<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-14029
AMRESCO CAPITAL TRUST
(Exact name of Registrant as specified in its charter)
TEXAS 75-2744858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 N. PEARL STREET, SUITE 2400, LB 342,
DALLAS, TEXAS 75201-7424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 953-7700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
10,006,111 shares of common stock, $.01 par value per share, as of May 1, 1999.
<PAGE> 2
AMRESCO CAPITAL TRUST
INDEX
<TABLE>
<CAPTION>
Page No.
-----------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 ..................................... 3
Consolidated Statements of Income - For the Three Months Ended March 31, 1999 and the Period from
February 2, 1998 (Date of Initial Capitalization) through March 31, 1998.............................. 4
Consolidated Statement of Changes in Shareholders' Equity - For the Three Months Ended
March 31, 1999........................................................................................ 5
Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 1999 and the Period
from February 2, 1998 (Date of Initial Capitalization) through March 31, 1998......................... 6
Notes to Consolidated Financial Statements.............................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 21
PART II. OTHER INFORMATION
Item 5. Other Information................................................................................ 22
Item 6. Exhibits and Reports on Form 8-K................................................................. 22
SIGNATURE ................................................................................................ 24
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMRESCO CAPITAL TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(unaudited) 1998
-------------- --------------
<S> <C> <C>
ASSETS
Mortgage loans, net ................................................................ $ 97,782 $ 96,976
Acquisition, development and construction loan arrangements accounted for as real
estate or investments in joint ventures ......................................... 28,730 39,550
-------------- --------------
Total loan investments ............................................................. 126,512 136,526
Allowance for loan losses .......................................................... (1,610) (1,368)
-------------- --------------
Total loan investments, net of allowance for losses ................................ 124,902 135,158
Commercial mortgage-backed securities - available for sale (at fair value) ......... 27,842 28,754
Real estate, net of accumulated depreciation of $122 and $56, respectively ......... 10,207 10,273
Investments in unconsolidated partnerships and subsidiary .......................... 11,528 3,271
Receivables and other assets ....................................................... 3,716 3,681
Cash and cash equivalents .......................................................... 6,846 9,789
-------------- --------------
TOTAL ASSETS .................................................................... $ 185,041 $ 190,926
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other liabilities .............................................. $ 1,001 $ 941
Amounts due to affiliates ........................................................... 4,805 6,268
Line of credit ...................................................................... 39,338 39,338
Non-recourse debt on real estate .................................................... 7,500 7,500
Dividends payable ................................................................... -- 4,002
-------------- --------------
TOTAL LIABILITIES ............................................................... 52,644 58,049
-------------- --------------
Minority interests .................................................................. 500 2,611
-------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 50,000,000 shares authorized, no shares issued ..... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 10,006,111 shares
issued and outstanding .......................................................... 100 100
Additional paid-in capital .......................................................... 140,941 140,941
Unearned stock compensation ......................................................... (658) (848)
Accumulated other comprehensive income (loss) ....................................... (7,378) (6,475)
Distributions in excess of accumulated earnings ..................................... (1,108) (3,452)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY ...................................................... 131,897 130,266
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................... $ 185,041 $ 190,926
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Period from
February 2,
Three Months 1998
Ended through
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
REVENUES:
Interest income on mortgage loans ............................................................ $ 3,057 $ --
Income from commercial mortgage-backed securities ............................................ 914 --
Operating income from real estate ............................................................ 346 --
Equity in earnings of unconsolidated subsidiary, partnerships and other real estate venture .. 70 --
Interest income from short-term investments .................................................. 86 --
-------------- --------------
TOTAL REVENUES ............................................................................. 4,473 --
-------------- --------------
EXPENSES:
Interest expense ............................................................................. 589 --
Management fees .............................................................................. 588 --
General and administrative ................................................................... 523 --
Depreciation ................................................................................. 86 --
Participating interest in mortgage loans ..................................................... 185 --
Provision for loan losses .................................................................... 742 --
-------------- --------------
TOTAL EXPENSES ............................................................................. 2,713 --
-------------- --------------
INCOME BEFORE GAINS ............................................................................ 1,760 --
Gain associated with repayment of ADC loan arrangement ...................................... 584 --
-------------- --------------
NET INCOME ..................................................................................... $ 2,344 $ --
============== ==============
EARNINGS PER COMMON SHARE:
Basic ....................................................................................... $ 0.23 $ --
============== ==============
Diluted ..................................................................................... $ 0.23 $ --
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic ....................................................................................... 10,000,111 100
============== ==============
Diluted ..................................................................................... 10,006,960 100
============== ==============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Accumulated Distributions
------------------ Additional Unearned Other in Excess of Total
Number of Paid-in Stock Comprehensive Accumulated Shareholders'
Shares Amount Capital Compensation Income (Loss) Earnings Equity
--------- ------ ------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999..... 10,006,111 $100 $140,941 $(848) $(6,475) $ (3,452) $ 130,266
Net income..................... 2,344 2,344
Unrealized loss on securities
available for sale........... (903) (903)
Amortization of unearned trust
manager compensation ........ 22 22
Amortization of compensatory
options ..................... 168 168
---------- ---- -------- ----- ------- -------- ---------
Balance at March 31, 1999...... 10,006,111 $100 $140,941 $(658) $(7,378) $ (1,108) $ 131,897
========== ==== ======== ===== ======= ======== =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Period from
February 2,
Three Months 1998
Ended through
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................. $ 2,344 $ --
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ........................................................... 742 --
Depreciation ........................................................................ 86 --
Gain associated with repayment of ADC loan arrangement .............................. (584) --
Amortization of prepaid assets ...................................................... 59 --
Discount amortization on commercial mortgage-backed securities ...................... (76) --
Amortization of compensatory stock options and unearned trust manager compensation .. 190 --
Amortization of loan commitment fees ................................................ (138) --
Receipt of loan commitment fees ..................................................... 34 --
Increase in receivables and other assets ............................................ (374) --
Decrease in interest receivable related to commercial mortgage-backed securities .... 82 --
Increase in accounts payable and other liabilities .................................. 60 --
Increase in amounts due to affiliates ............................................... 234 --
Equity in undistributed earnings of unconsolidated subsidiary, partnerships and
other real estate venture ........................................................ (70) --
Distributions from unconsolidated subsidiary ........................................ 79 --
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 2,668 --
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in mortgage loans .......................................................... (8,276) --
Investments in ADC loan arrangements ................................................... (8,899) --
Sale of mortgage loan to affiliate ..................................................... 4,585 --
Principal collected on mortgage loans .................................................. 1,260 --
Principal and interest collected on ADC loan arrangement ............................... 11,513 --
Investments in unconsolidated partnerships and subsidiary .............................. (2,104) --
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES .......................................... (1,921) --
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ............................................. -- 26
Proceeds from financing provided by affiliate .......................................... 312 --
Dividends paid to common shareholders .................................................. (4,002) --
-------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................ (3,690) 26
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................... (2,943) 26
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................................ 9,789 --
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................................. $ 6,846 $ 26
============== ==============
SUPPLEMENTAL INFORMATION:
Interest paid, net of amount capitalized ............................................... $ 588 $ --
============== ==============
Income taxes paid ...................................................................... $ 25 $ --
============== ==============
Minority interest distribution associated with ADC loan arrangement .................... $ 2,111 $ --
============== ==============
Receivables transferred in satisfaction of amounts due to affiliate .................... $ 280 $ --
============== ==============
Amounts due to affiliate discharged in connection with sale of mortgage loan ........... $ 1,729 $ --
============== ==============
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
AMRESCO CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. ORGANIZATION AND RELATIONSHIPS
AMRESCO Capital Trust (the "Company"), a real estate investment trust ("REIT"),
was organized under the laws of the State of Texas. The Company was formed to
take advantage of certain mid- to high-yield lending and investment
opportunities in real estate related assets, including various types of
commercial mortgage loans (including, among others, participating loans,
mezzanine loans, acquisition loans, construction loans, rehabilitation loans and
bridge loans), commercial mortgage-backed securities ("CMBS"), commercial real
estate, equity investments in joint ventures and/or partnerships, and certain
other real estate related assets. The Company was initially capitalized on
February 2, 1998 and commenced operations on May 12, 1998, concurrent with the
completion of its initial public offering ("IPO") of 9,000,000 common shares and
private placement of 1,000,011 common shares.
Pursuant to the terms of a Management Agreement dated as of May 12, 1998 and
subject to the direction and oversight of the Board of Trust Managers, the
Company's day-to-day operations are managed by AMREIT Managers, L.P. (the
"Manager"), an affiliate of AMRESCO, INC. (together with its affiliated
entities, the "AMRESCO Group"). For its services, the Manager is entitled to
receive a base management fee equal to 1% per annum of the Company's Average
Invested Non-Investment Grade Assets, as defined, and 0.5% per annum of the
Company's Average Invested Investment Grade Assets, as defined. In addition to
the base management fee, the Manager is entitled to receive incentive
compensation in an amount equal to 25% of the dollar amount by which Funds From
Operations (as defined by the National Association of Real Estate Investment
Trusts), as adjusted, exceeds a certain threshold. The Manager is also entitled
to receive reimbursement for its costs of providing certain services to the
Company. The base management fee, reimbursable expenses and incentive fee, if
any, are payable quarterly in arrears. During the three months ended March 31,
1999, base management fees and reimbursable expenses charged to the Company
totaled $447,000 and $34,000, respectively. No incentive fees were charged to
the Company during this period. Immediately after the closing of the IPO, the
Manager was granted options to purchase 1,000,011 common shares; 70% of the
options are exercisable at an option price of $15.00 per share and the remaining
30% of the options are exercisable at an option price of $18.75 per share.
During the three months ended March 31, 1999, management fees included
compensatory option charges totaling $141,000.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10,
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiaries and a majority-owned
partnership. The Company accounts for its investment in AMREIT II, Inc., a
taxable subsidiary, using the equity method of accounting, and thus reports its
share of income or loss based on its ownership interest. The Company uses the
equity method of accounting due to the non-voting nature of its ownership
interest and because the Company is entitled to substantially all of the
economic benefits of ownership of AMREIT II, Inc. The Company owns
non-controlling interests in two partnerships; the Company accounts for these
investments using the equity method of accounting and thus reports its share of
income or loss based on its ownership interests. The accompanying financial
statements should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 (the "10-K"). The notes to the
financial statements included herein highlight significant changes to the notes
included in the 10-K.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments (consisting of normal and recurring accruals) necessary
for a fair presentation of the interim financial statements. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire fiscal year or any other interim
period.
7
<PAGE> 8
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities at the date of the
financial statements and revenues and expenses for the reporting period.
Significant estimates include the valuation of commercial mortgage-backed
securities, the allowance for loan losses and the determination of the fair
value of certain share option awards. Actual results may differ from those
estimates.
3. LOAN INVESTMENTS
During the three months ended March 31, 1999, two of the Company's loans were
fully repaid and one loan was sold to AMRESCO Commercial Finance, Inc. ("ACFI"),
a member of the AMRESCO Group. Additionally, a fourth loan was reclassified, net
of a $500,000 charge-off, to investment in unconsolidated subsidiary following
the subsidiary's acquisition (through foreclosure on February 25, 1999) of the
partnership interests of one of the Company's borrowers. As of March 31, 1999,
the Company's loan investments are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amount
Date of Initial Scheduled Collateral Commitment Outstanding at
Investment Maturity Location Property Type Position Amount March 31, 1999
- ---------- -------- -------- ------------- -------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
May 12, 1998 March 31, 2001 Richardson, TX Office Second Lien $ 14,700 $ 12,705
June 1, 1998 June 1, 2001 Houston, TX Office First Lien 11,800 10,248
June 12, 1998 June 30, 2000 Pearland, TX Apartment First Lien 12,827 7,696
June 17, 1998 June 30, 2000 San Diego, CA R&D/Bio-Tech First Lien 5,560 4,492
June 19, 1998 June 18, 2000 Houston, TX Office First Lien 24,000 10,957
June 22, 1998 June 19, 2000 Wayland, MA Office First Lien 45,000 28,541
July 1, 1998 July 1, 2001 Dallas, TX Office Ptrshp Interests 10,068 6,674
July 2, 1998 June 30, 2000 Washington, D.C. Office First Lien 7,000 5,774
July 10, 1998 July 31, 2000 Pasadena, TX Apartment First Lien 3,350 2,791
September 1, 1998 February 28, 2001 Los Angeles, CA Mixed Use First Lien 18,419 17,418
September 30, 1998 May 1, 2001 San Antonio, TX Residential Lots First Lien 2,952 2,291
September 30, 1998 Various San Antonio, TX/ Residential Lots First Lien 8,400 2,246
Sunnyvale, TX
September 30, 1998 July 15, 1999 Galveston, TX Apartment First Lien 3,664 3,664
September 30, 1998 June 8, 1999 Ft. Worth, TX Apartment Ptrshp Interests 2,650 2,649
September 30, 1998 June 30, 1999 Dallas, TX Medical Office First Lien 3,015 2,450
September 30, 1998 July 22, 1999 Norwood, MA Industrial/Office First Lien 8,765 7,928
October 1, 1998 July 31, 1999 Richardson, TX Office First Lien 567 300
-------- --------
$182,737 $128,824
======== ========
<CAPTION>
Interest Interest
Date of Initial Pay Accrual
Investment Rate Rate
- ---------- ---- ----
<S> <C> <C>
May 12, 1998 10.0% 12.0%
June 1, 1998 12.0% 12.0%
June 12, 1998 10.0% 11.5%
June 17, 1998 10.0% 13.5%
June 19, 1998 12.0% 12.0%
June 22, 1998 10.5% 10.5%
July 1, 1998 10.0% 15.0%
July 2, 1998 10.5% 10.5%
July 10, 1998 10.0% 14.0%
September 1, 1998 10.0% 12.0%
September 30, 1998 16.0% 16.0%
September 30, 1998 10.0% 14.0%
September 30, 1998 10.0% 15.0%
September 30, 1998 10.5% 16.0%
September 30, 1998 10.0% 13.0%
September 30, 1998 10.0% 12.5%
October 1, 1998 9.3% 15.0%
</TABLE>
At March 31, 1999, amounts outstanding under construction loans,
acquisition/rehabilitation loans, acquisition loans, land development loans and
bridge loans totaled $34,007,000, $41,938,000, $40,114,000, $4,837,000 and
$7,928,000, respectively.
Three of the 17 loan investments provide the Company with the opportunity for
profit participation in excess of the contractual interest accrual rates. The
loan investments are classified as follows (in thousands):
<TABLE>
<CAPTION>
Loan Amount Balance Sheet Amount
Outstanding at at
March 31, 1999 March 31, 1999
------------------------------------------
<S> <C> <C>
Mortgage loans, net..................... $ 99,005 $ 97,782
Real estate, net........................ 23,145 22,712
Investment in real estate venture....... 6,674 6,018
--------- ---------
Total ADC loan arrangements.......... 29,819 28,730
--------- ---------
Total loan investments.................. $ 128,824 126,512
=========
Allowance for loan losses.................................... (1,610)
---------
Total loan investments, net of allowance for losses.......... $ 124,902
=========
</TABLE>
The differences between the outstanding loan amounts and the balance sheet
amounts are due primarily to loan commitment fees, minority interests and
accumulated depreciation.
8
<PAGE> 9
ADC loan arrangements accounted for as real estate consisted of the following at
March 31, 1999 (in thousands):
<TABLE>
<S> <C>
Land .................................. $ 4,648
Buildings and improvements ............ 3,691
Construction in progress .............. 14,438
--------
Total .............................. 22,777
Less: Accumulated depreciation ........ (65)
--------
$ 22,712
========
</TABLE>
A summary of activity for mortgage loans and ADC loan arrangements accounted for
as real estate or investments in joint ventures is as follows (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1998 ......... $ 136,791
Investments in loans ................. 17,779
Collections of principal ............. (12,593)
Cost of mortgage sold ................ (6,314)
Foreclosure (partnership interests) .. (6,839)
---------
Balance at March 31, 1999 ............ $ 128,824
=========
</TABLE>
The activity in the allowance for loan losses was as follows (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1998 ........... $ 1,368
Provision for losses ................... 742
Charge-offs ............................ (500)
Recoveries ............................. --
-------
Balance at March 31, 1999 .............. $ 1,610
=======
</TABLE>
As of March 31, 1999, the Company had outstanding commitments to fund
approximately $53,913,000 under 17 loans, of which $1,403,000 is reimbursable by
ACFI. The Company is obligated to fund these commitments to the extent that the
borrowers are not in violation of any of the conditions established in the loan
agreements. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee if amounts are repaid
to the Company during certain prepayment lock-out periods. A portion of the
commitments could expire without being drawn upon and therefore the total
commitment amounts do not necessarily represent future cash requirements.
4. DEBT AND FINANCING FACILITIES
Effective as of July 1, 1998, the Company (and certain of its subsidiaries)
entered into a $400 million Interim Warehouse and Security Agreement (the "Line
of Credit") with Prudential Securities Credit Corporation ("PSCC"). Subject to
certain limitations, borrowings under the facility can be used to finance the
Company's structured loan and equity real estate investments. Prior to the
modifications discussed below, borrowings under the Line of Credit bore interest
at rates ranging from LIBOR plus 1% per annum to LIBOR plus 2% per annum
depending upon the type of asset, its loan-to-value ratio and the advance rate
selected by the Company. Advance rates on eligible assets ranged from 50% to 95%
depending upon the asset's characteristics. The weighted average interest rate
at March 31, 1999 was 5.98%.
Effective as of May 4, 1999, the Company (and certain of its subsidiaries)
entered into an Amended and Restated Interim Warehouse and Security Agreement
(the "Amended Line of Credit") with PSCC; the agreement amended the Company's
existing Line of Credit. The Amended Line of Credit provides for the following
modifications: (1) a reduction in the size of the committed facility from $400
million to $300 million; (2) the elimination of the requirement that assets
financed with proceeds from the facility must be securitizable; (3) a reduction
in the amount of capital the Company must fund with respect to construction and
rehabilitation loans before PSCC is required to begin advancing funds; (4) an
extension of the maturity date from July 1, 2000 to November 3, 2000; and (5)
the modification to, and addition of, certain sublimits on certain types of
loans and assets. Under the Amended Line of Credit, borrowings bear interest at
LIBOR plus 1.25% per annum to the extent such borrowings do not exceed the
Company's Tangible Net Worth, as defined; borrowings in excess of the Company's
Tangible Net Worth bear interest at LIBOR plus 3%.
9
<PAGE> 10
As compensation for amending the existing line of credit and extending the
maturity date, the Company granted warrants to Prudential Securities
Incorporated, an affiliate of PSCC, to purchase 250,002 common shares of
beneficial interest at $9.83 per share. The exercise price represents the
average closing market price of the Company's common shares for the ten-day
period ending on May 3, 1999. The warrants were issued in lieu of a commitment
fee or other cash compensation.
Borrowings under the facility are secured by a first lien security interest on
all assets funded with proceeds from the Amended Line of Credit. The Amended
Line of Credit contains several covenants; among others, the more significant
covenants include the maintenance of a $100 million consolidated Tangible Net
Worth, subject to adjustment in connection with any future equity offerings;
maintenance of a Coverage Ratio, as defined, of not less than 1.4 to 1; and
limitation of Total Indebtedness, as defined, to no more than 400% of
shareholders' equity.
5. EARNINGS PER SHARE
A reconciliation of the numerator and denominator used in computing basic
earnings per share and diluted earnings per share for the three months ended
March 31, 1999 and the period from February 2, 1998 (date of initial
capitalization) through March 31, 1998, is as follows (in thousands, except
share data):
<TABLE>
<CAPTION>
Period from
February 2,
Three Months 1998
Ended through
March 31, 1999 March 31, 1998
------------- -------------
<S> <C> <C>
Net income available to common shareholders $ 2,344 $ --
============= =============
Weighted average common shares outstanding 10,000,111 100
============= =============
Basic earnings per common share $ 0.23 $ --
============= =============
Weighted average common shares outstanding 10,000,111 100
Effect of dilutive securities:
Restricted shares 6,000 --
Net effect of assumed exercise of stock options 849 --
------------- -------------
Adjusted weighted average shares outstanding 10,006,960 100
============= =============
Diluted earnings per common share $ 0.23 $ --
============= =============
</TABLE>
Options to purchase 1,478,011 shares of common stock were outstanding at March
31, 1999. Options related to 1,472,011 shares were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the Company's common shares. The
Company was initially capitalized on February 2, 1998 with the sale of 100
shares to AMRESCO, INC. The Company had no earnings prior to the commencement of
its operations on May 12, 1998. No options were outstanding during the period
from February 2, 1998 through March 31, 1998.
6. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances except
those resulting from investments by, and distributions to, its owners. Other
comprehensive income includes unrealized gains and losses on marketable
securities classified as available-for-sale. During the three months ended March
31, 1999, total nonowner changes in equity aggregated $1,441,000 and were
comprised of net income of $2,344,000 and an unrealized loss on securities
available for sale of $903,000. The unrealized loss on securities available for
sale had no impact on the Company's taxable income or cash flow.
7. SEGMENT INFORMATION
The Company, as an investor in real estate related assets, operates in only one
reportable segment. Within this segment, the Company makes asset allocation
decisions based upon its diversification strategies and changes in market
conditions. The Company does not have, nor does it rely upon, any major
customers. All of the Company's investments are secured
10
<PAGE> 11
directly or indirectly by real estate properties located in the United States;
accordingly, all of its revenues were derived from U.S. operations.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in its balance sheet
and that it measure those instruments at fair value. The accounting for changes
in the fair value of a derivative (that is, gains and losses) is dependent upon
the intended use of the derivative and the resulting designation. SFAS No. 133
generally provides for matching the timing of gain or loss recognition on the
hedging instrument with the recognition of (1) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (2)
the earnings effect of the hedged forecasted transaction. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999,
although earlier application is encouraged. The Company has not yet assessed the
impact that SFAS No. 133 will have on its financial condition or results of
operations.
9. SUBSEQUENT EVENTS
On April 22, 1999, the Company declared a dividend of $0.36 per share; the
dividend is payable on May 17, 1999 to shareholders of record on April 30, 1999.
On April 30, 1999, the Company (through a majority-owned partnership) acquired
interests in three newly constructed, grocery-anchored shopping centers in the
Dallas/Fort Worth (Texas) area. These properties, which were acquired by
subsidiary partnerships at an aggregate purchase price of $30.7 million, include
an 86,516 square foot facility in Flower Mound, Texas, a 61,440 square foot
facility in Fort Worth, Texas and an 85,611 square foot facility in Grapevine,
Texas. In connection with these acquisitions, the title-holding partnerships
obtained non-recourse financing aggregating $19.5 million from an unaffiliated
third party. Immediately prior to the closing, the Company contributed $11.4
million of capital to the partnership. The proceeds from this contribution were
used to fund the balance of the purchase price and to provide initial working
capital to the title-holding partnerships. The non-recourse loans bear interest
at 6.68% per annum and require interest only payments through December 31, 2001;
thereafter, interest and principal payments are due based upon 25-year
amortization schedules. The loans mature on January 1, 2014.
As further described in Note 4, the Company's Line of Credit was modified
effective as of May 4, 1999.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
AMRESCO Capital Trust (the "Company") is a real estate investment trust ("REIT")
which was formed in early 1998 to take advantage of certain mid- to high-yield
lending and investment opportunities in real estate related assets, including
various types of commercial mortgage loans (including, among others,
participating loans, mezzanine loans, acquisition loans, construction loans,
rehabilitation loans and bridge loans), commercial mortgage-backed securities
("CMBS"), commercial real estate, equity investments in joint ventures and/or
partnerships, and certain other real estate related assets. Subject to the
direction and oversight of the Board of Trust Managers, the Company's day-to-day
operations are managed by AMREIT Managers, L.P. (the "Manager"), an affiliate of
AMRESCO, INC. (together with its affiliated entities, the "AMRESCO Group").
The Company commenced operations on May 12, 1998 concurrent with the completion
of its initial public offering of 9,000,000 common shares and private placement
of 1,000,011 common shares with AMREIT Holdings, Inc., a wholly-owned
subsidiary of AMRESCO, INC. To date, the Company's investment activities have
been focused in three primary areas: loan investments, CMBS and equity
investments in real estate. The Company expects that its mid- to high-yield
loan investments and, to a lesser extent, equity investments in real estate,
will continue to comprise a substantial portion of its investment portfolio.
Similarly, the Company expects to continue to have 15% to 20% of its invested
capital (comprising equity and proceeds from its two credit facilities)
allocated to CMBS. Additionally, the Company expects to make several of these
investments through one or more partnerships in which it holds a minority
ownership interest (i.e., 5% to 10%). During the three months ended March 31,
1999, one such partnership was formed.
The Company's investment activities remained slow during the first quarter of
1999 as the mortgage REIT market continued to be affected by the aftermath of
the dislocation in the capital markets which occurred in mid to late 1998. The
Company closed no new loan investments during the first quarter. This was not
due to a lack of investment opportunities but rather was in response to the
capital market constraints which impacted the Company. Notwithstanding the lack
of new investment activity during the first quarter, the Company advanced $17.8
million under structured loan commitments it had closed on or prior to December
31, 1998; a substantial portion of these funds were provided by the repayment of
two loan investments and the sale of one mortgage loan during the quarter.
Additionally, the Company's equity investments in real estate increased to $4.8
million as a result of the acquisition of a 49% limited partner interest in a
partnership which owns a 116,000 square foot suburban office building. Finally,
the Company contributed $0.7 million to a recently formed investment partnership
with Olympus Real Estate Corporation. The partnership, which is 5% owned by the
Company, acquired several classes of subordinated CMBS at an aggregate purchase
price of $12.7 million.
The Company believes it has operated and it intends to continue to operate in a
manner so as to continue to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). As such, the Company has distributed and it
intends to continue to distribute at least 95% of its REIT taxable income
annually.
The Company may experience high volatility in financial statement net income and
tax basis income from quarter to quarter and year to year, primarily as a result
of fluctuations in interest rates, borrowing costs, reinvestment opportunities,
prepayment rates and favorable and unfavorable credit related events (e.g.,
profit participations or credit losses). Additionally, the Company's accounting
for certain real estate loan arrangements as either real estate or joint venture
investments may contribute to volatility in financial statement net income.
Because changes in interest rates may significantly affect the Company's
activities, the operating results of the Company will depend, in large part,
upon the ability of the Company to manage its interest rate, prepayment and
credit risks, while maintaining its status as a REIT.
The following discussion of results of operations and liquidity and capital
resources should be read in conjunction with the consolidated financial
statements and notes thereto included in "Item 1. Financial Statements".
12
<PAGE> 13
RESULTS OF OPERATIONS
General
Under generally accepted accounting principles, net income for the three months
ended March 31, 1999 was $2,344,000, or $0.23 per common share. The Company
commenced operations on May 12, 1998; as a result, comparisons to the prior
year's first quarter are not available. The Company's primary sources of revenue
for the three months ended March 31, 1999, totaling $4,473,000, were as follows:
o $3,164,000 from loan investments. As certain of the Company's loan
investments are accounted for as either real estate or joint venture
investments for financial reporting purposes, these revenues are included
in the consolidated statement of income as follows: interest income on
mortgage loans - $3,057,000; and operating income from real estate -
$107,000. The loan investments earn interest at accrual rates ranging from
10.5% to 16% per annum as of March 31, 1999.
o $914,000 from investments in CMBS.
o $239,000 of operating income from real estate owned by the Company (through
a majority-owned partnership).
Additionally, the Company realized a gain of $584,000 in connection with the
repayment of an ADC loan arrangement. The gain was comprised principally of
interest income earned at the accrual rate over the life of the loan investment.
The Company incurred expenses of $2,713,000 during the three months ended March
31, 1999, consisting primarily of the following:
o $588,000 of management fees, including $447,000 of base management fees
payable to the Manager pursuant to the Management Agreement and $141,000 of
expense associated with compensatory options granted to the Manager. No
incentive fees were incurred during the period.
o $523,000 of general and administrative costs, including $200,000 of
resolution costs associated with a non-performing loan, $96,000 for
professional services, $59,000 for directors and officers' insurance,
$34,000 of reimbursable costs pursuant to the Management Agreement, $27,000
related to compensatory options granted to certain members of the AMRESCO
Group and $22,000 related to restricted stock awards to the Company's
Independent Trust Managers.
o $589,000 of interest expense (net of capitalized interest totaling
$151,000) associated with the Company's credit facilities and a
non-recourse loan secured by real estate.
o $742,000 of provision for loan losses. During the period, the Company
charged-off $500,000 against an existing allowance for losses related to
the non-performing loan referred to above. This loan is discussed further
in this section of Management's Discussion and Analysis of Financial
Condition and Results of Operations under the sub-heading "Loan
Investments".
The Company's policy is to distribute at least 95% of its REIT taxable income to
shareholders each year; to that end, dividends are paid quarterly. Tax basis
income differs from income reported for financial reporting purposes due
primarily to differences in methods of accounting for ADC loan arrangements and
stock-based compensation awards and the nondeductibility, for tax purposes, of
the Company's loan loss reserve (for a discussion of ADC loan arrangements, see
the notes to the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998). As a result of
these accounting differences, net income under generally accepted accounting
principles is not necessarily an indicator of distributions to be made by the
Company. On April 22, 1999, the Company declared its first quarter dividend; the
dividend, totaling $0.36 per share, is payable on May 17, 1999 to shareholders
of record on April 30, 1999. For federal income tax purposes, this dividend
should be treated as ordinary income to the Company's shareholders.
13
<PAGE> 14
Loan Investments
During the three months ended March 31, 1999, two of the Company's loans were
fully repaid prior to their scheduled maturities and one loan was sold to
AMRESCO Commercial Finance, Inc. ("ACFI"), a member of the AMRESCO Group. The
proceeds from these transactions totaled $16,353,000, including accrued interest
and a prepayment fee aggregating $180,000. In connection with the loan sale,
amounts due to ACFI were reduced by $2,009,000; as of March 31, 1999, amounts
due to ACFI totaled $4,324,000. Additionally, a fourth loan was reclassified,
net of a $500,000 charge-off, to investment in unconsolidated subsidiary
following the subsidiary's acquisition (through foreclosure on February 25,
1999) of the partnership interests of one of the Company's borrowers. Principal
collections on certain of the Company's other loan investments totaled
$1,005,000 during the quarter ended March 31, 1999. During the quarter, the
Company advanced $17,779,000 under its loan commitments. No new loan commitments
were closed during the first quarter.
Excluding the loan classified as an investment in unconsolidated subsidiary, the
Company has 17 loans representing $182.7 million in aggregate commitments; as of
March 31, 1999, $128.8 million had been advanced under these facilities. A
portion of the commitments may expire without being drawn upon and therefore the
total commitment amounts do not necessarily represent future cash requirements.
After giving effect to ACFI's economic interest (as described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998), commitments
and amounts outstanding totaled approximately $177.9 million and $125.4 million,
respectively, at March 31, 1999. At March 31, 1999, ACFI's contingent obligation
for additional advances which may be required to be made under certain of the
Company's loans approximated $1,403,000.
Based upon the amounts outstanding under these facilities and after giving
effect to the contractual right sold to ACFI, the Company's portfolio of
commercial mortgage loans had a weighted average interest pay rate of 10.8% and
a weighted average interest accrual rate of 11.9% as of March 31, 1999. Six of
the 17 loans provide for profit participation above the contractual accrual
rate; three of these six facilities are included in the pool of loans in which
ACFI has a contractual right to collect certain excess proceeds. The Company's
loan investments are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amount
Outstanding at
Date of Initial Scheduled Collateral Commitment March 31,
Investment Maturity Location Property Type Position Amount 1999 (c)
---------- -------- -------- ------------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
May 12, 1998 March 31, 2001 Richardson, TX Office Second Lien $14,700 $12,705
June 1, 1998 June 1, 2001 Houston, TX Office First Lien 11,800 10,248
June 12, 1998 June 30, 2000 Pearland, TX Apartment First Lien 12,827 7,696 (b)
June 17, 1998 June 30, 2000 San Diego, CA R&D/Bio-Tech First Lien 5,560 4,492 (b)
June 19, 1998 June 18, 2000 Houston, TX Office First Lien 24,000 10,957 (b)
June 22, 1998 June 19, 2000 Wayland, MA Office First Lien 45,000 28,541
July 1, 1998 July 1, 2001 Dallas, TX Office Ptrshp 10,068 6,674 (a)
Interests
July 2, 1998 June 30, 2000 Washington, D.C. Office First Lien 7,000 5,774
July 10, 1998 July 31, 2000 Pasadena, TX Apartment First Lien 3,350 2,791
September 1, 1998 February 28, 2001 Los Angeles, CA Mixed Use First Lien 18,419 17,418
September 30, 1998 May 1, 2001 San Antonio, TX Residential Lots First Lien 2,952 2,291
September 30, 1998 Various San Antonio, TX/ Residential Lots First Lien 8,400 2,246
Sunnyvale, TX
September 30, 1998 July 15, 1999 Galveston, TX Apartment First Lien 3,664 3,664
September 30, 1998 June 8, 1999 Ft. Worth, TX Apartment Ptrshp 2,650 2,649
Interests
September 30, 1998 June 30, 1999 Dallas, TX Medical Office First Lien 3,015 2,450
September 30, 1998 July 22, 1999 Norwood, MA Industrial/Office First Lien 8,765 7,928
October 1, 1998 July 31, 1999 Richardson, TX Office First Lien 567 300
-------- --------
182,737 128,824
ACFI's Economic Interest (4,869) (3,466)
-------- --------
$177,868 (d) $125,358 (d)
======== ========
<CAPTION>
Interest Interest
Date of Initial Pay Accrual
Investment Rate Rate
---------- ---- ----
<S> <C> <C>
May 12, 1998 10.0% 12.0%
June 1, 1998 12.0% 12.0%
June 12, 1998 10.0% 11.5%
June 17, 1998 10.0% 13.5%
June 19, 1998 12.0% 12.0%
June 22, 1998 10.5% 10.5%
July 1, 1998 10.0% 15.0%
July 2, 1998 10.5% 10.5%
July 10, 1998 10.0% 14.0%
September 1, 1998 10.0% 12.0%
September 30, 1998 16.0% 16.0%
September 30, 1998 10.0% 14.0%
September 30, 1998 10.0% 15.0%
September 30, 1998 10.5% 16.0%
September 30, 1998 10.0% 13.0%
September 30, 1998 10.0% 12.5%
October 1, 1998 9.3% 15.0%
</TABLE>
(a) Accounted for as investment in joint venture for financial reporting
purposes.
(b) Accounted for as real estate for financial reporting purposes.
(c) For all loan investments, payments of interest only are due monthly at the
interest pay rate. All principal and all remaining accrued and unpaid
interest are due at the scheduled maturities of the loans.
(d) Amounts exclude the loan which was reclassified to investment in
unconsolidated subsidiary during the three months ended March 31, 1999.
The Company provides financing through certain real estate loan arrangements
that, because of their nature, qualify either as real estate or joint venture
investments for financial reporting purposes (see notes [a] and [b] accompanying
the table
14
<PAGE> 15
above). As of March 31, 1999, loan investments representing approximately
$52,455,000 in aggregate commitments were accounted for as either real estate or
joint venture interests; approximately $29,819,000 had been advanced to
borrowers under the related agreements. For a discussion of these loan
arrangements, see the Company's consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
A mezzanine (second lien) loan with an outstanding balance of $6,839,000 and a
recorded investment of $6,659,000 was over 30 days past due as of December 31,
1998. The allowance for loan losses related to this investment totaled $500,000
at December 31, 1998. On February 25, 1999, an unconsolidated taxable subsidiary
of the Company assumed control of the borrower (a partnership) through
foreclosure of the partnership interests. In addition to the second lien
mortgage, the property is encumbered by a $17 million first lien mortgage
provided by an unaffiliated third party. During the first quarter, the Company
charged-off $500,000 against the allowance for losses related to this
investment. Should the Company incur an actual loss on this investment, tax
basis income would be adversely affected.
At March 31, 1999, the Company's commercial mortgage loan commitments were
geographically dispersed in three states and the District of Columbia: Texas
(54%); Massachusetts (29%); California (13%); and Washington, D.C. (4%). The
underlying collateral for these loans was comprised of the following property
types: office (64%); multifamily (12%); mixed use (10%); residential (6%);
industrial (4%); R&D/Bio-Tech (3%); and medical office (1%). Construction loans,
acquisition/rehabilitation loans, acquisition loans, single-family lot
development loans and bridge loans comprised 30%, 33%, 27%, 7% and 3% of the
portfolio, respectively. Eighty-five percent of the portfolio is comprised of
first lien loans while the balance of the portfolio (15%) is secured by second
liens and/or partnership interests. The percentages reflected above are based
upon committed loan amounts and give effect to ACFI's economic interest.
Additionally, the percentages exclude the loan which was reclassified to
investment in unconsolidated subsidiary during the first quarter.
Until the loan investment portfolio becomes larger, geographic and product type
concentrations are expected. The Company expects to see more diversification
both geographically and by product type as the loan portfolio grows. Geographic
and product type concentrations present additional risks, particularly if there
is a deterioration in the general condition of the real estate market or in the
sub-market in which the loan collateral is located, or if demand for a
particular product type does not meet expectations due to adverse market
conditions that are different from those projected by the Company. In an effort
to reduce concentration risks, the Company is targeting transactions which will
more broadly diversify its loan investment portfolio.
Commercial Mortgage-backed Securities
As of March 31, 1999, the Company holds five commercial mortgage-backed
securities ("CMBS") which were acquired at an aggregate purchase price of $34.5
million. All of these securities were acquired on or before September 1, 1998.
Due to the continued widening of spreads in the CMBS market during the first
quarter, the value of the Company's CMBS holdings declined by $907,000 during
the three months ended March 31, 1999; accordingly, the Company recorded an
unrealized loss of $907,000 on its CMBS portfolio during the quarter ended March
31, 1999. Additionally, the Company recorded an unrealized gain of $4,000, net
of tax effects, related to one commercial mortgage-backed security owned by its
unconsolidated taxable subsidiary; the security held by this subsidiary has an
investment rating of "B-". As these securities are classified as available for
sale, the aggregate unrealized loss was reported as a component of accumulated
other comprehensive income (loss) in shareholders' equity for financial
reporting purposes. The cumulative unrealized losses (totaling $7.4 million)
have had no impact on the Company's taxable income or cash flow. Management
intends to retain these investments for the foreseeable future. Excluding the
potential tax effects associated with the security held by the Company's
unconsolidated taxable subsidiary, the weighted average unleveraged yield over
the expected life of these investments is expected to approximate 11.4%. The
Company's direct CMBS investments are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Percentage of
Security Aggregate Aggregate Total Based
Rating Amortized Cost Fair Value on Fair Value
------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
BB- $4,239 $3,482 12%
B 19,530 16,095 58%
B- 11,225 8,265 30%
------- ------- ---
$34,994 $27,842 100%
======= ======= ===
</TABLE>
15
<PAGE> 16
The Company's estimated returns on its CMBS investments are based upon a number
of assumptions that are subject to certain business and economic risks and
uncertainties including, but not limited to, the timing and magnitude of
prepayments and credit losses on the underlying mortgage loans that may result
from general and/or localized real estate market factors. These risks and
uncertainties are in many ways similar to those affecting the Company's
commercial mortgage loans. These risks and uncertainties may cause the actual
yields to differ materially from expected yields.
Equity Investments in Real Estate
The Company's equity investments in real estate increased to $4.8 million during
the three months ended March 31, 1999 as a result of the acquisition of a 49%
limited partner interest in a partnership which owns a 116,000 square foot
office building in Richardson, Texas. The property is encumbered by a first lien
mortgage in the amount of $13.9 million. The Company contributed $1.4 million of
capital to the partnership.
On April 30, 1999, the Company (through a majority-owned partnership) acquired
interests in three newly constructed, grocery-anchored shopping centers in the
Dallas/Fort Worth (Texas) area. These properties, which were acquired by
subsidiary partnerships at an aggregate purchase price of $30.7 million, include
an 86,516 square foot facility in Flower Mound, Texas, a 61,440 square foot
facility in Fort Worth, Texas and an 85,611 square foot facility in Grapevine,
Texas. In connection with these acquisitions, the title-holding partnerships
obtained non-recourse financing aggregating $19.5 million from an unaffiliated
third party. Immediately prior to the closing, the Company contributed $11.4
million of capital to the partnership. The proceeds from this contribution were
used to fund the balance of the purchase price and to provide initial working
capital to the title-holding partnerships. The non-recourse loans bear interest
at 6.68% per annum and require interest only payments through December 31, 2001;
thereafter, interest and principal payments are due based upon 25-year
amortization schedules. The loans mature on January 1, 2014.
The partnership expects to acquire a fifth center, an 87,540 square foot
facility in Richardson, Texas, during the third quarter of 1999 following the
completion of construction and satisfaction of certain other closing conditions.
The fifth center is expected to be acquired at a purchase price of approximately
$10.8 million; it is anticipated that this acquisition will be financed with a
$3.2 million equity contribution from the Company and $7.6 million of third
party non-recourse financing.
Ultimately, the Company expects to construct an additional 62,000 square feet of
side-store space; this development is expected to occur at the three recently
acquired properties and at the fifth center (following the acquisition thereof).
It is currently anticipated that the development costs will be financed with an
additional $1 million equity contribution from the Company and $3.8 million of
third party financing proceeds.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to execute its business strategy, particularly the growth
of its investment and loan portfolio, depends to a significant degree on its
ability to obtain additional capital. The Company's principal demands for
liquidity are cash for operations, including funds for its lending activities
and other investments, interest expense associated with its indebtedness, debt
repayments and distributions to its shareholders. In the near term, the
Company's principal sources of liquidity are the funds available to it under its
financing facilities described below.
Effective as of July 1, 1998, the Company (and certain of its subsidiaries)
entered into a $400 million credit facility (the "Line of Credit") with
Prudential Securities Credit Corporation ("PSCC"). Subject to PSCC's approval on
an asset by asset basis, borrowings under the facility can be used to finance
the Company's structured loan and equity real estate investments. As a result of
the dislocation in the capital markets in mid to late 1998, PSCC became more
restrictive in the application of its approval rights with respect to financing
for new investments sought by the Company; accordingly, very few new investments
were consummated during the fourth quarter of 1998 and the first quarter of
1999. Prior to the modifications discussed below, borrowings under the Line of
Credit bore interest at rates ranging from LIBOR plus 1% per annum to LIBOR plus
2% per annum. Borrowings are secured by a first lien security interest in all
assets funded with proceeds from the Line of Credit. At March 31, 1999,
$39,338,000 had been borrowed under the Line of Credit. The weighted average
interest rate at March 31, 1999 was 5.98%. To reduce the impact that rising
interest rates would have on this floating rate indebtedness, the Company
entered into an interest rate cap agreement effective January 1, 1999. The
agreement, which expires on July 1, 2000, has a notional amount of $33,600,000.
The agreement entitles the Company to receive from a counterparty the amounts,
if any, by which one month LIBOR exceeds 6.0%. There are no margin requirements
associated with interest rate caps and therefore there is no liquidity risk
associated with this particular hedging
16
<PAGE> 17
instrument. As of March 31, 1999, no payments were due from the counterparty as
one month LIBOR had not exceeded 6.0%.
On May 4, 1999, the Company (and certain of its subsidiaries) entered into an
Amended and Restated Interim Warehouse and Security Agreement (the "Amended Line
of Credit"). The terms of the Amended Line of Credit are discussed below in
"Part II, Item 5. Other Information". In anticipation of completing the
modifications to its line of credit, the Company intensified its loan production
efforts during the first quarter.
Effective as of July 1, 1998, the Company (and certain of its subsidiaries)
entered into a $100 million Master Repurchase Agreement (the "Repurchase
Agreement") with PSCC; subsequently, PSCC was replaced by Prudential-Bache
International, Ltd. ("PBI"), an affiliate of PSCC, as lender. Borrowings under
the Repurchase Agreement can be used to finance a portion of the Company's
portfolio of mortgage-backed securities. The Repurchase Agreement provides that
the Company may borrow a varying percentage of the market value of the purchased
mortgage-backed securities, depending on the credit quality of such securities.
Borrowings under the Repurchase Agreement bear interest at rates ranging from
LIBOR plus 0.20% per annum to LIBOR plus 1.5% per annum depending upon the
advance rate and the credit quality of the securities being financed. Borrowings
under the facility are secured by an assignment to PBI of all mortgage-backed
securities funded with proceeds from the Repurchase Agreement. The Repurchase
Agreement matures on June 30, 2000. At March 31, 1999, there were no borrowings
under the Repurchase Agreement. On April 29, 1999, $11,795,000 was borrowed
under this facility in order to provide the funds necessary to complete the
acquisition of the three grocery-anchored shopping centers described above.
Under the terms of the Amended Line of Credit and the Repurchase Agreement, PSCC
and PBI, respectively, retain the right to mark the underlying collateral to
market value. A reduction in the value of its pledged assets may require the
Company to provide additional collateral or fund margin calls. From time to
time, the Company may be required to provide such additional collateral or fund
margin calls.
The Company believes that the funds available under its two credit facilities
will be sufficient to meet the Company's liquidity and capital requirements in
1999. The Company believes that the Amended Line of Credit will provide it with
more flexibility, which in turn will allow it to utilize favorable financing
terms in connection with the origination of investments and enable it to resume
the growth of its assets, albeit at a slower rate than was achieved in the
second and third quarters of 1998. The Company, however, remains subject to
capital constraints. In particular, the Company's ability to raise additional
capital through the public equity and debt markets continues to be severely
limited. The Company is continuing its efforts to obtain additional secured loan
facilities that would better match the duration of its assets. Additionally,
these efforts are designed to provide alternatives to the Amended Line of Credit
and, ultimately, to replace it. However, there can be no assurances that the
Company will be able to obtain renewal or additional financing on acceptable
terms.
Management currently believes that the dislocation in the capital markets will
not extend long-term; however, its duration is impossible to predict at this
time. In the near term, the Company believes it will be constrained from
accessing the public equity markets. In addition, new issues of long-term public
unsecured debt will be difficult to obtain and, in any event, will likely not be
available to the Company at a reasonable cost. Additional secured debt beyond
the Company's Amended Line of Credit will also be difficult to obtain and may
not be offered at a reasonable cost. Aside from limiting the Company's access to
additional capital in the near term to fund growth, the Company has been
relatively insulated from the effects of the dislocation in the capital markets.
While the market value of the Company's CMBS holdings has declined, the Company
invested in these bonds for the long term yields that they are expected to
produce. Management believes that the current market dislocation presents
significant investment opportunities for selective acquisitions of CMBS and that
the fundamental value of the real estate mortgages underlying these bonds has
been largely unaffected to date, although general economic conditions could
adversely impact real estate values in the future.
REIT STATUS
Management believes that the Company is operated in a manner that will enable it
to continue to qualify as a REIT for federal income tax purposes. As a REIT, the
Company will not pay income taxes at the trust level on any taxable income which
is distributed to its shareholders, although AMREIT II, Inc., its "Non-Qualified
REIT Subsidiary", may be subject to tax at the corporate level. Qualification
for treatment as a REIT requires the Company to meet certain criteria, including
certain requirements regarding the nature of its ownership, assets, income and
distributions of taxable income. The Company may, however, be subject to tax at
normal corporate rates on any ordinary income or capital gains not distributed.
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<PAGE> 18
YEAR 2000 ISSUE
General
Many of the world's computers, software programs and other equipment using
microprocessors or embedded chips currently have date fields that use two digits
rather than four digits to define the applicable year. These computers, programs
and chips may be unable to properly interpret dates beyond the year 1999; for
example, computer software that has date sensitive programming using a two-digit
format may recognize a date using "00" as the year 1900 rather than the year
2000. This inability to properly process dates is commonly referred to as the
"Year 2000 issue", the "Year 2000 problem" or "Millennium Bug." Such errors
could potentially result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in similar normal business activities, which,
in turn, could lead to disruptions in the Company's operations or performance.
All of the Company's information technology infrastructure is provided by the
Manager, and the Manager's systems are supplied by AMRESCO, INC. The Company's
assessments of the cost and timeliness of completion of Year 2000 modifications
set forth below are based on representations made to the Company and the best
estimates of the individuals within or engaged by AMRESCO, INC. charged with
handling the Year 2000 issue, which estimates were derived using numerous
assumptions relating to future events, including, without limitation, the
continued availability of certain internal and external resources and third
party readiness plans. Furthermore, as the AMRESCO, INC. Year 2000 initiative
(described below) progresses, AMRESCO, INC., the Manager and the Company
continue to revise estimates of the likely problems and costs associated with
the Year 2000 issue and to adapt contingency plans. However, there can be no
assurance that any estimate or assumption will prove to be accurate.
The AMRESCO, INC. Year 2000 Initiative
AMRESCO, INC. is conducting a comprehensive Year 2000 initiative with respect to
its internal business-critical systems, including those upon which the Company
depends. This initiative encompasses information technology ("IT") systems and
applications, as well as non-IT systems and equipment with embedded technology,
such as fax machines and telephone systems, which may be impacted by the Year
2000 issue. Business-critical systems encompass internal accounting systems,
including general ledger, accounts payable and financial reporting applications;
cash management systems; loan servicing systems; and decision support systems;
as well as the underlying technology required to support the software. The
initiative includes assessing, remediating or replacing, testing and upgrading
the business-critical IT systems of AMRESCO, INC. with the assistance of a
consulting firm that specializes in Year 2000 readiness. Based upon a review of
the completed and planned stages of the initiative, and the testing done to
date, AMRESCO, INC. does not anticipate any material difficulties in achieving
Year 2000 readiness with respect to its internal business-critical systems used
in connection with the operations of the Manager or the Company, and the Company
has received a written representation from AMRESCO, INC. that Year 2000
readiness was achieved by December 1998 with respect to all its internal
business-critical systems used in connection with the operations of the Manager
or the Company.
In addition to the internal IT systems and non-IT systems of AMRESCO, INC., the
Company may be at risk from Year 2000 failures caused by or occurring to third
parties. These third parties can be classified into two groups. The first group
includes borrowers, significant business partners, lenders, vendors and other
service providers with whom the Company, the Manager or AMRESCO, INC. has a
direct contractual relationship. The second group, while encompassing certain
members of the first group, is comprised of third parties providing services or
functions to large segments of society, both domestically and internationally,
such as airlines, utilities and national stock exchanges.
As is the case with most other companies, the actions the Company, the Manager
and AMRESCO, INC. can take to avoid any adverse effects from the failure of
companies, particularly those in the second group, to become Year 2000 ready is
extremely limited. However, AMRESCO, INC. has communicated with those companies
that have significant business relationships with AMRESCO, INC., the Manager or
the Company, particularly those in the first group, to determine their Year 2000
readiness status and the extent to which AMRESCO, INC., the Manager or the
Company could be affected by any of their Year 2000 readiness issues. In
connection with this process, AMRESCO, INC. has sought to obtain written
representations and other independent confirmations of Year 2000 readiness from
the third parties with whom AMRESCO, INC., the Manager or the Company has
material contracts. Responses from all third parties having material contracts
with AMRESCO, INC., the Manager or the Company have not been received, nor is it
likely that responses will be received from all such third parties. In addition
to contacting these third parties, where there are direct interfaces between the
18
<PAGE> 19
systems of AMRESCO, INC. and the systems of these third parties in the first
group, AMRESCO, INC. plans to complete testing by the end of the second quarter
of 1999 in conformance with the Guidelines of the Federal Financial Institutions
Examination Council. Based on responses received and testing to date, it is not
currently anticipated that AMRESCO, INC., the Manager or the Company will be
materially affected by any third party Year 2000 readiness issues in connection
with the operations of the Manager or the Company.
For all business-critical systems interfaces used in connection with the
operations of the Manager and the Company, AMRESCO, INC. advised the Company
that readiness was achieved by December 31, 1998. Backup service providers that
have achieved Year 2000 readiness have been put in place for significant third
party providers that did not complete their Year 2000 initiatives by March 31,
1999.
There can be no assurance that the systems of AMRESCO, INC. or those of third
parties will not experience adverse effects after December 31, 1999.
Furthermore, there can be no assurance that a failure to convert by another
company, or a conversion that is not compatible with the systems of AMRESCO,
INC. or those of other companies on which the systems of AMRESCO, INC. rely,
would not have a material adverse effect on the Company.
Under the terms of the Company's Management Agreement with the Manager, all of
the costs associated with addressing the Company's Year 2000 issue are to be
borne by the Manager. Therefore, the Company does not anticipate that it will
incur material expenditures in connection with any modifications necessary to
achieve Year 2000 readiness.
Potential Risks
In addition to the internal systems of AMRESCO, INC. and the systems and
embedded technology of third parties with whom AMRESCO, INC., the Manager and
the Company do business, there is a general uncertainty regarding the overall
success of global remediation efforts relating to the Year 2000 issue, including
those efforts of providers of services to large segments of society, as
described above in the second group. Due to the interrelationships on a global
scale that may be impacted by the Year 2000 issue, there could be short-term
disruptions in the capital or real estate markets or longer-term disruptions
that would affect the overall economy.
Due to the general uncertainty with respect to how this issue will affect
businesses and governments, it is not possible to list all potential problems or
risks associated with the Year 2000 issue. However, some examples of problems or
risks to the Company that could result from the failure by third parties to
adequately deal with the Year 2000 issue include:
o in the case of lenders, the potential for liquidity stress due to
disruptions in funding flows;
o in the case of exchanges and clearing agents, the potential for funding
disruptions and settlement failures;
o in the case of counter parties, accounting and financial difficulties to
those parties that may expose the Company to increased credit risk; and
o in the case of vendors or providers, service failures or interruptions,
such as failures of power, telecommunications and the embedded technology
in building systems (such as HVAC, sprinkler and fire suppression,
elevators, alarm monitoring and security, and building and parking garage
access).
19
<PAGE> 20
With respect to the Company's loan portfolios, risks due to the potential
failure of third parties to be ready to deal with the Year 2000 issue include:
o potential borrower defaults resulting from increased expenses or legal
claims related to failures of embedded technology in building systems, such
as HVAC, sprinkler and fire suppression, elevators, alarm monitoring and
security, and building and parking garage access;
o potential reductions in collateral value due to failure of one or more of
the building systems;
o interruptions in cash flow due to borrowers being unable to obtain timely
lease payments from tenants or incomplete or inaccurate accounting of
rents;
o potential borrower defaults resulting from computer failures of retail
systems of major tenants in retail commercial real estate properties such
as shopping malls and strip shopping centers;
o construction delays resulting from contractors' failure to be Year 2000
ready and increased costs of construction associated with upgrading
building systems to be Year 2000 compliant; and
o delays in reaching projected occupancy levels due to construction delays,
interruptions in service or other market factors.
These risks are also applicable to the Company's portfolio of CMBS as these
securities are dependent upon the pool of mortgage loans underlying them. If the
investors in these types of securities demand higher returns in recognition of
these potential risks, the market value of any CMBS portfolio of the Company
also could be adversely affected.
Additionally, the Company has made equity investments in a partnership that will
ultimately own interests in five grocery-anchored shopping centers and in a
partnership which owns a suburban office building. These operations will be
subject to many of the risks set forth above. Although the Company intends to
monitor Year 2000 readiness, there can be no guarantee that all building systems
will be Year 2000 compliant.
The Company believes that the risks most likely to affect the Company adversely
relate to the failure of third parties, including its borrowers and sources of
capital, to achieve Year 2000 readiness. If its borrowers' systems fail, the
result could be a delay in making payments to the Company or the complete
business failure of such borrowers. The failure, although believed to be
unlikely, of the Company's sources of capital to achieve Year 2000 readiness
could result in the Company being unable to obtain the funds necessary to
continue its normal business operations.
Some of the risks associated with the Year 2000 issue may be mitigated through
insurance maintained or purchased by the Company, its affiliates, its business
partners, borrowers and vendors. However, the scope of insurance coverage in
addressing these potential issues under existing policies has yet to be tested,
and the economic impact on the solvency of the insurers has not been explored.
Therefore, no assurance can be given that insurance coverage will be available
or, if it is available, that it will be available on a cost-effective basis or
that it will cover all or a significant portion of any potential loss.
Business Continuity/Disaster Recovery Plan
AMRESCO, INC. currently has a business continuity/disaster recovery plan that
includes business resumption processes that do not rely on computer systems and
the maintenance of hard copy files, where appropriate. The business
continuity/disaster recovery plan is monitored and updated as potential Year
2000 readiness issues of AMRESCO, INC. and third parties are specifically
identified. Due to the inability to predict all of the potential problems that
may arise in connection with the Year 2000 issue, there can be no assurance that
all contingencies will be adequately addressed by such plan.
20
<PAGE> 21
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q are not based on historical facts
and are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company intends that
forward-looking statements be subject to such Act and any similar state or
federal laws. Forward-looking statements, which are based on various
assumptions, include statements regarding the intent, belief or current
expectations of the Company, its Manager, and their respective Trustees or
directors and officers, and may be identified by reference to a future period or
periods or by use of forward-looking terminology such as "intends," "may,"
"could," "will," "believe," "expect," "anticipate," "plan," or similar terms or
variations of those terms or the negative of those terms. Actual results could
differ materially from those set forth in forward-looking statements due to
risks, uncertainties and changes with respect to a variety of factors,
including, but not limited to, changes in international, national, regional or
local economic environments, changes in prevailing interest rates, credit and
prepayment risks, basis and asset/liability risks, spread risk, event risk,
conditions which may affect public securities and debt markets generally or the
markets in which the Company operates, the Year 2000 issue, the availability of
and costs associated with obtaining adequate and timely sources of liquidity,
dependence on existing sources of funding, the size and liquidity of the
secondary market for commercial mortgage-backed securities, geographic or
product type concentrations of assets (temporary or otherwise), hedge mismatches
with liabilities, other factors generally understood to affect the real estate
acquisition, mortgage and leasing markets and securities investments, changes in
federal income tax laws and regulations, and other risks described from time to
time in the Company's SEC reports and filings, including its registration
statement on Form S-11 and periodic reports on Form 10-Q, Form 8-K and Form
10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a party to various financial instruments which are subject to
market risk. These instruments include mortgage loan investments, investments in
commercial mortgage-backed securities ("CMBS") and certain of the Company's
borrowing facilities. The Company is also a party to an interest rate cap
agreement which it entered into in order to mitigate the market risk exposure
associated with its credit facilities. The Company's financial instruments
involve, to varying degrees, elements of interest rate risk. Additionally, the
Company's investment portfolio, which is comprised of both financial instruments
(mortgage loans and CMBS) and equity investments in real estate, is subject to
real estate market risk. The Company is a party to certain other financial
instruments, including trade receivables and payables and amounts due to
affiliates which, due to their short-term nature, are not subject to market
risk. For a discussion of market risk exposures, reference is made to Item 7A.
"Quantitative and Qualitative Disclosures About Market Risk" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. The market risk
exposures described therein have not materially changed since December 31, 1998;
accordingly, no additional discussion or analysis is provided in this Form 10-Q.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 30, 1999, the Company (through a majority-owned partnership) acquired
interests in three newly constructed, grocery-anchored shopping centers in the
Dallas/Fort Worth, Texas area. The properties include an 86,516 square foot
facility in Flower Mound, Texas, a 61,440 square foot facility in Fort Worth,
Texas and an 85,611 square foot facility in Grapevine, Texas. Completion of
construction of the grocery store anchor space and occupancy of such space
occurred less than ninety days prior to the acquisition of the properties by the
Company. Leases with the grocery store anchor tenant were executed effective as
of the closing date.
Acquisition costs for the properties totaled $30.7 million. The acquiring
partnerships financed the acquisitions with $19.5 million of non-recourse loan
proceeds from an unaffiliated third party and $11.4 million in equity
contributions from the Company. Construction and leasing of additional
side-store space is planned to take place in the future and is expected to
require an additional $1.0 million equity investment by the Company.
Effective as of May 4, 1999, the Company (and certain of its subsidiaries)
entered into an Amended and Restated Interim Warehouse and Security Agreement
(the "Amended Line of Credit") with Prudential Securities Credit Corporation
("PSCC"); the agreement amended the Company's existing line of credit with PSCC.
The Amended Line of Credit provides for the following modifications: (1) a
reduction in the size of the committed facility from $400 million to $300
million; (2) the elimination of the requirement that assets financed with
proceeds from the facility must be securitizable; (3) a reduction in the amount
of capital the Company must fund with respect to construction and rehabilitation
loans before PSCC is required to begin advancing funds; (4) an extension of the
maturity date from July 1, 2000 to November 3, 2000; and (5) the modification
to, and addition of, certain sublimits on certain types of loans and assets.
Under the Amended Line of Credit, borrowings bear interest at LIBOR plus 1.25%
per annum to the extent such borrowings do not exceed the Company's Tangible Net
Worth, as defined; borrowings in excess of the Company's Tangible Net Worth bear
interest at LIBOR plus 3%.
As compensation for amending the existing line of credit and extending the
maturity date, the Company granted warrants to Prudential Securities
Incorporated, an affiliate of PSCC, to purchase 250,002 common shares of
beneficial interest at $9.83 per share. The exercise price represents the
average closing market price of the Company's common shares for the ten-day
period ending on May 3, 1999. The warrants were issued in lieu of a commitment
fee or other cash compensation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Exhibit Index
Exhibit No.
4.1 Rights Agreement, dated as of February 25, 1999,
between the Company and The Bank of New York, as
Rights Agent, which includes: as Exhibit A
thereto, the Form of Statement of Designation of
Series A Junior Participating Preferred Shares,
par value $.01 per share, of the Company; as
Exhibit B thereto, the Form of Right Certificate;
and as Exhibit C thereto, the Summary of Rights to
Purchase Preferred Shares (filed as Exhibit 1 to
the Registrant's Current Report on Form 8-K dated
February 25, 1999, which exhibit is incorporated
herein by reference).
10.1 Amended and Restated Interim Warehouse and
Security Agreement dated as of May 4, 1999, by and
among Prudential Securities Credit Corporation and
AMRESCO Capital Trust, AMREIT I, Inc., AMREIT II,
Inc., ACT Equities, Inc. and ACT Holdings, Inc.
10.2 Warrant Agreement dated as of May 4, 1999 between
AMRESCO Capital Trust and Prudential Securities
Incorporated.
27 Financial Data Schedule.
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<PAGE> 23
(b) Reports on Form 8-K. The following reports on Form 8-K were
filed with respect to events occurring during the quarterly
period for which this report is filed:
(i) Form 8-K dated February 25, 1999 and filed with
the Commission on March 4, 1999, reporting the
adoption of a Shareholder Rights Agreement under
Item 5 of such form.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMRESCO CAPITAL TRUST
Registrant
Date: May 13, 1999 By: /s/Thomas J. Andrus
------------------------
Thomas J. Andrus
Executive Vice President
and Chief Financial Officer
24
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
No. DESCRIPTION
------- -----------
<S> <C>
4.1 Rights Agreement, dated as of February 25, 1999,
between the Company and The Bank of New York, as
Rights Agent, which includes: as Exhibit A
thereto, the Form of Statement of Designation of
Series A Junior Participating Preferred Shares,
par value $.01 per share, of the Company; as
Exhibit B thereto, the Form of Right Certificate;
and as Exhibit C thereto, the Summary of Rights to
Purchase Preferred Shares (filed as Exhibit 1 to
the Registrant's Current Report on Form 8-K dated
February 25, 1999, which exhibit is incorporated
herein by reference).
10.1 Amended and Restated Interim Warehouse and
Security Agreement dated as of May 4, 1999, by and
among Prudential Securities Credit Corporation and
AMRESCO Capital Trust, AMREIT I, Inc., AMREIT II,
Inc., ACT Equities, Inc. and ACT Holdings, Inc.
10.2 Warrant Agreement dated as of May 4, 1999 between
AMRESCO Capital Trust and Prudential Securities
Incorporated.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY AGREEMENT
BY AND AMONG
PRUDENTIAL SECURITIES CREDIT CORP.
AS THE LENDER
AND
AMRESCO CAPITAL TRUST
AND
AMREIT I, INC.
AND
AMREIT II, INC.
AND
ACT EQUITIES, INC.
AND
ACT HOLDINGS, INC.
AS, INDIVIDUALLY AND COLLECTIVELY, THE BORROWER
DATED AS OF MAY 4, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
<S> <C> <C>
Section I. The Loan............................................................................. 1
Section II. Loan Files and Custodian............................................................. 9
Section III. Representations, Warranties and Covenants............................................ 10
Section IV. Mandatory Partial Prepayment of Loan................................................. 18
Section V. Release of Loan Files Following Payment of Loan...................................... 20
Section VI. Servicing............................................................................ 21
Section VII. No Oral Modifications; Successors and Assigns; Assignment of Collateral.............. 21
Section VIII. Reports.............................................................................. 21
Section IX. Events of Default.................................................................... 24
Section X. Remedies Upon Default................................................................ 26
Section XI. Pre-Existing Conditions.............................................................. 27
Section XII. Indemnification...................................................................... 27
Section XIII. Periodic Due Diligence Review........................................................ 28
Section XIV. Power of Attorney.................................................................... 29
Section XV. Choice of Law; Agreement Constitutes Security Agreement.............................. 29
Section XVI. Lender May Act Through Affiliates.................................................... 29
Section XVII. Notices.............................................................................. 29
Section XVIII. Severability......................................................................... 31
Section XIX. Counterparts......................................................................... 31
Section XX. Additional Borrowers................................................................. 31
Section XXI. No Exclusivity....................................................................... 31
Section XXII. Joint and Several Liability.......................................................... 32
Section XXIII. Consent to Jurisdiction and Service of Process....................................... 32
Section XXIV. Waiver of Jury Trial................................................................. 32
Appendix I Certain Definitions
Appendix II Representations And Warranties Regarding All Pledged Eligible Assets
Schedule A Approved Assets
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Schedule B Disclosure Of Proceedings Pending Against The Borrower, Events Causing Material Adverse
Changes And Changes To The Management Agreement
Exhibit A Form Of Secured Note
Exhibit B Form Of Legal Opinion
Exhibit C Form Of Underwriting Transmittal
Exhibit D Form Of Funding Notice
Exhibit E Form Of Commercial Loan/Asset Schedule
Exhibit F Form Of Warrant Agreement
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY AGREEMENT
dated as of May 4, 1999 (as amended or otherwise modified in writing by the
parties hereto from time to time, this "Agreement") is by and among PRUDENTIAL
SECURITIES CREDIT CORP., a Delaware corporation, having an office at 1220 N.
Market Street, Wilmington, Delaware 19801 (the "Lender") and AMRESCO CAPITAL
TRUST, a Texas real estate investment trust ("ACT"), AMREIT I, INC., a Delaware
corporation ("AMREIT I") AMREIT II, INC., a Nevada corporation ("AMREIT II"),
ACT EQUITIES, INC., a Georgia corporation ("EQUITIES"), and ACT HOLDINGS, INC.,
a Georgia corporation ("HOLDINGS"),each having its principal office at 700 North
Pearl Street, Suite 2400, Dallas, Texas 75201 (individually and collectively,
the "Borrower").
WHEREAS, the Lender and the Borrower entered that certain Interim
Warehouse and Security Agreement dated as of July 1, 1998, by and between the
Lender and the Borrower (the "Original Agreement") and now wish to amend and
restate the Original Agreement herein in full; and
WHEREAS, the Lender intends to lend and the Borrower intends to borrow
up to $300,000,000 to provide interim warehouse financing of Eligible Assets (as
defined herein).
Capitalized terms used in this Agreement and not otherwise specifically
defined herein are defined in Appendix I hereto.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto hereby agree as follows:
Section I. The Loan.
Subject to the terms of this Agreement:
1. Maximum Loan Amount. Subject to the terms and conditions
set forth in this Agreement, the Lender agrees to lend to the Borrower up to a
maximum of $300,000,000 (the "Maximum Loan Amount") under this Agreement (such
borrowing, the "Loan") to be made in one or more advances (each, an "Advance"),
subject to the following limitations:
(a) the "Mezzanine Loan/Equity Investment Sub-Limit" --
the aggregate outstanding Advances made in connection with one or more Mezzanine
Loans/Equity Investments shall not exceed $40,000,000 at any time (excluding
Land Development Loans and Mezzanine Construction Loans included in Section
I(1)(C) below);
(b) the "Construction Loan Sub-Limit" -- the aggregate
outstanding Advances made in connection with one or more Construction Loans
shall not exceed $115,000,000 at any time; and
(c) the "Less Than 70% Pre-Leased Sub-Limit" -- of the
$115,000,000 Construction Loan Sub-Limit, no more than $50,000,000 in aggregate
outstanding Advances at
1
<PAGE> 5
any time may be for (i) construction projects that are less than 70% leased,
measured on a project by project basis, at the time of the Initial Advance for
each such construction project (a "Less Than 70% Pre-Leased Project") and (ii)
outstanding Advances (after adjustment pursuant to Sections I(3)(e) and (f)) for
Land Development Loans and Mezzanine Construction Loans. If at any time a
particular construction project subject to the Less Than 70% Pre-Leased
Sub-Limit becomes greater than or equal to 70% leased (a "Greater Than or Equal
to 70% Pre-Leased Project"), then (i) the Borrower may request in writing that
the Lender no longer consider the aggregate outstanding Advances made with
respect to such construction project as part of the $50,000,000 Less Than 70%
Pre-Leased Sub-Limit and only consider such Advances as part of the $115,000,000
Construction Loan Sub-Limit and (ii) the Lender shall have the right, in its
sole discretion, to approve or disapprove the Borrower's request. In determining
whether a construction project is a Less Than 70% Pre-Leased Project or a
Greater Than or Equal to 70% Pre-Leased Project, a lease must meet the following
criteria: the tenant must be a bona fide, credit-worthy party unaffiliated with
the project developer; the lease must be a bona fide lease on fair market value
terms and conditions, bearing the duly authorized signatures of landlord and
tenant; the lease must have a minimum initial term of not less than five years;
and the lease shall not be subject to any termination rights or conditions
subsequent, other than customary conditions relating to timely completion of the
project and tenant improvement work and other customary termination rights such
as those for landlord's default. The Lender, in its sole discretion, may (but
shall not be required to) consider exceptions to such lease requirements based
on other specific property types. Once the construction project is complete and
the tenants take possession of leased space in the project pursuant to a fully
executed lease which satisfies the criteria for leases set forth above in this
Section I(1)(c), the Borrower may also request the Lender to recharacterize the
aggregate outstanding Advances relating to such Construction Loan as no longer
part of the Construction Loan Sub-Limit. The Lender, in its sole discretion, may
(but shall not be required to) consider such request.
2. Eligible Assets. The Borrower agrees that the Loan shall be used to
warehouse certain commercial mortgage loans and commercial real estate assets,
including, but not limited to, Mortgage Loans, Construction Loans, Mezzanine
Loans/Equity Investments, Bridge Loans, Rehabilitation Loans, Acquisition Loans
and Participating Loans (all of the foregoing described loans and other assets,
collectively, "Eligible Assets"). To qualify as an Eligible Asset, the Borrower
shall not commit to finance more than 100% of the Budgeted Costs or 100% of the
Stabilized Value of such Eligible Asset. A schedule of all currently approved
assets (the "Approved Assets") and their respective asset classifications,
sub-limit categories and maximum Advance levels, as approved by Lender, is set
forth on Schedule A attached hereto and made a part hereof. In accordance with
the procedures provided herein and subject to the terms and conditions of this
Agreement, the Borrower is entitled to request Advances on Approved Assets up to
the maximum Advance amount set forth in Schedule A for such Approved Asset, and,
in the event of such request, Lender is obligated to fund up to such maximum
Advance amounts in accordance with the terms hereof, including, without
limitation, the Borrower's performance of all conditions precedent to the
Lender's Obligation to make specific Advances. Land Development Loans and
Mezzanine Construction Loans shall not be deemed Eligible Assets except those
described on Schedule A. Any outstanding Advances for either Land Development
Loans or Mezzanine Construction Loans made pursuant to the Original Agreement
may remain outstanding pursuant to this Agreement and, subject to the terms and
conditions of this Agreement, the Lender will advance up to the maximum Advance
amount related thereto as
2
<PAGE> 6
set forth on Schedule A so long as the conditions set forth in Sections I(3)(e)
and (f) are satisfied and no events of default exist with respect thereto. All
Eligible Assets must: (x) be originated in accordance with prudent underwriting
standards and the Borrower's approved due diligence standards, closing
procedures manual (the form and content of which have been provided in advance
to the Lender and approved in advance by the Lender in writing, both as more
particularly set forth in Section I(3)(a)(vi) below) (collectively, the
"Borrower's Guidelines") and related documents or otherwise have been approved
by the Lender in writing and (y) have an Approved Exit Strategy prior to the
Initial Advance for such Eligible Asset. The Eligible Assets to be pledged to
the Lender under this Agreement shall be identified by the Borrower to the
Lender in writing from time to time, and at any time upon the Lender's request.
Any Eligible Asset for which an Advance is made under this Agreement is
hereinafter referred to as a "Pledged Eligible Asset."
3. Advances.
(a) Subject to the terms and conditions of this Agreement,
each Advance shall be made, pursuant to the terms of this Agreement on a date
prior to the Maturity Date referred to below (each such date, a "Funding Date");
provided that:
(i) not later than (A) five Business Days prior to the
proposed Funding Date for an Initial Advance, the Borrower shall
deliver to the Lender a written underwriting transmittal in the form
of Exhibit C hereto previously approved by the Lender and used by the
Borrower for the Approved Assets (an "Underwriting Transmittal") for
each Eligible Asset proposed to be pledged in connection with such
Initial Advance, and (B) two Business Days prior to the proposed
Funding Date for an Initial Advance, the Borrower shall deliver to the
Lender (i) a written notice (a "Funding Notice") in the form of
Exhibit D hereto and (ii) a schedule, via facsimile, in the form of
Exhibit E hereto, detailing certain specified characteristics of the
Eligible Assets proposed to be pledged in connection with such Initial
Advance (each such schedule, a "Commercial Loan/Asset Schedule");
(ii) the representations, warranties and covenants of
the Borrower set forth in this Agreement shall be true and correct on
and as of each such Funding Date as if made on and as of such date;
(iii) no Event of Default shall have occurred and be
continuing or would exist after the making of the Advance on such
Funding Date;
(iv) the Lender shall have received in connection with
each Initial Advance, by no later than 12:00 noon (New York City time)
on the related Funding Date, a certificate from the Custodian referred
to below to the effect that it has reviewed the loan files relating to
the Eligible Assets being pledged in connection with the Advance being
made on such Funding Date and has found no material deficiencies in
such loan files (the "Custodian's Certification"); provided, however,
if the Funding Date is the same date as the closing of the underlying
loan, then the Lender shall have received by no later than one
Business Day prior to the Funding Date a certificate from the escrow
officer of a title company approved by the Lender (the "Escrow
Officer"), engaged by the
3
<PAGE> 7
Borrower and the underlying mortgagor/borrower in connection with such
Pledged Eligible Asset which verifies that the Escrow Officer has
received the loan files relating to such Eligible Asset to be pledged
in connection with the Advance and that the Escrow Officer will
forward such loan files directly to the Custodian no later than the
first Business Day following the Funding Date;
(v) for Eligible Assets, the Borrower shall have
delivered or caused to be delivered to the Custodian or the Escrow
Officer all required documents with respect to the Eligible Assets
being pledged to the Lender under this Agreement on such Funding Date;
(vi) prior to the first Advance after the execution of
this Agreement and under this Agreement relating to a Pledged Eligible
Asset: (A) the Lender has received a complete and up-to-date copy of
the Borrower's Guidelines and all other relevant handbooks and
manuals, as the Lender may reasonably request; (B) the Lender has
approved the Borrower's Guidelines and related documents; and (C)
prior to each Advance, the Lender shall have approved in writing all
changes or modifications thereto, if any, that, in the reasonable
judgment of the Lender, may result in a material relaxation of the
standards or requirements contained in the Borrower's Guidelines
and/or related documentation;
(vii) prior to the first Advance under this Agreement
relating to a Pledged Eligible Asset, the Lender shall have received a
current Secretary's Certificate of each Borrower certifying as to the
incumbency of the officers of the Borrower, with copies of (A) any
amendments to ACT's Declaration of Trust since July 1, 1998, as to
AMREIT I and AMREIT II any amendments to each such Borrower's
respective Articles of Incorporation and certificate of incorporation
since July 1, 1998, and, as to EQUITIES and HOLDINGS, copies of each
such Borrower's respective Articles of Incorporation and certificate
of incorporation; (B) any amendments to ACT's, AMREIT I's and AMREIT
II's by-laws since July 1, 1998 and copies of EQUITIES' and HOLDINGS'
by-laws; and (C) a good standing certificate for each of the Borrowers
(other than ACT) dated as of a recent date;
(viii) with respect to each Eligible Asset, the Lender
shall have given its prior approval to allow an Advance with respect
to such Eligible Asset, subject to all of the terms and conditions of
this Agreement having been fully and unconditionally satisfied;
(ix) with respect to any Advance relating to Pledged
Eligible Assets after the Initial Advance, the Lender shall have
received (A) an additional Funding Notice at least two Business Days
prior to the date requested for funding such Advance, and (B) the
Borrower's representation that no change has occurred with respect to
any material fact contained in the Underwriting Transmittal relating
to the Pledged Eligible Asset;
(x) to the extent described in Section IV(C) of this
Agreement, no notice described in Section IV(C) shall have been
received by the Lender;
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(xi) prior to each Initial Advance with respect to each
Pledged Eligible Asset, if in the Lender's reasonable discretion, the
Lender requires the Borrower to enter into an Interest Rate Protection
Agreement as provided herein, the Lender shall have received
fully-executed copies of such Interest Rate Protection Agreements
relating to such Pledged Eligible Asset (which Interest Rate
Protection Agreement must be transferable as set forth more
particularly in Section IV(E) below), each certified by an officer of
Borrower as a true, correct and complete copy of the original;
(xii) (A) contemporaneously with the execution of this
Agreement, with respect to each Pledged Eligible Asset (i)
that was originated by a Person other than the Borrower, (ii)
that was purchased by the Borrower prior to the execution of
this Agreement, and (iii) for which the Lender has made one or
more Advances prior to the execution of this Agreement, the
Borrower shall provide evidence sufficient to satisfy the
Lender that such Pledged Eligible Asset was acquired in a true
and legal sale, including, without limitation, an opinion, in
form and substance and from legal counsel to the Borrower
(which may be employed by the Borrower) acceptable to the
Lender in its sole discretion, that such Pledged Eligible
Asset was acquired in a true and legal sale;
(B) prior to each Initial Advance after the
execution of this Agreement and under this Agreement with
respect to each Pledged Eligible Asset (i) that was originated
by a Person other than the Borrower and (ii) that was
purchased by the Borrower prior to the execution of this
Agreement, the Lender may, in its sole discretion, require the
Borrower to provide evidence sufficient to satisfy the Lender
that such Pledged Eligible Asset was acquired in a true and
legal sale, including, without limitation, an opinion, in form
and substance and from legal counsel to the Borrower (which
may be employed by the Borrower) acceptable to the Lender in
its sole discretion, that such Pledged Eligible Asset was
acquired in a true and legal sale; and
(C) prior to each Initial Advance with respect to
each Pledged Eligible Asset (i) that was originated by a
Person other than the Borrower and (ii) that was purchased by
the Borrower after the execution of this Agreement, the Lender
may, in its sole discretion, require the Borrower to provide
evidence sufficient to satisfy the Lender that such Pledged
Eligible Asset was acquired in a true and legal sale,
including, without limitation, an opinion, in form and
substance and from outside legal counsel to the Borrower
acceptable to the Lender in its sole discretion, that such
Eligible Asset was acquired in a true and legal sale;
(xiii) prior to each Advance with respect to each
Pledged Eligible Asset, there shall be no default, breach, violation
or event of acceleration existing under any Pledged Eligible Asset or
the related documents to any Pledged Eligible Asset and no event known
to the Borrower after due inquiry which, with the passage of time or
with notice and the expiration of any grace period or cure period,
would constitute a default, breach, violation or event of
acceleration;
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(xiv) prior to making each Advance and after giving
effect to such Advance, the Borrower shall be in compliance with the
sub-limits set forth in Sections I(1)(a), (b) and (c);
(xv) prior to the first Advance after the execution of
this Agreement and under this Agreement relating to a Pledged Eligible
Asset, one or more legal opinion(s) from legal counsel (which may be
in house counsel) to the Borrower in the form of Exhibit B attached
hereto, an executed copy of the Secured Note in the form of Exhibit A
attached hereto and an executed copy of the Warrant Agreement in the
form of Exhibit F attached hereto;
(xvi) prior to the Initial Advance as to each Pledged
Eligible Asset, the Initial Advance and all future Advances for such
Pledged Eligible Asset, as approved by the Lender, will not cause the
Borrower to exceed the sublimits set forth in Section I(1) of this
Agreement;
(xvii) prior to the Initial Advance as to each Pledged
Eligible Asset, if more than 30 days shall have passed since the
Borrower submitted the Underwriting Transmittal, the Lender shall have
received a certificate of an officer of the Borrower certifying that
no Material Adverse Change has occurred between the submission of the
Underwriting Transmittal and the Funding Date; and
(xviii) for any equity interest comprising all or any
portion of any Pledged Eligible Asset, including, without limitation,
Mezzanine Loan/Equity Investments, the Borrower shall grant the Lender
a security interest in the Borrower's equity interest comprising such
Pledged Eligible Asset and shall take all necessary and advisable
steps to perfect such interest, including, without limitation, if
certificated, delivery of any certificates evidencing the Borrower's
equity interest, or, if uncertificated, the recording with the
appropriate state authorities, a Form UCC-1 financing statement, and
shall provide the Lender with copies of any such other documents
related to such equity investment and the entity in which the Owner is
investing.
(b) The Lender shall evaluate all Eligible Assets on an
individual basis. The Lender agrees to approve or disapprove any Eligible Asset
within five Business Days of receipt by the Lender of the Underwriting
Transmittal and the information and documents required in this Section I(3);
provided, however, that the Lender shall have no obligation to make the first
Advance after the execution of this Agreement and under this Agreement in
connection with any Funding Notice until the Lender, Custodian or Escrow
Officer, as applicable, shall also have received the documents required in
Sections I(3)(a)(i), (iv), (v), (vi) and (vii). In the event the Lender does not
approve in writing such Eligible Asset within five Business Days, the Lender
shall be deemed to have elected not to finance such Eligible Asset.
(c) The Lender shall not be obligated to make an Advance as to
any particular Pledged Eligible Asset more frequently than once in any calendar
month.
(d) The "Maximum Advance Amount" for each Eligible Asset approved
after the date of this Agreement shall be the lesser of:
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<PAGE> 10
(i) 76% of the amount Borrower has executed a written
commitment to lend to the underlying mortgagor/borrower or to invest
as equity for such Pledged Eligible Asset;
(ii) 85% of the LTV for such Pledged Eligible Asset; or
(iii) 95% of the LTC for such Pledged Eligible Asset.
(e) The "Maximum Advance Amount" with respect to each Mezzanine
Construction Loan and each Land Development Loan outstanding as of the date of
this Agreement shall be 76% and 50%, respectively, of the amount Borrower has
executed a written commitment to lend to the underlying mortgagor/borrower with
respect to such Mezzanine Construction Loan or Land Development Loan. In
connection with this modification in the Maximum Advance Amount, with respect to
each Mezzanine Construction Loan and each Land Development Loan, the Borrower
shall repay the Lender on or before the date of this Agreement the amount by
which the aggregate outstanding Advances, together with any interest accrued and
unpaid thereon, exceeds the Maximum Advance Amount that would have been made
under this Agreement (i.e., 76% and 50% of the Budgeted Costs for each Mezzanine
Construction Loan and Land Development Loan, respectively).
(f) Following the adjustment of the aggregate outstanding
Advances for Land Development Loans and Mezzanine Construction Loans pursuant to
the preceding Section I(3)(e), the aggregate amount of Advances for Mezzanine
Construction Loans, together with the aggregate amount of Advances made for Less
Than 70% Pre-Leased Projects shall at all times be less than $50,000,000. If at
any time the aggregate amount of such Advances is greater than $50,000,000, the
Borrower shall promptly repay the Lender the amount by which the aggregate
amount of such Advances exceeds $50,000,000.
(g) The Lender shall not be obligated to make any Advance with
respect to any Eligible Asset prior to the Borrower and/or the underlying
mortgagor/borrower having funded 90% of the Haircut for such Pledged Eligible
Asset. Once the Borrower has funded 90% of the Haircut for such Pledged Eligible
Asset, then Lender shall loan the Borrower 90% of the Maximum Advance Amount for
such Pledged Eligible Asset. The Lender shall then fund, on a pro rata basis,
the remaining 10% of the approved Maximum Advance Amount as the Borrower funds
its remaining 10% of the Haircut.
4. Interest; Facilities Fee.
(a) The Loan shall accrue interest daily on its outstanding
principal amount, with interest calculated for the actual number of days elapsed
based on a 360-day year. The interest rate (the "Interest Rate") on the Loan
shall be (except as otherwise provided in Section X(D) hereof) the Applicable
Interest Rate Spread plus LIBOR as determined by the Lender as of 11:00 a.m. New
York time on the Eurodollar Business Day immediately preceding each of (i) the
related Funding Date and (ii) the first day of each succeeding calendar month.
The Lender shall send the Borrower at the beginning of each month a written
statement indicating the amount of interest accrued during the immediately
preceding month. Interest which accrues during each calendar month shall be
payable on the third Business Day following
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the date the Lender sends such written notice to the Borrower, with any
outstanding interest due and payable in its entirety on the Maturity Date, or if
earlier, the date of termination of this Agreement. "LIBOR" means (i) the rate
(expressed as a percentage per annum) for a one-month deposit in U.S. dollars
that appears on Telerate Page 3750 as of 11:00 a.m., New York City time on the
applicable Eurodollar Business Day for such period or (ii) if such rate does not
appear on Telerate Page 3750 as of 11:00 a.m. New York City time, on the
applicable Eurodollar Business Day, the rate (expressed as a percentage per
annum) for a one-month deposit in U.S. dollars as reported by Morgan Guaranty
Trust Company of New York or its successor (or such other prime bank in the
London Interbank market as the Lender shall designate). "Eurodollar Business
Day" means a Business Day in New York on which commercial banks are open for
international business (including dealings in deposits in U.S. dollars) in
London.
(b) The Applicable Interest Rate Spread for the outstanding
principal amount of this Loan up to the Borrower's Tangible Net Worth (as set
forth in the statement provided pursuant to Section VIII(B)(12)) shall be 125
basis points. For any outstanding principal amount equal to or in excess of the
Borrower's Tangible Net Worth, the Applicable Interest Rate Spread shall be 300
basis points. The parties hereto agree that the aforementioned increase in the
Applicable Interest Rate reflects the increased risk associated with lending to
the Borrower and is not intended as a penalty against the Borrower.
(c) Borrower shall compensate the Lender for all losses, expenses
and liabilities sustained by the Lender in connection with the liquidation or
re-employment of such funds and losses relating to hedging arrangements
established by the Lender with respect to the Pledged Eligible Assets which the
Lender may sustain: (i) if for any reason an Advance for Pledged Eligible Assets
approved by the Lender is not made on a date specified therefor in a Funding
Notice and the Borrower has met all conditions to borrowing, (ii) if any
prepayment or other principal payment occurs on a date other than the first day
of a month or on such other date as may be required hereunder, (iii) if any
prepayment of the Loans is not made on any date specified in a notice of
prepayment given by the Borrower, or (iv) as a consequence of any other default
by the Borrower in the repayment of the Loan when required by the terms of this
Agreement.
5. Maturity and Prepayment.
(a) The Loan evidenced hereby shall mature on the Maturity Date,
and all amounts outstanding under this Agreement, including, without limitation,
all Advances made with respect to any Pledged Eligible Asset and any accrued and
unpaid interest thereon, shall be due and payable on the Maturity Date, and in
the event of non-payment in full on the Maturity Date, the Lender may exercise
all rights and remedies available to it as the holder of a first perfected
security interest under the Uniform Commercial Code of the State of New York
(the "New York UCC").
(b) The Loan is prepayable without premium or penalty, in whole
or in part, at any time prior to the date that is one year after the date of
this Agreement (the "One-Year Anniversary"); provided, however, that in
connection with any prepayment of the Loan in part (other than any prepayment
pursuant to Section IV(A) or (B) or any prepayment resulting from a payment in
full of the Pledged Eligible Asset by the underlying mortgagor/borrower or
pursuant
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to the equity investment documentation on existing equity investments, in which
case such Pledged Eligible Asset (if prepaid in full) shall be released by the
Lender upon payment in full of the related Advance), Pledged Eligible Assets may
not be removed from this Loan if the Lender determines in its sole discretion
that a Collateral Deficiency Situation would then exist unless the Borrower
fully and unconditionally cures such Collateral Deficiency Situation in
accordance with the provisions of Section IV(C). Any prepayment by the Borrower
in whole or in part during the period between the One-Year Anniversary and the
Maturity Date (other than any prepayment pursuant to Section IV(A), (B) or (C)
or any prepayment resulting from a payment in full of the Pledged Eligible Asset
by the underlying mortgagor/borrower or pursuant to the equity investment
documentation on existing equity investments) requires the Borrower to pay 120%
of the aggregate outstanding Advances made by the Lender to the Borrower with
respect to the Pledged Eligible Asset being removed from this Loan. If the
Borrower intends to prepay the Loan in whole or in substantial part from a
source other than the proceeds of a Securitization, payment in full by the
underlying mortgagor/borrower, or as a result of an Exit Strategy, the Borrower
shall provide two Business Days' written notice to the Lender. The Borrower
shall hold any principal repayments received from any underlying
mortgagor/borrower in trust for the Lender and shall pay directly to the Lender
in an amount that equals the amount of the Advances made by Lender for the
Subject Pledged Eligible Asset from the principal repayment; provided, however,
at the Borrower's written election and with the written approval of the Lender
in its sole discretion, any principal repayments received by the Borrower may be
applied against any unfunded Advance Amount applicable to a Pledged Eligible
Asset which the Lender is otherwise obligated to advance to the Borrower in
accordance with this Agreement. Any written notice by the Borrower with respect
to such scheduled amortization payments shall be irrevocable and shall specify
which Pledged Eligible Asset such prepayment is being applied towards. Any
amounts prepaid or repaid under this Agreement prior to the One-Year Anniversary
may be re-borrowed, subject to the terms and conditions of this Agreement. Any
amounts prepaid or repaid under this Agreement any time during the period
between the One-Year Anniversary of this Agreement and the Maturity Date may not
be re-borrowed.
(c) If any payment under this Agreement shall be due on a day
that is not a Business Day, such payment shall be made on the succeeding
Business Day, and such extension of time shall be included in the computation of
payment of interest under this Agreement or under the Secured Note.
6. Break-Up Fee. Pursuant to the terms and conditions of the
Securitization Agreement, under certain circumstances PSI may be entitled to a
break-up fee with respect to the disposition of Pledged Eligible Assets from
securitizations involving such assets, equal to 25 basis points multiplied by
the dollar amount of aggregate outstanding Advances as to such Pledged Eligible
Assets.
7. Secured Note. The Loan shall be evidenced by the secured promissory
note of the Borrower in the form attached hereto as Exhibit A (the "Secured
Note").
Section II. Loan Files and Custodian. The Borrower shall deliver to
Bank One, Texas, N.A., as custodian on behalf of the Lender, or such other
custodian that may be mutually agreeable to the Lender and the Borrower from
time to time (the "Custodian"), with respect to each Pledged Eligible Asset, the
documents and instruments listed in Section 2 of that
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<PAGE> 13
certain Amended and Restated Custodial Agreement, dated as of May 4, 1999 (as
amended, supplemented and modified from time to time, the "Custodial
Agreement"), among the Lender, the Borrower and Custodian. The Pledged Eligible
Assets, the documents and instruments evidencing and relating to the Pledged
Eligible Assets (collectively, the "Commercial Loan/Asset Files"), the
certificates evidencing the Borrower's equity interest in any Mezzanine
Loan/Equity Investment or, if uncertificated, the document granting the Lender a
security interest in such equity investment (if the Lender requires such a
document outside of this Agreement) and any documents recorded with the
appropriate state agencies necessary and advisable to perfect such security
interest, the collateral securing such Pledged Eligible Assets, together with
any proceeds thereof and any rights the Borrower may have under any Interest
Rate Protection Agreements, are hereinafter referred to as the "Collateral". The
Borrower hereby pledges all of its right, title and interest in and to the
Collateral to the Lender to secure the repayment of principal of and interest on
the Loan and all other amounts owing by the Borrower to the Lender under this
Agreement or under any other agreement or arrangement now existing or
hereinafter entered into among such parties, including, without limitation, the
Custodial Agreement, the Warrant Agreement and the Securitization Agreement
(collectively, the "Secured Obligations").
Section III. Representations, Warranties and Covenants.
A. The Borrower represents and warrants to the Lender that, except
as otherwise disclosed and approved by the Lender:
1. Each Borrower has been duly organized and is validly existing
as (i) with respect to ACT, a real estate investment trust duly organized under
the laws of the State of Texas, (ii) with respect to AMREIT I, a corporation
duly organized and in good standing under the laws of the State of Delaware,
(iii) with respect to AMREIT II, a corporation duly organized and in good
standing under the laws of the State of Nevada, (iv) with respect to EQUITIES, a
corporation duly organized and in good standing under the laws of the State of
Georgia and (v) with respect to HOLDINGS, a corporation duly organized and in
good standing under the laws of the State of Georgia.
2. Each Borrower is duly licensed or is otherwise qualified in
each state in which it transacts business to the extent required under
applicable law, except where the failure to take such action would not (either
individually or in the aggregate) have a Material Adverse Effect and is not a
default of such state's applicable laws, rules and regulations. Each Borrower
has the requisite power and authority and legal right to own and grant a lien on
all of its right, title and interest in and to the Collateral, and to execute
and deliver, engage in the transactions contemplated by, and perform and observe
the terms and conditions of, this Agreement, the Custodial Agreement, the
Warrant Agreement, the Securitization Agreement and the Secured Note.
3. At all times after the Custodian has received a Pledged
Eligible Asset from the Borrower and until payment in full of the Loan, the
Borrower will not knowingly or intentionally commit any act in violation of
applicable laws, or regulations promulgated with respect thereto.
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<PAGE> 14
4. Each Borrower is solvent and no condition exists under any
mortgage, borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money to which any Borrower is a party which (either
individually or in the aggregate) has caused, or would be reasonably likely to
cause, a Material Adverse Effect, and the execution, delivery and performance by
the Borrower under this Agreement, the Secured Note, the Warrant Agreement, the
Securitization Agreement and the Custodial Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not conflict with
any term or provision of the declaration of trust or certificate of
incorporation, as applicable, or by-laws of the Borrower or any law, rule,
regulation, order, judgment, writ, injunction or decree applicable to the
respective Borrower of any court, regulatory body, administrative agency or
governmental body having jurisdiction over such Borrower and will not result in
any violation of any such mortgage, instrument or agreement.
5. All financial statements or certificates of any Borrower, any
Affiliate of any Borrower or any of its officers furnished to the Lender are
true, correct and complete in all material respects and do not omit to disclose
any material liabilities or other facts relevant to the Borrowers' or such
Affiliates' condition. All such financial statements (other than any financial
statements prepared to show the Borrower's taxable income) have been prepared in
accordance with GAAP; provided, however, that interim financial statements shall
not be required to and may not include footnotes.
6. No consent, approval, authorization or order of, registration
or filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution, delivery and performance
by any Borrower of this Agreement, the Secured Note, the Warrant Agreement, the
Securitization Agreement or the Custodial Agreement and the consummation of the
transactions contemplated thereby.
7. There is no action, proceeding or investigation pending with
respect to which any Borrower has received service of process or, to the best of
any Borrower's knowledge, threatened against it before any court, administrative
agency or other tribunal (A) asserting the invalidity of this Agreement, the
Secured Note, the Warrant Agreement, the Securitization Agreement or the
Custodial Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, the Secured Note, the Warrant
Agreement, the Securitization Agreement or the Custodial Agreement, or (C) which
if determined against any Borrower would materially and adversely affect the
validity or collectability of the Pledged Eligible Assets or the performance by
the Borrower of its obligations under, or the validity or enforceability of,
this Agreement, the Secured Note, the Warrant Agreement, the Securitization
Agreement or the Custodial Agreement.
8. Except as has been disclosed to the Lender in Schedule B
attached hereto and approved by the Lender prior to the first Advance after the
execution of this Agreement, and after the Initial Advance, as disclosed to the
Lender from time to time (and subject to the Lender's rights hereunder to
declare a Collateral Deficiency Situation), there is no action, proceeding or
investigation pending with respect to which any Borrower has received service of
process, or to the best of the Borrower's knowledge, threatened against it
before any court, administrative agency or other tribunal challenging the
enforceability of any material
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mortgage loan document relating to a Pledged Eligible Asset or raising a defense
to the exercise of any remedies under such mortgage loan documents.
9. Except as has been disclosed to the Lender in Schedule B
attached hereto and approved by the Lender, no event has occurred which has
caused a Material Adverse Effect since the date set forth in the financial
statements supplied to the Lender.
10. This Agreement, the Secured Note, the Warrant Agreement, the
Securitization Agreement and the Custodial Agreement have been duly authorized,
executed and delivered by each Borrower that is a party to such agreement, all
requisite trust or corporate action, as applicable, having been taken, and each
is valid, binding and enforceable against the respective Borrower in accordance
with its terms except as such enforcement may be affected by bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance, redemption or
other similar laws affecting the enforcement of creditor's rights generally, or
by general principles of equity.
11. Except as has been disclosed to Lender in Schedule B attached
hereto, the Management Agreement has not been amended, superseded, or otherwise
modified.
12. No Event of Default under the Original Agreement, this
Agreement, the Secured Note, the Securitization Agreement or the Custodial
Agreement has occurred or is continuing to occur.
13. As of the date of this Agreement and immediately after giving
effect to each Advance, the Borrower is and will be able to pay its debts as
they mature and does not and will not have insufficient capital to engage in the
business in which it is engaged and proposes to engage. The Borrower does not
intend to incur, or believe that it has incurred, debts beyond its ability to
pay such debts as they mature. The Borrower is not contemplating the
commencement of insolvency, bankruptcy, liquidation or consolidation proceedings
or the appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Borrower or any of its assets. The Borrower is not
transferring any Pledged Eligible Assets with any intent to hinder, delay or
defraud any of its creditors.
14. Solely as a result of the transactions contemplated in this
Agreement, the Lender is not required to be licensed, registered or approved or
to obtain permits or otherwise qualify (i) to do business in any state in which
it currently is not so required or (ii) under any state consumer lending, fair
debt collection or other applicable state statute or regulation; or prior to the
Borrower subsequently entering such a transaction, the Borrower shall obtain the
necessary license, registration, approval or permit.
15. Each Eligible Asset originated by an originator other than
the Borrower has been conveyed to the Borrower pursuant to a true and legal sale
and, prior to any Initial Advance with respect to such Eligible Asset, the
Borrower has delivered to the Lender the opinion of legal counsel required by
the Lender, if any, pursuant to Section I(3)(a)(xii)(A), (B) or (C).
16. The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Borrower to the Lender in
connection with
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the negotiation, preparation or delivery of this Agreement, the Warrant
Agreement, the Custodial Agreement, the Secured Note, and the Securitization
Agreement or included herein or therein or delivered pursuant hereto or thereto
(or to the extent prepared or furnished by an underlying mortgagor/borrower or
parties other than the Borrower or its Affiliates, to the best of Borrower's
knowledge), do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements herein or therein not
misleading. All written information furnished by or on behalf of the Borrower to
the Lender in connection with this Agreement, the Warrant Agreement, the
Custodial Agreement, the Secured Note, and the Securitization Agreement and the
transactions contemplated hereby and thereby will be true, correct and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.
There is no fact known to the Borrower that, after due inquiry, could reasonably
be expected to have a Material Adverse Effect that has not been disclosed in
this Agreement, the Warrant Agreement, the Custodial Agreement, the Secured Note
or the Securitization Agreement or in a report, financial statement, exhibit,
schedule, disclosure letter or other writing furnished to the Lender for use in
connection with the transactions contemplated hereby or thereby.
17. Each Plan to which the Borrower makes direct contributions
and each other Plan and each Multiemployer Plan is in compliance in all material
respects with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other Federal or
state law.
18. The Borrower has conducted a comprehensive review and
assessment of its computer applications and has made an appropriate inquiry of
the Borrower's material vendors and contractors with respect to the year 2000
problem (i.e., the inability of certain computer applications to recognize
correctly and perform date-sensitive functions involving certain dates prior to
and after December 31, 1999). Based on the foregoing review, assessment and
inquiry, the Borrower reasonably believes that the year 2000 problem will not
result in any Material Adverse Effect. Without diminishing or extinguishing this
representation in any respect as between the parties hereto, it is understood
and agreed that this year 2000 readiness disclosure is made pursuant to the
terms and conditions of the Year 2000 Information and Readiness Act.
19. The Borrower has REIT status and maintains its common stock
listed on the NASDAQ. The Borrower has timely elected or will timely elect to be
taxed as a REIT for its taxable year ended December 31, 1998. The Borrower does
not know of any currently existing event or condition which would cause or is
reasonably likely to cause the Borrower to fail to qualify as a REIT.
B. With respect to every Pledged Eligible Asset, the Borrower
represents and warrants to the Lender that:
1. Such Pledged Eligible Asset and all accompanying collateral
documents obtained and required to be obtained in connection with the Pledged
Eligible Assets are complete and authentic and all signatures thereon are
genuine.
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2. Such Pledged Eligible Asset arose from a bona fide loan or
contract, as applicable, complying in all material respects with all applicable
State and Federal laws and regulations, and is not subject to any valid defense,
set-off or counterclaim.
3. Except as set forth in Section III(B)(9) below, no default has
occurred in any provisions of such Pledged Eligible Asset.
4. With respect to such Pledged Eligible Asset, all amounts
represented to be payable on the related Promissory Note or other contract are,
in fact, payable pursuant to the provisions of such Promissory Note or other
contract.
5. To the best of the Borrower's knowledge, any property subject
to any security interest given in connection with such Pledged Eligible Asset is
not subject to any other encumbrances other than as disclosed to and approved in
writing by the Lender in writing in its sole discretion or as described in the
Underwriting Transmittal or as otherwise would not adversely impact the quality
and condition of title to such property being good and marketable and/or the
value of the property.
6. The Borrower holds good and indefeasible title to, and is the
sole owner of, such Pledged Eligible Asset and as of the related Funding Date,
such Pledged Eligible Asset is not subject to any liens, charges, mortgages,
encumbrances or rights of any Person other than the Lender except (a) such liens
that are to be released simultaneously with the pledge to the Lender under this
Agreement, (b) as identified in an Underwriting Transmittal for an Approved
Asset or (c) as has otherwise been approved by the Lender in writing in its sole
discretion.
7. Each Pledged Eligible Asset conforms to the description
thereof as set forth on the related Commercial Loan/Asset Schedule delivered to
the Custodian and the Lender.
8. All applicable disclosures required by the Real Estate
Settlement Procedures Act, by Regulation X promulgated thereunder and by
Regulation Z of the Board of Governors of the Federal Reserve System promulgated
pursuant to the statute commonly known as the Truth-in-Lending Act and the
Notice of the Right of Rescission required by said statute and regulation have
been properly made and given.
9. Except as otherwise disclosed in the Underwriting Transmittal,
as of the first Funding Date under this Agreement or any subsequent Funding
Date, such Pledged Eligible Asset is not thirty-one or more days delinquent as
of the last payment due date for such Pledged Eligible Asset and since inception
such Pledged Eligible Asset has not been thirty-one or more days delinquent on
more than one occasion.
10. The Pledged Eligible Assets do not have characteristics which
are materially worse than those of other similar Eligible Assets financed by the
Borrower during the twelve-month period preceding the first Funding Date under
this Agreement.
11. To the extent applicable, the representations and warranties
set forth in Appendix II are true, correct and complete in all material respects
as to the Pledged
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Eligible Assets as of the date of closing of each such Pledged Eligible Asset,
except as disclosed in the related Underwriting Transmittal prepared and
delivered by the Borrower.
12. Each Pledged Eligible Asset was originated pursuant to
prudent underwriting standards, the Borrower's Guidelines and other relevant
handbooks (including any amendments and modifications thereto as approved in
writing by the Lender pursuant to Section I(3)(a)(vi)) heretofore provided to,
and approved by, the Lender, except for such material exceptions which have been
disclosed to, and where required hereunder pre-approved by, the Lender in the
Underwriting Transmittal.
C. The Borrower covenants with the Lender that, during the term of this
Loan:
1. Financial Covenants.
(a) Tangible Net Worth. ACT, on a consolidated basis, shall
at all times maintain Tangible Net Worth and a schedule showing Tangible Net
Worth (and shall deliver prior to the first Advance under this Agreement, a
schedule showing the Borrower's Tangible Net Worth) in an amount not less than
the sum of (i) $100,000,000, plus (ii) 75% of the net cash proceeds of any
equity subsequently raised by the Borrower in any public or private offering, as
of the last day of any calendar quarter.
(b) Coverage Ratio. ACT, on a consolidated basis, shall
not permit the Coverage Ratio at the end of any calendar quarter to be less than
1.4 to 1.
(c) Leverage Ratio. The Total Indebtedness of the Borrower
shall not exceed, at the end of any calendar quarter, 400% of shareholders'
equity, as determined in accordance with GAAP.
(d) Liquidity. At all times, the Borrower shall either
hold in cash or cash equivalents as a capital reserve or leave unborrowed under
this Loan or under another outstanding lending facility with the Lender or an
Affiliate of the Lender in an amount not less than $3,000,000, which is 1% of
the Maximum Loan Amount.
2. REIT Status. ACT has continuously conducted its business so as
to qualify as a real estate investment trust ("REIT") as defined in Section 856
of the Code for all taxable years commencing with taxable year ending December
31,1998, and has elected to be taxed as a REIT for its taxable year ending
December 31, 1998, and such election has not been terminated, nor does ACT
contemplate revoking its REIT status. The Borrower does not know of any
currently existing event or condition which would cause or is reasonably likely
to cause the Company to fail to qualify as a REIT. If the Borrower does,
however, at any point decide to forego qualification as a REIT under the Code,
the Borrower must provide the Lender with written notice of such decision at its
earliest opportunity and the Lender shall have no further obligation to fund
additional Advances; provided, however, that all Advances outstanding shall not
be accelerated solely for failure of this covenant.
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3. Underwriter. Subject to the provisions of Section I(6), PSI
shall have the right to be engaged in the Manager Role within eighteen months
following the date of this Agreement as provided in the Securitization Agreement
and as set forth in Section III(C)(8).
4. Licenses. With respect to each state in which the Borrower is
not licensed or otherwise qualified to do business, upon (i) meeting the
requirements which make it subject to such licensing or qualification in any
such state or (ii) the advice of counsel that the Borrower become licensed or
qualified, the Borrower shall either (x) become licensed or otherwise become
qualified to do business in each such state or (y) cease doing business in such
state relating to Pledged Eligible Assets subject to this Agreement except in
either instance described in (x) or (y) the failure to take such action would
not (either individually or in the aggregate) have a Material Adverse Effect.
5. Delivery of Documents. If requested by the Lender, the
Borrower shall deliver to the Lender copies of each of the documents to be
delivered to the Custodian under the Custodial Agreement and the Lender shall be
entitled to rely on each of the representations and warranties in favor of the
Custodian contained therein as if such representation and warranty were made
directly to the Lender for its benefit.
6. Standard Loan Documents. The Borrower shall use, or cause to
be used, standard loan documents for each Pledged Eligible Asset, in form and
substance satisfactory to the Lender, modified, as necessary in the reasonable
opinion of the Borrower and consistent with institutional lending documentation
for similar transactions, reflect modifications thereto as customarily agreed to
by institutional lenders, provided that such loan documents contain customary
provisions in institutional loan documents for similar transactions protective
of the Lender's interests under such loan documents and which are adequate for
the realization against the collateral securing the Mortgage Loan, subject to
any limitations imposed by (a) bankruptcy, reorganization, fraudulent
conveyance, moratorium, redemption or other similar laws affecting the
enforcement of creditor's rights generally and (b) general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or in law).
7. Warrant Agreement. Simultaneously with the execution of this
Agreement, Borrower shall execute and deliver to PSI the Warrant Agreement,
which shall be in a form acceptable to PSI and Lender in their sole discretion.
In addition, the Borrower shall perform its obligations under the Warrant
Agreement in a complete and timely manner during the term of the Warrant
Agreement. AMREIT I, AMREIT II, EQUITIES and HOLDINGS are not parties to the
Warrant Agreement, however, each of AMREIT I, AMREIT II, EQUITIES and HOLDINGS
has been provided a copy of the Warrant Agreement and each of AMREIT I, AMREIT
II, EQUITIES and HOLDINGS agrees that a default by ACT under the Warrant
Agreement shall constitute an Event of Default under this Agreement. Further,
each of AMREIT I, AMREIT II, EQUITIES and HOLDINGS waives any defenses that it
may have in connection with such Event of Default.
8. Financing Transactions. If, at any time within the 18 months
following the date of this Agreement, the Borrower or any of its Affiliates
proposes or enters into a letter of intent or agreement: (i) to dispose of, sell
or otherwise transfer any interest in any of their respective assets or
businesses and the Borrower elects to engage a Financial Advisor
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(defined below), unless otherwise approved in writing by the Lender in its sole
discretion; (ii) to acquire or purchase any interest or investment in any
assets, business or other entity and the Borrower elects to engage a Financial
Advisor (defined below); (iii) to issue or offer publicly or privately any
securities (other than pursuant to that certain Exchange Agreement dated as of
February 2, 1999 between Borrower and OLY/ACT, L.P., OLY/GP ACT L.P. and
EQUITIES, without modification, except as reasonably approved by the Lender and
the Borrower hereby acknowledges that it shall be reasonable for the Lender to
disapprove any modification which frustrates the intent and purpose of this
Section III(c)(8), relating to the potential exchange of partnership assets for
the Borrower's common shares in the event that the Borrower or any Affiliate
does not engage a financial advisor in connection with such transaction); or
(iv) to securitize the Pledged Eligible Assets as provided in the Securitization
Agreement (each of such transactions referred to in clauses (i), (ii), (iii) or
(iv) hereof being hereafter referred to as a "Financing Transaction"), the
Lender and/or its Affiliates (as the Lender may designate) shall have the
exclusive right (but not the obligation) to act as the financial advisor,
placement agent, underwriter, lender consultant or otherwise (collectively, the
"Financial Advisor"), as the case may be, with respect to such Financing
Transaction. The Borrower or any of its Affiliates must present the terms of any
proposed Financing Transaction to the Lender or its Affiliates in order for the
Lender or its Affiliates to consider whether to exercise its exclusive right to
be the Financial Advisor. The terms of any such proposed Financing Transaction
shall include provisions for the compensation of the Financial Advisor in an
amount and on terms no less favorable than the prevailing rate and terms
required by a majority of nationally recognized commercial/investment banks for
transactions of similar size and nature. In the event that the Lender or its
Affiliates decline in writing to exercise such right, the Borrower may proceed
to conduct such Financing Transaction with a third party on the same amount,
terms and conditions as presented to the Lender so long as (i) if the Financing
Transaction is the merger of the Borrower with or into another entity, then the
Borrower and the applicable suitor or target have entered into a definitive
agreement (to consummate such merger) within 180 days of Lender's decision to
decline to exercise its right, and (ii) if the Financing Transaction is any
other type of transaction, the Financing Transaction closes within 180 days of
Lender's decision to decline to exercise its right. In the event that any of the
Lender or its Affiliates elects to act as a Financial Advisor with respect to a
particular Financing Transaction, then each of the Borrower and/or its
Affiliates and the Lender and/or its Affiliates, as applicable, shall enter into
customary agreements which will include, among other things, the terms of any
such financing, provisions for the payment of the compensation described above
for the Lender and/or its Affiliates in their capacity as Financial Advisor,
provisions for the indemnification of the Lender and its Affiliates in its
capacity as Financial Advisor, and customary representations, warranties,
covenants and conditions (including, without limitation, due diligence, market
conditions and approval by the applicable committees of the Lender and/or its
Affiliates).
9. Assets Determined to be Defective. Upon discovery by the
Borrower that a Pledged Eligible Asset no longer meets the eligibility criteria
listed herein applicable to any such Pledged Eligible Asset, the Borrower shall
promptly give written notice of such discovery to the Lender.
10. Limitation on Liens on Collateral. The Borrower will defend
the Collateral against, and will take such other action as is necessary to
remove, any lien, security interest or claim on or to the Collateral, other than
the security interests created under this
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Agreement, and the Borrower will defend the right, title and interest of the
Lender in and to any of the Collateral against the claims and demands of all
persons whomsoever.
11. Year 2000 Readiness. The Borrower will take those actions
reasonably necessary to ensure that the Borrower's internal mission critical
systems are able to operate and effectively process data which includes dates on
and after January 1, 2000. Without diminishing or extinguishing this covenant in
any respect as between the parties hereto, it is understood and agreed that this
year 2000 readiness covenant is made pursuant to the terms and conditions of the
Year 2000 Information and Readiness Act.
12. Update to the Borrower's Representations and Warranties. The
Borrower will, at the request of the Lender in connection with the subsequent
disposition or securitization, if any, of the Pledged Eligible Assets or any
portion thereof, update the representations and warranties contained in Section
III mutatis mutandis and make such additional representations and warranties or
modifications to such representations and warranties as reasonably requested by
the Lender or any rating agency with respect to each such Pledged Eligible
Asset. Such updating may be effected by delivery to the Lender of an officer's
certificate of the Borrower providing that each of the representations and
warranties of the Borrower contained in Section III is true, correct and
complete in all material respects as of the date of such subsequent disposition
or securitization, except to the extent that such representation and warranty
specifically relates to an earlier date, in which case such representation or
warranty was true and correct in all material respects as of such earlier date,
and setting forth any such additional or modified representations and warranties
as set forth above.
13. Negative Covenants.
(a) Prohibition on Fundamental Changes. Neither the
Borrower nor the Manager shall enter into any transaction of merger or
consolidation or amalgamation or liquidate, wind up or dissolve itself (or
suffer any liquidation, winding up or dissolution) or sell all or substantially
all of its assets, without the prior written consent of the Lender.
(b) Compliance with Laws. At all times after the Custodian
has received a Pledged Eligible Asset from the Borrower and until payment in
full of the Loan, the Borrower shall not commit any act in violation of
applicable laws, or regulations promulgated with respect thereto.
(c) Limitation on Sale or Other Disposition of Collateral.
Neither the Borrower nor the Manager shall lease (other than in the ordinary
course of business), transfer, assign, sell or otherwise dispose of any
Collateral without the prior written consent of the Lender, unless the proceeds
of such sale or disposition are applied to repay Advances so that, after giving
effect to such transaction, a Collateral Deficiency Situation does not exist
with respect to any Pledged Eligible Asset.
Section IV. Mandatory Partial Prepayment of Loan.
A. Upon discovery by the Borrower or the Lender of any breach of any
of the representations, warranties or covenants set forth in this Agreement, the
party discovering such
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breach shall promptly give notice of such discovery to the other. If there has
been a material breach with respect to any Pledged Eligible Asset of one or more
of the representations, warranties or covenants set forth in Section III(B)
preceding (notwithstanding any qualification therein as to the Borrower's
knowledge), the Borrower shall repay the Loan in an amount equal to the
aggregate outstanding Advances made for such Pledged Eligible Asset.
B. If any Pledged Eligible Asset, as indicated on any Supplemental
Commercial Loan/Asset Schedule delivered pursuant to Section VIII(A) hereof or
otherwise, becomes thirty-one or more days delinquent, the Borrower shall prepay
the Loan in part with respect to such Pledged Eligible Asset, or, with the
Lender's written consent, deliver a qualifying substitute Eligible Asset in its
place. Any such Pledged Eligible Asset which becomes thirty-one or more days
delinquent shall be subject to an immediate re-determination of its Stabilized
Value by the Lender. At the written request of the Borrower to the Lender, upon
delivery of a qualifying substitute Eligible Asset or payment in full of all
Advances related to such delinquent Pledged Eligible Asset, and so long as no
Event of Default has occurred and is continuing, the Lender agrees to cause to
be released from the lien hereof the Pledged Eligible Asset and the documents
described as Mortgage Documents in the Custodial Agreement.
C. If, on any date other than a Funding Date, the Lender determines
that a Collateral Deficiency Situation exists, the Lender shall so notify the
Borrower, and the Borrower, within three Business Days, shall either (i) pay to
the Lender the Restoration Amount or (ii) deliver to the Custodian on behalf of
the Lender assets or collateral (including, but not limited to, a letter of
credit or a pledged certificate of deposit) or additional Eligible Assets, such
that the difference between the Maximum Advance Amount and the aggregate
Outstanding Advances as to such additional Eligible Asset, together with the
other assets or collateral have an aggregate Stabilized Value at least equal to
the Restoration Amount, as determined by the Lender in its sole discretion.
D. Additional Advances for Excess Collateral.
In the event that the Borrower has a good faith belief that the
Eligible Asset Value of a Pledged Eligible Asset has increased as a result of an
increase in its DSCR or other means supportable by the Borrower and agreed to by
the Lender in writing in its sole discretion, so long as no default or Event of
Default has occurred and is continuing:
1. The Borrower may prepare a Request for Additional Advance in a
form satisfactory to the Lender ("Request for Additional Advance"), specifying
(i) the Pledged Eligible Asset(s) and Advance Amount for which an Advance is
sought and the requested Funding Date, (ii) the Borrower's determination of the
new Eligible Asset Value and DSCR with respect to such Pledged Eligible Asset,
and (iii) an Underwriting Transmittal supporting the increase in Eligible Asset
Value and DSCR.
2. The Borrower may transmit the Request for Additional Advance
by facsimile transmission to the Lender. Upon review of the Request for
Additional Advance and confirmation that, after giving effect to the requested
Additional Advance, the Lender determines that a Collateral Deficiency
Situation, any default or any Event of Default will not exist the Lender may, in
its sole discretion, decide to approve the Additional Advance and
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countersign the Request for Additional Advance and may advance funds in the
amount set forth in such Request for Additional Advance. In the event that the
Lender's assessment of the Stabilized Value of the Pledged Eligible assets would
alter the information set forth in any Request for Additional Advance, the
Lender shall promptly notify the Borrower in writing of such assessment.
3. The Lender shall not be obligated to countersign a Request for
Additional Advance.
E. Hedging. The Borrower and the Lender shall negotiate in good
faith on a hedging strategy in respect of the Pledged Eligible Assets; provided,
however, that in the event the Borrower and the Lender shall disagree on a
hedging strategy, the Borrower shall implement the hedging strategy as
reasonably determined by the Lender. The Lender shall not require any hedging
strategy that would materially affect the Borrower's ability to maintain its
status as a REIT. At the time of the Lender's approval of a Pledged Eligible
Asset, the Lender will inform the Borrower if it anticipates requiring such a
strategy with respect to such asset; provided, however, that such notice shall
not preclude the Lender from requiring a hedging strategy for such Pledged
Eligible Asset at a later time. The Lender will advise PSI to recommend and
provide quotes for Interest Rate Protection Agreements in connection with
Pledged Eligible Assets and Eligible Assets in process. Prior to entering into
any Interest Rate Protection Agreement, the Borrower shall consult with the
Lender and obtain the Lender's written approval, not to be unreasonably
withheld, conditioned or delayed, of the proposed terms of any such Interest
Rate Protection Agreement. The benefits and liabilities under any Interest Rate
Protection Agreement shall be transferable to any subsequent transferee of the
Pledged Eligible Asset, at the option of such transferee. Any Interest Rate
Protection Agreements shall be priced "at market" and subject to a "check away"
mechanism. In determining whether a Collateral Deficiency Situation exists, the
Lender will offset any increase in fair market value of any Interest Rate
Protection Agreements in which the Lender has been granted a first-lien security
interest against any decrease in Market Value relating to the Pledged Eligible
Assets, and the Lender shall offset any increase in Market Value of the Pledged
Eligible Assets against any Hedge Loss related to Interest Rate Protection
Agreements in which the Lender has been granted a first-lien security interest.
The Borrower agrees to bear all risk for the Market Value of the Pledged
Eligible Assets and the combined position of such Pledged Eligible Assets and
hedges pursuant to all Interest Rate Protection Agreements. Any Hedge Loss
associated with any Pledged Eligible Asset that is not recoverable in a
disposition of such Pledged Eligible Asset shall be deemed to be an Advance as
to such Pledged Eligible Asset and a Secured Obligation under this Agreement.
Section V. Release of Loan Files Following Payment of Loan. The Lender
agrees to cause to be released from the lien hereof the Pledged Eligible Assets
and the documents described as Mortgage Documents in the Custodial Agreement at
the request of the Borrower upon payment in full of the Loan, or, if a partial
payment of the Loan shall have occurred, the Pledged Eligible Assets and the
related documents held by the Custodian relating to the Advances being repaid
associated with such Pledged Eligible Assets; provided, that, with respect to
payments in full of any Pledged Eligible Asset, the Borrower agrees to (i)
provide the Lender with a copy of a report from the Borrower, as servicer, or a
subservicer of the Borrower, or a certification indicating that such Pledged
Eligible Asset has been paid in full and (ii) pay to the
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Lender in full all outstanding Advances with respect to such Pledged Eligible
Asset (subject to the Borrower's rights under Section I(5)(b)). The Lender
agrees to release such lien within one Business Day after receipt of the
documents referred to in (i) and (ii) in the immediately preceding sentence.
Section VI. Servicing. The Borrower shall service or cause the Pledged
Eligible Assets to be serviced (i) in accordance with the provisions of the
Management Agreement executed in connection with the servicing of the Eligible
Assets and (ii) with the degree of skill and care consistent with that which the
Borrower customarily exercises with respect to similar Eligible Assets owned,
managed or serviced by it and all applicable industry standards. The Borrower
shall (i) comply with all applicable Federal and State laws and regulations,
(ii) maintain all State and Federal licenses, except where the failure to take
such action would not (either individually or in the aggregate) have a Material
Adverse Effect, necessary for it to perform its servicing responsibilities under
this Agreement and (iii) not impair the rights of the Lender in any Pledged
Eligible Assets or any payment under this Agreement.
Section VII. No Oral Modifications; Successors and Assigns; Assignment
of Collateral. No provisions of this Agreement shall be waived or modified
except by a writing duly signed by the authorized agents of the Lender and the
Borrower. This Agreement shall be binding upon the successors and assigns of the
parties hereto. The Borrower acknowledges and agrees that the Lender may
re-pledge, enter into repurchase transactions and otherwise re-hypothecate
(including the granting of participation interests therein, provided that any
such participation and re-hypothecation does not materially increase any
obligation of the Borrower under this Agreement and provided further that the
Lender shall provide written notice to the Borrower of any such participation)
the Collateral for the Loan; provided, however, that no such act shall in any
way affect the Borrower's rights to the Collateral.
Section VIII. Reports.
A. The Borrower shall provide the Lender with a report (a
"Supplemental Commercial Loan/Asset Schedule") (i) on the date any additional or
substitute Eligible Assets are delivered pursuant to Section IV(B) or Section
IV(C) hereof and at least (a) two Business Days before each Funding Date for any
Eligible Asset and (b) the fifteenth day of the month, and (ii) within two
Business Days following any request by the Lender or any Affiliate thereof for
such a schedule. Such Supplemental Commercial Loan/Asset Schedule will contain
information concerning (a) the Pledged Eligible Assets then held pursuant to
this Agreement, (b) any Eligible Assets proposed to be delivered pursuant to
this Agreement on the next Funding Date or in connection with the cure of a
Collateral Deficiency Situation pursuant to Section IV(B) or Section IV(C)
hereof, and (c) the portfolio performance data with respect to all Pledged
Eligible Assets, including, without limitation, any outstanding delinquencies,
prepayments in whole or in part and any repurchases by the Borrower, and shall
be in a format as may be agreed upon by the Borrower and the Lender from time to
time. The Borrower shall also provide to the Lender every two weeks a pipeline
report, indicating the status of pending transactions, including transactions
for which a term sheet or other proposal has been submitted, the status of all
transactions in which commitments have been granted, the expected
closing/funding date, and a designation of the loans included on such list that
the Borrower anticipates will become Pledged Eligible Assets, in a form
satisfactory to the Lender. Each such report referenced in this
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paragraph shall be transmitted by the Borrower to the Lender via facsimile,
except for each monthly report which shall be transmitted by the Borrower to the
Lender either via modem or on a computer disk or tape. The Borrower at its
option shall either deliver to the Lender and/or permit the Lender or its
agents, consultants, accountants or attorneys to inspect any property, books,
valuations, records, audits or other information as the Lender may reasonably
require during business hours with reasonable advance notice.
B. The Borrower shall furnish to the Lender:
1. immediately, copies of any material and adverse notices
(including, without limitation, notices of defaults, breaches, potential
defaults or potential breaches) given to or received from the Borrower's or any
of its Affiliate's other lenders;
2. immediately, a notice of the occurrence of any "Event of
Default" under this Agreement or of any situation which the Borrower, with the
passage of time, reasonably expects to develop into an "Event of Default" under
this Agreement;
3. immediately upon, but in no event later than three Business
Days after, service of process on the Borrower, or any agent thereof for service
of process, notice in respect of any legal or arbitrable proceedings affecting
the Borrower (a) that questions or challenges the validity or enforceability of
this Agreement, the Secured Note, the Warrant Agreement, the Securitization
Agreement and the Custodial Agreement or any document, agreement or instrument
pertaining to the Collateral, or (b) in which the amount in controversy exceeds
$3,000,000;
4. immediately upon the Borrower having actual knowledge, notice
of the occurrence of any default related to any Collateral, any Material Adverse
Effect and any event or change in circumstances which could reasonably be
expected to have a Material Adverse Effect;
5. immediately upon the Borrower having actual knowledge, notice
that the Mortgaged Property in respect of any Pledged Eligible Asset has been
materially damaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty, or otherwise damaged so as to materially and
adversely affect the Stabilized Value of the underlying real property or the
Market Value of such Pledged Eligible Asset;
6. immediately upon notice of entry of a judgment or decree
against the Borrower in an amount in excess of $3,000,000;
7. within 120 days of the end of each calendar year, consolidated
audited financial statements of ACT, together with a calculation showing
compliance with each financial covenant set forth in Section III(C)(1);
8. within 120 days of AMREIT I's, AMREIT II's, EQUITIES' and
HOLDINGS' fiscal year end, unaudited financial statements of such Borrower
certified by such Borrower's Chief Financial Officer or Controller, or the Chief
Financial Officer, Treasurer or Controller of AMREIT Managers, L.P. (the
"Manager") as true, correct and complete in all
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material respects, and fairly representing the information set forth therein,
together with a calculation showing compliance with each financial covenant set
forth in Section III(C)(1);
9. within 60 days after the end of each calendar quarter
consolidated unaudited financial statements of ACT, and unaudited financial
statements for AMREIT I, AMREIT II, EQUITIES and HOLDINGS, respectively, for
each of such Borrower's first three quarters of each fiscal year together with a
calculation showing compliance with each financial covenant set forth in Section
III(C)(1);
10. within five Business Days of their release, quarterly and
annual consolidated and consolidating financial statements of ACT;
11. within five Business Days of their filing with the SEC,
copies of all 10-Ks, registration statements, other "corporate finance" SEC
filings (other than 8-Ks) and any other filings reasonably requested by the
Borrower and its Affiliates; provided, that, ACT will provide the Lender with a
copy of ACT's annual 10-K filed with the SEC no later than 120 days after the
end of the year; and
12. within fifteen days after the end of each calendar quarter, a
schedule showing the Borrower's Tangible Net Worth as of the end of such
calendar quarter, certified as true, correct and complete by the Chief
Accounting Officer of the Borrower.
All required financial statements, information and reports shall be
prepared in accordance with GAAP, or, if applicable to SEC filings, SEC
accounting regulations; provided, however, that interim financial statements do
not need to include footnotes.
C. In conjunction with the delivery of each notice delivered by the
Borrower pursuant to Section VIII(B)(1) through (6), the Borrower shall deliver
to the Lender an officer's certificate setting forth details of the occurrence
referred to therein and certifying as to what action the Borrower has taken or
proposes to take with respect thereto, and in conjunction with the delivery of
the financial statements to be delivered by the Borrower pursuant to Sections
VIII(B)(8), (9) and (10) the Borrower shall deliver to the Lender an officer's
certificate of the Borrower certifying that, as of the date of delivery of such
financial statements, the Borrower is in compliance with all the terms of this
Agreement including, without limitation, each of the covenants set forth in
Section III(C), together with calculations showing compliance with such
covenants.
D. The Lender covenants and agrees to use commercially reasonable
efforts to preserve the confidentiality of any financial data concerning the
Borrower, any Affiliate of the Borrower, or any of the Borrower's businesses or
operations or any information with respect to which the Borrower or any
Affiliate has (a) an obligation of confidentiality to a third party (to the
extent such obligation has been disclosed to the Lender) or (b) informed the
Lender of the confidential nature of the specific information, except to the
extent the Lender is required to disclose such information pursuant to any
applicable law, rule, regulation or order of any governmental authority and if
the Lender is requested or is required by applicable law (by interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose any such information, to the extent reasonably
practicable the Lender
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<PAGE> 27
shall provide the Borrower with prompt notice of such request or requirement so
that the Borrower may consider seeking a protective order or an injunction;
provided that (i) any information contained in any annual report, or any Form
10-K, Form 10-Q or Form 8-K reports (if any) which have been delivered to the
SEC, or any annual or quarterly reports to the stockholders of the Borrower
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, proxy material delivered to the stockholders of any Borrower or any
report delivered to the SEC, or any other information that is in the public
domain or has become publicly known, shall not in any event be deemed
confidential, and (ii) the Lender may make any information received by it
available (A) to a proposed transferee of or proposed participant in any
interest in the Secured Note, provided that such proposed transferee or proposed
participant agrees in writing to be bound by the provisions of this Section
VIII(D), (B) to any accountants or other professionals engaged by the Lender,
provided that each such accountant or professional agrees to be bound by the
provisions of this Section VIII(D), or (C) in connection with the enforcement of
this Agreement or any litigation in connection therewith. Further, the Lender
agrees that, prior to the Maturity Date, it will not intentionally use the
information provided by the Borrower and not otherwise generally known or
obtainable through sources other than the Borrower to take any action to
personally, by telephone or mail, solicit any underlying borrower for any
purpose which is in conflict with the services and products which the Borrower
is providing or can provide with the Borrower's current products and services to
such underlying borrower, including to refinance loans made by the Borrower to
such underlying borrower, without the prior written consent of the Borrower.
Section IX. Events of Default. Each of the following shall constitute
an "Event of Default" under this Agreement:
A. Failure of the Borrower to (i) make any payment of interest or
principal which has become due, whether by acceleration or otherwise, under the
terms of the Secured Note, this Agreement, any other warehouse and security
agreement or any other document evidencing or securing indebtedness of the
Borrower to the Lender or to any Affiliate of the Lender or any other lender,
unless in each instance the indebtedness was specifically non-recourse by its
terms and the Borrower and the lender under such indebtedness are not in
litigation as a result of such loan default, (ii) pay or deliver any Restoration
Amount within the time period specified in Section IV(C), (iii) pay the Lender
the amount of interest accrued in the immediately preceding month within the
time period specified in Section I(4) or (iv) make a payment of any other amount
payable under the terms of this Agreement or the Secured Note when due.
B. A final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate shall be rendered against the Borrower or
any of its Qualified or Non-Qualified REIT Subsidiaries by one or more courts,
administrative tribunals or other bodies having jurisdiction and the same shall
not be discharged (or provision shall not be made for such discharge), bonded or
paid, or a stay of execution thereof shall not be procured, within 60 days from
the date of entry thereof, and the Borrower or any such Qualified REIT
Subsidiary and Non-Qualified REIT Subsidiary shall not, within such period of 60
days, or such longer period during which execution of the same shall have been
stayed or bonded, appeal therefrom and cause the execution thereof to be stayed
during such appeal.
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<PAGE> 28
C. Assignment or attempted assignment by the Borrower of this
Agreement or any rights under this Agreement, without first obtaining the
specific written consent of the Lender, or the granting by the Borrower of any
security interest, lien or other encumbrance on any Pledged Eligible Assets to
any person other than the Lender.
D. The filing by the Borrower of a petition for liquidation,
reorganization, arrangement or adjudication as a bankrupt or similar relief
under the bankruptcy, insolvency or similar laws of the United States or any
state or territory thereof or of any foreign jurisdiction; the failure of the
Borrower to secure dismissal of any such petition filed against it within 60
days of such filing; the making of any general assignment by the Borrower for
the benefit of creditors; the appointment of a receiver or trustee for the
Borrower, or for any part of the Borrower's property; the institution by the
Borrower of any other type of insolvency proceeding (under the Bankruptcy Code
or otherwise) or of any formal or informal proceeding, for the dissolution or
liquidation of, settlement of claims against, or winding up of the affairs of,
the Borrower; the institution of any such proceeding against the Borrower if the
Borrower shall fail to secure dismissal thereof within 60 days thereafter; the
consent by the Borrower to any type of insolvency proceeding against the
Borrower (under the Bankruptcy Code or otherwise); the occurrence of any event
or existence of any condition which could be the ground, basis or cause for any
proceeding or petition described in this Section IX.
E. The occurrence of any material adverse change in the financial
condition of the Borrower, without Borrower being subject to the requirement of
or entitled to the benefit of any notice, cure or grace period. For purposes of
this Section IX(E), a material adverse change in the financial condition of the
Borrower shall include, but is not limited to, a breach of any financial
covenant set forth in Section III(C)(1).
F. The existence of any condition which, in the Lender's sole
determination reasonably exercised, constitutes an impairment of the Borrower's
ability to perform its obligations under this Agreement or the Secured Note and
which condition is not remedied within ten days after written notice to the
Borrower thereof or, if the conditions cannot be fully remedied within such ten
days, substantial progress has not been made within such ten days toward remedy
of the condition.
G. Failure by the Borrower to service the Pledged Eligible Assets
in substantial compliance with the servicing requirements set forth in Section
VI hereof and such failure continues unremedied for a period of thirty days
after notice thereof from the Lender.
H. Except as set forth in Sections IX(E) and (F) above, a
material breach by the Borrower of any representation, warranty or covenant set
forth in this Agreement or in any Funding Notice, in the form of Exhibit D
attached hereto, delivered by the Borrower to the Lender, and such breach
relating to any other covenant in this Agreement remains unremedied for a period
of thirty days after notice thereof from the Lender or, if such breach is not
reasonably susceptible to cure with such thirty-day period, such longer period
as may be reasonably required (but in no event in excess of 120 days in the
aggregate) to cure such breach as long as the Borrower has commenced such cure
within the thirty-day period and diligently prosecutes same to the satisfaction
of the Lender, or a use by the Borrower of the proceeds of the Loan for a
purpose other than as set forth in Section I(2) hereof.
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<PAGE> 29
I. Except with respect to non-recourse obligations of the
Borrower as provided in Section IX(A), any "Event of Default" under any
agreement between the Borrower and the Lender or any Affiliate of the Lender,
after the expiration of any applicable grace or cure periods set forth in such
agreement, including, without limitation, defaults under the Securitization
Agreement, the Warrant Agreement or the Custodial Agreement.
J. Any Person or any two or more Persons acting in concert
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended), directly or indirectly, of Securities of the Borrower (or
other Securities convertible into such Securities) representing 51% or more of
the combined voting power of all Securities of the Borrower, as applicable,
entitled to vote in the election of directors, other than Securities having such
power only by reason of the happening of a contingency, if the foregoing occurs
without Lender's prior written consent.
Section X. Remedies Upon Default.
A. Upon the happening of one or more Events of Default, the
Lender may (x) refuse to make any Advances under this Agreement and (y)
immediately declare the principal of the Secured Note then outstanding to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Agreement; provided, however, that upon the
occurrence of the Event of Default referred to in Section IX(D), such amounts
shall immediately and automatically become due and payable without any further
action by any person or entity. Upon such declaration or such automatic
acceleration, the balance then outstanding on the Secured Note shall become
immediately due and payable without presentation, demand or further notice of
any kind to the Borrower.
B. Upon the happening of one or more Events of Default, the
Lender shall have the right to obtain physical possession, and to commence an
action to obtain physical possession, of all files of the Borrower relating to
the Collateral and all documents relating to the Collateral which are then or
may thereafter come in to the possession of the Borrower or any third party
acting for the Borrower. The Lender shall be entitled to specific performance of
all agreements of the Borrower contained in this Agreement. The Borrower and the
Lender hereby acknowledge that the Lender's right to obtain physical possession
of the Collateral is deemed for all purposes to be equivalent to the rights of
"seizure of property or maintenance or continuation of perfection of an interest
in property" as specified under Bankruptcy Code Sections 362(b) and 546(b)(2).
C. Upon the happening of one or more Events of Default, the
Lender shall have the right to direct all servicers and/or subservicers then
servicing any Pledged Eligible Assets to remit all collections on the Pledged
Eligible Assets to the Lender, and if any such payments are received by the
Borrower, the Borrower shall hold such payments in trust for the Lender and not
commingle the amounts received with other funds of the Borrower and shall
promptly pay them over to the Lender. In addition, the Lender shall have the
right to dispose of the Collateral as provided in this Agreement, or as provided
in the other documents executed in connection with this Agreement, or in any
commercially reasonable manner, or as provided by law. Such disposition may be
on either a servicing-released or a servicing-retained basis. The Lender shall
be entitled to place the Pledged Eligible Assets which it recovers after any
default in
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<PAGE> 30
a pool for issuance of asset-backed securities at the then-prevailing price for
such securities and to sell such securities for such prevailing price in the
open market as a commercially reasonable disposition of Collateral, subject to
the applicable requirements of the New York UCC. The Lender shall also be
entitled to sell any or all of such Eligible Assets individually for the
prevailing price as a commercially reasonable disposition of Collateral subject
to the applicable requirements of the New York UCC. The specification in this
Section X(C) of manners of disposition of collateral as being commercially
reasonable shall not preclude the use of other commercially reasonable methods
(as contemplated by the New York UCC) at the option of the Lender.
D. Following the occurrence and during the continuance of an
Event of Default, interest shall accrue on the Loan at a default interest rate
of LIBOR plus 5.00%.
Section XI. Pre-Existing Conditions. The Borrower (and each of its
successors and assigns) does hereby forever release, discharge and acquit the
Lender and PSI, and their respective parents, subsidiaries and Affiliates, and
their respective officers, directors, shareholders, agents and employees, and
their respective successors, heirs and assigns, and each of them, of and from
any and all claims, demands, obligations, liabilities, indebtedness, breaches of
contract, breaches of duty or any relationship, acts, omissions, misfeasance,
malfeasance, cause or causes of action, debts, sums of money, accounts,
compensation, contracts, controversies, promises, damages, costs, losses and
expenses, of every type, kind, nature, description or character, and
irrespective of how, why, or any reason of facts, whether heretofore or now
existing or arising or which could, might or may be claimed to now exist or
arise, of whatever kind or name, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, each as though fully set forth at
length and which in any way arise out of, or are connected with or relate to the
Original Agreement or otherwise prior to the date of this Agreement.
Section XII. Indemnification.
A. The Borrower agrees to hold the Lender, PSI and their
respective Affiliates (the "Indemnified Parties") harmless from and indemnifies
the Indemnified Parties against all liabilities, losses, damages, judgments,
costs and expenses of any kind which may be imposed on, incurred by, or asserted
against any of the Indemnified Parties relating to or arising out of this
Agreement, the Secured Note, the Custodial Agreement, the Warrant Agreement, the
Securitization Agreement or any transaction contemplated hereby or thereby
resulting from anything other than the Indemnified Parties' gross negligence or
willful misconduct.
B. The Borrower shall reimburse each of the Indemnified
Parties for any of the respective Indemnified Party's reasonable out-of-pocket
costs and expenses incurred in connection with the negotiation, execution and
enforcement of this Agreement, the Secured Note, the Warrant Agreement, the
Custodial Agreement, the Securitization Agreement and the transactions
contemplated hereby and thereby including, without limitation, due diligence
review costs, reasonable attorney's fees and, subject to Section XIII below, any
other costs and expenses incurred by the Lender in determining the acceptability
to the Lender of any Eligible Assets.
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<PAGE> 31
C. The Borrower shall indemnify and hold each of the
Indemnified Parties harmless from and against all liabilities, losses, damages,
judgments, costs and expenses of any kind which may be imposed on, or asserted
against the Indemnified Parties and relating to arising out of any Hedge Loss,
except for losses caused by the Indemnified Parties' gross negligence or willful
misconduct. The Borrower's obligations under this Section XII(C) shall be
secured by the Collateral.
D. The Borrower's agreements in this Section XII shall survive
the payment in full of the Secured Note and the expiration or termination of
this Agreement. The Borrower hereby acknowledges that, notwithstanding the fact
that the Secured Note is secured by the Collateral, the obligations of the
Borrower under the Secured Note are recourse obligations of the Borrower.
Section XIII. Periodic Due Diligence Review. The Lender has the right
to perform continuing due diligence reviews with respect to the Pledged Eligible
Assets and for purposes of verifying compliance with the representations,
warranties and covenants made under this Agreement, or otherwise, and each of
the Borrowers agree that upon reasonable (but no less than one Business Day's)
prior notice to the Borrower, the Lender or its authorized representatives will
be permitted during normal business hours to examine, inspect, and make copies
and extracts of, the Commercial Loan/Asset Files and any and all documents,
records, agreements, instrument or information relating to such Pledged Eligible
Asset in the possession or under the control of any Borrower and/or the
Custodian. The Lender shall use reasonable efforts to perform each such due
diligence review within three Business Days. The Borrower shall also make
available to the Lender a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Commercial Loan/Asset Files and
the Pledged Eligible Assets. Without limiting the generality of the foregoing,
the Borrower acknowledges that the Lender may make Advances to the Borrower
based solely upon the information provided by the Borrower to the Lender in the
Underwriting Transmittal and/or the Commercial Loan/Asset Schedule and the
representations, warranties and covenants contained in this Agreement, and that
the Lender, at its option, has the right at any time to conduct a partial or
complete due diligence review on some or all of the Pledged Eligible Assets
securing such Loan, including, without limitation, conducting a property site
inspection and otherwise re-generating the information used to originate such
Mortgage Loan. The Borrower agrees to cooperate with the Lender in connection
with such underwriting, including, but not limited to, providing the Lender with
access to any and all documents, records, agreements, instruments or information
relating to such Pledged Eligible Assets in the possession, or under the
control, of the Borrower. Subject to any applicable Due Diligence Cap, the
Borrower further agrees that the Borrower shall reimburse the Lender for any and
all out-of-pocket costs and expenses incurred by the Lender in connection with
the Lender's activities pursuant to this Section XIII ("Due Diligence Costs");
and (ii) in the event that a Default or an Event of Default shall have occurred,
the Borrower shall reimburse the Lender for all Due Diligence Costs and no such
Due Diligence Cap shall apply. For Pledged Eligible Assets over $15,000,000, all
Construction Loans and all loans with a Debt Service Coverage Ratio below 1.0 to
1.0, the due diligence cap shall be the actual cost, not to exceed $1,500 per
real property asset securing such Pledged Eligible Asset. For all other Pledged
Eligible Assets, the annual due diligence cap shall be the actual cost, not to
exceed $5,000 in the aggregate. The limitations on due diligence set forth in
this paragraph is referred to as the "Due
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<PAGE> 32
Diligence Cap." Moreover, the Borrower shall provide any additional information
in connection with each Pledged Eligible Asset that the Lender reasonably
requests.
Section XIV. Power of Attorney. The Borrower hereby authorizes the
Lender, at the Borrower's expense, to file such financing statement or
statements relating to the Collateral without the Borrower's signature thereon
as the Lender at its option may deem appropriate, and appoints the Lender as the
Borrower's agent and attorney-in-fact to execute any such financing statement or
statements in the Borrower's name and to perform all other acts which the Lender
deems appropriate to perfect and continue the security interest granted hereby
and to protect, preserve and realize upon the Collateral, including, but not
limited to, the right to endorse notes, complete blanks in documents, transfer
servicing, and sign assignments on behalf of the Borrower as its agent and
attorney-in-fact. This power of attorney is coupled with an interest and is
irrevocable without the Lender's consent and, to the maximum extent permitted by
law, the Borrower waives the benefit of any laws requiring the Lender to act as
the Borrower's fiduciary in connection with the exercise of such power of
attorney. Notwithstanding the foregoing, the power of attorney hereby granted
may be exercised only during the occurrence and continuance of an Event of
Default hereunder.
Section XV. Choice of Law; Agreement Constitutes Security Agreement.
This Agreement shall be governed by the laws of the State of New York (without
regard to choice of law principles thereof), and shall constitute a security
agreement within the meaning of the New York UCC. THE PARTIES HERETO AGREE THAT
ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS AGREEMENT OR
THE SECURED NOTE SHALL BE COMMENCED IN THE SUPREME COURT OF THE STATE OF NEW
YORK, OR IN THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF
NEW YORK.
Section XVI. Lender May Act Through Affiliates. The Lender may, from
time to time, designate one or more Affiliates for the purpose of performing any
action hereunder.
Section XVII. Notices. All demands, notices and communications relating
to this Agreement shall be in writing and shall be deemed to have been duly
given if mailed, by registered or certified mail, return receipt requested, or
by overnight courier, or, if by other means, when received by the other party or
parties at the address shown below, or such other address as may hereafter be
furnished to the other party or parties by like notice. Any such demand, notice
or communication hereunder shall be deemed to have been received on the date
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).
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If to the Borrower:
Amresco Capital Trust
700 North Pearl Street
Suite 2400
Dallas, Texas 75201
Attention: Michael L. McCoy, General Counsel
Phone Number: 214-953-7733
Fax Number: 214-953-7757
If to the Lender and/or Prudential Securities Incorporated:
Prudential Securities Incorporated
Investment Banking
One New York Plaza, 18th Floor
New York, New York 10292
Attention: Lainie Kaye
Phone Number: 212-778-5760
Fax Number: 212-778-5099
With copies to:
Prudential Securities Incorporated
One Seaport Plaza, 30th Floor
New York, New York 10292-2018
Attention: Frederick Robustelli, Esq.
Phone Number: 212 214-6813
Fax Number: 212-214-7938
and
Prudential Securities Incorporated
One Seaport Plaza, 27th Floor
New York, New York 10292
Attention: Elizabeth Castagna
Phone Number: 212-214-7775
Fax Number: 212-214-7572
and
Prudential Securities Incorporated
One New York Plaza, 15th Floor
New York, New York 10292-2015
Attention: Jeff Theodorou
Phone Number: 212-778-7444
Fax Number: 212-778-3293
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<PAGE> 34
and
Prudential Securities Incorporated
One New York Plaza, 14th Floor
New York, New York 10292
Attention: Robert Becker
Phone Number: 212-778-3025
Fax Number: 212-778-6509
and
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street, 27th Floor
New York, New York 10292
Attention: Michael Pierro
Phone Number: 212-214-7336
Fax Number: 212-214-7678
and
O'Melveny & Myers LLP
275 Battery Street, 26th Floor
San Francisco, California 94111
Attention: Peter T. Healy, Esq.
Phone Number: 415-984-8700
Fax Number: 415-984-8701
Section XVIII. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section XIX. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, and all such
counterparts shall together constitute one and the same instrument.
Section XX. Additional Borrowers. The Lender acknowledges that from
time to time ACT may need to form additional Qualified REIT Subsidiaries and/or
Non-Qualified REIT Subsidiaries. Upon delivery of a written notice of formation
of subsidiaries and an explanation of the purpose for such subsidiaries, the
Lender agrees to allow such subsidiaries to be added as a Borrower for purposes
of financing Eligible Assets.
Section XXI. No Exclusivity. The Lender acknowledges that this
Agreement may not be the exclusive source to the Borrower for interim financing
for Eligible Assets and that the Borrower may have other interim warehouse
facilities. The Lender's rights with respect to any Securitization extends only
to Pledged Eligible Assets financed pursuant to this Agreement.
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Section XXII. Joint and Several Liability. Any liability of a Borrower
under this Agreement or any certificate or other agreement delivered in
connection herewith shall be the joint and several liability of ACT, AMREIT I,
and AMREIT II and any other Subsidiary that is or becomes a Borrower.
Section XXIII. Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, THE BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION
AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE BORROWER AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SECTION XVII;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER BORROWER IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT THE LENDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST BORROWER
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION XXIII RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION
5-1402 OR OTHERWISE.
Section XXIV. Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be
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all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims and all other common law and statutory
claims. Each party hereto acknowledges that this waiver is a material inducement
to enter into a business relationship, that each has already relied on this
waiver in entering into this Agreement, and that each will continue to rely on
this waiver in their related future dealings. Each party hereto further warrants
and represents that it has reviewed this waiver with its legal counsel and that
it knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SECTION XXIV AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE
HEREUNDER. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
[Signature Page S-1 Attached]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMRESCO CAPITAL TRUST
By:
--------------------------------------
Name: Jon S. Pettee
Title: President
By:
--------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
AMREIT I, INC.
By:
--------------------------------------
Name: Jon S. Pettee
Title: President
By:
--------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
AMREIT II, INC.
By:
--------------------------------------
Name: Jon S. Pettee
Title: President
By:
--------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
S-1
<PAGE> 38
ACT EQUITIES, INC.
By:
--------------------------------------
Name: Jon S. Pettee
Title: President
By:
--------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
ACT HOLDINGS, INC.
By:
--------------------------------------
Name: Jon S. Pettee
Title: President
By:
--------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
PRUDENTIAL SECURITIES CREDIT CORP.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-2
<PAGE> 39
Appendix I
CERTAIN DEFINITIONS
Certain Definitions. The following capitalized terms are either
defined below or in the corresponding sections specified below:
"ACT" means AMRESCO Capital Trust.
"Acquisition Loan" means a Mortgage Loan used to finance the
acquisition of an existing real property.
"Advance" - Section I(1).
"Advanced Amount" means the amount of each Advance with
respect to a Pledged Eligible Asset.
"Affiliate" means, when used with reference to a specified
person, (i) any person that directly or indirectly controls or is controlled by
or is under common control with the specified person, (ii) any person that is
an officer of, partner in or trustee of, or serves in a similar capacity with
respect to, the specified person or of which the specified person is an
officer, partner or trustee, or with respect to which the specified person
serves in a similar capacity, and (iii) any person that, directly or
indirectly, is the beneficial owner of 5% or more of any class of equity
securities of the specified person or which the specified person is directly or
indirectly the owner of 5% or more of any class of equity securities; provided,
however, that ACT will not be treated as an Affiliate of the Manager and its
Affiliates and provided further that with respect to the Borrower, Affiliate
shall not include any Non-Qualified REIT Subsidiary, joint venture,
partnership, limited liability company, UPREIT, DOWNREIT or structure unless
such entity becomes the Borrower hereunder.
"Agreement" - Introductory Clause.
"AMREIT I" means the wholly-owned Qualified REIT Subsidiary
of ACT.
"AMREIT II" means the Non-Qualified REIT Subsidiary of ACT.
"AMREIT Managers, L.P." means the Manager of ACT.
"Applicable Interest Rate Spread" - Section I(4)(b).
"Approved Assets" - Section I(2).
"Approved Exit Strategy" means the Borrower's plan for each
Eligible Asset on an asset specific basis or on the Borrower entity level
basis, as approved by the Lender in Lender's sole discretion and in writing
prior to an Initial Advance, to payoff or refinance the aggregate Advances
outstanding as to such Eligible Asset. The Approved Exit Strategy may be the
exit strategy for the Eligible Asset described in the Underwriting Transmittal.
The Approved
Appendix I-1
<PAGE> 40
Exit Strategy will generally be the exit strategy for the underlying
mortgagor/borrower, similar to those for currently approved Pledged Eligible
Assets, which are typically the sale or refinance of the underlying project
within the term of the related loan, but may also include (a) the possibility
prior to the Maturity Date of a sale, merger, consolidation or other corporate
level capital transaction of Borrower, a portfolio refinancing by Borrower or
some other corporate level debt transaction by Borrower, or (b) the net worth
and financial ability of Borrower prior to the Maturity Date is sufficient to
provide the exit strategy for the particular asset.
"Borrower" means individually and collectively, ACT, AMREIT
I, AMREIT II, EQUITIES and HOLDINGS.
"Borrower's Guidelines" - Section I(2).
"Break-Up Fee" - Section I(6).
"Bridge Loan" means a Mortgage Loan used for temporary
financing.
"Budgeted Costs" - means the total construction or other
project or asset budget (including interest carry and budgeted soft costs, but
excluding any developer profit to the underlying mortgagor/borrower or any
Affiliate of the underlying mortgagor/borrower or the fair market value of any
land in excess of the purchase price thereof) of the construction project or
other real estate asset, as applicable, described in the applicable
Underwriting Transmittal. The Borrower may request that the fair market value
of the land in excess of the purchase price thereof be included in the Budgeted
Costs; provided, however, the Lender, in its sole discretion may (but shall not
be required to) consider such request.
"Business Day" means any day other than (i) a Saturday or
Sunday, or (ii) a day on which banking institutions in the State of New York or
State of Texas or State of Georgia are authorized or obligated by law or
executive order to be closed.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" - Section II.
"Collateral Deficiency Situation" shall be deemed to be
existing as of any day on which (a) the outstanding principal amount of all of
the Advances as of such day exceeds, by more than $250,000, (b) the sum of
either 76%, for each Pledged Eligible Asset except Land Development Loans, or
50%, for Land Development Loans, times the lesser of the Stabilized Value of
each such Pledged Eligible Asset (i) on the date of the Initial Advance and
(ii) on the date of the calculation to determine if a Collateral Deficiency
Situation exists.
"Commercial Loan/Asset Files" - Section II.
"Commercial Loan/Asset Schedule" - Section I(3)(a)(i).
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of
Appendix I-2
<PAGE> 41
ERISA or is part of a group which includes the Borrower and which is treated as
a single employer under Section 414 of the Code.
"Construction Loan" means a Mortgage Loan the proceeds of
which are to be used to finance the costs of the initial construction or
substantial rehabilitation of real property. If less than 25% of the total
square footage of the then existing building improvements is subject to a lease
which satisfies the conditions for leases set forth in the definition of
Rehabilitation Loans at the time the Borrower requests an Initial Advance as to
such Mortgage Loan, such Mortgage Loan shall be deemed a Construction Loan for
all purposes under this Agreement. If the underlying mortgagor/borrower leases
more than 25% of the total square footage of the then existing building
improvements pursuant to a lease which satisfies the conditions for leases set
forth in the definition of Rehabilitation Loans subsequent to Borrower's
request for an Initial Advance as to such Mortgage Loan, the Borrower may
request the Lender to recharacterize such Mortgage Loan as a Rehabilitation
Loan. The Borrower may also request the Lender to recharacterize a Construction
Loan as a different asset classification. The Lender, in its sole discretion,
may (but shall not be required to) consider such requests.
"Construction Loan Sub-Limit" - Section I(1)(b).
"Coverage Ratio" means, with respect to the Borrower, on a
consolidated basis, a ratio of the Borrower's GAAP basis earnings before
interest, taxes, depreciation and amortization, to scheduled interest on Total
Indebtedness.
"Custodial Agreement" - Section II.
"Custodian" - Section II.
"Custodian's Certification" - Section I(3)(a)(iv).
"Debt Service Coverage Ratio" or "DSCR" means, with respect
to any Mortgage Loan, the number (as approved (as to form, substance and
mathematical accuracy) by the Lender in writing) reflected on the Commercial
Loan/Asset Schedule as being the ratio of (i) any interest reserve funded or to
be funded by the Borrower (up to a maximum of one year) in connection with a
Mortgage Loan, plus net operating income of the Mortgaged Property securing the
Mortgage Loan, as determined by the Borrower in accordance with its
underwriting guidelines, to (ii) debt service at the current pay rate on the
Mortgage Loan; provided, however, that at the expiration of the period provided
for in the Borrower's Underwriting Transmittal for the Mortgaged Property to
achieve a stabilized occupancy, the DSCR, to the extent necessary to calculate
the Eligible Asset Value or for any other purpose hereunder, will be based upon
the actual net income of the Mortgaged Property.
"Due Diligence Cap" - Section XIII.
"Due Diligence Costs" - Section XIII.
Appendix I-3
<PAGE> 42
"Eligible Asset Value" means, with respect to any Eligible
Asset, the product of LTV for such Eligible Asset multiplied by the value of
collateral related to such Eligible Asset as determined by the Borrower, and
approved by Lender.
"Eligible Assets" - Section I(2).
"EQUITIES" means ACT Equities, Inc.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Escrow Officer" - Section I(3)(a)(iv).
"Eurodollar Business Day" - Section I(4)(a).
"Event of Default" - Section IX.
"Financial Advisor" - Section III(C)(8).
"Financing Transaction" - Section III(C)(8).
"First Securitization" means each initial securitization, if
any, involving the public or private placement of securities relating to all or
any portion of the Pledged Eligible Assets.
"Funding Date" - Section I(3)(a).
"Funding Notice" - Section I(3)(a)(i).
"GAAP" means, generally accepted accounting principles
consistently applied as in effect at the time of the application of the
provisions of this Agreement.
"Greater Than 70% Pre-Leased Project" - Section I(1)(c).
"Haircut" shall mean, with respect to a particular Pledged
Eligible Asset, an amount equal to the difference between (i) the amount which
the Borrower has executed a written commitment to lend to the underlying
mortgagor/borrower of or to invest as equity in such Pledged Eligible Asset and
(ii) the applicable Maximum Advance Amount for such Pledged Eligible Asset.
"Hedge Loss" shall mean, with respect to any Interest Rate
Protection Agreement entered into by the Borrower with the Lender or any
Affiliate thereof (in either case, the "Hedging Counterparty"), the amount, if
any, owed thereunder by the Borrower to the Hedging Counterparty as of any date
of determination, in the aggregate, including, without limitation, the amount
of other losses relating to any such hedging instrument and the carrying costs
for such hedging position, minus the sum of (a) all Hedge Losses previously
paid by the Borrower to the Hedging Counterparty in connection with such
Interest Rate Protection Agreement, if any, and
Appendix I-4
<PAGE> 43
(b) any amount the Borrower has received from the Hedging Counterparty with
respect to such Interest Rate Protection Agreements.
"HOLDINGS" means ACT Holdings, Inc.
"Indemnified Parties" - Section XII(A).
"Initial Advance" means either the only Advance relating to a
Pledged Eligible Asset or the first Advance relating to a Pledged Eligible
Asset, such as a Construction Loan or Rehabilitation Loan, for which more than
one Advance may be made.
"Interest in Real Property" mean, among other things, an
interest in Mortgage Loans or land and improvements thereon, such as buildings
or other inherently permanent structures (including items that are structural
components of such buildings or structures), a leasehold of real property, and
an option to acquire real property (or a leasehold of real property). An
"interest in real property" also generally includes an interest in Mortgage
Loans secured by controlling equity interests in entities treated as
partnerships for federal income tax purposes that own real property, to the
extent that the principal balance of the mortgage does not exceed the fair
market value of the real property that is allocable to the equity interest.
"Interest Rate" - Section I(4)(a).
"Interest Rate Protection Agreement" shall mean, with respect
to any or all of the Mortgage Loans, any short sale of US Treasury Security, or
futures or forward contract, or mortgage related security, or Eurodollar
futures contract, or options related contract, or interest rate swap, cap or
collar agreement or similar arrangements providing for protection against
fluctuations in interest rates or the exchange of nominal interest obligations,
either generally or under specific contingencies, entered into by the Borrower
and the Lender, PSI, an Affiliate of the Lender or PSI, or a third party
reasonably acceptable to the Lender, which shall be transferable with the
Mortgage Loan, at the transferee's option.
"Investment Grade" means securities rated AAA through BBB -
(or equivalent rating) by any of Standard & Poor's Rating Services, a division
of the McGraw-Hill Companies, Duff & Phelps Credit Rating Co. or Fitch IBCA,
Inc.
"Land Development Loan" shall mean loans wherein more than
30% of the proceeds of which are used for (i) surveying, grading, cutting and
filling the land, (ii) the demolition of developments on the land, (iii) the
reconfiguration, importation and/or deportation of soil or other earthen
materials, (iv) land use planning, (v) procuring regulatory approvals, permits,
zoning, subdivision approvals, mapping and land use changes, (vi) the
construction of streets, (vii) the acquisition of unfinished land with the
intention of conducting any of the foregoing activities or merely holding the
land for resale, or (vii) anything in the nature of the foregoing.
"Lender" means Prudential Securities Credit Corp.
"Less Than 70% Pre-Leased Project" - Section I(1)(c).
Appendix I-5
<PAGE> 44
"Less Than 70% Pre-Leased Sub-Limit" - Section I(1)(c).
"Liquidity Reserve" - Section III(C)(1)(d).
"LIBOR" - Section I(4)(a).
"Loan" - Section I(1).
"LTC" means the percentage determined by dividing the maximum
committed loan or investment amount by the Budgeted Costs. For purposes of
calculating the LTC, the Borrower shall include the amount of all liens or
encumbrances on the underlying asset which are senior to the Borrower's loan to
the underlying mortgagor/borrower and the maximum amount which Borrower has
committed to loan with respect to such Pledged Eligible Asset.
"LTV" means the number (as approved (as to form, substance
and mathematical accuracy) by the Lender in writing) specified in the
Commercial Loan/Asset Schedule as the percentage determined by dividing the
maximum committed loan or investment amount by the Stabilized Value of the
collateral related to such loan or investment. For purposes of calculating the
LTV, the Borrower shall include the amount of all liens or encumbrances on the
underlying asset which are senior to the Borrower's loan to the underlying
mortgagor/borrower and the maximum amount which Borrower has committed to loan
with respect to such Pledged Eligible Asset.
"Management Agreement" means the Management Agreement dated
as of May 12, 1998 by and between ACT and the Manager, as it may be amended.
"Manager" means AMREIT Managers, L.P.
"Manager Role" means the sole placement agent or the sole
underwriter, as the case may be for each First Securitization, if any, to be
sponsored by the Borrower (or by an Affiliate thereof) and collateralized by
some or all of the Pledged Eligible Assets.
"Market Value" means, as of any date in respect of an
Eligible Asset or Pledged Eligible Asset, the price at which such Eligible
Asset or Pledged Eligible Asset (together with any Interest Rate Protection
associated with such asset) could be sold in an orderly manner, as determined
in good faith by the Lender in its sole and reasonable discretion.
"Maturity Date" means the earlier to occur of (a) the date
eighteen months after execution of this Agreement and (b) 60 days following the
termination of the Securitization Agreement by the Borrower.
"Material Adverse Effect" shall mean a material adverse
change regarding (a) the Mortgaged Property, business, operations, financial
condition or prospects of the Borrower, (b) the ability of the Borrower to
perform its obligations under any of the Loan Documents to which it is a party,
(c) the validity or enforceability of any of the Loan Documents, (d) the rights
and remedies of the Lender under any of the Loan Documents, (e) the timely
payment of the principal of or interest on the Loans or other amounts payable
in connection therewith or (f) the Collateral.
Appendix I-6
<PAGE> 45
"Maximum Advance Amount" - Section I(3)(d) or (e), as
applicable.
"Maximum Loan Amount" - Section I(1).
"Mezzanine Construction Loan" means a Mezzanine Loan/Equity
Investment (as defined below) the proceeds of which are to be used to finance
the costs of the initial construction of real property.
"Mezzanine Loan/Equity Investment" means either (a) a
commercial real estate loan the repayment of which is subordinated to a senior
Mortgage Loan and which is secured either by a second lien mortgage or a pledge
of the ownership interests of the borrower or (b) a joint venture interest in
or equity investment in an entity which directly or indirectly owns a real
estate asset or a direct equity investment in a real estate asset.
"Mezzanine Loan/Equity Investment Sub-Limit" - Section
I(1)(a).
"Mortgage Loan" means a commercial loan secured by real
property and a Mezzanine Loan(s).
"Mortgaged Property" means the real property and improvements
securing a Mortgage Loan.
"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Non-Qualified REIT Subsidiary" means any corporation in
which ACT owns 10% or less of the voting shares in such corporation.
"New York UCC" - Section I(5)(a).
"One Year Anniversary" - Section I(5)(b).
"Original Agreement" - Recitals.
"Participating Loan" means a Mortgage Loan that entitles the
lender to the receipt of interest at a stated rate, plus a percentage of the
pledged real estate's revenues or cash flow, or a specified percentage or fixed
amount of the net proceeds from any sale of the property, which Participating
Loan may be a Mezzanine Loan/Equity Investment, Construction Loan,
Rehabilitation Loan, Bridge Loan or other Mortgage Loan.
"Person" means any individual, corporation, company,
voluntary association, partnership, joint venture, limited liability company,
trust, unincorporated association, government (or any agency, instrumentality
or political subdivision thereof) or any other entity of whatever nature.
Appendix I-7
<PAGE> 46
"Plan" means at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledged Eligible Assets" means, as of any date of
determination, any Eligible Assets then held by the Custodian on behalf of the
Lender to secure the Loan.
"PSI" means Prudential Securities Incorporated, an Affiliate
of the Lender.
"Qualified REIT Subsidiary" means any corporation if 100% of
the stock of such is held by ACT at all times during such corporation's
existence or otherwise satisfies Section 856(i)(2) of the Code.
"Rehabilitation Loan" means a Mortgage Loan, the proceeds of
which are used to finance the acquisition and renovation or rehabilitation of
existing real property; provided, however, that at the time the Borrower
requests an Initial Advance as to such Mortgage Loan, 25% or more of the total
square footage of the then existing building improvements shall be subject to a
lease that: (i) is currently in full force and effect with no material
defaults; (ii) is with a tenant paying rent on a current basis without
deferral, credit or qualification, except for a reasonable reduction for
inconvenience during rehabilitation; and (iii) does not expire until after a
date that is six months following the anticipated date of completion of such
renovation or rehabilitation (other than tenant improvement work) set forth in
the applicable construction plans delivered by the Borrower to the Lender. If
less than 25% of the total square footage of the then existing building
improvements is subject to such a lease at the time the Borrower requests an
Initial Advance as to such Mortgage Loan, such Mortgage Loan shall be deemed a
Construction Loan for all purposes under this Agreement. If the underlying
mortgagor/borrower leases more than 25% of the total square footage of the then
existing building improvements subsequent to the Borrower's request for an
Initial Advance as to such Mortgage Loan, the Borrower may request the Lender
to recharacterize such Mortgage Loan as a Rehabilitation Loan. The Borrower may
also request the Lender to recharacterize a Rehabilitation Loan as a different
asset classification. The Lender, in its sole discretion, may (but shall not be
required to) consider such requests.
"REIT" means a real estate investment trust, as defined under
Section 856 of the Code.
"Request for Additional Advance" - Section IV(D)(1).
"Restoration Amount" means, as of any date of determination,
the amount, if any, by which (i) the outstanding principal amount of the Loan
as of such date (including accrued interest thereon) exceeds (ii) the sum of
the applicable Advance Rate for each Pledged Eligible Asset times the lesser of
(1) the Stabilized Value of each Pledged Eligible Asset), and (2) the
outstanding principal balance of each such Pledged Eligible Asset.
"SEC" means the U.S. Securities and Exchange Commission.
Appendix I-8
<PAGE> 47
"Secured Note" - Section I(7).
"Secured Obligations" - Section II.
"Securitization" means the First Securitization and any
subsequent securitization involving the public or private placement of
securities relating to all or any portion of the Pledged Eligible Assets.
"Securitization Agreement" means the Amended and Restated
Securitization Agreement, dated as of May 4, 1999, by and between the Borrower
and PSI and regarding the securitization of some of the Pledged Eligible
Assets.
"Stabilized Value" means, as of any date in respect of an
Eligible Asset or Pledged Eligible Asset, the stabilized value of the
collateral property underlying such Eligible Asset or Pledged Eligible Asset,
as determined in good faith by the Borrower and approved by the Lender in its
sole discretion. The Stabilized Value of a Pledged Eligible Asset shall be
described in the Underwriting Transmittal of such Pledged Eligible Asset.
"Supplemental Commercial Loan/Asset Schedule" - Section
VIII(A).
"Tangible Net Worth" means, for any calendar quarter, total
shareholder's equity reflected in ACT's financial statements on a consolidated
basis prepared in accordance with GAAP less goodwill, patents, trademarks,
copyrights, franchises and any other items which would be treated as
intangibles under GAAP. A schedule of Tangible Net Worth shall be prepared by
the Borrower within 30 days after the end of each calendar quarter and such
schedule shall be delivered to the Lender. The Lender shall have 10 days to
disapprove of such schedule by citing any specific defects in a written notice
to the Borrower. The Borrower shall then have 10 days to cure all such defects.
If the Borrower cures such defects in the Lender's reasonable discretion, such
schedule shall be deemed approved by the Lender. As of December 31, 1998,
Tangible Net Worth was $130,266,000.00.
"Total Indebtedness" means, for any period, the aggregate
indebtedness of the Borrower during such period computed in accordance with
GAAP less (i) the amount of any non-specific balance sheet reserves maintained
in accordance with GAAP, (ii) obligations under any Interest Rate Protection
Agreement, (iii) loan or investment commitments or loan take-out agreements
issued by the Borrower in the ordinary course of its business, (iv) obligations
to indemnify parties involved in Securitization or the underwriting and
placement (whether publicly or privately) of ACT's shares of beneficial
interest or other indemnities made in the ordinary course of business, (v)
endorsements for collection or deposit in the ordinary course of the Borrower's
business, and (vi) obligations for which the Borrower is not the obligor but
which are required to be included on the Borrower's financial statements by
GAAP.
"Underwriting Transmittal" - Section I(3)(a)(i).
"Warrant Agreement" means the Warrant Agreement attached
hereto as Exhibit F and executed as of the date of this Agreement by and
between the ACT and PSI.
Appendix I-9
<PAGE> 48
Appendix II
REPRESENTATIONS AND WARRANTIES REGARDING ALL PLEDGED ELIGIBLE ASSETS
1. As to each Pledged Eligible Asset, the Borrower hereby represents
and warrants to the Lender that as of the related Closing Date; provided,
however, that any such representation and warranty may be modified as set forth
in, or an exception thereto may be contained in, the executed Underwriting
Transmittal in effect for such Pledged Eligible Asset:
(a) Commercial Loan/Asset Schedule. The information set forth
in the related Commercial Loan/Asset Schedule is true, complete and correct in
all material respects.
(b) Origination. Such Pledged Eligible Asset complied, on the
date such asset was originated ("Closing Date"), in all material respects with
all terms, conditions and requirements of prudent underwriting standards, the
Borrower's approved due diligence standards and closing procedures as approved
by the Lender (the "Borrower's Guidelines") then in effect, except as disclosed
by the Borrower in writing in the list of exceptions included in the
Underwriting Transmittal and approved by the Lender.
(c) Disbursement of Proceeds. The closing of such Pledged
Eligible Asset was in compliance, in all material respects, with the Borrower's
Guidelines then in effect, except as disclosed in writing by the Borrower to
the Lender in the list of exceptions included in the related Commercial
Loan/Asset File or the Underwriting Transmittal and thereby approved by the
Lender, and the proceeds, or the applicable portion thereof, of such Pledged
Eligible Asset have been disbursed in accordance with the related loan
documents ("Pledged Asset Documents"). Except as disclosed in writing by the
Borrower to the Lender in the list of exceptions included in the related
Underwriting Transmittal, any and all requirements imposed by the Borrower as
to the status of any on-site or off-site improvements related to the related
real property ("Property") and the disbursement of any escrow funds therefor
have been complied with as of the date of the Underwriting Transmittal. All
costs, fees and expenses incurred in connection with the origination and
closing of such Pledged Eligible Asset, including, without limitation,
recording costs and fees, have been paid to the appropriate Person or
arrangements have been made for their payment to the appropriate Person on a
timely basis by the related mortgagor or borrower, and the related mortgagor is
not entitled to any refund of any amounts paid or due under the related
promissory note or contract or the related mortgage, if any, except for a
refund of a cost, fee or expense related to the origination or closing of such
Pledged Eligible Asset which borrower is obligated to pay, and has made
arrangements to pay, in full on a timely basis.
(d) Documents Valid. Each representation and warranty of the
Borrower set forth in Section III(B) of this Agreement or this Appendix to this
Agreement, to the extent related to the enforceability of any instrument,
agreement or other document or as to offsets, defenses, counterclaims or rights
of rescission related to such enforceability is qualified to the extent that
(i) enforcement may be limited (A) by bankruptcy, insolvency, reorganization
fraudulent conveyance, redemption, moratorium or other similar laws affecting
the enforcement
Appendix II-1
<PAGE> 49
of creditors' rights generally, (B) by general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at law),
and (C) by any applicable anti-deficiency law or statute, and (ii) such
instrument, agreement or other document contains certain provisions which may
be unenforceable in accordance with their terms, in whole or in part, but the
unenforceability of such provisions will not (A) cause the related note or
contract or mortgage, if any, to be void, (B) invalidate the related borrower's
obligation to pay interest on, and repay the principal of, the related Pledged
Eligible Asset in accordance with the payment terms of the related note or
contract, the related mortgage, if any, and other written agreements delivered
to the Borrower in connection therewith, (C) invalidate the obligation of any
related guarantor to pay guaranteed obligations with respect to interest on,
and the principal of, the related Pledged Eligible Asset in accordance with the
payment terms of such guarantor's written guaranty, (D) impair the mortgagee's
right to accelerate and demand payment of the interest on, and principal of,
the related Pledged Eligible Asset upon the occurrence of a legally enforceable
default, or (E) impair the mortgagee's right to realize against the related
Property, if any, by judicial or, if applicable, nonjudicial foreclosure except
as provided in any subordination agreement and subject to applicable law.
(e) Pledge of Security Interest; Note or Contract
Endorsement. The related pledge of the Lender's security interest in the
related collateral documents ("Security Documents") is in recordable or
otherwise appropriate form and constitutes the Borrower's legal, valid and
binding assignment to the Lender of any related mortgage, assignment of leases
and rents and/or other collateral. The Borrower's endorsement and delivery of
the related note or contract in accordance with the terms of this Agreement
constitutes the Borrower's legal, valid and binding assignment to the Lender of
such note or contract, and together with the related assignment of Security
Documents legally and validly conveys all right, title and interest of the
Borrower in such Pledged Eligible Asset to the Lender.
(f) No Modification, Release or Satisfaction. Neither the
Security Documents nor the related note or contract has been impaired, waived,
modified, altered, satisfied, canceled or subordinated or rescinded by the
Borrower, and the related Property has not been released from the lien of such
Security Documents or the lien of the senior lender and the related mortgagor
has not been released by the Borrower from its obligations under such Security
Documents, in whole or in any part, in each such event in a manner which
materially interferes with the benefits of the security intended to be provided
by such Security Documents except as provided in the loan documents or as set
forth on the respective Underwriting Transmittal. No instrument has been
executed by the Borrower that would effect any such waiver, modification,
alteration, satisfaction, cancellation, subordination, rescission or release,
with the exception of the written instruments (i) which are a part of the
related Commercial Loan/Asset File, (ii) which have been recorded if necessary
to protect the interests of the Lender, and (iii) the substance of which is
included in the list of exceptions in such Underwriting Transmittal.
(g) Escrow Deposits. All escrow deposits and other escrow
payments required under the related Pledged Asset Documents to be paid to the
Borrower prior to the Funding Date have been paid to, and are in the possession
of, or under the control of, or have been applied in accordance with their
intended purposes by, the Borrower or its agent.
Appendix II-2
<PAGE> 50
(h) No Buydowns or Third Party Advances. The Borrower has
not, directly or indirectly, advanced funds, induced or solicited any payment
from a Person other than the related obligor or, to the best of the Borrower's
knowledge, received any payment from a Person other than such obligor, for the
payment of any amount required under the related note or contract or Security
Documents, except for (a) interest accruing from the date of such note or
contract or date of disbursement of the Pledged Eligible Asset proceeds,
whichever is later, to the date which precedes by thirty days the first due
date under the related promissory note or contract, (b) interest paid pursuant
to any interest reserve specified in the Underwriting Transmittal or (c)
payments from any tax, insurance or other reserves specified in the
Underwriting Transmittal. The Pledged Asset Documents contain no provisions
pursuant to which monthly payments are (x) paid or partially paid with funds
deposited in any separate account established by borrower, the related
mortgagor or anyone on behalf of such mortgagor, or (y) paid by any source
other than such mortgagor (except provisions pertaining to a related
guarantor's obligations under the terms of such guarantor's written guaranty)
and contain no similar provision which may constitute a "buydown" provision
unless disclosed in the Underwriting Transmittal.
(i) No Condemnation or Damages. To the best of the Borrower's
knowledge, there are no proceedings pending or threatened for the total or
partial condemnation of the related Property as of the applicable closing date,
except for any proceedings as to partial condemnation which are disclosed in
writing in the list of exceptions included in such Underwriting Transmittal. To
the best of the Borrower's knowledge, each Pledged Eligible Asset is being used
for the purpose(s) set forth in the Underwriting Transmittal and is in good
repair and free of any damage, waste or defective condition that would
materially or adversely affect the value of the property as security for a
Pledged Eligible Asset or for the use the property was intended at the time of
the origination of the Pledged Eligible Asset.
(j) Title Survey; Improvements. The related Commercial
Loan/Asset File includes an ALTA/ACSM Land Title Survey with respect to the
related Property or, if an ALTA/ACSM Land Title Survey is not available or as
otherwise approved in writing by the Lender, an as-built survey with respect to
such Property which satisfied the requirements of the title insurance company
for its deletion of the standard general exceptions for encroachments, boundary
and other survey matters and for easements not shown by the public records from
the related title insurance policy as required by the Borrower's Guidelines. In
either such event, such survey has been certified by the surveyor to the
Borrower if a mortgagee, or the owner of the Property if the Borrower is not
the mortgagee and the title insurance company in accordance with the applicable
requirements of the Borrower's Guidelines and satisfies the other applicable
requirements set forth in the Borrower's Guidelines, except as disclosed in
writing in the list of exceptions included in such Underwriting Transmittal. In
reliance on the survey and the Title Policy (defined below), except for
encroachments and similar matters which do not materially and adversely affect
such Property as security for such Pledged Eligible Asset or which are
disclosed in writing in the list of exceptions included in such Underwriting
Transmittal, (i) none of the improvements which were included for the purpose
of determining the value of such Property at the time of the origination of
such Pledged Eligible Asset lie outside the boundaries and building restriction
lines of such Property, (ii) no improvements on adjoining properties materially
encroach upon such Property, and (iii) to the best of the Borrower's knowledge
(based upon a representation or opinion obtained from the related mortgagor),
no improvements
Appendix II-3
<PAGE> 51
located on or forming a part of such Property are in violation of any
applicable zoning and building laws or ordinances.
(k) Compliance with Laws. To the best of the Borrower's
knowledge (based upon a representation or opinion obtained from the related
mortgagor), (i) the related Property complies, in all material respects, with
all laws and regulations pertaining to the use and occupancy thereof, other
than applicable zoning and building laws and regulations (addressed in Section
1(j) above) and Environmental Laws (as defined and addressed in Sections 1(t)
and (u) below) and all applicable insurance requirements, and (ii) the related
mortgagor has obtained or will obtain all inspections, licenses, permits,
authorizations and certificates necessary for such compliance, including but
not limited to, certificates of occupancy and fire underwriter certificates.
The Borrower has not received notification from any governmental authority that
such Property is in material non-compliance with such laws or regulations, is
being used, operated or occupied unlawfully or has failed to have or obtain
such inspections, licenses or certificates, as the case may be.
(l) Title Insurance. The related Property (excluding any
related personal property) is covered by an ALTA lender's or owner's title
insurance policy or, if an ALTA lender's or owner's title insurance policy is
unavailable, another state-approved form of lenders title insurance policy
issued by a qualified insurer, in an amount not less than the stated original
principal amount of such Pledged Eligible Asset (a "Title Policy") and, if the
Pledged Eligible Asset is a loan, insuring that the related mortgage is a valid
lien on such Property with a priority corresponding to the priority stated in
its Underwriting Transmittal, subject to the Permitted Exceptions described in
Subsection 2(a) below. The Borrower has not taken, or omitted to take, any
action, and, to the best of the Borrower's knowledge, no other Person has
taken, or omitted to take, any action, that would materially impair the
coverage benefits of any such title insurance policy. Such title policy does
not include the general exception for intervening liens which appeared in the
commitment for such title insurance.
(m) Hazard Insurance. The related Property is insured by a
fire and extended perils insurance policy, issued by a commercial insurer,
providing coverage against loss or damage sustained by reason of fire,
lightning, windstorm, hail, explosion, riot, riot attending a strike, civil
commotion, aircraft, vehicles and smoke and, to the extent required by the
Borrower consistent with the Borrower's Guidelines then in effect against
earthquake and other risks insured against for which persons operating like
properties in the locality of such Property obtain insurance, in an amount not
less than the lesser of (i) the full replacement cost of all improvements to
such Property, and (ii) the outstanding principal balance of such Pledged
Eligible Asset, but in any event in an amount sufficient to avoid the operation
of any co-insurance provisions contained in such insurance policy. The related
mortgage contains provisions requiring the related mortgagor to maintain
business interruption and/or rental continuation coverage sufficient to protect
against loss for such period as shall be consistent with the requirements of
the Borrower's Guidelines under a policy issued by a qualified insurer. If any
improvement on such Property is located in an area identified by the Federal
Emergency Management Agency as having special flood hazards under the National
Flood Insurance Act of 1968, as amended, such Property is insured by a flood
insurance policy, issued by a qualified insurer, meeting the current
requirements of the Federal Insurance Administration in an amount
Appendix II-4
<PAGE> 52
not less than the lesser of (A) the stated principal amount of the related
promissory note or contract, and (B) the maximum amount of insurance available
under the Flood Disaster Protection Act of 1973, as amended. In the event the
Borrower is the mortgagee, each such insurance policy includes a lender's loss
payable endorsement in favor of the Borrower and requires the insurer to
endeavor to provide at least thirty days' prior written notice to the Borrower
of termination or cancellation, and no such notice has been received by the
Borrower. To the best of the Borrower's knowledge, such insurance policies are
in full force and effect. To the best of the Borrower's knowledge, all premiums
due and payable on such insurance policies prior to the Funding Date have been
paid and nothing has occurred that would materially impair the benefits of
coverage thereunder. In connection with the placement of any such insurance, no
commission, fee or other compensation has been or will be received by the
Borrower or, to the best of the Borrower's knowledge, any officer, director or
employee of the Borrower. The related mortgage, if any, obligates the related
mortgagor to maintain all such insurance and, at such mortgagor's failure to do
so, authorizes the mortgagee to maintain such insurance at such mortgagor's
cost and expense and to seek reimbursement therefore from such mortgagor.
(n) Proceeds of Mortgage Loan. To the best of the Borrower's
knowledge, the proceeds of such Pledged Eligible Asset have not been and shall
not be applied to satisfy, in whole or in part, any debt owing by the related
mortgagor/borrower to an Affiliate of the Borrower with respect to the
origination of such Pledged Eligible Asset whereby such Affiliate has taken or
will take (i) a discounted pay-off of such debt in connection with such
application, or (ii) a subordinated lien on any property securing such debt or
an equity interest in the related mortgagor in connection with such application
unless, in any such case, such fact is disclosed in the list of exceptions
included in the related Commercial Loan/Asset File.
(o) Customary Provisions. The related promissory note or
contract or the related mortgage contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate for
the practical realization against the related Property of the benefits of the
security.
(p) Pledged Eligible Asset Terms. The interest rate on such
promissory note constituting a Mortgage Loan Document or contract is as set
forth in the Commercial Loan/Asset Schedule; provided, however, that if such
promissory note or contract relates to an adjustable rate note, the mechanism
by which the interest rate is adjusted shall be set forth in the Commercial
Loan/Asset Schedule. Except as specified in the Underwriting Transmittal
relating to an accrual rate of interest in excess of a required pay rate of
interest, the related Mortgage Loan Documents do not provide for any negative
amortization. The related mortgage, if any, provides for the appointment of a
receiver for rents, or the mortgagee's entry into possession of the related
Property to collect rents, in connection with an event of default or
acceleration.
(q) Inspection. Consistent with the provisions of the
Borrower's Guidelines, the Borrower has inspected or has caused the related
Property to be inspected in connection with the origination of such Pledged
Eligible Asset no earlier than six months prior to the initial Funding Date.
Appendix II-5
<PAGE> 53
(r) No Notice of Bankruptcy. The Borrower has no knowledge
nor has it received any notice that the related Mortgagor is a debtor in any
state or federal bankruptcy or insolvency proceeding.
(s) Access Routes. Based upon the information provided the
Borrower in the Pledged Asset Documents, at the Closing Date of such Pledged
Eligible Asset, (i) the underlying borrower had sufficient rights with respect
to amenities, ingress and egress and similar matters to support the intended
use described in the Underwriting Transmittal, and (ii) to the best of the
Borrower's knowledge, such Property was receiving or has access to adequate
services from public or private water, sewer and other utilities.
(t) Environmental Assessment. In connection with the
origination of such Pledged Eligible Asset, a Phase I environmental assessment
and report and, if recommended by the Phase I environmental assessment and
report, a Phase II environmental assessment and report with respect to the
related Property were obtained from an independent environmental engineer or
consultant; and such report(s) did not indicate the existence of conditions or
circumstances respecting such Property that would (i) constitute or result in a
material violation of any applicable Environmental Law, (ii) impose any
material constraint on the operation of such Property or require material
change in the use thereof, or (iii) require clean-up, remedial action or other
response with respect to Hazardous Materials on or affecting such Property
under any applicable Environmental Law, with the exception of conditions or
circumstances (A) which such report(s) indicated could be cleaned up,
remediated or brought into compliance with applicable Environmental Law by the
taking of certain actions, and (B) either (1) for which a hold-back or other
escrow of funds, if any, not less than the costs of taking such clean-up,
remediation or compliance actions as estimated in such report(s) has been
created to be held by the Borrower or an escrow agent until such clean-up,
remediation or compliance actions have been taken, (2) for which an
environmental insurance policy in an amount satisfactory to the Borrower has
been obtained by the related mortgagor or an indemnity for such costs has been
obtained from a potentially culpable party, or (3) such clean-up, remediation
or compliance actions in compliance with applicable Environmental Law have been
completed prior to the related Funding Date, or (4) for which other
arrangements disclosed to the Lender have been made. For purposes of this
Agreement, the term "Hazardous Materials" shall include, without limitation,
gasoline, petroleum products, explosives, radioactive materials,
polychlorinated biphenyls or related or similar materials, asbestos or any
material containing asbestos, and any other substance or material as may be
defined as a hazardous or toxic substance under any applicable Environmental
Law; and the term "Environmental Law" shall mean any environmental law
ordinance, rule, regulation or order of a federal, state or local governmental
authority including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601 et
seq), the Hazardous Material Transportation Act, as amended (49 U.S.C. 1801 et
seq,), the Resource Conservation and Recovery Act, as amended (42 U.S.C. 6901
et seq,), the Federal Water Pollution Control Act, as amended (33 U.S.C. 12S1
et seq.,), the Clean Air Act (42 U.S.C. 7401 et seq.), as amended, and the
regulations promulgated pursuant thereto.
(u) Notice of Environmental Problem. Except for the notices,
if any, described in the list of exceptions included in the related
Underwriting Transmittal and furnished
Appendix II-6
<PAGE> 54
to the environmental engineer or consultant in connection with its
assessment(s) described in Section 1(t) above (and addressed by such engineer
or consultant in such assessments), the Borrower has not received actual notice
from: (i) any federal, state or other governmental authority of (A) any failure
of the related Property to comply with any applicable Environmental Laws, or
(B) any known or threatened release of Hazardous Materials on or from such
Property in violation of Environmental Laws; or (ii) the related mortgagor that
(A) such mortgagor has received any such notice from any such governmental
authority, (B) such Property fails to comply with Environmental Laws, or (C)
there is any known or threatened release of Hazardous Materials on or from such
Property in violation of Environmental Laws.
(v) No Untrue Information. No statement, report or other
document furnished by or on behalf of the Borrower or any affiliate thereof in
writing (including writings in electronic form) pursuant to this Agreement
relating to such Pledged Eligible Asset contains any untrue statement by the
Borrower or any Affiliate thereof of any material fact or an omission by the
Borrower or any Affiliate thereof of a material fact necessary to make the
statements contained therein not misleading. Based upon its review of its files
and such inquiry as is customary by a prudent commercial mortgage lender, the
Borrower does not know or have reason to know that any such statement, report
or other document furnished by or on behalf of the Borrower or any Affiliate
thereof in writing (including writings in electronic form) pursuant to this
Agreement relating to such Pledged Eligible Asset incorporating any statement,
report or other document furnished to the Borrower by any underlying borrower
or any other Person contains any untrue statement by any other Person of any
material fact or an omission of a material fact necessary to make the
statements contained therein not misleading.
2. As to each Pledged Eligible Asset which constitutes a Mortgage Loan
or other Pledged Eligible Asset, if applicable, and is secured by an interest
in real property, the Borrower hereby represents and warrants to the Lender
that as of the related Funding Date; provided however, that any such
representation and warranty maybe modified as set forth in, or an exception
thereto may be contained in, the executed Underwriting Transmittal in effect
for such Pledged Eligible Asset:
(a) Lien Position. The related mortgage is a valid,
subsisting and enforceable lien on the related Property (including all
buildings and improvements on such Property and all installations and
mechanical, electrical, plumbing, heating and air conditioning systems located
in or annexed to such buildings, and all additions, alterations and
replacements made at any time prior to the related Funding Date with respect to
the foregoing, but excluding any related personal property), which Property is
free and clear of all encumbrances and liens having priority over the lien of
such Mortgage, except for (i) any liens of a prior lender described in the
Title Policy and Underwriting Transmittal, (ii) liens for real estate taxes and
special assessments not yet due and payable, (iii) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such mortgage which do not materially and adversely
(1) affect the value of such Property, and (2) interfere with the related
mortgagor's use of such Property for the intended purposes therefor, (iv)
leases and subleases pertaining to such Property which the Borrower, in
accordance with the Borrower's Guidelines, did not require to be subordinated
to the lien of such mortgage, and (iv) other matters to which like properties
are commonly subject which do not, individually or in the aggregate, materially
Appendix II-7
<PAGE> 55
interfere with the benefits of the security intended to be provided by such
Mortgage ("Permitted Exceptions"). Any security agreement, chattel mortgage or
equivalent document related to and delivered in connection with the related
Pledged Eligible Asset establishes and creates a valid, subsisting and
enforceable lien on and a security interest in the property described therein,
and the Borrower has full right to sell and assign the same to the Lender.
(b) No Taxes or Assessments. All taxes and governmental
assessments which became due and owing prior to the Funding Date in respect of
the related Property (excluding any related personal property) and which, if
left unpaid, would be or might become, a lien on such Property having priority
over the related mortgage, have been paid or an escrow of funds in an amount
sufficient to cover such taxes and assessments has been established.
(c) No Mechanics Liens. In reliance on the related Title
Policy and to the best of the Borrower's knowledge, the related Property
(excluding any related personal property) is free and clear of any mechanics'
and materialmen's liens or liens in the nature thereof, and no rights are
outstanding that, under law, could give rise to any such liens, any of which
liens are or may be prior to, or equal with, the lien of the related mortgage,
except those which are insured against by the Title Policy.
(d) UCC Financing Statements. One or more Uniform Commercial
Code financing statements covering all furniture, fixtures, equipment and other
personal property in which Mortgagor has an interest (i) which are collateral
under the related Security Documents executed and delivered in connection with
such Pledged Eligible Asset, and (ii) in which a security interest can be
perfected by the filing of Uniform Commercial Code financial statement(s) under
applicable law have been filed or recorded (or have been sent for filing or
recording) in all Uniform Commercial Code filing offices necessary to the
perfection of a security interest in such furniture, fixtures, equipment and
other personal property under applicable law.
(e) Property Leased to Tenants. As to each Pledged Eligible
Asset other than a multifamily property secured by a Property which is subject
to one or more leases that are relied on for purposes of determining the DSCR
of such loan, the Borrower has obtained estoppel certificates from tenants (or,
at a minimum, tenants occupying 90% of the net leased area relied on in
determining the DSCR, but specifically including any such tenant who leases 25%
or more of the net leasable area of the Property), and other information with
respect to the leases ("Leases") relating to such Property in which the
underlying borrower is the landlord or lessor thereunder (including copies
thereof) and the tenants with such Leases as required by the Borrower's
Guidelines, and based upon such investigation by the Borrower:
(i) To the best of the Borrower's knowledge, the
related mortgagor/borrower is complying, in all material respects,
with each lease pertaining to the Property except as disclosed in
writing in the list of exceptions included in the related Underlying
Transmittal.
(ii) Except as disclosed in writing in the list of
exceptions included in the related Underwriting Transmittal, no Lease
with respect to 10% or more of the net
Appendix II-8
<PAGE> 56
leasable area of such Property requires the landlord to rebuild or
repair any damages or destruction to the leased premises or to
compensate the tenant for any condemnation affecting the leased
premises.
(iii) Except as disclosed in writing in the list of
exceptions included in the related Underwriting Transmittal, to the
best of the Borrower's knowledge, (A) no Lease with respect to 10% or
more of the net leasable area of such Property contains an option to
purchase or any right of a tenant to terminate the Lease or vacate the
leased premises prior to expiration of the lease term, (B) each Lease
is in full force and effect, (C) each tenant is current in the payment
of rent due under each Lease of 10% or more of the net leasable area
of such Property and has not paid the remaining rents more than one
month in advance, and (D) such Commercial Loan/Asset File contains
true and complete copies of each Lease, as amended.
(f) Mortgage Loans Secured by Ground Lease. With respect to
each Pledged Eligible Asset that is secured in whole or in part by the interest
of a related mortgagor as a lessee under a ground lease of the related Property
(a "Ground Lease"), either (i) the ground lessor's related fee interest in such
Property (the "Fee Interest") is subject to or subordinate to the lien of the
related mortgage as set forth in the Commercial Loan/Asset Schedule, or (ii):
(A) such Ground Lease is in full force and
effect and such Ground Lease or a memorandum thereof has been duly
recorded; such Ground Lease does not prohibit the interest of the
related lessee thereunder from being encumbered by the related
mortgage; and there have been no material changes in the terms of any
such Ground Lease except as set forth in written instruments which are
part of the related Commercial Loan/Asset File;
(B) except as may be indicated in the related
Title Policy referred to in Section 1(l) above, such Ground Lease is
not subject to any liens or encumbrances superior to, or of equal
priority with, the related mortgage, other than the related Fee
Interest;
(C) the related lessee's interest in such
Ground Lease may be transferred to the Lender and its successors and
assigns through foreclosure of the related Mortgage or conveyance in
lieu of foreclosure and, thereafter, may be transferred to another
Person by the Lender and its successors and assigns upon notice to,
but without the consent of, the related lessor (or, if any such
consent is required, either (1) it has been obtained prior to the
Funding Date, or (2) it will not to be unreasonably withheld);
(D) the related lessor is required to give
notice of any default under such Ground Lease by the related lessee to
the Borrower either under the terms of such Ground Lease (the related
lessor having received notice of the related mortgage) or under the
terms of a separate written agreement binding upon the related lessor;
(E) except as disclosed in writing in the
list of exceptions included in the related Underwriting Transmittal,
before the related lessor may terminate
Appendix II-9
<PAGE> 57
such Ground Lease because of a default thereunder by the related
lessee, the Borrower is entitled, under the terms of such Ground Lease
or a separate written agreement binding upon the related lessor, to
receive notice of such default and to cure or, alternatively, to
commence proceedings to foreclose the related mortgage plus a
reasonable opportunity to cure such default after foreclosure or a
conveyance in lieu of foreclosure if the Borrower pursues foreclosure
in good faith and with due diligence;
(F) except as expressly approved by the
Lender in writing, the currently effective term of such Ground Lease
(excluding any extension or renewal which is not binding on the lessor
thereunder) extends not less than ten years beyond the maturity date
of the related Pledged Eligible Asset;
(G) except as expressly approved by the
Lender in writing, under the terms of such Ground Lease and the
related Mortgage, taken together, any related property insurance
proceeds other than in respect of a total or substantially total loss
or taking, would be applied either (1) to the repair or restoration of
the damaged portion of the related Property, with the mortgagee or a
trustee or escrow agent appointed by it having the right to hold and
disburse such proceeds as the repair or restoration progresses (except
where such mortgage provides that the related mortgagor or its agent
may hold and disburse such proceeds), or (2) to the payment of the
outstanding principal balance of such Pledged Eligible Asset together
with any accrued interest thereon;
(H) such Ground Lease does not impose any
restrictions on subletting which the Borrower considered to be
commercially unreasonable at the time of origination of such Pledged
Eligible Asset; and
(I) the Borrower has not received any notice
and otherwise has no knowledge that (1) the lessor under such Ground
Lease is asserting a default by the lessee or an event of default
thereunder, or (2) any event has occurred which, with the passage of
time, the giving of notice, or both (other than rental or other
payments being due, but not yet delinquent), would result in a default
or an event of default under the terms of such Ground Lease.
(g) Deed of Trust. With respect to each related mortgage that
is a deed of trust or trust deed, a trustee, duly qualified under applicable
law to serve as such, has either been properly designated and currently so
serves or may be substituted in accordance with applicable law. Except in
connection with a trustee's sale after default by the related mortgagor or in
connection with the release of the related Property following the payment of
such Pledged Eligible Asset in full, no fees or expenses are payable by the
Lender to such trustee.
(h) Type of Property. The related Property consists of an
estate in fee simple or leasehold estate in real property and improvements
thereon as set forth in the Commercial Loan/Asset Schedule.
(i) Mortgage Acceleration Provisions. The related mortgage
contains a provision for the acceleration of the payment of the unpaid
principal balance of such Pledged
Appendix II-10
<PAGE> 58
Eligible Asset in the event that the related Property is sold or transferred
without the prior written consent of the mortgagee thereunder, except as
provided in any subordination agreement contained in the Commercial Loan/Asset
File.
(j) No Additional Collateral. The related promissory note or
contract is not, and has not been, secured by any collateral except the lien of
the related mortgage and the Security interest of any related Security
Documents assigned pursuant to the related assignment to the Lender. Except for
any cross-collateralizations described in the Underwriting Transmittal, such
mortgage was not given as collateral or security for the performance of
obligations of any Person other than the related mortgagor.
(k) Assignment of Leases and Rents. Any related assignment of
leases and rents incorporated within the related mortgage or set forth in a
separate document creates a valid assignment of, or security interest in, the
right to receive all payments due under the related Leases, if any, with a
priority corresponding to the priority stated in the Underwriting Transmittal
and subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or affecting the rights of
creditors generally and general principles of equity (regardless of whether
considered in a proceeding in equity or at law); and no Person other than the
related mortgagor owns any interest in the right to receive any payments due
under such Leases that is superior to or of equal priority with the mortgagee's
interest therein.
(l) Default, Breach and Acceleration. There is no monetary
default, breach, violation or event of acceleration existing under the related
Pledged Eligible Asset or the related documents to such Pledged Eligible Asset
and no event (other than a failure to make payments due but not yet delinquent)
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a monetary default, breach, violation or event
of acceleration. In addition, to the best of the Borrower's knowledge there is
no non-monetary default, breach, violation or event of acceleration.
Appendix II-11
<PAGE> 59
Schedule A
APPROVED ASSETS
Schedule A-1
<PAGE> 60
Schedule B
DISCLOSURE OF PROCEEDINGS PENDING AGAINST
THE BORROWER, EVENTS CAUSING MATERIAL ADVERSE
CHANGES AND CHANGES TO THE MANAGEMENT AGREEMENT
None
Schedule B-1
<PAGE> 61
Exhibit A
FORM OF SECURED NOTE
Dated as of May 4, 1999
FOR VALUE RECEIVED, the undersigned, AMRESCO CAPITAL TRUST, a
real estate investment trust organized under the laws of the State of Texas,
AMREIT I, INC., a Delaware corporation, AMREIT II, INC., a Delaware
corporation, ACT EQUITIES, INC., a Georgia corporation and ACT HOLDINGS, INC.,
a Georgia corporation, each having an address at 700 North Pearl Street, Suite
2400, Dallas, Texas 75201 (individually and collectively, the "Borrower"),
jointly and severally, promise to pay to the order of PRUDENTIAL SECURITIES
CREDIT CORP., a Delaware corporation, whose address is One New York Plaza, New
York, New York 10292 (the "Lender"), on or before each Maturity Date the amount
then outstanding (including accrued interest at the rate(s) set forth in the
Agreement) under that certain Amended and Restated Interim Warehouse and
Security Agreement, dated as of May 4, 1999, between the Borrower and the
Lender (as amended from time to time, the "Agreement"). Initially, the maximum
principal amount which may be outstanding is $300,000,000 (subject to certain
limitations as set forth therein). Capitalized terms used herein and not
defined herein shall have their respective meanings as set forth in the
Agreement.
The holder of this Note is authorized to record the date and
amount of each Advance and the date and amount of each repayment of principal
thereof on the schedule to be maintained by the Lender (which schedule may be
obtained upon the Borrower's request), and any such recordation shall
constitute prima facie evidence of the accuracy of the amount so recorded;
provided that the failure of the holder hereof to make such recordation (or any
error in such recordation) shall not affect the obligations of the Borrower
hereunder or under the Agreement.
MAXIMUM RATE OF INTEREST: It is intended that the rate of
interest herein shall never exceed the maximum rate, if any, which may be
legally charged on the Loan evidenced by this Note ("Maximum Rate"), and if the
provisions for interest contained in this Note would result in a rate higher
than the Maximum Rate, interest shall nevertheless be limited to the Maximum
Rate and any amounts which may be paid toward interest in excess of the Maximum
Rate shall be applied to the reduction of principal, or, at the option of the
Lender, returned to the Borrower.
DUE DATE: The Loan evidenced hereby not paid before each
Maturity Date shall be due and payable on each Maturity Date.
PLACE OF PAYMENT: All payments hereon shall be made, and all
notices to the Lender required or authorized hereby shall be given, at the
office of the Lender at the address designated in the heading of this Note, or
to such other place as the Lender may from time to time direct by written
notice to the Borrower.
Exhibit A-1
<PAGE> 62
PAYMENT AND EXPENSES OF COLLECTION: All amounts payable
hereunder are payable by wire transfer in immediately available funds to the
account number specified by the Lender, in lawful money of the United States.
Payments remitted by the Borrower via wire transfer initiated after 1:00 p.m.
New York City time shall be deemed to be received on the next Business Day. The
Borrower agrees to pay all costs of collection when incurred, including,
without limiting the generality of the foregoing, reasonable attorneys' fees
through appellate proceedings, and to perform and comply with each of the
covenants, conditions, provisions and agreements contained in every instrument
now evidencing or securing said indebtedness.
SECURITY: This Note is issued pursuant to the Agreement and
is secured by a pledge of the Collateral described therein. Notwithstanding the
pledge of the Collateral, the Borrower hereby acknowledges, admits and agrees
that the Borrower's obligations under this Note are recourse obligations of the
Borrower to which the Borrower pledges its full faith and credit.
DEFAULTS: Upon the happening of an Event of Default (as
defined in the Agreement), the Lender shall have all rights and remedies set
forth in the Agreement.
The failure to exercise any of the rights and remedies set
forth in the Agreement shall not constitute a waiver of the right to exercise
the same or any other option at any subsequent time in respect of the same
event or any other event. The acceptance by the Lender of any payment hereunder
which is less than payment in full of all amounts due and payable at the time
of such payment shall not constitute a waiver of the right to exercise any of
the foregoing rights and remedies at that time or at any subsequent time or
nullify any prior exercise of any such rights and remedies without the express
consent of the Lender, except as and to the extent otherwise provided by law.
WAIVERS: The Borrower waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayments of this
Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time, and consents to the acceptance of further
collateral, the release of any collateral for this Note, the release of any
party primarily or secondarily liable hereon, and that it will not be necessary
for the Lender, in order to enforce payment of this Note, to first institute or
exhaust the Lender's remedies against the Borrower or any other party liable
hereon or against any collateral for this Note. None of the foregoing shall
affect the liability of the Borrower. No extension of time for the payment of
this Note, or an installment hereof, made by agreement by the Lender with any
person now or hereafter liable for the payment of this Note, shall affect the
liability under this Note of the Borrower, even if the Borrower is not a party
to such agreement; provided, however, the Lender and the Borrower, by written
agreement between them, may affect the liability of the Borrower.
TERMINOLOGY: If more than one party joins in the execution of
this Note, the covenants and agreements herein contained shall be the joint and
several obligation of each and all of them and of their respective heirs,
executors, administrators, successors and assigns, and relative words herein
shall be read as if written in the plural when appropriate. Any reference
herein to the Lender shall be deemed to include and apply to every subsequent
holder of this
Exhibit A-2
<PAGE> 63
Note. Words of masculine or neuter import shall be read as if written in the
neuter or masculine or feminine when appropriate.
AGREEMENT: Reference is made to the Agreement for provisions
as to Advances, rates of interest, mandatory principal repayments, collateral
and acceleration. If there is any conflict between the terms of this Note and
the terms of the Agreement, the terms of the Agreement shall control.
APPLICABLE LAW: THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE LAWS OF THE STATE OF NEW YORK, THE LAWS OF WHICH THE BORROWER HEREBY
EXPRESSLY ELECTS TO APPLY TO THIS NOTE. THE BORROWER AGREES THAT ANY ACTION OR
PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS NOTE MAY BE COMMENCED IN
THE SUPREME COURT OF THE STATE OF NEW YORK, OR IN THE DISTRICT COURT OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK.
WAIVER OF JURY TRIAL: EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING
ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including contract claims, tort claims, breach of
duty claims and all other common law and statutory claims. Each party hereto
acknowledges that this waiver is a material inducement to enter into a business
relationship, that each has already relied on this waiver in entering into this
Agreement, and that each will continue to rely on this waiver in their related
future dealings. Each party hereto further warrants and represents that it has
reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the
event of litigation, this Agreement may be filed as a written consent to a
trial by the court.
[Signature Page S-1 Attached]
Exhibit A-3
<PAGE> 64
AMRESCO CAPITAL TRUST
By:
----------------------------------------
Name: Jon S. Pettee
Title: President
By:
----------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
AMREIT I, INC.
By:
----------------------------------------
Name: Jon S. Pettee
Title: President
By:
----------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
AMREIT II, INC.
By:
----------------------------------------
Name: Jon S. Pettee
Title: President
By:
----------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
S-1
<PAGE> 65
ACT EQUITIES, INC.
By:
----------------------------------------
Name: Jon S. Pettee
Title: President
By:
----------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
ACT HOLDINGS, INC.
By:
----------------------------------------
Name: Jon S. Pettee
Title: President
By:
----------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
S-2
<PAGE> 66
Exhibit B
FORM OF LEGAL OPINION
__________ __, 1999
Lender
- ----------------
- ----------------
- ----------------
Re: Amended and Restated Interim Funding Arrangement for
Eligible Assets
Gentlemen:
I am the counsel to AMRESCO Capital Trust, a Texas real estate
investment trust ("ACT"), AMREIT I, Inc., a Nevada corporation, AMREIT II, a
Delaware corporation, ACT Equities, Inc., a Georgia corporation, and ACT
Holdings, Inc., a Georgia corporation (individually and collectively, the
"Borrower"). I have represented the Borrower in connection with the execution
and delivery of the following documents:
(i) Amended and Restated Interim Warehouse and Security
Agreement, dated as of __________, 1999 (the "Agreement"), by and between the
Borrower and Prudential Securities Credit Corp. (the "Lender");
(ii) Secured Note executed as of ___________________, 1999 by
the Borrower in favor of the Lender (the "Note"); ----
(iii) Amended and Restated Custodial Agreement, dated as of
___________________, 1999 (the "Custodial Agreement"), among the Lender, the
Borrower and ____________ (the "Custodian");
(iv) Amended and Restated Securitization Agreement, dated as
of ______, 1999 by and between the Borrower and Prudential Securities
Incorporated (the "Securitization Agreement");
(v) Warrant Agreement, dated as of ______, 1999 by and
between ACT and Prudential Securities Incorporated (the "Warrant Agreement");
and
(vi) The Letter Agreement Amending Section III(C)(8) of the
Warehouse Agreement, dated as of ______, 1999 addressed to the Borrower and
sent by the Lender (the "Letter Agreement").
Capitalized terms used herein, but not defined herein, shall have the
meanings assigned to them in the Interim Warehouse and Security Agreement.
Exhibit B-1
<PAGE> 67
I have examined executed copies of the Agreement, the Note, the
Custodial Agreement, the Securitization Agreement, the Warrant Agreement and
the Letter Agreement. I have also examined originals or photostatic or
certified copies of all such corporate records of the Borrower and such
certificates of public officials, certificates of corporate officers, and other
documents, and such questions of law, as I have deemed appropriate and
necessary as a basis for the opinions hereinafter expressed. In making my
examination and rendering the opinions herein expressed, I have made the
following assumptions: (i) each party to each of the Agreement (other than the
Borrower), the Custodial Agreement (other than the Borrower), the
Securitization Agreement (other than the Borrower), the Warrant Agreement
(other than the Borrower) and the Letter Agreement (other than the Borrower)
has the power to enter into and perform all of its obligations thereunder, (ii)
the due authorization, execution and delivery of each of the Agreement, the
Custodial Agreement, the Securitization Agreement, the Warrant Agreement and
the Letter Agreement by all parties thereto (other than the Borrower), and
(iii) the validity and binding effect on all parties thereto (other than the
Borrower) of each of the Agreement, the Custodial Agreement, the Securitization
Agreement, the Warrant Agreement and the Letter Agreement.
The opinions expressed below with respect to enforceability are
subject to the following additional qualifications:
(a) The effect of insolvency, reorganization, moratorium,
conservatorship, receivership, or other similar laws relating to or affecting
the rights of creditors generally in the event of insolvency, reorganization,
moratorium or receivership.
(b) The application of general principles of equity,
including, but not limited to, the right of specific performance (regardless of
whether enforceability is considered in a proceeding in equity or at law).
(c) The unenforceability of provisions to the effect that
failure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such rights or remedies, or to the effect that provisions
therein may only be waived in writing to the extent that an oral agreement has
been entered into modifying such provisions.
I am licensed to practice law in the State of Texas. For purposes of
this opinion, I have assumed the laws of the State of Texas are substantially
similar to the laws of the State of New York. Subject to such assumption, each
opinion hereinafter set forth is an opinion concerning only the law of the
State of Texas and New York, the corporate laws of Texas, Nevada, Delaware and
Georgia and applicable federal law. All opinions expressed herein are based on
laws, regulations and policy guidelines currently enforced and may be affected
by future changes in law. Furthermore, no opinion is expressed herein regarding
the applicable federal securities, state Blue Sky, legal investment or real
estate syndication laws.
Based upon the foregoing, and subject to the last paragraph hereof, I
am of the opinion that:
Exhibit B-2
<PAGE> 68
1. The Agreement, the Note, the Custodial Agreement, the
Warrant Agreement and the Securitization Agreement each constitute the valid,
legal and binding agreement of the Borrower, and each is enforceable against
the Borrower in accordance with its terms.
2. No consent, approval, authorization or order of,
registration or filing with, or notice to, any governmental authority or court
is required under federal laws or the laws of the States of Texas or New York
for the execution, delivery and performance of the Agreement, the Note, the
Custodial Agreement, the Warrant Agreement or the Securitization Agreement, as
applicable, by the Borrower, except such of which as have been obtained.
3. The execution, delivery and performance by the Borrower of
the Agreement, the Note, the Custodial Agreement, the Warrant Agreement and the
Securitization Agreement, does not conflict with or result in a breach of, or
constitute a default under any law, rule or regulation of the federal
government or of the States of Texas or New York.
4. The execution, delivery and performance of the Agreement,
the Note, the Custodial Agreement, the Warrant Agreement and the Securitization
Agreement by the Borrower will not result in a default under any mortgage,
borrowing agreement, or other instrument or agreement pertaining to
indebtedness for borrowed money to which the Borrower is a party.
5. Upon the execution of the Agreement, a valid security
interest in the Eligible Assets and the proceeds thereof is granted to the
Lender, which security interest would be a valid, first-priority, perfected
security interest with respect to such Eligible Assets and the proceeds thereof
upon the delivery of the Commercial Loan/Asset Files to the Custodian or the
recording of a Form UCC-1 financing statement with the appropriate state
authorities.
6. Attached as Exhibit A and incorporated by reference herein
is a listing of states in which the Borrower is licensed as a mortgage lender
or maintains a comparable license. Attached as Exhibit B and incorporated by
reference herein is a listing of states in which each Borrower has qualified to
do business. Each Borrower is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification.
This Opinion is furnished by me as counsel to the Borrower and is
solely for the benefit of the addressees hereof; except that this Opinion may
be relied upon by any holder in due course of the Note.
Yours truly,
Exhibit B-3
<PAGE> 69
Exhibit C
FORM OF UNDERWRITING TRANSMITTAL
Exhibit C-1
<PAGE> 70
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Executive Summary
- -----------------
OVERVIEW
- -----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------------
LOAN SUMMARY
- -----------------
- -------------------------------------------------------------------------------
Loan Purpose Borrower Name
Property Type Referral Source
SF/Units Investment Officer
Location Manager
ACT Loan Amount Expected Closing Date
Lien Position Commitment Expiration
Date
LTC
Prior 3rd Party Lien
Amount
- -------------------------------------------------------------------------------
- -----------------
RECOMMENDED
STRUCTURE
- -----------------
- -------------------------------------------------------------------------------
Commitment Amount Commitment %
Fees
Expected Initial Funding Pay Rate % Fixed/Floating
Loan Term Accrual Rate % Fixed/Floating
(Months)
Amortization Term Cash Flow Participation Yes No %
(Months)
Number of Extension Options Residual Participation Yes No %
Number of Months Projected ACT IRR
Extension Fees Earlier Payoff % mos.
Lockout Period Primary Term % mos.
Prepayment Penalty Extended Term % mos.
Primary Term Leveraged @ % @ rate =
---- ------
- -------------------------------------------------------------------------------
Exhibit C-2
<PAGE> 71
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Participation Discussion & Waterfall Description:
- -------------------------------------------------------------------------------
- -----------------
EXIT STRATEGY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-3
<PAGE> 72
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Capital Structure
- -----------------
SOURCES USES
- -------------------------------------------------------------------------------
Borrower PSF/OR PSF/OR
Equity: UNIT UNIT
Cash $ % Purchase Price $ %
Deferred Fees $ % Land $ %
Other $ % Construction Cost $ %
Other Debt $ % Interest Reserve $ %
ACT Debt $ % Tenant Improvements $ %
$ % Leasing Commissions $ %
Deferred Maintenance $ %
Closing Costs $ %
Contingencies $ %
Other
======================= =============================
TOTAL Total
- -------------------------------------------------------------------------------
- -----------------
SOURCE OF
DEVELOPER EQUITY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-4
<PAGE> 73
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
- -----------------
INTEREST RESERVE
- -------------------------------------------------------------------------------
Lease up Assumptions
Calculation (note offsetting income)
- -------------------------------------------------------------------------------
ADEQUACY DISCUSSION:
- -------------------------------------------------------------------------------
- -----------------
TI RESERVE
- -------------------------------------------------------------------------------
Calculation:
- -------------------------------------------------------------------------------
Adequacy Discussion:
- -------------------------------------------------------------------------------
- ------------------------------------------
LEASE COMMISSIONS (DESCRIBE FEE STRUCTURE)
- -------------------------------------------------------------------------------
Average Rent PSF $
Average Lease Term years
Average Commission %
- -------------------------------------------------------------------------------
Adequacy Discussion:
- -------------------------------------------------------------------------------
Exhibit C-5
<PAGE> 74
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
- -----------------
FEE BREAKDOWN
- -------------------------------------------------------------------------------
ACT:
Broker:
Developer:
Overhead:
Profit:
Management:
Leasing Commissions:
- -------------------------------------------------------------------------------
Exhibit C-6
<PAGE> 75
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Capital Structure (continued)
- ----------------------------------------------
JUSTIFICATION OF POSITION IN CAPITAL STRUCTURE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------------
PRIOR LIEN DETAIL
- -------------------------------------------------------------------------------
Amount: $ Holder:
Rate: Address:
Term:
Maturity Date:
Amortization:
Other:
Inter-Creditor Rights:
- -------------------------------------------------------------------------------
- -----------------------------
Other Sources & Uses Comments
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-7
<PAGE> 76
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Borrower & Guarantors
- ----------------------------
BORROWER/SPONSOR INFORMATION
- -------------------------------------------------------------------------------
Borrower Name:
Borrower Entity Type:
Sponsor/Principal of Borrower:
Borrower Address:
Special Purpose Entity [ ] Yes [ ] No
Related Loans (Borrower, $ Amount)
Is SPE Bankruptcy Remote [ ] Yes [ ] No
- -------------------------------------------------------------------------------
BORROWER/PRINCIPAL/SPONSOR CREDIT HISTORY AND REAL ESTATE EXPERIENCE/SUMMARY
OF 3RD PARTY INQUIRIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-8
<PAGE> 77
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
- ----------------
GUARANTORS
- ----------------
- ----------------
Guarantor 1
- -------------------------------------------------------------------------------
Name Comments:
F/S Date
Total Assets
Liquid Assets
Net Worth
- -------------------------------------------------------------------------------
Guarantor 2
- -------------------------------------------------------------------------------
Name Comments:
F/S Date
Total Assets
Liquid Assets
Net Worth
- -------------------------------------------------------------------------------
Guarantor 3
- -------------------------------------------------------------------------------
Name Comments:
F/S Date
Total Assets
Liquid Assets
Net Worth
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Are all principals signing guaranties? [ ] Yes [ ] No
- -------------------------------------------------------------------------------
List any exceptions:
- -------------------------------------------------------------------------------
Standard Carve-Out for
Bankruptcy
Standard Carve-Out for
Fraud/Misrepresentation
Standard Carve-Out for
Misapplication of Funds
Standard Carve-Out for
Obstruction of Remedies
Standard Carve-Out for
Unpermitted Transactions
Standard Environmental
Guaranty
Standard Indemnification
Standard Completion
- -------------------------------------------------------------------------------
Exhibit C-9
<PAGE> 78
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Project Team
- ------------------------
CONTRACTOR INFORMATION
- -------------------------------------------------------------------------------
Name: FS Date:
Bonded: [ ] Yes [ ] No Total Assets:
Liquid Assets:
Net Worth:
- -------------------------------------------------------------------------------
Contractor Experience Discussion:
- -------------------------------------------------------------------------------
- --------------------
PROPERTY MANAGEMENT
- -------------------------------------------------------------------------------
Firm Firm Contact
- -------------------------------------------------------------------------------
Does Owner manage property? [ ] Yes Contractual Mgmt Fee Percent
[ ] No
- -------------------------------------------------------------------------------
Underwritten Mgmt Fee Percent
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ---------------
Leasing Agent
- -------------------------------------------------------------------------------
Company Name Leasing Agent Contact
- -------------------------------------------------------------------------------
Leasing Managed by Property [ ] Yes [ ] No Leasing Agent Fee %
Owner
- -------------------------------------------------------------------------------
Leasing Managed by Property [ ] Yes [ ] No New Leases
Manager
- -------------------------------------------------------------------------------
Renewals
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
Exhibit C-10
<PAGE> 79
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Property Economics Summary(1)
- ------------------- -------------------
AT INITIAL FUNDING: AT STABILIZATION:
- -------------------------------------------------------------------------------
Expected Closing Date Expected Date
NOI NOI
TI/LC Reserves TI/LC Reserves
CFADS CFADS
DSCR (w/o Int. Res.) DSCR
DSCR (with Int. Res.)
Init. Funding/Acq. Price
Total Cost Estimated Value
Cost PSF Value PSF
LTC Stabilized LTV
Occupancy Occupancy
Pre-leasing
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ------------------------
(1) See Tabs entitled "Economics:" "Act Model" and "ARGUS" for Details.
Exhibit C-11
<PAGE> 80
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Market Summary
- ----------------------------
CURRENT MARKET INFORMATION
- -------------------------------------------------------------------------------
Information as of Date Market Occupancy
Underwritten Market Rents Occupancy Trends
Rent Trends Economic Trends
- -------------------------------------------------------------------------------
GENERAL MARKET COMMENTS:
- -------------------------------------------------------------------------------
SUB-MARKET COMMENTS:
- -------------------------------------------------------------------------------
- -------------------
RENT COMPARABLES
- -------------------------------------------------------------------------------
NAME/ADDRESS SIZE (SF, YEAR BUILT OCCUPANCY RENTAL TI'S
UNITS) (%) RATE
- -------------------------------------------------------------------------------
1.
2.
3.
Subject Property
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- -------------------------
SALES COMPARABLES - LAND
- -------------------------------------------------------------------------------
NAME/ADDRESS SALES
SIZE (SF, SALES SALES SALES PRICE/BUIDABLE
UNITS) DATE PRICE PRICE SF
PSF
- -------------------------------------------------------------------------------
1.
2.
3.
Subject Property
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
Exhibit C-12
<PAGE> 81
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Sales Comparables - Buildings
- -------------------------------------------------------------------------------
NAME/ADDRESS SALES CAP
SIZE (SF, YEAR OCCUPANCY RENTAL PRICE RATE
UNITS) BUILT (%) RATE SF, UNIT (%)
- -------------------------------------------------------------------------------
1.
2.
3.
Subject Property
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
Exhibit C-13
<PAGE> 82
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
PROPERTY/COLLATERAL DESCRIPTION
MULTI-FAMILY
- --------------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- --------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ----------------------
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
Year Built: Attached Garage
Year Rehabilitated: Unattached Garage
Rentable Area: Covered Parking
Roof Type: Uncovered Parking
Land Area (acres): Total Spaces
Units per acre: No. of Spaces per Unit
Current Occupancy:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------
UNIT MIX
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Type Number Average Size (Sq. ft.) Current Rental Rate
- --------- ------ --------------------- -------------------
Base PSF
<S> <C> <C> <C> <C>
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
1BR/1B
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
2BR/1B
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
2BR/2B
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
Other
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
TOTAL OR AVG.
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------
UNIT AMENITIES
- --------------------------- ------------------------------ ------------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
[ ] Washer-Dryer [ ] Self-Cleaning Oven [ ] Dry Bar [ ] Ceiling Fans [ ] Garden Tubs
[ ] W/D Connections [ ] Icemakers [ ] Built-In Bookcases [ ] Crown Molding [ ] Double Vanities
[ ] Trash Compactor [ ] Frost-free Refrigerator [ ] Security System [ ] Mini Blinds [ ] Balconies/Patios
[ ] Disposal [ ] Built-Ins [ ] Vaulted Ceilings [ ] Vertical Blinds [ ] Free Cable T.V.
- --------------------------- ------------------------------ ------------------------- ----------------------- ----------------------
</TABLE>
Exhibit C-14
<PAGE> 83
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------- ------------------------------ ------------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
[ ] Microwave Oven [ ] Fireplaces [ ] 9' Ceilings [ ] Walk-In Closets [ ] Storage
[ ] Dishwasher [ ] Wet Bar [ ] Other:
- --------------------------- ------------------------------ ------------------------- ----------------------- ----------------------
COMMENTS:
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------
PROJECT AMENITIES
- --------------------------- ------------------------------ ------------------------- ----------------------- ----------------------
[ ] Clubhouse [ ] Computer Center [ ] Secured Access [ ] Volleyball Courts
[ ] Pool [ ] Movie Theater [ ] On-site Security [ ] Basketball Courts
[ ] Hot Tub/Jacuzzi [ ] Laundry Facilities [ ] Day Care Center [ ] BBQ/Picnic Areas
[ ] Tennis Court [ ] Exercise Room [ ] Water Features [ ] Playground
[ ] Door-to-Door Trash Pickup [ ] Other:
- --------------------------- ------------------------------ ------------------------- ----------------------- ----------------------
COMMENTS:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-15
<PAGE> 84
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
PROPERTY/COLLATERAL DESCRIPTION
INDUSTRIAL
- -----------------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- --------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
Year Built: Number of Parking Spaces
Year Rehabilitated: Per 1,000 Sq. Ft.
Current Occupancy % WH Bay Depths FT
If new construction, percent
Preleased: SF WH Clear Height FT
Rentable Area SF Truck Court Depth FT
Office SF Land Area (acres)
%
Air Conditioned SF Site Coverage Percentage
%
Warehouse SF
%
Sprinklered [ ] Yes [ ] No
Rail Service [ ] Yes [ ] No
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------
MAJOR TENANTS
- --------------------------------- ------------ ------------------ -------------------------- ----------------- -----------------
Tenant Name Size (SF) Percent of Total Current Rental Rate Expense Basis Expiration Date
-------------- -----------
Per Month Per SF
- --------------------------------- ----------- ------------------- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
% Net
% Base Year
% Gross
% Or
Total or Average % Modified
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comments:
- -------------------------------------------------------------------------------
Exhibit C-16
<PAGE> 85
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------
Lease Rollover Exposure
- --------------------------- ------------------------ -------------------------- -------------------------- ------------------------
Year Area (Sq. Ft.) Percent (%) Cumulative Percent (%) No. of Tenants
- --------------------------- ------------------------ -------------------------- -------------------------- ------------------------
<S> <C> <C> <C> <C>
1
2
3
4
5
Total
- --------------------------- ------------------------ -------------------------- -------------------------- ------------------------
</TABLE>
Exhibit C-17
<PAGE> 86
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
PROPERTY/COLLATERAL DESCRIPTION
OFFICE
- -----------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- ---------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------------------
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
Year Built: Parking Spaces
Year Rehabilitated: Number of Per 1,000 Sq.
Structured Ft.
Current Occupancy % Number of Open Per 1,000 Sq.
Spaces Ft.
===================================
If new construction, percent
Preleased: % Total Per 1,000 Sq.
Rentable Area SF Ft.
# of Floors
Floor Plate Size SF
Retail Component SF
%
Land Area (acres)
Site Coverage Percentage %
- -------------------------------------------------------------------------------
- ---------------------
BUILDING AMENITIES
- -------------------------------------------------------------------------------
[ ] Card Access [ ] On-Site Security [ ] On-Site Restaurant
[ ] Conference Facilities [ ] On-Site Management [ ] On-Site Copy Center
[ ] Concierge [ ] Other [ ] Other
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------
MAJOR TENANTS
- ------------------------------------ ------------ ------------------ -------------------------- ----------------- -----------------
Tenant Name Size (SF) Percent of Total Current Rental Rate Expense Basis Expiration Date
-------------- -----------
Per Month PSF
- ------------------------------------ ----------- ------------------- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
% Net
% Base Year
% Gross
% Or
Total or Average % Modified
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-18
<PAGE> 87
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------
Lease Rollover Exposure
- --------------------------- ------------------------ -------------------------- -------------------------- ------------------------
Year Area (Sq. Ft.) Percent (%) Cumulative Percent (%) No. of Tenants
- --------------------------- ------------------------ -------------------------- -------------------------- ------------------------
<S> <C> <C> <C> <C>
1
2
3
4
5
Total
- --------------------------- ------------------------ -------------------------- -------------------------- ------------------------
</TABLE>
Exhibit C-19
<PAGE> 88
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
PROPERTY/COLLATERAL DESCRIPTION
RETAIL
- ------------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- ----------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------
PROPERTY DESCRIPTION
- ----------------------------------------------------- ------------------------- ----------------------------------- ---------------
<S> <C> <C> <C> <C>
Year Built: Number of Parking Spaces
Year Rehabilitated: Per 1,000 Sq. Ft.
Bay Depths
Current Occupancy % Primary Anchors(s) FT
If new construction, percent Preleased: % Secondary Anchor(s) FT
Rentable Area SF In-Line FT
Primary Anchor(s): SF % Land Area (acres):
Secondary Anchor(s): SF % Site Coverage Percentage %
In-Line SF %
Pad Sites SF %
Floors
1st Floor SF %
2nd Floor SF %
- ----------------------------------------------------- ------------------------- ----------------------------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------
MAJOR TENANTS
- ------------------------------------ ------------ ------------------ -------------------------- ----------------- -----------------
Tenant Name Size (SF) Percent of Total Current Rental Rate Expense Basis Expiration Date
-------------- -----------
Per Month Per SF
- ------------------------------------ ----------- ------------------- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
% Net
% Base Year
% Gross
% Or
Total or Average % Modified
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-20
<PAGE> 89
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------
LEASE ROLLOVER EXPOSURE
- -------------------------------- ------------------------ -------------------------- -------------------------- -------------------
Year Area (Sq. Ft.) Percent (%) Cumulative Percent (%) No. of Tenants
- -------------------------------- ------------------------- ------------------------- -------------------------- -------------------
<S> <C> <C> <C> <C>
1
2
3
4
5
Total
- -------------------------------- ------------------------- ------------------------- -------------------------- -------------------
</TABLE>
Exhibit C-21
<PAGE> 90
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Third Party Reports
<TABLE>
<CAPTION>
- -------------------------
APPRAISAL INFORMATION
- --------------------- ----------------- ----------------- -------------- ------------------------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Appraised Value As Is $ $ PSF Income Approach $ $ PSF
As Completed $ $ PSF Stabilized Occupancy %
Effective Date As Is DCF $ $ PSF
As Completed Yield Rate %
Appraisal Date Terminal Cap Rate %
In Conformance with USPAP? [ ] Yes [ ] No Direct Capitalization $ $ PSF
In Conformance with FIRREA? [ ] Yes [ ] No Cap Rate %
Appraisal Firm Sales Comparison Approach $ $ PSF
Appraiser(s) Multiplier
Cost Approach $ $ PSF
Land Value $ $ PSF
- --------------------- ----------------- ----------------- -------------- ------------------------------- ------------- ---------
</TABLE>
- -------------------------------------------------------------------------------
COMMENTS:
(Reconcile Appraised Value to Underwritten Value and comment on reasonableness)
- -------------------------------------------------------------------------------
- -----------------------------
ENVIRONMENTAL INFORMATION
- ------------------------------------------------ ------------------------------
Phase I Date Environmental Firm Name
Report issued to ACT Cost To Cure per Report
Were Substantial Environmental Iss. Noted Type of O&M Plan in Place
- ------------------------------------------------ ------------------------------
WERE ENVIRONMENTAL ISSUES NOTED CONCERNING THE FOLLOWING:
- ------------------------------------------------ ------------------------------
Underground Storage Tanks Above Ground Storage Tanks
PCBs/Transformers Lead-Based Paint
Radon Lead in Drinking Water
Asbestos/ACM Wastes Site on Property
Adjacent Sites On-Site Operations
Storage of Hazardous Materials History Review
Regulatory Review Was Phase II Performed?
- ------------------------------------------------ ------------------------------
COMMENTS:
- -------------------------------------------------------------------------------
Exhibit C-22
<PAGE> 91
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
- ------------------------
ENGINEERING INFORMATION
- -------------------------------------------------------------------------------
Engineering Report Date Engineering Firm Name
- -------------------------------------------------------------------------------
DEFERRED MAINTENANCE INFORMATION
- -------------------------------------------------------------------------------
Immediate Deferred Maintenance $
Estimate
- -------------------------------------------------------------------------------
COMMENTS:
- -------------------------------------------------------------------------------
Exhibit C-23
<PAGE> 92
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Recommendation
- -------------
STRENGTHS
- -------------------------------------------------------------------------------
LOAN AND PROPERTY STRENGTHS COMMENTS:
o
o
o
o
- -------------------------------------------------------------------------------
- -------------
WEAKNESSES
- -------------------------------------------------------------------------------
LOAN AND PROPERTY WEAKNESSES COMMENTS:
o
o
o
o
- -------------------------------------------------------------------------------
- -----------------------------
RISK MITIGANTS INFORMATION
- -------------------------------------------------------------------------------
o
o
o
o
- -------------------------------------------------------------------------------
Recommended by:
-----------------------------------
Manager:
-----------------------------------
Investment Committee:
-----------------------------------
-----------------------------------
-----------------------------------
Date:
-----------------------------------
Exhibit C-24
<PAGE> 93
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Exhibit C-25
<PAGE> 94
[AMRESCO CAPITAL TRUST LOGO]
EQUITY APPLICATION
- -------------------------------------------------------------------------------
Deal Name: Date:
- -------------------------------------------------------------------------------
Executive Summary
- ------------
OVERVIEW
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
Investment Purpose Partnership Name
Property Type Referral Source
SF/Units Investment Officer
Location Manager
ACT Investment Expected Closing Date
% of Equity Commitment Expiration Date
% of Cost
Prior 3rd Party Lien
Amount
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------
RECOMMENDED STRUCTURE
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Amount
Expected Initial Funding
Investment Fees %
ACT % of Cashflow: Property Returns Year 1 Avg IRR
---------------- ------ --- ---
<S> <C> <C> <C> <C> <C> <C>
% Until Return Of % Unleveraged % % %
% Until Return Of % Leveraged % % %
% Until Return Of %
% Until Return Of %
INVESTOR YIELDS
ACT Yield % % %
Levered (LA too)
Partner Yield % % %
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-26
<PAGE> 95
- -------------------------------------------------------------------------------
Participation Discussion & Waterfall Description:
- -------------------------------------------------------------------------------
- ------------------
EXIT STRATEGY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-27
<PAGE> 96
Capital Structure
<TABLE>
<CAPTION>
- ---------------------- -------------------------
SOURCES USES
- -------------------------------------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Partner Equity: PSF/OR UNIT PSF/OR UNIT
Cash $ % Purchase Price $ %
Deferred Fees $ % Land $ %
Other $ % Construction Cost $ %
ACT Equity $ % Interest Reserve $ %
3rd Party Debt $ % Tenant Improvements $ %
$ % Leasing Commissions $ %
Deferred Maintenance $ %
Closing Costs $ %
Contingencies $ %
Other
============================== =============================================
TOTAL Total
- -------------------------------------------------- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PARTNERSHIP STRUCTURE
- ---------------------------- ---- ----------- -------- ------
Name Ownership % $ Amount Source
---- ----------- -------- ------
<S> <C> <C> <C> <C>
General Partner
%
Limited Partner
%
Limited Partner
%
Limited Partner
%
100.0%
- ---------------------------- ---- ----------- -------- ------
</TABLE>
Exhibit C-28
<PAGE> 97
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ----------------------
INTEREST RESERVE
- -------------------------------------------------------------------------------
Lease up Assumptions
Calculation (note offsetting income)
Adequacy Discussion
- -------------------------------------------------------------------------------
- -----------------------
TI RESERVE
- -------------------------------------------------------------------------------
Calculation:
Adequacy Discussion:
- -------------------------------------------------------------------------------
- ------------------------------------------
LEASE COMMISSIONS (DESCRIBE FEE STRUCTURE)
- -------------------------------------------------------------------------------
Average Rent PSF: $
Average Lease Term:
Commission %: %
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
Exhibit C-29
<PAGE> 98
Capital Structure (continued)
- ------------------------------------
FEE BREAKDOWN
- -------------------------------------------------------------------------------
ACT:
Broker:
Partner:
Overhead:
Profit:
Management:
Leasing Commissions:
- -------------------------------------------------------------------------------
- ------------------------------------------------
JUSTIFICATION OF POSITION IN CAPITAL STRUCTURE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------
PRIOR LIEN DETAIL
- -------------------------------------------------------------------------------
Amount: $ Holder:
Rate: Address:
Term:
Maturity Date:
Amortization:
Other:
Inter-Creditor Rights:
- -------------------------------------------------------------------------------
- ---------------------------------
Other Sources & Uses Comments
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-30
<PAGE> 99
Sponsors
- ------------------------
SPONSOR INFORMATION
- -------------------------------------------------------------------------------
Partnership Name:
Partnership Entity Type:
Sponsor/Principal:
Address:
Special Purpose Entity [ ] Yes [ ] No
Related Loans (Principal, $ Amount)
Is SPE Bankruptcy Remote [ ] Yes [ ] No
- -------------------------------------------------------------------------------
PRINCIPAL/SPONSOR CREDIT HISTORY AND REAL ESTATE EXPERIENCE/SUMMARY OF 3RD
PARTY INQUIRIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-31
<PAGE> 100
- ----------------------------
THIRD PARTY LOAN GUARANTORS
- ----------------------------
Guarantor 1
- -------------------------------------------------------------------------------
Name Comments:
F/S Date
Total Assets
Liquid Assets
Net Worth
- -------------------------------------------------------------------------------
Guarantor 2
- -------------------------------------------------------------------------------
Name Comments:
F/S Date
Total Assets
Liquid Assets
Net Worth
- -------------------------------------------------------------------------------
Guarantor 3
- -------------------------------------------------------------------------------
Name Comments:
F/S Date
Total Assets
Liquid Assets
Net Worth
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Are all listed above signing guaranties? [ ] Yes [ ] No
- -------------------------------------------------------------------------------
Is ACT signing guaranties? [ ] Yes [ ] No
- -------------------------------------------------------------------------------
DETAILS OF GUARANTY BEING PROVIDED BY ACT OR RELATED ACT ENTITY:
- -------------------------------------------------------------------------------
Exhibit C-32
<PAGE> 101
Project Team
- -------------------------
CONTRACTOR INFORMATION
- -------------------------------------------------------------------------------
Name: FS Date:
Bonded: [ ] Yes [ ] No Total Assets:
Liquid Assets:
Net Worth:
- -------------------------------------------------------------------------------
Contractor Experience Discussion:
- -------------------------------------------------------------------------------
- -------------------------------------------
PROPERTY MANAGEMENT
- -------------------------------------------
- -------------------------------------------------------------------------------
Firm Firm Contact
- -------------------------------------------------------------------------------
Does Owner [ ] Yes [ ] No Contractual Mgmt Fee Percent
manage property?
- -------------------------------------------------------------------------------
Underwritten Mgmt Fee Percent
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ------------------
Leasing Agent
- -------------------------------------------------------------------------------
Company Name Leasing Agent Contact
- -------------------------------------------------------------------------------
Leasing Managed by [ ] Yes [ ] No Leasing Agent Fee %
Property Owner
- -------------------------------------------------------------------------------
Leasing Managed by [ ] Yes [ ] No New Leases
Property Manager
- -------------------------------------------------------------------------------
Renewals
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-33
<PAGE> 102
Property Economics Summary(2)
- ---------------------------------- ------------------------------------
AT FUNDING: AT STABILIZATION:
- ---------------------------------- ------------------------------------
Expected Closing Date Expected Date
NOI $ NOI $
TI/LC Reserves $ TI/LC Reserves $
CFADS $ CFADS $
DSCR to 3rd Party Loan DSCR to 3rd Party Loan
Cashflow to ACT $ Cashflow to ACT $
C-on-C Yield to ACT % Yield to ACT %
Cashflow to Partner $ Cashflow to Partner $
Yield to Partner % Yield to Partner %
Total Cost $ Estimated Value $
Cost PSF $ Value PSF $
LTC % LTV %
Occupancy % Occupancy %
Preleased % %
- ---------------------------------- ------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ----------------------------
(2) See Tabs Entitled "Economics," "Act Model" and "ARGUS" for Details
Exhibit C-34
<PAGE> 103
Market Summary
- --------------------------------------
CURRENT MARKET INFORMATION
- -------------------------------------------------------------------------------
Information as of Date Market Occupancy
Underwritten Market Occupancy Trends
Rents
Rent Trends Economic Trends
- -------------------------------------------------------------------------------
GENERAL MARKET COMMENTS:
- -------------------------------------------------------------------------------
SUB-MARKET COMMENTS:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------
RENT COMPARABLES
- ------------------------------- ------------------- --------------------- ------------------- ---------------- ----------------
NAME/ADDRESS SIZE (SF, UNITS) YEAR BUILT OCCUPANCY (%) RENTAL RATE TI'S
- ------------------------------- ------------------- --------------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
1.
2.
3.
Subject Property
- -------------------------------------------------------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------
SALES COMPARABLES - LAND
- ---------------------------------------- ------------------ -------------- ------------------- ------------- ---------------------
NAME/ADDRESS SALES PRICE SALES
SIZE (SF, UNITS) SALES DATE SALES PRICE PSF PRICE/BUIDABLE SF
- ---------------------------------------- ------------------ -------------- ------------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
1.
2.
3.
Subject Property
- -----------------------------------------------------------------------------------------------------------------------------------
Comments:
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-35
<PAGE> 104
<TABLE>
<CAPTION>
- ---------------------------------
Sales Comparables - Buildings
- ------------------------------------- ---------------- -------------- --------------- ------------- ------------------ ------------
NAME/ADDRESS SIZE (SF, SALES PRICE/ SF, CAP RATE
UNITS) YEAR BUILT OCCUPANCY (%) RENTAL RATE UNIT (%)
- ------------------------------------- ---------------- -------------- --------------- ------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1.
2.
3.
Subject Property
- ------------------------------------- ---------------- -------------- --------------- ------------- -------------------------------
Comments:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-36
<PAGE> 105
Property/Collateral Description
Multi-Family
- -----------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- -----------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
Year Built: Attached Garage
Year Rehabilitated: Unattached Garage
Rentable Area: Covered Parking
Roof Type: Uncovered Parking
Land Area (acres): Total Spaces
Units per acre: No. of Spaces per Unit
Current Occupancy:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------
UNIT MIX
- ------------------- ----------------- --------------------------------- -----------------------------------------------------------
Unit Type Number Average Size (Sq. ft.) Current Rental Rate
- --------- ------ ---------------------- -------------------
Base PSF
---- ---
- ------------------- ----------------- ------------------ -------------- ------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
1BR/1B
- ------------------- ----------------- ------------------ -------------- ------------------------------- ---------------------------
2BR/1B
- ------------------- ----------------- ------------------ -------------- ------------------------------- ---------------------------
2BR/2B
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
Other
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
TOTAL OR AVG.
- ------------------- ----------------- --------------------------------- ------------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------
UNIT AMENITIES
- --------------------------- ------------------------------ ------------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
[ ] Washer-Dryer [ ] Self-Cleaning Oven [ ] Dry Bar [ ] Ceiling Fans [ ] Garden Tubs
[ ] W/D Connections [ ] Icemakers [ ] Built-In Bookcases [ ] Crown Molding [ ] Double Vanities
[ ] Trash Compactor [ ] Frost-free Refrigerator [ ] Security System [ ] Mini Blinds [ ] Balconies/Patios
[ ] Disposal [ ] Built-Ins [ ] Vaulted Ceilings [ ] Vertical Blinds [ ] Free Cable T.V.
[ ] Microwave Oven [ ] Fireplaces [ ] 9' Ceilings [ ] Walk-In Closets [ ] Storage
[ ] Dishwasher [ ] Wet Bar [ ] Other:
- ------------------------------------------------------------------------------------------------------------------------------------
COMMENTS:
- --------------------------- --------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-37
<PAGE> 106
<TABLE>
<CAPTION>
- ----------------------
PROJECT AMENITIES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[ ] Clubhouse [ ] Computer Center [ ] Secured Access [ ] Volleyball Courts
[ ] Pool [ ] Movie Theater [ ] On-site Security [ ] Basketball Courts
[ ] Hot Tub/Jacuzzi [ ] Laundry Facilities [ ] Day Care Center [ ] BBQ/Picnic Areas
[ ] Tennis Court [ ] Exercise Room [ ] Water Features [ ] Playground
[ ] Door-to-Door Trash Pickup [ ] Other:
- ------------------------------------------------------------------------------------------------------------
COMMENTS:
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-38
<PAGE> 107
PROPERTY/COLLATERAL DESCRIPTION
INDUSTRIAL
- ----------------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- -------------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------
PROPERTY DESCRIPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year Built: Number of Parking Spaces
Year Rehabilitated: Per 1,000 Sq. Ft.
Current Occupancy % WH Bay Depths FT
If new construction, percent Preleased: SF WH Clear Height FT
Rentable Area SF Truck Court Depth FT
Office SF Land Area (acres)
%
Air Conditioned SF Site Coverage Percentage
%
Warehouse SF
%
Sprinklered [ ] Yes [ ] No
Rail Service [ ] Yes [ ] No
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------
MAJOR TENANTS
- ------------------------------------ ------------ ------------------ -------------------------- ----------------- -----------------
Tenant Name Size (SF) Percent of Total Current Rental Rate Expense Basis Expiration Date
-------------- -----------
Per Month Per SF
- ------------------------------------ ----------- ------------------- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
% Net
% Base Year
% Gross
% Or
Total or Average % Modified
- -----------------------------------------------------------------------------------------------------------------------------------
Comments:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-39
<PAGE> 108
<TABLE>
<CAPTION>
- -------------------------
Lease Rollover Exposure
- ------------------------------ ------------------------ -------------------------- -------------------------- ---------------------
Year Area (Sq. Ft.) Percent (%) Cumulative Percent (%) No. of Tenants
- ------------------------------ ------------------------- ------------------------- -------------------------- ---------------------
<S> <C> <C> <C> <C>
1
2
3
4
5
Total
- ------------------------------ ------------------------- ------------------------- -------------------------- ---------------------
</TABLE>
Exhibit C-40
<PAGE> 109
PROPERTY/COLLATERAL DESCRIPTION
OFFICE
- -------------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- ---------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------
PROPERTY DESCRIPTION
- --------------------------------------------- ----------------------- ------------------------------------- -----------------------
<S> <C> <C> <C>
Year Built: Parking Spaces
Year Rehabilitated: Number of Structured Per 1,000 Sq. Ft.
Current Occupancy % Number of Open Spaces Per 1, 000 Sq. Ft.
===================================== =======================
If new construction, percent Preleased: % Total Per 1,000 Sq. Ft.
Rentable Area SF
# of Floors
Floor Plate Size SF
Retail Component SF
%
Land Area (acres)
Site Coverage Percentage %
- --------------------------------------------- ----------------------- ------------------------------------- -----------------------
</TABLE>
- --------------------
BUILDING AMENITIES
- -------------------------- -------------------------- -------------------------
[ ] Card Access [ ] On-Site Security [ ] On-Site Restaurant
[ ] Conference Facilities [ ] On-Site Management [ ] On-Site Copy Center
[ ] Concierge [ ] Other [ ] Other
- -------------------------- -------------------------- -------------------------
<TABLE>
<CAPTION>
- ------------------
MAJOR TENANTS
- ------------------------------------ ------------ ------------------ -------------------------- ----------------- -----------------
Tenant Name Size (SF) Percent of Total Current Rental Rate Expense Basis Expiration Date
-------------- -----------
Per Month PSF
- ------------------------------------ ----------- ------------------- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
% Net
% Base Year
% Gross
% Or
Total or Average % Modified
- -----------------------------------------------------------------------------------------------------------------------------------
Comments:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-41
<PAGE> 110
<TABLE>
<CAPTION>
- --------------------------
Lease Rollover Exposure
- -------------------------------- ---------------------- ------------------------- -------------------------- ----------------------
Year Area (Sq. Ft.) Percent (%) Cumulative Percent (%) No. of Tenants
- -------------------------------- ---------------------- ------------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
1
2
3
4
5
Total
- -------------------------------- ---------------------- ------------------------- -------------------------- ----------------------
</TABLE>
Exhibit C-42
<PAGE> 111
PROPERTY/COLLATERAL DESCRIPTION
RETAIL
- --------
PROPERTY
- -------------------------------------------------------------------------------
Name:
Street Address:
City:
State:
Zip:
- -------------------------------------------------------------------------------
- ---------------------------
AREA/LOCATION DESCRIPTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------
PROPERTY DESCRIPTION
- ----------------------------------------------------- ------------------------ ----------------------------------- ---------------
<S> <C> <C> <C>
Year Built: Number of Parking Spaces
Year Rehabilitated: Per 1,000 Sq. Ft.
Bay Depths
Current Occupancy % Primary Anchors(s) FT
If new construction, percent Preleased: % Secondary Anchor(s) FT
Rentable Area SF In-Line FT
Primary Anchor(s): SF Land Area (acres):
%
Secondary Anchor(s): SF Site Coverage Percentage %
%
In-Line SF
%
Pad Sites SF
%
Floors
1st Floor SF
%
2nd Floor SF
%
- ----------------------------------------------------- ------------------------ ----------------------------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------
MAJOR TENANTS
- ------------------------------------ ------------ ------------------ -------------------------- ----------------- -----------------
Tenant Name Size (SF) Percent of Total Current Rental Rate Expense Basis Expiration Date
-------------- -----------
Per Month Per SF
- ------------------------------------ ----------- ------------------- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
% Net
% Base Year
% Gross
% Or
Total or Average % Modified
- -----------------------------------------------------------------------------------------------------------------------------------
Comments:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-43
<PAGE> 112
<TABLE>
<CAPTION>
- ------------------------
LEASE ROLLOVER EXPOSURE
- -------------------------------- ------------------------ -------------------------- -------------------------- -------------------
Year Area (Sq. Ft.) Percent (%) Cumulative Percent (%) No. of Tenants
- -------------------------------- ------------------------- ------------------------- -------------------------- -------------------
<S> <C> <C> <C> <C>
1
2
3
4
5
Total
- -------------------------------- ------------------------- ------------------------- -------------------------- -------------------
</TABLE>
Exhibit C-44
<PAGE> 113
Third Party Reports
<TABLE>
<CAPTION>
- ------------------------
APPRAISAL INFORMATION
- --------------------- ----------------- ----------------- --------- ------------------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Appraised Value As Is $ $ PSF Income Approach $ $ PSF
As Completed $ $ PSF Stabilized Occupancy %
Effective Date As Is DCF $ $ PSF
As Completed Yield Rate %
Appraisal Date Terminal Cap Rate %
In Conformance with USPAP? [ ] Yes [ ] No Direct Capitalization $ $ PSF
In Conformance with FIRREA? [ ] Yes [ ] No Cap Rate %
Appraisal Firm Sales Comparison Approach $ $ PSF
Appraiser(s) Multiplier
Cost Approach $ $ PSF
Land Value $ $ PSF
- --------------------- ----------------- ----------------- --------- ------------------------------- ------------- -----------------
COMMENTS:
(Reconcile Appraised Value to Underwritten Value and comment on reasonableness)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------
ENVIRONMENTAL INFORMATION
- ------------------------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Phase I Date Environmental Firm Name
Report issued to ACT Cost To Cure per Report
Were Substantial Environmental Iss. Noted Type of O&M Plan in Place
- ------------------------------------------------------------------------ ----------------------------------------------------------
WERE ENVIRONMENTAL ISSUES NOTED CONCERNING THE FOLLOWING:
- ------------------------------------------------------------------------ ----------------------------------------------------------
Underground Storage Tanks Above Ground Storage Tanks
PCBs/Transformers Lead-Based Paint
Radon Lead in Drinking Water
Asbestos/ACM Wastes Site on Property
Adjacent Sites On-Site Operations
Storage of Hazardous Materials History Review
Regulatory Review Was Phase II Performed?
- ------------------------------------------------------------------------ ----------------------------------------------------------
COMMENTS:
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-45
<PAGE> 114
- ---------------------------
ENGINEERING INFORMATION
- -------------------------------------------------------------------------------
Engineering Report Date Engineering Firm Name
- -------------------------------------------------------------------------------
DEFERRED MAINTENANCE INFORMATION
- -------------------------------------------------------------------------------
Immediate Deferred Maintenance $
Estimate
- -------------------------------------------------------------------------------
COMMENTS:
- -------------------------------------------------------------------------------
Exhibit C-46
<PAGE> 115
Partnership Agreement Information
- ---------------------
Buy/Sell Provisions
- -------------------------------------------------------------------------------
Lockout Period:
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ---------------------
Control Provisions
- -------------------------------------------------------------------------------
Leases:
Budgets:
- -------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------
- ---------------------
Removal Provisions
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------
Radius Restrictions
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------
Funding Requirements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-47
<PAGE> 116
- ---------------------
Other Comments
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Exhibit C-48
<PAGE> 117
Recommendation
- ---------------------------
STRENGTHS
- -------------------------------------------------------------------------------
INVESTMENT AND PROPERTY STRENGTHS COMMENTS:
o
o
o
o
- -------------------------------------------------------------------------------
- ---------------------------
WEAKNESSES
- -------------------------------------------------------------------------------
INVESTMENT AND PROPERTY WEAKNESSES COMMENTS:
o
o
o
o
- -------------------------------------------------------------------------------
- ---------------------------
RISK MITIGANTS INFORMATION
- -------------------------------------------------------------------------------
o
o
o
o
- -------------------------------------------------------------------------------
Recommended by:
------------------------------------
Manager:
------------------------------------
Investment Committee:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Date:
------------------------------------
Exhibit C-49
<PAGE> 118
REIT TAX DUE DILIGENCE - EQUITY
(Office Buildings, Retail & Multi-family)
Date:_______________________
Name of Property:_______________________________________________________________
[If all of the leases of the property do not have the same basic provisions,
fill out a separate form for each version.]
1. How are rents determined?
_________________ Fixed Amount
_________________ Based upon the net income or net profits of the tenant
_________________ Based upon a fixed percentage of the gross sales or
gross receipts of the tenant Based upon an "overage
provision" whereby all or a portion of the rent is based
on the tenant's net / gross (circle one) income or
profits in excess of a base amount
_________________ Other (please explain)
2. Does the lease provide that in the case of a sublease that the landlord is
entitled to all or a percentage of the excess rent received? Yes ___ No ___
3. Has there been any sublet of all or part of the premises? Yes ___ No ___
4. Are any of the following services provided to tenants? (please circle those
that apply)
o reserved parking
o valet parking
o cable TV
o security system
o laundry facilities
o maid/janitorial services
o provision for health clubs, gyms or workout facilities (includes
discounts for tenants)
5. List any of the services circled above which are not typical and customary
for properties of a similar character and quality in the same geographic
area.
6. List any other services provided which are not typical or customary for
properties which are of a similar character and quality in the same
geographic area.
7. Is any portion of the rent for any lease of the property attributable to
personal property (i.e., furniture, appliances, washer, dryers, etc.)?
___ Yes ___ No ___ N/A
If yes, is the percentage of the total rent attributable to the personal
property less than 15 percent of the total rent?
___ Yes ___ No ___ N/A
8. Are any services rendered to any tenant by third-party suppliers or
independent contractors hired by the ompany (or its affiliates)? If so,
please describe the nature of such services, the name of the third-party
supplier or independent contractor, and the fee arrangement.
___ Yes ___ No ___ N/A
Explain:
9. Does the company (or any of its affiliates) engage in any
revenue-generating activities not mentioned previously in this
questionnaire other than the rental of real property (and associated
activities)?
___ Yes ___ No ___ N/A
Explain:
Exhibit C-50
<PAGE> 119
Signature _________________________________
REIT TAX DUE DILIGENCE - LOANS
Date:_________________________
Name of Property:_______________________________________________________________
1. Is an interest in a partnership or LLC securing the loan? (Note: shares of
a corporation, not including LLC's generally should not be taken as
collateral since a REIT cannot own more than 10% of the voting stock of any
one corporation.)
___ Yes
___ No (shares of a corporation are collateral) - SKIP TO QUESTION 3.
___ No (the real and personal property is the only collateral) - SKIP TO
QUESTION 3.
2. The partnership or LLC interest securing the loan represents what
percentage of capital and profits of the entity? (if 100% so state.)
Capital_______% Profits_______%
3. What is the gross value of the land and improvements at the time of
commitment (not any stabilized value)? (If this is a construction loan,
then the value is the value of the land plus the improvement costs to be
capitalized as part of the realty.)
Land Value $______________________________.
Improvement Costs $_______________________________.
4. What is the value of the personal property securing the loan? $___________.
5. What is the loan principal amount? $_________________.
IF A SHARED APPRECIATION ANSWER QUESTION 6, OTHERWISE SKIP TO #7.
[If the answer to any of these questions in #6 is Yes, then the gain may be
subject to a 100% tax]
6. Is the debtor considered a "dealer" in property (i.e., the property is held
as inventory and the gain on the sale is ordinary income instead of capital
gain)? Yes _____. No _____.
a. Does the debtor intend to engage a broker to sell the property prior
to or during construction or prior to lease up, or does the debtor
otherwise intend to engage in any "for sale" marketing activities?
Yes _____. No _____.
b. Has the debtor contacted any potential buyers for the property?
Yes _____. No _____.
c. Does the debtor intend to hold the property for more than twelve
months after completion? Yes _____. No _____.
7. Does a note secure the note? Yes _____. No _____(SKIP TO THE END)
a. Is the note serving as collateral secured by real estate? Yes _____.
No _____.
[If you answered Yes to the questions in #7, see questions 1 through 6 above to
evaluate such note as collateral.]
Signature ______________________________
Exhibit C-51
<PAGE> 120
Exhibit D
FORM OF FUNDING NOTICE
_________ __, 199_
Prudential Securities Credit Corp.
One New York Plaza
New York, NY 10292
Re: Amended and Restated Interim Warehouse and Security Agreement
dated as of ___________________, 1999 (the "Agreement")
Gentlemen:
Reference is made to the Agreement for defined terms used
herein. Pursuant to Section I(3)(a)(i) of the Agreement, this letter
constitutes notice that the undersigned desires to obtain an Advance in the
principal amount of $____________, with respect to the Eligible Assets shown on
the attached Commercial Loan/Asset Schedule. Attached as Schedule I hereto is
the calculation of the Advanced Amount in accordance with the Agreement
including a breakdown of each calculation required to determine such Advanced
Amount.
The Borrower further represents, warrants and certifies that:
(1) the undersigned has no notice or knowledge of any Event of Default; (2) the
representations, warranties and covenants in the Agreement relating to the
Eligible Assets shown on the attached Commercial Loan/Asset Schedule are true
and correct as of the date hereof and shall be true and correct on the date of
the Advance requested herein, before and after giving effect thereto; and (3)
each of the conditions precedent to an Advance listed in Section I(2) of the
Agreement has been satisfied as of the date hereof.
[Insert Appropriate Borrower Name]
AMRESCO CAPITAL TRUST
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
AMREIT I, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Exhibit D-1
<PAGE> 121
AMREIT II, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACT EQUITIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACT HOLDINGS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Exhibit D-2
<PAGE> 122
Exhibit E
FORM OF COMMERCIAL LOAN/ASSET SCHEDULE
Exhibit E-1
<PAGE> 123
Exhibit F
FORM OF WARRANT AGREEMENT
Warrant Agreement dated as of May 4, 1999 between AMRESCO Capital Trust and
Prudential Securities Incorporated (filed as Exhibit 10.2 to the Registrant's
Current Report on Form 10-Q for the quarterly period ended March 31, 1999 filed
with the Securities and Exchange Commission on May 13, 1999, which exhibit is
incorporated herein by reference).
Exhibit F-1
<PAGE> 1
EXHIBIT 10.2
WARRANT AGREEMENT
BETWEEN
AMRESCO CAPITAL TRUST
AND
PRUDENTIAL SECURITIES INCORPORATED
DATED AS OF MAY 4, 1999
<PAGE> 2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") dated as of May 4, 1999,
between AMRESCO CAPITAL TRUST (together with its permitted successors and
assigns, the "Company"), a Texas real estate investment trust with its
principal office at 700 North Pearl Street, Suite 2400, Dallas, Texas 75201,
and PRUDENTIAL SECURITIES INCORPORATED, a Delaware corporation ("PSI") with its
principal office at One New York, 18th Floor, New York, New York 10292.
R E C I T A L S :
WHEREAS, the Company and Prudential Securities Credit Corp., an
Affiliate of PSI ("PSCC"), are parties to that certain Amended and Restated
Interim Warehouse and Security Agreement dated as of the date hereof (as the
same may be amended, supplemented or otherwise modified from time to time and
together with all documents and agreements executed and delivered in connection
therewith, collectively, the "Warehouse Agreement"); and
WHEREAS, as a condition to the obligation of PSCC to enter into the
Warehouse Agreement, PSI has required, inter alia, that the Company shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Definitions. For purposes of this Agreement, the terms set
forth below in this Section 1 shall have the respective meanings hereinafter
assigned to them in this Agreement:
"Act" shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute.
"Affiliate" of any Person shall mean any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such Person. A Person shall be deemed to control another Person if
such first Person possesses directly or indirectly the power to direct, or
cause the direction of, the management and policies of the second Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Agreement.
"Appraiser" shall mean an investment bank or other qualified
independent appraiser of national standing.
"Benefit Plans" shall mean the Company's option and benefit plans,
whether currently in effect or adopted in the future, which are used to
compensate the officers and other employees of the Manager (as defined in the
Warehouse Agreement) and any successor manager under the Management Agreement
(as defined in the Warehouse Agreement), and Affiliates of the Manager,
including, without limitation, the AMRESCO Capital Trust 1998 Share Option and
Award Plan.
"Blue Sky Laws" shall mean any and all applicable state securities
laws.
<PAGE> 3
"Board of Trust Managers" shall have the same meaning as in the
Company's Charter, and shall also include any governing body with similar
functions of any successor entity of the Company as it may then be constituted.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the States of
New York, Texas or Georgia.
"Closing Date" shall mean the date this Agreement is originally
executed.
"Commission" shall mean the Securities and Exchange Commission or any
entity succeeding to its functions relating to the registration of securities
and securities markets under the federal securities laws.
"Common Shares" shall mean (except where the context otherwise
indicates) the common shares of beneficial interest of the Company as
constituted on the Closing Date, and any equity interests (whether in the form
of common stock or otherwise) into which such Common Shares may thereafter be
changed, by reclassification or otherwise, and shall also include (i) equity
interests (whether in the form of common stock or otherwise) of the Company of
any other class (regardless of how denominated) which is also not preferred as
to dividends or distributions of assets over any other class of equity of the
Company and which is not subject to redemption, and (ii) equity interests
(whether in the form of common stock or otherwise) of any successor or
acquiring Person received by or distributed to the holders of Common Shares of
Company in the circumstances contemplated by Section 14(f).
"Common Share Certificate" shall mean a certificate evidencing one or
more Common Shares.
"Company" shall mean AMRESCO Capital Trust, a Texas real estate
investment trust.
"Company's Charter" shall mean the Company's Declaration of Trust and
By-laws, true, accurate and correct copies of which are attached hereto as
Exhibit A.
"Convertible Securities" shall mean any evidences of indebtedness,
shares of stock or other securities directly or indirectly convertible into or
exchangeable (with or without payment of additional consideration) for Common
Shares.
"Current Price" with respect to any security on any day shall mean the
closing sale price, regular way, on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in each case on the Nasdaq Stock Market or, if such security is
not quoted on the Nasdaq Stock Market, on the principal national securities
exchange or quotation system on which such security is quoted or listed or
admitted to trading or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average of the closing
bid and asked prices of such security on the over-the-counter market on the day
in question as reported by the National Quotation Bureau Incorporated, or a
similar generally accepted reporting service, or, if the security is not
publicly traded, the Fair Market Value of such security determined in
accordance with Section 13.
2
<PAGE> 4
"Date of Exercise" shall mean, with respect to any Warrant, the first
date on which the Company shall have received (i) the Warrant Certificate
evidencing such Warrant, together with a purchase form (in the form attached
hereto as Exhibit C) duly completed and signed, and (ii) payment of the
Exercise Price.
"Demanding Parties" is defined in Section 12(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute.
"Exercise Price" shall mean the exercise price of a Warrant, which
shall initially be $9.83 per Warrant Share, subject to adjustment as provided
in Section 14.
"Expiration Date" shall mean, with respect to any Warrant, the
calendar date corresponding to the date seven (7) years from the Closing Date.
"Fair Market Value" is defined in Section 13.
"GAAP" shall mean generally accepted accounting principles as in
effect in the United States of America from time to time.
"Holder" shall mean the registered holder, from time to time, of any
Subject Security.
"Indemnified Person" is defined in Section 12(f)(i).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq Stock Market" shall mean The Nasdaq Stock Market's National
Market.
"Options" shall mean rights, options or warrants (other than the
Warrants) to subscribe for, purchase or otherwise acquire either Common Shares
or Convertible Securities.
"Other Registrable Securities" shall mean securities of the Company
(other than the Registrable Securities) as to which the holders of such
securities have registration rights as of or subsequent to the Closing Date and
as to which other Persons are granted registration rights.
"Other Securities" shall mean any securities (other than Common
Shares) of the Company or any other Person which the Holders at any time shall
be entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to the Warrant Shares, or which at any time
shall be issuable or shall have been issued to holders of the Warrant Shares in
exchange for, in addition to or in replacement of, the Warrant Shares.
"Person" shall mean an individual, an association, a partnership, a
corporation, a limited liability company, a trust, an unincorporated
organization, a government or any other entity or organization.
"Piggyback Registration" is defined in Section 12(a)(i).
3
<PAGE> 5
"Preferred Shares" shall mean shares of beneficial interest which are
preferred as to dividends or distributions of assets over any other class of
equity securities of the Company.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"PSCC" shall mean Prudential Securities Credit Corp.
"PSI" shall mean Prudential Securities Incorporated.
"Public Offering" shall mean an offering and/or sale to the public of
Common Shares, which offering and sale are registered under the Act.
"Register" shall mean the register for the registration and
registration of transfer of the Warrants, which shall be maintained by the
Company at its principal office, or such other place as the Company may specify
in writing to the Persons named therein as Holders of the Warrants.
"Registrable Securities" shall mean the Warrants, any Common Shares or
Other Securities issuable or issued upon exercise of the Warrants, any Common
Shares or Other Securities of the Company issued as a dividend or other
distribution with respect to, or in exchange or in replacement of such Common
Shares.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference or deemed
to be incorporated by reference in such Registration Statement.
"Representative" is defined in Section 13.
"Shelf Registration Statement" shall have the meaning provided in
Section 12 (c) hereof.
"Supplemental Shelf Registration Statement" shall have the meaning
provided in Section 12(c)(ii) hereof.
"Subject Securities" shall mean, without duplication if the context
requires, the Warrants issued hereunder and the Warrant Shares and Other
Securities issued upon exercise of such Warrants.
"Third-Party Warrants" shall have the meaning set forth in Section
2(b)(vi) of this Agreement.
4
<PAGE> 6
"Trading Day" shall mean (x) if the applicable security is quoted on
the Nasdaq Stock Market, a day on which a trade may be made on the Nasdaq Stock
Market, (y) if the applicable security is listed or admitted for trading on a
national securities exchange, a day on which such national securities exchange
is open for business or (z) if the applicable security is not otherwise listed,
admitted for trading or quoted, any day other than a Saturday or Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Warehouse Agreement" is defined in the first Recital.
"Warrant" shall mean a Warrant issued to PSI pursuant hereto and all
Warrants issued upon transfer, division or combination of, or in substitution
for, any thereof.
"Warrant Certificate" shall mean a certificate substantially in the
form of Exhibit B attached hereto evidencing one or more Warrants.
"Warrant Shares" shall mean the Common Shares issuable, from time to
time, upon exercise of the Warrants.
Section 2. Representations, Warranties and Covenants.
(a) The Company represents and warrants to the Holder that:
(i) The Company has the power to execute and deliver this
Agreement and has the power to issue the Warrant Shares and to perform
its obligations under this Agreement and the Warrant Certificates.
(ii) The execution, delivery and performance by the Company
of this Agreement and the issuance of Warrant Shares upon the exercise
of the Warrants have been duly authorized by all necessary action, and
do not (A) violate any provision of applicable law or regulation, or
of the Company's Charter, or of any order, writ, injunction or decree
of any court or governmental authority applicable to the Company, or
(B) result in a breach of, or constitute a default under, or require
any consent under, any contractual obligation to which the Company is
a party or by which the Company is bound or affected. The Company has
taken sufficient corporate action to reserve a sufficient number of
authorized but unissued Common Shares in connection with the
prospective issuance of the Warrant Shares.
(iii) This Agreement has been duly executed and delivered by
the Company and constitutes a legal, valid, binding and enforceable
obligation of the Company, except as limited by bankruptcy, insolvency
or other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights and by the application of equitable
principles. The Warrants and the Warrant Certificates constitute
legal, valid, binding and enforceable obligations of the Company,
except as limited by bankruptcy, insolvency or other similar laws now
or hereafter in effect affecting the enforcement of creditors' rights
and by the application of equitable principles, and the Warrant
Shares, when issued upon exercise of the Warrants, will be duly
authorized, validly issued, fully paid and
5
<PAGE> 7
nonassessable and be free from all taxes, liens and charges with
respect to the issuance thereof (other than any liens or charges
resulting from the Holder's actions).
(iv) The Company's authorized Common Shares are as described
in the Company's Charter. A total of 10,006,111 Common Shares were
issued and outstanding on the Closing Date.
(v) Except as set forth on Exhibit E attached hereto, there
are no Options, subscriptions or similar rights to acquire from the
Company, or agreements or other obligations by the Company, absolute
or contingent, to issue, sell or register Common Shares, whether by
Public Offering or on conversion or exchange of Convertible Securities
or otherwise.
(vi) No holder of Common Shares has any preemptive rights to
subscribe for or to purchase any Warrants or Warrant Shares under the
Company's Charter, any agreement to which the Company is a party or
otherwise bound or the corporate law of the Company's jurisdiction of
organization.
(vii) No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other
governmental body is required to be obtained by the Company in
connection with the execution of this Agreement and the transactions
contemplated hereby, including the valid issuance of the Subject
Securities.
(viii) It is not necessary in connection with the offer,
issuance or sale to PSI of the Subject Securities to register the
Subject Securities under the Act or any Blue Sky Law.
(ix) No legal proceeding or investigation is pending or to
the best knowledge of the Company threatened before any court,
arbitrator or administrative or governmental authority, bureau or
agency to restrain or prohibit the Company from performing this
Agreement or the transactions contemplated hereby.
(x) No representation or warranty made by the Company in this
Agreement, or in any schedule, written statement or certificate
furnished to the Holder in connection with the transactions
contemplated by this Agreement, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements contained herein and therein not false or misleading.
(b) The Company hereby covenants for so long as this Agreement remains
in effect that:
(i) The Company will not (and will cause any Affiliate not
to) take any action, including, without limitation, amending the
Company's Charter, reorganizing, consolidating, merging, dissolving,
transferring assets or issuing or selling securities or take any other
voluntary action, to avoid, or seek to avoid, observing or performing
any of the terms, conditions or covenants, of this Agreement or the
Subject Securities, and will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate to protect the rights of the
Holders
6
<PAGE> 8
against dilution or impairment to the extent contemplated by the terms
hereof. In furtherance and not in limitation of the foregoing, the
Company shall not (1) enter into any agreement with respect to its
securities that is inconsistent with the rights granted to Holders of
Subject Securities in this Agreement or otherwise conflicts with the
provisions hereof, or (2) increase the par value of any Warrant Shares
or Other Securities above the Exercise Price then in effect. Before
taking any action that would cause an adjustment pursuant to Section
14, the Company will take all corporate action that, in the opinion of
its legal counsel, may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares
at the then applicable Exercise Price.
(ii) The Company will take all actions necessary or
appropriate to be taken by it to validly and legally issue fully paid
and nonassessable Common Shares upon exercise of the Warrants and will
use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Agreement. In respect of the
issuance of the Warrants to the Holders, the exercise thereof by the
Holders and the resulting issuance of Subject Securities, the Company
shall not set off, recoup, claim, abate, withhold or defer any
property or amount for any reason whatsoever.
(iii) At all times during the term of this Agreement, the
Company shall retain a nationally recognized accounting firm as its
auditor.
(iv) (A) The Company will file with the Commission such
information as the Commission may require under Section 13 or 15(d) of
the Exchange Act, as applicable, and shall use commercially reasonable
efforts to take all action as may be required as a condition to the
availability of Rule 144 or Rule 144A under the Act (or any successor
or similar exemptive rules hereafter in effect) and (B) the Company
shall make available to Holders of Subject Securities such reports,
documents and information as such Holders reasonably request to enable
such Holders to make sales of Subject Securities pursuant to such
rules. If the Company ceases to be subject to Section 13 or 15(d) of
the Exchange Act, the Company shall make available to the Holder of
Subject Securities in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Act in order to
permit resales of Subject Securities pursuant to Rule 144A.
(v) The Company shall use commercially reasonable efforts to
qualify at all times after May 12, 1999 for registration of its Common
Shares on Form S-3 or such successor form.
(vi) In the event that any of the terms of any warrant
agreement or any warrants issued by the Company (other than Options
granted under Benefit Plans after the Closing Date which entitle all
of the holders thereof to purchase not more that 1,000,000 shares of
Common Stock of the Company and any Options granted under the Benefit
Plans prior to the Closing Date) to any other third party are more
favorable to such third party than the terms hereof are to the
Holders, then a majority-in-interest of the Holders may prepare, and
the Company agrees to sign, an amendment to this Agreement making such
changes as shall be necessary in order to make the terms of this
Agreement at least as favorable as those set forth in the warrant
agreement or warrants issued to such third party ("Third-Party
Warrants").
7
<PAGE> 9
(c) PSI hereby represents and warrants to and agrees with the Company
that:
(i) PSI is acquiring and will acquire the Subject Securities
for its own account for investment and not with a view to any
distribution thereof that might cause a violation of the Act or any
rules or regulations thereunder; provided, however, that subject to
Section 6 hereof, the disposition of the Subject Securities shall be
at all times within the sole discretion of the Holders.
(ii) PSI has had an opportunity to ask questions of the
principal officers and representatives of the Company and to obtain
any additional information necessary to permit an evaluation of the
benefits and risks associated with the investment made hereby.
(iii) PSI has had sufficient experience in business,
financial and investment matters to evaluate the merits and risks
involved in the investment made hereby and is able to bear the
economic risk (including complete loss) of such investment for an
indefinite period of time.
(d) In addition to any reduction in the Exercise Price required by
Section 14, the Company and PSI hereby agree that the Company shall have the
right to reduce the Exercise Price at any time, in its sole discretion, for
such limited periods as it may from time to time determine, upon no less than
ten days and no more than sixty days prior written notice to Holders, provided
that no such reduction may be effected without the approval of a majority of
the Board of Trust Managers.
Section 3. Warrant Certificates. The Warrant Certificates shall be in
registered form only and shall be substantially in the form of Exhibit B
attached hereto, with such changes therein as may be required from time to time
to reflect any adjustments made pursuant to Section 14 hereof. The Warrant
Certificates may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law, or with any rule or regulation made pursuant thereto, or
with any rule or regulation of any stock exchange on which the Common Shares or
the Warrants may be listed, or any inter-dealer quotation system upon which the
Common Shares or the Warrants may be quoted. Warrant Certificates shall be
executed on behalf of the Company by its Chairman of the Board, President or
any Executive or Senior Vice President, and attested by its Secretary or an
Assistant Secretary. The signature of any of such officers may be manual or
facsimile. Warrant Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that any of such individuals shall have ceased to
hold such offices prior to the delivery of such Warrant Certificates or did not
hold such offices on the date of this Agreement.
8
<PAGE> 10
Section 4. Issuance and Delivery of Warrant Certificates. The Company
hereby agrees to issue and deliver on the Closing Date to PSI 250,002 Warrants
registered in the name of PSI, and shall deliver to PSI one (1) Warrant
Certificate in the amount of 250,002 Warrants, evidencing such Warrants.
Section 5. Registration. The Warrants shall be registered in the
name(s) of the recordholder(s) thereof from time to time. The Company may deem
and treat the registered Holder(s) of the Warrants as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing on the
Warrant Certificates made by anyone) for the purpose of any exercise thereof or
any distribution to the Holder(s) thereof, and for all other purposes.
Section 6. Transfer; Registration of Transfers and Exchanges.
(a) Subject to compliance with U.S. securities laws, the Warrants and
all rights thereunder are fully transferable in whole or in part and from time
to time to any "qualified institutional buyer" (as defined in Rule 144A under
the Act) or "accredited investor" (as defined in Rule 501 under the Act), and
to any other individual with the consent of the Company, which consent shall
not be unreasonably withheld or delayed, provided, however, that PSI shall not
transfer the Warrants to more than seven Persons. The Company shall register
the transfer of any outstanding Warrants made in accordance with the terms
hereof and applicable law upon the Register, upon surrender of the Warrant
Certificate(s) to the Company's principal office, accompanied by a written
instrument of transfer substantially in the form attached hereto as Exhibit D,
duly executed by the registered Holder(s) thereof or by the duly appointed
legal representative thereof. Upon any such registration of transfer, new
Warrant Certificate(s) evidencing such transferred Warrants shall be issued to
the transferee(s) and the surrendered Warrant Certificate(s) shall be
cancelled.
(b) Warrant Certificates may be exchanged at the option of the Holder
thereof, when surrendered to the Company at its principal office, for other
Warrant Certificates of like tenor and representing in the aggregate a like
number of Warrants. Warrant Certificates surrendered for exchange shall be
cancelled.
Section 7. Duration and Exercise of Warrants.
(a) The Warrants shall be exercisable by the Holder thereof on any
Business Day on or after the Closing Date and prior to the close of business on
the Expiration Date.
(b) Subject to the provisions of this Agreement, the Holder of each
Warrant shall have the right to purchase from the Company (and the Company
shall issue and sell to such Holder of a Warrant) one fully paid and
nonassessable Common Share per Warrant held upon (i) surrender of the Warrant
Certificate evidencing such Warrant, with a purchase form substantially in the
form attached hereto as Exhibit C duly completed and signed, to the Company at
its principal office or at such other address as the Company may specify in
writing to the then registered Holders, and (ii) payment of the Exercise Price.
Payment of the Exercise Price shall be made at the option of the Holder by (i)
cash or certified or official bank check, (ii) by surrendering additional
Warrants or shares of Common Stock for cancellation to the extent the Company
may lawfully accept shares of Common Stock, with the value of such shares of
9
<PAGE> 11
Common Stock for such purpose to equal the average Current Price of the Common
Stock during the ten Trading Days immediately preceding the date of surrender,
and the value of such additional Warrants to equal the difference between the
aggregate value of the Warrant Shares issuable on the exercise of such
Warrants, calculated as set forth in this clause 7(b)(ii), and the aggregate
Exercise Price, or (iii) any combination thereof, duly endorsed by or
accompanied by appropriate instruments of transfer duly executed by Holder or
by Holder's attorney duly authorized in writing.
(c) Upon such surrender of the Warrant Certificate evidencing any
Warrants and payment of the Exercise Price, the Company shall, as promptly as
practicable, and in any event within five Business Days thereafter, issue and
cause to be delivered to, or upon the written order of, the Holder of such
Warrants and in such name or names as such Holder may designate, a certificate
for the Warrant Shares issued upon such exercise of such Warrants. Any
Person(s) so designated to be named therein shall be deemed to have become the
Holder of record of the Warrant Shares as of the Date of Exercise of such
Warrants. The stock certificate or certificates so delivered shall be, to the
extent possible, in such denomination or denominations as such Holder shall
request.
(d) The Warrants evidenced by a Warrant Certificate are exercisable,
from time to time, either in whole or in part for any number of Warrant Shares
up to the number of Warrant Shares evidenced by the Warrant Certificate. If
fewer than all of the Warrants evidenced by a Warrant Certificate are exercised
at any time, a new Warrant Certificate or Certificates shall be issued as
promptly as practicable (and in any event within five Business Days), at the
Company's expense, for the remaining number of Warrants evidenced by such
Warrant Certificate. All Warrant Certificates surrendered upon exercise of
Warrants shall be cancelled.
Section 8. Payment of Expenses and Taxes. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges
(other than any corporate, personal or other income taxes of the Holder) that
may be imposed with respect to, the issue or delivery of Warrant Shares, unless
such tax or charge is imposed by law upon the Holder, in which case such taxes
or charges shall be paid by the Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for Warrant Shares in any name other
than that of the Holder.
Section 9. Mutilated or Missing Warrant Certificates. Upon receipt by
the Company from any Holder of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of a Warrant Certificate and indemnity
reasonably satisfactory to it (it being understood that the written indemnity
agreement of PSI, without posting of a bond, shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation of the mutilated
Warrant Certificate, the Company will execute and deliver in lieu thereof a new
Warrant Certificate of like tenor to such Holder; provided, in the case of
mutilation, no indemnity shall be required if the mutilated Warrant Certificate
in identifiable form is surrendered to Company for cancellation.
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Section 10. Reservation and Issuance of Warrant Shares. The Company
will at all times authorize, reserve and have available, free from preemptive
rights, solely for the purpose of enabling it to satisfy any obligation to
issue and deliver Warrant Shares upon the exercise of the Warrants, the number
of Common Shares that is equal to the total number of Warrant Shares issuable
upon the exercise of the Warrants, as such number shall vary from time to time
in accordance with Section 14, and, if necessary, will amend its Declaration of
Trust to provide sufficient reserves of Common Shares issuable upon exercise of
the Warrants. The transfer agent for the Common Shares and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the Warrants shall be irrevocably authorized and directed at all
times to reserve the maximum number of authorized shares as shall be required
for such purpose. The Company shall keep a copy of this Agreement on file with
the transfer agent for the Common Shares and with every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of the Warrants.
Section 11. No Registration under the Act; Legend. None of the Subject
Securities has been registered under the Act. Assuming the accuracy of the
representations of PSI contained in Section 2(c) hereof, but based on the
Company's analysis of the applicable securities laws, the Company represents
and warrants that the offer, sale and issuance of the Warrants qualifies for
the exemption from registration provided by Section 4(2) of the Act on the
ground that Warrants are to be issued in transactions by an issuer not
involving any Public Offering.
A copy of this Agreement shall be filed with the Secretary of the
Company and kept at its principal office. The Warrant Certificates shall
contain a legend substantially in the following form:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON SHARES
ISSUABLE PURSUANT TO THE TERMS HEREOF HAVE THE BENEFIT AND ARE SUBJECT
TO THE TERMS AND CONDITIONS SPECIFIED IN THE WARRANT AGREEMENT DATED
AS OF MAY 4, 1999, BETWEEN THE COMPANY AND THE INITIAL HOLDER OF THE
WARRANTS THEREIN NAMED, AS FROM TIME TO TIME AMENDED, A COMPLETE AND
CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED TO THE HOLDER OF THIS
WARRANT UPON WRITTEN REQUEST AND WITHOUT CHARGE.
THE WARRANTS AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THE
WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE OR OTHER SECURITIES LAW AND MAY NOT
BE TRANSFERRED EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, OR (ii) UPON FIRST FURNISHING TO THE COMPANY
AN OPINION OF COUNSEL THAT SUCH TRANSFER IS NOT IN VIOLATION OF THE
REGISTRATION REQUIREMENTS OF THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE TRUST'S
MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE CODE"). PURSUANT TO
THE TRUST'S DECLARATION OF TRUST, AND
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EXCEPT AS OTHERWISE PROVIDED THEREIN, NO PERSON MAY (1) BENEFICIALLY
OWN SHARES IN EXCESS OF 9.8% (IN VALUE OR NUMBER OF SHARES) OF ALL
OUTSTANDING SHARES OF ANY CLASS, OR (2) BENEFICIALLY OWN SHARES THAT
WOULD RESULT IN THE TRUST BEING "CLOSELY HELD" UNDER SECTION 856(h) OF
THE CODE OR OTHERWISE CAUSE THE TRUST TO FAIL TO QUALIFY AS A REIT. IF
THE RESTRICTIONS ON OWNERSHIP OR TRANSFER ARE VIOLATED BY THE HOLDER
HEREOF, THE EXCESS SHARES REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO A TRUSTEE OF A CHARITABLE TRUST FOR THE BENEFIT OF ONE
OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, UPON THE OCCURRENCE OF
CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE ABOVE
RESTRICTIONS MAY BE VOID. ALL TERMS IN THIS LEGEND NOT OTHERWISE
DEFINED HEREIN HAVE THE MEANINGS ASCRIBED THERETO IN THE TRUST'S
DECLARATION OF TRUST, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A
COPY OF WHICH, INCLUDING THE RESTRICTIONS ON OWNERSHIP OR TRANSFER,
WILL BE SENT WITHOUT CHARGE TO THE RECORD HOLDER OF THE CERTIFICATE
UPON WRITTEN REQUEST TO THE TRUST AT ITS PRINCIPAL PLACE OF BUSINESS.
IN ADDITION, THE COMPANY WILL FURNISH TO ANY SHAREHOLDER ON REQUEST
AND WITHOUT CHARGE A FULL STATEMENT OR SUMMARY OF THE DESIGNATIONS AND
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS AND TERMS AND CONDITIONS
OF REDEMPTION OF THE SHARES OF EACH CLASS WHICH THE COMPANY IS
AUTHORIZED TO ISSUE AND THE DIFFERENCES IN THE RELATIVE RIGHTS AND
PREFERENCES BETWEEN SUCH SHARES OF EACH SERIES, IF ANY, TO THE EXTENT
THEY HAVE BEEN SET, AND OF THE AUTHORITY OF THE BOARD OF TRUST
MANAGERS TO SET THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT
SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE COMPANY.
The Common Share Certificates shall contain a legend which is
substantially similar to the legend on the Company's current Common Share
Certificates and which also contains provisions substantially in the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE OR OTHER SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT
(i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
(ii) UPON FIRST FURNISHING TO THE COMPANY AN OPINION OF COUNSEL THAT
SUCH TRANSFER IS NOT IN VIOLATION OF THE REGISTRATION REQUIREMENTS OF
THE ACT.
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<PAGE> 14
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE TRUST'S
MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED ("THE CODE"). PURSUANT TO
THE TRUST'S DECLARATION OF TRUST, AND EXCEPT AS OTHERWISE PROVIDED
THEREIN, NO PERSON MAY (1) BENEFICIALLY OWN SHARES IN EXCESS OF 9.8%
(IN VALUE OR NUMBER OF SHARES) OF ALL OUTSTANDING SHARES OF ANY CLASS,
OR (2) BENEFICIALLY OWN SHARES THAT WOULD RESULT IN THE TRUST BEING
"CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE
TRUST TO FAIL TO QUALIFY AS A REIT. IF THE RESTRICTIONS ON OWNERSHIP
OR TRANSFER ARE VIOLATED BY THE HOLDER HEREOF, THE EXCESS SHARES
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
CHARITABLE TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE
BENEFICIARIES. IN ADDITION, UPON THE OCCURRENCE OF CERTAIN EVENTS,
ATTEMPTED TRANSFERS IN VIOLATION OF THE ABOVE RESTRICTIONS MAY BE
VOID. ALL TERMS IN THIS LEGEND NOT OTHERWISE DEFINED HEREIN HAVE THE
MEANINGS ASCRIBED THERETO IN THE TRUST'S DECLARATION OF TRUST, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON OWNERSHIP OR TRANSFER, WILL BE SENT WITHOUT CHARGE TO
THE RECORD HOLDER OF THE CERTIFICATE UPON WRITTEN REQUEST TO THE TRUST
AT ITS PRINCIPAL PLACE OF BUSINESS.
Any opinion of counsel obtained in connection with a transfer or
delegending of the Subject Securities will be at the expense of the relevant
Holder. At such time as a legend stated above (or any part thereof) is no
longer applicable for any reason, including, without limitation, the operation
of Section 12 or Rule 144(k), the Company will, upon receipt of an opinion of
counsel to the relevant Holder to such effect, issue new Warrant Certificates
or Common Stock Certificates which do not contain such legend.
Section 12. Registration Rights.
(a) Piggyback Registration.
(i) If (and on each occasion that) the Company proposes to
register any of its securities under the Act in connection with a
Public Offering or effect an underwritten Public Offering under an
effective Registration Statement, either for the Company's own account
and/or for the account of any of its securityholders, other than any
such registration described in the last sentence of clause (ii) below
(each such registration being herein called a "Piggyback
Registration"), then the Company will give written notice to all
Holders who then hold Registrable Securities of the Company's
intention to effect such Piggyback Registration not later than the
earlier to occur of (A) thirty days prior to the anticipated initial
filing date of such Piggyback Registration if such registration is on
Form S-3, and (B) forty-five days prior to such date if the
registration is on any other form.
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<PAGE> 15
(ii) Subject to the provisions contained in Section 12(b) and
in the last sentence of this clause (ii), in connection with any
registration subject to the provisions of this Section 12(a), if
within twenty days after the date of the Company notice pursuant to
clause (i) above Holders of Registrable Securities request the
inclusion of some or all of the Registrable Securities owned by them
in such registration (in the form of shares of Common Stock to be
obtained upon exercise of the Warrants then held by them), the Company
will use commercially reasonable efforts to effect the registration
under the Act of all Registrable Securities which such Holders request
to be registered. Holders of Registrable Securities shall be permitted
to withdraw all or any part of the Registrable Securities of such
Holders from any Piggyback Registration at any time prior to the final
filing (which has been made by and in the discretion of the Company)
of such Piggyback Registration. Notwithstanding anything herein to the
contrary, the Company will not be obligated or required to include any
Registrable Securities in any registration effected on Form S-4 (or
any similar successor form); on Form S-8 (or any similar successor
form) solely to implement an employee benefit plan (including any
option plan) or a transaction of the type to which Rule 145 of the
Commission or any successor provision is applicable, or in connection
with a dividend reinvestment or direct stock purchase plan for the
benefit of the Company's stockholders.
(b) Allocation on Piggyback Registrations. In connection with an
underwritten Public Offering, if the managing underwriter or underwriters in
connection with a Piggyback Registration shall advise the Company in writing
that, in the reasonable opinion of such managing underwriter or underwriters,
the inclusion of all Registrable Securities for which registration is requested
pursuant to Section 12(a) hereof would materially and adversely affect the
success of such offering, then registration of the Company's securities shall
be cut-back in the following order:
(i) First, the registration for the Other Registrable
Securities shall be cut-back such that no holder of Other Registrable
Securities shall be entitled to participate in such underwritten
Public Offering unless all Registrable Securities and all Common
Shares proposed to be sold by the Company for its own account or for
the account of the parties for which the underwritten Public Offering
was commenced as a result of the exercise of demand registration
rights ("Demanding Parties") have been included in such underwritten
Public Offering. If the managing underwriter or underwriters of the
Public Offering reasonably determine that the Holders of the
Registrable Securities can include all of their Registrable Securities
in such Public Offering, then the holders of the Other Registrable
Securities shall be entitled to include their Other Registrable
Securities in an amount up to the amount that such managing
underwriter or underwriters advise may be included therein (as
allocated among the holders of the Other Registrable Securities, pro
rata on the basis of the number of Other Registrable Securities
requested to be included therein by such holders).
(ii) Second, the registration for the Registrable Securities
shall be cut-back such that no Holder of Registrable Securities shall
be entitled to participate in such underwritten Public Offering unless
all Common Shares proposed to be sold by the Company for its own
account and for the account of the Demanding Parties have been
included in such underwritten Public Offering. If the managing
underwriter or
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<PAGE> 16
underwriters of the Public Offering reasonably determine that all
Common Shares proposed to be sold by the Company for its own account
and for the account of the Demanding Parties can be included in such
Public Offering, then the Holders of the Registrable Securities shall
be entitled to include their Registrable Securities in an amount up to
the amount that such managing underwriter or underwriters advise may
be included therein (as allocated among the Holders of the Registrable
Securities, pro rata on the basis of the number of Registrable
Securities requested to be included therein by such holders).
(c) Demand Registration.
(i) The Company shall cause to be filed with the Commission
as promptly as practicable, but in no event later than August 15,
1999, a shelf Registration Statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration Statement") on Form S-3 (or
other appropriate form) to cover sales of the Registrable Securities
(in the form of shares of Common Stock to be obtained upon exercise of
the Warrants then held by them). In connection with the Shelf
Registration Statement, the Company shall also register the offer and
sale of the Warrant Shares issuable upon exercise of the Warrants as a
primary registration. The Company shall use commercially reasonable
efforts to cause such Shelf Registration Statement to be declared
effective by the Commission as soon as practicable thereafter. The
Company shall use commercially reasonable efforts to keep such Shelf
Registration Statement continuously effective until the earlier to
occur of two years following the Date of Exercise of the last Warrant
issued pursuant to this Agreement or such time as, in the written
opinion of counsel to the Company, which opinion is reasonably
acceptable to such Holders, such registration is not required for the
unrestricted resale under Rule 144 (k) of Registrable Securities
entitled to registration rights under this Agreement. If Holders of a
majority of the Registrable Securities to be registered for resale in
the Shelf Registration Statement so elect, an offering of Registrable
Securities pursuant to the Shelf Registration Statement may be
effected in the form of an underwritten offering. Upon the receipt of
a notice of election by a majority of the Registrable Securities to
effect an underwritten offering, the Company will notify in writing
all Holders whose names are not included in such notice and such
non-electing Holders may, within five business days of receipt of such
notice, elect to be included with, and treated as, an electing Holder.
If the managing underwriter or underwriters advises the Company and
the Holders of such Registrable Securities that in its opinion the
amount of Registrable Securities proposed to be sold in such offering
exceeds the amount of Registrable Securities which can be sold in such
offering, there shall be included in such underwritten offering the
amount of such Registrable Securities which in the opinion of such
underwriter(s) can be sold, and such amount or number of shares of
such Registrable Securities shall be allocated pro rata among the
Holders electing to participate in such underwritten offering.
(ii) In addition to their rights under Sections 12(a), (b)
and (c)(i) hereof, following the expiration of the Shelf Registration
Statement, Holders collectively holding at least 75,000 shares of the
then outstanding Registrable Securities (or if less than 75,000 shares
of the Registrable Securities are then outstanding, then such lesser
amount) shall have the right to request and have effected
registrations of Registrable Securities for a
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<PAGE> 17
Public Offering of Registrable Securities unless, in the written
opinion of counsel to the Company, which opinion is reasonably
acceptable to such Holders, such registration is not necessary for
such Holders to sell their Registrable Securities in the manner
contemplated in compliance with applicable securities laws. Such
requests shall be in writing and shall state the number of Registrable
Securities to be disposed of and the intended method of disposition of
such Registrable Securities by such Holders. The Company shall give
notice to all of the Holders of Registrable Securities of the receipt
of a request for registration pursuant to this Section 12(c)(ii) and
shall provide a reasonable opportunity for such Persons to participate
in such a registration provided they elect to do so in writing to the
Company within fifteen days after the date of the Company's notice.
Subject to the foregoing, the Company will use commercially reasonable
efforts to effect promptly the registration of all Registrable
Securities to the extent requested by the Holder or Holders thereof,
and to keep such registration effective for thirty-six months or until
all such Holder's Registrable Securities registered thereunder are
sold, whichever is shorter. If so requested by any Holder in
connection with a registration under this Section 12(c)(ii), and if
the Company is then eligible to use Form S-11 or Form S-3, the Company
shall take such steps as are required to register such Holder's
Registrable Securities for sale on a delayed or continuous basis (the
"Supplemental Shelf Registration") under Rule 415 of the Act or any
successor provision (if applicable).
(iii) The Company further agrees to use commercially
reasonable efforts to prevent the happening of any event that would
cause a Registration Statement to contain a material misstatement or
omission or to be not effective and usable for resale of the
Registrable Securities during the period that such Registration
Statement is required to be effective and usable. Upon the occurrence
of any event that would cause a Registration Statement (1) to contain
a material misstatement or omission, or (2) to be not effective and
usable for resale of Registrable Securities during the period that
such Registration Statement is required to be effective and usable,
the Company shall as promptly as reasonably practicable file an
amendment to the Registration Statement, in the case of clause (1)
immediately above, correcting any such misstatement or omission, and
in the case of either clause (1) or (2) immediately above, use
commercially reasonable efforts to cause such amendment to be declared
effective and such Registration Statement to become usable as soon as
reasonably practicable thereafter. If the majority-in-interest of the
Holders selling Registrable Securities so elect, an offering of
Registrable Securities may be effected in the form of an underwritten
offering, and if so, the Company's management shall cooperate in
roadshow presentations to assist such Holders in selling their
Registrable Securities and shall otherwise work in good faith with any
managing underwriter(s) in connection with taking all actions
necessary to successfully consummate the Public Offering. If any
demand registration pursuant to this Section 12(c) involves an
underwritten public offering, the underwriter(s) to be used in
connection with such registration shall be selected by a
majority-in-interest of the Holders of Registrable Securities to be
sold in such registration, subject to the approval of the Company
(which shall not be unreasonably withheld or delayed).
(iv) The Company agrees that without the written consent of
the managing underwriter or underwriters in an underwritten offering
of Registrable Securities pursuant to Sections 12(a) and 12(c) hereof,
it will not effect any public sale or distribution of its
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equity securities (except (i) pursuant to registrations on Form S-4 or
Form S-8 or any successor form or pursuant to any dividend
reinvestment or direct stock purchase plan of the Company, (ii) in
connection with an exchange offer, or (iii) in connection with the
acquisition of assets by the Company or its subsidiaries) from the
date the Company receives a notice of election to effect an
underwritten offering under Section 12(c) (i) or a demand for
registration under Section 12(c) (ii) until the earlier of (A) the
abandonment of such underwritten offering, or (B) ninety days after
the effective date of the registration statement for such previously
proposed Public Offering or, in the case of a previously proposed
Public Offering pursuant to an effective Shelf Registration Statement,
seventy-five days after the first day on which sales to the public
commence pursuant to such offering, in either case unless a shorter
time period is agreed upon by the managing underwriter or
underwriters.
(d) Other Provisions Relating to Registration Rights. In connection
with the Company's registration obligations pursuant to this Section 12, the
Company shall as expeditiously as possible:
(i) Prepare and file with the Commission, as soon as
practicable, a Registration Statement or Registration Statements on
such form as shall be available for the sale of the Registrable
Securities by the Holders thereof in accordance with the intended
method or methods of distribution thereof, and use commercially
reasonable efforts to cause such Registration Statement to become
effective and to remain effective as provided herein; provided,
however, that before filing a Registration Statement or Prospectus or
any amendments or supplements thereto (including documents that would
be incorporated or deemed to be incorporated therein by reference),
the Company shall notify the Holders of the Registrable Securities
covered by such Registration Statement, their counsel and the managing
underwriters, if any, of its intention to file such documents, and
upon written request shall furnish to such parties so requesting
copies of all such documents proposed to be filed, which documents
will be subject to the reasonably prompt review of such Holders, their
counsel and such underwriters, if any.
(ii) Prepare and file with the Commission such amendments and
post- effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective
during the period provided in this Agreement with respect to the
disposition of all securities covered by such Registration Statement,
and cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the Act.
(iii) Notify the selling Holders of the Registrable
Securities, their counsel and the managing underwriters, if any,
promptly, and (if requested in writing by any such Person), confirm
such notice in writing: (1) when a Registration Statement or any
amendment thereto has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become
effective; (2) of any request by the Commission or any other Federal
or state governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional
information; (3) of the issuance by the Commission of any stop order
suspending the
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effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (4) if at any time the representations
and warranties of the Company contained in any agreement (including
any underwriting agreement) contemplated by Section 12(d)(xiv) below
cease to be true and correct; (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for
sale in any jurisdiction, or the initiation or threat in writing of
any proceeding for such purpose; and (6) of the happening of any event
that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or
that requires the making of any changes to such Registration
Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, not misleading,
and that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(iv) Use commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a Registration
Statement, or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction.
(v) If requested by the managing underwriters, if any, or the
Holders of a majority-in-interest of the Registrable Securities being
sold in connection with an underwritten offering, promptly include in
a Prospectus supplement or post-effective amendment such information
as the managing underwriters, if any, and such Holders may reasonably
request in order to permit the intended method of distribution of such
securities and make all required filings of such Prospectus supplement
or such post- effective amendment as soon as practicable after the
Company has received such request.
(vi) Furnish to each selling Holder of Registrable
Securities, their counsel and each managing underwriter, if any,
without charge, at least one conformed copy of the Registration
Statement and each post-effective amendment thereto, including
financial statements (including schedules, all documents incorporated
or deemed to be incorporated therein by reference, and all exhibits).
(vii) Deliver to each selling Holder, their counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus
or Prospectuses (including each form of Prospectus) and each amendment
or supplement thereto as such Persons may reasonably request in
connection with the distribution of the Registrable Securities; and
the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of
Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by
such Prospectus and any such amendment or supplement thereto.
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(viii) Use commercially reasonable efforts to register or
qualify, or obtain an exemption therefrom (or cooperate with the
selling Holders of Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification))
of such Registrable Securities for offer and sale under the securities
or Blue Sky Laws of such jurisdictions within the United States as any
selling Holder (or underwriter) reasonably requests in writing and to
keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to
be kept effective; provided, however, that the Company will not be
required to (1) qualify generally to do business in any jurisdiction
where it is not then so qualified, or (2) take any action that would
subject it to general service of process in any jurisdiction where it
is not then so subject, other than as to matters and transactions
related to such Registration Statement.
(ix) Cooperate with the selling Holders of Registrable
Securities and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be in a
form eligible for deposit with The Depository Trust Company; and
enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters, if any, or
Holders may request in writing at least two business days prior to any
sale of Registrable Securities.
(x) Use commercially reasonable efforts to cause the
Registrable Securities covered by such Registration Statement to be
registered with or approved by such other governmental agencies or
authorities within the United States as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate
the disposition of such Registrable Securities.
(xi) Upon the occurrence of any event contemplated by Section
12(d)(iii)(6) above, prepare a supplement or post-effective amendment
to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(xii) Prior to the effective date of the Registration
Statement relating to the Registrable Securities, provide a CUSIP
number for the Registrable Securities.
(xiii) Use commercially reasonable efforts to cause the
Common Shares covered by such Registration Statement to be listed on
the Nasdaq Stock Market (or on such other exchange or trading system
on which the Common Shares are then listed or authorized to be
quoted), and to cause all Registrable Securities other than Common
Shares that are covered by such Registration Statement to be
authorized to be quoted on the Nasdaq Stock Market (or on such other
exchange or trading system on which the Common Shares are then listed
or authorized to be quoted and to the extent eligible therefor under
the rules of the Nasdaq Stock Market or such national securities
exchange).
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(xiv) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions reasonably requested by the
Holders of a majority-in-interest of the Registrable Securities being
sold in connection therewith (including those reasonably requested by
the managing underwriters, if any) in order to expedite or facilitate
the disposition of such Registrable Securities, and in such
connection, whether or not an underwriting agreement is entered into,
(1) make such representations and warranties to the Holders of such
Registrable Securities and the underwriters, if any, with respect to
the business of the Company and its Affiliates, and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to
be incorporated by reference therein, in each case, in form, substance
and scope as are customarily made by issuers to underwriters in
underwritten offerings, and, if true, confirm the same if and when
requested in writing to do so, (2) if an underwritten offering or if
any Holder or its counsel reasonably concludes that such Holder may be
deemed an "affiliate" of the Company for purposes of the Act, obtain
opinions of counsel to the Company and updates thereof (which counsel
and opinions, in form, scope and substance, shall be reasonably
satisfactory to the managing underwriters, if any, and counsel to the
Holders of Registrable Securities being sold), addressed to each
selling Holder and each of the underwriters, if any, covering the
matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested in
writing by such counsel and underwriters, (3) if an underwritten
offering or if any Holder or its counsel reasonably concludes that
such Holder may be deemed an "affiliate" of the Company for purposes
of the Act, obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of
Affiliates of the Company or of any business acquired by the Company
for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each
selling Holder (unless such accountants shall be prohibited from so
addressing such letters by applicable standards of the accounting
profession) and each of the underwriters, if any, such letters to be
in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings,
(4) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures substantially to the
effect set forth in Section 12(f) hereof with respect to all parties
to be indemnified pursuant to Section 12(f), and (5) deliver such
additional documents and certificates as may be reasonably requested
by the Holders of a majority of the Registrable Securities being sold,
their counsel and the managing underwriters, if any, to evidence the
continued validity of the representations and warranties made pursuant
to Section 12(d)(xiv)(1) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The above shall be done at each
closing under such underwriting or similar agreement, and as and to
the extent required thereunder.
(xv) Make available for inspection by a representative of the
Holders of Registrable Securities being sold, each underwriter
participating in any such disposition of Registrable Securities, if
any, and any attorney or accountant retained by such selling Holder or
underwriter, at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate
documents and properties of the
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Company and its Affiliates as may be reasonably requested, and cause
the officers, directors and employees of the Company and its
Affiliates to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with
such Registration Statement; provided, however, that any information
that is designated by the Company in writing as confidential at the
time of delivery of such information shall be kept confidential by
such Persons unless (1) disclosure of such information is required by
court or administrative order, (2) disclosure of such information, in
the opinion of counsel to such Person, is required by law, or (3) such
information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such Person. Without
limiting the foregoing, no such information shall be used by such
Person as the basis for any market transactions in securities of the
Company or its Affiliates in violation of law.
(xvi) Comply with all applicable rules and regulations of the
Commission and make generally available to its security Holders
earning statements satisfying the provisions of Section 11(a) of the
Act and Rule 158 thereunder, or any similar rule promulgated under the
Act, no later than forty-five days after the end of any twelve month
period (or ninety days after the end of any twelve month period if
such period is a fiscal year) (A) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a
firm commitment or best efforts underwritten offering, and (B) if not
sold to underwriters in such an offering, commencing on the first day
of the first fiscal quarter of the Company after the effective date of
a Registration Statement, which statements shall cover such twelve
month periods.
(xvii) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of any Registration
Statement at the earliest possible moment.
(xviii) Cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD).
(e) Registration Expenses. All fees and expenses incident to the
Company's performance of or compliance with this Section 12 will be borne by
the Company, regardless of whether a Registration Statement filed pursuant to
this Section 12 becomes effective and whether or not any securities are sold
pursuant to such Registration Statement, including without limitation:
(i) all registration and filing fees and expenses associated
therewith including, without limitation, fees and expenses with
respect to filings required to be made with the Commission and the
NASD;
(ii) fees and expenses of compliance with federal securities
or state Blue Sky Laws (including fees and disbursements of counsel
for the underwriters or selling Holders in connection with Blue Sky
qualifications of the Registrable Securities pursuant to Section
12(d)(viii) hereof);
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(iii) expenses of printing (including, without limitation,
expenses of printing or engraving certificates for the Registrable
Securities in a form eligible for deposit with The Depositary Trust
Company and of printing Prospectuses), messenger and delivery services
and telephone;
(iv) reasonable fees and disbursements of counsel for the
Company and of not more than one counsel for the Holders of
Registrable Securities (chosen by a majority of the Holders of the
Registrable Securities to be included in the Registration Statement);
(v) fees and disbursements of all independent certified
public accountants of the Company (including the expenses of any
special audit and "cold comfort" letters required by or incident to
such performance);
(vi) fees and expenses associated with any NASD filing
required to be made in connection with a Registration Statement,
including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and its counsel) that is required to be
retained in accordance with the rules and regulations of the NASD; and
(vii) fees and expenses of listing the Registrable Securities
on any securities exchange or quotation system in accordance with
Section 12(d)(xii) hereof.
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, rating
agency fees and the fees and expenses of any Person, including special experts,
retained by the Company. The Holders of Registrable Securities shall bear the
expense of any broker's commission or underwriters' discount or commission.
(f) Indemnification; Contribution.
(i) Subject to applicable law, the Company will indemnify and
hold harmless each Holder of Registrable Securities (and each
underwriter for such Holder (if any and if retained by the Holder))
being registered, each of its officers, directors, employees and
partners and each person who controls any of them within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act (each, an
"Indemnified Person"), to the full extent lawful, from and against any
and all losses, claims, damages, judgments, expenses and liabilities,
joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in any
settlement (if approved by the Company in the exercise of its good
faith and reasonable discretion) of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject
under the Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages, judgments, expenses or liabilities arise out of or
are based on (A) any untrue statement or alleged untrue statement of a
material fact contained in such Registration Statement (including any
related preliminary or definitive Prospectus, or any amendment or
supplement to such Registration Statement or Prospectus), (B) any
omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it
not misleading, or (C) any violation by the Company of the Act, the
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Exchange Act, any Blue Sky Laws or any rule or regulation thereunder
in connection with such registration; provided, however, that the
Company will not be liable to the extent that such loss, claim,
damage, judgment, expense or liability arises from and is based on a
material untrue statement or omission or alleged material untrue
statement or omission made in reliance on and in conformity with
information furnished in writing to the Company by such Holder
expressly for use in such Registration Statement or otherwise arises
from the sole and willful misconduct of such Holder. Each Holder of
Registrable Securities will indemnify and hold harmless the Company,
each other Holder of Registrable Securities and each Person who
controls any of them within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, judgments, expenses and liabilities, joint or
several, to which they, or any of them, may become subject under the
Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise insofar as such losses, claims,
damages, judgments, expenses and liabilities arise solely by reason of
a material untrue statement or omission made in reliance on and in
conformity with information furnished in writing to the Company by
such Holder for express use in such Registration Statement. The
obligations of any Holder under this clause (i) shall be limited to
the net proceeds to such Holder of the Registrable Securities sold
pursuant to the Registration Statement to which the loss, claim,
damage, judgment, expense or liability relates.
(ii) If the indemnification provided for in clause (i) above
for any reason is held by a court of competent jurisdiction to be
unavailable to an indemnified party in respect of any losses, claims,
damages, judgments, expenses or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses,
claims, damages, judgments, expenses or liabilities in such proportion
as is appropriate to reflect the relative fault, if any, of the
Company and the other selling Holders in connection with the
statements or omissions which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the
selling Holders shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the selling
Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company, the Holders, and the underwriters agree that it
would not be just or equitable if contribution pursuant to this clause
(ii) were determined by pro rata or per capita allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
sentence. The obligations of any Holder under this clause (ii) are
several, not joint, and shall be limited to an amount equal to the net
proceeds to such Holder of Registrable Securities sold pursuant to the
Registration Statement to which the loss, claim, damage, judgment
expense or liability relates. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
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(iii) If any claim is brought or asserted against PSI or
another Indemnified Person, the Company shall be promptly notified of
such in writing. The failure to give such notice shall not relieve the
Company of any liability hereunder, except to the extent that the
Company can demonstrate that it has been materially prejudiced
thereby. If the Company and one or more Indemnified Persons are
subject to such claim, upon notice by the Company to such Indemnified
Person(s), the Company may elect to assume such defense. Upon such
election, the Company shall not be liable hereunder for fees and
disbursements of counsel to any such Indemnified Person subsequently
incurred, other than reasonable costs of investigation and other than
as provided herein, and such election shall be deemed an
acknowledgment by the Company that it is liable for indemnification
and contribution for any such claims and costs, subject to the terms
of this Agreement. PSI and any other Indemnified Person may
participate in the defense of such claim with their own counsel at
their own expense. Notwithstanding the assumption of such defense by
the Company, each Indemnified Person shall have the right to employ
separate counsel and to participate in such defense, and the Company
shall bear the reasonable fees and disbursements of such counsel
(which shall be promptly paid as incurred) if: (i) the Company has
agreed to the retention of such counsel; (ii) the defendants in, or
targets of, any such claim include more than one Indemnified Person or
the Company and an Indemnified Person, and such Indemnified Person
shall have reasonably concluded, based upon advice of such Indemnified
Person's counsel, that representation of such Indemnified Person by
the same counsel (a) would present such counsel with a conflict of
interest, or (b) would be inappropriate due to actual or potential
differing interests between them in the conduct of the defense of the
claim, or (c) would be inappropriate because there may be legal
defenses available to such Indemnified Person that are different from,
or in addition to, those available to any other Indemnified Person or
the Company; or (iii) the Company fails to employ counsel reasonably
satisfactory to PSI or such Indemnified Person(s), as the case may be,
within a reasonable period of time after receipt by the Company of the
notice of the institution of such claim, as provided above. In no
event shall the Company be liable under this paragraph for more than
two counsel, in addition to local counsel, if appropriate. Regardless
of whether the Company elects to assume the defense of a claim against
an Indemnified Person, such Indemnified Person may not, without the
prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed, settle or compromise or consent to
the entry of any judgment with respect to such claim. The Company also
agrees that the Company will not, without the prior written consent of
PSI, which consent shall not be unreasonably withheld or delayed,
settle or compromise or consent to the entry of any judgment in any
pending or threatened claim in respect of which indemnification may be
sought hereunder (whether or not PSI or any Indemnified Person is an
actual or potential party to such claim). Such prior written consent
of PSI shall be required only with respect to PSI determining that
such settlement, compromise or consent complies with the terms of the
following sentence and does not impose any material obligation on PSI
or any other Indemnified Person or contain any admission of
culpability on the part of PSI or any Indemnified Person. Such
settlement, compromise or consent shall include an unconditional
release of PSI and each other Indemnified Person from all liability
arising out of such claim, and the Company shall furnish PSI with a
copy of such settlement reasonably in advance of entering into such
settlement.
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(g) Survival. The provisions of this Section 12 shall survive the
termination or expiration of this Agreement.
Section 13. Fair Market Value. In order to determine Fair Market Value
for property other than publicly traded securities for purposes of this
Agreement, the Company and a representative (the "Representative") designated
in writing to the Company by the Holders shall attempt to agree upon such Fair
Market Value. If the Company and the Representative are unable to agree upon
the Fair Market Value within twenty days after notification of the event
requiring such a determination, the Company and the Representative shall agree
on an Appraiser to be appointed by the Company to determine the Fair Market
Value. In the event that the parties cannot agree upon an Appraiser in the
foregoing period, then the determination of Fair Market Value shall be
conducted by two Appraisers, one of whom shall be selected by the Company, and
one of whom shall be selected by the Representative. If either of such two
determinations of Fair Market Value is within 10% of the other determination of
Fair Market Value, then the Fair Market Value shall be the average of such two
determinations. The Company shall pay the expenses of each such Appraiser. If
neither of such two determinations of Fair Market Value is within 10% of the
other determination of Fair Market Value, a third Appraiser shall be selected
by the other two Appraisers. The third Appraiser shall make its own independent
final determination of Fair Market Value. The Company shall pay the expenses of
such third Appraiser. All appraisal reports shall be in writing, shall be
signed by the Appraisers and shall be delivered to the Company and the Holders.
The Fair Market Value determined pursuant to this Section 13 shall be final and
binding upon the Company and the Holders.
Section 14. Adjustment of Exercise Price and Number of Shares of
Common Stock Purchasable or Number of Warrants. In addition to any reduction in
the Exercise Price required pursuant to Section 2(b)(vi) above, prior to the
Expiration Date, the Exercise Price, the number of Common Shares purchasable
upon the exercise of each Warrant and the number of Warrants outstanding are
subject to adjustment from time to time upon the occurrence of any of the
events enumerated in this Section 14.
(a) In case the Company shall at any time after the date of this
Agreement (i) make a distribution to holders of Common Shares of additional
Common Shares or of Other Securities, (ii) subdivide the outstanding Common
Shares, (iii) combine the outstanding Common Shares into a smaller number of
Common Shares, or (iv) issue any Other Securities by reclassification of the
Common Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing entity), then
(1) the number and kind of Common Shares and/or Other Securities issuable, at
the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the Holder(s) after such time shall be entitled to receive upon
exercise of the Warrants the aggregate number and kind of Common Shares and/or
Other Securities which, if the Warrants had been exercised immediately prior to
such time, it would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination or reclassification and
(2) the Exercise Price shall be proportionately adjusted. Such adjustment shall
be made successively whenever any event listed above shall occur.
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(b) (i) In case the Company shall issue any Common Shares or
any class or series of capital stock that is not Preferred Shares at a
price per share less than the greater of (i) $9.83 and (ii) the Fair
Market Value per share of such security (such greater amount being
hereinafter referred to as the "Base Rate"), then the Exercise Price
in effect immediately following such issuance shall be adjusted to
equal the price determined by multiplying (A) the Exercise Price in
effect immediately prior to the opening of business on the day next
following such issuance by (B) a fraction, the numerator of which
shall be the -- sum of (x) the number of Common Shares of all classes
and series of capital stock (other than Preferred Shares) outstanding
immediately prior to such issuance and (y) the number of Common Shares
that could be purchased at the Base Rate from the aggregate proceeds
to the Company from the issuance of such new Common Shares, and the
denominator of which shall be the sum of (xx) the number of Common
Shares of all classes and series of capital stock (other than
Preferred Stock) outstanding immediately prior to such issuance and
(yy) the number of additional Common Shares being issued. For purposes
of this Section, "Fair Market Value" shall mean, as to any class or
series of capital stock that is not publicly traded, the Fair Market
Value of the shares of such class or series as determined in
accordance with Section 13 hereof and, as to publicly-traded
securities, shall mean the average of the daily Current Prices of a
share of such capital stock during the ten Trading Days immediately
preceding the effective day of the Exercise Price adjustment pursuant
to this subsection. Upon each adjustment of the Exercise Price, the
number of Warrant Shares that a Holder of a Warrant shall be entitled
to receive upon exercise shall be adjusted by multiplying the number
of Warrant Shares issuable upon exercise immediately prior to such
adjustment by a fraction, the numerator of which is $9.83 and the
denominator of which is the Exercise Price after such adjustment.
(ii) If at any time Company shall issue or sell any Options
(other than Options granted under Benefit Plans after the Closing Date
which entitle all of the holders thereof to purchase not more that
1,000,000 shares of Common Stock of the Company and any Options
granted under the Benefit Plans prior to the Closing Date) or any
Convertible Securities, whether or not the rights to exercise,
exchange or convert thereunder are immediately exercisable, and the
price per Common Share which is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
shall be less than the Base Rate in effect immediately prior to the
time of such issue or sale, then the number of shares for which a
Warrant is exercisable and the Exercise Price shall be adjusted as
provided in Section 12(b)(i) above on the basis that the maximum
number of additional Common Shares issuable pursuant to all such
Options or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and
outstanding and Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of the issuance
of such Options and Convertible Securities. No further adjustments of
the Exercise Price shall be made upon the actual issue of such Common
Shares or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon such conversion or
exchange of such Convertible Securities or upon the expiration or
termination of such Options or Convertible Securities. In the event
that any such Options or the right to convert any such Convertible
Securities permanently and unconditionally expire without having been
exercised or converted, as applicable, the
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number of shares for which a Warrant is exercisable and the Exercise
Price shall be re-adjusted as provided in Section 12(b)(i) above to
the extent and to give effect to the fact that all or a portion of
such Options are not exercised or such Convertible Securities have not
been converted or exchanged. If the number of shares for which any
Option is exercisable or the rate at which any Convertible Securities
are convertible into or exchangeable for shares of Common Stock shall
increase, the number of shares of Common Stock purchasable upon the
exercise of the Warrants in effect at the time of such event shall
promptly be readjusted to the number of shares of Common Stock which
would have been so purchasable at such time had such Options or
Convertible Securities initially been exercisable or convertible into
such changed number of shares of Common Stock and the Exercise Price
shall be adjusted accordingly. The provisions of this Section 14(b)
shall not apply to any issuance of shares of Common Stock upon
exercise of any Warrants or issuances covered by subsections (a), (c)
or (f) of this Section 14.
(c) In case the Company shall fix a record date for making a
distribution to any holders of Common Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of shares of stock other than Common Shares, other
securities, evidences of its indebtedness or assets or property of whatever
nature (excluding cash dividends consistent with past practice or in connection
with dividend equivalent rights or other similar rights under any Benefit
Plans), (i) the number of Common Shares for which a Warrant is exercisable
shall be adjusted to equal the product of the number of Common Shares for which
a Warrant is exercisable immediately prior to such adjustment multiplied by a
fraction (A) the numerator of which shall be the Fair Market Value per Common
Share immediately prior to such record date, and (B) the denominator of which
shall be such Fair Market Value per Common Share minus the amount allocable to
one Common Share of any such cash so distributable and of the Fair Market Value
of any and all such shares of stock, other securities, evidences of
indebtedness, or assets or property so distributable, and (ii) the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the current Fair Market Value per
Common Share immediately prior to such record date minus the amount allocable
to one Common Share of any such cash so distributable and of the Fair Market
Value of any and all such shares of stock, other securities, evidences of
indebtedness, or assets or property so distributable, and of which the
denominator shall be such current Fair Market Value per Common Share
immediately prior to such record date. Such adjustment shall be made
successively whenever such a record date is fixed; and, if such distribution is
not so made, the Exercise Price shall again be adjusted to be the Exercise
Price which would then be in effect if such record date had not been fixed.
(d) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided that any adjustments which by reason of this subsection (d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 14 shall be made to
the nearest hundredth of a cent or to the nearest Common Share, as the case may
be.
(e) If at any time, as a result of an adjustment made pursuant to
subsection (a) of this Section 14, a Holder shall become entitled to receive
any Other Securities, thereafter the number of such Other Securities so
receivable shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained in this
Section 14.
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(f) In the case of any capital reorganization of the Company, or of
any reclassification of the Common Shares, or in case of the consolidation of
the Company with or the merger of the Company with or into any other
corporation (where the Company is not the surviving corporation) or of the sale
of the properties and assets of the Company as, or substantially as, an
entirety to any other company, each Warrant shall, after such capital
reorganization, reclassification of Common Shares, consolidation, merger or
sale, be exercisable, upon the terms and conditions specified in this
Agreement, for the number of shares of stock and the cash or other securities
or property of any nature whatsoever that is receivable upon or as a result of
the reorganization, reclassification, consolidation, merger or sale by a holder
of the number of Common Shares (or Other Securities) for which a Warrant is
exercisable immediately prior to such event; and in any such case, if
necessary, the provisions set forth in this Section 14 with respect to the
rights thereafter of the Holders shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable on the exercise of the Warrants.
The subdivision or combination of the Common Shares at any time outstanding
into a greater or lesser number of units or any other event covered by
subsection (a) of this Section 14 shall not be deemed to be a reclassification
of the Common Shares for the purposes of this subsection (f). The Company shall
not effect any such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof, the successor corporation
resulting from such consolidation or merger or the corporation purchasing such
assets or the appropriate corporation or entity shall assume, by written
instrument, the obligation to deliver to each Holder the shares of stock, cash,
other securities or assets to which, in accordance with the foregoing
provisions, each Holder may be entitled to and all other obligations of the
Company under this Agreement.
(g) In case of any adjustment or readjustment in the Warrants, Warrant
Shares or Exercise Price in accordance with this Section 14, the Company at its
expense will promptly compute such adjustment or readjustment in accordance
with the terms of this Agreement and cause independent public accountants of
recognized national standing selected by the Company to verify such
computation; and the Company will prepare a report, certified by the principal
financial officer of the Company, setting forth such adjustment or readjustment
and showing, in detail, the facts upon which such adjustment or readjustment is
based, and all calculations relating to any adjustments made in accordance with
this Section 14. The Company will forthwith mail a copy of each such report to
each Holder, and will, upon the written request at any time of any Holder,
furnish to such Holder a report setting forth such information as may be
requested by such Holder, including any calculations with respect thereto in
order that such Holder may verify such calculations.
Section 15. Fractional Warrants and Fractional Warrant Shares. The
Company shall not be required to issue a fractional Common Share upon exercise
of any Warrant. As to any fraction of a share which the Holder of one or more
Warrants, the rights under which are exercised in the same transaction, would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to the
same fraction of the Current Market Price per Common Share on the date of
exercise.
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Section 16. Financial Information.
(a) The Company will furnish to the Holders the reports and
information that is required to be delivered to the Company's shareholders
under the Exchange Act.
(b) Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with GAAP, applied on a basis consistent (except for
changes concurred in by the Company's independent public accountants) with the
most recent audited consolidated financial statements of the Company.
Section 17. No Rights or Liabilities as Shareholder. Nothing contained
in this Agreement shall be construed as conferring upon the Holder any rights
as a shareholder of the Company or as imposing any liabilities on the Holder as
a shareholder of the Company, whether such liabilities are asserted by the
Company or by creditors or shareholders of the Company or otherwise.
Section 18. Decisions of Holders. All decisions to be made and actions
to be taken by the Holders as a group pursuant to this Agreement will be made
or taken by a majority-in-interest of the Holders (each Warrant counting as the
number of Warrant Shares obtainable upon the exercise of the Warrant at such
time).
Section 19. Notices to Holders. In case:
(a) the Company shall authorize the issuance to any holders of Common
Shares of Options (other than Options granted under Benefit Plans after the
Closing Date which entitle all of the holders thereof to purchase not more that
1,000,000 shares of Common Stock of the Company and any Options granted under
the Benefit Plans prior to the Closing Date) to purchase Common Shares or any
other similar subscription rights; or
(b) the Company shall authorize a dividend or the distribution to all
holders of Common Shares of evidences of its indebtedness or assets (including
distributions payable in Common Shares and cash dividends or distributions,
other than cash dividends consistent with past practice); or
(c) of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of the
conveyance or transfer of all or substantially all of the properties and assets
of the Company, or of a capital reorganization or reclassification or change of
the Common Shares; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any other action which would require
an adjustment of the number of Warrant Shares issuable upon exercise of the
Warrants or an adjustment of the Exercise Price pursuant to Section 14;
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then the Company shall cause notice to be given to each holder of the Warrants
at its address appearing on the Register, at least thirty calendar days prior
to the applicable record or effective date specified. Such notice shall state
(i) the date as of which the holders of record of Common Shares to be entitled
to receive any such dividend, rights, warrants or distribution are to be
determined, or (ii) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation, winding up or other action is
expected to become effective, and, if applicable, the date as of which it is
expected that holders of record of Common Shares shall be entitled to exchange
their Common Shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up.
Section 20. Amendments and Waivers. Any provision of this Agreement or
the Warrant Certificates may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Company and two-thirds
of the Holders; provided that this Agreement and the Warrant Certificate may
not be modified or amended to reduce the number of Common Shares for which a
Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of a Warrant without the prior written consent of the
Holder thereof. Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities shall be valid only with the
written consent of Holders of at least two-thirds of the Registrable Securities
being sold.
Section 21. Survival. The provisions of this Agreement shall survive
the exercise of any Warrant in whole or part and, in event of such exercise,
the term "Holder" shall refer to the holder of any Warrant Shares issued upon
exercise hereunder.
Section 22. Indemnification. Company agrees to indemnify and hold
harmless the Holders from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, reasonable
attorneys' fees, expenses and disbursements of any kind which may be imposed
upon, incurred by or asserted against the Holders in any manner relating to or
arising out of any litigation to which a Holder is made a party in its capacity
as a stockholder or warrantholder of Company to the extent such Holder acquired
its status as a stockholder or warrantholder pursuant to the terms of this
Agreement; provided, however, that the Company will not be liable hereunder to
the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements are found in a final non-appealable judgment by a court to have
resulted from a Holder's sole and willful misconduct or gross negligence in its
capacity as a stockholder or warrantholder of the Company.
Section 23. Expenses. Except as provided herein, the Company shall pay
all reasonable legal and other professional fees (and related disbursements) of
PSI in connection with this Agreement and the transactions contemplated hereby.
Section 24. Notices. Any notice or demand authorized by this Warrant
Agreement to be given shall be in writing and shall be delivered in person,
sent by telecopy, mailed (registered or certified, return receipt requested),
postage prepaid, or sent by overnight delivery service
30
<PAGE> 32
addressed to the Company or the Holders at their respective addresses specified
above or in the Register or, as to any such party, at such other address as may
be designated by it in a notice to the other parties hereto. All notices shall
be deemed to be properly given or made upon the earlier to occur of (i) actual
delivery, (ii) five days after being deposited in the mail addressed as
aforesaid, or (iii) one Business Day after being sent by facsimile (with answer
back confirmed) or overnight delivery service.
Section 25. Binding Effect. This Agreement shall be binding upon and
inure to the sole and exclusive benefit of the Company, and its permitted
successors and each registered Holder from time to time of the Subject
Securities and each of its respective permitted successors.
Section 26. Termination. Except for Section 22 of this Agreement which
shall survive the termination or expiration of this Agreement and except as
otherwise provided herein, this Agreement shall terminate and be of no further
force and effect at the close of business on the Expiration Date unless, prior
to such Expiration Date, there shall no longer be any Holders in which event
this Agreement shall terminate as of such date except with respect to the
provisions hereof which are intended to survive.
Section 27. Severability. In the event that any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction for any reason, unless such provision is narrowed by judicial
construction, this Agreement shall, as to such jurisdiction, be construed as if
such invalid, prohibited or unenforceable provision had been more narrowly
drawn so as not to be invalid, prohibited or unenforceable. Notwithstanding the
foregoing, if any provision of this Agreement is held to be invalid, prohibited
or unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such provision
or the other provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this Agreement in
any other jurisdiction.
Section 28. Counterparts. This Agreement may be executed by one or
more of the parties hereto on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
Section 29. Governing Law; Remedies.
(a) This Agreement and each Warrant Certificate shall be construed in
accordance with and governed by the laws of the State of Texas (without giving
effect to its conflicts of law principles).
(b) Each holder of a Subject Security, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
31
<PAGE> 33
Section 30. No Impairment. If any event occurs as to which the
provisions of this Agreement or the Subject Securities are strictly applicable
and the application thereof would not fairly protect the rights of the Holders
in accordance with the essential intent and principles of such provisions, then
the Company shall make such adjustments in the application of such provisions,
in accordance with such essential intent and principles, as shall be reasonably
necessary to protect such rights as aforesaid.
Section 31. Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, THE COMPANY IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SECTION 24 OF THIS AGREEMENT;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE COMPANY IN ANY
SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT THE HOLDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE
COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 31 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION
5-1402 OR OTHERWISE.
Section 32. Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing
of any and all
32
<PAGE> 34
disputes that may be filed in any court and that relate to the subject matter
of this transaction, including contract claims, tort claims, breach of duty
claims and all other common law and statutory claims. Each party hereto
acknowledges that this waiver is a material inducement to enter into a business
relationship, that each has already relied on this waiver in entering into this
Agreement, and that each will continue to rely on this waiver in their related
future dealings. Each party hereto further warrants and represents that it has
reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 32 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the
event of litigation, this Agreement may be filed as a written consent to a
trial by the court.
[Signature Page Follows]
33
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers, as
of the date and year first above written.
"COMPANY"
AMRESCO CAPITAL TRUST, a Texas real
estate investment trust
By:
--------------------------------------
Name: Jonathan S. Pettee
Title: President
By:
--------------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
"PSI"
PRUDENTIAL SECURITIES
INCORPORATED, a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-1
<PAGE> 36
EXHIBIT A
DECLARATION OF TRUST AND BYLAWS OF THE COMPANY
Reference is made to the following documents filed with the Securities and
Exchange Commission:
Amended and Restated Declaration of Trust of the Registrant (filed
as Exhibit 3.1 to the Registrant's Registration Statement on Form
S-11 (Registration No. 333-45543), which exhibit is incorporated
herein by reference).
First Amendment to Amended and Restated Declaration of Trust of the
Registrant (filed as Exhibit 3.1 to the Registrant's Current Report
on Form 8-K dated May 12, 1998, which exhibit is incorporated herein
by reference).
Second Amendment to Amended and Restated Declaration of Trust of the
Registrant (filed as Exhibit 3.2 to the Registrant's Current Report
on Form 8-K dated May 12, 1998, which exhibit is incorporated herein
by reference).
Form of Bylaws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-11 (Registration No.
333-45543), which exhibit is incorporated herein by reference).
A-1
<PAGE> 37
EXHIBIT B
WARRANT CERTIFICATE
No. 1 250,002 Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
ON MAY 4, 2006
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON SHARES ISSUABLE
PURSUANT TO THE TERMS HEREOF HAVE THE BENEFIT AND ARE SUBJECT TO THE TERMS AND
CONDITIONS SPECIFIED IN THE WARRANT AGREEMENT, DATED AS OF MAY 4, 1999, BETWEEN
THE COMPANY AND THE INITIAL HOLDER OF THE WARRANTS THEREIN NAMED, AS FROM TIME
TO TIME AMENDED, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED TO THE
HOLDER OF THIS WARRANT UPON WRITTEN REQUEST AND WITHOUT CHARGE.
THE WARRANTS AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE OR OTHER SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT (i)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) UPON
FIRST FURNISHING TO THE COMPANY AN OPINION OF COUNSEL THAT SUCH TRANSFER IS NOT
IN VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE TRUST'S MAINTENANCE OF ITS STATUS
AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("THE CODE"). PURSUANT TO THE TRUST'S DECLARATION OF TRUST, AND EXCEPT
AS OTHERWISE PROVIDED THEREIN, NO PERSON MAY (1) BENEFICIALLY OWN SHARES IN
EXCESS OF 9.8% (IN VALUE OR NUMBER OF SHARES) OF ALL OUTSTANDING SHARES OF ANY
CLASS, OR (2) BENEFICIALLY OWN SHARES THAT WOULD RESULT IN THE TRUST BEING
"CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE TRUST TO
FAIL TO QUALIFY AS A REIT. IF THE RESTRICTIONS ON OWNERSHIP OR TRANSFER ARE
VIOLATED BY THE HOLDER HEREOF, THE EXCESS SHARES REPRESENTED HEREBY WILL BE
AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A CHARITABLE TRUST FOR THE BENEFIT OF
ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, UPON THE OCCURRENCE OF
CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE ABOVE RESTRICTIONS MAY
BE VOID. ALL TERMS IN THIS LEGEND NOT OTHERWISE DEFINED HEREIN HAVE THE
MEANINGS ASCRIBED THERETO IN THE TRUST'S DECLARATION OF TRUST, AS THE SAME MAY
BE
B-1
<PAGE> 38
AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON
OWNERSHIP OR TRANSFER, WILL BE SENT WITHOUT CHARGE TO THE RECORD HOLDER OF THE
CERTIFICATE UPON WRITTEN REQUEST TO THE TRUST AT ITS PRINCIPAL PLACE OF
BUSINESS.
IN ADDITION, THE COMPANY WILL FURNISH TO ANY SHAREHOLDER ON REQUEST AND WITHOUT
CHARGE A FULL STATEMENT OR SUMMARY OF THE DESIGNATIONS AND PREFERENCES,
CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO
DIVIDENDS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE SHARES
OF EACH CLASS WHICH THE COMPANY IS AUTHORIZED TO ISSUE AND THE DIFFERENCES IN
THE RELATIVE RIGHTS AND PREFERENCES BETWEEN SUCH SHARES OF EACH SERIES, IF ANY,
TO THE EXTENT THEY HAVE BEEN SET, AND OF THE AUTHORITY OF THE BOARD OF TRUST
MANAGERS TO SET THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. SUCH
REQUEST MAY BE MADE TO THE SECRETARY OF THE COMPANY.
THIS CERTIFIES THAT for value received the registered holder hereof or
registered assign (the "Holder"), is the owner of the number of Warrants set
forth above, each of which entitles the owner thereof to purchase at any time
on or before 5:00 P.M., New York City time, on May 4, 2006, one fully paid and
nonassessable Common Share of AMRESCO CAPITAL TRUST, a Texas real estate
investment trust (the "Company"), at the purchase price of $9.83 per Common
Share (the "Exercise Price"). As provided in the Warrant Agreement referred to
below, the Exercise Price and the number or kind of Common Shares which may be
purchased upon the exercise of the Warrants evidenced by this Warrant
Certificate are, upon the happening of certain events, subject to modification
and adjustment.
This Warrant Certificate is subject to and entitled to the benefits of
all of the terms, provisions and conditions of that certain agreement dated as
of May 4, 1999 (the "Warrant Agreement") by and between the Company and
PRUDENTIAL SECURITIES INCORPORATED, which Warrant Agreement is hereby
incorporated herein by reference and made a part hereof and to which Warrant
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Company and the Holders of the Warrant Certificates. Copies of the Warrant
Agreement are on file at the principal office of the Company.
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant Certificate as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company
may treat the Holder hereof as the owner for all purposes.
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Holder to purchase a like aggregate number of
Common Shares as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered.
B-2
<PAGE> 39
If this Warrant Certificate shall be exercised in part, the Holder shall be
entitled to receive upon surrender hereof, another Warrant Certificate or
Warrant Certificates for the number of whole Warrants not exercised.
No fractional Common Share will be issued upon the exercise of any
Warrant or Warrants evidenced hereby, as provided in the Warrant Agreement.
B-3
<PAGE> 40
IN WITNESS WHEREOF, the Company has executed this Warrant Certificate.
AMRESCO CAPITAL TRUST, a Texas real
estate investment trust
By:
----------------------------------
Name: Jonathan S. Pettee
Title: President
By:
----------------------------------
Name: Rebecca A. Kuban
Title: Executive Vice President
Attest:
- ----------------------------
Name: Michael L. McCoy
Title: Secretary
B-4
<PAGE> 41
EXHIBIT C
PURCHASE FORM
(To be signed only upon exercise of Warrant)
To: AMRESCO CAPITAL TRUST
The undersigned, the holder of the within Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, * Common Shares of AMRESCO CAPITAL
TRUST, and herewith makes payment of $ therefor, and requests that the
certificates for such Common Shares be issued in the name of, and delivered to,
_______________________, whose address is: __________________________________.
Dated:
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant certificate)
-------------------------- (Address)
--------------------------
--------------------------
--------------------------
- --------
* Insert here the number of Common Shares called for on the face of the
Warrant Certificate (or, in the case of a partial exercise, the portion
thereof as to which Warrants are being exercised), in either case without
making any adjustment for additional Common Shares or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant Agreement, may be deliverable upon exercise.
C-1
<PAGE> 42
EXHIBIT D
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of the Warrants
represented by this Warrant Certificate, hereby sells, assigns and transfers
unto the Assignee named below all of the rights of the undersigned with respect
to the number of Warrants set forth below:
Name and Address of Assignee No. of Warrants
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of AMRESCO CAPITAL
TRUST maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
---------------------------- -----------------------------
Signature:
-----------------------------
Witness:
-----------------------------
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant Certificate in every particular,
without alteration or any change whatsoever.
D-1
<PAGE> 43
EXHIBIT E
FORM OF COMMERCIAL LOAN/ASSET SCHEDULE
AMRESCO CAPITAL TRUST
PRUDENTIAL SCHEDULE OF APPROVED ASSETS
$300 MILLION LINE OF CREDIT - SUBLIMIT REPORT
DATE
<TABLE>
<CAPTION>
NO. LOAN NAME ACT COMMITMENT COLLATERAL COST COLLATERAL VALUE ACT OUTSTANDING BALANCE MAXIMUM PRIOR LIEN BALANCE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1
2
- ----------------------------------------------------------------------------------------------------------------------------------
3
4
- ----------------------------------------------------------------------------------------------------------------------------------
5
6
- ----------------------------------------------------------------------------------------------------------------------------------
7
8
- ----------------------------------------------------------------------------------------------------------------------------------
9
10
- ----------------------------------------------------------------------------------------------------------------------------------
11
12
- ----------------------------------------------------------------------------------------------------------------------------------
13
14
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NO. PRUDENTIAL ADVANCE RATE PRUDENTIAL COMMITMENT PRUDENTIAL OUTSTANDING BALANCE TOTAL HAIRCUT AMOUNT 90% OF TOTAL HAIRCUT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1
2
- ----------------------------------------------------------------------------------------------------------------------------------
3
4
- ----------------------------------------------------------------------------------------------------------------------------------
5
6
- ----------------------------------------------------------------------------------------------------------------------------------
7
8
- ----------------------------------------------------------------------------------------------------------------------------------
9
10
- ----------------------------------------------------------------------------------------------------------------------------------
11
12
- ----------------------------------------------------------------------------------------------------------------------------------
13
14
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
$300 MILLION LINE OF CREDIT
---------------------------------------------------------------------------------------------------------------
MAX. $115MM CONSTRUCTION
-------------------------------------------------
MAX. $50MM
CONSTRUCTION CONSTRUCTION
NO. 1ST LIEN UNLIMITED LESS THAN 70% GREATER THAN 70% MAX. $40MM 2ND LIEN OR MEZZ OR EQUITY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1
2
- ---------------------------------------------------------------------------------------------------------------------
3
4
- ---------------------------------------------------------------------------------------------------------------------
5
6
- ---------------------------------------------------------------------------------------------------------------------
7
8
- ---------------------------------------------------------------------------------------------------------------------
9
10
- ---------------------------------------------------------------------------------------------------------------------
11
12
- ---------------------------------------------------------------------------------------------------------------------
13
14
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,846
<SECURITIES> 27,842
<RECEIVABLES> 3,716
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 32,919
<DEPRECIATION> 187
<TOTAL-ASSETS> 185,041
<CURRENT-LIABILITIES> 1,001
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 131,797
<TOTAL-LIABILITY-AND-EQUITY> 185,041
<SALES> 0
<TOTAL-REVENUES> 4,473
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,382
<LOSS-PROVISION> 742
<INTEREST-EXPENSE> 589
<INCOME-PRETAX> 2,344
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,344
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
