custodian
within the six Business Day time period provided herein as
such period may be extended pursuant to Section 5.05(2). While
the Collateral Documents are in the Borrower's possession,
they shall be held in trust for the benefit of the Agent and
the Lenders and the Borrower shall have no authority to
transfer same to any other Person other than the Custodian,
or, if required by the Agent, at the Agent's direction.
(c) The Borrower will not request the delivery of any
wire transfer Wet Loan proceeds to a Closing Agent who has
been disapproved by the Agent. The Borrower shall obtain at
the Borrower's expense "stand behind," indemnity or similar
agreement, or "insured closing letters," for all Closing
Agents in form and substance acceptable to the Agent from
title insurance companies acceptable to the Agent providing
such assurance to the Agent that the funds delivered to a
Closing Agent will be applied only for the purposes intended
in accordance with this Agreement and providing such other
assurances as the Agent shall reasonably require. The delivery
by Borrower of any such agreement or letter from an approved
title insurance company shall not affect the rights that the
Lenders or any other Person would otherwise have with respect
to any Wet Closing Agent.
Section 5.06. Investor Requirements; Other Approvals. For all
Loans, the Borrower shall have possession of all other documents required by the
relevant Investor to be
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held by the Borrower, and the Custodian shall have received such other
approvals, opinions and documents as the Agent may reasonably request.
Section 5.07. High LTV Mortgage Loans. In the event that the
Borrower wishes to obtain the Agent's approval of a proposed High LTV Mortgage
Loan, the following procedure shall be followed:
(a) Such Borrower shall provide the Agent with all
information on the proposed High LTV Mortgage Loan which the
Agent determines is necessary for the Agent to make a
decision.
(b) After the date on which the Agent has received
the last of the information that it requires, the Agent shall
have seven Business Days from such date to make a decision on
the proposed High LTV Mortgage Loan. If the Agent approves the
proposed Mortgage Loan within said seven Business Day period,
the proposed High LTV Mortgage Loan will be deemed approved
upon the Agent's delivery of a written confirmation to the
Borrower. Otherwise, the proposed High LTV Mortgage Loan shall
be disapproved.
(c) As a minimum requirement for approval, the
principal amount of each High LTV Mortgage Loans must not be
greater than One Hundred Thousand ($100,000).
Section 5.08. Temporary Release of Collateral Documents:
Delivery of Collateral Documents. (1) Return to the Borrower. The Borrower may
from time to time request in writing that the Custodian return Collateral
Documents to the Borrower on a temporary basis for the purpose of correction or
completion and the Custodian may, with the consent of the Agent, which consent
may be withheld in the sole discretion of the Agent, deliver the requested
Collateral Documents to the Borrower. The written request to release shall be in
the form of a trust receipt in form and content satisfactory to the Agent.
Promptly upon completion of such correction or completion, the Borrower shall
return such Collateral Documents to the Custodian, but in no case later than
fourteen Business Days from the date same were shipped to the Borrower. The
Agent shall not release to the Borrower at any given time Collateral Documents
related to Pledged Mortgages with an outstanding principal balance in excess of
$500,000. If the Borrower fails to return any Collateral Documents within
fourteen Business Days of the delivery thereof to the Borrower, or if such
Collateral Documents are not corrected or completed so as to comply with the
terms of this Agreement within such fourteen Business Day period, the Pledged
Mortgage to which such Collateral Documents relate shall not be included in the
Borrowing Base.
(2) Delivery to any Investor. Provided that there is no
Default or Event of Default hereunder, the Borrower may from time to time make
requests by written notice to the Custodian to deliver Collateral Documents
relating to a Conforming Mortgage Loan to an Investor who has issued a Purchase
Commitment to the Borrower, for review prior to purchase. Provided that there is
no Default or Event of Default hereunder, the Custodian shall deliver the
requested Collateral Documents relating to such Conforming Mortgage Loan to the
Investor
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designated by the Borrower, along with a bailee letter in form and content
satisfactory to the Agent. If any Investor fails to return any Collateral
Documents to the Custodian within twenty-one days of the delivery thereof or on
such earlier date requested by the Agent, the Conforming Mortgage Loan to which
such Collateral Documents relate shall not be included in the Borrowing Base.
Section 5.09. Deemed Representation. Each request for a Loan
and acceptance by the Borrower of any Loan proceeds shall constitute a
representation and warranty that the statements contained in Section 5.02 are
true and correct both on the date of such notice and as of the date of the
providing of such Loan.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
Section 6.01. Formation, Good Standing and Due Qualification.
The Borrower is duly formed, validly existing and in good standing under the
laws of the jurisdiction of its formation, has the power and authority to own
its assets and to transact the business in which it is now engaged or proposed
to be engaged, and is duly qualified and in good standing under the laws of each
other jurisdiction in which the failure to qualify would cause, or result in, a
Material Adverse Change, or where such qualification is necessary to permit the
Borrower to enforce any Mortgage Loan.
Section 6.02. Power and Authority; No Conflicts. The
execution, delivery and performance by the Borrower of the Loan Documents to
which it is a party have been duly authorized and do not and will not: (1)
contravene the Borrower's articles of incorporation, by-laws or other formation
documents; (2) violate any provision of, or require any filing (other than the
filing of the financing statements contemplated by this Agreement),
registration, consent or approval under any Law, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower; (3) result in a breach of or constitute a default
under or require any consent (not already obtained) under any indenture or loan
or credit agreement or other agreement evidencing an obligation for borrowed
money or any other material agreement, lease or instrument to which the Borrower
is a party or by which it or its properties may be bound or affected; (4) result
in, or require, the creation or imposition of any Lien (other than as created
under this Agreement) upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower; or (5) cause the Borrower to be in default
under any such Law, order, writ, judgment, injunction, decree, determination or
award or any such indenture, agreement, lease or instrument.
Section 6.03. Legally Enforceable Agreements. Each Loan
Document to which the Borrower is a party is a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms, except to the extent that such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws affecting the enforcement of creditors' rights generally, the
availability of equitable
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remedies and the exercise of judicial discretion, regardless of whether
enforcement is sought in a proceeding at law or in equity.
Section 6.04. Litigation. Except as set forth on Schedule 6.04
hereto, there are no actions, suits or proceedings pending or threatened,
against or affecting (except foreclosure litigation in which the Borrower is a
named defendant solely because it holds a mortgage on the property being
foreclosed upon) the Borrower before any court, governmental agency or
arbitrator, which could, in any one case or in the aggregate, result in (1) a
Material Adverse Change or (2) liability to the Borrower in excess of Five
Hundred Thousand Dollars ($500,000).
Section 6.05. Financial Statements. All financial information
furnished to the Lenders concerning the operations of the Borrower and the
Guarantor, their balance sheets and related statements of income and retained
earnings, for all periods prior to September 30, 1997, fairly present the
financial condition of the Borrower at such dates and the results of their
operations for the periods covered by such statements. There are no liabilities
of the Borrower, fixed or contingent, which are material but are not reflected
on Schedule 6.05 hereto. No information, exhibit, or report furnished by the
Borrower to the Lenders in connection with this Agreement contain any material
misstatement of fact or omit to state a material fact or any fact necessary to
make the statements contained therein not materially misleading.
Section 6.06. Ownership and Liens. The Borrower has title to,
or valid leasehold interests in, all of the Borrower's properties and assets,
real and personal, including the properties and assets, and leasehold interests
reflected in the financial statements referred to in Section 6.05 (other than
(i) any properties or assets disposed of in the ordinary course of business or
(ii) any property or assets other than Mortgage Loans having an aggregate fair
market value of less than Five Hundred Thousand Dollars ($500,000)), and none of
the properties and assets owned by the Borrower and none of its leasehold
interests is subject to any Lien, except as may be permitted under this
Agreement.
Section 6.07. Taxes. The Borrower has filed all tax returns
(federal, state and local) required to be filed and has paid all taxes,
assessments and governmental charges and levies shown thereon to be due,
including interest and penalties, except to the extent they are the subject of a
Good Faith Contest.
Section 6.08. ERISA. The Borrower is in compliance in all
material respects with all applicable provisions of ERISA. Neither a Reportable
Event nor a Prohibited Transaction has occurred with respect to any Plan; no
notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; no circumstances exists which constitutes grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings;
neither the Borrower nor any ERISA Affiliate of the Borrower has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer
Plan; the Borrower has met its minimum funding requirements under ERISA with
respect to all of its Plans and there are no unfunded vested liabilities; and
neither the Borrower nor any ERISA Affiliate of the Borrower has incurred any
liability to the PBGC under ERISA.
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Section 6.09. Subsidiaries. Except as set forth on Schedule
6.09 hereto, the Borrower has no Subsidiaries and the Borrower is not a partner
in any partnership, limited liability company or joint venture.
Section 6.10. Operation of Business; Prior or Existing
Restrictions, Etc. The Borrower possesses all material licenses, qualifications
(including licenses and qualifications required in each state where each Single
Family Residence securing each Mortgage Loan acquired or originated by the
Borrower is located), Agency approvals, permits, franchises, patents,
copyrights, trademarks and trade names, or rights thereto, to conduct the
Borrower's business substantially as now conducted and as presently proposed to
be conducted and the Borrower is not in violation of any valid rights of others
with respect to any of the foregoing. The Borrower has disclosed all written
reports, actions and/or sanctions of any nature threatened, and all reviews,
investigations, examinations, audits, actions and/or sanctions that have been
undertaken and/or imposed as of the date of this Agreement and of which it has
knowledge, by any federal or state agency or instrumentality (including any
Agency) with respect to either the lending or related financial operations of
the Borrower. The Borrower is not operating under any type of agreement or order
(including, without limitation, a supervisory agreement, memorandum of
understanding, cease and desist order, capital directive, supervisory directive,
or consent decree) with any state or federal banking department or government
banking or other agency or instrumentality (including any Agency), and the
Borrower is in compliance with any and all capital, leverage or other financial
standards and requirements imposed by any applicable regulatory authority,
agency or instrumentality, including any Agency.
Section 6.11. No Default on Outstanding Judgments or Orders.
The Borrower has satisfied all judgments and is not in default with respect to
any judgment, writ, injunction, decree, rule or regulation of any court,
arbitrator or federal, state, municipal or other Governmental Authority,
commission, board, bureau, agency or instrumentality, domestic or foreign which
default could result in a Material Adverse Change.
Section 6.12. No Defaults on Other Agreements. The Borrower is
not a party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any certificate of incorporation or
corporate restriction which could except upon default thereof result in a
Material Adverse Change. The Borrower is not in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument which default could result
in a Material Adverse Change.
Section 6.13. Labor Disputes and Acts of God. Neither the
business nor the properties of the Borrower has been or continues to be affected
by any fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hurricane, hail, earthquake, embargo, act of God or of the
public enemy or other casualty (whether or not covered by insurance), which
could result in a Material Adverse Change.
Section 6.14. Environmental Protection. The Borrower has
obtained all permits, licenses and other authorizations which are required under
all Environmental Laws, except to the
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extent failure to have any such permit, license or authorization could not
result in a Material Adverse Change. The Borrower is in compliance with all
Environmental Laws and the terms and conditions of the required permits,
licenses and authorizations, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in those Laws or contained in
any plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent failure to
comply could not result in a Material Adverse Change.
The Collateral contains no Hazardous Materials that, under any
Environmental Law currently in effect, (1) would impose liability on the
Borrower that could result in a Material Adverse Change, or (2) could result in
the imposition of a Lien on the Collateral (other than real estate owned by the
Borrower) or any portion thereof or any other assets of the Borrower, in each
case if not properly handled in accordance with applicable Law.
Section 6.15. Compliance with Laws. The Borrower and the
operation of its business is in compliance with all material Laws applicable to
the Borrower or the Mortgage Loans.
Section 6.16. Licenses. Lenders will not be required solely as
a result of taking a pledge of the Mortgage Loans to be licensed, registered or
approved or to obtain permits or otherwise qualify (i) to do business in any
state in which it currently is not so required or (ii) under any state consumer
lending, fair debt collection or other applicable state statute or regulation,
except that each Lender is required to be approved as a lender to a mortgage
banker by the New York State Banking Department.
Section 6.17. Chief Executive Office. The Borrower's chief
executive office on the Closing Date is located at 565 Taxter Road, Elmsford,
New York 10523. The location where the Borrower keeps its books and records,
including all computer tapes and records relating to the Collateral is either
its chief executive office or 8 Skyline Drive, Hawthorne, New York 10532.
Section 6.18. FHA Servicing. The Borrower (or its
subcontractor) is an FHA Approved Mortgagee. The Borrower has the facilities,
procedures, and experienced personnel necessary for the sound servicing of
mortgage loans and properties of the same type as the Mortgage Loans pledged
hereunder. The Borrower is in good standing to service mortgage loans for the
FHA, and no event has occurred, including but not limited to a change in
insurance coverage, which would make the Borrower unable to comply with FHA
eligibility requirements or which would require notification to the FHA.
Section 6.19. Material Contracts. Set forth in Schedule 6.19
hereto is a complete and accurate list as of the Closing Date of all Material
Contracts of the Borrower, showing the parties and subject matter thereof and
amendments and modifications thereto. Each such Material Contract (i) is in full
force and effect and is binding upon and enforceable against the Borrower and,
to the best of the Borrower's knowledge, all other parties thereto in accordance
with its terms, (ii) has not been otherwise amended or modified in any material
respect, and (iii) there exists no
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default under any Material Contract by the Borrower or, to the Borrower's
knowledge, any other party thereto which has not been cured or waived.
Section 6.20. Permitted Warehouse Indebtedness; Working
Capital Indebtedness. All Loans the proceeds of which are used for the purposes
described in clause 1 of Section 2.08 constitute Permitted Warehouse
Indebtedness (as defined in the Senior Note Indenture). As of the Closing Date,
the Borrower has no indebtedness permitted under Section 4.06(b)(1)(B) of the
Senior Note Indenture other than the Obligations under this Agreement.
ARTICLE VII.
AFFIRMATIVE COVENANTS
So long as the Notes shall remain unpaid or the Lenders shall
have any Commitment hereunder, or any other amount is owing by the Borrower
hereunder or under any Loan Document, the Borrower shall:
Section 7.01. Maintenance of Existence. Preserve and maintain
its existence and good standing in the jurisdiction of its formation and qualify
and remain qualified in each jurisdiction in which the failure to qualify and/or
remain in good standing would cause, or result in, a Material Adverse Change.
Section 7.02. Conduct of Business. Continue to engage in an
efficient and economical manner in a business of the same general type as
conducted by it on the Closing Date. Use its best efforts to adhere to customary
practices and standards in effect from time to time in the mortgage banking
industry.
Section 7.03. Maintenance of Properties. Maintain, keep and
preserve all of its properties (tangible and intangible) necessary or useful in
the proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply at all times with the provisions of all
material leases to which it is a party as lessee or under which it occupies
property, so as to prevent any loss or forfeiture thereof or thereunder.
Section 7.04. Maintenance of Records. Keep adequate records
and books of account, in which complete entries will be made in accordance with
GAAP, reflecting all of its financial transactions.
Section 7.05. Maintenance of Insurance. Maintain insurance
with financially sound and reputable insurance companies or associations in such
amounts and covering such risks as are usually carried by companies engaged in
the same or a similar business and similarly situated or required by any
agreement to which the Borrower is a party, including, without limitation, a
standard policy of mortgage bankers' blanket bond insurance. To the extent
permitted under the terms of the policy, the Borrower shall cause the Agent to
be named, and remain named as long as any amounts are outstanding on the Notes,
an additional insured on
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such mortgage bankers' blanket bond insurance policies. Such insurance may
provide for reasonable deductibility from coverage thereof.
Section 7.06. Compliance with Laws. Comply in all respects
with all material Laws and orders applicable to it or the Mortgage Loans, such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property, except to the extent they are the subject of a Good Faith
Contest.
Section 7.07. Right of Inspection. At any reasonable time and
from time to time the Borrower shall permit the Agent or any Lender or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
to discuss the affairs, finances and accounts of the Borrower with any of the
Borrower's officers and directors and independent certified public accountants.
Section 7.08. Reporting Requirements. Furnish directly to the
Agent and to each Lender:
(1) Annual Financial Statements of the Borrower and the
Guarantor. As soon as available and in any event within 90 days after
the end of each Fiscal Year of the Borrower and the Guarantor (a) the
balance sheet of the Borrower and the Guarantor as of the end of such
Fiscal Year, the statements of income and retained earnings, and the
statements of cash flows of the Borrower and the Guarantor for such
Fiscal Year, both on a consolidated basis and on a consolidating basis,
all prepared in accordance with GAAP consistently applied and with
respect to the consolidated statements only accompanied by an opinion
thereon acceptable to the Agent by KPMG Peat Marwick or any other
independent certified public accountants of national standing selected
by the Borrower and the Guarantor and acceptable to the Agent, (b) with
respect to the foregoing consolidated statements only, a report of the
independent certified public accountants stating in comparative form
the respective figures for the corresponding date and period in the
prior Fiscal Year, and (c) a Certificate of No Default.
(2) Quarterly Financial Statements. Each quarter (other than
the fourth quarter), as soon as available and in any event not later
than 60 days after the end of the reporting quarter, a balance sheet of
the Borrower and the Guarantor as of the end of such quarter,
statements of income and retained earnings of the Borrower and the
Guarantor for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, and statements of changes
in financial position of the Borrower and the Guarantor for the portion
of the fiscal year ended with the last day of such quarter, all on a
consolidated and consolidating basis and all in reasonable detail and
stating in comparative form the respective figures of the corresponding
date and period in the previous fiscal year and all prepared in
accordance with GAAP consistently applied and certified by the
Designated Financial Officer of the Borrower;
(3) Monthly Financial Statements. Each month, as soon as
available and in any event not later than 30 days after the end of such
month, a balance sheet of the
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Borrower and the Guarantor as of the end of such quarter, statements of
income and retained earnings of the Borrower and the Guarantor for the
period commencing at the end of the previous fiscal year and ending
with the end of such month, and statements of changes in financial
position of the Borrower and the Guarantor for the portion of the
fiscal year ended with the last day of such month, all on a
consolidated and consolidating basis and all in reasonable detail and
stating in comparative form the respective figures of the corresponding
date and period in the previous fiscal year and all prepared in
accordance with GAAP consistently applied and certified by the
Designated Financial Officer of the Borrower;
(4) Management Letters. As soon as available after the end of
each Fiscal Year, copies of any reports submitted to the Borrower by
KPMG Peat Marwick or any other independent certified public accountants
in connection with the examination of the financial statements of the
Borrower and the Guarantor made by such accountants.
(5) Certificate of No Default. Not later than 60 days after
the last day of each quarter and not later than 90 days after the last
day of each Fiscal Year, the Borrower will provide the Agent with a
certificate (the "Certificate of No Default") of the chief financial
officer, controller or chief executive officer of the Borrower
certifying that no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which
is proposed to be taken with respect thereto.
(6) Notice of Litigation. Promptly after the commencement
thereof, but in any event within five Business Days after the service
of process with respect thereto on the Borrower or the Guarantor,
notice of all actions, suits, and proceedings before any court or
Governmental Authority, affecting the Borrower or the Guarantor which,
if determined adversely to the Borrower or the Guarantor, could result
in a Material Adverse Change.
(7) Notices of Defaults and Events of Default. As soon as
possible and in any event within three Business Days after the
occurrence of each Default or Event of Default, a written notice
setting forth the details of such Default or Event of Default and the
action which is proposed to be taken by the Borrower with respect
thereto.
(8) ERISA Reports. As soon as possible and in any event within
thirty days after any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or the PBGC or the Borrower has
instituted or will institute proceedings under Title IV of ERISA to
terminate any Plan, the Borrower will deliver to the Agent a
certificate of the chief financial officer of the Borrower setting
forth details as to such Reportable Event or Prohibited Transaction or
Plan termination and the action the Borrower proposes to take with
respect thereto.
(9) Reports to Other Creditors. Promptly after the furnishing
thereof, unless prohibited by law, copies of any statement or report
furnished to any other creditor of the Borrower or the Guarantor
pursuant to the terms of any indenture, loan or credit or
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similar agreement and not otherwise required to be furnished to the
Agent pursuant to any other clause of this Agreement.
(10) Reports, Etc. Promptly after the sending or filing
thereof, copies of all financial statements and reports which the
Borrower and/or the Guarantor send to, or receive from, any
Governmental Authority or Agency, and, upon the request of the Agent,
copies of all consultants' reports, investment bankers' reports,
business plans and similar documents.
(11) Insurance. Upon the occurrence of any casualty, damage or
loss, whether or not giving rise to a claim under any insurance policy
of the Borrower, in an amount greater than Two Hundred Fifty Thousand
Dollars ($250,000), notice thereof, together with copies of any
document relating thereto (including copies of any such claim) in
possession or control of the Borrower or any agent of the Borrower.
(12) Material Adverse Change. As soon as possible and in any
event within three Business Days after the occurrence of any event or
circumstances which could result in or has resulted in a Material
Adverse Change, written notice thereof.
(13) Offices. Thirty days prior written notice of any change
in the chief executive office or principal place of business of the
Borrower or the Guarantor.
(14) Liens. As soon as possible and in any event within three
Business Days after the assertion of any Lien against the Collateral
not permitted by the terms of this Agreement or the occurrence of any
event that could have a Material Adverse Change on the value or
marketability of the Collateral or the validity, enforceability or
priority of the Liens created under this Agreement, written notice
thereof.
(15) Environmental Notices. As soon as possible and in any
event within five Business Days after receipt, copies of all
Environmental Notices received by the Borrower which are not received
in the ordinary course of the Borrower's business.
(16) Reports Relating to Collateral.
(a) With respect to Conforming Mortgage Loans only,
if requested by the Agent, within ten days after such request:
(1) A schedule in a form satisfactory in
form and content to the Agent of all commitments to
make Mortgage Loans, commitments to purchase Mortgage
Loans and other information related to all Mortgages
Loans intended to be or which are pledged under this
Agreement.
(2) A schedule in a form satisfactory in
form and content to the Agent of all Purchase
Commitments held by the Borrower grouped by type of
Mortgage Loan (whether or not delivered as Collateral
hereunder) which qualifies for delivery pursuant to
such Purchase Commitments,
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listing the name of the investor, the commitment type
(i.e., mandatory, optional, standby, etc.), the
commitment amount which remains available for future
deliveries, the yield requirement or the price and
interest rate for which said price is quoted, and the
expiration, delivery or settlement date for each such
Purchase Commitment, and the weighted average yield
requirement or the weighted average price at each
applicable interest rate for each such group of
Purchase Commitments and (b) a schedule in a form
satisfactory in form and content to the Agent listing
the mandatory Purchase Commitments held by the
Borrower which shall be satisfied by delivering
Mortgage Loans which the Borrower has committed to
purchase;
(3) Not later than fifteen days after the
end of a calendar quarter, a list of the Investors to
whom the Borrower delivered Mortgage Loans during
such quarter and a list of the Investors to whom the
Borrower anticipates delivering Mortgage Loans during
the succeeding calendar quarter; and
(4) From time to time, which reasonable
promptness, such further information regarding the
Collateral as the Agent or any Lender may reasonably
request.
(b) As soon as available, but in any event not later
than the date that such reports, if any, are delivered to the
Agencies, copies of all annual and regularly delivered reports
to the Agencies relating to the Borrower's Mortgage Loan
origination and acquisition activities and other matters
requested or required by the Agencies.
(c) As soon as available, but in any event not later
than five Business Days after the receipt thereof by the
Borrower any notice received from an Agency or a Investor
relating to a material default or other deficiency under a
Purchase Commitment which could result in termination thereof.
(17) Servicer Report. Borrower shall (i) with respect to any
Mortgage Loans serviced by Borrower, deliver to the Agent monthly, a
report setting forth payment activity, defaults and delinquencies with
respect to each Mortgage Loan pledged to the Agent, (ii) prepare and
deliver reports each month, detailing, with respect to all Mortgage
Loans pledged to the Agent, such information as the Agent may from time
to time reasonably request and (iii) deliver to the Agent on the fifth
Business Day of each month a Mortgage Loan Schedule as of the end of
the prior month.
(18) Borrowing Base Certificate. Weekly (not later than Friday
of each week) or more frequently if requested by the Agent, a Borrowing
Base Certificate, current as of the last Business Day of the reporting
period in question, signed by the chief financial officer or such other
officer as the Borrower's chief financial officer may designate in
writing to the Agent. The Borrower shall send a copy of the Borrowing
Base Certificate
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to each Lender at the same time that the Borrower sends the Borrowing
Base Certificate to the Agent.
(19) General Information. Within three Business Days after the
entering into thereof, an executed copy of the extension agreement
between the Borrower and Greenwich relating to the Greenwich Capital
Credit Agreement (as defined in the Pledge Agreement (SPV)). Such other
information respecting the condition or operations, financial or
otherwise, of the Borrower and/or the Guarantor as the Agent or any
Lender may from time to time reasonably request.
Section 7.09. Compliance With Environmental Laws. Comply in
all material respects with all applicable Environmental Laws and immediately pay
or cause to be paid all costs and expenses incurred in connection with such
compliance.
Section 7.10. Purchase Commitments. Maintain valid and
enforceable Purchase Commitments where required pursuant to this Agreement
sufficient at all times to (i) satisfy the requirements of this Agreement an
(ii) in accordance with prudent business practices to protect the Borrower
against interest rate risk with respect to Mortgage Loans originated or acquired
by it and to permit the timely sale of Mortgage Loans in accordance with prudent
mortgage banking industry practices.
Section 7.11. Pledge of Mortgage Loans. Within two Business
Days after the origination or purchase of a Mortgage Loan by the Borrower,
pledge to the Agent and the Lenders in accordance with the terms and provisions
of this Agreement and the Custodian Agreement all such Mortgage Loans not
otherwise sold or financed by the Borrower during such two Business Day period,
unless such Mortgage Loans are pledged to Bear Stearns Mortgage Capital
Corporation or Greenwich pursuant to their respective credit facilities with the
Borrower; provided, that (i) not more than $3,000,000 of outstanding principal
amount of High LTV Mortgage Loans are permitted not to be pledged to the Agent
for a period not exceeding 30 days for any such Mortgage Loan from the date of
origination or purchase of such Mortgage Loan and (ii) Wet Mortgage Loans shall
be pledged to the Agent and the Lenders in accordance with the terms and
provisions of Section 5.05 hereof and the Custodian Agreement. The Agent may, at
any time, in its sole discretion, upon delivery of a written notice to the
Borrower, require all Mortgage Loans that have not otherwise been pledged to
Bear Stearns Mortgage Capital Corporation or Greenwich to be pledged to the
Agent and the Lenders immediately upon the origination or purchase thereof by
the Borrower.
Section 7.12. Taxes. Pay and discharge all taxes, assessments
or other governmental charges or levies imposed on it or any of its property or
assets prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are the subject of a Good Faith Contest.
Section 7.13. Adequate Capital. At all times during this
Agreement, Borrower shall possess sufficient net capital and liquid assets (or
ability to access the same) to satisfy (i) the financial responsibility
requirements of the New York State Banking Law and Regulations and (ii) its
obligations as they become due in the normal course of business.
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Section 7.14. ERISA.
(A) Comply in all material respects with the provisions of
ERISA to the extent applicable to any employee benefit plan maintained for any
of the Borrower's or a Subsidiary's employees or any multiemployer pension plan
to which the Borrower, any Subsidiary or any ERISA Affiliate is required to
contribute; not incur any accumulated funding deficiency or withdrawal liability
(within the meaning of ERISA), or any liability to the PBGC; and not permit any
Prohibited Transaction or Reportable Event or other event to occur which could
result in a Material Adverse Change with respect to the Borrower or any employee
benefit plan or which may be the basis for the PBGC to assert a material
liability against it or which may result in the imposition of a Lien on the
Borrower's properties or assets.
(B) Notify the Agent and the Lenders in writing promptly after
the assertion or threat of any Prohibited Transaction or Reportable Event, the
existence of any fact or set of facts or event (including without limitation any
change in the actuarial assumptions or funding methods of any employee benefit
plan or the incurrence of any withdrawal liability under any multiemployer plan)
which could have a Material Adverse Change or may be the basis for the PBGC to
assert a material liability against it or impose a Lien on the Borrower's
properties or assets. The Borrower shall also provide to the Agent and the
Lenders promptly after receipt thereof, copies of (i) all notices received by
the Borrower or any ERISA Affiliate of the reorganization of any multiemployer
pension plan or the PBGC's intent to terminate any Plan or Multiemployer Plan,
or to have a trustee appointed to administer any such employee benefit plan; and
(ii) at the request of a Lender each annual report and all accompanying
schedules, the most recent actuarial reports, the most recent financial
information concerning the financial status of each Plan or Multiemployer Plan,
and schedules showing the amounts contributed to each such plan by or on behalf
of the Borrower or any ERISA Affiliate in which any of their personnel
participate or from which such personnel may derive a benefit, and each Schedule
B (Actuarial Information) to the annual report filed by the Borrower or any
ERISA Affiliate with the Internal Revenue Service with respect to each such
plan.
Section 7.15. Borrowing Base. Maintain all Loans in compliance
with the then current Borrowing Base.
Section 7.16. Compliance With Custodian Agreement; Successor
Custodian. With respect to each Pledged Mortgage, the Borrower shall comply with
all document delivery requirements set forth in the Custodian Agreement. Not
later than 75 days of the date of this Agreement, the Borrower shall replace
CoreStates as Custodian and shall have entered into a Custodian Agreement with a
successor Custodian and the Agent.
Section 7.17. FHA Approved Mortgagee. The Borrower shall
maintain its status as an FHA Approved Mortgagee. The Borrower shall notify the
Agent promptly of any developments regarding its status as an FHA Approved
Mortgagee and shall send the Agent copies of all correspondence or notices
received or sent by the Borrower regarding its application.
Section 7.18. Underwriting Guidelines. Without the prior
written consent of the Agent, the Borrower shall not materially amend or
otherwise materially modify the Underwriting
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Guidelines. In the event that the Borrower proposes to amend the Underwriting
Guidelines, the Borrower shall submit the proposed amendment to the Agent in
writing. The Agent shall notify the Borrower whether or not it approves any such
proposed material amendment, which approval shall not be unreasonably withheld.
If the Borrower wishes to finance a Mortgage Loan hereunder that does not comply
in all respects with the Underwriting Guidelines, the Borrower shall request
prior approval thereof from the Agent and will deliver to the Agent, no later
than three (3) Business Days prior to the requested Mortgage Loan Closing Date,
the related underwriting file. The Agent shall notify the Borrower promptly (i)
whether or not it chooses to finance any such Mortgage Loan and, if so, (ii)
whether it chooses to treat such Mortgage Loan as includible in the Borrowing
Base.
Section 7.19. Wet Closing Agents. Cause each Wet Closing Agent
to execute a Wet Closing Agent Agreement in which such Wet Closing Agent
acknowledges and agrees to act as the agent for the Agent and the Lenders
pursuant to Section 5.03 hereof in connection with the funding of each Wet
Mortgage Loan.
Section 7.20. Bankruptcy Event. In the event that the Borrower
becomes the subject of a bankruptcy case (a "Case") under the United States
Bankruptcy Code, 11 U.S.C. Section101 et seq., the Borrower shall, within five
(5) Business Days of the commencement of the Case, file a motion, pursuant to 11
U.S.C. Section364, in the court having jurisdiction over such Case for approval,
nunc pro tunc or otherwise, of any advances made directly or indirectly by the
Agent or any Lender on or after the date of the commencement of the Case, and
approval of an order substantially in the form agreed upon in writing by the
Agent and the Borrower on the date hereof.
ARTICLE VIII.
NEGATIVE COVENANTS
So long as the Notes or any Obligations shall remain unpaid or
the Lenders shall have any Commitment hereunder or any other amount is owing by
the Borrower hereunder or under any other Loan Document, the Loan Parties shall
not:
Section 8.01. Liens.
(A) Create, incur, assume, or suffer to exist, any Lien upon
or with respect to any of their properties (including, without limitation, any
of the Loan Parties' interest in partnerships), now owned or hereafter acquired,
except the following kinds of Liens on properties other than Pledged Mortgages
("Permitted Liens"):
(1) Liens in favor of the Agent, for the benefit
of the Lenders and Greenwich;
(2) Liens for taxes or assessments or other
governmental charges or levies if not yet due and payable or, if due
and payable, if they are the subject of a Good Faith Contest;
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(3) Liens imposed by Law, such as mechanics'
materialmen's, landlords', warehousemen's, and carriers' Liens, and
other similar Liens, securing obligations incurred in the ordinary
course of business which are not past due for more than thirty days or
which are the subject of a Good Faith Contest;
(4) Liens under workers' compensation,
unemployment insurance, Social Security or similar legislation;
(5) Liens, deposits, or pledges to secure the
performance of bids, tenders, contracts (other than contracts for the
payment of money), leases (permitted under the terms of this
Agreement), public or statutory obligations, surety, indemnity,
performance, or other similar bonds, or other similar obligations
arising in the ordinary course of business, and the pledge of assets
for the purpose of securing an appeal, stay or discharge in the course
of any legal proceedings, provided that the aggregate amount of
liabilities of the Borrower and/or the Guarantor secured by a pledge of
assets permitted under this clause, including interest and penalties
thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;
(6) Judgment and other similar Liens arising in
connection with court proceedings, provided the execution or other
enforcement of such Liens is effectively stayed and the claims secured
thereby are the subject of a Good Faith Contest;
(7) Easements, rights-of-way, restrictions, and other
similar encumbrances which, in the aggregate, do not materially
interfere with the occupation, use, and enjoyment by the Borrower of
the property or assets encumbered thereby in the normal course of the
Borrower's business or materially impair the value of the property
subject thereto;
(8) Purchase-money Liens on any property hereafter
acquired or the assumption of any Lien on property existing at the time
of such acquisition, (and not created in contemplation of such
acquisition) or a Lien incurred in connection with any conditional sale
or other title retention agreement or a Capital Lease;
(9) Liens on real estate acquired and owned as a
result of foreclosure of a Mortgage held by the Borrower; and
(10) Liens to secure Debt permitted under Section
8.02 hereof other than clause (3) thereof.
No Liens shall be permitted on the Collateral constituting Pledged Mortgages and
the capital stock of any Subsidiary of the Borrower pledged to the Agent and the
Lenders other than the Liens in favor of the Agent and the Lenders hereunder and
the Lien in favor of Greenwich pursuant to the Pledge Agreement (SPV).
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(B) After the date hereof, agree with any other Person to
prohibit or otherwise restrict its ability to grant Liens upon, or security
interests in, any of its property to the Agent and the Lenders.
Section 8.02. Debt. Create, incur, assume, or suffer to
exist, any Debt, except:
(1) Debt of the Borrower under this Agreement or
the Notes;
(2) Debt described in Schedule 8.02, and any
extensions of maturity, refinancing or modification of the terms
thereof, provided that such extension, refinancing or modification (a)
is pursuant to material terms that are not less favorable to the
Borrower or the Guarantor than the terms of the Debt being extended,
refinanced or modified, (b) after giving effect to the extension,
refinancing or modification, such Debt is not greater than the amount
of the Debt outstanding immediately prior to such extension,
refinancing or modification, and (c) the extension, refinancing or
modification does not change the Persons liable or increase the
collateral for such Debt;
(3) Accounts payable to trade creditors for goods or
services and current operating liabilities (other than for borrowed
money), in each case incurred in the ordinary course of business, as
presently conducted;
(4) Debt of the Borrower secured by
purchase-money Liens permitted by Section 8.01(A)(8);
(5) Debt of the Borrower pursuant to hedging
agreements permitted by Section 8.09; and
(6) Debt not otherwise permitted by this Section
in an aggregate amount not to exceed $250,000.
Section 8.03. Mergers, Etc.
(A) Wind up, liquidate or dissolve itself, reorganize, merge
or consolidate with or into, or convey, sell, assign, transfer, lease, or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of their assets (whether now owned or hereafter
acquired) to any Person, except sales permitted by Section 8.07 hereof, or
(B) acquire all or substantially all of the assets or the
business of any Person, except with the prior written approval of the Agent,
such approval not to be unreasonably withheld.
Section 8.04. Leases. Create, incur, assume, or suffer to
exist any obligation as lessee for the rental or hire of any real or personal
property, except: (1) Capital Leases permitted under Section 8.01(A)(8); (2)
leases existing on the date of this Agreement and any extensions, renewals or
replacements thereof and (3) new leases for office space and equipment and
similar items used in the ordinary course of the Borrower's or the Guarantor's
business.
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Section 8.05. Sale and Leaseback. Sell, transfer, or otherwise
dispose of any real or personal property to any Person and thereafter directly
or indirectly lease back the same or similar property.
Section 8.06. Distributions. Directly or indirectly declare or
pay any dividends or other Distributions; or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock, now or hereafter
outstanding; or make any Distribution of assets to its shareholders whether in
cash, assets, or obligations of the Borrower; or allocate or otherwise set apart
any sum for the payment of any dividend on, or for the purchase, redemption, or
retirement or any of the Borrower's shares of capital stock; or make any other
Distribution by reduction of capital or otherwise in respect of its shares of
capital stock, except that the Borrower may do so if (i) both before and after
giving effect to any such dividend, Distribution, payment or other action no
Default or Event of Default has occurred and is continuing and (ii) the Borrower
provides to the Agent, three Business Days prior to such dividend, Distribution,
payment or other action, Notice thereof containing a certificate of the
Designated Financial Officer certifying that, as of a date not earlier than 15
days prior to the date of such dividend, Distribution, payment or other action,
the Value of the Retained Interest Receivables held by the Agent, as custodian,
and owned by the Subsidiaries of the Borrower whose capital stock is pledged to
the Agent pursuant to the Pledge Agreement (SPV), together with any other
collateral pledged to the Agent pursuant to the Pledge Agreement (SPV), is
greater than or equal to $40,000,000; provided this Section shall not apply to
any dividend, Distribution, payment or other action or with respect to any
obligation of City Mortgage Corporation Limited.
Section 8.07. Sale of Assets. (A) Sell, lease, assign,
transfer, or otherwise dispose of any of the Borrower's now-owned or hereafter
acquired assets (including, without limitation, receivables, and leasehold
interests), except, subject to Sections 2.06(d) and 3.04 and Subsection (B) of
this Section 8.07, (i) the sale or other disposition of assets (x) other than
Pledged Mortgages, in the ordinary course of the Borrower's business, (y)
consisting of Pledged Mortgages in the ordinary course of the Borrower's
business, including the sale or refinancing of Pledged Mortgages in accordance
with Section 3.04 hereof, or (z) no longer used or useful in the conduct of its
business, (ii) the sale or other disposition of Residual Interest Receivables to
the extent permitted by the Pledge Agreement (SPV) and (iii) the sale of the
capital stock of City Mortgage Corporation Limited and/or any of its direct or
indirect Subsidiaries; or
(B) Sell any Mortgage Loans on a recourse basis except with
the consent of the Majority Lenders.
Section 8.08. Investments. Make any loan or advance to any
Person (other than Mortgage Loans in the ordinary course of business), or
purchase or otherwise acquire any capital stock, assets, obligations, or other
securities of, make any capital contribution to, or otherwise invest in or
acquire any interest in any Person, or participate as a partner or joint
venturer with any other Person, or make any additional investments in the
partnerships and corporations referred to in Schedule 6.09 except: (1) direct
obligations of the United States or any agency thereof with maturities of one
year or less from the date of acquisition; (2) commercial paper of a domestic
issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's
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Investors Service, Inc.; (3) certificates of deposit with maturities of one year
or less from the date of acquisition issued by any commercial bank having
capital and surplus in excess of One Billion Dollars ($1,000,000,000); (4)
stock, obligations, or securities received in settlement of debts (created in
the ordinary course of business) owing to the Borrower; (5) investments required
to be made or purchased by any Agency or any applicable provisions of law; (6)
Loans and advances to employees of the Borrower in an aggregate principal amount
not to exceed $250,000, provided that no employee shall receive loans and
advances aggregating more than $100,000; (7) investments in Persons other than
City Mortgage Corporation Limited in an aggregate amount not in excess of
$250,000, provided that the aggregate of such investments in any one Person
shall not exceed $100,000; (8) loans and advances to, or capital contributors or
other investments in, City Mortgage Corporation Limited, if (i) both before and
after giving effect to such loans, advances, capital contributions or
investments no Default or Event of Default has occurred and is continuing and
(ii) the Borrower provides to the Agent, three Business Days prior to such loan,
advance, capital contribution or other investment, Notice thereof containing a
certificate of the Designated Financial Officer certifying that, as of the date
not earlier than 15 days prior to the date of such loan, advance, capital
contribution or investment, the Value of the Retained Interest Receivables held
by the Agent, as custodian, and owned by Subsidiaries of the Borrower whose
capital stock is pledged to the Agent pursuant to the Pledge Agreement (SPV),
together with any other collateral pledged to the Agent pursuant to the Pledge
Agreement (SPV), is greater than or equal to $40,000,000; and (9) assets placed
in a special purpose subsidiary.
Section 8.09. Financial Hedge Instruments. Engage in or enter
into any derivatives or hedging transactions of any kind other than transactions
regarding the hedging of interest rate or exposure, provided that such
transactions are not entered into for speculative purposes.
Section 8.10. Guaranties, Etc. Assume, guaranty, endorse, or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any obligation, stock,
assets, goods, or services, or to supply or advance any funds, assets, goods, or
services, or an agreement to maintain or cause such Person to maintain a minimum
working capital or net worth, or otherwise to assure the creditors of any Person
against loss) for obligations of any Person other than the Borrower or the
Guarantor, except (i) guaranties by endorsement of negotiable instruments for
deposits or collection or similar transactions in the ordinary course of
business and (ii) as set forth on Schedule 8.10 hereto.
Section 8.11. Transactions With Affiliates. Enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate (other than the
Guarantor or any Subsidiary of the Borrower), except in the ordinary course of
and pursuant to the reasonable requirements of the Borrower's business and upon
fair and reasonable terms no less favorable to the Borrower than would obtain in
a comparable arm's-length transaction with a Person not an Affiliate.
Section 8.12. Margin Regulations. Use any part of the proceeds
of Loans (i) for the purpose of purchasing or carrying any margin stock within
the meaning of Regulations G, T,
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U or X of the Board of Governors of the Federal Reserve System or (ii) to extend
credit to any Person for the purpose of purchasing or carrying any such margin
stock.
Section 8.13. Subwarehousing. Purchase any Subwarehouse
Mortgage Loan or engage in any other Subwarehousing activity.
Section 8.14. Bulk Purchases of Mortgage Loans. Make a bulk
purchase of Mortgage Loans, except bulk purchases of Mortgage Loans the
aggregate purchase price of which is not in excess of $7,000,000, provided that
each Mortgage Loan purchased in bulk shall have been originated in conformity
with the applicable Underwriting Guideline unless otherwise consented to in
writing by the Agent.
ARTICLE IX.
EVENTS OF DEFAULT
Section 9.01. Events of Default. Any of the following events
shall be an "Event of Default":
(1) the Borrower shall: (a) fail to pay the principal
of the Loans as and when due; or (b) fail to make any of the
prepayments required by Section 2.06 as and when required; or (c) fail
to fulfill or satisfy any of the covenants regarding the Collateral in
Section 3.05 or the Collateral or any Residual Securities in Sections
3, 4 or 14(b) of the Pledge Agreement (SPV); or (d) fail to pay within
three days after the due date therefor interest on the Loans or any fee
or interest or any other amount due under this Agreement or any other
Loan Document;
(2) any representation or warranty made or deemed
made by the Borrower or the Guarantor in this Agreement or in any other
Loan Document or which is contained in any certificate, document,
opinion, or financial or other statement furnished by the Borrower, the
Guarantor or their respective agents or representatives at any time
under or in connection with any Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made (other than the additional representations and warranties made
pursuant to Section 3.03(7), which shall be considered solely for the
purpose of determining whether such Mortgage Loans will be Eligible
Residential Mortgage Loans, unless the Borrower shall have made any
such representations and warranties with knowledge that they were
materially false or misleading at the time made);
(3) any Loan Party shall fail to perform or observe
any covenant contained in Sections 7.01, 7.05, 7.06, 7.07, 7.10, 7.11,
7.12, 7.13, 7.14, 7.16, 7.17, 7.18, 7.19 or 7.20 or in Article VIII of
this Agreement;
(4) Any Loan Party shall default in the performance
or observance of (i) the covenants contained in subparagraphs (6), (7),
(12), (14), (16), (17) and (18) of
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Section 7.08 of this Agreement and such default shall continue
unremedied for a period of 3 Business Days, (ii) the covenant contained
in Section 7.15 of this Agreement and such default shall continue
unremedied for 1 Business Day, or (iii) any other covenants contained
in this Agreement or any other Loan Document not described in paragraph
(3) above or clause (i) of this paragraph (4) and such default shall
continue unremedied for a period of 10 days;
(5) any Loan Party shall: (a) fail to pay any Debt in
excess of $250,000 (other than the payment obligations described in (1)
above), of such Loan Party, as the case may be when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (b) fails to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement
or instrument relating to any such Debt, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, after the giving of
notice or the lapse of time, or both, of the maturity of such Debt,
except where such failure to perform or observe is waived by the holder
of such Debt and no fee is paid or additional collateral is pledged to
such holder in connection with its waiver; or any such Debt shall be
declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated
maturity thereof;
(6) either Loan Party: (a) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; or (b) shall make an assignment for the benefit
of creditors, petition or apply to any tribunal for the appointment of
a custodian, receiver or trustee for it or a substantial part of its
assets; or (c) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or (d) shall have had any such petition or
application filed or any such proceeding shall have been commenced,
against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding
remains undismissed or unstayed for a period of 60 days or more; or
shall be the subject of any proceeding under which its assets may be
subject to seizure, forfeiture or divestiture; or (e) by any act or
omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its property; or (f) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of 60 days or more;
(7) one or more judgments, decrees or orders for the
payment of money in excess of Five Hundred Thousand Dollars ($500,000)
in the aggregate shall be rendered against any Loan Party, and such
judgments, decrees or orders shall continue unsatisfied and in effect
for a period of thirty (30) consecutive days without being vacated,
discharged, satisfied or stayed or bonded pending appeal;
(8) any of the following events shall occur or exist
with respect to the Borrower or the Guarantor or any ERISA Affiliate;
(a) any Prohibited Transaction
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involving any Plan; (b) any Reportable Event shall occur with respect
to any Plan; (c) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan; (d) any
event or circumstance exists which might constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (e)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from
a Multiemployer Plan or the reorganization, insolvency, or termination
of any Multiemployer Plan; and in each case above, such event or
condition, together with all other events or conditions, if any, could
in the reasonable opinion of the Agent subject the Borrower or the
Guarantor, as the case may be, or any ERISA Affiliate to any tax,
penalty, or other liability to a Plan, Multiemployer Plan, the PBGC, or
otherwise (or any combination thereof) which in the aggregate exceeds
or may exceed Five Hundred Thousand Dollars ($500,000);
(9) this Agreement or any Loan Document shall at any
time and for any reason cease to create a valid and perfected first
priority Lien in the Collateral (other than Collateral released
pursuant to the terms of this Agreement and the other Loan Documents
and except as otherwise provided in this Agreement and the other Loan
Documents) or the validity or enforceability of this Agreement or any
Loan Document shall be contested by the Borrower or the Guarantor, or
the Borrower or the Guarantor shall deny it has any further liability
or obligation under this Agreement or any Loan Document to which it is
a party;
(10) if there is a Material Adverse Change in the
Collateral, or if there shall occur a Material Adverse Change (as
determined by the Majority Lenders in their sole discretion), or if the
Majority Lenders in good faith believe that the prospects of payment,
performance or realization upon the Collateral is impaired;
(11) a Change of Control shall occur;
(12) either: (i) the Borrower shall fail to maintain
its status as an FHA Approved Mortgagee; or (ii) there shall have
occurred any event, including without limitation, an amendment or
modification of the National Housing Act, which would reasonably be
likely to materially and adversely affect Lenders' or Borrower's rights
under the mortgage insurance provided by the FHA or the Lenders'
ability to receive the proceeds of such mortgage insurance; or
(13) the Custodian Agreement or any Loan Document
shall for whatever reason be terminated or cease to be in full force
and effect other than with the consent of the Lenders, or the
enforceability thereof shall be contested by the Borrower.
Section 9.02. Remedies. If any Event of Default shall occur
and be continuing, the Agent may and, at the request of the Majority Lenders,
shall by notice to the Borrower, (1) declare the Total Commitment to be
terminated, whereupon the same shall forthwith terminate; (2) declare the Notes,
all interest thereon, and all other amounts payable under this Agreement, and
any other Loan Documents to be forthwith due and payable, whereupon the Notes,
all such
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interest, and all such amounts due under this Agreement, and under any other
Loan Document shall become and be forthwith due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by the Borrower; and/or (3) exercise any remedies
provided in any of the Loan Documents at law or otherwise, with respect to the
Collateral and the Loans; provided, however, that upon the occurrence of any
Event of Default referred to in Section 9.01(6), the Total Commitment shall
automatically terminate and the Notes and any other amounts payable under this
Agreement or any of the other Loan Documents, and all interest on any of the
foregoing shall be forthwith due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower and the Guarantor; provided, further, that upon the occurrence
of an Event of Default by reason of a failure to perform or observe the
covenants contained in Section 7.20 hereof, the Agent on behalf of the Lenders
shall be entitled to specific performance, and the Borrower authorizes the Agent
to file on behalf of the Lenders such pleadings and documents as are necessary
to give effect to the intention of Section 7.20.
Upon the occurrence of any Event of Default, the Agent may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein, at law or otherwise available to it, all the rights and
remedies of a secured party on default under the applicable UCC (whether or not
the applicable UCC applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at its expense and
upon request of the Agent forthwith, assemble all or part of the Collateral as
directed by the Agent and make it available to the Agent at a place to be
designated by the Agent, and (ii) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other commercially reasonable terms. The Borrower
agrees that, to the extent notice of sale shall be required by Law, five
Business days prior notice to the Borrower of the time and place of any public
sale or the time after which any private sale is to made shall constitute
reasonable notification. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the Agent, be held by
the Agent in a cash collateral account (which the Agent is hereby authorized to
establish) as Collateral for, and/or then or at any time thereafter applied in
accordance with the terms of Section 2.07(c) in whole or in part by the Agent
against, all or any or the Obligations in such order as the Agent shall elect.
After the occurrence of any Event of Default, the Agent shall have the right to
deliver any Pledged Mortgage into any Purchase Commitment, in any such event
either in the name of the Agent or the Borrower, pursuant to the power of
attorney granted under this Agreement or otherwise.
Section 9.03. The Agent May Perform. If the Borrower fails to
perform any agreement contained in this Agreement, the Agent may itself perform
(but shall not be obligated to perform), or cause performance of, such
agreement, and the expenses of the Agent incurred in connection therewith shall
be payable by the Borrower under Section 11.06.
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Section 9.04. The Agent's Duties. The powers conferred on the
Agent under this Agreement are solely to protect its interest and the interests
of the Lenders in the Collateral and shall not impose any duty upon the Agent to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Agent shall not have any duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
Section 9.05. Continuing Security Interest; Transfer of Note.
This Agreement creates a continuing Lien in the Collateral and shall (i) remain
in full force and effect until payment in full of all the Obligations to the
Lenders after the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns, and (iii) inure to the benefit of the Lenders and their
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), each Lender may assign or otherwise transfer any
document evidencing any Obligation held by it to its successors or any
Affiliate, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender herein or otherwise. Upon the
payment in full of the Obligations after the Termination Date and cancellation
of the Total Commitment, the Lien granted hereby shall terminate and this
Agreement shall terminate (except to the extent set forth in Section 11.11) and
all rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent will, at the Borrower's expense, instruct the Custodian
pursuant to Section 14 of the Custodian Agreement to release all Collateral held
by it and execute and deliver to the Borrower such documents as the Borrower
shall reasonably request to evidence such termination.
ARTICLE X.
AGENT
Section 10.01. Appointment. Each Lender (and each subsequent
holder of any Note by its acceptance thereof) hereby irrevocably appoints and
authorizes the Agent (i) to receive on behalf of each Lender any payment of
principal of or interest on the Notes outstanding hereunder and all other
amounts accrued hereunder for the account of the Lenders and paid to the Agent,
and, subject to Section 2.03 of this Agreement, to distribute promptly to each
Lender its Pro Rata Share of all payments so received, (ii) to distribute to
each Lender copies of all material notices and agreements received by the Agent
and not required to be delivered to each Lender pursuant to the terms of this
Agreement, provided that the Agent shall not have any liability to the Lenders
for the Agent's inadvertent failure to distribute any such notice or agreements
to the Lenders, (iii) subject to Section 10.03 of this Agreement, to take such
action as Agent deems appropriate on its behalf to administer the Loans, and the
Loan Documents and to exercise such other powers delegated to the Agent by the
terms hereof or the Loan Documents (including, without limitation, the power to
give or to refuse to give notices, waivers, consents, approvals and instructions
and the power to make or to refuse to make determinations and calculations)
together with such powers as are reasonably incidental thereto to carry out the
purposes hereof and thereof and (iv) to enter into the Pledge Agreement (SPV)
pursuant to which the capital stock of certain Subsidiaries of the Borrower that
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own Retained Interest Receivables have been pledged to the Agent for the benefit
of the Lenders and Greenwich. As to any matters not expressly provided for by
this Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Lenders, and such
instructions of the Majority Lenders shall be binding upon all Lenders and all
holders of Notes; provided, however, the Agent shall not be required to take any
action which, in the reasonable opinion of the Agent, exposes the Agent to
liability or which is contrary to this Agreement or any Loan Document or
applicable law.
Section 10.02. Nature of Duties. The Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement or
in the Loan Documents. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have by reason of this Agreement
or any Loan Document a fiduciary relationship in respect of any Lender. Nothing
in this Agreement or any of the Loan Documents, express or implied, is intended
to or shall be construed to impose upon the Agent any obligations in respect of
this Agreement or any of the Loan Documents except as expressly set forth herein
or therein. Each Lender shall make its own independent investigation of the
financial condition and affairs of the Borrower in connection with the making
and the continuance of the Loans hereunder and shall make its own appraisal of
the creditworthiness of the Borrower and the value of the Collateral, and the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the initial Loan hereunder or
at any time or times thereafter, provided that, upon the reasonable request of a
Lender, the Agent shall provide to such Lender any documents or reports
delivered to the Agent by the Borrower pursuant to the terms of this Agreement
or any Loan Document. If the Agent seeks the consent or approval of the Majority
Lenders to the taking or refraining from taking any action hereunder, the Agent
shall send notice thereof to each Lender. The Agent shall promptly notify each
Lender any time that the Majority Lenders have instructed the Agent to act or
refrain from acting pursuant hereto.
Section 10.03. Rights, Exculpation, Etc. The Agent and its
directors, officers, agents or employees shall not be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement or the other Loan Documents, except for their own gross negligence or
willful misconduct as determined by a final judgment of a court of competent
jurisdiction. Without limiting the generality of the foregoing, the Agent (i)
may treat the payee of any Note as the holder thereof until the Agent receives
written notice of the assignment or transfer thereof, pursuant to Section 11.13
hereof, signed by such payee and in form satisfactory to the Agent; (ii) may
consult with legal counsel (including, without limitation, counsel to the Agent
or counsel to the Borrower), independent public accountants, the Custodian, and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants, the Custodian or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, certificates, warranties or representations made in or in connection
with this Agreement or the other Loan Documents; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the
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other Loan Documents on the part of any Person, the existence or possible
existence of any Default or Event of Default, or to inspect the Collateral or
other property (including, without limitation, the books and records) of any
Person; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made
any representation or warranty regarding the existence, value or collectability
of the Collateral, the existence, priority or perfection of the Agent's Lien
thereon, or the Borrowing Base or any certificate prepared by the Borrower or
the Custodian in connection therewith, nor shall the Agent be responsible or
liable to the Lenders for any failure to monitor or maintain the Borrowing Base
or any portion of the Collateral or the failure of the Custodian to perform its
obligations under the Custodian Agreement. The Agent shall not be liable for any
apportionment or distribution of payments made by it in good faith pursuant to
Section 2.07(c), and if any such apportionment or distribution is subsequently
determined to have been made in error the sole recourse of any Lender to whom
payment was due but not made, shall be to recover from other Lenders any payment
in excess of the amount which they are determined to be entitled. The Agent may
at any time request instructions from the Lenders with respect to any actions or
approvals which by the terms of this Agreement or of any of the Loan Documents
the Agent is permitted or required to take or to grant, and if such instructions
are promptly requested, the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval under any of the Loan Documents
until it shall have received such instructions from the Majority Lenders.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting under this Agreement, the Notes, or any of the other Loan Documents in
accordance with the instructions of the Majority Lenders.
Section 10.04. Reliance. The Agent shall be entitled to rely
upon any written notices, statements, certificates, orders or other documents or
any telephone message believed by it in good faith to be genuine and correct and
to have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.
Section 10.05. Indemnification. To the extent that the Agent
is not reimbursed and indemnified by the Borrower, the Lenders will reimburse
and indemnify the Agent for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising out
of this Agreement or any of the Loan Documents or any action taken or omitted by
the Agent under this Agreement or any of the Loan Documents, in proportion to
each Lender's Pro Rata Share, including, without limitation, advances and
disbursements made pursuant to Section 10.08; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements for which there has been a final judicial determination that such
resulted from the Agent's gross negligence or willful misconduct. The
obligations of the Lenders under this Section 10.05 shall survive the payment in
full of the Loans and the termination of this Agreement.
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Section 10.06. CIT Individually. With respect to its Pro Rata
Share of the Total Commitment hereunder, the Loans made by it and the Note
issued to or held by it, CIT shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Lender or holder of a Note. The
terms "Lenders" or "Majority Lenders" or any similar terms shall, unless the
context clearly otherwise indicates, include CIT in its individual capacity as a
Lender or one of the Majority Lenders. CIT and its Affiliates may accept
deposits from, lend money to, and generally engage in any kind of banking, trust
or other business with the Borrower or any of its Subsidiaries as if it were not
acting as Agent pursuant hereto without any duty to account to the Lenders.
Section 10.07. Successor Agent.
(a) The Agent may resign from the performance of
all its functions and duties hereunder and under the other Loan Documents at any
time by giving at least thirty (30) Business Days' prior written notice to the
Borrower and each Lender. Such resignation shall take effect upon the acceptance
by a successor Agent of appointment pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the
Majority Lenders shall appoint a successor Agent who, in the absence of a
continuing Event of Default, shall be reasonably satisfactory to the Borrower.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement
and the other Loan Documents. After any Agent's resignation hereunder as the
Agent, the provisions of this Article X shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.
(c) If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring Agent, with
the consent of the Borrower if an Event of Default is not continuing, shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Majority Lenders, with the consent of the Borrower, if an Event of Default
is not continuing, appoint a successor Agent as provided above.
(d) The Borrower, the Guarantor and each Lender
consent to The CIT Group/Business Credit, Inc., an affiliate of CIT, replacing
CIT as the Agent and receiving an assignment of all of CIT's rights and
obligations as a Lender under this Agreement, provided that The CIT
Group/Business Credit, Inc. is approved by the New York State Banking Department
as a lender to a mortgage banker.
Section 10.08. Collateral Matters.
(a) The Agent may from time to time, during the
occurrence and continuance of an Event of Default, make such disbursements and
advances ("Agent Advances") which the Agent, in its sole discretion, deems
necessary or desirable to preserve or protect the Collateral or any portion
thereof, to enhance the likelihood or maximize the amount of repayment
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by the Borrower of the Loans and other Obligations or to pay any other amount
chargeable to the Borrower pursuant to the terms of this Agreement, including,
without limitation, costs, fees and expenses as described in Section 11.06. The
Agent Advances shall be repayable on demand and be secured by the Collateral.
The Agent Advances shall not constitute Loans but shall otherwise constitute
Obligations hereunder. The Agent shall notify each Lender and the Borrower in
writing of each such Agent Advance, which notice shall include a description of
the purpose of such Agent Advance. Without limitation to its obligations
pursuant to Section 10.05, each Lender agrees that it shall make available to
the Agent, upon the Agent's demand, in Dollars in immediately available funds,
the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If
such funds are not made available to the Agent by such Lender the Agent shall be
entitled to recover such funds, on demand from such Lender together with
interest thereon, for each day from the date such payment was due until the date
such amount is paid to the Agent, at the Federal Funds Rate for three Business
Days and thereafter at the Prime Rate.
(b) The Lenders hereby irrevocably authorize the
Agent, at its option and in its discretion, to release any Lien granted to or
held by the Agent upon any Collateral upon termination of the Total Commitment
and payment and satisfaction of all Loans, and all other Obligations which have
matured and which the Agent has been notified in writing are then due and
payable; or constituting property being sold or disposed of in the ordinary
course of the Borrower's business and in compliance with the terms of this
Agreement and the other Loan Documents; or constituting property in which the
Borrower owned no interest at the time the Lien was granted or at any time
thereafter; or if approved, authorized or ratified in writing by the Lenders.
Upon request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this Section 10.08(b).
(c) Without in any manner limiting the Agent's
authority to act without any specific or further authorization or consent by the
Lenders (as set forth in Section 10.08(b)), each Lender agrees to confirm in
writing, upon request by the Agent, the authority to release Collateral
conferred upon the Agent under Section 10.08(b). Upon receipt by the Agent of
confirmation from the Lenders of its authority to release any particular item or
types of Collateral, and upon prior written request by the Borrower, the Agent
shall (and is hereby irrevocably authorized by the Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
the Agent for the benefit of the Lenders upon such Collateral; provided,
however, that (i) the Agent shall not be required to execute any such document
on terms which, in the Agent's opinion, would expose the Agent to liability or
create any obligations or entail any consequence other than the release of such
Liens without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Obligations or any Lien upon (or
obligations of the Borrower in respect of) all interests in the Collateral
retained by the Borrower.
(d) The Agent shall have no obligation
whatsoever to any Lenders to assure that the Collateral exists or is owned by
the Borrower or is cared for, protected or insured or has been encumbered or
that the Lien granted to the Agent pursuant to this Agreement has been properly
or sufficiently or lawfully created, perfected, protected or enforced or is
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or
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available to the Agent in this Section 10.08 or in any of the Loan Documents, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it may deem
appropriate, in its sole discretion, given the Agent's own interest in the
Collateral as one of the Lenders and that the Agent shall have no duty or
liability whatsoever to any other Lender.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Holidays. Except as otherwise provided herein,
whenever any payment or action to be made or taken hereunder or under the Notes
shall be stated to be due on a day which is not a Business Day, such payment or
action shall be made or taken on the next following Business Day and such
extension of time shall be included in computing interest or fees, if any, in
connection with such payment or action.
Section 11.02. Records. The unpaid principal amount of the
Notes, the unpaid interest accrued thereon, the interest rate or rates
applicable to such unpaid principal amount, the duration of such applicability,
the Total Commitment, and the accrued and unpaid fees set forth in the Fee
Letter, Unused Line Fee and Early Termination Fee shall at all times be
ascertained from the records of the Agent, which shall be conclusive and binding
absent manifest error.
Section 11.03. Amendments and Waivers. (a) No amendment or
modification of any provision of this Agreement or of any of the Notes or of any
other Loan Document shall be effective without the written agreement of the
Majority Lenders and the Borrower and no termination or waiver of any provision
of this Agreement or of any of the Notes, or consent to any departure by the
Borrower therefrom, shall in any event be effective without the written
concurrence of Majority Lenders, which Majority Lenders shall have the right to
grant or withhold at their sole discretion; except that any amendment,
modification, or waiver (i) of any provision of Article II or III which
amendment, modification or waiver increases the Total Commitment of any Lender,
reduces the principal of, or interest on, the Loans or the amounts payable to
any Lender, reduces the amount of any fee payable for the account of any Lender,
or postpones or extends any date fixed for any payment of principal of, or
interest or fees on, the Loans payable to any Lender, (ii) that increases the
aggregate amount of the Total Commitment except as provided in Section 2.13 of
this Agreement, (iii) of the definitions of "Termination Date", "Majority
Lenders" or "Pro Rata Shares", (iv) of the definitions of "Eligible Residential
Mortgage Loan", "Borrowing Base", "Collateral Value of Eligible Mortgages",
"High LTV Mortgage Loan Sublimit", "Multifamily/Mixed Use Mortgage Loan
Sublimit", "Conforming Mortgage Loan Sublimit", "Working Capital Sublimit" or
"Wet Mortgage Loan Sublimit" if the effect of such amendment, modification or
waiver is to increase the availability of the Borrower under the Borrowing Base,
(v) of any provision of this Agreement or any Loan Document that would release
all or a substantial portion of Collateral or the Guarantor (except as set forth
in Section 10.08 hereof or except as otherwise permitted in a Loan Document) or
(vi) of the provisions contained in this Section 11.03, shall be effective only
if evidenced by a writing signed by or on behalf of (A) any Lender affected
thereby in the case of the amendments, modifications or waivers described in
clause (i) above or
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(B) all Lenders in the case of the amendments, modifications or waivers
described in clauses (ii) through (vi) above. No amendment, modification,
termination, or waiver of any provision of Article X or any other provision
referring to the Agent shall be effective without the written concurrence of the
Agent. Any waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it was given. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances. Any amendment, modification,
waiver or consent effected in accordance with this Section 11.03 shall be
binding on each Lender, each future Lender, and, if signed by the Borrower, on
the Borrower.
(b) Notwithstanding anything to the contrary
contained in subsection 11.03(a), in the event that the Borrower requests that
this Agreement or any other Loan Document be amended or otherwise modified in a
manner which would require the unanimous consent of all of the Lenders and such
amendment or other modification is agreed to by the Majority Lenders, then, with
the consent of the Borrower and the Majority Lenders, the Borrower and the
Majority Lenders may amend this Agreement without the consent of the Lender or
Lenders which did not agree to such amendment or other modification
(collectively the "Minority Lenders") to provide for (i) the termination of the
Commitment of each of the Minority Lenders, (ii) the addition to this Agreement
of one or more other Lenders, or an increase in the Commitment of one or more of
the Majority Lenders, so that the Total Commitment after giving effect to such
amendment shall be in the same aggregate amount as the Total Commitment
immediately before giving effect to such amendment, (iii) if any Loans are
outstanding at the time of such amendment, the making of such additional Loans
by such new Lenders or Majority Lenders, as the case may be, as may be necessary
to repay in full the outstanding Loans of the Minority Lenders immediately
before giving effect to such amendment and (iv) the payment of all interest,
fees and other Obligations payable or accrued in favor of the Minority Lenders
and such other modifications to this Agreement as the Borrower and the Majority
Lenders may determine to be appropriate.
Section 11.04. No Implied Waiver; Cumulative Remedies. No
course of dealing and no delay or failure of the Lenders or the Agent in
exercising any right, power or privilege under this Agreement, the Notes or any
other Loan Document shall affect any other or future exercise thereof or
exercise of any other right, power or privilege; nor shall any single or partial
exercise of any such right, power or privilege or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude any
further exercise thereof or of any other right, power or privilege. The rights
and remedies of the Lenders or the Agent under this Agreement, the Notes and the
other Loan Documents are cumulative and not exclusive of any rights or remedies
which the Lenders or the Agent have thereunder or at law or in equity or
otherwise. The Lenders or the Agent may exercise their rights and remedies
against the Borrower and the Collateral as the Lenders and the Agent may elect,
and regardless of the existence or adequacy of any other right or remedy.
Section 11.05. Notices.
(a) All notices, requests, demands, directions
and other communications (collectively "Notices") under the provisions of this
Agreement or the Notes shall be in writing and
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shall be mailed (by certified mail, postage prepaid and return receipt
requested), telecopied, or delivered and shall be effective (i) if mailed, three
days after being deposited in the mails, (ii) if telecopied, when sent,
confirmation received and (iii) if delivered, upon delivery. All notices shall
be sent to the applicable party at the address stated on the applicable
signature page hereof or in accordance with the last unrevoked written direction
from such party to the other parties hereto.
(b) The Lenders and the Agent may rely, and
shall be fully protected in relying, on any notice purportedly made by or on
behalf of the Borrower and the Lenders and the Agent shall have no duty to
verify the identity or authority of any Person giving such notice. The preceding
sentence shall apply to all notices whether or not made in a manner authorized
or required by this Agreement or any other Loan Document.
Section 11.06. Expenses; Taxes; Attorneys' Fees;
Indemnification. The Borrower agrees to pay or cause to be paid, on demand, and
to save the Agent (and, in the case of clauses (c) through (m) below, the
Lenders) harmless against liability for the payment of, all reasonable
out-of-pocket expenses, regardless of whether the transactions contemplated
hereby are consummated, including but not limited to reasonable fees and
expenses of counsel for the Agent (and, in the case of clauses (c) through (m)
below, the Lenders), accounting, due diligence, periodic field audits,
appraisals, lien, judgment and title searches, filing fees, investigations,
monitoring of assets, syndication, miscellaneous disbursements, examination,
travel, lodging and meals, incurred by the Agent (and, in the case of clauses
(c) through (m) below, the Lenders) from time to time arising from or relating
to: (a) the negotiation, preparation, execution, delivery, performance and
administration of this Agreement and the other Loan Documents, (b) any
amendments, waivers or consents to this Agreement or the other Loan Documents
whether or not such documents become effective or are given, (c) the
preservation and protection of any of the Agent's and the Lenders' rights under
this Agreement or the other Loan Documents, (d) the defense of any claim or
action asserted or brought against the Agent or the Lenders by any Person that
arises from or relates to this Agreement, any other Loan Document, the Agent's
or the Lenders' claims against the Borrower, or any and all matters in
connection therewith, (e) the commencement or defense of, or intervention in,
any court proceeding arising from or related to this Agreement or any other Loan
Document, provided that this clause (e) shall apply to all Lenders only in
connection with any defense of any court proceedings or in all instances during
a continuing Event of Default; (f) the filing of any petition, complaint,
answer, motion or other pleading by the Agent or the Lenders, or the taking of
any action in respect of the Collateral or other security, in connection with
this Agreement or any other Loan Document, (g) the protection, collection,
lease, sale, taking possession of or liquidation of, any Collateral or other
security in connection with this Agreement or any other Loan Document, (h) any
attempt to enforce any Lien or security interest in any Collateral or other
security in connection with this Agreement or any other Loan Document, (i) any
attempt to collect from the Borrower, (j) the receipt of any advice with respect
to any of the foregoing, provided that this clause (j) shall apply to all
Lenders only with respect to the matters described in clauses (c) through (i)
and clauses (k) through (m) of this Section 11.06, (k) all Environmental
Liabilities and Costs arising from or in connection with the past, present or
future operations of the Borrower or any of its Subsidiaries involving any
damage to real or personal property or natural resources or harm or injury
alleged to have resulted from any Environmental Discharge on, upon or into such
property, (l) any costs or liabilities incurred in connection with the
investigation, removal, cleanup and/or
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remediation of any Hazardous Materials present or arising out of the operations
of any facility of the Borrower or any of its Subsidiaries, or (m) any costs or
liabilities incurred in connection with any Environmental Lien. Without
limitation of the foregoing or any other provision of any Loan Document: (x) the
Borrower agrees to pay all stamp, document, transfer, recording or filing taxes
or fees (including, without limitation, mortgage recording taxes) and similar
impositions now or hereafter determined by the Agent or any of the Lenders to be
payable in connection with this Agreement or any other Loan Document, and the
Borrower agrees to save the Agent and the Lenders harmless from and against any
and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions, and (y) if the Borrower fails to perform any covenant or agreement
contained herein or in any other Loan Document, the Agent may itself perform or
cause performance of such covenant or agreement, and the expenses of the Agent
incurred in connection therewith shall be reimbursed on demand by the Borrower.
The Borrower agrees to indemnify and defend the Agent and the Lenders and their
directors, officers, agents, employees and affiliates (collectively, the
"Indemnified Parties") from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages, costs or expenses of any nature whatsoever
(including reasonable attorneys' fees and amounts paid in settlement) incurred
by, imposed upon or asserted against any of them arising out of or by reason of
any investigation, litigation or other proceeding or claim brought or threatened
relating to, or otherwise arising out of or relating to, the execution of this
Agreement or any other Loan Document, the transactions contemplated hereby or
thereby or any Loan or proposed Loan hereunder (including, but without
limitation, any use made or proposed to be made by the Borrower of the proceeds
of any thereof, or the delivery or use or transfer of or the payment or failure
to pay under any Loan) but excluding any such losses, liabilities, claims,
damages, costs or expenses (i) to the extent finally judicially determined to
have resulted from the gross negligence or willful misconduct of the Indemnified
Party, or (ii) in connection with any claim made by the Agent or any Lender
against the Agent or another Lender.
Section 11.07. Application. Except to the extent, if any,
expressly set forth in this Agreement or in the Loan Documents, the Agent and
the Lenders shall have the right to apply any payment received or applied by it
in connection with the Obligations to such of the Obligations then due and
payable as it may elect.
Section 11.08. Severability. The provisions of this Agreement
are intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 11.09. Governing Law. This Agreement and the Notes
shall be deemed to be contracts under the laws of the State of New York, without
regard to choice of law principles, and for all purposes shall be governed by
and construed and enforced in accordance with the laws of said State.
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Section 11.10. Prior Understandings. This Agreement supersedes
all prior understandings and agreements, whether written or oral, among the
parties hereto relating to the transactions provided for herein other than the
Fee Letter.
Section 11.11. Duration; Survival. All representations and
warranties of the Borrower contained herein or made in connection herewith shall
survive the making of the Loans and shall not be waived by the execution and
delivery of this Agreement, the Notes or any other Loan Document, any
investigation by or knowledge of the Agent or the Lenders, the making of any
Loan hereunder, or any other event whatsoever. All covenants and agreements of
the Borrower contained herein shall continue in full force and effect from and
after the date hereof so long as the Borrower may borrow hereunder and until the
Obligations have been paid in full. Without limitation, it is understood that
all obligations of the Borrower to make payments to or indemnify the Agent and
the Lenders (including, without limitation, obligations arising under Section
11.06 hereof) shall survive the payment in full of the Notes and of all other
obligations of the Borrower thereunder and hereunder, termination of this
Agreement and all other events whatsoever and whether or not any Loans are made
hereunder.
Section 11.12. Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
Section 11.13. Assignments; Participations. (a) Each Lender
may with the written consent of the Agent and, in the absence of a continuing
Event of Default, the Borrower, which consent shall not be unreasonably
withheld, assign to one or more commercial banks or other financial institutions
a portion of its rights and obligations under this Agreement (including, without
limitation, a portion of its Commitment and the Loans owing to it) and the other
Loan Documents; provided, however, that (i) each such assignment shall be in a
principal amount of not less than $5,000,000 (or the remainder of such Lender's
Commitment) and (ii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the Register (as
hereinafter defined), an Assignment and Acceptance. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (A) the assignee thereunder shall be a party
hereto and to the other Loan Documents and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and thereunder
and (B) the Assigned Lender shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement.
(b) By executing and delivering an Assignment
and Acceptance, the assigning Lender and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, the assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness,
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sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto; (ii) the assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower of any of its obligations under this Agreement or any other Loan
Document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with
such other documents and information it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Assigning Lender
or any Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (vi) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender and (vii) such assignee represents and warrants that
it has been approved as a lender to a mortgage banker by the New York State
Department of Banking.
(c) The Agent shall maintain at its address
referred to on the signature page hereto, a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the recordation of
the names and addresses of the Lenders and the Commitment of, and principal
amount of the Loans owing to each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower and any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an assignee, together with the
Note subject to such assignment, the Agent shall, if the Agent and, if
applicable, the Borrower consent to such assignment and if such Assignment and
Acceptance has been completed (i) accept such Assignment and Acceptance, (ii)
give prompt notice thereof to the Borrower unless the Borrower has consented to
such assignment, (iii) record the information contained therein in the Register
and (iv) prepare and distribute to each Lender and the Borrower a revised
Schedule 1.01(A) hereto after giving effect to such assignment, which revised
Schedule 1.01(A) shall replace the prior Schedule 1.01(A) and become part of
this Agreement. Within five Business Days after its consent to such assignment
or its receipt of notice thereof from the Agent, as the case may be, the
Borrower, at its own expense, shall execute and deliver to the Agent in exchange
for the surrendered Note a new Note to the order of such assignee Lender in an
aggregate principal amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance, and if the assigning Lender has retained any
Commitment hereunder, a new Note to the order of the assigning Lender in an
aggregate principal amount equal to the Commitment retained by it hereunder, in
each case prepared by the Agent. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
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Note, shall be dated the date of the Agent's acceptance of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.
(e) Each Lender may sell participations to one
or more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, all or a portion of its Commitment and the Loans owing to
it); provided, that (i) such Lender's obligations under this Agreement
(including, without limitation, its Commitment hereunder) and the other Loan
Documents shall remain unchanged; (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
and the Borrower, the Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents; and (iii) a
participant shall not be entitled to require such Lender to take or omit to take
any action hereunder except (A) action directly effecting an extension of the
maturity dates or decrease in the principal amount of the Loans or Obligations,
or (B) action directly effecting an extension of the due dates or a decrease in
the rate of interest payable on the Loans or the fees payable under this
Agreement, or (C) actions directly effecting a release of all or a substantial
portion of the Collateral or any Guarantor (except as set forth in Section 11.08
of this Agreement or any Loan Document).
(f) Notwithstanding the foregoing provisions of
this Section 11.13, (i) each Lender may at any time sell, assign, transfer, or
negotiate all or any part of its rights and obligations under this Agreement and
the Loan Documents to any Affiliate of such Lender, and (ii) there shall not be
more than four (4) Lenders under this Agreement at any time.
Section 11.14. Successors and Assigns. This Agreement and the
other Loan Documents shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns except that the
Borrower may not assign or transfer any of its rights hereunder or thereunder
without the prior written consent of all of the Lenders.
Section 11.15. Confidentiality. Upon delivering to any Lender
or the Agent, or permitting any Lender or the Agent to inspect, any written
information pursuant to this Agreement or the other Loan Documents, the Borrower
is delivering or making available such information to the Lenders or the Agent
with the understanding that each Lender and the Agent shall treat such
information as confidential to the extent such information is conspicuously
marked confidential. Each Lender and the Agent agrees to hold such information
in confidence from the date of disclosure thereof. Subject to the other
provisions of this Section 11.15, each Lender and the Agent may disclose
confidential information to its officers, directors, employees, attorneys,
accountants or other professionals engaged by any Lender or the Agent only after
determining that such third party has been instructed to hold such information
in confidence to the same extent as if it were a Lender. Notwithstanding the
foregoing, the provisions of this Section 11.15 shall not apply to information
within any one of the following categories or any combination thereof: (i)
information the substance of which, at the time of disclosure by any Lender or
the Agent, has been disclosed to or is known to any creditor of the Borrower
(other than information as to which such creditor is then under an obligation of
nondisclosure), or any Person other than (A) a director, officer, employee or
agent of any of the Borrower or a professional engaged by the Borrower or (B) a
Person who is
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then under an obligation of nondisclosure (otherwise than as a consequence of a
wrongful act of any Lender or the Agent), (ii) information which any Lender or
the Agent had in its possession prior to receipt thereof from the disclosing
party, or (iii) information received by any Lender or the Agent from a third
party having no obligations of nondisclosure with respect thereto. Nothing
contained in this Section 11.15 shall prevent any disclosure: (x) believed in
good faith by any Lender or the Agent to be required by any law or guideline or
interpretation or application thereof by any Governmental Authority, arbitrator
or grand jury charged with the interpretation or administration thereof or
compliance with any request or directive of any Governmental Authority,
arbitrator or grand jury (whether or not having the force of law), (y)
determined by counsel for any Lender or the Agent to be necessary or advisable
in connection with enforcement or preservation of rights under or in connection
with this Agreement or any other Loan Document or (z) of any information which
has been made public by a Person other than any Lender or the Agent who, to the
Agent's or such Lender's actual knowledge, was then under an obligation of
nondisclosure. The Lenders and the Agent shall have the right to disclose any
confidential information described in this Section 11.15 to an assignee or
prospective assignee or to a participant or prospective participant in Loans
hereunder, provided that the assigning or selling Lender shall have obtained
from such assignee or prospective assignee or participant or prospective
participant a written agreement to hold such information in confidence to the
same extent as if it were a Lender.
Section 11.16. Waiver of Jury Trial. BY ITS EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE AGENT, EACH LENDER, THE GUARANTOR AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTES OR ANY
OTHER LOAN DOCUMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF THE AGENT, THE LENDERS, THE GUARANTOR OR THE BORROWER IN
CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE AGENT AND THE LENDERS TO ENTER INTO THIS AGREEMENT.
Section 11.17. Right of Setoff. Upon the occurrence and during
the continuance of any Event of Default any Lender and the Agent may, and is
hereby authorized to, at any time from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower) and to the
fullest extent permitted by law, set off and apply any and all deposits (general
or special, time or demand, provision or final) at any time held and other
indebtedness at any time owing by such Lender or the Agent and to or for the
credit or the account of the Borrower against any and all Obligations of the
Borrower now or hereafter existing under the Loan Documents, irrespective of
whether or not any Lender and the Agent shall have made any demand hereunder or
thereunder and although such Obligations may be contingent or unmatured. Each
Lender and the Agent agrees promptly to notify the Borrower after any such
setoff and application made by such Lender or the Agent; provided, however, that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Lender and the Agent under this
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Section 11.17 are in addition to the other rights and remedies (including,
without limitation, other rights of setoff under applicable law or otherwise)
which such Lender or the Agent may have.
Section 11.18. Headings. Section headings herein are included
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 11.19. Forum Selection and Consent to Jurisdiction.
Any litigation based hereon, or arising out of, under or in connection with,
this Agreement or any other Loan Document, or any course of conduct, course of
dealing, statement (whether verbal or written) or action of the Agent, any
Lender or the Borrower may be brought and maintained exclusively in the courts
of the State of New York or the United States District Court for the Southern
District of New York; provided, however, that any suit seeking enforcement
against any Collateral or other property may be brought, at the Agent's option,
in the courts of any jurisdiction where such Collateral or other property may be
found. The Borrower hereby expressly and irrevocably submits to the jurisdiction
of the courts of the State of New York and of the United States District Court
for the Southern District of New York for the purpose of any such litigation and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with such litigation. The Borrower further irrevocably consents to the service
of process (i) by registered or certified mail, postage prepaid, to the Borrower
at its address for notices contained in Section 11.05 hereof, such service to
become effective five days after such mailing, or (ii) by personal service
within or without the State of New York. Nothing herein shall affect the right
of the Agent or any Lender to service of process in any other manner permitted
by law. The Borrower hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of venue of any such litigation brought in any such court referred to
above and any claim that any such litigation has been brought in an inconvenient
forum. To the extent that the Borrower has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of execution
or otherwise) with respect to itself or its property, the Borrower hereby
irrevocably waives such immunity in respect of its obligations under this
Agreement and the other Loan Documents.
Section 11.20. Periodic Due Diligence Review. The Borrower
acknowledges that the Agent has the right to perform continuing due diligence
reviews with respect to the Mortgage Loans, for purposes of verifying compliance
with the representations, warranties and specifications made hereunder, or
otherwise, and the Borrower agrees that upon reasonable prior notice to the
Borrower, the Agent or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make copies and extracts of, the
Collateral Documents and any and all documents, records, agreements, instruments
or information relating to such Mortgage Loans in the possession or under the
control of the Borrower and/or the Custodian. The Borrower also shall make
available to the Agent a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Collateral Documents and the
Mortgage Loans. Without limiting the generality of the foregoing, the Borrower
acknowledges that the Agent and the Lenders may make loans to the Borrower based
solely upon the information provided by the Borrower to the Agent in the
Mortgage Loan Schedule and the representations, warranties and covenants
contained herein, and that the Agent, at its option, has the right at any time
to conduct a partial or complete due diligence review on some or all of the
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Mortgage Loans securing such Loan, including without limitation ordering new
credit reports and new appraisals on the related mortgaged properties and
otherwise re-generating the information used to originate such Mortgage Loans.
The Agent may underwrite such Mortgage Loans itself or engage a third party
underwriter to perform such underwriting. The Borrower agrees to cooperate with
the Agent and any third party underwriter in connection with such underwriting,
including, but not limited to, providing the Lender and any third party
underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Mortgage Loans in the possession, or
under the control, of the Borrower. The Borrower further agrees that the
Borrower shall reimburse the Agent for any and all reasonable out-of-pocket
costs and expenses incurred by the Agent in connection with the Agent's
activities pursuant to this Section 11.20.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed and delivered as of the day and year first above
written.
BORROWER
--------
CITYSCAPE CORP.
By: /s/ Cheryl P. Carl
Name: Cheryl P. Carl
Title: Senior Vice President
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
Attention:________________________
Telecopier No.: (914) 592-7060
Telephone No.: (914) 592-6677
GUARANTOR
CITYSCAPE FINANCIAL CORP.
By: /s/ Cheryl P. Carl
Name: Cheryl P. Carl
Title: Vice President and Secretary
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
Attention:________________________
Telecopier No.: (914) 592-7060
Telephone No.: (914) 592-6677
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<PAGE> 91
AGENT AND LENDER
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ John L. O'Bryan
Name: John L. O'Bryan
Title: Vice President
Address for Notices:
650 CIT Drive
Livingston, New Jersey 07039
Attention: John Fall, Esq.
Telecopier No.: (973) 740-5323
Telephone No.: (973) 740-5494
with copy to
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10017
Attention: Robert Smith
Senior Vice President
Telecopier No: 212-536-1295
Telephone No: 212-536-1269
and
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Frederic L. Ragucci, Esq.
Telecopier No.: 212-593-5955
Telephone No.: 212-756-2000
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<PAGE> 92
SCHEDULE 2.03
DESIGNATED BORROWING OFFICERS
1. Peter S. Kucma, president
2. Cheryl P. Carl, senior vice president
3. Steven M. Miller, senior vice president
4. Tim S. Ledwick, chief financial officer
5. Jonah L. Goldstein, general counsel
6. Gregg Armbrister, senior vice president
7. Henry Cronk, vice president
8. Lisa Apostolopoulos, assistant vice president
9. Pat Paulerico
10. Wendy Bernard
<PAGE> 93
SCHEDULE 3.01
THIRD PARTY SECURITY AGREEMENTS
1. Pledge Agreement dated as of May 14, 1997 by Cityscape Corp. in
favor of The Chase Manhattan Bank, as collateral agent for the holders of the
12-3/4% Senior Notes due 2004 issued pursuant to a certain indenture dated as of
May 14, 1997.
2. Master Loan and Security Agreement dated as of January 1, 1997
between Cityscape Corp. and Greenwich Capital Financial Products, Inc.
3. Master Financing Agreement dated as of September 4, 1997 between
Bear Stearns Mortgage Capital Corporation and Cityscape Corp.
4. Resolution letter from Cityscape Financial Corp. and Cityscape Corp.
to the Board of Directors of City Mortgage Corporation Limited dated January 15,
1998.
<PAGE> 94
SCHEDULE 3.03(7)
ADDITIONAL REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS
Part I. Eligible Residential Mortgage Loans
As to each Mortgage Loan included in the Borrowing Base on the
date of a Loan (and the related Mortgage, Mortgage Note, assignment of mortgage
and mortgaged property), the Borrower shall be deemed to make the following
representations and warranties to the Lender as of such date and as of each date
Collateral Market Value is determined. With respect to any representations and
warranties made to the best of the Borrower's knowledge, in the event that it is
discovered that the circumstances with respect to the related Mortgage Loan are
not accurately reflected in such representation and warranty notwithstanding the
knowledge or lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Loan may, at the option of the Agent, be excluded from the
Borrowing Base or be assigned a Collateral Market Value lower than that set
forth in the Agreement:
(1) Mortgage Loan Schedule. The information set forth on the Mortgage Loan
Schedule with respect to such Eligible Residential Mortgage Loan is
true and correct as of the date of each Loan in all material respects;
(2) Payments Current. As of the Date of each Loan, no payment required
under the Mortgage Loan is delinquent;
(3) No Delinquent Taxes. To the best of the Borrower's knowledge there was
no delinquent tax or assessment lien against any related mortgaged
property;
(4) No Defenses. To the best of the Borrower's knowledge, there is no valid
offset, defense or counterclaim to any related Mortgage Note or
Mortgage, including the obligation of the mortgagor to pay the unpaid
principal of or interest on such Mortgage Note;
(5) No Mechanics' Liens. To the best of the Borrower's knowledge, there are
no mechanics' liens or claims for work, labor or material affecting any
related mortgaged property which are or may be a lien prior to, or
equal with, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (8) below;
(6) Mortgaged Property Undamaged. To the best of the Borrower's knowledge,
each related mortgaged property is free of material damage and is in
good repair;
(7) No Modifications. Neither the Borrower nor any prior holder of any
related Mortgage has modified such Mortgage in any material respect
(except that such a Mortgage Loan may have been modified by a written
instrument which has been recorded, if necessary, to protect the
interests of the Agent and which has been delivered to the Custodian);
satisfied, canceled or subordinated such Mortgage in whole or in part;
released the related
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mortgaged property in whole or in part from the lien of such Mortgage
except for the subordination of a Mortgage securing a Mortgage Loan,
with respect to which the related superior lien was released in
connection with the refinancing of the mortgage loan relating to such
superior lien; or executed any instrument of release, cancellation,
modification or satisfaction with respect thereto except as has been
disclosed to Agent prior to the date of the Loan, in which case a copy
of such modification agreement will have been delivered to the Borrower
and the Custodian;
(8) Title Insurance. Except with respect to High-LTV Mortgage Loans, a
lender's policy of title insurance together with a condominium
endorsement, if applicable, and extended coverage endorsement and, if
applicable, an adjustable rate mortgage endorsement in an amount at
least equal to the principal balance as of the date of the funding of
the related Loan of each such Eligible Residential Mortgage Loan or a
commitment (binder) to issue the same was effective on the date of the
origination of such Eligible Residential Mortgage Loan, each such
policy is valid and remains in full force and effect, and each such
policy was issued by a title insurer qualified to do business in the
jurisdiction where the related mortgaged property is located and
acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC,
which policy insures the Borrower and successor owners of indebtedness
secured by the insured related Mortgage, as to the first or second
priority lien of such Mortgage; to the best of the Borrower's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of such Mortgage, including the Borrower,
has done, by act or omission, anything which would impair the coverage
of such mortgage title insurance policy;
(9) Origination. Such Eligible Residential Mortgage Loan was originated by
the Borrower or, if not originated by the Borrower, was purchased by
the Borrower and substantially in accordance with the Underwriting
Guidelines then in effect;
(10) No Encroachments. To the best of the Borrower's knowledge, all of the
improvements which were included for the purpose of determining the
Collateral Market Value of the related mortgaged property lie wholly
within the boundaries and building restriction lines of such property,
and no improvements on adjoining properties encroach upon such
mortgaged property unless the applicable title insurance policy for
such mortgaged property affirmatively insures against loss or damage by
reason of any encroachment that is disclosed or would have been
disclosed by an accurate survey;
(11) Occupancy. To the best of the Borrower's knowledge, no improvement
located on or being part of related mortgaged property is in violation
of any applicable zoning law or regulation. To the best of the
Borrower's knowledge, all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of
such mortgaged property and, with respect to the use and occupancy of
the same, including but not limited to certificates of occupancy and
fire underwriting certificates, have been made or obtained from the
appropriate authorities and to the best of the Borrower's knowledge,
such mortgaged property was lawfully occupied under applicable law at
origination and is lawfully occupied under applicable law;
ii
<PAGE> 96
(12) Doing Business. To the best of the Borrower's knowledge, all parties
which have had any interest in any related Mortgage, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the
laws of the state wherein the related mortgaged property is located,
and (2)(A) organized under the laws of such state, (B) qualified to do
business in such state, (C) federal savings and loan associations or
national banks having principal offices in such state, or (D) not doing
business in such state;
(13) Customary Provisions. The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the related
mortgaged property of the benefits of the security, including, (i) if
such Mortgage is designated as a deed of trust, by trustee's sale and
(ii) otherwise by judicial foreclosure;
(14) Deeds of Trust. With respect to any related Mortgage constituting a
deed of trust, a trustee, duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by, the Agent to the trustee under the deed of trust, except in
connection with a trustees sale after default by the related mortgagor;
(15) Form of Documents. The related Mortgage Note and the related Mortgage
is in substantially the form attached as Exhibit M hereto with such
revisions as are necessary to comply with applicable state law;
(16) Collection Practices. The collection practices used by the Borrower
with respect to such Eligible Residential Mortgage Loan have been in
all respects legal, proper, prudent and customary in the mortgage
lending and servicing business with respect to mortgage loans similar
to such Eligible Residential Mortgage Loan;
(17) No Additional Collateral. The related Mortgage Note is not secured by
any collateral, pledged account or other security except for the lien
of the related Mortgage and certain personalty relating thereto or a
third party guaranty. In addition, certain financing statements may
have been filed with respect to the fixtures or furniture contained in
the property securing an Multifamily/Mixed Use Mortgage Loan;
(18) No Shared Appreciation; No Contingent Interests. Such Eligible
Residential Mortgage Loan does not have a shared appreciation feature,
or other contingent interest feature;
(19) Due on Sale. Such Eligible Residential Mortgage Loan contains a
"due-on-sale" clause unless prohibited by applicable law;
(20) No Condemnation. To the best of the Borrower's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation
of the related mortgaged property, nor is such a proceeding currently
occurring, and such property is undamaged by waste, fire, earthquake or
earth movement except for normal wear and tear;
iii
<PAGE> 97
(21) Type of Mortgaged Property. The related mortgaged property is improved
by either (i) a one to four-family residential dwelling, including
condominium units, dwelling units in "PUDs" or planned unit
developments and manufactured housing, which, to the best of the
Borrower's knowledge, does not include cooperatives and does not
constitute other than real property or personalty related to the
mortgaged property under state law or (ii) a small residential
multi-family residence and mixed-use structure;
(22) Servicing. Unless otherwise specified in the related Notice of
Borrowing, each Eligible Residential Mortgage Loan is being serviced by
the Borrower;
(23) No Future Advances. There is no obligation on the part of the Borrower
or any other party under the terms of the related Mortgage or related
Mortgage Note to make payments in addition to those made to the related
Mortgagor;
(24) Consolidation of Future Advances. Any future advances made prior to the
funding date of the related Loan have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the
secured principal amount, as consolidated, bears a single interest rate
and single repayment term reflected on the Mortgage Loan Schedule. The
consolidated principal amount does not exceed the original principal
amount of such Eligible Residential Mortgage Loan. The related Mortgage
Note does not permit or obligate the Borrower to make future advances
to the related Mortgagor at the option of the Mortgagor;
(25) No Assessments. To the best of the Borrower's knowledge, there are no
defaults in complying with the terms of the Mortgage that would have a
material adverse effect on the value of the related Mortgage Loan, and
all taxes, governmental assessments, insurance premiums, water, sewer
and municipal charges, leasehold payments or ground rents that would
have a material adverse effect on the value of the related Mortgage
Loan which previously became due and owing have been paid, or an escrow
of funds has been established in an amount sufficient to pay for every
such item which remains unpaid. The Borrower has not advanced funds, or
induced, solicited or knowingly received any advance of funds by a
party other than the related Mortgagor, directly or indirectly, for the
payment of any amount required by the related Mortgage except for (A)
payments in the nature of escrow payments, including without
limitation, taxes and insurance payments, and (B) interest accruing
from the date of the related Mortgage Note or date of disbursement of
the related Mortgage proceeds, whichever is later, to the day which
precedes by one month the due date of the first installment of
principal and interest;
(26) Application of Proceeds. All amounts received with respect to such
Eligible Residential Mortgage Loan to which the Agent is entitled have
been transferred to the Agent;
(27) Underwriting. Such Eligible Residential Mortgage Loan was underwritten
in accordance with the Borrower's underwriting guidelines no less
stringent than the Underwriting Guidelines; provided, however, that
from time to time the Borrower may propose reasonable changes to such
Underwriting Guidelines and, in the case of any material
iv
<PAGE> 98
changes to such Underwriting Guidelines, with Agent's written consent
thereto, may materially amend such Underwriting Guidelines;
(28) Appraisal. The related Mortgage File as defined in the Custodian
Agreement contains an appraisal of the related mortgaged property
signed by an appraiser which meets the minimum FNMA or FHLMC requisite
qualifications for appraisers, duly appointed by the originator, who
had no interest, direct or indirect in the related mortgaged property
or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of such Eligible
Residential Mortgage Loan; the appraisal is in a form acceptable to
FNMA and FHLMC, with such riders as are acceptable to FNMA or FHLMC, as
the case may be, and satisfies the requirements of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989;
(29) No Graduated Payments; No Buydowns: No Convertible Mortgage Assets.
Unless otherwise specified in the related Notice of Borrowing, such
Eligible Residential Mortgage Loan is not a graduated payment mortgage
loan or a growing equity mortgage loan, nor is such Eligible
Residential Mortgage Loan subject to a temporary buydown or similar
arrangement. If the Eligible Residential Mortgage Loan has an
adjustable rate, it is not convertible at the option of the related
mortgagor to a fixed rate mortgage loan;
(30) Environmental Matters. To the best of Borrower's knowledge at
origination either (i) the related mortgaged property was not located
within a 1 mile radius of any site with environmental or hazardous
waste of which the Borrower had actual knowledge, or (ii) as to any
related mortgaged property located within a 1 mile radius of any site
as to which the Borrower has actual knowledge of environmental or
hazardous waste, the related Eligible Residential Mortgage Loan was
reviewed in accordance with the Borrower's established environmental
review procedures;
(31) No Fraud. To the best of the Borrower's knowledge, no error, omission,
misrepresentation, negligence, fraud or similar action occurred on the
part of any person in connection with the origination of any Eligible
Residential Mortgage Loan; and
v
<PAGE> 99
Part II. Eligible Home Equity Mortgage Loans
As to each Home Equity Mortgage Loans included in the
Borrowing Base on the date of a Loan (and the related Mortgage, Mortgage Note,
assignment of mortgage and mortgaged property), the Borrower shall be deemed to
make the following representations and warranties to the Lender as of such date
and as of each date Collateral Market Value is determined (in addition to the
representations and warranties set forth in Part I of this Schedule 3.03). With
respect to any representations and warranties made to the best of the Borrower's
knowledge, in the event that it is discovered that the circumstances with
respect to the related Mortgage Loan are not accurately reflected in such
representation and warranty notwithstanding the knowledge or lack of knowledge
of the Borrower, then, notwithstanding that such representation and warranty is
made to the best of the Borrower's knowledge, such Mortgage Loan may, at the
option of the Agent, be excluded from the Borrowing Base or be assigned a
Collateral Market Value lower than that set forth in the Agreement:
Conformance With Underwriting Guidelines. Borrower
represents and warrants to the Agent and the Lenders with
respect to each Home Equity Mortgage Loan consisting of an
interest in a residential property in a pool of Eligible
Residential Mortgage Loan that each such Eligible Residential
Mortgage Loan shall have been originated in conformity with
and meets, as of the date of the related Loan, underwriting
guidelines no less stringent than the Underwriting Guidelines;
provided, however, that from time to time the Borrower may
propose reasonable changes to such Underwriting Guidelines
and, in the case of the material changes to the Underwriting
Guidelines, with Agent's written consent thereto, may
materially amend such Underwriting Guidelines.
vi
<PAGE> 100
Part III. Eligible Multifamily/Mixed Use Mortgage Loans
As to each Multifamily/Mixed Use Mortgage Loan included in the
Borrowing Base on the date of a Loan (and the related Mortgage, Mortgage Note,
assignment of mortgage and mortgaged property), the Borrower shall be deemed to
make the following representations and warranties to the Agent and the Lenders
as of such date and as of each date Collateral Market Value is determined (in
addition to the representations and warranties set forth in Part I of this
Schedule 3.03). With respect to any representations and warranties made to the
best of the Borrower's knowledge, in the event that it is discovered that the
circumstances with respect to the related Mortgage Loan are not accurately
reflected in such representation and warranty notwithstanding the knowledge or
lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Loan may, at the option of the Agent, be excluded from the
Borrowing Base or be assigned a Collateral Market Value lower than that set
forth in the Agreement:
Conformance With Underwriting Guidelines. Borrower
represents and warrants to the Agent and the Lenders with
respect to each Multifamily/Mixed Use Mortgage Loan consisting
of a small multi-family residence/mixed-use property in a pool
of Eligible Residential Mortgage Loans that each such
Multifamily/Mixed Use Mortgage Loan shall have been originated
in conformity with and meets underwriting guidelines no less
stringent than the Underwriting Guidelines; provided, however,
that from time to time, the Borrower may propose reasonable
changes to such Underwriting Guidelines and, in the case of
material changes to the Underwriting Guidelines, with Agent's
written consent thereto, may materially amend such
Underwriting Guidelines.
vii
<PAGE> 101
SCHEDULE 6.04
LITIGATION AND PENDING INVESTIGATIONS
1. Resource Mortgage Banking, Ltd., Covino and Company, Inc. and Luxmac, LLC v.
Cityscape Financial Corp., Cityscape Corp., Robert Grosser and Robert Patent,
filed November 17, 1997 in Superior Court for the Judicial District of
Stamford/Norwalk at Stamford (Connecticut).
2. Michael Ceasar as trustee for Howard Gunty, Inc., Profit Sharing Plan v.
Cityscape Financial Corp., Robert Grosser and Robert C. Patent, filed October 1,
1997 in the United States District Court Eastern District of New York. Civil
Action No. CV 97 5668. Amended to add David A. Steene, Gerald Epstein and Cheryl
P. Carl as defendants.
3. Sandra Weiss, on behalf of herself and all others similarly situated, v.
Cityscape Financial Corp., Robert Grosser and Robert C. Patent, filed October
14, 1997 in the United States District Court Eastern District of New York. Civil
Action No. CV 97 5893.
4. Lucian B. Cox, III v. Cityscape Financial Corp., Robert Grosser and Robert C.
Patent, filed October 22, 1997 in the United States District Court Eastern
District of New York. Civil Action No. CV 97 6083.
5. George Meeks and Harish R. Babani, on behalf of themselves and all others
similarly situated v. Cityscape Financial Corp., Robert Grosser and Robert C.
Patent, filed November 3, 1997 in the United States District Court Eastern
District of New York. Civil Action No. CV 97 6382.
6. Mojghan Khaghan, N. Benjamin Perlman and Max Bernstein, individually and on
behalf of all others similarly situated v. Cityscape Financial Corp., Robert
Grosser and Robert C. Patent, dated November 11, 1997, filed in the United
States District Court Southern District of New York. Civil Action No. 97 CIV
8377.
7. Dorothy and Ralph Hoare v. Cityscape Financial Corp., Robert Grosser, David
A. Steene, Robert C. Patent, Gerald Epstein and Cheryl P. Carl, filed November
11, 1997 in the United States District Court Eastern District of New York. Civil
Action No. CV 97 6705.
8. Paul Chou v. Cityscape Financial Corp. and Robert Grosser, filed November 18,
1997 in the United States District Court Southern District of New York. Civil
Action No. 97 CIV 8576
9. Jacob A. Saltzman v. Cityscape Financial Corp., Robert Grosser and Robert C.
Patent, filed November 24, 1997 in the United States District Court Southern
District of New York. Civil Action No. 97 CIV 8729.
10. Chani Herzog v. Cityscape Financial Corp., Robert Grosser, Robert C. Patent,
Cheryl P. Carl, David A. Steene and Gerald Epstein, dated November 24, 1997
filed in the United States District Court Southern District of New York. Civil
Action No. CV 97 8795.
<PAGE> 102
11. In October 1996, Cityscape Financial Corp. (the "Company") received a
request from the staff of the Securities and Exchange Commission (the
"Commission") for additional information concerning the Company's voluntary
restatement of its financial statements for the quarter ended June 30, 1996. The
request concerned the accounting related to the acquisition of J&J Securities
Limited and Greyfriars Group Limited, formerly known as Heritable Finance
Limited. The Company voluntarily supplied the information requested. 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.
12. On October 27, 1997, the Company received requests from Nasdaq Stock Market
("Nasdaq") for information regarding the Company's compliance with Nasdaq's
listing requirements and corporate governance rules. Following the submission to
Nasdaq of the requested information, the Company was notified on December 5,
1997 that the Company's Common Stock will be de-listed from the Nasdaq National
Market. The Company has requested a hearing to review its compliance with the
Nasdaq listing requirements and the finding of the Listing Qualifications Staff.
This matter has been resolved as described in the news release attached hereto
as Exhibit B.
13. Matters with the Office of Fair Trade in the United Kingdom. See Exhibit A.
14. Gerald A. Liloia and Anthony J. Sylvester v. Cityscape Financial Corp.,
Robert Grosser and Robert C. Patent and Jonah L. Goldstein, dated January 23,
1998, filed in the United States District Court, District of New Jersey, Civ.
No. 98-298.
<PAGE> 103
EXHIBIT A to Schedule 6.04
Regulatory Matters Raised by the Office of Fair Trade in the United
Kingdom
On December 1, 1997, Cityscape Financial Corp. (Nasdaq: CTYS) (the
"Company") received from the Director General of Fair Trading from the United
Kingdom's Office of Fair Trading (the "OFT") "Non-Status Lending Guidelines for
Lenders and Brokers Revised November 1997" (the "Revised Non-Status Guidelines")
that are applicable to mortgage lenders like City Mortgage Corporation Limited,
the Company's indirect wholly-owned subsidiary in the United Kingdom, that focus
on lending to individuals who are unable or unwilling to obtain mortgage
financing from conventional mortgage sources. The Revised Non-Status Guidelines
revise the guidelines issued by the OFT in July 1997 (the "July Non-Status
Guidelines"). In addition, on December 2, 1997, the Company received a letter
from the OFT (the "OFT Letter") expressing the OFT's views on the Company's
compliance with the Unfair Terms in Consumer Contracts Regulations 1994 (the
"Consumer Contracts Regulations") with respect to loan originated by the Company
prior to August 1997.
Background
The Company's UK mortgage lending business is subject to regulations
promulgated under the United Kingdom Consumer Credit Act 1974 (the "CCA")
applicable to loans ("regulated loans") made to individuals or partnerships with
principal balances of pound sterling 15,000 or less (loans with principal
balances in excess of pound sterling 15,000 are not regulated currently under
the CCA). The Director General of the OFT has the responsibility under the CCA
for the granting of consumer credit licenses to mortgage lenders and for
subsequent monitoring of their activities to ensure continued fitness to hold
such licenses. In March 1997, the Company received a letter from the OFT stating
that, when determining the fitness of licensees, the OFT will consider whether
the licensee or its associates have engaged in business practices which appear
to be inappropriate, regardless of their legality. The Company believes the
letter was also sent to other lenders, as well as intermediaries and other
entities involved directly or indirectly in the non-status lending market. The
letter specifically sets forth certain practices deemed by the OFT to fall
within such categories, including the appropriateness of standard/concessionary
rate structures, as well as the calculation of prepayments using the Rule of 78s
method. Following receipt of the letter, the Company commenced a review and
evaluation of its practices with respect to each issue raised in the letter and
entered into discussions with the OFT regarding its concerns raised in the
letter.
The July Non-Status Guidelines highlighted some of the main practices
that the OFT considered to be inappropriate, whether or not lawful. The OFT
stated that if lenders and/or brokers continue these practices, the OFT will
take regulatory action against them. The majority of these practices were either
(i) not applicable to the Company's UK operations or (ii) practices in which the
Company believed itself to be in compliance or easily able to modify its
operations in order to comply with the July Non-Status Guidelines. In the July
Non-Status Guidelines, however, the OFT announced that (i) dual interest rate
structures involving a large differential between the two interest rates are
inappropriate and should be discontinued and (ii) the Rule of
<PAGE> 104
78s method of calculating prepayments is inappropriate in the non-status lending
market, should be discontinued at the earliest opportunity and should not be
applied to existing loan agreements without some form of cap to ensure payments
were not excessive. Furthermore, the July Non-Status Guidelines stressed that
lenders who wish to recoup administrative costs associated with defaults should
do so in accordance with a published scale of charges and with respect to
prepayments, charges for early redemption should do no more than cover the
lender's unrecovered administrative and other costs incurred to the date of
prepayment.
The Company has eliminated the concessionary/standard rate in
its new loan programs and replaced it with a single rate. The average single
rate that the Company charges is higher than the average concessionary rate and
lower than the average standard rate that the Company had charged previously.
Since August 1997, the Company discontinued originating loans that calculate
prepayments using the Rule of 78s method. The Company is calculating prepayments
using alternative methods in accordance with the July Non-Status Guidelines.
During the first half of 1997, the Company commenced
broadening its UK product offerings with products that calculate prepayments
without using the Rule of 78s. The elimination of the concessionary/standard
rate structure and Rule of 78s method has had a negative impact on profit
margins for the Company's UK loans which could have a material adverse effect in
future periods on the Company's results of operations and financial condition,
especially if the Company is unsuccessful in its product-broadening efforts.
The Company has been in discussions with the OFT regarding the
effect of the July Non-Status Guidelines on the Company's UK loans that were
originated prior to the issuance of such guidelines.
Revised Non-Status Guidelines and OFT Letter
In the Revised Non-Status Guidelines, the OFT announced revisions to
the July Non-Status Guidelines, some of which affect a significant portion of
the Company's loans that were originated prior to the issuance of such
guidelines.
With respect to loans that provide for dual interest rates, it is the
OFT's belief that dual interest rate structures (i) may be unenforceable through
the courts where the sum payable from the higher rate exceeds a genuine estimate
of the lender's loss arising from a breach of the borrower's contractual duty
and (ii) in substance provide for payment of compensation upon a breach of an
obligation and may be challenged under the Consumer Contracts Regulations as
unfair and non-binding on the borrower if such compensation is
disproportionately high.
With respect to unregulated loans that provide for the Rule of 78s
method for calculating prepayments (regulations currently promulgated under the
CCA specify the use of Rule of 78s for calculating prepayments for regulated
loans) it is the OFT's belief that such calculation similarly may result in a
borrower paying a disproportionately high sum to redeem a mortgage and may be
challenged under the Consumer Contracts Regulations as being unfair and
therefore non-binding on the borrower.
<PAGE> 105
The Consumer Contracts Regulations set forth various terms which are
considered unfair in consumer contracts and therefore can be challenged as
unenforceable against the consumer. In the Revised Non-Status Guidelines, the
OFT has stated that it believes dual interest rate structures and Rule of 78s
calculations are two such unfair terms. The Company believes that the
standard/concessionary rate and Rule of 78 provisions in its existing loans are
fair and enforceable; however, no assurance can be given in this regard due to
the fact that courts in the UK have not yet decided the issue. Furthermore, even
if UK courts were to find these provisions enforceable, there can be no
assurance that the Company would be able to continue to enforce these provisions
of its loan contracts due to the OFT's view of such provisions and the OFT's
ability to revoke the Company's consumer credit license in the UK if it believes
the Company's practices are unfair despite their legality. Moreover, in the OFT
Letter, the OFT has requested assurances from the Company, on or before December
16, 1997, that it will discontinue with respect to its existing loans the use of
certain contract terms, including the Rule of 78s for unregulated loans and the
standard/concessionary rate structure, and the OFT has stated that, in the
absence of receipt of suitable assurances, it will seek an injunction intended
to restrain the Company from using such terms.
Although the Company is still in the process of evaluating the Revised
Non-Status Guidelines and the OFT Letter and cannot at this time quantify their
impact, the Company (i) does not believe that the $15 million valuation
allowance that was taken in the second quarter of 1997 to increase reserves
related to recorded mortgage servicing receivables will be sufficient to offset
any negative impact that the Revised Non-Status Guidelines and the OFT Letter
may have on the carry value of the Company's recorded mortgage servicing
receivables and (ii) anticipates that, as a result of such guidelines and
letter, the value of the Company's mortgage servicing receivables in the UK will
be materially impaired which will have a material adverse effect on the
Company's operating results for the fourth quarter of 1997 and on the Company's
financial condition.
<PAGE> 106
SCHEDULE 6.05
MATERIAL LIABILITIES OF THE BORROWER
A. Contingent Liabilities
1. Litigation: see Schedule 6.04
B. Fixed Liabilities
1. Loans: see Schedule 8.02
<PAGE> 107
SCHEDULE 6.09
SUBSIDIARIES OF CITYSCAPE CORP.
1. Cityscape Funding Corporation, a Delaware corporation.
2. Cityscape Funding Corporation II, a Delaware corporation.
3. Cityscape Funding Corporation III, a Delaware corporation.
4. Cityscape Funding Corporation IV, a Delaware corporation.
5. Cityscape Funding Corporation V, a Delaware corporation.
6. City Mortgage Corporation Limited, a United Kingdom
corporation.
The following are subsidiaries of City Mortgage Corporation
Limited:
a. City Mortgage Servicing Limited, a United Kingdom
corporation.
b. City Mortgage Financial Services Limited, a United
Kingdom corporation.
c. J&J Securities Limited, a United Kingdom corporation.
d. City Mortgage Collateral Reserve No.1 Limited.
e. Greyfriars Group Limited, a United Kingdom
corporation.
I. Greyfriars Financial Services Limited
i. Assured Funding Corporation Limited
ii. Cityscape (UK) Limited
iii. Midland & General Direct Limited
iv. Home and Family Finance Limited
v. Home Mortgage Corporation Limited
vi. Homestead Finance Limited
vii. Homeowners Capital Plan Limited
viii. Mortgage Management Limited
ix. Secured Funding Limited
<PAGE> 108
SCHEDULE 6.20
MATERIAL CONTRACTS
1 Lease Agreement, dated as of September 30, 1993, between Cityscape
Corp. ("CSC") and Taxter Park Associates, as amended.
2 Sublease Agreement between KLM Royal Dutch Airlines and CSC, dated as
of December 5, 1994.
3 Employment Agreement, dated as of January 1, 1995, between CSC and
Robert Grosser.
4 Employment Agreement, dated as of January 1, 1995, between CSC and
Robert C. Patent.
5 Employment Agreement, dated as of November 1, 1992, between CSC and
Robert M. Stata, as amended.
6 Employment Agreement, dated as of July 1, 1995, between CSC and Cheryl
P. Carl, as amended.
7 Employment Agreement, dated as of July 1, 1995, between CSC and Eric S.
Goldstein, as amended.
8 Employment Agreement, dated as of July 1, 1995, between CSC and Steven
Weiss, as amended.
9 Employment Agreement, dated as of July 1, 1995, between CSC and Jonah
L. Goldstein.
10 The Company's 1995 Employee Stock Purchase Plan.
11 The Company's 1995 Stock Option Plan.
12 The Company's 1995 Non-Employee Directors Stock Option Plan.
13 Indenture, dated as of May 7, 1996, governing the issuance of up to
$143,750,000 of 6% Convertible Subordinated Debentures due 2006 between
Cityscape Financial Corp. and The Chase Manhattan Bank, N.A.
14 Purchase and Sale Agreement, dated June 20, 1996 and effective as of
February 2, 1996, between CSC and Greenwich Capital Financial Products,
Inc., as amended.
<PAGE> 109
15 Lease Agreement, dated as of July 7, 1996, between CSC and Robert
Martin Company.
16 Employment Agreement, dated as of January 1, 1996, between CSC and Tim
S. Ledwick.
17 Employment Agreement, dated as of February 1, 1996, between CSC and
Robert J. Blackwell.
18 Registration Rights Agreement, dated as of November 22, 1996, among the
Company, Mutual Shares Fund, Mutual Qualified Fund, Mutual Beacon Fund,
Mutual Discovery Fund, Mutual European Fund, The Orion Fund Limited,
Mutual Shares Securities Fund and Mutual Discovery Securities Fund.
19 Master Loan and Security Agreement between CSC and Greenwich Capital
Financial Products, Inc.
20 Lease, dated as of October 1, 1996, between CSC and Reckson Operating
Partnership, L.P.
21 1997 Stock Option Plan, as amended.
22 Employment Agreement, dated February 19, 1997, between CSC and Steven
M. Miller.
23 Employment Agreement, dated February 19, 1997, between CSC and Peter S.
Kucma.
24 Indenture, dated as of May 14, 1997, governing the issuance of up to
$300,000,000 of 12-3/4% Senior Notes due 2004, between Cityscape
Financial Corp., CSC, as guarantor, and The Chase Manhattan Bank.
25 Master Financing Agreement, dated as of September 4, 1997, among CSC
and Bear Stearns Mortgage Capital Corporation.
26 Custody Agreement, dated as of September 4, 1997, among CSC as the
Borrower, Bear Stearns Mortgage Capital Corporation as the Lender and
CoreStates Bank, N.A. as the Custodian.
27 Custody Agreement, dated as of September 4, 1997, among CSC as the
Borrower, Bear Stearns Mortgage Capital Corporation as the Lender and
First Trust National Association as the Custodian.
<PAGE> 110
SCHEDULE 8.02
DEBT OF BORROWER
1. Master Loan and Security Agreement, dated as of January 1, 1997, as
amended from time to time, between Cityscape Corp. and Greenwich
Capital Financial Products, Inc..
2. Custodial Agreement, dated as of January 1, 1997, as amended from time
to time, by and among Cityscape Corp., First Trust National Association
and Greenwich Capital Financial Products Inc.
3. Master Financing Agreement, dated as of September 4, 1997, as amended
from time to time, between Bear Stearns Mortgage Capital Corporation
and Cityscape Corp.
4. Indenture, dated May 7, 1996, governing the issuance of up to
$143,750,000 of 6% Convertible Subordinated Debentures due 2006 between
Cityscape Financial Corp. and The Chase Manhattan Bank.
5. Indenture, dated May 14, 1997, governing the issuance of up to
$300,000,000 of 12-3/4% Convertible Subordinated Debentures due 2004 by
and among Cityscape Financial Corp., Cityscape Corp., as guarantor and
The Chase Manhattan Bank.
Capital Leases
6. AT&T Credit Corp., dated August 24, 1996, as amended from time to time,
for telephone, fax and modem equipment
7. Banker's Leasing Association Inc., dated November 19, 1996, as amended
from time to time, for software
8. The CIT Group (CIT/IF)(formerly Cener Capital Corp.), dated December 9,
1993, as amended from time to time, for Compaq hardware, Novell
software, and steelcase fixtures.
9. NationsBanc Leasing Corp., dated July 31, 1995, as amended from time to
time, for furniture and steelcase fixtures.
10. Bank Leumi Leasing Corp., dated October 1, 1997, as amended from time
to time, for computer hardware, furniture and equipment.
11. Amplicon Financial, dated August 18, 1997, as amended from time to
time, for computer hardware, taxes on Heller leases.
12. Heller Financial, Inc., dated August 18, 1997, as amended from time to
time, for computer hardware, furniture, and equipment.
13. Lyon Credit Corporation, dated August 18, 1997, as amended from time to
time, for computer hardware.
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SCHEDULE 8.10
GUARANTIES
1. The Borrower has guaranteed the obligations of Cityscape Financial
Corp. with respect to up to $300,000,000 in aggregate principal amount
of Cityscape Financial Corp.'s 12 3/4% Senior Notes due 2004 under the
Indenture, dated as of May 14, 1997, among Cityscape Financial Corp.,
The Chase Manhattan Bank, as Trustee, and the Borrower, as Subsidiary
Guarantor.
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EXHIBIT D
FORM OF CUSTODIAN AGREEMENT
CUSTODIAN AGREEMENT (this "Custodian Agreement") dated as of February
3, 1998, made by and among CITYSCAPE CORP., a New York corporation (the
"Borrower"), CORESTATES BANK, N.A., a Pennsylvania banking corporation (the
"Custodian"), and THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York
corporation, as agent for the Lenders parties to the Credit Agreement referred
to below (in such capacity, the "Agent").
RECITALS
The Borrower, Cityscape Financial Corp., a Delaware corporation, the
Agent and certain financial institutions (individually, a "Lender" and
collectively, the "Lenders") are parties to the Revolving Credit and Security
Agreement, dated as of the date hereof (as amended, supplemented or otherwise
modified and in effect from time to time, the "Credit Agreement"), pursuant to
which the Lenders have agreed, subject to the terms and conditions of the Credit
Agreement, to make loans to the Borrower to finance (i) the origination or
purchase of Mortgage Loans (as defined therein) by the Borrower, (ii) the
repayment of certain existing indebtedness of the Borrower to CoreStates Bank,
N.A., and (iii) general corporate purposes.
It is a condition precedent to the effectiveness of the Credit
Agreement that the parties hereto execute and deliver this Custodian Agreement
to provide for the appointment of the Custodian as custodian hereunder.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions.
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have their respective assigned meanings when used herein, and the
following terms shall have the following meanings:
"Authorized Representative" shall have the meaning specified in Section
17 hereof.
"Custodian Identification Certificate" shall mean the certificate
executed by the Borrower in connection with the pledge of Mortgage Loans to the
Agent to be held by the Custodian pursuant to this Custodian Agreement, the form
of which is attached as Annex 3 hereto.
"Exception" shall mean, with respect to any Mortgage Loan, any of the
following: (i) any variances between any Mortgage Loan Schedule (including,
without limitation, the list required by item (l) of Annex 1 hereto) and the
related Mortgage File delivered by the Borrower to the Custodian (giving effect
to the Borrower's right to deliver certified copies in lieu
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of original documents in certain circumstances), as determined pursuant to the
Review Procedures set forth on Annex 4, (ii) a Mortgage Loan which has been
pledged to the Agent under the Credit Agreement for a period of in excess of 30
calendar days, (iii) a Mortgage Loan that has been released to the Borrower
pursuant to Section 5(a) hereof for a period of in excess of 14 Business Days,
and (iv) a Mortgage Loan that has been released under any Transmittal Letter in
the form of Annex 10 hereto in excess of the time period stated in such
Transmittal Letter for release.
"Mortgage File" shall mean, as to each Mortgage Loan, those documents
listed in Section 2 of this Custodian Agreement that are delivered to the
Custodian or which at any time come into the possession of the Custodian.
"Mortgage Loan Schedule" shall mean a list, prepared by the Borrower,
of (a) Mortgage Loans to be pledged pursuant to the Credit Agreement, setting
forth, as to each Mortgage Loan to be so pledged, the applicable information
specified on Annex 1 to this Custodian Agreement and (b) Mortgage Loans
previously pledged to the Agent and held by the Custodian hereunder.
"Mortgage Loan Schedule and Exception Report" means a list of Mortgage
Loans delivered by the Custodian to the Agent on each Business Day, reflecting
the Mortgage Loans held by the Custodian for the benefit of the Agent, which
includes a notation as to any Exceptions with respect to each Mortgage Loan
listed thereon, with any updates thereto from the time last delivered.
"Officer's Certificate" shall mean a certificate signed by a Designated
Borrowing Officer and delivered as required by this Custodian Agreement.
"Opinion of Counsel" shall mean a written opinion letter of counsel in
form and substance reasonably acceptable to the party receiving such opinion
letter.
"Proceeds" shall mean whatever is receivable or received when
Collateral or proceeds are sold, collected, exchanged, refinanced or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including return premiums, with
respect to any insurance relating thereto.
"Review Procedures" shall have the meaning specified in Section 3(c)
hereof.
"Trust Receipt" shall mean a Trust Receipt in the form annexed hereto
as Annex 2 delivered to the Agent by the Custodian covering all of the Mortgage
Loans subject to this Agreement from time to time, as reflected on the Mortgage
Loan Schedule and Exception Report attached thereto in accordance with Section
3(e).
"Warehouse Account" shall mean a demand deposit account established by
the Borrower with the Custodian into which proceeds of a Loan may be deposited
and from which Mortgage Loan proceeds may be disbursed, in accordance with
instructions from the Borrower to
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the Custodian, directly to the Closing Agent in connection with the settlement
of Mortgage Loans.
"Wet Loan List" shall have the meaning specified in Section 2.1(III)
hereof.
"Wet Loans" shall mean Loans the proceeds of which are used to
originate Wet Mortgage Loans which are pledged to the Custodian pursuant to
Section 2.1 (III) hereof.
Section 2. Delivery of Mortgage File; Disbursing Loans.
Section 2.1 Delivery of Mortgage Files. No later than 3:00 p.m., New
York City time, one (1) Business Day prior to the date on which the Borrower is
required to pledge a Mortgage Loan to the Agent pursuant to the terms of the
Credit Agreement, the Borrower shall release to the Custodian the following
original documents pertaining to each Mortgage Loan to be pledged to the Agent
on such date, each of which Mortgage Loans shall be identified in a Mortgage
Loan Schedule attached to a Custodian Identification Certificate delivered in
accordance with Section 3 hereof, with a copy of such Mortgage Loan Schedule
delivered to the Agent (or, if another time is specified below for such release
or delivery, at such other time):
(I) With respect to each Mortgage Loan:
(a) The original Mortgage Note bearing all intervening
endorsements, endorsed "Pay to the order of _________ without
recourse" and signed in the name of the last endorsee (the
"Last Endorsee") by an authorized Person (in the event that
the Mortgage Loan was acquired by the Last Endorsee in a
merger, the signature must be in the following form: "[Last
Endorsee], successor by merger to [name of predecessor]"; in
the event that the Mortgage Loan was acquired or originated by
the Last Endorsee while doing business under another name, the
signature must be in the following form: "[Last Endorsee],
formerly known as [previous name]").
(b) The original of the guarantee executed in connection with the
Mortgage Note (if any).
(c) The original Mortgage with evidence of recording thereon, or a
copy thereof together with an Officer's Certificate of the
Borrower certifying that such represents a true and correct
copy of the original and that such original has been submitted
for recordation in the appropriate governmental recording
office of the jurisdiction where the related mortgaged
property is located.
(d) The originals of all assumption, modification, consolidation
or extension agreements with evidence of recording thereon, or
copies thereof together with an Officer's Certificate of the
Borrower certifying that such represent true and correct
copies of the originals and that such originals have each
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been submitted for recordation in the appropriate governmental
recording office of the jurisdiction where the mortgaged
property is located.
(e) The original assignment of mortgage in blank for each Mortgage
Loan, in form and substance acceptable for recording and
signed in the name of the Last Endorsee (in the event that the
Mortgage Loan was acquired by the Last Endorsee in a merger,
the signature must be in the following form: "[Last Endorsee],
successor by merger to [name of predecessor]"; in the event
that the Mortgage Loan was acquired or originated while doing
business under another name, the signature must be in the
following form: "[Last Endorsee], formerly known as [previous
name]").
(f) The originals of all intervening assignments of mortgage with
evidence of recording thereon, or copies thereof together with
an Officer's Certificate of the Borrower certifying that such
represent true and correct copies of the originals and that
such originals have each been submitted for recordation in the
appropriate governmental recording office of the jurisdiction
where the related mortgaged property is located.
(g) The original attorney's opinion of title and abstract of title
or the original mortgagee title insurance policy, or if the
original mortgagee title insurance policy has not been issued,
the irrevocable commitment to issue the same.
(h) The original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage
Loan.
(i) The original power of attorney or other authorizing instrument
(if any) with evidence of recording thereon, if the Mortgage
Note or Mortgage or any other material document relating to
the Mortgage Loan has been signed by a person on behalf of the
related mortgagor.
(j) Such other documents as the Agent may reasonably require
(based on Borrower's Underwriting Guidelines) after notice to
the Borrower and the Custodian, which the Custodian shall have
consented to review.
(II) With respect to each Multifamily/Mixed Use Mortgage Loan:
(a) The documents listed in subsection 2(I) above.
(b) The original assignment of leases and rents, if any, with
evidence of recording thereon, or a copy thereof together with
an Officer's Certificate of the Borrower certifying that such
copy represents a true and correct copy of the original that
has been submitted for recordation in the appropriate
governmental recording office of the jurisdiction where the
related mortgage property is located.
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(c) The original assignment of assignment of leases and rents, if
any, from the Borrower in blank, in form and substance
acceptable for recording.
(d) A copy of the UCC-1 Financing Statements, certified as true
and correct by a Designated Borrowing Officer of the Borrower,
and all necessary UCC-3 Continuation Statements with evidence
of filing thereon or copies thereof certified by a Designated
Borrowing Officer of the Borrower to have been sent for
filing, and UCC-3 Assignments executed by a Designated
Borrowing Officer of the Borrower in blank, which UCC-3
Assignments shall be in form and substance acceptable for
filing.
(e) An environmental indemnity agreement (if any).
(f) An omnibus assignment in blank (if any).
(g) A disbursement letter from the mortgagor to the original
mortgagee (if any).
(h) Mortgagor's certificate or title affidavit (if any).
(i) A survey of the related mortgage property (if any).
(j) A copy of the mortgagor's Opinion of Counsel (if any).
(III) With Respect to Wet Mortgage Loans:
Subject to the terms of the Credit Agreement, Borrower may pledge a
Mortgage Loan for which all of the related documents in the Mortgage
File have not been deposited with the Custodian on or prior to the date
of the related Wet Loan. In connection with any pledge of a Wet
Mortgage Loan, Borrower shall, not later than 3:00 p.m., New York City
time, one (1) Business Day prior to the date of a Loan, deliver to the
Custodian a Custodian Identification Certificate duly authorized,
executed and completed, accompanied with copies of the Collateral
Documents proposed to be used in connection with the funding of such
Wet Mortgage Loan, and, not later than the fifth (5th) Business Day
following the date of a Wet Loan (as such period may be extended
pursuant to the Credit Agreement), shall deposit, or cause to be
deposited, with the Custodian all documents required to be delivered
pursuant to Section 2 for each such Wet Mortgage Loan with a copy of
the Custodian Identification Certificate previously delivered, which
information shall also be delivered on computer-readable form. The
Custodian shall (i) deliver to the Agent, not later than 11:00 a.m.,
New York City time, on the date of the related Wet Loan, a detailed
list of all Wet Mortgage Loans in the Custodian's standard form (each,
a "Wet Loan List"); and (ii) notify the Agent, on the sixth (6th)
Business Day following the date of the related Wet Loan, if any
documents required to be delivered to the Custodian by this Section 2
have not been received with respect to such Wet Mortgage Loan, by duly
noting
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such Exceptions on the Mortgage Loan Schedule and Exception Report
delivered to the Agent on such Business Day. Borrower hereby
represents, warrants and covenants to the Agent and the Custodian that
it and any person or entity acting on its behalf that has possession of
any of the documents required to be delivered to the Custodian by this
Section 2 for such Wet Mortgage Loan from the date of the funding of
such Wet Mortgage Loan to the date of the deposit of such documents
with the Custodian will hold such documents in trust for the Agent.
Upon receipt of the completed Mortgage File for each Wet Mortgage Loan,
the Custodian shall deliver to the Agent a Trust Receipt with respect
such Loan pursuant to Section 3(e) hereof.
(IV) With Respect to all Mortgage Files:
From time to time, the Borrower shall forward to the Custodian
additional original documents or additional documents evidencing any
assumption, modification, consolidation or extension of a Mortgage Loan
approved by the Borrower, in accordance with the terms of the Credit
Agreement, and upon receipt of any such other documents, the Custodian
shall hold such other documents as the Agent shall request from time to
time.
With respect to any documents which have been delivered or are being
delivered to recording offices for recording and have not been returned
to the Borrower in time to permit their delivery hereunder at the time
required, in lieu of delivering such original documents, Borrower shall
deliver to Agent a true copy thereof with an Officer's Certificate
certifying that such copy is a true, correct and complete copy of the
original, which has been transmitted for recordation. The Borrower
shall deliver such original documents to the Custodian promptly when
they are received.
Section 2.2. Disbursing Loans. (a) Dry Mortgage Loan Closings. Subject
to the terms of the Credit Agreement, (i) on the date of the requested Loan
(other than a Wet Loan) the proceeds of which will be used to fund a Mortgage
Loan, the Agent shall, subject to the next sentence, wire transfer to the
Warehouse Account the amount of the requested Loan amount and instruct the
Custodian, in writing via facsimile, to wire transfer such amount to the Closing
Agent account designated in the applicable Mortgage Loan Schedule and (ii) on
the date of the requested Loan (other than a Wet Loan) the proceeds of which
will not be used to fund a Mortgage Loan, the Agent shall, subject to the next
sentence, wire transfer such amount to the Operating Account. To the extent
that, in the case of a Loan referred to in clause (i) of the immediately
preceding sentence, the amount of funds on deposit in the Warehouse Account are
insufficient to close and fund the applicable Mortgage Loan, the Custodian shall
(and is hereby irrevocably authorized by the Borrower to) transfer from the
Operating Account to the Warehouse Account such additional funds as are
necessary to fund the related Mortgage Loan(s), and the Custodian will not
initiate a wire transfer of funds to the applicable Closing Agent until the
Agent has received a confirmation from the Custodian that sufficient additional
funds have been deposited in the Warehouse Account. To the extent that the
amount of funds on deposit in
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the Warehouse Account exceeds the amount needed to close and fund the applicable
Mortgage Loans, the Custodian shall (and is hereby irrevocably authorized by the
Agent to) transfer the excess amount from the Warehouse Account to the Operating
Account for use by the Borrower. Upon the Agent's wire transfer of the Loan
proceeds into the Warehouse Account, the applicable Loan shall be deemed made.
(b) Wet Mortgage Loan Closings. Wet Loans shall be funded in the
following manner as directed by the Borrower in each Loan request:
(1) Wire Transfers: Subject to the terms of the Credit
Agreement, on the date of the requested Wet Loan, the Agent shall,
subject to the next sentence, wire transfer to the Warehouse Account
the requested Wet Loan amount, and the Custodian shall (and is hereby
irrevocably authorized by the Agent to) wire transfer such amounts to
the Wet Closing Agent account designated in the applicable Mortgage
Loan Schedule. To the extent that the amount of funds on deposit in the
Warehouse Account are insufficient to close and fund the applicable Wet
Mortgage Loan, the Custodian shall (and is hereby irrevocably
authorized by the Borrower to) transfer from the Operating Account to
the Warehouse Account such additional funds as are necessary to fund
the related Wet Mortgage Loan, and the Custodian will not initiate a
wire transfer of funds to the applicable Wet Closing Agent until
sufficient additional funds have been deposited into the Warehouse
Account. Upon the Agent's wire transfer of the Wet Loan proceeds into
the Warehouse Account, the applicable Wet Loan shall be deemed made,
provided, however, that until the applicable Wet Mortgage Loan is
closed and funded, the Agent and the Lenders shall have a Lien on the
Wet Loan proceeds as security for all Obligations owed to the Agent and
the Lenders.
(2) Upon closing each Wet Mortgage Loan, the Wet Closing Agent
shall, unless advised by the Custodian to the contrary (which advice
may be by telephone), deliver the applicable Collateral Documents to
the Borrower for endorsement of the Note and transmittal to the
Custodian within five Business Days, as such period may be extended
pursuant to the Credit Agreement. While the Collateral Documents are in
the Borrower's possession, they shall be held in trust for the benefit
of the Agent and the Lenders and the Borrower shall have no authority
to transfer same to any other Person other than the Custodian, or, if
required by the Agent, at the Agent's direction.
Section 3. Custodian Identification Certificate;
Mortgage Loan Schedule and Exception Report;
Trust Receipt.
(a) At the time of the delivery of a Mortgage File to the Custodian
pursuant to Section 2.1 of this Custodian Agreement, the Borrower shall provide
the Custodian with a Custodian Identification Certificate and a related Mortgage
Loan Schedule (such information contained on the Mortgage Loan Schedule shall be
delivered in hardcopy to the Custodian) with respect to the Mortgage Loans to be
pledged to the Agent on the date a Mortgage File is so
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delivered. On the same day on which a Custodian Identification Certificate and
such other documentation is delivered to the Custodian, the Borrower will
deliver, via facsimile, no later than 3:00 p.m. (New York City time), to the
Agent the Mortgage Loan Schedule described in the preceding sentence.
(b) On each Business Day, the Custodian shall deliver to the Borrower
and the Agent, via facsimile, a Mortgage Loan Schedule and Exception Report, no
later than 11:00 a.m. (New York City time), for all Mortgage Loans pledged to
the Agent and held by the Custodian hereunder which shall reflect the Exceptions
identified by the Custodian, current as of date and time of delivery of such
Mortgage Loan Schedule and Exception Report.
(c) Each Mortgage Loan Schedule and Exception Report shall list all
Exceptions using such codes as shall be in form and substance agreed to by the
Custodian and the Agent. Each Mortgage Loan Schedule and Exception Report shall
be superseded by a subsequently issued Mortgage Loan Schedule and Exception
Report. The delivery of each Mortgage Loan Schedule and Exception Report to the
Agent shall be the Custodian's representation that, other than the Exceptions
listed as part of the Exception Report: (i) all documents identified in each
Mortgage Loan Schedule delivered by the Borrower to the Custodian in respect of
such Mortgage Loan have been delivered and are in the possession of the
Custodian as part of the Mortgage File for such Mortgage Loan, (ii) all such
documents have been reviewed by the Custodian in accordance with the review
procedures attached hereto as Annex 4 (the "Review Procedures"), and the
Custodian has noted in the Exception Report any variances between each Mortgage
Loan Schedule and the related Mortgage File, (iii) the amount of the Mortgage
Note is the same as the amount specified on the related Mortgage, and (iv) each
Mortgage Loan identified on such Mortgage Loan Schedule and Exception Report is
being held by the Custodian as the bailee for the Agent and the Lenders pursuant
to this Agreement.
(d) In connection with a Mortgage Loan Schedule and Exception Report
delivered hereunder by the Custodian, the Custodian shall make no
representations as to and shall not be responsible to verify (A) the validity,
legality, enforceability, due authorization, recordability, sufficiency, or
genuineness of any of the documents contained in each Mortgage File or (B) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan. Subject to the following sentence, the Borrower and the Agent hereby give
the Custodian notice that from and after any date on which the Borrower is
required to pledge a Mortgage Loan to the Agent pursuant to the terms of the
Credit Agreement, the Agent shall have a security interest in each Mortgage Loan
identified on a Mortgage Loan Schedule and Exception Report until such time that
the Custodian receives written notice from the Agent that the Agent no longer
has a security interest in such Mortgage Loan. Each Mortgage Loan Schedule and
Exception Report delivered to the Agent by the Custodian, via facsimile, shall
be deemed superseded and canceled upon the delivery of a subsequent Mortgage
Loan Schedule and Exception Report.
(e) In addition to the foregoing, with respect to Mortgage Loans
pledged to the Agent on any date and delivered to the Custodian pursuant to
Section 2.1 hereof, the Custodian shall deliver, no later than 11:00 a.m. (New
York City time), to the Agent a Trust Receipt with a Mortgage Loan Schedule and
Exception Report attached thereto. Each Mortgage
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Loan Schedule and Exception Report delivered by the Custodian to the Agent shall
supersede and cancel the Mortgage Loan Schedule and Exception Report previously
delivered by the Custodian to the Agent hereunder, and shall replace the then
existing Mortgage Loan Schedule and Exception Report attached to the Trust
Receipt. Notwithstanding anything to the contrary set forth herein, in the event
that the Mortgage Loan Schedule and Exception Report attached to a Trust Receipt
is different from the most recently delivered Mortgage Loan Schedule and
Exception Report then the most recently delivered Mortgage Loan Schedule and
Exception Report shall control and be binding upon the parties hereto.
Section 4. Obligations of the Custodian.
(a) The Custodian shall maintain continuous custody of all items
constituting the Mortgage Files in secure facilities in accordance with
customary standards for such custody and shall reflect in its records the
interest of the Agent therein. Each Mortgage Note (and related assignment of
mortgage) shall be maintained in fireproof facilities.
(b) With respect to the documents constituting each Mortgage File, the
Custodian shall (i) act exclusively as the bailee of, and custodian for, the
Agent and the Lenders, (ii) hold all documents constituting such Mortgage File
received by it for the exclusive use and benefit of the Agent and the Lenders,
and (iii) make disposition thereof only in accordance with the terms of this
Custodian Agreement or with written instructions furnished by the Agent;
provided, however, that in the event of a conflict between the terms of this
Custodian Agreement and the written instructions of the Agent, the Agent's
written instructions shall control.
(c) In the event that (i) the Agent, the Borrower or the Custodian
shall be served by a third party with any type of levy, attachment, writ or
court order with respect to any Mortgage File or any document included within a
Mortgage File or (ii) a third party shall institute any court proceeding by
which any Mortgage File or a document included within a Mortgage File shall be
required to be delivered otherwise than in accordance with the provisions of
this Custodian Agreement, the party receiving such service shall promptly
deliver or cause to be delivered to the other parties to this Custodian
Agreement copies of all court papers, orders, documents and other materials
concerning such proceedings. The Custodian shall either (i), to the extent
authorized by court order, continue to hold and maintain all the Mortgage Files
that are the subject of such proceedings pending a final, nonappealable order of
a court of competent jurisdiction permitting or directing disposition thereof or
(ii) file an interpleader or similar action requesting a court of competent
jurisdiction to direct the disposition of such Mortgage Files. Upon final
determination of such court, the Custodian shall dispose of such Mortgage File
or any document included within such Mortgage File as directed by the Agent
which shall give a direction consistent with such determination. Reasonable
expenses of the Custodian incurred as a result of such proceedings shall be
borne by the Borrower, but if the Borrower shall fail to reimburse the Custodian
for such expenses within 15 Business Days after a written request thereof to the
Borrower, with a copy of such written request to be delivered by the Custodian
to the Agent, such expenses shall be borne by the Agent.
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(d) The Agent hereby acknowledges that the Custodian shall not be
responsible for the validity and perfection of the Agent's security interest in
the Collateral hereunder, other than the Custodian's obligation to take
possession of Collateral as set forth in Section 2 hereof.
Section 5. Release of Collateral.
(a) The Agent, in its sole and absolute discretion, may authorize the
Custodian, upon receipt of written request of the Borrower, to release
documentation relating to Mortgage Loans in the possession of the Custodian to
the Borrower, or its designee, for the purpose of correcting documentary
deficiencies relating thereto against a Request for Release and Receipt executed
by the Borrower and the Agent (in its discretion) in the form of Annex 5-A
hereto. The Borrower or its designee shall return to the Custodian each document
previously released from the Custodian's Mortgage File within 14 Business Days
after receipt thereof or within such other period as the Agent may require
pursuant to the terms of the Credit Agreement. The Borrower hereby further
represents and warrants to the Agent that any such request by the Borrower for
release of Collateral shall be solely for the purposes of correcting clerical or
other non-substantive documentation problems in preparation for returning such
Collateral to the Custodian for ultimate sale or exchange and that the Borrower
has requested such release in compliance with all terms and conditions of such
release set forth in the Credit Agreement. The Agent hereby acknowledges that
the Custodian's obligations with respect to any documents so released to the
Borrower or its designee pursuant to this Section 5(a) shall be limited to
recording the Custodian's receipt thereof upon the return of such documents to
the Custodian by the Borrower or its designee.
(b) (i) Pursuant to the terms of the Credit Agreement, the Agent may
authorize the Custodian, upon receipt of a written request of the Borrower at
least two (2) Business Days prior to the date of the anticipated sale, to
release Mortgage Files in the possession of the Custodian to an Investor for the
purpose of resale thereof against a Request for Release executed by the Borrower
and the Agent (in its discretion) in the form of Annex 5-B hereto. On such
Request for Release, the Borrower shall indicate the Mortgage Loans to be sold,
such information to be provided by facsimile, the amount of sale proceeds
anticipated to be received, the date of such anticipated sale, the name and
address of the Investor.
(ii) Any transmittal of documentation for Mortgage Loans in the
possession of the Custodian in connection with the sale thereof to an Investor
will be under cover of a transmittal letter substantially in the form attached
hereto as Annex 10 duly completed by the Custodian and executed by the
Custodian. It is acknowledged and agreed by the parties hereto that the
Custodian shall have no obligation to obtain written acknowledgment of receipt
from the addressee of any transmittal or other letter sent by the Custodian
hereunder. Promptly upon receipt by the Agent or the Custodian on behalf of the
Agent of the full purchase price of the Mortgage Loans, the Agent shall notify
the Custodian thereof and the Custodian shall promptly deliver the related
Mortgage Files as directed by the Agent. Upon such sale, the Custodian shall
issue a superseding Trust Receipt, attached to which shall be a revised Mortgage
Loan Schedule and Exception Report omitting the Mortgage Loans sold, provided
that the
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Custodian shall be required to deliver not more than one Mortgage Loan Schedule
and Exception Report on each Business Day to the Borrower and the Agent.
(c) Following notification by the Agent (which may be by facsimile) to
the Custodian, and the Custodian's acknowledgment of receipt of such notice
which the Custodian agrees to provide to the Agent promptly after receipt of
such notification by the Agent, that the Borrower is not entitled to obtain the
release of Collateral pursuant to the terms of the Credit Agreement, the
Custodian shall not release, or incur any liability to the Borrower or any other
Person for refusing to release, any item of Collateral to the Borrower or any
other Person without the express prior written consent and at the direction of
the Agent.
(d) The Custodian shall deliver documents in the Mortgage Files to the
Borrower in accordance with Section 14 of this Custodian Agreement.
Section 6. Removal or Resignation of Custodian.
(a) The Agent, with, in the absence of a continuing Event of Default,
the consent of the Borrower, upon at least 30 days' prior written notice to the
Custodian and the Agent, may remove and discharge the Custodian (or any
successor custodian thereafter appointed) from the performance of its
obligations under this Custodian Agreement. Promptly after the giving of notice
of removal of the Custodian, the Agent shall appoint, by written instrument, a
successor custodian, subject, in the absence of a continuing Event of Default,
to written approval by the Borrower (which approval shall not be unreasonably
withheld or delayed). One original counterpart of such instrument of appointment
shall be delivered to each of the Agent, the Borrower, the Custodian and the
successor custodian.
(b) In the event of any removal, the Custodian shall promptly transfer
to the successor custodian, as directed in writing, all the Mortgage Files being
administered under this Custodian Agreement and, if the endorsements on the
Mortgage Notes and the Assignments of Mortgage have been completed in the name
of the Custodian, assign the Mortgages and endorse without recourse the Mortgage
Notes to the successor Custodian or as otherwise directed by the Agent. Any cost
of shipment arising out of the removal of the Custodian shall be at the expense
of the Agent. The Borrower shall be responsible for the fees and expenses of the
successor custodian and the fees and expenses for endorsing the Mortgage Notes
and assigning the Mortgages to the successor custodian if required pursuant to
this paragraph.
Section 7. Examination of Mortgage Files.
Upon reasonable prior notice to the Custodian and at the Borrower's
expense, the Agent, the Borrower and each of their respective agents,
accountants, attorneys and auditors will be permitted during normal business
hours to examine the Mortgage Files, documents, records and other papers in the
possession of or under the control of the Custodian relating to any or all of
the Mortgage Loans.
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<PAGE> 123
Section 8. Insurance of Custodian.
At its own expense, the Custodian shall maintain at all times during
the existence of this Custodian Agreement and keep in full force and effect
fidelity insurance, theft of documents insurance, forgery insurance and errors
and omissions insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, all as is customary for insurance typically
maintained by banks which act as custodian of collateral substantially similar
to the Collateral. Upon request, the Agent shall be entitled to receive a
certificate of the respective insurer that such insurance is in full force and
effect.
Section 9. Representations and Warranties.
The Custodian represents and warrants to the Agent that:
(i) the Custodian has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under, this
Custodian Agreement, and has taken all necessary corporate action to
authorize its execution, delivery and performance of this Custodian
Agreement;
(ii) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any
other Person (including, without limitation, any stockholder or creditor of
the Custodian) is required in connection with the execution, delivery,
performance, validity or enforceability of this Custodian Agreement;
(iii) this Custodian Agreement has been duly executed and delivered on
behalf of the Custodian and constitutes a legal, valid and binding
obligation of the Custodian enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether enforcement is sought
in a proceeding in equity or at law); and
(iv) the Custodian is not an Affiliate of the Borrower.
Section 10. [RESERVED]
Section 11. No Adverse Interest of Custodian.
By execution of this Custodian Agreement, the Custodian represents and
warrants that it currently holds, and during the existence of this Custodian
Agreement shall hold, no adverse interest, by way of security or otherwise, in
any Mortgage Loan, and hereby waives and releases any such interest which it may
have in any Mortgage Loan as of the date hereof. The Mortgage Loans shall not be
subject to any security interest, lien or right to set-off by Custodian or any
third party claiming through Custodian, and Custodian shall not pledge,
encumber, hypothecate, transfer, dispose of, or otherwise grant any third party
interest in, the Mortgage Loans.
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<PAGE> 124
Section 12. Indemnification of Custodian.
The Borrower and the Agent, jointly and severally, agree to indemnify
and hold the Custodian and its directors, officers, agents and employees
harmless against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever, including reasonable attorney's fees, that may be
imposed on, incurred by, or asserted against it or them in any way relating to
or arising out of this Custodian Agreement or any action taken or not taken by
it or them hereunder unless such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (other
than special, indirect, punitive or consequential damages, which shall in no
event be paid by the Custodian) were imposed on, incurred by or asserted against
the Custodian because of the breach by the Custodian of its obligations
hereunder or the gross negligence, lack of good faith or willful misconduct on
the part of the Custodian or any of its directors, officers, agents or
employees. The foregoing indemnification shall survive any resignation or
removal of the Custodian or the termination or assignment of this Custodian
Agreement.
In the event that the Custodian fails to produce a Mortgage Note,
Assignment of Mortgage or any other document related to a Mortgage Loan that was
in its possession pursuant to Section 2 within two (2) Business Days after
required or requested by the Borrower or Agent (a "Custodian Delivery Failure"),
and provided that (i) the Custodian previously delivered to the Agent a Mortgage
Loan Schedule and Exception Report which did not list such document as an
Exception on the related Funding Date; (ii) such document is not outstanding
pursuant to a Request for Release and Receipt in the forms annexed hereto as
Annex 5-A and Annex 5-B; and (iii) such document was held by the Custodian on
behalf of the Borrower or Agent, as applicable, then the Custodian shall (a)
with respect to any missing Mortgage Note, promptly deliver to the Agent or
Borrower upon request, a Lost Note Affidavit in the form of Annex 9 hereto and
(b) with respect to any missing document related to such Mortgage Loan,
including but not limited to a missing Mortgage Note, (1) indemnify the Borrower
and Agent in accordance with the succeeding paragraph of this Section 13 and,
(2) at the Agent's option, at any time the long term obligations of the
Custodian are rated below the second highest rating category of Moody's
Investors Service, Inc. or Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc., obtain and maintain an insurance bond in the name of the
Agent, and its successors in interest and assigns, insuring against any losses
associated with the loss of such document, in an amount equal to the then
outstanding principal balance of the related Mortgage Loan or such lesser amount
requested by the Agent in the Agent's sole discretion.
The Custodian agrees to indemnify and hold the Agent and Borrower, and
their respective designees harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including reasonable
attorney's fees, that may be imposed on, incurred by, or asserted against it or
them in any way relating to or arising out of a Custodian Delivery Failure or
the Custodian's gross negligence, lack of good faith or willful misconduct. The
foregoing indemnification shall survive any termination or assignment of this
Custodian Agreement.
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<PAGE> 125
Section 13. Reliance of Custodian.
The Custodian may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any request,
instruction, certificate, opinion or other document furnished to the Custodian,
reasonably believed by the Custodian to be genuine and to have been signed or
presented by the proper party or parties and conforming to the requirements of
this Custodian Agreement; but in the case of any Collateral Document or other
request, instruction, document or certificate which by any provision hereof is
specifically required to be furnished to the Custodian, the Custodian shall be
under a duty to examine the same in accordance with the requirements of this
Custodian Agreement.
Section 14. Term of Custodian Agreement.
This Custodian Agreement shall terminate on the 90th day following the
execution hereof. Upon termination, the Custodian shall transfer to a successor
custodian all the Mortgage Files being administered under this Custodian
Agreement in accordance with the transfer procedures described in Section 6(b).
The cost of the shipment of the Mortgage Files arising out of the termination of
this Custodian Agreement shall be paid pursuant to Section 24 hereof.
Section 15. Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given when received by the recipient party
at the address shown on its signature page hereto, or at such other addresses as
may hereafter be furnished to each of the other parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee. The
Custodian's office is located at the address set forth on its signature page
hereto, and the Custodian shall notify the Agent and the Borrower if such
address should change.
Section 16. Governing Law.
This Custodian Agreement shall be construed in accordance with the laws
of the State of New York, and the obligations, rights, and remedies of the
parties hereunder shall be determined in accordance with such laws without
regard to the conflict of laws doctrine applied in such state.
Section 17. Authorized Representatives.
Each individual designated as an authorized representative of the Agent
or its successors or assigns, the Borrower and the Custodian, respectively (an
"Authorized Representative"), is authorized to give and receive notices,
requests and instructions and to deliver certificates and documents in
connection with this Custodian Agreement on behalf of the Agent, the Borrower
and the Custodian, as the case may be, and the specimen signature for each such
Authorized Representative, initially authorized hereunder, is set forth on
Annexes 6, 7 and 8 hereof, respectively. From time to time, the Agent, the
Borrower and the Custodian or their
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<PAGE> 126
respective successors or permitted assigns may, by delivering to the others a
revised annex, change the information previously given pursuant to this Section
17, but each of the parties hereto shall be entitled to rely conclusively on the
then current annex until receipt of a superseding annex.
Section 18. Amendment.
This Custodian Agreement may be amended from time to time by written
agreement signed by the Borrower, the Agent and the Custodian.
Section 19. Cumulative Rights.
Unless expressly waived elsewhere herein, the rights, powers and
remedies of the Custodian and the Agent under this Custodian Agreement shall be
in addition to all rights, powers and remedies given to the Custodian and the
Agent by virtue of any statute or rule of law, the Credit Agreement or any other
agreement, all of which rights, powers and remedies shall be cumulative and may
be exercised successively or concurrently without impairing the Agent's security
interest in the Collateral.
Section 20. Binding Upon Successors.
All rights of the Custodian and the Agent under this Custodian
Agreement shall inure to the benefit of the Custodian and the Agent and their
successors and permitted assigns, and all obligations of the Borrower shall bind
its successors and assigns.
Section 21. Entire Agreement; Severability.
This Custodian Agreement and the other Loan Documents contain the
entire agreement with respect to the Collateral among the Custodian, the Agent
and the Borrower. If any of the provisions of this Custodian Agreement shall be
held invalid or unenforceable, this Custodian Agreement shall be construed as if
not containing such provisions, and the rights and obligations of the parties
hereto shall be construed and enforced accordingly.
Section 22. Execution In Counterparts.
This Custodian Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement.
Section 23. Tax Reports.
The Custodian shall not be responsible for the preparation or filing of
any reports or returns relating to federal, state or local income taxes with
respect to this Custodian Agreement, other than in respect of the Custodian's
compensation or for reimbursement of expenses.
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<PAGE> 127
Section 24. Fees and Expenses of Custodian.
The Custodian shall charge such fees for its services under this
Custodian Agreement as are set forth in a separate agreement between the
Custodian and the Borrower, the payment of which fees, together with the
Custodian's reasonable expenses in connection herewith, shall be the obligation
of the Borrower, provided that if the Borrower shall fail to pay any such fees
or expenses to the Custodian within 15 Business Days after a written request
therefor to the Borrower, with a copy of such written request to be delivered by
the Custodian to the Agent, such fees and expenses shall be paid by the Agent.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 128
IN WITNESS WHEREOF, this Custodian Agreement was duly executed by the
parties hereto as of the day and year first above written.
CITYSCAPE CORP.
By __________________________
Name:
Title:
Address for Notices:
565 Taxter Road
Elmsford, New York 10523
_____________________________
Attention: __________________
Telecopier No.: (914) 592-7060
Telephone No.: (914) 592-6677
CORESTATES BANK, N.A.
By __________________________
Name:
Title:
Address for Notices:
_____________________________
_____________________________
_____________________________
Attention: _________________
Telecopier No.: ____________
Telephone No.: ____________
<PAGE> 129
THE CIT GROUP/EQUIPMENT FINANCING,
INC., AS AGENT
By __________________________
Name:
Title:
Address for Notices:
650 CIT Drive
Livingston, New Jersey 07039
Attention: John Fall, Esq.
Senior Vice President &
General Counsel
Telecopier No.: (973) 740-5323
Telephone No.: (973) 740-5494
With a copy to:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: Robert Smith
Senior Vice President
Telecopier No.: (212) 536-1295
Telephone No.: (212) 536-1269
<PAGE> 130
Annex 1
to Custodian Agreement
Information to be provided with respect to
Mortgage Loans
For each Mortgage Loan, the Borrower shall provide the
following information (either by way of documents included in the Mortgage File
or otherwise):
(a) the Borrower's Mortgage Loan number;
(b) the mortgagor's name and the street address;
(c) a code indicating whether such Mortgage Loan is a Home Equity
Mortgage Loan, a High LTV Mortgage Loan, a Multifamily/Mixed
Use Mortgage Loan or a Conforming Mortgage Loan;
(d) the current principal balance of the Mortgage Note;
(e) the original principal amount of the Mortgage Note with
respect to any Mortgage Loan originated by the Borrower and
the principal amount of the Mortgage Note purchased by the
Borrower with respect to a Mortgage Loan acquired by the
Borrower subsequent to its origination;
(f) the combined loan-to-value ratio as of the date of the
origination of the related Mortgage Loan;
(g) the paid through date;
(h) the mortgage interest rate;
(i) the final maturity date under the Mortgage Note;
(j) the monthly payment;
(k) the lien position of such Mortgage Loan;
(l) a list of all documents included in the Mortgage File with
appropriate notations indicating whether each such document is
an original or certified copy thereof;
(m) such other tape fields as shall be mutually agreed upon by
Borrower and Agent; and
(n) Closing Agent wiring instructions.
<PAGE> 131
Annex 2
to Custodian Agreement
TRUST RECEIPT
The CIT Group/Equipment Financing, Inc.
650 CIT Drive
Livingston, NJ 07039
Attn: John Fall, Esq.
Senior Vice President and General Counsel
------------, ---
Re: Custodian Agreement, dated as of February 3, 1998 (the
"Custodian Agreement"), among Cityscape Corp. (the
"Borrower"), CoreStates Bank, N.A., as Custodian, and The CIT
Group/Equipment Financing, Inc., as Agent.
Ladies and Gentlemen:
In accordance with the provisions of Section 3(e) of the
above-referenced Custodian Agreement (capitalized terms not otherwise defined
herein having the meanings ascribed to them in the Custodian Agreement), the
undersigned, as the Custodian, hereby certifies as to each Mortgage Loan
described in the attached Mortgage Loan Schedule and Exception Report all
matters (subject to the Exceptions listed therein) set forth in Section 3(c) of
the Custodian Agreement.
The delivery of the attached Mortgage Loan Schedule and
Exception Report evidences that (i) all documents identified in each Mortgage
Loan Schedule delivered by the Borrower to the Custodian in respect of such
Mortgage Loan, other than the Exceptions listed in the attached Mortgage Loan
Schedule and Exception Report, are in the possession of the Custodian as part of
the Mortgage File for such Mortgage Loan, (ii) the Custodian is holding each
Mortgage Loan identified on the Mortgage Loan Schedule and Exception Report,
pursuant to the Custodian Agreement, as the bailee of and custodian for the
Agent for the benefit of the Lenders and (iii) such documents have been reviewed
by the Custodian in accordance with the Review Requirements, and the Custodian
has noted in the Exception Report any variances between each Mortgage Loan
Schedule and the related Mortgage File.
The Custodian makes no representations as to, and shall not be
responsible to verify, (i) the validity, legality, enforceability, due
authorization, recordability, sufficiency or genuineness of any of the documents
contained in each Mortgage File or (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan.
<PAGE> 132
This Trust Receipt shall be deemed superseded and canceled
upon the issuance of a subsequent Trust Receipt to the Agent covering the
Mortgage Loans identified herein.
CORESTATES BANK, N.A., Custodian
By: ____________________________
Name:
Title:
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<PAGE> 133
Annex 3
to Custodian Agreement
CUSTODIAN IDENTIFICATION CERTIFICATE
On this _____ day of _____________ ____, CITYSCAPE CORP. (the
"Borrower"), under that certain Custodian Agreement, dated as of February 3,
1998, as amended (the "Custodian Agreement"), among the Borrower, CORESTATES
BANK, N.A., as Custodian, and THE CIT GROUP/EQUIPMENT FINANCING, INC., as Agent,
does hereby instruct the Custodian to hold, in its capacity as Custodian, the
Mortgage Files with respect to the Mortgage Loans listed on Attachment A hereto,
which Mortgage Loans shall be subject to the terms of the Custodian Agreement as
of the date hereof.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Custodian Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Custodian
Identification Certificate to be executed and delivered by its duly authorized
officer as of the day and year first above written.
CITYSCAPE CORP.
By: ____________________________
Name:
Title:
<PAGE> 134
Attachment A
to Annex 3
to Custodian Agreement
PLEDGED MORTGAGE LOANS
[Attach appropriate Mortgage Loan Schedule(s)]
<PAGE> 135
Annex 4
to Custodian Agreement
REVIEW PROCEDURES
This Annex sets forth the Custodian's review procedures for each item
listed below delivered by the Seller pursuant to the Custodian Agreement (the
"Agreement") to which this Annex is attached. Capitalized terms used herein and
not defined herein shall have the meanings ascribed to them in the Agreement.
1. the Mortgage Note and the Mortgage each appear to bear an original
signature or signatures purporting to be the signature or signatures of the
Person or Persons named as the maker and Mortgagor or grantor, or in the case of
copies of the Mortgage permitted under Section 2 (I)(c) of the Agreement, that
such copies bear a reproduction of such signature;
2. the amount of the Mortgage Note is the same as the amount specified
on the related Mortgage;
3. the mortgagee is the same as the payee on the Mortgage Note;
4. the Mortgage contains a legal description other than address, city
and state on the first page;
5. the notary section (acknowledgment) is present and attached to the
related Mortgage and is signed;
6. the Mortgage Note is endorsed in blank by the named holder or payee
thereof;
7. each original related assignment of mortgage and any intervening
assignment of mortgage, if applicable, appears to bear the original signature of
the named mortgagee or beneficiary including any subsequent assignors, as
applicable, or in the case of copies permitted under Section 2 (I)(f) of the
Agreement, that such copies appear to bear a reproduction of such signature of
signatures and the Officer's Certificate of the Borrower accompanying such
copies appears to bear an original signature or a reproduction of such
signature; and
8. the notary section (acknowledgment) is present and attached to each
intervening assignment and is signed.
<PAGE> 136
Annex 5-A
to Custodian Agreement
Request for Release and Receipt
Date: __________, 19__
The undersigned, CITYSCAPE CORP. (the "Borrower"), acknowledges receipt
from CORESTATES BANK, N.A., acting as bailee of, and custodian for, (in such
capacity, the "Custodian") the exclusive benefit of THE CIT GROUP/EQUIPMENT
FINANCING, INC. (the "Agent") (capitalized terms not otherwise defined herein
are defined in that certain Custodian Agreement, dated as of February 3, 1998
(the "Custodian Agreement"), among the Borrower, the Custodian, and the Agent),
of the following described documentation for the identified Mortgage Loan,
possession of which is entrusted to the Borrower solely for the purpose of
correcting documentary defects relating thereto:
Mortgagor Name Loan Number Note Amount Loan Document
It is hereby acknowledged that a security interest pursuant to the
Uniform Commercial Code in the Collateral hereinabove described and in the
proceeds of said Collateral has been granted to the Agent and the Lenders
pursuant to the Credit Agreement and the Custodian Agreement.
In consideration of the aforesaid delivery by the Custodian, the
Borrower hereby agrees to hold said Collateral in trust for the Agent and the
Lenders as provided under and in accordance with all provisions of the Credit
Agreement and the Custodian Agreement and to return said Collateral to the
Custodian no later than the close of business on the fourteenth Business Day
following the date hereof or, if such day is not a Business Day, on the
immediately preceding Business Day or on such other day as the Agent may
require.
CITYSCAPE CORP.
By: ____________________________
Name:
Title:
Documents returned to Custodian: Acknowledged and Approved:
CORESTATES BANK, N.A. THE CIT GROUP/EQUIPMENT FINANCING,
INC., as Agent
By: ____________________________ By: ____________________________
Name: Name:
Title: Title:
Date:
<PAGE> 137
Annex 5-B
to Custodian Agreement
REQUEST FOR RELEASE
Date: __________, 19__
The undersigned, Cityscape Corp. (the "Borrower"), requests release
from CoreStates Bank, N.A., acting as agent, bailee and custodian (in such
capacity "Custodian") for the exclusive benefit of the Agent (as that term and
other capitalized terms not otherwise defined herein are defined in that certain
Revolving Credit and Security Agreement (the "Security Agreement"), dated as of
February 3, 1998, among the Borrower, Cityscape Financial Corp., the financial
institutions from time to time party thereto (collectively, the "Lenders") and
The CIT Group/Equipment Financing, Inc., as agent for the Lenders, of the
following described documentation for the identified Mortgage Loans, possession
of which shall be delivered to ____________________ (the "Approved Purchaser")
in connection with the sale thereof. The anticipated closing date for such sale
is ______________ and the anticipated purchase proceeds shall equal:
$__________________.
Loan Document
Mortgagor Name Loan Number Note Amount Delivered
Please send the referenced documentation to:
[NAME OF APPROVED PURCHASER ]
[ADDRESS]
[TELEPHONE]
[ATTENTION:]
Please deliver documents to the Approved Purchaser via
__________________, accompanied by a transmittal letter in the form of Annex 10
to the Custodian Agreement.
CITYSCAPE CORP.
By: ____________________________
Name:
Title:
Acknowledged and Approved:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Agent
By: ____________________________
Name:
Title:
<PAGE> 138
Annex 6
to Custodian Agreement
AUTHORIZED REPRESENTATIVES OF AGENT
Name Specimen Signature
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
<PAGE> 139
Annex 7
to Custodian Agreement
AUTHORIZED REPRESENTATIVES OF BORROWER
Name Specimen Signature
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
<PAGE> 140
Annex 8
to Custodian Agreement
AUTHORIZED REPRESENTATIVES OF CUSTODIAN
Name Specimen Signature
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
<PAGE> 141
Annex 9
to Custodian Agreement
FORM OF LOST NOTE AFFIDAVIT
I, as ___________________________ (title) of CoreStates Bank,
N.A. (the "Custodian"), am authorized to make this Affidavit on behalf of the
Custodian. In connection with the administration of the Mortgage Loans held by
the Custodian on behalf of The CIT Group/Equipment Financing, Inc. (the
"Agent"), _______________ (hereinafter called "Deponent"), being duly sworn,
deposes and says that:
1. Custodian's address is:
[CUSTODIAN'S Address]
2. Custodian previously delivered to the Agent a Mortgage Loan
Schedule and Exception Report with respect to such Mortgage Note and/or
assignment of mortgage which did not indicate such Mortgage Note and/or
assignment of mortgage is missing;
3. Such Mortgage Note and/or assignment of Mortgage was
assigned or sold to the Agent by _________________________ pursuant to the terms
and provisions of a ____________________ Agreement dated and effective as of
_________ ______, 199_;
4.Such Mortgage Note and/or assignment or mortgage is not
outstanding pursuant to a Request for Release of Documents;
5. Aforesaid Mortgage Note and/or assignment of mortgage
(hereinafter called the "Original") has been lost;
6. Deponent has made or has caused to be made diligent search
for the Original and has been unable to find or recover same;
7. The Custodian was the Custodian of the Original at the time
of loss; and
8. Deponent agrees that, if said Original should ever come
into Custodian's possession, custody or power, Custodian will immediately and
without consideration surrender the Original to the Agent.
9. Attached hereto is a true and correct copy of (i) the
Mortgage Note, endorsed in blank by the Mortgagee, as provided by Cityscape
Corp. or its designee and (ii) the Mortgage which secures the Mortgage Note,
which Mortgage is recorded at ___________________
10. Deponent hereby agrees that the Custodian (a) shall
indemnify and hold harmless the Agent, its successors, and assigns, against any
loss, liability or damage, including reasonable attorney's fees, resulting from
the unavailability of any Originals, including but not
<PAGE> 142
limited to any loss, liability or damage arising from (i) any false statement
contained in this Affidavit, (ii) any claim of any party that it has already
purchased a Mortgage Loan evidenced by the Originals or any interest in such
Mortgage Loan, (iii) any claim of any borrower with respect to the existence of
terms of a Mortgage Loan evidenced by the Originals, (iv) the issuance of new
instrument in lieu thereof and (v) any claim whether or not based upon or
arising from honoring or refusing to honor the Original when presented by anyone
(items (i) through (iv) above are hereinafter referred to as the "Losses") and
(b) if required by any rating agency in connection with placing such Originals
into a structured and rated transaction, shall obtain a surety bond from an
insurer acceptable to the applicable rating agency in an amount acceptable to
such rating agency to cover any Losses with respect to such Originals.
11. This Affidavit is intended to be relied on by the Agent,
its successors, and assigns and _______________________ represents and warrants
that it has the authority to perform its obligations under this Affidavit.
EXECUTED THIS ____ day of
_______, 199_, on behalf of the
Custodian by:
-----------------------------------
Signature
-----------------------------------
Typed Name
On this _________ day of _______________________, 199_, before
me appeared ____________________________________________, to me personally know,
who being duly sworn did say that she/he is the ______________________________
of ______________________, and that said Affidavit of Lost Note was signed and
sealed on behalf of such corporation and said _____________________________
acknowledged this instrument to be the free act and deed of said corporation.
________________________________________
Notary Public in and for the
State of ______________________________.
My Commission expires: ________________.
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<PAGE> 143
Annex 10
to Custodian Agreement
TRANSMITTAL LETTER
[Custodian Letterhead]
[Approved Purchaser]
__________________________
__________________________
Re: ______________________________
Ladies and Gentlemen:
Attached please find those Mortgage Loans listed separately on the
attached schedule, which Mortgage Loans are owned by Cityscape Corp. (the
"Borrower") and are being delivered to you for purchase.
The Mortgage Loans comprise a portion of the "Collateral" under (and as
such term and capitalized terms not otherwise defined herein are defined in)
that certain Revolving Credit and Security Agreement (the "Credit Agreement"),
dated as of February 3, 1998, between the Borrower, Cityscape Financial Corp.,
the financial institutions from time to time party thereto (collectively, the
"Lenders") and The CIT Group/Equipment Financing, Inc., as agent for the Lenders
(the "Agent"). Each of the Mortgage Loans is subject to a security interest in
favor of the Agent and the Lenders, which security interest shall be
automatically released upon the receipt of the full amount of the purchase price
of such Mortgage Loan (as set forth on the schedule attached hereto) by wire
transfer to the following account of the Borrower maintained with the Custodian:
WIRE INSTRUCTIONS TO SETTLEMENT ACCOUNT:
[to be provided by the Agent]
Pending your purchase of each Mortgage Loan and until payment therefor
is received into the foregoing account, the aforesaid security interest therein
will remain in full force and effect, and you shall hold possession of such
Collateral and the documentation evidencing same as custodian, agent and bailee
for and on behalf of the Agent and the Lenders. In the event that any Mortgage
Loan is unacceptable for purchase, return the rejected item directly to the
Custodian at its address set forth below. IN NO EVENT SHALL ANY MORTGAGE LOAN BE
RETURNED TO, OR SALES PROCEEDS REMITTED TO, THE BORROWER. The Mortgage Loan must
be so returned or sales proceeds received in full no later than ___(__) calendar
days from the date hereof. If you are unable to comply with the above
instructions, please so advise the undersigned Custodian immediately.
<PAGE> 144
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS
LETTER, YOU CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR THE AGENT ON THE
TERMS DESCRIBED IN THIS LETTER. THE CUSTODIAN REQUESTS THAT YOU ACKNOWLEDGE
RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING
THE ENCLOSED COPY OF THIS LETTER TO THE CUSTODIAN; HOWEVER, YOUR FAILURE TO DO
SO DOES NOT NULLIFY SUCH CONSENT.
Very truly yours,
CORESTATES BANK, N.A.
as Custodian
By: ______________________________________
Name:
Title:
Address: ___________________________________
___________________________________
RECEIPT ACKNOWLEDGED:
[APPROVED PURCHASER]
By ________________________
Name:
Title:
Date: ________________
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EXHIBIT E-1
FORM OF PLEDGE AGREEMENT (UK)
PLEDGE AGREEMENT (UK) dated as of February 3, 1998 (the
"Agreement"), made by CITYSCAPE CORP., a New York corporation (the "Pledgor"),
in favor of THE CIT GROUP/EQUIPMENT FINANCING, INC., as agent for the Lenders
parties to the Credit Agreement referred to below (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, Cityscape Financial Corp., as guarantor (the "Guarantor"),
the Pledgor, the financial institutions from time to time party to the Credit
Agreement (the "Lenders"), and the Agent are parties to a Revolving Credit and
Security Agreement, dated as of February 3, 1998 (such Agreement, as amended,
restated or otherwise modified from time to time, being hereinafter referred to
as the "Credit Agreement");
WHEREAS, the Pledgor and the Guarantor have requested the Agent and
the Lenders to provide to the Pledgor a secured $30,000,000 revolving credit
facility, which may be increased to $50,000,000 subject to the terms and
conditions set forth in the Credit Agreement, in order to finance (A) the
Pledgor's origination or purchase of Mortgage Loans, pending whole loan sales or
sales to investors or for holding certain Mortgage Loans in the Pledgor's own
portfolio, (B) the repayment of certain existing indebtedness to CoreStates
Bank, N.A., and (C) other general corporate purposes of the Pledgor;
WHEREAS, it is a condition precedent to the Lenders making and
maintaining Loans under the Credit Agreement that the Pledgor shall have
executed and delivered to the Agent a pledge and security agreement providing
for the pledge to the Agent of, and the grant to the Agent for the benefit of
the Lenders of a security interest in, sixty-five percent (65%) by number of the
issued and outstanding shares of capital stock from time to time owned by the
Pledgor of City Mortgage Corporation Limited, a company wholly owned by the
Pledgor and incorporated under the laws of England (the "UK Subsidiary"), now or
hereafter existing and in which Pledgor has any interest at any time;
WHEREAS, the Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the best interest of
the Pledgor;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Agent and the Lenders to enter into the Credit
Agreement with the Pledgor, the Pledgor hereby agrees with the Agent as follows:
<PAGE> 146
SECTION 1. Definitions. All terms used in this Agreement which are
defined in the Credit Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "Code") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein.
SECTION 2. Pledge and Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 3 hereof), the
Pledgor hereby pledges and collaterally assigns to the Agent, and grants to the
Agent for the benefit of the Lenders a continuing security interest in, the
following (the "Pledged Collateral"):
(a) the shares of stock described in Schedule I hereto (the "Pledged
Shares") issued by the UK Subsidiary, the certificates representing the Pledged
Shares, all warrants, options and other rights, contractual or otherwise, in
respect thereof and all dividends, interest, cash, instruments and other
property (including but not limited to, any stock dividend and any distribution
in connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares, including, without limitation, by way of redemption, bonus, preference,
option rights or otherwise;
(b) all additional shares of stock, from time to time acquired by
the Pledgor, of the UK Subsidiary, the certificates representing such additional
shares, all options and other rights, contractual or otherwise, in respect
thereof and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such additional shares; and
(c) all proceeds of any and all of the foregoing;
in each case, whether now owned or hereafter acquired by the Pledgor
and howsoever its interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise), provided that, notwithstanding anything
to the contrary, at no time shall the shares of stock of the UK Subsidiary
pledged to the Agent pursuant to this Agreement exceed 65% by number of the
issued and outstanding shares of capital stock of the UK Subsidiary.
SECTION 3. Security for Obligations. The security interest created
hereby in the Pledged Collateral constitutes continuing collateral security for
all of the following obligations whether now existing or hereafter incurred (the
"Obligations"):
(a) the prompt payment by the Pledgor, as and when due and payable,
of all amounts from time to time owing by it in respect of the Credit Agreement,
the Notes and the other Loan Documents, including, without limitation, principal
of and interest on the Loans (including, without limitation, all interest that
accrues after the commencement of any case, proceeding or other action relating
to the bankruptcy, insolvency or reorganization of the Pledgor, whether or not a
claim for post-filing interest is allowed in such proceeding), and all interest
thereon, all fees, commissions, expense reimbursements, indemnifications and all
other amounts due or to become due under any Loan Document; and
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(b) the due performance and observance by the Pledgor of all of its
other obligations from time to time existing in respect of the Credit Agreement
and the other Loan Documents.
SECTION 4. Delivery of the Pledged Collateral.
(a) All certificates currently representing the Pledged Shares shall
be delivered to the Agent, together with any necessary indorsement and/or
appropriate stock transfer form duly executed in blank with respect to such
Pledged Shares, on or prior to the execution and delivery of this Agreement. All
other certificates and instruments constituting Pledged Collateral from time to
time required to be pledged to the Agent pursuant to the terms of this Agreement
(the "Additional Collateral") shall be delivered to the Agent within 10 Business
Days of receipt thereof by or on behalf of Pledgor. All such certificates and
instruments shall be held by or on behalf of the Agent pursuant hereto and shall
be delivered in suitable form for transfer by delivery or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to the Agent. Within 10 Business Days of the
receipt by Pledgor of the Additional Collateral, a Pledge Amendment, duly
executed by the Pledgor, in substantially the form of Schedule II hereto (a
"Pledge Amendment") shall be delivered to the Agent, in respect of the
Additional Collateral which are to be pledged pursuant to this Agreement, which
Pledge Amendment shall from and after delivery thereof constitute part of
Schedule I hereto. The Pledgor hereby authorizes the Agent to attach each Pledge
Amendment to this Agreement and agrees that all, certificates or instruments
listed on any Pledge Amendment delivered to the Agent shall for all purposes
hereunder constitute Pledged Collateral and the Pledgor shall be deemed upon
delivery thereof to have made the representations and warranties set forth in
Section 5 with respect to such Additional Collateral.
(b) If the Pledgor shall receive, by virtue of its being or having
been an owner of any Pledged Collateral, any (i) stock certificate (including,
without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spinoff or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7 hereof) or in securities or other property or (iv) dividends or other
distributions in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in
surplus, the Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
the Agent, shall segregate it from the Pledgor's other property and shall
deliver it forthwith to the Agent in the exact form received, with any necessary
indorsement and/or appropriate stock powers or stock transfer forms duly
executed in blank, to be held by the Agent as Pledged Collateral and as further
collateral security for the Obligations, provided that, notwithstanding anything
to the contrary, at no time shall the shares of stock of the UK Subsidiary
pledged to the Agent pursuant to this Agreement exceed 65% by number of the
issued and outstanding shares of capital stock of the UK Subsidiary. For the
avoidance of doubt, any promissory notes or other instruments or agreements
representing indebtedness owing from the
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UK Subsidiary to the Pledgor shall not be included in the Pledged Collateral or
be required to be delivered to the Agent under this Agreement.
SECTION 5. Representations and Warranties. The Pledgor represents
and warrants as follows:
(a) The Pledged Shares have been duly authorized and validly issued,
are fully paid and nonassessable and constitute 65% by number of the issued and
outstanding shares of capital stock of the UK Subsidiary as of the date hereof.
All other shares of stock constituting Pledged Collateral will be, when issued,
duly authorized and validly issued, fully paid and nonassessable.
(b) The Pledgor is and will be at all times the legal and beneficial
owner of the Pledged Collateral free and clear of any Lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement and Liens permitted by Section 8.01(A)(2) of the Credit
Agreement.
(c) The exercise by the Agent of any of its rights and remedies
hereunder will not contravene applicable law or any material contractual
restriction binding on or affecting the Pledgor or any of its properties and
will not result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of its properties other
than pursuant to this Agreement and the other Loan Documents.
(d) No authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority is required to be obtained or made
by the Pledgor for (i) the due execution, delivery and performance by the
Pledgor of this Agreement, (ii) the grant by the Pledgor, or the perfection, of
the security interest purported to be created hereby in the Pledged Collateral
or (iii) the exercise by the Agent or the Lenders of any of their rights and
remedies hereunder, except as may be required in connection with any sale of any
Pledged Collateral by laws affecting the offering and sale of securities
generally.
(e) This Agreement creates a valid security interest in favor of the
Agent in the Pledged Collateral, as security for the Obligations. The Agent's
having possession in the State of New York of the certificates representing the
Pledged Shares and all other certificates, instruments and cash constituting
Pledged Collateral from time to time results in the perfection of such security
interest. Such security interest is, or in the case of Pledged Collateral in
which the Pledgor obtains rights after the date hereof, will be, a perfected,
first priority security interest under the Code. All action necessary or
desirable to perfect and protect such security interest has been duly taken,
except for the Agent's having possession of certificates, instruments and cash
constituting Pledged Collateral after the date hereof.
SECTION 6. Covenants as to the Pledged Collateral. So long as any
Obligations shall remain outstanding, the Pledgor will, unless the Agent shall
otherwise consent in writing:
(a) keep adequate records concerning the Pledged Collateral and
permit the Agent or any agents or representatives thereof at any reasonable time
or from time to time to
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examine and make copies of and abstracts from such records pursuant to the terms
of Section 3.05(7) of the Credit Agreement;
(b) at its expense, (i) upon the request of the Agent, promptly
deliver to the Agent a copy of each material notice or other communication
received by it in respect of the Pledged Collateral, and (ii) comply promptly
with any notices served on it in respect of the Pledged Collateral under the
Companies Act of 1985 of Great Britain (the "Companies Act");
(c) at its expense, defend the Agent's right and security interest
in and to the Pledged Collateral against the claims of any Person;
(d) at its expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all further
action that the Agent may reasonably request in order to (i) perfect and protect
the security interest purported to be created hereby, (ii) enable the Agent to
exercise and enforce its rights and remedies hereunder in respect of the Pledged
Collateral or (iii) otherwise effect the purposes of this Agreement, including,
without limitation, delivering to the Agent, after the occurrence and during the
continuation of an Event of Default, irrevocable proxies in respect of the
Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise), exchange or
otherwise dispose of any Pledged Collateral or any interest therein except as
permitted in Section 8.07 of the Credit Agreement or as permitted by Section
7(a)(i) hereof;
(f) not create or suffer to exist any Lien, security interest or
other charge or encumbrance upon or with respect to any Pledged Collateral
except for the security interest created hereby or pursuant to any other Loan
Document and Liens permitted by Section 8.01(A)(2) of the Credit Agreement;
(g) not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral other
than pursuant to the Loan Documents and applicable securities laws;
(h) not permit the issuance of (i) any additional shares of any
class of capital stock of the UK Subsidiary, except to the extent that, after
giving effect to any such issuance, not less than 65% by number of the issued
and outstanding shares of capital stock of the UK subsidiary is at all times
pledged to the Agent pursuant to the terms and provisions of this Agreement,
(ii) any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares of capital stock or (iii) any
warrants, options, contracts or other commitments entitling any Person to
purchase or otherwise acquire any such shares of capital stock; and
(i) not take or fail to take any action which would in any manner
impair the enforceability of the Agent's security interest in any Pledged
Collateral.
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SECTION 7. Voting Rights, Dividends, Etc. in Respect of the
Pledged Collateral.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement, the Credit Agreement or the other
Loan Documents; provided, however, that (A) the Pledgor will not exercise or
refrain from exercising any such right, as the case may be, if the Agent gives
it notice that, in the Agent's reasonable judgment, such action would result in
a Material Adverse Change and (B) the Pledgor will give the Agent at least 5
Business Days' notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right which is reasonably
likely to result in a Material Adverse Change; provided, further, that the
Pledgor shall not, without the prior written consent of the Agent (which consent
shall not be unreasonably withheld), by the exercise of any such rights or
otherwise participate in any vote concerning a members voluntary winding-up or a
compromise or arrangement pursuant to Section 425 of the Companies Act;
(ii) the Pledgor may receive and retain any and all dividends
paid in respect of the Pledged Collateral; provided, however, that any and all
(A) dividends paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed in respect of
or in exchange for, any Pledged Collateral, (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, and (C) cash
paid, payable or otherwise distributed in redemption of, or in exchange for, any
Pledged Collateral, shall be, and shall forthwith be delivered to the Agent to
hold and be applied to the Obligations pursuant to the terms of the Credit
Agreement, and shall, if received by the Pledgor, be received in trust for the
benefit of the Agent, shall be segregated from the other property or funds of
the Pledgor, and shall be forthwith delivered to the Agent in the exact form
received with any necessary indorsement and/or appropriate stock powers duly
executed in blank, to be held by the Agent as Pledged Collateral and as further
collateral security for the Obligations and, if cash, applied by the Agent to
the Obligations pursuant to the terms of the Credit Agreement; and
(iii) the Agent will execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments as
the Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) of this Section 7(a) and to receive the dividends which it is
authorized to receive and retain pursuant to paragraph (ii) of this Section
7(a).
(b) Upon the occurrence and during the continuance of an Event of
Default and to the extent not inconsistent with the Credit Agreement:
(i) all rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
paragraph (i) of subsection (a) of this Section 7, and to receive the dividends
which it would otherwise be authorized to
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receive and retain pursuant to paragraph (ii) of subsection (a) of this Section
7, shall cease, and all such rights shall thereupon become vested in the Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends
and interest payments;
(ii) without limiting the generality of the foregoing, the
Agent may at its option exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any of the
Pledged Collateral as if it were the absolute owner thereof, including, without
limitation, the right to exchange, in its discretion, any and all of the Pledged
Collateral upon the merger, consolidation, reorganization, recapitalization or
other adjustment of the UK Subsidiary, or upon the exercise by the UK Subsidiary
of any right, privilege or option pertaining to any Pledged Collateral, and, in
connection therewith, to deposit and deliver any and all of the Pledged
Collateral with any committee, depository, transfer agent, registrar or other
designated agent upon such terms and conditions as it may determine; and
(iii) all dividends and interest payments which are received
by the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b)
shall be received in trust for the benefit of the Agent, shall be segregated
from other funds of the Pledgor, and shall be forthwith paid over to the Agent
as Pledged Collateral in the exact form received with any necessary indorsement
and/or appropriate stock powers duly executed in blank, to be held by the Agent
as Pledged Collateral and as further collateral security for the Obligations
and, if cash, applied by the Agent to the Obligations pursuant to the terms of
the Credit Agreement.
SECTION 8. Additional Provisions Concerning the Pledged
Collateral.
(a) The Pledgor hereby authorizes the Agent to file, without the
signature of the Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) The Pledgor hereby irrevocably appoints the Agent the Pledgor's
attorney-in-fact and proxy, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Agent's discretion exercised reasonably and during the continuance of an Event
of Default, to take any action and to execute any instrument which the Agent may
deem necessary or reasonably advisable to accomplish the purposes of this
Agreement (subject to the rights of the Pledgor under Section 7(a) hereof),
including, without limitation, to receive, indorse and collect all instruments
made payable to the Pledgor representing any dividend, interest payment or other
distribution in respect of any Pledged Collateral and to give full discharge for
the same.
(c) If the Pledgor fails to perform any agreement or obligation
contained herein, the Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 10 hereof.
(d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Agent shall have no
duty or liability to preserve
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rights pertaining thereto and shall be relieved of all responsibility for the
Pledged Collateral upon surrendering it or tendering surrender of it to the
Pledgor. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Agent accords its own property, it being understood that the Agent shall not
have responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Pledged Collateral, whether or not the Agent has or is deemed to have knowledge
of such matters, or (ii) taking any necessary steps to preserve rights against
any parties with respect to any Pledged Collateral.
(e) The Agent may at any time after the occurrence and during the
continuation of an Event of Default and to the extent not inconsistent with the
Credit Agreement in its discretion (i) without notice to the Pledgor, transfer
or register in the name of the Agent or any of its nominees any or all of the
Pledged Collateral, subject only to the revocable rights of the Pledgor under
Section 7(a) hereof, and (ii) exchange certificates or instruments constituting
Pledged Collateral for certificates or instruments of smaller or larger
denominations.
SECTION 9. Remedies Upon Default. If any Event of Default shall
have occurred and be continuing:
(a) The Agent may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party on default under the
Code; and without limiting the generality of the foregoing and without notice
except as specified below, sell the Pledged Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange or broker's board
or elsewhere, at such price or prices and on such other terms as the Agent may
deem commercially reasonable. The Pledgor agrees that, to the extent notice of
sale shall be required by law, at least 10 Business Days' notice to the Pledgor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Agent shall not
be obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) The Pledgor recognizes that it is impracticable to effect a
public sale of all or any part of the Pledged Shares or any other securities
constituting Pledged Collateral and that the Agent may, therefore, determine to
make one or more private sales of any such securities to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges that any such private
sale may be at prices and on terms less favorable to the seller than the prices
and other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sales shall be deemed to
have been made in a commercially reasonable manner and that the Agent shall have
no obligation to delay sale of any such securities for the period of time
necessary to permit the issuer of such securities to register such securities
for public sale under the Securities Act of
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1933 (the "Securities Act") or any other applicable law. The Pledgor further
acknowledges and agrees that any offer to sell such securities which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York (to the
extent that such an offer may be so advertised without prior registration under
the Securities Act) or (ii) made privately in the manner described above to not
less than fifteen bona fide offerees shall be deemed to involve a "public sale"
for the purposes of Section 9-504(3) of the Code (or any successor or similar,
applicable statutory provision) as then in effect in the State of New York,
notwithstanding that such sale may not constitute a "public offering" under the
Securities Act, and that the Agent may, in such event, bid for the purchase of
such securities. Such power of sale or other disposal shall operate as a
variation and extension of the statutory power of sale under Section 101 of the
Law of Property Act 1925 of Great Britain (the "Property Act"). The restrictions
in Section 103 of the Property Act on the exercise of the statutory power of
sale shall not apply to any exercise by the Agent of its power of sale or other
disposal which shall arise and be exercisable, as shall the statutory power
under said Section 101 of appointing a receiver of the Pledged Collateral or the
income thereof, immediately following the occurrence and continuance of an Event
of Default. A certificate in writing by an officer or agent of the Agent that
either or both of such powers has arisen and is exercisable shall be conclusive
evidence of that fact.
(c) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from, or
other realization upon, all or any part of the Pledged Collateral may, in the
discretion of the Agent, be held and applied by the Agent (after payment of any
amounts payable to the Agent pursuant to Section 10 hereof) in whole or in part
against, all or any part of the Obligations in such order as the Agent shall
elect consistent with the provisions of the Credit Agreement. Any surplus of
such cash or cash proceeds held by the Agent and remaining after payment in full
of all of the Obligations shall be paid over to the Pledgor or to such person as
may be lawfully entitled to receive such surplus.
(d) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Agent or any Lender
is legally entitled, the Pledgor shall be liable for the deficiency, together
with interest thereon at the highest rate specified in the Credit Agreement for
interest on overdue principal thereof or such other rate as shall be fixed by
applicable law, together with the reasonable costs of collection and the
reasonable fees of any attorneys employed by the Agent and any Lender to collect
such deficiency.
SECTION 10. Indemnity and Expenses.
(a) The Pledgor agrees to indemnify the Agent from and against any
and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting solely and directly from the Agent's
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Pledgor will upon demand pay to the Agent the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and disbursements of
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the Agent's counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Pledged Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent or any of the Lenders hereunder, or (iv) the
failure by the Pledgor to perform or observe any of the provisions hereof.
SECTION 11. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to the Pledgor, to it at its address specified in the Credit Agreement, and if
to the Agent, to it at its address specified in the Credit Agreement, or as to
either such Person at such other address as shall be designated by such Person
in a written notice to such other Person complying as to delivery with the terms
of this Section 11. All such notices and other communications shall be effective
(i) if sent by certified mail, return receipt requested, when received or 3
Business Days after mailing, whichever first occurs, (ii) if telecopied, when
transmitted and confirmation is received, provided same is on a Business Day
and, if not, on the next Business Day, or (iii) if delivered, upon delivery,
provided same is on a Business Day and, if not, on the next Business Day.
SECTION 12. Consent to Jurisdiction, Etc.
(a) Any legal action or proceeding with respect to this Agreement or
any document related thereto may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Pledgor hereby accepts
unconditionally the jurisdiction of the aforesaid courts. The Pledgor hereby
irrevocably waives any objection, including without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens, which the
Pledgor may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.
(b) The Pledgor irrevocably consents to the service of process of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
Pledgor at its address referred to in Section 11 hereof.
(c) Nothing contained in this Section 12 shall affect the right of
the Agent to serve legal process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Pledgor in any other
jurisdiction.
SECTION 13. Waiver of Jury Trial. EACH OF THE PLEDGOR AND THE AGENT
(BY ACCEPTING THIS AGREEMENT) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ARISING FROM ANY OTHER LOAN DOCUMENT AND AGREES THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
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<PAGE> 155
SECTION 14. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Pledgor and the Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Pledgor therefrom, shall be effective unless it is in writing and signed by
the Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent to exercise, and no delay in
exercising, any right hereunder or under any other document shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Agent provided herein and in the other
Loan Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Agent under any document
against any party thereto are not conditional or contingent on any attempt by
the Agent to exercise any of its rights under any other document against such
party or against any other person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in
the Pledged Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Obligations after the Total Commitment has
been terminated and (ii) be binding on the Pledgor and by its acceptance hereof,
the Agent, and their respective successors and assigns and shall inure, together
with all rights and remedies of the Agent and the Lenders hereunder, to the
benefit of the Pledgor, the Agent and the Lenders and their respective
successors, transferees and assigns. Without limiting the generality of clause
(ii) of the immediately preceding sentence, the Agent may assign or otherwise
transfer its rights and obligations under this Agreement to any other Person
pursuant to the terms of the Credit Agreement, and such other Person shall
thereupon become vested with all of the benefits in respect thereof granted to
the Agent herein or otherwise. Upon any such assignment or transfer, all
references in this Agreement to the Agent shall mean the assignee of the Agent.
None of the rights or obligations of the Pledgor hereunder may be assigned or
otherwise transferred without the prior written consent of the Agent.
(e) Upon the satisfaction in full of the Obligations after the Total
Commitment has been terminated, (i) this Agreement and the security interest
created hereby shall terminate and all rights to the Pledged Collateral shall
revert to the Pledgor, and (ii) the Agent will, upon the Pledgor's request and
at the Pledgor's expense promptly, (A) return to the Pledgor such of the Pledged
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof and (B) execute and deliver to the Pledgor, without
recourse, representation or warranty, such documents as the Pledgor shall
reasonably request to evidence such termination.
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<PAGE> 156
(f) The restriction on consolidation of securities contained in
Section 93 of the Property Act shall not apply to this Agreement.
(g) This Agreement shall be governed by and construed in accordance
with the law of the State of New York, except as required by mandatory
provisions of law and except to the extent that the validity and perfection or
the perfection and the effect of perfection or non-perfection of the security
interest created hereby, or remedies hereunder, in respect of any particular
Pledged Collateral are governed by the law of a jurisdiction other than the
State of New York.
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<PAGE> 157
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.
CITYSCAPE CORP.
By: ____________________________________
Name: ____________________________________
Title:____________________________________
ACCEPTED AND AGREED:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Agent
By: _______________________________
Name:_______________________________
Title:______________________________
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<PAGE> 158
SCHEDULE I TO PLEDGE AGREEMENT (UK)
Pledged Shares
--------------
<TABLE>
<CAPTION>
Certificate
Name of Issuer Number of Shares Class No.(s)
-------------- ---------------- ----- ------
<S> <C> <C> <C>
City Mortgage 812,502 ordinary 19
Corporation Limited ((pound)1 each)
</TABLE>
<PAGE> 159
SCHEDULE II
TO
PLEDGE AGREEMENT (UK)
PLEDGE AMENDMENT
This Pledge Amendment, dated ___________________________, is
delivered pursuant to Section 4 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement (UK), dated February 3, 1998, as it may heretofore have been or
hereafter may be amended or otherwise modified or supplemented from time to time
and that the promissory notes or shares listed on this Pledge Amendment shall be
and become part of the Pledged Collateral referred to in said Pledge Agreement
and shall secure all of the Obligations referred to in said Pledge Agreement.
Pledged Shares
<TABLE>
<CAPTION>
Name of Issuer Number of Shares Class Certificate No(s)
-------------- ---------------- ----- -----------------
<S> <C> <C> <C>
</TABLE>
CITYSCAPE CORP.
By: ______________________________
Name:
Title:
<PAGE> 160
EXHIBIT E-2
FROM OF PLEDGE AGREEMENT (SPV)
PLEDGE AGREEMENT (SPV) (the "Agreement"), dated as of February
3, 1998, made by CITYSCAPE CORP., a New York corporation (the "Pledgor"), in
favor of The CIT Group/Equipment Financing, Inc., as collateral agent (the
"Pledgee") for the benefit of the Secured Creditors (all capitalized terms used
herein and defined in Section 15 shall be used herein as so defined). Except as
otherwise defined herein, terms used herein and defined in the Credit Agreements
referred to below shall be used as so defined.
W I T N E S S E T H :
WHEREAS, the Pledgor desires to enter into this Agreement to
secure certain of its existing and future indebtedness as and to the extent
provided herein;
NOW, THEREFORE, in consideration of the extensions of credit
to the Pledgor and other benefits accruing to the Pledgor, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor hereby makes the
following representations and warranties to the Pledgee and hereby covenants and
agrees with the Pledgee as follows:
1. Security For Obligations. This Agreement is for the benefit
of the Secured Creditors, to secure:
(i) the full and prompt payment when due of all obligations
and liabilities owing to the Secured Creditors, whether now existing or
hereafter arising, under the Credit Agreements and the other Financing
Documents, including, without limitation, principal of and interest on
all Loans (including, without limitation, all interest that accrues
after the commencement of any case, proceeding or other action relating
to the bankruptcy, insolvency or reorganization of the Pledgor, whether
or not a claim for post-filing interest is allowed in such proceeding),
all fees, commissions, expense reimbursements, indemnifications and all
other amounts due or to become due under any Financing Document to
which the Pledgor is a party;
(ii) any and all reasonable sums advanced by the Pledgee in
order to preserve the Collateral or preserve its security interest in
the Collateral; and
(iii) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities of the
Pledgor referred to in clauses (i) and (ii), after an Event of Default
shall have occurred and be continuing, the reasonable expenses of
re-taking, holding, preparing for sale, selling or otherwise disposing
of or realizing on
<PAGE> 161
the Collateral, or of any exercise by the Pledgee of its rights
hereunder, together with reasonable attorneys' fees and court costs;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (iii) of this Section 1 being collectively called the "Obligations."
2. Pledge. The Pledgor hereby pledges and grants to the
Pledgee, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations, a security interest in and assignment of all of
the Pledgor's right, title and interest in and to the following property and
interests in property, whether now owned or existing or hereafter arising or
acquired and wheresoever located and whether the same comprise accounts,
instruments, securities, investment property, chattel paper or general
intangibles (as each such term is defined in the Code) (the "Collateral"):
(a) all of the Pledgor's rights in the Pledged Stock of each
Issuer, and all of the Pledgor's rights, as a shareholder in each
Issuer, in and to the property (and interests in property) that is
owned by each Issuer;
(b) all warrants, options and other rights to acquire stock in
each Issuer and all of the Pledgor's rights, if any, to participate in
the management of each Issuer;
(c) all rights, privileges, authority and powers of the
Pledgor as owner or holder of its equity interest in each Issuer,
including, but not limited to, all general intangible and contract
rights related thereto;
(d) all documents and certificates representing or evidencing
the Pledgor's equity interest in each Issuer;
(e) all Investment Property of the Pledgor arising from or
related to the Pledged Stock that has been delivered, transferred or
assigned to, or deposited or credited to an account with, or otherwise
is in the possession or under the control or recorded on the books of,
the Pledgee including, without limitation, any Securities Account
controlled by the Pledgee;
(f) all of the Pledgor's right as shareholder of each Issuer
to receive dividends and redemptions on account of each Issuer's
capital stock or to receive distributions of each Issuer's respective
assets, upon complete or partial liquidation or otherwise;
(g) all of the Pledgor's right, title and interest to receive
payments of principal and interest on any loans and/or other extensions
of credit made by the Pledgor to each Issuer, all other accounts and
other rights to payment which may be owing by each Issuer to the
Pledgor, and all instruments creating or evidencing such rights;
(h) all distributions, cash, Investment Property, instruments,
Financial Assets and other property from time to time received,
receivable or otherwise distributed in
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<PAGE> 162
respect of, or in exchange for, the Pledgor's interest in each Issuer
and delivered or transferred to the Pledgee or Pledgor or deposited in
any Securities Account controlled by the Pledgee or Pledgor;
(i) all general intangibles arising from or relating to the
Collateral;
(j) all Securities Entitlements of the Pledgor in or in
respect of any of the foregoing;
(k) all cash delivered to the Pledgee pursuant to the terms of
this Agreement; and
(l) any other right, title, interest, privilege, authority and
power of the Pledgor in or relating to each Issuer, all whether now
existing or hereafter arising, and whether arising at law or in equity
and any and all proceeds of and distribution in any of the foregoing
and all books and records of the Pledgor pertaining to any of the
foregoing;
provided that, the term "Collateral" shall not be construed to include Residual
Securities, provided further that, Residual Securities may be pledged to the
Pledgee pursuant to the terms of the Supplemental Security Agreement, in the
form of Annex D attached hereto, signed by the Issuer owning such Residual
Securities.
3. Valuation of Residual Securities.
3.1 Residual Deficiency; Release of Excess; Determination
of Value.
(a) In the event that, at the time of any determination of the
Value of Residual Securities as contemplated under Section 3.1(c), the Value of
Residual Securities together with the amount of any cash constituting Additional
Collateral, in each case in the possession of the Pledgee, is less than
$40,000,000 (the amount by which the Value of Residual Securities together with
the amount of any cash constituting Additional Collateral, in each case in the
possession of the Pledgee, is less than $40,000,000 is hereafter referred to as
a "Deficiency"), the Pledgor shall, within two (2) Business Days of the earlier
of (i) the Pledgor obtaining actual knowledge of such Deficiency and (ii) the
receipt by Pledgor of a written request of a Secured Creditor, deliver to the
Pledgee cash and/or the shares of capital stock of a subsidiary of the Pledgor
that owns Residual Securities which, when the amount of any such cash is added
to the Value of such Residual Securities, equals or exceeds such Deficiency.
Each delivery of such cash and/or capital stock shall be made in accordance with
Section 4(b).
(b) In the event that, at the time of any determination of the
Value of Residual Securities as contemplated in Section 3.1(c), the Value of
Residual Securities together with the amount of any cash constituting Additional
Collateral, in each case in the possession of the Pledgee, is greater than
$40,000,000 (the amount by which the Value of Residual Securities together with
the amount of any cash constituting Additional Collateral is greater than
$40,000,000 is hereafter referred to as the "Excess"), the Pledgor may request
that the Pledgee release to it Residual Securities and/or any cash constituting
Additional Collateral which, when
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<PAGE> 163
the amount of such released cash is added to the Value of such released Residual
Securities, does not exceed the amount of such Excess. Any such release shall be
made (i) with respect to Residual Securities and the capital stock of an Issuer
owning Residual Securities, only in connection with a sale by an Issuer of
Residual Securities or a sale by the Pledgor of the capital stock of an Issuer
owning Residual Securities, or (ii) with respect to any cash constituting
Additional Collateral, on any regularly scheduled valuation date as contemplated
in Section 3.2, and, in each such case, upon delivery of a written notice of
such request to the Pledgee and each Secured Creditor (which shall, in the case
of any sale transaction described in clause (i) above, contain a summary of the
relevant terms of such sale transaction) at least five (5) Business Days prior
to the proposed date of such release (the "Release Date"). Notwithstanding
Section 19 hereof, unless the Pledgee receives a written notice from any Secured
Creditor, pursuant to Section 3.1(c), three (3) Business Days prior to the
Release Date objecting to the Pledgor's determination of the Book Value of
Residual Securities and instructing the Pledgee not to release any Residual
Securities, cash and/or Pledged Stock, the Pledgee shall release Residual
Securities, cash and/or Pledged Stock, as appropriate, to the Pledgor on the
Release Date in an aggregate amount of up to the Excess, provided that if the
Residual Securities proposed to be released represent all of the Residual
Securities owned by an Issuer, the Pledgor may request the release of all of the
Pledged Stock of such Issuer and, subject to the terms of this paragraph (b),
the Pledgee shall be entitled to release all of the Pledged Stock of such
Issuer. In addition, the chief financial officer of the Pledgor shall deliver a
certificate to the Pledgee and the Secured Creditors one (1) Business Day prior
to the Release Date certifying that no Event of Default shall have occurred and
be continuing both before and after giving effect to such release.
Notwithstanding anything to the contrary, the Pledgee shall in no event release
any Residual Securities, cash and/or Pledged Stock if (A) such certificate is
not delivered, (B) the Pledgee has received on or before three (3) Business Days
prior to the Release Date a notice from a Secured Creditor objecting to the
Pledgor's determination of Book Value, which objection has not been resolved by
a determination by the Secured Creditors of Market Value pursuant to Section
3.1(c), or (C) the Pledgee shall have received written notice from a Secured
Creditor on or before the Business Day prior to the Release Date stating that an
Event of Default has occurred and is continuing or will result from the
requested release. The Pledgee shall not otherwise be required to determine
that, or take notice whether, an Event of Default or any other condition has
occurred and is continuing either before or after giving effect to such release.
Residual Securities, cash or Pledged Stock released to the Pledgor pursuant to
this paragraph (b) may be sold to any Person, subject to the payment of proceeds
provisions of the Credit Agreements and Section 14(b)(4) hereof.
(c) The Pledgor shall determine the Book Value of the Residual
Securities and shall deliver or cause to be delivered to the Secured Creditors a
Residual Securities valuation statement in accordance with Section 3.2. If at
any time any Secured Creditor objects to the Pledgor's determination of the Book
Value of any of the Residual Securities as contemplated in this Section 3.1(c)
based upon a good faith belief that such Book Value does not represent the
current Market Value of such Residual Securities, such objecting Secured
Creditor shall notify the other Secured Creditors, the Pledgee and the Pledgor,
and, unless the Secured Creditors and the Pledgor can promptly agree on the
Market Value of such Residual Securities, the Secured Creditors shall, promptly
and in good faith in accordance with generally accepted industry
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<PAGE> 164
custom and practice, determine the current market value (the "Market Value") of
such Residual Securities, provided, that, in the absence of a continuing Event
of Default, the Secured Creditors may determine the Market Value of Residual
Securities not more frequently than once each calendar quarter. In the event (i)
the Secured Creditors fail to agree on the Market Value of Residual Securities
or (ii) the Pledgor and the Secured Creditors are unable to agree on the Market
Value of the Residual Securities, the Secured Creditors shall, upon delivery of
notice to the Pledgor and the Pledgee, and at Pledgor's expense, jointly
designate an investment banker, accountant or other appropriate independent
professional to make such determination in accordance with generally accepted
industry custom and practice. The determination of such investment banker,
accountant or other independent professional shall be conclusive and binding on
the Pledgor, the Pledgee and the Secured Creditors.
3.2 Valuation Reporting. The Pledgor will deliver, or cause to
be delivered, on a quarterly basis and in connection with each request to
release Residual Securities, cash and/or Pledged Stock pursuant to Section
3.1(b), a Residual Securities valuation statement setting forth the following
broken down by Issuer: (i) the aggregate losses allocated to the Residual
Securities for the preceding collection period; (ii) the aggregate of payments
received on the Residual Securities during the related collection period
allocable to principal; (iii) the aggregate of payments received on the Residual
Securities during the related collection period allocable to interest; (iv) the
aggregate principal balance or notional principal balance, if applicable, of the
Residual Securities as of the close of business on the last day of the preceding
collection period, after giving effect to payments allocated to principal of
such day; (v) the aggregate of any servicing fees and expenses attributable to
the Residual Securities; (vi) the Book Value of the Residual Securities and a
description of any discount factors applied in the determination of such Book
Value and (vii) such other information as the Secured Creditors shall reasonably
request.
4. Stock Powers; Additional Collateral; Custody of Residual
Securities. (a) Concurrently with the delivery to the Pledgee, for the benefit
of the Secured Creditors, of each certificate representing one or more shares of
Pledged Stock pursuant to Section 2 hereof, the Pledgor shall deliver an undated
stock power covering such certificates, duly executed in blank by the Pledgor
with, if the Secured Creditors so request, signature guaranteed.
(b) If after the date of this Agreement (i) the Pledgor shall
be required, pursuant to Section 3.1(a) hereof, to deliver to the Pledgee cash
and/or the shares of capital stock of a subsidiary of the Pledgor that owns
Residual Securities, (ii) the Pledgor shall create, form or otherwise acquire
the capital stock of any corporation or other Person to hold any Residual
Securities, or (iii) the Pledgor is no longer subject to the prohibition
disclosed to the Secured Creditors in the Side Letter from encumbering the
Restricted Residual Securities and the capital stock of the subsidiaries of the
Pledgor owning such Restricted Residual Securities (each such event is
hereinafter referred to as, an "Additional Collateral Event" and the cash and
capital stock of the subsidiaries of the Pledgor owning such Residual Securities
is hereinafter referred to as, the "Additional Collateral"), the Pledgor shall
promptly, and in any event within three Business Days of the occurrence of such
Additional Collateral Event, notify the Secured Creditors. At the times required
by Section 3.1(a) in the case of an Additional Collateral Event described in
clause
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<PAGE> 165
(i) above, not later than three Business Days after the occurrence of an
Additional Collateral Event described in clause (ii) above and at the times
required by Section 4(d) in the case of an Additional Collateral Event described
in clause (iii) above, the Pledgor shall deliver to the Pledgee for the benefit
of the Secured Creditors all cash, certificates and instruments evidencing such
Additional Collateral which, in the case of certificates and instruments, shall
be delivered in suitable form for transfer by delivery or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee, unless such documents have been
previously delivered to the Pledgee pursuant to Section 4(c) hereof. Upon
receipt by the Pledgor of certificates or instruments constituting Additional
Collateral, a Pledge Amendment, duly executed by the Pledgor, in substantially
the form of Annex C hereto (a "Pledge Amendment") shall be delivered to the
Pledgee, in respect of the certificates or instruments constituting Additional
Collateral which is to be pledged pursuant to this Agreement, which Pledge
Amendment shall from and after delivery thereof constitute part of Annex A. The
Pledgor hereby authorizes the Pledgee to attach each Pledge Amendment to this
Agreement and agrees that all Pledged Stock listed on any Pledge Amendment
delivered to the Pledgee shall for all purposes hereunder constitute Collateral
and the Pledgor shall be deemed upon delivery thereof to have made the
representations and warranties set forth in Section 14 with respect to such
Additional Collateral.
(c) The Pledgor shall deliver, or cause each subsidiary of
Pledgor owning Residual Securities to deliver, on the date of this Agreement, on
the date of each Pledge Amendment and on any other date on which a subsidiary of
the Pledgor acquires Residual Securities, to the Pledgee or such other entity as
the Pledgee may designate as sub-custodian, all certificates and instruments
evidencing the Residual Securities, including but not limited to those Residual
Securities listed on Annex A-1 attached hereto (but not including the Restricted
Residual Securities until the occurrence of an Additional Collateral Event with
respect to such Restricted Residual Securities), which shall be delivered in
suitable form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer and by bond powers and transferee certificates, as
appropriate, executed in blank, all in form and substance satisfactory to the
Pledgee. The Pledgor and the Secured Creditors agree that Residual Securities
transferred to the Pledgee (or such sub-custodian) in accordance with the
preceding sentence shall be held by the Pledgee (or such sub-custodian) not as
Collateral but as a custodian for each subsidiary of Pledgor owning Residual
Securities, and such Residual Securities shall only be released by the Pledgee
(or such sub-custodian) to Pledgor upon a sale of such Residual Securities in
accordance with Section 3.1(b) hereof. The Pledgee will cause each of its
subsidiaries that owns Residual Securities to execute and deliver to the Pledgee
on the date of this Agreement, on the date of each Pledge Amendment and on any
other date on which a subsidiary of the Pledgor acquires Residual Securities, a
Supplemental Security Agreement substantially in the form of Annex D attached
hereto.
(d) The Pledgor has disclosed in a writing delivered to the
Secured Creditors on the date of this Agreement (the "Side Letter"), that the
Pledgor has agreed not to encumber or permit its subsidiaries to encumber the
Residual Securities listed on Exhibit I to the Side Letter (the "Restricted
Residual Securities") (including the capital stock of the subsidiaries owning
the
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<PAGE> 166
Restricted Residual Securities) prior to the date set forth in the Side
Letter (the "Expiration Date"). The Secured Creditors and the Pledgor hereby
agree that:
(i) the Pledgor will, on the Business Day following the
Expiration Date (A) pledge and grant a security interest to the Pledgee
for the benefit of the Secured Creditors in all the outstanding shares
of capital stock of the Pledgor's subsidiaries that own the Restricted
Residual Securities, in accordance with Section 4(b) hereof, and (B)
deliver or cause to be delivered to the Pledgee, as custodian, all
certificates and instruments evidencing the Restricted Residual
Securities, in accordance with Section 4(c) hereof, unless, in each
case, the Expiration Date has been extended; and
(ii) in the event that the Expiration Date has been extended
(the date on which the Expiration Date has been extended to is
hereafter the "Extended Expiration Date") (A) the Pledgor shall on or
before the date which is seven days following the Expiration Date,
deposit all of the capital stock of the Pledgor's subsidiaries that own
the Restricted Residual Securities and the certificates and instruments
evidencing such Restricted Residual Securities with a custodian,
acceptable to the Secured Creditors, pursuant to a custodian agreement
acceptable to the Secured Creditors which will, among other things,
contain provisions restricting the Pledgor's ability to remove such
capital stock and Restricted Residual Securities from the possession of
such custodian without the consent of the Pledgee and making the
custodian the collateral agent for the Secured Creditors, without the
necessity of any further action, on the Extended Expiration Date and
upon the occurrence of certain events described in the Supplemental
Security Agreement attached hereto as Annex D and (B) the Pledgor will
on the Extended Expiration Date (1) pledge and grant to the Pledgee for
the benefit of the Secured Creditors a security interest in the capital
stock of the subsidiaries of Pledgor owning the Restricted Residual
Securities pursuant to paragraph (b) of this Section 4 and (2) deliver
to Pledgee, as custodian, all certificates and instruments evidencing
such Restricted Residual Securities pursuant to paragraph (c) of this
Section 4.
5. Voting, etc., While No Notified Acceleration Event. Unless
and until a Notified Event of Default shall have occurred and be continuing, the
Pledgor shall be entitled to exercise all voting rights attaching to any and all
Pledged Stock, and to give consents, waivers or ratifications in respect
thereof; provided, that no vote shall be cast or any consent, waiver or
ratification given or any action taken which would violate, or result in the
breach of, any material covenant contained in any Financing Document or which,
in any Secured Creditor's reasonable judgment, would materially impair the
Collateral or which would be inconsistent with any provision of this Agreement.
All such rights of the Pledgor to vote and to give consents, waivers and
ratifications shall cease in case a Notified Event of Default shall occur and be
continuing, and Section 7 shall become applicable.
6. Dividends and Other Distributions. Unless and until a
Notified Event of Default shall have occurred and be continuing, all dividends
and distributions payable in respect of the Pledged Stock shall be paid to the
Pledgor; provided, however, the Pledgee shall be entitled to receive directly,
and to retain as part of the Collateral:
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<PAGE> 167
(a) all stock paid or distributed by way of dividend or
otherwise in respect of the Pledged Stock;
(b) all stock or other securities or property (excluding cash)
paid or distributed in respect of the Pledged Stock by way of
stock-split, spin-off, split-up, reclassification, combination of
shares or similar rearrangement; and
(c) all stock or other securities or property (excluding cash)
which may be paid in respect of the Collateral by reason of any
redemption or any consolidation, merger, exchange of stock, conveyance
of assets, liquidation or similar corporate reorganization.
All dividends, distributions or other payments which are
received by the Pledgor contrary to the provisions of this Section 6 or Section
7 shall be received in trust for the benefit of the Pledgee, shall be segregated
from other property or funds of the Pledgor and shall be forthwith paid over to
the Pledgee as Collateral in the same form as so received (with any necessary
endorsement).
7. Remedies in Case of Acceleration Event. In case a Notified
Event of Default shall have occurred and be continuing, the Pledgee shall be
entitled to exercise all of the rights, powers and remedies (whether vested in
it by this Agreement or any other Financing Document or by law) for the
protection and enforcement of its rights in respect of the Collateral,
including, without limitation, all the rights and remedies of a secured party
upon default under the Code and the Pledgee shall exercise, at the written
direction of a Secured Creditor, and shall be entitled, without limitation, to
exercise the following rights, provided, that (i) a Secured Creditor may require
the Pledgee to exercise the remedy specified in clause (c) below only if a
Notified Acceleration Event has occurred and is continuing, and (ii) the Pledgor
hereby agrees each of the following remedies are commercially reasonable:
(a) to receive any and all cash dividends or distributions
paid in respect of the Pledged Stock and make application thereof to
the Obligations in such order as is provided in Section 9 hereof;
(b) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees, and the Pledgee
or its nominees may thereafter exercise all voting rights attaching to
all or any part of the Pledged Stock (whether or not transferred into
the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with
respect thereto as though it were the outright owner thereof (the
Pledgor hereby irrevocably constituting and appointing the Pledgee the
proxy and attorney-in-fact of the Pledgor, with full power of
substitution to do so); and
(c) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to
redeem or otherwise
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dispose of (all of which are hereby waived by the Pledgor), for cash,
on credit or for other property, for immediate or future delivery
without any assumption of credit risk, and for such price or prices, by
such method of sale and on such terms as the Secured Creditors may in
their absolute discretion determine; provided, that if the Secured
Creditors fail to agree on any such matters, they shall designate an
investment banker, accountant or other appropriate professional to make
such determination based upon industry custom and practice; provided,
further, that at least l0 days' notice of the time of any such sale
shall be given to the Pledgor. Each purchaser at any such sale shall
hold the property so sold absolutely free from any claim or right on
the part of the Pledgor, and the Pledgor hereby waives and releases to
the fullest extent permitted by law any right or equity of redemption
with respect to the Collateral, whether before or after sale hereunder,
all rights, if any, of marshaling the Collateral and any other security
for the Obligations or otherwise, and all rights, if any, of stay
and/or appraisal which it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. At
any such sale, unless prohibited by applicable law, the Pledgee may bid
on behalf of all Secured Creditors for and purchase all or any part of
the Collateral so sold free from any such right or equity of
redemption. Neither the Pledgee nor any Secured Creditor shall be
liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall it be under any
obligation to take any action whatever with regard thereto.
8. Remedies, etc. Cumulative. Each right, power and remedy of
the Pledgee and the Secured Creditors provided for in this Agreement or any
other Financing Documents or now or hereafter existing at law or in equity or by
statute shall be cumulative and concurrent and shall be in addition to every
other such right, power or remedy. The exercise or beginning of the exercise by
the Pledgee and the Secured Creditors of any one or more of the rights, powers
or remedies provided for in this Agreement or any other Financing Documents or
now or hereafter existing at law or in equity or by statute or otherwise shall
not preclude the simultaneous or later exercise by the Pledgee or any Secured
Creditor of all such other rights, powers or remedies, and no failure or delay
on the part of the Pledgee or any Secured Creditor to exercise any such right,
power or remedy shall operate as a waiver thereof.
9. Application of Proceeds. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral through
enforcement, realization hereunder or otherwise, together with all other moneys
received by the Pledgee hereunder in respect of any Collateral, shall first be
applied to the payment of all costs and expenses incurred by the Pledgee in
connection with such sale or disposition, the delivery of the Collateral or the
collection of any such moneys (including, without limitation, attorneys' fees
and expenses) and the balance of such moneys (the "Remaining Proceeds") shall be
applied by the Pledgee as required below.
(b) The Remaining Proceeds shall be applied (x) if sufficient
proceeds are available for the payment in full of all outstanding Obligations,
to satisfy the Obligations with each Secured Creditor to receive an amount equal
to its outstanding Obligations or (y) if insufficient proceeds are available for
the payment in full of all outstanding Obligations, to
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satisfy the Obligations with each Secured Creditor to receive one-half (1/2) of
the Remaining Proceeds.
(c) For purposes of applying payments received in accordance
with this Section 9, the Pledgee shall be entitled to rely upon each Secured
Creditor, for a determination of the outstanding principal, interest and other
obligations outstanding under the respective Credit Agreement. Unless the
Pledgee has received written notice from a Secured Creditor to the contrary, the
Pledgee in acting hereunder, shall be entitled to assume that no obligations
other than principal, interest, fees and expenses are owing to any Secured
Creditor.
(d) Any Remaining Proceeds not otherwise applicable or applied
pursuant to this Section 9 shall be paid over to the Pledgor or to such other
person as may be lawfully entitled to receive such Remaining Proceeds pursuant
to the terms of Section 19.
10. Purchasers of Collateral. Upon any sale of the Collateral
by the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. Indemnity. The Pledgor agrees to indemnify and hold
harmless the Pledgee and the Secured Creditors from and against any and all
claims, demands, losses, judgments and liabilities (including liabilities for
penalties) of whatsoever kind or nature, and to reimburse the Pledgee and the
Secured Creditors for all reasonable costs and expenses, including reasonable
attorneys' fees, growing out of or resulting from this Agreement or the exercise
by the Pledgee of any right or remedy granted to it hereunder; provided, that
the Pledgor shall not be required to indemnify the Pledgee or any Secured
Creditor in respect of any claims, demands, losses, judgments, liabilities,
costs or expenses arising from (i) the gross negligence or willful misconduct of
the Pledgee or such Secured Creditor or (ii) any claim made by the Pledgee or
any Secured Creditor against the Pledgee or another Secured Creditor. In no
event shall the Pledgee or any Secured Creditor be liable, in the absence of
gross negligence or willful misconduct on its part, for any matter or thing in
connection with this Agreement other than to account for moneys actually
received by it in accordance with the terms hereof. If and to the extent that
the obligations of the Pledgor under this Section 11 are unenforceable for any
reason, the Pledgor hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under
applicable law.
12. Further Assurances; Power-of-Attorney. (a) The Pledgor
agrees that it will join with the Pledgee in executing and, at its own expense,
file and refile under the Code such financing statements, continuation
statements and other documents in such offices as the Pledgee may reasonably
deem necessary or desirable and wherever required or permitted by law in order
to perfect and preserve the Pledgee's security interest in the Collateral and
hereby authorizes the Pledgee to file financing statements and amendments
thereto relative to all or any
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part of the Collateral without the signature of the Pledgor where permitted by
law, and agrees to do such further acts and things and to execute and deliver to
the Pledgee such additional conveyances, assignments, agreements and instruments
(including, without limitation, proxies and dividend payment orders) as the
Pledgee may reasonably require or deem advisable to carry into effect the
purposes of this Agreement or to further assure and confirm unto the Pledgee its
rights, powers and remedies hereunder.
(b) The Pledgor hereby appoints the Pledgee the Pledgor's
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's discretion
to take any action and to execute any instrument which the Pledgee may
reasonably deem necessary or advisable to accomplish the purposes of this
Agreement.
13. The Pledgee As Agent. The Pledgee will hold in accordance
with this Agreement all items of the Collateral and any Residual Securities held
by Pledgee hereunder as custodian at any time received under this Agreement. It
is expressly understood and agreed that the obligations of the Pledgee as holder
of the Collateral and interests therein and any Residual Securities held by
Pledgee hereunder as custodian and with respect to the disposition thereof, and
otherwise under this Agreement, are only those expressly set forth in this
Agreement. The Pledgee shall act hereunder on the terms and conditions set forth
herein and in Annex B hereto.
14. Representations, Warranties and Covenants of the Pledgor.
(a) The Pledgor represents and warrants that: (1) on the date
hereof the Pledged Stock consist of the number and type of shares of the capital
stock of such corporations as described in Annex A hereto; (2) such stock
constitutes all the issued and outstanding shares of all classes of the capital
stock of each Issuer as set forth in Annex A hereto; (3) the Pledgor is the
holder of record and sole beneficial owner of such Pledged Stock; (4) it has
good and marketable title to the Pledged Stock, subject to no pledge, Lien
(except for the Liens permitted under Section 8.01(A)(2) of the CIT Credit
Agreement), mortgage, hypothecation, security interest, charge, option or other
encumbrance whatsoever, except the Liens and security interests created by this
Agreement; (5) it has full power, authority and legal right to pledge all the
Collateral pursuant to this Agreement; (6) this Agreement has been duly
authorized, executed and delivered by the Pledgor and constitutes a legal, valid
and binding obligation of the Pledgor enforceable in accordance with its terms ,
except to the extent that such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the enforcement of creditors' rights generally, the availability of
equitable remedies and the exercise of judicial discretion, regardless of
whether enforcement is sought in a proceeding at law or in equity; (7) the
execution, delivery and performance of this Agreement will not violate any
provision of any applicable law or regulation or of any order, judgment, writ,
award or decree of any court, arbitrator or governmental authority, domestic or
foreign, or of the certificate of incorporation or by-laws of the Pledgor or of
any securities issued by the Pledgor or any of its Subsidiaries, or of any
indenture or loan or credit agreement or other agreement evidencing an
obligation for borrowed money or any other material agreement, lease or
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instrument to which the Pledgor or any of its Subsidiaries is a party or which
purports to be binding upon the Pledgor or any of its Subsidiaries or upon any
of their respective assets and will not result in the creation or imposition of
any Lien or encumbrance on any of the assets of the Pledgor or any of its
Subsidiaries except as contemplated by this Agreement; (8) all the Pledged Stock
have been duly and validly issued and fully paid and nonassessable; (9) the
pledge and assignment and delivery of the Pledged Stock pursuant to this
Agreement create, as security for the Obligations, a valid and enforceable
perfected Lien on all of the Collateral in favor of the Pledgee for the benefit
of the Pledgee and the Secured Creditors, subject to no Lien in favor of any
other Person except the Liens permitted under Section 8.01(A)(2) of the CIT
Credit Agreement; (10) no consent, filing, approval, authorization, recording,
registration or other action is required (x) for the pledge by the Pledgor of
the Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by the Pledgor, or (y) to perfect the Lien
purported to be created by this Agreement, in each case except as has been
accomplished; and (11) on the date hereof the chief executive officer of the
Pledgor and each Issuer is located at 565 Taxter Road, Elmsford, New York 10523.
(b) The Pledgor covenants and agrees that: (1) it will defend
the Pledgee's right and security interest in and to the Pledged Stock and the
proceeds thereof against the claims and demands of all Persons whomever; (2) it
will have title to and right to pledge any other property at any time hereafter
pledged to the Pledgee as Collateral hereunder and will likewise defend the
right thereto and security interest therein of the Pledgee and the Secured
Creditors; (3) at all times during the term of this Agreement, if a Deficiency
exists, it will, within two (2) Business Days after the earlier to occur of (A)
the Pledgor obtaining actual knowledge of such Deficiency and (B) the Pledgor's
receipt of a written request of a Secured Creditor, deliver to the Pledgee
additional cash or all of the shares of capital stock of an subsidiary of the
Pledgor that owns Residual Securities in an amount at least equal to such
Deficiency; (4) it will take all actions required to cause all proceeds from the
sale of any Pledged Stock or Residual Securities (other than, prior to the
Additional Collateral Event described in clause (iii) of Section 4(b) hereof,
Restricted Residual Securities) owned by the Pledgor or an Issuer, including but
not limited to any Residual Securities (other than, prior to the Additional
Collateral Event described in clause (iii) of Section 4(b) hereof, Restricted
Residual Securities) or Pledged Stock released to the Pledgor pursuant to
Section 3.1(b), to be paid in accordance with the terms and provisions of the
respective Credit Agreements; (5) except in accordance with Section 3.1(b) and
(c) hereof, it will not sell, assign, transfer or otherwise dispose, or permit
any Issuer to sell, assign, transfer or otherwise dispose (i) any Residual
Securities, or (ii) the capital stock of any other domestic subsidiary of the
Pledgor that owns Residual Securities without the written consent of the Secured
Creditors; (6) it will not create or suffer to exist, or permit any Issuer to
create or suffer to exist, any Lien upon the Residual Securities, or pledge,
option or otherwise encumber, or permit any Issuer to pledge, option or
otherwise encumber the Residual Securities, whether now owned or hereafter
acquired except the Liens permitted under Section 8.01(A)(2) of the CIT Credit
Agreement; and (7) it will not permit any Issuer to create, incur, or suffer to
exist any indebtedness. The Secured Creditors agree and acknowledge that they
will not be entitled to any proceeds of Residual Securities which are in excess
of the Obligations, and that they shall remit any such excess proceeds to the
Pledgor in accordance with the terms and provisions of the respective Credit
Agreements.
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15. Definitions. The following terms shall have the meanings
herein specified unless the context otherwise requires. Such definitions shall
be equally applicable to the singular and plural forms of the terms defined.
"Acceleration Event" shall mean the acceleration prior to
maturity, or the failure to pay at the maturity, of Obligations under either
Credit Agreement, provided that, in each case, any such Acceleration Event shall
cease to exist upon payment in full of the Obligations so accelerated or not
paid.
"Additional Collateral" shall have the meaning provided in
Section 4(b).
"Bankruptcy Event of Default" shall mean the event of default
relating to bankruptcy and/or insolvency contained in the Credit Agreements
(e.g., Section 9.01(b) of the CIT Credit Agreement and Section 8(d) of the
Greenwich Capital Credit Agreement).
"Book Value" shall mean the book value of the Residual
Securities determined by the Pledgor (i) in connection with each request by the
Pledgor to release Residual Securities and/or Pledged Stock pursuant to Section
3.1(b) and (ii) quarterly as reflected in its Residual Securities valuation
statement delivered to the Secured Creditors pursuant to Section 3.2, in each
case prepared on a basis consistent with past practices and in conformity with
the value used in the financial statements of the Pledgor and its parent
delivered to the Secured Creditors pursuant to the terms of the Credit
Agreements.
"Business Day" shall mean any day other than a Saturday or
Sunday or any other day on which banking institutions are authorized or
obligated to close in New York, New York.
"CIT" shall mean The CIT Group/Equipment Financing, Inc. and
its successors and assigns.
"CIT Credit Agreement" shall have the meaning provided in the
definition of Credit Agreements.
"Code" shall mean the Uniform Commercial Code as in effect
from time to time in the State of New York.
"Collateral" shall have the meaning provided in Section 2.
"Credit Agreements" shall mean (i) the Master Loan and
Security Agreement dated as of January 1, 1997 between the Pledgor and Greenwich
Capital (as the same may be amended, modified, supplemented or restated from
time to time, the "Greenwich Capital Credit Agreement") and (ii) the Revolving
Credit and Security Agreement dated as of February 3, 1998 among the Pledgor,
Cityscape Financial Corp., as guarantor, the financial institutions from time to
time party thereto and CIT, as agent for such financial institutions (as the
same may be amended, modified, supplemented or restated from time to time, the
"CIT Credit Agreement").
"Deficiency" shall have the meaning provided in Section
3.1(a).
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"Excess" shall have the meaning provided in Section 3.1(b).
"Expiration Date" shall have the meaning provided in Section
4(d).
"Extended Expiration Date" shall have the meaning provided in
Section 4(d).
"Financial Assets" shall have the meaning specified therefor
in the Code.
"Financing Documents" shall mean this Agreement, the Credit
Agreements and all other agreements, documents, instruments and writings
delivered pursuant to or in connection with any thereof.
"Greenwich Capital" shall mean Greenwich Capital Financial
Products, Inc. and its successors and assigns.
"Greenwich Capital Credit Agreement" shall have the meaning
provided in the definition of Credit Agreements.
"Investment Property" shall have the meaning specified
therefor in the Code.
"Issuer" shall mean each corporate subsidiary of the Pledgor
identified in Annex A hereto, as the issuer of the Pledged Stock and the owner
of the Residual Securities, together with any successor to each such
corporation.
"Lien" shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), or preference, priority, or other security agreement
or preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Code or comparable law of any jurisdiction to evidence any of the
foregoing).
"Loans" shall mean all loans and/or the principal amount of
promissory notes, or the face amount of all promissory notes issued at a
discount, constituting Obligations hereunder.
"Market Value" shall have the meaning specified therefor in
Section 3.1(c).
"Notified Acceleration Event" shall mean the occurrence of
either (i) a Bankruptcy Event of Default with respect to the Pledgor or (ii) the
giving by any Secured Creditor of written notice to the Pledgee (with a copy to
the Pledgor and each other Secured Creditor) that an Event of Default exists,
provided that such written notice may only be given if an Acceleration Event has
occurred and is continuing and, provided further that any such Notified
Acceleration Event shall cease to exist once there is no longer any Acceleration
Event in existence.
"Notified Event of Default" shall mean the giving by any
Secured Creditor of written notice to the Pledgee, Pledgor and each other
Secured Creditor that an Event of Default
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has occurred and is continuing and, provided, that any such Notified Event of
Default shall cease to exist once there is no longer any Event of Default in
existence.
"Obligations" shall have the meaning provided in the last
clause of Section 1.
"Pledged Stock" shall mean all the issued and outstanding
shares of capital stock of each Issuer listed on Annex A, together with all
stock certificates representing all such shares of capital stock as pledged and
held as Collateral hereunder pursuant to Section 2.
"Pledgee" shall have the meaning provided in the first
paragraph hereof; provided that each reference to "Pledgee" or to "The CIT
Group/Equipment Financing, Inc." contained herein (including in Annex B attached
hereto) shall include any successor or assignee thereof.
"Pledgor" shall have the meaning provided in the first
paragraph hereof.
"Release Date" shall have the meaning provided in Section
3.1(b).
"Remaining Proceeds" shall have the meaning provided in
Section 9(a).
"Residual Securities" shall mean interest-only strips,
residual interests or reserve certificates issued and/or transferred to the
Issuers in connection with securitization transactions.
"Restricted Residual Securities" shall have the meaning
provided in Section 4(d).
"Secured Creditors" shall mean and include (i) Greenwich
Capital and (ii) the financial institutions party to the CIT Credit Agreement
and CIT, as agent on behalf of the financial institutions party to the CIT
Credit Agreement, provided that, for purposes of this Agreement, the financial
institutions described in clause (ii) hereof shall be a single Secured Creditor
and shall act through CIT.
"Securities Account" shall have the meaning specified therefor
in the Code.
"Securities Entitlement" shall have the meaning specified
therefor in the Code.
"Side Letter" shall have the meaning provided in Section 4(d).
"Value" shall mean, with respect to any Residual Security, its
Book Value as determined by the Pledgor, provided that if in any instance the
Secured Creditors have determined a Market Value for such Residual Security in
accordance with Section 3.1(c), "Value" shall mean Market Value as so
determined.
16. Pledgor's Obligations Absolute. etc. Except as expressly
provided in Section 19 or 22, the obligations of the Pledgor under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (a) any renewal, extension, amendment or
modification of, or addition or supplement to or deletion from any of the
Financing Documents
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or any other instrument or agreement referred to therein, or any assignment or
transfer of any thereof; (b) any waiver, consent, extension, indulgence or other
action or inaction under or in respect of any such agreement or instrument or
this Agreement; (c) any furnishing of any additional security to the Pledgee or
its assignee or any acceptance thereof or any release of any security by the
Pledgee or its assignee; (d) any limitation on any party's liability or
obligations under any such instrument or agreement or any invalidity or
unenforceability, in whole or in part, of any such instrument or agreement or
any term thereof; or (e) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to the Pledgor or any subsidiary of the Pledgor, or any action taken
with respect to this Agreement by any trustee or receiver, or by any court, in
any such proceeding, whether or not the Pledgor shall have notice or knowledge
of any of the foregoing.
17. Sale of Pledged Stock. etc. If at any time when the
Pledgee shall exercise its right to sell all or any part of the Pledged Stock
pursuant to Section 7, the Pledgee may, at the direction of the Secured
Creditors in their sole and absolute discretion, sell such Pledged Stock or part
thereof by private sale in such manner and under such circumstances as the
Secured Creditors may deem necessary or advisable in order that such sale may
legally be effected without registration under the Securities Act of 1933;
provided, that at least 10 days' notice of the time and place of any such sale
shall be given to the Pledgor. Without limiting the generality of the foregoing,
in any such event the Pledgee, at the direction of the Secured Creditors (i) may
proceed to make such private sale notwithstanding that a registration statement
for the purpose of registering such Pledged Stock or part thereof shall have
been filed under such Securities Act, (ii) may approach and negotiate with a
single possible purchaser to effect such sale and (iii) may restrict such sale
to a purchaser who will represent and agree that such purchaser is purchasing
for its own account, for investment, and not with a view to the distribution or
sale of such Pledged Stock or part thereof. The Pledgor acknowledges and agrees
that any such private sale may result in prices and other terms less favorable
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall be deemed to have been made in a
commercially reasonable manner. The Pledgee shall be under no obligation to
delay a sale of any of the Pledged Stock for the period of time necessary to
permit any Issuer to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if any such
Issuer would agree to do so.
18. Irrevocable Authorization and Instruction to the Issuers.
The Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Pledgee in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Agreement and any other Financing Document to
which it is a party, without any other or further instructions from the Pledgor,
and the Pledgor agrees that each Issuer shall be fully protected in so
complying.
19. Termination; Release. (a) It is expressly acknowledged and
agreed that so long as no Notified Event of Default exists, any or all of the
Collateral or Residual Securities may be released by the Pledgee acting at the
direction of the Secured Creditors, provided that no such release shall be
effective with respect to any Collateral that is expressly required to be
granted by any agreement governing any of the Obligations (as opposed to being
required
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pursuant to any "negative pledge" or similar agreement) unless the terms of such
agreement governing any such release are complied with. Upon any release of any
such Collateral as provided in the immediately preceding sentence, the Pledgee
shall, at the request and expense of the Pledgor, and without the further
consent of, or liability to, any Secured Creditor, release such Collateral and
execute and deliver to the Pledgor a proper instrument or instruments
acknowledging the release of such Collateral from this Agreement, and will duly
assign, transfer and deliver to the Pledgor (without recourse and without any
representation or warranty) the Collateral being sold or released as described
above.
(b) After the date on which all commitments to lend under all
of the Credit Agreements have terminated and all Obligations have been
indefeasibly paid in full, this Agreement shall terminate, and the Pledgee, at
the request and expense of the Pledgor, will execute and deliver to the Pledgor
a proper instrument or instruments acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to the
Pledgor or to such other person as may be lawfully entitled (without recourse
and without any representation or warranty) such of the Collateral and Residual
Securities as may be in the possession of the Pledgee and has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by the Pledgee hereunder.
(c) At any time that the Pledgor desires that Collateral or
Residual Securities be released as provided in the foregoing Section 19(a) or
(b), it shall deliver to the Pledgee a certificate signed by its chief financial
officer stating that the release of the respective Collateral or Residual
Securities is permitted pursuant to Section 19(a) or (b), as the case may be.
Upon any release of Collateral pursuant to Section 19(a) or (b), none of the
Secured Creditors shall have any continuing right or interest in such
Collateral, or the proceeds thereof.
20. Notices. etc. All notices and other communications
hereunder shall be in writing and shall be delivered or mailed by first class
mail, postage prepaid, addressed:
(a) if to the Pledgor, at:
Cityscape Corp.
565 Taxter Road
Elmsford, New York 10523
Attention: Cheryl Carl
Senior Vice President
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(b) if to the Pledgee, at:
The CIT Group/Equipment Financing, Inc.
650 CIT Drive
Livingston, New Jersey 07039
Attention: John Fall, Esq.
Senior Vice President
& General Counsel
(c) if to CIT, at such address as CIT shall have specified in
the CIT Credit Agreement;
(d) if to Greenwich Capital, at such address as Greenwich
Capital shall have specified in the Greenwich Capital Credit Agreement;
or at such address as shall have been furnished in writing by any
Person described above to the party required to give notice hereunder.
21. Waiver Amendment. None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by the Pledgor and the Pledgee (with the written
consent of the Secured Creditors).
22. Miscellaneous. This Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and
effect, subject to release and/or termination as set forth in Section 19, (b) be
binding upon the Pledgor, its successors and assigns, provided, however, that
the Pledgor shall not assign any of its rights or obligations hereunder without
the prior written consent of the Pledgee (with the prior written consent of the
Secured Creditors), and (c) inure, together with the rights and remedies of the
Pledgee hereunder, to the benefit of the Pledgee, the Secured Creditors and
their respective successors, transferees and assigns. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
The headings of the several sections and subsections in this Agreement are for
purposes of reference only and shall not limit or define the meaning hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
In the event that any provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the other
provisions of this Agreement which shall remain binding on all parties hereto.
In the event of any inconsistency between the provisions of either Credit
Agreement and this Agreement, this Agreement will govern for the purposes of the
transactions contemplated herein.
23. Waiver of Jury Trial. The Pledgor, the Pledgee and the
Secured Creditors hereby irrevocably waive all right to a trial by jury in any
action, proceeding or counterclaim arising out of or relating to this Agreement
or the transactions contemplated hereby.
-18-
<PAGE> 178
24. Equal and Ratable Security. This Agreement is intended by
the Pledgor to secure the Obligations, due the Secured Creditors under the
respective Credit Agreements as set forth in this Agreement.
25. Actions by Secured Creditors. Whenever in this Agreement
any instruction, direction, consent, notice or other action is to be taken, made
or given by the Secured Creditors, such instruction, direction, consent, notice
or other action must be taken, made or given by both Secured Creditors.
-19-
<PAGE> 179
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above written.
CITYSCAPE CORP., as Pledgor
By
-------------------------------------
Title:
THE CIT GROUP/EQUIPMENT FINANCING,
INC., as Pledgee
By
-------------------------------------
Title:
ACKNOWLEDGED AND ACCEPTED:
THE CIT GROUP/EQUIPMENT FINANCING, INC., as agent on behalf of the financial
institutions party to the CIT Credit Agreement
By
---------------------------------
Title:
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By
----------------------------------
Title:
<PAGE> 180
ANNEX A
to
PLEDGE AGREEMENT (SPV)
LIST OF PLEDGED STOCK
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares of
Name of Issuer Type of Shares Number of Shares Capital Stock
-------------- -------------- ---------------- -------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 181
ANNEX A-1
to
PLEDGE AGREEMENT (SPV)
LIST OF RESIDUAL SECURITIES
<TABLE>
<CAPTION>
Unpaid Principal
Series/Class Balance of
Name of Issuer & Issued Date Mortgage Loans Percentage Interest
-------------- ------------- -------------- -------------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 182
ANNEX B
to
PLEDGE AGREEMENT (SPV)
THE PLEDGEE
1. Appointment. The Secured Creditors (all capitalized terms
used herein and not otherwise defined shall have the respective meanings
provided in the Pledge Agreement to which this Annex B is attached (the "Pledge
Agreement") hereby irrevocably designate The CIT Group/Equipment Financing, Inc.
as Pledgee to act as specified herein and in the Pledge Agreement. Each Secured
Creditor hereby irrevocably authorizes the Pledgee to take such action on its
behalf under the provisions of the Pledge Agreement and any other instruments
and agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of the Pledgee by the terms hereof and thereof and such other powers as
are reasonably incidental thereto. The Pledgee accepts its appointment as
collateral agent for the benefit of the Secured Creditors. The Pledgee may
perform any of its duties hereunder by or through its agents or employees.
2. Nature of Duties. The Pledgee shall have no duties or
responsibilities except those expressly set forth in the Pledge Agreement.
Neither the Pledgee nor any of its officers, directors, employees or agents
shall be liable for any action taken or omitted by it as such under the Pledge
Agreement or hereunder or in connection herewith or therewith, unless caused by
its or their gross negligence or willful misconduct. The duties of the Pledgee
shall be mechanical and administrative in nature; the Pledgee shall not have by
reason of the Pledge Agreement or any other Financing Document a fiduciary
relationship in respect of any Secured Creditor; and nothing in the Pledge
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Pledgee any obligations in respect of the Pledge Agreement
except as expressly set forth herein.
3. Lack of Reliance on the Pledgee. Independently and without
reliance upon the Pledgee, each Secured Creditor, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Pledgor in
connection with the making and the continuance of the Obligations and the taking
or not taking of any action in connection therewith, and (ii) its own appraisal
of the creditworthiness of the Pledgor, and the Pledgee shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Secured Creditor with any credit or other information with respect thereto,
whether coming into its possession before the extension of any Obligations, or
at any time or times thereafter. The Pledgee shall not be responsible to any
Secured Creditor for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectability, priority or sufficiency of the
Pledge Agreement or the financial condition of the
<PAGE> 183
Pledgor or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of the Pledge
Agreement, or the financial condition of the Pledgor or any subsidiary of the
Pledgor, or the existence or possible existence of any Event of Default.
4. Certain Rights of the Pledgee. The Secured Creditors shall
have the right to direct the Pledgee to take any action with respect to the
Collateral. If the Pledgee shall request instructions from the Secured Creditors
with respect to any act or action (including failure to act) in connection with
the Pledge Agreement, the Pledgee shall be entitled to refrain from such act or
taking such action unless and until it shall have received instructions from the
Secured Creditors, and to the extent requested, appropriate indemnification in
respect of actions to be taken; and the Pledgee shall not incur liability to any
Person by reason of so refraining. Without limiting the foregoing, no Secured
Creditor shall have any right of action whatsoever against the Pledgee as a
result of the Pledgee acting or refraining from acting (x) hereunder in
accordance with the instructions of the Secured Creditors or (y) under any other
Financing Document to which such Secured Creditor is a party as provided for
therein.
5. Reliance. The Pledgee shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or facsimile message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
the proper Person or entity, and, with respect to all legal matters pertaining
to the Pledge Agreement and its duties thereunder, upon advice of counsels
elected by it.
6. Indemnification. To the extent the Pledgee is not
reimbursed and indemnified by the Pledgor, the Secured Creditors will reimburse
and indemnify the Pledgee, with each Secured Creditor to be responsible for
one-half, for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Pledgee in performing its duties hereunder or under the Pledge
Agreement, or in any way relating to or arising out of the Pledge Agreement
except for those resulting solely from the Pledgee's own gross negligence or
willful misconduct.
7. The Pledgee in its Individual Capacity. With respect to its
obligations as a lender under the Credit Agreements and any other credit
facilities to which the Pledgee is a party, and to act as agent under one or
more of such credit facilities, the Pledgee shall have the rights and powers
specified therein and herein for a "Secured Creditor", and may exercise the same
rights and powers as though it were not performing the duties specified herein.
The Pledgee may lend money to, and generally engage in any kind of business with
the Pledgor or any affiliate or subsidiary of the Pledgor as if it were not
performing the duties specified herein.
8. Resignation by the Pledgee. (a) The Pledgee may resign from
the performance of all its function and duties under the Pledge Agreement at any
time by giving 20 Business Days' prior written notice (as provided in the Pledge
Agreement) to the Pledgor and the Secured Creditors. Such resignation shall take
effect upon the appointment of a successor Pledgee pursuant to clause (b) below.
-2-
<PAGE> 184
(b) Upon any such notice of resignation, the Secured Creditors
shall appoint a successor Pledgee hereunder who shall be a Secured Creditor or a
commercial bank organized under the laws of the United States of America or any
State thereof and having combined capital and surplus of at least $50,000,000.
-3-
<PAGE> 185
ANNEX C
to
PLEDGE AGREEMENT (SPV)
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, is delivered
pursuant to Section 4(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement (SPV), dated February 3, 1998 as it may heretofore have been or
hereafter may be amended or otherwise modified or supplemented from time to time
and that the collateral listed on this Pledge Amendment shall be and become part
of the Collateral referred to in said Pledge Agreement and shall secure all of
the Obligations referred to in said Pledge Agreement.
<TABLE>
<CAPTION>
Name of Issuer Number of Shares Class Certificate No(s)
-------------- ---------------- ----- -----------------
<S> <C> <C> <C>
</TABLE>
CITYSCAPE CORP.
By:
----------------------------------
Name:
Title:
<PAGE> 186
ANNEX D
to
PLEDGE AGREEMENT (SPV)
FORM OF SUPPLEMENTAL SECURITY AGREEMENT
Pursuant to a Pledge Agreement (SPV) (the "Pledge Agreement"),
dated as of February 3, 1998, made by Cityscape Corp. ("Parent") in favor of The
CIT Group/Equipment Financing, Inc., as collateral agent (the "Pledgee") for the
benefit of the Secured Creditors (all capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the
Pledge Agreement), the Parent has pledged all the issued and outstanding shares
of capital stock of _______________________________ (the "Issuer") to the
Pledgee as Collateral and has, prior to the date hereof, caused the Issuer to
deliver, and the Issuer has delivered, to the Pledgee, among other things, all
certificates and instruments evidencing the Residual Securities owned by the
Issuer which are held by the Pledgee not as Collateral but as custodian for the
Issuer.
By its execution of this Supplemental Security Agreement (this
"Agreement"), the Issuer agrees that, if the Issuer grants a Lien or a security
interest in any Residual Securities to any Person other than the Pledgee or if
any non-consensual Lien is created on any Residual Securities (the date of any
such grant or creation is hereinafter referred to as the "Effective Date"), the
Issuer shall be deemed to have simultaneously granted to the Pledgee as security
for the Obligations, without any further action on the part of the Issuer or the
Pledgee, a Lien on and security interest in and an assignment of all the
Issuer's right, title and interest in and to (i) such Residual Securities, and
(ii) all distributions, cash, Investment Property, instruments, Financial Assets
and other property from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, such Residual Securities and all
general intangibles arising from or relating to such Residual Securities. In
addition, on the Effective Date, all certificates and instruments evidencing
such Residual Securities which, prior to the Effective Date, were held by the
Pledgee not as Collateral but as the custodian thereof in accordance with
Section 4(c) of the Pledge Agreement, shall be automatically and without any
further action on the part of the Issuer or the Pledgee pledged to the Pledgee
and held as Collateral for the benefit of the Lenders.
By its execution of this Agreement the Issuer hereby confirms
that, as of the Effective Date, the representations and warranties contained in
the Pledge Agreement with respect to the Issuer and the Residual Securities are
true and correct; and the Issuer agrees that, from and after the Effective Date,
the Issuer shall be a party to the Pledge Agreement and shall be bound, along
with the Pledgor, by all the provisions thereof and shall comply with and be
subject to all of the terms, conditions, covenants, agreements and obligations
set forth therein including without limitation Sections 3, 4 and 14(b) which are
incorporated by reference herein. The Issuer hereby agrees that from and after
the Effective Date, each reference to a "Pledgor" in the Pledge Agreement shall
include the Issuer.
<PAGE> 187
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF.
[ISSUER]
By:
------------------------------------
Name:
Title:
-2-
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 18, 1997, 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 S. KUCMA residing at 6
Cobbler Court, Medford, NJ 08055 (hereinafter referred to as the "Employee").
W I T N E S S E T H :
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 on the attached Schedule, 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 set forth on Item 1 of the Schedule attached hereto.
Employee hereby accepts such employment with the Company upon the terms and
conditions hereinafter set forth.
(b) The duties of the Employee shall include the duties and
services described in Item 2 of the Schedule, which 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 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, 1997, and shall continue until April 30, 2001, unless (i) extended by the
mutual agreement of the Company and the Employee or (ii) terminated as
hereinafter provided.
<PAGE> 2
4. COMPENSATION.
(a) The Employee shall receive a salary as set forth on
Schedule Item 3. Effective May 1, 1997, the salary due and payable under
Schedule Item 4 shall be increased each January by the percentage increase, if
any, in the Consumer Price Index defined in (c) below between November 1996 and
November 1997 for the first increase and between November 1997 and November 1998
for the second increase, and November 1998 and November 1999 for the third
increase. The increases shall be cumulative, that is the base salary upon which
a CPI increase is determined is that which is in effect at the end of each year.
In no event shall the salary be reduced because of a percentage decline in the
Consumer Price Index.
(b) Each January, commencing with January 1998, the Board of
Directors of the Company shall review Employee's performance and the Board of
Directors may, in its sole discretion, elect to increase the salary and bonus
then paid to Employee; however, there shall be absolutely no obligation to do
so.
(c) Consumer Price Index shall mean the Index published by the
United States Department of Labor for all Urban Consumers U.S. City Average
N.Y., N.J., CT. 1982-1984 = 100 or such successor Index as may be published
which most closely corresponds to this Index.
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. In addition to the foregoing, the Company
shall reimburse Employee up to Three Thousand Dollars ($3,000) for the costs of
maintaining a long term disability policy. To the extent possible, without
incurring additional expense and without adversely affecting the right of any
other employee, the Company shall endeavor to eliminate or waive any waiting
period with respect to profit sharing and/or pension benefits as well as health
insurance benefits. 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.
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, car phone charges, and health
club costs. Employee shall submit vouchers or other receipts once per calendar
month and shall be reimbursed by Company within thirty (30) days of submission.
Expenses shall further include
2
<PAGE> 3
reimbursement for reasonable monthly car rental or car purchase payments not
exceeding Six Hundred Fifty Dollars ($650).
7. DEATH AND DISABILITY.
In the event of the death of the Employee during the Term, the
Employee's employment hereunder shall automatically terminate. In the event of
the total disability of the Employee, the Employee's employment hereunder may
terminate at the option of the Board of Directors of the Company. 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
(12) 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 (2) 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 or the Board of
Directors of the Company 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 the Schedule, 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 for Employee's
personal benefit); (d) the conviction of the Employee for 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 10 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 (10) 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
3
<PAGE> 4
termination for cause without any additional notice from the Company. The
parties hereto agree that three (3) 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 and for six (6) months after the
expiration of 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 is, or owns, 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 (1%) 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 three (3) years after the
termination of the Employee's employment hereunder for any reason, 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 (12) 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, Continued Company Breach shall mean three
(3) 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 (c)
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 (10) days of the receipt of such notice.
10. 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,
4
<PAGE> 5
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; or (iii) where required to be disclosed by court order, subpoena or
other government process, or (iv) the Employee shall have no responsibility for
the divulgence of 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 48
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 10 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.
11. REMEDIES.
(a) If Employee commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 9 and 10, the Company shall have
the right and remedy:
5
<PAGE> 6
(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 the
Company all damages suffered by the Company as the result of any transactions
constituting a breach of any of the provisions of Sections 9 and 10, 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
11(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 Sections 9 or 10 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.
12. 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 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.
6
<PAGE> 7
(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 (10) 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.
13. EARLY TERMINATION.
In the event of termination of the Employee's employment
status by the Employer before the expiration of the term of this Agreement,
except in accordance with paragraphs 7 and 8 of the Agreement, then and in that
event Employee shall be entitled to receive all compensation hereunder accrued
and unpaid as of the date of termination and all compensation due over the
remainder of this Employment Agreement, but not to exceed one hundred and fifty
percent (150%) of Employee's total earnings including bonus for the previous
twelve (12) months. In the event this Agreement is terminated during the first
twelve (12) months of employment, employee shall receive one hundred and fifty
percent (150%) of twelve (12) months contractual earnings including bonus. The
payments provided for in this section shall be paid either lump sum or in
periodic payments at the sole option of the Employee. In addition, Employee
shall receive immediate vesting of all insurance, retirement, profitsharing,
stock option, and other benefits except to the extent such vesting may be in
direct conflict with other ERISA plans. If the Employee elects to take
compensation payments in periodic installments, then the Employer will continue
to pay its share of medical, dental, life, and disability insurance premiums and
maintain such coverage in effect for the duration of periodic payments, but not
to exceed the term of the Employment Agreement.
14. MOVING AND RELOCATION EXPENSES.
Upon the signing of the Agreement, the Company will cause the
Employee's residence to be appraised by a competent appraisal firm and will in
the event that Employee is unable to sell the residence after completion of his
new residence, purchase the said residence for the appraised value.
The Employee's moving expenses reasonably incurred including,
among others, transportation and temporary storage of household goods and
personal effects, airline transportation, rental vehicles, meals and lodging for
the Employee and his family to travel to and search for new housing, in moving
the Employee and his family to New York will be reimbursed by the Company in
full. Notwithstanding, Employee may, at his expense, require Employer to
7
<PAGE> 8
obtain a second appraisal from another competent appraisal firm and the purchase
price to be paid for the residence shall be the average of the two appraisals.
For a period not to exceed, the shorter of, fourteen (14)
months or when employee moves his family to New York, the Company will reimburse
employee for reasonable rental expense of a one (1) bedroom furnished apartment
in Westchester County.
15. 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 13. 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.
16. 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 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.
17. 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.
18. 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. It is agreed
that in the event of a termination under this Agreement for any reason, 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.
8
<PAGE> 9
19. 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.
20. 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.
21. ARBITRATION IN THE EVENT OF DISPUTE.
EXCEPT IN CASES OF IRREPARABLE HARM WHERE IMMEDIATE INJUNCTIVE
RELIEF IS SOUGHT, ALL DISPUTES WHICH CANNOT BE RESOLVED INFORMALLY BY THE
PARTIES SHALL BE SUBMITTED FOR BINDING ARBITRATION IN ACCORDANCE WITH THE RULES
OF THE AMERICAN ARBITRATION ASSOCIATION WITH EACH PARTY BEARING THEIR OWN
EXPENSES, FEES AND COSTS OF REPRESENTATION AND THE PARTIES SPLITTING EQUALLY THE
ARBITRATION COSTS.
22. 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 instruments.
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/Robert Grosser
-----------------
Name: Robert Grosser
Title: President
/s/ Peter S. Kucma
------------------
Peter S. Kucma
9
<PAGE> 10
SCHEDULE
EMPLOYMENT AGREEMENT
MAY 1, 1997 - APRIL 30, 2001
1. Position Senior Vice President & Chief Operating
Officer
2. Duties & Services As determined by the Board of Directors
3. Salary $250,000 per annum
4. Signing Bonus $50,000 payable $25,000 on May 1, 1997 and
$25,000 on May 1, 1998.
5. Bonus Employee may earn and be entitled to a bonus
payment for each year of his employment
equal to at least his base salary during
such year.
In order for employee to earn a bonus, in
each year of the Employment Agreement,
certain goals must be attained. These goals
will be determined and mutually agreed to by
June 30, 1997.
6. Options In accordance with the Cityscape Financial
Corp. 1995 Employee Stock Option Plan to
purchase up to 400,000 shares at the Fair
Market Value at the date of grant. The
incentive options granted may be exercised
100,000 shares in 1998, 100,000 shares in
1999, 100,000 shares in 2000, and 100,000
shares in 2001. These options are subject to
approval by the Cityscape Financial Corp.
Stock Option Committee upon your approval of
the terms of the Agreement and shall only
vest if the profits of Cityscape Corp.
(domestic) as determined by the Company's
independent auditors exceed in each year the
pre-tax profits of the previous year by
twenty percent (20%). In each year where the
pre-tax profits do not attain such increase,
those options shall terminate. These options
may not be exercised more than five (5)
years after grant and terminate immediately
upon termination of the recipient's
employment with the Company for just cause,
or 12 months after death or permanent
disability, or three months after
termination of employment for any other
reason.
10
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated this 24th day of April, 1997 is by and between
Cityscape Corp., a Delaware corporation (hereinafter "Employer") and Gregg L.
Armbrister (hereinafter "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 on the attached Schedule, 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 set forth in Item 1 of the Schedule attached hereto. Employee hereby
accepts such employment with the Company upon the terms and conditions
hereinafter set forth.
(b) The duties of the Employee shall include the duties and services
described in Item 2 of the Schedule, which 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 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. Notwithstanding the foregoing, the Employee may retain his
ownership interest in the firm K. M'Kenzie And Associates, Inc., a Georgia
corporation, but shall not take part in the active management of the same while
in the employ of Employer. The
<PAGE> 2
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, 1997,
and shall continue until April 30, 2001, unless (i) extended by the mutual
agreement of the Company and the Employee or (ii) terminated as hereinafter
provided. Until May 1, 1997, Employee shall serve as a consultant to Employer
under the usual terms and conditions between the parties and Employee shall
devote approximately sixty per cent (60%) to Employer's business pursuits during
this time.
4. COMPENSATION.
(a) The Employee shall receive a salary as set forth on Schedule 3.
Effective May 1, 1997, the salary due and payable under Schedule Item 3 shall be
increased each January by the percentage increase, if any, in the Consumer Price
Index defined in subsection (c) below between November 1996 and November 1997
for the first increase and between November 1997 and November 1998 for the
second increase, and November 1998 and November 1999 for the third increase. The
increases shall be cumulative, that is the base salary upon which a CPI increase
is that which is in effect at the end of each year. In no event shall the salary
be reduced because of a percentage decline in the Consumer Price Index.
(b) Each January, commencing with January 1998, the Board of Directors
of the Company shall review Employee's performance and the Board of Directors
may, in its sole discretion, elect to increase the salary then paid to Employee;
however, there shall be absolutely no obligation to do so.
(c) Consumer Price Index shall mean the Index published by the United
States Department of Labor for all Urban Consumers U.S. City Average N.Y., N.J.,
CT. 1982-1984 = 100 or such successor Index as may be published which most
closely corresponds to this Index.
5. BENEFITS.
The employee shall be entitled to participate in the regular pension,
profit sharing, health, disability, and other benefit
<PAGE> 3
programs of the Company in effect from time to time on the same basis that other
senior officers of the Company participate therein. To the extent possible,
without incurring additional expense and without adversely affecting the right
of any other employee, the Company shall endeavor to eliminate or waive any
waiting period with respect to profit sharing and/or pension benefits as well as
health insurance benefits. 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 but in no case less than two (2)
weeks paid vacation for each year while employed beginning on and including the
first year of employment.
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
Company within thirty (30) days of submission. Expenses shall further include
reimbursement for reasonable monthly car rental or car purchase payments not
exceeding Four Hundred Fifty Dollars ($450).
7. DEATH AND DISABILITY.
In the event of the death of the Employee during the Term, the
Employee's employment hereunder shall automatically terminate. In the vent of
the total disability of the Employee, the Employee's employment hereunder may
terminate at the option of the board of Directors of the Company. 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 an twelve
(12) month period, with such "total disability" being established by a written
certification submitted by the 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 doctor and these two (2) 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
<PAGE> 4
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 or the Board of Directors of
the Company 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 the Schedule, 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 for Employee's
personal benefits); (d) the conviction of the Employee for 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 10 of
this Agreement; of (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 (10) 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 provisions of clause (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 (3) 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.
<PAGE> 5
9. NON-COMPETITION.
(a) During the Term and for six (6) months after the expiration of the
Terms, 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, officers, 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 is, or owns, 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 (1%)
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 three (3) years after the termination of
Employee's employment hereunder for any reason, the Employee shall not, without
prior written consent of the Company, directly or indirectly (i) solicit,
request, cause or induce any person who is at the time, or twelve (12) 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, Continued Company Breach shall mean three (3)
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 (c) 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 (1) days of the receipt of such notice.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Employee acknowledges that as a result of
<PAGE> 6
Employee's employment by the Company, the Employee, both during and after the
Terms, 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; or
(iii) where required to be disclosed by court order, subpoena or other
government process, or (iv) the Employee shall have no responsibility for the
divulgence of any information which is in the public domain. If the Employee
shall be required to make disclosure pursuant to the provisions of cause (iii)
of the preceding sentence, the Employee promptly, but in no event more than 48
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 expenses, 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,
<PAGE> 7
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 10 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.
11. REMEDIES FOR EMPLOYER.
(a) If Employee commits a breach, or threatens to commit a breach, of
any of the provisions of Sections 9 and 10, 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 a result of any
transactions constituting a breach of any of the provisions of
Sections 9 and 10, 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 11(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
<PAGE> 8
Company under law or equity.
(d) If any provision of Sections 9 or 10 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.
12. 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 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 part promptly, and in the case of a third party claim, in writing
within ten (10) days after the indemnified party's first receipt of written
notice of such third party claim, and in any event within such shorter period as
maybe 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 any 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 part giving rise to such
indemnity rights and shall estimate (to the extent determinable) the amount of
liability
<PAGE> 9
arising therefrom.
13. EARLY TERMINATION.
In the event of termination of the Employee's employment status by the
Employer before the expiration of the term of this Agreement, except in
accordance with paragraphs 7 and 8 of the Agreement, then and in that event
Employee shall be entitled to receive all compensation hereunder accrued and
unpaid as of the date of termination and all compensation due over the remainder
of this Employment Agreement, but not to exceed one hundred and fifty percent
(150%) of Employee's total earnings including bonus for the previous twelve (12)
months. In the event this Agreement is terminated during the first twelve (12)
months of employment, employee receive one hundred and fifty percent (150%) of
twelve (12) months contractual earnings including bonus. The payments provided
for in this Section shall be paid either lump sum or in periodic payments, at
the sole option of Employee. In addition, Employee shall receive immediate
vesting of all insurance, retirement, profit sharing and stock option benefits
except to the extent such vesting may be in direct conflict with other ERISA
plans. If Employee elects to take compensation payments in periodic
installments, then the Employer will continue to pay its share of the medical,
dental, life and disability insurance premiums and maintain such coverage in
effect for the duration of the periodic payments not to exceed the term of this
Employment Agreement.
14. MOVING AND RELOCATION EXPENSES.
Upon the signing of the Agreement, the Company will cause the
Employee's residence in Georgia to be appraised by a competent appraisal firm
and will in the event that Employee is unable to sell the residence after ninety
(90) days of the date of this Agreement purchase the said residence for the
appraised value as previously determined.
The Employee's expenses reasonably incurred including, among others,
airline transportation, rental vehicles, meals and lodging for the Employee and
his family to travel to and search for new housing, in moving the Employee and
his family from Georgia to New York will be reimbursed by the Company in full in
accordance with the Company's policy in connection with Executive transfers but
not to exceed $25,000.
<PAGE> 10
The Employee shall also receive reimbursement by the Company in full
for reasonable expenses of transportation and temporary storage of household
goods and personal effects.
The Employee's expenses reasonably incurred including, among others,
airline transportation, rental vehicles, meals and lodging for the Employee in
the State of New York while his family remains in the State of Georgia and while
his residence in the State of Georgia remains unsold. Reimbursement for such
expenses shall not exceed six (6) months but shall not be subject to the $25,000
cap as afore-described.
15. 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 13. 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.
16. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreement 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 is
signed by the party against whom enforcement of any such amendment, supplement,
modification or waiver is sought. Any wavier 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.
17. 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.
<PAGE> 11
18. 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. In the event of
termination of the Employee's employment status by the Employer before the
expiration of the term of this Agreement, except in accordance with paragraphs 7
and 8 of the Agreement, then and in that event Employee shall be entitled to
receive all compensation hereunder accrued and unpaid as of the date of
termination and all compensation due over the remainder of this Employment
Agreement in accordance with paragraph 14 of this agreement. It is agreed that
in the event of a termination in accordance with paragraphs 7 and 8 of the
Agreement, 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.
19. 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.
20. GOVERNING LAW; VENUE.
This Agreement shall be construed and governed in accordance with the
laws of the State of New York.
21. ARBITRATION IN THE EVENT OF DISPUTE.
Except in cases of irreparable harm where immediate injunctive relief
is sought, all disputes which cannot be resolved informally by the parties shall
be submitted for binding arbitration in accordance with the rules of the
American Arbitration Association with each party bearing their own expenses,
fees and costs of representation and the parties splitting equally the
arbitration costs.
<PAGE> 12
22. 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 instruments.
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/Robert Grosser
---------------------
Name: Robert Grosser
Title: President
/s/Gregg L. Armbrister
----------------------
Gregg L. Armbrister
<PAGE> 13
EMPLOYMENT AGREEMENT
SCHEDULE
MAY 1, 1997 - APRIL 30, 2001
1. Position Senior Vice President
2. Duties & Service Operations - Or as mutually determined by
the Board of Directors and the Employee.
3. Salary $210,000.00 per annum
4. Bonus Bonus incentive maybe granted by the Board
of Directors each January, commencing with
January 1998 for annual performance levels
in accordance of the following schedule.
Annual Cash Bonus Incentive Schedule
Expressed as a Percentage of Current Salary
<TABLE>
<CAPTION>
Performance Goals Performance Levels* Year 1 Year 2 Year 3 Year 4
- ----------------- ------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1. Net Income 15% 20% 25% 30%
2. Point Of Sale- Securitization 20% 25% 30% 35%
3. Production Mix 5% 10% 15% 20%
4. Production Volume 5% 10% 15% 20%
5. ** 0% 5% 10% 15%
6. ** 0% 5% 10% 15%
7. ** 0% 5% 10% 15%
----------------------------
45% 80% 115% 150%
</TABLE>
*Expectation performance levels will be based on domestic
business and established sometime during the first quarter
of each year. As company goals are adjusted, corresponding
changes would be made to the plan performance levels.
<PAGE> 14
** Additional performance goals may be established the 2nd
year of the contract as certain functional objectives
become more defined.
5. Options In accordance with the Cityscape Financial Corp. 1995
Employee Stock Option Plan to purchase up to 200,000
shares at the Fair Market Value at the date of grant. The
incentive options granted may be exercised 50,000 shares
in 1997, 50,000 shares in 1998, 50,000 shares in 1999, and
50,000 shares in 2000. These options are subject to
approval by the Cityscape Financial Corp. Stock Option
Committee upon your a approval of the terms of the
Agreement. These options may not be exercised more than
five (5) years after grant and terminate immediately upon
termination of the recipient's employment with the Company
for just cause, or 12 months after death or permanent
disability, or three months after termination of
employment for any other reasons.
During each year of this Employment Agreement, in addition
to the foregoing options and subject to approval of the
Cityscape Financial Corp. Stock Option Committee, if the
pre-tax profits of Cityscape Financial Corp. exceed those
of the previous year by twenty percent (20%) or more, then
the Cityscape Financial Corp. Stock Option Committee shall
grant to Employee at the next meeting of the Committee
after such profits have been determined by the Cityscape
Financial Corp. independent auditors, options exercisable
immediately at the then current market price for not less
than 6,750 shares.
<PAGE> 1
Execution Copy
Exhibit 10.24
LOAN FACILITY
between
MORTGAGE MANAGEMENT LIMITED
as Borrower
and
GREENWICH INTERNATIONAL, LTD.
as Lender
and
CITY MORTGAGE CORPORATION LIMITED
SIDLEY & AUSTIN
Royal Exchange
London EC3V 3LE
Tel: 0171-360 3600
Fax: 0171-626 7937
<PAGE> 2
CONTENTS
Clause Page No.
- ------ --------
1. INTERPRETATION...................................................... 2
2. THE FACILITY AND PURPOSE............................................ 17
3. AVAILABILITY........................................................ 18
4. DRAWINGS............................................................ 21
5. CANCELLATION........................................................ 24
6. INTEREST ON ADVANCES................................................ 24
7. REPAYMENT........................................................... 25
8. EXAMINATION OF MORTGAGE FILES....................................... 26
9. EVIDENCE OF DEBT.................................................... 27
10. TAXES............................................................... 27
11. INCREASED COSTS..................................................... 29
12. ILLEGALITY.......................................................... 30
13. PAYMENTS............................................................ 30
14. REPRESENTATIONS AND WARRANTIES...................................... 30
15. REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES............... 38
16. UNDERTAKINGS........................................................ 40
17. DEFAULT............................................................. 46
18. DEFAULT INTEREST.................................................... 51
19. CURRENCY OF ACCOUNT................................................. 51
20. SET-OFF............................................................. 52
21. CALCULATION OF INTEREST............................................. 52
22. COSTS AND EXPENSES.................................................. 52
<PAGE> 3
23. RELEASE FEES........................................................ 53
24. REMEDIES AND WAIVERS................................................ 53
25. CONFIDENTIALITY..................................................... 53
26. NOTICES............................................................. 53
27. SEVERABILITY........................................................ 54
28. WAIVER.............................................................. 55
29. ASSIGNMENT.......................................................... 55
30. FURTHER ASSURANCE................................................... 56
31. GOVERNING LAW....................................................... 56
SCHEDULE 1 FORM OF DRAWDOWN REQUEST(INITIAL ADVANCE)...................... 58
FORM OF DRAWDOWN REQUEST(REVOLVING ADVANCES).............................. 59
SCHEDULE 2AFORMS OF SOLVENCY CERTIFICATE.................................. 61
SCHEDULE 2B............................................................... 62
SCHEDULE 3MORTGAGE LOAN DOCUMENTS......................................... 63
<PAGE> 4
THIS AGREEMENT is made on February 1998 between:
(1) MORTGAGE MANAGEMENT LIMITED, a company incorporated under the laws of
England and Wales, registered number 2002263 whose registered office is at
Cityscape House, Croxley Business Park, Watford, Herts, WD1 8YF (the
"Borrower"); and
(2) GREENWICH INTERNATIONAL, LTD., a company incorporated under the laws of
Bermuda, whose branch office is in the United Kingdom is at 1 Jermyn
Street, 9th Floor, London (the "Lender"); and
(3) CITY MORTGAGE CORPORATION LIMITED, a company incorporated under the laws
of England and Wales, registered number (3043776) whose registered office
is at Cityscape House, Croxley Business Park, Watford, Herts, WD1 8YF
("CMC" )
WHEREAS:-
(1) CMC and the Lender have entered into the Mortgage Loan Purchase Agreement
and the Commitment Letter pursuant to which Mortgage Loans may be sold by
CMC and its Originating Subsidiaries to the Lender.
(2) CMC and CMF have entered into the Origination and Purchase Agreement and
CMF and the Lender have entered into the Supplemental Agreement pursuant
to which Mortgage Loans may, in lieu of being sold by CMC and its
Originating Subsidiaries to the Lender under the Mortgage Loan Purchase
Agreement and Commitment Letter, be sold by CMC and its Originating
Subsidiaries to CMF and, immediately thereafter, by CMF to the Lender.
(3) Mortgage Loans originated by Originating Subsidiaries and by third parties
(subsequently sold to CMC) have, from time to time, been sold by CMC or
such Originating Subsidiaries to the Lender pursuant to the Sale and
Purchase Agreements.
(4) Certain of the Mortgage Loans sold to the Lender pursuant to the foregoing
agreements have been subsequently securitised under the Securitisations.
(5) The FPD Loans were purchased by CMF from the Lender on 31 July, 1997
pursuant to the FPD Loan Purchase Agreement and the purchase was funded by
a loan made available by the Lender secured by the FPD Loan Charge.
(6) The Existing Mortgage Loans are serviced by the Servicer pursuant to the
Servicing Agreement.
(7) The Borrower is a wholly owned subsidiary of CMC.
(8) Pursuant to a letter dated 25 February 1998, the Lender issued a letter
stating that it terminated its obligation to purchase Mortgage Loans under
the Commitment Letter and the Mortgage Loan Purchase Agreement.
1
<PAGE> 5
(9) CMC, the Servicer and the Lender have agreed to provide the financing
arrangements relating to the Existing Mortgage Loans and New Production
Mortgage Loans and as part of those arrangements the Lender has agreed to
make available the Facility to the Borrower on the terms and subject to
the conditions of this Agreement so as to enable the Borrower to purchase
the Existing Mortgage Loans and to finance the purchase by the Borrower of
New Production Mortgage Loans.
(10) CMC has agreed to indemnify the Lender in respect of inter alia, the
obligations of the Borrower under this Agreement.
1. INTERPRETATION
1.1 Definitions
In this Agreement (including the recitals hereto) the following terms
shall have the respective meanings set forth below:-
"Account Assignments" means the Borrower Collection Account Assignment,
the Borrower Funding Account Assignment and the CMC Proceeds Account
Assignment.
"Account Bank" means National Westminster Bank Plc or such other bank or
financial institution as may be substituted as account bank with the prior
written consent of the Lender.
"Advance" means, save as otherwise provided herein, an advance (as from
time to time reduced by repayment and prepayment) made or to be made by
the Lender hereunder pursuant to the Term Loan or the Revolving
Commitment.
"Advance Date" means each date on which the Lender from time to time shall
make Advances to fund purchase of Mortgage Loans hereunder.
"Advance Date Principal Balance" means as to any Mortgage Loan, the unpaid
principal balance thereof as of the related Advance Date (or, if later,
the date of origination of such Mortgage Loan) provided that (unless
otherwise agreed between the Lender and the Borrower) such unpaid
principal balance shall be calculated after application of all payments of
principal due and received on or prior thereto, but without giving effect
to any instalments of principal received in respect of due dates
thereafter.
"Agreement" means this Loan Facility Agreement, including all schedules
and annexures hereto, which expression shall include the same as varied,
supplemented, re-stated, extended or replaced from time to time.
"Approved Affiliate" means each of Assured Funding Corporation Limited,
Home Funding Corporation Limited, J&J Securities Limited and Home Mortgage
Corporation Limited and any subsidiary (as defined in Section 736
Companies Act 1985) of CMC
2
<PAGE> 6
which is designated by the Borrower as an "Approved Affiliate" for the
purposes of this Agreement and which is approved as such in writing by the
Lender.
"Assignment Agreement" means the assignment agreement to be entered into
between the Borrower, CMF and CMC on or about the date hereof in form and
substance satisfactory to the Lender assigning all of CMF's rights in the
Securitisation Residuals to the Borrower.
"ASU Policies" has the meaning attributed to it in the Debenture.
"Available Commitment" means, at any time, the Revolving Commitment at
such time less the principal amount of the Revolving Loan then
outstanding.
"Availability Period" means the period commencing on the date of this
Agreement and ending on the earlier of:-
(1) the date on which the Lender ceases to be under any obligation to
make further Advances to the Borrower hereunder pursuant to the
terms hereof; and
(2) the Final Maturity Date.
"Block Building Policies" has the meaning attributed to it in the
Debenture.
"Block Life Policies" has the meaning attributed to it in the Debenture.
"Borrower Collection Account" means the account in the name of the
Borrower with the Account Bank number 36140058 charged in favour of the
Lender pursuant to the Borrower Collection Account Assignment.
"Borrower Collection Account Assignment" means the assignment agreement in
relation to the Borrower Collection Account dated on or about the date
hereof in form and substance satisfactory the Lender to be granted by the
Borrower in favour of the Lender.
"Borrower Funding Account" means an account in the name of the Borrower at
the Account Bank number 36140066 charged in favour of the Lender under the
Borrower Funding Account Assignment.
"Borrower Funding Account Assignment" means the assignment agreement in
relation to the Borrower Funding Account dated on or about the date hereof
in form and substance satisfactory to the Lender to be granted by the
Borrower in favour of the Lender.
"Borrower Share Charge" means the share charge to be entered into on or
about the date hereof in form and substance satisfactory to the Lender by
CMC over all of its shares in the Borrower in favour of the Lender.
3
<PAGE> 7
"Borrower Working Capital Account" means the account in the name of the
Borrower with the Account Bank number 36140074 charged by way of floating
charge in favour of the Lender pursuant to the Debenture.
"Business Day" means a day (other than a Saturday or Sunday) on which
banks are generally open for business in London and New York.
"CCA" means the Consumer Credit Act 1974.
"Cityscape" means Cityscape Corp., a Delaware corporation.
"CMC Charge" means the charge to be entered into on or about the date
hereof in form and substance satisfactory to the Lender creating first
fixed charges and assignments over the Securitisation Residuals to be
granted by CMC in favour of the Lender.
"CMC Collection Account" means account number 76694895 with the Account
Bank utilised for the time being for the purpose of collection of sums
payable by Mortgagors under all Mortgage Loans originated by CMC and J&J.
"CMC Collection Account Declaration of Trust" means the declaration of
trust dated 21 March 1996, as supplemented by all supplemental
declarations of trust relating thereto, pursuant to which trusts over all
amounts credited from time to time to the CMC Collection Account are
constituted in favour of, inter alia, the Lender, CMF, certain Issuers and
the trustee under each Securitisation Receivables Trust.
"CMC Floating Charge" means the lightweight floating charge to be entered
into on or about the date hereof in form and substance satisfactory to the
Lender whereby CMC will grant a floating charge over all of its
undertaking and assets in favour of the Lender.
"CMC Proceeds Account" means the account of CMC with the Account Bank
number 36140082 charged in favour of the Lender under the CMC Proceeds
Account Assignment.
"CMC Proceeds Account Assignment" means the assignment agreement in
relation to the CMC Proceeds Account to be entered into on or about the
date hereof in form and substance satisfactory to the Lender to be granted
by CMC in favour of the Lender.
"CMF" means City Mortgage Funding 1 Limited, incorporated under the laws
of England and Wales, number 3299937, whose registered office is at
Cityscape House, Croxley Business Park, Watford.
"CMF Collection Account" means an account in the name of CMF with the
Account Bank number 95660208.
"CMF Collection Account Declaration of Trust" means the declaration of
trust dated 30 April 1997, as supplemented by all supplemental
declarations of trust relating thereto,
4
<PAGE> 8
pursuant to which trusts over all amounts credited from time to time to
the CMF Collection Account are constituted in favour of, inter alia, the
Lender and City Mortgage Receivables 6 plc.
"CMS Share Charge" means the charge to be entered into on or about the
date hereof in form and substance satisfactory to the Lender by CMC over
all of its shares in CMS in favour of the Lender.
"Collateral Value" has the meaning attributed to it in the Proceeds
Agreement.
"Collateral Security" has the meaning attributed to it in the Debenture.
"Collection Accounts" means the CMC Collection Account, the GFS Master
Collection Account and the Greyfriars Originator Collection Accounts.
"Commitment Letter" means the letter agreement dated 28 March, 1996
between CMC and the Lender.
"Contingency Policies" has the meaning attributed to it in the Debenture.
"Counter Indemnity" means the counter indemnity to be entered into on or
about the date hereof between CMC and the Borrower in respect of the
Indemnity, in form and substance satisfactory to the Lender.
"Current Mortgage Loans" means, at any time, all Mortgage Loans purchased
by the Lender under the Mortgage Loan Purchase Agreement on or after the
date of this Agreement other than such of those Mortgage Loans as shall,
by the relevant time, have been subject to a Disposition or shall have
been redeemed.
"Debenture" means the debenture to be entered into on or about the date
hereof in form and substance satisfactory to the Lender by the Borrower in
favour of the Lender creating fixed and floating charges over all of the
Borrower's undertaking and assets.
"Delinquent Loans" has the meaning attributed thereto in the Mortgage
Transfer Agreement.
"Distribution Date" shall have the meaning attributed to it in the
Proceeds Agreement.
"Drawdown Request" means the form of written request for an Advance to be
delivered by the Borrower to the Lender prior to the relevant Advance
Date, substantially in the form set out in Schedule 1.
"Due Date" means the due date for payment by the Mortgagor of principal
and/or interest under the terms of the relevant Mortgage Loan.
5
<PAGE> 9
"English Mortgage Loan" means a Mortgage Loan secured over a Mortgaged
Property situated in England or Wales.
"Event of Default" means any one of the conditions or circumstances
referred to in clause 17.
"Existing Mortgage Loans" means those Mortgage Loans to be purchased by
the Borrower from, inter alia, the Lender and CMF pursuant to the terms of
the Mortgage Transfer Agreement.
"Facility" means the facility granted to the Borrower by the Lender under
this Agreement.
"Facility Office" means the office of the Lender through which it makes
any Advance to the Borrower.
"Final Maturity Date" means 30 December 1998.
"First Pay Default Mortgage Loans" means, any Existing Mortgage Loan and
New Production Mortgage Loan financed by the Lender hereunder in respect
of which the Mortgagor shall have failed to make the First Mortgage
Payment due thereunder within 59 days of its due date unless and until:-
(a) the Mortgagor has subsequently repaid the First Mortgage Payment in
full; and
(b) if, pending the payment of the First Mortgage Payment in full the
Mortgagor has also failed to pay any other Monthly Payment in full
under the Mortgage Loan for 30 days or more, all such Monthly
Payment shall have been paid in full.
"FPD Loan Charge" means the charge and assignment by way of security dated
31 July, 1997 pursuant to which CMF granted security over the FPD Loans in
favour of the Lender to secure CMF's obligations under the loan advanced
to finance the acquisition of the FPD Loans.
"FPD Loan Purchase Agreement" means the agreement dated 31 July, 1997
between the Lender and CMF pursuant to which the FPD Loans were purchased
by CMF from the Lender.
"FPD Loans" means any outstanding Mortgage Loan that, immediately prior to
the date hereof, was subject to the FPD Loan Charge.
"Further Scottish Trust Property" has the meaning given to that term in
the Supplemental Scottish Declaration of Trust.
"GFS Master Collection Account" means an account in the name of Greyfriars
Financial Services Limited with the Account Bank number 80126243 to which
are
6
<PAGE> 10
credited all payments made by Mortgagors under Mortgage Loans originated
by any Greyfriars Originator.
"GFS Master Collection Account Declaration of Trust" means the declaration
of trust dated 18 October 1996 (as supplemented by all supplemental
declarations of trust relating thereto) constituting trusts over all
amounts standing to the credit or the GFS Master Collection Account in
favour of, inter alia, the Lender, CMF, certain Issuers and the trustees
of each Securitisation Receivables Trust.
"Greyfriars Originator" means each of Home Funding Corporation Limited,
Assured Funding Corporation Limited and Home Mortgages Corporation
Limited.
"Greyfriars Originator Collection Accounts" has the meaning attributed
thereto in the Greyfriars Originator Collection Account Declaration of
Trust.
"Greyfriars Originator Collection Account Declaration of Trust" means the
declaration of trust dated 18 October 1996 (as supplemented by all
supplemental declarations of trust relating thereto) constituting trusts
(declared by, inter alia, each Greyfriars Originator) over all amounts
standing to the credit of the Greyfriars Originator Collection Accounts in
favour of, inter alia, the Lender, CMF, certain Issuers and the trustees
of each Securitisation Receivables Trust.
"holding company" of a company or corporation means any company or
corporation of which the first-mentioned company or corporation is a
subsidiary.
"Indebtedness" means any obligation (whether incurred as principal,
cautioner or surety) for the payment or repayment of money in respect of:
(a) monies borrowed and debit balances at banks;
(b) any loan note, bond, note, loan stock, commercial paper, debenture
or other security;
(c) any acceptance or documentary credit;
(d) any receivable sold or discounted (otherwise than on a non-recourse
basis);
(e) the capital value of any lease (whether in respect of land,
machinery, equipment or otherwise) entered into primarily as a
method of raising finance or financing the acquisition of the asset
leased;
(f) any currency or interest swap, cap, collar, floor or corridor
transaction, any repurchase or reverse repurchase transaction, any
foreign exchange, spot or forward transaction, any stock lending
transaction, any financial option, or any combination of any of the
foregoing; or
7
<PAGE> 11
(g) without double counting, any guarantee, indemnity or contingent
liability in respect of any borrowings of any person of a type
referred to in (a) to (f) above but only to the extent the
borrowings thereby guaranteed or indemnified against are
outstanding.
"Indemnity" means the indemnity to be given by CMC on or about the date
hereof in form and substance satisfactory to the Lender indemnifying,
inter alia, the Lender for, inter alia, the obligations of the Borrower
under this Agreement.
"Initial Advance" means the advance of the Term Loan.
"Initial Revolving Advance" means the Advance in the amount of
(pound)21,215,886.71 to be made under the Revolving Facility to finance
the purchase by the Borrower of Existing Mortgage Loans acquired by the
Lender under the Mortgage Loan Purchase Agreement on or after 1 January,
1998.
"Initial Undertaking" means an undertaking in favour of the Lender given,
in relation to any proposed Advance, by the relevant Solicitor or
Solicitors, undertaking, inter alia, to hold the Advance to the order of
the Lender pending advance of funds under the relevant New Production
Mortgage Loan, in each case in or substantially in the form set out in the
Letter Agreement.
"Interest Payment Date" means the 15th day of each month unless that day
is not a Business Day in which case the Interest Payment Date shall be the
immediately preceding day which is a Business Day.
"Interest Period" means, for each Advance, each of the following periods:
(a) the period commencing on (and including) the day the relevant
Advance is made and ending on (but excluding) the next following
Interest Payment Date; and
(b) thereafter, each period commencing on (and including) an Interest
Payment Date and ending on (but excluding) the next following
Interest Payment Date,
provided that any Interest Period which would otherwise overrun the Final
Maturity Date or the Repayment Date (of the relevant Advance) shall end
upon whichever is the earlier of the Final Maturity Date or the relevant
Repayment Date.
"Insurance Policies" has the meaning attributed to it in the Debenture.
"Interim Servicing Agreement" means the interim servicing agreement in
form and substance satisfactory to the Lender to be entered into on or
about the date hereof between the Borrower, the Lender and CMS.
"Issuers" means each of City Mortgage Receivables 1 Plc (Company No.
3126751), City Mortgage Receivables 2 Plc (Company No. 3245450), City
Mortgage Receivables 3 Plc
8
<PAGE> 12
(Company No. 3245445), City Mortgage Receivables 4 Plc (Company No.
3246090), City Mortgage Receivables 5 Plc (Company No. 3304205) and City
Mortgage Receivables 6 Plc (Company No. 3328209).
"J&J" means J&J Securities Limited, a company incorporated in England and
Wales under number 1335672 whose registered office is at Cityscape House,
Croxley Business Park, Watford, Herts, WD1 8YF.
"Late Interest Payment Distribution Date" has the meaning attributed to it
in the Proceeds Agreement.
"Letter Agreement" means a letter of 26 February 1998 addressed to
Mortgage Management Limited, Bernard Elliston Sandler & Co and Tomlinsons.
"LIBOR" in respect of a particular period and in relation to an Advance or
other amount in respect of which an interest rate is to be determined
pursuant to this Agreement, means the percentage interest rate per annum
for the time being offered in the London Interbank Market to prime banks
for sterling deposits for the relevant period at or about 11.00 a.m.
(London time) on the first day of such period as published on the relevant
page of The Bloomberg (Bloomberg L.P.) under the heading "Money Market -
Money Market Rates".
"Loan Value" has the meaning attributed to it in the Proceeds Agreement.
"Manuals" has the meaning attributed to it in the Interim Servicing
Agreement or, after execution of the same, the Substitute Servicing
Agreement.
"Margin" means 2.0 per cent per annum.
"MHA Documentation" means in relation to any Scottish Mortgage Loan, any
affidavit, consent or renunciation granted in terms of the Matrimonial
Homes (Family Protection) (Scotland) Act 1981 given in connection with
such Scottish Mortgage Loan or the Mortgaged Property secured thereunder.
"Minded to Revoke Notice" means any notice given under section 32 of the
CCA.
"MIRAS Scheme" means the mortgage interest relief at source scheme
specified in section 369 of the Income and Corporation Taxes Act 1988.
"Mortgage Deed" means in relation to each Mortgage Loan, the deed creating
the charge by way of first or subsequent ranking legal mortgage or first
or subsequent ranking Standard Security over the relevant Mortgaged
Property, and incorporating the terms and conditions on which the relevant
advance to the Mortgagor was made.
"Mortgage File" means the Mortgage Loan Documents pertaining to a
particular Mortgage Loan, together with the related mortgage application
forms completed by the relevant Mortgagor(s), credit agency checks, if
any, carried out in respect of such
9
<PAGE> 13
Mortgagor(s), correspondence files and all other material documents,
papers and computer records held by or for the relevant Originator in
respect of the particular Mortgage Loan.
"Mortgage Indemnity Policies" has the meaning attributed to it in the
Debenture.
"Mortgage Loan" means the relevant loan (and, as the context admits, all
security therefor and all rights and entitlements of the relevant
Originator in relation thereto) made by an Originator to a Mortgagor
secured by a first or junior ranking legal mortgage or first or junior
ranking Standard Security in favour of the Originator over the relative
Mortgaged Property.
"Mortgage Loan Documents" means the documents listed in Schedule 3
pertaining to any Mortgage Loan.
"Mortgage Loan Package" means the Mortgage Loans purchased on an Advance
Date or, if later, the date on which the Lender receives a Solicitors
Undertaking in relation thereto.
"Mortgage Loan Proceeds" has the meaning attributed to it in the Proceeds
Agreement.
"Mortgage Loan Purchase Agreement" means an agreement dated 14 June 1996
between the Lender (1) and CMC (2) whereby the Lender has agreed to
purchase and CMC has agreed to sell Mortgage Loans originated by CMC and
its Approved Affiliates.
"Mortgage Payment" has the meaning attributed to it in the Proceeds
Agreement.
"Mortgage Loan Schedule" means the schedule of Mortgage Loans annexed to
each Drawdown Request.
"Mortgage Transfer Agreement" means the mortgage transfer agreement to be
entered into on or about the date hereof in form and substance
satisfactory to the Lender between the Lender, CMF, the Borrower, CMC and
each Approved Affiliate.
"Mortgaged Properties" means each and all (as the context admits) freehold
and/or leasehold properties in England or Wales mortgaged under and/or
properties held on heritable title or long lease in Scotland secured under
the relative Mortgage Deeds.
"Mortgagor" means the party (or parties) referred to as such or as "the
Borrower"in the relevant Mortgage Deed.
"New Production Mortgage Loans" means Mortgage Loans originated by CMC and
any of its Approved Affiliates on or after the date hereof.
"New Production Power of Attorney" means a power of attorney, in or
substantially in the form set out in Schedule 1 to the New Production
Purchase Agreement, to be given
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<PAGE> 14
by CMC, and each other Approved Affiliate in relation to New Production
Mortgage Loans.
"New Production Purchase Agreement" means the mortgage transfer agreement
to be entered into on or about the date hereof between, inter alia, the
Borrower, CMC and each Approved Affiliate in form and substance
satisfactory to the Lender.
"OFT" means the Office of Fair Trading.
"OFT Guidelines" means the guidelines issued by the OFT relating to the
non-status lending market in effect from time to time.
"Originating Subsidiaries" means subsidiaries or affiliates of CMC which
have acceded to the Mortgage Loan Purchase Agreement from time to time so
as to become Sellers (as defined therein) thereunder.
"Origination and Purchase Agreement" means the origination and purchase
agreement dated 27 March, 1997 between CMC, CMF and certain subsidiaries
of CMC pursuant to which Mortgage Loans are sold by CMC and the
subsidiaries to CMF.
"Originator" means the originator of any Mortgage Loan.
"Potential Event of Default" means any event which with the giving of
notice or the passing of time or both or the occurrence of any other event
will become an Event of Default.
"PIP Policies" has the meaning attributed to it in the Debenture.
"Principal" means, with respect to any Mortgage Loan, any payment or other
recovery of principal of such Mortgage Loan, which is received by or on
behalf of the Borrower.
"Proceeds" has the meaning attributed to it in the Proceeds Agreement.
"Proceeds Agreement" means the proceeds agreement to be entered into on or
about the date hereof between the Lender, the Borrower, CMC, CMS and CMF
relating to the application and distribution of Proceeds, in form and
substance satisfactory to the Lender.
"Registers of Scotland" means the Land Register of Scotland and/or the
General Register of Sasines.
"Regulated Mortgage Loan" means a Mortgage Loan that is a regulated or
partly regulated agreement for the purposes of the Consumer Credit Act
1974.
"Repayment Date" means in relation to any Advance, the date which shall be
180 days following its Advance Date or the Final Maturity Date, whichever
is the earlier.
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<PAGE> 15
"Restructuring Agreement" means the Restructuring Agreement dated as of 15
January 1998 between the Lender and CMC.
"Revolving Advance" means an Advance drawn under the Revolving Facility
including, unless otherwise stated, the Initial Revolving Advance.
"Revolving Commitment" means (pound)30,000,000 (thirty million pounds) or
such greater amount as may be agreed by the Lender pursuant to clause 2.6.
"Revolving Facility" means the revolving credit facility made available
pursuant to clause 2.1(b).
"Revolving Loan" means the aggregate of Advances drawn down against the
Revolving Commitment by the Borrower (including, for the avoidance of
doubt, the Initial Revolving Advance) save to the extent that any such
Advances have been repaid to the Lender.
"Sale and Purchase Agreements" means the sale and purchase agreement dated
23 April, 1996 between, inter alia, CMC and the Lender pursuant to which
certain loans originated by J&J Securities and by UK Credit were sold to
the Lender and the sale agreement between the Lender, CMC, CMF and
Cityscape dated 14 June, 1996 pursuant to which mortgage loans originated
by certain companies acquired by CMC on 14 June, 1996 were sold to the
Lender.
"Scottish Declaration of Trust" means a declaration of trust over Scottish
Mortgage Loans and their related Collateral Security granted by the
relevant Originator in favour of the Borrower in accordance with Clause
4.2(c) of and substantially in the form set out in Schedule 10 of the
Mortgage Transfer Agreement relating to the Existing Mortgage Loans.
"Scottish Mortgage Loan" means a mortgage Loan secured over a Mortgaged
Property situated in Scotland.
"Scottish Transfers" means (a) with respect to an Existing Mortgage Loan,
the assignations by the relevant Originators in favour of the Borrower in
respect of the Scottish Mortgage Loans and their Collateral Security in
accordance with Clause 4.2(b) of and substantially in the form set out in
Parts A and B of Schedule 4 of the Mortgage Transfer Agreement or (b) with
respect to New Production Mortgage Loans, in accordance with clause 2.1 of
and substantially in the form set out in Schedules 7 and 8 of the New
Production Purchase Agreement.
"Scottish Trust Property" has the meaning given to that term in any
Scottish Declaration of Trust.
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<PAGE> 16
"Securitisation Bank Agreements" means the bank agreements dated 21 March
1996, 18 October 1996, 31 October 1996, 31 January 1997 and 30 April 1997
in relation to the Securitisations.
"Securitisation Receivables Trust" has the meaning attributed to it in the
Proceeds Agreement.
"Securitisation Residuals" has the meaning attributed to it in the
Proceeds Agreement.
"Securitisation Residual Proceeds" has the meaning attributed to it in the
Proceeds Agreement.
"Securitisation Collection Account Trusts" means the CMC Collection
Account Declaration of Trust, the CMF Collection Account Declaration of
Trust, the GFS Master Collection Account Declaration of Trust and the
Greyfriars Originator Collection Account Declaration of Trust.
"Securitisations" means each of the six securitisations of Mortgage Loans
originated by CMC and certain of its subsidiaries, effected through sales
of the Mortgage Loans to the Issuers on 21 March, 1996, 18 October, 1996,
31 October, 1996, 31 January, 1997 and 30 April, 1997.
"Security" includes any mortgage, sub mortgage, fixed or floating charge,
sub charge, encumbrance, lien, pledge, hypothecation, absolute assignment,
assignment by way of security, or title retention arrangement, and any
agreement or arrangement having substantially the same economic or
financial effect as any of the foregoing (including any "hold back" or
"flawed asset" arrangement).
"Security Documents" means the Debenture, (and each further security
document executed pursuant thereto including any Supplemental Deed of
Charge) the CMC Charge, the CMC Floating Charge, the Borrower Share
Charge, the CMS Share Charge and the Account Assignments.
"Servicer" or "CMS" means City Mortgage Servicing Limited (company number
3043775).
"Servicing Agreement" means an agreement dated 14 June 1996 between the
Lender, CMC and the Servicer relating to the servicing of the Mortgage
Loans purchased by the Lender under the Mortgage Loan Purchase Agreement
and Commitment Letter.
"Software Licences" means each of:- (a) a licence between CMC and Suburban
& Provincial Management Limited dated 16 June 1995, as amended by a deed
of variation of same date (the "CMC Licence"); and (b) a licence between
CMS and Suburban & Provincial Management Limited dated 1 May 1995, as
varied by a deed of variation of 16 June 1995 (the "CMS Licence").
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"Solicitors" means each of Tomlinsons, Bernard Elliston Sandler & Co,
Turner MacFarlane Green (in relation to Scottish Mortgage Loans) and each
other firm of solicitors approved in writing by the Lender, each
comprising a minimum of two partners holding current practising
certificates issued by the Law Society or the Law Society of Scotland,
engaged by CMC or the Originator to undertake conveyancing and/or security
enforcement services in relation to Mortgaged Properties, and who carry
professional indemnity insurance in the sum of at least (pound)1,000,000
for each and every claim against them by any party in any one year or such
increased amount as may from time to time be prescribed by the Lender,
acting reasonably.
"Solicitors Undertaking" means with respect to each New Production
Mortgage Loan the purchase of which is to be funded by an Advance made
hereunder, a Solicitors' certificate and undertaking in or substantially
in the form set out in the Letter Agreement.
"Standard Security" means a standard security in terms of the Conveyancing
and Feudal Reform (Scotland) Act 1970.
"Standby Servicer" means Guardian Mortgage Services Limited.
"Standby Servicing Agreement" means any standby servicing agreement in
form and substance satisfactory to the Lender entered into between, inter
alia, the Borrower, the Lender and the Standby Servicer relating to
servicing of the Existing Mortgage Loans and New Production Mortgage Loans
financed under this Agreement.
"Subordinated Loan Agreement" means the subordinated loan agreement to be
entered into between CMC, the Borrower and the Lender on or about the date
of this Agreement in form and substance acceptable to the Lender.
"subsidiary" has the meaning given to it by section 736 of the Companies
Act 1985 save that references therein to company shall be deemed to
include a company which has not been formed and registered under the
Companies Act 1985.
"Substitute Servicing Agreement" means the servicing agreement in form and
substance satisfactory to the Lender to be entered into pursuant to clause
16.3 between, inter alia, the Borrower, the Lender and CMS relating to the
servicing of the Existing Mortgage Loans and New Production Mortgage Loans
financed under this Agreement and which shall include provisions which
address, in all material respects, those matters referred to in a letter
of even date herewith between the Lender and CMC referenced "Substitute
Servicing Agreement".
"Supplemental Agreement" means the agreement dated 27 March, 1997 between
CMC, CMF, the Lender and certain subsidiaries of CMC pursuant to which
mortgage loans purchased by CMF under the Origination and Purchase
Agreement are sold by CMF to the Lender.
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"Supplemental Deed of Charge" means any assignation in security made by
the Borrower in favour of the Lender pursuant to the Debenture.
"Supplemental Scottish Declaration of Trust" means any declaration of
trust over Scottish Mortgage Loans and their related Collateral Security
granted by the relevant Originator in favour of the Borrower in accordance
with clause 6(b) of the Debenture and substantially in the form set out in
Schedule 9 of the New Production Purchase Agreement.
"Term" means save as otherwise provided herein, in relation to any
Advance, the period commencing on (and including) the date on which such
Advance is made and ending on (but excluding) the Repayment Date relating
to such Advance.
"Term Loan" means a loan of the amount of (pound)187,428,993.42 to be made
available to finance the purchase of all Existing Mortgage Loans acquired
by the Lender under the Mortgage Loan Purchase Agreement prior to 1
January 1998.
"Term Loan Repayment Date" means the date which shall be 180 days after
the date on which the Term Loan is drawn or the Final Maturity Date,
whichever is the earlier.
"Transaction Documents" means this Agreement, the Security Documents, the
Indemnity, the Interim Servicing Agreement, the Proceeds Agreement, the
Mortgage Transfer Agreement, the New Production Purchase Agreement, the
Subordinated Loan Agreement, the Assignment Agreement each Supplemental
Scottish Declaration of Trust, each Scottish Declaration of Trust and each
Scottish Transfer and each other document at any time entered into between
all or any of CMC, the Borrower, the Lender, any Approved Affiliate, CMF,
CMS and any third party and which is either expressed to be a Transaction
Document, agreed to be a Transaction Document or is entered into pursuant
to or in connection with any document which is a Transaction Document.
"Transfer" has the meaning attributed to it in the Mortgage Transfer
Agreement.
"Undertaking" means the undertaking to be given by CMC to the Borrower on
or about the date hereof, in form and substance satisfactory to the
Lender.
"Underwriting Guidelines" means the underwriting guidelines published by
CMC or any Approved Affiliate in effect as at the date hereof, as the same
may be amended or supplemented from time to time with the prior written
consent of the Lender.
the "Lender" shall be construed so as to include its and any subsequent
successors and assigns in accordance with their respective interests.
a "month" is a reference to a period starting on one day in a calendar
month and ending on the numerically corresponding day in the next
following calendar month; provided that, where any such period would
otherwise end on a day which is not a Business Day, it shall end on the
following succeeding Business Day, unless that day falls in the
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calendar month next following that in which it would otherwise have ended,
in which case it shall end on the immediately preceding Business Day; and
provided further that, if there is no numerically corresponding day in the
next following calendar month, that period shall end on the last Business
Day in that next following calendar month (and references to "months"
shall be construed accordingly).
a "person" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or
more of the foregoing.
"repay" (or any derivative form thereof) shall, subject to any contrary
indication, be construed to include "prepay" (or, as the case may be, the
corresponding derivative form thereof).
"tax" shall be construed so as to include any present or future tax, levy,
impost, duty or other charge of a similar nature (including any penalty or
interest payable in connection with any failure to pay or any delay in
paying any of the same).
"VAT" shall be construed as a reference to value added tax including any
similar tax which may be imposed in place thereof from time to time.
the "winding-up", "dissolution" or "administration" of a company or
corporation shall be construed so as to include any equivalent or
analogous proceedings under the law of the jurisdiction in which such
company or corporation is incorporated or any jurisdiction in which such
company or corporation carries on business including the seeking of
liquidation, winding-up, reorganisation, dissolution, administration,
arrangement, adjustment, protection or relief of debtors.
1.2 Interpretation
For the purposes of this Agreement except as otherwise expressly provided
or unless the context otherwise requires:-
(1) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles;
(2) references herein to "clauses", "sub-clauses", "paragraphs", and
other subdivisions without reference to a document are to designated
clauses, sub-clauses paragraphs and other subdivisions of this
Agreement;
(3) reference to a sub-clause without further reference to a clause is a
reference to such sub-clause as contained in the same clause in
which the reference appears, and this rule shall also apply to
paragraphs and other subdivisions;
(4) the words "herein", "hereof", "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
provision;
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(5) headings to clauses and Schedules are for convenience only and do
not affect the interpretation of this Agreement;
(6) references to a "company" shall be construed so as to include any
company, corporation or other body corporate, wherever and however
incorporated or established;
(7) references to times of the day are to London time;
(8) references to any agreement (including without limitation to each
Transaction Document), shall be construed as a reference to such
agreement as the same may be, or may from time to time have been,
amended, modified, supplemented or restated in accordance with the
terms of the Transaction Documents;
(9) "(pound)", "pounds" and "Sterling" denote the lawful currency of the
United Kingdom;
(10) any reference in this Agreement to a statute shall be construed as a
reference to such statute as the same may have been, or may from
time to time be, amended, modified or re-enacted.
2. THE FACILITY AND PURPOSE
2.1 The Lender hereby grants to the Borrower a credit facility comprising:-
(1) the Term Loan; and
(2) a revolving credit facility in the maximum aggregate principal
amount of (pound)30,000,000 (thirty million pounds) or such greater
amount as may be agreed by the Lender in writing from time to time
pursuant to clause 2.6 or such lesser amount following a
cancellation pursuant to Clause 5,
on and subject to the terms of this Agreement.
2.2 At no time may the aggregate principal amount of Advances drawn under the
Revolving Facility hereunder exceed the Revolving Commitment.
2.3 The Initial Advance and the Initial Revolving Advance will be used by the
Borrower for the sole purpose of financing the purchase of the Existing
Mortgage Loans from the Lender and CMF on the terms of the Mortgage
Transfer Agreement.
2.4 Advances drawn under the Revolving Commitment other than the Initial
Revolving Advance will be used by the Borrower for the sole purpose of
financing the origination or purchase of New Production Mortgage Loans by
or from CMC and its Approved Affiliates which shall be transferred to the
Borrower on the terms of and pursuant to the New Production Purchase
Agreement.
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2.5 The Lender shall not be obliged to concern itself with the application of
amounts borrowed by the Borrower under this Agreement and application by
the Borrower of funds so borrowed contrary to the provisions of clauses
2.3 and 2.4 shall not prejudice the Lender's rights hereunder or under any
other Transaction Document.
2.6 The Lender will review the Revolving Commitment in good faith for possible
increase when each of the following conditions is fulfilled:-
(1) 70% (seventy per cent) or more (in aggregate) of the Term Loan and
the Initial Revolving Advance shall have been repaid;
(2) the ratio (expressed as a percentage) of outstanding Advances to
aggregate Collateral Value must not have been greater than 90% as of
the two immediately preceding Interest Payment Dates (after
application of monies on those dates); and
(3) the ratio (expressed as a percentage) of outstanding Advances to
aggregate Loan Value must not have been greater than 100% as of the
two immediately preceding Interest Payment Dates (after application
of monies on those dates).
2.7 The Lender shall cease to be obliged to make any Advances hereunder on the
Final Maturity Date and any undrawn portion of the Revolving Commitment
shall be automatically cancelled on that date.
3. AVAILABILITY
3.1 The Facility will not become available to the Borrower and the Lender
shall be under no obligation to make any Advance hereunder until each of
the following conditions precedent shall have been fulfilled to the
satisfaction of the Lender:-
(1) the Lender shall have received each of the following documents, each
in form and substance satisfactory to it:-
(1) a certified copy of the Certificate of Incorporation and
Memorandum and Articles of Association of each of the
Borrower, CMC, CMF, the Servicer and each Approved Affiliate,
each duly certified by the secretary or a director of the
relevant company as true, accurate and complete as at the date
of drawing of the Initial Advance;
(2) originals (or, where the Lender is not party to the relevant
document, copies) of each of the following documents, duly
executed by each party thereto other than the Lender:-
(1) the Indemnity, Counter Indemnity and Undertaking;
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(2) the Security Documents and all notices and
acknowledgements thereof to be given and received
thereunder and all consents to any such security being
granted, including that of each rating agency which
rated any Securitisation;
(3) the Interim Servicing Agreement;
(4) the Proceeds Agreement;
(5) a New Production Power of Attorney given by each of CMC,
J&J and each other Approved Affiliate;
(6) the Mortgage Transfer Agreement;
(7) the Deeds of Variation (varying the Securitisation Deeds
of Charge and Assignment and the Securitisation
Mortgages Trusts Deeds);
(8) the New Production Purchase Agreement; and
(9) the Subordinated Loan Agreement.
(3) a deed of release (together with related form 403) in respect
of the existing charge dated 30 October, 1996 granted by CMC
in favour of Cityscape over the Securitisation Residuals;
(4) in respect of each of the Borrower, CMC, the Servicer, CMF and
each Approved Affiliate, a copy (certified by the secretary or
a director of the relevant company to be true, complete and up
to date as at the date of drawing of the Initial Advance) of
all board minutes and all other resolutions and authorisations
passed or given in relation to the restructuring and the
Transaction Documents;
(5) in respect of each of the Borrower and each Approved
Affiliate, a solvency certificate in the form set out in
Schedule 2 A and in the case of CMC a solvency certificate in
the form set out in Schedule 2B dated the date of the Initial
Advance;
(6) in respect of each of the Borrower, CMC and the Servicer a
copy (certified by the secretary or a director of the relevant
company to be true, complete and up to date as at the date of
advance of the Initial Advance) of all consents, approvals,
authorisations or orders of any court or governmental agency
or body (including, without limitation, the OFT) required for
the execution, delivery and performance by it of, or
compliance by it with, the terms of any Transaction Document
or the consummation of the transactions contemplated thereby;
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(7) in relation to each of the Borrower, CMC, the Servicer and
each Approved Affiliate a copy (certified by the secretary or
a director of the relevant company as in full force and
effect) of the Consumer Credit Act licence held by such
company together with evidence of registration of each such
company under the Data Protection Act 1984;
(8) duly executed account mandates in relation to the Borrower
Working Capital Account, Borrower Funding Account, the CMC
Proceeds Account and the Borrower Collection Account,
specifying the authorised signatories for the Borrower and, as
the case may be, CMC;
(9) Transfers and Scottish Transfers in favour of the Borrower,
duly executed (as appropriate in each case) by or on behalf of
each of CMC and each Approved Affiliate transferring legal
title to each Existing Mortgage Loan to the Borrower and
Assignments in favour of the Borrower, duly executed (as
appropriate in each case) by or on behalf of each of CMC and
each Approved Affiliate (and the Lender and CMF) transferring
legal title to the Collateral Security to the Borrower;
(10) Scottish Declarations of Trust or Supplemental Declarations of
Trust (as the case may be) in favour of the Borrower executed
by CMC and the Approved Affiliates.
(2) the Lender shall have received confirmation as to the identity of
all Solicitors engaged or intended by any of the Borrower, CMC and
any Approved Affiliate as at the date of this Agreement to be
engaged in relation to conveyancing and/or security enforcement
concerning Mortgaged Properties, together with evidence as to their
respective professional indemnity insurance cover;
(3) the Lender shall have received written confirmation from the
relevant insurer (or broker) that each of the Borrower and the
Lender are named (whether through a generic endorsement or
otherwise) as additional assureds, in respect of their respective
interests, and that the Borrower is named as loss payee, on each
Block Buildings Policy and each Block Life Policy (and any other
block building or block life policy relating to any Mortgage Loan),
in each case subject to a breach of warranty endorsement and an
endorsement as to non-liability for premia.
(4) all conditions precedent under each other Transaction Document
(other than any requirement that the Facility shall have become
available hereunder) shall have been fulfilled;
(5) the Lender shall have received legal opinions, each in form and
substance satisfactory to it, from each of the following firms:-
(1) Clifford Chance; and
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(2) Tods Murray; and
(6) the memorandum and articles of association of the Borrower shall be
in form and substance satisfactory to the Lender.
4. DRAWINGS
4.1 Subject to:-
(1) The conditions precedent in Clause 3 having been fulfilled to the
satisfaction of the Lender or waived by the Lender;
(2) no Event of Default or Potential Event of Default having occurred
and subsisting unremedied (to the satisfaction of the Lender) and
unwaived;
(3) there having been received from the Borrower by the Lender not later
than 5pm (London time) on the Business Day before the date on which
the Initial Advance and the Initial Revolving Advance is to be made
a duly completed Drawdown Request relating thereto including a
schedule giving required details of each Existing Mortgage Loan,
the Lender will make the Initial Advance and the Initial Revolving Advance
to the Borrower on the date hereof.
4.2 Subject to:-
(1) each condition precedent in Clause 3 having been fulfilled to the
satisfaction of the Lender or waived by the Lender;
(2) no Event of Default or Potential Event of Default having occurred
and subsisting unremedied (to the satisfaction of the Lender) and
unwaived;
(3) there having been received from the Borrower by the Lender not later
than 5pm (London time) on the Business Day before the date on which
an Advance under the Revolving Commitment is to be made an Initial
Undertaking in respect of each Mortgage Loan the acquisition of
which the Borrower proposes to finance by the relevant Advance and a
duly completed Drawdown Request (and a schedule thereto) together
with a copy of the schedules of all Mortgage Loans to be originated
on its behalf or, as the case may be, to be offered for sale to it
by CMC, J&J and each relevant Approved Affiliate pursuant to the New
Production Purchase Agreement on the relevant date and a data tape
in respect of the relevant Mortgage Loans, in computer readable
form, containing such information regarding the Mortgage Loans as
was previously provided to the Lender under the Mortgage Loan
Purchase Agreement immediately prior to the date hereof;
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(4) the Lender having approved the Mortgage Loans to be financed, such
approval to be evidenced by the Lender by signing the schedule of
Mortgage Loans and the related Drawdown Request having deleted
therefrom any Mortgage Loans which do not meet the Underwriting,
Guidelines;
(5) no event described under 17.1 l), (m) or (n) having occurred in
relation to any Approved Affiliate;
(6) the Lender having received evidence satisfactory to it that legal
and equitable title (or in the case of Scottish Mortgage Loans an
appropriate Scottish Declaration of Trust in its favour) to each
Mortgage Loan to be financed will, immediately upon origination of
the same, (subject only to completion of any necessary registration
at HM Land Registry), be transferred to the Borrower;
(7) no breach of clause 16.2 having occurred in respect of a solvency
certificate required of any Approved Affiliate (having taken account
of the one week grace period thereunder);
(8) if any Originator is not an Approved Affiliate as of the date
hereof, a New Production Power of Attorney duly executed by such
Originator;
(9) no Minded to Revoke Notice having been served on CMC, the Borrower
or any Approved Affiliate; and
(10) no injunction or interdict having been obtained by (or on behalf of)
the OFT against CMC, the Borrower or any Approved Affiliate which
relates to its respective residential mortgage lending activities
including, without limitation, any Mortgage Loan financed hereunder,
(11) where the proposed Advance is to fund Mortgage Loans secured by a
Mortgage over unregistered land where the Originator does not hold
the title deeds to such Mortgaged Property (and in relation to which
the Originator's legal mortgage is therefore a second or subsequent
ranking legal mortgage protected at Central Land Charges Registry by
registration of a C(i) Land Charge) the Lender shall have received a
schedule of such Mortgage Loans (together in relation to such
Mortgage Loans with the full names of the owners of such Mortgaged
Property and the full address of that Mortgaged Property),
the Borrower may draw additional Advances under the Revolving Commitment
(subject to the provisions of this Agreement) Provided always that:-
(1) Advances may be made only on Business Days during the
Availability Period;
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(2) each Advance shall be a minimum of (pound)100,000 or, if less
than (pound)100,000, the Available Commitment;
(3) no Advance shall be made to the extent that, if as a result
thereof the Revolving Loan for the time being outstanding
would exceed the Revolving Commitment;
(4) no Advance shall be made or may be requested to refinance any
Mortgage Loan the origination or purchase of which was
financed by a prior Advance under this Agreement;
(5) the amount of each Advance requested shall not be greater than
the lesser of;
(1) the market value of the Mortgage Loan to be financed as
determined by the Lender in good faith (market values
(from time to time) of various categories of Mortgage
Loan as so determined by the Lender having been notified
to the Borrower by the Lender); and
(2) 100% (one hundred per cent) of the Advance Date
Principal Balance;
(6) any failure of condition 4.2(e) or 4.2(g) or 4.2(k) in relation to
any Approved Affiliate (or, but only in the case of condition
4.2(k), any failure of such condition in relation to CMC) shall not
preclude Advances being made hereunder to fund purchases of Mortgage
Loans originated by other Approved Affiliates.
4.3 Subject to the foregoing provisions of this Clause 4, upon receipt of a
duly executed Drawdown Request, the Lender shall, not later than 10 am New
York time on the date on which the Advance is to be made (or such later
time as maybe agreed between the Borrower and the Lender), make the
Advance requested, such Advance to be credited to the Borrower Funding
Account or, after prior consultation with and written notice to the
Borrower, the applicable Solicitors and CMS, to be advanced to the
Solicitors acting for the relevant Originator in relation to the
particular New Production Mortgage Loans, against an Initial Undertaking
from the relevant Solicitors, and it is acknowledged (for the avoidance of
doubt) that any Advance paid to Solicitors under clause 4.3 shall be
deemed to have been drawn by the Borrower under this Agreement on the date
of such payment.
4.4 If the Borrower fails for any reason whatsoever (other than as a
consequence of a breach of the Lender's obligations) to draw down an
Advance after a Drawdown Request has been received by the Lender (whether
such failure be the result of the occurrence of an Event of Default or
otherwise), the Borrower will pay to the Lender on demand such
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amount as the Lender certifies to be necessary to compensate for all
losses excluding loss of Margin incurred or to be incurred on account of
deposits acquired or arranged in order to fund the Advance. Any such
certificate by the Lender shall be prima facie evidence of such losses.
4.5 In the event that no duly completed Solicitors Undertaking shall have been
received by the Lender in respect of any Mortgage Loan(s) in respect of
which an Advance shall have been made hereunder by the close of business
on the third Business Day following the making of the Advance the Lender
shall immediately notify the Borrower and an amount equal to the Advance,
or such part thereof as was advanced in respect of such Mortgage Loan or
Mortgage Loans shall become immediately due and repayable by the Borrower
to the Lender together with accrued interest thereon.
4.6 If all or any part of any Advance made to finance a Mortgage Loan which is
subject to the provisions of Clause 4.5 shall be held by any Solicitors
payment in full by such Solicitors to the Lender of the amounts due under
Clause 4.5 shall discharge the Borrower's obligation to the same.
5. CANCELLATION
5.1 The Borrower may at any time by giving not less than two Business Days
irrevocable written notice to the Lender cancel any amount (in integral
multiples of (pound)5,000,000) of the Revolving Commitment to the extent
not currently outstanding or requested in a current Drawdown Request
Provided that the cancelled amount does not reduce the Revolving
Commitment below the outstanding principal amount of Advances drawn under
the Revolving Commitment plus the amount of Advances requested in a
current Drawdown Request.
5.2 During such period of notice the Borrower may not serve a Drawdown Request
purporting to draw all or any part of the amount of the subject of such
notice of cancellation.
5.3 Upon such cancellation becoming effective, the Revolving Commitment shall
be appropriately reduced.
6. INTEREST ON ADVANCES
6.1 The Borrower will pay interest on each Advance on each Interest Payment
Date in respect of each Interest Period referable thereto at the rate per
annum equal to the aggregate of (i) the Margin and (ii) LIBOR for the
relevant Interest Period.
6.2 The Lender will, as soon as practicable after commencement of each
Interest Period advise the Borrower of LIBOR for that Interest Period. Any
certificate of the Lender as to the rate and amount of interest determined
by it under this Agreement in respect of any
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Interest Period shall, save for manifest error, be conclusive and binding
on the Borrower and CMC.
6.3 Interest at the rate determined as aforesaid shall be calculated on each
Advance and each part thereof on the basis of actual days elapsed and a
365 day year, shall accrue from day to day from and including the first
day of each Interest Period to but excluding the date of repayment of such
Advance.
6.4 If LIBOR cannot be determined for any reason the rate of interest
applicable to such Advance shall be the sum of the Margin and the rate,
expressed as a percentage rate per annum, which is the actual cost to
Lender of funding such Advance from whatever sources it may select during
such Interest Period (as applicable) and, if the Lender so requires,
within five days of such notification the Lender and the Borrower shall
enter into negotiations with a view to agreeing a substitute basis for
determining the rates of interest which may be applicable to Advances in
the future.
7. REPAYMENT
7.1 The Borrower shall, subject as provided below, repay the amount of the
Term Loan then outstanding in full on the Term Loan Repayment Date. Any
amount repaid, or any part thereof, may not be redrawn.
7.2 The Borrower shall repay the whole of the outstanding amount of each
Revolving Advance on the Repayment Date relating thereto. Any amount
repaid or any part thereof may, subject to the provisions of this
Agreement, be redrawn.
7.3 On each Interest Payment Date (or, if later, any Late Interest Payment
Distribution Date) the Borrower shall, in respect of each relevant
Advance, repay a principal amount thereof equal to the amount available to
be applied under clauses 6.1(a), 6.2(c), 6.3(b) and 6.4(b) (taken
together) of the Proceeds Agreement (having taken account of the
provisions of clause 6.5 thereof) in or towards repayment of such Advance,
a "relevant Advance" for such purpose being:-
(1) each Advance which funded a Mortgage Loan in respect of which
Principal (as defined in the Proceeds Agreement) or Mortgage Loan
Proceeds has been received which, in either case, falls to be
applied under the Proceeds Agreement on such date; and
(2) if Securitisation Residual Proceeds have been received and fall to
be applied on such date, such Advances in such amounts as the
Borrower shall notify to the Lender.
7.4 On any Distribution Date which is not also an Interest Payment Date the
Borrower shall, in respect of each relevant Advance, repay a principal
amount thereof equal to the amount available to be applied under clauses
6.3(b) and 6.4(b) of the Proceeds Agreement
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(having taken account of the provisions of clause 6.5 thereof) in or
towards repayment of such Advance, a "relevant Advance" for such purpose
being:-
(1) each Advance which funded a Mortgage Loan in respect of which
Mortgage Loan Proceeds have been received which fall to be applied
under the Proceeds Agreement on such date; and
(2) if Securitisation Residual Proceeds have been received and fall to
be applied on such date such Advances in such amounts as the
Borrower shall notify to the Lender.
7.5 If the Borrower is required to repay principal on any Advance on any day
other than an Interest Payment Date, the Borrower shall be obliged to pay
such amount together with interest accrued thereon to the date of such
repayment.
7.6 Any part of any Advance drawn under the Revolving Commitment repaid under
the provisions of sub-clauses 7.3, 7.4 or 7.9 may, subject to the
provisions of this Agreement, be redrawn.
7.7 Any part of the Term Loan repaid under the provisions of any of
sub-clauses 7.3 or 7.4 may not be redrawn.
7.8 If all or any part of any Advance is repaid under this clause other than
on an Interest Payment Date, the Borrower will pay to the Lender on demand
such amount as the Lender certifies to be necessary to compensate it for
all losses excluding loss of Margin incurred or to be incurred by it on
account of deposits acquired or arranged in order to fund the relevant
Advance except in the case of repayment of any Advance pursuant to clause
15.8. Any such certificate by the Lender shall be prima facie evidence of
such losses.
7.9 Subject to Clause 7.8, the Borrower may at any time prepay in whole or in
part any Advance outstanding hereunder together with all accrued interest
thereon.
8. EXAMINATION OF MORTGAGE FILES
8.1 The Lender shall have the right to examine the Mortgage Files to determine
whether the Mortgage Loans to be financed fulfil the Underwriting
Guidelines. Such examination may be made by the Lender at any time before
or after the date on which any Advance is to be or was made.
8.2 If the Lender makes such examination prior to the date on which an Advance
is to be made and properly identifies any Mortgage Loans which do not
fulfill the Underwriting Guidelines such Mortgage Loans shall be deleted
from the schedule of Mortgage Loans appended to the Drawdown Request.
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8.3 The Lender may make an Advance without conducting any partial or complete
examination. The fact that the Lender has conducted or has failed to
conduct any partial or complete examination of the Mortgage Files shall
not affect the Lender's (or any of its successor's) rights provided
herein.
9. EVIDENCE OF DEBT
The Lender shall maintain in accordance with its usual practice accounts
evidencing the amounts from time to time lent by and owing to it
hereunder, and in any legal action or proceeding arising out of or in
connection with this Agreement, the entries made in such accounts shall in
the absence of manifest error be prima facie evidence of the existence and
amounts of the specified obligations of the Borrower.
10. TAXES
10.1 The Lender and the Borrower intend that:
(1) they shall not vary this Agreement so as to extend:
(1) the term of the Term Loan; or
(2) the period during which any Advance may be drawn down or
outstanding;
beyond the Final Maturity Date; and
(2) the Lender shall not make any further advance or advances to
the Borrower after the Final Maturity Date under or pursuant
to any further agreement.
10.2 Accordingly, all payments to be made by the Borrower to the Lender
hereunder shall be made free and clear of and without deduction or
withholding for or on account of tax.
10.3 If the Borrower is nevertheless required by law (including, without
limitation, as a result of any change in law or in its interpretation or
administration) to make any payment to the Lender hereunder subject to any
deduction or withholding on account of tax, the sum payable by the
Borrower in respect of which such deduction or withholding is required to
be made shall be increased to the extent necessary to ensure that, after
the making of the required deduction or withholding, the Lender receives
and retains (free from any liability in respect of such deduction or
withholding) a net sum equal to the sum which it would have received and
so retained had no such deduction or withholding been made or required to
be made.
10.4 Without prejudice to the provisions of clause 10.3, if the Lender is
required to make any payment on account of tax (excluding a tax imposed on
and calculated by reference to the net income of its Facility Office by
the jurisdiction in which it is incorporated or in which its Facility
Office is located) on or in relation to any sum received or receivable by
the Lender under this Agreement (including any sum received or receivable
under this clause
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l0) or under any Fees Letter, or any liability in respect of any such
payment is asserted, imposed, levied or assessed against the Lender, the
Borrower shall, upon demand of the Lender, promptly indemnify the Lender
against such payment or liability, together with any interest, penalties,
costs and expenses payable or incurred in connection therewith.
10.5 If the Lender intends to make a claim pursuant to clause l0.4 it shall
notify the Borrower of the event by reason of which it is entitled to do
so provided that nothing herein shall require the Lender to disclose any
confidential information relating to the organisation of its affairs.
10.6 If, at any time, the Borrower is required by law to make any deduction or
withholding on account of tax from any sum payable by it hereunder (or if
thereafter there is any change in the rates at which or the manner in
which such deductions or withholdings are calculated), the Borrower shall
promptly notify the Lender.
10.7 If the Borrower makes any payment hereunder in respect of which it is
required by law to make any deduction or withholding on account of tax, it
shall pay the full amount required to be deducted or withheld to the
relevant taxation or other authority within the time allowed for such
payment under applicable law and shall deliver to the Lender, within
thirty days after it has made such payment to the applicable authority, an
original receipt (or a certified copy thereof) issued by such authority
evidencing the payment to such authority of all amounts so required to be
deducted or withheld in respect of such payment or any other written
evidence acceptable to the Lender.
10.8 If the Borrower pays any increased amount under clause 10.3 or any
indemnity under clause 10.4 (each, a "Tax Payment") and the Lender, acting
reasonably, determines that it has received and retained a refund of, or a
credit against, the tax paid or payable by it and that the refund or
credit is in respect of, or calculated with reference to, the deduction or
withholding giving rise to the Tax Payment (where the Tax Payment is made
under clause 10.3) or the liability giving rise to the Tax Payment (where
the Tax Payment is made under clause 10.4) (in each case, such refund or
credit being referred to hereafter as a "Tax Credit"), then the Lender
shall, to the extent that it can do so without prejudice to the retention
of the Tax Credit, reimburse to the Borrower in the manner described in
the following sentence such amount as the Lender shall reasonably
determine to be the proportion of the Tax Credit as will leave the Lender
after reimbursement in no better or worse position than it would have been
in if the Tax Payment had not been required. The manner in which such
reimbursement is to be made shall first be by way of set off against such
of the amount(s) which the Borrower is then liable to pay to the Lender
(for whatever reason and regardless of whether the payment of such
amount(s) has fallen due) as the Lender shall, in its sole opinion,
specify and notify to the Borrower.
10.9 Nothing in this clause 10 shall interfere with the Lender's right to
arrange its tax affairs in whatever manner it thinks fit and, without
limiting the foregoing, the Lender shall not be under any obligation to
claim any Tax Credit in priority to any other claims, reliefs, credits or
deductions available to it. The Lender shall not in any event be obliged
to
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disclose any information relating to its tax affairs or any computations
in respect thereof to the Borrower or any other person.
10.10 All amounts payable under this Agreement and under any Fees Letter are
expressed to be exclusive of any VAT chargeable in respect thereof. If any
VAT is chargeable in respect of such amounts, the Borrower shall, in
addition, pay to the Lender an amount equal to such VAT, and the Lender
shall provide the Borrower with a proper VAT invoice in respect thereof.
11. INCREASED COSTS
11.1 If, by reason of:-
(1) the introduction of, or any change in any applicable law, regulation
or regulatory requirement or any change in the interpretation or
application of any thereof in each case after the date hereof and/or
(2) compliance by the Lender or any holding company of the Lender with
any applicable directive, request or requirement whether or not
having the force of law but, if not having the force of law being of
general application and of a type with which the Lender or a holding
company of the Lender is accustomed to comply of any central bank or
any self regulating organisation or any governmental, fiscal,
monetary or other authority (including, but not limited to, a
directive, request or requirement which affects the manner in which
any bank allocates capital in support of its assets or liabilities
or contingent liabilities or deposits with it or for its account or
advances or commitments made by it) which is brought into effect
after the date hereof,
and if, to the extent of compliance with either or both of paragraphs (a)
and (b):-
(3) the Lender or any holding company of the Lender is unable to obtain
the rate of return on its capital which it would have been able to
obtain but for the Lender's entering into or assuming or maintaining
a commitment or performing its obligations (including its obligation
to make Advances) under this Agreement;
(4) the Lender or any holding company of the Lender incurs a cost as a
result of the Lender's entering into or assuming or maintaining a
commitment or performing its obligations (including its obligation
to make Advances) under this Agreement;
(5) there is any increase in the cost to the Lender or any holding
company of the Lender of funding or maintaining all or any of the
Advances;
(6) the Lender or any holding company of the Lender becomes liable to
make any payment on account of tax or otherwise (except on account
of any tax imposed on and calculated by reference to the net income
of the Facility Office by the
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jurisdiction in which the Lender (or its holding company) is
incorporated or in which the Facility Office is located), or
foregoes any interest or other return, on or calculated by reference
to the amount of any Advance or the amount of any sum received or
receivable by it (or its subsidiary) under this Agreement,
then the Borrower shall, from time to time on demand of the Lender,
promptly pay to the Lender amounts sufficient to indemnify the Lender and
its holding company against, as the case may be, (1) such reduction in the
rate of return of capital, (2) such cost, (3) such increased cost (or such
proportion of such increased cost as is, in the opinion of the Lender,
attributable to its or its holding company funding or maintaining the
Advance), or (4) such liability.
11.2 If the Lender intends to make a claim pursuant to clause 11.1 it shall
notify the Borrower of the event by reason of which it is entitled to do
so provided that nothing herein shall require the Lender to disclose any
confidential information relating to the organisation of its affairs.
11.3 No obligation shall arise under Clause 11.1 to the extent that the
Borrower is liable to compensate the Lender under Clause 10.3 or 10.4.
12. ILLEGALITY
If, at any time, it is or becomes unlawful for the Lender to make, fund or
allow to remain outstanding all or part of any of the Advances, then the
Lender shall, promptly after becoming aware of the same, deliver to the
Borrower a notice to that effect, the Lender shall not thereafter be
obliged to make any Advances hereunder, the Revolving Commitment shall be
immediately reduced to zero and, if the Lender so requires, the Borrower
shall on such date as the Lender shall have specified repay any
outstanding Advances, in each case together with accrued interest thereon
and all other amounts owing to the Lender hereunder.
13. PAYMENTS
Any payment to be paid by the Borrower to the Lender pursuant to this
Agreement shall be made in sterling, in immediately available, freely
transferrable and cleared funds for value same day, to such account of the
Lender as the Lender shall, from time to time, have specified in writing
for such purpose.
14. REPRESENTATIONS AND WARRANTIES
14.1 The Borrower and CMC (each in relation to itself) hereby represent,
warrant, covenant and undertake to the Lender that:-
(1) it is a limited liability company duly incorporated under the laws
of England and Wales and is duly authorised and qualified to
transact any and all business contemplated by this Agreement and the
other Transaction Documents to be
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conducted by it and is in compliance with such laws to the extent
necessary to ensure its ability to enforce each Mortgage Loan.
(2) it has the full corporate power and authority to execute, deliver
and perform, and to enter into and consummate the transactions
contemplated by this Agreement and the other Transaction Documents
and has been duly authorised by all necessary corporate action on
its part the execution, delivery and performance of this Agreement
and the other Transaction Documents; and this Agreement and each
Transaction Document, assuming the due authorisation, execution and
delivery thereof by the Lender, constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its
respective terms, except to the extent that (a) the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights
generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to the equitable
defences and to the discretion of the court before which any
proceeding therefor may be brought;
(3) its execution and delivery of this Agreement and each Transaction
Document, the consummation of any other of the transactions herein
or therein contemplated on its part and the fulfilment of or
compliance with the terms hereof or thereof will not (i) result in a
material breach of any term or provision of its Memorandum and
Articles of Association and/or its other constitutional documents or
(ii) materially conflict with, result in a material breach,
violation or acceleration of, or result in a material default under,
the terms of any other material agreement or instrument to which it
is a party or by which it may be bound, or any statute, order or
regulation applicable to it of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
it;
(4) it is not party to, bound by, or in breach or violation of any
material indenture or other material agreement or instrument, or
subject to or in violation of any statute, order or regulation of
any court, regulatory body, administrative agency or governmental
body having jurisdiction over it, which materially and adversely
affects or, to its knowledge, would in the future materially and
adversely affect, (i) its ability to perform its obligations under
this Agreement or the Transaction Documents or (ii) its business,
operations, financial condition, properties or assets taken as a
whole;
(5) no litigation is pending or, to the best of its knowledge,
threatened against it that would materially and adversely affect the
execution, delivery or enforceability of this Agreement or the
Transaction Documents or its ability to perform any of its
obligations hereunder or thereunder in accordance with the terms
hereof or thereof;
(6) no consent, approval, authorisation or order of any court or
governmental agency or body is required for the execution, delivery
and performance by it of, or compliance by it with, this Agreement
or any Transaction Document or the
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consummation of the transactions contemplated hereby or thereby, or
if any such consent, approval, authorisation or order is required,
it has obtained or it is in the process of obtaining the same;
(7) it has caused to be performed any and all acts required to preserve
all rights and remedies in any block insurance policies taken out at
any time and from time to time applicable to the Mortgage Loans
including without limitation, the Block Buildings Policies and the
Block Life Policies;
(8) the Borrower has not, at any time since its incorporation, had any
employee, entered into any contracts or traded;
(9) CMC has, on or prior to the date hereof, provided the Lender with
access to all correspondence between it, any of its subsidiaries,
affiliates or other members of its group or its or their respective
advisers and the OFT in respect of the current OFT investigation of
such companies.
The representations and warranties under clause 14.1(a)-(g) inclusive
shall be given on the date of this Agreement and shall be repeated on each
date on which any Advance is outstanding hereunder by reference to the
facts and circumstances existing at the relevant time.
14.2 The Lender represents and warrants to the Borrower in terms of clauses
14.1(a) to (f) (inclusive), mutatis mutandis, provided that the reference
in clause 14.1(a) to England and Wales shall be construed as a reference
to Bermuda.
14.3 (A) With respect to each Existing Mortgage Loan, the Borrower hereby
represents and warrants (as of the date hereof and the date on which
the Initial Advance is made) that each of the representations and
warranties set out in paragraph 7.3 of the Mortgage Loan Purchase
Agreement was, on the Closing Date (as defined in the Mortgage Loan
Purchase Agreement) in respect of such Existing Mortgage Loan true
and accurate in all respects.
(B) The Borrower hereby represents and warrants to the Lender in
relation to each New Production Mortgage Loan, in each case as of
the Advance Date on which an Advance was made to fund the purchase
of the same hereunder or, if later, the date on which a Solicitors
Undertaking in respect thereof is issued, as follows (but on the
basis that each reference in each representation and warranty to:-
(1) a Mortgage Loan shall be construed as a reference to the
relevant New Production Mortgage Loan; and
(2) the Advance Date shall be construed as a reference to
whichever is the later of the relevant Advance Date or the
date on which the relevant Solicitors Undertaking is given).
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(2) The information set forth on the Mortgage Loan Schedule with respect
to each Mortgage Loan is true and correct in all material respects;
(3) Unless otherwise agreed from time to time, all payments due prior to
the Advance Date have been made and none of the Mortgage Loans will
have been contractually delinquent for 31 or more days more than
once since the origination thereof;
(4) Each Mortgage Deed constitutes (i) in the case of English Mortgage
Loans, a valid and enforceable legal mortgage of the relevant
Mortgaged Property subject only in certain cases to registration of
the relevant Mortgage Deed at HM Land Registry, or (ii) in the case
of Scottish Mortgage Loans, a valid and enforceable Standard
Security over the relevant Mortgaged Property subject only in
certain cases to registration or recording of the relevant Mortgage
Deed in the Registers of Scotland, in either case duly executed by
the Mortgagor named in the relevant Mortgage Deed;
(5) On the date upon which an Advance is made the Borrower (subject only
to registration of legal title at HM Land Registry or the Registers
of Scotland as appropriate) has good title to each Mortgage Loan and
the Collateral Security in respect of each such Mortgage Loan, has
full right and authority to charge and assign the same by way of
security and the same is the absolute property of the Borrower
(subject to any registration or recording in favour of the Borrower
which may be pending at HM Land Registry or the Registers of
Scotland) free and clear of all mortgages, securities, charges,
liens, encumbrances, claims and equities (including, without
limitation, rights of set off or counterclaim, overriding interest
within the meaning of Section 3(xvi) of the Land Registration Act
1925 or Section 28(1) of the Land Registration (Scotland) Act 1979
and adverse entries or notices of application therefor against any
title at HM Registry or the Registers of Scotland to any relevant
Mortgaged Property) except any such encumbrances, claims, equities,
overriding interests or entries which rank after the interests of
the Borrower, the Lender in the Mortgaged Loans or which do not have
an adverse effect on the value of the relevant Mortgaged Property as
security for the relevant Mortgage Loan or which are the subject of
a duly completed and signed Postponement Agreement or appropriate
executed MHA Documentation as contemplated in sub-clause 14.3(B)(2)
below;
(6) Each Mortgaged Property is a residential property or mixed
commercial and residential property in the United Kingdom;
(7) The steps necessary to perfect the vesting of full legal and
equitable title to each Mortgage Loan and the Collateral Security in
the Borrower have been duly taken at the appropriate time or are in
the course of being taken with all due diligence;
(8) To the best of its knowledge, each Mortgaged Property is free of
material damage and is in good repair;
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(9) Each Mortgage Loan at origination complied in all material respects
with applicable laws and regulations including, where applicable,
the Consumer Credit Act 1974 and any regulations made thereunder
(and in particular no Mortgage Loan is cancellable thereunder) and
consummation of the transactions contemplated hereby will not
involve the violation of any such laws and regulations;
(10) Neither it nor any prior holder of any Mortgage Loan has; (a)
modified the Mortgage Loan in any material respect, except that a
Mortgage Loan may have been modified by a written instrument in
respect of which any applicable registration(s) have been completed;
(b) satisfied, cancelled or subordinated such Mortgage Loan in whole
or in part; (c) released the related Mortgaged Property in whole or
in part from the security created by the relevant Mortgage Deed; or
(d) executed any instrument of release, cancellation, discharge,
modification or satisfaction with respect thereto;
(11) No sub-mortgage, sub-charge, pledge, lien or right of set off or
counterclaim or other security interest or other adverse right or
interest has been created or has arisen between it and any Mortgagor
which entitles or entitled the Mortgagor to reduce the amount of any
payment otherwise due under the terms of such Mortgagor's Mortgage
Loan (save, in the case of junior mortgages, the relevant prior
ranking legal mortgage or mortgages of or Standard Security over the
relevant Mortgaged Property created by the Mortgagor and any related
security for the loan secured thereby);
(12) Each Mortgage Loan was originated in all material respects in
accordance with the criteria set out in the Underwriting Guidelines;
(13) In relation to each Mortgaged Property:-
(1) in respect of title to property in England or Wales which is
not registered, the relevant Mortgagor had or was acquiring
good and marketable title to the fee simple absolute in
possession (if freehold) or a term of years absolute of not
less than thirty years beyond the term of the Mortgage Loan
(if leasehold) relating to such Mortgaged Property and is free
from any encumbrance which would adversely affect such title;
(2) in relation to title which is registered at HM Registry, it
was so registered with title absolute in the case of freehold
property or absolute leasehold or good leasehold title of the
requisite title aforesaid in the case of leasehold property;
(3) in relation to which title is registered or recorded in the
Registers of Scotland, it was so registered or recorded with
valid and marketable title (whether feudal or long lease),
having in the case of a long lease an
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unexpired term of not less than thirty years beyond the term
of the Mortgage Loan;
(4) no works on the relevant Mortgaged Property were carried out
in violation of any applicable planning law or regulation or
building regulations;
(5) if the relevant Mortgaged Property is leasehold or (in
Scotland) held under long lease, any requisite consent of the
landlord to or notice to the landlord of the creation of the
relevant Mortgage had been obtained or given and no consents
of or notices to such landlord are required to any transfer,
assignation or sub-charge of the relevant Mortgage, and a copy
of any such consent or notice is held with the title deeds to
the relevant Mortgaged Property or held to the order of the
Lender or its Solicitors;
(6) the relevant Mortgaged Property is not subject to any adverse
third party claim or proceeding for compulsory acquisition
thereof;
(14) Each Mortgage relating to a Mortgage Loan (and any other documents
entered into in relation to the relevant Mortgage Loan) is the
legal, valid and binding obligation of the grantor thereof,
enforceable in accordance with its terms and with applicable laws
and parties thereto had legal capacity to execute the same and the
same have been duly and properly executed by such parties;
(15) Either:
(1) the proceeds of the Mortgage Loans have been fully disbursed
and there is no requirement for further advances thereunder;
or
(2) if any retention was recommended by CMC's or the relevant
Approved Affiliate's valuer, the recommendation to make a
retention was implemented and cash was not advanced until CMC
or relevant Approved Affiliate had received a certificate (or
other evidence acceptable to it) of completion of the relevant
repairs or other works.
(16) Each Mortgage Deed is in, or substantially in, the form of the
relevant attachment annexed hereto in Annexure 2.
(17) The origination and underwriting practices used by CMC or relevant
Approved Affiliate or with respect to each Mortgage Loan have been
in all respects legal, proper, prudent and customary in the mortgage
servicing business in the United Kingdom and comply with the
Underwriting Guidelines;
(18) Either:
(1) each Mortgaged Property is insured under the block insurance
policy from time to time maintained by CMC or, as the case may
be, the relevant
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Approved Affiliate to provide, where it is agreed that the
Mortgagor will not insure, cover against such risks and
contingencies as are commonly insured against in a fully
comprehensive buildings insurance for residential properties
to a minimum of the full cost of reinstatement thereof
together with inflation cost over any period that may be
required for obtaining any relevant planning permission and
other approvals and the reinstatement or repair period and
architects and other professional fees; or
(2) where the Mortgagor insures, CMC or, as the case may be, the
relevant Approved Affiliate has established that such
insurance was, at the date of origination of the relevant
Mortgage Loan, in accordance with the foregoing provisions of
this sub-clause, with a reputable insurer, with an
acknowledgement by the insurer that the interest of CMC or
relevant Approved Affiliate has been or will be promptly
following the relevant Advance Date be noted on the relevant
policy. In the case of leasehold property in England and
Wales, the relevant Mortgaged Property is insured under
arrangements effected by the freeholder or any intermediate
leaseholder, on a fully comprehensive basis as aforesaid.
(19) Prior to making the relevant advance the subject of a Mortgage Loan,
CMC or the relevant Approved Affiliate (as originator) carried out
or caused to be carried on its behalf the investigations, searches
(other than local authority searches) and other actions and made or
caused to be made on its behalf the enquiries as to the Mortgagor's
status that were required in accordance with the relevant lending
criteria of CMC or the Approved Affiliate or Relevant Affiliate (as
originator) applicable at the time when the offer of advance was
made and the results thereof were acceptable to CMC or the relevant
Approved Affiliate or Relevant Affiliate (as originator) in
accordance with such lending criteria for the purposes of the
proposed advance;
(20) Any further advances after the date of the Mortgage Deed but made
prior to the Advance Date have been advanced under separate mortgage
documentation (and, accordingly, have not been consolidated with the
outstanding principal amount secured by the Mortgage), and all
ground rents, ground burdens and service charges and other payments
required in relation to leasehold property or heritable property
which previously became due and owing have been paid. Except for
interest accruing from the date of the relevant Mortgage Deed or
date of advance to the relevant Mortgagor, whichever is later, to
the day which precedes by one month the date for payment of the
first instalment of principal and interest, none of CMC, the
Approved Affiliate or Relevant Affiliate (as originator) has
advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor, directly or
indirectly, for the payment of any amount in relation to the
relevant Mortgage Loan save to the extent that the same reduces the
Mortgage Loan;
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(21) Subject to clause 14.3(B), to the best of the Borrower's knowledge
and belief (the Borrower having made all reasonable enquiries of CMC
or relevant Originator) there is no default, breach, violation or
event of acceleration existing under any Mortgage Loan: and neither
CMC nor any Approved Affiliate (as originator) has waived any
default, breach, violation or event of acceleration other than any
waiver which is in accordance with and permitted under the relevant
Manuals;
(22) Each Mortgage File contains a valuation of the relevant Mortgaged
Property undertaken on the instructions of CMC, the relevant
Approved Affiliate or Relevant Affiliate (as originator), or
instructions issued on its behalf or as the case may be by any
predecessor in title in relation to the relevant Mortgage Loan) by
an independent qualified valuer being an associate or fellow of the
Royal Institute of Chartered Surveyors or, as the case may be,
Society of Valuers and Auctioneers, in each case approved by CMC,
the relevant Approved Affiliate or Relevant Affiliate (as
originator) and unless otherwise agreed between the Lender and the
Borrower, the principal amount advanced to the relevant Mortgagor
was not more than the amount permissible under the terms of the
relevant Program;
(23) At the time of the making of the Mortgage Loan, the Mortgaged
Property was not located within a 1 mile radius of any contaminated
land or any land with environmental or hazardous waste risks known
to CMC or the relevant Approved Affiliate or (as originator) or,
where such was the case, an environmental audit was procured by CMC
or the relevant Approved Affiliate or (as originator) or evaluated
in accordance with such relevant originator's established
environmental review procedures, and found to be satisfactory;
(24) In selecting the Mortgage Loans in respect of which Advances are
made hereunder, no selection procedure was employed by the Borrower
which was intended to adversely affect the interests of the Lender;
(25) Prior to the making of the relevant mortgage advance, enquiry was
made of each Mortgagor as to the identity of the persons in actual
occupation of the Mortgaged Property and (i) in the case of English
Mortgage Loans, any person who at the date when the advance was made
had attained the age of 18 and who was identified in writing to CMC,
the relevant Approved Affiliate (as originator) or its Solicitor by
the Mortgagor as residing or being about to reside in the relevant
Mortgaged Property is either named as joint mortgagor on the
relevant Mortgage Deed or has signed a legally binding agreement
postponing (each a "Postponement Agreement") all rights and
entitlements to which such person may be entitled in the Mortgaged
Property to the interests, rights and entitlements of CMC or the
relevant Approved Affiliate (as originator) or such other person as
may have or acquire as mortgagee or chargee of the property from
time to time, such agreement in a form as was satisfactory to such
Solicitor, and (ii) in the case of Scottish Mortgage Loans, prior to
the making of the advance, CMC or the relevant Approved Affiliate
(as originator) or its Solicitor obtained all necessary validly
executed MHA Documentation so as to ensure that neither the
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relevant Mortgage Loan nor the relevant Mortgaged Property was
subject to or affected by any statutory right of occupancy in favour
of a non-entitled spouse;
(26) CMC and each Approved Affiliate have kept, or caused to be kept,
full and proper accounts, books and records showing all transactions
payments, receipts and proceedings relating to that Mortgage and all
such accounts, books and records are up to date and in its
possession or held to its order;
(27) There exists no litigation, dispute or complaint (subsisting or
pending or threatened) calling into question in any way title of CMC
or any Approved Affiliate to any Mortgage Loan or, to the best of
its knowledge, the relevant Mortgagor's title to his Mortgaged
Property;
(28) The Mortgage Loan Documents are held to the order of the Lender by
the relevant Solicitor or have been lodged at H.M. Land Registry or
the Registers of Scotland and in the case of each Mortgaged Property
the title to which is registered or for which application for first
registration has been made the Borrower knows the title number under
which the Mortgaged Property is (or, in the case of first
registration, is to be) registered at H.M. Land Registry or the
Registers of Scotland;
(29) In relation to each Mortgage Deed for Mortgaged Property where
registration is pending at H.M. Land Registry, there is no caution,
notice or other entry which would prevent the registration of the
Mortgage Deed as a charge by way of first or, as the case may be,
second or third subsequent legal mortgage.
(30) None of the Mortgagors which pay interest is a company.
14.4 It is acknowledged, that references in this clause 14 to Mortgage Loans
shall include reference to the relevant Collateral Security, as
appropriate.
15. REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES
15.1 It is understood and agreed that the representations and warranties set
forth in clauses 14.1 and 14.3 shall survive the charging of Mortgage
Loans to the Lender and shall enure to the benefit of the Lender
notwithstanding the examination by the Lender or failure by the Lender to
examine any Mortgage File.
15.2 With respect to the representations and warranties contained in clauses
14.1 and 14.3 which are made to the best of the Borrower's knowledge,
after reasonable inquiry and investigation, if it is discovered by either
the Borrower or the Lender that the substance of such representation and
warranty is inaccurate and in the case of those in clause 14.3 such
inaccuracy materially and adversely affects the value of the related
Mortgage Loan or the Lender's interest in the Mortgage Loan then,
notwithstanding the Borrower's lack of knowledge with respect to the
inaccuracy at the time the representation or warranty
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was made, the Lender shall have the same rights in respect of the breach
thereof as it would have if the applicable representation or warranty was
breached.
15.3 Upon discovery by either the Borrower or the Lender of a breach of any of
the foregoing representations and warranties
(a) given under clause 14.1; or
(b) given under clause 14.3 which materially and adversely affects
the value of the Mortgage Loans or the interest of the Lender
in the Mortgage Loan (or which materially and adversely
affects the interests of the Lender in or to the related
Mortgage Loan in the case of a representation and warranty
relating to a particular Mortgage Loan)
the party discovering such breach shall give prompt written notice to the
other.
15.4 If following a review undertaken by the Lender within a period of 30 days
after the date of any Advance, a material breach of the warranties in
clause 14.3 shall be discovered, the same shall constitute a breach of
such representation and warranty irrespective of whether the same
materially and adversely affects the value of the relevant Mortgage
Loan(s) provided that notice regarding such breach shall have been
delivered by the Lender to the Borrower promptly following such review.
15.5 Within 90 days of the earlier of either discovery by or notice to the
Borrower of any breach of a representation or warranty given under clause
14.3 which materially and adversely affects the value of any Mortgage
Loan, the Borrower shall use all reasonable endeavours promptly to cure
such breach and, if such breach cannot be cured or is not cured at the end
of such 90 day period or if it is determined at any time following
discovery or notice that such breach cannot be cured, the Borrower shall:-
(1) repay the Advance (or such part thereof) made hereunder to fund the
relevant Mortgage Loan, together with accrued interest thereon, on
demand of the Lender; or
(2) with the Lender's prior consent provide additional collateral of a
type and amount reasonably acceptable to the Lender, charged in
favour of the Lender pursuant to such security documents as shall be
acceptable to the Lender;
and when the Borrower has repaid the Advance (or relevant part thereof)
under sub-clause 15.5(a) or provided additional collateral in accordance
with sub-clause 15.5(b) the Lender shall, at the cost of the Borrower,
release the relevant Mortgage Loan or Mortgage Loans from the security
constituted by the Debenture together with all Collateral Security related
thereto.
15.6 Without prejudice to the Lender's rights under clause 15.5(a), and for
such time as the Borrower's obligations thereunder shall remain
undischarged, the Lender shall be entitled
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to satisfy and discharge any obligation it may have to make an Advance
hereunder through set-off of the Borrower's obligations to it under clause
15.5(a) and if the Lender does so it shall be treated for all purposes as
if it had satisfied its obligation to make the relevant Advance through
remittance of the relevant funds in cash.
15.7 The Borrower shall, at its option, either prepay each Advance (or part
thereof) made to finance any First Pay Default Mortgage Loan or deposit
additional collateral in respect thereof, in the manner described under
clause 15.5 within two Business Days of request by the Lender in respect
of notification by reference to an Interest Payment Date, such request to
be deemed to have automatically been given in respect of each Interest
Payment Date in relation to Mortgage Loans financed hereunder which first
become a First Pay Default Mortgage Loan during the Collection Period in
respect of such Interest Payment Date, and within five Business Days of
request in all other cases of the relevant Mortgage Loan becoming a First
Pay Default Mortgage Loan, and the Lender shall be entitled to discharge
any obligation to make an Advance hereunder by set-off against amounts
owed in respect of any First Pay Default Mortgage Loan in the manner
contemplated under clause 15.6.
16. UNDERTAKINGS AND COVENANTS
16.1 The Borrower and (but only where the covenant or undertaking relates to
CMC) CMC hereby undertake with the Lender that from and after the date
hereof and until all sums due and to become due hereunder have been paid
or repaid in full and the Facility shall no longer exist:
(1) the Borrower shall obtain, comply with the terms of and do all that
is necessary to maintain in full force and effect all
authorisations, approvals, licences and consents required in or by
the laws and regulations of England and of Scotland to enable it
lawfully to enter into and perform its obligations under this
Agreement and each Transaction Document and to ensure the legality,
validity, enforceability or admissibility in evidence in England and
in Scotland of this Agreement and each Transaction Document and
shall ensure that none of the foregoing are revoked or modified;
(2) the Borrower shall promptly inform the Lender of the occurrence of
any Event of Default or Potential Event of Default and, upon receipt
of a written request to that effect from the Lender, confirm to the
Lender that, save as previously notified to the Lender or as
notified in such confirmation, no such event has occurred;
(3) the Borrower shall ensure that at all times the claims of the Lender
against it under this Agreement are secured as provided in the
Security Documents and that the security thereunder will be of the
nature and will rank in the priority it is expressed to have in the
Security Documents;
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(4) the Borrower shall not, without the prior written consent of the
Lender, create or permit to subsist any Security over all or any of
its present or future revenues or assets save for those created (or
permitted) under the Security Documents;
(5) the Borrower shall not, without the prior written consent of the
Lender, make any loans, grant any credit or give any guarantee or
indemnity (except as contemplated in the Transaction Documents) to
or for the benefit of any person or otherwise voluntarily assume any
liability, whether actual or contingent, in respect of any
obligation of any other person;
(6) the Borrower shall not, without the prior written consent of the
Lender, issue any further shares or alter any rights attaching to
its issued shares in existence at the date hereof;
(7) the Borrower shall not, without the prior written consent of the
Lender, sell, lease, transfer or otherwise dispose of, by one or
more transactions or series of transactions (whether related or
not), the whole or any part of its revenues or its assets except as
contemplated in the Transaction Documents;
(8) the Borrower shall not, except as permitted under the Proceeds
Agreement, make or declare any dividend or other distribution;
(9) the Borrower shall not engage in any business other than that
contemplated in the Transaction Documents and shall not have any
employees;
(10) the Borrower shall, at all times, ensure that there is at least one
independent director (approved by the Lender, such approval not to
be unreasonably withheld) on its board and CMC undertakes that it
shall not (as shareholder or otherwise) do (or omit to do) anything
which would prevent compliance with this covenant;
(11) each of the Borrower and CMC undertake that it shall not make or
permit any amendments to be made to the memorandum or articles of
association of the Borrower without prior written consent of the
Lender, such consent not to be unreasonably withheld;
(12) the Borrower will cooperate with CMC in CMC's continued negotiations
with the OFT to settle any matters from time to time outstanding in
relation to Mortgage Loans and CMC undertakes to continue to
endeavour to settle all matters outstanding and pending with the OFT
from time to time as expeditiously as reasonably practicable;
(13) CMC and the Borrower will procure that the origination of all New
Production Mortgage Loans does not violate in any material respect:-
(1) OFT Guidelines and;
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(2) any undertakings or agreements between CMC, any Approved
Affiliate, or the Borrower and the OFT;
(14) the Borrower will procure that the Lender has reasonable access to
Clifford Chance (or such other solicitors as may be appointed from
time to time in addition to or in place of Clifford Chance to
negotiate with the OFT in relation to Mortgage Loans) for one or
more meetings as shall be reasonably necessary to, inter alia,
obtain the views of Clifford Chance or such other solicitors
regarding compliance by CMC, each Approved Affiliate and the
Borrower with OFT Guidelines;
(15) the Borrower will procure that the Lender has access (for the
purposes of review and, provided that the Lender has executed a
confidentiality agreement mutually acceptable to the Lender and the
Borrower, copying) to all correspondence between CMC and/or their
solicitors and the OFT prior to the date of the CMC Restructuring
Agreement and will procure that the Lender is promptly provided with
copies of any OFT related correspondence sent or received on or
after the date thereof provided that nothing in this or any other
undertaking shall entitle the Lender to receive access to or copies
of privileged correspondence between CMC, any Approved Affiliate and
its or their respective counsel;
(16) the Borrower shall procure that, upon reasonable request of the
Lender, an opinion of counsel satisfactorily to the Lender is
obtained, addressed to the Lender, in form and substance reasonably
satisfactory to the Lender, such opinion to confirm that New
Production Mortgage Loans comply in all material respects with all
applicable laws and regulations, including without limitation, the
OFT Guidelines and any undertaking in writing given by CMC, the
Borrower or any Approved Affiliate to the OFT or, if, after
discussions between the proposed counsel and the Lender, the Lender
is satisfied (acting reasonably and in good faith) that there are
justifiable legal reasons why such counsel is unable to provide the
legal opinion sought, a memorandum prepared by counsel satisfactory
to the Lender setting out why (and how) the New Production Loans
comply (in all material respects) with the OFT Guidelines and any
undertakings or agreements between CMC, CMS, and Approved Affiliates
or the Borrower and the OFT;
(17) the Borrower will procure that all Mortgage Files are delivered to
Hayes Business Services Limited or such other storer as the Lender
may have approved from time to time (subject always to clause
3.10(d) of the Debenture) as soon as reasonably practicable
following receipt of the recorded deed and shall use reasonable
endeavours to procure that the Lender has, upon 1 Business Day's
notice, access to the offices of all Solicitors, Hayes Business
Services Limited or other storage provider aforesaid) during normal
business hours and shall procure that the Solicitors are instructed
to allow the Lender to take possession of any Mortgage File in
relation to any Mortgage Loan financed or to be financed hereunder;
and
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(18) the Borrower shall deliver to the Lender as soon as the same are
available, and in any event within one hundred and eighty (180) days
after the end of each of its financial years a copy of its audited
annual financial statements;
(19) the Borrower shall provide the Lender promptly upon request with any
information relating to it and/or its financial condition as the
Lender may from time to time reasonably require in connection with
this Agreement;
(20) the Borrower shall ensure that each set of audited annual financial
statements delivered pursuant to sub-clause (r) are prepared in
accordance with generally accepted accounting principles and on the
same basis every year and half year (save as may be required from
time to time as a result of changes in law or regulation or
generally accepted accounting principles);
(21) each of the Borrower and CMC shall, promptly upon receipt of the
same, deliver to the Lender a copy of any independent accountants'
management letters received by it relating to it or any member of
its group;
(22) the Borrower shall procure that:
(1) (at the Lender's expense) the transfer of all Existing
Mortgage Loans to it, pursuant to the Mortgage Transfer
Agreement; and
(2) (at the Borrower's expense) each transfer to it of any New
Production Mortgage Loan financed hereunder,
is registered at HM Land Registry or Registers of Scotland within
three months from the date of application to the relevant registry,
provided that breach by the Borrower of this provision in relation
to any one or more Existing Mortgage Loans or New Production
Mortgage Loans shall not constitute an Event of Default but shall
entitle the Lender to require repayment of the Advance, or part
thereof, (and all interest accrued thereon) which funded the
acquisition of the relevant New Production Mortgage Loan or Existing
Mortgage Loan against release by the Lender of the relevant Mortgage
Loan from the security created by the Debenture;
(23) the Borrower shall procure that where any retention is made in
respect of a Mortgage Loan funded hereunder, the amount retained is,
pending advance of the same against the relevant certificate (or
other evidence) of completion of the relevant works, held either in
the Borrower Funding Account or with the relevant Solicitor under
the terms of the Initial Undertaking;
(24) The Borrower shall deliver to the Lender the Underwriting Guidelines
and the forms of Mortgage Deed within 5 Business Days of the date
hereof.
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16.2 The Borrower shall, within one week of any written request from the Lender
requiring delivery to it of a solvency certificate in respect of any
Approved Affiliate and/or CMC, procure the delivery of such solvency
certificate or certificates to the Lender which shall:-
(1) in the case of an Approved Affiliate each be in or substantially in
the form set out in Schedule 2A; and
(2) in the case of CMC each be in or substantially in the form set out
in Schedule 2(B),
and, in each case, duly executed by:-
(3) a director of the relevant company; and
(4) approved by the board of the relevant company,
together with certified copies of supporting board minutes in form and
substance satisfactory to the Lender, (and any undertakings or assurances
referred to in the relevant solvency certificate), it being acknowledged
that there is no limit on the number of requests which the Lender is
entitled to make for delivery of solvency certificates in respect of any
such company.
16.3 The Borrower undertakes and covenants with the Lender that it shall,
within 30 days from the date hereof, enter into the Substitute Servicing
Agreement provided that, the Borrower shall not be deemed to be in breach
of the undertaking contained in this clause 16.3 in the event that the
failure to enter into the Substitute Servicing Agreement is due solely to
either:-
(1) the refusal of any party ("Third Parties") other than the Borrower,
CMS or CMC to enter into the Substitute Servicing Agreement
(provided that the Borrower shall use reasonable endeavours to
negotiate with Third Parties to obtain their agreement to enter into
such agreement); or
(2) the failure to obtain the consents and permissions referred to in,
and in accordance with, Clause 16.8.
16.4 The Borrower shall, promptly upon request from the Lender (the Lender to
cover the Borrower's out of pocket costs and expenses in respect thereof),
send or procure that the Servicer sends a notice to the Mortgagor of each
Existing Mortgage Loan and each New Production Mortgage Loan financed
under this Agreement, in form and substance satisfactory to the Lender,
informing such Mortgagors, inter alia, that all Mortgage Payments should,
following the receipt by each relevant Mortgagor of such notice, be made
to the credit of the Borrower Collection Account or such other account
identified by the Lender in such request provided always that:-
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(1) until such time as the Lender takes any action, following the
occurrence of any Event of Default under clause 17.1(i), (ii), (iii)
or (iv); and
(2) provided that no Event of Default has occurred which is subsisting
unremedied (to the satisfaction of the Lender) or unwaived,
the Lender shall be obliged, before making any such request, to notify the
Borrower and CMC and to discuss the proposals with them, provided that the
Lender's decision as to the service of such notice (or otherwise) shall be
final and binding.
16.5 The Borrower shall, or shall procure that the Servicer shall, within 21
days of the advance of funds under each New Production Mortgage Loan in
respect of which any Advance to originate or fund the purchase of such New
Production Mortgage Loan is made, forward to the relevant Mortgagor a
notice in the form set out in Schedule 3 to the Interim Servicing
Agreement or, after execution thereof, the equivalent schedule in the
Substitute Servicing Agreement.
16.6 Each of the Borrower and CMC shall, as soon as possible after the date
hereof, take all reasonable steps and do all things necessary to procure
(insofar as they can) that the CMC Collection Account (which is, at the
date hereof, in the name of the Servicer) is transferred into the name of,
and becomes an account of CMC so as to accord with the intention of, inter
alia, CMC and the Servicer, it being acknowledged that the ability of CMC
or the Borrower to do so is dependent upon the agreement of third parties.
16.7 Each of CMC and the Borrower shall take all necessary steps (including the
obtaining of all relevant consents) so as to procure (in so far as they
are able) that supplemental declarations of trust over the Securitisation
Collection Accounts in favour of the Borrower (in respect of Existing
Mortgage Loans and all New Production Mortgage Loans financed and to be
financed at any time under this Agreement) are constituted and that any
necessary amendments to existing Securitisation Collection Account Trusts
and Securitisation Bank Agreements in order to effect the foregoing are
made, all such matters to be approved by and in form and substance
satisfactory to the Lender, it being acknowledged that the ability of CMC
or the Borrower to do so is dependent upon the agreement of third parties.
16.8 CMC will cooperate with the Lender and use reasonable endeavours to
negotiate with the relevant parties so that any intellectual property
rights not owned by it but used by it or by the Servicer in connection
with the performance of its or the Servicer's obligations under this
Agreement or any other Transaction Document and in particular all software
programs used in connection with the Mortgage Loans financed hereunder and
their administration are, or are permitted to be charged, assigned by way
of security, licensed or sub-licensed on a non-exclusive basis to the
Borrower any Standby Servicer or substitute servicer and the Lender so as
to permit the Borrower any Standby Servicer or substitute servicer and the
Lender to use such intellectual property rights only in connection with
the administration of the Mortgage Loans financed hereunder for so long as
any of the Secured Sums (as defined in the Debenture) are paid in full.
CMC will
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provide a report, upon the reasonable request of the Lender from time to
time, on the steps that have been taken by CMC to obtain the consents and
permissions referred to in this clause and shall provide to the Lender
copies of all such consents and permissions upon receipt thereof by CMC.
16.9 In the event that:-
(1) CMS ceases to be affiliated (within the meaning of clause 17.6) with
CMC, any holding company or subsidiary of CMC; and
(2) the Interim Servicing Agreement or, after execution of the same, the
Substitute Servicing Agreement is terminated or becomes capable of
being terminated (after expiration of any applicable grace periods),
the Borrower shall procure that:-
(1) a substitute servicer acceptable to the Lender is appointed,
on terms and conditions acceptable and under documentation in
form and substance satisfactory to the Lender (but which terms
need be no more favourable to the Lender than those under the
Substitute Servicing Agreement), as its agent to service the
Existing Mortgage Loans and all New Production Mortgage Loans
financed hereunder in place of the Servicer within 30 days of
the occurrence of the event specified in (a) or (b) above; and
(2) such substitute servicer assumes its obligations, with
immediate effect, under the substitute servicing agreements
within such 30 day period.
16.10 If the Lender waives (in whole or part) condition precedent 3.1(c) the
Borrower shall provide evidence satisfactory to the Lender, within 14 days
of the date hereof, that each of the Lender and the Borrower are named
(whether through a generic endorsement or otherwise) as additional
assureds in respect of their respective interests, and that the Borrower
is named as loss payee on each Block Buildings Policy and each Block Life
Policy (and any other block buildings or life policies held by CMC or any
Approved Affiliate), in each case subject to breach of warranty and no
liability for premia endorsement.
17. DEFAULT
17.1 In the event of:-
(1) any default by the Borrower in the payment of any amount due for
payment hereunder or under any Transaction Document within two
Business Days after its due date; or
(2) the Borrower:-
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(1) failing to perform its obligations under clause 16.2 (but only
in respect of a requirement to deliver a solvency certificate
in respect of CMC), clause 16.3 or clause 16.9; or
(2) failing to observe or perform any other covenants, obligations
or agreements of the Borrower under this Agreement or any
Transaction Document which, if (in the good faith opinion of
the Lender) capable of remedy shall not have been remedied (to
the satisfaction of the Lender) within ten Business Days of
being required by the Lender to do so; or
(3) any representation or warranty made or repeated by the Borrower
under this Agreement (other than any representation or warranty made
or deemed to be made pursuant to clause 14.3) or under any other
Transaction Document or any representation and warranty made or
repeated by CMC hereunder being or proving to be or have been untrue
or incorrect or misleading in any material respect as at the date at
which it was made or repeated, and in the case of any such breach
which is (in the good faith opinion of the Lender) capable of
remedy, the relevant breach not having been remedied within ten
Business Days of the Lender requiring the Borrower or, as the case
may be, CMC to do so; or
(4) any default by CMC in the payment of any amount due for payment
hereunder or under the Indemnity on the due date therefor; or
(5) CMC failing to observe or perform any other covenant, obligation or
agreement contained hereunder or in the Indemnity which, if (in the
good faith opinion of the Lender) is capable of remedy has not been
remedied (to the satisfaction of the Lender) within 10 Business Days
of the Lender requiring CMC to do so; or
(6) the Interim Servicing Agreement or, after execution of the same the
Substitute Servicing Agreement being terminated, or becoming capable
of being terminated (after expiration of any applicable grace
periods) in accordance with its terms other than by reason of a
Disposal that by its terms is conditional upon a release of
servicing in respect of such Mortgage Loans; or
(7) CMC or CMS failing to observe or perform any material covenant,
obligation or agreement (including any obligation to make any
payment) on its part to be observed or performed under any
Transaction Document (other than, in the case of CMC, this Agreement
or the Indemnity and, in the case of CMS the Interim Servicing
Agreement and, after execution of the same, the Substitute Servicing
Agreement) which if (in the good faith opinion of the Lender)
capable of remedy shall not have been remedied (to the satisfaction
of the Lender) within 10 Business Days (or such shorter or longer
grace period as may apply in respect of the relevant breach under
the relevant Transaction Document) of the Lender requiring remedy of
the same; or
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(8) any representation or warranty made or repeated by CMC or CMS under
any Transaction Document (other than, in the case of CMC, this
Agreement and the Indemnity and in the case of CMS the Interim
Servicing Agreement and, after execution of the same, the substitute
Servicing Agreement) being or becoming untrue or misleading as of
the date on which made or repeated and, in the case of any such
breach which is (in the good faith opinion of the Lender) capable of
remedy, the relevant breach not having been remedied to the
satisfaction of the Lender within 10 Business Days (or such shorter
or longer grace period as may apply in respect of the relevant
breach under the relevant Transaction Document) of the Lender
requiring CMC or CMS, as the case may be, to do so; or
(9) the loss by CMC, the Borrower, CMS or any Approved Affiliate of its
Consumer Credit Act Licence; or
(10) an adverse determination being made by the OFT in respect of any
Minded to Revoke Notice served by the OFT on any of CMC, the
Borrower or any Approved Affiliate in respect of the Consumer Credit
Act Licence of CMC, the Borrower or relevant Approved Affiliate
irrespective of any right to appeal (or other right) which the
Borrower, CMC or Approved Affiliate may have thereafter, a
"determination" being the decision or determination made by the
Director (as defined under the CCA) under section 34(3) CCA in
respect of the relevant Minded to Revoke Notice; or
(11) an injunction or interdict (which relates to its residential
mortgage lending business including, without limitation, Mortgage
Loans financed hereunder) being obtained by (or on behalf of) the
OFT against CMC, the Borrower or any Approved Affiliate which
remains in effect for more than 60 days;
(12) an order being made or an effective resolution being passed for
winding up of the Borrower, CMC or CMS; or
(13) the Borrower, CMC or CMS ceasing or threatening to cease to carry on
business or a substantial part of such business or stopping payment
or threatening to stop payment of its debts or being or becoming
unable to pay its debts within the meaning of Section 123(1)(a),
(b), (c) or (d) of the Insolvency Act 1986, as that section may be
amended, (or as the case may be any analogous provision under any
applicable jurisdiction) or otherwise becoming unable to pay its
debts as they fall due or the value of its assets falling to less
than the amount of its liabilities (taking into account for both
these purposes its contingent and prospective liabilities) or the
Borrower, CMC or CMS otherwise becoming insolvent provided that for
the purposes of determining whether, on any date by reference to
which the same falls to be determined:-
(1) CMC is unable to pay its debts within the meaning of section
123 of the Insolvency Act 1986; or
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(2) the value of CMC's assets are less than its liabilities
(taking into account its contingent and prospective
liabilities); or
(3) (to the extent relevant to the test) CMC is otherwise
insolvent,
the Parent Indebtedness (as defined in Event of Default (q)) shall
be excluded;
(14) proceedings being initiated against the Borrower, CMC or CMS under
any applicable liquidation, insolvency, composition, reorganisation
(other than a reorganisation the terms of which have been approved
by the Lender and where the Borrower, CMC or CMS is solvent) or
other similar laws, or a petition for an administration order being
presented against the Borrower, CMC or CMS or an administrative or
other receiver, administrator or other similar official in any
applicable jurisdiction being appointed in relation to the Borrower,
CMC or CMS or in relation to the whole or any substantial part of
the undertaking of or assets of the Borrower, CMC or CMS or an
encumbrancer taking possession of the whole or any substantial part
of the undertaking or assets of the Borrower, CMC or CMS or a
distress, diligence or execution or other process being levied or
enforced upon or sued out against the whole or any substantial part
of the undertaking or assets of the Borrower, CMC or CMS or the
Borrower, CMC or CMS initiating or consenting to judicial
proceedings relating to itself under any applicable liquidation,
insolvency, composition, reorganisation or other similar laws or
making a conveyance or assignment for the benefit of its creditors
generally; or
(15) any material adverse change in the condition (financial, business,
prospects or otherwise) of any of the Borrower or CMC occurring,
which, in the reasonable judgment of the Lender is reasonably likely
to hinder or prevent the Borrower or CMC, as the case may be, from
performing its respective material obligations under any Transaction
Document or is likely to adversely affect the value (to the Lender)
of its security whether by adversely affecting the value of such
security, the prospects of a sale thereof or otherwise; or
(16) any Indebtedness of the Borrower or CMC in the aggregate in excess
of (pound)300,000 becoming due prior to its due date; or
(17) Cityscape or Cityscape Financial Corporation failing to observe or
taking any steps to amend or revoke in a manner adverse to CMC the
undertakings given in a letter dated 15 January 1998 to CMC, in
respect of the indebtedness outstanding and payable by CMC to
Cityscape or Cityscape Financial Corporation (the "Parent
Indebtedness") or any steps being taken to demand or enforce payment
of all or any part of the Parent Indebtedness by any person entitled
to do so,
(each of the foregoing an "Event of Default"), the Lender may, for so long
as such event is continuing unwaived by the Lender do each or any of the
following:
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<PAGE> 53
(1) declare, by notice in writing to the Borrower, any undrawn
portion of the Revolving Commitment or any of it to be no
longer available to the Borrower; and/or
(2) declare, by written notice to the Borrower, all Advances
outstanding together with all interest accrued thereon and all
other sums then due and outstanding hereunder from the
Borrower to be immediately due and payable, whereupon the same
shall become immediately due and payable; and/or
(3) enforce all or any of its security under the Security
Documents,
whereupon the Lender shall cease to be obliged to make Advances hereunder.
17.2 If any Advance shall be declared immediately due and payable as aforesaid,
the Borrower shall pay to the Lender such amount as the Lender certifies
to be necessary to compensate it for any loss incurred (excluding loss of
Margin) or to be incurred on account of deposits acquired or arranged in
order to fund such Advances as a consequence of such Event of Default.
17.3 The rights conferred on the Lender pursuant to this clause 17 shall be in
addition to whatever rights the Lender may have both at law and in equity.
17.4 The Lender may waive any default by the Borrower in the performance of its
obligations hereunder and its consequences. Upon any such waiver of a past
default, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been remedied for every purpose
of this Agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon except to the extent
expressly so waived.
17.5 The Borrower agrees to indemnify and keep indemnified the Lender from and
against any loss, cost (including any cost of enforcement), liability
(including any tax liability), claim or damage which the Lender incurs or
suffers as a consequence of the occurrence of any Event of Default and the
indemnity may, without limiting the Lender's rights, be claimed as a debt
or liquidated demand.
17.6 With effect from the date upon which CMS ceases to be affiliated with CMC,
any holding company or subsidiary of CMC, no event which would constitute
an Event of Default under clause 17 in respect of CMS alone (other than a
breach of clause 16.9) shall, from that date, be capable of constituting
an Event of Default hereunder and, for such purpose, CMS shall be deemed
to be affiliated with any such company until such time as no such company
holds, directly or indirectly, any shares (or other controlling interests)
in it.
17.7 The Lender acknowledges that the existence of the marketing arrangements
between, inter alia, CMC and the Lender in existence at the date hereof
shall not constitute any breach of Clause 17.1(m) as at the date hereof.
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<PAGE> 54
18. DEFAULT INTEREST
18.1 If any sum due and payable by the Borrower hereunder is not paid on the
due date therefor or if any sum due and payable by the Borrower under any
judgement or decree of any court in connection herewith is not paid on the
date of such judgement or decree, the period beginning on such due date
or, as the case may be, the date of such judgement or decree and ending on
the date upon which the obligation of the Borrower to pay such sum (the
balance thereof for the time being unpaid being herein referred to as an
"unpaid sum") is discharged shall be divided into successive periods, each
of which (other than the first) shall start on the last day of the
preceding such period and the duration of each of which shall (except as
otherwise provided in this clause 18) be selected by the Lender.
18.2 During each such period relating thereto as is mentioned in clause 18.1 an
unpaid sum shall bear interest at the rate per annum which is the sum from
time to time of one per cent and the Margin in respect thereof at such
time and LIBOR on the first day of the relevant period provided that:
(1) if, for any such period, LIBOR cannot be determined, the rate of
interest applicable to such unpaid sum shall be the rate per annum
which is the sum of one per cent and the Margin in respect thereof
at such time and the rate per annum determined by the Lender to be
equal to the rate which express as a percentage rate per annum
equals the cost to it of funding such unpaid sum for such period
from whatever sources it may select; and
(2) if such unpaid sum is all or part of an Advance which became due and
payable on a day other than the Repayment Date therefor, the first
such period applicable thereto shall be of a duration equal to the
unexpired portion of that Term and the rate of interest applicable
thereto from time to time during such period shall be that which
exceeds by one per cent the rate which would have been applicable to
it had it not so fallen due.
18.3 Any interest which shall have accrued under clause 18 in respect of an
unpaid sum shall be due and payable and shall be paid by the Borrower at
the end of the period by reference to which it is calculated or on such
other dates as the Lender may specify by written notice to the Borrower.
19. CURRENCY OF ACCOUNT
19.1 Sterling is the currency of account and payment for each and every sum at
any time due from the Borrower hereunder provided that each payment in
respect of costs and expenses shall be made in the currency in which the
same were incurred.
19.2 If any sum due from the Borrower under this Agreement or any order or
judgement given or made in relation hereto has to be converted from the
currency (the "first currency") in which the same is payable hereunder or
under such order, decree or judgement into
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<PAGE> 55
another currency (the "second currency") for the purpose of (a) making or
filing a claim or proof against the Borrower, (b) obtaining an order,
decree or judgement in any court or other tribunal or (c) enforcing any
order, decree or judgement given or made in relation hereto, the Borrower
shall indemnify and hold harmless each of the persons to whom such sum is
due from and against any loss suffered as a result of any discrepancy
between (i) the rate of exchange used for such purpose to convert the sum
in question from the first currency into the second currency and (ii) the
rate or rates of exchange at which such person may in the ordinary course
of business purchase the first currency with the second currency upon
receipt of a sum paid to it in satisfaction, in whole or in part, of any
such order, judgement, decree, claim or proof.
20. SET-OFF
20.1 The Borrower authorises the Lender to apply any credit balance to which
the Borrower is entitled on any account of the Borrower with the Lender in
satisfaction of any sum due and payable from the Borrower to the Lender
hereunder but unpaid.
20.2 All payments required to be made by the Borrower hereunder shall be
calculated without reference to any set-off, deduction or counterclaim and
shall be made free and clear of and without any deduction for or on
account of any set-off, deduction or counterclaim.
21. CALCULATION OF INTEREST
Interest shall accrue from day to day and shall be calculated on the basis
of a year of 365 days and the actual number of days elapsed.
22. COSTS AND EXPENSES
22.1 The Borrower shall, save where expressed to the contrary in any other
Transaction Document, from time to time on demand of the Lender, reimburse
the Lender for all reasonable costs and expenses (including legal fees)
together with any VAT thereon (including the legal expenses referred to in
the Fee Letter) incurred by it in connection with the negotiation,
preparation and execution of this Agreement, the Transaction Documents and
the completion of the transactions pursuant to this Agreement or the
Transaction Documents or in connection with the preservation and/or
enforcement of any of the rights of the Lender under this Agreement and
the Transaction Documents.
22.2 The Borrower shall pay all stamp, registration and similar taxes to which
this Agreement or any judgement or decree given in connection herewith is
or at any time may be subject (including in relation to the perfection of
security granted by the Security Documents) and shall, from time to time
on demand of the Lender, indemnify the Lender against any liabilities,
costs, claims and expenses resulting from any failure to pay or any delay
in paying any such tax.
22.3 The Borrower shall, from time to time on demand of the Lender compensate
the Lender at such daily and/or hourly rates as the Lender shall from time
to time reasonably
52
<PAGE> 56
determine for the time and expenditure, all costs and expenses (including
telephone, fax, copying, travel and personnel costs) incurred by the
Lender in connection with its taking such action as it may deem
appropriate or in complying with any request by the Borrower in connection
with (a) the granting or proposed granting of any waiver or consent
requested hereunder by the Borrower; (b) any actual, potential or
reasonably suspected breach by the Borrower of its obligations hereunder;
(c) the occurrence of any event which is an Event of Default or a
Potential Event of Default; or (d) any amendment or proposed amendment
hereto requested by the Borrower.
23. RELEASE FEES
The Borrower shall pay a fee to the Lender with respect to each Mortgage
Loan financed under this Agreement in an amount equal to 1.0% of the
unpaid principal balance of such Mortgage Loan as of the Interest Payment
Date immediately preceding the date on which such Mortgage Loan is
released from the Debenture for any reason, whether due to a sale or other
disposition of the Mortgage Loan by the Borrower, CMC or the Lender
(including pursuant to liquidation following enforcement of the Lender's
remedies thereunder), prepayment, repayment or otherwise. The fee payable
under this clause with respect to any Mortgage Loan shall be due and
payable on the date of the relevant release from the Debenture.
24. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of the
Lender, any right or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right or remedy prevent
any further or other exercise thereof or the exercise of any other right
or remedy. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
25. CONFIDENTIALITY
The Borrower shall not, without the prior written consent of the Lender,
disclose to any person the existence or any details concerning the
Transaction Documents except to the extent such disclosure is contemplated
in any Transaction Document, or is required pursuant to the application of
any applicable law or an order of a court of competent jurisdiction, or is
made to the Borrower's auditors or other professional advisors who are
subject to confidentiality restrictions imposed by a professional body
which are substantially similar to those set forth above.
26. NOTICES
26.1 Addresses
Any notice or other communication or document to be made or delivered
under this Agreement shall be made or delivered by fax or otherwise in
writing. Each notice, communication or other document to be delivered to
any party to this Agreement shall
53
<PAGE> 57
(unless that other person has by fifteen days' written notice to the other
party specified another address or fax number) be made or delivered to
that person at the address(es) or fax number (if any) set out below:-
(a) in the case of the Lender to their branch office in the United
Kingdom, facsimile number: 0171 375 5510, attention Jeff Beckwith
with a simultaneous copy to the office of the General Counsel
located at 600 Steamboat Road, Greenwich, Connecticut 06830, USA,
facsimile number: 001 203 629 4571, attention
General Counsel;
(b) in the case of the Borrower, to its offices at Cityscape House,
Croxley Business Park, Watford WD1 8YF, facsimile number: 01923
426456, attention Company Secretary;
(c) in the case of CMC, to its offices at Cityscape House, Croxley
Business Park, Watford, WD1 8YF, facsimile number: 01923 426456,
attention Company Secretary.
26.2 Deemed Delivery
Any notice, communication or document to be delivered to any person shall
be deemed to have been delivered:-
(1) in the case of personal delivery, at the time of such delivery;
(2) in the case of delivery by post, on the business day following the
day on which it was posted and in proving such delivery it shall be
sufficient to prove that the relevant notice, communication or
document was properly addressed, stamped and posted (by airmail, if
to another country) in the United Kingdom or, in the case of service
to or from an address outside the United Kingdom at 9.00 a.m. on the
fourth day following the day on which it was posted;
(3) in the case of any notice or other communication by fax, (a) on the
business day the same was transmitted so long as there is evidence
that such fax message was received prior to 5.00 p.m. local time of
the recipient on such day and such day is a business day for the
recipient, otherwise (b) on the business day following the day on
which it was transmitted and, in either case, in proving such
delivery it shall be sufficient to prove that the whole of the fax
message was received on any fax machine of the recipient and that
there was no evidence that such transmission had been interrupted.
27. SEVERABILITY
If at any time any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction,
that shall not affect or impair:-
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<PAGE> 58
(1) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(2) the legality, validity or enforceability under the law of any other
jurisdiction of that or any other provision of this Agreement.
28. WAIVER
The Lender confirms that, as at the date hereof, it has no actual
knowledge of any breach by the Borrower of any representation and warranty
under clause 14.3(A) relating to any Existing Mortgage Loan other than
those relating to the OFT Affected Loans subject to the waiver under
Clause 3.3 of the Mortgage Transfer Agreement.
29. ASSIGNMENT
29.1 The Lender may at any time:-
(1) sub-participate all or any part of its rights or benefits under this
Agreement; and
(2) assign or transfer all or any part of its rights or benefits under
this Agreement provided that:-
(1) if such assignment or transfer is to any person other than a
subsidiary, holding company of or other member of the Lender's
group such assignment or transfer shall require the prior
consent of the Borrower (such consent not to be unreasonably
withheld); and
(2) if, at the time and as a result of any proposed transfer or
assignment, the Borrower would incur any increased cost or be
liable to make payments in excess of those required to be made
hereunder immediately prior thereto (other than any minimum
liquid asset costs) such assignment or transfer is on terms
that the Borrower is not and will not be liable for any such
increased cost or liability.
29.2 The Borrower shall not be entitled to assign, transfer or otherwise
dispose of all or any of its rights or benefits under this Agreement
without the prior written consent of the Lender.
29.3 The Lender may disclose to a proposed assignee, transferee or
sub-participant information in its possession relating to the provisions
of this Agreement and the Transaction Documents which it considers
necessary or desirable to disclose for the purposes of the proposed
assignment, transfer or sub-participation, notwithstanding the provisions
of clause 24 (Confidentiality).
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<PAGE> 59
29.4 This Agreement shall bind and inure to the benefit of and be enforceable
by the Lender and its respective successors, transferees and assigns and
references to the Lender shall be deemed to include references to each of
the foregoing.
30. RESTRUCTURING AGREEMENT
Save as regards clause 12 (exclusivity) of the Restructuring Agreement
(which shall remain in full force and effect) the Restructuring Agreement
shall, with effect from the date hereof, cease to have effect.
31. FURTHER ASSURANCE
The Borrower shall, from time to time on being required to do so by the
Lender, now or at any time in the future, do or procure the doing of all
such acts and/or execute or procure the execution of all such documents in
a form satisfactory to the Lender as the Lender may consider necessary for
giving full effect to this Agreement and the Transaction Documents and
securing to the Lender the full benefit of the rights, powers and remedies
conferred upon the Lender in this Agreement or any Transaction Documents.
32. GOVERNING LAW
The Agreement shall be governed by and construed in accordance with the
laws of England (other than any terms hereof particular to the laws of
Scotland which shall be construed in accordance therewith) and the parties
hereto hereby submit to the jurisdiction of the courts of England and
Wales.
IN WITNESS WHEREOF, this Agreement is duly executed the date and year first
above written.
................................
for and on behalf of
MORTGAGE MANAGEMENT LIMITED
Witness.........................
Occupation......................
Address.........................
................................
................................
................................
for and on behalf of GREENWICH
56
<PAGE> 60
INTERNATIONAL, LTD.
Witness...............................
Occupation............................
Address...............................
......................................
......................................
......................................
for and on behalf of CITY MORTGAGE
CORPORATION LIMITED
Witness...............................
Occupation............................
Address...............................
......................................
......................................
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<PAGE> 61
SCHEDULE 1
FORM OF DRAWDOWN REQUEST
(INITIAL ADVANCE)
Date: 27 February 1998
To: Greenwich International, Ltd.
1 Jermyn Street
7th Floor
London
SW1Y 4UH
Dear Sirs,
We hereby request that you finance the purchase of the Mortgage Loans set forth
in the Mortgage Transfer Agreement of even date (the "Mortgage Loans") pursuant
to the terms of the Loan Facility Agreement (as amended and supplemented from
time to time; "the Agreement") dated February 27, 1998, between Greenwich
International, Ltd. as Lender, Mortgage Management Limited, as Borrower and City
Mortgage Corporation Limited.
The Mortgage Loans and Collateral Security relating thereto will be transferred
to the Borrower pursuant to the Mortgage Transfer Agreement today. In accordance
with the Agreement, we hereby deliver a data tape in computer-readable form in
respect of the Mortgage Loans as required under the terms of the Agreement.
The undersigned hereby certifies to the Lender on behalf of the Borrower that
all conditions precedent to the making of the Initial Advance contained in
Section 4.1 of the Agreement have been satisfied on or prior to the date hereof.
Yours faithfully
....................................
MORTGAGE MANAGEMENT LIMITED
58
<PAGE> 62
FORM OF DRAWDOWN REQUEST
(REVOLVING ADVANCES)
Date: 19
To: Greenwich International, Ltd.
1 Jermyn Street
7th Floor
London
SW1Y 4UH
Dear Sirs,
We hereby request that you finance the origination of the Mortgage Loans set
forth in the Preliminary Mortgage Loan Schedule attached hereto ("the Mortgage
Loans") pursuant to the terms of the Loan Facility Agreement (as amended and
supplemented from time to time; "the Agreement") dated February [ ], 1998,
between Greenwich International, Ltd. as Lender, Mortgage Management Limited, as
Borrower and City Mortgage Corporation Limited. The undersigned hereby certifies
that the Advance Date Principal Balance of such Mortgage Loans is (pound)[ ].
The proposed closing date on which funds in respect of which the Advance is
requested hereby will be advanced to the relevant Solicitors (for advance to
relevant Mortgagors) (the "Advance Date").
The Mortgage Loans and Collateral Security relating thereto will be transferred
to the Borrower by [City Mortgage Corporation Limited/name of Approved Affiliate
(as approved by you) on the Advance Date or, if later, the date on which the
funds under the relevant Mortgage Loan are advanced to the Mortgagor and the
Mortgage completed. In accordance with the Agreement, we hereby deliver and
Initial Undertaking in the prescribed format in relation to the Mortgage Loans
and we confirm that we have, on or before the date hereof, delivered a data tape
in computer-readable form in respect of the Mortgage Loans as required under the
terms of the Agreement.
We hereby confirm and undertake to procure that at the time of the relevant
advance each of the Mortgaged Properties will be insured against fire and all
other perils as would be insured against in a home owners comprehensive risk
policy.
The undersigned hereby certifies to the Lender on behalf of the Borrower that
all conditions precedent to the making of Advances contained in Section 4.2 of
the Agreement have been satisfied on or prior to the date hereof.
Yours faithfully
..................................
Director: MORTGAGE MANAGEMENT LIMITED
59
<PAGE> 63
Mortgage Loans
<TABLE>
<CAPTION>
Mortgage Loan Title Number Address of
Borrower Number Property
<S> <C> <C> <C>
</TABLE>
60
<PAGE> 64
SCHEDULE 2A
FORMS OF SOLVENCY CERTIFICATE
61
<PAGE> 65
SCHEDULE 2B
62
<PAGE> 66
SCHEDULE 3
MORTGAGE LOAN DOCUMENTS
33. Mortgage Deed (incorporating Mortgage Conditions) (and in the case of
loans regulated by the Consumer Credit Act, the relevant Consumer Credit
Agreement)
34. Mortgage Offer (with relevant Customer Care Booklet if such is required)
35. Solicitor's Certificate of Title
36. Postponement Agreement from occupants of the relevant Mortgaged Property
where appropriate or MHA Documentation (if relevant)
37. Copy Notice to Lessor of Charge over Lease (in the case of leasehold
property) where required
38. Copy Notice to Mortgagor of Transfer of Mortgage
39. Title deeds (so far as the same are relevant), searches (other than local
authority searches) and enquiries relating to the relevant Mortgaged
Property and in the case of property being purchased the transfer or
conveyance to the relevant Mortgagor
40. Where applicable Form 53 or vacating receipt or deed of release in
relation to all existing encumbrances affecting the relevant Mortgaged
Property at the time of the making of the relevant advance save for those
encumbrances which, in accordance with the relevant Originator's
instructions, are not to be released
41. Valuer's Report
42. Copy NHBC Insurance Policies and Notices or like documents (if relevant)
<PAGE> 67
SCHEDULE OF AGREEMENTS
Proceeds Agreement
Origination and Transfer Agreement
Debenture Creating a Floating Charge
Postponed to All Other Security Interests
Bank Account Assignment
Charge of Shares
CMC Charge
<PAGE> 68
EXECUTION COPY
PROCEEDS AGREEMENT
between
MORTGAGE MANAGEMENT LIMITED
and
GREENWICH INTERNATIONAL, LTD.
and
CITY MORTGAGE CORPORATION LIMITED
and
CITY MORTGAGE SERVICING LIMITED
and
CITY MORTGAGE FUNDING 1 LIMITED
SIDLEY & AUSTIN
Royal Exchange
London EC3V 3LE
Tel: 0171-360 3600
Fax: 0171-626 7937
Ref:JCW/13568/30020
<PAGE> 69
CONTENTS
Clause Page No.
1. INTERPRETATION...................................................... 2
2. ACCOUNTS............................................................ 12
3. PAYMENT OF PROCEEDS................................................. 13
4. CALCULATIONS........................................................ 16
5. RELEASES AND AGENCY................................................. 17
6. APPLICATION OF PROCEEDS PRIOR TO AN EVENT OF DEFAULT................ 19
7. APPLICATION FOLLOWING AN EVENT OF DEFAULT BUT PRIOR TO
ACCELERATION OR ENFORCEMENT......................................... 24
8. APPLICATION FOLLOWING ACCELERATION OR ENFORCEMENT................... 25
9. CMR6 SECURITISATION RESIDUALS....................................... 26
10. RELEASED PROCEEDS................................................... 27
11. PAYMENTS TO LENDER.................................................. 27
12. REPRESENTATIONS AND WARRANTIES...................................... 27
13. COSTS AND EXPENSES.................................................. 29
14. REMEDIES AND WAIVERS................................................ 29
15. CONFIDENTIALITY..................................................... 29
16. NOTICES............................................................. 30
17. SEVERABILITY........................................................ 31
18. ASSIGNMENT.......................................................... 31
19. ACCESSION........................................................... 31
20. GOVERNING LAW....................................................... 32
<PAGE> 70
THIS AGREEMENT is made on February 1998 between:
(1) MORTGAGE MANAGEMENT LIMITED, a company incorporated under the laws of
England and Wales, registered number 200263 whose registered office is at
Harcourt House, 19 Cavendish Street, London, W1A 2AW (the "Borrower"); and
(2) GREENWICH INTERNATIONAL LTD., a company incorporated under the laws of
Bermuda, whose registered office is at Cedar House, 41 Cedar Avenue,
Hamilton, Bermuda and whose United Kingdom branch office is at 1 Jermyn
Street, 9th Floor, London SW1Y 4UA (the "Lender"); and
(3) CITY MORTGAGE CORPORATION LIMITED, a company incorporated under the laws
of England and Wales, registered number 3043775 whose registered office is
at Harcourt House, 19 Cavendish Street, London, W1A 2AW (the "CMC"); and
(4) CITY MORTGAGE FUNDING 1 LIMITED, a company incorporated under the laws of
England and Wales, registered number 3299937 whose registered office is at
Cityscape House, Croxley Business Park, Watford WD1 8YF ("CMF"); and
(5) CITY MORTGAGE SERVICING LIMITED, a company incorporated under the laws of
England and Wales, registered number 3043775 whose registered office is at
Harcourt House, 19 Cavendish Square, London W1A 2AW (the "Servicer" which
term where the context permits shall include any substitute servicer,
including the Standby Servicer).
WHEREAS:-
(1) CMC and the Lender have entered into the Mortgage Loan Purchase Agreement
and the Commitment Letter pursuant to which Mortgage Loans may be sold by
CMC and its Originating Subsidiaries to the Lender.
(2) CMC and CMF have entered into the Origination and Purchase Agreement and
CMF and the Lender have entered into the Supplemental Agreement pursuant
to which Mortgage Loans may, in lieu of being sold by CMC and its
Originating Subsidiaries to the Lender under the Mortgage Loan Purchase
Agreement and Commitment Letter, be sold by CMC and its Originating
Subsidiaries to CMF and, immediately thereafter, by CMF to the Lender.
(3) Certain of the Mortgage Loans sold to the Lender pursuant to the foregoing
agreements have been subsequently securitised under the Securitisations.
(4) Pursuant to a letter dated 25 February 1998 the Lender issued a letter
stating that it terminated its obligation to purchase Mortgage Loans under
the Commitment Letter and the Mortgage Loan Purchase Agreement.
(5) CMC, CMS and the Lender have agreed to provide the financing arrangements
relating to the Existing Mortgage Loans and the New Production Mortgage
Loans and as part of
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<PAGE> 71
those arrangements the Lender has agreed to make available the Facility to
the Borrower on the terms and subject to the conditions of the Loan
Facility Agreement so as to enable the Borrower to purchase the Existing
Mortgage Loans and to finance the purchase by the Borrower of New
Production Mortgage Loans.
(6) The Borrower has agreed to secure its obligations under, inter alia, the
Loan Facility Agreement pursuant to the Debenture and the Borrower Account
Assignments.
(8) CMC has agreed to indemnify the Lender in respect of, inter alia, the
obligations of the Borrower under the Loan Facility Agreement and has
agreed to secure its obligations under such indemnity and under the other
Transaction Documents pursuant to the CMC Charge, the CMC Floating Charge,
the CMC Proceeds Account Assignment, the Borrower Share Charge and the CMS
Share Charge.
(9) The parties hereto wish to enter into this Agreement to regulate the
manner in which disposals of Existing Mortgage Loans and New Production
Mortgage Loans financed under the Loan Facility Agreement and
Securitisation Residuals will be effected and the manner in which
Securitisation Residual Proceeds, Mortgage Loan Proceeds, Securitisation
Residual Receipts and all interest, principal and other amounts received
or recovered under or in respect of Existing Mortgage Loans and New
Production Mortgage Loans financed under the Loan Facility Agreement will
be distributed amongst themselves.
1. INTERPRETATION
1.1 Definitions
In this Agreement (including the recitals hereto) capitalised terms
defined in the Loan Facility Agreement shall have the same meanings herein
and the following terms shall have the respective meanings set forth
below:-
"Acceleration" means any acceleration of the Advances under the Loan
Facility Agreement following the occurrence of an Event of Default
thereunder.
"Account Bank" means National Westminster Bank Plc or such other bank or
financial institution as may be substituted as account bank pursuant to
one or more the of Securitisations.
"Agreement" means this Proceeds Agreement, including all schedules and
annexures hereto, which expression shall include the same as varied,
supplemented, re-stated, extended or replaced from time to time.
"basis point" means one hundredth of one per. cent (1/100th of 1%).
"Borrower Account Assignments" means the Borrower Funding Account
Assignment and the Borrower Collection Account Assignment.
2
<PAGE> 72
"Borrower Entitlement" means, on each Interest Payment Date, an amount
equal to all amounts credited to Borrower Collection Account (before
application on the Relevant Interest Payment Date) which represent
Mortgage Loan Interest (as determined under Clause 4.2) multiplied by one
basis point.
"Breached Mortgage Loan" means any Existing Mortgage Loan or New
Production Mortgage Loan financed under the Loan Facility Agreement in
respect of which the Lender has determined in its sole good faith
judgment, that there exists a subsisting breach of a representation or
warranty under Clause 14.3 of the Loan Facility Agreement in respect of
which either:-
(a) the provisions of Clause 15.3(b) of the Loan Facility Agreement
apply; or
(b) the provisions of Clause 15.4 of the Loan Facility Agreement apply.
"Business Day" means a day (other than a Saturday or Sunday) on which
banks are generally open for business in London and New York.
"CMR1 Securitisation" means the Securitisation in respect of which the
Issuer is City Mortgage Receivables 1 Plc.
"CMR2 Securitisation" means the Securitisation in respect of which the
Issuer is City Mortgage Receivables 2 Plc.
"CMR3 Securitisation" means the Securitisation in respect of which the
Issuer is City Mortgage Receivables 3 Plc.
"CMR4 Securitisation" means the Securitisation in respect of which the
Issuer is City Mortgage Receivables 4 Plc.
"CMR5 Securitisation" means the Securitisation in respect of which the
Issuer is City Mortgage Receivables 5 Plc.
"CMR6 Securitisation" means the Securitisation in respect of which the
Issuer is City Mortgage Receivables 6 Plc.
"Collateral Value" means, on any date on which the same falls to be
determined, the sum of:
(a) the fair market value of all Securitisation Residuals as
determined solely by the Lender (acting in good faith)
calculated for the most recent Interest Payment Date, taking
into account the data available to the Lender as of such
calculation date adjusted to reflect the release of any
Securitisation Residuals from the CMC Charge or the Debenture
since such date of calculation; and
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(b) the Loan Value.
"Collateral Value Ratio" means, on any day on which the same falls to be
determined, the ratio (expressed as a percentage) of all Advances
outstanding under the Loan Facility Agreement to Collateral Value.
"Collection Period" means the calendar month immediately prior to the
calendar month in which the relevant Interest Payment Date falls.
"Determination Date" means the last day of each Collection Period.
"Disposal" means:
(a) in respect of any Securitisation Residuals the sale or other
disposition of all or any part thereof by CMC, the Borrower or
the Lender as mortgagee or heritable creditor and which, in
the case of a sale or other disposition prior to an
Acceleration or Enforcement complies with the provisions of
clause 6.7; and
(b) in the case of any Existing Mortgage Loan or any New
Production Mortgage Loan which, in either case, is,
immediately prior to the relevant sale or other disposition,
financed under the Loan Facility Agreement the sale or other
disposition (whether through a securitisation, whole loan sale
or otherwise), by the Borrower or the Lender as mortgagee or
heritable creditor, whether such sale or other disposition is
of both the legal and equitable title or whether the sale or
other disposition is merely of the equitable or other
beneficial interest.
"Distribution Date" means any date (other than an Interest Payment Date or
a Late Interest Payment Distribution Date) on which any Proceeds fall to
be distributed under clause 6 or clause 7 of this Agreement being any
Business Day nominated by either the Lender or the Borrower, acting
reasonably, provided that no less than two Business Days prior written
notice of such nomination shall have been given by the Lender or, as the
case may be, the Borrower to each of the Borrower, the Lender and the
Servicer.
"Enforcement" means any enforcement by the Lender of any of its security
under any Security Document irrespective of whether, at that time, an
Acceleration shall have occurred.
"Enforcement Expenses" shall have the meaning attributed to it in the
Interim Servicing Agreement and, after execution of the same, the
Substitute Servicing Agreement.
"Existing Mortgage Loans" means those Mortgage Loans to be purchased by
the Borrower from, inter alia, the Lender and CMF pursuant to the terms of
the Mortgage Transfer Agreement.
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"First Mortgage Payment" means, in respect of any Existing Mortgage Loan
or New Production Mortgage Loan financed under the Loan Facility
Agreement, the first payment of principal and/or interest due from the
relevant Mortgagor thereunder.
"Insurance Premia" means, in respect of any Existing Mortgage Loan and any
New Production Mortgage Loan financed under the Loan Facility Agreement,
any payment or other recovery of amounts representing any insurance
premium payable by the relevant Mortgagor, including, without limitation
those in respect of any relevant Buildings Policy, which is received or
recovered by or on behalf of the Borrower.
"Insurance Proceeds" means all insurance proceeds paid by any insurer,
including without limitation, under or in respect of any Buildings Policy
in relation to any Existing Mortgage Loan and any New Production Mortgage
Loan financed under the Loan Facility Agreement.
"Issuers" means each of City Mortgage Receivables 1 Plc (Company No.
3126751), City Mortgage Receivables 2 Plc (Company No. 3245450), City
Mortgage Receivables 3 Plc (Company No. 3245445), City Mortgage
Receivables 4 Plc (Company No. 3246090), City Mortgage Receivables 5 Plc
(Company No. 3304205) and City Mortgage Receivables 6 Plc (Company No.
3328209).
"Junior Mortgage Loan" means any Existing Mortgage Loan and New Production
Mortgage Loan financed under the Loan Facility Agreement which is secured
other than by way of first ranking legal mortgage or first ranking
Standard Security.
"Late Interest Payment Distribution Date" means, in relation to any
Interest Payment Date, the first Business Day following such Interest
Payment Date by which the Lender shall have agreed the determinations of
the Servicer under clause 4.2(a) and the computations of Collateral Value
and Loan Value in accordance with clauses 4.2(d) and 4.1(e).
"Loan Value" means, on any date for which the same falls to be determined,
the aggregate value of:
(a) the Existing Mortgage Loans;
(b) all New Production Mortgage Loans financed under the Loan
Facility Agreement; and
(c) all Pending Mortgage Loans,
the value of each such Existing Mortgage Loan and New Production Mortgage
Loan for such purpose being the unpaid principal balance (but excluding
capitalised interest, fees, charges and penalties) of such Mortgage Loan
as at the Relevant Date multiplied by the applicable percentage set out
below (the date by reference to which each such Mortgage Loan is
categorised as being of a type set out below being the Relevant Date) and
the
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value of each Pending Mortgage Loan for such purpose being the amount
which would, if the same were completed on the relevant Interest Payment
Date or Distribution Date, be the unpaid principal balance (excluding
capitalised interest, fees, charges and penalties) thereof on such date
multiplied by the percentage for a Performing Senior Mortgage Loan or
Performing Junior Mortgage Loan, as applicable, set out below:-
<TABLE>
<CAPTION>
<S> <C>
Performing Senior Mortgage Loan 100%
Performing Junior Mortgage Loan 95%
Nonperforming Senior Mortgage Loan 70%
Nonperforming Junior Mortgage Loan 30%
First Pay Default Mortgage Loan 0%
Breached Mortgage Loan 0%,
</TABLE>
"Relevant Date" for such purpose being:
(a) where Loan Value falls to be determined for any Interest
Payment Date, the immediately preceding Determination Date;
and
(b) where Loan Value falls to be determined for any Distribution
Date other than an Interest Payment Date (which includes for
such purpose a Late Interest Payment Distribution Date), the
immediately preceding Interest Payment Date for which Loan
Value has been determined under this Agreement,
Provided always that where Loan Value falls to be determined for any
Distribution Date which is not an Interest Payment Date, Loan Value shall
be adjusted so as to reflect any disposals of such Mortgage Loans since
the immediately preceding Interest Payment Date.
"Loan Value Ratio" means, on any day on which the same falls to be
determined, the ratio (expressed as a percentage) of all Advances
outstanding under the Loan Facility Agreement to Loan Value.
"Monthly Payment" means in respect of any Existing Mortgage Loan or New
Production Mortgage Loan financed under the Loan Facility Agreement, the
monthly payment due and payable by the relevant Mortgagor on the relevant
Monthly Payment Date.
"Monthly Payment Date" means, in respect of each Existing Mortgage Loan
and each New Production Mortgage Loan financed under the Loan Facility
Agreement, the day in each month on which the relevant Mortgagor is
obliged to make his or her monthly payment of interest and where
applicable, principal.
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"Mortgage Loan Interest" means, with respect to any Existing Mortgage Loan
and any New Production Mortgage Loan financed under the Loan Facility
Agreement, any payment or other recovery of interest (which shall include
all interest payable under the relevant Mortgage Loan including default
interest and any other redemption charges) under or in respect of such
Mortgage Loan, which is received or recovered by or on behalf of the
Borrower.
"Mortgage Loan Proceeds" means, in respect of Existing Mortgage Loans and
New Production Mortgage Loans financed under the Loan Facility Agreement,
the aggregate amount of:-
(a) all cash consideration received by or on behalf of the
Borrower or the Lender by or on behalf of the Borrower or as
mortgagee upon or as a result of the Disposal of some or all
of such Existing Mortgage Loans or New Production Mortgage
Loans; and
(b) any non-refundable deposit or other advance payment paid to or
for the account of the Borrower or the Lender as mortgagee by
any person acquiring or proposing to acquire all or any of
such Existing Mortgage Loans or New Production Mortgage Loans
under a contract or offer to purchase or otherwise acquire the
same which has been withdrawn, terminated, cancelled or has
lapsed,
irrespective of whether the same shall become due upon or at any time
after the relevant Disposal.
"New Production Mortgage Loans" means Mortgage Loans originated by CMC and
any of its Approved Affiliates on or after the date hereof.
"Nonperforming Junior Mortgage Loan" means a Junior Mortgage Loan which is
also a Nonperforming Mortgage Loan.
"Nonperforming Mortgage Loan" means, on any date, any Existing Mortgage
Loan or New Production Mortgage Loan financed under the Loan Facility
Agreement in respect of which all or any part of a Monthly Payment remains
30 days or more past its due date but which is not a First Pay Default
Mortgage Loan.
"Nonperforming Senior Mortgage Loan" means each Existing Mortgage Loan and
New Production Mortgage Loan financed under the Facility Agreement which:
(a) is a Nonperforming Mortgage Loan; and
(b) which is not a Junior Mortgage Loan.
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"Pending Mortgage Loan" means, on any date, each mortgage loan which any
Originator has agreed to advance to a Mortgagor but which has not, at the
relevant date, been advanced and in respect of which:-
(a) the Lender has made an Advance under the Loan Facility
Agreement; and
(b) the Advance so made has been credited to, and remains
deposited in, the Borrower Funding Account or has been
transmitted to and remains with solicitors.
"Performing Junior Mortgage Loan" means a Junior Mortgage Loan which is
not a Nonperforming Mortgage Loan.
"Performing Senior Mortgage Loan" means each Existing Mortgage Loan and
New Production Mortgage Loan financed under the Loan Facility Agreement
which:-
(a) is secured by way of first ranking legal mortgage or first
ranking Standard Security; and
(b) is not a Non-performing Mortgage Loan.
"Permitted Percentage" has the meaning attributed to it in clause 6.6
"Principal" means, with respect to any Existing Mortgage Loan and any New
Production Mortgage Loan financed under the Loan Facility Agreement, any
payment of amounts other than:
(a) Mortgage Loan Interest; and
(b) Insurance Premia,
under or in respect of such Mortgage Loan which is received by or on
behalf of the Borrower other than any such sum which comprises Mortgage
Loan Proceeds (in which event it will be treated, for the purpose of this
Agreement, as Mortgage Loan Proceeds and not Principal).
"Proceeds" means Securitisation Residual Proceeds, Mortgage Loan Proceeds,
Securitisation Residual Receipts, Principal, Mortgage Loan Interest and
all other amounts received or recovered in respect of the assets subject
to the Security Documents (other than any such of CMC's assets are subject
only to the CMC Floating Charge) and other than, from time to time,
amounts credited to the Borrower Working Capital Account.
"Secured Liabilities" means all liabilities and obligations of whatever
nature of the Borrower, CMC or any other person secured under any Security
Document.
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"Securitisation Administration Agreements" means each administration
agreement relating to each Securitisation.
"Securitisation Collection Accounts" means the CMC Collection Account and
each Greyfriars Originator Collection Account and, for the purposes of
Clause 3.1(a) the "relevant Securitisation Collection Account" shall, in
the case of any Mortgage Loan originated by CMC or J&J be the CMC
Collection Account and in the case of each Mortgage Loan originated by any
Greyfriars Originator be the Greyfriars Originator Collection Account in
the name of the relevant Greyfriars Originator.
"Securitisation Documentation" means all documentation executed in
connection with each Securitisation.
"Securitisation Residuals" means all of the right, title and interest of
CMC under and in respect of the CMR1 Securitisation, the CMR2
Securitisation, the CMR3 Securitisation, the CMR4 Securitisation, the CMR5
Securitisation and the CMR6 Securitisation and all of the right title and
interest of the Borrower in and to the CMR6 Securitisation, being:-
(a) all of the right, title and interest of CMC or the Borrower
under the relevant Securitisation Purchase Agreement;
(b) all of the right, title and interest of CMC or the Borrower in
and under each Securitisation Receivables Trust;
(c) all of the right, title and interest of CMC in each
Securitisation Subordinated Loan;
(d) all of the right, title and interest of CMC or the Borrower
under each Securitisation Deed of Charge, and
(e) all of the right, title and interest of CMC or the Borrower
under each Securitisation Administration Agreement,
as such rights, title and interest are, in the case of CMC, assigned in
favour of the Lender under the CMC Charge and as such rights, title and
interest are, in the case of the Borrower, assigned in favour of the
Lender under the Debenture.
"Securitisation Purchase Agreements" means the mortgage sale agreements
under each Securitisation pursuant to which CMC or CMF, as the case may
be, inter alia, sold Mortgage Loans to the relevant Issuer.
"Securitisation Residual Proceeds" means, in respect of Securitisation
Residuals, the aggregate amount of:
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(a) all cash consideration received by or on behalf of CMC, the
Borrower or the Lender as mortgagee or heritable creditor upon
or as a result of the Disposal of all or any part of the
Securitisation Residuals; and
(b) any non-refundable deposit or other advance payment paid to or
for the account of CMC, the Borrower or the Lender as
mortgagee or heritable creditor by a person acquiring or
proposing to acquire all or any part of the Securitisation
Residuals, including without limitation, under a contract or
offer to purchase or otherwise acquire the same which has been
withdrawn, terminated, cancelled or has lapsed,
including all consideration due after the date of the relevant Disposal in
respect thereof.
"Securitisation Residual Receipts" means all amounts received or recovered
by or on behalf of CMC, the Borrower or the Lender as mortgagee in respect
of their respective rights, title and interest in and to any
Securitisation Residual, whether received or recovered under and in
accordance with the Securitisation Documentation or otherwise including,
without limitation, payments under any Securitisation Purchase Agreement,
any Securitisation Subordinated Loan, any Securitisation Receivables Trust
and any Securitisation Administration Agreement but excluding all
Securitisation Residual Proceeds.
"Securitisations" means each of the six securitisations of mortgage loans
originated by CMC and certain of its subsidiaries, effected through sales
of the mortgage loans to the Issuers on 21 March, 1996, 18 October, 1996,
31 October, 1996, 31 January, 1997 and 30 April, 1997 and "Securitisation"
means any one of them..
"Securitisation Receivables Trusts" means the receivables trusts in each
of the CMR1 Securitisation, CMR2 Securitisation and CMR3 Securitisation.
"Securitisation Subordinated Loans" means each subordinated loan made by
CMC to the relevant Issuer under any Securitisation.
"Subordinated Loan Agreement" means the subordinated loan agreement of
even date between, inter alia, CMC and the Borrower.
references to the "Lender", "CMC", "CMF", the "Servicer" and the
"Borrower" shall be construed so as to include its respective and any
subsequent successors and (where the relevant party is permitted to assign
any of its rights hereunder) its respective assigns in accordance with
their respective interests.
a "month" is a reference to a period starting on one day in a calendar
month and ending on the numerically corresponding day in the next
following calendar month; provided that, where any such period would
otherwise end on a day which is not a Business Day, it shall end on the
following succeeding Business Day, unless that day falls in the calendar
month next following that in which it would otherwise have ended, in which
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case it shall end on the immediately preceding Business Day; and provided
further that, if there is no numerically corresponding day in the next
following calendar month, that period shall end on the last Business Day
in that next following calendar month (and references to "months" shall be
construed accordingly).
a "person" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or
more of the foregoing.
"repay" (or any derivative form thereof) shall, subject to any contrary
indication, be construed to include "prepay" (or, as the case may be, the
corresponding derivative form thereof).
"tax" shall be construed so as to include any present or future tax, levy,
impost, duty or other charge of a similar nature (including any penalty or
interest payable in connection with any failure to pay or any delay in
paying any of the same).
"VAT" shall be construed as a reference to value added tax including any
similar tax which may be imposed in place thereof from time to time.
a "wholly-owned Subsidiary" of a company or corporation shall be construed
as a reference to any company or corporation which has no other members
except that other company or corporation and/or another or others of that
other company's or corporation's wholly-owned Subsidiaries or persons
acting on behalf of that other company or corporation or its wholly-owned
Subsidiaries.
the "winding-up", "dissolution" or "administration" of a company or
corporation shall be construed so as to include any equivalent or
analogous proceedings under the law of the jurisdiction in which such
company or corporation is incorporated or any jurisdiction in which such
company or corporation carries on business including the seeking of
liquidation, winding-up, reorganisation, dissolution, administration,
arrangement, adjustment, protection or relief of debtors.
1.2 Interpretation
For the purposes of this Agreement except as otherwise expressly provided
or unless the context otherwise requires:-
(1) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles;
(2) references herein to "clauses", "sub-clauses", "paragraphs", and
other subdivisions without reference to a document are to designated
clauses, sub-clauses paragraphs and other subdivisions of this
Agreement;
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(3) reference to a sub-clause without further reference to a clause is a
reference to such sub-clause as contained in the same clause in
which the reference appears, and this rule shall also apply to
paragraphs and other subdivisions;
(4) the words "herein", "hereof", "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
provision;
(5) headings to clauses and Schedules are for convenience only and do
not affect the interpretation of this Agreement;
(6) references to a "company" shall be construed so as to include any
company, corporation or other body corporate, wherever and however
incorporated or established;
(7) references to times of the day are to London time;
(8) references to any agreement (including without limitation to each
Transaction Document), shall be construed as a reference to such
agreement as the same may be, or may from time to time have been,
amended, modified, supplemented or restated in accordance with the
terms of all Transaction Documents;
(9) "(pound)" and "Sterling" denote the lawful currency of the United
Kingdom;
(10) any reference in this Agreement to a statute shall be construed as a
reference to such statute as the same may have been, or may from
time to time be, amended, modified or re-enacted.
2. ACCOUNTS
2.1 Borrower Accounts
(1) The Borrower shall, before any Advance is made under the Loan
Facility Agreement, open the Borrower Funding Account, the Borrower
Collection Account and the Borrower Working Capital Account.
(2) The Borrower shall not open any other account without the prior
written consent of the Lender.
2.2 CMC Accounts
CMC shall, before the date on which any Advance is made under the Loan
Facility Agreement open the CMC Proceeds Account with the Account Bank.
22.3 Security
All parties hereby agree and acknowledge that:
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(1) all sums credited to the Borrower Funding Account shall be subject
to the Borrower Funding Account Assignment;
(2) all sums credited to the Borrower Collection Account shall be
subject to the Borrower Collection Account Assignment;
(3) all sums credited to the Borrower Working Capital Account shall
stand charged in accordance with the Debenture; and
(4) all sums credited to the CMC Proceeds Account shall be subject to
the CMC Proceeds Account Assignment.
2.4 Initial Deposits
(1) The Borrower shall, on the opening of the Borrower Funding Account
and the Borrower Collection Account, deposit in each such account
the sum of (pound)1 and shall execute the Borrower Funding Account
Assignment and the Borrower Collection Account Assignment.
(2) CMC shall, on the opening of the CMC Proceeds Account, deposit in
such account the sum of (pound)1 and shall execute the CMC Proceeds
Account Assignment.
2.5 Interest
Interest shall accrue on the amounts from time to time standing to the
credit of each such Account at the rate quoted from time to time by the
Account Bank as the rate payable on deposits of the requisite amount. Such
interest shall accrue and be credited to the relevant Account in
accordance with the relevant mandate and from the date on which the same
is credited to the relevant Account shall thereafter form part of the
credit balance thereon.
3. PAYMENT OF PROCEEDS
3.1 Mortgage Loan Interest and Principal
(1) The Borrower shall procure, in so far as it is able to do so, that
all Principal and Mortgage Loan Interest payable under each Existing
Mortgage Loan and New Production Mortgage Loan financed under the
Loan Facility Agreement is, for so long as it is so financed, paid
by the relevant Mortgagor:
(1) to the relevant Securitisation Collection Account until notice
is given in accordance with the Transaction Documents to any
Mortgagor requiring the relevant Mortgagor to pay all amounts
under the relevant Mortgage Loan directly to the Borrower
Collection Account (or such other account as may be specified
in such notice); and
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(2) thereafter directly to the Borrower Collection Account (or
such other account as is specified in the relevant notices).
(2) If the Borrower receives any such Mortgage Loan Interest or
Principal at any time other than by way of credit of the same to the
Borrower Collection Account (or other account specified in any
notice referred to in sub-clause 3.1(a)(ii)), the Borrower shall
forthwith upon receipt thereof pay the same into the Borrower
Collection Account (or such other account specified in the aforesaid
notice).
(3) If CMC, CMF, the Servicer, the Standby Servicer or the Lender
receive any Mortgage Loan Interest or Principal at any time, CMC,
CMF, the Servicer, the Standby Servicer and the Lender, as the case
may be shall, forthwith upon receipt thereof, pay the same into the
Borrower Collection Account (or other account specified in any
notice referred to in sub-clause 3.1(a)(ii)) and, in the case of
CMC, the Servicer and CMF shall hold such money on trust for the
Borrower pending payment of the same into the Borrower Collection
Account (or other account specified in any notice referred to in
sub-clause 3.1(a)(ii)) provided always that:
(1) neither CMC, the Servicer, the Standby Servicer, CMF nor the
Lender shall be obliged to make such transfers or hold moneys
on such trusts if to do so would be contrary to the provisions
of or cause any breach by the relevant party of its
obligations under any Securitisation Documentation including,
without limitation, any Securitisation Bank Agreement;
(2) this sub-clause 3.1(c) shall not apply to moneys which are
Principal or Mortgage Loan Interest if received by the
relevant person by way of a distribution under clauses 6 or 7;
and
(3) the provisions of this sub-clause shall not apply to any
moneys received by the Lender following any Acceleration or
Enforcement.
3.2 Mortgage Loan Proceeds
(1) Mortgage Loan Proceeds received by any party hereto other than the
Lender shall be paid by such party, forthwith upon receipt of the
same, to the Borrower Collection Account and shall be held by the
relevant party on trust for the Borrower pending payment of the same
into the Borrower Collection Account.
(2) If Mortgage Loan Proceeds are paid to the Lender (in its capacity as
mortgagee or heritable creditor) prior to any Acceleration or
Enforcement the Lender shall notify the Borrower and the Servicer
and shall transfer the same to the Borrower Collection Account.
3.3 Securitisation Residual Proceeds
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(1) Securitisation Residual Proceeds received by any party hereto other
than the Lender shall be paid by such party, forthwith upon receipt
of the same:-
(1) in the case of Securitisation Residual Proceeds relating to
the CMR6 Securitisation (other than those received in respect
of a Disposal of all or any part of the rights under the
Securitisation Subordinated Loan (and associated security)
under the CMR6 Securitisation) to the Borrower Collection
Account; and
(2) in the case of all other Securitisation Residual Proceeds to
the CMC Proceeds Account,
and shall be held by the relevant party on trust for the Borrower
or, as the case may be, CMC pending payment of the same into the
relevant account.
(2) If Securitisation Residual Proceeds are paid to the Lender (in its
capacity as mortgagee or heritable creditor) prior to any
Acceleration or Enforcement the Lender shall notify the Borrower or
CMC, as applicable, and shall pay the same:-
(1) in the case of Securitisation Residual Proceeds in respect of
the CMR6 Securitisation (other than those received in respect
of a Disposal of all or any part of the rights under the
Securitisation Subordinated Loan (and associated security)
under the CMR6 Securitisation) to the Borrower Collection
Account; and
(2) in the case of all other Securitisation Residual Proceeds to
the CMC Proceeds Account.
3.4 Securitisation Residual Receipts
(1) For so long as clause 3.4(b) does not apply the Lender shall permit
payment of all Securitisation Residual Receipts by the relevant
debtor:-
(1) to the Borrower Working Capital Account in the case of
Securitisation Residual Receipts relating to the CMR6
Securitisation (other than those receivable under or in
respect of the Securitisation Subordinated Loan relating to
the CMR6 Securitisation); and
(2) to such account of CMC as CMC may notify to the Lender from
time to time in the case of all other Securitisation Residual
Receipts (including those receivable under or in respect of
the Securitisation Subordinated Loan relating to the CMR6
Securitisation).
(2) At any time after:-
(1) any Acceleration or Enforcement has occurred; or
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(2) the Lender has determined in its reasonable good faith
judgement that an Event of Default has occurred and has
notified the Borrower of the facts and circumstances in which
such Event of Default occurred and that the same continues to
subsist unremedied (to the satisfaction of the Lender) and
unwaived,
the Lender may redirect such payments to the Borrower Collection
Account, the CMC Proceeds Account, or (but only after Acceleration
or Enforcement) to such other account as the Lender may specify in
the relevant notice or direction.
4. CALCULATIONS
4.1 Collateral Value and Loan Value
(1) The Servicer shall, for each Interest Payment Date, calculate the
Collateral Value and the Loan Value for that date such calculation
to be done as soon as possible after the applicable Determination
Date and in any event no later than the third Business Day prior to
the Interest Payment Date in question and shall notify the same to
the Lender, the Borrower, CMC and CMF immediately upon calculation
of the same.
(2) The Lender shall, for the purposes of the calculation under clause
4.1(a), notify the Servicer of:-
(1) the fair market value of the Securitisation Residuals as
determined by the Lender in good faith; and
(2) details of all Existing Mortgage Loans and New Production
Mortgage Loans financed under the Loan Facility Agreement
which are, at the relevant time, Breached Mortgage Loans.
(3) The Lender's determination of the matters to be notified to the
Servicer under clause 4.1(b) shall, in the absence of manifest error
or bad faith, be final and binding on the parties hereto.
(4) The Servicer's determination of Collateral Value and Loan Value once
agreed by the Lender under clause 4.1(e) shall, in the absence of
manifest error or bad faith (on the part of either party), be final
and binding on the parties hereto.
(5) The Lender shall use reasonable endeavours to agree the Servicer's
determinations of Collateral Value and Loan Value within three
Business Days of notification of the same to the Lender and the
Servicer shall notify each other party hereto, in writing, of the
Collateral Value and Loan Value agreed by the Lender.
4.2 Account Balances
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(1) The Servicer shall determine, for each Interest Payment Date how
much of the moneys credited to each of the Borrower Collection
Account and the CMC Proceeds Account as at the immediately preceding
Determination Date is attributable to and represents moneys in
respect of:
(1) Mortgage Loan Interest;
(2) Principal;
(3) Securitisation Residual Receipts;
(4) Securitisation Residual Proceeds;
(5) Mortgage Loan Proceeds;
(6) Insurance Premia; and
(7) Insurance Proceeds.
(2) The determination by the Servicer under clause 4.2(a) shall be done
as soon as possible after each Determination Date and in any event
no later than the third Business Day prior to the relevant Interest
Payment Date.
(3) The Servicer shall notify the Lender of its determination
immediately upon calculation of the same.
(4) The Lender shall use reasonable endeavours to agree the Servicer's
determination within three Business Days of notification of the same
to the Lender, and the Servicer shall notify each other party
hereto, in writing, of such determination as agreed by the Lender.
(5) The Servicer's determination of such amounts, as agreed by the
Lender, shall in the absence of manifest error or bad faith (on the
part of either party) be binding on the other parties hereto.
5. RELEASES AND AGENCY
5.1 Transfer Agent Instructions
(1) The Servicer shall, as agent for the Lender, instruct the Account
Bank to make such transfers as are required in order to ensure that
funds standing to the credit of the Borrower Collection Account and
the CMC Proceeds Account are applied on each Interest Payment Date
(or, if later, each Late Interest Payment Distribution Date) and
each other Distribution Date in accordance with the provisions of
clauses 6 and 7.
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(2) CMC shall, as agent for the Lender, instruct the Account Bank to
make such transfers from the Borrower Funding Account as shall be
necessary in order to ensure that Advances made under the Loan
Facility Agreement are:-
(1) remitted to the client accounts of relevant Solicitors in
accordance with agreed procedures;
(2) remitted to the Lender if any Mortgage Loan has not completed
within three Business Days (or such longer or shorter period
as may be agreed from time to time) of the relevant Advance;
and
(3) applied otherwise in accordance with the Transaction
Documents.
5.2 Payment Transfer Agent
(1) The Lender hereby appoints the Servicer as its payment transfer
agent for the purpose of carrying out the matters specified in
clause 5.1(a) and hereby appoints CMC as its payment transfer agent
and for the purpose of operating the Borrower Funding Account in
accordance with the provisions of clause 5.1(b).
(2) The Lender shall be entitled to revoke the authority of the Servicer
and/or the authority of CMC to act as its payment transfer agent
under this clause 5.2 at any time by notice in writing to the
Servicer or, as the case may be, CMC.
(3) In the event that the Account Bank shall have received instruction
to act only on the written instructions of the Lender (at any time
while the Servicer and/or CMC is appointed as agent), the Lender
shall, for so long as no Acceleration or Enforcement shall have
occurred;
(1) in respect of the CMC Proceeds Account and the Borrower
Collection Account instruct the Account Bank to make such
transfers as are required in order that funds credited to the
CMC Proceeds Account and the Borrower Collection Account are
applied in accordance with the provisions of clause 6 or 7
such instructions to be made in a timely manner; and
(2) in respect of the Borrower Funding Account, to make such
transfers as are required in order that the matters set out in
clause 5.1(b) can be effected.
(4) Where funds credited to the Borrower Collection Account are required
to be paid to the Borrower pursuant to clause 6.2(g), 6.3(e) or
6.4(d) the Servicer or, if clause 5.2(c) applies, the Lender shall
instruct the Account Bank to make such payments to the Borrower
Working Capital Account or, provided that to make payment to any
other account would not cause a breach of any Transaction
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Document, such other account as the Borrower shall from time to time
notify to the Lender and the Servicer in writing.
(5) Where funds standing to the credit of the CMC Proceeds Account are
required to be paid to CMC pursuant to clause (6.4)(d) the Servicer
or, if clause 5.2(c) applies, the Lender shall instruct the Account
Bank to make such transfers to such account of CMC as CMC shall from
time to time notify to the Lender and the Servicer in writing.
5.3 Post Acceleration or Enforcement
The provisions of this clause 5 shall not apply at any time after any
Acceleration or Enforcement.
6. APPLICATION OF PROCEEDS PRIOR TO AN EVENT OF DEFAULT
6.1 Principal
(1) On each Interest Payment Date (or if later each Late Interest
Payment Distribution Date) falling prior to the occurrence of an
Event of Default (other than any Event of Default which has
subsequently been cured (to the satisfaction of the Lender) or
waived by the Lender) all amounts standing to the credit of the
Borrower Collection Account which represent Principal (as determined
under clause 4.2) shall be applied in or towards repayment of the
related Advances under the Loan Facility Agreement and all other
amounts due and owing to the Lender under any Transaction Document
other than interest under the Loan Facility Agreement.
(2) If requested in writing by the Borrower the Lender may, in its
absolute discretion, permit amounts standing to the credit of the
Borrower Collection Account on any Interest Payment Date (or if
later each Late Interest Payment Distribution Date) which represent
Principal (as determined under clause 4.2) to be applied in or
towards payment of interest due (on the Interest Payment Date) under
the Loan Facility Agreement or interest accrued at that date under
the Loan Facility Agreement and all other amounts due and owing to
the Lender under any Transaction Document other than interest under
the Loan Facility Agreement.
(3) After repayment in full of all Secured Liabilities any Principal
received or recovered shall be released to the Borrower.
6.2 Mortgage Loan Interest
On each Interest Payment Date (or if later each Late Interest Payment
Distribution Date) falling prior to the occurrence of an Event of Default
(other than any Event of Default which has subsequently been cured (to the
satisfaction of the Lender) or waived by the Lender) all amounts standing
to the credit of the Borrower Collection Account which
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represent Mortgage Loan Interest (as determined under clause 4.2) shall be
applied in or toward satisfaction of obligations of the Borrower in the
following order of priority:-
(1) first, in or toward payment of:
(1) the servicing fee due to the Servicer under the Interim
Servicing Agreement or, after execution of the same, the
Substitute Servicing Agreement on the relevant Interest
Payment Date;
(2) the stand-by servicing fee due to the Standby Servicer under
the Standby Servicing Agreement on the relevant Interest
Payment Date;
(3) all Enforcement Expenses due and payable to the Servicer under
the Interim Servicing Agreement or, after execution of the
same, the Substitute Servicing Agreement on the relevant
Interest Payment Date;
(4) all amounts due and payable to the Standby Servicer under the
Standby Servicing Agreement on the relevant Interest Payment
Date by way of reimbursement in respect of expenses incurred
by the Standby Servicer in relation to enforcement of any
Existing Mortgage Loan and any New Production Mortgage Loan
financed under the Loan Facility Agreement;
(5) any amounts due to the Servicer or Standby Servicer, as the
case may be, under the Interim Servicing Agreement, the
Substitute Servicing Agreement or the Standby Servicing
Agreement as at the relevant Interest Payment Date by way of
reimbursement of payments of insurance premia (unpaid by
relevant Mortgagors) made by the Servicer or Standby Servicer
to the relevant insurance company (to the extent not satisfied
by retention by the Servicer or Standby Servicer of Insurance
Premia subsequently received from the relevant Mortgagor).
(2) second, in or towards payment of all interest falling due to the
Lender under the Loan Facility Agreement on the relevant Interest
Payment Date together with any overdue interest accrued thereon up
to and including the relevant Distribution Date;
(3) third, in or towards repayment of Advances under the Loan Facility
Agreement subject to the limits set out in clause 6.5;
(4) fourth, in or towards payment of all amounts due and owing to the
Lender under all Transaction Documents other than Advances or
interest under the Loan Facility Agreement;
(5) fifth, an amount equal to the Borrowers Entitlement to be retained
by or paid to the Borrower;
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(6) sixth, in or towards payment of any additional fee which may be due
to the Servicer from time to time pursuant to the Substitute
Servicing Agreement; and
(7) the balance to be released to the Borrower.
6.3 Mortgage Loan Proceeds
On each Interest Payment Date and each other Distribution Date falling
prior to the occurrence of an Event of Default (other than any Event of
Default which has subsequently been cured (to the satisfaction of the
Lender) or waived by the Lender) all amounts standing to the credit of the
Borrower Collection Account which represent Mortgage Loan Proceeds (as
determined under clause 4.2) shall be applied in or toward satisfaction of
obligations of the Borrower in the following order of priority:-
(1) first, to the extent such Mortgage Loan Proceeds represent accrued
Mortgage Loan Interest, such Mortgage Loan Proceeds shall be added
to and form part of Mortgage Loan Interest, and be distributed in
accordance with clause 6.2 (or, if the Distribution Date is not an
Interest Payment Date as such amounts would be applied were it an
Interest Payment Date).
(2) second, in or towards repayment of the related Advances under the
Loan Facility Agreement subject to the limits set out in clause 6.5;
(3) third, in or towards payment of all amounts owing and payable to the
Lender under any Transaction Document other than Advances and
interest under the Loan Facility Agreement;
(4) fourth, in or towards payment of any additional fee which may be due
to the Servicer from time to time pursuant to the Substitute
Servicing Agreement; and
(5) the balance to be released to the Borrower.
6.4 Securitisation Residual Proceeds
On each Interest Payment Date and each other Distribution Date falling
prior to the occurrence of an Event of Default (other than any Event of
Default which has subsequently been cured (to the satisfaction of the
Lender) or waived by the Lender) the Permitted Percentage of
Securitisation Residual Proceeds (as determined under clause 6.6) shall be
applied in or toward satisfaction of obligations of the Borrower in the
following order of priority:-
(1) first, in or towards payment of all interest due to the Lender under
the Loan Facility Agreement on the relevant Interest Payment Date
or, if the Distribution Date is not an Interest Payment Date, all
interest accrued under the Loan Facility Agreement during the
relevant Interest Period to the relevant Distribution Date;
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(2) second, in or towards repayment of Advances under the Loan Facility
Agreement subject to the limits set out in clause 6.5;
(3) third, in or towards payment of all amounts owing and payable to the
Lender under any Transaction Document other than Advances and
interest under the Loan Facility Agreement;
(4) fourth, in the case of Securitisation Proceeds from any
Securitisation Residual relating to the CMR6 Securitisation (other
than from the Disposal of the Securitisation Subordinated Loan
relating to the CMR6 Securitisation), the balance to the Borrower
and in the case of all other Securitisation Residual Proceeds the
balance to CMC.
6.5 Limitation on applications in or toward repayment of Advances
(1) On any Interest Payment Date or other Distribution Date the amount
of Mortgage Loan Interest, Mortgage Loan Proceeds and Securitisation
Residual Proceeds (taken together) which may be applied in or toward
repayment of Advances shall be limited to the lesser of:-
(1) such amount as will give (or result in) a Collateral Value
Ratio of 90% and a Loan Value Ratio of 100% (having taken into
account, for such purpose, the application of monies
representing Principal in or toward repayment of Advances on
the relevant Interest Payment Date or other Distribution Date
under clause 6.1); and
(2) all Mortgage Loan Proceeds, Mortgage Loan Interest and
Securitisation Residual Proceeds available after application
of the same to prior ranking interests.
(2) If the amount which may be applied towards repayment of Advances is
that under clause 6.5(a)(i) Advances shall be so repaid first out of
Mortgage Loan Proceeds, then Mortgage Loan Interest and then
Securitisation Residual Proceeds.
6.6 Securitisation Residual Proceeds
(1) On any Interest Payment Date or other Distribution Date only a
percentage of Securitisation Residual Proceeds will be available for
application under clause 6.4. Such percentage is referred to as the
"Permitted Percentage".
(2) The Permitted Percentage of any Securitisation Residual Proceeds
shall be computed in accordance with the table set out below on the
basis that references therein to Securitisation Residuals sold shall
be construed as references to each Disposal of Securitisation
Residuals such that if, during any Interest Period or other period
between Distribution Dates, there has been more than one Disposal
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<PAGE> 92
of Securitisation Residuals each such Disposal shall be treated as a
separate sale and the Permitted Percentage calculated for each
accordingly:
<TABLE>
<CAPTION>
Incremental % of
Securitisation
Residual Proceeds Aggregate % of
available for Securitisation
Incremental % of Aggregate % of application (the Proceeds
Securitisation Securitisation Permitted available for
Residuals sold Residuals sold Percentage) application
<S> <C> <C> <C> <C>
0-20 20 10 10
21-40 40 30 20
41-60 60 50 30
61-80 80 70 40
81-100 100 90 50
</TABLE>
6.7 Securitisation Residual Sale Criteria
Without prejudice to the Security Documents the Lender shall consent to
the disposal by the Borrower or CMC of any Securitisation Residual if:
(1) the consideration for the Disposal comprises at least 85% in
cash (being immediate payment of cash on the Disposal); or
(2) on the Interest Payment Date or Distribution Date coinciding
with such proposed Disposal and after giving effect to the
application of funds as provided in clause 6.4 hereof
immediately following such Disposal, the Collateral Value
Ratio would be 90% and the Loan Value Ratio would be 100%.
6.8 Mortgage Loan Disposals
Without prejudice to the Security Documents, the Lender shall consent to
the Disposal of any Existing Mortgage Loan or New Production Mortgage Loan
financed under the Loan Facility Agreement provided that:
(1) the cash proceeds of such Disposal are sufficient to repay the
related Advance (together with all interest accrued thereon)
under the Loan Facility Agreement; and
(2) all Disposal proceeds are paid directly to the Borrower
Collection Account.
6.9 Insurance Premia
On each Interest Payment Date (or, if later, Late Interest Payment
Distribution Date) falling prior to the occurrence of an Event of Default
(other than any Event of Default
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which has subsequently been cured (to the satisfaction of the Lender) or
waived by the Lender) all amounts standing to the credit of the Borrower
Collection Account which represent Insurance Premia (as determined under
clause 4.2) shall be applied in or toward satisfaction of obligations of
the Borrower (or other persons) in the following manner:-
(1) in payment to the relevant insurance company, save to the extent
that the insurance company has already been paid, whether by the
Servicer or otherwise;
(2) if the Servicer or, as the case may be, the Standby Servicer has
paid the relevant premium to the insurance company on behalf of the
Borrower unless already reimbursed in respect thereof under Clause
6.2(a), in payment of the same to the Servicer or, as the case may
be, the Standby Servicer under the Interim Servicing Agreement, the
Substitute Servicing Agreement or the Standby Servicing Agreement as
the case may be; and
(3) any balance to be added to Mortgage Loan Interest and applied in
accordance with clause 6.2 save that such balance shall only be
added to (and, accordingly applied together with and as part of)
Mortgage Loan Interest after application of Mortgage Loan Interest
under clause 6.2(a).
6.10 Insurance Proceeds
On each Interest Payment Date (or, of later, Late Interest Payment
Distribution Date) falling prior to the occurrence of an Event of Default
(other than any Event of Default which has subsequently been cured (to the
satisfaction of the Lender) or waived by the Lender) all amounts standing
to the credit of the Borrower Collection Account which represent Insurance
Proceeds (as determined under clause 4.2) shall be applied first, in or
toward payment to the Servicer to enable the Servicer to pay the proceeds
to the relevant Mortgagor or, as the case may be, to apply the same in
making good the damage in respect of which they were paid or, to the
extent that proceeds of any claim are to be applied in or toward
satisfaction of the relevant Mortgagor's obligation to repay the relevant
Mortgage Loan (and not in making good the damage in respect of which the
proceeds were paid), such Insurance Proceeds shall be added to and treated
as Principal and distributed, together with Principal, under and in
accordance with clause 6.1.
7. APPLICATION FOLLOWING AN EVENT OF DEFAULT BUT PRIOR TO ACCELERATION OR
ENFORCEMENT
7.1 Application
On any Interest Payment Date (or, if later, any Late Interest Payment
Distribution Date) and other Distribution Date falling after the
occurrence of an Event of Default and where (and for so long as):-
(1) clause 6 does not apply;
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(2) no Acceleration has occurred; and
(3) no Enforcement has occurred,
all Principal, Mortgage Loan Interest, Mortgage Loan Proceeds,
Securitisation Residual Proceeds, Insurance Premia and Insurance Proceeds
will be applied in the same manner as under clause 6 save as provided
below:-
(1) all Securitisation Residual Proceeds from any Disposal of
Securitisation Residuals (irrespective of the date of such
Disposal) shall be available for application in or toward
repayment of interest under the Loan Facility Agreement and
Advances, such that the provisions relating to Permitted
Percentages shall cease to apply; and
(2) CMC and the Borrower shall cease to be entitled to have any
funds released to them such that sub-clauses 6.2(g), 6.3(e)
and 6.4(d) shall cease to apply; and
(3) Securitisation Residual Receipts shall be treated in the same
way as Securitisation Residual Proceeds under sub-clause (i)
above; and
(4) there shall be no limit on the amount which may be applied
toward repayment of Advances such that the provisions of
clause 6.5 will not apply.
7.2 Acknowledgement
It is acknowledged, for the avoidance of doubt, that application of
Proceeds under and in accordance with clause 7.1 on any Interest Payment
Date (or, if later, any Late Interest Payment Distribution Date) or other
Distribution Date shall not preclude Proceeds being applied on subsequent
Interest Payment Dates or other Distribution Dates under clause 6 if
clause 6 shall, at such subsequent time, apply and if no Acceleration or
Enforcement has at that subsequent time occurred.
8. APPLICATION FOLLOWING ACCELERATION OR ENFORCEMENT
8.1 Application
At all times following the earlier of an Acceleration or an Enforcement
the provisions of clauses 6 and 7 shall cease to apply and all Proceeds
shall be applied by the Lender in or toward satisfaction of the Secured
Liabilities in such order as the Lender in its absolute discretion shall
determine.
8.2 Servicing
(1) If, following any Acceleration or Enforcement, and for so long as:-
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(1) the Interim Servicing Agreement, or, after execution thereof
the Substitute Servicing Agreement continues to subsist and
has not been terminated; or
(2) the Standby Servicer has taken over administration of the
Existing Mortgage Loans and New Production Mortgage Loans
financed under the Loan Facility Agreement pursuant to the
Standby Servicing Agreement,
the obligation of the Borrower to pay the servicing fee (or other
fee which may be due and payable under the relevant agreement) on
any due date shall, as between the Borrower and the Servicer or
Standby Servicer, as the case may be, be discharged if and to the
extent of payment by the Lender of any such servicing fee direct and
the Lender shall be obliged to make any such payment to the Servicer
or Standby Servicer for so long as the relevant Servicing Agreement
continues to subsist but save as provided in the relevant agreement
shall not be liable for any amounts payable to the Servicer or
Standby Servicer upon termination of the same.
Upon payment by the Lender of any amount to the Servicer or Standby
Servicer under clause 8.2 (a) there shall immediately and
automatically fall due for payment by the Borrower to the Lender
under the Loan Facility Agreement an amount equal to the amount paid
by the Lender to the Servicer or Standby Servicer under sub-clause
8.2(a) less, at the date of payment, amounts received representing
Mortgage Loan Interest which would have been available to be applied
under Clause 6.2(a) in or toward satisfaction of the servicing fee
had clause 6 or 7 applied on that date, as determined by the Lender
whose determination shall in the absence of manifest error or bad
faith be final and binding.
8.3 Insurance Premia
The Lender shall use its best endeavours to ensure that any amounts
received or recovered from any Mortgagor which represent Insurance Premia
shall, after Acceleration or Enforcement, be paid to the insurance company
or other third party entitled thereto.
9. CMR6 SECURITISATION RESIDUALS
CMC and CMF hereby agree that in consideration for the absolute assignment
by CMF to the Borrower of all of its right, title and interest under and
in respect of Securitisation Residuals in respect of the CMR6
Securitisation (effected pursuant to the Assignment Agreement) and the
assumption by the Borrower of its obligations in respect of Securitisation
Residual Receipts under, and on the terms of, the Assignment Agreement CMC
hereby irrevocably and unconditionally releases CMF from all of its
obligations (whether actual or contingent) under the Origination and
Purchase Agreement to pay Additional Consideration (as defined under the
Origination and Purchase Agreement) to CMC thereunder and it is further
agreed that the said absolute assignment shall discharge
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any outstanding obligation under the Origination and Purchase Agreement to
pay Additional Consideration.
10. RELEASED PROCEEDS
10.1 Notwithstanding any provision in any Transaction Document to the contrary
the Lender hereby agrees that for so long as no Acceleration or
Enforcement shall have occurred the Borrower shall be entitled to do each
or any of the following:-
(1) declare and pay any dividend to CMC to the extent that available
profits are derived from amounts released to the Borrower under the
provisions of clause 6 of this Agreement;
(2) apply amounts released to the Borrower under clause 6 in or toward
repayment of any indebtedness due to CMC under and in accordance
with the Subordinated Loan Agreement.
10.2 If any dividend permitted under sub-clause 10.1 is received by the Lender
(in its capacity as mortgagee of the shares in the Borrower) the Lender
will pay the same to CMC in accordance with the provisions of the Borrower
Share Charge.
11. PAYMENTS TO LENDER
All amounts to be paid to the Lender hereunder shall be paid to such
account as the Lender may, from time to time, notify to each of the
parties hereto in writing.
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12. REPRESENTATIONS AND WARRANTIES
12.1 Each of the parties hereto other than the Lender (each in relation to
itself) hereby represent, warrant, covenant and undertake to the Lender
that:-
(1) it is a limited liability company duly incorporated under the laws
of England and Wales and is duly authorised and qualified to
transact any and all business contemplated by this Agreement and the
other Transaction Documents to be conducted by it;
(2) it has the full corporate power and authority to execute, deliver
and perform, and to enter into and consummate the transactions
contemplated by this Agreement and the other Transaction Documents
and has duly authorised by all necessary corporate action on its
part the execution, delivery and performance of this Agreement and
the other Transaction Documents; and this Agreement and each
Transaction Document, assuming the due authorisation, execution and
delivery thereof by the Lender, constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its
respective terms, except to the extent that (a) the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights
generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to the equitable
defences and to the discretion of the court before which any
proceeding therefor may be brought;
(3) its execution and delivery of this Agreement and each Transaction
Document, the consummation of any other of the transactions herein
or therein contemplated on its part and the fulfilment of or
compliance with the terms hereof or thereof will not (i) result in a
material breach of any term or provision of its Memorandum and
Articles of Association and/or its other constitutional documents or
(ii) materially conflict with, result in a material breach,
violation or acceleration of, or result in a material default under,
the terms of any other material agreement or instrument to which it
is a party or by which it may be bound, or any statute, order or
regulation applicable to it of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
it;
(4) it is not party to, bound by, or in breach or violation of any
material indenture or other material agreement or instrument, or
subject to or in violation of any statute, order or regulation of
any court, regulatory body, administrative agency or governmental
body having jurisdiction over it, which materially and adversely
affects or, to its knowledge, would in the future materially and
adversely affect,
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(i) its ability to perform its obligations under this Agreement or
the Transaction Documents or (ii) its business, operations,
financial condition, properties or assets taken as a whole;
(5) no litigation is pending or, to the best of its knowledge,
threatened against it that would materially and adversely affect the
execution, delivery or enforceability of this Agreement or the
Transaction Documents or its ability to perform any of its
obligations hereunder or thereunder in accordance with the terms
hereof or thereof; and
(6) no consent, approval, authorisation or order of any court or
governmental agency or body is required for the execution, delivery
and performance by it of, or compliance by it with, this Agreement
or any Transaction Document or the consummation of the transactions
contemplated hereby or thereby, or if any such consent, approval,
authorisation or order is required, it has obtained or its in the
process of obtaining the same.
The representations and warranties under clause 12.1(a)-(f) inclusive
shall be given on the date of this Agreement and shall be repeated on each
date on which any Advance is outstanding under the Facility Agreement by
reference to the facts and circumstances existing at the relevant time.
13. COSTS AND EXPENSES
13.1 The Borrower shall pay all stamp, registration and other taxes to which
this Agreement or any judgement or decree given in connection herewith is
or at any time may be subject and shall, from time to time on demand of
the Lender, indemnify the Lender against any liabilities, costs, claims
and expenses resulting from any failure to pay or any delay in paying any
such tax.
13.2 The Borrower shall, from time to time on demand of the Lender compensate
the Lender at such daily and/or hourly rates as the Lender shall from time
to time reasonably determine for the time and expenditure, all costs and
expenses (including telephone, fax, copying, travel and personnel costs)
incurred by the Lender in connection with its taking such action as it may
deem appropriate or in complying with any request by the Borrower, the
Servicer, CMC or CMF in connection with (a) the granting or proposed
granting of any waiver or consent requested hereunder by the Borrower, the
Servicer, CMC or CMF; (b) any actual, potential or reasonably suspected
breach by the Borrower or by any of CMC, CMF or the Servicer of their
respective obligations hereunder of its obligations hereunder; (c) any
amendment or proposed amendment hereto requested by the Borrower, CMC, CMF
or the Servicer.
14. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of the
Lender, any right or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial
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exercise of any right or remedy prevent any further or other exercise
thereof or the exercise of any other right or remedy. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
15. CONFIDENTIALITY
Neither the Borrower, CMC, CMF nor the Servicer shall, without the prior
written consent of the Lender, disclose to any person the existence or any
details concerning this Agreement or the Transaction Documents except to
the extent such disclosure is contemplated in any Transaction Document, or
is required pursuant to the application of any applicable law or an order
of a court of competent jurisdiction, or is made to the auditors or other
professional advisers (who are in each case subject to confidentiality
restrictions imposed by a professional body) of the Borrower, CMC, CMF or
the Servicer.
16. NOTICES
16.1 Addresses
Any notice or other communication or document to be made or delivered
under this Agreement shall be made or delivered by fax or otherwise in
writing. Each notice, communication or other document to be delivered to
any party to this Agreement shall (unless that other person has by fifteen
days' written notice to the other party specified another address or fax
number) be made or delivered to that person at the address(es) or fax
number (if any) set out below:-
(a) in the case of the Lender to their branch office in the United
Kingdom, facsimile number: 0171 375 5510, attention Jeff Beckwith
with a simultaneous copy to the office of the General Counsel
located at 600 Steamboat Road, Greenwich, Connecticut 06830, USA,
facsimile number: 001 203 629 4571, attention
General Counsel;
(b) in the case of the Borrower, to its registered office, facsimile
number: 01923 426 456, attention Malcolm Charles
Edis;
(c) in the case of CMC, to its registered office, facsimile number:
01923 426 823, attention the Company Secretary;
(d) in the case of Servicer, to its office at Cityscape House, Croxley
Business Park, Watford WD1 8YF, facsimile number: 01923 426456,
attention of the Company Secretary;
(e) in the case of CMF, to its registered office, facsimile number:
01923 426 823, attention the Company Secretary;
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16.2 Deemed Delivery
Any notice, communication or document to be delivered to any person shall
be deemed to have been delivered:-
(1) in the case of personal delivery, at the time of such delivery;
(2) in the case of delivery by post, on the business day following the
day on which it was posted and in proving such delivery it shall be
sufficient to prove that the relevant notice, communication or
document was properly addressed, stamped and posted (by airmail, if
to another country) in the United Kingdom or, in the case of service
to or from an address outside the United Kingdom at 9.00 a.m. on the
fourth day following the day on which it was posted;
(3) in the case of any notice or other communication by fax, (a) on the
business day the same was transmitted so long as there is evidence
that such fax message was received prior to 5.00 p.m. local time of
the recipient on such day and such day is a business day for the
recipient, otherwise (b) on the business day following the day on
which it was transmitted and, in either case, in proving such
delivery it shall be sufficient to prove that the whole of the fax
message was received on any fax machine of the recipient and that
there was no evidence that such transmission had been interrupted.
17. SEVERABILITY
If at any time any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any jurisdiction,
that shall not affect or impair:-
(1) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(2) the legality, validity or enforceability under the law of any other
jurisdiction of that or any other provision of this Agreement.
18. ASSIGNMENT
18.1 The Lender may at any time assign or transfer all or any part of its
rights or benefits under this Agreement to any person to whom the Lender
transfers all or any part of its rights under the Loan Facility Agreement.
18.2 None of the Borrower, CMC, the Servicer or CMF shall be entitled to
assign, transfer or otherwise dispose of all or any of their respective
rights or benefits under this Agreement save, in the case of the Borrower
and CMC to any person to whom the Borrower or, as
31
<PAGE> 101
the case may be, CMC transfers its rights and obligations under and in
accordance with the Loan Facility Agreement.
18.3 The Lender may disclose to a proposed assignee or transferee information
in its possession relating to the provisions of this Agreement and the
Transaction Documents which it considers necessary or desirable to
disclose for the purposes of the proposed assignment or transfer.
18.4 This Agreement shall bind and inure to the benefit of and be enforceable
by the Lender and its respective successors, transferees and assigns and
references to the Lender shall be deemed to include references to each of
the foregoing.
19. ACCESSION
Each of the parties hereby agrees to execute an accession agreement with
the Standby Servicer, in form and substance satisfactory to the Lender, at
the time of execution of the Standby Servicing Agreement, pursuant to
which the Standby Servicer accedes to the provisions of this Agreement.
20. GOVERNING LAW
The Agreement shall be construed in accordance with the laws of England
(other than any terms hereof particular to the laws of Scotland which
shall be construed in accordance therewith) and the parties hereto hereby
submit to the jurisdiction of the courts of England and Wales.
...................................
for and on behalf of
MORTGAGE MANAGEMENT LIMITED
Witness ...........................
Organisation ......................
...................................
Address ...........................
...................................
32
<PAGE> 102
......................................
for and on behalf of GREENWICH
INTERNATIONAL, LTD.
Witness ..............................
Organisation .........................
......................................
Address ..............................
......................................
33
<PAGE> 103
...........................................
for and on behalf of CITY MORTGAGE
CORPORATION LIMITED
Witness ................................
Organisation ...........................
........................................
Address ................................
........................................
...........................................
for and on behalf of CITY MORTGAGE
SERVICING LIMITED
Witness ................................
Organisation ...........................
........................................
Address ................................
........................................
...........................................
for and on behalf of CITY MORTGAGE
FUNDING 1 LIMITED
Witness ......................................
Organisation .................................
..............................................
Address ......................................
..............................................
34
<PAGE> 104
THE ORIGINATORS LISTED HEREIN
and
MORTGAGE MANAGEMENT LIMITED
----------------------------------------------------------
ORIGINATION AND TRANSFER AGREEMENT
----------------------------------------------------------
February 1998
Clifford Chance
London
<PAGE> 105
CONTENTS
Clause Page No.
1 INTERPRETATION..................................................... 2
2 ORIGINATION OF NEW LOANS........................................... 9
3 TRANSFER OF EXISTING LOANS......................................... 9
4 NO EXCLUSIVITY..................................................... 10
5 REQUEST FOR FUNDS.................................................. 10
6 DECLARATION OF TRUST............................................... 10
7 CLOSING DATE....................................................... 11
8 TITLE DEEDS........................................................ 11
9 WARRANTIES AND REPRESENTATIONS .................................... 12
10 CONSEQUENCES OF WARRANTY BREACH ................................... 12
11 RELEASE............................................................ 12
12 EFFECT OF PURCHASE................................................. 12
13 COVENANTS AND UNDERTAKINGS......................................... 13
14 MERGER............................................................. 13
15 NO AGENCY OR PARTNERSHIP........................................... 13
16 PAYMENTS........................................................... 13
17 WAIVERS AND VARIATIONS............................................. 13
18 ENTIRE AGREEMENT................................................... 13
19 NOTICES............................................................ 14
20 ASSIGNMENT......................................................... 15
21 GOVERNING LAW...................................................... 15
SCHEDULE 1............................................................... 17
<PAGE> 106
FORM OF ORIGINATOR POWER OF ATTORNEY..................................... 17
SCHEDULE 2............................................................... 22
(FORM OF TRANSFER (REGISTERED LAND))..................................... 22
SCHEDULE 3............................................................... 25
(FORM OF TRANSFER (UNREGISTERED LAND))................................... 25
SCHEDULE 4.............................................................. 28
(FORM OF ASSIGNMENT OF LIFE CHARGES)..................................... 28
SCHEDULE 5............................................................... 30
(FORM OF ASSIGNMENT OF INSURANCE CONTRACTS).............................. 30
SCHEDULE 6............................................................... 31
(FORM OF ASSIGNMENT OF GUARANTEES)....................................... 31
SCHEDULE 7............................................................... 32
(FORM OF SCOTTISH TRANSFER (LAND REGISTER)).............................. 32
SCHEDULE 8............................................................... 34
(FORM OF SCOTTISH TRANSFER (SASINE REGISTER))............................ 34
SCHEDULE 9............................................................... 36
(FORM OF SCOTTISH DECLARATION OF TRUST).................................. 36
SCHEDULE 10.............................................................. 41
(INFORMATION TO BE CONTAINED IN LOAN SCHEDULE)........................... 41
SCHEDULE 11.............................................................. 42
(THE ORIGINATORS)........................................................ 42
SCHEDULE 12.............................................................. 43
(FORM OF ORIGINATOR DECLARATION OF TRUST)................................ 43
<PAGE> 107
THIS ORIGINATION AND TRANSFER AGREEMENT is made on the day of
February 1998
BETWEEN:
(1) MORTGAGE MANAGEMENT LIMITED a company incorporated under the laws of
England and Wales registered number 2002263, whose registered office is at
19 Cavendish Square, London W1A 2AW (the "Company"); and
(2) THE COMPANIES listed in Schedule 11 (the "Originators" and, each, an
"Originator").
WHEREAS
(A) The Originators carry on the business of advancing loans secured by
mortgages and standard securities over properties in England, Wales and
Scotland.
(B) The Company wishes to fund the purchase of or origination and purchase of
such loans.
(C) The parties wish to execute this Agreement for the purpose of establishing
procedures for the origination of such loans by the Originators funded by
the Company or for such loans to be originated and purchased or purchased
by the Company.
NOW THEREFORE the parties HEREBY AGREE as follows:
1 INTERPRETATION
Words and expressions shall, unless otherwise defined herein or in the
Loan Facility Agreement or unless the context otherwise requires, have the
following meanings:
1.1 Definitions
"Accrued Interest" means, in relation to a Loan at any date, interest
which has accrued but is not due;
"Agreed Loan Information" means in respect of any Proposed New Loan, such
information in relation to that Proposed New Loan (whether in computer
readable form or otherwise) as the Company may from time to time notify to
an Originator;
"Approved Solicitor" means any firm of solicitors authorised to practise
law by the Law Society of England and Wales or the Law Society of Scotland
having at least three partners or such other firm approved by the Company;
"Approved Undertaking" means an undertaking from an Approved Solicitor
addressed to the Company or such other person or persons as the Company
may specify relating, inter alia, to the completion and, where relevant,
registration of a Mortgage and its transfer to the Company in a form
acceptable to the Company;
<PAGE> 108
"Approved Valuer" means a reputable firm of suitably qualified valuers or
surveyors which has at least 3 partners or such other firm approved by the
Company;
"Assignment of Guarantees" means an assignment and/or assignation of the
Guarantees, substantially in the form of Schedule 6;
"Assignment of Insurance Contracts" means an assignment and/or assignation
of the Insurance Policies, substantially in the form of Schedule 5;
"Assignment of Life Charges" means an assignment and/or assignation of the
Charges of Life Policies, substantially in the form of Schedule 4;
"Assignments" means the Assignment of Guarantees, the Assignment of
Insurance Contracts and the Assignment of Life Charges;
"Block Buildings Policy" shall have the meaning ascribed thereto in the
Loan Facility Agreement;
"Borrower" means, in relation to a Loan, the person named as such in the
relevant Mortgage Deed together with any person from time to time assuming
the obligations of the Borrower under that Loan to repay that Loan or any
part of it;
"Buildings Policy" means each buildings insurance policy over a Property
(including, where applicable, the Block Buildings Policy);
"Business Day" means a day (other than a Saturday or a Sunday) on which
banks are generally open for business in London;
"Call Notice" means the notice to be delivered by the relevant Originator
(or the Administrator on its behalf) to the Company pursuant to clause 10
specifying, in an attached Loan Schedule, Loans in the Portfolio intended
to be purchased by or at the direction of by that Originator on the date
specified in such notice;
"Charge of Life Policy" means a legal or equitable charge or assignation
granted by a Borrower in favour of an Originator in respect of a Life
Policy or Life Policies by way of collateral security for the repayment of
the moneys secured by a Mortgage related to a Loan;
"Closing" means the date upon which the initial drawing under the Loan
Facility Agreement is made;
"Closing Date" means the date upon which Closing occurs;
"CMC" means City Mortgage Corporation Limited;
"Collateral Security" has the meaning set out in the Loan Facility
Agreement;
"Debenture" shall have the meaning ascribed thereto in the Loan Facility
Agreement;
<PAGE> 109
"Eligibility Criteria" are satisfied in respect of a New Loan in respect
of which, on the date upon which it was advanced, complied with the
Warranties set out in clause 9;
"English Loan" means a Loan secured by an English Mortgage;
"English Mortgage" means a Mortgage secured over a Property situated in
England or Wales;
"Existing Loan" means each loan acquired by the Company under clause 3;
"Guarantee" means each guarantee given in support of the obligations of a
Borrower under a Loan and its related Mortgage;
"Insurance Policies" means the Block Building Policy and the Contingency
Policy and, in each case, any other insurance contracts in replacement,
addition or substitution therefor from time to time and which relate to
the Loans;
"Interest Bearing Balance" means, in respect of any Loan, the aggregate of
(avoiding double counting):
(a) all advances and further advances in respect thereof;
(b) all costs, fees, expenses and interest due and unpaid in respect
thereof
less the aggregate of all repayments or prepayments of the foregoing made
prior to such date;
"Lender" means Greenwich International, Ltd. in its capacity as Lender
under the Loan Facility Agreement;
"Life Policy" means each endowment, mortgage protection, term life or
other life assurance or insurance policies, if any, given as security for
the repayment of any Loan;
"Loan" means an Existing Loan or a New Loan, as the case may be;
"Loan Agreement" means, in relation to any Mortgage, the agreement or
agreements (whether constituted by an accepted Offer Letter or otherwise)
or facility letter or facility letters pursuant to which the moneys
secured by such Mortgage were advanced (as varied from time to time);
"Loan Facility Agreement" means the facility agreement dated the Closing
Date and made between the Company, the Lender and CMC;
"Loan File" means the file containing all correspondence in respect of
each Loan;
"Loan Schedule" means:
(a) in respect of each Existing Loan to be acquired pursuant to
clause 3, a schedule containing the information set out in
Schedule 10;
<PAGE> 110
(b) in respect of each Proposed New Loan to be originated pursuant
to clause 2, a schedule containing the information set out in
Schedule 10; and
(c) each schedule or list of Loans attached to a Call Notice
served pursuant to clause 10;
"MHA Documentation" means, in relation to any Scottish Loan, any
affidavit, consent or renunciation granted in terms of the Matrimonial
Homes (Family Protection) (Scotland) Act 1981 given in connection with
such Scottish Loan or its Collateral Security;
"Mortgage" means, in relation to a Loan, the charge Standard Security or
mortgage created by the relevant Mortgage Deed to secure repayment of the
sums due under the Loan from the relevant Borrower;
"Mortgage Deed" means, in relation to a Loan, the deed creating the charge
or security by way of legal mortgage or Standard Security over the
Property the subject thereof and any deed of variation or other deed
supplemental thereto;
"Mortgagee" means, in respect of a Mortgage, the person or persons from
time to time entitled to exercise the powers of the mortgagee or heritable
creditor thereunder;
"Mortgagor" means a Borrower or (in relation to any Scottish Loan) the
grantor of the relevant Standard Security;
"New Loan" means each Loan advanced by an Originator pursuant to clause
2.1(c);
"Occupier's Consent" means, in relation to any English Loan, the letter or
other document of consent given in connection with that Loan whereby any
occupier of the relevant Property aged eighteen years or over who is not a
party to the relevant Mortgage Deed has agreed to postpone his interest
(if any) in that Property so that it ranks after that of the Mortgagee;
"Offer" means an offer of a Loan made by an Originator to a Potential
Borrower;
"Offer Letter" means the letter or letters pursuant to which an Offer is
made;
"Origination Funds" means any monies transferred to and held by the
Approved Solicitors acting for the relevant Originator by the Company
pursuant to clause 2.1(b);
"Originator Declaration of Trust" means the declaration of trust of even
date in the form set out in Schedule 12;
"Originator Power of Attorney" means the power of attorney to be given by
each of the Originators in the form set out in Schedule 1;
<PAGE> 111
"Portfolio" means, at any time, the Loans which are, at that time,
beneficially owned by the Company;
"Potential Borrower" means any person or persons who have indicated in
writing to an Originator (by completing that Originator's application
form) that they are desirous of borrowing money on the security of a
Mortgage;
"Property" means, in relation to a Loan, the freehold or leasehold
property in England or Wales or the heritable property in Scotland charged
or secured or, as the case may be, to be charged or secured in favour of
the Originator by way of mortgage or Standard Security as security for the
repayment of that Loan;
"Proposed New Loan" means a proposed new loan in respect of which an
application from a Potential Borrower has been received and which is in
the course of being processed by the relevant Originator (or the
Administrator on its behalf);
"Purchase Price" means, in respect of a Loan at any date, the aggregate,
at that date, of:
(a) the Interest Bearing Balance of that Loan; and
(b) the Accrued Interest in respect of that Loan;
"Relevant Rights" means, in respect of a Loan:
(c) all sums of principal, interest and any other sum payable by the
Borrower under such Loan and its related Mortgage and the right to
demand, sue for, recover, receive and give receipts for all
principal moneys payable or to become payable (howsoever and
whensoever arising) under such Loan, the related Loan Agreement and
the related Mortgage or the unpaid part thereof and all interest
payable or to become payable (howsoever and whensoever arising)
thereon; and
(d) the benefit of all securities for such principal moneys and
interest, the benefit of all arrangements with the holders of second
or subsequent or prior mortgages, charges or other Security
Interests over the Property pursuant to which such holder or the
Mortgagee, as applicable, has agreed to postpone its interest under
such mortgage, charge or other Security Interest to the relevant
Mortgage or Mortgage, the benefit of all Occupier's Consents
(including any priority conferred by them) or of any related MHA
Documentation and the benefit of and the right to sue on all
covenants and/or agreements with the Mortgagee in each relevant Loan
Agreement and the relevant Mortgage and the right to exercise all
powers and remedies of the Mortgagee in relation to the relevant
Loan Agreement and the relevant Mortgage; and
(e) all the estate and interest in the relevant Property vested in the
Mortgagee subject to redemption or cesser; and
(f) all causes and rights of action (both present and future) of the
Mortgagee against any valuer, any solicitor, any other person or
H.M. Land Registry or the Registers of Scotland in connection with
any report, valuation, opinion, certificate, consent or
<PAGE> 112
other statement of fact or opinion given in connection with any such
Loan, the relevant Loan Agreement or the relevant Mortgage or
affecting the Mortgagee's decision to make the relevant advance
initially; and
(g) the right (if any) of the Mortgagee to receive the proceeds of any
claim under any of the relevant Insurance Policies; and
(h) all causes and rights of action (present and future) against any
solicitor or valuer in connection with the completion of such Loan
and the related mortgage documentation and any advice given in
relation thereto;
"Report on Title" means a report on title in respect of a Property
comprising part of the Standard Mortgage Documentation;
"Repurchase Rights" means, in relation to a Loan at any time, all right,
title, interest, benefit and obligations of the Company in and to the
relevant Loan and its Collateral Security at that time;
"Scottish Loan" means a Loan secured by a Scottish Mortgage;
"Scottish Mortgage" means a Mortgage secured over a Property situated in
Scotland;
"Scottish Transfer" means assignations of the Loans and their related
Mortgages in substantially either of the forms of Schedules 7 and 8 as the
case may be;;
"Security Interest" has the meaning ascribed to "Encumbrance" in the Loan
Facility Agreement;
"Standard Mortgage Documentation" means the documents used by the
Originators in respect of the Loans in connection with their activities as
residential mortgage lenders and shall include such other documents as may
from time to time be substituted therefor or added thereto;
"Standard Security" means a standard security in terms of the Conveyancing
and Feudal Reform (Scotland) Act 1970;
"Supplemental Scottish Declaration of Trust" means any declaration of
trust over Scottish Loans and their related Collateral Security granted by
the Originator in favour of the Company pursuant to, and substantially in
the form set out in Schedule 9;
"Title Deeds" means, in respect of a Loan and the related Property, the
property deeds and the security therefor or thereover;
"Transfer Documents" means, in respect of a Loan and its related
Collateral Security, the relevant Transfer and Assignments;
<PAGE> 113
"Transfers" means, in relation to registered land in England and Wales and
such land which is the subject of an application for first registration,
transfers of the Loans and their related Mortgages (there being one for
each District Land Registry) in the form of Schedule 2, in relation to
unregistered land in England and Wales (excluding such land which is the
subject of an application for first registration), transfers of the Loans
and their related Mortgages in the form of Schedule 3 and, in relation to
land in Scotland, Scottish Transfers;
"Trust Event" means:
(i) in any case where clause 2 applies, the transfer of funds to or to
the order of the relevant Originator in accordance with clause
2.1(b) of that clause; and
(ii) in any case where clause 3 applies, the transfer of funds to or to
the order of the relevant Originator in discharge of the
consideration for the purchase of that Loan referred to in that
clause;
"Valuation Report" means a report in respect of a Property made by an
Approved Valuer substantially in the form set out in the Standard Mortgage
Documentation; and
"Warranties" means the representations and warranties on the part the
relevant Originator contained clause 9.
1.2 Any reference in the Agreement to:
"agreed draft" means, in relation to any document, the draft of that
document which has been agreed between the parties thereto and initialled
on their behalf for the purposes of identification;
a "clause" or a "Schedule" shall, unless the context otherwise requires,
to be a clause or schedule of this Agreement;
the "Lender" shall be construed so as to include its and any subsequent
successors and assigns in accordance with their respective interests;
a "month" is a reference to a period starting one day in a calendar month
and ending on the numerically corresponding day in the next following
calendar month provided that, where any such period would otherwise end on
a day which is not a Business Day, it shall end on the following
succeeding Business Day, unless that day falls in the calendar month next
following that in which it would otherwise have ended, in which case it
shall end on the immediately preceding Business Day and provided further
that, if there is no numerically corresponding day in the next following
calendar month, that period shall end on the last Business Day in that
next following calendar month (and references to "months" shall be
construed accordingly);
a "person" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or
more of the foregoing;
<PAGE> 114
"(pound)" and "Sterling" shall be to the lawful currency of the United
Kingdom;
"tax" shall be construed so as to include any tax, levy, impost, duty or
other charge of a similar nature imposed or levied in the United Kingdom
(including, without limitation, any penalty or interest payable in
connection with any failure to pay or any delay in paying any of the
same);
"VAT" shall be construed as a reference to value added tax including any
similar tax which may be imposed in place thereof from time to time;
the "winding-up", "dissolution" or "administration" of a company shall be
construed so as to include any equivalent or analogous proceedings under
the law of the jurisdiction in which such company is incorporated or any
jurisdiction in which such company carries on business;
words particular to Scots law shall be construed accordingly.
2 ORIGINATION OF NEW LOANS
2.1 If an Originator intends to make a Proposed New Loan and such Proposed New
Loan, if advanced, would satisfy the Eligibility Criteria, then in each
case subject to and in accordance with this Agreement:
(a) that Originator (or the Administrator on its behalf) may request
that the Company lends to that Originator such funds as that
Originator shall require in order to advance such Proposed New Loan
and shall, in conjunction with such request, supply to the Company
the Agreed Loan Information;
(b) the Company shall, following any such request, notify that
Originator whether, in respect of that Proposed New Loan, it is
willing to fund the origination of that Loan and, if so, will, at
the request of that Originator (or the Administrator on its behalf),
and subject to the prior receipt from the relevant Approved
Solicitors of an Approved Undertaking, transfer such funds to the
Approved Solicitors nominated by that Originator (or the
Administrator on its behalf);
(c) that Originator (or the Approved Solicitor on its behalf) shall, as
soon as possible, complete the New Loan utilising the funds advanced
by the Company for that purpose; and
(d) immediately upon completion of each New Loan pursuant to sub-clause
(c) above, that Originator shall transfer to the Company all its
right, title, interest and benefit in and to that New Loan and
related Mortgage and its related Collateral Security including the
Relevant Rights by executing the Transfer Documents and will procure
that the Approved Solicitor provide an Approved Undertaking in
respect of the relevant New Loan completed.
2.2 The transfer by the relevant Originator of the relevant New Loan shall
constitute the consideration for the repayment of the Loans pursuant to
this Agreement and discharge in full
<PAGE> 115
the obligation on the part of the relevant Originator to repay the loan
made by the Company to the relevant Originator in respect of that New Loan
pursuant to clause 2.1(a).
2.3 The Company shall not be obliged to provide funds for New Loans originated
by any of the Originators and the Originators shall not be under any
obligation to originate New Loans.
3 TRANSFER OF EXISTING LOANS
If, following any request made in accordance with clause 2.1(a), the
Company at its sole discretion notifies the relevant Originator that it is
only prepared to purchase a Proposed New Loan after completion thereof by
the relevant Originator, it shall notify the relevant Originator of the
date upon which it is prepared to effect such purchase and, subject to the
prior receipt by the Company from the relevant Approved Solicitors of an
Approved Undertaking, the Company will pay to the relevant Originator the
Purchase Price of that New Loan whereupon the relevant Originator shall
sell and the Company shall purchase from the relevant Originator all the
relevant Originator's right, title, interest and benefit in and to that
New Loan its related Mortgage and its related Collateral Security
including the Relevant Rights upon and subject to the terms set out in
clause 2.1(d) as if the reference therein to completion were a reference
to such purchase.
4 NO EXCLUSIVITY
Nothing herein or in any of the other Transaction Documents shall prevent
or restrict any Originator entering into any other arrangement with any
party other than the Company having similar effect to this Agreement.
5 REQUEST FOR FUNDS
5.1 In the case of the origination of a Proposed New Loan pursuant to clause
2.1, the relevant Originator shall instruct or shall procure that the
Administrator instructs the relevant Approved Solicitor to procure that
any request for transfer of funds to complete that Proposed New Loan (the
"Funds Transfer Request") is made and a copy provided to the Company no
later than the close of business of the Business Day before the day set
for completion of the relevant Proposed New Loan.
5.2 The Company's obligation to transfer the funds in order to complete any
Proposed New Loan shall arise only upon the date referred to as the
"Completion Date" in the Funds Transfer Request and the relevant monies
shall be transferred on that date by the Company (or the Administrator on
its behalf) from the Borrower Funding Account (as defined in the Loan
Facility Agreement) to the relevant client account of the relevant
Approved Solicitors.
5.3 In the case of a purchase of a New Loan pursuant to clause 3, the Company
(or the Administrator on its behalf) shall, subject as set out in clause
3, procure the transfer from the Borrower Funding Account on the relevant
date of the consideration referred to therein.
5.4 If any Proposed New Loan has not been completed within five Business Days
following the
<PAGE> 116
date upon which the Company transfers funds to the relevant Approved
Solicitors (in this sub-clause, the "relevant date") the relevant
Originator (or the Administrator on its behalf) shall procure that such
funds are re-transferred to the Company to such account as the Company
shall from time to time specify no later than the Business Day following
the relevant date.
6 DECLARATION OF TRUST
In consideration of the Company agreeing to enter into this Agreement:
(a) each Originator agrees to execute the Originator Declaration of
Trust;
(b) each Originator hereby agrees to grant and execute a Supplemental
Scottish Declaration of Trust in relation to each Loan which is a
Scottish Loan forthwith upon the relevant Trust Event in respect
thereof; and
(c) each Originator hereby agrees to grant and execute a.Scottish
Transfer in relation to each New Loan which is a Scottish Loan
forthwith upon the relevant Trust Event in respect thereof.
7 CLOSING DATE
On the Closing Date, the Originators shall deliver to the Company or as it
may direct duly executed by each Originator:
(a) the Originator Declaration of Trust; and
(b) the Originator Power of Attorney.
8 TITLE DEEDS
8.1 Each Originator shall hold or procure that there are held all of the Title
Deeds and Loan Files relating to each of the Loans comprised in the
Portfolio for the benefit of, and to the order of, the Company or such
other person or persons as the Company shall specify with effect from the
occurrence of the relevant Trust Event in respect thereto until delivery
to or at the direction of the Company. Each Originator shall hold such of
the Title Deeds and Loan Files as it does not have in its possession for
the benefit of, and to the order of, and upon trust for, the Company or
such other person or persons as the Company shall specify from the date
upon which it obtains possession of the same until delivery to or at the
direction of the Company. Each Originator shall, at the request of the
Company, deliver to any third party specified by the Company, a written
acknowledgement that the Title Deeds and/or Loan files and/or Relevant
Right received by or, as the case may be, in the possession of that
Originator are held to the order of that third party, such acknowledgement
to be in a form satisfactory to the Company.
8.2 To the extent that any of the documents referred to in clause 8.1 are held
to the order of an Originator by H.M. Land Registry or the Registers of
Scotland or by solicitors acting for an
<PAGE> 117
Originator or any Borrower, that Originator will, with effect from the
Closing Date, treat all of such documents as if held to the order of the
Company.
8.3 If at (or at any time after) the Closing Date, an Originator holds, or
there is held to its order, or it receives, or there is received to its
order, any of the Relevant Rights in respect of any of the Loans comprised
in the Portfolio, that Originator undertakes with the Company that it will
hold such Relevant Rights upon trust for the Company as the trustee
thereof pursuant to the Originator Declaration of Trust or for such other
person or persons as the Company shall specify.
8.4 To give effect to the provisions of this clause 8, the relevant Originator
shall procure that the relevant Approved Solicitor shall, upon completion
of a New Loan, or, as the case may be, the purchase of an Existing Loan in
accordance with this Agreement, provides an Approved Undertaking.
9 WARRANTIES AND REPRESENTATIONS
Each Originator, in respect of Trust Property comprising Loans originated
or, as applicable, sold by it, severally represents and warrants to the
Company as at the time of the relevant Trust Event in the same terms,
mutatis mutandis, as those representations and warranties given on the
part of the Company set out in clause 14.3(B) of the Loan Facility
Agreement.
10 CONSEQUENCES OF WARRANTY BREACH
10.1 In the event of there being a breach of the Warranties the effect of which
is to entitle the Lender to reduce the Loan Value (as defined in the
Proceeds Agreement) in respect of any Loan to 0%, the relevant Originator
shall, within 28 days after receipt of written notice of such breach from
the Company, be entitled to attempt to remedy the matter giving rise to
such breach of Warranty. If such matter is capable of remedy or, if such
matter is not capable of remedy, or, if capable of remedy, is not so
remedied within the said period of 28 days, the relevant Originator shall
be entitled to serve a notice (a "Call Notice") requiring the Company to
sell to that Originator or to such other person as that Originator may
direct its Repurchase Rights in relation to such Loan free from any right
or interest created thereover by the Company.
10.2 Completion of any sale under clause 10.1 shall take place immediately
following expiry of the 28 day period referred to therein, or at the
relevant Originator's earlier election, when the relevant Originator shall
pay or procure the payment to the Company or as the Company shall direct,
an amount equal to the Purchase Price. Any sale of a Loan by the Company
pursuant to the foregoing provisions of this clause shall be free from
encumbrances created by the Company but otherwise the relevant Originator
or other relevant purchaser shall have no recourse to the Company in
respect thereof.
11 RELEASE
The Company shall within a reasonable period after receipt of notice of
such proposed sale, execute and deliver a deed of assignment, assignation,
transfer or release, as applicable, at the request and cost of the
relevant Originator or other relevant purchaser of any such Loan and
<PAGE> 118
its Collateral Security against payment therefor in accordance with
clauses 10.2.
12 EFFECT OF PURCHASE
Any purchase of a Loan and its Collateral Security in accordance with
clause 10 shall constitute a discharge and release of the relevant
Originator from any claims which the Company may have against that
Originator arising from breach of any Warranty in relation to that Loan
but shall not affect any rights arising from a breach of Warranty in
relation to any other Loan.
13 COVENANTS AND UNDERTAKINGS
13.1 Each Originator undertakes, severally in respect of the Loans originated
or sold by it hereunder, with the Company that:
(a) if any legal or regulatory proceedings are raised against it, it
will immediately notify the Company thereof;
(b) if the Company so requires in writing, each of the Originators shall
join in any legal proceedings brought by the Company against any
person relating to the Loan and the related Mortgage agreed to be
sold thereby, subject always to that Originator being fully
indemnified to its reasonable satisfaction for its costs by the
Company;
(c) it will not sell, transfer or dispose of or purport to sell,
transfer or dispose of any interest in or otherwise deal in any Loan
or the related Collateral Security sold by it other than as
contemplated by this Agreement or any of the other Transaction
Documents; and
(d) it will notify the Company of all material breaches of Warranties.
14 MERGER
Any term of this Agreement to which effect is not given on the Closing
Date shall not merge and shall remain in full force and effect
notwithstanding Closing.
15 NO AGENCY OR PARTNERSHIP
It is hereby acknowledged and agreed by the parties that nothing in this
Agreement shall be construed as giving rise to any relationship of agency,
save as expressly provided herein, or partnership between any of the
parties and that in fulfilling its obligations hereunder, each party shall
be acting entirely for its own account.
16 PAYMENTS
All payments to be made pursuant to this Agreement shall be made, without
set-off or counterclaim, in sterling in immediately available funds and
shall be deemed to be made when they are received by the payee and shall
be accounted for accordingly.
<PAGE> 119
17 WAIVERS AND VARIATIONS
17.1 Exercise or failure to exercise any right under this Agreement shall not,
unless otherwise herein provided, constitute a waiver of that or any other
right.
17.2 No variation of this Agreement shall be effective unless it is in writing
and signed by (or by some person duly authorised by) each of the parties
hereto.
18 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding between
the parties in relation to the subject matter hereof and cancels and
replaces any other agreement or understanding in relation thereto.
19 NOTICES
19.1 Giving of notices
All notices or other communications under or in connection with the
Transaction Documents shall be given in writing or by facsimile. Any such
notice will be deemed to be given as follows:
(a) if in writing and sent by hand, when delivered;
(b) if in writing and sent by post, 48 hours after posting; and
(c) if by facsimile, when satisfactorily transmitted.
However, a notice given in accordance with the above but received on a
non-working day or after business hours in the place of receipt will only
be deemed to be given on the next working day in that place.
19.2 Address for notices
(a) The address, telephone and facsimile number of the Lender is:
Greenwich International, Ltd., 9 Floor, 1 Jermyn Street, London SW1Y
4UA
Tel No: 0171 375 5819
Fax No: 0171 375 5510
Attention: Jeff Beckwith
with a copy to:
<PAGE> 120
Offices of the General Counsel, located at 600 Steamboat Road,
Greenwich, Connecticut, 06830 USA
Tel No: 00 1 203 625 6040
Fax No: 00 1 203 629 4571
Attention: General Counsel
or such other address, telephone or facsimile number as the Lender
may notify to the other parties by not less than 5 Business Days'
notice.
(b) The address and facsimile number of the Company are:
Mortgage Management Limited, Cityscape House, Croxley Business Park,
Watford Herdfordshire, WD1 8YF
Tel No: 01923 426 426
Fax No: 01923 426 826
Attention: Company Secretary
or such other address, telephone or facsimile number as the Company
may notify to the other parties by not less than 5 Business Days'
notice.
(c) The address, telephone and facsimile number of the Originators is:
c/o City Mortgage Corporation Limited, Cityscape House,
Croxley Business Park,
Watford, Herdfordshire, WD1 8YF
Tel No: 01923 426 426
Fax No: 01923 426 826
Attention: Company Secretary
or such other address, telephone or facsimile number as CMC may
notify to the other parties by not less than 5 Business Days'
notice.
20 ASSIGNMENT
Neither the Originators nor the Company may assign or create any Security
Interest over its rights or interest and/or transfer its obligations under
this Agreement, save that (i) the Company may assign its rights under this
Agreement pursuant to the Debenture or otherwise with the prior written
consent of the Lender provided that nothing herein shall prevent the
Company from exercising such rights as it may have over or in respect of
the Portfolio, as provided in the Transaction Documents. The Originators
nominate and authorise CMC to receive and acknowledge receipt of any
notices or intimations in respect of such assignations, charges or
security granted by the Company in favour of the Lender, on their behalf.
<PAGE> 121
21 GOVERNING LAW
This document shall be governed by and construed in accordance with
English law, provided that any terms hereof which are particular to the
law of Scotland shall be governed by and construed in accordance with
Scots law.
IN WITNESS whereof the Originators and the Company have executed these presents
as a Deed at London on the day and year first before written.
Executed as a deed )
by CITY MORTGAGE )
CORPORATION LIMITED )
acting as attorney: )
Executed as a deed )
by J & J SECURITIES LIMITED )
acting as attorney: )
Executed as a deed )
by HOME MORTGAGES )
CORPORATION LIMITED )
acting as attorney: )
Executed as a deed )
by HOME FUNDING )
CORPORATION LIMITED )
acting as attorney: )
Executed as a deed )
by ASSURED FUNDING )
COPORATION LIMITED )
acting as attorney: )
<PAGE> 122
Executed as a deed )
by MORTGAGE MANAGEMENT )
LIMITED )
acting as attorney: )
<PAGE> 123
SCHEDULE 1
FORM OF ORIGINATOR POWER OF ATTORNEY
THIS POWER OF ATTORNEY is made on [ ]
BY
(1) CITY MORTGAGE CORPORATION LIMITED (registered number 3043776) whose
registered office is at 19 Cavendish Square, London WA 2AW ("CMC");
(2) J&J SECURITIES LIMITED (registered number 1335672) whose registered office
is at 19 Cavendish Square, London WA 2AW ("J&J");
(3) HOME MORTGAGE CORPORATION LIMITED (registered number 2000967) whose
registered office is at 19 Cavendish Square, London WA 2AW ("HMC");
(4) HOME FUNDING CORPORATION LIMITED (registered number 1967932) whose
registered office is at 19 Cavendish Square, London WA 2AW ("HFC");
(5) ASSURED FUNDING CORPORATION LIMITED (registered number 2102520) whose
registered office is at 19 Cavendish Square, London WA 2AW ("AFC");
(each, a "Donor" and, together, the "Donors") in favour of each of the
following two parties (identified at (6) and (7)) (each a "Donee" and
together the "Donees")
(6) MORTGAGE MANAGEMENT LIMITED (registered number 2002263) whose registered
office is at Harcourt House, 19 Cavendish Square, London WA 2AW ("MML");
and
(7) GREENWICH INTERNATIONAL, LTD. a company incorporated in Bermuda whose
registered office is at Cedar House, 41 Cedar Avenue, Hamilton, Bermuda
and whose branch in the United Kingdom is at 1 Jermyn Street, 7th Floor,
London SW1Y 4UH ("GIL").
WHEREAS
(A) By an agreement of even date between the parties hereto (the "Origination
and Transfer Agreement"), the Donors agreed to transfer to the Company the
Loans and their Collateral Security.
(B) By or pursuant to the Originator Declaration of Trust and any Scottish
Declaration of Trust executed pursuant to the Origination and Transfer
Agreement, the Donors are to hold the benefit of the legal title or
proprietorship, as the case may be, to or of the Loans and their
Collateral Security on trust for the Company absolutely.
(C) The Donors have agreed to enter into these presents for the purposes
hereinafter appearing.
(D) Words and expressions defined in the Origination and Transfer Agreement
shall, unless
<PAGE> 124
otherwise defined herein or unless the context otherwise requires, have
the same meanings in this Agreement.
NOW THIS DEED WITNESSETH THAT EACH DONOR HEREBY APPOINTS each of the Donees
severally to be its true and lawful attorney (with power to sub-delegate) for it
and in its name to do the following acts and things or any of them:
1. to exercise its rights, powers and discretion under the Mortgage Loans and
their Collateral Security including the right to determine and set, in its
absolute discretion, the rate or rates of interest chargeable to the
relevant borrowers under the Mortgage Loans and Mortgages in accordance
with the relevant Mortgage Conditions referred to therein (including,
without limitation, the right, in its absolute discretion, to set and to
calculate the Monthly Payments);
2. to exercise all powers exercisable by the Donor by reason of its remaining
for the time being the legal mortgagee or registered or recorded heritable
creditors in respect of any of the Mortgages or, as the case may be, the
registered proprietor at HM Land Registry or the registered or recorded
heritable creditor in the Registers of Scotland of any of the Mortgages;
3. to demand sue for and receive all moneys due or payable under the Mortgage
Loans and their related Mortgages or any such Collateral Security or
related rights;
4. upon payment of such moneys or of any part thereof to give good receipts
and discharges for the same and to execute such receipts, releases,
re-assignments, surrenders, instruments and deeds as may be requisite or
advisable.
5. without prejudice to any of the foregoing, to execute and deliver in the
case of English Mortgages of Property which relate to registered land
(including any Property which is the subject of an application for first
registration) such legal transfers in the form set out in Schedule 2 to
the Origination and Transfer Agreement and, in the case of English
mortgages of Property which relate to unregistered land, legal transfers
in the form set out in Schedule 3 to the Origination and Transfer
Agreement and, in the case of Scottish Mortgages, assignations in either
of the forms (as appropriate) set out in Schedule 7 and 8 to the
Origination and Transfer Agreement as a Donee considers necessary (with,
in either case, such amendments as may reasonably be required to such
transfers and assignations) together with such further transfers,
assignments and assignations of the other Collateral Security and related
rights sold by that Donor under the Origination and Transfer Agreement or,
as the case may be, held on trust pursuant to any Scottish Declarations of
Trust and notices of all such transfers, assignments and assignations, in
each case in such form as a Donee may require including, without
limitation, assignments and assignations in the respective forms set out
in the schedules to the Origination and Transfer Agreement (or such other
forms as a Donee may reasonably require) in order to perfect the Company's
interest therein by means of a transfer or assignation of the legal estate
and title; and
6. from time to time to substitute and appoint severally one or more attorney
or attorneys for all or any of the purposes aforesaid.
AND each Donor hereby agrees at all time hereafter to ratify and confirm
whatsoever any act matter or deed any attorney or substitute shall lawfully do
or cause to be done under or concerning these presents.
<PAGE> 125
AND each Donor hereby declares that these presents having been given for
security purposes and to secure a continuing obligation the powers hereby
created shall be irrevocable within the meaning of Section 4 of the Powers of
Attorney Act 1971.
This Power of Attorney shall be governed by English law.
DULY DELIVERED as a deed on the day and year first before written.
Executed and delivered as a deed )
by CITY MORTGAGE )
CORPORATION LIMITED )
in the presence of: )
Director
Director
Executed and delivered as a deed )
by J&J SECURITIES LIMITED )
in the presence of: )
Director
Director
<PAGE> 126
Executed and delivered as a deed )
by HOME MORTGAGES )
CORPORATION LIMITED )
in the presence of: )
Director
Director
Executed and delivered as a deed )
by HOME FUNDING )
CORPORATION LIMITED )
in the presence of: )
Director
Director
Executed and delivered as a deed )
by ASSURED FUNDING )
CORPORATION LIMITED )
in the presence of: )
Director
Director
<PAGE> 127
ANNEXURE
(List of Donors)
City Mortgage Corporation Limited
(Registered No. 3043776)
J&J Securities Limited
(Registered No. 1335672)
Home Mortgages Corporation Limited
(Registered No. 2000967)
Home Funding Corporation Limited
(Registered No. 1967932)
Assured Funding Corporation Limited
(Registered No. 2102520)
<PAGE> 128
SCHEDULE 2
(FORM OF TRANSFER (REGISTERED LAND))
HMLR FORM 54
H.M. LAND REGISTRY
LAND REGISTRATION ACTS 1925 TO 1988
TRANSFER OF CHARGES
District Land Registry :
Title No :
Properties :
Date :
[ ] (registered number ) whose registered office is
at [ ](the "Transferor") with full title guarantee hereby transfers
to MORTGAGE MANAGEMENT LIMITED (registered number ) whose registered office
is at [ ] (the "Transferee") all right, title, interest and benefit (both
present and future) of the Transferor in the several charges (the "Charges")
particulars whereof are set out in the Annexure hereto of which it is or is
entitled to be the registered proprietor including for the avoidance of doubt:
(a) the right to demand, sue for, recover and give receipts for all principal
monies under the Charges or the unpaid part thereof and the interest to
become due thereon; and
(b) the benefit of all securities for such principal monies and interest and
the benefit of and the right to sue on all covenants with the Transferor
in each Charge and the right to exercise all powers of the Transferor in
relation to each Charge; and
(c) all the estate and interest in the properties brief particulars of which
are set out in the Annexure hereto vested in the Transferor subject to
redemption or cesser; and
(d) all causes of action of the Transferor against any person in connection
with any report, valuation, opinion, certificate or other statement of
fact or opinion given in connection with any Charge or effecting the
Transferor's decision to make the relevant advance; and
(e) the benefit of any deeds given in respect of any Charge by any occupier of
the property the subject of such Charge and aged eighteen years or over,
postponing his interest in such property, if any, so that it ranks after
that of the Transferor; and
(f) the benefit of any deeds given in respect of any Charge whereby any person
holding the benefit of any mortgage, sub-mortgage, charge, sub-charge,
pledge, lien, right of set-off or other security interest affecting the
property the Charge agrees to postpone such interest in favour of any
similar interest of the Transferor.
<PAGE> 129
but excluding (i) the legal charges on the life assurance policies (if any)
charged as collateral security therefor; (ii) the Transferor's right, title,
interest and benefit in certain other insurance contracts and certain guarantees
each comprised in separate assignments of even date herewith between the parties
hereto.
Duly delivered as a Deed on the date inserted above.
THE COMMON SEAL OF )
[ ] LIMITED )
was hereunto affixed in )
the presence of: )
Director
Director
<PAGE> 130
ANNEXURE
<TABLE>
<CAPTION>
Title No. Address of Name of Mortgage Loan Date of Charge
Property Borrowers Number
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 131
SCHEDULE 3
(FORM OF TRANSFER (UNREGISTERED LAND))
THIS TRANSFER OF MORTGAGES is made the day of 1998 BETWEEN [ ]
(registered number) whose registered office is at [ ] (the "Transferor")
of the one part and MORTGAGE MANAGEMENT LIMITED (registered number ) whose
registered office is at [ ] (hereinafter called the "Transferee") of the
other part.
WHEREAS
(A) By the mortgages ("Mortgages") brief particulars of which are contained in
the Annexure hereto, the properties (brief particulars of which are set
out therein) (the "Properties") because security for the repayment of the
monies therein mentioned.
(B) The aggregate principal sum of (pound)[ ] ([ ] pounds) secured by the
Mortgages remains due and owing together with interest thereon and the
Transferor has agreed to transfer to the Transferee all right, title,
interest and benefit of the Transferor (both present and future) in and
under the Mortgages for the consideration hereinafter mentioned.
NOW THIS DEED WITNESSETH as follows:
the Transferor will full title guarantee hereby transfers unto the Transferee
all right, title, interest and benefit of the Transferor in the Mortgages
including for the avoidance of doubt:
(a) the right to demand, sue for, recover and give receipts for all principal
monies under the Mortgages or the unpaid part thereof and the interest to
become due thereon; and
(b) the benefit of all securities for such principal monies and interest and
the benefit of and the right to sue on all covenants with the Transferor
in each Mortgage and the right to exercise all powers of the Transferor in
relation to each Mortgage; and
(c) all the estate and interest in the properties brief particulars of which
are set out in the Annexure hereto vested in the Transferor subject to
redemption or cesser; and
(d) all causes of action of the Transferor against any person in connection
with any report, valuation, opinion, certificate or other statement of
fact or opinion given in connection with any Mortgage or effecting the
Transferor's decision to make the relevant advance; and
(e) the benefit of any deeds given in respect of any Mortgage by any occupier
of the property the subject of such Mortgage and aged eighteen years or
over, postponing his interest in such property, if any, so that it ranks
after that of the Transferor; and
<PAGE> 132
(f) the benefit of any deeds given in respect of any Mortgage whereby any
person holding the benefit of any mortgage, sub-mortgage, charge,
sub-charge, pledge, lien, right of set-off or other security interest
affecting the property the subject of the Mortgage agrees to postpone such
interest in favour of any similar interest of the Transferor.
but excluding (i) the legal charges on the life assurance policies (if any)
charged as collateral security therefor; (ii) the Transferor's right, title,
interest and benefit in certain other insurance contracts and certain guarantees
each comprised in separate assignments of even date herewith between the parties
hereto
TO HOLD the same unto the Transferee absolutely.
Duly delivered as a Deed on the date inserted above.
THE COMMON SEAL of )
[ ] )
was hereunto affixed in the presence of: )
Director
Director
<PAGE> 133
ANNEXURE
<TABLE>
<CAPTION>
Address of Name of Mortgage Loan
Title No. Property Borrowers Number Date of Charge
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 134
SCHEDULE 4
(FORM OF ASSIGNMENT OF LIFE CHARGES)
THIS ASSIGNMENT is made the day of 1997 BETWEEN
(1) [ ] (registered number ) whose registered
office is at [ ] ("the Assignor"); and
(2) MORTGAGE MANAGEMENT LIMITED (registered number ) whose registered
office is at [ ] (the "Assignee").
WHEREAS
(A) By several transfers and assignations of even date herewith and made
between the Assignor and the Assignee, the Assignor has entered into
transfers and assignations of title to certain Loans and their related
Mortgages to the Assignee.
(B) By several assignments, assignations or charges ("Life Charges") certain
life assurance policies (the "Life Policies") are assigned or charged by
way of security to the Assignor as collateral security for the sums
secured by some of the said Loans.
(C) This Assignment is supplemental to the said several transfers and
assignations.
NOW THIS DEED WITNESSETH as follows:
The Assignor with full title guarantee (or, in the case of Life Charges relative
to Scottish Loans, with absolute warrandice) hereby transfers and assigns unto
the Assignee all right, title, interest and benefit of the Assignor (both
present and future) in the Life Charges including for the avoidance of doubt:
(i) the benefit of and the right to sue on all covenants with and undertakings
to the Assignor in each Life Charge and the right to exercise all powers
of the Assignor in relation to each Life Charge; and
(ii) all the estate, title and interest in the Life Policies vested in the
Assignor.
TO HOLD the same unto the Assignee absolutely.
IN WITNESS WHEREOF the Assignor has caused this Assignment to be executed as a
Deed on its behalf the day and year first before written.
<PAGE> 135
THE COMMON SEAL of )
[ ] )
was hereunto affixed in the presence of: )
Director
Director
<PAGE> 136
SCHEDULE 5
(FORM OF ASSIGNMENT OF INSURANCE CONTRACTS)
THIS AGREEMENT is made the day of 1998
BETWEEN
(1) [ ] (registered number ) whose registered office
is at [ ] ("the Assignor"); and
(2) MORTGAGE MANAGEMENT LIMITED (registered number 2002263) whose registered
office is at [ ] (the "Assignee").
WHEREAS
(A) By several transfers and assignations of even date herewith and made
between the Assignor and the Assignee, the Assignor has entered into
transfers and assignations of title to certain Loans and their related
Mortgages to the Assignee.
(B) The Assignor has an interest in certain contracts of insurance (the
"Insurance Contracts") which relate to those Mortgages and the Properties
upon which they are secured ("Properties");
(C) This Assignment is supplemental to the said several transfers and
assignations.
NOW THIS DEED WITNESSETH as follows:
IN further consideration of the sums referred to in the said several transfers
and assignations the Assignor with full title guarantee hereby assigns unto the
Assignee absolutely all rights, title, interest and benefit of the Assignor (if
any) (whether present or future) in relation to the Insurance Contracts
including the rights to receive the proceeds of any claim
TO HOLD the same unto the Assignee absolutely.
IN WITNESS WHEREOF the Assignor has caused this Assignment to be executed as a
Deed on its behalf the day and year first before written.
THE COMMON SEAL of )
[ ] )
was hereunto affixed in the presence of: )
Director
Director
<PAGE> 137
SCHEDULE 6
(FORM OF ASSIGNMENT OF GUARANTEES)
THIS ASSIGNMENT is made the day of 1998
BETWEEN
(1) [ ] (registered number ) whose registered office
is at [ ] ("the Assignor"); and
(2) MORTGAGE MANAGEMENT LIMITED (registered number 2002263) whose registered
office is at [ ] (the "Assignee").
WHEREAS
(A) By several transfers and assignations of even date herewith and made
between the Assignor and the Assignee, the Assignor has entered into
transfers and assignations of title to certain Loans and their related
Mortgages to the Assignee.
(B) The Assignor has the benefit of certain guarantees the ("Guarantees") as
security for the obligations of borrowers in relation to the Loans.
(C) This Assignment is supplemental to the said several transfers and
assignations.
NOW THIS DEED WITNESSETH as follows:
In further consideration of the sums referred to in the said several transfers
and assignations the Assignor with full title guarantee (or, in the case of
Guarantees relative to Scottish Loans, with absolute warrandice) hereby assigns
unto the Assignee all right, title, interest and benefit of the Assignor
(whether present or future, legal or equitable) in and under all Guarantees
taken by it in respect of the obligations of any of the borrowers in respect of
the obligations of any of the borrowers in relation to the Loans
TO HOLD the same unto the Assignee absolutely.
IN WITNESS WHEREOF the Assignor has caused this Assignment to be executed as a
Deed on its behalf the day and year first before written.
THE COMMON SEAL of )
[ ] )
was hereunto affixed in the presence of: )
Director
Director
<PAGE> 138
SCHEDULE 7
(FORM OF SCOTTISH TRANSFER (LAND REGISTER))
WE, [insert name of Originator], incorporated under the Companies Acts in
England (Number [ ]) and having our Registered Office at [ ] (the
"Assignor"), in implement pro tanto of an Origination and Transfer Agreement
among us the Assignor, Mortgage Management Limited (registered number 2002263)
and having its registered office at [ ] (the "Company") and others
dated [ ](the "Mortgage Transfer Agreement") and for the consideration
set out therein HEREBY ASSIGN to the Company the Standard Securities granted
by the respective parties whose names are specified in Column 1 of the Schedule
annexed and executed as relative hereto in favour of us the Assignor for all
sums due and to become due, to the extent of the respective sums specified in
the relative entry in Column 2 of the said Schedule being the amounts now due
under the said respective Standard Securities, registered said respective
Standard Securities in the Land Register under the Title Number specified in the
relative entry in Column 3 of the said Schedule on the date specified in the
relative entry in Column 4 of the said Schedule: With interest and arrears and
accumulations of interest and charges from [ ]: And we the Assignor further
ASSIGN to and in favour of the Company our whole right title and interest in all
and any credit agreements or agreements for loan entered into between us the
Assignor and the said respective parties whose names are specified in Column 1
of the said Schedule and secured by the said Standard Securities:
IN WITNESS WHEREOF these presents typewritten on this page are together with the
Schedule annexed hereto executed as follows:-
SUBSCRIBED for and on behalf of the
said [insert name of Originator]
at
.................................
on
.................................
by
.................................
.................................
.................................
.................................
<PAGE> 139
This is the Schedule referred to in the foregoing Assignation of Standard
Securities by [insert details of Originator] in favour of the Company
dated [insert date].
<TABLE>
<CAPTION>
1 2 3 4
[Parties] [Loan Outstanding] [Title No.] [Registration Date]
<S> <C> <C> <C>
</TABLE>
<PAGE> 140
SCHEDULE 8
(FORM OF SCOTTISH TRANSFER (SASINE REGISTER))
WE, [insert name of Originator], incorporated under the Companies Acts in
England (Number [ ]) and having our Registered Office at [ ]
(the "Assignor"), in implement pro tanto of an Origination and Transfer
Agreement among us the Assignor, Mortgage Management Limited (registered number
2002263) and having its registered office at [ ] (the "Company") and others
dated [ ] (the "Mortgage Transfer Agreement") and for the consideration
set out therein HEREBY ASSIGN to the Company the Standard Securities granted by
the respective parties whose names are specified in Column 1 of the Schedule
annexed and executed as relative hereto in favour of us the Assignor for all
sums due and to become due, to the extent of the respective sums specified in
the relative entry in Column 2 of the said Schedule being the amounts now due
under the said respective Standard Securities, recorded said respective Standard
Securities in the Register for the County specified in the relative entry in
Column 3 of the said Schedule on the date specified in the relative entry in
Column 4 of the said Schedule: With interest and arrears and accumulations of
interest and charges from [ ]: And we the Assignor further ASSIGN to and in
favour of the Company our whole right title and interest in all and any credit
agreements or agreements for loan entered into between us the Assignor and the
said respective parties whose names are specified in Column 1 of the said
Schedule and secured by the said Standard Securities:
IN WITNESS WHEREOF these presents typewritten on this page are together with the
Schedule annexed hereto executed as follows:-
SUBSCRIBED for and on behalf of the
said [insert name of Originator]
at
.................................................
on
.................................................
by
.................................................
.................................................
.................................................
.................................................
REGISTER on behalf of the within named Mortgage Management Limited in the
REGISTERS of the COUNTIES of [ ]
Agents
<PAGE> 141
This is the Schedule referred to in the foregoing Assignation of Standard
Securities by [insert details of Originator] in favour of the Company
dated [insert date].
<TABLE>
<CAPTION>
1 2 3 4
[Parties] [Loan Outstanding] [County] [Recording Date]
<S> <C> <C> <C>
</TABLE>
<PAGE> 142
SCHEDULE 9
(FORM OF SCOTTISH DECLARATION OF TRUST)
DECLARATION OF TRUST
between
[Insert name of Originator] LIMITED, incorporated under the Companies Acts in
England (Registered Number ) and having its registered office at [ ]
(the "Originator")
and
MORTGAGE MANAGEMENT LIMITED incorporated under the Companies Acts in England
(registered number 2002263) and having its registered office at [ ] (the
"Company")
WHEREAS:
(A) Legal title to the Further Scottish Trust Property aftermentioned is held
by and vested in the Originator;
(B) In terms of an Origination and Transfer Agreement made between the
Originator, the Company and others dated [ ] Nineteen hundred and
Ninety eight (the "Origination and Transfer Agreement") the Originator has
agreed to sell the said Further Scottish Trust Property to the Company;
and
(C) In implement of the Origination and Transfer Agreement and pending the
taking of legal title to the said Further Scottish Trust Property by the
Company, the Originator has undertaken to grant this deed:
NOW THEREFORE the parties HEREBY AGREE AND DECLARE as follows:
1 Interpretation
In this deed (which expression shall include the Schedule and Recitals
hereto):
1.1 words and expressions defined in the Origination and Transfer Agreement
shall, unless the context otherwise requires, have the same meanings in
this deed;
1.2 Further Scottish Trust Property shall mean the Scottish Loans and the
whole Collateral Security (including without limitation the Scottish
Mortgages) relative thereto, brief particulars of which Loans, Scottish
Mortgages are detailed in the schedule annexed and executed as relative
hereto), and (a) all principal sums, including any further advances,
present or future, interest and expenses comprised therein and secured
thereby, (b) all monies, rights, interests, benefits and others pertaining
thereto or deriving therefrom (including without limitation all
<PAGE> 143
MHA Documentation) including Related Rights and (c) all powers and
remedies for enforcing the same and (d) all proceeds resulting from the
enforcement of any of the Loans their related Mortgages and their
Collateral Security; and
1.3 words importing the singular number include the plural and vice versa.
2 Declaration of Trust
The Originator hereby DECLARES that from and after the date hereof it
holds and, subject to Clause 6 hereof, shall henceforth hold the Further
Scottish Trust Property and its whole right, title and interest, present
and future, therein and thereto in trust absolutely for the Company and
its assignees (whether absolutely or in security) whomsoever.
3 Intimation
The Originator hereby intimates to the Company the coming into effect of
the trust hereby declared and created and the Company by its execution
hereof immediately subsequent to the execution of this deed by the
Originator acknowledges such intimation.
4 Dealings with Trust Property and Negative Pledge
The Originator warrants and undertakes that:
4.1 as at the date hereof, it holds, subject to any pending registration or
recording in the Registers of Scotland, legal title to the Further
Scottish Trust Property unencumbered by any fixed or floating charge,
diligence or other Security Interest;
4.2 it shall not create or agree to create any fixed or floating charge or
other Security Interest or encumbrance over or which may attach to or
affect the whole or any part of the Further Scottish Trust Property or
otherwise dispose of the same at any time when such Further Scottish Trust
Property or part thereof remains subject to the trust hereby created; and
4.3 it shall deal with the Further Scottish Trust Property (including without
prejudice to said generality the calculation and setting of any interest
rate applicable thereto) in accordance with the provisions of the
Transaction Documents and the specific written instructions (if any) of
the Company and its foresaids and shall take, subject to Clause 6 hereof,
any such action as may be necessary (including for the avoidance of doubt
the raising or defending of any proceedings in any court of law whether in
Scotland or elsewhere) to secure or protect the title to the Further
Scottish Trust Property but only in accordance with the specific written
instructions (if any) of the Company and its foresaids.
5 Transfer of Title
The provisions of the Origination and Transfer Agreement shall be deemed
to be incorporated herein insofar as the same pertain to the Further
Scottish Trust Property and during the continuance of the trust hereby
declared and created the Company as beneficiary hereunder shall have the
benefit of all rights and powers conferred, including without limitation
the right to perfect legal title to the Further Scottish Trust Property or
any part thereof and to call upon
<PAGE> 144
the Originator to undertake all acts and things and execute all deeds and
documents as may be required to effect the same, and notwithstanding the
winding up of the Originator or the making of any administration order in
respect of the Originator or the appointment of a receiver to all or any
part of the Further Scottish Trust Property, and for further assuring the
said rights and powers the Originator has executed and delivered to the
Company the Originator Power of Attorney.
6 Termination of Trust
If legal title to any part or parts of the Further Scottish Trust Property
is taken by the Company in accordance with the provisions of Clause [ ] of
the Origination and Transfer Agreement (which in the case of any Scottish
Mortgage shall be constituted by the registration or recording of the
title thereto in the Registers of Scotland); or any part of parts of the
Further Scottish Trust Property forms the subject of a purchase or
repurchase in accordance with the terms of the Origination and Transfer
Agreement, the trust hereby declared and created shall (but only when any
of the events or transactions before stated has been completed irrevocably
validly and in full) ipso facto fall and cease to be of effect in respect
of such part or parts of the Further Scottish Trust Property but shall
continue in full force and effect in respect of the sole remainder (if
any) of the Further Scottish Trust Property.
7 Assignation
The Company shall be entitled to assign (whether absolutely or in
security) its rights and interests under this deed and the trust hereby
declared and created. [In the event of such assignation being made by the
Company, the Originator hereby appoints and authorises City Mortgage
Corporation Limited as agent of the Originator for the purposes of
acknowledging intimation of such assignation. [This paragraph is to be
deleted where CMC is the Originator]
8 Variation
For so long as any of the Secured Amounts remain outstanding, this deed
and the trust hereby declared and created shall not be varied in any
respect without the consent in writing of the Company and GIL.
9 Governing Law
This deed shall be governed by and construed in accordance with the law of
Scotland and each of the parties hereby prorogates the non-exclusive
jurisdiction of the Scottish Courts so far as not already subject thereto
and waives any right or plea of forum non conveniens in respect of such
jurisdiction.
<PAGE> 145
10 Registration
The parties hereto consent to the registration of these presents for
preservation.
IN WITNESS WHEREOF these presents typewritten on this and the preceding four
pages together with the Schedule annexed hereto are executed for and on behalf
of the Originator and the Company at [ ] on [ ] 1998
as follows:
SUBSCRIBED for and on behalf of the
said [insert name of Originator]
LIMITED
by
..................................... .................................
and
..................................... .................................
SUBSCRIBED for and on behalf of the
said MORTGAGE MANAGEMENT
LIMITED by
..................................... .................................
and
..................................... .................................
<PAGE> 146
Schedule referred to in the foregoing Scottish Declaration of Trust by City
Mortgage Corporation Limited in favour of Mortgage Management Limited
<TABLE>
<CAPTION>
1 2 3 4
Account No. Borrowers full Address of secured Sums Due
names property
<S> <C> <C> <C>
</TABLE>
<PAGE> 147
SCHEDULE 10
INFORMATION TO BE CONTAINED IN LOAN SCHEDULE
For each capital repayment loan and each interest only loan (loans of each type
to be shown separately) the following information shall be contained in the Loan
Schedule:
(i) the Loan reference number;
(ii) the charge priority of the Loan;
(iii) the name of the Mortgagor;
(iv) the identity of the Originator;
(v) the address of the mortgaged Property including the postcode;
(vi) the open market value of the Property;
(vii) the date of maturity of the Loan;
(viii) the first payment date of the Loan;
(ix) the principal amount of the Loan;
(x) the cut-off date balance of the Loan;
(xi) the scheduled payment amount of principal and interest;
(xii) the rate of interest applicable to the Loan;
(xiii) the loan to value ratio at the open market value of the
Property; and
(xiv) the Property type.
<PAGE> 148
SCHEDULE 11
(THE ORIGINATORS)
City Mortgage Corporation Limited
(Registered No. 3043776)
J&J Securities Limited
(Registered No. 1335672)
Home Mortgages Corporation Limited
(Registered No. 2000967)
Home Funding Corporation Limited
(Registered No. 1967932)
Assured Funding Corporation Limited
(Registered No. 2102520)
<PAGE> 149
SCHEDULE 12
(FORM OF ORIGINATOR DECLARATION OF TRUST)
THIS DECLARATION OF TRUST is made the [ ] day of [ ] 1998 by:
(1) THE COMPANIES listed in the Annexure hereto (the "Originators" and, each,
an "Originator")
IN FAVOUR OF:
(2) MORTGAGE MANAGEMENT LIMITED, incorporated under the Companies Acts in
England (registered number [ ]) and having its registered office at
[ ] (the "Company").
NOW THIS DEED WITNESSETH:
1. Interpretation and definitions
1.1 In this deed, unless the context otherwise requires:
(a) words and expressions shall have the same meanings as are
respectively ascribed to them in an agreement (the "Origination and
Transfer Agreement") of even date between the Originators and the
Company;
(b) "Trust Property" means:
(i) in respect of each Proposed New Loan, prior to the completion
of that Proposed New Loan, the relevant Origination Funds; and
(ii) in respect of each Loan, all of the Relevant Rights; and
(c) "Trust Event" has the meaning ascribed thereto in the Origination
and Transfer Agreement.
2. Declaration of Trust
2.1 Each Originator hereby agrees and declares that it will hold upon trust
for the Company absolutely with effect from each relevant Trust Event the
relevant Trust Property.
2.2 Each Originator hereby agrees with the Company that it will not assign,
transfer or otherwise dispose of any Trust Property vested in it other
than in accordance with the Origination and Transfer Agreement.
3. Governing Law
This deed shall be governed by and construed in accordance with English
law.
IN WITNESS whereof this deed has been executed by each of the Originators for
delivery on the date and year first before written.
<PAGE> 150
ANNEXURE
(List of Originators)
City Mortgage Corporation Limited
(Registered No. 3043776)
J&J Securities Limited
(Registered No. 1335672)
Home Mortgages Corporation Limited
(Registered No. 2000967)
Home Funding Corporation Limited
(Registered No. 1967932)
Assured Funding Corporation Limited
(Registered No. 2102520)
<PAGE> 151
EXECUTION COPY
DEBENTURE CREATING A FLOATING CHARGE
POSTPONED TO ALL OTHER SECURITY INTERESTS
between
CITY MORTGAGE CORPORATION LIMITED
(as the Chargor)
and
GREENWICH INTERNATIONAL LIMITED
(as the Chargee)
SIDLEY & AUSTIN
Royal Exchange
London EC3V 3LE
Tel: 0171-360 3600
Fax: 0171-626 7937
THIS DEBENTURE dated February 1998 is made as a deed
<PAGE> 152
BETWEEN:
(1) CITY MORTGAGE CORPORATION LIMITED, a company incorporated under the laws
of England and Wales, (registered number 304377) whose registered office
is at Harcourt House, 19 Cavendish Square, London, W1A 2AW (the "Chargor")
(2) GREENWICH INTERNATIONAL, LTD., a company incorporated under the laws of
Bermuda, whose registered office is at Cedar House, 41 Cedar Avenue,
Hamilton, Bermuda (the "Chargee").
WHEREAS:-
(A) The Chargor and the Chargee have entered into the Mortgage Loan Purchase
Agreement and the Commitment Letter pursuant to which Mortgage Loans may
be sold by the Chargor and its Originating Subsidiaries to the Chargee.
(B) The Chargor and CMF have entered into the Origination and Purchase
Agreement and CMF and the Lender have entered into the Supplemental
Agreement pursuant to which Mortgage Loans may, in lieu of being sold by
the Chargor and its Originating Subsidiaries to the Chargee under the
Mortgage Loan Purchase Agreement and Commitment Letter, be sold by the
Chargor and its Originating Subsidiaries to CMF and, immediately
thereafter, by CMF to the Chargee.
(C) Certain of the Mortgage Loans sold to the Chargee pursuant to the
foregoing agreements have been subsequently securitised under the
Securitisations.
(D) Pursuant to a letter dated 25 February 1998, the Chargee issued a letter
stating that it terminated its obligation to purchase Mortgage Loans under
the Commitment Letter and Mortgage Loan Purchase Agreement.
(E) The Chargor, CMS and the Chargee have agreed to provide the financing
arrangements relating to the Existing Mortgage Loans and New Production
Mortgage Loans and as part of those arrangements the Chargee has agreed to
make available the Facility to the Borrower on the terms and subject to
the conditions of the Loan Facility Agreement of even date between the
Borrower, the Chargor and the Chargee so as to enable the Borrower to
purchase the Existing Mortgage Loans and to finance the purchase by the
Borrower of New Production Mortgage Loans.
(F) The Chargor has agreed to indemnify, the Chargee in accordance with the
terms of the Indemnity.
(G) It is a condition precedent to drawings under the Loan Facility Agreement
that the Chargor execute this deed.
1. In this Debenture unless expressly defined herein capitalised terms
defined in the Loan Facility Agreement shall have the same meaning herein
and the following terms shall
2
<PAGE> 153
have the respective meanings set forth below:-
"the CMC Charge" means the charge executed by the Chargor and the Chargee
of even date creating, inter alia, first fixed security over, inter alia,
the Securitisation Residuals.
"the Obligations" means all moneys and liabilities (whether actual or
contingent) which are now or may be or become due, owing or payable or
expressed to be due, owing or payable to the Chargee from the Chargor
under or in connection with the Indemnity or any other Transaction
Document, together with all legal and other costs, charges and expenses
which the Chargee may incur in enforcing or obtaining or attempting to
enforce or obtain payment of such monies and liabilities;
"the Undertaking" means the whole of the Chargor's undertaking, property
and assets whatsoever and wheresoever both present and future;
"Security Interest" means a mortgage or charge (whether fixed or floating)
and any lien, hypothecation or other security interest of any kind
whatsoever and howsoever created;
"Receiver" includes receiver and manager.
2. (a) The Chargor, subject to Clause 2(b), with full title guarantee
hereby charges each and every part of the Undertaking with the
payment and discharge of the Obligations, to the intent that the
charge hereby created shall be a floating charge ranking in point of
security after all Security Interests now or at any time hereafter
subsisting over the Undertaking or any part thereof.
(b) The maximum amount recoverable under this charge from the Chargor is
(pound)1000 provided that such amount shall only be recoverable
after every other form of Security Interest granted by the Chargor
to the Chargee, except this charge, has been exercised and realised.
3. For the avoidance of doubt, no other Security Interest at any time
affecting the Undertaking or any part thereof shall rank or come to rank
in point of security after the floating charge hereby created (nor shall
any moneys or liabilities thereby secured rank or come to rank after any
of the Obligations). In particular (a) any fluctuation in, or repayment or
discharge of, any moneys and liabilities secured by such other Security
Interest or (b) any advance of money or other event whereby the amount of
the Obligations is increased or any of the Obligations are incurred shall
not cause any Security Interest to rank or come to rank in point of
security after the floating charge hereby created (nor shall any moneys or
liabilities thereby secured rank or come to rank after any of the
obligations).
4. The Chargor shall not be prohibited or restricted by virtue of the
floating charge hereby created or any provision hereof from (a) creating
other Security Interests affecting any part of the Undertaking or (b)
leaving any such other Security Interests outstanding or (c) selling or
factoring any book debts or other debts PROVIDED THAT the Chargor shall
3
<PAGE> 154
not be entitled to create or create any other Security Interest or leave
any such other Security Interest outstanding or sell or factor any book
debts or other debts if to do so would be contrary to or constitute any
breach of any provision of the CMC Charge.
5. If at any time an application to the Court for an administration order in
relation to the Chargor shall have been made by the Chargor itself by or
any other person under Part II of the Insolvency Act 1986 (or any
statutory modification or re-enactment thereof), the Chargee shall be
entitled by deed or instrument under the hand of any of its managers or
other officer to appoint one or more individuals as a Receiver of the
Undertaking or of any part thereof.
6. A Receiver appointed hereunder shall have all the powers specified in
Schedule 1 to the Insolvency Act 1986. Two or more individuals holding
office as Receivers of the same property simultaneously by virtue of one
or more such appointments shall be entitled to exercise all their powers
and separately as well as jointly.
7. All monies received by any Receiver appointed hereunder shall (subject to
the rights and claims of any person, inclusive of the Chargee, entitled to
any other Security Interest affecting the Undertaking or any part thereof)
be applied in the following order: (1) in the payment of the costs,
charges and expenses of and incidental to the Receiver's appointment and
the payment of his remuneration; (2) in the payment and discharge of any
liabilities incurred by the Receiver on the Chargor's behalf in the
exercise of any of the powers of the Receiver; (3) in providing for the
matters (other than the remuneration of the Receiver) specified in the
first three paragraphs of Section 109(8) of the Law of Property Act 1925;
(4) in or towards payment of any debts or claims which are by statute
payable in preference to the Obligations but only to the extent to which
such debts or claims have such preference; (5) in or towards the
satisfaction of the Obligations; and any surplus shall be paid to the
Chargor or other person entitled thereto. The provisions of this Clause
and Clause 9 below shall take effect as and by way of variation and
extension to the provisions of the said Section 109, which provisions as
so varied and extended shall be deemed incorporated herein.
8. Every Receiver so appointed shall be deemed at all times and for all
purposes to be the agent of the Chargor which shall be solely responsible
for his acts and defaults and for the payment of his remuneration.
9. Every Receiver so appointed shall be entitled to remuneration for his
services at a rate to be fixed by agreement between him and the Chargee
(or, failing such agreement, to be fixed by the Chargee) as being
appropriate to the work and responsibilities involved upon the basis of
charging from time to time adopted in accordance with this current
practice or the current practice of his firm and without being limited to
the maximum rate specified in Section 109(6) of the Law of Property Act
1925.
This Debenture is to be governed by and construed in accordance with English
law.
Signed as a deed by
CITY MORTGAGE CORPORATION LIMITED
4
<PAGE> 155
acting by its duly appointed attorney in
the presence of:-
......................
Witness: ..........................
Occupation: ..........................
Address: ..........................
..........................
..........................
Signed as a deed by
GREENWICH INTERNATIONAL, LTD.
acting by its duly appointed attorney
in the presence of:- .....................
Witness: ..........................
Occupation: ..........................
Address: ..........................
..........................
..........................
5
<PAGE> 156
EXECUTION COPY
BANK ACCOUNT ASSIGNMENT
between
MORTGAGE MANAGEMENT LIMITED
as Assignor
and
GREENWICH INTERNATIONAL LTD.
as Assignee
SIDLEY & AUSTIN
Royal Exchange
London EC3V 3LE
Tel: 0171 360 3600
Fax: 0171 626 7937
Ref: JCW/PSP
<PAGE> 157
Table of Contents
1. INTERPRETATION.......................................................3
2. COVENANT TO PAY......................................................5
3. ASSIGNMENT BY WAY OF SECURITY........................................5
4. NOTICE OF ASSIGNMENT.................................................6
5. NOTICE OF REASSIGNMENT...............................................6
6. REPRESENTATIONS AND WARRANTIES.......................................6
7. COVENANTS............................................................7
8. FURTHER ASSURANCES...................................................7
9. ENFORCEMENT..........................................................8
10. NEW ACCOUNT..........................................................8
11. CONTINUING SECURITY..................................................8
12. OTHER SECURITY.......................................................8
13. ASSIGNMENT NOT TO BE AFFECTED........................................9
14. RETENTION OF DEED....................................................9
15. POWER OF ATTORNEY...................................................10
16. CERTIFICATE TO BE CONCLUSIVE EVIDENCE...............................10
17. STAMP DUTY..........................................................10
18. NOTICES.............................................................11
19. RIGHTS AND WAIVERS..................................................12
20. INVALIDITY..........................................................12
21. ASSIGNMENT..........................................................12
22. GOVERNING LAW.......................................................12
SCHEDULE 1................................................................13
SCHEDULE 2................................................................14
<PAGE> 158
THIS BANK ACCOUNT ASSIGNMENT dated February 1998 is made as a deed
BETWEEN
1. MORTGAGE MANAGEMENT LIMITED, a company incorporated under the laws of
England and Wales, registered no. 2002263 whose registered office is at
Harcourt House, 19 Cavendish Square, London W1A 2AW (the "Assignor")
AND
2. GREENWICH INTERNATIONAL LTD., a company incorporated under the laws of
Bermuda, registered no. FC 15168 whose registered office is at Cedar
House, 41 Cedar Avenue, Hamilton, Bermuda (the "Assignee")
WHEREAS:-
(1) CMC and the Assignee have entered into the Mortgage Loan Purchase
Agreement and the Commitment Letter pursuant to which Mortgage Loans are
sold by CMC and its Originating Subsidiaries to the Assignee.
(2) CMC and CMF have entered into the Origination and Purchase Agreement and
CMF and the Assignee have entered into the Supplemental Agreement pursuant
to which Mortgage Loans may, in lieu of being sold by CMC and its
Originating Subsidiaries to the Assignee under the Mortgage Loan Purchase
Agreement and Commitment Letter, be sold by CMC and its Originating
Subsidiaries to CMF and, immediately thereafter, from CMF to the Assignee.
(3) Certain of the Mortgage Loans sold to the Assignee pursuant to the
foregoing agreements have been subsequently securitised under the
Securitisations.
(4) The Assignor is a wholly owned subsidiary of CMC.
(5) Pursuant to a letter dated 25 February 1998, the Assignee issued a letter
stating that it terminated its obligation to purchase Mortgage Loans under
the Mortgage Loan Purchase Agreement and the Commitment Letter.
(6) CMC, CMS and the Assignee have agreed to provide the financing
arrangements relating to the Existing Mortgage Loans and New Production
Mortgage Loans and as part of those arrangements, the Assignee has agreed
to make available the Facility to the Assignor on the terms and subject to
the conditions of the Loan Facility Agreement so as to enable the Assignor
to purchase the Existing Mortgage Loans and to finance the purchase by the
Assignor of New Production Mortgage Loans.
(7) In order to secure its rights under the Loan Facility Agreement, the
Assignee has required, among other things that the Assignor assign to it
under and pursuant to the terms of this deed, the Deposit.
1
<PAGE> 159
NOW THIS DEED WITNESSES as follows:-
1. INTERPRETATION
1.1 Definitions
In this deed unless otherwise defined herein, capitalised terms have the
meaning given to them in the Loan Facility Agreement and the following
terms have the meanings set forth below:
"Account" means the Funding Account account number 36140074 of the
Assignor with the Deposit Bank, and includes any renewal or re-designation
thereof;
"Assignment" means the absolute assignment by way of security effected by
Clause 3 of this deed;
"Business Day" means a day (other than a Saturday or a Sunday) on which
banks are open for business in London;
"CMC" means City Mortgage Corporation Limited, a company incorporated
under the laws of England and Wales, number 3043776 whose registered
office is at Harcourt House, 19 Cavendish Square, London W1A 2AW;
"Commitment Letter" means the letter agreement dated 28 March 1996 between
CMC and the Assignee;
"CMF" means City Mortgage Funding 1 Limited, incorporated under the laws
of England and Wales, number 3299937, whose registered office is at
Cityscape House, Croxley Business Park, Watford, Hertfordshire WD1 8YF;
"CMS" means City Mortgage Servicing Limited, incorporated under the laws
of England and Wales, number 3043775, whose registered office is at
Harcourt House, 19 Cavendish Square, London W1A 2AW;
"Deposit" means all sums from time to time standing to the credit of the
Account, and all entitlements to interest and other Rights from time to
time accruing to or arising in connection with such sums, and the debt
represented thereby;
"Deposit Bank" means National Westminster Bank Plc at its office at 1
Princes Street, London EC2R 8PB;
"Facility" means the facility granted by the Assignee to the Assignor
under and pursuant to the terms of the Loan Facility Agreement for the
purpose of financing the Existing Mortgage Loans and the New Production
Mortgage Loans;
"Indemnity" means the indemnity of even date given by CMC, indemnifying
the Assignee in respect of losses it suffers in relation to, inter alia,
the Loan Facility Agreement;
2
<PAGE> 160
"Loan Facility Agreement" means the agreement dated February 1998
between the Assignor, the Assignee and CMC for the provision of the
Facility;
"Mortgage Loan Purchase Agreement" means the agreement dated 14 June 1996
between the Assignee (1) and CMC (2) whereby the Assignee agreed to
purchase and CMC agreed to sell Mortgage Loans originated by CMC and its
Approved Affiliates;
"Origination and Purchase Agreement" means the origination and purchase
agreement dated 27 March between CMC, CMF and certain Subsidiaries of CMC
pursuant to which Mortgage Loans are sold by CMC and the Subsidiaries to
CMF;
"Proceedings" means any proceeding, suit or action arising out of or in
connection with this deed;
"Restructuring Agreement" means the agreement dated 15 January 1998
between the Assignee and CMC;
"Rights" means rights, benefits, powers, privileges, authorities,
discretions and remedies (in each case, of any nature whatsoever);
"Secured Sums" means all moneys and liabilities (whether actual or
contingent) which are now or may at any time hereafter be due, owning or
payable, or expressed to be due, owning or payable, to the Assignee from
or by the Assignor under or in connection with the Loan Facility
Agreement, each other Transaction Document or this deed, together with all
legal and other costs, charges and expenses which the Assignee may incur
in enforcing or obtaining, or attempting to enforce or obtain, payment of
any such moneys and liabilities;
"Security" means (a) a mortgage, Standard Security, assignation in
security, charge, pledge, lien, execution, diligence or other encumbrance
securing any obligation of any person, (b) any arrangement under which
money or claims to, or the benefit of, a bank or other account may be
applied, set-off or made subject to a combination of accounts so as to
effect payment of sums owed or payable to any person or (c) any other type
of preferential arrangement (including title transfer and retention
arrangements) having a similar effect;
"Standard Security" means a standard security in terms of the conveyancing
and Feudal Reform (Scotland) Act 1970;
"Supplemental Agreement" means the agreement dated 27 March 1997 between
CMC, CMF, the Assignee and certain Subsidiaries of CMC pursuant to which
Mortgage Loans purchased by CMF under the Origination and Purchase
Agreement are sold by CMF to the Assignee;
"Working Hours" means 9:30 a.m. to 5:30 p.m. on a Business Day.
1.2 References and construction
(1) In this deed, unless otherwise specified:-
3
<PAGE> 161
(1) references to clauses and schedules are to clauses of and
schedules to this deed;
(2) headings to clauses are for convenience only and are to be
ignored in construing this deed;
(3) references to a "person" are to be construed so as to include
any individual, firm, company, government, state or agency of
a state, local or municipal authority, or any joint venture,
association or partnership (whether or not having separate
legal personality);
(4) references to a "company" are to be construed so as to include
any company, corporation or other body corporate, wherever and
however incorporated or established;
(5) references to any statute or statutory provision are to be
construed as a reference to the same as it may have been, or
may from time to time be, amended, modified or re-enacted, and
include references to all bye-laws, instruments, orders and
regulations for the time being made thereunder or deriving
validity therefrom; and
(6) references to times of the day are to London time.
(2) Except to the extent that the context otherwise requires, any
reference in this deed to "this deed" or any other deed, agreement
or instrument is a reference to this deed or, as the case may be,
the relevant deed, agreement or instrument as amended, supplemented,
replaced or novated from time to time and includes a reference to
any document which amends, supplements, replaces, novates or is
entered into, made or given pursuant to or in accordance with any of
the terms of this deed or, as the case may be, the relevant deed,
agreement or instrument.
2. COVENANT TO PAY
The Assignor covenants with the Assignee to pay and discharge all Secured Sums
at the time or times when, and in the currency or currencies in which, the same
are expressed to be payable under the relevant Transaction Documents.
3. ASSIGNMENT BY WAY OF SECURITY
The Assignor, as continuing security for the payment and discharge of all
Secured Sums, assigns to the Assignee absolutely all its Rights, title and
interest in and to the Deposit, PROVIDED THAT if all Secured Sums have been paid
or discharged in full and the Loan Facility Agreement and all other relevant
Transaction Documents have been terminated the Assignee shall, subject as
provided in this deed and to the Rights of any person for the time being
entitled thereto in priority to the Assignor, at the request and cost of the
Assignor reassign to the Assignor so much of the Deposit as has not been applied
by the Assignee in or towards satisfaction of the Secured Sums.
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<PAGE> 162
4. NOTICE OF ASSIGNMENT
The Assignor shall immediately upon execution of this deed give the Deposit Bank
a notice of assignment substantially in the form of Schedule 1 hereto and shall
procure that the Deposit Bank shall give the Assignee a letter in the form of
Schedule 2 hereto.
5. NOTICE OF REASSIGNMENT
Upon effecting a reassignment pursuant to Clause 3, the Assignee shall deliver
to the Deposit Bank a notice of such reassignment in terms substantially similar
to the form set out in Schedule 1 hereto.
6. REPRESENTATIONS AND WARRANTIES
The Assignor hereby represents, warrants, covenants and undertakes to the
Assignee that:-
(1) it is a limited liability company duly incorporated under the laws
of England and Wales and is duly authorised and qualified to
transact any and all business contemplated by this deed to be
conducted by it and it is in compliance with such laws to the extent
necessary to ensure its ability to enforce its Rights.
(2) it has the full corporate power and authority to execute, deliver
and perform, and to enter into and consummate the transactions
contemplated by this deed and has duly authorised by all necessary
corporate action on its part the execution, delivery and performance
of this deed; and this deed, assuming the due authorisation,
execution and delivery thereof by the Assignor, constitutes its
legal, valid and binding obligation, enforceable against it in
accordance with its respective terms and the Assignment constitutes
a security interest over the Deposit ranking in priority to the
interests of any liquidator, administrator or creditor of the
Assignor;
(3) its execution and delivery of this deed, the consummation of any
other of the transactions herein contemplated on its part and the
fulfilment of or compliance with the terms hereof or thereof will
not (i) result in a material breach of any term or provision of its
Memorandum and Articles of Association and/or its other
constitutional documents or (ii) materially conflict with, result in
a material breach, violation or acceleration of, or result in a
material default under, the terms of any other material agreement or
instrument to which it is a party or by which it may be bound, or
any statute, order or regulation applicable to it of any court,
regulatory body, administrative agency or governmental body having
jurisdiction over it;
(4) it is not party to, bound by, or in breach or violation of any
material indenture or other material agreement or instrument, or
subject to or in violation of any statute, order or regulation of
any court, regulatory body, administrative agency or governmental
body having jurisdiction over it, which materially and adversely
affects or, to its knowledge, would in the future materially and
adversely affect, (i) its ability to perform its obligations under
this deed or (ii) its business, operations, financial condition,
properties or assets taken as a whole;
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<PAGE> 163
(5) no consent, approval, authorisation or order of any court or
governmental agency or body is required for the execution, delivery
and performance by it of, or compliance by it with, this deed or the
consummation of the transactions contemplated hereby, or if any such
consent, approval, authorisation or order is required, it has
obtained or in the process of obtaining the same;
(6) it is the legal and beneficial owner of the Deposit and no Security
(other than as created by this deed) exists on, over or with respect
to the Deposit or any part thereof;
(7) it has not sold, transferred, assigned, charged or otherwise
disposed of or dealt with its Rights, title and interest in and to
the Account or the Deposit or any part thereof, or agreed to do any
of the foregoing (otherwise than pursuant to this deed).
7. COVENANTS
The Assignor undertakes with the Assignee that from and after the date hereof
and until all Secured Sums have been repaid in full:
(1) the Assignor shall obtain, comply with the terms of and do all that
is necessary to maintain in full force and effect all
authorisations, approvals, licences and consents required in or by
the laws and regulations of England and of Scotland to enable it
lawfully to enter into and perform its obligations under this deed
and to ensure the legality, validity, enforceability or
admissibility in evidence in England and of Scotland of this deed
and shall ensure that none of the foregoing are revoked or modified;
(2) the Assignor shall not create, attempt to create or permit to
subsist any Security (other than the Assignment) on, over or with
respect to the Deposit or any part thereof;
(3) the Assignor shall not sell, transfer, assign, close or otherwise
dispose of or deal with its Rights, title and interest in and to the
Account or the Deposit or any part thereof, or agree to do any of
the foregoing (otherwise than pursuant to this deed);
(4) the Assignor shall ensure that the Assignment will at all times
constitute a legally valid and binding security interest over the
Deposit ranking in priority to the interests of any liquidator,
administrator or creditor of the Assignor.
8. FURTHER ASSURANCES
The Assignor shall, at its own cost, promptly execute and do all such
assurances, acts and things in such form as the Assignee may from time to time
reasonably require:
8.1 for perfecting, preserving or protecting the Assignment or the priority of
the Assignment; and
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8.2 for facilitating the application of the Deposit or the exercise of any
other Rights vested in the Assignee.
9. ENFORCEMENT
9.1 Application of Deposit
Upon (and at any time after) the occurrence of an Event of Default which
is subsisting, unremedied (to the satisfaction of the Assignee) or
unwaived, the Assignee shall be entitled, and is hereby irrevocably and
unconditionally authorised, without giving prior notice to the Assignor or
obtaining the consent of the Assignor but at the cost of the Assignor, to
apply the whole or any part of the Deposit in or towards satisfaction of
the Secured Sums or any part thereof.
9.2 Fixed period
Clause 9.1 shall apply notwithstanding that the Deposit or any part of it
may have been made or deposited for a fixed period and that period may not
have expired.
9.3 Section 93 Law of Property Act 1925
Section 93 of the Law of Property Act 1925 shall not apply to this deed.
10. NEW ACCOUNT
At any time following (i) the Assignee receiving notice (either actual or
constructive) of any subsequent Security affecting the Deposit or (ii) the
occurrence of any Event of Default under Clause 17 of the Loan Facility
Agreement in relation to the Assignor, the Assignee may open a new account in
the name of the Assignor (whether or not it permits any existing account to
continue). If the Assignee does not open such a new account, it shall
nevertheless be treated as if it had done so at the time when the notice was
received or was deemed to have been received or, as the case may be, the Event
of Default occurred, unless the Assignor elects otherwise. Thereafter, all
payments made by the Assignor to the Assignee or received by the Assignee for
the account of the Assignor shall be credited or treated as having been credited
to the new account and shall not operate to reduce the amount secured by this
deed at the time when the Assignee received or was deemed to have received such
notice or, as the case may be, the Event of Default occurred.
11. CONTINUING SECURITY
The Assignment shall be a continuing security for the Secured Sums and shall not
be satisfied, discharged or affected by any intermediate payment or settlement
of account (whether or not any Secured Sums remain outstanding thereafter) or
any other matter or thing whatsoever provided that if all secured sums have been
paid or discharged in full then, the Assignee shall at the request and cost of
the Assignor execute such deeds and so all such thing to reassign the Deposit to
the Assignor.
12. OTHER SECURITY
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The Assignment shall be in addition to and shall not prejudice nor be prejudiced
by any other Security or any guarantee or indemnity or other document which the
Assignee may at any time hold for the payment of the Secured Sums.
13. ASSIGNMENT NOT TO BE AFFECTED
Without prejudice to Clauses 11 and 12, neither the Assignment nor the liability
of the Assignor for the Secured Sums shall be prejudiced or affected by:-
13.1 any variation or amendment of, or waiver or release granted under or in
connection with, any other Security or any guarantee or indemnity or other
document; or
13.2 time being given, or any other indulgence or concession being granted, by
the Assignee to the Assignor or any other person; or
13.3 the taking, holding, failure to take or hold, varying, realisation,
non-enforcement, non-perfection or release by the Assignor or any other
person of any other Security or any guarantee or indemnity or other
document; or
13.4 the occurrence of any Event of Default in relation to the Assignor or any
other person; or
13.5 any change in the constitution of the Assignor; or
13.6 any amalgamation, merger or reconstruction that may be effected by the
Assignee with any other person or any sale or transfer of the whole or any
part of the undertaking, property and assets of the Assignee to any other
person; or
13.7 the existence of any claim, set-off or other right which the Assignor may
have at any time against the Assignee or any other person; or
13.8 the making or absence of any demand for payment of any Secured Sums on the
Assignor or any other person, whether by the Assignee or any other person;
or
13.9 any arrangement or compromise entered into by the Assignee with the
Assignor or any other person; or
13.10 any other thing done or omitted or neglected to be done by the Assignee or
any other person or any other dealing, fact, matter or thing which but for
this provision, might operate to prejudice or affect the liability of the
Assignor for the Secured Sums.
14. RETENTION OF DEED
14.1 Retention of deed
If the Assignor requests the Assignee to reassign the Deposit to the
Assignor following any payment or discharge made in relation to the
Secured Sums by a person other than the Assignor (a "Relevant
Transaction"), the Assignee shall be entitled to retain this deed and
shall not be obliged to reassign the Deposit until the expiry of the
Retention
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Period in relation to that Relevant Transaction. If at any time before the
expiry of that Retention Period the insolvency, winding up, liquidation,
administration or occurrence of any analogous event in respect of such
other person shall have commenced, the Assignee may continue to retain
this deed and shall not be obliged to reassign the Deposit for such
further period as the Assignee may determine.
14.2 Retention Period
For the purpose of Clause 14.1, "Retention Period" means, in relation to
any Relevant Transaction, the period which commences on the date when that
Relevant Transaction was made or given, and which ends on the date falling
one month after the expiration of the maximum period within which that
Relevant Transaction can be avoided, reduced or invalidated by virtue of
any applicable law.
15. POWER OF ATTORNEY
15.1 Appointment
The Assignor appoints, irrevocably and by way of security, the Assignee
and any person nominated in writing by the Assignee as attorney of the
Assignor severally to be the attorney of the Assignor (with full powers of
substitution and delegation), on its behalf and in its name or otherwise,
at such time and in such manner as the attorney may think fit:-
(1) to do anything which the Assignor is or may be obliged to do (but
has not done) under this deed; and
(2) generally to exercise all or any of the Rights conferred on the
Assignee in relation to the Account and the Deposit or under or in
connection with this deed or the Law of Property Act 1925.
15.2 Ratification
The Assignor covenants to ratify and confirm whatever any attorney shall
do or purport to do in the exercise or purported exercise of the power of
attorney in Clause 15.1.
16. CERTIFICATE TO BE CONCLUSIVE EVIDENCE
For all purposes, including any Proceedings, a copy of a certificate signed by
an officer of the Assignee as to the amount of any indebtedness comprised in the
Secured Sums for the time being shall, in the absence of manifest error, be
conclusive evidence against the Assignor as to the amount thereof.
17. STAMP DUTY
The Assignor shall pay promptly, and in any event before any penalty becomes
payable, all stamp, documentary and similar taxes, if any, payable in connection
with the entry into, performance, enforcement or admissibility in evidence of
this deed or any other document
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referred to in this deed, and shall indemnify the Assignee against any liability
with respect to, or resulting from any delay in paying or omission to pay, any
such tax.
18. NOTICES
18.1 Addresses
Any notice or other communication or document to be made or delivered
under this Agreement shall be made or delivered by fax or otherwise in
writing. Each notice, communication or other document to be delivered to
any party to this Agreement shall (unless that other person has by fifteen
days' written notice to the other party specified another address or fax
number) be made or delivered to that person at the address(es) or fax
number (if any) set out below:-
(a) in the case of the Assignee to their branch office in the United
Kingdom, facsimile number: 0171 375 5510, attention Jeff Beckwith
with a simultaneous copy to the office of the General Counsel,
located at 600 Steamboat Road, Greenwich, Connecticut 06830, USA
facsimile number: 001 203 629 4571, attention General Counsel;
(b) in the case of the Assignor, to its office at Cityscape House,
Croxley Business Park, Watford, Hertfordshire WD1 8YF, facsimile
number: 01923 426 823, attention Company Secretary.
18.2 Deemed Delivery
Any notice, communication or document to be delivered to any person shall
be deemed to have been delivered:-
(1) in the case of personal delivery, at the time of such
delivery;
(2) in the case of delivery by post, on the business day following
the day on which it was posted and in proving such delivery it
shall be sufficient to prove that the relevant notice,
communication or document was properly addressed, stamped and
posted (by airmail, if to another country) in the United
Kingdom or, in the case of service to or from an address
outside the United Kingdom at 9.00 a.m. on the fourth day
following the day on which it was posted;
(3) in the case of any notice or other communication by fax, (a)
on the business day the same was transmitted so long as there
is evidence that such fax message was received prior to 5.00
p.m. local time of the recipient on such day and such day is a
business day for the recipient, otherwise (b) on the business
day following the day on which it was transmitted and, in
either case, in proving such delivery it shall be sufficient
to prove that the whole of the fax message was received on any
fax machine of the recipient and that there was no evidence
that such transmission had been interrupted.
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19. RIGHTS AND WAIVERS
19.1 Delay
No delay or omission on the part of the Assignee in exercising any Right
provided by law or under this deed shall impair such Right or operate as a
waiver thereof or of any other right.
19.2 Single or partial exercise
The single or partial exercise by the Assignee of any Right provided by
law or under this deed shall not preclude any other or further exercise
thereof or the exercise of any other Right.
19.3 Rights to be cumulative
The Rights provided in this deed are cumulative with, and not exclusive
of, any Rights provided by law.
20. INVALIDITY
If at any time any provision of this deed is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither:-
20.1 the legality, validity or enforceability in that jurisdiction of any other
provision of this deed; nor
20.2 the legality, validity or enforceability under the law of any other
jurisdiction of that or any other provision of this deed, shall be
affected or impaired.
21. ASSIGNMENT
The Assignee may at any time, without the consent of the Assignor, assign or
transfer the whole or, as the case may be, any part of the Assignee's Rights
under this deed and/or in respect of the Deposit to any person to whom the whole
or any part of the Assignee's Rights under the Loan Facility Agreement shall be
assigned or transferred.
22. GOVERNING LAW
This deed shall be governed by and construed in accordance with English law.
IN WITNESS WHEREOF the Assignor and the Assignee have executed this document as
a deed the day and year first before written.
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SCHEDULE 1
[On letterhead of Assignor]
To: [Deposit Bank]
[Address]
[Date]
Dear Sirs,
We refer to our account (number [ ] designated " ")
(the "Account") with you.
We give you notice that we have assigned to Greenwich International, Ltd. (the
"Assignee") all our rights, title and interest in and to all sums from time to
time standing to the credit of the Account, and all entitlements to interest and
other rights from time to time accruing to or arising in connection with such
sums, and the debt represented thereby (the "Deposit").
We request that you acknowledge that you now shall act in relation to the
Deposit and the Account in accordance with the Assignee's instructions only to
the exclusion of us until such time as the Assignee notifies you in writing that
the Deposit has been re-assigned to us. The names and specimen signatures of the
persons authorised to operate the Accounts shall be notified to you in writing
by the Assignee. This letter varies the signing instructions of any and all
mandates which we have issued to you ("the Mandates") in connection with the
Account.
We confirm that as soon as the Assignee notifies us in writing of the
re-assignment of the Deposit to you, you may operate the Account in accordance
with the signing instructions set out in the Mandate.
This letter shall be governed by and construed in accordance with English law.
Would you please acknowledge receipt of this letter by sending a letter
addressed to the Assignee and copied to us in the form set out in the attached
draft.
Yours faithfully,
Mortgage Management Limited
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<PAGE> 170
SCHEDULE 2
[On letterhead of Deposit Bank]
To: [Greenwich International, Ltd.]
[Address]
With a copy to: [Assignor]
[Address] [Date]
Dear Sirs,
We acknowledge receipt of a letter dated [ ] addressed to us by City
Mortgage Corporation Limited (the "Assignor") (of which the attached is a copy).
The expressions defined in that letter shall have the same respective meanings
in this letter.
We confirm that until the Assignee gives us notice in writing that the Deposit
has been re-assigned to the Assignee (the "Notice of Re-assignment") we shall
act in relation to the Deposit and the Account in accordance with the Assignee's
instructions to the exclusion of the Assignor and we represent and undertake to
the Assignee that:-
(a) no mortgage, fixed or floating charge, encumbrance or assignment by way of
security, or any agreement or arrangement having substantially the same
economic effect or financial effect as any of the foregoing (including any
"hold back" or "flawed asset" arrangement), exists in our favour on, over
or with respect to the Account or the Deposit or any part thereof;
(b) no rights of counter-claim, rights of set-off or combination of accounts
or any other enquiries whatsoever have arisen in our favour against the
Assignor in respect of the Account or the Deposit or any part thereof, and
until we receive the Notice of Re-assignment we shall not assert or seek
to exercise any such rights or equities; and
(c) we have not, as at the date hereof, received any notice that any third
party has or will have any right or interest whatsoever in, or has made or
will be making any claim or demand or taking any action whatsoever
against, the Account or the Deposit or any part thereof.
By entering into this acknowledgement, we do not make any representations as to
the enforceability or validity of the assignment of the Deposit by the Assignor
to the Assignee. The Assignee shall indemnify us against any losses, damages,
costs and liabilities which we may incur in connection with this acknowledgement
including, without limitation:
(i) the notice dated [ ] addressed to us by City Mortgage Corporation
Limited;
(ii) the assignment of the Deposit by the Assignor to the Assignee; and
(iii) the operation of the Account in accordance with the Assignee's
instructions.
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Yours faithfully,
[Name of Deposit Bank]
We confirm and agree to the terms of this letter.
...............................
Greenwich International Ltd.
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<PAGE> 172
Signed as a deed by
MORTGAGE MANAGEMENT LIMITED
acting by its duly appointed attorney
in the presence of:-
.....................
Witness: .........................
Occupation: .........................
Address: .........................
.........................
.........................
Signed as a deed by
GREENWICH INTERNATIONAL, LTD.
acting by its duly appointed attorney
.....................
in the presence of:
Witness: .........................
Occupation: .........................
Address: .........................
.........................
.........................
<PAGE> 173
EXECUTION COPY
CHARGE OF SHARES
between
CITY MORTGAGE CORPORATION LIMITED
and
GREENWICH INTERNATIONAL LIMITED
SIDLEY & AUSTIN
Royal Exchange
London EC3V 3LE
Tel: 0171-360 3600
Fax: 0171-626 7937
Ref: JCW/RA
<PAGE> 174
CONTENTS
Clause Page No.
- ------ --------
1. INTERPRETATION........................................................2
2. COVENANT TO PAY.......................................................4
3. CHARGE................................................................4
4. OTHER SECURITY........................................................4
5. COVENANT TO DEPOSIT AND FURTHER ASSURANCES............................4
6. REPRESENTATION AND WARRANTIES ........................................5
7. COVENANTS.............................................................6
8. CHARGOR'S RIGHTS BEFORE ENFORCEMENT...................................7
9. ENFORCEMENT OF SECURITY...............................................8
10. DEALINGS WITH CHARGED PROPERTY ON ENFORCEMENT.........................8
11. APPLICATION OF PROCEEDS...............................................9
12. GENERAL RIGHTS OF THE LENDER..........................................9
13. LIABILITY OF LENDER, DELEGATES AND NOMINEES..........................10
14. PROTECTION OF THIRD PARTIES..........................................11
15. CONTINUING SECURITY..................................................11
16. OTHER SECURITY.......................................................12
17. CHARGE NOT TO BE AFFECTED............................................12
18. RELEASE OF CHARGED PROPERTY..........................................13
19. POWER OF ATTORNEY....................................................13
20. WAIVERS; REMEDIES CUMULATIVE.........................................14
21. COSTS AND EXPENSES...................................................14
<PAGE> 175
22. MISCELLANEOUS........................................................14
23. NOTICES AND RECEIPTS.................................................15
24. GOVERNING LAW AND JURISDICTION.......................................16
SCHEDULE 1 [The Original Shares].........................................18
<PAGE> 176
THIS CHARGE OF SHARES is made as a deed on February 1998 BETWEEN:
(1) CITY MORTGAGE CORPORATION LIMITED a company incorporated under the laws of
England and Wales registered number 3043776 whose registered office is at
19 Cavendish Square, London W1A 2AW (the "Chargor"); and
(2) GREENWICH INTERNATIONAL, LTD. a company incorporated under the laws of
Bermuda, whose registered office is at Cedar House, 41 Cedar Avenue,
Hamilton, HM12 Bermuda (the "Lender").
WHEREAS:
(A) The Chargor and the Lender have entered into the Mortgage Loan Purchase
Agreement and the Commitment Letter pursuant to which Mortgage Loans may
be sold by the Chargor and its Originating Subsidiaries to the Lender.
(B) The Chargor and CMF have entered into the Origination and Purchase
Agreement and CMF and the Lender have entered into the Supplemental
Agreement pursuant to which Mortgage Loans may, in lieu of being sold by
the Chargor and its Originating Subsidiaries to the Lender under the
Mortgage Loan Purchase Agreement and Commitment Letter, be sold by the
Chargor and its Originating Subsidiaries to CMF and, immediately
thereafter, by CMF to the Lender.
(C) Mortgage Loans originated by Originating Subsidiaries and by third parties
(subsequently sold to the Chargor) have, from time to time, been sold by
the Chargor or such Originating Subsidiaries to the Lender pursuant to the
Sale and Purchase Agreements.
(D) Certain of the Mortgage Loans sold to the Lender pursuant to the foregoing
agreements have been subsequently securitised under the Securitisations.
(E) The Borrower is a wholly owned subsidiary of the Chargor.
(F) Pursuant to a letter dated 25 February 1998, the Lender issued a letter
stating that it terminated its obligation to purchase Mortgage Loans under
the Commitment Letter and the Mortgage Loan Purchase Agreement.
(G) The Chargor, CMS and the Lender have agreed to provide the financing
arrangements relating to the Existing Mortgage Loans and New Production
Mortgage Loans and as part of those arrangements the Lender has agreed to
make available the Facility to the Borrower on the terms and subject to
the conditions of the Loan Facility Agreement of even date between the
Lender, the Borrower and the Chargor so as to enable the Borrower to
purchase the Existing Mortgage Loans and to finance the purchase by the
Borrower of New Production Mortgage Loans.
(H) The Chargor has agreed to indemnify the Lender in respect of the all
obligations of the Borrower under the Loan Facility Agreement and the
other Transaction Documents pursuant to the Indemnity.
<PAGE> 177
It is a condition precedent to drawings under the Loan Facility Agreement that
the Chargor shall have entered into this deed.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 In this charge (including the recitals) the following terms shall have the
respective meanings set out below and all other capitalised terms shall
have the meaning ascribed to them in the Loan Facility Agreement:
"Borrower" means Mortgage Management Limited.
"Business Day" means a day (other than a Saturday or Sunday) on which
banks are open for business in London.
"Charge" means all or any of the Security created, or which may at any
time be created, by or pursuant to this deed.
"Charged Property" means the Original Shares, any Further Shares, any
Derived Assets and any Dividends.
"CMS" means City Mortgage Servicing Limited.
"Debenture" means the debenture of even date hereto entered into between
(1) the Chargor, (2) the Lender and (3) CMC.
"Derived Assets" means all shares, rights or property of a capital nature
which accrue or are offered, issued or paid at any time (by way of bonus,
rights, redemption, conversion, exchange, substitution, consolidation,
subdivision, preference, warrant, option, purchase or otherwise) in
respect of:-
(a) the Original Shares; or
(b) any Further Shares; or
(c) any Shares, rights or other property previously accruing, offered,
issued or paid as mentioned in this definition.
"Dividends" means all dividends, interest and other income paid or payable
in respect of the Original Shares, any Further Shares or any Derived
Assets.
"Event of Default" means any of the events set out in clause 17 of the
Loan Facility Agreement.
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<PAGE> 178
"Further Shares" means all Shares (other than the Original Shares and any
Shares comprised in any Derived Assets) which the Chargor and the Lender
may at any time agree shall be subject to the Charge.
"LPA" means Law of Property Act 1925.
"Original Shares" means the Shares listed in Schedule 1.
"Rights" means rights, benefits, powers, privileges, authorities,
discretions and remedies (in each case, of any nature whatsoever).
"Secured Liabilities" means all moneys and liabilities (whether actual or
contingent) which are now or may be or become due, owing or payable or
expressed to be due, owing or payable to the Lender from the Chargor under
or in connection with the Indemnity or any other Transaction Document,
together with all legal and other costs, charges and expenses which the
Lender may incur in enforcing or obtaining or attempting to enforce or
obtain payment of such moneys and liabilities.
"Security" includes any charge, fixed or floating charge, encumbrance,
lien, pledge, hypothecation, assignment by way of security, or title
retention arrangement (other than in respect of goods purchased in the
ordinary course of trading), and any agreement or arrangement having
substantially the same economic or financial effect as any of the
foregoing (including any "hold back" or "flawed asset" arrangement).
"Shares" means stocks, shares and other securities of any kind.
"Subsidiary" and "Subsidiary Undertaking" have the meanings respectively
given to them for the purposes of the UK Companies Act 1985.
1.2 Any reference, express or implied, to an enactment includes references to:
(1) that enactment as amended, extended or applied by or under any other
enactment before or after this agreement;
(2) any enactment which that enactment re-enacts (with or without
modification); and
(3) any subordinate legislation made (before or after this agreement)
under any enactment, including one within (a) or (b).
1.3 A person shall be deemed to be connected with another if that person is
connected with another within the meaning of section 839 of the Taxes Act
1988.
1.4 Subclauses (1) to (3) above apply unless the contrary intention appears.
1.5 The headings in this charge do not affect its interpretation.
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<PAGE> 179
1.6 Any reference to a document is a reference to that document as amended,
novated or supplemented.
1.7 References to clauses and schedules are to clauses of and schedules to
this Deed.
1.8 References to a "person" are to be construed so as to include any
individual, firm, company, government, state or agency of a State, local
or municipal authority, or any joint venture, association or partnership
(whether or not having separate legal personality).
1.9 References to a "company" are to be construed so as to include any
company, corporation or other body corporate, wherever and however
incorporated or established.
2. COVENANT TO PAY
The Chargor covenants with the Lender to pay and discharge all of the
Secured Liabilities at the time or times when, and in the currency or
currencies in which, the same are expressed to be payable under the
Indemnity or, as the case may be, any of the Transaction Documents.
3. CHARGE
The Chargor, as continuing security for the payment and discharge of all
Secured Liabilities, charges all its Rights, title and interest in and to
the Charged Property by way of first fixed charge in favour of the Lender.
4. OTHER SECURITY
The Charge shall be in addition to and shall not be prejudiced by any
other security or any guarantee or indemnity or other document which the
Lender may at any time hold for the payment of the Secured Liabilities.
5. COVENANT TO DEPOSIT AND FURTHER ASSURANCES
5.1 Original Shares and Further Shares
The Chargor shall, immediately after the execution of this deed in the
case of the Original Shares, and within two Business Days of each
occasion, if any, on which the Lender and the Chargor agree that any
Shares shall become Further Shares, deposit with the Lender:-
(1) all share certificates, documents of title and other documentary
evidence of ownership in relation to such Shares; and
(2) transfers of such Shares duly executed (but undated) by the Chargor
or its nominee with the name of the transferee left blank or, if the
Lender so requires, duly executed by the Chargor or its nominee in
favour of the Lender (or the
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Lender's nominee) and stamped, and such other documents as the Lender may
require to enable the Lender (or the Lender's nominee) or, after the
occurrence of an Event of Default, any purchaser to be registered as the
owner of, or otherwise to obtain legal title to, such Shares.
5.2 Derived Assets
The Chargor shall, within two Business Days of the accrual, offer, issue
or payment of any Derived Assets, deliver or pay to the Lender or procure
the delivery or payment to the Lender of:
(1) all such Derived Assets or the share certificates, renounceable
certificates, letters of allotment, documents of title and other
documentary evidence of ownership in relation to them; and
(2) transfers of any Shares comprised in such Derived Assets duly
executed (but undated) by the Chargor or its nominee with the name
of the transferee left blank, or if the Lender so requires, duly
executed by the Chargor or its nominee in favour of the Lender (or
the Lender's nominee) and stamped, and such other documents as the
Lender may require to enable the Lender (or the Lender's nominee)
or, after the occurrence of an Event of Default, any purchaser to be
registered as the owner of, or otherwise to obtain legal title to,
the Shares comprised in such Derived Assets.
5.3 Further Assurances
In addition to and without prejudice to anything else contained in this
deed, the Chargor shall, at its own cost, promptly execute and do all such
deeds, instruments, transfers, renunciations, proxies, notices, documents,
assurances, acts and things in such form as the Lender may from time to
time require:-
(1) for perfecting, preserving or protecting the Charge or the priority
of the Charge; and
(2) for facilitating the realisation of the Charge or the exercise of
any Rights vested in the Lender.
6. REPRESENTATION AND WARRANTIES REPRESENTATION AND WARRANTIES AND WARRANTIES
The Chargor represents and warrants to the Lender that:-
(1) it is the sole beneficial owner of the Charged Property;
(2) no Security (other than the Charge) exists on, over or with respect
to any of the Charged Property;
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(3) it has not sold, transferred, lent, assigned, parted with its
interest in, disposed of, granted any option in respect of or
otherwise dealt with any of its Rights, title and interest in and to
the Charged Property, or agreed to do any of the foregoing
(otherwise than pursuant to this deed);
(4) the Original Shares, any Further Shares and any Shares comprised in
any Derived Assets are fully paid and there are no moneys or
liabilities outstanding in respect of any of the Charged Property;
(5) the Original Shares, any Further Shares and any Shares comprised in
any Derived Assets have been duly authorised and validly issued and
are free from any restrictions on transfer or rights of pre-emption;
(6) it has the power to enter into, and perform and comply with its
obligations under, this deed, and to create the Charge;
(7) all actions, conditions and things required to be taken, fulfilled
and done (including the obtaining of any necessary consents) in
order to (i) enable it lawfully to enter into, and perform and
comply with its obligations under, this deed, (ii) ensure that those
obligations are valid, legal, binding and enforceable, (iii) permit
the creation of the Charge and ensure that (subject to all necessary
registrations thereof being made) the Charge is a valid, legal,
binding and enforceable first fixed security interest over the
Charged Property ranking in priority to the interests of any
liquidator, administrator or creditor of the Chargor, and (iv) make
this deed admissible in evidence in the courts of England, have been
taken, fulfilled and done;
(8) the obligations of the Chargor under this deed and (subject to all
necessary registrations thereof being made) the Charge is and will
be until fully discharged valid, legal, binding and enforceable and
the Charge constitutes a first fixed charge over the Charged
Property ranking in priority to the interests of any liquidator,
administrator or creditor of the Chargor; and
(9) each of the above representations and warranties will be correct and
complied with in all respects at all times during the continuance of
the Charge as if repeated then by reference to the then existing
circumstances.
7. COVENANTS
The Chargor shall:-
(1) not create, attempt to create or permit to subsist any Security
(other than the Charge) on, over or with respect to any of the
Charged Property;
(2) not sell, transfer, lend, assign, part with its interest in, dispose
of, grant any option in respect of or otherwise deal with any of its
Rights, title and interest in and to
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the Charged Property, or agree to do any of the foregoing (otherwise
than pursuant to this deed);
(3) not take or omit to take any action which act or omission could
adversely affect or diminish the value of any of the Charged
Property;
(4) ensure that there are no moneys or liabilities outstanding in
respect of any of the Charged Property;
(5) ensure that the Original Shares, any Further Shares and any Shares
comprised in any Derived Assets are free from any restriction on
transfer or rights of pre-emption;
(6) take all action within its powers to procure, maintain in effect and
comply with all the terms and conditions of all approvals,
authorisations, consents and registrations necessary or appropriate
for anything provided for on its part in this deed;
(7) ensure that the Charge will at all times be a legally valid and
binding first fixed charge over the Charged property ranking in
priority to the interests of any liquidator, administrator or
creditor of the Chargor;
(8) without prejudice to Clause 6(d), punctually pay all calls,
subscription moneys and other moneys payable on or in respect of any
of the Charged Property and indemnify and keep indemnified the
Lender (and the Lender's nominees) against any cost, liabilities or
expenses which it or they may suffer or incur as a result of any
failure by the Chargor to pay the same;
(9) deliver to the Lender a copy of every circular, notice, report, set
of accounts or other document received by the Chargor in respect of
or in connection with any of the Charged Property forthwith upon
receipt by the Chargor of such document; and
(10) promptly deliver to the Lender all such information concerning the
Charged Property as the Lender may reasonably request from time to
time.
8. CHARGOR'S RIGHTS BEFORE ENFORCEMENT
Until the Charge shall become enforceable, the Chargor shall be entitled
to:-
(1) receive all dividends, interest and income from the Charged Assets;
and
(2) exercise any voting right attached to any of the Charged Assets but
only in a manner consistent with the terms of the Charge and all
other Transaction Documents.
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9. ENFORCEMENT OF SECURITY
9.1 Upon (and at any time after) the occurrence of an Event of Default which
is subsisting, unremedied (to the satisfaction of the Lender) or unwaived,
the Charge shall become enforceable, and the powers conferred by Section
101 of the Law of Property Act 1925 as varied and extended by this deed
shall be exercisable, upon and at any time after the occurrence of an
Event of Default.
9.2 The powers conferred by Section 101 of the Law of Property Act 1925, as
varied and extended by this deed, shall be deemed to have arisen
immediately on the execution of this deed.
9.3 Sections 93 and 103 of the Law of Property Act 1925 shall not apply to
this deed.
10. DEALINGS WITH CHARGED PROPERTY ON ENFORCEMENT
10.1 Rights of Lender
At any time after the Charge has become enforceable, the Lender shall have
the right, without any notice to or consent of the Chargor:-
(1) Possession
to take possession of, collect and get in the Charged Property, and
in particular to take any steps necessary to vest all or any of the
Charged Property in the name of the Lender or its nominee (including
completing any transfers of any Shares comprised in the Charged
Property) and to receive and retain any Dividends;
(2) Sell
to sell, exchange, convert into money or otherwise dispose of or
realise the Charged Property (whether by public offer or private
contract) to any person and for such consideration (whether
comprising cash, debentures or other obligations, Shares or other
valuable consideration of any kind) and on such terms (whether
payable or deliverable in a lump sum or by instalments) as it may
think fit, and for this purpose to complete any transfers of the
Charged Property;
(3) Voting Rights
for the purpose of preserving the value of the Charge or realising
the same, to exercise or direct the exercise of all voting and other
Rights relating to the Charged Property in such manner as it may
think fit;
(4) Claims
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to settle, adjust, refer to arbitration, compromise and arrange any
claims, accounts, disputes, questions and demands relating in any
way to the Charged Property;
(5) Legal actions
to bring, prosecute, enforce, defend and abandon actions, suits and
proceedings in relation to the Charged Property; and
(6) Other Rights
to do all such other acts and things it may consider necessary or
expedient for the realisation of the Charged Property or incidental
to the exercise of any of the Rights conferred on it under or in
connection with this deed or the LPA and to concur in the doing of
anything which it has the Right to do and to do any such thing
jointly with any other person.
10.2 Obligations of Chargor
After the Charge has become enforceable:-
(1) all Dividends shall be paid to and retained by the Lender, and any
such moneys which may be received by the Chargor shall, pending such
payment, be segregated from any other property of the Chargor and
held in trust for the Lender; and
(2) the Chargor shall procure that all voting and other Rights relating
to the Charged Property are exercised in accordance with such
instructions (if any) as may from time to time be given to the
Chargor by the Lender, and the Chargor shall deliver to the Lender
such forms of proxy or other appropriate forms of authorisation to
enable the Lender to exercise such voting and other Rights.
11. APPLICATION OF PROCEEDS
All moneys received by the Lender in respect of the Charged Property after
this security has become enforceable shall be applied by the Lender in or
towards payment of the Secured Liabilities in such manner as the Lender
sees fit but without prejudice to the right of the Lender to recover any
shortfall from the Chargor.
12. GENERAL RIGHTS OF THE LENDER
12.1 Redemption of Security
The Lender may at any time redeem any Security over the Charged Property
having priority to the Charge or procure the transfer to the Lender and
may settle the accounts of encumbrancers. Any accounts so settled shall be
conclusive and binding on the
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Chargor. The Chargor shall on demand pay to the Lender all principal
moneys, interest, costs, charges, losses, liabilities and expenses of and
incidental to any such redemption or transfer.
12.2 New Account
At any time following the occurrence of an Event of Default, the Lender
may open a new account in the name of the Chargor (whether or not it
permits any existing account to continue). If the Lender does not open
such a new account, it shall nevertheless be treated as if it had done so
at the time when the Event of Default occurred. Thereafter, all payments
made by the Chargor to the Lender or received by the Lender for the
account of the Chargor shall be credited or treated as having been
credited to the new account and shall not operate to reduce the amount
secured by this deed at the time when the Event of Default occurred.
12.3 Delegation
The Lender may delegate in any manner to any person any of the Rights
which are for the time being exercisable by the Lender under this deed.
Any such delegation may be made upon such terms and conditions (including
power to sub-delegate) as the Lender may think fit.
12.4 Set-off by Lender
The Lender may at any time, without notice to the Chargor and without
prejudice to any of the Lender's other Rights, set off any Secured
Liabilities which are due and unpaid against any obligation (whether or
not matured) owed by the Lender to the Chargor, regardless of the place of
payment or booking branch, and for that purpose the Lender may convert one
currency into another at the rate of exchange determined by the Lender in
its absolute discretion to be prevailing at the date of set-off.
13. LIABILITY OF LENDER, DELEGATES AND NOMINEES
13.1 Possession
If the Lender or any Delegate shall take possession of the Charged
Property, it may at any time relinquish such possession.
13.2 Lender's Liability
The Lender shall not in any circumstances (whether by reason of taking
possession of the Charged Property or for any other reason whatsoever and
whether as mortgagee in possession or on any other basis whatsoever):-
(1) be liable to account to the Chargor or any other person for anything
except the Lender's own actual receipts; or
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(2) be liable to the Chargor or any other person for any costs, charges,
losses, damages, liabilities or expenses arising from any
realisation of the Charged Property or from any exercise or
non-exercise by the Lender of any Right conferred upon it in
relation to the Charged Property or from any act, default, omission
or misconduct of the Lender, its officers, employees or agents in
relation to the Charged Property except to the extent that they
shall be caused by the Lender's own fraud, negligence or wilful
misconduct or that of its officers or employees.
13.3 Delegate's and Nominee's Liability
All the provisions of Clause 13.2 shall apply, mutatis mutandis, in
respect of the liability of any Delegate or nominee of the Lender or any
officer, employee or agent of the Lender, any Delegate or any nominee of
the Lender.
13.4 Indemnity
The Lender and every Delegate, attorney, manager, agent or other person
appointed by the Lender hereunder shall be entitled to be indemnified out
of the Charged Property in respect of all liabilities and expenses
incurred by any of them in the execution or purported execution of any of
its Rights and against all actions, proceedings, costs, claims and demands
in respect of any matter or thing done or omitted in anyway relating to
the Charged Property, and the Lender and any such Delegate, attorney,
manager, agent or other person appointed by the Lender hereunder may
retain and pay all sums in respect of the same out of any moneys received.
14. PROTECTION OF THIRD PARTIES
No person dealing with the Lender or any Delegate shall be concerned to
enquire whether any event has happened upon which any of the Rights
conferred under or in connection with this deed or the LPA are or may be
exercisable, whether any consents, regulations, restrictions or directions
relating to such Rights have been obtained or complied with or otherwise
as to the propriety or regularity of acts purporting or intended to be in
exercise of any such Rights or as to the application of any money borrowed
or raised or other proceeds of enforcement. All the protections to
purchasers contained in sections 104 and 107 of the LPA or in any other
legislation for the time being in force shall apply to any person
purchasing from or dealing with the Lender or any Delegate.
15. CONTINUING SECURITY
The Charge shall be a continuing security for the Secured Liabilities and
shall not be satisfied, discharged or affected by any intermediate payment
or settlement of account (whether or not any Secured Liabilities remain
outstanding thereafter) or any other matter or thing whatsoever.
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16. OTHER SECURITY
The Charge shall be in addition to and shall not be prejudiced by any
other Security or any guarantee or indemnity or other document which the
Lender may at any time hold for the payment of the Secured Liabilities.
17. CHARGE NOT TO BE AFFECTED
Without prejudice to Clauses 15 and 16, neither the Charge nor the
liability of the Chargor for the Secured Liabilities shall be prejudiced
or affected by:-
(1) any variation or amendment of, or waiver or release granted under or
in connection with, any other Security or any guarantee or indemnity
or other document; or
(2) time being given, or any other indulgence or concession being
granted, by the Lender to the Chargor or any other person; or
(3) the taking, holding, failure to take or hold, varying, realisation,
non-enforcement, non-perfection or release by the Lender or any
other person of any other Security, or any guarantee or indemnity or
other document; or
(4) the insolvency, winding up, liquidation, administration or
occurrence of any analogous event in respect of the Chargor or any
other person; or
(5) any change in the constitution of the Chargor; or
(6) any amalgamation, merger or reconstruction that may be effected by
the Lender with any other person or any sale or transfer of the
whole or any part of the undertaking, property and assets of the
Lender to any other person; or
(7) the existence of any claim, set-off or other right which the Chargor
may have at any time against the Lender or any other person; or
(8) the making or absence of any demand for payment of any Secured
Liabilities on the Chargor or any other person, whether by the
Lender or any other person; or
(9) any arrangement or compromise entered into by the Lender with the
Chargor or any other person; or
(10) any other thing done or omitted or neglected to be done by the
Lender or any other person or any other dealing, fact, matter or
thing which, but for this provision, might operate to prejudice or
affect the liability of the Chargor for the Secured Liabilities.
18. RELEASE OF CHARGED PROPERTY
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18.1 Release of Charged Property
If all Secured Liabilities have been paid or discharged in full and the
Loan Facility Agreement has been terminated, the Lender shall at the
request and cost of the Chargor execute such deeds and do all such acts
and things as may be necessary to release the Charged Property from the
Charge.
18.2 Retention of Deed
If the Chargor requests the Lender to release the Charged Property from
the Charge following any payment or discharge made or Security or
guarantee given in relation to the Secured Liabilities by a person other
than the Chargor (a "Relevant Transaction"), the Lender shall be entitled
to retain this deed (and all stock and share certificates, documents of
title and other documentary evidence of ownership in relation to the
Charged Property deposited with the Lender pursuant to clause 5) and shall
not be obliged to release the Charged Property from the Charge until the
expiry of the Retention Period in relation to that Relevant Transaction.
If at any time before the expiry of the retention period the insolvency,
winding up, liquidation, administration, or any analogous event in respect
of such other person shall have occurred, the Lender may continue to
retain this deed (and all such stock and share certificates, documents of
title and documentary evidence) and shall not be obliged to release the
Charged Property from the Charge for such further period as the Lender may
determine.
18.3 Retention Period
For the purpose of Clause 18.2 "Retention Period" means, in relation to
any Relevant Transaction, the period which commences on the date when that
Relevant Transaction was made or given, and which ends on the date falling
one month after the expiration of the maximum period within which the
Relevant Transaction can be avoided, reduced or invalidated by virtue of
any applicable law.
19. POWER OF ATTORNEY
19.1 The Chargor by way of security (for the Secured Liabilities) irrevocably
appoints the Lender the attorney of the Chargor on its behalf and in the
name of the Chargor or the Lender (as the attorney may decide) to do all
acts and things and execute all documents which the Chargor is or may be
obliged to do (but has not done) hereunder and in relation to any of the
Charged Property or in connection with any of the matters provided for in
this charge, including (but without limitation) to execute and date any
transfer of Shares and to exercise all Rights conferred on the Lender in
relation to the Charged Property or under this deed or the LPA 1925.
19.2 The Chargor shall ratify and confirm whatever the attorney shall do in
exercise of its powers as attorney under the power of attorney in Clause
19.1.
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20. WAIVERS; REMEDIES CUMULATIVE
The Rights of the Lender under this Charge
(1) may be exercised as often as necessary;
(2) are cumulative and are not exclusive of its rights under the general
law; and
(3) may be waived only in writing and specifically and may be on such
terms as the Lender sees fit.
21. COSTS AND EXPENSESCOSTS AND EXPENSESAND EXPENSES
The Chargor shall indemnify the Lender on demand against all costs,
charges, losses, liabilities, expenses and other sums (including legal,
accountants' and other professional fees) and any Taxes thereon expended,
paid, incurred or debited on account by the Lender in relation to this
deed, and/or any other document referred to in this deed, including,
without prejudice to the generality of the foregoing:-
(1) in connection with the negotiation, preparation, execution,
stamping, filing, registration and perfection of this deed;
(2) in connection with the granting of any waiver or consent sought by
the Chargor or in connection with any variation, amendment,
extension or modification of, or supplement to, this deed;
(3) in enforcing, protecting, preserving or realising, or attempting to
enforce, protect, preserve or realise, the Lender's Rights under
this deed; and
(4) in connection with or contemplation of any Proceedings or the
recovery or attempted recovery of any Secured Liabilities.
22. MISCELLANEOUS
22.1 The Chargor may not assign any of its Rights under this charge. The Lender
may assign all or any part of its Rights hereunder. References to the
Lender include assigns of the Lender.
22.2 If a provision of this Charge is or becomes illegal, invalid or
unenforceable in any jurisdiction, that shall not affect:
(1) the validity or enforceability in that jurisdiction or any other
provision of this Charge; or
(2) the validity or enforceability in other jurisdictions of that or any
other provision of this Charge.
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22.3 This Charge may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and either
party may enter into this Charge by executing a counterpart.
22.4 Each party acknowledges that in agreeing to enter into this Charge, it has
not relied on any representation, warranty or other assurance, except
those set out in this agreement.
23. NOTICES AND RECEIPTS
23.1 Any notice or other communication or document to be made or delivered
under this Charge shall be made or delivered by fax or otherwise in
writing. Each notice, communication or other document to be delivered to
any party to this Charge shall (unless that other person has by fifteen
days' written notice to the other party specified another address or fax
number) be made or delivered to that person at the address(es) or fax
numbers below:-
(1) in the case of the Lender, to their branch office in the United
Kingdom, facsimile number : 0171 375 5510 attention Jeff Beckwith
with a simultaneous copy to the office of the General Counsel,
located at 600 Steamboat Road, Greenwich, Connecticut 06830, USA,
facsimile number 00 1 203 629 4571, attention General Counsel;
(2) in the case of the Chargor, to its registered office, facsimile
number : 01923 426 823, attention Company Secretary.
23.2 Any notice or document shall be deemed to have been served:
(1) if delivered, at the time or delivery; or
(2) if posted, at 10.00 a.m. on the fifth business day after it was put
into the post;
(3) in the case of any notice or other communication by fax, (a) on the
business day the same was transmitted so long as there is evidence
that such fax message was received prior to 5pm local time of the
recipient on such day and such day is a business day for the
recipient, otherwise (b) on the business day following the day on
which it was transmitted and, in either case, in proving such
delivery it shall be sufficient to prove that the whole of the fax
message was received on any fax machine of the recipient and that
there was no evidence that such transmission had been interrupted.
23.3 In proving service of a notice or document it shall be sufficient to prove
that delivery was made or that the envelope containing the notice or
document was properly addressed and posted as a prepaid first class
recorded delivery letter or registered airmail letter (as appropriate).
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24. GOVERNING LAW AND JURISDICTION
24.1 This charge is governed by and shall be construed in accordance with
English law.
24.2 The parties hereto submit to the non-exclusive jurisdiction of the English
courts for all purposes relating to this Charge.
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Signed as a deed by
CITY MORTGAGE CORPORATION LIMITED
acting by its duly appointed attorney
in the presence of:-
....................
Witness:
------------------------------
Occupation:
------------------------------
Address:
------------------------------
SIGNED as a deed by
GREENWICH INTERNATIONAL, LTD
acting by its duly appointed attorney
in the presence of:- ....................
Witness:
------------------------------
Occupation:
------------------------------
Address:
------------------------------
17
<PAGE> 193
SCHEDULE 1
[The Original Shares]
Two shares of Mortgage Management Limited owned by the Chargor.
18
<PAGE> 194
To:
Greenwich International, Ltd.
Cedar House
41 Cedar Avenue
Hamilton
Bermuda February 1998
Dear Sirs
Indemnity
We refer to a number of agreements (each an "Agreement" and together the
"Agreements") which you have entered into with, amongst others, Mortgage
Management Limited ("MML"), particulars of which are set out in the schedule to
this letter of indemnity (this "Indemnity").
In consideration for your entering into a loan facility agreement dated February
1998 (the "Loan Facility Agreement") with MML and us, we hereby undertake and
agree :
(i) to indemnify you and keep you indemnified against any and all losses
suffered by you resulting from or arising out of any and all of the
Agreements and to pay to you the amounts of such losses immediately on
your demand therefor whether or not at the time you make such demand you
have exercised all or any other remedies in respect of such losses, such
losses to include, without limitation, all amounts payable but unpaid by
MML under the Loan Facility Agreement, and all actions, claims, damages,
costs (including legal costs), expenses, demands, liabilities and
proceedings;
(ii) that Clauses 10.2 to 10.9 (tax gross-up and indemnity) and 18 (default
interest) of the Loan Facility Agreement shall apply to any payment to be
made by us to you under (i) above as those clauses apply to any payment to
be made by MML to you under the Loan Facility Agreement; and
(iii) not to recover from MML any part of the amount we pay to you under this
Indemnity except in accordance with the terms of a counter - indemnity
dated February 1998 granted to us by MML, in the form attached hereto and
signed by us for identification.
<PAGE> 195
For the avoidance of doubt, we hereby acknowledge that our obligations under
this Indemnity are independent of the obligations of any party to any of the
Agreements.
We hereby represent and warrant that we have all necessary corporate powers and
have taken all necessary corporate action to grant this Indemnity and that our
obligations under this Indemnity constitute our legal, valid and binding
obligations enforceable in accordance with its terms.
This Indemnity shall be governed by and construed in accordance with English
law.
Yours faithfully
- ---------------------------------------------------------
for and on behalf of City Mortgage Corporation Limited
<PAGE> 196
Schedule
1. The Loan Facility Agreement
2. The Debenture Creating Fixed and Floating Charges
3. The Proceeds Agreement
4. The Interim Servicing Agreement
5. The Charge over CMC's shares in CMS
6. The Assignment Agreement
7. The Subordinated Loan Agreement
8. Assignment of CMC Residuals Account
9. Debenture Creating a Floating Charge Postponed to all other Security
Interests
10. The Indemnity, Counter Indemnity and the Undertaking
11. The CMC Charge
12. The Charge over CMC's shares in MML
13. The Assignments of the Collection Account and the Funding Account
14. The New Production Purchase Agreement
15. The Mortgage Transfer Agreement
16. Any amendments to any of the above and any other Transaction Document (as
defined in the Loan Facility Agreement) and any amendments thereto.
<PAGE> 197
[ON THE LETTERHEAD OF MORTGAGE MANAGEMENT LIMITED]
To:
City Mortgage Corporation Limited
Harcourt House
19 Cavendish Square
London W1A 2AW February 1998
Dear Sirs
Counter Indemnity
We refer to an indemnity given by you to Greenwich International, Ltd. ("GIL")
dated February 1998 (the "Indemnity") in the form attached hereto and
signed by us for identification.
In consideration for your having given the Indemnity, we hereby undertake and
agree:
(i) to indemnify you and keep you indemnified against any and all losses
suffered by you resulting from or arising out of the Indemnity, such
losses to include, without limitation, all losses, actions, claims,
damages, costs (including legal costs), expenses, demands,
liabilities and proceedings (the "Counter Indemnity"), provided that
prior to so indemnifying you, we have received from GIL a
certificate of permission (the "Certificate of Permission") in the
form attached hereto and signed by us for identification, such
certificate to be granted by GIL at its sole discretion;
(ii) that you are herby irrevocably authorised and directed to pay
forthwith on any demand appearing or purporting to be made by or on
behalf of GIL any sums which may be demanded from you from time to
time without any reference to or any necessity for confirmation or
verification by us, it being expressly agreed that any such demand
shall, as between us and you, be conclusive evidence that the sum
stated therein is properly due and payable.
We hereby represent and warrant that we have all necessary corporate powers and
have taken all necessary corporate action to grant this Counter Indemnity and
that all our obligations under this Counter Indemnity constitute our legal,
valid and binding obligations enforceable in accordance with its terms.
<PAGE> 198
This Counter Indemnity shall be governed by and construed in accordance with
English law.
Yours faithfully
- -----------------------------------------------------
for and on behalf of Mortgage Management Limited
<PAGE> 199
Schedule
[FORM OF CERTIFICATE OF PERMISSION]
[ON LETTERHEAD OF GIL]
To: Mortgage Management Limited
Harcourt House
19 Cavendish Square
London W1A 2AW
Dear Sirs
Certificate of Permission
In accordance with the terms of the counter indemnity dated February 1998
granted by you to City Mortgage Corporation Limited ("CMC"), we hereby grant you
permission to pay to CMC the sum of [ ].
This Certificate of Permission shall be governed by and construed in accordance
with English law.
Yours faithfully
Greenwich International, Ltd.
<PAGE> 200
EXECUTION COPY
CMC CHARGE
between
CITY MORTGAGE CORPORATION LIMITED
(as Obligor)
and
GREENWICH INTERNATIONAL LTD.
(as Lender)
SIDLEY & AUSTIN
Royal Exchange
London EC3V 3LE
Tel: 0171-360 3600
Fax: 0171-626 7937
Ref: JCW/DMB/13568/30020
<PAGE> 201
CONTENTS
Clause Page No.
- ------ --------
1. INTERPRETATION...........................................................4
2. COVENANT TO PAY..........................................................6
3. SECURITY.................................................................6
4. OTHER SECURITY...........................................................7
5. REPRESENTATION AND WARRANTIES ...........................................7
6. COVENANTS................................................................8
7. ENFORCEMENT OF SECURITY..................................................9
8. DEALINGS WITH ASSIGNED PROPERTY ON
ENFORCEMENT AND APPOINTMENT OF RECEIVERS................................9
9. APPOINTMENT AND RIGHTS OF RECEIVERS.....................................10
10. APPLICATION OF PROCEEDS.................................................12
11. PRESERVATION OF SECURITY................................................12
12. GENERAL RIGHTS OF THE LENDER............................................13
13. POWER OF ATTORNEY.......................................................13
14. PROTECTION OF PURCHASER.................................................13
15. DELEGATION..............................................................14
16. INDEMNITY...............................................................14
17. WAIVERS; REMEDIES CUMULATIVE............................................14
18. FURTHER ASSURANCE.......................................................14
19. REASSIGNMENT OF ASSIGNED ASSETS.........................................15
20. MISCELLANEOUS...........................................................15
<PAGE> 202
22. CURRENCY INDEMNITY......................................................16
23. NOTICES AND RECEIPTS....................................................16
24. GOVERNING LAW AND JURISDICTION..........................................17
SCHEDULE 1 Notice of Assignment.............................................19
<PAGE> 203
THIS ASSIGNMENT is made as a deed on February 1998 BETWEEN:
(1) CITY MORTGAGE CORPORATION LIMITED Company Number (3043776) of 19 Cavendish
Square, London W1A 2AW (the "Obligor"); and
(2) GREENWICH INTERNATIONAL LTD a company incorporated under the laws of
Bermuda, whose branch office in the United Kingdom is at 1 Jermyn Street,
9th Floor, London (the "Lender").
WHEREAS:
(A) The Obligor and the Lender have entered into the Mortgage Loan Purchase
Agreement and the Commitment Letter pursuant to which Mortgage Loans may
be sold by the Obligor and its Originating Subsidiaries to the Lender.
(B) The Obligor and CMF have entered into the Origination and Purchase
Agreement and CMF and the Lender have entered into the Supplemental
Agreement pursuant to which Mortgage Loans may, in lieu of being sold by
the Obligor and its Originating Subsidiaries to the Lender under the
Mortgage Loan Purchase Agreement and Commitment Letter, be sold by the
Obligor and its Originating Subsidiaries to CMF and, immediately
thereafter, by CMF to the Lender.
(C) Certain of the Mortgage Loans sold to the Lender pursuant to the foregoing
agreements have been subsequently securitised under the Securitisations.
(D) The Borrower is a wholly owned Subsidiary of the Obligor.
(E) Pursuant to a letter dated 25 February 1998, the Lender issued a letter
stating that it terminated its obligation to purchase Mortgage Loans under
the Commitment Letter and the Mortgage Loan Purchase Agreement.
(F) The Obligor, CMS and the Lender have agreed to provide the financing
arrangements relating to the Existing Mortgage Loans and New Production
Mortgage Loans and as part of those arrangements the Lender has agreed to
make available to the Borrower a facility on the terms and subject to the
conditions of a facility agreement of even date between the Lender, the
Borrower and the Obligor (the "Loan Facility Agreement") so as to enable
the Borrower to purchase the Existing Mortgage Loans and to finance
purchase and origination of New Production Mortgage Loans.
(H) The Obligor has agreed to indemnify the Lender in respect of the all
obligations of the Borrower under the Loan Facility Agreement and the
other Transaction Documents pursuant to the Indemnity.
(H) It is a condition precedent to drawings under the Loan Facility Agreement
that the Obligor shall have entered into this Deed.
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IT IS AGREED as follows:
1. INTERPRETATION
1.1 In this Deed (including the recitals) the following terms shall have the
respective meanings set out below:
"Acceleration" has the meaning attributed to it in the Proceeds Agreement;
"Administration Agreements" means the administration agreements dated 21
March 1996, 18 October 1996, 31 October 1996 and 31 January 1997 in
relation to the Securitisations.
"Assets" means the Securitisation Residuals.
"Assigned Assets" means Assets from time to time subject, or expressed to
be subject, to the security created hereunder or any part of those Assets
or any proceeds arising out of the disposition of those Assets.
"Business Day" means a day (other than a Saturday or Sunday) on which
banks are open for business in London.
"Deeds of Charge and Assignment" means the deeds of charge and assignment
dated 21 March 1996, 18 October 1996, 31 October 1996, 31 January 1997 and
30 April 1997 in relation to the Securitisations.
"Enforcement" has the meaning attributed to it in the Proceeds Agreement.
"Event of Default" means any of the events set out in clause 17 of the
Loan Facility Agreement.
"Mortgage Sale Agreements" means the mortgage sale agreements dated 21
March 1996, 18 October 1996, 31 October 1996 and 31 January 1997 in
relation to the Securitisations pursuant to which mortgage loans were sold
to the relevant Issuers.
"Mortgages Trust Deeds" means the mortgages trust deeds dated 21 March
1996, 18 October 1996 and 31 October 1996 in relation to the
Securitisations.
"Receiver" means an administrative receiver, receiver and manager, or
other receiver appointed in respect of all or any of the Assigned Assets
(whether appointed pursuant to this deed, pursuant to any statute, by
court or otherwise).
"Retention Period" means in any relation to any Relevant Transaction (as
defined in clause 19.2), the period which commences on the date when the
Relevant Transaction was made or given, and which continues for one month
plus the maximum period within
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<PAGE> 205
which that Relevant Transaction can be avoided, reduced or invalidated by
virtue of any applicable law or for any other reason whatsoever.
"Rights" means rights, benefits, powers, privileges, authorities,
discretions and remedies (in each case, of any nature whatsoever).
"Secured Liabilities" means all moneys and liabilities (whether actual or
contingent) which are now or may be or become due, owing or payable or
expressed to be due, owing or payable to the Lender from the Obligor under
or in connection with the Indemnity or any other Transaction Document,
together with all legal and other costs, charges and expenses which the
Lender may incur in enforcing or obtaining or attempting to enforce or
obtain payment of such moneys and liabilities.
"Securitisation Residuals" means all of the Obligor's rights, title and
interest in and to the Administration Agreements, the Subordinated Loan
Agreements, the Mortgage Sale Agreements, the Mortgages Trust Deeds and
the Deeds of Charge and Assignment.
"Securitisation Agreements" means the Administration Agreements, the
Subordinated Loan Agreements, the Mortgage Sale Agreements, the Mortgages
Trust Deeds and the Deeds of Charge and Assignments.
"Security" includes any mortgage, fixed or floating charge, encumbrance,
lien, pledge, hypothecation, assignment or assignation by way of security,
or title retention arrangement (other than in respect of goods purchased
in the ordinary course of trading), and any agreement or arrangement
having substantially the same economic or financial effect as any of the
foregoing (including any "hold back" or "flawed asset" arrangement).
"Subordinated Loan Agreements" means the subordinated loan agreements
dated 21 March 1996, 18 October 1996, 31 October 1996, 31 January 1997 and
30 April 1997 in relation to the Securitisations.
"Subsidiary" has the meanings given to it by Section 736 of the Companies
Act 1985.
1.2 Any reference, express or implied, to an enactment includes references to:
(1) that enactment as amended, extended or applied by or under any other
enactment before or after this agreement;
(2) any enactment which that enactment re-enacts (with or without
modification); and
(3) any subordinate legislation made (before or after this agreement)
under any enactment, including one within (a) or (b).
1.3 The headings in this Deed do not affect its interpretation.
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1.4 References to any agreement (including without limitation to each
Transaction Document) shall be construed as a reference to such agreement
as the same may be, or may from time to time have been amended, modified,
supplemented or restated in accordance, where the agreement is itself a
Transaction Document, with the terms of the Transaction Documents.
1.5 Capitalised terms defined in the Loan Facility Agreement have, unless
expressly defined in this Deed, the same meaning in this Deed.
1.6 References to clauses and schedules are to clauses of and schedules to
this Deed.
1.7 References to a "person" are to be construed so as to include any
individual, firm, company, government, state or agency of a State, local
or municipal authority, or any joint venture, association or partnership
(whether or not having separate legal personality).
1.8 References to a "company" are to be construed so as to include any
company, corporation or other body corporate, wherever and however
incorporated or established.
1.9 References to the "Lender" shall be construed so as to include its and any
subsequent successors and assigns in accordance with their respective
interests.
2. COVENANT TO PAYTO PAY
The Obligor covenants and undertakes with the Lender to pay and discharge
all of the Secured Liabilities at the time or times when, and in the
currency or currencies in which, the same are expressed to be payable
under the Indemnity or, as the case may be, the other relevant Transaction
Documents.
3. SECURITY
3.1 For good and valuable consideration, receipt of which is acknowledged, the
Obligor as sole beneficial owner assigns absolutely to the Lender all of
its Rights, title and interest in and to:
(1) The Administration Agreements;
(2) The Subordinated Loan Agreements;
(3) The Mortgage Sale Agreements;
(4) The Mortgages Trust Deeds; and
(5) The Deeds of Charge and Assignment,
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<PAGE> 207
provided that upon payment in full of all Secured Liabilities, at the
request and expense of the Obligor, the Lender will reassign to the
Obligor all the right, title and interest of the Lender in or to the
Assigned Assets pursuant to this Sub-clause 3.1 and gives notices of such
re-assignment to all parties to each of the Assigned Agreements at the
time of re-assignment.
3.2 The Obligor shall, forthwith give notice of the assignments effected under
Clause 3.1 to each other party to the Securitisation Agreements, such
notices to be in or substantially in the form set out in Schedule 1 and
shall use best endeavours to procure that each person to whom such notice
is given acknowledges the relevant assignment in writing, such
acknowledgement to be in or substantially in the form of the
acknowledgement annexed to the relevant notice as set out in Schedule 1.
3.3 The Lender hereby undertakes to comply with the provisions of Clause 6 of
the Subordinated Loan Agreements, Clauses 5, 7 and 9 of the Deeds of
Charge and Assignment and Clause 12.2 of the Mortgages Trust Deeds as if
it were named as an original party thereto in place of the Obligor.
4. OTHER SECURITY
The security created hereunder shall be in addition to and shall not be
prejudiced by any other security or any guarantee or indemnity or other
document which the Lender may at any time hold for the payment of the
Secured Liabilities.
5. REPRESENTATION AND WARRANTIES
5.1 The Obligor represents and warrants to the Lender that:-
(1) it is the sole beneficial owner of the Assigned Assets;
(2) no Security (other than the security created hereunder or, to the
extent that it has not been released or discharged, the security
created under the floating charge dated 21.3.96 in favour of City
Mortgage Receivables 1 Plc or (to the extent, if at all, that the
same constitutes security over any of the Assigned Assets) the
security created under charges and assignment dated 28.3.98, 23.4.96
and 14.6.96 in favour of the Lender over the "Seller Net Cash Flow"
(as defined therein)) exists on, over or with respect to any of the
Assigned Assets;
(3) it has not sold, transferred, lent, assigned, parted with its
interest in, disposed of, granted any option in respect of or
otherwise dealt with any of its Rights, title and interest in and to
the Assigned Assets, or agreed to do any of the foregoing (otherwise
than pursuant to this Deed);
(4) it has the power to enter into, and perform and comply with its
obligations under, this Deed, and to create the security created
hereunder;
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<PAGE> 208
(5) all actions, conditions and things required to be taken, fulfilled
and done (including the obtaining of any necessary consents) in
order to (i) enable it lawfully to enter into, and perform and
comply with its obligations under, this Deed, (ii) ensure that those
obligations are valid, legal, binding and enforceable, (iii) permit
the creation of the security created hereunder and ensure that
(subject to all necessary registrations thereof being made) the
security created hereunder is a valid, legal, binding and
enforceable first fixed security interest over the Assigned Assets
ranking in priority to the interests of any liquidator,
administrator or creditor of the Obligor, and (iv) make this Deed
admissible in evidence in the courts of England, have been taken,
fulfilled and done;
(6) the obligations of the Obligor under this Deed and (subject to all
necessary registrations thereof being made) the security created
hereunder are and will be until fully discharged valid, legal,
binding and enforceable and the security created hereunder
constitutes a first fixed security interest over the Assigned Assets
ranking in priority to the interests of any liquidator,
administrator or creditor of the Obligor; and
(7) each of the above representations and warranties will be correct and
complied with in all respects at all times during the continuance of
the security created hereunder as if repeated then by reference to
the then existing circumstances.
6. COVENANTS
6.1 The Obligor shall:-
(1) not create, attempt to create or permit to subsist any Security
(other than the security created hereunder) on, over or with respect
to any of the Assigned Assets;
(2) not sell, transfer, lend, assign, part with its interest in, dispose
of, grant any option in respect of or otherwise deal with any of its
Rights, title and interest in and to the Assigned Assets, or agree
to do any of the foregoing (otherwise than pursuant to this Deed);
(3) not take or omit to take any action which act or omission could
adversely affect or diminish the value of any of the Assigned
Assets;
(4) ensure that there are no moneys or liabilities outstanding in
respect of any of the Assigned Assets;
(5) ensure that the Assigned Assets are free from any restriction on
transfer or sale;
(6) take all action within its powers to procure, maintain in effect and
comply with all the terms and conditions of all approvals,
authorisations, consents and
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registrations necessary or appropriate for anything provided for on
its part in this Deed;
(7) ensure that the security created hereunder will at all times be a
legally valid and binding first fixed security interest over the
Assigned Assets ranking in priority to the interests of any
liquidator, administrator or creditor of the Obligor;
(8) deliver to the Lender a copy of every circular, notice, report, set
of accounts or other document received by the Obligor in respect of
or in connection with any of the Assigned Assets promptly following
receipt by the Obligor of such document; and
(9) promptly deliver to the Lender all such information concerning the
Assigned Assets as the Lender may reasonably request from time to
time.
7. ENFORCEMENT OF SECURITY
7.1 The security created hereunder shall become enforceable, and the powers
conferred by Section 101 of the Law of Property Act 1925 as varied and
extended by this Deed shall be exercisable, upon and at any time after the
occurrence of an Event of Default which is subsisting unremedied (to the
satisfaction of the Lender) or unwaived.
7.2 The powers conferred by Section 101 of the Law of Property Act 1925, as
varied and extended by this Deed, shall be deemed to have arisen
immediately on the execution of this Deed.
7.3 Sections 93 and 103 of the Law of Property Act 1925 shall not apply to
this Deed.
8. DEALINGS WITH ASSIGNED PROPERTY ON ENFORCEMENT AND APPOINTMENT OF
RECEIVERS
At any time after the security created hereunder has become enforceable,
the Lender shall have the right, without any notice to or consent of the
Obligor:-
(1) to sell, exchange, convert into money or otherwise dispose of or
release the Assigned Assets to any person and for such consideration
and on such terms (whether payable or deliverable in a lump sum or
by instalments) as it may think fit;
(2) for the purpose of preserving the value of the security created
hereunder or realising the same, to exercise (or cause to permit the
Lender's nominee to exercise) the Rights relating to the Assigned
Assets in such manner as it may think fit;
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(3) to settle, adjust, refer to arbitration, compromise and arrange any
claims, accounts, disputes, questions and demands relating in any
way to the Assigned Assets;
(4) to bring, prosecute, enforce, defend and abandon actions, suits and
proceedings in relation to the Assigned Assets; and
(5) to do all such other acts and things it may consider necessary or
expedient for the realisation of the Assigned Assets or incidental
to the exercise of any of the Rights conferred on it under or in
connection with this Deed or the Law of Property Act 1925 and to
concur in the doing of anything which it has the right to do and to
do any such thing jointly with any other person.
(6) at its sole discretion by deed, or writing signed by any person
authorised for this purpose by the Lender, appoint any person to be
Receiver, and may similarly at its sole discretion remove any
Receiver whether or not it appoints any person in his place, and the
Lender may at its sole discretion appoint more than one person as
Receiver and if the Lender appoints more than one person, the Lender
may give the relevant persons power to act either jointly or
severally.
9. APPOINTMENT AND RIGHTS OF RECEIVERSAND RIGHTS OF RECEIVERS
9.1 Any Receiver may be appointed either Receiver of all the Assigned Assets
or Receiver of such part of the Assigned Assets as may be specified in the
appointment. In the latter case, the Rights conferred on a Receiver by
this clause shall have effect as though every reference in that clause to
the "Assigned Assets" were a reference to the part of such Assigned Assets
so specified or any part thereof.
9.2 Any Receiver appointed under this deed shall (subject to any contrary
provision specified in his appointment) have the Right, either in his own
name or in the name of the Obligor or otherwise and in such manner and
upon such terms and conditions as the Receiver thinks fit:-
(1) to collect, get in or otherwise take control of any or all of
the Assigned Assets;
(2) to sell, transfer, assign, redeem, exchange and lend any or
all of the Assigned Assets and otherwise dispose of or realise
any or all of the Assigned Assets to any person (including the
Lender) for any form of consideration;
(3) for the purpose of exercising any of the Rights conferred on
him by or pursuant to this deed or of defraying any costs,
charges, losses, liabilities or expenses (including his
remuneration) incurred by or due to him in the exercise
thereof or for any other purpose, to borrow or raise money
either unsecured or on the security of the Assigned Assets
(either in priority to
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the security created hereunder or otherwise) and generally on
such terms and conditions as he may think fit;
(4) to enter into bonds, covenants, commitments, guarantees,
indemnities and like matters and to make all payments needed
to effect, maintain or satisfy the same;
(5) to manage and use the Assigned Assets and to exercise and do
(or permit the Obligor or its nominee to exercise and do) all
such Rights and things as the Receiver would be capable of
exercising or doing if he were the absolute beneficial owner
of the Assigned Assets and in particular, but without
limitation, to exercise any Rights of enforcing any Security
and to arrange for or provide all services which he may deem
proper for the efficient management or use of the Assigned
Assets or the exercise of such Rights;
(6) to settle, adjust, refer to arbitration, compromise and
arrange any claims, accounts, disputes, questions and demands
with or by any person who is or claims to be a creditor of the
Obligor in relation to the Assigned Assets;
(7) to bring, prosecute, enforce, defend and abandon actions,
suits and proceedings in relation to the Assigned Assets;
(8) to exercise all the powers set out in Schedule 1 to the
Insolvency Act 1986 force at the date of this deed (whether or
not in force at the date of exercise and whether or not the
Receiver is an administrative receiver); and
(9) to do all such other acts and things he may consider necessary
or expedient for the realisation of the Assigned Assets or
incidental to the exercise of any of the Rights conferred on
the Receiver under or in connection with this deed, the Law of
Property Act 1925 or the Insolvency Act and to concur in the
doing of anything which he has the Right to do and to do any
such thing jointly with any other person.
9.3 Any Receiver shall be the agent of the Obligor for all purposes and the
Obligor shall be solely responsible for his contracts, engagements, acts,
omissions, defaults and losses and for all liabilities incurred by him.
9.4 Subject to section 36 of the Insolvency Act 1986 Lender may from time to
time determine the remuneration of any Receiver (without being limited to
the maximum rate specified in section 109(6) of the Law of Property Act
1925) and may direct payment of such remuneration out of moneys accruing
to him as Receiver but the Obligor alone shall be liable for the payment
of such remuneration and for all other costs, charges and expenses of the
Receiver.
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10. APPLICATION OF PROCEEDS
All moneys received by the Lender in respect of the Assigned Assets after
this security has become enforceable shall (subject to any contrary
provision in the Proceeds Agreement) be applied by the Lender in or
towards payment of the Secured Liabilities in such order as the Lender
shall at its discretion determine but without prejudice to the right of
the Lender to recover any shortfall from the Obligor.
11. PRESERVATION OF SECURITY
11.1 The security constituted by this deed:
(1) shall be a continuing security and shall not be satisfied by any
intermediate payment or satisfaction of the whole or any part of the
Secured Liabilities but shall secure the ultimate balance of the
Secured Liabilities; and
(2) shall be in addition to and shall not be affected by any other
Security now or subsequently held by the Lender for all or any of
the Secured Liabilities.
11.2 The Obligor waives any right it may have of first requiring the Lender to
proceed against or claim payment from or enforce any other guarantee or
security before enforcing the security created hereunder.
11.3 Until all the Secured Liabilities have been irrevocably paid in full to
the satisfaction of the Lender the Obligor shall not:
(1) be entitled or claim to rank as creditor in the bankruptcy,
liquidation or dissolution of the Borrower in competition with the
Lender; or
(2) save as otherwise permitted under the Transaction Documents receive,
claim or have the benefit of any payment or distribution from the
Borrower or exercise any right of set-off as against the Borrower or
claim the benefit of any security or moneys held by or for the
account of the Lender in respect of the obligations of the Borrower
and the Lender shall be entitled to apply such security and moneys
as it sees fit.
11.4 Where any discharge (whether in respect of the security created hereunder,
any other security or otherwise) is made in whole or in part or any
arrangement is made on the faith of any payment, security or other
disposition which is avoided or must be repaid on bankruptcy, liquidation
or otherwise without limitation, this security and the liability of the
Obligor under this Deed shall continue as if there had been no such
discharge or arrangement.
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12. GENERAL RIGHTS OF THE LENDER
12.1 At any time following:
(1) the Lender receiving notice of any subsequent Security affecting the
Assigned Assets; or
(2) the occurrence of any Event of Default,
the Lender may open a new account in the name of the Obligor (whether or
not it permits any existing account to continue). If the Lender does not
open such a new account, it shall nevertheless be treated as if it had
done so upon the earlier of Acceleration or Enforcement. Thereafter, all
payments made by the Obligor to the Lender or received by the Lender for
the account of the Obligor shall be credited or treated as having been
credited to the new account and shall not operate to reduce the amount
secured by this deed.
12.2 The Lender may at any time, without notice to the Obligor and without
prejudice to any of the Lender's other Rights, set off or otherwise deduct
any Secured Liabilities which are due and unpaid against any obligation
(whether or not matured) owed by the Lender to the Obligor.
13. POWER OF ATTORNEY
13.1 The Obligor by way of security (for the Secured Liabilities) irrevocably
appoints the Lender the attorney of the Obligor on its behalf and in the
name of the Obligor or the Lender (as the attorney may decide) to do all
acts and things and execute all documents which the Obligor is or may be
obliged to do (but has not done) hereunder and in relation to any of the
Assigned Assets or in connection with any of the matters provided for in
this Deed, including (but without limitation) to exercise all Rights
conferred on the Lender in relation to the Assigned Assets under this Deed
or the Law of Property Act 1925.
13.2 The Obligor shall ratify and confirm whatever the attorney shall do in
exercise of its powers as attorney under the power of attorney in clause
13.1.
14. PROTECTION OF PURCHASER
No purchaser or other person dealing with the Lender or with its attorney
or agent shall be concerned to enquire:
(1) whether any power exercised or purported to be exercised by it or
him has become exercisable;
(2) whether any money remains due on this security;
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(3) as to the propriety or regularity of any of its or his actions; or
(4) as to the application of any money paid to it or him.
15. DELEGATION
15.1 The Lender may at any time or times:
(1) delegate to any person(s) all or any of its rights, powers and
discretions under this Deed on such terms (including power to
subdelegate) as the Lender sees fit; and
(2) employ agents, managers, employees, advisers and others on such
terms as the Lender sees fit for any of the purposes set out in this
Deed.
16. INDEMNITY
16.1 The Obligor shall indemnify the Lender and every attorney appointed by it
in respect of all liabilities and expenses incurred by it or him in good
faith in the execution or purported execution of any Rights in accordance
with this Deed.
16.2 The Lender shall not be liable for any losses arising in connection with
the exercise or purported exercise of any of its Rights, in good faith
under this Deed and in particular (but without limitation) the Lender in
possession shall not be liable to account as chargee in possession or for
anything except actual receipts.
17. WAIVERS; REMEDIES CUMULATIVE
17.1 The Rights of the Lender under this Deed.
(1) may be exercised as often as necessary;
(2) are cumulative and are not exclusive of its rights under the general
law; and
(3) may be waived only in writing and specifically and may be on such
terms as the Lender sees fit.
18. FURTHER ASSURANCE
18.1 The Obligor shall from time to time upon the request of the Lender
promptly and duly execute and deliver any and all such further instruments
and documents as the Lender may deem reasonable and desirable for the
purpose of obtaining the full benefit of the security created hereunder
and of the Rights granted under it.
18.2 Without prejudice to the generality of Clause 181, the Obligor shall, at
all times until the Secured Liabilities have been fully repaid by it, at
its own cost, promptly execute and
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<PAGE> 215
deliver to the Lender in such form as the Lender shall require such other
Security over such of the Assets of the Obligor as shall be required by
the Lender.
19. REASSIGNMENT OF ASSIGNED ASSETS
19.1 Upon Payment of all Secured Liabilities in full then, subject to Clause
19.2, the Lender shall at the request and cost of the Obligor execute such
Deeds and do all such things as may be necessary to reassign the Assigned
Assets.
19.2 If the Obligor requests the Lender to reassign the Assigned Assets
following any payment, discharge, Security or guarantee made or given in
relation to the Secured Liabilities by a person other than the Obligor (a
"Relevant Transaction"), the Lender shall be entitled to retain this Deed
and shall not be obliged to reassign the Assigned Assets until the expiry
of the Retention Period in relation to that Relevant Transaction. If at
any time before the expiry of that Retention Period such other person
shall have become unable to pay its debts (within the meaning of the
Insolvency Act 1986 or other applicable insolvency legislation), the
Lender may continue to retain this Deed and shall not be obliged to
release the Assigned Assets from the security created hereunder for such
further period as the Lender may determine.
20. MISCELLANEOUS
20.1 The Obligor may not assign any of its Rights hereunder. The Lender may
assign all or any part of its Rights hereunder.
20.2 If a provision of this Deed is or becomes illegal, invalid or
unenforceable in any jurisdiction, that shall not affect:
(1) the validity or enforceability in that jurisdiction of any other
provision of this Deed; or
(2) the validity or enforceability in other jurisdictions of that or any
other provision of this Deed;
20.3 Each party acknowledges that in agreeing to enter into this Deed, it has
not relied on any representation, warranty or other assurance, except
those set out in this Deed.
21. STAMP DUTY
The Obligor shall pay promptly, and in any event before any penalty
becomes payable, all stamp, documentary and similar taxes, if any, payable
in connection with the entry into, performance, enforcement or
admissibility in evidence of this Deed or any other document referred to
in this Deed, and shall indemnify the Lender against any liability with
respect to, or resulting from any delay in paying or omission to pay, any
such tax.
16
<PAGE> 216
22. CURRENCY INDEMNITY
22.1 If, under any applicable law, whether pursuant to a judgment against the
Obligor or for any other reason, any payment under or in connection with
this Deed is made or recovered in a currency (the "Other Currency") other
than the currency in which the relevant payment is expressed to be payable
(the "Required Currency"), then, to the extent that the payment actually
received by the Lender (when converted into the Required Currency at the
rate of exchange on the date of payment or, if it is not practicable for
the Lender to make the conversion on that date, at the rate of exchange as
soon afterwards as it is practicable for the Lender to do so or, in the
case of a liquidation, administration or analogous event at the rate of
exchange on the latest date permitted by applicable law for the
determination of liabilities in such a liquidation, administration or
analogous event) falls short of the amount expressed to be due or payable
under or in connection with this Deed, the Obligor shall, as an original
and independent obligation under this Deed, indemnify and hold the Lender
harmless against the amount of such shortfall.
22.2 For the purpose of clause 21.1, "rate of exchange" means the rate at which
the Lender is able on the relevant date to purchase the Required Currency
with the Other Currency and shall take into account any commission,
premium and other costs of exchange and taxes payable in connection with
such purchase.
23. NOTICES AND RECEIPTSAND RECEIPTS
23.1 Any notice or other document to be served under this Deed shall be
delivered or sent by first class recorded delivery post (if inland) or
registered airmail (if overseas) to the party to be served at its address
set out below or at such other address as it may have notified to the
other party in accordance with this clause:
23.2
(1) to the Obligor at:
Cityscape House
Croxley Business Park
Watford
Hertfordshire WD1 8YF
Facsimile No: 01923 426823
marked for the attention of the Company Secretary; and
(2) to the Lender at:
Greenwich International Limited
1 Jermyn Street
7th Floor
London SW1Y 4UH
17
<PAGE> 217
Facsimile No: 0171 375 5510
marked for the attention of Jeff Beckwith and with a copy to the
Lender's registered office Facsimile No. 001 203 629 4571 marked for
the attention of General Counsel.
23.3 Any notice or document shall be deemed to have been served:
(1) if delivered, at the time or delivery; or
(2) if posted, at 10.00 a.m. on the fifth business day after it was put
into the post.
23.4 In proving service of a notice or document it shall be sufficient to prove
that delivery was made or that the envelope containing the notice or
document was properly addressed and posted as a prepaid first class
recorded delivery letter or registered airmail letter (as appropriate).
24. GOVERNING LAW AND JURISDICTION
24.1 This Deed is governed by and shall be construed in accordance with English
law.
24.2 The parties hereto submit to the non-exclusive jurisdiction of the English
courts for all purposes relating to this Deed.
IN WITNESS of which this document has been executed as a deed and has been
delivered on the date first before written.
Signed as a deed by )
CITY MORTGAGE )
CORPORATION LIMITED )
acting by its duly appointed )
attorney in the presence of: ) ................
Witness:
------------------------------
Name:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
Occupation:
------------------------------
18
<PAGE> 218
Signed as a deed by )
GREENWICH INTERNATIONAL, LTD. )
acting by its duly appointed attorney )
...................
in the presence of:
Witness:
------------------------------
Name:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
Occupation:
------------------------------
19
<PAGE> 219
SCHEDULE 1
Notice of Assignment
To: Chase Manhattan Trustees Limited
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee")
We hereby give you notice that pursuant to the above mentioned Assignment, we
have assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Subordinated Loan Agreements dated; (a) 21 March 1996 between City
Mortgage Corporation Limited, City Mortgage Receivables 1 Plc, City
Mortgage Servicing Limited and Chemical Bank; (b) 18 October 1996 between
City Mortgage Corporation Limited, City Mortgage Receivables 2 Plc, City
Mortgage Servicing Limited and Chase Manhattan Trustees Limited; (c) 31
October 1996 between City Mortgage Corporation Limited, City Mortgage
Receivables 3 Plc, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited; (d) 31 January 1997 between City Mortgage Corporation
Limited, City Mortgage Receivables 4 Plc, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited; (e) 31 January 1997 between City
Mortgage Corporation Limited, City Mortgage Receivables 5 Plc, City
Mortgage Servicing Limited and Chase Manhattan Trustees Limited and; (f)
30 April 1997 between City Mortgage Corporation Limited, Chase Manhattan
Trustees Limited, City Mortgage Servicing Limited and City Mortgage
Receivables 6 Plc.
2. Mortgage Sale Agreements dated; (a) 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited and Chemical Bank; (b)
18 October 1996 between City Mortgage Corporation Limited, City Mortgage
Receivables 2 Plc, City Mortgage Trustees 2 Limited, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited; (c) 31 October
1996 between City Mortgage Corporation Limited, City Mortgage Receivables
3 Plc, City Mortgage Trustees 3 Limited, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited; (d) 31 January 1997 between City
Mortgage Corporation Limited, City Mortgage Receivables 4 Plc, City
Mortgage Servicing Limited and Chase Manhattan Trustees Limited and; (e)
31 January 1997
20
<PAGE> 220
between City Mortgage Corporation Limited, City Mortgage Receivables 5
Plc, City Mortgage Servicing Limited and Chase Manhattan Trustees Limited.
3. Administration Agreements dated; (a) 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited, City Mortgage
Holdings Limited and Chemical Bank; (b) 18 October 1996 between City
Mortgage Corporation Limited, City Mortgage Receivables 2 Plc, City
Mortgage Trustees 2 Limited, City Mortgage Servicing Limited and Chase
Manhattan Trustees Limited; (c) 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Servicing Limited, City Mortgage Trustees 3 Limited and Chase Manhattan
Trustees Limited; (d) 31 January 1997 between City Mortgage Corporation
Limited, City Mortgage Receivables 4 Plc, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited; and (e) 31 January 1997 between City
Mortgage Corporation Limited, Chase Manhattan Trustees Limited, City
Mortgage Servicing Limited and City Mortgage Receivables 5 Plc.
4. Deed of Charge and Assignments dated; (a) 21 March 1996 between City
Mortgage Receivables 1 Plc, City Mortgage Trustees 1 Limited, Chemical
Bank, City Mortgage Corporation Limited, City Mortgage Servicing Limited
and Guardian Mortgage Services Limited; (b) 18 October 1996 between Chase
Manhattan Trustees Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited; (c) 31 October
1996 between Chase Manhattan Trustees Limited, City Mortgage Trustees 3
Limited, City Mortgage Receivables 3 Plc, City Mortgage Corporation
Limited, City Mortgage Servicing Limited and Guardian Mortgage Services
Limited; (d) 31 January 1997 between City Mortgage Receivables 4 Plc,
Chase Manhattan Trustees Limited, City Mortgage Corporation Limited, City
Mortgage Servicing Limited and Guardian Mortgage Services Limited; (e) 31
January 1997 between City Mortgage Receivables 5 Plc, Chase Manhattan
Trustees Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited and (f) 30 April
1997 between City Mortgage Receivables 6 Plc, Chase Manhattan Trustees
Limited, City Mortgage Funding 1 Limited, City Mortgage Services Limited,
Guardian Mortgage Services Limited and City Mortgage Corporation Limited.
5. Mortgages Trust Deeds dated: (a) 21 March 1996 between City Mortgage
Corporation Limited, City Mortgages Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited and Chemical Bank; (b)
18 October 1996 between City Mortgage Corporate Limited, City Mortgage
Receivables 2 plc, City Mortgage Trustees 2 Limited, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited; (c) 31 October
1996 between City Mortgage Corporation Limited, City Mortgages Receivables
3 plc, City Mortgage Trustees 3 Limited, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited.
(together, the documents referred to above being herein the "Assigned
Agreements")
21
<PAGE> 221
Pursuant to the terms of the Subordinated Loan Agreements, the Deeds of Charge
and Assignments and the Mortgages Trust Deeds, an assignee and any subsequent
assignee thereafter of our rights, title and interest under such agreements is
required to agree, in writing, to be bound by specific provisions thereof. The
Transferee therefore hereby agrees as follows:
25. in relation to the Mortgages Trust Deeds, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited;
26. in relation to the Subordinated Loan Agreements, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
27. in relation to the Deeds of Charge and Assignments, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
1. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of Assigned
Agreements, to the exclusion of ourselves; and
2. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- -----------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- -----------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
22
<PAGE> 222
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
28. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deeds,
Clause 6 of the Subordinated Loan Agreements and Clauses 5, 7 and 9 of the
Deeds of Charge and Assignment and confirm that we have not received
notice of any previous assignments or charges of or over any of the
Rights.
29. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- -------------------------------------
for and on behalf of
Chase Manhattan Trustees Limited
February, 1998
23
<PAGE> 223
To: Chase Manhattan Trustees Limited February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until we notify you otherwise we hereby instruct you to pay all amounts from
time to time due and payable by you under the Assigned Agreements (and which
would, but for the Assignment have been payable to City Mortgage Corporation
Limited) to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- -----------------------------------
for and on behalf of
Greenwich International Ltd.
24
<PAGE> 224
Notice of Assignment
To: City Mortgage Receivables 1 Plc
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee")
We hereby give you notice that pursuant to the above mentioned Assignment, we
have assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Subordinated Loan Agreement dated 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Servicing Limited and Chemical Bank;
2. Mortgage Sale Agreement dated 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited and Chemical Bank;
3. Administration Agreement dated 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited, City Mortgage
Holdings Limited and Chemical Bank;
4. Deed of Charge and Assignment dated 21 March 1996 between City Mortgage
Receivables 1 Plc, City Mortgage Trustees 1 Limited, Chemical Bank, City
Mortgage Corporation Limited, City Mortgage Servicing Limited and Guardian
Mortgage Services Limited;
5. Mortgages Trust Deed dated 21 March 1996 between City Mortgage Corporation
Limited, City Mortgage Receivables 1 Plc, City Mortgage Trustees 1
Limited, City Mortgage Servicing Limited and Chemical Bank.
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Subordinated Loan Agreement, the Deed of Charge and
Assignment and the Mortgages Trust Deed, an assignee and any subsequent assignee
thereafter of our rights, title and interest under such agreements is required
to agree, in writing, to be bound by specific provisions thereof. The Transferee
therefore hereby agrees as follows:
25
<PAGE> 225
30. in relation to the Mortgages Trust Deed, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited;
31. in relation to the Subordinated Loan Agreement, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
32. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
33. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
34. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
26
<PAGE> 226
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
35. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deed,
Clause 6 of the Subordinated Loan Agreement and Clauses 5, 7 and 9 of the
Deed of Charge and Assignment and confirm that we have not received notice
of any previous assignments or charges of or over any of the Rights.
36. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- ------------------------------------
for and on behalf of
City Mortgage Receivables 1 Plc
February, 1998
27
<PAGE> 227
To: City Mortgage Receivables 1 Plc February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until we notify you otherwise we hereby instruct you to pay all amounts from
time to time due and payable by you under the Assigned Agreements (and which
would, but for the Assignment have been payable to City Mortgage Corporation
Limited) to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
28
<PAGE> 228
Notice of Assignment
To: City Mortgage Receivables 2 Plc
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee")
We hereby give you notice that pursuant to the above mentioned Assignment, we
have assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Germaine Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Subordinated Loan Agreement dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
2. Mortgage Sale Agreement dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
3. Administration Agreement dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
4. Deed of Charge and Assignment dated 18 October 1996 between City Mortgage
Receivables 2 Plc, City Mortgage Trustees 2 Limited, Chase Manhattan
Trustees Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited;
5. Mortgages Trust Deed dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited.
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Subordinated Loan Agreement, the Deed of Charge and
Assignment and the Mortgages Trust Deed, an assignee and any subsequent assignee
thereafter of our rights, title and interest under such agreements is required
to agree, in writing, to be bound by specific provisions thereof. The Transferee
therefore hereby agrees as follows:
29
<PAGE> 229
37. in relation to the Mortgages Trust Deed, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited;
38. in relation to the Subordinated Loan Agreement, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
39. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
40. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
41. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
30
<PAGE> 230
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
42. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deed,
Clause 6 of the Subordinated Loan Agreement and Clauses 5, 7 and 9 of the
Deed of Charge and Assignment and confirm that we have not received notice
of any previous assignments or charges of or over any of the Rights.
43. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- --------------------------------------------------------
for and on behalf of
City Mortgage Receivables 2 Plc
February, 1998
31
<PAGE> 231
To: City Mortgage Receivables 2 Plc February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until we notify you otherwise we hereby instruct you to pay all amounts from
time to time due and payable by you under the Assigned Agreements (and which
would, but for the Assignment have been payable to City Mortgage Corporation
Limited) to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
32
<PAGE> 232
Notice of Assignment
To: City Mortgage Receivables 3 Plc
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Subordinated Loan Agreement dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
2. Mortgage Sale Agreement dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
3. Administration Agreement dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
4. Deed of Charge and Assignment dated 31 October 1996 between City Mortgage
Receivables 3 Plc, City Mortgage Trustees 3 Limited, City Mortgage
Corporation Limited, Chase Manhattan Trustees Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited;
5. Mortgages Trust Deed dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited,
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Subordinated Loan Agreement, the Deed of Charge and
Assignment and the Mortgages Trust Deed, an assignee and any subsequent assignee
thereafter of our rights,
33
<PAGE> 233
title and interest under such agreements is required to agree, in writing, to be
bound by specific provisions thereof. The Transferee therefore hereby agrees as
follows:
44. in relation to the Mortgages Trust Deed, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited;
45. in relation to the Subordinated Loan Agreement, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
46. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
47. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
48. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
34
<PAGE> 234
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
49. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deed,
Clause 6 of the Subordinated Loan Agreement and Clauses 5, 7 and 9 of the
Deed of Charge and Assignment and confirm that we have not received notice
of any previous assignments or charges of or over any of the Rights.
50. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- ------------------------------------
for and on behalf of
City Mortgage Receivables 3 Plc
February, 1998
35
<PAGE> 235
To: City Mortgage Receivables 3 Plc February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until we notify you otherwise we hereby instruct you to pay all amounts from
time to time due and payable by you under the Assigned Agreements (and which
would, but for the Assignment have been payable to City Mortgage Corporation
Limited) to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
36
<PAGE> 236
Notice of Assignment
To: City Mortgage Receivables 4 Plc
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Subordinated Loan Agreement dated 31 January 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 4 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
2. Mortgage Sale Agreement dated 31 January 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 4 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
3. Administration Agreement dated 31 January 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 4 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
4. Deed of Charge and Assignment dated 31 January 1997 between City Mortgage
Receivables 4 Plc, Chase Manhattan Trustees Limited, City Mortgage
Corporation Limited, City Mortgage Servicing Limited and Guardian Mortgage
Services Limited;
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Subordinated Loan Agreement and the Deed of Charge
and Assignment, an assignee and any subsequent assignee thereafter of our
rights, title and interest under such agreements is required to agree, in
writing, to be bound by specific provisions thereof. The Transferee therefore
hereby agrees as follows:
51. in relation to the Subordinated Loan Agreement, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
37
<PAGE> 237
52. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
53. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
54. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
38
<PAGE> 238
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
55. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 6 of the Subordinated Loan Agreement
and Clauses 5, 7 and 9 of the Deed of Charge and Assignment and confirm
that we have not received notice of any previous assignments or charges of
or over any of the Rights.
56. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- --------------------------------------------------------
for and on behalf of
City Mortgage Receivables 4 Plc
February, 1998
39
<PAGE> 239
To: City Mortgage Receivables 4 Plc February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until you receive further notice from us we hereby instruct you to pay all
amounts from time to time due and payable by you under the Assigned Agreements
(and which would, but for the Assignment have been payable to City Mortgage
Corporation Limited) to the account of City Mortgage Corporation Limited, number
76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
40
<PAGE> 240
Notice of Assignment
To: City Mortgage Receivables 5 Plc
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee")
We hereby give you notice that pursuant to the above mentioned Assignment, we
have assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Subordinated Loan Agreement dated 31 January 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 5 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
2. Mortgage Sale Agreement dated 31 January 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 5 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
3. Administration Agreement dated 31 January 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 5 Plc, City Mortgage
Servicing Limited, Chase Manhattan Trustees Limited;
4. Deed of Charge and Assignment dated 31 January 1997 between City Mortgage
Receivables 5 Plc, Chase Manhattan Trustees Limited, City Mortgage
Corporation Limited, City Mortgage Servicing Limited and Guardian Mortgage
Services Limited;
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Subordinated Loan Agreement and the Deed of Charge
and Assignment, an assignee and any subsequent assignee thereafter of our
rights, title and interest under such agreements is required to agree, in
writing, to be bound by specific provisions thereof. The Transferee therefore
hereby agrees as follows:
57. in relation to the Subordinated Loan Agreement, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
41
<PAGE> 241
58. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
59. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of Assigned
Agreements, to the exclusion of ourselves; and
60. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
42
<PAGE> 242
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
61. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 6 of the Subordinated Loan Agreement
and Clauses 5, 7 and 9 of the Deed of Charge and Assignment and confirm
that we have not received notice of any previous assignments or charges of
or over any of the Rights.
62. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- --------------------------------------------------------
for and on behalf of
City Mortgage Receivables 5 Plc
February, 1998
43
<PAGE> 243
To: City Mortgage Receivables 5 Plc February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until you receive further notice from us we hereby instruct you to pay all
amounts from time to time due and payable by you under the Assigned Agreements
(and which would, but for the Assignment have been payable to City Mortgage
Corporation Limited) to the account of City Mortgage Corporation Limited, number
76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
44
<PAGE> 244
Notice of Assignment
To: City Mortgage Receivables 6 Plc
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee")
We hereby give you notice that pursuant to the above mentioned Assignment, we
have assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
in and to the following:
1. Subordinated Loan Agreement dated 30 April 1997 between City Mortgage
Corporation Limited, City Mortgage Receivables 6 Plc, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited;
2. Deed of Charge and Assignment dated 30 April 1997 between City Mortgage
Receivables 6 Plc, Chase Manhattan Trustees Limited, City Mortgage Funding
1 Limited, City Mortgage Services Limited, Guardian Mortgage Services
Limited and City Mortgage Corporation Limited.
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Assigned Agreements, an assignee and any subsequent
assignee thereafter of our rights, title and interest under such agreements is
required to agree, in writing, to be bound by specific provisions thereof. The
Transferee therefore hereby agrees as follows:
63. in relation to the Subordinated Loan Agreement, to be bound by the
provisions of Clause 6 thereof as if were an original party thereto in
place of City Mortgage Corporation Limited; and
64. in relation to the Deed of Charge and Assignment to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
65. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Assigned Agreements, to the
exclusion of ourselves; and
45
<PAGE> 245
66. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
46
<PAGE> 246
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
67. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 6 of the Subordinated Loan Agreement
and Clauses 5, 7 and 9 of the Deed of Charge and Assignment and confirm
that we have not received notice of any previous assignments or charges of
or over any of the Rights.
68. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning hereunder.
Yours faithfully
- -----------------------------------------------
for and on behalf of
City Mortgage Receivables 6 Plc
February 1998
47
<PAGE> 247
To: City Mortgage Receivables 6 Plc February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until further notice we hereby instruct you to pay all amounts from time to time
due and payable by you under the Assigned Agreements (and which would, but for
the Assignment have been payable to City Mortgage Corporation Limited) to the
account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- -------------------------------------
for and on behalf of
Greenwich International Ltd.
48
<PAGE> 248
Notice of Assignment
To: City Mortgage Trustees 1 Limited
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Administration Agreement dated 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited, City Mortgage
Holdings Limited and Chemical Bank;
2. Deed of Charge and Assignment dated 21 March 1996 between City Mortgage
Trustees 1 Limited, City Mortgage Receivables 1 Plc, Chemical Bank, City
Mortgage Corporation Limited, City Mortgage Servicing Limited and Guardian
Mortgage Services Limited;
3. Mortgages Trust Deed dated 21 March 1996 between City Mortgage Corporation
Limited, City Mortgage Receivables 1 Plc, City Mortgage Trustees 1
Limited, City Mortgage Servicing Limited and Chemical Bank.
4. Mortgage Sale Agreement dated 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited and Chemical Bank;
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Deed of Charge and Assignment and the Mortgages
Trust Deed, an assignee and any subsequent assignee thereafter of our rights,
title and interest under such agreements is required to agree, in writing, to be
bound by specific provisions thereof. The Transferee therefore hereby agrees as
follows:
69. in relation to the Mortgages Trust Deed, to be bound by the provisions of
Clause 12.2 thereof as if it was the original party thereto in place of
City Mortgage Corporation Limited; and
49
<PAGE> 249
70. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it was the original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
71. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights under the Assigned
Agreements, to the exclusion of ourselves; and
72. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
50
<PAGE> 250
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
73. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deed and
Clauses 5, 7 and 9 of the Deed of Charge and Assignment and confirm that
we have not received notice of any previous assignments or charges of or
over any of the Rights.
74. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreement (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- --------------------------------------------------------
for and on behalf of
City Mortgage Trustees 1 Limited
February, 1998
51
<PAGE> 251
To: City Mortgage Trustees Limited February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until further notice from us we hereby instruct you to pay all amounts from time
to time due and payable by you under the Assigned Agreements (and which would,
but for the Assignment have been payable to City Mortgage Corporation Limited)
to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
52
<PAGE> 252
Notice of Assignment
To: City Mortgage Trustees 2 Limited
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Administration Agreement dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
2. Deed of Charge and Assignment dated 18 October 1996 between City Mortgage
Trustees 1 Limited, City Mortgage Receivables 2 Plc, Chase Manhattan
Trustees Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited;
3. Mortgages Trust Deed dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
4. Mortgage Sale Agreement dated 18 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Deed of Charge and Assignment and the Mortgages
Trust Deed, an assignee and any subsequent assignee thereafter of our rights,
title and interest under such agreements is required to agree, in writing, to be
bound by specific provisions thereof. The Transferee therefore hereby agrees as
follows:
75. in relation to the Mortgages Trust Deed, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited; and
53
<PAGE> 253
76. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
77. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
78. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
54
<PAGE> 254
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
79. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deed and
Clauses 5, 7 and 9 of the Deed of Charge and Assignment and confirm that
we have not received notice of any previous assignments or charges of or
over any of the Rights.
80. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- --------------------------------------------
for and on behalf of
City Mortgage Trustees 2 Limited
February, 1998
55
<PAGE> 255
To: City Mortgage Trustees 2 Limited February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until further notice from us we hereby instruct you to pay all amounts from time
to time due and payable by you under the Assigned Agreements (and which would,
but for the Assignment have been payable to City Mortgage Corporation Limited)
to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- ------------------------------------------
for and on behalf of
Greenwich International Ltd.
56
<PAGE> 256
Notice of Assignment
To: City Mortgage Trustees 3 Limited
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Administration Agreement dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
2. Mortgages Trust Deed dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
3. Mortgage Sale Agreement dated 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited;
4. Deed of Charge and Assignment dated 31 October 1996 between Chase
Manhattan Trustees Limited, City Mortgage Trustees 3 Limited, City
Mortgage Receivables 3 Plc, City Mortgage Corporation Limited, City
Mortgage Servicing Limited and Guardian Mortgage Services Limited.
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Deed of Charge and Assignment and the Mortgages
Trust Deed, an assignee and any subsequent assignee thereafter of our rights,
title and interest under such agreements is required to agree, in writing, to be
bound by specific provisions thereof. The Transferee therefore hereby agrees as
follows:
57
<PAGE> 257
81. in relation to the Mortgages Trust Deed, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited; and
82. in relation to the Deed of Charge and Assignment, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
83. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
84. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
58
<PAGE> 258
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
85. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deed and
Clauses 5, 7 and 9 of the Deed of Charge and Assignment and confirm that
we have not received notice of any previous assignments or charges of or
over any of the Rights.
86. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person, and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- ------------------------------------------
for and on behalf of
City Mortgage Trustees 3 Limited
February, 1998
59
<PAGE> 259
To: City Mortgage Trustees 3 Limited February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until further notice from us we hereby instruct you to pay all amounts from time
to time due and payable by you under the Assigned Agreements (and which would,
but for the Assignment have been payable to City Mortgage Corporation Limited)
to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
60
<PAGE> 260
Notice of Assignment
To: Guardian Mortgage Services Limited
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Deed of Charge and Assignments dated; (a) 21 March 1996 between City
Mortgage Receivables 1 Plc, City Mortgage Trustees 1 Limited, Chemical
Bank, City Mortgage Corporation Limited, City Mortgage Servicing Limited
and Guardian Mortgage Services Limited; (b) 18 October 1996 between Chase
Manhattan Trustees Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited; (c) 31 October
1996 between Chase Manhattan Trustees Limited, City Mortgage Trustees 3
Limited, City Mortgage Receivables 3 Plc, City Mortgage Corporation
Limited, City Mortgage Servicing Limited and Guardian Mortgage Services
Limited; (d) 31 January 1997 between City Mortgage Receivables 4 Plc,
Chase Manhattan Trustees Limited, City Mortgage Corporation Limited, City
Mortgage Servicing Limited and Guardian Mortgage Services Limited; (e) 31
January 1997 between City Mortgage Receivables 5 Plc, Chase Manhattan
Trustees Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited and (f) 30 April
1997 between City Mortgage Receivables 6 Plc, Chase Manhattan Trustees
Limited, City Mortgage Funding 1 Limited, City Mortgage Services Limited,
Guardian Mortgage Services Limited and City Mortgage Corporation Limited.
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Assigned Agreements, an assignee and any subsequent
assignee thereafter of our rights, title and interest under such agreements is
required to agree, in writing, to be bound by specific provisions thereof. The
Transferee therefore hereby agrees to be bound by the provisions of Clauses 5, 7
and 9 of the Assigned Agreements as if it were an original party thereto in
place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you :
61
<PAGE> 261
87. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
88. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
62
<PAGE> 262
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
89. We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clauses 5, 7 and 9 of the Assigned
Agreements and confirm that we have not received notice of any previous
assignments or charges of or over any of the Rights.
90. We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- -------------------------------------------
for and on behalf of
Guardian Mortgage Services Limited
February, 1998
63
<PAGE> 263
To: Guardian Mortgage Services Limited February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until we notify you otherwise we hereby instruct you to pay all amounts from
time to time due and payable by you under the Assigned Agreements (and which
would, but for the Assignment have been payable to City Mortgage Corporation
Limited) to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- -------------------------------------------
for and on behalf of
Greenwich International Ltd.
64
<PAGE> 264
Notice of Assignment
To: City Mortgage Servicing Limited
February 1998
Dear Sirs,
CMC Charge dated February 1998 (the "Assignment") between CITY MORTGAGE
CORPORATION LIMITED and GREENWICH INTERNATIONAL LTD. (the "Transferee") We
hereby give you notice that pursuant to the above mentioned Assignment, we have
assigned absolutely to GREENWICH INTERNATIONAL LTD. a Bermuda Company whose
branch office is at 1 Jermyn Street, London all our rights, title and interest
(the "Rights") in and to the following:
1. Administration Agreements dated; (a) 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited, City Mortgage
Holdings Limited and Chemical Bank; (b) 18 October 1996 between City
Mortgage Corporation Limited, City Mortgage Servicing Limited, City
Mortgage Receivables 2 Plc, City Mortgage Trustees 2 Limited and Chase
Manhattan Trustees Limited; (c) 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited; (d) 31 January 1997 between City Mortgage Corporation
Limited, City Mortgage Receivables 4 Plc, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited; and (e) 31 January 1997 between City
Mortgage Corporation Limited, City Mortgage Servicing Limited, City
Mortgage Receivables 5 Plc and Chase Manhattan Trustees Limited.
2. Subordinated Loan Agreements dated; (a) 21 March 1996 between City
Mortgage Corporation Limited, City Mortgage Receivables 1 Plc, City
Mortgage Servicing Limited and Chemical Bank; (b) 18 October 1996 between
City Mortgage Corporation Limited, City Mortgage Receivables 2 Plc, City
Mortgage Servicing Limited and Chase Manhattan Trustees Limited; (c) 31
October 1996 between City Mortgage Corporation Limited, City Mortgage
Receivables 3 Plc, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited; (d) 31 January 1997 between City Mortgage Corporation
Limited, City Mortgage Receivables 4 Plc, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited; (e) 31 January 1997 between City
Mortgage Corporation Limited, City Mortgage Receivables 5 Plc, City
Mortgage Servicing Limited and Chase Manhattan Trustees Limited and; (f)
30 April 1997 between City Mortgage Corporation Limited, Chase Manhattan
Trustees Limited, City Mortgage Servicing Limited and City Mortgage
Receivables 6 Plc.
3. Mortgage Sale Agreements dated; (a) 21 March 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City
65
<PAGE> 265
Mortgage Servicing Limited and Chemical Bank; (b) 18 October 1996 between
City Mortgage Corporation Limited, City Mortgage Receivables 2 Plc, City
Mortgage Trustees 2 Limited, City Mortgage Servicing Limited and Chase
Manhattan Trustees Limited; (c) 31 October 1996 between City Mortgage
Corporation Limited, City Mortgage Receivables 3 Plc, City Mortgage
Trustees 3 Limited, City Mortgage Servicing Limited and Chase Manhattan
Trustees Limited; (d) 31 January 1997 between City Mortgage Corporation
Limited, City Mortgage Receivables 4 Plc, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited and; (e) 31 January 1997 between City
Mortgage Corporation Limited, City Mortgage Receivables 5 Plc, City
Mortgage Servicing Limited and Chase Manhattan Trustees Limited.
4. Deed of Charge and Assignments dated; (a) 21 March 1996 between City
Mortgage Receivables 1 Plc, City Mortgage Trustees 1 Limited, Chemical
Bank, City Mortgage Corporation Limited, City Mortgage Servicing Limited
and Guardian Mortgage Services Limited; (b) 18 October 1996 between Chase
Manhattan Trustees Limited, City Mortgage Receivables 2 Plc, City Mortgage
Trustees 2 Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited; (c) 31 October
1996 between Chase Manhattan Trustees Limited, City Mortgage Trustees 3
Limited, City Mortgage Receivables 3 Plc, City Mortgage Corporation
Limited, City Mortgage Servicing Limited and Guardian Mortgage Services
Limited; (d) 31 January 1997 between City Mortgage Receivables 4 Plc,
Chase Manhattan Trustees Limited, City Mortgage Corporation Limited, City
Mortgage Servicing Limited and Guardian Mortgage Services Limited; (e) 31
January 1997 between City Mortgage Receivables 5 Plc, Chase Manhattan
Trustees Limited, City Mortgage Corporation Limited, City Mortgage
Servicing Limited and Guardian Mortgage Services Limited and (f) 30 April
1997 between City Mortgage Receivables 6 Plc, Chase Manhattan Trustees
Limited, City Mortgage Funding 1 Limited, City Mortgage Services Limited,
Guardian Mortgage Services Limited and City Mortgage Corporation Limited.
5. Mortgages Trust Deeds dated: (a) 21 March 1996 between City Mortgage
Corporation Limited, City Mortgages Receivables 1 Plc, City Mortgage
Trustees 1 Limited, City Mortgage Servicing Limited and Chemical Bank; (b)
18 October 1996 between City Mortgage Corporate Limited, City Mortgage
Receivables 2 plc, City Mortgage Trustees 2 Limited, City Mortgage
Servicing Limited and Chase Manhattan Trustees Limited; (c) 31 October
1996 between City Mortgage Corporation Limited, City Mortgages Receivables
3 plc, City Mortgage Trustees 3 Limited, City Mortgage Servicing Limited
and Chase Manhattan Trustees Limited.
(together, the documents referred to above being herein the "Assigned
Agreements")
Pursuant to the terms of the Assigned Agreements, an assignee and any subsequent
assignee thereafter of our rights, title and interest under such agreements is
required to agree, in writing, to be bound by specific provisions thereof. The
Transferee therefore hereby agrees as follows:
66
<PAGE> 266
91. in relation to the Mortgages Trust Deeds, to be bound by the provisions of
Clause 12.2 thereof as if it were an original party thereto in place of
City Mortgage Corporation Limited;
92. in relation to the Subordinated Loan Agreements, to be bound by the
provisions of Clause 6 thereof as if it were an original party thereto in
place of City Mortgage Corporation Limited; and
93. in relation to the Deeds of Charge and Assignments, to be bound by the
provisions of Clauses 5, 7 and 9 thereof as if it were an original party
thereto in place of City Mortgage Corporation Limited.
We hereby irrevocably instruct and authorise you:
94. until notified to the contrary, in writing, by the Transferee to deal only
with the Transferee in relation to the Rights in respect of the Assigned
Agreements, to the exclusion of ourselves; and
95. until notified to the contrary, in writing, by the Transferee to pay all
amounts from time to time due and payable by you under the Assigned
Agreements (and which would, but for the Assignment have been payable to
City Mortgage Corporation Limited) to the Transferee or to such account of
such other person as the Transferee shall, from time to time by notice in
writing, specify.
This letter is governed by English law.
Please acknowledge receipt of this letter by sending a letter addressed to the
Transferee and copied to us in the form attached.
Yours faithfully
- --------------------------------------------------------
CITY MORTGAGE CORPORATION LIMITED
Acknowledged and Agreed by
- --------------------------------------------------------
For and on behalf of
GREENWICH INTERNATIONAL, LTD.
67
<PAGE> 267
Acknowledgement
To: Greenwich International Ltd.
1 Jermyn Street
London
With a copy to: City Mortgage Corporation Limited
Dear Sirs,
We refer to the letter from City Mortgage Corporation Limited ("CMC") to
ourselves dated February, 1998 (the "Notice") a copy of which is attached, in
which CMC gave us notice of the assignment absolutely to yourselves of its
rights, title and interest (the "Rights") in the Assigned Agreements.
(a) We acknowledge receipt of the Notice and in particular your agreement to
be bound by the provisions of Clause 12.2 of the Mortgages Trust Deeds,
Clause 6 of the Subordinated Loan Agreements and Clauses 5, 7 and 9 of the
Deeds of Charge and Assignment and confirm that we have not received
notice of any previous assignments or charges of or over any of the
Rights.
(b) We further confirm that we shall at all times deal with you in relation to
the Rights, to the exclusion of CMC or any other person and we shall make
all payments due to be made by us under the Assigned Agreements (and which
would, but for the Assignment, have been due to City Mortgage Corporation
Limited) in accordance with your written instructions.
Terms defined in the Notice have the same meaning herein.
Yours faithfully
- -------------------------------------------
for and on behalf of
City Mortgage Servicing Limited
February, 1998
68
<PAGE> 268
To: City Mortgage Servicing Limited February 1998
Dear Sirs,
We refer to the notice of assignment of all of the right, title and interest of
City Mortgage Corporation Limited in the Assigned Agreements to Greenwich
International Ltd., a copy of which we attach.
Until we notify you otherwise we hereby instruct you to pay all amounts from
time to time due and payable by you under the Assigned Agreements (and which
would, but for the Assignment have been payable to City Mortgage Corporation
Limited) to the account of City Mortgage Corporation Limited, number 76697673.
Terms defined in the attached notice have the same meanings herein.
Yours faithfully,
- --------------------------------------------------------
for and on behalf of
Greenwich International Ltd.
69
<PAGE> 1
Exhibit 11.1
CITYSCAPE FINANCIAL CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 (1) 1996 (2) 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Earnings (loss) from continuting operations ($118,505,912) $ 23,875,285 $ 8,120,381
Preferred stock dividends (4,547,061) - -
------------- ------------- -------------
Earnings (loss) applicable to common stock (123,052,973) 23,875,285 8,120,381
Earnings (loss) from discontinued operations (245,906,000) 26,805,597 3,750,227
Loss from disposal of discontinued operations (49,939,996) - -
Extraordinary item - - (295,943)
------------- ------------- -------------
Net earnings (loss) applicable to common stock ($418,898,969) $ 50,680,882 $ 11,574,665
------------- ------------- -------------
Adjustment to net earnings (loss):
Add: After-tax interest expense from Convertible
Debentures - - -
Preferred stock dividends - - -
------------- ------------- -------------
Total adjustments - - -
------------- ------------- -------------
Earnings (loss) applicable to common stock ($123,052,973) $ 23,875,285 $ 8,120,381
Earnings (loss) from discontinued operations (245,906,000) 26,805,597 3,750,227
Loss from disposal of discontinued operations (49,939,996) - -
Extraordinary item - - (295,943)
------------- ------------- -------------
Adjusted net earnings (loss) applicable to common stock ($418,898,969) $ 50,680,882 $ 11,574,665
============= ============= =============
Weighted average common shares 33,244,212 29,404,557 21,243,536
Effect of dilutive securities:
Warrants - - 2,260,419
Stock options - 1,133,434 334,662
Convertible preferred stock - - -
Convertible Debentures - - -
------------- ------------- -------------
Adjusted weighted average common shares 33,244,212 30,537,991 23,838,617
============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE:
Basic
Continuing operations ($3.70) $0.81 $0.38
Discontinued operations (7.40) 0.91 0.18
Disposal of discontinued operations (1.50) - -
Extraordinary item - - (0.02)
------------- ------------- -------------
Net (loss) earnings ($12.60) $1.72 $0.54
============= ============= =============
Diluted
Continuing operations ($3.70) $0.78 $0.34
Discontinued operations (7.40) 0.88 0.16
Disposal of discontinued operations (1.50) - -
Extraordinary item - - (0.01)
------------- ------------- -------------
Net (loss) earnings ($12.60) $1.66 $0.49
============= ============= =============
</TABLE>
(1) For the year ended December 31, 1997, the incremental shares from assumed
conversions are not included in computing the diluted share amounts
because their effect would be antidilutive since an increase in the number
of shares would reduce the amount of loss per share.
(2) For the year ended December 31, 1996, the effect of the Convertible
Debentures is antidilutive and is 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.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF CITYSCAPE FINANCIAL CORP.
DECEMBER 31, 1997
The following is a list of the Company's subsidiaries which are all owned 100%
by Cityscape Financial Corp. who is the ultimate or immediate parent:
Name of Subsidiary Incorporated in
- ------------------ ---------------
A. Cityscape Corp. New York
1. Cityscape Funding Corporation Delaware
2. Cityscape Funding Corporation II Delaware
3. Cityscape Funding Corporation III Delaware
4. Cityscape Funding Corporation IV Delaware
5. Cityscape Funding Corporation V Delaware
6. City Mortgage Corporation Limited United Kingdom
a. City Mortgage Servicing Limited United Kingdom
b. City Mortgage Financial Services Limited United Kingdom
c. J&J Securities Limited United Kingdom
d. City Mortgage Collateral Reserve No. 1 Limited United Kingdom
e. Greyfriars Group Limited United Kingdom
I. Greyfriars Financial Services Limited United Kingdom
i. Assured Funding Corporation Limited United Kingdom
ii. Cityscape (UK) Limited United Kingdom
iii. Midland & General Direct Limited United Kingdom
iv. Home and Family Finance Limited United Kingdom
v. Home Mortgage Corporation Limited United Kingdom
vi. Homestead Finance Limited United Kingdom
vii. Homeowners Capital Plan Limited United Kingdom
viii. Mortgage Management Limited United Kingdom
ix. Secured Funding Limited United Kingdom
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cityscape Financial Corp.:
We consent to the incorporation by reference in the registration statement No.
333-1348 on Form S-8, registration statement No. 333-11383 on Form S-3,
registration statement No. 333-28467 on Form S-3, registration statement No.
333-36573 on Form S-3, registration statement No. 333-36055 on Form S-8 and
registration statement No. 333-28465 on Form S-3 of Cityscape Financial Corp. of
our report dated March 31, 1998, which report makes reference to the report of
other auditors, relating to the consolidated statements of financial condition
of Cityscape Financial Corp. and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period then
ended, which report appears in the December 31, 1997 Annual Report on Form 10-K
of Cityscape Financial Corp.
Our report dated March 31, 1998, does not express an opinion on the 1997
consolidated financial statements of the Company as the Company has suffered a
significant net loss for the year ended December 31, 1997, and has a net capital
deficiency as of December 31, 1997. At December 31, 1997, these circumstances
raise substantial doubt about the entity's ability to continue as a going
concern. The 1997 consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/KPMG Peat Marwick LLP
New York, New York
March 31, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statement
No. 333-1348 on Form S-8, registration statement No. 333-11383 on Form S-3,
registration statement No. 333-28467 on Form S-3, registration statement No.
333-36573 on Form S-3, registration statement No. 333-36055 on Form S-8 and
registration statement No. 333-28465 on Form S-3 of Cityscape Financial Corp.
of our report, dated March 27, 1996, which report appears in the Annual Report
on Form 10-K for the year ended December 31, 1997 relating to Cityscape
Financial Corp. and its subsidiaries.
/S/ BDO Stoy Haywood
BDO STOY HAYWOOD
London, England
MARCH 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,594,163
<SECURITIES> 126,475,656
<RECEIVABLES> 9,524,535
<ALLOWANCES> 0
<INVENTORY> 99,820,761
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,073,153
<DEPRECIATION> 2,014,947
<TOTAL-ASSETS> 398,557,182
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 429,620,000
0
53
<COMMON> 476,487
<OTHER-SE> (177,301,548)
<TOTAL-LIABILITY-AND-EQUITY> 398,557,182
<SALES> 0
<TOTAL-REVENUES> 34,032,024
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 99,925,312
<LOSS-PROVISION> 12,614,269
<INTEREST-EXPENSE> 70,689,198
<INCOME-PRETAX> (136,582,486)
<INCOME-TAX> (18,076,574)
<INCOME-CONTINUING> (118,505,912)
<DISCONTINUED> (295,845,996)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418,898,969)<F2>
<EPS-PRIMARY> (12.60)
<EPS-DILUTED> (12.60)
<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>
