UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27314
AMC FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2994671
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11111 WILCREST GREEN, SUITE 250, HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 787-0100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
7,714,225 SHARES $.01 PAR VALUE,
OF COMMON STOCK, WERE OUTSTANDING AS OF NOVEMBER 11, 1999
AMC FINANCIAL, INC.
(FORMERLY KNOWN AS CITYSCAPE FINANCIAL CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition at September 30, 1999 and
December 31, 1998 ........................................................... 3
Consolidated Statements of Operations for the three months ended September 30,
1999 and 1998, the six months ended June 30, 1999 and the nine months ended
September 30, 1998 ............................................................ 4
Consolidated Statements of Cash Flows for the three months ended September 30,
1999, the six months ended June 30, 1999 and the nine months ended September 30,
1998 ........................................................................... 5
Notes to Consolidated Financial Statements ..................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...................................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............. 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ..................................................... 20
ITEM 2. CHANGES IN SECURITIES ................................................. 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ....................................... 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................... 22
ITEM 5. OTHER INFORMATION ..................................................... 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................... 22
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMC FINANCIAL, INC.
(FORMERLY KNOWN AS CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
REORGANIZED PREDECESSOR
COMPANY COMPANY
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
------------- -------------
ASSETS
Cash and cash equivalents ................................................. $ 32,638,475 $ 18,405,426
Marketable securities ..................................................... 1,297,500 --
Residual certificates ..................................................... 12,441,939 33,660,930
Mortgage loans held for sale, net ......................................... 15,404,491 123,345,783
Investment in discontinued operations, net ................................ 13,023,327 13,008,401
Income taxes receivable ................................................... 1,437,288 1,550,107
Other assets ............................................................. 1,712,033 15,598,619
------------- -------------
Total assets ........................................................... $ 77,955,053 $ 205,569,266
============= =============
LIABILITIES
Warehouse financing facilities ............................................ $ -- $ 105,969,355
Accounts payable and other liabilities .................................... 15,398,913 19,750,504
Deferred tax liability .................................................... 749,125 --
Liabilities subject to compromise ......................................... -- 477,424,358
------------- -------------
Total liabilities ...................................................... 16,148,038 603,144,217
------------- -------------
COMMITMENTS AND CONTINGENCIES ............................................... -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000,000 shares authorized;
5,177 shares issued and outstanding; Liquidation
Preference - Series A Preferred Stock, $7,460,511; Series B Preferred
Stock, $65,239,541 at December 31, 1998 ................................. -- 52
Common stock, $.01 par value, 25,000,000 shares authorized; 7,714,225
issued and outstanding at September 30, 1999; $.01 par value, 100,000,000
shares authorized; 64,948,969 issued and outstanding at
December 31, 1998 ....................................................... 77,142 649,489
Treasury stock, 70,000 shares at December 31, 1998, at cost ............... -- (175,000)
Additional paid-in capital ................................................ 60,339,087 175,304,103
Accumulated other comprehensive income, net of tax ........................ 843,375 --
Retained earnings (accumulated deficit) ................................... 547,411 (573,353,595)
------------- -------------
Total stockholders' equity (deficit) ................................... 61,807,015 (397,574,951)
------------- -------------
Total liabilities and stockholders' equity (deficit) ................... $ 77,955,053 $ 205,569,266
============= =============
See accompanying notes to consolidated financial statements.
3
AMC FINANCIAL, INC.
(FORMERLY KNOWN AS CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------- -----------------------------------------------
FOR THE THREE FOR THE SIX FOR THE NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1998 1998
------------- ------------- ------------- -------------
Revenues (loss):
Gain (loss) on sale of loans ................................. $ (75,366) $ 4,609,295 $ 926,772 $ 2,228,984
Loss on valuation of residuals ............................... -- (20,847,449) (26,303,825) (7,817,022)
Interest ..................................................... 935,834 3,328,487 10,035,360 3,948,955
Mortgage origination income .................................. -- -- 2,046,651 593,325
Other ........................................................ 743,143 7,659,773 1,227,588 728,270
------------- ------------- ------------- -------------
Total revenues (loss) ............................... 1,603,611 (5,249,894) (12,067,454) (317,488)
------------- ------------- ------------- -------------
Expenses:
Salaries and employee benefits ............................... 355,926 2,856,989 25,876,102 8,569,729
Interest expense ............................................. -- 1,401,630 43,280,304 15,126,427
Selling expense .............................................. -- 256,407 3,171,811 1,179,260
Other operating expenses ..................................... 405,274 6,253,145 40,806,921 16,472,620
Provision for loan losses .................................... -- -- 4,728,073 4,728,073
Restructuring charge ......................................... -- 790,000 3,233,760 --
------------- ------------- ------------- -------------
Total expenses ...................................... 761,200 11,558,171 121,096,971 46,076,109
------------- ------------- ------------- -------------
Earnings (loss) before reorganization items, ................. 842,411 (16,808,065) (133,164,425) (46,393,597)
income taxes and extraordinary item
Reorganization charges ....................................... -- 1,644,058 -- --
------------- ------------- ------------- -------------
Earnings (loss) before income taxes
and extraordinary item ................................... 842,411 (18,452,123) (133,164,425) (46,393,597)
Income tax provision ......................................... 295,000 67,673 466,126 166,067
------------- ------------- ------------- -------------
Earnings (loss) before extraordinary item .................... 547,411 (18,519,796) (133,630,551) (46,559,664)
Gain from discharge of prepetiton liabilities,
net of taxes .............................................. -- 416,094,747 -- --
------------- ------------- ------------- -------------
Net earnings (loss) .......................................... 547,411 397,574,951 (133,630,551) (46,559,664)
Preferred stock dividends - increase in liquidation pref-rence -- -- 6,097,567 2,436,488
Preferred stock - default payments ........................... -- -- 13,615,115 5,792,899
------------- ------------- ------------- -------------
Net earnings (loss) applicable to common stock .................. $ 547,411 $ 397,574,951 $(153,343,233) $ (54,789,051)
============= ============= ============= =============
Net earnings (loss) per common share:
Basic and diluted ............................................ $ 0.07 NMF (1) NMF (1) NMF (1)
============= ============= ============= =============
Weighted average number of common shares:
outstanding:
Basic and diluted ....................................... 7,706,657 NMF (1) NMF (1) NMF (1)
============= ============= ============= =============
(1) Not meaningful figure due to the Company's emergence from Chapter 11
proceedings and the implementation of fresh start accounting.
See accompanying notes to consolidated financial statements.
4
AMC FINANCIAL, INC.
(FORMERLY KNOWN AS CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------- ------------------------------
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1999 1999 1998
------------- ------------- -------------
Cash flows from operating activities:
Net earnings (loss) ............................................... $ 547,411 $ 397,574,951 $(133,630,551)
Adjustments to reconcile net earnings (loss) from
operations to net cash provided by (used in)
operating activities:
Depreciation and amortization .............................. 1,000 367,453 2,553,173
Income taxes payable ....................................... 84,907 210,093 18,412,506
Increase in accounts receivable and due from broker for
securities transaction ................................... -- -- (1,354,940)
Decrease in trading securities ............................. -- -- 49,888,983
Gain from discharge of prepetition liabilities ............. -- (416,094,747) --
Decrease in mortgage servicing receivables ................. -- -- 4,969,162
Decrease in residual certificates .......................... -- 21,218,991 --
Proceeds from sale of mortgages ............................ -- 104,576,347 370,326,000
Mortgage origination funds disbursed ....................... -- -- (418,629,718)
Other, net ................................................. 1,112,143 10,582,414 34,830,604
------------- ------------- -------------
Net cash provided by (used in) operating activities ................ 1,745,461 118,435,502 (72,634,781)
------------- ------------- -------------
Cash flows from investing activities:
Sale from discontinued operations, net ........................... -- -- 59,468,431
Sales (purchases) of equipment ................................... -- 21,441 (1,019,572)
Proceeds from sale of mortgages held for investment .............. -- -- 2,997,382
------------- ------------- -------------
Net cash provided by investing activities .......................... -- 21,441 61,446,241
------------- ------------- -------------
Cash flows from financing activities:
(Decrease) increase in warehouse financings .................... -- (105,969,355) 33,434,216
------------- ------------- -------------
Net cash (used in) provided by financing activities ................ -- (105,969,355) 33,434,216
------------- ------------- -------------
Net increase in cash and cash equivalents .......................... 1,745,461 12,487,588 22,245,676
Cash and cash equivalents at beginning of period ................... 30,893,014 18,405,426 2,594,163
------------- ------------- -------------
Cash and cash equivalents at end of period ......................... $ 32,638,475 $ 30,893,014 $ 24,839,839
============= ============= =============
Supplemental disclosure of cash flow information:
Income taxes paid during the period .............................. $ -- $ -- $ 1,230
============= ============= =============
Interest paid during the period .................................. $ -- $ 1,693,980 $ 6,928,187
============= ============= =============
Supplemental schedule of noncash investing and financing activities:
Cancellation of indebtedness ................................... $ -- $ 476,510,976 $ --
Extinguishment of old stock .................................... -- (175,778,644) --
Issuance of new common stock ................................... -- 60,416,229 --
Unrealized gain on marketable securities, net of tax ........... 843,375 -- --
See accompanying notes to consolidated financial statements.
5
AMC FINANCIAL, INC.
(FORMERLY KNOWN AS CITYSCAPE FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. Organization
AMC Financial, Inc., formerly known as Cityscape Financial Corp. (the
"Company"), is a consumer finance company which, through its wholly-owned
subsidiary Cityscape Corp. ("CSC"), is in the business of selling and holding
in its portfolio mortgage loans secured primarily by one- to four-family
residences. The Company was previously in the business of originating and
purchasing mortgage loans until such business was indefinitely suspended in
November 1998. The majority of the Company's loans were made to owners of single
family residences for such purposes as debt consolidation, financing of home
improvements and educational expenditures. On July 1, 1999, the Company emerged
from Chapter 11 proceedings (see Notes 2 and 3). As part of its current
operating plan, the Company relocated operations from Elmsford, New York to
Houston, Texas in September 1999.
2. Reorganization
The Company has been reorganized through a plan of reorganization under
Chapter 11 of Title 11 of the United States Bankruptcy Code. Although the plan
became effective on July 1, 1999, the effective date of the plan for accounting
purposes is considered to be June 30, 1999, and accordingly, the Company adopted
fresh start reporting as of June 30, 1999 (see Notes 3 and 4). Adjustments were
recorded as of June 30, 1999 to reflect the effects of the consummation of the
plan of reorganization and the implementation of fresh start reporting.
3. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments consisting of normal recurring accruals, considered necessary for a
fair presentation of the results for the interim period, have been included. The
accompanying consolidated financial statements and the information included
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" should be read in conjunction with the consolidated
financial statements and related notes of the Company for the year ended
December 31, 1998.
The Company's emergence from Chapter 11 proceedings has resulted in a new
reporting entity with no retained earnings or accumulated deficit as of June 30,
1999. Retained earnings as of September 30, 1999 represent earnings from July 1,
1999 through September 30, 1999. Accordingly, the Company's consolidated
financial statements for periods prior to June 30, 1999 will not be comparable
to consolidated financial statements presented on or subsequent to June 30,
1999. A black line has been drawn on the accompanying consolidated financial
statements and footnotes to distinguish between the reorganized Company and the
predecessor Company.
Operating results for the six and nine months ended June 30, 1999 and
September 30, 1998, respectively, are for the predecessor Company. Results for
the three months ended September 30, 1999 represent operating revenues for the
reorganized Company and are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. These results will not be
comparable to those of the predecessor Company.
The Company emerged from Chapter 11 proceedings on July 1, 1999 and has
not had significant operations as a restructured entity. A plan for the
reorganized Company's operations and the use of the reorganized Company's cash
and other assets has not been formulated and the Company is reviewing its
6
strategic alternatives, which may include re-entering the mortgage loan
origination business, investments, acquisitions, mergers, joint ventures, or
liquidation. Pending such determination the Company's assets will be available
for general corporate purposes. Depending upon the Company's selection of a
strategic alternative for its operations, the Company may seek to have its stock
listed on a national securities system. However, there is currently no time
table established to facilitate a listing on a national securities system.
The consolidated financial statements of the Company include the accounts
of CSC and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Certain amounts in the statements have been reclassified to conform with
the 1999 classifications.
4. Fresh Start Reporting
As of June 30, 1999, the Company adopted fresh start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"). Fresh start reporting assumes that a new
reporting entity has been created and assets and liabilities should be reported
at their fair values as of the effective date.
The reorganization value was determined based upon the predecessor
Company's estimate of the fair value of its assets as defined in its plan of
reorganization which did not assume any future origination and loan sale
activity. Accordingly, the reorganization value approximates the fair value of
its assets before considering liabilities, which must be assumed and
extinguished pursuant to the terms of the reorganization plan, as amended.
5. Discontinued Operations
The Company commenced operations in the United Kingdom in May 1995 with
the formation of City Mortgage Corporation Limited ("CSC-UK"), an English
corporation that originated, sold and serviced loans in England, Scotland and
Wales in which the Company initially held a 50% interest and subsequently
purchased the remaining 50%. CSC-UK had no operations and no predecessor
operations prior to May 1995. The Company adopted a plan in March 1998 to sell
the assets of CSC-UK and completed the sale in April 1998. As a result of the
sale, the Company received proceeds, at the time of closing, of $83.8 million,
net of closing costs and other fees. During 1998, the Company received an
additional $4.5 million related to loan portfolio adjustments. During the second
quarter of 1999, the Company received $3.1 million in settlement of the assumed
liabilities at the date of sale.
The net assets of CSC-UK have been reclassified on the Company's financial
statements as investment in discontinued operations. As of September 30, 1999,
the Company's net investment in discontinued operations totaled approximately
$13.0 million. The balance consists of cash on hand in the discontinued
operation of approximately $11.9 million and an income tax receivable of $2.5
million (net of reserve). The Company has estimated offsetting liabilities of
$1.4 million which it believes adequately provides for known contingent
liabilities. The Company expects to maintain a balance of cash on hand in the
discontinued operations to cover existing and potential liabilities and costs
pending dissolution of CSC-UK and its subsidiaries.
6. Valuation of Residuals
The interests that the Company received upon loan sales through its
securitizations are in the form of residual certificates. The Company's residual
certificates are comprised of interests in home equity mortgage loans and
"Sav*-A-Loan(R)" mortgage loans (loans generally made to homeowners with little
or no equity in their property but who possessed a favorable credit profile and
debt-to-income ratio and who often used the proceeds from such loans to repay
outstanding indebtedness as well as to make home improvements).
In accordance with the Statement of Financial Accounting Standards
("SFAS") No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise", the Company accounts for its residual certificates as "securities
available-for-sale" and, as such, they are recorded at their fair value. Fair
value of these certificates is
7
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 residual certificates is different from the recorded value, the unrealized
gain or loss will be reflected in other comprehensive income. Impairment in the
value of the residual certificates that is deemed to be other than temporary is
charged to earnings in the period in which the impairment is identified.
The table below summarizes the value of the Company's residual
certificates by product type:
REORGANIZED PREDECESSOR
COMPANY COMPANY
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
Home Equity $ 18,838 $ 6,490,461
Sav*-A-Loan(R) $ 12,423,101 $ 27,170,469
------------------ -----------------
$ 12,441,939 $ 33,660,930
The key assumptions used to value the Company's residual certificates at
September 30, 1999 and December 31, 1998 were as follows:
REORGANIZED PREDECESSOR
COMPANY COMPANY
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
HOME EQUITY
Discount Rate 20.0% 20.0%
Constant 30.0% 30.0%
Loss Rate Range Prepayment Rate 7.3 - 33.0% 7.5 - 7.5%
SAV*-A-LOAN (R)
Discount Rate 20.0% 20.0%
Constant 19.0% 16.8%
Loss Rate Range Prepayment Rate 3.0 - 10.0% 4.5 - 7.0%
For the three months ended June 30, 1999, the Company experienced
significant changes in the performance of the underlying pools of mortgages in
both the home equity and Sav*-A-Loan(R) securitizations. As a result of higher
than anticipated losses on all securitizations and higher prepayment speeds on
Sav*-A-Loan(R) securitizations, the Company recorded a loss on valuation of
residuals of $20.8 million. The Company's loss rate of 7.5% per annum on its
home equity securitizations at March 31, 1999 was increased to reflect losses
ranging from 7.3% to 33.0% per annum at June 30, 1999; the discount rate of 20%
and the weighted average prepayment speed of 30.0% remained unchanged. The
Company also increased its loss rates on the Sav*-A-Loan(R) securitizations. As
of June 30, 1999, the Sav*-A-Loan (R) loss rates ranged from 3.0% to 10.0% per
annum as compared to loss rates ranging from 4.5% to 7.0% at March 31, 1999;
constant prepayment speed was increased from 16.8% to 19.0% and the discount
rate remained constant at 20%. The Company did not record any change in the
values of its residual certificates during the three months ended September 30,
1999.
7. Other Revenues
In the third quarter of 1999, the Company recorded other revenue totaling
$743,000 consisting primarily of net service fee income. For the nine months
ended September 30, 1999, other income totaled $8.4 million. The majority of
this balance represents a gain on the sale of its servicer advances (claims
against securitization trusts for reimbursement of advances made to such trusts
by the Company as
8
servicer). The sale of the Company's servicer advances was in connection with a
consensual resolution of claims asserted by Harris Trust and Savings Bank, U.S.
Bank National Association, Financial Security Assurance Inc., MBIA Insurance
Corporation, The Chase Manhattan Bank and Financial Guaranty Insurance, the
trustees for the pools of loans on the Company's securitizations (collectively,
the "Trustees"). Under the terms of the consensual resolution, the Company
transferred a portion of its servicing rights to Ocwen Federal Bank FSB ("Ocwen
FSB") on its home equity securitizations (95-1, 95-2, 95-3, 96-1, 96-2, 96-3 and
96-4). In June 1999, the Company transferred these servicing rights, except for
the 95-1 trust, to Ocwen FSB, and received a net amount of $14.4 million in
cash, resulting in a gain of $6.1 million, which represents the net funds
received in excess of the Company's carrying value of servicer advances. In
August 1999, the Company transferred the servicing on the 95-1 trust for an
amount equal to the Company's carrying value of the related servicer advances to
Litton Loan Servicing. Additionally, as stipulated in the agreements, the
securitization trusts established reserve funds to cover existing and potential
legal and other costs to be incurred by the Trustees.
8. Administrative Services Agreement
The Company entered into an Administrative Services Agreement with AEGIS
Mortgage Corporation to assume responsibility for daily accounting and
administrative activities. The Agreement was effective September 1, 1999 and is
payable at the rate of $90,000 per month.
9. Marketable Securities
Marketable securities, which represent the Company's investment in the
common stock and warrants of Mortgage.com, are classified as available-for-sale
securities. Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of applicable income taxes, reported as a
separate component within stockholders' equity as accumulated other
comprehensive income. Prior to Mortgage.com becoming a publicly traded company,
the stock was not readily traded and therefore a value was not determined.
Mortgage.com became publicly traded on August 11, 1999, and as such the stock
and warrants were recorded at the fair market value at September 30, 1999.
10. Comprehensive Income
In accordance with SFAS No. 130, "Reporting Comprehensive Income,"
comprehensive income includes all changes in a company's equity (except those
resulting from investments by and distributions to owners), including among
other things, foreign currency transaction adjustments, and unrealized gains
(losses) on marketable securities classified as available-for-sale. Total
comprehensive income for the quarter ended September 30, 1999 follows:
REORGANIZED
COMPANY
THREE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
Net earnings $ 547,411
Other comprehensive income
Unrealized gains on
marketable securities 1,297,500
Income tax expense (454,125)
------------------
Other comprehensive income,
net of tax 843,375
Total
income, net of tax $ 1,390,786
==================
For the six months ended June 30, 1999, the Company had no items that were
recognized as components of comprehensive income other than its net earnings.
9
11. Income Taxes
In accordance with the provisions of Internal Revenue Code Section 382,
utilization of the Company's net operating loss carry forwards is limited in
years following a change in the Company's ownership. The net operating loss
limitation is computed by applying a percentage (approximately 5%, as determined
by the Internal Revenue Code; i.e., the long-term tax-exempt rate determined
under Internal Revenue Code Section 382(f)) to the value of the Company on the
date of the change. The Section 382 limitation limits the use of the net
operating loss carryforward as computed on the date of the change in ownership.
Net operating losses incurred after the date of the change of ownership are not
limited unless another change in ownership occurs. A change in ownership
occurred in October 1997 primarily as a result of conversions of the Company's
6% Convertible Preferred Stock, Series A into the Company's common stock.
Additionally, a change in ownership occurred upon the Company's emergence from
bankruptcy. Accordingly, the Company's use of pre-ownership change net operating
losses and certain other tax attributes (if any), to the extent remaining after
the reduction thereof as a result of the cancellation of indebtedness of the
Company, is limited and generally will not exceed each year the product of the
long-term tax-exempt rate and the value of the Company's stock increased to
reflect the cancellation of indebtedness pursuant to the reorganization plan.
For accounting purposes, the Company established a valuation allowance to offset
the value, if any, of the net operating loss carryforwards.
12. Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding. Earnings per share was not calculated for
the periods prior to fresh start accounting since such amounts would not be
meaningful. The Company has no stock options or preferred stock which are
convertible into common stock and therefore diluted earnings per share is equal
to basic earnings per share. Basic and diluted earnings per share is calculated
as follows:
REORGANIZED
COMPANY
THREE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
Net Earnings $ 547,411
---------
Weighted average shares 7,706,657
Basic and diluted earnings per share $ 0.07
=========
13. Changes in Stockholders' Equity
During the quarter the Company issued an additional 12,660 shares of
common stock.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors including, but not limited to, new investments of the Company's
assets or in connection with implementing one of the Company's strategic
alternatives, legal proceedings and other matters, adverse economic conditions,
competition and other risks detailed from time to time in the Company's
Securities and Exchange Commission reports. The Company undertakes no obligation
to release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
anticipated or unanticipated events.
GENERAL
The Company is a consumer finance company which, through its wholly-owned
subsidiary, CSC, was in the business of selling and holding in its portfolio
mortgage loans secured primarily by one- to four-family residences. The Company
was previously in the business of originating and purchasing mortgage loans
until such business was indefinitely suspended in November 1998. The majority of
the Company's loans were made to owners of single family residences for such
purposes as debt consolidation, financing of home improvements and educational
expenditures. As part of its operating plan, the Company relocated its
operations from Elmsford, New York to Houston, Texas in September 1999. A plan
for the reorganized Company' operations and the use of the reorganized Company's
cash and other assets has not been formulated and the Company is reviewing its
strategic alternatives which may include re entering the mortgage loan
origination business, investments, acquisitions, mergers, joint ventures, or
liquidation. Pending such determination, the Company's assets will be available
for general corporate purposes. Depending upon the Company's selection of a
strategic alternative for its operations, the Company may seek to have its stock
listed on a national securities system. However, there is currently no time
table established to facilitate a listing on a national securities system.
Currently the Company is generating the majority of its revenue stream
from investing funds in high-grade commercial paper and interest from loans held
for sale. The Company has also generated revenue from the sale of its servicing
advances and interest earned on loans held for sale. Historically, the Company
also recognized gain on sale of loans sold through securitizations, excess
mortgage servicing receivables and fees earned on loans serviced and origination
fees received as part of the loan application process.
As a result of the Company's reorganization efforts and corresponding
bankruptcy filing, during the second quarter of 1999, the Company entered into
agreements to transfer all its servicing rights. The transfer of the Company's
servicing rights was completed in August 1999 either through direct transfer of
the servicing rights or establishing subservicing relationship.
DISCONTINUED OPERATIONS
The Company adopted a plan in March 1998 to sell the assets of CSC-UK and
completed the sale in April 1998. As a result of the sale, the Company received
proceeds of $83.8 million, net of closing costs and other fees.
The net assets of CSC-UK have been reclassified on the Company's financial
statements as investment in discontinued operations. As of September 30, 1999,
the Company's net investment in discontinued operations totaled approximately
$13.0 million. The balance consists of cash on hand in the discontinued
operation of approximately $11.9 million and an income tax receivable of $2.5
million (net of reserve). The Company has estimated liabilities of $1.4 million
for known contingent liabilities. The Company expects to maintain a balance of
cash on hand in the discontinued operations to cover existing and potential
liabilities and costs pending dissolution of CSC-UK and its subsidiaries.
11
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
REORGANIZED PREDECESSOR
COMPANY COMPANY
------------ ------------
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------ ------------
Revenues (loss):
Gain (loss) on sale of loans ................................. $ (75,366) $ 2,228,984
Loss on valuation of residuals ............................... -- (7,817,022)
Interest ..................................................... 935,834 3,948,955
Mortgage origination income .................................. -- 593,325
Other ........................................................ 743,143 728,270
------------ ------------
Total revenues (loss) ....................... 1,603,611 (317,488)
------------ ------------
Expenses:
Salaries and employee benefits ............................... 355,926 8,569,729
Interest expense ............................................. -- 15,126,427
Selling expense .............................................. -- 1,179,260
Other operating expenses ..................................... 405,274 16,472,620
Provision for loan losses .................................... -- 4,728,073
------------ ------------
Total expenses .............................. 761,200 46,076,109
------------ ------------
Earnings (loss), before income taxes ......................... 842,411 (46,393,597)
Income tax provision ......................................... 295,000 166,067
------------ ------------
Net earnings (loss) .......................................... 547,411 (46,559,664)
Preferred stock dividends - increase in liquidation preference -- 2,436,488
Preferred stock - default payments ........................... -- 5,792,899
------------ ------------
Net earnings (loss) applicable to common stock .................. $ 547,411 $(54,789,051)
============ ============
Net earnings (loss) per common share:
Basic ........................................................ $ 0.07 NMF (1)
============ ============
Diluted ...................................................... $ 0.07 NMF (1)
============ ============
Weighted average number of common shares:
outstanding:
Basic ................................................... 7,706,657 NMF (1)
============ ============
Diluted ................................................. 7,706,657 NMF (1)
============ ============
(1) Not meaningful figure due to the Company's emergence from Chapter 11
proceedings and the implementation of fresh start accounting
THE RESULTS OF OPERATIONS SHOWN ABOVE ARE FOR THE REORGANIZED AND PREDECESSOR
COMPANIES. THE COMPANY ADOPTED FRESH START REPORTING IN ACCORDANCE WITH SOP 90-7
EFFECTIVE JUNE 30, 1999. THEREFORE, THE OPERATING RESULTS PRESENTED ABOVE FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1999 ARE NOT COMPARABLE TO THOSE FOR THE
SAME PERIOD IN FISCAL YEAR 1998.
Revenues increased $1.9 million to $1.6 million for the three months ended
September 30, 1999 from a loss of $317,000 for the comparable period in 1998.
This increase was primarily due to a decrease in the loss on valuation of
residuals of $7.8 million for the three months ended September 30, 1999 compared
to the same period in 1998, partially offset by a decrease in interest income of
$3.0 million compared to the same period in 1998, and a decrease of $2.3 million
in gain on sale of loans.
12
For the three months ended September 30, 1999, the Company recorded a loss
on the sale of loans of $75,000. Since July 1999, the Company has not sold any
additional loans. For the three months ended September 30, 1998, the Company
recorded a gain on the sale of loans totaling $2.2 million. This gain was
primarily due to the sale of $75.2 million of whole loans at an average net
premium received of 3.6% as compared to the average premium paid on such loans
of 0.7%. Additionally, included in the gain on sale of loans during the third
quarter of 1998, is approximately $347,000 of gain representing the profit
participation realized during the quarter on $14.6 million of loans sold during
the first quarter of 1998 into the Company's purchase facility.
For the three months ended September 30, 1999, the Company did not record
any loss on the valuation of residuals since the Company determined that based
on current assumptions no further deterioration had occurred in these values. In
the third quarter of 1998, the Company recorded a loss on valuation of residuals
of $7.8 million consisting of $5.5 million loss on its home equity residuals and
$2.3 million unrealized loss on its Sav*-A-Loan(R) residuals. This loss was
primarily a result of the Company increasing the weighted average discount rate
used to value residuals to 17% at September 30, 1998 from 15% at June 30, 1998
for both home equity and Sav*-A-Loan(R) residuals. This increase was due to
market conditions in the mortgage-backed securities markets. In valuing the
Company's home equity residuals, the Company used a weighted average loss of
4.95% per annum and a weighted average constant prepayment speed of 34.8% for
the quarter ended September 30, 1998. For the Company's Sav*-A-Loan(R)
residuals, the Company used a weighted average loss of 3.3% and a weighted
average constant prepayment speed of 16.8% for the quarter ended September 30,
1998.
Interest income decreased $3.0 million or 76.3% to $936,000 for the three
months ended September 30, 1999 from $3.9 million for the comparable period in
1998. This decrease was due primarily to lower average balances of mortgage
loans held for sale in the third quarter of 1999 as compared to the same period
in 1998, primarily resulting from the Company's suspension of loan origination
and purchase activities and the sale of the majority of the loans held for sale.
No mortgage origination income was recorded for the three months ended
September 30, 1999 as a result of the Company's suspension of loan origination
and purchase activities. Mortgage origination income was $593,000 for the
comparable period in 1998.
Other revenue was $743,000 for the three months ended September 30, 1999
consisted of net service fee income. The Company entered into agreements to
transfer all of its servicing rights to Litton Loan Servicing in August 1999,
and retained a portion of the service fee income.
Total expenses decreased $45.3 million or 98.3% to $761,000 for the three
months ended September 30, 1999 from $46.1 million for the comparable period in
1998. This decrease was due primarily to the Company's suspension of loan
origination and purchase activities and the corresponding reduction of its
workforce.
Salaries and employee benefits decreased $8.2 million or 95.8% to $356,000
for the three months ended September 30, 1999 from $8.6 million for the
comparable period in 1998. This decrease was due primarily to decreased staffing
levels to one employee by September 30, 1999 as compared to 471 employees at
September 30, 1998.
There was no interest expense for the three months ended September 30,
1999 as compared to $15.1 million for the same period in 1998. This decrease was
due primarily to the Company ceasing to accrue interest on the Convertible
Debentures and Senior Notes as of October 6, 1998 due to the bankruptcy filing
and a lower average balance of loans in the warehouse finance lines.
Selling and other operating expenses decreased $17.2 million to $405,000
for the three months ended September 30, 1999 from $17.7 million for the
comparable period in 1998. This decrease was due primarily to a decrease in
operating costs of $16.1 million or 97.5% to $405,000 for the three months ended
September 30, 1999 from $16.5 million for the comparable period in 1998
reflecting the Company's
13
restructuring efforts, including the suspension of its origination and purchase
activities, closing of the Elmsford, New York office and branch operations and
reduction of its workforce to one employee.
There was no provision for loan losses recorded for the three months ended
September 30, 1999 as compared to $4.7 million for the comparable period in
1998. Loans were written down to fair value with fresh start accounting in June
1999. The Company believes that the current level of loan loss reserves is
adequate. Management will review the adequacy of loan loss reserves on a
quarterly basis. For the three months ended September 30, 1998, the Company
recorded a $3.1 million charge against the Company's Sav*-A-Loan(R) mortgages
included in the mortgage loans held for sale portfolio. The charge reflected the
decreased market value of the Company's approximate $31.0 million of
Sav*-A-Loan(R) mortgages with FICO scores of less than 640. The Company also
recorded an additional $1.6 million write-down on its mortgages held for sale
during the third quarter of 1998.
Net earnings applicable to common stock increased to $547,000 for the
three months ended September 30, 1999 from a net loss applicable to common stock
of $54.8 million for the comparable period in 1998. Net income for the period
was due primarily to significantly lower operating costs resulting from the
Company's downsizing. The third quarter 1998 loss was due primarily to decreased
loan originations, net unrealized loss on valuation of residuals of $7.8
million, as well as lower gain on sale of loans. An increase in the liquidation
preference of the preferred stock in lieu of dividends and default payments of
$8.2 million were recorded during the third quarter of 1998 further increasing
the net loss applicable to common stock.
14
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SIX MONTHS
ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------- -------------------------------
FOR THE THREE FOR THE SIX FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1999 1999 1998
------------- ------------- -------------
Revenues (loss):
Gain (loss) on sale of loans ................................. $ (75,366) $ 4,609,295 $ 926,772
Loss on valuation of residuals ............................... -- (20,847,449) (26,303,825)
Interest ..................................................... 935,834 3,328,487 10,035,360
Mortgage origination income .................................. -- -- 2,046,651
Other ........................................................ 743,143 7,659,773 1,227,588
------------- ------------- -------------
Total revenues (loss) ............................... 1,603,611 (5,249,894) (12,067,454)
------------- ------------- -------------
Expenses:
Salaries and employee benefits ............................... 355,926 2,856,989 25,876,102
Interest expense ............................................. -- 1,401,630 43,280,304
Selling expense .............................................. -- 256,407 3,171,811
Other operating expenses ..................................... 405,274 6,253,145 40,806,921
Provision for loan losses .................................... -- -- 4,728,073
Restructuring charge ......................................... -- 790,000 3,233,760
------------- ------------- -------------
Total expenses ...................................... 761,200 11,558,171 121,096,971
------------- ------------- -------------
Earnings (loss) before reorganization items, ................. 842,411 (16,808,065) (133,164,425)
income taxes and extraordinary item
Reorganization charges ....................................... -- 1,644,058 --
------------- ------------- -------------
Earnings (loss) before income taxes
and extraordinary item ................................... 842,411 (18,452,123) (133,164,425)
Income tax provision ......................................... 295,000 67,673 466,126
------------- ------------- -------------
Earnings (loss) before extraordinary item .................... 547,411 (18,519,796) (133,630,551)
Gain from discharge of prepetiton liabilities,
net of taxes .............................................. -- 416,094,747 --
------------- ------------- -------------
Net earnings (loss) .......................................... 547,411 397,574,951 (133,630,551)
Preferred stock dividends - increase in liquidation preference -- -- 6,097,567
Preferred stock - default payments ........................... -- -- 13,615,115
------------- ------------- -------------
Net earnings (loss) applicable to common stock .................. $ 547,411 $ 397,574,951 $(153,343,233)
============= ============= =============
Net earnings (loss) per common share:
Basic and diluted ............................................ $ 0.07 NMF (1) NMF (1)
============= ============= =============
Weighted average number of common shares:
outstanding:
Basic and diluted ....................................... 7,706,657 NMF (1) NMF (1)
============= ============= =============
(1) Not meaningful figure due to the Company's emergence from Chapter 11
proceedings and the implementation of fresh start accounting.
THE RESULTS OF OPERATIONS SHOWN ABOVE ARE FOR THE REORGANIZED AND PREDECESSOR
COMPANIES. THE COMPANY ADOPTED FRESH START REPORTING IN ACCORDANCE WITH SOP 90-7
EFFECTIVE JUNE 30, 1999. THEREFORE, THE OPERATING
15
RESULTS PRESENTED ABOVE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 ARE NOT
COMPARABLE TO THOSE FOR THE SAME PERIOD IN FISCAL YEAR 1998.
Revenues increased $8.4 million to negative $3.6 million for the nine
months ended September 30, 1999 from negative $12.1 million for the comparable
period in 1998. This increase was primarily due to a gain on sale of loans of
$4.5 million for the nine months ended September 30, 1999 compared to a gain of
$927,000 during the first nine months of 1998. Also the Company recognized $6.1
million of revenues related to the transfer of its home equity servicing rights
and related servicer advances during the first nine months of 1999. The loss on
valuation of residuals decreased to $20.8 million for the nine months ended
September 30, 1999 from $26.3 million for the comparable period in 1998.
Gain on sale of loans increased $3.6 million to $4.5 million for the nine
months ended September 30, 1999 from $927,000 for the comparable period in 1998.
This increase was primarily due to the recognition of $7.0 million related to
the Company's profit participation on loans previously sold into the Company's
purchase facility, offset by the sale of $106.6 million of loans sold at a net
loss of $2.4 million. For the nine months ended September 30, 1998, the net gain
on sale of loans was primarily due to the sale of $370.3 million of whole loans
at an average net premium received of 1.6% as compared to the average premium
paid on such loans of 1.4%.
For the nine months ended September 30, 1999, the Company recorded a loss
on the valuation of residuals of $20.8 million. The Company's loss rate of 7.5%
per annum at March 31, 1999 on its home equity securitizations was increased at
June 30, 1999 to reflect loss rates ranging from 7.3% to 33.0% per annum. The
Company also increased its loss rates on the Sav*-A-Loan (R) securitizations. As
of June 30, 1999, the Sav*-A-Loan (R) loss rates ranged from 3.0% to 10.0% per
annum as compared to loss rates ranging from 4.5% to 7.0% at March 31, 1999, and
the constant prepayment speed was increased from 16.8% to 19.0%. No revisions to
the rates used at June 30, 1999 were necessary to value residuals at September
30, 1999. Loss on valuation of residuals of $26.3 million recorded for the
comparable period in 1998 reflected an increase in the weighted average loss
rate to 4.95% per annum at September 30, 1998 from 1.7% per annum at December
31, 1997 and an increase in the weighted average prepayment speed to 34.8% per
annum at September 30, 1998 from 31.8% per annum at December 31, 1997 for the
home equity securitizations. The nine months ended September 1998 also included
a $7.8 million loss on valuation of both the home equity and Sav*-A-Loan(R)
residuals, which resulted from the Company increasing its weighted average
discount rate to 17% at September 30, 1998 from 15% at December 31, 1997.
Interest income decreased $5.8 million or 57.5% to $4.3 million for the
nine months ended September 30, 1999 from $10.0 million for the comparable
period in 1998. This decrease was due primarily to lower average balances of
mortgage loans held for sale during the first nine months of 1999 as compared to
the same period in 1998 primarily resulting from the Company's suspension of
loan origination and purchase activities subsequent to filing bankruptcy.
No mortgage origination income was recorded for the nine months ended
September 30, 1999 as a result of the Company's suspension of loan origination
and purchase activities. Mortgage origination income was $2.0 million for the
comparable period in 1998.
Other income increased $7.2 million to $8.4 million for the nine months
ended September 30, 1999 from $1.2 million for the comparable period in 1998.
During the second quarter of 1999, the Company entered into agreements to
transfer all of its servicing rights on all of its home equity securitizations
and received net cash of $14.4 million (on the transfer of its 95-2, 95-3, 96-1,
96-2, 96-3 and 96-4 home equity securitizations) resulting in a net gain of $6.1
million, representing amounts received in excess of the Company's carrying value
of servicer advances. These servicer advances represent claims against the
securitization trusts for reimbursement of advances made to such trusts by the
Company as servicer.
Total expenses decreased $108.8 million or 89.8% to $12.3 million for the
nine months ended September 30, 1999 from $121.1 million for the comparable
period in 1998. This decrease was due primarily to the Company's suspension of
loan origination and purchase activities and the corresponding
16
reduction of its workforce from 471 employees at September 30, 1998 to one
employee at the end of September 30, 1999.
Salaries and employee benefits decreased $22.7 million or 87.6% to $3.2
million for the nine months ended September 30, 1999 from $25.9 million for the
comparable period in 1998. This decrease was primarily due to decreased staffing
levels to one employee by September 30, 1999 as compared to 471 employees at
September 30, 1998.
Interest expense decreased $41.9 million or 96.8% to $1.4 million for the
nine months ended September 30, 1999 from $43.3 million for the comparable
period in 1998. This decrease was primarily due to the Company ceasing to accrue
interest on the Convertible Debentures and Senior Notes as of October 1998 due
to the bankruptcy filing and a lower average balance of loans in the warehouse
finance lines.
Selling and other expenses decreased $37.1 million or 84.3% to $6.9
million for the nine months ended September 30, 1999 from $44.0 million for the
comparable period in 1998. This decrease was primarily due to decreased
operating costs of $34.1 million or 83.7% to $6.7 million for the nine months
ended September 30, 1999 from $40.8 million for the comparable period in 1998
reflecting the Company's suspension of its origination and purchase activities,
closing of its branch operations and related reduction in its workforce.
There were no provisions for loan losses recorded during the nine months
ended September 30, 1999 as compared to $4.7 million for the nine months ended
September 30, 1998. With the fresh start accounting in June 1999, the loans were
written down to fair market value. The Company did not believe additional
reserves were necessary at September 30, 1999. In the third quarter of 1998, the
Company recorded a $3.1 million charge against the Company's Sav*-A-Loan(R)
mortgages included in the mortgage loans held for sale portfolio. This charge
reflected the decreased market value of the Company's $31.0 million of
Sav*-A-Loan(R) mortgages with FICO scores of less than 640. During the third
quarter of 1998, the Company recorded an additional $1.6 million write-down on
its mortgages held for sale.
Restructuring charges of $790,000 were recorded during the nine months
ended September 30, 1999 as a result of the Company's move from Elmsford, New
York to Houston, Texas. Restructuring charges primarily represented severance
obligations and settlement of future lease obligations. Restructuring charges
were $3.2 million for the comparable period in 1998. These charges were related
to a restructuring plan that included streamlining and downsizing the Company's
operations.
Net earnings applicable to common stock increased to $398.1 million for
the nine months ended September 30, 1999 from a net loss applicable to common
stock of $153.3 million for the comparable period in 1998. Included in the net
earnings applicable to common stock is an extraordinary item reflecting the gain
from the discharge of prepetition liabilities, net of taxes, totaling $416.1
million. Excluding the extraordinary gain, the decreased loss was primarily due
to greater revenues from gains recognized on loans sold into the Company's
purchase facility as well as significantly lower operating costs resulting from
the Company's downsizing. The loss during the first nine months of 1998 was due
primarily to decreased loan originations, as well as lower gain on sale of
loans. An increase in the liquidation preference of the preferred stock in lieu
of dividends and default payments of $19.7 million was recorded during the first
nine months of 1998 further increasing the net loss applicable to common stock.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1999, the predecessor Company
generated $118.4 million cash from operations and used $106.0 million cash in
financing activities. During the three months ended September 30, 1999, the
reorganized Company generated $1.7 million cash from operations of which none
was used in financing activities. The Company's principal cash requirements
include the payment of operating and post bankruptcy expenses. The Company uses
its cash flow from net interest income to meet its working capital needs. Should
the full funding of the over-collateralization accounts in connection with the
Company's securitizations occur, the Company also may receive cash payments on
its residual
17
certificates related to its securitizations, although no assurance can be given
as to when or whether this will occur. Based upon the current and anticipated
levels of operations, the Company believes that cash flow from operations and
available cash will be adequate to meet the Company's anticipated requirements
for working capital through the next twelve months.
LOAN SALES
The Company disposes of its mortgage loan inventory through whole loan
sales through which the Company receives cash at the time of sale.
During 1996 and 1997, the Company sold loans through securitizations. As
of September 30, 1999, the Company's balance sheet reflected the fair value of
residual certificates of $12.4 million resulting from these securitizations.
Realization of the value of the residual certificates 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 (See Note 5 to the consolidated financial statements), future
cash flows and earnings could be negatively affected and the Company could be
required to further write down the value of its residual certificates. In
addition, if prevailing interest rates rise, the required discount rate might
also rise, resulting in impairment of the value of the interest-only and
residual certificates.
IMPACT OF YEAR 2000
Issues surrounding the Year 2000 (Y2K) arise from the fact that many
existing computer programs use only two digits to identify a year in the date
field. With the approach of the Year 2000, computer hardware and software that
are not made Year 2000 ready might interpret "00" as Year 1900 rather than Year
2000. The Year 2000 problem is not just a technology issue; it also involves the
Company's customers, suppliers and third parties.
During the third quarter of 1999, the Company entered into an
Administrative Services Agreement with AEGIS Mortgage Corporation ("AEGIS") to
facilitate the handling of accounting and various administrative duties. The
Company has entered into subservicing agreements with third parties to manage
its loan servicing including its own loan portfolio. Management of AEGIS
believes its planning efforts are adequate to address its Y2K concerns. The
outside subservices have expressed to the Company their readiness regarding Y2K
issues.
The costs incurred to date by the Company regarding its Year 2000
readiness have not been material; however, there can be no assurance that such
costs in the future will not be material. Even if the Company is Year 2000
ready, failures by significant third parties to address their Year 2000
readiness may disrupt the Company's operations and cause it to incur financial
losses. These third parties include financial counterparties and subservicers.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. The Company's market risk arises from interest rate
risk inherent in its financial instruments. The Company is not currently subject
to commodity price risk. The Company does not make use of off-balance sheet
derivative instruments to control interest rate risk.
The interests that the Company received on loan sales through its
securitizations are in the form of interest-only and residual certificates which
are classified as securities available-for-sale. Securities available-for-sale
do not have a stated maturity or amortization period. The expected amount of the
cash flow as well as the timing is dependent on the performance of the
underlying collateral supporting each securitization. The actual cash flow of
these instruments could vary substantially if the performance is different from
the Company's assumptions. The Company generally develops its assumptions by
analyzing past portfolio performance, current loan characteristics and current
market conditions. The Company currently values residual certificates using a
discount rate of 20%.
The Company is exposed to foreign currency exchange risk related to the
pending dissolution of CSC-UK and its subsidiaries. Specifically, the exchange
risk relates to certain receivables and liabilities which will be satisfied in a
foreign currency. The Company believes this exposure to be immaterial, and
therefore, has not utilized any financial instrument to mitigate any potential
exchange risk.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The legal proceedings discussed below were not dismissed as a result of
the bankruptcy or plan of reorganization.
CEASAR ACTION. On or about September 29, 1997, a putative class action
lawsuit (the "Ceasar Action") was filed against the Company and two of its
former 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 former 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 former
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 former officers and directors in federal court in New Jersey (the
"New Jersey Action").
In these actions, plaintiffs allege that the Company and its former 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 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.
In December 1997, the Eastern District plaintiffs filed a motion for
appointment of lead plaintiffs and approval of co-lead counsel. On September 23,
1998, the court granted this motion. On March 25, 1998, the Company and its
former officers and directors who were defendants filed a motion with the
federal Judicial Panel for Multidistrict Litigation ("JPML"), seeking
consolidation of all current and future securities actions, including the New
Jersey Action, for pre-trial purposes before Judge Sterling Johnson in the
Eastern District. On June 12, 1998, the JPML granted this motion. As a result of
the Company's chapter 11 proceedings, the action against the Company was
discharged when the Company's plan of reorganization became effective on July 1,
1999. The action is still pending against the individual defendants.
PEAKS ACTION. In April 1998, the Company was named as a defendant in an
Amended Complaint filed against 59 separate defendants in the Circuit Court for
Baltimore City, Maryland entitled Peaks v. A Home of Your Own, Inc., et. al.
This action, which was originally styled as a class action, was later amended to
drop the class allegations and instead joined 80 separate individual plaintiffs.
The Complaint alleges various causes of action (including Conspiracy to Defraud,
Fraud, Violation of Maryland Consumer Protection Act and Unfair Trade Practices,
Negligent Misrepresentation and Negligence) relating to 89 allegedly fraudulent
residential mortgages on properties in inner city Baltimore. The Company is
alleged to have purchased (and is believed to still own) at least eight of the
loans and may have previously purchased and subsequently sold an additional 7 of
the loans. Due to the Company's prior bankruptcy and an agreement with
plaintiffs' counsel, the Company has never formally responded to the Amended
Complaint and has not participated formally in any discovery. The Company has,
however, monitored the proceedings in this case and has participated informally
in settlement discussions. As a result of the Company's chapter 11 proceedings,
the plaintiffs' affirmative claims against the Company were discharged when the
plaintiffs failed to file their claims before the established bar date. The
action is still pending against the other defendants and might result in
recoveries that could serve, in part, to reduce the principal balances of the
loans still owned by the Company.
WALSH ACTION. 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. In March 1998, Walsh
filed a motion to dismiss, or, alternatively, for summary judgment. In May 1998,
the Company served papers that opposed Walsh's motion and moved for summary
judgment on certain of the loans. In December 1998, Judge Stein of the Southern
District denied Walsh's motion to dismiss, or, alternatively, for summary
judgment with respect to all but 69 of the loans at issue in the litigation.
With respect to those 69 loans, Judge Stein granted Walsh's motion and dismissed
the loans from the litigation. At that time, Judge Stein also denied the
Company's motion for summary judgment. On February 1, 1999, Judge Stein denied
the Company's motion for reconsideration of that part of his December 1998 order
which granted Walsh's motion to dismiss with respect to 69 of the loans at
issue. The parties completed all discovery by the early summer of 1999, and then
filed cross-motions for summary judgment. The Company moved for Partial Summary
Judgment on 32 loans that were part of a fraudulent pyramid scheme in New Jersey
and that
20
Walsh warranted under the parties' agreement as being "true and correct in all
material respects." Walsh, in turn, moved for Summary Judgment on all of the
loans remaining in the case, claiming that the Company had waived its right to
sue on all loans. The parties completed the briefing on both motions on October
22, 1999, and do not expect the Court to rule until 2000.
GLOBAL MORTGAGE ACTION. In August 1998, the Company filed a lawsuit in the
Circuit Court for Baltimore City, Maryland entitled, Cityscape Corp et. al. v.
Global Mortgage et. al. against various defendants seeking damages for losses
resulting for the Company's acquisition in 1995 and 1996 of 145 fraudulent
residential mortgages on inner city Baltimore rowhouses. The Complaint, as
amended, seeks $5.5 million in compensatory damages and unspecified punitive
damages against the mortgage broker and its principals, the title company and
its principals, the settlement attorney, and the appraisers, based on theories
of negligence, malpractice, conspiracy and fraud. The Company recently reached a
settlement agreement with some, but not all of the defendants. The action
against the remaining, non-settling defendants is in the final stages of
discovery and is scheduled to be tried during the March 2000 term.
In the normal course of business, aside from the matters discussed above,
the Company is subject to various legal proceedings and claims, the resolution
of which, in management's opinion, will not have a material adverse effect on
the consolidated financial position or the results of operations of the Company.
21
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1** Certificate of Incorporation of the Company (incorporated by
reference to the Company's Form 10-Q for quarter ended
June 30, 1999)
3.2** Bylaws of the Company (incorporated by reference to the
Company's Form 10-Q for quarter ended June 30, 1999)
10.1* Agreement with AEGIS Mortgage Corporation - Service Agreement
dated September 1, 1999
11* Computation of Earnings Per Share
27.1* Financial Data Schedule
- ---------------------------
* Indicates documents filed herewith
** Indicates documents incorporated by reference from the prior filing
indicated.
(b) Reports on Form 8-K
None
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMC FINANCIAL, INC.
(Registrant)
Date: NOVEMBER 12, 1999 By:/S/ D. RICHARD THOMPSON
D. Richard Thompson
Title: Chief Executive
Officer and President
Date: NOVEMBER 12, 1999 By:/S/ MICHAEL L. KENNEMER
Michael L. Kennemer
Title: Chief Financial Officer
23
EXHIBIT 11
AMC FINANCIAL, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
DAYS
OUT- WEIGHTED
SHARES STANDING SHARES
QUARTER ENDED SEPTEMBER 30, 1999: ---------- -------- ----------
Balance June 30, 1999 7,701,565 92 7,701,565
Common stock issued 12,660 37 5,092
---------- ----------
Balance September 30, 1999 7,714,225 7,706,657
========== ==========
NINE MONTHS ENDED SEPTEMBER 30, 1999:
Not a meaningful figure due to the Company's emergence from Chapter 11
proceedings and the implementation of fresh start accounting.
1999 DAYS WT'D
SHARES DAYS IN AVG
ISSUED O/S PERIOD SHS
------ ---- ------ -----
QTD:
Shares issued - 8/24/99 12,660 37 92 5,092
EXHIBIT 11
AMC FINANCIAL, INC. EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE PAGE 1 OF 2
QUARTER MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------------
1999 1998 1999 1998
--------- ------------ ------------- -------------
BASIC:
Weighted average number of shares
of common stock .............. 7,706,657 NMF NMF NMF
Assumed exercise of certain
stock options ................ -- -- -- --
--------- ------------ ------------- -------------
7,706,657 0 0 0
--------- ------------ ------------- -------------
Net income (loss) ............... $ 547,411 $(54,789,051) $ 398,122,362 $(153,343,233)
========= ============ ============= =============
BASIC EARNINGS PER SHARE:
Net income (loss) ............... $ 0.07 $NMF $NMF $NMF
========= ============ ============= =============
DILUTED:
Weighted average number of shares
of common stock .............. 7,706,657 NMF NMF NMF
Assumed exercise of certain
stock options
--------- ------------ ------------- -------------
7,706,657 0 0 0
========= ============ ============= =============
Net income (loss) .............. $ 547,411 $(54,789,051) $ 398,122,362 $(153,343,233)
========= ============ ============= =============
DILUTED EARNINGS PER SHARE:
Net income (loss) ............... $ 0.07 $NMF NMF $NMF
========= ============ ============= =============
NMF - not meaningful figure due to the Company's emergence from Chapter
11 proceedings and the implementation of fresh start accounting.
Exhibiti 10.1
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated as of September 1, 1999 (the
"Effective Date") by and between AMC Financial, Inc, a Delaware Corporation
("AMC"), and AEGIS Mortgage Corporation, an Oklahoma Corporation ("AEGIS").
RECITALS
WHEREAS, AEGIS is willing to offer and provide certain support services to AMC;
and
WHEREAS, AMC desires to retain AEGIS to provide certain support services.
NOW, therefore, AEGIS and AMC agree as follows:
1 ARTICLE --RESPONSIBILITIES
1.1 SCOPE OF SERVICES. AEGIS shall perform the services for AMC as set forth in
this Agreement and any amendments or addenda that may from time to time be made
a part of this Agreement (the "Services"), by mutual agreement.
1.2 PERFORMANCE OF SERVICES. AEGIS shall perform the Services for AMC under this
Agreement in accordance with reasonable commercial standards; generally accepted
accounting principles, consistently applied ("GAAP"); and in conformity with
regulations or laws governing their activities.
1.3 DESIGNATE CONTACT PERSON. Each party shall designate a person or persons to
respond to other party's inquiries regarding activities related to the Services.
1.4 CONFIDENTIALITY. The parties acknowledge that during the term of this
Agreement, AEGIS will have access to certain information relating to AMC's
customers ("Information"). The parties recognize that such Information is of a
confidential nature. AEGIS agrees to: (1) use at least the same degree of care
to maintain the confidentiality of the Information as it uses in maintaining the
confidentiality of its own confidential and proprietary information; (2) use the
Information only for the purpose of performing the Services agreed to in this
Agreement; and (3) upon termination of this Agreement, immediately cease using
the Information, erase same from storage in each computer system in which same
has been installed except where retention is required for regulatory purposes,
maintain in confidence all knowledge of same gained pursuant to the contract
and, either return or destroy all physical embodiments of such information.
1.5 COMPLIANCE WITH STATE AND FEDERAL LAWS. Both parties shall take reasonable
steps to ensure that the Services performed under this Agreement are performed
in compliance with applicable Federal and State laws. Such steps may include, by
way of example and not by way of limitation, ensuring that its employees are
properly licensed to perform any Services that require such licensing.
2 ARTICLE --SERVICEs.
2.1 ACCOUNTING. AEGIS will provide all accounting services required by AMC,
including preparation of complete and accurate books of accounts and records,
regulatory reporting and preparation of income statements and balance sheets. In
providing the accounting services required by this paragraph, AEGIS may contract
with a certified public accountant acceptable to AMC for the performance of
services.
The books shall be prepared in accordance with GAAP utilizing the method of
accounting as determined by AMC. AMC's books and records shall at all times be
maintained at the principal business office of AEGIS or such other place
designated from time to time by AEGIS, and shall be available for inspection by
AMC or their duly authorized representatives at any time.
Within ninety (90) days after the end of each calendar year, AEGIS shall cause
to be prepared and furnished to AMC a balance sheet of AMC (dated as of the end
of the calendar year then ended), a related statement of earnings for AMC for
the same year, a statement of cash flows for AMC for such year, related
footnotes to the financial statements and all other financial information
reasonably requested by AMC. AEGIS shall on a monthly basis, within thirty
business days following the end of the preceding month, distribute to AMC (i) a
profit and loss statement showing revenue and expenses of AMC for the previous
calendar month, (ii) a report showing the number and loan amount of loans
subserviced by AEGIS during the previous calendar month, (iii) a balance sheet
for AMC, and (iv) any other information with respect to the operations of AMC
for the previous calendar month which AMC may reasonably request.
2.2 DATA PROCESSING AND MANAGEMENT INFORMATION. AEGIS will provide data
processing and management information services as agreed between AMC and AEGIS.
Such services shall consist of those data processing services currently provided
by AEGIS to itself.
3 ARTICLE --TERM.
This Agreement shall commence on the Effective Date and remain in effect until
terminated by either party. To terminate this Agreement, AEGIS shall be required
to give AMC at least ninety (90) days prior written notice, and AMC shall be
required to give AEGIS at least thirty (30) days prior written notice.
4 ARTICLE --INDEMNIFICATION
TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, AMC HEREBY AGREES TO INDEMNIFY,
DEFEND AND HOLD HARMLESS AEGIS AND ITS OFFICERS, EMPLOYEES AND AGENTS, FROM AND
AGAINST ALL CLAIMS, DAMAGES, LOSSES, LIENS, CAUSES OF ACTION, SUITS, JUDGMENTS
AND EXPENSES, INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, OF ANY
NATURE, KIND OR DESCRIPTION ASSERTED BY OR IN FAVOR OF ANY PERSON OR ENTITY,
DIRECTLY OR INDIRECTLY ARISING OUT OF, CAUSED BY OR RESULTING IN WHOLE OR IN
PART FROM THE ACTIONS OF AEGIS PURSUANT TO OR IN CONNECTION WITH THIS AGREEMENT;
PROVIDED, HOWEVER, THAT AMC SHALL HAVE NO DUTY OF INDEMNIFICATION UNDER THIS
AGREEMENT AS TO ANY CLAIM, DAMAGE, LOSS, LIEN, CAUSE OF ACTION, SUIT, JUDGMENT,
EXPENSE OR FEE ARISING OR RESULTING FROM THE GROSS NEGLIGENCE OF WILLFUL
MISCONDUCT OF AEGIS, ITS OFFICERS, EMPLOYEES OR AGENTS.
5 ARTICLE --RELATIONSHIP OF THE PARTIES.
This Agreement does not create, and shall not be construed by the parties or any
third person as creating, any agency, partnership, joint venture, or employment
relationship between the parties. The relationship of the parties under this
Agreement shall be solely that of independent contractors. Neither party shall
have, nor hold itself out as having, any right, power or authority to assume,
create, or incur any expense, liability, or obligation on behalf of the other
party, except as expressly provided herein. Each party shall be solely
responsible for the conduct of its respective agents and employees in connection
with that party's performance hereunder.
6 ARTICLE --PAYMENT OF INVOICES
6.1 INVOICES. AMC agrees to pay AEGIS for its services rendered pursuant to this
Agreement a fixed amount of $ 90,000 invoiced monthly and forwarded to AMC each
month.
6.2 PAYMENT. All amounts due shall be paid within ten (10) days following month
end and AEGIS is authorized to withdraw such funds from the account of AMC,
subject to AMC Board approval.
7 ARTICLE --INSPECTION.
The documents and records relating to Services performed under this Agreement
shall be made available from time to time to and at the reasonable request of
(i) regulatory authorities having jurisdiction over either of the parties and
(ii) officers, employees and agents of either party.
8 ARTICLE --NOTICES.
All notices and other communications in connection with this Agreement to a
party hereto shall be in writing and shall be deemed to have been duly given
when delivered by hand or when deposited in the United States mail with first
class postage prepaid or when delivered to any nationally recognized overnight
courier with delivery charges paid to such party at its address set forth below,
or to such other person or address as such other party may specify by similar
notice to the other party hereto:
IF TO AEGIS: IF TO AMC:
D. Richard Thompson
Attn: Michael L. Kennemer 11111 Wilcrest Green, Suite 250
11111 Wilcrest Green, Suite 250 Houston, TX 77042
Houston, TX 77042
Copy to: Mark Neporent
1 ARTICLE --GENERAL.
1.1 APPLICABLE LAW. THIS AGREEMENT, AND ALL THE RIGHTS AND DUTIES OF THE PARTIES
ARISING FROM OR RELATING IN ANY WAY TO THE SUBJECT MATTER OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED BY IT, SHALL BE GOVERNED BY, CONSTRUED, AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCLUDING ITS
CONFLICT OF LAWS RULES WHICH WOULD REFER TO AND APPLY THE SUBSTANTIVE LAWS OF
ANOTHER JURISDICTION). ANY SUIT OR PROCEEDING HEREUNDER SHALL BE BROUGHT ONLY IN
NEW YORK COUNTY, NEW YORK, AND EACH OF THE PARTIES CONSENTS TO THE PERSONAL
JURISDICTION OF THE COURTS, STATE AND FEDERAL, LOCATED THEREIN. COMPANY AGREES
TO WAIVE ANY OBJECTION THAT THE STATE OR FEDERAL COURTS OF NEW YORK COUNTY, NEW
YORK, ARE AN INCONVENIENT FORUM.
1.2 WAIVER. No waiver of any condition, provision, or term of this Agreement
shall be valid or of any effect unless made in writing, signed by the party or
parties to be bound or its duly authorized representative and specifying with
particularity the extent and nature of such waiver. No waiver of any term or
condition set forth in this Agreement shall constitute a waiver of any other
term or condition; nor shall it affect or impair any right arising from any
subsequent default.
1.3 ASSIGNMENT AND DELEGATION. No rights or interest in this Agreement may be
assigned. Nor, unless otherwise provided in this Agreement, may any obligations
be delegated without the prior written consent of the other party, such consent
not to be unreasonably withheld. Any assignment except as provided in this
Section shall be null and void for all purposes, AB INITIO.
1.4 SEVERABILITY. Any invalidity, in whole or in part, of any provision of this
Agreement, shall not affect the validity of any other provision of this
Agreement.
1.5 PARAGRAPH HEADING. Paragraph headings are provided for convenience of
reference and do not constitute a part of this Agreement.
1.6 FORCE MAJEURE. The parties shall be excused for delays in performing and
failures to perform their obligations under this Agreement to the extent that
any such delay or failure results from any cause beyond their reasonable
control, including, solely by way of example and without limitation, delays
caused by the other party, acts of God, strikes and other labor disputes of
third parties, civil disorder, catastrophes of nature, fire, explosion, natural
or man-made floods or any severe weather, war, failure of a communications or
computer system, nuclear
attack, embargoes, actions or inactions of governmental authorities. Each party
agrees to make reasonable efforts to prevent such occurrences from affecting the
performance of this Agreement.
1.7 ARBITRATION. Any claim, action, dispute or controversy of any kind arising
out of or relating to this Agreement or concerning any aspect of performance by
either party under the terms of this Agreement shall be resolved by mandatory
and binding arbitration administered by the American Arbitration Association
("AAA") pursuant to the Federal Arbitration Act (Title 9 of the United States
Code) in accordance with this Agreement and the then-applicable Commercial
Arbitration Rules of the AAA. The parties acknowledge and agree that the
transactions evidenced and contemplated hereby involve "commerce" as
contemplated in Section 2 of the Federal Arbitration Act. If Title 9 of the
United States Code is inapplicable to any such Dispute for any reason, such
arbitration shall be conducted pursuant to applicable New York law, this
Agreement and the then-applicable Commercial Arbitration Rules of the AAA. To
the extent that any inconsistency exists between this Agreement and the
foregoing statutes or rules, this Agreement shall control to the extent
permitted by applicable law. Judgment upon the award rendered by the arbitrator
acting pursuant to this Agreement may be entered in, and enforced by, any court
having jurisdiction absent manifest disregard by such arbitrator of applicable
law; provided, however, that the arbitrator shall not amend, supplement or
reform in any manner any of the rights or obligations of any party hereunder or
the enforceability of any of the terms of this Agreement. Any arbitration
proceedings under this Agreement shall be conducted in New York, New York,
before a single arbitrator being a member of the State Bar of New York for no
less than ten (10) years and having recognized expertise in the field or fields
of the matter(s) in dispute.
1.8 ENTIRE AGREEMENT. This Agreement constitutes the complete and exclusive
statement of the agreement between the parties with regard to the matters set
forth herein, and it supersedes all other agreements, proposals, and
representations, oral or written, express or implied, with regard thereto.
Unless otherwise provided herein, no modifications to this Agreement shall be
binding on either party unless made in writing and signed by duly authorized
representatives of both parties. In the event of any conflict between this
Agreement and any addendum, exhibits, or other attachments, the terms of this
Agreement shall govern.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and do
each hereby warrant and represent that their respective signatory, whose
signature appears below, has been and is on the date of this Agreement duly
authorized by all necessary and appropriate corporate action to execute this
Agreement.
AGREED TO AND ACCEPTED BY AGREED TO AND ACCEPTED BY
AMC Financial, Inc AEGIS Mortgage Corporation
By:______________________ By:______________________
Name: D. RICHARD THOMPSON Name: MICHAEL L. KENNEMER
Its: CEO & PRESIDENT Its: EXECUTIVE VICE PRESIDENT