SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
AMC Financial, Inc.
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $60,491,406
(amount estimated to be available for distribution to the Company's
stockholders)
(4) Proposed maximum aggregate value of transaction: $60,491,406
(5) Total fee paid: $12,098.28
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Forms, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
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AMC FINANCIAL, INC.
11111 WILCREST GREEN, SUITE 250
HOUSTON, TEXAS 77042
(713) 787-0100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST ___, 2000
Notice is hereby given that the annual meeting of stockholders of AMC
Financial, Inc. (the "Company") will be held on August ___, 2000, at 1:00 p.m.
(local time) at the Adam's Mark Hotel, 2900 Briarpark at Westheimer, Houston,
Texas 77042 for the following purposes:
1. To elect 4 directors;
2. To approve and adopt the Plan of Liquidation and Dissolution (the
"Plan") attached as Exhibit A to the Proxy Statement;
3. To ratify KPMG LLP as the Company's independent auditors for 2000; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Further information regarding the meeting and the above proposals is set
forth in the accompanying proxy statement. The Board of Directors has fixed the
close of business on July _____, 2000 as the record date for the meeting, and
only those stockholders of record on that date will be entitled to notice of and
to vote at the Annual Meeting or any adjournments thereof.
Your participation in the Company's affairs is important. To help us make
final plans for the Annual Meeting, please return the enclosed postage-paid card
if you plan to attend. Whether or not you plan to attend the meeting, we urge
you to sign and return the enclosed proxy so that your shares will be
represented at the meeting.
By Order of the Board of Directors,
D. Richard Thompson
President and Chief Executive Officer
Houston, Texas
July ____, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL THE PROXY CARD IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL
MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED WITHIN THE
UNITED STATES. YOU MAY, IF SO DESIRED, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN
PERSON AT THE ANNUAL MEETING.
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AMC FINANCIAL, INC.
11111 WILCREST GREEN, SUITE 250
HOUSTON, TEXAS 77042
(713) 787-0100
PROXY STATEMENT
2000 ANNUAL MEETING OF STOCKHOLDERS
--------------
ANNUAL August _____, 2000 Adam's Mark Hotel
MEETING: 1:00 p.m. 2900 Briarpark at Westheimer
Houston, Texas 77042
RECORD DATE: July ___, 2000. If you were a stockholder at the close of business
on that date, then you may vote at the meeting and any adjournment
thereof. As of the record date, there were 7,782,615 shares of the
Company's common stock, par value $.01 per share (the "Common
Stock"), issued and outstanding. The presence, in person or by
proxy, of a majority of the outstanding shares of Common Stock on
the record date is necessary to constitute a quorum at the
meeting.
AGENDA: The purpose of the meeting is to vote on the following proposals:
1. The election of 4 directors.
2. The approval and adoption of the Plan of Liquidation and
Dissolution.
3. The ratification of KPMG LLP as our independent auditors for
2000.
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
PROXIES The Board of Directors.
SOLICITED BY:
MAILING We anticipate first mailing this proxy statement on July __, 2000.
DATE:
REVOKING You may revoke your proxy before it is voted at the meeting. To
YOUR PROXY: revoke:
PROXY o Deliver a signed, written revocation letter, dated later than
your proxy, to Michael C. Balog, Secretary, at our Houston
address listed above;
o Deliver a signed written proxy with a later date; or
o Attend the meeting and vote in person or by proxy. Attending
the meeting alone will not revoke your proxy.
PROXY We will bear the cost of soliciting these proxies. Our
SOLICITATION: directors and officers may solicit proxies for no additional
compensation. We may reimburse brokers or
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other nominees for reasonable expenses they incur in sending
these proxy materials to you if you are a beneficial holder of
our Common Stock.
ANNUAL Our Amended Annual Report on Form 10-K/A for the year ended
REPORT: December 31, 1999 is included as an exhibit to this proxy
statement.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the meeting in accordance with
the directions on the proxies. If no direction is indicated, the shares will be
voted (i) "FOR" THE ELECTION OF ALL DIRECTOR NOMINEES; (ii) "FOR" THE APPROVAL
AND ADOPTION OF THE PLAN OF LIQUIDATION AND DISSOLUTION; AND (iii) "FOR" THE
RATIFICATION OF KPMG LLP AS OUR INDEPENDENT AUDITORS.
PLEASE VOTE - YOUR VOTE IS IMPORTANT
PROMPT RETURN OF YOUR PROXY WILL HELP REDUCE THE COST OF THIS SOLICITATION.
<PAGE>
TABLE OF CONTENTS
(ITEM 1) ELECTION OF DIRECTORS..............................................1
Nominees for Directors.....................................................1
Meetings and Compensation of the Board of Directors........................2
Executive Officers.........................................................2
Vote Required for Election.................................................3
(ITEM 2) APPROVAL OF PLAN OF LIQUIDATION AND DISSOLUTION....................3
Summary....................................................................3
General....................................................................3
Risk Factors Relating To The Liquidation And Dissolution...................3
LIABILITIES..............................................................4
DISTRIBUTABLE CASH.......................................................4
CONSUMMATION OF OUR PLAN OF LIQUIDATION AND DISSOLUTION..................5
THE DISTRIBUTION.........................................................5
FEDERAL INCOME TAX CONSEQUENCES..........................................5
The Business...............................................................5
OVERVIEW OF THE BUSINESS.................................................5
REORGANIZATION...........................................................6
DISCONTINUED OPERATIONS..................................................6
The Plan of Liquidation and Dissolution....................................7
Background and Reasons for the Plan........................................8
Report of Peter J. Solomon Company Limited.................................8
Directors' Recommendation..................................................9
Principal Provisions of the Plan...........................................9
CESSATION OF BUSINESS ACTIVITIES.........................................9
LIQUIDATION OF ASSETS....................................................9
PAYMENT OF DEBTS AND SETTLEMENT OF OBLIGATIONS...........................9
DISTRIBUTIONS TO COMMON STOCKHOLDERS....................................10
CERTIFICATE OF DISSOLUTION..............................................10
POWERS OF OUR BOARD OF DIRECTORS AND OFFICERS...........................10
CANCELLATION OF STOCK...................................................10
RECORD DATE AND RESTRICTIONS ON TRANSFER OF SHARES......................11
LIQUIDATING TRUST.......................................................11
COMPENSATION............................................................11
INDEMNIFICATION.........................................................11
Absence of Appraisal Rights...............................................12
Regulation During Liquidation.............................................12
Material Federal Income Tax Consequences..................................12
GENERAL.................................................................12
CONSEQUENCES TO THE COMPANY.............................................12
CONSEQUENCES TO STOCKHOLDERS............................................12
LIQUIDATING TRUST.......................................................13
TAXATION OF NON-UNITED STATES STOCKHOLDERS..............................13
STATE AND LOCAL TAX.....................................................13
Financial Statements......................................................14
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Vote Required for Approval and Adoption...................................14
(ITEM 3) RATIFICATION OF INDEPENDENT AUDITORS FOR 2000......................14
OTHER INFORMATION...........................................................16
Executive Compensation....................................................16
Stock Options.............................................................16
Comparison of Five-Year Cumulative Total Return...........................16
Report From the Compensation Committee Regarding Executive Compensation...16
Compensation Committee Interlocks and Insider Participation...............17
Employment Agreements.....................................................17
Section 16(a) Beneficial Ownership Reporting Compliance...................17
Certain Relationships and Related Transactions............................17
AEGIS MORTGAGE CORPORATION..............................................17
MOULTON, INC............................................................18
PETER J. SOLOMON COMPANY LIMITED........................................18
PRINCIPAL STOCKHOLDERS..................................................18
Other Matters.............................................................18
Stockholder Proposals.....................................................19
EXHIBIT A..................................................................A-1
EXHIBIT B..................................................................B-1
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(ITEM 1) ELECTION OF DIRECTORS
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NOMINEES FOR DIRECTORS
Four Directors are to be elected to our Board of Directors at the Meeting.
The Board of Directors selected the persons named in the enclosed Proxy to serve
as proxies. The proxies will vote the shares represented by valid proxies at the
meeting and any adjournment thereof. The proxies, unless otherwise specified in
the Proxy, intend to elect the nominees listed below to the Board of Directors.
All 4 nominees are presently members of the Board of Directors. Each duly
elected director will hold office until the next annual meeting of stockholders
or until his successor shall have been elected and qualified. Although the Board
of Directors does not contemplate that any of the nominees will be unable to
serve, if such a situation arises prior to the meeting, the proxies will vote
for the election of such other person(s) as may be nominated by the Board of
Directors to fill the vacancy.
The Company presently conducts no mortgage banking operations and has no
intention to reestablish such operations. Although we anticipate that the
Company will liquidate and dissolve as discussed in Item 2 below, Delaware law
requires that the business and affairs of the Company be managed by a Board of
Directors at least until such dissolution can be effected. If the Plan of
Liquidation and Dissolution is approved by the required stockholder vote, our
Board of Directors will continue to manage and direct the affairs of the Company
after the effectiveness of the dissolution of the Company to oversee the orderly
liquidation of the Company and its assets.
Certain information concerning the nominees is set forth below:
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED AS OF
JULY , 2000
------------------------
DIRECTOR PERCENT
NAME POSITION AGE SINCE SHARES OF CLASS
---- ----------------------------------------- --- -------- ------ --------
<S> <C> <C> <C> <C> <C>
D. Richard Thompson Director and Chairman of the Board, Chief 46 1999 -- --
Executive Officer, and President
Mark A. Neporent Director 42 1999 -- --
Todd R. Snyder Director 38 1999 -- --
Raymond H. Wechsler Director 55 1999 -- --
</TABLE>
D. RICHARD THOMPSON, age 46, Chairman of the Board, Chief Executive
Officer and President, has served as a Director since July 1999. Mr. Thompson
was appointed Chief Executive Officer and President of AEGIS Mortgage
Corporation in 1998 after having served as its Managing Director since 1993. He
holds a law degree from the University of Houston and a
<PAGE>
B.A. degree from Centenary College. Mr. Thompson is a member of the State Bar of
Texas and the American Institute of Certified Public Accountants.
MARK A. NEPORENT, age 42, has served as a Director since July 1999. Mr.
Neporent is Vice President and Chief Operating Officer of Madeleine, L.L.C.
where he has served since 1998. He is also Chief Operating Officer and General
Counsel of Cerberus Capital Management, L.P. where he has served since 1998.
From 1989 to 1998, Mr. Neporent was a partner in the law firm of Schulte, Roth &
Zabel, L.L.P. Mr. Neporent holds a law degree from Syracuse University College
of Law and a B.A. degree from Lehigh University. He is a member of the State Bar
of New York.
TODD R. SNYDER, age 38, has served as a Director since August 1999. Mr.
Snyder has served as a Managing Director of Rothschild Inc. since March 2000.
From 1997 to 2000, Mr. Snyder served as Managing Director of Peter J. Solomon
Company Limited. Mr. Snyder was Principal, Managing Director and National
Director of the Corporate Recovery Practice for Government Enterprises with KPMG
LLP from 1995 to 1997. Mr. Snyder holds a law degree from the University of
Pennsylvania Law School and a B.A. degree with honors from Wesleyan University.
He is a member of the State Bar of New York.
RAYMOND H. WECHSLER, age 55, has served as a Director since August 1999.
Mr. Wechsler is Chairman and Chief Executive of American Equity Partners, Inc.
where he has served since 1992. Mr. Wechsler holds a M.B.A. degree from Columbia
University Graduate School of Business and a B.A. degree from Queens College. He
is a Certified Public Accountant in New York.
MEETINGS AND COMPENSATION OF THE BOARD OF DIRECTORS
Our business and affairs are managed under the broad supervision and
direction of the Board of Directors, which has ultimate responsibility for
establishment and implementation of our goals and policies. The Board of
Directors held seven meetings in 1999 subsequent to the confirmation of the
amended plan by the Bankruptcy Court. All meetings, other than the meeting to
interview financial advisors, were conducted telephonically. Mr. Marc Lasry, a
former director, was absent for three of the four meetings conducted prior to
his resignation. All other directors participated in each of the meetings of the
Board of Directors. Except as set forth, no director attended fewer than 75% of
the aggregate of the meetings of the Board of Directors. We do not have an Audit
Committee or a Compensation Committee.
Each director who is not otherwise compensated by us for service as our
officer is paid for travel expenses, if any. Mr. Snyder and Mr. Wechsler each
receive director fees of $1,000 monthly.
EXECUTIVE OFFICERS
Our executive officers generally serve at the pleasure of our Board of
Directors. Our executive officers are listed in the foregoing table with the
exception of:
MICHAEL L. KENNEMER, age 40, has served us as Chief Financial Officer and
Treasurer since July 1999. Mr. Kennemer has held the position of Executive Vice
President of AEGIS
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Mortgage Corporation since December 1998. From 1995 to 1998, Mr. Kennemer served
as Vice President, Regional Sales Manager for Countrywide Home Loans. He holds a
B.B.A. in Accounting and Finance from Texas Christian University. Mr. Kennemer
is a member of the Texas Mortgage Bankers Association and the American Institute
of Certified Public Accountants.
VOTE REQUIRED FOR ELECTION
Provided a quorum is present, the election of the director nominees
requires a plurality of the votes cast in person or by proxy at the meeting.
Stockholders may not cumulate their votes for the election of Directors. Under
Delaware law, shares as to which a stockholder abstains or withholds from voting
on the election of directors and shares as to which a broker indicates that it
does not have discretionary authority to vote ("Broker Non-Votes") on the
election of directors will not be counted as voting thereon and therefore will
not affect the election of the nominees receiving a plurality of the votes cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ITS NOMINEES.
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(ITEM 2) APPROVAL OF PLAN OF LIQUIDATION AND DISSOLUTION
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SUMMARY
We are proposing the Company's Plan of Liquidation and Dissolution (the
"Plan") for approval by stockholders at the meeting. The Plan calls for the
cessation of our operations, the liquidation of our assets, the payment of or
provision for our debts and obligations, the distribution of our surplus, if
any, to our stockholders and the dissolution of the Company. The Plan provides
that we will be managed by our Board of Directors during the entire liquidation
and dissolution process. Under the Plan, the Board of Directors has options to
create a contingency reserve to account for unknown claims and contingencies and
to create a liquidating trust to liquidate and distribute our assets.
GENERAL
The Plan was adopted by the Board of Directors, subject to stockholder
approval, on May 2, 2000. A copy of the Plan is attached as Exhibit A to this
Proxy Statement. Certain material features of the Plan are summarized below.
STOCKHOLDERS SHOULD READ THE PLAN IN ITS ENTIRETY.
RISK FACTORS RELATING TO THE LIQUIDATION AND DISSOLUTION
In addition to the information included elsewhere in this proxy statement,
you should consider the following risk factors carefully before you decide
whether to vote in favor of the proposal to adopt the Plan. Keep these risk
factors in mind when you read forward-looking statements elsewhere in this proxy
statement. Future events and circumstances could differ significantly from those
anticipated in the forward-looking statements.
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LIABILITIES
If we make a distribution to you and our remaining assets or those placed in
a liquidating trust or a contingency reserve are insufficient to satisfy our
liabilities, you could be liable up to the amount of the distribution.
Delaware law provides that stockholders who receive a corporate distribution
in connection with a corporation's dissolution may be liable for claims against
the corporation. However, your liability for any claims against us after the
dissolution is limited to the amount that is actually distributed to you in the
dissolution. We know of no such claims or the basis for any such claims.
We will pay our expenses and fixed or other known liabilities. If necessary,
we will set aside assets in a liquidating trust or contingency reserve which we
believe to be adequate for payment of any remaining liabilities. There can be no
assurance that the liquidating trust or the contingency reserve will, in fact,
be sufficient. You could be held liable for payment to our creditors for your
pro rata share of a deficiency, if:
o we fail to create an adequate contingency reserve for payment of our expenses
and liabilities; or
o the contingency reserve and assets held in a liquidating trust are less than
the amount ultimately found payable for expenses and liabilities, in the
event that we transfer our assets to a liquidating trust.
In no event would the amount of your liability exceed the amount of your
distributions from us, the liquidating trust and the contingency reserve.
DISTRIBUTABLE CASH
The amount of cash you receive in distributions could be less than that
expected and/or the distribution could be delayed.
Once we have paid or made provision for payment of all of our expenses and
liabilities, we intend to distribute our remaining funds to you as promptly as
practicable. A claimant against us might obtain an injunction against our making
distributions to you under the Plan on the grounds that the amounts to be
distributed are needed to provide for the payment of our expenses and
liabilities, if:
o a court holds that we have failed to make adequate provision for our expenses
and liabilities; or
o the amount ultimately required to be paid in respect of our expenses and
liabilities exceeds the amount available from the contingency reserve and the
assets of any liquidating trust.
Any such action could delay and/or substantially diminish the
distributions to be made to you under the Plan.
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CONSUMMATION OF OUR PLAN OF LIQUIDATION AND DISSOLUTION
The Board of Directors may amend, modify or abandon the Plan even if you
approve it.
Even if you approve the Plan, the Board of Directors has reserved the
right, in its sole discretion, to amend, modify or abandon the dissolution if it
determines that such action would be in our best interests. Such action by our
Board of Directors would not require any approval on your part, insofar as the
action is permitted under Delaware law. If abandoned, our dissolution and
liquidation would be void.
THE DISTRIBUTION
You have no appraisal rights. Neither Delaware law, our Certificate of
Incorporation nor our Bylaws give you any right to dissent from the dissolution
or seek an independent appraisal of our value in connection with our
dissolution. If you approve the Plan, you will be bound to accept any
consideration we receive for the liquidation of any of our remaining assets and
the consideration we give you in the distribution that results.
FEDERAL INCOME TAX CONSEQUENCES
After the approval of the Plan, and until the liquidation is completed, we
will continue to be subject to income tax on our taxable income. We will
recognize gain or loss on the sale of our assets for cash in anticipation of the
liquidating distributions. If we do not sell the assets, but instead distribute
them to you as a liquidating distribution, we will recognize gain or loss as if
such property was sold at its fair market value. It is unlikely that there will
be any material tax payments payable at the corporate level due to the net
operating losses we have incurred. As a result of our liquidation, you will
recognize gain or loss equal to the difference between (i) the sum of the amount
of cash distributed to you and the fair market value (at the time of
distribution) of property, if any, distributed to you and (ii) your adjusted tax
basis for your shares of Common Stock.
You are advised to consult with your tax advisors for a more detailed
analysis of any federal, state or local tax consequences to you of the Plan.
THE BUSINESS
OVERVIEW OF THE BUSINESS
We, formerly Cityscape Financial Corp. ("Cityscape"), were incorporated in
Delaware in December 1988. During 1999 we moved our principal executive offices
from Elmsford, New York to Houston, Texas. Unless otherwise noted, "we" and
"Company" refer to AMC Financial, Inc., formerly Cityscape, and its
subsidiaries. The mailing address of our principal executive office is 11111
Wilcrest Green, Suite 250, Houston, Texas 77042. Our telephone number is: (713)
787-0100.
Until November, 1998, Cityscape was a consumer finance company which,
through its wholly-owned subsidiary, Cityscape Corp. ("CSC"), was in the
business of selling and servicing mortgage loans secured primarily by one- to
four-family residences. Such business was
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suspended indefinitely in November 1998. CSC also had been in the business of
originating and purchasing mortgage loans. The majority of CSC's loans were made
to owners of single-family residences who used the loan proceeds for such
purposes as debt consolidation, financing of home improvements and educational
expenditures. Currently, we are generating revenue from investing funds in
investment-grade commercial paper and interest on loans held for sale.
We reorganized through a plan of reorganization under Chapter 11 of Title
11 of the United States Bankruptcy Code effective as of July 1, 1999. We
selected Peter J. Solomon Company Limited, or PJSC, to advise us on strategic
alternatives. Such alternatives included re-entering the mortgage loan
origination and servicing business, sale of the Company, liquidation of assets
and subsequent distribution of cash to the stockholders upon our dissolution,
and maintenance of our current status. In April 2000 PJSC recommended to the
Board of Directors that the strategy most likely to maximize stockholder value
was our liquidation and subsequent dissolution. On May 2, 2000 the Board of
Directors authorized, subject to stockholder approval, the orderly liquidation
of our assets pursuant to the Plan.
REORGANIZATION
We reorganized through a plan of reorganization under Chapter 11 of Title
11 of the United States Bankruptcy Code. Although the plan of reorganization
became effective on July 1, 1999, the effective date for accounting purposes is
considered to be June 30, 1999, and accordingly, we adopted fresh start
reporting as of June 30, 1999. 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.
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. Accordingly, as a result of fresh start reporting, we were
considered a new reporting entity with no retained earnings or accumulated
deficit as of June 30, 1999. Since our emergence from Chapter 11 proceedings, we
have not had significant operations as a restructured entity. Our consolidated
financial statements include the accounts of CSC and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
DISCONTINUED OPERATIONS
We 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. The Company initially held a 50% interest of CSC-UK and subsequently
purchased the remaining 50% of CSC-UK. CSC-UK had no operations and no
predecessor prior to May 1995. We adopted a plan in March 1998 to sell the
assets of CSC-UK and completed the sale in April 1998 The net assets of CSC-UK
have been reclassified on the Company's consolidated financial statements as
investment in discontinued operations, net. As of March 31, 2000, our net
investment in discontinued operations totaled approximately $12.2 million, net
representing cash on hand in the discontinued operations of approximately $12.1
million and net receivables (net of liabilities) due of approximately $100,000.
No loss was recorded on discontinued operations for the quarter ended March 31,
2000. At December 1999, we recorded a loss on discontinued operations of
$500,037, net of tax
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of $269,251. We expect 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.
THE PLAN OF LIQUIDATION AND DISSOLUTION
On May 2, 2000, the Board of Directors authorized, subject to stockholder
approval, the orderly liquidation of the Company's assets pursuant to the Plan.
The Plan provides that, if stockholder approval is received (such time of
approval deemed the "Effective Date"), our officers and directors will initiate
the winding down, liquidation and dissolution of the Company.
After the Effective Date, we will not engage in any business activities
except for the purpose of preserving the value of our assets, prosecuting and
defending suits by or against us, adjusting and winding up our business and
affairs, selling and liquidating our properties and assets and making
distributions to stockholders in accordance with the Plan. If we deem such
action advisable, the Board of Directors may at any time transfer our remaining
assets and properties to a liquidating trust to complete the liquidation and
distribution of our assets to our stockholders pursuant to the Plan. The
liquidating trust would then succeed to all of our remaining assets, liabilities
and obligations. The Board of Directors may appoint one or more individuals or
corporate persons to act as trustee or trustees of such liquidating trust.
Stockholder approval of the Plan will constitute approval of any appointment and
compensation of such trustees.
During the liquidation of our assets, we may pay to our officers,
directors, employees, "wind-down" consultants, if any, and agents, or any of
them, compensation for services rendered in connection with implementation of
the Plan. Stockholder approval of the Plan will constitute approval of the
payment of any such compensation.
Prior to making any distributions to our stockholders, we will pay, or as
determined by the Board of Directors, make reasonable provision to pay, all of
our claims and obligations, including all contingent, conditional or unmatured
claims known to us.
We will distribute pro rata to holders of our Common Stock, all available
cash including cash proceeds from the sale or disposition of our assets and
properties after making adequate provisions to pay our debts and obligations.
Once the liquidation of our property and assets is substantially
completed, or at such earlier time as determined by the Board of Directors, our
officers will promptly execute and file a certificate of dissolution with the
Secretary of State of the State of Delaware.
The following resolution will be offered at the meeting:
"RESOLVED, that the Company's Plan of Liquidation and Dissolution
recommended by the Board of Directors be authorized and approved."
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BACKGROUND AND REASONS FOR THE PLAN
On July 1, 1999 we were reorganized through a plan of reorganization under
Chapter 11 of Title 11 of the United States Bankruptcy Code and renamed AMC
Financial, Inc. Since the reorganization, we have not engaged in significant
operations. We have concentrated our efforts on settling our debts and
obligations. Available cash has been invested in investment-grade commercial
paper.
In January 2000 we engaged a financial advisor, Peter J. Solomon Company
Limited, to advise us on strategic alternatives for the future. With the
assistance of our advisor, we considered many strategic alternatives including:
re-entering the mortgage loan origination and servicing business, selling the
Company, liquidating our assets and distributing our cash to our stockholders
upon dissolution, and maintenance of our current status. In April 2000 our
financial advisor recommended to the Board of Directors liquidation and
dissolution as the strategy most likely to maximize stockholder value.
REPORT OF PETER J. SOLOMON COMPANY LIMITED
In deciding to recommend the liquidation of our assets, our Board of
Directors considered the report of Peter J. Solomon Company Limited, or PJSC. In
January 2000, our Board of Directors reviewed several potential financial
advisors and considered their expertise in our industry. Our Board of Directors
determined to engage PJSC as its financial advisor because of its experience in
the mortgage industry. PJSC was not retained as an advisor or agent to our
stockholders or any other person. We did not impose any restrictions or
limitations upon PJSC with respect to the investigations made or the procedures
followed by PJSC in completing its report.
We paid PJSC $125,000 upon signing an engagement letter in January 2000.
An additional $125,000 was paid upon PJSC's presentation of strategic
alternatives and recommendation of liquidation. We do not expect to engage PJSC
for any further services. One of our directors, Todd R. Snyder, was employed by
PJSC when we executed the engagement letter, but resigned prior to the
presentation of strategic alternatives.
To complete its assignment for our Board of Directors, PJSC familiarized
itself with our assets and businesses, reviewed publicly available information
and financial statements, reviewed internal financial statements and other
operating data prepared by our management, reviewed financial projections
prepared by our management, discussed our past and current operations, financial
condition and prospects, compared our financial performance and condition with
that of other publicly held and publicly traded companies, reviewed the
documentation of our Chapter 11 bankruptcy proceedings, completed valuation and
liquidation analyses for our assets, and performed such other analyses as they
deemed appropriate.
PJSC evaluated the reasonable expectations of four courses of action - (1)
re-entering the origination and servicing business, (2) the sale of our Company,
(3) the liquidation of our Company, and (4) maintaining the status quo. PJSC's
recommendation was the liquidation of the Company's assets.
8
<PAGE>
DIRECTORS' RECOMMENDATION
After due consideration of alternatives available to us, the Board of
Directors determined that it was advisable and in the best interests of our
stockholders to liquidate the Company.
If our stockholders do not approve the Plan, the Board of Directors will
explore the alternatives then available for our future.
PRINCIPAL PROVISIONS OF THE PLAN
CESSATION OF BUSINESS ACTIVITIES
Pursuant to the Plan, after the Effective Date, we will not engage in any
business activities except for the purpose of preserving the value of our
assets, prosecuting and defending suits by or against us, adjusting and winding
up our business and affairs, selling and liquidating our properties and assets
and making distributions to our stockholders, if any, in accordance with the
Plan.
LIQUIDATION OF ASSETS
Prior to the date we are dissolved, as provided for in the Plan, we will
sell, transfer, or otherwise dispose of all of our property and assets to the
extent, for such consideration and upon such terms and conditions as the Board
of Directors deems expedient and in the best interests of the Company, its
creditors and stockholders, without the requirement of further vote or action by
our stockholders. Our assets and properties may be sold in bulk to one buyer or
a small number of buyers or on a piecemeal basis to numerous buyers. We will not
be required to obtain appraisals or other third party opinions as to the value
of our properties and assets in connection with the liquidation. As part of the
liquidation of our property and assets, we will collect, or make provision for
the collection of, all accounts receivable, debts and claims owing to us.
Following our dissolution, any assets remaining available for distribution to
holders of our Common Stock will be distributed only in accordance with the
provisions of the Delaware General Corporation Law.
PAYMENT OF DEBTS AND SETTLEMENT OF OBLIGATIONS
Prior to making any distributions to our stockholders, if any, we will
pay, or as determined by the Board of Directors, make reasonable provision to
pay, all our claims and obligations, including all contingent, conditional or
unmatured claims known to us. Following the Effective Date, the Board of
Directors may establish a contingency reserve (the "Contingency Reserve") and
set aside into the Contingency Reserve such amounts of our cash or property as
the Board of Directors, in its sole discretion, determines is sufficient to
account for unknown events, claims, contingencies and expenses incurred in
connection with the collection and defense of our property and assets and the
liquidation and dissolution provided for in the Plan. Following the payment,
satisfaction or other resolution of all such events, claims, contingencies and
expenses, any amounts remaining in the Contingency Reserve shall be distributed
in accordance with the Plan.
9
<PAGE>
DISTRIBUTIONS TO COMMON STOCKHOLDERS
Following the payment or the provision for the payment of our claims and
obligations, we will distribute pro rata to the holders of our Common Stock all
of our remaining property and assets, if any, in one or a series of
distributions.
CERTIFICATE OF DISSOLUTION
Once the liquidation of our property and assets is substantially completed
(as determined by the Board of Directors) or such earlier time as our Board of
Directors determines, in its discretion, to be appropriate, our officers will
execute and file with the Secretary of State of the State of Delaware, a
certificate of dissolution conforming to the requirements of Section 275 of the
Delaware General Corporation Law (the "Certificate of Dissolution"). From and
after the date such documents are accepted by the Secretary of State of the
State of Delaware, the Company will be deemed to be completely dissolved, but
will continue to exist under Delaware law for the purposes of paying, satisfying
and discharging any existing debts or obligations, collecting and distributing
its assets, and doing all other acts required to liquidate and wind up our
business affairs. The members of our Board of Directors in office at the time
the Certificate of Dissolution is accepted for filing by the Secretary of State
of the State of Delaware will have all powers provided to them under the
Delaware General Corporation Law and other applicable law.
POWERS OF OUR BOARD OF DIRECTORS AND OFFICERS
Our Board of Directors and officers are authorized to change the terms of
the Plan prior to filing the Certificate of Dissolution, to change the terms of
any of the transactions referred to in the Plan, to interpret any of the
provisions of the Plan, and to make, execute and deliver such other agreements,
conveyances, assignments, transfers, certificates and other documents and take
such other action as our Board of Directors and officers deem necessary or
desirable in order to carry out the provisions of the Plan and effect the
complete liquidation and dissolution of the Company in accordance with the
Delaware General Corporation Law and any rules and regulations of the Securities
and Exchange Commission or any state securities commission.
CANCELLATION OF STOCK
The distributions to our stockholders pursuant to the Plan, if any, will
be in complete redemption and cancellation of all of the outstanding Common
Stock. As a condition to any disbursement under the Plan made after the filing
of the Certificate of Dissolution (the "Dissolution Distribution"), our Board of
Directors may require you to surrender your certificates evidencing stock to us
or our agent for cancellation. If your certificate for shares of Common Stock
has been lost, stolen or destroyed, you may be required, as a condition to the
disbursement of any distribution under the Plan, to furnish us with satisfactory
evidence of the loss, theft or destruction thereof, together with a surety bond
or other security or indemnity reasonably satisfactory to us.
10
<PAGE>
RECORD DATE AND RESTRICTIONS ON TRANSFER OF SHARES
We will close our stock transfer books and discontinue recording transfers
of Common Stock at the close of business on the record date fixed by the Board
for the Dissolution Distribution (the "Record Date"), and thereafter,
certificates representing Common Stock shall not be assignable or transferable
on our books except by will, intestate succession or operation of law. The
proportionate interests of all of our stockholders shall be fixed on the basis
of their respective stock holdings at the close of business on the Record Date,
and, after the Record Date, any distributions made by us shall be made solely to
the stockholders of record at the close of business on the Record Date, except
as may be necessary to reflect subsequent transfers recorded on our books as a
result of any assignments by will, intestate succession or operation of law.
LIQUIDATING TRUST
If advisable for any reason to complete the liquidation and distribution
of our assets to our stockholders, the Board of Directors may at any time
transfer to a liquidating trust (the "Trust") our remaining assets. The Trust
thereupon will succeed to all of our then remaining assets, including all
amounts in the Contingency Reserve, and any remaining liabilities and
obligations of the Company. The sole purpose of the Trust will be to prosecute
and defend suits by or against the Company, to settle and close the business of
the Company, to dispose of and convey the assets of the Company, to satisfy the
remaining liabilities and obligations of the Company and to distribute the
remaining assets of the Company to our stockholders. Any distributions made from
the Trust will be made in accordance with the provisions of the Plan. The Board
of Directors may appoint one or more individuals or corporate persons to act as
trustee or trustees of the Trust and to cause the Company to enter into a
liquidating trust agreement with such trustee or trustees on such terms and
conditions as the Board of Directors determines. Approval of the Plan by the
stockholders also will constitute the approval by the stockholders of any
appointment of the trustees and of the liquidating trust agreement between the
Company and such trustees.
COMPENSATION
We may pay our officers, directors, employees and agents, or any of them,
compensation for services rendered in connection with the implementation of the
Plan. Further, if deemed advisable by the Board of Directors, we may pay a
"wind-down" consultant reasonable compensation for services rendered in
connection with our liquidation and dissolution. We presently employ one full
time employee and we have an Administrative Services Agreement with Aegis
Mortgage Corporation ("AEGIS") to assume responsibility for our accounting and
administrative activities. In addition to the expenses we incur under the
Administrative Services Agreement, certain AEGIS employees devote a portion of
their time to assist with our matters and as such their salaries and related
benefits are charged to us at cost. We are incurring expenses of approximately
$210,500 per month pursuant to these arrangements.
INDEMNIFICATION
We shall continue to indemnify our officers, directors, employees and
agents in accordance with our Certificate of Incorporation, bylaws and any
contractual arrangements as therein or elsewhere provided, and such
indemnification shall apply to acts or omissions of such
11
<PAGE>
persons in connection with the implementation of the Plan and the winding up of
our affairs. Our obligation to indemnify such persons may be satisfied out of
the Contingency Reserve or out of assets transferred to the Trust, if any. Our
Board of Directors and the trustees of any Trust are authorized to obtain and
maintain insurance as may be necessary to cover our indemnification obligations.
ABSENCE OF APPRAISAL RIGHTS
Our stockholders are not entitled to appraisal rights or to any similar
rights of dissenters for their shares of Common Stock in connection with the
approval or consummation of the transactions contemplated by the Plan under the
Delaware General Corporation Law.
REGULATION DURING LIQUIDATION
Except for our compliance with the applicable rules and regulations of the
Securities and Exchange Commission, no United States federal or state regulatory
requirements must be complied with or approvals obtained in connection with the
liquidation.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a summary of the material federal income tax
consequences that may result from our liquidation and the distribution of our
assets to stockholders pursuant to the Plan in accordance with the provisions of
the Internal Revenue Code as currently in force. This summary does not discuss
all aspects of federal income taxation that may be relevant to a particular
stockholder or to certain types of persons subject to special treatment under
federal income tax laws (for example, life insurance companies, tax-exempt
organizations or financial institutions) and does not discuss any aspects of
state, local or foreign tax laws that may apply to a particular stockholder.
Because distributions, if any, pursuant to the Plan may occur at various times
and in more than one tax year, no assurances can be given that the tax treatment
described herein will continue to apply unchanged at the time of later
distributions. Stockholders are urged to consult their personal tax advisors as
to their own tax situation.
CONSEQUENCES TO THE COMPANY
After adoption of the Plan, we will continue to be subject to federal
income tax on our income until we complete the distribution of all of our cash
and other assets to stockholders or liquidating trusts. We may recognize income
with respect to any discharge of indebtedness by our creditors.
CONSEQUENCES TO STOCKHOLDERS
If we make liquidating distributions with respect to our outstanding
Common Stock, each stockholder may recognize gain or loss equal to the
difference between (i) the sum of the amount of cash distributed to such
stockholder, and (ii) the stockholder's tax basis in his or her shares of Common
Stock. Provided the stockholder holds the shares of Common Stock as capital
assets, gain or loss recognized by a stockholder will be capital gain or loss
and will be long-term if the
12
<PAGE>
stockholder's holding period for the shares of Common Stock is more than one
year, and short-term if such holding period is one year or less.
A stockholder's gain or loss will be computed on a "per share" basis. Each
stockholder must allocate liquidating distributions from us, if any, equally to
each share of Common Stock and compare the allocated portion of each liquidating
distribution with the stockholder's tax basis in each such share. Because it is
likely that any liquidating distributions will be paid in installments, each
stockholder must first recover the stockholder's tax basis in each share before
recognizing any gain or loss. Thus, each stockholder may recognize gain on an
installment only to the extent that the aggregate value of the installment, and
all prior installments the stockholder received with respect to any share of
Common Stock, exceeds the tax basis in that share, and may recognize a loss with
respect to any share of Common Stock only when the stockholder has received the
final installment and the aggregate value of all liquidating distributions from
the Company with respect to that share of Common Stock is less than the
stockholder's tax basis in such share.
LIQUIDATING TRUST
If we transfer our assets to a liquidating trust, stockholders may be
treated for tax purposes as having received their pro rata share of our assets
when the transfer occurs. The amount of the taxable distribution to stockholders
on the transfer of our assets to the liquidating trust would be reduced by the
amount of our known liabilities which the liquidating trust assumes or to which
such transferred assets are subject. The liquidating trust itself generally will
not be subject to tax. After the formation of the liquidating trust, each
stockholder would take into account for federal income tax purposes the
stockholder's allocable portion of any income, gain, deduction or loss which the
liquidating trust recognizes. Distributions by the liquidating trust to
stockholders may not be taxable to them. Each stockholder may become liable for
tax as a result of the ongoing operations of the liquidating trust, even if the
liquidating trust has not made any actual distributions to stockholders.
TAXATION OF NON-UNITED STATES STOCKHOLDERS
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
STATE AND LOCAL TAX
Stockholders may also be subject to state or local taxes, and should
consult their tax advisors with respect to the state and local tax consequences
of the Plan.
THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. THE COMPANY RECOMMENDS THAT EACH
STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE PLAN.
13
<PAGE>
FINANCIAL STATEMENTS
Our Annual Report on Form 10-K/A is attached hereto as Exhibit B.
VOTE REQUIRED FOR APPROVAL AND ADOPTION
Provided a quorum is present, approval and adoption of the Plan requires
the affirmative vote of a majority of the outstanding shares of our Common Stock
entitled to vote at the meeting. Abstentions and Broker Non-Votes have the same
legal effect as a vote against approval and adoption of the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND
ADOPTION OF THE PLAN.
THIS PROXY STATEMENT CONTAINS STATEMENTS THAT ARE NOT BASED ON HISTORICAL
FACT AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. AMONG OTHER THINGS, THEY REGARD THE
COMPANY'S LIQUIDITY, FINANCIAL CONDITION, OPERATIONAL MATTERS, CERTAIN STRATEGIC
INITIATIVES AND ALTERNATIVES AND THEIR POTENTIAL OUTCOMES AND THE POTENTIAL
VALUE OF THE COMPANY'S PROPERTY AND ASSETS. WORDS OR PHRASES DENOTING THE
ANTICIPATED RESULTS OF FUTURE EVENTS, SUCH AS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECTS," "MAY," "NOT CONSIDERED LIKELY," "ARE EXPECTED TO," "WILL
CONTINUE," "PROJECT," AND SIMILAR EXPRESSIONS THAT DENOTE UNCERTAINTY ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE METHODS USED BY THE
BOARD OF DIRECTORS AND MANAGEMENT IN ESTIMATING THE VALUE OF THE COMPANY'S
PROPERTY AND ASSETS DO NOT RESULT IN AN EXACT DETERMINATION OF VALUE NOR ARE
THEY INTENDED TO INDICATE THE AMOUNT, IF ANY, A STOCKHOLDER MAY RECEIVE IN
LIQUIDATION. THE PRICES AT WHICH THE COMPANY WILL BE ABLE TO SELL ITS PROPERTY
AND ASSETS DEPEND LARGELY ON FACTORS BEYOND THE COMPANY'S CONTROL, INCLUDING,
WITHOUT LIMITATION, THE RATE OF INFLATION, CHANGES IN INTEREST RATES, THE
CONDITION OF REAL ESTATE AND FINANCIAL MARKETS AND THE AVAILABILITY OF FINANCING
TO PROSPECTIVE PURCHASERS.
- --------------------------------------------------------------------------------
(ITEM 3) RATIFICATION OF INDEPENDENT AUDITORS FOR 2000
- --------------------------------------------------------------------------------
The Board of Directors appointed our existing certified public accountant,
KPMG LLP, as our independent auditors for 2000 and such appointment is hereby
submitted to the stockholders for ratification. A representative of KPMG LLP is
expected to be present at the meeting and to be available to respond to
appropriate stockholder questions.
In the event the appointment of KPMG LLP as our independent auditors for
2000 is not ratified by the stockholders, the adverse vote will be considered as
a direction to the Board of Directors to select other auditors for the fiscal
year ending December 31, 2000.
14
<PAGE>
Provided a quorum is present, the affirmative vote of a majority of the
votes cast by holders of Common Stock issued and outstanding and entitled to
vote is required for the ratification of the Company's independent auditors for
fiscal year 2000. Under Delaware law, abstentions and Broker Non-Votes are
counted as present in determining whether the quorum requirement is satisfied.
Abstentions and Broker Non-Votes have the same legal effect as a vote against
ratification of the Company's independent accountants.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION
OF THE BOARD'S APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR 2000.
15
<PAGE>
OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the periods indicated of each individual who was our (i) chief
executive officer at any time during 1999 or (ii) a Named Executive.
<TABLE>
<CAPTION>
ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION
---- ---- ----------- ----------- -----------
<S> <C> <C> <C> <C>
D. Richard Thompson 1999 $ 300,000 -- --
CHIEF EXECUTIVE OFFICER AND PRESIDENT 1998 -- -- --
1997 -- -- --
Steven M. Miller
FORMER CHIEF EXECUTIVE OFFICER OF CITYSCAPE; 1999 $ 174,492 $ 479,630 --
SENIOR VICE PRESIDENT OF CSC 1998 $ 250,000 $ 600,000 --
1997 $ 201,923 -- $80,000 (1)
Cheryl P. Carl 1999 $ 323,639 $ 84,814 --
FORMER VICE PRESIDENT AND SECRETARY OF 1998 $ 324,755 $ 200,000 --
CITYSCAPE; TREASURER AND SECRETARY OF CSC 1997 $ 215,750 -- --
</TABLE>
(1) Represents consulting fees paid to Mr. Miller prior to his employment.
Stock options granted to former Cityscape employees are not listed since
the stock option plan was effectively terminated by the confirmation of
Cityscape's amended plan of reorganization in Bankruptcy Court.
STOCK OPTIONS
We granted no options during 1999. Cityscape's stock option plan became
inoperative with the confirmation of the amended plan of reorganization in
Bankruptcy Court.
There were no shares of Cityscape's common stock acquired through the
exercise of stock options during 1999.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Our Common Stock is not registered on a national securities exchange,
market or board. Since our Common Stock is not publicly traded, a comparison
graph is not provided.
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
We do not have a Compensation Committee since we have only one employee,
Mr. Thompson. The bankruptcy court approved Mr. Thompson's salary of $50,000
monthly.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since we have no Compensation Committee, there are no relationships
required to be disclosed.
EMPLOYMENT AGREEMENTS
We do not have an employment agreement with Mr. Thompson. Cityscape had an
employment agreement with Cheryl P. Carl requiring that she devote her full time
and best efforts to Cityscape during the term of the agreement. The employment
agreement with Ms. Carl was for a term commencing May 31, 1998 and ended
December 31, 1999. The agreement provided for an annual salary of $275,000.
Because of Ms. Carl's commitment to remain employed with the Company during the
Company's reorganization, the agreement also provided for the payment of a stay
bonus of $200,000, all of which was paid to Ms. Carl by January 5, 1999. Ms.
Carl's compensation for the year ended December 31, 1999 totaled $408,453.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own more than 10% of our Common
Stock (collectively, "Filing Persons") to file with the SEC initial reports of
ownership (Form 3), reports in changes of ownership (Form 4), or annual report
of ownership (Form 5). All Filing Persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed.
To our knowledge based on our review of the copies of such reports
furnished to us and upon certain other representations made by filing persons,
each of D. Richard Thompson, Michael L. Kennemer, Todd R. Snyder and Raymond A.
Wechsler failed to timely file one (1) Form 3, which form was subsequently
filed.
The Company is unable to determine whether the beneficial owners of
Cityscape common stock have complied with Section 16(a) due to the lack of
records and lack of responses to written requests directed to former officers
and directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the normal course of business some members of the Board of Directors
have proposed business alliances with companies with which they are associated.
In the opinion of management, each of these transactions or arrangements was
entered into on terms as favorable to us as could have been obtained in
transactions or arrangements with unaffiliated third parties.
AEGIS MORTGAGE CORPORATION
We have entered into an Administrative Services Agreement with AEGIS
Mortgage Corporation ("AEGIS") pursuant to which AEGIS has assumed
responsibility for our accounting and administrative activities. We paid AEGIS
$360,000 for such services during 1999.
We have entered into a Mortgage Loan Specialty Servicing Agreement with
AEGIS pursuant to which AEGIS performs services to initiate foreclosure, file
claims and aggressively
17
<PAGE>
pursue loss mitigation activity on specific loans. During the year ended
December 31, 1999, we paid AEGIS servicing fees of $42,805. We expect to pay
servicing fees to AEGIS in excess of $60,000 for the year 2000. Mr. Thompson,
Chairman of the Board of Directors, is a Director, Chief Executive Officer and
President of AEGIS.
MOULTON, INC.
While operating under our former name Cityscape, and prior to the filing
of our voluntary bankruptcy petition and the voluntary bankruptcy petition of
our subsidiary Cityscape Corp., we obtained consulting services from Moulton,
Inc., ("Moulton"). For the year ended December 31, 1999, we paid Moulton
$536,000. We do not anticipate utilizing the services of Moulton in 2000. Mr.
Thompson, Chairman of the Board of Directors, is President and a 50% shareholder
of Moulton. The remaining 50% is owned by Mr. Thompson's wife.
PETER J. SOLOMON COMPANY LIMITED
We engaged PJSC to develop, evaluate and recommend strategic alternatives
which would maximize stockholder value. We paid PJSC $125,000 upon signing an
engagement letter in January 2000. An additional $125,000 was paid upon PJSC's
presentation of strategic alternatives. The Company does not expect to engage
PJSC for any further services. Mr. Snyder, a director of the Company, was
employed by PJSC when the engagement letter was signed but has since resigned.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of July _____, 2000 by each
stockholder known by us to be the beneficial owner of more than 5% of our Common
Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF
NAME OF PERSON OR IDENTITY OF GROUP SHARES BENEFICIALLY OWNED CLASS
- --------------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Stephen Feinberg 2,638,133 33.9%
450 Park Avenue
New York, NY 10022
MacKay Shields, L.L.C. 1,978,596 25.4%
9 West 57th
New York, NY 10019
Continental Casualty Company 611,371 7.9%
CNA Plaza
Chicago, Illinois 60685
</TABLE>
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented
at the meeting. If any other matters should properly come before the meeting,
the person named in the Proxy will vote the Proxies according to his discretion.
18
<PAGE>
STOCKHOLDER PROPOSALS
In the event that the Company has not been dissolved by such time, the
Company intends to mail next year's proxy statement to its stockholders on or
about July __, 2001. Any stockholder proposals intended to be presented at the
Company's 2001 Annual Meeting of Stockholders must be received by the Company at
its executive office at 11111 Wilcrest Green, Suite 250, Houston, Texas 77042 on
or before March _____, 2001.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ D. Richard Thompson
D. Richard Thompson
Chairman of the Board and Chief Executive Officer
July ___, 2000
Houston, Texas
19
<PAGE>
EXHIBIT A
TO
PROXY STATEMENT
2000 ANNUAL MEETING OF STOCKHOLDERS
AMC FINANCIAL, INC.
--------------------------------------------------------------
PLAN OF LIQUIDATION AND DISSOLUTION OF
AMC FINANCIAL, INC.
WHEREAS, the Board of Directors (the "BOARD") of AMC Financial, Inc. (the
"COMPANY"), a Delaware corporation, has deemed it advisable and in the best
interests of the Company that the Company be liquidated and subsequently
dissolved and has approved and determined that this Plan of Liquidation and
Dissolution of AMC Financial, Inc. (this "PLAN") is advisable and in the best
interests of the creditors and stockholders of the Company; and
WHEREAS, the Board has directed that this Plan be submitted to the
stockholders of the Company for their approval or rejection at the annual
meeting of stockholders of the Company to be held on or about August ____, 2000
or such other date as the Board may determine, in accordance with the
requirements of the Delaware General Corporation Law (the "DGCL"), the Company's
Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION") and the
Company's bylaws (the "BYLAWS"), and has authorized the filing with the
Securities and Exchange Commission (the "SEC"), and the distribution of a proxy
statement to stockholders (the "PROXY STATEMENT"), in connection with the
solicitation of proxies for such meeting; and
WHEREAS, the Board, upon substantial completion of the liquidation of the
Company's properties and assets or such earlier time as determined in its
discretion, may voluntarily dissolve the Company in accordance with the DGCL and
the Internal Revenue Code of 1986, as amended (the "CODE"), upon the terms and
conditions set forth in this Plan;
NOW, THEREFORE, the Board hereby adopts and sets forth this Plan of
Liquidation and Dissolution of AMC Financial, Inc. as follows:
I. EFFECTIVE DATE OF PLAN.
The effective date of this Plan (the "EFFECTIVE DATE") shall be the date
on which the stockholders of the Company vote to approve this Plan.
II. CESSATION OF BUSINESS ACTIVITIES.
This Plan is intended to be a complete plan of liquidation and
dissolution. After the Effective Date, the Company shall not engage in any
business activities except for the purpose of
A-1
<PAGE>
preserving the value of its assets, prosecuting and defending suits by or
against the Company, adjusting and winding up its business and affairs, selling
and liquidating its properties and assets and making distributions to
stockholders in accordance with this Plan. The directors in office on the
Effective Date and, at the pleasure of such directors, the officers of the
Company, shall continue in office solely for these purposes and as otherwise
provided in this Plan.
III. LIQUIDATION OF ASSETS.
Prior to the date the Certificate of Dissolution (as defined in Section
VII below) is accepted by the Secretary of the State of Delaware (the "SECRETARY
OF STATE") and the Company is dissolved, as provided for in Section VII below
(the "DISSOLUTION DATE"), the Company shall determine whether and when to (i)
transfer the Company's property and assets to a liquidating Trust (established
pursuant to Section XI hereof), (ii) collect, sell, exchange, transfer, lease,
license or otherwise dispose of all of its property and assets to the extent,
for such consideration (which may consist in whole or in part of money or other
property) and upon such terms and conditions as the Board, in its absolute
discretion, deems expedient and in the best interests of the Company and its
creditors and stockholders or (iii) pursue any combination of the options laid
out in (i) and (ii) above, all without any further vote or action by the
Company's stockholders. The Company's assets and properties may be sold in bulk
to one buyer or a small number of buyers or on a piecemeal basis to numerous
buyers. The Company will not be required to obtain appraisals or other third
party opinions as to the value of its properties and assets in connection with
the liquidation. As part of the liquidation of its property and assets, the
Company shall collect, or make provision for the collection, sale or settlement
of, all accounts receivable, debts and claims owing to the Company.
Following the Dissolution Date, any assets remaining available for
distribution to holders of the Common Stock (as defined below) shall be
distributed (the "DISSOLUTION DISTRIBUTION") only in accordance with the
provisions of the DGCL.
IV. PAYMENT OF DEBTS.
Prior to making any distributions to the Company's stockholders, the
Company shall pay, or as determined by the Board, make reasonable provision to
pay, all claims and obligations of the Company, including all contingent,
conditional or unmatured claims known to the Company.
Following the Effective Date, the Board may, if and to the extent deemed
necessary or advisable by the Board in its absolute discretion, establish a
contingency reserve (the "CONTINGENCY RESERVE") and set aside into the
Contingency Reserve such amounts of cash or property of the Company as the
Board, in its sole discretion, determines is sufficient to account for unknown
events, claims, contingencies and expenses incurred in connection with the
collection and defense of the Company's property and assets and the liquidation
and dissolution provided for in this Plan. Following the payment, satisfaction
or other resolution of all such events, claims, contingencies and expenses, any
amounts remaining in the Contingency Reserve shall be distributed in accordance
with this Plan.
A-2
<PAGE>
V. DISTRIBUTIONS TO COMMON STOCKHOLDERS.
Following the payment or the provision for the payment of the Company's
claims and obligations as provided in Section IV, the Company shall distribute
pro rata to the holders of the Company's common stock, par value $0.01 (the
"COMMON STOCK"), all of its available cash including cash proceeds of any sale,
exchange or disposition, and any remaining property and assets, if any, in one
or a series of distributions. Cash and cash proceeds of property set aside in
the Contingency Reserve shall not be considered available cash.
If any distribution to a stockholder cannot be made, whether because the
stockholder cannot be located, has not surrendered its certificates evidencing
Common Stock as required hereunder or for any other reason, the distribution to
which such stockholder is entitled (unless transferred to a Trust established
pursuant to Section XI hereof) shall be transferred, at such time as the final
liquidating distribution is made by the Company, to the official of such state
or jurisdiction that the Company reasonably believes to be authorized by
applicable law to receive the proceeds of such distribution. The proceeds of
such distribution shall thereafter be held solely for the benefit of and for
ultimate distribution to such stockholder as the sole equitable owner thereof
and shall be treated as abandoned property and escheat to the applicable state
or other jurisdiction in accordance with applicable law. In no event shall the
proceeds of any such distribution revert to or become the property of the
Company.
VI. NOTICE OF LIQUIDATION.
As soon as practicable after the Effective Date, but in no event later
than twenty (20) days prior to the filing of the Certificate of Dissolution as
provided in Section VII below, the Company shall mail notice in accordance with
the DGCL to all its creditors and employees that this Plan has been approved by
the Board and the Company's stockholders.
VII. CERTIFICATE OF DISSOLUTION.
Once the liquidation of the Company's property and assets is substantially
completed (as determined by the Board) or such earlier time as the Board
determines, in its discretion, to be appropriate, the officers of the Company
shall execute and cause to be filed with the Secretary of State, and elsewhere
as may be required or deemed appropriate, such documents as may be required to
effectuate the dissolution of the Company, including a Certificate of
Dissolution conforming to the requirements of Section 275 of the DGCL (the
"CERTIFICATE OF DISSOLUTION"). From and after the date such documents are
accepted by the Secretary of State, the Company will be deemed to be completely
dissolved, but will continue to exist under Delaware law for the purposes of
paying, satisfying and discharging any existing debts or obligations, collecting
and distributing its assets, and doing all other acts required to liquidate and
wind up the Company's business affairs. The members of the Board in office at
the time the Certificate of Dissolution is accepted for filing by the Secretary
of State shall have all powers provided to them under the DGCL and other
applicable law.
A-3
<PAGE>
VIII. POWERS OF BOARD AND OFFICERS.
The Board and the officers of the Company are authorized to approve such
changes to the terms of any of the transactions referred to herein, to interpret
any of the provisions of this Plan, and to make, execute and deliver such other
agreements, conveyances, assignments, transfers, certificates and other
documents and take such other action as the Board and the officers of the
Company deem necessary or desirable in order to carry out the provisions of this
Plan and effect the complete liquidation and dissolution of the Company in
accordance with the Code and the DGCL and any rules and regulations of the SEC
or any state securities commission, including, without limitation, any
instruments of dissolution or other documents, and withdrawing any qualification
to conduct business in any state in which the Company is so qualified, as well
as the preparation and filing of any tax returns.
IX. CANCELLATION OF STOCK.
The distributions to the Company's stockholders pursuant to this Plan, if
any, shall be in complete redemption and cancellation of all of the outstanding
Common Stock. As a condition to the disbursement of the Dissolution Distribution
under this Plan, the Board may require stockholders to surrender their
certificates evidencing stock to the Company or its agent for cancellation. If a
stockholder's certificate for shares of Common Stock has been lost, stolen or
destroyed, such stockholder may be required, as a condition to the disbursement
of any distribution under this Plan, to furnish to the Company satisfactory
evidence of the loss, theft or destruction thereof, together with a surety bond
or other security or indemnity reasonably satisfactory to the Company.
X. RECORD DATE AND RESTRICTIONS ON TRANSFER OF SHARES.
The Company shall close its stock transfer books and discontinue recording
transfers of Common Stock at the close of business on the record date fixed by
the Board for the Dissolution Distribution (the "RECORD DATE"), and thereafter,
certificates representing the Common Stock shall not be assignable or
transferable on the books of the Company except by will, intestate succession or
operation of law. The proportionate interests of all of the stockholders of the
Company shall be fixed on the basis of their respective stock holdings at the
close of business on the Record Date, and, after the Record Date, any
distributions made by the Company shall be made solely to the stockholders of
record at the close of business on the Record Date, except as may be necessary
to reflect subsequent transfers recorded on the books of the Company as a result
of any assignments by will, intestate succession or operation of law.
XI. LIQUIDATING TRUST.
If deemed advisable for any reason to complete the liquidation and
distribution of the Company's assets to its stockholders, the Board, in its sole
discretion, may at any time transfer to a liquidating trust (the "TRUST") the
remaining assets of the Company. The Trust thereupon shall succeed to all of the
then remaining assets of the Company, including all amounts in the Contingency
Reserve, and any remaining liabilities and obligations of the Company. The sole
purpose of the Trust shall be to prosecute and defend suits by or against the
Company, to settle and close the business of the Company, to dispose of and
convey the assets of the Company, to satisfy the remaining liabilities and
obligations of the Company and to distribute the remaining
A-4
<PAGE>
assets of the Company to its stockholders. Any distributions made from the Trust
shall be made in accordance with the provisions of this Plan. The Board may
appoint one or more individuals or corporate persons to act as trustee or
trustees of the Trust and to cause the Company to enter into a liquidating trust
agreement with such trustee or trustees on such terms and conditions as the
Board determines. Approval of this Plan by the stockholders also will constitute
the approval by the stockholders of any appointment of the trustees and of the
liquidating trust agreement between the Company and such trustees.
XII. COMPENSATION.
The Company may pay to the Company's officers, directors, employees,
agents and representatives, or any of them, compensation or additional
compensation above their regular compensation for services rendered in
connection with the implementation of this Plan. Further, if deemed advisable by
the Board, the Company may pay "wind-down" or other consultants reasonable
compensation for services rendered in connection with the liquidation and
dissolution of the Company. Approval of this Plan by the stockholders of the
Company shall constitute the approval of the stockholders of the payment of any
such compensation referred to in this Section XII.
XIII. INDEMNIFICATION.
The Company shall continue to indemnify its officers, directors, employees
and agents in accordance with its Certificate of Incorporation, bylaws and any
contractual arrangements as therein or elsewhere provided, and such
indemnification shall apply to acts or omissions of such persons in connection
with the implementation of this Plan and the winding up of the affairs of the
Company. The Company's obligation to indemnify such persons may be satisfied out
of the Contingency Reserve or out of assets transferred to the Trust, if any.
The Board and the trustees of any Trust are authorized to obtain and maintain
insurance as may be necessary to cover the Company's indemnification
obligations.
XIV. COSTS.
The Company is authorized, empowered and directed to pay all consulting,
brokerage, agency, legal, accounting, professional, printing and other fees,
costs and expenses for services rendered to the Company in connection with the
preparation, adoption and implementation of this Plan, including, without
limitation, any such fees and expenses incurred in connection with the
preparation of a proxy statement for the meeting of stockholders to be held for
the purpose, among others, of voting upon the approval of this Plan.
XV. AMENDMENT, MODIFICATION AND TERMINATION.
Notwithstanding authorization or consent to this Plan and the transactions
contemplated hereby by the Company's stockholders, the Board may modify, amend
or abandon this Plan and the transactions contemplated hereby without further
action by the Company's stockholders to the extent permitted by the DGCL.
A-5
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EXHIBIT B
TO
PROXY STATEMENT
2000 ANNUAL MEETING OF STOCKHOLDERS
AMC FINANCIAL, INC.
-------------------------------------------------
ANNUAL REPORT ON FORM 10-K/A OF
AMC FINANCIAL, INC.
B-1
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27314
AMC FINANCIAL, INC.
(Formerly CITYSCAPE FINANCIAL CORP.)
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2994671
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<TABLE>
<CAPTION>
<S> <C>
11111 WILCREST GREEN, SUITE 250, HOUSTON, TEXAS 77042 (713) 787-0100
(Address of principal executive offices, including zip code) (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 $.01 PER SHARE
</TABLE>
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 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 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. [ ]
As of April 17, 2000, the aggregate market value of the registrant's common
stock held by non-affiliates: N/A
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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 [ ]
ON OCTOBER 6, 1998, THE REGISTRANT AND ITS WHOLLY-OWNED SUBSIDIARY EACH FILED
VOLUNTARY PETITIONS FOR RELIEF UNDER CHAPTER 11 OF TITLE 11 WITH THE UNITED
STATES BANKRUPTCY COURT FOR THE FEDERAL BANKRUPTCY CODE IN THE SOUTHERN DISTRICT
OF NEW YORK.
APPLICABLE ONLY TO CORPORATE ISSUERS:
7,767,452 SHARES, $.01 PAR VALUE, OF COMMON STOCK WERE OUTSTANDING AS OF
APRIL 17, 2000
<PAGE>
AMC FINANCIAL, INC.
(FORMERLY CITYSCAPE FINANCIAL CORP.)
FORM 10-K/A REPORT INDEX
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I.
ITEM 1. BUSINESS ..................................................... 3
ITEM 2. PROPERTIES ................................................... 6
ITEM 3. LEGAL PROCEEDINGS ............................................ 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 11
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .......................................... 12
ITEM 6. SELECTED FINANCIAL DATA ...................................... 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................... 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK .................................................. 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................. 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .......................... 52
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ........... 53
ITEM 11. EXECUTIVE COMPENSATION ....................................... 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ................................................... 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............... 56
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K .................................................. 58
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
AMC Financial, Inc. ("AMC"), formerly Cityscape Financial Corp. ("Cityscape"),
was incorporated in Delaware in December 1988. During 1999 its principal
executive offices were moved from Elmsford, New York to Houston, Texas. Unless
otherwise noted, the "Company" refers to AMC, formerly Cityscape, and its
subsidiaries.
Cityscape was a consumer finance company which, through its wholly-owned
subsidiary, Cityscape Corp. ("CSC"), was in the business of selling and
servicing mortgage loans secured primarily by one- to four-family residences.
Such business was suspended indefinitely in November 1998. CSC also had been in
the business of originating and purchasing mortgage loans. The majority of CSC's
loans were made to owners of single-family residences who used the loan proceeds
for such purposes as debt consolidation, financing of home improvements and
educational expenditures. The Company has been reorganized through a plan of
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code
effective as of July 1, 1999. A plan for the reorganized company has not been
formulated, however, and the Company has selected Peter J. Solomon Company
Limited to advise the Company on strategic alternatives. Until a formal plan is
determined, the Company is generating revenue from investing funds in high-grade
commercial paper and interest on loans held for sale.
CHAPTER 11 PROCEEDINGS
Cityscape determined during 1998 that the best alternative for recapitalizing
over the long-term and maximizing the recovery of creditors and senior equity
holders of Cityscape was through a prepackaged plan of reorganization for
Cityscape and CSC pursuant to the Bankruptcy Code. On October 6, 1998, Cityscape
and CSC filed voluntary petitions (the "Petitions") in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
During the second and third quarters of 1998, Cityscape engaged in negotiations,
first with holders of a majority of the Notes (as defined below), and, second
with holders of a majority of the Convertible Debentures (as defined below) on
the terms of a plan of reorganization that both groups would find acceptable.
Those negotiations resulted in acceptance by both groups by the requisite
majorities of the terms of the plan of reorganization (the "Original Plan").
Cityscape solicited acceptances of the Original Plan from the holders of its
Notes, Convertible Debentures and Preferred Stock (as defined below). The
Original Plan received the requisite approval from all classes other than the
holders of Cityscape's Series B Preferred Stock ("Preferred Stock"). Although
Cityscape and other parties with an economic stake in the reorganization
anticipated that the Original Plan would be confirmed at the originally
scheduled confirmation hearing, the Original Plan was not confirmed due
primarily to deteriorating market conditions and Cityscape's inability to obtain
necessary post-reorganization loan warehouse financing to allow it to emerge
from Chapter 11. As a result, Cityscape revised the Original Plan (the "Amended
Plan").
On November 17, 1998, Cityscape decided to suspend indefinitely all of its loan
origination and purchase activities. Cityscape notified its brokers that it had
ceased funding mortgage loans other than loans that
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<PAGE>
were in its origination pipeline for which it had issued commitments.
Cityscape's decision was based upon its determination, following discussions
with potential lenders regarding post-reorganization loan warehouse financing,
that adequate sources of such financing were not available. With no adequate
sources of such financing, Cityscape determined that it was unable to continue
to originate and purchase mortgage loans. On or about December 18, 1998,
Cityscape funded the last of its mortgage loans for which it had issued
commitments as of November 17, 1998.
On June 16, 1999, the Bankruptcy Court entered an order confirming
reorganization under the Amended Plan. The effective date of the Amended Plan
was July 1, 1999, and Cityscape was renamed AMC Financial, Inc. The Amended Plan
provided for substantive consolidation of the assets of Cityscape and CSC and
for distributions to creditors as summarized below (which estimated
distributions were based upon Cityscape's and CSC's estimate of $10.0 million in
general unsecured claims that would ultimately be allowed by the Bankruptcy
Court). The Amended Plan provided that: (i) administrative claims, priority tax
claims, bank claims, other secured claims, and priority claims would be paid in
cash in full, which claims paid by the Company as of December 31, 1999 totaled
$3,337,895; (ii) holders of the 12 3/4% Series A Senior Notes (the "Notes") due
2004 have been allocated in exchange for all of their claims, 7,346,708 shares
or approximately 92.5% of the new common shares, of which 7,325,192 shares have
been issued at December 31, 1999; (iii) holders of 6% Convertible Subordinated
Debentures (the "Convertible Debentures") due 2006 have been allocated in
exchange for all of their claims, 431,702 shares or approximately 5.4% of the
new common shares, of which 376,373 shares have been issued as of December 31,
1999; (iv) holders of general unsecured claims have been allocated 165,790
shares or approximately 2.1% of the new common shares, of which 42,057 shares
have been issued at December 31, 1999; and (v) common stock, Preferred Stock and
warrants of Cityscape would be extinguished and holders thereof would receive no
distribution under the Amended Plan.
For the statement of financial condition presentation and earnings per share
calculation, the Company considers as outstanding shares only those shares
actually distributed to creditors. As claims are settled, additional shares are
transferred to the stock distribution agent for issuance. Since the total shares
allocated for each class of claims may not actually be issued, the Company has
elected to include in outstanding shares only those shares actually issued. The
Company expects the stock distribution agent to complete the issuance of
remaining shares by the end of 2000.
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"). In accordance with fresh start accounting, the
gain on discharge of debt resulting from the bankruptcy proceedings was
reflected on the Predecessor Company's (as defined below) financial statements
for the six months ended June 30, 1999. In addition, the accumulated deficit of
the Predecessor Company at June 30, 1999, was eliminated, and at July 1, 1999,
the Reorganized Company's (as defined below) financial statements reflected no
beginning retained earnings or deficit. Since July 1, 1999, the Company's
financial statements have been prepared as if it is a new reporting entity and a
black line has been placed to separate pre-reorganization operating results (the
"Predecessor Company") from post-reorganization operating results (the
"Reorganized Company") since they are not prepared on a comparable basis.
4
<PAGE>
Under fresh start accounting, all assets and liabilities are restated to reflect
their reorganization value, which does not assume any future origination and
loan sales, and which approximates fair value at the date of reorganization. The
reorganization value approximates the fair value of the Company's assets before
considering liabilities, which must be assumed and extinguished pursuant to the
terms of the reorganization under the Amended Plan, and represents the Company's
estimate of the amount a buyer would pay for the assets after the restructuring.
BUSINESS STRATEGY
Since the reorganization, the Company has concentrated its efforts on settling
claims and distributing shares of the common stock of the Reorganized Company.
Available cash has been invested in high-grade commercial paper.
The Company recently selected a financial advisor, Peter J. Solomon Company
Limited, to advise the Company on strategic alternatives. Alternatives include
re-entering the mortgage loan origination business, investments, acquisitions,
sale or merger of the Company to or with another entity, or liquidation.
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 exchange, market or board. Although no timetable has been established
to evaluate alternatives or determine which alternative is appropriate for the
Company, Peter J. Solomon Company Limited is expected to make a presentation to
the Company before the end of April 2000. The presentation will set out the
range of strategic alternatives identified by Peter J. Solomon Company Limited
and the particular alternative or alternatives recommended for consideration by
the Company.
UK OPERATIONS - DISCONTINUED
Cityscape commenced operations 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.
The Company adopted a plan in March 1998 to sell the assets of CSC-UK. In April
1998, pursuant to an Agreement for the Sale and Purchase of the Business of
CSC-UK and its Subsidiaries and the Entire Issued Share Capital of City Mortgage
Receivables 7 Plc, dated March 31, 1998 (the "UK Sale Agreement"), the Company
completed the sale to Ocwen Financial Corporation ("Ocwen") and Ocwen Asset
Investment Corp. ("Ocwen Asset") of substantially all of the assets, and certain
liabilities, of CSC-UK (the "UK Sale"). The UK Sale included the acquisition by
Ocwen of CSC-UK's whole loan portfolio and loan origination and servicing
businesses for a price of (pound)249.6 million, the acquisition by Ocwen Asset
of CSC-UK's securitized loan residuals for a price of (pound)33.7 million and
the assumption by Ocwen of (pound)7.2 million of CSC-UK's liabilities. The price
paid by Ocwen was subject to adjustment to account for the actual balances on
the closing date of the loan portfolio and the assumed liabilities. As a result
of the sale, the Company received proceeds, at the time of the closing, of $83.8
million, net of closing costs and other fees. During 1998, the Company received
an additional $4.5 million from Ocwen related to the loan portfolio adjustment.
On February 15, 1999, the Company entered into a settlement agreement with
Ocwen. In June 1999, the Company received an additional $3.1 million in
settlement of the assumed liabilities at the date of sale.
5
<PAGE>
COMPETITION
Since the Company's reorganization in July 1999, the Company has not reentered
competitive markets. Should the Company resume the mortgage origination business
in the future, the Company could face intense competition from other mortgage
banking companies, commercial banks and finance companies, many of which have
considerably greater financial and marketing resources than the Company.
Prevailing interest rates and market conditions could impact the Company's
decision to resume the mortgage origination business.
REGULATION
Since suspending its loan origination business in November 1998, the Company is
no longer subject to extensive regulations by federal, state and local
government authorities. All loans currently held in the Company's portfolio are
being serviced by other institutions.
ENVIRONMENTAL MATTERS
To date, the Company has not been required to perform any investigation or
cleanup activities, nor has it been subject to any environmental claims. Because
the Company has suspended its loan origination business, it does not foresee any
risks involved in investigating and cleaning up hazardous or toxic substances on
properties acquired.
ADMINISTRATIVE SERVICES AGREEMENT
The Company entered into an Administrative Services Agreement (the "Agreement")
with AEGIS Mortgage Corporation ("AEGIS") to assume responsibility for
accounting and administrative activities effective September 1, 1999. The
Company pays administrative fees of $90,000 per month under the terms of the
Agreement. The Agreement is effective until terminated by either party. AEGIS
shall be required to give the Company a minimum of ninety (90) days prior
written notice of termination and the Company shall be required to give AEGIS a
minimum of thirty (30) days written notice prior to termination.
EMPLOYEES
As a result of the Company's emergence from Chapter 11, the Company has only one
full time employee whose primary responsibility is to direct the future of the
Company, safeguard the Company's assets, and settle remaining bankruptcy claims.
Certain employees from AEGIS have been assigned to assist in these
responsibilities, and, as such, their salaries and related benefits have been
charged to the Company at cost. These expenses are in addition to the fees paid
under the terms of the Agreement.
ITEM 2. PROPERTIES
The Company's executive office is located at 11111 Wilcrest Green, Suite 250 in
Houston, Texas. The Company's office space is shared with AEGIS Mortgage
Corporation, and rental expense is included in the monthly administrative
services expense.
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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 certain 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. 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.
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 as to 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
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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 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 some
time in 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. (the "Global Mortgage Action") against various
defendants seeking damages for losses resulting from 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 consummated settlements with all but two of the defendants
in this case, and it has now confirmed agreements in principle to settle with
those two remaining defendants. Trial has been postponed indefinitely, pending
execution of appropriate settlement agreements between the Company and the last
two defendants. Once the last two settlement agreements are executed, the trial
will be cancelled and this matter will be concluded.
ELLIOTT ASSOCIATES ACTION. In September 1998, Elliott Associates, L.P. and
Westgate International, L.P. filed a lawsuit against the Company and certain of
its former officers and directors in the Southern District (the "Elliott
Associates Action"). In the complaint, plaintiffs described the lawsuit as "an
action for securities fraud and breach of contract arising out of the private
placement, in September 1997, of the Series B Preferred Stock of Cityscape."
Plaintiffs alleged violations of Section 10(b) of the Exchange Act (Count I);
Section 20(a) of the Exchange Act (Count II); and two breach of contract claims
against the Company (Counts III & IV). Plaintiffs alleged to have purchased a
total of approximately $20 million of such preferred stock. Plaintiffs sought
unspecified damages, including pre-judgment interest, attorneys' fees and other
expenses and court costs. The Company and its former officers and directors who
were defendants moved to dismiss the action. The action against the Company was
discharged when the Company's plan of reorganization became effective on July 1,
1999. The action against the remaining defendants has been settled and
dismissed.
SIMPSON ACTION. In February 1998, a putative class action lawsuit was
filed against the Company in the U.S. District Court for the Northern District
of Mississippi (Greenville Division) (the "Simpson Action"). 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 refinancing for
plaintiff through the Company. In connection with the financing, the Company is
alleged to have paid a premium to Few in the amount of $1,280.00. Plaintiff
claims that the payment was a referral fee and duplicate payment prohibited
under Section 8 of RESPA. Plaintiff is seeking compensatory damage for the
amounts "by which the interest rates and points charged were inflated."
Plaintiff also claims to represent a
8
<PAGE>
class consisting of all other persons similarly situated, that is persons (i)
who secured mortgage financing from the Company through mortgage brokers from an
unspecified period to date (claims under Section 8 of RESPA are governed by a
one year statute of limitations) and (ii) whose mortgage brokers received a fee
from the Company. Plaintiff is seeking to recover compensatory damages on behalf
of the putative class, which is alleged to be "numerous," for the amounts that
"the interest rates and points charges were inflated" in connection with each
class member's mortgage loan transaction. The Company answered the complaint and
plaintiff has not yet moved for class certification. To date, there has not been
a ruling on the merits of either plaintiff's individual claim or the claims of
the putative class. As a result of the Company's Chapter 11 proceedings and the
plaintiff's failure to file a claim before the established bar date, plaintiff's
claims against the Company were discharged.
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.
(the "Peaks Action"). 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 still own) at least eight of the loans and may have previously purchased
and subsequently sold an additional seven of the loans. Due to the Company's
prior bankruptcy and an agreement with plaintiff's 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 in settlement discussions. The Company
recently reached an agreement to settle this matter in exchange for mutual
releases and the payment to the Company of a percentage of a settlement pool
established for this purpose. In addition to the proceeds of the settlement
pool, the Company anticipates certain additional recoveries from the proceeds of
the refinancing or sale of the collateral securing the loans. As a result of the
Company's Chapter 11 proceedings and the plaintiff's failure to file a claim
before the established bar date, plaintiff's claims against the Company were
discharged.
Although no assurance can be given as to the outcome of the unresolved
lawsuits described above, the Company believes that the allegations against the
Company in each of the actions are without merit and that the Company's
disclosures were proper, complete and accurate. The Company intends to defend
vigorously against these actions and seek their early dismissal. If the lawsuits
against the Company are decided in favor of the plaintiffs, however, it could
have a material adverse effect on the Company's consolidated financial position
and results of operations.
REGULATORY MATTERS. In April and June 1996, CSC-UK acquired J&J Securities
Limited (the "J&J Acquisition") and Greyfriars Group Limited (formerly known as
Heritable Finance Limited) (the "Greyfriars Acquisition"), respectively. 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 value 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
9
<PAGE>
receivables. Upon subsequent review, the Company determined that the fair value
of such mortgage servicing rights should have been included as part of the fair
value of the mortgage loans acquired as a result of such acquisitions. The
effect of this accounting change resulted in a reduction in reported earnings of
$26.5 million. Additionally, as a result of this accounting change, the goodwill
initially recorded in connection with such acquisitions was reduced resulting in
a reduction of goodwill amortization of approximately $496,000 from the
previously reported figure for the second quarter. On November 19, 1996, the
Company announced that it had determined that certain additional adjustments
relating to the J&J Acquisition and the Greyfriars Acquisition should be made to
the financial statements for the quarter ended June 30, 1996. These adjustments
reflect a change in the accounting treatment with respect to restructuring
charges and deferred taxes recorded as a result of such acquisitions. This
caused an increase in the amount of goodwill recorded which resulted in an
increase of amortization expense as previously reported in the second quarter of
1996 of $170,692. The staff of the Commission has requested additional
information from the Company in connection with the accounting related to the
J&J Acquisition and the Greyfriars Acquisition. The Company is supplying such
requested information. In mid-October 1997, the Commission authorized its staff
to conduct a formal investigation which, to date, has continued to focus on the
issues surrounding the restatement of the financial statements for the quarter
ended June 30, 1996. The Company is continuing to cooperate fully in this
matter, however, the Commission has not contacted the Company on this matter
since July 1999.
As a result of its negative operating results, the Company received
inquiries in 1998 from the State of New York Department of Banking regarding the
Company's qualifications to continue to hold a mortgage banking license. In
connection with such inquiries, the Company agreed to provide the banking
department with certain information and to certain restrictions on its business.
The Company provided the necessary information and complied with the
restrictions on its business through July 29, 1999, when the Company voluntarily
surrendered its New York mortgage banking licenses. After that date, the Company
no longer conducted any mortgage banking activities in New York and therefore
ceased submitting information to the banking department.
UK SALE AGREEMENT. On September 4, 1998, CSC-UK commenced proceedings in
the High Court of Justice, London against Ocwen for the payment of certain sums
due under the UK Sale Agreement (the "Proceedings"). Although Ocwen initially
informed CSC-UK that it would defend the Proceedings, Ocwen then satisfied
CSC-UK's claim by paying CSC-UK (pound)1.7 million ($2.8 million) on November
24, 1998. Prior to CSC-UK initiating the Proceedings, Ocwen informed CSC-UK that
it would defend the (then proposed) Proceedings on the basis that any sums owed
by Ocwen to CSC-UK should be set off or extinguished against a sum which Ocwen
claimed was due or, alternatively, was recoverable by it from CSC-UK on the
grounds of CSC-UK's breach of warranty or misrepresentation with respect to
matters concerning loans of Greyfriars (the "Alleged Loan Liabilities"). With
respect to the Alleged Loan Liabilities, Ocwen claimed that CSC-UK had
excessively charged borrowers, failed to notify borrowers of interest rate
increases and failed to advise borrowers of increased repayments. Ocwen claimed
that these liabilities totaled approximately (pound)13.0 million ($21.2
million). Additionally, pursuant to the UK Sale Agreement, Ocwen held back a sum
of (pound)3.5 million ($5.7 million) with respect to the purchase price, pending
the determination of certain other figures under the UK Sale Agreement (the
"Holdback"), which sum was paid into a Holdback account at the time of the UK
Sale Agreement.
On February 15, 1999, the Company, Ocwen and certain of their subsidiaries
entered into a settlement agreement, in full and final settlement of all causes
of action, claims, demands, liabilities,
10
<PAGE>
damages, costs, charges and expenses that the Company, CSC-UK and Ocwen and
their respective subsidiaries may have against each other. Such claims include
Ocwen's alleged claim against the Company and/or CSC-UK with respect to the
Alleged Loan Liabilities. Under the settlement agreement, in June 1999 CSC-UK
was paid $3.1 million from the Holdback account, and Ocwen was paid
approximately $2.6 million from the Holdback account. The Bankruptcy Court
approved the settlement agreement.
In the normal course of business, aside from the matters discussed above,
the Company is subject to various legal proceedings and claims, the resolution
of which, in management's opinion, will not have a material adverse effect on
the consolidated financial position or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, there were no matters submitted to a vote by
the security holders through solicitation of proxies or otherwise.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of December 31, 1999, the Company had 25,000,000 shares of $.01 par value
common stock (the "Reorganized Common Stock") authorized. Pursuant to the
Amended Plan, 7,743,622 shares have been issued through December 31, 1999.
Issuances of certain shares of the Reorganized Common Stock have not been
completed pending the resolution of legal proceedings. Shares of the Reorganized
Common Stock are not currently publicly traded.
All of the Predecessor Company's common and preferred stock, warrants and stock
options were canceled at the reorganization on July 1, 1999. During fiscal year
1999, Nasdaq delisted the Predecessor Company's common stock.
As of March 27, 2000, the Company had approximately 1,400 stockholders of record
of the Company's Reorganized Common Stock.
Neither Cityscape nor AMC has ever paid any cash dividends on its common stock
and AMC does not anticipate paying cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected data presented below under the captions "Selected Statement of
Operations Data" and "Selected Balance Sheet Data" for and as of, the six months
ended December 31, 1999 and June 30, 1999, and for each of the years in the
four-year period ended December 31, 1998, are derived from the consolidated
financial statements of AMC Financial, Inc., which financial statements have
been audited by KPMG LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1999 and 1998, and for the
six months ended December 31, 1999 and June 30, 1999 and for each of the years
in the two-year period ended December 31, 1998, and the independent auditors'
report thereon, are included elsewhere herein.
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," the Company adopted fresh start accounting as of
June 30, 1999. See Notes to Consolidated Financial Statement Note 3. - Fresh
Start Reporting or Item 1. Business-Fresh Start Reporting. In accordance with
fresh start reporting a black line has been placed to separate the operating
results of the Predecessor Company from those of the Reorganized Company, since
they are not prepared on a comparable basis.
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<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -----------------------------------------------------------------
SIX MONTHS SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED ENDED --------------------------------------------------
DECEMBER JUNE 30,
31, 1999 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA:
Revenues:
(Loss) gain on sale of loans.. $ (75) $ 4,609 $ 128 $ 83,365 $ 76,820 $ 26,305
Net realized loss on valuation
of residuals ............... -- (20,847) (68,847) (148,004) -- --
Mortgage origination income .. -- -- 2,238 4,849 2,812 2,751
Interest ..................... 1,970 3,328 14,363 73,520 24,535 6,110
Other ........................ 2,647 7,660 1,454 20,302 3,681 1,306
--------- --------- --------- --------- --------- ---------
Total revenues .......... 4,542 (5,250) (50,664) 34,032 107,848 36,472
Expenses:
Salaries and expenses ........ 288 2,857 28,744 41,089 26,288 10,861
Other costs and expenses ..... 1,017 8,701 109,425 129,526 38,360 11,080
--------- --------- --------- --------- --------- ---------
Total expenses .......... 1,305 11,558 138,169 170,615 64,648 21,941
Earnings (loss) from
continuing operations
before reorganization
items, income taxes,
and extraordinary item ..... 3,237 (16,808) (188,833) (136,583) 43,200 14,531
Reorganization items .......... -- 1,644 31,879 -- -- --
--------- --------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations
before income taxes
and extraordinary item ..... 3,237 (18,452) (220,712) (136,583) 43,200 14,531
Income tax provision (benefit) 1,133 68 38 (18,077) 19,325 6,410
--------- --------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations
before extraordinary
item ....................... 2,104 (18,520) (220,750) (118,506) 23,875 8,121
Extraordinary item (1) ........ -- 416,095 -- -- -- (296)
--------- --------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations ...... 2,104 397,575 (220,750) (118,506) 23,875 7,825
Discontinued operations:
(Loss) earnings from
discontinued operations, net
of income tax (benefit)
provision, and net of
extraordinary item ........ (500) -- -- (245,906) 26,806 3,750
Loss on disposal of
discontinued operations .... -- -- -- (49,940) -- --
--------- --------- --------- --------- --------- ---------
Net earnings (loss) ........... 1,604 397,575 (220,750) (414,352) 50,681 11,575
Preferred stock dividends
paid in common stock ........ -- -- -- 905 -- --
Preferred stock - increase in
liquidation preference ...... -- -- 6,278 917 -- --
Preferred stock - default
payments .................... -- -- 14,049 -- -- --
Preferred stock - beneficial
discount .................... -- -- -- 2,725 -- --
--------- --------- --------- --------- --------- ---------
Net earnings (loss)
applicable to common
stockholders ................ $ 1,604 $ 397,575 $(241,077) $(418,899) $ 50,681 $ 11,575
========= ========= ========= ========= ========= =========
Earnings (loss) per common share:
Basic and Diluted:
Continuing operations ........ $ 0.31
Discontinued operations ...... (0.07) * * * * *
---------
Net earnings ................. $ 0.24 * * * * *
=========
Weighted average number of
common shares: ................ * * * * *
Basic and Diluted ............. 6,790 * * * * *
=========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------ --------------------------------------------------
DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets ............. $ 73,095 $ 209,338 $ 394,002 $ 663,841 $ 135,946
Mortgage servicing
receivables, net ....... -- -- 4,969 40,068 3,436
Residual certificates .... 12,538 33,661 126,476 103,200 15,571
Mortgage loans held for
sale, net .............. 14,338 123,346 93,290 88,127 73,852
Investment in discontinued
operations, net ........ 12,239 13,008 84,232 212,590 26,832
Total debt(2) ............ -- 105,969 507,099 335,479 72,942
Liabilities subject to
compromise ............. -- 477,424 -- -- --
Total liabilities ........ 9,651 606,913 570,827 525,009 78,849
Total stockholders'
equity (deficit) ....... 63,444 (397,575) (176,825) 138,832 57,099
</TABLE>
(1) Represents the discharge of pre-petition liabilities, net of tax for the
six months ended June 30, 1999, and a loss, net of taxes, related to the
early extinguishment of subordinated debentures in December 1995.
(2) Includes short-term borrowings due under warehouse facilities.
* Per share amounts are not meaningful due to reorganization.
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 elsewhere herein. 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. 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.
OVERVIEW OF CURRENT AND PREVIOUS BUSINESS
Since the approval of the Amended Plan, the Company has concentrated on
investing funds in high-grade commercial paper and formulating alternatives for
the future of the Company. The Company has engaged an investment advisor to
assist in determining the direction of the Company. The Company has transferred
all servicing rights or established subservicing relationships with third
parties. Since the reorganization, the Company's main revenue stream has been
interest earned from investing funds and from loans held for sale. The Company
has also recognized revenue from the sale of its servicing advances. Prior to
the reorganization, Cityscape recognized a substantial portion of its revenue
from the sale of loans through securitizations and whole loan sales to
institutional purchasers, origination fees and excess mortgage servicing
receivables and fees earned on loans serviced.
With the reorganization, the direction of the Company has changed significantly.
Revenue streams in previous years are not comparable with the current year
revenues and as such no comparative tables are presented.
14
<PAGE>
DISCONTINUED OPERATIONS
Cityscape commenced operations in the United Kingdom in May 1995 with the
formation of CSC-UK, an English corporation that originated, sold and serviced
loans in England, Scotland and Wales. Cityscape initially held a 50% interest
and subsequently purchased the remaining 50% in CSC-UK. CSC-UK had no operations
and no predecessor prior to May 1995.
As a result of liquidity constraints, Cityscape adopted a plan in March 1998 to
sell the assets of CSC-UK. In April 1998, Cityscape completed the sale to Ocwen
Financial Corporation and Ocwen Asset Investment Corp. of substantially all of
the assets and certain liabilities of CSC-UK. As a result, Cityscape received
proceeds, at the time of closing, of $83.8 million, net of closing costs and
other fees. During 1998, Cityscape received $4.5 million related to loan
portfolio adjustments and in 1999 received an additional $3.1 million in
settlement of the assumed liabilities at the close of sale.
Accordingly, the operating results of CSC-UK and its subsidiaries have been
segregated from continuing operations and reported as a separate line item on
the Company's consolidated financial statements. In addition, net assets of
CSC-UK have been reclassified on the Company's consolidated financial statements
as investment in discontinued operations. The Company restated its 1996
consolidated financial statements to present operating results of CSC-UK as a
discontinued operation.
As of December 31, 1999, the Company's net investment in discontinued operations
totaled $12.2 million, representing cash on hand in the discontinued operations
of approximately $11.9 million and net receivables (net of liabilities) due of
approximately $307,000. The Company recorded loss on discontinued operations of
$500,000, net of income tax benefit of $269,000, in 1999 due to an increase in
an allowance against an income tax receivable and an increase in potential
liabilities. The Company expects to maintain a balance of cash on hand in the
discontinued operations to cover existing and potential liabilities and costs
until dissolution of the existing legal entities of CSC-UK and its subsidiaries.
15
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
THE RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 INCLUDE THE
COMBINED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 FOR
THE REORGANIZED COMPANY AND THE COMBINED RESULTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1999 FOR THE PREDECESSOR COMPANY. THE COMPANY ADOPTED
FRESH START REPORTING IN ACCORDANCE WITH SOP 90-7 EFFECTIVE JUNE 30, 1999.
THEREFORE, THE OPERATING RESULTS PRESENTED FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND DECEMBER 31, 1999 ARE NOT COMPARABLE TO FISCAL YEAR 1998.
For 1999 the Company recorded negative revenues of $708,000 primarily as a
result of recording a loss on valuation of residual certificates of $20.8
million. This represents a $50.0 million increase in revenues from 1998
primarily due to a lower loss on valuation of residuals and an increase in the
gain on the sale of loans. Offsetting the increased revenues in 1999 as compared
to 1998 was a decrease in interest income and no mortgage origination income
since loan origination activities were discontinued in November 1998. In 1999
the Company recorded a gain on the sale of loans of $4.5 million 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. Gain on the
sale of loans for 1998 totaled $128,000 which represents the spread of 0.03% on
the difference between the average net premium received as compared to the
premium paid on the sale of $414.2 million of whole loan sales.
For the year ended December 31, 1999 the Company recorded a loss on valuation of
residuals of $20.8 million. The loss on valuation was recorded in the second
quarter of 1999 and utilized a loss rate of 3.0%-10.0% per annum and a loss rate
of 7.3% - 33.0% per annum on its Sav*-A-Loan(R) and home equity securitizations,
respectively. The Company used a constant prepayment rate of 19.0% on its
Sav*-A-Loan(R) securitizations and 30.0% on its home equity securitizations. The
Company used a discount rate of 20.0% on its home equity securitizations and
Sav*-A-Loan(R) securitizations. At the end of fiscal year 1999, the Company
utilized loss rates ranging from 3.0% to 8.0% per annum on its Sav*-A-Loan(R)
securitizations and a discount rate of 20.0%. The Company used a constant
prepayment rate of 19.0% for valuing Sav*-A-Loan(R) securitizations. The
valuation of the Sav*-A-Loan(R) securitizations at the end of 1999 resulted in
an unrealized gain of $96,500 ($63,000, net of taxes), which was considered to
be a temporary gain and was therefore recorded in accumulated other
comprehensive income. The home equity securitizations were considered to have no
value at the end of 1999. In 1998, the Company recorded a loss on valuation of
residuals totaling $68.8 million consisting of $42.9 million for home equity
securitizations and $25.9 million for Sav*-A-Loan(R) securitizations. At the end
of 1998, the Company used a discount rate of 20.0% to value both securitizations
and loss rates of 7.5% and 4.5% per annum for home equity securitizations and
Sav*-A-Loan(R) securitizations, respectively. At the end of 1998, the Company
used a 30.0% and 16.8% constant prepayment rate on home equity securitizations
and Sav*-A-Loan(R) securitizations, respectively.
In November 1998 the Company indefinitely suspended its loan origination
activity and therefore no mortgage origination income was recorded in 1999.
During 1998, the Company recorded mortgage origination income of $2.2 million.
16
<PAGE>
Interest income decreased $9.1 million or 63.1% to $5.3 million for the year
ended December 31, 1999 as compared to $14.4 million for the comparable period
in 1998. Since the Company's reorganization at July 1, 1999, the Company's
primary source of interest income has been from investments in high-grade
commercial paper. Until November 1998, when the Company ceased loan origination
and purchase activity, a substantial portion of interest income was derived from
mortgages held for sale. The Company recognized accreted interest on residuals
until the residuals were devalued in the second quarter of 1998.
Other income was $10.3 million for the year ended December 31,1999 as compared
to $1.5 million for the year ended December 31, 1998. During the second quarter
of 1999, the Company transferred its servicing rights on all home equity
securitizations to Ocwen FSB and received 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 gain of $6.1 million. The gain represents amounts received in
excess of the Company's carrying value of servicer advances. Servicer advances
represent claims against the securitization trusts for reimbursement of advances
made to such trusts by the Company as servicer.
Total expenses decreased $125.3 million, or 90.7%, to $12.9 million in 1999 from
$138.2 million in 1998. The decrease was primarily due to the suspension of loan
origination and purchase activities and the corresponding reduction in the
Company's workforce. In 1998 the Company recorded restructuring charges of $3.2
million as compared to $790,000 in 1999 and 1998 expenses included a $2.0
million charge relating to the settlement of a lawsuit.
Salaries and benefits decreased $25.6 million, or 88.9%, to $3.1 million in 1999
from $28.7 million in 1998. As of December 31, 1999 the Company employed only
one full time employee as compared to 70 at the end of 1998. The Company
incurred salary and related benefits expense on former Cityscape employees
through June 30, 1999, at which time the remaining employees were terminated.
Interest expense decreased 97.0% from $46.4 million in 1998 to $1.4 million in
1999. The decrease is primarily due to the Company's cessation of accruing
interest on the Convertible Debentures and Notes as of October 6, 1998 due to
the Company's bankruptcy filing. In November 1998 the Company indefinitely
suspended all loan origination and purchase activities and during the second
quarter of 1999 the Company paid off all warehouse related financing.
Selling and other operating expenses decreased $44.0 million, or 85.4%, to $7.5
million for the year ended December 31, 1999 from $51.5 million for the
comparable period in 1998. The decrease primarily reflects the Company's
suspension of origination and purchase activities, closing branch operations and
related reduction in the workforce. In 1998 the Company incurred increased
professional fees as a result of the Company's restructuring efforts and
recorded a $2.0 million charge for the settlement of a lawsuit.
There were no provisions for loan losses recorded during 1999 as compared to
$8.3 million in 1998.
Restructuring charges totaled $790,000 for the year ended December 31, 1999 as
compared to $3.2 million for the same period in 1998. Restructuring charges
provided for in 1998 included $1.1 million for severance payments and $2.1
million for future lease obligations and the write off of assets no longer in
service. The charges for 1999 are a result of the Company's move from Elmsford,
New York to Houston, Texas.
17
<PAGE>
The Company recorded reorganization expenses of $1.6 million during the year
ended December 31, 1999 as compared to $31.9 million for the year ended December
31, 1998. Reorganization expenses for the year ended December 31, 1999 consisted
primarily of professional fees incurred. Reorganization expenses incurred during
the year ended December 31, 1998 related to the Company's decision to cease loan
origination and purchase activities in November 1998. The expenses in the year
ended December 31, 1998 included $3.9 million in severance payments, $5.3
million in lease obligations and write-off of assets no longer in service, $10.7
million in professional and other fees related to the reorganization and $12.0
million for the write-off of the deferred debt issuance costs related to the
Notes and Convertible Debentures.
During 1999, the Company recorded a loss on discontinued operations resulting
from an increase in an allowance against the income tax receivable and an
increase in potential liabilities for CSC-UK and its subsidiaries.
Net earnings applicable to common stockholders increased to $399.9 million for
the year ended December 31, 1999 from a net loss applicable to common stock of
$241.1 million for the comparable period in 1998. Included in the net earnings
applicable to common stock is an extraordinary item of $416.1 million which
represents the gain from the discharge of pre-petition liabilities, net of
taxes. In 1998 there was an increase in the liquidation preference of the
preferred stock in lieu of dividends and default payments of $20.3 million.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
During 1998, the Company recorded negative revenues of $50.7 million primarily
as a result of recording a $68.8 million loss on valuation of the Company's
residual interest in securitization which were in the form of residual
certificates. This represented an $84.7 million decrease in revenues from 1997
primarily also as a result of decreased gain on sale of loans, interest income,
and other income which included an $18.0 million gain on sale of
available-for-sale securities during 1997.
For 1998, the Company recorded a gain on sale of loans totaling $128,000. This
gain was due primarily to the sale of $414.2 million of whole loans at an
average net premium received of 0.81% as compared to the average premium paid on
such loans of 0.78%. For 1997, gain on sale of loans also included gain on
securitization representing the fair value of the residual certificates that the
Company received upon the sale of loans through securitizations. During 1997,
the Company recognized $83.4 million of gain on sale of loans representing a
weighted average gain of 5.1% on $1.6 billion of loans sold.
During 1998, the Company recorded a loss on valuation of residuals of $68.8
million, consisting of $42.9 million loss on its home equity residuals and $25.9
million on its Sav*-A-Loan(R) residuals. This loss on valuation of residuals was
primarily a result of (i) the Company increasing the discount rate used to value
its residuals to 20.0% at December 31, 1998 from 15.0% at December 31, 1997 for
both its home equity and Sav*-A-Loan(R) securitizations and (ii) an increase in
the loss rates from 1.7% per annum at December 31, 1997 to 7.5% per annum at
December 31, 1998 for its home equity securitizations and an increase from 3.1%
per annum at December 31, 1997 to 4.5% per annum at December 31, 1998 for its
Sav*-A-Loan(R) securitizations. As of December 31, 1998, the Company used a
30.0% constant prepayment rate on its home equity securitizations and 16.8%
prepayment rate on its Sav*-A-Loan(R) securitizations. The increase in the
discount rate reflects the changes in market conditions experienced in the
mortgage-backed securities
18
<PAGE>
market since the second quarter of 1998. See Notes to Consolidated Financial
Statements Note 5. - Residual Certificates.
Mortgage origination income decreased $2.6 million or 54.2% to $2.2 million for
the year ended December 31, 1998 from $4.8 million for the comparable period in
1997. This decrease was due primarily to a lower volume of loan originations for
the year ended December 31, 1998 as compared to the same period in 1997.
Interest income decreased $59.1 million or 80.4% to $14.4 million for the year
ended December 31, 1998 from $73.5 million for the comparable period in 1997.
This decrease was due primarily to the cessation of the recognition of accreted
interest on the Company's residuals in the second quarter of 1998 as a result of
the devaluation of the residuals, as well as lower originations during 1998 and
lower weighted average coupons on the loans originated in 1998.
Other income decreased $18.8 million or 92.6% to $1.5 million in 1998 from $20.3
million in 1997. This decrease was due primarily to the inclusion in 1997 of
$18.0 million of gain on the sale of IMC Mortgage Company ("IMC") Common Stock
owned by the Company. Additionally, there was a decrease in servicing income of
$820,000 or 50.0% to $820,000 during 1998 from $1.6 million in 1997, due
primarily to the continued attrition of the loans that were sold with servicing
retained prior to the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights."
Total expenses decreased $32.4 million or 19.0% to $138.2 million in 1998 from
$170.6 million in 1997. This decrease was due primarily to lower salaries and
interest expense offset by increased other operating expenses relating to
increased professional fees as well as $3.2 million of restructuring charges and
$2.0 million relating to the settlement of a lawsuit.
Salaries and benefits decreased $12.4 million or 30.2% to $28.7 million in 1998
from $41.1 million in 1997. This decrease was due primarily to a reduction of
staffing levels to 70 employees as of December 31, 1998 as compared to 837
employees as of December 31, 1997. This decrease in employees was primarily a
result of the Company's reorganization efforts as well as employee attrition and
the Company's decision to suspend indefinitely all loan origination and purchase
activities.
Interest expense decreased $24.3 million or 34.4% to $46.4 million in 1998 from
$70.7 million in 1997. This decrease was due primarily to lower interest on
warehouse facility borrowings due to a lower average balance of loans in
inventory during 1998, the discontinuance in 1998 of the Company's interest rate
management strategy which resulted in higher interest expense and offsetting
interest income and in 1997 the recognition of $4.7 million in interest expense
related to the inducement of the Convertible Debentures.
Selling and other expenses increased $5.3 million or 11.5% to $51.5 million in
1998 from $46.2 million in 1997. This increase was due primarily to increased
other operating expenses of $5.0 million or 11.9% to $47.1 million in 1998 from
$42.1 million in 1997 resulting from increased professional fees as a result of
the Company's restructuring and streamlining efforts as well as a $2.0 million
charge due to the settlement of a lawsuit and increased foreclosure costs during
1998.
Provision for loan losses of $8.3 million was recorded for the year ended
December 31, 1998 as compared to $12.6 million for the year ended December 31,
1997. This decrease was due primarily to significantly
19
<PAGE>
lower originations in 1998 ($456.8 million) as compared to 1997 ($1.6 billion)
resulting in a lower level of problem loans originated during 1998 and
correspondingly in a lower loan loss provision. This was offset by the fact that
a provision for losses was required against a higher portion of the loans held
for sale resulting from the deterioration of the market for such loans.
During 1998, the Company recorded a restructuring charge of $3.2 million. This
charge was related to a restructuring plan that included streamlining and
downsizing the Company's operations. During February 1998, the Company closed
its branch operation in Virginia and significantly reduced its correspondent
originations and exited its conventional lending business. Of the $3.2 million,
$1.1 million represents severance payments made to 142 former employees and $2.1
million represents costs incurred with lease obligations and write-offs of
assets no longer in service.
In addition to the restructuring charges of $3.2 million, reorganization items
of $31.9 million were recorded during 1998. As part of its reorganization plan
and the Company's decision to indefinitely suspend its loan origination and
purchase activities in November 1998, the Company reduced its workforce by 335
employees and closed its branch operations in California, Illinois, New York and
Georgia, while maintaining corporate and servicing offices in New York. Of this
amount, $3.9 million represented severance payments to 335 former employees,
$5.3 million incurred in connection with lease obligations and write-offs of
assets no longer in service, $10.7 million represented professional fees and
other miscellaneous items related to the reorganization and $12.0 million
represented the write-off of the deferred debt issuance costs related to the
Notes and Convertible Debentures which were classified as liabilities subject to
compromise at December 31, 1998.
For the year ended December 31, 1998, the Company recorded an income tax
provision of $38,000 as compared to an income tax benefit of $18.1 million for
the comparable period in 1997. The 1997 tax benefit of $18.1 million represents
refunds claimed by the Company from the tax loss carrybacks generated as a
result of net operating losses. As a result of additional net operating losses
recorded in 1998, the Company did not generate a federal tax liability during
this period. The Company's tax provision in 1998 reflects the State liabilities
incurred. See Notes to Consolidated Financial Statements Note 1. - Summary of
Significant Accounting Policies and Note 17. - Income Taxes.
For the year ended December 31, 1998, the Company recorded a loss on
discontinued operations of $245.9 million (See Notes to Consolidated Financial
Statements Note 4. - Discontinued Operations). The loss on discontinued
operations is net of an extraordinary item of $425,000, net of taxes. In
connection with the Company's agreement with a financing facility to buy all of
CSC-UK's loans, the Company paid certain fees evidenced by notes. Such notes
were paid before the due date. The fees were being amortized over the life of
the note and early extinguishment of the debt gave rise to an extraordinary
gain.
In March 1998, the Company adopted a plan to sell the assets of CSC-UK (See
Notes to Consolidated Statements Note 4. - Discontinued Operations). As a result
of this plan, the Company recorded a loss of $49.9 million on the disposal of
discontinued operations for the year ended December 31, 1997.
The Company recorded a net loss applicable to common stockholders of $241.1
million for the year ended December 31, 1998 as compared to net loss applicable
to common stockholders of $418.9 million in 1997. This loss was due primarily to
decreased loan originations which decreased gain on sale of loans without a
corresponding decrease in expenses. In addition, the Company's strategy of
selling loans through whole
20
<PAGE>
loan sales instead of through securitizations decreased gain on the sale of
loans, as well as the recognition of unrealized losses on valuation of residuals
of $68.8 million during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements include the payment of operating and
post-bankruptcy expenses. At December 31, 1999, the Company had cash and cash
equivalents aggregating $30,850,395, which represents an increase of $12,444,969
from the prior year. During the year ended December 31, 1999, the Company
generated $118,893,000 cash from continuing operations and used $105,969,355 in
financing activities. Since the adoption of the Amended Plan, the Company's
primary source of income has been interest income generated through the
investment of funds in high-grade commercial paper. Should the full funding of
the over-collateralization accounts in connection with the Company's
securitizations occur, the Company may receive cash payments on its residual
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 the cash flow from operations
and available cash will be sufficient to meet the Company's anticipated
requirements for working capital through the next twelve months.
RESIDUAL CERTIFICATES
In the past, the Company sold loans through securitizations that had been
originated or purchased by the Company to a trust for a cash purchase price and
interests in such trusts were represented by residual certificates. A residual
certificate represents an 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.
To value the residual certificates, the Company uses available information
applicable to the types of loans in the securitization (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 to be received 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 to be consistent with the
required risk-adjusted rate of return for an independent third party purchaser
of the residual certificates. At December 31, 1999 and 1998, the Company's
consolidated statements of financial position reflected the fair value of
residual certificates of $12.5 million and $33.7 million, respectively.
Realization of the value of 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, future cash flows and earnings could be negatively affected and
the Company could be required to 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
residual certificates.
21
<PAGE>
ACCOUNTING CONSIDERATIONS
A discussion of new accounting pronouncements and their impact on the
consolidated financial statements is provided in the Notes to Consolidated
Financial Statements Note 1. - Summary of Significant Accounting Policies.
IMPACT OF YEAR 2000
The Company has experienced no significant problems regarding Year 2000 ("Y2K").
The Company continues to monitor its internal systems to assure no issues arise.
The Company has not been notified of any Y2K problems by its loan servicers or
subservicers.
The Company incurred no additional costs associated with Y2K other than those
incurred in the normal course of business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not currently subject to foreign currency exchange risk other
than liabilities associated with the discontinued operations. The Company does
not make use of off-balance sheet derivative instruments to control exchange
rate risk.
Interests the Company received upon loan sales through its securitizations are
in the form of residual certificates. Residual certificates 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 the residual certificates using a
discount rate of 20%.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
AMC Financial, Inc. and Subsidiaries Consolidated Financial Statements:
Independent Auditors' Report...........................................24
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998..........................................25
Consolidated Statements of Operations for the six months ended
December 31, 1999 and June 30, 1999, and the years ended
December 31, 1998 and 1997..........................................26
Consolidated Statements of Stockholders' Equity (Deficit) for
the six months ended December 31, 1999 and June 30, 1999,
and the years ended December 31, 1998 and 1997......................27
Consolidated Statements of Cash Flows for the six months
ended December 31, 1999 and June 30, 1999, and
the years ended December 31, 1998 and 1997..........................29
Notes to Consolidated Financial Statements.............................30
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AMC Financial, Inc.:
We have audited the accompanying consolidated statements of financial condition
of AMC Financial, Inc., formerly Cityscape Financial Corp., and subsidiaries
(the Company) as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
six-month period ended December 31, 1999, the six-month period ended June 30,
1999, and each of the years in the two-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to report on these consolidated financial
statements based on our audits.
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 provide a reasonable basis for our report.
The accompanying consolidated financial statements for the six-month period
ended June 30, 1999, and for each of the years in the two-year period ended
December 31, 1998, were prepared assuming that the Company would continue as a
going concern. As further discussed in Note 2 to the consolidated financial
statements, the Company and its wholly owned subsidiary, Cityscape Corp., filed
a voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code on October 6, 1998. The reorganization plan was not confirmed by
the Bankruptcy Court until June 16, 1999. These factors raised substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements for each of the years in the two-year period ended December
31, 1998, do not include any adjustments that resulted from the outcome of these
uncertainties.
Because of the significance of the uncertainties discussed in the preceding
paragraph, we are unable to express, and we do not express, an opinion on the
accompanying consolidated financial statements for the six-month period ended
June 30, 1999, and for each of the years in the two-year period ended December
31, 1998.
In our opinion, the consolidated statement of financial condition of AMC
Financial, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the six-month period ended December 31, 1999, present fairly, in all material
respects, the financial position of AMC Financial, Inc. and subsidiaries as of
December 31, 1999, and the results of their operations and their cash flows for
the six months then ended in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, the Company has
emerged from bankruptcy and applied fresh start accounting, effective June 30,
1999. As a result, the consolidated statement of financial condition as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the six-month period ended December 31,
1999, are presented on a different basis than that for the periods before fresh
start, and therefore, are not comparable.
/s/ KPMG LLP
Houston, Texas
March 10, 2000
24
<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
REORGANIZED PREDECESSOR
COMPANY COMPANY
------------- -------------
DECEMBER 31, DECEMBER 31,
1999 1998
ASSETS
Cash and cash equivalents .............. $ 30,850,395 $ 18,405,426
Cash held in escrow .................... -- 3,768,695
Marketable securities .................. 763,644 --
Residual certificates .................. 12,538,461 33,660,930
Mortgage loans held for sale, net ...... 14,338,442 123,345,783
Income taxes receivable ................ 1,437,288 1,550,107
Investment in discontinued operations,
net .................................. 12,239,110 13,008,401
Other assets ........................... 927,828 15,598,619
------------- -------------
Total assets ............................. $ 73,095,168 $ 209,337,961
============= =============
LIABILITIES
Warehouse financing facilities ......... $ -- $ 105,969,355
Accounts payable and other liabilities . 9,651,469 23,519,199
Liabilities subject to compromise ...... -- 477,424,358
------------- -------------
Total liabilities ........................ 9,651,469 606,912,912
------------- -------------
COMMITMENTS AND CONTINGENCES ............. -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value;
10,000,000 shares authorized;
0 shares at December 31, 1999;
5,177 shares issued and
outstanding at December 31, 1998;
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;
7,743,622 issued and outstanding
at December 31, 1999; $.01 par
value; 100,000 shares authorized;
64,948,969 issued and outstanding
at December 31, 1998 ................... 77,436 649,489
Additional paid-in capital .............. 61,202,720 175,304,103
Accumulated other comprehensive income .. 559,108 --
Retained earnings (accumulated deficit) . 1,604,435 (573,353,595)
Treasury stock, 0 shares at December 31,
1999; 70,000 shares at December
31, 1998, at cost ..................... -- (175,000)
------------- -------------
Total stockholders' equity (deficit) ..... 63,443,699 (397,574,951)
------------- -------------
Total liabilities and stockholders' equity
(deficit) .............................. $ 73,095,168 $ 209,337,961
============= =============
*Per share amounts are not meaningful due to reorganization. See Note 3.
See accompanying notes to consolidated financial statements.
25
<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------- -------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER JUNE 30, YEARS ENDED DECEMBER 31,
31, 1999 1999 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
(Loss) gain on sale of loans ......... $ (75,366) $ 4,609,295 $ 128,024 $ 83,365,502
Loss on valuation of residuals ....... -- (20,847,449) (68,846,790) (148,004,447)
Mortgage origination income .......... -- -- 2,238,078 4,848,613
Interest ............................. 1,970,608 3,328,487 14,362,900 73,520,473
Other ................................ 2,646,641 7,659,773 1,454,148 20,301,883
------------- ------------- ------------- -------------
Total revenues ......................... 4,541,883 (5,249,894) (50,663,640) 34,032,024
------------- ------------- ------------- -------------
EXPENSES
Salaries and employee benefits ....... 287,355 2,856,989 28,744,183 41,088,956
Interest expense ..................... -- 1,401,630 46,438,779 70,689,198
Selling expenses ..................... -- 256,407 4,423,984 4,136,812
Other operating expenses ............. 1,016,878 6,253,145 47,060,545 42,085,275
Provision for loan losses ............ -- -- 8,267,267 12,614,269
Restructuring charges ................ -- 790,000 3,233,760 --
------------- ------------- ------------- -------------
Total expenses ......................... 1,304,233 11,558,171 138,168,518 170,614,510
------------- ------------- ------------- -------------
Earnings (loss) from continuing
operations before reorganization
items, income tax, and extraordinary
item ............................... 3,237,650 (16,808,065) (188,832,158) (136,582,486)
Reorganization items ................... -- 1,644,058 31,879,518 --
------------- ------------- ------------- -------------
Earnings (loss) from continuing
operations before income taxes and
extraordinary item ................. 3,237,650 (18,452,123) (220,711,676) (136,582,486)
Income taxes provision (benefit) ....... 1,133,178 67,673 38,267 (18,076,574)
------------- ------------- ------------- -------------
Earnings (loss) from continuing
operations before extraordinary item 2,104,472 (18,519,796) (220,749,943) (118,505,912)
Extraordinary item - gain from
discharge of pre-petition liabilities -- 416,094,747 -- --
------------- ------------- ------------- -------------
Earnings (loss) from continuing
operations ......................... 2,104,472 397,574,951 (220,749,943) (118,505,912)
DISCONTINUED OPERATIONS:
Loss from discontinued operations,
net of income tax benefit
of $269,251 in 1999 and $37,188,000
in 1997, and net of extraordinary item
of $425,000 in 1997 ................ (500,037) -- -- (245,906,000)
Loss on disposal of discontinued
operations ......................... -- -- -- (49,939,996)
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) .................... 1,604,435 397,574,951 (220,749,943) (414,351,908)
Preferred stock dividends paid in
common stock ......................... -- -- -- 904,531
Preferred stock - increase in
liquidation preference ............... -- -- 6,278,214 917,530
Preferred stock - default payments ..... -- -- 14,048,722 --
Preferred stock - beneficial discount .. -- -- -- 2,725,000
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS .................. $ 1,604,435 $ 397,574,951 $(241,076,879) $(418,898,969)
============= ============= ============= =============
EARNINGS PER COMMON SHARE:
Basic and Diluted
Earnings from continuing operations . $ 0.31 * * *
Loss from discontinued operations ... (0.07) * * *
-------------
Net earnings ........................ $ 0.24 * * *
=============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic and Diluted .................... 6,790,241 * * *
=============
</TABLE>
*Per share amounts are not meaningful due to reorganization. See Note 3.
See accompanying notes to consolidated financial statements.
26
<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND JUNE 30, 1999
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------------- ---------------------------
NUMBER ADDITIONAL
OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .................... -- -- $ 29,649,133 $ 296,491 $ 57,782,609
Comprehensive loss:
Net loss .................................. -- -- -- -- --
Other comprehensive loss, net of taxes
Unrealized loss on available-for-sale
securities .......................... -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Other comprehensive loss .................. -- -- -- -- --
Comprehensive loss
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
Purchase of treasury stock ................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 .................... 5,295 53 47,648,738 476,487 175,477,104
Net loss .................................. -- -- -- -- --
Conversion of preferred stock ................ (118) (1) 17,300,231 173,002 (173,001)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1998 .................... 5,177 52 64,948,969 649,489 175,304,103
Net earnings .............................. -- -- -- -- --
Extinguishment of old debt ................... (5,177) (52) (64,948,969) (649,489) (175,304,103)
Issuance of new common stock ................. -- -- 7,803,488 78,035 60,338,194
------------- ------------- ------------- ------------- -------------
Balance at June 30, 1999 ........................ -- -- 7,803,488 78,035 60,338,194
Comprehensive income:
Net earnings .............................. -- -- -- -- --
Other comprehensive income, net of taxes
Unrealized gain on available-for-sale
securities .......................... -- -- -- -- --
Unrealized gain on write-up of residual
certificates ........................ -- -- -- -- --
Other comprehensive income ................ -- -- -- -- --
Comprehensive income ......................... -- -- -- -- --
Reduction of deferred tax valuation allowance -- -- -- -- 863,927
Issuance of new common stock ................. -- -- 42,057 420 --
Adjustments to new common stock .............. -- -- (101,923) (1,019) 599
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 .................... -- $ -- 7,743,622 $ 77,436 $ 61,202,720
============= ============= ============= ============= =============
</TABLE>
27
<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND JUNE 30, 1999
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED RETAINED
OTHER EARNINGS
COMPREHENSIVE (ACCUMULATED TREASURY
INCOME (LOSS) DEFICIT) STOCK TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 ................................ $ 8,328,950 $ 72,424,143 $ -- 138,832,193
Comprehensive loss:
Net loss .............................................. -- (414,351,908) -- (414,351,908)
Other comprehensive loss, net of taxes
Unrealized loss on available-for-sale securities ... (8,328,950) -- -- (8,328,950)
Foreign currency translation adjustment ............ (9,771,356) (9,771,356) -- (9,771,356)
-------------
Other comprehensive loss .............................. -- -- -- (18,100,306)
-------------
Comprehensive loss ....................................... (432,452,214)
-------------
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) -- --
Purchase of treasury stock ............................... -- -- (175,000) (175,000)
------------- ------------- ------------- -------------
Balance at December 31, 1997 ................................ -- (352,603,652) (175,000) (176,825,008)
Net loss - comprehensive loss ......................... -- (220,749,943) -- (220,749,943)
Conversion of preferred stock ............................ -- -- -- --
------------- ------------- ------------- -------------
Balance at December 31, 1998 ................................ -- (573,353,595) (175,000) (397,574,951)
Net earnings - comprehensive income ................... -- 397,574,951 -- 397,574,951
Extinguishment of old debt ............................... -- 175,778,644 175,000 --
Issuance of new common stock ............................. -- -- -- 60,416,229
------------- ------------- ------------- -------------
Balance at June 30, 1999 .................................... -- -- -- 60,416,229
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings .......................................... -- 1,604,435 -- 1,604,435
Other comprehensive income, net of taxes
Unrealized gain on available-for-sale securities ... 496,369 -- -- 496,369
Unrealized gain on write-up of residual certificates 62,739 -- -- 62,739
-------------
Other comprehensive income ............................ -- -- -- 559,108
-------------
Comprehensive income ..................................... -- -- -- 2,163,543
-------------
Reduction of deferred tax valuation allowance ............ -- -- -- 863,927
Issuance of new common stock ............................. -- -- -- 420
Adjustments to new common stock .......................... -- -- -- (420)
------------- ------------- ------------- -------------
Balance at December 31, 1999 ................................ $ 559,108 $ 1,604,435 $ -- $ 63,443,699
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
FORMERLY CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
--------------- ------------------------------------------------------
SIX MONTHS SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED ENDED -----------------------------------
DEC. 31, 1999 JUNE 30, 1999 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings (loss) from continuing operations ........... $ 2,104,472 $ 397,574,951 $ (220,749,943) $ (118,505,912)
Adjustments to reconcile net earnings (loss)
from continuing operations to net cash provided
by (used in) continuing operations
Depreciation and amortization ........................ 1,000 367,453 6,019,520 2,846,394
Income taxes payable ................................. 863,927 210,093 16,737,913 (27,527,673)
Gain from the discharge of pre-petition liabilities .. -- (416,094,747) -- --
Decrease in mortgage servicing receivables ........... -- -- 4,969,162 35,098,537
Decrease (increase) in residual certificates ......... -- 21,218,991 92,814,726 (23,275,720)
Provision for loan losses ............................ -- -- 8,267,267 12,614,269
Net purchases of securities under agreement
to resell ......................................... -- -- -- 154,176,608
Repayment of securities sold but not yet
purchased ......................................... -- -- -- (152,862,526)
Proceeds from sale of mortgages ...................... -- 104,576,347 414,167,300 1,637,387,344
Mortgage origination fund disbursed .................. -- -- (460,300,178) (1,655,191,573)
Accrued interest payable on senior notes
and convertible debentures ........................ -- -- 39,771,220 4,483,700
Accrued reorganization charges ....................... -- -- 8,521,475 --
Other, net ........................................... (2,511,981) 10,582,414 2,881,472 6,085,062
--------------- --------------- --------------- ---------------
Net cash (used in) provided by continuing operations .... 457,418 118,435,502 (86,900,066) (124,671,490)
Adjustment to discontinued assets and liabilities
(Note 4) .......................................... (500,037) -- -- --
Net cash used in discontinued operating activities ...... -- -- -- (177,259,754)
--------------- --------------- --------------- ---------------
Net cash (used in) provided by operating activities ..... (42,619) 118,435,502 (86,900,066) (301,931,244)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of discontinued operations, net ................. -- -- 71,223,599 --
Proceeds from equipment sale and lease-back
financing ......................................... -- -- -- 1,776,283
Sales (purchases) of equipment ....................... -- 21,441 -- (5,134,122)
Proceeds from sale of mortgages held for investment .. -- -- 2,997,382 15,248,227
Proceeds from sale of available-for-sale securities .. -- -- -- 18,288,999
--------------- --------------- --------------- ---------------
Net cash provided by investing activities ............... -- 21,441 74,220,981 30,179,387
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in warehouse facility ............ -- (105,969,355) 28,490,348 5,216,716
Decrease increase in financing facility .............. -- -- -- (7,966,292)
Proceeds from notes and loans payable ................ -- -- -- 49,000,000
Repayment of notes and loans payable ................. -- -- -- (161,405,843)
Proceeds from issuance of preferred stock ............ -- -- -- 98,249,950
Proceeds from issuance of convertible subordinated
debentures ....................................... -- -- -- --
Net proceeds from issuance of common stock ........... -- -- -- 221,296
Purchase of treasury stock ........................... -- -- -- (175,000)
Net proceeds from issuance of senior notes ........... -- -- -- 290,758,908
--------------- --------------- --------------- ---------------
Net cash (used in) provided by financing activities ..... -- (105,969,355) 28,490,348 273,899,735
--------------- --------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents .... (42,619) 12,487,588 15,811,263 2,147,878
Cash and cash equivalents at beginning of the period .... 30,893,014 18,405,426 2,594,163 446,285
--------------- --------------- --------------- ---------------
Cash and cash equivalents at end of the period .......... $ 30,850,395 $ 30,893,014 $ 18,405,426 $ 2,594,163
--------------- --------------- --------------- ---------------
Supplemental disclosure of cash flow information:
Income taxes paid during the period:
Continuing operations ............................. $ -- $ -- $ 1,303 $ 5,904,507
Discontinued operations ........................... -- -- -- 767,335
Interest paid during the period:
Continuing operations ............................. -- $ 1,693,980 $ 9,051,343 $ 57,194,601
Discontinued operations ........................... -- -- -- 867,394
Supplemental schedule of non-cash investing and
financing activities:
Cancellation of indebtedness ......................... $ -- $ 476,510,976 $ -- $ --
Issuance of new common stock ......................... -- 60,416,229 -- --
Unrealized gain on marketable securities, net of tax . 496,369 -- -- --
Unrealized gain on residual certificates, net of tax . 62,739 -- -- --
Reclassification of mortgages held for sale to
mortgages held for investment ..................... -- -- 3,533,355 --
Conversion of convertible debentures into common
stock ............................................. -- -- -- 14,110,000
Preferred dividends paid in the form of common stock . -- -- -- 904,531
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND GOING CONCERN
The consolidated financial statements include the accounts of AMC Financial,
Inc. ("AMC"), formerly Cityscape Financial Corp. ("Cityscape") and its wholly
owned subsidiaries, collectively, the "Company". The Company's plan of
reorganization was confirmed July 1, 1999 (See Note 2. - Chapter 11
Proceedings). In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," ("SOP 90-7") the Company adopted
fresh start reporting as of June 30, 1999 (See Note 3. - Fresh Start Reporting).
Accordingly, a black line has been drawn in the accompanying consolidated
financial statements and footnotes to separate the operating results of the
pre-reorganization Company (the "Predecessor Company") (prior to June 30, 1999)
from the operating results of the post-reorganization Company (the "Reorganized
Company") (July 1, 1999 through December 31, 1999), since they are not prepared
on a comparable basis. All significant intercompany balances and transactions
have been eliminated in consolidation.
The accompanying consolidated financial statements for the six month period
ended June 30, 1999, and for each of the years in the two year period ended
December 31, 1998 were prepared assuming the Company would continue as a going
concern. The Company's filing for bankruptcy raises substantial doubt about its
ability to continue as a going concern. The consolidated financial statements
for each of the years in the two year period ended December 31, 1998, do not
include any adjustments that resulted from the outcome of these uncertainties.
REVENUE RECOGNITION
Gains and losses on sales of mortgage loans were recognized by the Predecessor
Company when mortgage loans were sold to investors. The Company primarily sold
loans on a non-recourse basis, at a price above the face value of the loan.
Gains and losses on sales of loans were recorded on the settlement date.
Included in gains on sale of loans for 1997 is the present value of the
differential between the interest rate payable by an obligator 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.
In 1997, included in the gain on sale of loans, is gain on securitizations
representing the fair value of the residual certificates received by the
Company. Gain on sales from securitization represents the difference between the
proceeds received from the trust plus the fair value of the 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
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review. Beginning in the fourth quarter of 1997, the
Company began selling its loans on a whole loan sale basis with servicing
released.
Interest income includes income from investments in high-grade commercial paper
and mortgage loans held for sale. The Predecessor Company calculated interest
income using the interest method which recognized
30
<PAGE>
income on an accrual basis unless the loan was 90 days delinquent. The
Reorganized Company recognizes interest income when received.
VALUATION OF RESIDUALS
In certain securitizations, 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 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 securities 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 reduce the
over-collateralization to the extent that funds are available and will result in
a reduction of the value of the residual certificates held by the Company.
Although the Company believes it has made reasonable estimates of the fair value
of the residual certificates, the rate of prepayment and the amount of defaults
utilized by the Company are estimates and actual experience may vary, and has
varied from its estimates (See Note 5. - Residual Certificates). The fair value
of the residual certificates 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 payments or
losses would require the Company to write down the fair value of the 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 residual certificates would be negatively impacted which
would have an adverse effect on income for the period in which such events
occur. The Company reviews these factors quarterly and, if necessary, adjusts
the remaining asset to the fair value of the residual certificates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and money market funds with
original maturities of three months or less. Such funds are deemed to be cash
equivalents for purposes of the consolidated statements of cash flows.
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
unrealized gains and losses, reported as a separate component within
stockholders' equity (deficit), in 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 the stock and warrants have been adjusted to fair
market value of $496,369, net of taxes of $267,275, at December 31, 1999.
31
<PAGE>
MORTGAGES 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 and credit quality of the loans. Net valuation
adjustments are recognized through a valuation allowance by charges to income.
REAL ESTATE OWNED, NET
Real estate owned consists of real estate acquired through foreclosure or
deed-in-lieu on defaulted loan receivables and is included in other assets.
These properties are carried at the lower of fair value less estimated selling
costs or the acquisition cost of the properties.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
With the move from the office in Elmsford, New York to Houston, Texas, the book
value of leasehold improvements was written off, remaining office equipment was
sold and as such there were no balances in equipment and leasehold improvements
as of December 31, 1999. Prior to the closing of the New York office, equipment
and leasehold improvements, net, were stated at original cost less accumulated
depreciation and amortization. Depreciation was computed principally by using
the straight-line method based on the estimated lives of the depreciable assets.
Expenditures for maintenance and repairs are charged to the appropriate
operating account at the time the expense is incurred.
LIABILITIES SUBJECT TO COMPROMISE
In accordance with SOP 90-7, the Company classified all pre-petition liabilities
that would be impaired by the Amended Plan as liabilities subject to compromise.
Liabilities subject to compromise as of December 31, 1998, pursuant to the
Amended Plan are summarized as follows:
12 3/4% Senior Notes ........................................ $300,000,000
6% Convertible Subordinated Debentures ...................... 129,620,000
Accrued interest related to Senior Notes and
Convertible Debentures..................................... 39,771,220
Accounts payable ............................................ 8,033,138
------------
$477,424,358
============
Such liabilities were extinguished with Fresh Start Accounting (See
Note 3. - Fresh Start Reporting).
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to the difference between the financial
statement and tax reporting bases of existing assets and liabilities and
operating loss and tax credit carryforwards.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. In accordance with SOP 90-7, income tax benefits
32
<PAGE>
recognized from preconfirmation net operating loss carryforwards are used first
to reduce reorganization value in excess of amounts allowable to identifiable
assets and thereafter to increase additional paid-in capital. (See Note 17 -
Income Taxes)
EARNINGS PER SHARE
Earnings per share ("EPS") information for the Predecessor Company is not
presented because the revision of the Company's capital structure pursuant to
the Amended Plan makes such information not meaningful.
Earnings per share for the six months ended December 31, 1999 was determined
using the weighted average shares outstanding during the period. The Company has
no preferred stock or stock options, which are convertible into common stock and
therefore, diluted earnings per share is equal to basic earnings per share.
In computing EPS, the Company has used shares actually issued to creditors since
total shares allocated for issuance to each class of claims may not be issued.
The Company has used the effective date of the Amended Plan, July 1, 1999, to
weight such shares.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the amounts reported in the consolidated 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 residual certificates and mortgage loans
held for sale, net.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities," requires companies to
recognize all derivatives as either assets or liabilities in the statement of
financial condition and to record those instruments at fair value. SFAS No. 133
requires that changes in fair value of a derivative be recognized currently in
earnings unless specific hedge accounting criteria are met. Upon implementation
of SFAS No. 133, hedging relationships may be redesignated and securities held
to maturity may be transferred to available-for-sale or trading. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," deferred the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt
SFAS No. 133 on January 1, 2001 and is evaluating the impact, if any, this
statement may have on its future consolidated financial statements.
Effective January 1, 1999, the Company adopted SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which requires that any
mortgage-backed securities retained after securitization of a mortgage loan held
for sale be classified based on the Company's intentions. Any retained
mortgage-backed securities that are committed to be sold before or during the
securitization process must be classified as trading.
33
<PAGE>
2. CHAPTER 11 PROCEEDINGS
Cityscape determined during 1998 that the best alternative for recapitalizing
itself over the long-term and maximizing the recovery of creditors and senior
equity holders of Cityscape was through a prepackaged plan of reorganization for
Cityscape and its wholly owned subsidiary Cityscape Corp. ("CSC"), pursuant to
the Bankruptcy Code. On October 6, 1998, Cityscape and CSC filed voluntary
petitions (the "Petitions") in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court").
During the second and third quarters of 1998, Cityscape engaged in negotiations,
first with holders of a majority of the Notes (as defined below), and, second
with holders of a majority of the Convertible Debentures (as defined below) on
the terms of the plan of reorganization that both groups would find acceptable.
Those negotiations resulted in acceptance by both groups by the requisite
majorities of the terms of the plan of reorganization (the "Original Plan").
Cityscape solicited acceptances of the Original Plan from the holders of its
Notes, Convertible Debentures and Preferred Stock (as defined below). The
Original Plan received the requisite approval from all classes other than the
holders of Cityscape's Series B Preferred Stock ("Preferred Stock"). Although
Cityscape and other parties with an economic stake in the reorganization
anticipated that the Original Plan would be confirmed at the originally
scheduled confirmation hearing, the Original Plan was not confirmed due
primarily to deteriorating market conditions and the Debtors' inability to
obtain necessary post-reorganization loan warehouse financing to allow them to
emerge from Chapter 11. As a result, Cityscape revised the Original Plan (the
"Amended Plan").
On November 17, 1998, Cityscape decided to suspend indefinitely all of its loan
origination and purchase activities. Cityscape notified its brokers that it had
ceased funding mortgage loans, other than loans that were in its origination
pipeline for which it had issued commitments. Cityscape's decision was based
upon its determination, following discussions with potential lenders regarding
post-reorganization loan warehouse financing, that adequate sources of such
financing were not available. With no adequate sources of such financing,
Cityscape determined that it was unable to continue to originate and purchase
mortgage loans. On or about December 18, 1998, Cityscape funded the last of its
mortgage loans for which it had issued commitments as of November 17, 1998.
On June 16, 1999, the Bankruptcy Court entered an order confirming
reorganization under the Amended Plan. The effective date of the Amended Plan
was July 1, 1999, and Cityscape was renamed AMC Financial, Inc. The Amended Plan
provided for substantive consolidation of the assets of Cityscape and CSC and
for distributions to creditors as summarized below (which estimated
distributions were based upon Cityscape's and CSC's estimate of $10.0 million in
general unsecured claims that would ultimately be allowed by the Bankruptcy
Court). The Amended Plan provided that: (i) administrative claims, priority tax
claims, bank claims, other secured claims, and priority claims would be paid in
cash in full, which claims paid by the Company as of December 31, 1999 totaled
$3,337,895; (ii) holders of the 12 3/4% Series A Senior Notes (the "Notes") due
2004 have been allocated in exchange for all of their claims, 7,346,708 shares
or approximately 92.5% of the new common shares, of which 7,325,192 shares have
been issued at December 31, 1999 (iii) holders of 6% Convertible Subordinated
Debentures (the "Convertible Debentures") due 2006 have been allocated in
exchange for all of their claims, 431,702 shares or approximately 5.4% of the
new common shares, of which 376,373 shares have been issued as of December 31,
1999, (iv) holders of general unsecured claims have been allocated 165,790
shares or approximately 2.1% of the new common shares, of which 42,057 shares
have been issued at December 31, 1999; and (v) common stock, Preferred Stock and
warrants of Cityscape would be extinguished and holders thereof would receive no
distribution under the Amended Plan.
34
<PAGE>
For the consolidated statement of financial condition presentation and earnings
per share calculation the Company considers as outstanding shares only those
shares actually distributed to creditors. As claims are settled, additional
shares are transferred to the stock distribution agent for issuance. Since the
total shares allocated for each class of claims may not actually be issued, the
Company has elected to include in outstanding shares only those shares actually
issued. The Company expects the stock distribution agent to complete the
issuance of remaining shares by the end of 2000.
3. FRESH START REPORTING
As of June 30, 1999, the Company adopted fresh start reporting in accordance
with 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 of $76.8 million at June 30, 1999, was determined based
upon the Company's estimate of the fair value of its assets as defined in the
plan of reorganization which does 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, and
represents the Company's estimates of the amount a buyer would pay for the
assets after the restructuring.
The Company's emergence from Chapter 11 proceedings and the adoption of fresh
start reporting resulted in the following adjustments to the Company's Statement
of Financial Condition as of June 30, 1999:
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZED
COMPANY FRESH START ADJUSTMENTS COMPANY
JUNE 30, --------------------------------- JUNE 30,
1999 DEBIT CREDIT 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents .............................. $ 30,893,014 $ -- $ -- $ 30,893,014
Residual certificates .................................. 12,441,939 -- -- 12,441,939
Mortgage loans held for sale, net ...................... 16,490,307 -- -- 16,490,307
Income tax receivable .................................. 1,437,288 -- -- 1,437,288
Investment in discontinued operations, net ............. 13,008,401 -- -- 13,008,401
Other assets ........................................... 2,543,004 -- -- 2,543,004
------------- ------------- ------------- -------------
Total assets .......................................... $ 76,813,953 $ -- $ -- $ 76,813,953
============= ============= ============= =============
LIABILITIES
Accounts payable and other liabilities ................. $ 16,397,724 $ -- $ -- $ 16,397,724
Liabilities subject to compromise ...................... 476,510,976 476,510,976(1) -- --
------------- ------------- ------------- -------------
Total liabilities ..................................... 492,908,700 476,510,976 -- 16,397,724
------------- ------------- ------------- -------------
STOCKHOLDERS' (DEFICIT) EQUITY
Preferred stock ........................................ 52 52(2) -- --
Common stock ........................................... 649,489 649,489(2) 78,035(3) 78,035
Additional paid-in capital ............................. 175,304,103 175,304,103(2) 60,338,194(3) 60,338,194
Accumulated deficit .................................... (591,873,391) -- 175,778,644(2) --
416,094,747(4)
Treasury stock ......................................... (175,000) -- 175,000(2) --
------------- ------------- ------------- -------------
Total stockholders' (deficit) equity .................. (416,094,747) 175,953,644 652,464,620 60,416,229
------------- ------------- ------------- -------------
Total liabilities and stockholders' (deficit) equity .. $ 76,813,953 $ 652,464,620 $ 652,464,620 $ 76,813,953
============= ============= ============= =============
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(1) To record the discharge of debt, related interest and other liabilities as follows:
Discharge/extinguishment - Notes $ 300,000,000
Discharge/extinguishment - Convertible Debentures 129,620,000
Accrued interest on Notes and Convertible Debentures 39,771,220
Other liabilities discharged 7,119,756
----------------------
$ 476,510,976
======================
(2) To eliminate the Predecessor Company's stockholders' deficit.
(3) To record the issuance of 7,803,488 shares of new common stock (par value $0.01 per share).
(4) To record the extraordinary gain resulting from the discharge of indebtedness, calculated as follows:
Historical carrying value of old debt securities $ 429,620,000
Historical carrying value of related accrued interest 39,771,220
Historical carrying value of other liabilities 7,119,756
New common stock (7.8 million shares to creditors) (60,416,229)
--------------------------
$ 416,094,747
==========================
</TABLE>
4. DISCONTINUED OPERATIONS
Cityscape commenced operations in the United Kingdom in May 1995 with the
formation of City Mortgage Limited ("CSC-UK"), an English corporation that
originated, sold and serviced loans in England, Scotland and Wales in which
Cityscape initially held a 50% interest and subsequently purchased the remaining
50% of CSC-UK. CSC-UK had no operations and no predecessor prior to May 1995.
As a result of liquidity constraints, Cityscape adopted a plan in March 1998 to
sell the assets of CSC-UK. In April 1998, Cityscape completed the sale to Ocwen
Financial Corporation and Ocwen Asset Investment Corp. of substantially all of
the assets and certain liabilities of CSC-UK. As a result, Cityscape received
proceeds, at the time of closing, of $83.8 million, net of closing costs and
other fees. During 1998, Cityscape received $4.5 million related to loan
portfolio adjustments. In 1999, the Company received $3.1 million in settlement
of the assumed liabilities at the close of sale.
Accordingly, the operating results of CSC-UK and its subsidiaries have been
segregated from continuing operations and reported as a separate line item in
the Company's consolidated financial statements. In addition, net assets of
CSC-UK have been reclassified in the Company's consolidated financial statements
as investment in discontinued operations, net.
36
<PAGE>
CSC-UK had no operations in 1999 or 1998. Summarized financial information for
the year ended December 31, 1997 for the discontinued operations is as follows:
SUMMARIZED STATEMENT OF OPERATIONS:
Revenues
Gain on sale of loans ......................... $ 27,797,000
Servicing receivables ......................... (106,153,000)
Interest income ............................... 18,811,000
Other income .................................. 21,444,000
-------------
(38,101,000)
Expenses
Interest expense .............................. 26,599,000
Write-off and amortization of goodwill ........ 58,185,000
Write-off and amortization of prepaid
commitment fees.............................. 35,245,000
Other operating expenses ...................... 125,389,000
-------------
Loss before income taxes and extraordinary item (283,519,000)
Gain on extinguishment of debt, net of taxes .. 425,000
-------------
Loss before income tax ........................ (283,094,000)
Income tax benefit ............................ (37,188,000)
-------------
Loss from discontinued operations .............. $(245,906,000)
=============
As of December 31, 1999, the Company's net investment in discontinued operations
totaled $12.2 million, net representing cash on hand in the discontinued
operations of approximately $11.9 million and net receivables (net of
liabilities) due of approximately $307,000. The Company recorded a loss on
discontinued operations of $500,037, net of income tax benefit of $269,251, in
1999 due to an increase in an allowance against an income tax receivable and an
increase in potential liabilities. The Company expects to maintain a balance of
cash on hand in the discontinued operations to cover existing and potential
liabilities and costs until dissolution of the existing legal entities of CSC-UK
and its subsidiaries.
5. RESIDUAL CERTIFICATES
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 possess a favorable credit profile and
debt-to-income ratio and who often use the proceeds from such loans to repay
outstanding indebtedness as well as make home improvements).
Prior to the fourth quarter of 1997, the Company sold its loan origination and
purchase volume through 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 trust are
represented by residual certificates. The cash purchase price is raised through
an offering of pass-through certificates by the trust.
The Company classifies these residual certificates as "securities
available-for-sale" 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 to determine the fair value of the residual certificates. If the fair
value of the residual certificates is different from the recorded value and the
difference is considered to be a permanent difference, the gain or loss on
37
<PAGE>
the valuation of residuals will be reflected in the consolidated statements of
operations. Should the unrealized gain or loss be considered to be a temporary
difference, the unrealized amount is recorded in accumulated other comprehensive
income in stockholders' equity.
The table below summaries the value of the Company's residual certificates by
product type:
REORGANIZED PREDECESSOR
COMPANY COMPANY
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- -------------
Home Equity $ - $ 6,490,461
Sav*-A-Loan(R) 12,538,461 27,170,469
-------------- -------------
Total $ 12,538,461 $ 33,660,930
============== =============
The key assumptions used to value the Company's residual certificates at
December 31, 1999, June 30, 1999, December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------------ -----------------------------------
DECEMBER 31,
--------------------
DECEMBER 31, 1999 JUNE 30, 1999 1998 1997
------------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
HOME EQUITY
Discount Rate N/A 20.0% 20.0% 15.0%
Constant Prepayment Rate N/A 30.0% 30.0% 31.8%
Loss Rate Per Annum N/A 7.3-33.0% 7.5% 1.7%
SAV*-A-LOAN(R)
Discount Rate 20.0% 20.0% 20.0% 15.0%
Constant Prepayment Rate 19.0% 19.0% 16.8% 16.8%
Loss Rate Per Annum 3.0-8.0% 3.0-10.0% 4.5% 3.1%
</TABLE>
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. The loss on valuation
of $148.0 million included a loss of $89.8 million related to its home equity
securitizations and an additional loss on valuation of $35.9 million related to
the Sav*-A-Loan(R) residuals which reflected the Company's change in the key
assumptions used to value such residuals.
During 1998, the Company recorded a loss on valuation of residuals of $42.9
million on its home equity residuals and $25.9 million on its Sav*-A-Loan(R)
residuals. This loss on valuation loss was primarily a result of the Company
increasing the discount rate to 20% at December 31, 1998 from 15% from December
31, 1997 on both types of securitizations and increasing the loss assumptions to
7.5% per annum at December 31, 1998 on its home equity securitizations from 1.7%
per annum at December 31, 1997, as well as increasing the loss assumptions on
its Sav*-A-Loan(R) residuals to 4.5% per annum at December 31, 1998 from 3.1% at
December 31, 1997. The increased discount rate reflects the erosion and turmoil
in the subprime mortgage market experienced during 1998 and corresponding lack
of liquidity in the marketplace. The Company's loss experience through increased
liquidation efforts indicated higher loss levels than previously anticipated
requiring the corresponding increase in loss assumptions. The Company reduced
the constant prepayment rate on its home equity securitizations to 30% per annum
at December 31, 1998 from
38
<PAGE>
31.8% per annum at December 31, 1997, which reflected the slower rates
experienced over the last half of 1998.
During the second quarter of 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),
the Company recorded a loss on valuation of residuals of $20.8 million. In
December 1999, the Company recorded an unrealized gain of $62,739, net of tax of
$33,783, on residual certificates. The unrealized gain was the result of a lower
loss rate as loans near maturity. The unrealized gain is considered a temporary
gain and has been recorded in stockholders' equity (deficit). In valuing the
residual certificates at the end of 1999, the Company used the same discount
rate of 20% in 1999 as in 1998 for Sav*-A-Loan(R) securitizations, increased the
constant prepayment rate from 16.8% at the end of 1998 to 19.0% at the end of
1999 and increased the loss rate per annum from 4.5% at December 31, 1998 to a
range of 3.0% to 8.0% at December 31, 1999. The home equity securitizations were
assigned no value at the end of 1999.
6. 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, 1999 and 1998:
REORGANIZED PREDECESSOR
COMPANY COMPANY
1999 1998
------------- -------------
Home Equity and Sav*-A-Loan(R) $ 14,338,442 $ 123,345,783
============= =============
Included in mortgages held for sale at December 31, 1998, are $4.8 million of
loans formerly classified as mortgages held for investment (representing $13.6
million in principal value net of $8.8 million valuation allowance). The Company
reclassified these loans due to its decision to sell all of its mortgage loans
as part of its reorganization. During 1998, the Company recorded a $7.1 million
valuation allowance against its mortgages held for sale that were not formerly
classified as mortgages held for investment. Mortgage loans held for sale
totaled $29.7 million in principal at December 31, 1999 with a valuation
allowance of $15.4 million.
Included in mortgages held for sale at December 31, 1998 is $4.8 million of
loans formerly classified as mortgages held for investment (representing $13.6
million in principal value net of $8.8 million of valuation allowance). The
Company reclassified these loans due to its decision to sell all of its mortgage
loans as part of its reorganization. During 1998, the Company recorded a $7.1
million valuation allowance against its mortgages held for sale that were not
formerly classified as mortgages held for investment.
39
<PAGE>
7. OTHER ASSETS
Other assets at December 31, 1999 and 1998 consist of the following:
REORGANIZED PREDECESSOR
COMPANY COMPANY
1999 1998
------------- ------------
Prepaid expenses $ 24,371 $ 1,234,741
Accrued interest receivable 198,921 802,104
Accounts receivable 677,390 3,425,931
Premiums due on sales - 994,335
Servicing advances, net of allowance - 8,405,999
Real estate owned, net - 26,160
Equipment and leasehold improvements, - 38,686
Other 27,146 670,663
------------- ------------
Total $ 927,828 $ 15,598,619
============= ============
Accounts receivable at December 31, 1999 is comprised of the following:
Securitization receivables $ 846,936
Servicing receivables 363,932
-----------
1,210,868
Reserves (533,478)
-----------
Net receivables $ 677,390
===========
Real estate owned at December 31, 1999 totaled $1.1 million which was fully
reserved.
8. CREDIT FACILITIES
GREENWICH WAREHOUSE FACILITY
Prior to the filing of the Petitions, Greenwich Capital Financial Products,
Inc., an affiliate of Greenwich Capital Markets, Inc. (referred to herein,
including any affiliates as "Greenwich") provided a warehouse credit facility
under which CSC borrowed funds on a short-term basis to support the accumulation
of loans by CSC prior to sale (the "Greenwich Facility"). Subsequent to the
filing of the Petitions and pursuant to an order of the Bankruptcy Court, dated
October 27, 1998, the Company and CSC obtained a $100 million post-petition
warehouse facility from Greenwich (the "Greenwich DIP Facility") which repaid in
full amounts due under the Greenwich Facility. The Greenwich DIP Facility was
secured by substantially all of the assets of CSC and the capital stock of CSC
and was guaranteed by the Company. The Greenwich DIP Facility originally bore
interest at an interest rate of LIBOR plus 2.75%. The Greenwich DIP Facility was
scheduled to terminate on February 28, 1999; however, the parties agreed by
amendment to the Greenwich DIP Facility (the "Greenwich DIP Facility Amendment")
to extend the termination of such facility until April 30, 1999. The Greenwich
DIP Facility Amendment was approved by an order of the Bankruptcy Court, dated
March 24, 1999. Under the Greenwich DIP Facility Amendment, the interest rate
was changed to the prime rate plus 2.50%. As of December 31, 1998, $73.4 million
was outstanding under the Greenwich DIP Facility. By the end of the second
quarter of 1999, there were no balances outstanding under the Greenwich DIP
Facility Amendment and the facility had been terminated.
40
<PAGE>
CIT WAREHOUSE FACILITY
Prior to the filing of the Petitions, the CIT Group/Equipment Financing, Inc.
("CIT") provided a warehouse credit facility under which CSC borrowed funds on a
short-term basis to support the accumulation of loans by CSC prior to the sale
(the "CIT Facility"). Subsequent to the filing of the Petitions and pursuant to
an order of the Bankruptcy Court dated October 27, 1998, the Company and CSC
obtained a $150 million post-petition warehouse facility (the "CIT/Nomura DIP
Facility") from CIT and Nomura Asset and Capital Corporation which repaid in
full amounts due under the CIT Facility. The CIT/Nomura DIP Facility was secured
by substantially all of the assets of CSC and the capital stock of CSC and was
guaranteed by the Company. As of December 31, 1998, $32.6 million was
outstanding under the CIT/Nomura DIP Facility. As of the end of the second
quarter of 1999, there were no balances outstanding under the CIT/Nomura DIP
Facility and the facility had been terminated.
9. SENIOR NOTES
In May 1997, the Company issued $300 million aggregate principal amount of 12
3/4% Senior Notes due September 1, 2004 in a private placement. The original
Senior Notes were not redeemable prior to maturity except in limited
circumstances. The coupon at 12 3/4% per annum, was 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 had the same terms as
the original Senior Notes in all material respects, except for certain transfer
transactions and registration rights.
In connection with its restructuring efforts, the Company determined to defer
the June 1, 1998 interest payment on the Notes. The continued deferral of the
interest payment on the Notes constituted an "Event of Default" pursuant to the
Indenture under which securities were issued. As of October 6, 1998, due to the
filing of the Petitions, the Company ceased accruing interest on the Notes.
With fresh start reporting, the Company's Notes were eliminated (See
Note 3. - Fresh Start Reporting).
10. 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.
During 1997 and 1998 the Liquidation Preference was adjusted by an amount equal
to the dividend in lieu of a dividend payment. The Liquidation Preference was
increased in January 1998 with the delisting of the Company's Common Stock from
the Nasdaq National Market. With the filing of the Petitions on October 6, 1998,
the Company ceased paying and accruing dividend on Series A Preferred Stock. As
of October 6, 1998, there were 626 shares of Series A Preferred Stock
outstanding and the Liquidation Preference varied up to $14,198 per share. At
December 31, 1998, all Series A Warrants were outstanding.
41
<PAGE>
With fresh start reporting the Predecessor Company's Series A Preferred Stock
and Series A Warrants were eliminated (See Note 3. - Fresh Start Reporting).
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 were cumulative at the rate of 6% of the Liquidation Preference per annum
payable quarterly. Dividends were 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 and 1998, the Liquidation Preference of the Series B Preferred Stock
was adjusted by an amount equal to the dividend in lieu of a dividend payment.
The Liquidation Preference of the Series B Preferred Stock was increased in
January 1998 with the delisting of the Company's Common Stock from the Nasdaq
National Market. With the filing of the Petitions on October 6, 1998, the
Company ceased paying and accruing dividends on Series B Preferred Stock. As of
October 6, 1998 there were 4,551 shares of Series B Preferred Stock outstanding
and the Liquidation Preference on Series B Preferred Stock was $14,335 per
share. At December 31, 1998, all Series B warrants were outstanding.
With fresh start reporting the Predecessor Company's Series B Preferred Stock
and Series B Warrants were eliminated (See Note 3. - Fresh Start Reporting).
11. STOCKHOLDERS' EQUITY (DEFICIT)
With fresh start reporting the Predecessor Company's stockholders' deficit was
eliminated (See Note 3. - Fresh Start Reporting). The Reorganized Company has
25,000,000 shares of new common stock with a par value of $.01 per share. At of
December 31, 1999, 7,743,622 shares of new common stock had been issued in
accordance with the Amended Plan. Additional shares will be issued as claims are
settled.
12. EMPLOYEE BENEFIT PLAN
The Predecessor Company had a deferred contribution plan (401(k)) for all
eligible employees. Contributions to the plan were in the form of employer
salary deferral which were subject to an employer matching contribution up to a
specified limit at the discretion of the Company. The Company made contributions
to the plan of $155,011 for the year ended December 31, 1997. No contributions
were made for the year ended December 31, 1998 or in 1999.
All employee stock plans became inoperative with the confirmation of the Amended
Plan.
There are no employee benefit plans for the Reorganized Company.
42
<PAGE>
13. OTHER INCOME
Other income includes the following for the six months ended December 31, 1999
and June 30, 1999, and the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------------- --------------------------------------------------------
SIX MONTHS SIX MONTHS YEARS ENDED DECEMBER 31
ENDED ENDED ------------------------------------
DECEMBER 31, 1999 JUNE 30, 1999 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Servicing income .................................... $ 1,004,250 $ 2,532,060 $ 819,910 $ 1,640,288
Gain on sale of available-for-sale securities ....... -- -- -- 17,957,258
Transfer servicing rights ........................... -- 6,100,000 -- --
Legal settlements ................................... 1,536,490 -- -- --
Other income ........................................ 105,901 (972,287) 634,238 704,337
----------------- ----------------- ----------------- -----------------
Total ............................................... $ 2,646,641 $ 7,659,773 $ 1,454,148 $ 20,301,883
================= ================= ================= =================
</TABLE>
During the second quarter of 1999, the Company entered into agreements to
transfer its servicing rights on all of its home equity securitizations to Ocwen
FSB 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 securitizations trust for reimbursement of advances made to such
trust by the Company as servicer. Other income for the six months ended June 30,
1999 includes the write-down of the amount due from Ocwen on home equity
securitization 95-1. The Company transferred servicing on 95-1 in July 1999 at
an amount equal to the Company's carrying value.
Gain on sale of available-for-sale securities represents the pre-tax gain on the
sale of 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., during 1997.
14. OTHER OPERATING EXPENSES
Other operating expenses include the following for the six months ended December
31, 1999 and June 30, 1999, and for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -----------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, JUNE 30, --------------------------------
1999 1999 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Professional fees .............................. $ 742,911 $ 1,777,761 $13,259,811 $12,272,453
Travel and entertainment ....................... 14,454 59,742 1,464,732 2,656,336
Telephone ...................................... 14,945 158,777 1,316,613 2,055,482
Foreclosure costs .............................. -- 1,148,057 6,511,805 3,266,222
Occupancy ...................................... -- 408,791 2,707,517 2,476,794
Office and computer supplies ................... 11,842 27,914 1,390,062 2,560,059
Temporary help ................................. -- 532,081 1,478,732 1,267,265
Equipment leasing .............................. 2,799 158,486 1,993,722 1,386,113
Depreciation ................................... 1,000 6,000 3,495,258 1,361,670
Settlement expense ............................. -- -- 2,040,000 --
Other .......................................... 228,927 1,975,536 11,402,293 12,782,881
----------- ----------- ----------- -----------
Total .......................................... $ 1,016,878 $ 6,253,145 $47,060,545 $42,085,275
=========== =========== =========== ===========
</TABLE>
43
<PAGE>
Expenses for the six months ended December 31, 1999 were minimal due to accruals
established prior to fresh start reporting for fees associated with the
reorganization and closing of the New York office.
15. RESTRUCTURING CHARGES
In February 1998, the Company announced that it had begun implementing a
restructuring plan that included streamlining and downsizing its operations. The
Company closed its branch operations in Virginia and significantly reduced its
correspondent originations of the foreseeable future and exited its conventional
lending business. Accordingly, in the first quarter of 1998, the Company
recorded a restructuring charge of $3.2 million. Of this amount, $1.1 million
represented severance payments to 142 former employees and $2.1 million
represented costs incurred in connection with lease obligations and write-off of
assets no longer in service.
In June 1999, the Company eliminated its servicing function and announced plans
to move the corporate office from Elmsford, New York to Houston, Texas. In
conjunction with these plans, the Company recorded a $790,000 restructuring
charge for severance and future lease obligations.
16. REORGANIZATION ITEMS
Reorganization items for the six months ended June 30, 1999 and for the year
ended December 31, 1998 are detailed below:
PREDECESSOR COMPANY
--------------------------
SIX
MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
Professional fees $ 814,824 $ 7,716,294
Severance - 3,896,393
Lease rejections/leasehold
improvements - 5,338,000
Deferred debt issuance costs - 12,012,011
Write-off servicing deposits 145,484 -
Other reorganization items 683,750 2,916,820
---------- ------------
Total $1,644,058 $ 31,879,518
========== ============
On October 22, 1998, the Company reduced its workforce by 243 employees, from
454 employees to 211 employees. In connection with this reduction, the Company
closed its branch operations in California and Illinois, while maintaining its
offices in New York and Georgia. On November 17, 1998, the Company decided to
suspend indefinitely all of its loan origination and purchase activities. The
Company notified its brokers that it had ceased funding mortgage loans, other
than loans that were in its origination pipeline for which it had issued
commitments. The Company's decision was due to its determination, following
discussions with potential lenders regarding post-reorganization loan warehouse
financing, that adequate sources of such financing were not available. With no
adequate sources of such financing, the Company determined that it was unable to
continue loan origination and purchase activities and closed branch operations
in New York and Georgia and reduced its workforce by 92 additional employees,
including
44
<PAGE>
corporate and servicing employees. Accordingly, the Company recorded a
reorganization charge of $31.9 million during the fourth quarter of 1998.
The Company incurred additional reorganization charges for the six months ended
June 30, 1999 including professional fees and expensing security deposits that
would be used to settle claims with lessors. There were no reorganization
charges for the six months ended December 31, 1999.
17. INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the six
months ended December 31, 1999 and June 30, 1999, and for the years ended
December 31, 1998 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------------- --------------------------------------------------------
SIX MONTHS SIX MONTHS YEARS ENDED DECEMBER 31
ENDED ENDED -------------------------------------
DECEMBER 31, 1999 JUNE 30, 1999 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Current
Federal ....................................... $ -- $ -- $ -- $ (14,558,408)
State ......................................... -- 67,673 38,267 300,000
----------------- ----------------- ----------------- -----------------
-- 67,673 38,267 (14,258,408)
----------------- ----------------- ----------------- -----------------
Deferred
Federal ....................................... 1,133,178 -- -- (3,818,166)
State ......................................... -- -- -- --
----------------- ----------------- ----------------- -----------------
1,133,178 -- -- (3,818,166)
----------------- ----------------- ----------------- -----------------
Provision (benefit) for income taxes from
continuing operations ............................. $ 1,133,178 $ 67,673 $ 38,267 $ (18,076,574)
================= ================= ================= =================
</TABLE>
The Company recognized an income tax benefit of $269,251 related to the loss on
discontinued operations for the Reorganized Company for the six months ended
December 31, 1999.
The reconciliation of income tax computed at the U.S. federal statutory tax rate
to the effective income tax rate for the six months ended December 31, 1999 and
June 30, 1999, and for the years ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------------- -----------------------------------------------------------
SIX MONTHS SIX MONTHS YEARS ENDED DECEMBER 31
ENDED ENDED --------------------------------------
DECEMBER 31, 1999 JUNE 30, 1999 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate ............ 35.0% (35.0%) (35.0%) (35.0%)
State and local taxes ........................... -- -- -- 2.5%
Unrecognized deferred tax asset ................. -- 35.0% 35.0% 19.3%
Other, net ...................................... -- -- -- --
----------------- ----------------- ----------------- -----------------
35.0% --% --% (13.2%)
================= ================= ================= =================
</TABLE>
Pursuant to SFAS No. 109, "Accounting for Income Taxes," the Company had
available certain deductible temporary differences and net operating loss
carryforwards for use in future tax reporting periods, which created deferred
tax assets. SFAS No. 109, requires that deferred tax assets be reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that some portion or all
45
<PAGE>
of the deferred tax assets will not be realized. During the six months ended
December 31, 1999, the deferred tax asset valuation allowance was reduced by
$863,927 with a corresponding increase in additional paid-in capital in
accordance with SOP 90-7 to adjust the recorded net deferred tax asset to an
amount considered more likely than not to be realized. The deferred tax asset
net of the valuation allowance and recorded on the books of the Company was
$12.5 million at December 31, 1999. Realization of this asset is dependent on
generating sufficient taxable income prior to the expiration of the loss
carryforwards. Realization could also be affected by a significant ownership
change of the Company over a period of three years as prescribed by income tax
law. Although realization of the net deferred tax asset is not assured because
of these uncertainties, management believes it is more likely than not that all
of the recorded net deferred tax asset will be realized.
In accordance with SOP 90-7, income tax benefits recognized from preconfirmation
net operating loss carryforwards are used first to reduce the reorganization
value in excess of amounts allocable to identifiable assets and thereafter to
increase additional paid-in capital.
Deferred taxes as of December 31, and June 30, 1999 and December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY ---------------------------------------------
------------- DECEMBER 31,
DECEMBER 31, JUNE 30, -----------------------------
1999 1999 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross deferred tax assets $ 117,290,109 $ 118,154,036 $ 161,146,951 $ 69,914,468
Less: valuation allowance (104,790,186) (105,654,113) (101,058,388) (26,376,554)
------------- ------------- ------------- -------------
Net deferred assets ...... 12,499,923 12,499,923 60,088,563 43,537,914
------------- ------------- ------------- -------------
Deferred tax liabilities . (12,499,923) (12,499,923) (60,088,563) (43,537,914)
------------- ------------- ------------- -------------
Net deferred tax ......... $ - $ - $ - $ -
============= ============= ============= =============
</TABLE>
The major components of the gross deferred tax assets are the net operating loss
carryforwards and the unrealized loss on the valuation of residual certificates.
The gross deferred tax liabilities consist primarily of the book versus tax
differences relating to mortgage servicing rights.
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $140.2 million which are available
to offset future federal taxable income, if any, through 2014.
In accordance with the provisions of Internal Revenue Code Section 382,
utilization of the Company's net operating loss carry forwards could be limited
in years following a change in the Company's ownership. In general, a change in
ownership occurs if a shareholder's (or the combined group of shareholders each
owning less than 5%) ownership increases 50 percentage points over a three-year
period. The net operating loss limitation is computed by applying a percentage
(approximately 5%, as determined by the Internal Revenue Code) 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 change of
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 of 1997 primarily as a result of conversions of
the Company's Series A Preferred Stock 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
46
<PAGE>
after the reduction thereof as a result of the cancellation of indebtedness of
the Company, will be 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 Amended Plan. The
Company had no net operating losses at December 31, 1999.
18. COMMITMENTS AND CONTINGENCIES
LEASES
After the filing of the Petitions in the Bankruptcy Court, the Company undertook
a comprehensive review and evaluation of various unexpired, nonresidential real
property leases and executory contracts. Based on this review, the Company
rejected four leases of non-residential real property and six leases relating to
equipment, maintenance and information systems software. A charge of $5.3
million relating to the rejection of these leases and other leases the Company
intended to reject is included in reorganization items in the consolidated
statement of operations for the year ended December 31, 1998.
Rent expense for office space totaled $347,000 for the six months ended June 30,
1999 and $2.5 million and $2.3 million for the years ended December 31, 1998 and
1997, respectively. The Company incurred no rent expenses for the six months
ended December 31, 1999.
ADMINISTRATIVE SERVICES AGREEMENT
The Company entered into an Administrative Services Agreement (the "Agreement")
with AEGIS Mortgage Corporation ("AEGIS") to assume responsibility for
accounting and administrative activities effective September 1, 1999. The
Company pays administrative fees of $90,000 per month under the terms of the
Agreement. The Agreement is effective until terminated by either party. AEGIS
shall be required to give the Company a minimum of ninety (90) days prior
written notice of termination and the Company shall be required to give AEGIS a
minimum of thirty (30) days written notice prior to termination.
LITIGATION
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").
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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 certain 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. 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.
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 as to 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 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 some time in 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. (the "Global Mortgage Action") against various
defendants seeking damages for losses resulting from the Company's acquisition
in 1995 and 1996 of 145 fraudulent residential mortgages on inner city Baltimore
rowhouses. The Company recently consummated settlements with all but two of the
defendants in this case, and it has now confirmed agreements in principle to
settle with those two remaining defendants. Trial has been postponed
indefinitely, pending execution of appropriate settlement agreements between the
Company and the last two
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<PAGE>
defendants. Once the last two settlement agreements are executed, the trial will
be cancelled and this matter will be concluded.
ELLIOTT ASSOCIATES ACTION. In September 1998, Elliott Associates, L.P. and
Westgate International, L.P. filed a lawsuit against the Company and certain of
its former officers and directors in the Southern District (the "Elliott
Associates Action"). In the complaint, plaintiffs described the lawsuit as "an
action for securities fraud and breach of contract arising out of the private
placement, in September 1997, of the Series B Preferred Stock of Cityscape."
Plaintiffs alleged violations of Section 10(b) of the Exchange Act (Count I);
Section 20(a) of the Exchange Act (Count II); and two breach of contract claims
against the Company (Counts III & IV). Plaintiffs alleged to have purchased a
total of approximately $20 million of such preferred stock. Plaintiffs sought
unspecified damages, including pre-judgment interest, attorneys' fees and other
expenses and court costs. The Company and its former officers and directors who
were defendants moved to dismiss the action. The action against the Company was
discharged when the Company's plan of reorganization became effective on July 1,
1999. The action against the remaining defendants has been settled and
dismissed.
SIMPSON ACTION. In February 1998, a putative class action lawsuit was
filed against the Company in the U.S. District Court for the Northern District
of Mississippi (Greenville Division) (the "Simpson Action"). 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 refinancing for
plaintiff through the Company. In connection with the financing, the Company is
alleged to have paid a premium to Few in the amount of $1,280.00. Plaintiff
claims that the payment was a referral fee and duplicate payment prohibited
under Section 8 of RESPA. Plaintiff is seeking compensatory damage for the
amounts "by which the interest rates and points charged were inflated."
Plaintiff also claims to represent a class consisting of all other persons
similarly situated, that is persons (i) who secured mortgage financing from the
Company through mortgage brokers from an unspecified period to date (claims
under Section 8 of RESPA are governed by a one year statute of limitations) and
(ii) whose mortgage brokers received a fee from the Company. Plaintiff is
seeking to recover compensatory damages on behalf of the putative class, which
is alleged to be "numerous," for the amounts that "the interest rates and points
charges were inflated" in connection with each class member's mortgage loan
transaction. The Company answered the complaint and plaintiff has not yet moved
for class certification. To date, there has not been a ruling on the merits of
either plaintiff's individual claim or the claims of the putative class. As a
result of the Company's Chapter 11 proceedings and the plaintiff's failure to
file a claim before the established bar date, plaintiff's claims against the
Company were discharged.
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.
(the "Peaks Action"). 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 still own) at least eight of the loans and may have previously purchased
and subsequently sold an additional seven of the loans. Due to the Company's
prior bankruptcy and an
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agreement with plaintiff's 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 in settlement discussions. The Company recently reached an
agreement to settle this matter in exchange for mutual releases and the payment
to the Company of a percentage of a settlement pool established for this
purpose. In addition to the proceeds of the settlement pool, the Company
anticipates certain additional recoveries from the proceeds of the refinancing
or sale of the collateral securing the loans. As a result of the Company's
Chapter 11 proceedings and the plaintiff's failure to file a claim before the
established bar date, plaintiff's claims against the Company were discharged.
Although no assurance can be given as to the outcome of the unresolved
lawsuits described above, the Company believes that the allegations in each of
the actions are without merit and that its disclosures were proper, complete and
accurate. The Company intends to defend vigorously against these actions and
seek their early dismissal. The lawsuits, however, against the Company, could
have a material adverse effect on the Company's consolidated financial position
and results of operations.
REGULATORY MATTERS. In April and June 1996, CSC-UK acquired J&J Securities
Limited (the "J&J Acquisition") and Greyfriars Group Limited (formerly known as
Heritable Finance Limited) (the "Greyfriars Acquisition"), respectively. 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 value which
were estimated to approximate par (or historical book value). Upon the
subsequent sale of the mortgage portfolios, the Company recognized the fair
value of the mortgage servicing receivables retained and recorded a
corresponding gain for the fair value of such mortgage servicing receivables.
Upon subsequent review, the Company determined that the fair value of such
mortgage servicing rights should have been included as part of the fair value of
the mortgage loans acquired as a result of such acquisitions. The effect of this
accounting change resulted in a reduction in reported earnings of $26.5 million.
Additionally, as a result of this accounting change, the goodwill initially
recorded in connection with such acquisitions was reduced resulting in a
reduction of goodwill amortization of approximately $496,000 from the previously
reported figure for the second quarter. On November 19, 1996, the Company
announced that it had determined that certain additional adjustments relating to
the J&J Acquisition and the Greyfriars Acquisition should be made to the
financial statements for the quarter ended June 30, 1996. These adjustments
reflect a change in the accounting treatment with respect to restructuring
charges and deferred taxes recorded as a result of such acquisitions. This
caused an increase in the amount of goodwill recorded which resulted in an
increase of amortization expense as previously reported in the second quarter of
1996 of $170,692. The staff of the Commission has requested additional
information from the Company in connection with the accounting related to the
J&J Acquisition and the Greyfriars Acquisition. The Company is supplying such
requested information. In mid-October 1997, the Commission authorized its staff
to conduct a formal investigation which, to date, has continued to focus on the
issues surrounding the restatement of the financial statements for the quarter
ended June 30, 1996. The Company is continuing to cooperate fully in this
matter, however, the Commission has not contacted the Company on this matter
since July 1999.
As a result of its negative operating results, the Company received
inquiries in 1998 from the State of New York Department of Banking regarding the
Company's qualifications to continue to hold a
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mortgage banking license. In connection with such inquiries, the Company agreed
to provide the banking department with certain information and to certain
restrictions on its business. The Company provided the necessary information and
complied with the restrictions on its business through July 29, 1999, when the
Company voluntarily surrendered its New York mortgage banking licenses. After
that date, the Company no longer conducted any mortgage banking activities in
New York and therefore ceased submitting information to the banking department.
UK SALE AGREEMENT. On September 4, 1998, CSC-UK commenced proceedings in
the High Court of Justice, London against Ocwen for the payment of certain sums
due under the UK Sale Agreement (the "Proceedings"). Although Ocwen initially
informed CSC-UK that it would defend the Proceedings, Ocwen then satisfied
CSC-UK's claim by paying CSC-UK (pound)1.7 million ($2.8 million) on November
24, 1998. Prior to CSC-UK initiating the Proceedings, Ocwen informed CSC-UK that
it would defend the (then proposed) Proceedings on the basis that any sums owed
by Ocwen to CSC-UK should be set off or extinguished against a sum which Ocwen
claimed was due or, alternatively, was recoverable by it from CSC-UK on the
grounds of CSC-UK's breach of warranty or misrepresentation with respect to
matters concerning loans of Greyfriars (the "Alleged Loan Liabilities"). With
respect to the Alleged Loan Liabilities, Ocwen claimed that CSC-UK had
excessively charged borrowers, failed to notify borrowers of interest rate rises
and failed to advise borrowers of increased repayments. Ocwen claimed that these
liabilities totaled approximately (pound)13.0 million ($21.2 million).
Additionally, pursuant to the UK Sale Agreement, Ocwen held back a sum of
(pound)3.5 million ($5.7 million) with respect to the purchase price, pending
the determination of certain other figures under the UK Sale Agreement (the
"Holdback"), which sum was paid into a Holdback account at the time of the UK
Sale Agreement.
On February 15, 1999, the Company, Ocwen and certain of their subsidiaries
entered into a settlement agreement, in full and final settlement of all causes
of action, claims, demands, liabilities, damages, costs, charges and expenses
that the Company, CSC-UK and Ocwen and their respective subsidiaries may have
against each other. Such claims include Ocwen's alleged claim against the
Company and/or CSC-UK with respect to the Alleged Loan Liabilities. Under the
settlement agreement, in June 1999 CSC-UK was paid $3.1 million from the
Holdback account, and Ocwen was paid approximately $2.6 million from the
Holdback account. The Bankruptcy Court approved the settlement agreement.
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.
19. CONCENTRATIONS OF CREDIT
For the years ended December 31, 1998 and 1997, revenues from loan sales and
loan servicing constituted the primary source of the Company's revenues. For the
years ended December 31, 1998 and 1997, there were not institutional purchasers
who accounted for more than 10% of the total revenues.
The Reorganized Company has not engaged in any material operations since July 1,
1999. The major source of revenues has been the investment of available funds in
high-grade commercial paper.
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20. FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
Residual certificates: The fair value on the Company's Sav*-A-Loan(R)
residual certificates 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. There was not a value assigned to the Company's home equity residual
certificates.
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 $14.3 million and $123.3 million at
December 31, 1999 and 1998, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ------------------- ----- ------------------------------------------
D. Richard Thompson 46 Director, Chairman, Chief Executive
Officer and President
Michael L. Kennemer 40 Chief Financial Officer and Treasurer
Mark A. Neporent 42 Director
Todd R. Snyder 38 Director
Raymond H. Wechsler 55 Director
D. RICHARD THOMPSON, Chairman of the Board, Chief Executive Officer and
President, has served as a Director since July 1999. Mr. Thompson was appointed
Chief Executive Officer and President of AEGIS Mortgage Corporation in 1998
after having served as Managing Director since 1993. He holds a law degree from
the University of Houston and a B.A. degree from Centenary College. Mr. Thompson
is a member of the State Bar of Texas and the American Institute of Certified
Public Accountants.
MICHAEL L. KENNEMER has served as Chief Financial Officer and Treasurer since
July 1999. Mr. Kennemer has held the position of Executive Vice President of
AEGIS Mortgage Corporation since December 1998. From 1995 to 1998, Mr. Kennemer
served as Vice President, Regional Sales Manager for Countrywide Home Loans. He
holds a B.B.A. in Accounting and Finance from Texas Christian University. Mr.
Kennemer is a member of the Texas Mortgage Bankers Association and the American
Institute of Certified Public Accountants.
MARK A. NEPORENT has served as a Director since July 1999. Mr. Neporent is Vice
President and Chief Operating Officer of Madeleine, L.L.C. where he has served
since 1998. He is also Chief Operating Officer and General Counsel of Cerberus
Capital Management, L.P. where he has served since 1998. From 1989 to 1998, Mr.
Neporent was a partner in the law firm of Schulte, Roth & Zabel, L.L.P. Mr.
Neporent holds a B.A. degree from Lehigh University and a law degree from
Syracuse University College of Law. He is a member of the State Bar of New York.
TODD R. SNYDER has served as a Director since August 1999. Mr. Snyder has served
as a Managing Director of Rothschild Inc. since March 2000. From 1997 to 2000,
Mr. Snyder served as Managing Director of Peter J. Solomon Company. Mr. Snyder
was Principal, Managing Director and National Director of the Corporate Recovery
Practice for Government Enterprises with KPMG LLP from 1995 to 1997. Mr. Snyder
holds a law degree from the University of Pennsylvania Law School and a B.A.
degree with honors from Wesleyan University. He is a member of the State Bar of
New York.
RAYMOND H. WECHSLER has served as a Director since August 1999. Mr. Wechsler is
Chairman and Chief Executive of American Equity Partners, Inc. where he has
served since 1992. Mr. Wechsler holds a B.A. degree from Queens College and a
M.B.A. degree from Columbia University Graduate School of Business. He is a
Certified Public Accountant in New York.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of the
Company's Common Stock (collectively,
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<PAGE>
"Filing Persons") to file with the SEC initial reports of ownership (Form 3),
reports in changes of ownership (Form 4), or annual report of ownership (Form
5). All filing Persons are required by Securities Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms filed.
To the Company's knowledge based on its review of the copies of such reports
furnished to the Company and upon certain other representations made by filing
persons, D. Richard Thompson, Michael L. Kennemer, Todd R. Snyder and Raymond A.
Wechsler failed to timely file one (1) Form 3, which form was subsequently
filed.
The Company is unable to determine the reporting compliance of Section 16 (a)
beneficial owners of Cityscape common stock due to the lack of adequate records
and non-response to written representation by former officers and directors.
ITEM 11. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the years ended December 31, 1999, 1998 and 1997 of the Chief
Executive Officer of the Company and the two most highly compensated executive
officers of the Predecessor Company, Cityscape Financial Corp. and its wholly
owned subsidiary Cityscape Corp.
<TABLE>
<CAPTION>
ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION
---- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
D. Richard Thompson ............................. 1999 $300,000 -- --
CHIEF EXECUTIVE OFFICER AND PRESIDENT ........... 1998 -- -- --
1997 -- -- --
Steven M. Miller
FORMER CHIEF EXECUTIVE OFFICER OF CITYSCAPE; .... 1999 $174,492 $479,630 --
SENIOR VICE PRESIDENT OF CSC .................... 1998 $250,000 $600,000 --
1997 $201,923 -- $ 80,000 (1)
Cheryl P. Carl
FORMER VICE PRESIDENT AND SECRETARY OF CITYSCAPE;
TREASURER AND SECRETARY OF CSC .................. 1999 $323,639 $ 84,814 --
1998 $324,755 $200,000 --
1997 $215,750 -- --
</TABLE>
(1) Represents consulting fees paid to Mr. Miller prior to his employment.
Stock options granted to former Cityscape employees are not listed since the
stock option plan was effectively terminated by the confirmation of Cityscape's
amended plan of reorganization in Bankruptcy Court.
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<PAGE>
DIRECTOR COMPENSATION
Mr. Wechsler and Mr. Snyder each receive director fees of $1,000 monthly.
Meetings of the Board of Directors of the Company have been conducted
telephonically and therefore no expenses have been incurred in connection with
attendance of directors at meetings of the Board of Directors.
STOCK OPTIONS
There were no options granted by the Company or Cityscape during 1999.
Cityscape's stock option plan became inoperative with the confirmation of the
amended plan of reorganization in Bankruptcy Court.
There were no shares of Cityscape's common stock acquired in 1999 through the
exercise of stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since there is not a Compensation Committee of the Board of Directors of the
Company there were no relationships requiring disclosure by the Company.
EMPLOYMENT AGREEMENTS
The Company does not have an employment agreement with Mr. Thompson. Cityscape
had an employment agreement with Cheryl P. Carl. The agreement required the
executive officer to denote her full time and best efforts to Cityscape during
the term of the agreement.
The employment agreement with Ms. Carl was for a term commencing May 31, 1998
and ended December 31, 1999. The agreement provided for an annual salary of
$275,000. Because of Ms. Carl's commitment to remain employed with the Company
during the Company's reorganization, the agreement also provided for the payment
of a stay bonus of $200,000, all of which was paid to Ms. Carl by January 5,
1999. Ms. Carl's compensation for the year ended December 31, 1999 totaled
$408,453.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 17, 2000 with respect to
the number of shares of Common Stock beneficially owned by (1) each stockholder
and/or named executive officer individually, (2) all executive officers and
directors of the Company as a group and (3) each stockholder known by the
Company to be the beneficial owner of more than 5% of the Company's Common Stock
and all executive officers and directors of the Company as a group. Each
stockholder has sole voting and investment power with respect to the shares
shown.
NUMBER OF SHARES % OF
BENEFICIALLY OWNED CLASS
-------------------- ----------
D. Richard Thompson.......... -- --
Michael L. Kennemer.......... -- --
Mark A. Neporent............. -- --
Todd R. Snyder............... -- --
Raymond H. Wechsler.......... -- --
Cheryl P. Carl............... -- --
Steven M. Miller............. -- --
Stephen Feinberg............. 2,638,133 34.0
450 Park Avenue
New York, NY 10022
MacKay Shields, L.L.C. ...... 2,042,981 26.3
9 West 57th
New York, NY 10019
Continental Casualty Company. 611,371 7.8
CNA Plaza
Chicago, Illinois 60685
All executive officers and
directors as a group (5 persons) -- --
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the normal course of business some members of the Board of Directors have
proposed business alliances with companies with which they are associated. In
the opinion of management, each of these transactions or arrangements was
entered into on terms as favorable to the Company as could have been obtained in
transactions or arrangements with unaffiliated third parties.
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<PAGE>
AEGIS MORTGAGE CORPORATION
The Company has entered into an Administrative Services Agreement with AEGIS
pursuant to which AEGIS has assumed responsibility for accounting and
administrative activities of the Company. The Company paid AEGIS $360,000 for
such services during 1999.
The Company has entered into a Mortgage Loan Specialty Servicing Agreement with
AEGIS pursuant to which AEGIS performs services to initiate foreclosure, file
claims and aggressively pursue loss mitigation activity on specific loans.
During the year ended December 31, 1999, the Company paid AEGIS servicing fees
of $42,805. The Company expects to pay servicing fees to AEGIS in excess of
$60,000 for the year 2000. Mr. Thompson, Chairman of the Board of Directors, is
a Director, Chief Executive Officer and President of AEGIS.
MOULTON, INC.
Prior to Cityscape and CSC's voluntary petitions for bankruptcy, Moulton, Inc.,
("Moulton") provided consulting services for the Predecessor Company. For the
year ended December 31, 1999, the Company paid Moulton $536,000. The Company
does not anticipate utilizing the services of Moulton in 2000. Mr. Thompson,
Chairman of the Board of Directors, is President and a 50% shareholder of
Moulton. The remaining 50% is owned by Mr. Thompson's wife.
PETER J. SOLOMON COMPANY LIMITED
The Company engaged Peter J. Solomon Company Limited ("PJSC") to develop,
evaluate and recommend strategic alternatives for the Company which would
maximize shareholder value. The Company paid PJSC $125,000 upon signing of the
engagement letter in January 2000. The remaining $125,000 is payable upon PJSC's
presentation of strategic alternatives. The Company does not expect to engage
PJSC for any further services. Mr. Snyder, a director of the Company, was
employed by PJSC when the engagement letter was signed but has since resigned.
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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:
AMC Financial, Inc. and Subsidiaries Consolidated Financial
Statements:
Independent Auditors' Report
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998
Consolidated Statements of Operations for the six months
ended December 31,
1999 and June 30, 1999, and the years ended December 31,
1998 and 1997
Consolidated Statements of Stockholders' Equity (Deficit)
for the six months ended December 31, 1999 and June 30,
1999, and the years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the six months
ended December 31, 1999 and June 30, 1999, and for the years
ended December 31, 1998 and 1997
2. Financial Statement Schedules: None
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------
3.1** Amended and Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q
filed with the Commission on August 16, 1999
3.2** Amended and Restated Bylaws of the Company, incorporated by
reference to Exhibit 3.2 to the Company's Form 10-Q filed with the
Commission on August 16, 1999
10.1** Post-Petition Loan and Security Agreement, dated as of October 12,
1998, between CSC and Greenwich Capital Financial Products, Inc.,
incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
filed with the Commission on November 17, 1998
10.2** Revolving Credit and Security Agreement, dated as of October 12,
1998, between the Company and The CIT Group/Equipment Financing,
Inc., incorporated by reference to Exhibit 10.2 to the Company's
Form 10-Q filed with the Commission on November 17, 1998
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<PAGE>
10.3** Employee Agreement, dated July 2, 1998, between CSC and Cheryl P.
Carl, incorporated by reference to Exhibit 10.4 to the Company's
Form 10-Q filed with the Commission on August 12, 1998
10.4** Employment Agreement, dated July 2, 1998, between CSC and Peter
Kucma, incorporated by reference to Exhibit 10.5 to the Company Form
10-Q filed with the Commission on August 12, 1998
10.5** Employment Agreement, dated July 2, 1998, between CSC and Tim S.
Ledwick, incorporated by reference to Exhibit 10.8 to the Company's
Form 10-Q filed with the Commission on August 12, 1998
10.6** Sub-Tenant Estoppel Certificate, dated as of January 20, 1999,
between CSC and Taxter Park, incorporated by reference to Exhibit
10.8 to the Company's Form 10-K filed with the Commission on March
31, 1999
10.7** Surrender of Lease and Temporary Rental Agreement, dated as of
February 18, 1999, between CSC and Mack-Cali Mid-West Realty
Associates LLC, incorporated by reference to Exhibit 10.9 to the
Company's Form 10-K filed with the Commission on March 31, 1999
10.8** Extension Agreement, dated as of February 28, 1999, between CSC and
Greenwich Capital Financial Products, Inc., incorporated by
reference to Exhibit 10.10 to the Company's Form 10-K filed with the
Commission on March 31, 1999
10.9** First Amendment to Revolving Credit and Security Agreement, dated as
of February 28, 1999, between CSC and The CIT Group/Equipment
Financing, Inc., incorporated by reference to Exhibit 10.11 to the
Company's Form 10-K filed with the Commission on March 31, 1999
10.10** Agreement with AEGIS Mortgage Corporation - Service Agreement, dated
as of September 1, 1999, incorporated by reference to Exhibit 10.1
to the Company's Form 10-Q filed with the Commission on November 12,
1999
21.1* Subsidiaries of the Company
23.1* Consent of KPMG LLP
27.1* Financial Data Schedule for the year ended December 31, 1999
99.1** Solicitation and Disclosure Statement, dated as of August 28, 1998,
incorporated by reference to Exhibit 99.1 to the Company's Form 8-K
filed with the Commission on September 4, 1998
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<PAGE>
99.2** The Company's and CSC's First Amended Joint Plan of Reorganization,
dated as of April 27, 1999, incorporated by reference to Exhibit 2.1
to the Company's Form 8-K filed with the Commission on June 30, 1999
99.3* The Company's and CSC's First Amended Joint Disclosure Statement,
dated April 27, 1999, including: Exhibit A: the Company's and CSC's
First Amended Joint Plan of Reorganization dated as of April 27,
1999; Exhibit B: Examiner's Report; Exhibit C: Balance Sheet and
Projected Financial Information and Exhibit D: Liquidation Analysis.
* Filed herewith
** Indicates documents incorporated by reference from the prior filing
indicated
Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMC FINANCIAL, INC.
By:/S/D. RICHARD THOMPSON
D. Richard Thompson
Title: Chief Executive Officer and President
By:/S/MICHAEL L. KENNEMER
Michael L. Kennemer
Title: Chief Financial Officer and Treasurer
Date: April 18, 2000
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 and on the date indicated.
SIGNATURE TITLE
/s/D. Richard Thompson Chief Executive Officer, President and Director
D. Richard Thompson (Principal Executive Officer)
/s/Mark A. Neporent
Mark A. Neporent Director
/s/Todd R. Snyder
Todd R. Snyder Director
/s/Raymond H. Wechsler
Raymond H. Wechsler Director
/s/Michael L. Kennemer Executive Vice President, Chief Financial Officer
Michael L. Kennemer and Treasurer (Principal financial officer and
principal accounting officer)
April 18, 2000
61
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DETACH HERE
AMC FINANCIAL, INC.
STOCKHOLDER'S PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD _______, 2000
The undersigned hereby appoints D. Richard Thompson and Michael C. Balog,
and each of them, either one of whom may act without joinder of the other, with
full power of substitution and ratification, as the attorneys and proxies of the
undersigned and authorizes each of them to vote as designated below all the
shares of Common Stock of AMC Financial, Inc., held of record by the undersigned
on ______, 2000, at the annual meeting of Stockholders to be held at the Adam's
Mark Hotel, 2900 Briarpark at Westheimer, Houston, Texas, 77042, on _______,
2000, at _________ (local time) and at any adjournments thereof, hereby
revoking any proxy heretofore given by the undersigned for such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED "FOR" ALL NOMINEES FOR DIRECTOR IN ITEM 1, "FOR THE PLAN OF LIQUIDATION
AND DISSOLUTION IN ITEM 2, AND "FOR" KPMG LLP AS OUR INDEPENDENT AUDITORS FOR
2000 IN ITEM 3.
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. THIS
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED AT THE MEETING.
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| SEE REVERSE | CONTINUED AND TO BE SIGNED ON REVERSE SIDE | SEE REVERSE |
| SIDE | | SIDE |
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Dear Stockholder,
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of AMC Financial, Inc. that
require your immediate attention.
Your vote counts, and you are strongly enncouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign and date the card and return your proxy in the enclosed
postage-paid envelope.
To help us make final plans for the Annual Meeting, please also complete and
return the enclosed postage-paid card if you plan to attend.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
AMC Financial, Inc.
DETACH HERE
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[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE
FOR AGAINST ABSTAIN
1. Election of Directors 2. Approval and Adoption of the Plan [ ] [ ] [ ]
of Liquidation and Dissolution
NOMINEES: (01)D. Richard Thompson, (02)Mark A.
Neporent, (03)Todd R. Snyder, 3. Ratification of KPMG LLP as our [ ] [ ] [ ]
(04)Raymond H. Wechsler independent auditors for 2000
FOR [ ] [ ] WITHHELD 4. In their discretion, the proxies are authorized to vote upon
ALL FROM ALL any other business that may properly come before the meeting
NOMINEES NOMINEES or any adjournment thereof.
[ ] ______________________________________
INSTRUCTION:To withhold authority to vote
for any individual nominee, write the
nominee's name on the line above.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as name appears hereon. All joint owners
should sign. When signing as attorney, administrator, trustee,
or gaurdian, give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized
officer. If a partnership, please sign in partnership name and
authorized personnel.
Signature:______________________________ Date:__________________ Signature:______________________________ Date:__________________
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