<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1995
REGISTRATION NO. 33-63683
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMRESCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-1781257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1845 WOODALL RODGERS FREEWAY
SUITE 1700
DALLAS, TEXAS 75201
(214) 953-7700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
L. KEITH BLACKWELL
GENERAL COUNSEL AND SECRETARY
1845 WOODALL RODGERS FREEWAY
DALLAS, TEXAS 75201
(214) 953-7700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL M. BOONE ROBERT C. SCHWARTZ
HAYNES AND BOONE, L.L.P. SMITH, GAMBRELL & RUSSELL
3100 NATIONSBANK PLAZA 3343 PEACHTREE ROAD, N.E.
901 MAIN STREET SUITE 1800
DALLAS, TEXAS 75202-3789 ATLANTA, GEORGIA 30326-1010
(214) 651-5000 (404) 264-2620
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY (2) PRICE (2)
<S> <C> <C> <C>
Common Stock, par value $0.05
per share................................ 4,600,000 shares (1) $10.00 $46,000,000
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTRATION FEE (3)
<S> <C>
Common Stock, par value $0.05
per share................................ $15,863
</TABLE>
(1) Includes 600,000 shares that are issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) of Regulation C under the Securities Act of 1933.
(3) A filing fee of $21,698 was previously paid to the Securities and Exchange
Commission.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 27, 1995
[LOGO]
4,000,000 SHARES OF COMMON STOCK
--------------------
Of the 4,000,000 shares of Common Stock ("Common Stock") of AMRESCO, INC.
(the "Company")
offered hereby (the "Offering"), 2,000,000 are being offered by the Company and
2,000,000 are being offered by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any of the net proceeds from the
sale of the shares of Common Stock by the Selling Shareholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"AMMB." On November 24, 1995, the last reported sale price of the Common Stock
on the Nasdaq National Market was $10.13 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters.
(2) Before deducting expenses payable by the Company (including certain expenses
payable on behalf of the Selling Shareholders) estimated at $420,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 600,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1995.
<TABLE>
<S> <C>
The Robinson-Humphrey Piper Jaffray Inc.
Company, Inc.
</TABLE>
, 1995
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at the principal offices of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock
is listed on the Nasdaq National Market and reports, proxy statements and other
information concerning the Company may be inspected at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in the
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus the Company's: (i) Annual Report on Form 10-K for the year ended
December 31, 1994, (ii) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, (iii) Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, (iv) Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, as amended by its Form 10-Q/A No. 1 dated October 25, 1995 and (v) Current
Report on Form 8-K dated November 22, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
herein. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed superseded or modified for
purposes of this Prospectus to the extent that a statement contained herein (or
in any other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Company, 1845 Woodall Rodgers Freeway, Suite 1700,
Dallas, Texas 75201, Attention: L. Keith Blackwell. Telephone requests may be
directed to L. Keith Blackwell of the Company at (214) 953-7700.
2
<PAGE>
[Map of the United States showing the locations of the Company's Asset
Acquisition and Resolution offices, Mortgage Banking offices, Real Estate
Pension Advisory office and Corporate Headquarters, and a listing of
International Offices in Toronto and London.]
3
<PAGE>
CERTAIN DEFINITIONS
The following are certain defined terms used in this Prospectus:
<TABLE>
<S> <C>
"ACACIA" means Acacia Realty Advisors, Inc.
"ACACIA ACQUISITION" means the acquisition by the Company of the real estate
pension advisory business of Acacia Realty Advisors, Inc.
"ACC" means AMRESCO Capital Corporation, a subsidiary of the Company.
"ARMC" means, collectively, AMRESCO Residential Mortgage Corporation and AMRESCO
Residential Credit Corporation, subsidiaries of the Company.
"ASSET PORTFOLIO" means a pool or portfolio of performing, non-performing or
underperforming commercial, industrial, agricultural and/or real estate
loans.
"BEI" means BEI Holdings, Ltd.
"BEI MERGER" means the merger of Holdings with and into a subsidiary of BEI on
December 31, 1993.
"CKSRS" means CKSRS Housing Group, Ltd., a Florida limited partnership.
"COMPANY" means, unless otherwise stated in this Prospectus or unless the
context otherwise requires, the Company and each of its subsidiaries.
"CONDUIT PURCHASERS" means investment bankers and other financial intermediaries
who purchase or otherwise accumulate pools or portfolios of loans having
common features (E.G., real estate mortgages, etc.), with the intent of
securitizing such loan assets and selling them to a trust that secures its
funds by selling ownership interests in the trust to public or private
investors.
"CREDIT AGREEMENTS" means the Revolving Loan Agreement and the Warehouse
Agreements.
"EQS" means, collectively, EQ Services, Inc. and Equitable Real Estate
Investment Management, Inc.
"EQS ACQUISITION" means the acquisition by the Company of the third-party
securitized, commercial mortgage loan Master Servicer and Special Servicer
business of EQS.
"FACE VALUE" means, with respect to any loan or Asset Portfolio, the aggregate
unpaid principal balance of a loan or loans.
"FANNIE MAE" means the Federal National Mortgage Association.
"FDIC" means the Federal Deposit Insurance Corporation.
"FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.
"HOLDINGS" means AMRESCO Holdings, Inc.
"HOLLIDAY FENOGLIO" means Holliday Fenoglio, Inc., a subsidiary of the Company.
"MASTER SERVICER" means an entity which provides administrative services to
securitized pools of mortgage-backed securities.
"NATIONSBANK CONTRACT" means the asset management contract, as amended,
originally dated July 1, 1992, among the Company, NationsBank Corporation
and certain of its bank subsidiaries.
"NATIONSBANK OF TEXAS" means NationsBank of Texas, N.A.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
"PRIMARY SERVICER" means an entity which provides various administrative
services for loans such as collecting monthly mortgage payments, maintaining
escrow accounts for the payment of ad valorem taxes and insurance premiums
on behalf of borrowers, remitting payments of principal and interest
promptly to investors in mortgages or the Master Servicer of a pool and
reporting to those investors or the Master Servicer on financial
transactions related to such mortgages.
"REVOLVING LOAN AGREEMENT" means the Revolving Loan Agreement dated as of
September 29, 1995, among the Company, NationsBank of Texas, as Agent, and
the Banks which are parties thereto from time to time.
"RTC" means the Resolution Trust Corporation.
"SECURITIZATION" and "SECURITIZED" mean a transaction in which loans originated
or purchased by an entity are sold to special purpose entities organized for
the purpose of issuing asset-backed securities.
"SELLING SHAREHOLDERS" means, collectively, CGW Southeast Partners I, L.P. and
CGW Southeast Partners II, L.P.
"SPECIAL SERVICER" means an entity which provides asset management and
resolution services for non-performing or under-performing loans within a
pool of performing loans and/or mortgages.
"WAREHOUSE" means a type of lending arrangement whereby loans funded and held
for sale are financed by financial institutions or institutional lenders on
a short-term basis.
"WAREHOUSE AGREEMENTS" means, collectively, (i) the $25.0 million credit
facility dated as of April 28, 1995, among ACC, the Company and NationsBank
of Texas, (ii) the credit facility dated as of August 15, 1995, between ACC
and Residential Funding Corporation and (iii) the $100.0 million credit
facility dated as of November 3, 1995, between ARMC and Prudential
Securities Realty Funding Corporation.
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO, APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS
PROSPECTUS DOES NOT GIVE EFFECT TO THE EXERCISE OF THE UNDERWRITERS
OVER-ALLOTMENT OPTION IN RESPECT OF THE COMMON STOCK.
THE COMPANY
GENERAL. The Company is a leading specialty financial services company
engaged primarily in Asset Portfolio acquisition and resolution and mortgage
banking. The Asset Portfolio acquisition and resolution business involves
acquiring at a substantial discount to Face Value and managing and resolving
Asset Portfolios to maximize cash recoveries. The Company manages and resolves
Asset Portfolios acquired by the Company alone, acquired by the Company with
co-investors and owned by third-parties. The Company's mortgage banking business
involves the origination, placement and servicing of commercial real estate
mortgages. In addition, the Company has formed a residential mortgage banking
business through which the Company will purchase and securitize portfolios of
residential mortgages of borrowers who do not qualify for conventional loans and
whose borrowing needs are not being met by traditional financial institutions.
The Company also is entering the real estate pension advisory business through
the purchase of substantially all of the advisory contracts of Acacia.
HISTORY. The Company is the product of the December 1993 merger of two
Asset Portfolio management and resolution service companies: BEI and Holdings.
Holdings was the former Asset Portfolio management and resolution unit of
NationsBank of Texas, which was created in 1988 in connection with NationsBank
Corporation's acquisition from the FDIC of certain assets and liabilities of the
collapsed First RepublicBank. BEI, a publicly-held company that was in the real
estate and asset management services businesses, began providing asset
management and resolution services to the RTC in 1990. BEI also participated in
certain non-real estate service businesses, which were not retained after the
BEI Merger. The BEI Merger created one of the largest Asset Portfolio management
and resolution service companies in the United States. Since 1987, the Company
and its predecessors have managed approximately $30.0 billion (Face Value) of
Asset Portfolios.
DEVELOPMENT OF BUSINESS STRATEGY. The Company's original business of
managing and resolving Asset Portfolios for third parties developed as a result
of the takeover of failed thrifts and banks by the federal government's deposit
insurance agencies in the late 1980s. Due to the substantial volume of
under-performing and non-performing loans and foreclosed assets (much of it
commercial real estate loans and properties) and a lack of sufficient internal
staffing, the RTC and FDIC turned to private contractors to assist in the
management and resolution of Asset Portfolios.
In early 1994, the Company made the strategic decision to diversify its
business lines and to reduce the Company's dependence on asset management and
resolution contracts with governmental agencies and certain other entities. As a
result, the Company shifted its strategic focus in order to take advantage of
business opportunities in the specialty finance markets that capitalize on the
Company's competitive strengths and reputation within its core business.
ASSET ACQUISITION AND RESOLUTION BUSINESS. The Company manages and resolves
Asset Portfolios acquired at a substantial discount to Face Value by the Company
alone and by the Company with co-investors. The Company also resolves Asset
Portfolios owned by third parties. Asset Portfolios generally include secured
loans of varying qualities and collateral types. The resolution of an Asset
Portfolio typically involves either (i) negotiating with debtors a discounted
payoff, which may be accomplished through a refinancing by the obligor with a
lender other than the Company or (ii) foreclosure and sale of the collateral.
Since the Company's objective is to resolve an Asset Portfolio as quickly as
practicable, the Company's policy is to not extend credit to debtors by
advancing cash or by renewing and extending their obligations. As of September
30, 1995, the Company's management and resolution service contracts with
third-parties (including Asset Portfolios owned by the Company with
co-investors) covered Asset Portfolios having an aggregate
6
<PAGE>
Face Value of $2.7 billion of which $411.3 million was represented by
securitized commercial mortgage pools with respect to which the Company is the
named Special Servicer. At September 30, 1995, the Company's total investment in
Asset Portfolios was $175.8 million compared to $70.9 million at December 31,
1994 and $48.8 million at September 30, 1994. For the nine month period ended
September 30, 1995 and the fiscal year ended December 31, 1994, $54.3 million
(78%) and $139.1 million (88%) respectively of the Company's gross revenues were
attributable to its Asset Portfolio acquisition and resolution business.
MORTGAGE BANKING BUSINESS. The Company performs a wide range of commercial
mortgage banking services, including originating, underwriting, placing, selling
and servicing of commercial real estate loans through its Holliday Fenoglio and
ACC mortgage banking units. Holliday Fenoglio was the third largest mortgage
banker in the United States in 1994 (based on origination volume) and primarily
serves commercial real estate developers and owners by originating commercial
real estate loans. Holliday Fenoglio primarily targets developers and owners of
higher-quality commercial and multi-family real estate properties. Holliday
Fenoglio originates prospective borrowers through its own commission-based
mortgage bankers in its offices located in Atlanta, Boca Raton, Buffalo, Dallas,
Houston, New York City and Orlando. The loans originated by Holliday Fenoglio
generally are funded by institutional lenders, primarily insurance companies,
with Holliday Fenoglio retaining the Primary Servicer rights on approximately
20% of such loans. The Company believes that Holliday Fenoglio's relationship
and credibility with the institutional lender network provide the Company a
competitive advantage in the commercial mortgage banking industry.
ACC, which originated approximately $260.7 million of commercial real estate
mortgages during the nine months ended September 30, 1995, is a mortgage banker
that originates and underwrites commercial real estate loans that are funded
primarily by Conduit Purchasers rather than by institutional lenders such as
insurance companies. ACC, therefore, makes certain representations and
warranties concerning the loans it originates. These representations cover such
matters as title to the property, lien priority, environmental reviews and
certain other matters. ACC primarily targets originators of commercial mortgage
loans for commercial real estate properties that are suitable for sale to
Conduit Purchasers accumulating loans for securitization programs. ACC markets
its services directly through ACC's offices located in Dallas, Miami and
Washington, D.C., as well as through a network of approximately 20 independent
mortgage brokers located throughout the United States. ACC recently established
a relationship with the 22 office commercial real estate finance unit of a major
insurance company whereby the insurance company has agreed to refer prospective
borrowers to the Company in instances where the prospective borrower does not
meet the insurer's requirements (typically borrowers for medium-quality
commercial properties). Since ACC commenced its underwriting activities and
through September 30, 1995, Holliday Fenoglio has originated approximately 31%
of the loans underwritten by ACC, with Holliday Fenoglio and ACC each receiving
fees for their respective services.
As of September 30, 1995, the Company was the servicer for approximately
$3.1 billion of commercial mortgages of which $117.0 million was as a Master
Servicer and $3.0 billion was as a Primary Servicer. The Company has formed a
residential mortgage banking business through which the Company will purchase
and securitize portfolios of non-conforming residential mortgages. For the
nine-month period ended September 30, 1995, $14.1 million (20.2%) of the
Company's gross revenues were attributable to the Company's mortgage banking
business.
7
<PAGE>
BUSINESS STRATEGY. The Company seeks to continue to increase its market
share in its existing business lines and to enter related businesses through
both internal growth and acquisitions. See "Recent Developments." Key elements
of this strategy include:
- increasing the amount that the Company invests for its own account in
Asset Portfolios by capitalizing on the Company's expertise in managing
and resolving Asset Portfolios for third parties;
- continuing to provide high quality management and resolution services to
co-investors and other third-party owners of Asset Portfolios;
- expanding its presence in the traditional mortgage banking market through
greater market penetration and by participating in the expanding market
for securitization of commercial and residential real estate mortgages;
and
- acquiring a real estate pension advisory business to complement the
Company's existing business lines.
The Company is a Delaware corporation. The Company's principal executive
offices and mailing address are 1845 Woodall Rodgers Freeway, Suite 1700,
Dallas, Texas 75201 and its telephone number is (214) 953-7700.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company.......................... 2,000,000 shares
Common Stock offered by the
Selling Shareholders............. 2,000,000 shares
Common Stock outstanding after the
Offering......................... 26,274,915 shares (1)
Nasdaq National Market symbol..... AMMB
Use of proceeds................... The net proceeds from the sale of the Common Stock
offered hereby by the Company will be used to reduce the
Company's outstanding borrowings under the Revolving
Loan Agreement. After application of the net proceeds,
approximately $ will be available for borrowing
under the Revolving Loan Agreement to be used for
general corporate purposes, which may include funding
investments in Asset Portfolios, acquiring new
businesses or making strategic investments in companies
that complement the Company's business lines and
strategies. See "Use of Proceeds."
</TABLE>
- ------------------------------
(1) Does not include (i) 2,297,248 shares of Common Stock issuable upon
exercise of outstanding stock options, or 1,778,575 shares available for
future grants under the Company's stock option plans at October 31, 1995,
or (ii) 3,600,000 shares of Common Stock issuable upon conversion of the
Company's 8% Convertible Subordinated Debentures due 2005. See Note 11 of
Notes to Consolidated Financial Statements and "Recent Developments."
RISK FACTORS
Prior to making an investment decision, prospective purchasers of the Common
Stock should consider all of the information set forth in this Prospectus and
should evaluate the considerations set forth in "Risk Factors."
8
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The summary data presented below under the captions "Summary Income
Statement" and "Summary Balance Sheet Data" for and as of the end of each of the
fiscal years in the three-year period ended December 31, 1994, are derived from
the Consolidated Financial Statements of the Company and its predecessors
audited by Deloitte & Touche LLP and included herein. In the opinion of
management of the Company, the data presented for the nine months ended
September 30, 1994 and 1995, which are derived from the Company's unaudited
consolidated financial statements, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for such periods. Results for the nine months
ended September 30, 1995, are not necessarily indicative of results for the
entire fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements and
the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1992(1) 1993 1994(2) 1994(2) 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees................ $166,857 $168,313 $120,640 $101,221 $27,278
Asset Portfolio income.............................. -- 2,642 13,089 8,433 23,662
Mortgage banking fees............................... -- -- 6,176 1,967 14,077
Other revenues...................................... 1,273 1,207 17,279 16,184 4,585
--------- --------- --------- --------- ---------
Total revenues.................................... 168,130 172,162 157,184 127,805 69,602
Operating expenses.................................... 134,085 127,731 119,730 92,579 46,860
--------- --------- --------- --------- ---------
Operating income...................................... 34,045 44,431 37,454 35,226 22,742
Interest expense...................................... 19 754 1,768 1,696 2,771
--------- --------- --------- --------- ---------
Income from continuing operations before taxes........ 34,026 43,677 35,686 33,530 19,971
Income tax expense.................................... 10,730 17,371 14,753 13,874 7,541
--------- --------- --------- --------- ---------
Income from continuing operations..................... 23,296 26,306 20,933 19,656 12,430
Gain (loss) from discontinued operations.............. (1,063) (2,088) (2,185) (976) 2,425
--------- --------- --------- --------- ---------
Net income............................................ $22,233 $24,218 $18,748 $18,680 $14,855
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share from continuing operations......... $2.04 $2.33 $0.88 $0.83 $0.51
Earnings per share.................................... 1.95 2.15 0.79 0.79 0.61
Weighted average number of shares outstanding......... 11,419,536 11,288,688 23,679,239 23,515,800 24,429,822
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents............................. $4,228 $43,442 $20,446 $41,733 $12,720
Investment securities................................. -- -- -- -- 27,222
Investment in Asset Portfolios:
Loans............................................... -- 33,795 30,920 17,272 114,676
Partnerships and joint ventures..................... -- 2,503 22,491 14,157 30,052
Real estate......................................... -- 2,504 14,054 14,201 11,046
Asset-backed securities............................. -- -- 3,481 3,481 19,982
Total assets.......................................... 44,238 163,653 172,340 162,582 291,082
Notes payable......................................... 4,656 22,113 15,500 4,406 104,222
Mortgage warehouse debt............................... -- -- -- -- 5,693
Nonrecourse debt...................................... -- 6,000 959 4,761 30,605
Total indebtedness.................................... 4,656 28,113 16,459 9,167 140,520
Shareholders' equity.................................. 18,735 91,699 113,586 114,558 129,024
OTHER DATA:
Face Value of assets under management................. $8,060,400 $5,756,900 $3,088,700 $2,436,800 $3,040,700
Commercial mortgage loans originated (for the
period ended):
Face Value.......................................... -- -- $610,000 $185,200 $1,585,000
Number of loans..................................... -- -- 106 28 255
Commercial mortgage loans serviced:
Face Value.......................................... -- -- $2,555,000 $2,592,000 $2,970,000
Number of loans..................................... -- -- 592 559 749
</TABLE>
- ------------------------------
(1) Includes the Company's operations for the two months ended December 31,
1992, and the combined operations of its predecessor entities for the ten
months ended October 31, 1992.
(2) Summary Income Statement and Other Data for the fiscal year ended December
31, 1994, and the nine months ended September 30, 1994, reflect data for
Holliday Fenoglio effective August 1, 1994, the effective date of its
acquisition by the Company.
9
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE
FOLLOWING FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING
SHARES OF THE COMMON STOCK OFFERED HEREBY.
GENERAL ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate may adversely affect certain segments of the
Company's business. Although such economic conditions may increase the number of
non-performing loans available for sale to or for management by the Company,
such conditions could adversely affect the resolution of Asset Portfolios held
by the Company for its own account or managed for others by the Company, lead to
a decline in prices or demand for collateral underlying Asset Portfolios or, in
the case of Asset Portfolios held for the Company's own account, increase the
cost of capital invested by the Company and the length of time that capital is
invested in a particular portfolio, thereby negatively impacting the rate of
return upon resolution of the portfolio. Economic downturns and rising interest
rates also may reduce the number of mortgage loan originations by the Company's
mortgage banking business and, therefore, may adversely affect the Company's
mortgage banking business.
UNCERTAIN NATURE OF THE ASSET ACQUISITION AND RESOLUTION BUSINESS
The outsourcing of the management and resolution of Asset Portfolios has
grown rapidly since the late 1980s; accordingly, the asset acquisition and
resolution business is relatively young and still evolving. This business is
affected by long-term cycles in the general economy. In addition, the Asset
Portfolios available for purchase by investors and/or management by third party
servicers such as the Company has declined since 1993. The Company cannot
predict what will be a normal annual volume of Asset Portfolios to be sold or
outsourced for management and resolution. Moreover, there cannot be any
assurance that Asset Portfolio purchasers/owners for whom the Company provides
Asset Portfolio management services will not build their own management and
resolution staffs and reduce or eliminate their outsourcing of these services.
As a result of these factors, it is difficult to predict the long-term future of
this business.
STRATEGIC SHIFT IN BUSINESS LINES
In early 1994, the Company made the strategic decision to diversify its
business lines and to reduce the Company's dependence on asset management and
resolution contracts with governmental agencies and certain other entities. The
Company has substantially increased its investments in Asset Portfolios. The
Company also pursues private sector Asset Portfolio management contracts,
generally through co-investing in Asset Portfolios. Since 1993, the Company has
also entered the commercial and residential mortgage banking businesses and is
purchasing a pension advisory business.
As a result, the Company must simultaneously manage (i) a significant change
in its customer mix, (ii) the investment of the Company's own capital in Asset
Portfolios, and (iii) the development of new business lines in which the Company
has not previously participated. All of these activities will require the
investment of additional capital and/or the significant involvement of senior
management to achieve a successful outcome. There is no assurance that the
Company will successfully execute this strategic transition.
NEED FOR ADDITIONAL FINANCING
The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain additional indebtedness and equity
capital. Other than as described in this Prospectus, the Company has no
commitments for additional borrowings or sales of equity and there can be no
assurance that the Company will be successful in consummating any such future
financing transactions on terms satisfactory to the Company, if at all. Factors
which could affect the Company's access to the capital markets, or the costs of
such capital, include changes in interest rates, general economic conditions,
and the perception in the capital markets of the Company's business, results of
operations, leverage, financial condition and business prospects.
10
<PAGE>
Following the Offering, the Company will continue to have substantial
indebtedness and, as a result, significant debt service obligations. The degree
of the Company's leverage could have important consequences to purchasers of the
Common Stock, including: (i) limiting the Company's ability to obtain additional
financing to fund future working capital requirements, Asset Portfolio
investments, capital expenditures, acquisitions or other general corporate
requirements, (ii) requiring a significant portion of the Company's cash flow
from operations to be dedicated to debt service requirements, thereby reducing
the funds available for operations and future business opportunities, and (iii)
increasing the Company's vulnerability to adverse economic and industry
conditions. In addition, since certain of the Company's borrowings, including
borrowings under the Revolving Loan Agreement, will be at variable rates of
interest, the Company will be vulnerable to increases in interest rates.
The Credit Agreements contain numerous financial and operating covenants
that will limit the discretion of the Company's management with respect to
certain business matters. These covenants will place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
and investments, and to sell or otherwise dispose of assets and merge or
consolidate with other entities.
Each of these factors is to a large extent subject to economic, financial,
competitive and other factors beyond the Company's control. See "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DEPENDENCE ON SECURITIZATION PROGRAM
The Company may become more dependent upon its ability to pool and sell
loans in the secondary market in order to generate cash proceeds for new
originations and purchases. Accordingly, adverse changes in the secondary
mortgage market could impair the Company's ability to originate, purchase and
sell mortgage loans on a favorable or timely basis. Any such impairment could
have a material adverse effect upon the Company's business and results of
operations. In addition, in order to gain access to the secondary market, the
Company may rely on monoline insurance companies to provide, in exchange for
premiums, a guarantee on outstanding senior interests in the related
securitization trusts to enable it to obtain a "AAA/ Aaa" rating for such
interests. Any substantial reductions in the size or availability of the
secondary market for the Company's loans, or the unwillingness of monoline
insurance companies to guarantee the senior interests in the Company's loan
pools, could have a material adverse effect on the Company's financial position
and results of operations.
RISKS OF HEDGING TRANSACTIONS
The Company has in the past and may in the future enter into interest rate
or foreign currency financial instruments used for hedging purposes. While
intended to reduce the effects of volatility in interest rate or foreign
currency price movements, such transactions could cause the Company to recognize
losses depending on the terms of the instrument and the interest rate or foreign
currency price movement.
COMPETITION
The Asset Portfolio management and other financial services industries in
which the Company operates are highly competitive. Some of the Company's
principal competitors in certain business lines are substantially larger and
better capitalized than the Company. Because of these resources, these companies
may be better able than the Company to obtain new customers, to acquire Asset
Portfolios, to pursue new business opportunities, or to survive periods of
industry consolidation. See "Business -- Competition."
The Company believes that its ability to acquire Asset Portfolios for its
own account will be important to its future growth. Acquisitions of portfolios
are often based on competitive bidding, where there are dangers of bidding too
low (which generates no business), as well as of bidding too high (which could
win the portfolio at an economically unattractive price). Portfolio acquisitions
also require significant capital. There currently is substantial competition for
portfolio acquisitions and such competition could increase in the future. See
"Business -- Asset Acquisition and Resolution Business -- Asset Portfolio
Investment."
11
<PAGE>
INFLUENCE BY THE SELLING SHAREHOLDERS
Following the Offering, the Selling Shareholders will own in the aggregate
approximately 27.0% of the Common Stock then outstanding (approximately 26.4% if
the Underwriters' over-allotment option is exercised in full). In addition, the
Selling Shareholders are party to a voting agreement with two other persons
(which persons will hold an aggregate of approximately 2.4% of the Common Stock
outstanding after the Offering) whereby the parties thereto have agreed to vote
their shares of Common Stock for eight designees nominated by the parties
pursuant to the terms of such voting agreement. As a result of the above-
described ownership and relationships, the Selling Shareholders will be able to
continue to exercise significant influence over the affairs of the Company. See
"Management" and "Principal and Selling Shareholders and Share Ownership of
Management."
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time after the Offering, there may be significant volatility in
the market price for the Common Stock. Quarterly operating results of the
Company, changes in conditions in the economy or the financial services
industries, or other developments affecting the Company could cause the market
price of the Common Stock to fluctuate substantially.
SHARES ELIGIBLE FOR FUTURE SALE
Following the Offering, the Company will have outstanding 26,274,915 shares
of Common Stock, assuming no exercise of the Underwriters' over-allotment
option. Of these shares, a total of 18,090,359, including the 4,000,000 shares
offered hereby, will be eligible for sale in the open market without
restriction. The remaining 8,184,556 shares of Common Stock are "affiliate
securities" as that term is defined in Rule 144 or 145 promulgated under the
Securities Act. Of these affiliate securities, approximately 7,351,374 shares
are currently eligible for sale in the public market pursuant to Rules 144 and
145. Holders of a substantial portion of the affiliate securities (including the
Selling Shareholders) have contractual registration rights. Additional shares of
Common Stock, including shares issuable upon exercise of options, will also
become eligible for sale in the public market pursuant to Rules 144 and 145 from
time to time. The Company, its directors and executive officers, and the Selling
Shareholders have agreed not to sell any of their shares of Common Stock (other
than the shares to be sold in the Offering) for a period of 180 days from the
date of this Prospectus without the prior written consent of the Representatives
of the Underwriters. Following the Offering, sales and potential sales of
substantial amounts of the Company's Common Stock in the public market pursuant
to Rules 144 and 145 or otherwise could adversely affect the prevailing market
prices for the Common Stock and impair the Company's ability to raise additional
capital through the sale of equity securities. See "Principal and Selling
Shareholders and Share Ownership of Management," "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER CONSIDERATIONS
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws include a number of provisions that may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Company's Board of Directors rather
than pursue non-negotiated takeover attempts. These provisions include a
staggered Board of Directors, authorized "blank check" preferred stock,
supermajority voting requirements on certain matters and prohibitions against
certain business combinations. The Indenture governing the Company's 8%
Convertible Subordinated Debentures due 2005 (the "Debentures") requires the
Company to repurchase all outstanding Debentures in the event of certain change
of control transactions. These anti-takeover provisions could have the effect of
discouraging or making more difficult a merger, tender offer, other business
combination or proxy contest, even if such event would be favorable to the
interests of the shareholders. See "Description of Capital Stock -- Delaware Law
and Certain Corporate Provisions" and "Recent Developments."
12
<PAGE>
RECENT DEVELOPMENTS
ACQUISITION OF CKSRS. Effective June 30, 1995, the Company acquired for
approximately $1.3 million substantially all of the assets of CKSRS, a
Miami-based commercial mortgage banking limited partnership specializing in the
origination, sale and servicing of mortgages on multi-family properties in
Florida.
ACQUISITION OF EQS. On October 27, 1995, the Company completed the
acquisition of the third-party securitized, commercial mortgage loan Master
Servicer and Special Servicer businesses of EQS. The purchase price was
approximately $16.9 million. At September 30, 1995, the EQS businesses acquired
by the Company had contracts to service approximately $6.0 billion of
securitized commercial mortgage loans. The Company believes that it is now one
of the largest servicers of securitized commercial mortgages in the United
States.
ACQUISITION OF ACACIA. Effective November 20, 1995, the Company completed
the purchase for approximately $4.5 million of substantially all of the pension
fund advisory contracts and certain other assets of Acacia. Acacia provides real
estate investment advisory services to pension and other institutional investors
in respect of investments in office, industrial and distressed real estate
properties. Through these contracts, to date approximately 35 clients have
invested over $970.0 million in commercial real estate representing
approximately 63 properties with over 13.5 million square feet of commercial
space and approximately 700 apartment units. Acacia is based in Boston and has
approximately 18 employees.
CONVERTIBLE DEBENTURE OFFERING. On November 27, 1995, the Company completed
an offering conducted in Europe (the "Debenture Offering"), pursuant to
Regulation S promulgated under the Securities Act, of $45.0 million aggregate
principal amount of Debentures. The net proceeds (aggregating approximately
$43.0 million) from such offering were used to repay borrowings under the
Company's Revolving Loan Agreement. The Debentures bear interest at 8% per annum
and will mature on December 15, 2005. There is no sinking fund or amortization
of principal prior to maturity. The Debentures are not redeemable prior to
December 15, 1996. The Debentures are convertible at the option of the holders
into shares of Common Stock at a conversion price of $12.50 per share
(equivalent to a conversion rate of 80 shares of Common Stock per $1,000
principal amount of Debentures), subject to adjustment in certain events. The
Debentures are unsecured obligations of the Company and subordinated to all
existing and future Senior Indebtedness (as defined in the Indenture) of the
Company. The Debentures contain certain rights of the holder to require the
repurchase of the Debentures (i) upon a Fundamental Change (as defined in the
Indenture) and (ii) if the Company is not able to maintain a Net Worth (as
defined in the Indenture) of $115,891,000 plus net proceeds to the Company from
any offering of Common Stock (including the Offering contemplated hereby). There
are certain other covenants restricting dividends on and redemptions of capital
stock.
The Debentures (and the underlying Common Stock) have not been registered
under the Securities Act and may not be offered or sold in the United States
without registration under the Securities Act (the Company has agreed to
register for resale under the Securities Act the underlying Common Stock) or
absent an applicable exemption from the registration requirements.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale by the Company of 2,000,000
shares of its Common Stock offered hereby (after deducting underwriting
discounts and estimated expenses of the Offering) will be approximately $
million ($ million if the Underwriters' over-allotment option is exercised in
full). The Company will not receive any of the proceeds from the shares of
Common Stock sold by the Selling Shareholders. See "Principal and Selling
Shareholders and Share Ownership of Management."
The Company intends to use the net proceeds it receives to reduce the
Company's outstanding borrowings under the Revolving Loan Agreement (which had
an outstanding balance of approximately $94.2 million at November 20, 1995). On
November 27, 1995, the Company received net proceeds of approximately $43.0
million from the sale of the Debentures which were applied to pay down
outstanding indebtedness under the Revolving Loan Agreement. For the nine months
ended September 30, 1995, the weighted average interest rate on indebtedness
under the Company's bank credit agreement (which was replaced on September 29,
1995 by the Revolving Loan Agreement) was 8 1/5% per annum. The indebtedness
under the predecessor credit agreement was incurred primarily in connection with
investments in Asset Portfolios, the acquisition of CKSRS, the EQS Acquisition,
the Acacia Acquisition and other general corporate purposes. After application
of the net proceeds to the Company of the Offering, $ million would be
available for reborrowing under the Revolving Loan Agreement to be used for
general corporate purposes, which may include funding investments in Asset
Portfolios, acquiring new businesses or making strategic investments in
companies that complement the Company's business lines and strategies. Other
than as disclosed in this Prospectus, the Company has no understandings or
agreements in respect of any material acquisition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
14
<PAGE>
PRICE RANGE OF AND DIVIDENDS ON COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"AMMB." The following table shows, for the calendar periods indicated, the range
of high and low last sale price per share for the Common Stock as quoted on the
Nasdaq National Market and the cash dividends paid per share.
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW PER SHARE
--------- --------- ---------------
<S> <C> <C> <C>
1993
First Quarter.......................................... $ 5.125 $ 3.750 $ --(1)
Second Quarter......................................... 5.000 4.125 --(1)
Third Quarter.......................................... 6.500 4.000 --(1)
Fourth Quarter......................................... 7.250 5.500 0.050
1994
First Quarter.......................................... $ 8.500 $ 6.500 $ 0.050
Second Quarter......................................... 8.000 6.750 0.050
Third Quarter.......................................... 8.250 7.000 0.050
Fourth Quarter......................................... 8.750 5.500 0.050
1995
First Quarter.......................................... $ 7.125 $ 5.875 $ 0.050
Second Quarter......................................... 9.375 6.750 0.050
Third Quarter.......................................... 13.375 8.750 0.050
Fourth Quarter (through November 24, 1995)............. 13.375 9.750 0.050
- -------------------
(1) Does not include dividends paid by BEI prior to the BEI Merger.
</TABLE>
The last reported sale price of the Common Stock on November 24, 1995, was
$10.125 per share. At September 30, 1995, the Company had approximately 3,100
shareholders of record.
Since October 15, 1993, the Company has paid a quarterly dividend of $0.05
per share on shares of Common Stock. The Company has announced that it will
discontinue its policy of paying cash dividends. The Board of Directors has
determined to retain all earnings to support anticipated growth in the current
operations of the Company and to finance future expansion. The Credit Agreements
and the Indenture governing the Debentures restrict the payment of cash
dividends unless certain earnings tests are satisfied. Future declarations and
payments of dividends, if any, will be determined in light of then-current
conditions, including the Company's earnings, operations, capital requirements,
liquidity, financial condition, restrictions in financing agreements and other
factors deemed relevant by the Board of Directors.
15
<PAGE>
CAPITALIZATION
The following table presents the capitalization of the Company at September
30, 1995, and (i) as adjusted to reflect the EQS Acquisition, the incurrence on
November 3, 1995 of $76.3 million of indebtedness under a warehouse facility,
the Acacia Acquisition and completion of the Debenture Offering, and (ii) as
further adjusted to reflect the application of the estimated net proceeds from
the sale of the 2,000,000 shares of Common Stock offered by the Company hereby
as described under "Use of Proceeds." The table should be read in conjunction
with the Consolidated Financial Statements of the Company, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1995
------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED (2) ADJUSTED (3)
---------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt(1):
Notes payable........................................................... $ 104,222 $ 82,586 $
Mortgage warehouse debt................................................. 5,693 81,972 81,972
Nonrecourse debt........................................................ 30,605 30,605 30,605
Convertible Subordinated Debentures..................................... -- 45,000 45,000
---------- ----------- -----------
Total debt............................................................ 140,520 240,163
---------- ----------- -----------
Shareholders' equity:
Common Stock, par value $0.05 per share; 50,000,000 authorized shares
and 24,193,464 issued shares, as adjusted(4)........................... 1,210 1,210
Capital in excess of par................................................ 78,790 78,790
Reductions for employee stock........................................... (620) (620) (620)
Treasury stock, 24,339 shares........................................... (160) (160) (160)
Retained earnings....................................................... 49,804 49,804 49,804
---------- ----------- -----------
Total shareholders' equity............................................ 129,024 129,024
---------- ----------- -----------
Total capitalization.................................................. $ 269,544 $ 369,187 $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 5 of
Notes to Consolidated Financial Statements for a description of this
indebtedness.
(2) Gives effect to the EQS Acquisition, the incurrence on November 3, 1995 of
$76.3 million of indebtedness under a warehouse facility, the Acacia
Acquisition and completion of the Debenture Offering.
(3) Gives effect to the offering of Common Stock by the Company hereby and the
application of the net proceeds therefrom as described in "Use of
Proceeds."
(4) Does not include an aggregate of 2,297,248 shares of Common Stock reserved
for issuance at October 31, 1995, upon the exercise of outstanding stock
options and 1,778,575 shares available for future grants of options under
the Company's stock option plans. See Note 11 of Notes to Consolidated
Financial Statements.
16
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The summary data presented below under the captions "Summary Income
Statement" and "Summary Balance Sheet Data" for and as of the end of each of the
fiscal years in the three-year period ended December 31, 1994, are derived from
the Consolidated Financial Statements of the Company and its predecessors
audited by Deloitte & Touche LLP and included herein. In the opinion of
management of the Company, the data presented for the nine months ended
September 30, 1994 and 1995, which are derived from the Company's unaudited
consolidated financial statements, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for such periods. Results for the nine months
ended September 30, 1995, are not necessarily indicative of results for the
entire fiscal year. Summary historical data of the Company's predecessors have
not been presented as of the end of or for the six months ended December 31,
1990, and fiscal year 1991 because the Company believes that such data for those
periods are not meaningful in comparison to subsequent periods, due to
significant changes in the Company's business since that time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements and the Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1992(1) 1993 1994(2) 1994(2) 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees................... $166,857 $168,313 $120,640 $101,221 $27,278
Asset Portfolio income................................. -- 2,642 13,089 8,433 23,662
Mortgage banking fees.................................. -- -- 6,176 1,967 14,077
Other revenues......................................... 1,273 1,207 17,279 16,184 4,585
--------- --------- --------- --------- ---------
Total revenues..................................... 168,130 172,162 157,184 127,805 69,602
Operating expenses....................................... 134,085 127,731 119,730 92,579 46,860
--------- --------- --------- --------- ---------
Operating income......................................... 34,045 44,431 37,454 35,226 22,742
Interest expense......................................... 19 754 1,768 1,696 2,771
--------- --------- --------- --------- ---------
Income from continuing operations before taxes........... 34,026 43,677 35,686 33,530 19,971
Income tax expense....................................... 10,730 17,371 14,753 13,874 7,541
--------- --------- --------- --------- ---------
Income from continuing operations........................ 23,296 26,306 20,933 19,656 12,430
Gain (loss) from discontinued operations................. (1,063) (2,088) (2,185) (976) 2,425
--------- --------- --------- --------- ---------
Net income............................................... $22,233 $24,218 $18,748 $18,680 $14,855
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share from continuing operations............ $2.04 $2.33 $0.88 $0.83 $0.51
Earnings per share....................................... 1.95 2.15 0.79 0.79 0.61
Weighted average number of shares outstanding............ 11,419,536 11,288,688 23,679,239 23,515,800 24,429,822
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents................................ $4,228 $43,442 $20,446 $41,733 $12,720
Investment securities.................................... -- -- -- -- 27,222
Investment in Asset Portfolios:
Loans.................................................. -- 33,795 30,920 17,272 114,676
Partnerships and joint ventures........................ -- 2,503 22,491 14,157 30,052
Real estate............................................ -- 2,504 14,054 14,201 11,046
Asset-backed securities................................ -- -- 3,481 3,481 19,982
Total assets............................................. 44,238 163,653 172,340 162,582 291,082
Notes payable............................................ 4,656 22,113 15,500 4,406 104,222
Mortgage warehouse debt.................................. -- -- -- -- 5,693
Nonrecourse debt......................................... -- 6,000 959 4,761 30,605
Total indebtedness....................................... 4,656 28,113 16,459 9,167 140,520
Shareholders' equity..................................... 18,735 91,699 113,586 114,558 129,024
OTHER DATA:
Face Value of Assets under management.................... $8,060,400 $5,756,900 $3,088,700 $2,436,800 $3,040,700
Commercial mortgage loans originated (for the
period ended):
Face Value............................................. -- -- $610,000 $185,200 $1,585,000
Number of loans........................................ -- -- 106 28 255
Commercial mortgage loans serviced:
Face Value............................................. -- -- $2,555,000 $2,592,000 $2,970,000
Number of loans........................................ -- -- 592 559 749
</TABLE>
- ------------------------------
(1) Includes the Company's operations for the two months ended December 31,
1992, and the combined operations of its predecessor entities for the ten
months ended October 31, 1992.
(2) Summary Income Statement and Other Data for the fiscal year ended December
31, 1994, and the nine months ended September 30, 1994, reflect data for
Holliday Fenoglio effective August 1, 1994, the effective date of its
acquisition by the Company.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On December 31, 1993, BEI merged with Holdings. The BEI Merger was accounted
for as a "reverse acquisition" whereby Holdings was deemed to have acquired BEI
for financial reporting purposes. However, BEI, renamed AMRESCO, INC., remains
the continuing legal entity and registrant for Commission filing purposes.
Consistent with the reverse acquisition accounting treatment, the historical
financial statements of AMRESCO, INC. presented for the year ended December 31,
1993, and the two months ended December 31, 1992, are the consolidated financial
statements of Holdings and differ from the consolidated financial statements of
BEI as previously reported. The results of operations of BEI have been included
in the Company's financial statements from the date of acquisition.
The Company's business originally consisted almost entirely of providing
Asset Portfolio management and resolution services for government agencies and
certain financial institutions. In 1994, the Company concluded all its
significant business relationships with government agencies and the NationsBank
Contract and also began to shift its focus toward Asset Portfolio investing by
the Company and the development of new lines of financial service businesses.
Since the BEI Merger, the Company has extended its business lines to offer a
full range of mortgage banking services, has increased its interests in Asset
Portfolios and has disposed of certain non-core business lines. These
significant changes in the composition of the Company's business are reflected
in the Company's results of operations and may limit the comparability of the
Company's results from period to period.
The following discussion and analysis presents the significant changes in
the financial condition and results of continuing operations of the Company for
the years ended December 31, 1992, 1993 and 1994, and the nine month periods
ended September 30, 1994 and 1995. The historical data for 1992 is presented on
a pro forma basis with Holdings' predecessor businesses as if their acquisition
had occurred on January 1, 1992. Such information may not be comparable to the
Company's current operations. The results of operations of acquired businesses
are included in the Consolidated Financial Statements from the date of
acquisition. This discussion should be read in conjunction with the financial
statements and Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Management fees......................................... $ 40,222 $ 30,521 $ 27,991 $ 23,468 $ 15,136
Resolution fees......................................... 66,288 88,031 65,773 58,287 11,615
Asset Portfolio income.................................. -- 2,642 13,089 8,433 23,662
Mortgage banking fees................................... -- -- 6,176 1,967 14,077
Other revenues.......................................... 1,273 1,207 17,279 16,184 4,585
--------- --------- --------- --------- ---------
Total revenues before assistance revenue.............. 107,783 122,401 130,308 108,339 69,075
Assistance revenue...................................... 60,347 49,761 26,876 19,466 527
--------- --------- --------- --------- ---------
Total revenues........................................ 168,130 172,162 157,184 127,805 69,602
Expenses:
Personnel............................................... 49,556 63,618 65,585 52,268 35,961
Other general and administrative........................ 16,130 11,315 27,194 20,910 9,926
Interest................................................ 19 754 1,768 1,696 2,771
Profit participations................................... 8,052 3,037 75 (65) 446
--------- --------- --------- --------- ---------
Total expenses before reimbursable costs.............. 73,757 78,724 94,622 74,809 49,104
Reimbursable costs...................................... 60,347 49,761 26,876 19,466 527
--------- --------- --------- --------- ---------
Total expenses........................................ 134,104 128,485 121,498 94,275 49,631
Income from continuing operations before
taxes.................................................... 34,026 43,677 35,686 33,530 19,971
Income tax expense on continuing operations............... 10,730 17,371 14,753 13,874 7,541
--------- --------- --------- --------- ---------
Income from continuing operations......................... 23,296 26,306 20,933 19,656 12,430
Gain (loss) from discontinued operations.................. (1,063) (2,088) (2,185) (976) 2,425
--------- --------- --------- --------- ---------
Net Income................................................ $ 22,233 $ 24,218 $ 18,748 $ 18,680 $ 14,855
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
18
<PAGE>
RESULTS OF OPERATIONS
Revenues from the Company's asset management and resolution services include
fees charged for the management of Asset Portfolios and for the successful
resolution of the assets within such Asset Portfolios. The asset base of each
Asset Portfolio declines over the life of the portfolio, thus reducing asset
management fees as assets within that Asset Portfolio are resolved. Resolution
fees are earned as individual assets within an Asset Portfolio are resolved.
These fees, therefore, are subject to fluctuation based on the consideration
received, timing of the sale or collection of the managed assets and reaching
specified earnings levels on behalf of investors or investment partners. Certain
direct costs incurred, primarily through 1994, in the management of assets for
the FDIC were paid by the Company and billed to the FDIC. Such costs were
included in reimbursable costs and the related payment by the FDIC was included
in assistance revenue. Such costs did not affect net income, other than the
costs of such advanced funds, but at times required sizable capital resources
until reimbursed by the FDIC.
The Company classifies its investments in Asset Portfolios as loans,
partnerships and joint ventures, real estate, and asset-backed securities. The
original cost of an Asset Portfolio is allocated to individual assets within
that Asset Portfolio based on their relative fair value to the total purchase
price. The difference between gross estimated cash flows from loans and
asset-backed securities and their present value is accrued using the level yield
method of accounting. The Company accounts for its investments in partnerships
and joint ventures using the equity method of accounting, generally resulting in
the pass-through of the Company's pro rata share of the earnings of the
partnership or joint venture. Real estate is accounted for at the lower of cost
or estimated fair value. Gains and losses on the sale or collection of specific
assets are recognized on a specific identification basis. Loans, partnerships
and joint ventures, and real estate are carried at the lower of cost or
estimated fair value. The Company's investments in asset-backed securities are
classified as available for sale and are carried at estimated fair value
determined by discounting estimated cash flows at current market rates. Any
unrealized gains (losses) on asset-backed securities are excluded from earnings
and reported as a separate component of shareholders' equity, net of tax
effects.
Revenues from the Company's commercial mortgage banking activities are
earned from the origination and underwriting of commercial mortgage loans, the
placement of such loans with permanent investors and the subsequent servicing of
loans. Loan placement and servicing fees, commitment fees and real estate
brokerage commissions are recognized as earned. Placement and servicing expenses
are charged to expense as incurred.
Other revenues consist of interest on the Company's investments in cash
equivalents, consulting revenues earned on due diligence, interest and fees on
loans net of loan participations, and other miscellaneous income. Additionally,
the third quarter of 1994 includes the $10.0 million NationsBank Contract
conclusion fee.
In December 1994, the Company elected to dispose of the operations of
AMRESCO Services, Inc., its data processing and home banking subsidiary, in
order to concentrate efforts in the Company's primary lines of business. The
loss from such discontinued operations totaled approximately $1.1 million, $2.1
million, $2.2 million, and $1.0 million for years ended December 31, 1992, 1993,
and 1994 and the nine months ended September 30, 1994, respectively. This
subsidiary was sold on June 16, 1995 for a net gain of $2.4 million or $0.10 per
share.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1994
REVENUES. Revenues before assistance revenue for the nine months ended
September 30, 1995 compared to the corresponding period of 1994 decreased $39.3
million, or 36.2%. This decrease was due, in part, to an $8.3 million, or 35.5%,
decrease in management fees and a $46.7 million, or 80.1%, decrease in
resolution fees. In addition, other revenues decreased $11.6 million from 1994
to 1995, for a 71.7% decrease, primarily as a result of the NationsBank Contract
that concluded during the third quarter of 1994 for which the Company received
an early conclusion fee of $10.0 million in August 1994. The decreases also
resulted from reduced revenues from government sector contracts as these
contracts concluded. These decreases were partially offset by Asset Portfolio
income, which increased $15.2 million, due to a significant increase in
19
<PAGE>
investments in Asset Portfolios, and a $12.1 million increase in mortgage
banking revenue, primarily due to the inclusion of Holliday Fenoglio, which was
purchased in August 1994, and ACC, which commenced underwriting activities in
the fourth quarter of 1994.
EXPENSES. Total expenses before reimbursable costs decreased $25.7 million,
or 34.4%, for the first nine months of 1995 compared to the corresponding period
in 1994. The first nine months of 1994 included expenses of $20.7 million as
compared to none in the corresponding period in 1995 for the NationsBank
Contract that concluded in the third quarter of 1994 and for government sector
contracts that were concluding during 1994. Additionally, during the nine months
ended September 30, 1995, general and administrative expenses were reduced by a
$3.7 million change in estimate of accounts receivable bad debt reserve and
other accrued expenses related to concluded asset management contracts,
particularly the FDIC and RTC contracts. Receivables related to these contracts
declined $16.7 million between December 31, 1994 and September 30, 1995. Also,
the decrease in expenses for the nine months ended September 30, 1995, compared
to the nine months ended September 30, 1994, reflected the corporate downsizing
initiatives that began in the second half of 1994. The decline in expenses
related to concluding contracts was partially offset by increased operating
expenses related to the addition of the mortgage banking line of business and
the growth in the asset acquisition and resolution operations. The $1.1 million,
or 63.4%, increase in interest expense in 1995 reflects greater borrowing
related to increased investments in Asset Portfolios.
INCOME TAXES. The Company must have future taxable income to realize
recorded deferred tax assets, including net operating loss carryforward tax
benefits obtained in the BEI Merger. Certain of these benefits expire beginning
in 1995 and are subject to annual utilization limitations. Management believes
that recorded deferred tax assets will be realized in the normal course of
business. The decrease in the effective income tax rate for the nine months
ended September 30, 1995 was primarily due to permanent tax differences related
to mortgages sold by a partnership in which the Company owns an interest for
which the acquired tax basis exceeded the book basis.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Revenues before assistance revenue for 1994 totaled $130.3
million compared to $122.4 million for 1993, an increase of $7.9 million, or
6.5%. Management fees decreased $2.5 million, or 8.3%, and resolution fees
declined $22.3 million, or 25.3%, during 1994, principally due to only eight
months of operations under the NationsBank Contract, as well as reduced revenues
from the government sector contracts as the contracts continued to conclude.
These declines were offset by a $10.4 million increase in Asset Portfolio
income, a $6.2 million increase in mortgage banking revenue due to the
acquisition of Holliday Fenoglio and the commencement of business by ACC. In
addition, there was an increase in other revenues of $16.1 million primarily due
to the $10.0 million conclusion fee from the NationsBank Contract and $3.8
million in revenue relating to the inclusion in 1994 of BEI operations,
primarily from the operations of a subsidiary for the period prior to its sale
in the first quarter of 1994 and its resulting sale.
EXPENSES. Total expenses before reimbursable costs increased by $15.9
million, or 20.2%, in 1994 primarily due to an increase in personnel costs of
$2.0 million and an increase in other general and administrative expenses of
$15.9 million. These increases were partially offset by a decrease in the profit
participations of $3.0 million. The increase in personnel costs was due to the
addition of personnel costs for BEI, Holliday and ACC, which was partially
offset by reductions in full time employees associated with concluded asset
management contracts. Other general and administrative expenses increased $15.9
million over 1993, primarily due to the inclusion of BEI and Holliday Fenoglio
in 1994 and the $2.8 million intangible write-off related to the conclusion of
the NationsBank Contract in 1994. The decrease of the profit participations of
$3.0 million, or 97.5%, was primarily due to the modification of the NationsBank
Contract effective April 1, 1993, that effected an exchange of NationsBank's
profit participation in the Company's income before taxes for a rebate of fees.
See "-- Year Ended December 31, 1993 Compared to Pro Forma Year Ended December
31, 1992 -- Profit Participation."
20
<PAGE>
PRO FORMA INCOME SUMMARY. Revenues before assistance revenue for 1994
totaled $130.3 million compared to pro forma combined revenues before assistance
revenue of approximately $160.3 million, assuming the BEI Merger had been
consummated as of January 1, 1993. The $30.0 million, or 18.7%, decrease is
primarily due to a decrease in BEI revenues of $15.3 million and a decrease in
Holdings revenues of $14.7 million. The decline in revenues is primarily related
to the conclusion of certain asset management contacts during 1994 and the sale
of certain Company subsidiaries in the first quarter of 1994. Income from
continuing operations for 1994 totaled $20.9 million when compared to pro forma
net income of $28.3 million for 1993, after removing the impact of merger
expenses, net gain on sales of subsidiaries and discontinued operations for a
decrease of $7.4 million, or 26.1%. Earnings per share for income from
continuing operations was $0.88 for 1994, compared to $1.34 for the previous
year for a decrease of $0.46, or 34.3%.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1992
REVENUES. Revenues before assistance revenue for 1993 totaled $122.4
million compared to $107.8 million in 1992, an increase of $14.6 million, or
13.5%. During 1993, management and resolution fees from private contracts
increased approximately $25.1 million, or 33.4%, primarily due to the Company
reaching the highest incentive fee rate due to the level of collections on the
NationsBank Contract. Resolution fees from the FDIC contract increased
approximately $7.8 million, or 105.0%, primarily due to reaching a higher
resolution fee rate due to the level of cumulative collections. The increases in
resolution fees from the private and FDIC contracts were partially offset by
decreases of approximately $6.7 million, or 68.4%, and approximately $6.8
million, or 47.6%, in management and resolution fees, respectively, from the RTC
contracts. The decrease in fees on the RTC contracts was primarily due to the
lower volume of assets managed. Effective April 1, 1993, the NationsBank
Contract was renegotiated to reduce fees by providing for a 12.25% rebate of
fees earned on such contract. Rebated fees totaled $7.3 million for the last
nine months of 1993. Income from an Asset Portfolio purchased in August 1993
were $2.6 million.
EXPENSES. Total personnel and other general and administrative expenses
were $75.7 million for 1993 compared to $65.7 million for 1992 for an increase
of $10.0 million, or 15.2%. Personnel expense increased $14.1 million to $63.6
million in 1993 from $49.5 million in 1992. The majority of this increase was
due to 1993 being the first full year of operations of Holdings as a separate
entity, resulting in increases in employee benefit programs, additional
corporate personnel as well as staff additions for the private contracts.
Additionally, the incentive compensation and severance compensation plans were
expanded in 1993. Other general and administrative expenses decreased in 1993 to
$12.1 million from $16.1 million in 1992.
PROFIT PARTICIPATION. The profit participation by NationsBank Corporation
began with the acquisition of Holdings by private investors, effective October
31, 1992. The profit participation would have been $6.5 million higher, or $8.1
million on a pro forma basis, if the profit participation had been effective as
of January 1, 1992. Effective April 1, 1993, a rebate of fees on the NationsBank
Contract was granted in exchange for the termination of NationsBank
Corporation's profit participation in Holdings' income before taxes.
PRO FORMA INCOME SUMMARY. Pro Forma combined revenues before assistance
revenue, assuming the BEI Merger had been consummated as of January 1, 1992,
were approximately $160.3 million for 1993 compared to approximately $140.3
million for 1992. The $20.0 million, or 14.3%, increase in revenues was due to
an increase of Holdings' revenues of $14.6 million which has been previously
discussed and an increase of $5.4 million for BEI. The $5.4 million increase in
revenues for BEI was primarily due to new private asset management and
resolution contracts. Pro forma net income, after removing the impact of BEI's
merger expenses, net gain on sales of subsidiaries and discontinued operations,
resulted in net income of $28.3 million, up $4.5 million, or 18.9%, from $23.8
million for 1992. Earnings per share was $1.34 for 1993, compared to $1.14 for
the previous year, for an increase of $0.20, or 17.5%.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash for investment in Asset Portfolios, originating/underwriting loans,
acquiring loans for securitization, general operating expenses and business
acquisitions is primarily obtained through cash flow and credit facilities,
including: advances on the corporate and portfolio credit lines, mortgage
warehouse lines and nonrecourse debt, retained earnings and cash flow from the
resolution of Asset Portfolios in which the Company invests.
On September 29, 1995, the Company entered into the $175.0 million Revolving
Loan Agreement which matures and is payable in full on September 29, 1997. By
its terms, the Revolving Loan Agreement has two primary components, $75.0
million available under a corporate facility (including $25.0 million under a
temporary bridge facility) and $100.0 million available under a portfolio
facility. The banks' current commitment under the Revolving Loan Agreement is
limited to a total of $127.5 million, $68.9 million under the corporate facility
(including $25.0 million under a temporary bridge facility that was repaid with
the net proceeds of the Debenture Offering) and $58.6 million under the
portfolio facility. The additional amounts under the Revolving Loan Agreement
would become available to the Company upon the participation by additional
financial institutions in the syndicate for the loan and upon an increase in the
Company's borrowing base under this agreement. There can be no assurance that
such events will occur. The borrowing terms, including interest, may be selected
by the Company and tied to either the NationsBank of Texas' variable rate
(8 3/4% at September 30, 1995) or, for advances on a term basis up to
approximately 180 days, a rate equal to an adjusted LIBOR rate (7 5/8% at
September 30, 1995 for a term of 30 days). There was a balance of $33.0 million
at 7 5/8% outstanding under the corporate facility with $39.0 million at 7 5/8%
and $5.0 million at 8 3/4% for a total of $44.0 million outstanding under the
portfolio facility. The combined balance outstanding under the Revolving Loan
Agreement was $77.0 million at September 30, 1995.
The Revolving Loan Agreement is secured by substantially all of the assets
of the Company not pledged under other credit facilities, including stock of a
majority of the Company's subsidiaries held by the Company. The Revolving Loan
Agreement requires the Company to meet certain financial tests, including
minimum consolidated tangible net worth, maximum consolidated funded debt to
consolidated capitalization ratio, minimum fixed charge coverage ratio, minimum
interest coverage ratio, maximum consolidated funded debt to consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
and maximum corporate facility outstanding to consolidated EBITDA ratio. The
Revolving Loan Agreement contains covenants that, among other things, will limit
the incurrence of additional indebtedness, investments, asset sales, loans to
shareholders, dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements.
Prior to entering into the Revolving Loan Agreement, Holdings maintained a
$75.0 million line of credit with NationsBank of Texas which bore interest at
NationsBank of Texas' floating prime rate or an adjusted LIBOR rate plus 1 1/2%.
This line of credit was terminated with the execution of the Revolving Loan
Agreement.
During July 1995, two wholly-owned subsidiaries of the Company jointly
entered into a nonrecourse debt agreement for $27.5 million to support
wholly-owned Asset Portfolio purchases. This nonrecourse facility is secured by
all wholly-owned Asset Portfolios purchased with borrowings under this debt and
bears interest at the financing company's prime rate plus 1 1/2% or LIBOR plus
3%. There was a balance outstanding at September 30, 1995, of $21.9 million
under this nonrecourse debt agreement, $3.4 million at 10 1/4% and $18.5 million
at 8 15/16%. This facility matures on July 31, 1998.
On April 28, 1995, a wholly-owned subsidiary of the Company entered into a
$25.0 million warehouse line of credit agreement with NationsBank of Texas to
support its commercial mortgage financing. This facility is secured by loans
originated through borrowings under this facility and bears interest at either
the prime rate announced from time-to-time by NationsBank of Texas or an
Adjusted LIBOR Rate (as defined in the facility) plus 2%. The loan is secured by
the mortgage loans originated by the Company and held for sale under the
facility. The Company also is a guarantor on this facility. At September 30,
1995, an advance of $2.7 million was outstanding at an interest rate of
7 13/16%. This facility matures on January 25, 1997.
22
<PAGE>
On August 15, 1995, a wholly-owned subsidiary of the Company entered into a
warehouse line of credit agreement with a funding corporation to facilitate
multi-family mortgage loan underwriting and origination. This facility is
secured by the loans originated through borrowings under this facility and the
stated interest rate for this line is an adjusted 30-day LIBOR rate plus 3%
(8 33/50% at September 30, 1995). The loan is secured by the mortgage loans
originated by the Company and held for sale under the facility. At September 30,
1995, an advance of $3.0 million was outstanding at an interest rate of
8 33/50%. Each borrowing under this facility is due 60 days after funding.
On September 27, 1995, a wholly-owned subsidiary of the Company entered into
an $8.7 million Global Master Repurchase Agreement to support the purchase of
certain commercial mortgage pass-through certificates. This facility bears
interest at 7 3/8% and interest is payable monthly. The facility is secured by
the Company's investments in asset-backed securities. Repayment of principal is
based on investment cash flow.
On November 3, 1995, a wholly-owned subsidiary of the Company entered into a
$100.0 million warehouse line of credit with Prudential Securities Realty
Funding Corporation to finance the acquisition and warehousing of residential
mortgage loans. This facility is secured by the loans purchased through
borrowings under this facility and held for sale. The stated interest rate for
this line is LIBOR (as defined in the facility) plus 7/8% (which can be adjusted
retroactively under certain circumstances to LIBOR plus 2 2/5%). At November 15,
1995, an advance of $76.3 million was outstanding under this facility. The
facility matures on March 29, 1996.
On November 27, 1995, the Company completed the sale of $45.0 million
principal amount of Debentures. The net proceeds (approximately $43.0 million)
were used to repay indebtedness under the Revolving Credit Agreement. See
"Recent Developments."
Accounts receivable decreased from $20.7 million at December 31, 1994, to
$7.7 million at September 30, 1995, due to the conclusion and expiration of
certain asset management contracts.
In 1996, the Company intends to pursue (i) additional Asset Portfolio
acquisition opportunities, by acquiring Asset Portfolios both for its own
account and as an investor with various capital partners who acquire such Asset
Portfolios, (ii) acquisitions of new businesses and (iii) expansion of current
businesses. The funds for such acquisitions and investments are anticipated to
be provided in 1996 by cash flows and borrowings under the Company's Revolving
Loan Agreement and Common Stock offered hereby. As a result, interest expense in
1996 will be higher than the interest expense in 1995.
The Company believes that its funds on hand of $18.0 million at October 31,
1995, cash flow from operations, its unused borrowing capacity under its credit
lines, the anticipated net proceeds from this Offering, and its continuing
ability to obtain financing should be sufficient to meet its anticipated
operating needs and capital expenditures, as well as planned new acquisitions
and investments, for at least the next twelve months. The Company currently is
contemplating the issuance of additional debt securities to support its expected
working capital requirements. The issuance of such securities will be primarily
dependent on market conditions. There can be no assurance that any such
issuances will occur. The magnitude of the Company's acquisition and investment
program will be governed to some extent by the availability of capital.
INFLATION
The Company has generally been able to offset cost increases with increases
in revenues. Accordingly, management does not believe that inflation has had a
material effect on its results of operations to date. However, there can be no
assurance that the Company's business will not be adversely affected by
inflation in the future.
23
<PAGE>
BUSINESS
GENERAL
The Company is a leading specialty financial services company engaged
primarily in Asset Portfolio acquisition and resolution and mortgage banking.
The Asset Portfolio acquisition and resolution business involves acquiring at a
substantial discount to Face Value and managing and resolving Asset Portfolios
to maximize cash recoveries. The Company manages and resolves Asset Portfolios
acquired by the Company alone, acquired by the Company with co-investors and
owned by third parties. The Company's mortgage banking business involves the
origination, placement and servicing of commercial real estate mortgages. In
addition, the Company has formed a residential mortgage banking business through
which the Company will purchase and securitize portfolios of residential
mortgages of borrowers who do not qualify for conventional loans and whose
borrowing needs are not being met by traditional financial institutions. The
Company also is entering the real estate pension advisory business through the
purchase of substantially all of the advisory contracts of Acacia.
BACKGROUND
HISTORY. The Company is the product of the December 1993 merger of two
Asset Portfolio management and resolution service companies: BEI and Holdings.
Holdings was the former Asset Portfolio management and resolution unit of
NationsBank of Texas, which was created in 1988 in connection with NationsBank
Corporation's acquisition from the FDIC of certain assets and liabilities of the
collapsed First RepublicBank. BEI, a publicly-held company that was in the real
estate and asset management services businesses, began providing asset
management and resolution services to the RTC in 1990. BEI also participated in
certain non-real estate service businesses, which were not retained after the
BEI Merger. The BEI Merger created one of the largest Asset Portfolio management
and resolution service companies in the United States. Since 1987, the Company
and its predecessors have managed approximately $30.0 billion (Face Value) of
Asset Portfolios.
DEVELOPMENT OF BUSINESS STRATEGY. The Company's original business of
managing and resolving Asset Portfolios for third parties developed as a result
of the takeover of failed thrifts and banks by the federal government's deposit
insurance agencies in the late 1980s. Due to the substantial volume of
under-performing and non-performing loans and foreclosed assets (much of it
commercial real estate loans and properties) and a lack of sufficient internal
staffing, the RTC and FDIC turned to private contractors to assist in the
management and resolution of Asset Portfolios.
In early 1994, the Company made the strategic decision to diversify its
business lines and to reduce the Company's dependence on asset management and
resolution contracts with governmental agencies and certain other entities. As a
result, the Company shifted its strategic focus in order to take advantage of
business opportunities in the specialty finance markets that capitalize on the
Company's competitive strengths and reputation within its core business. The key
elements of this strategy include:
- increasing the amount that the Company invests for its own account in
Asset Portfolios by capitalizing on the Company's expertise in managing
and resolving Asset Portfolios for third parties;
- continuing to provide high quality management and resolution services to
co-investors and other third-party owners of Asset Portfolios;
- expanding its presence in the traditional mortgage banking market through
greater market penetration and by participating in the expanding market
for securitization of commercial and residential real estate mortgages;
and
- acquiring a real estate pension advisory business to complement the
Company's existing business lines.
24
<PAGE>
ASSET ACQUISITION AND RESOLUTION BUSINESS
GENERAL. The Company manages and resolves Asset Portfolios acquired at a
substantial discount to Face Value by the Company alone and by the Company with
co-investors. The Company also manages and resolves Asset Portfolios owned by
third parties. Asset Portfolios generally include secured loans of varying
qualities and collateral types. The Company estimates that typically
approximately 85% of the loans in the Asset Portfolios in which the Company
invests are in payment default at the time of acquisition. Although some Asset
Portfolios include foreclosed real estate and other collateral, the Company
generally seeks Asset Portfolios that do not include such assets. Some Asset
Portfolio loans are loans for which resolution is tied primarily to the real
estate securing the loan. Other loans, however, are collateralized business
loans, the resolution of which may be based either on cash flow of a business or
on real estate and other collateral securing the loan. Collateralized business
loans generally have smaller Face Values and often are more quickly resolved
than more traditional real estate loans. The Company intends to focus to a
greater extent on collateralized business loans.
The Company obtains information on available Asset Portfolios from many
sources. Repeat business and referrals from Asset Portfolio sellers with whom
the Company previously has transacted business are an important and frequent
source of Asset Portfolios. The Company has developed relationships in which it
is a preferred Asset Portfolio purchaser for certain sellers. The Company
believes that it receives many Asset Portfolio solicitations that result
primarily from the Company's reputation as an active portfolio purchaser. Other
important sources of business include referrals from co-investors who seek the
Company's participation in Asset Portfolio purchases, focused contacts initiated
by senior management, public advertising of Asset Portfolios for sale and the
Company's nationwide presence.
Although the need for asset management and resolution services by
governmental agencies has substantially declined in recent years, the Company
believes that a permanent market for Asset Portfolio acquisition, management and
resolution services has emerged within the private sector. Whether because a
financial institution desires to reduce overhead costs, is not staffed to handle
large volumes of Asset Portfolios or simply does not want to distract management
and personnel with the intensive and time-consuming job of resolving Asset
Portfolios, many financial institutions now recognize that outside contractors
often are better staffed to manage and resolve Asset Portfolios. These financial
institutions include multi-national, money center, super-regional and regional
banking institutions nationwide and in Canada, as well as insurance companies.
Moreover, financial institutions have embraced the concept of packaging and
selling Asset Portfolios to investors as a means of disposing of non-performing
and under-performing loans and improving the financial institution's balance
sheet. Consolidations within the banking industry have reinforced this trend.
Insurance companies, which historically have avoided outsourcing Asset Portfolio
management or selling Asset Portfolios, also are emerging as sellers of Asset
Portfolios due in part to the implementation of risk-based capital rules for
insurance companies. Additionally, there is a market for management and
resolution services for delinquent or non-performing loans within performing
securitized loan pools. The Company believes that the significant volume of
annual performing loan securitizations makes this an attractive market in which
to participate.
The Company believes that opportunities for the acquisition, management and
resolution of Asset Portfolios are becoming increasingly evident in certain
international markets and that lenders in these markets are adopting many of the
Asset Portfolio management and resolution outsourcing techniques currently
utilized in the United States. Accordingly, the Company has opened offices in
Toronto (August 1994) and London (October 1995) in order to take advantage of
opportunities in Canada, the United Kingdom and certain other Western European
nations. The Company had $53.2 million (US$ Face Value) in Canadian Asset
Portfolios under management as of September 30, 1995, and subsequently was
designated as the Special Servicer for a Canadian Asset Portfolio of
approximately $370.0 million (US$ Face Value).
Because of the significant decline in Asset Portfolio management and
resolution services required by governmental agencies and the trend toward
outright sales of Asset Portfolios, the Company shifted its strategic focus to
becoming an active Asset Portfolio investor for its own account and a
co-investor with other Asset Portfolio buyers. The Company believes that as a
direct investor in Asset Portfolios it has a significant
25
<PAGE>
competitive advantage relative to the Company's competitors in the management
and resolution business. Moreover, the Company believes that direct investment
permits the Company to take advantage of the profit opportunities of Asset
Portfolio investing. The Company believes that it can gain market share in the
Asset Portfolio acquisition, management and resolution business due to its
financial strength; experience in managing and resolving Asset Portfolios;
national reputation; and strategic relationships with sellers and purchasers of
Asset Portfolios, including financial institutions, large corporate buyers,
investment banking firms and sophisticated private investors.
For the nine months ended September 30, 1995, $54.3 million (78.0%) of the
Company's gross revenues were attributable to its Asset Portfolio acquisition
and resolution business. The following table reflects the ownership composition
of the Asset Portfolios (based on their Face Value) under management by the
Company as of the dates indicated and further reflects the decline in the
management of Asset Portfolios for governmental agencies and the increase in the
Company's investment in Asset Portfolios since December 31, 1993:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 AT DECEMBER 31, 1994 AT SEPTEMBER 30,
1995
---------------------- ---------------------- ----------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholly-owned by the Company (1)............. $ 92.9 1.6% $ 143.3 4.6% $ 310.0 10.2%
Owned by the Company with co-investors
(2)........................................ 392.4 6.8 1,729.9 56.0 1,507.4 49.6
Owned by third parties:
Securitized mortgage pools................ 268.8 4.7 315.0 10.2 411.3(3) 13.5
Government and other owners............... 5,002.8 86.9 900.5 29.2 812.0 26.7
--------- ----- --------- ----- --------- -----
Total under management.................. $ 5,756.9 100.0% $ 3,088.7 100.0% $ 3,040.7 100.0%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
-----------------------------
(1) Includes $0.0, $13.9 million and $44.0 million, respectively, of
asset-backed securities, and $2.5 million, $3.5 million and $5.2
million of real estate, respectively, at December 31, 1993 and 1994,
and at September 30, 1995.
(2) Includes the securitized Asset Portfolios managed by the Company as
Special Servicer in which the Company has invested, which aggregated
$354.3 million, $973.8 million and $790.7 million, respectively, at
December 31, 1993 and 1994, and at September 30, 1995.
(3) Does not include approximately $300.0 million of securitized
commercial mortgages for which EQS served as Special Servicer. See
"Recent Developments -- Acquisition of EQS."
The following table reflects, by ownership category, the number of Asset
Portfolios managed by the Company at September 30, 1995 and the number of assets
included in such portfolios:
<TABLE>
<CAPTION>
NUMBER OF ASSET NUMBER OF
PORTFOLIOS ASSETS
------------------- -----------
<S> <C> <C>
Wholly-owned by the Company.................................................. 35 1,124
Owned by the Company with co-investors....................................... 28 1,740
Owned by third parties:
Securitized mortgage pools (1)............................................. 3 426
Government and other owners................................................ 10 2,146
--
-----
Total under management................................................... 76 5,436
--
--
-----
-----
</TABLE>
-----------------------------
(1) Does not include Asset Portfolios for which EQS served as Special
Servicer. See "Recent Developments -- Acquisition of EQS."
26
<PAGE>
The following table reflects the Company's investment (at carrying value) in
Asset Portfolios as of the dates indicated below:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
SEPTEMBER 30,
1993 1994 1995
--------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Wholly-owned by the Company (1)............................... $ 36.3 $ 37.9 $ 139.9
Owned by the Company with co-investors (2).................... 2.5 33.0 35.9
--------- --------- ------
Total..................................................... $ 38.8 $ 70.9 $ 175.8
--------- --------- ------
--------- --------- ------
</TABLE>
-------------------------------
(1) Includes $0.0, $3.5 million and $20.0 million, respectively, of
asset-backed securities, and $2.5 million, $3.5 million and $5.2
million of real estate, respectively, at December 31, 1993 and
1994, and at September 30, 1995.
(2) Includes the securitized Asset Portfolios managed by the Company as
Special Servicer in which the Company has invested, which
aggregated $1.7 million, $7.9 million and $8.6 million,
respectively, at December 31, 1993 and 1994, and at September 30,
1995.
ASSET PORTFOLIO INVESTMENT. The Company's business of investing in Asset
Portfolios is conducted either through the Company owning the Asset Portfolio
alone or with co-investors. At September 30, 1995, the Company's weighted
average investment in all Asset Portfolios in which it was a co-investor was 6%
of the aggregate purchase price of such portfolios. Consistent with the
Company's strategy of increasing its investment in Asset Portfolios in which it
is a co-investor, the Company's weighted average investment in such Asset
Portfolios during the nine months ended September 30, 1995 was 20% of the
aggregate purchase price. Asset Portfolios acquired solely by the Company have
ranged up to $36.9 million (Face Value), whereas Asset Portfolios owned by the
Company with co-investors have ranged up to $405.5 million (Face Value). The
Company generally funds its share of any investment with a combination of
borrowings under its existing credit lines and internal cash flow. Future Asset
Portfolio purchases will depend on the availability of Asset Portfolios offered
for sale, the availability of capital and the Company's ability to submit
successful offers to purchase Asset Portfolios. As a result, Asset Portfolio
purchases can vary significantly from quarter to quarter. The following table
reflects the Company's total purchases (at cost) by fiscal quarter in Asset
Portfolios over the past seven quarters:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1994 1994 1994 1995 1995 1995
----------- ------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Wholly-owned by
the Company (1)......... $ 6,761 $ 6,941 $ -- $ 21,014 $ 15,539 $ 48,656 $ 45,987
Owned by the Company with
co-investors (2)........ 5,125 8,948 11,306 7,900 6,294 22,323 325
----------- ------------- ------------- ------------- ------------- ------------- -------------
Total................ $ 11,886 $ 15,889 $ 11,306 $ 28,914 $ 21,833 $ 70,979 $ 46,312
----------- ------------- ------------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
- ------------------------------
(1) Includes $3,497, $2,875 and $13,248 in the quarters ended June 30, 1994,
June 30, 1995 and September 30, 1995, respectively, for purchases of
asset-backed securities, but does not include any real estate assets.
(2) Includes $2,000, $1,601 and $4,000 of investments in securitized mortgage
pools purchased in the quarters ended March 31, 1994, June 30, 1994 and
December 31, 1994, respectively.
Prior to making an offer to purchase an Asset Portfolio, the Company
conducts an extensive investigation and evaluation of the individual loans
comprising 95% to 100% of the aggregate Face Value of all the loans in the
portfolio. This examination typically consists of analyzing the information made
available by the Asset Portfolio seller (generally, the respective credit and
collateral files for the loans), reviewing other relevant material that may be
available (including tax and judgment records), and analyzing the underlying
collateral (including conducting site inspections, obtaining value opinions from
third parties and consulting with any of the Company's asset managers who have
experience with the local market for such assets). The Company also reviews
information on the local economy and real estate markets in the area in which
the loan collateral is located. Because of its broad, nationwide experience in
managing assets, the Company often is able to draw on its asset management
experience in the specific market in which an asset is located.
27
<PAGE>
Unlike the original lender, the Company values Asset Portfolio loans based on
the present value of estimated total cash flow from resolution, with the
expectation that the loans will be resolved prior to scheduled maturity. The
Company's policy is to not refinance or renew purchased loans or grant new
credit.
Asset Portfolio evaluations are conducted almost exclusively by the
Company's employees who specialize in analysis of non-performing and
under-performing loans, often with further specialization based on geographic or
collateral-specific factors. Most of these employees have previously served the
Company (and some continue to serve) as asset managers with responsibility for
resolving such loans. Their asset management experience aids these individuals,
working together in teams, in making informed judgments about the status of each
loan and the underlying collateral, the probable cash flows from the loan, the
likely resolution of the loan and the time and expense required for such
resolution. The Company's personnel document these evaluations in standardized
Company formats.
Upon completion of evaluation forms, the Company compiles a database of
information about the loans in the Asset Portfolio. The primary focus of the
database is the anticipated recovery amount, timing and cost of the resolution
of the Asset Portfolio. Using its proprietary modeling system and loan
information database, the Company then determines the amount it will offer. The
offer is structured to achieve certain minimum rates of return. As of September
30, 1995, the Company had paid an average purchase price of 46% of the aggregate
Face Value on all of its wholly-owned Asset Portfolios and an average purchase
price of 56% of the aggregate Face Value on all of the Asset Portfolios owned by
the Company with co-investors.
When an Asset Portfolio is acquired (whether for the Company's own account
or with co-investors), the Company assumes the management of the loans in the
portfolio. Management includes responsibility both for servicing and for
resolving such loans. The Company's asset managers are given the supporting due
diligence information and projections relating to each newly-acquired loan for
which the manager assumes management responsibility. Because asset managers are
actively involved in the Asset Portfolio evaluation process, it is not unusual
for an asset manager to be given management responsibility for the specific
loans that the asset manager assisted in evaluating in the due diligence or
pricing processes. The Company believes that by combining the resolution and
evaluation activities, the Company achieves efficiency in loan resolution and
accuracy in loan evaluations.
Resolutions typically are accomplished through (i) negotiating with debtors
a discounted payoff, which may be accomplished through a refinancing by the
obligor with a lender other than the Company or (ii) foreclosure and sale of the
collateral. The Company generally seeks consensual resolution of each loan,
having found that a negotiated resolution usually maximizes the Company's or
investor's rate of return. The Company resolves most assets within an Asset
Portfolio within 18 months. The goal of the Company's asset resolution process
is to maximize in a timely manner cash recovery on each loan in an Asset
Portfolio.
In evaluating Asset Portfolios, the Company takes into account
concentrations of collateral located in specific regions of the United States
and Canada. As of September 30, 1995, the geographic dispersion of each primary
asset securing the loans in the Asset Portfolios in which the Company had
invested (whether for its own account or with co-investors) was as follows:
<TABLE>
<CAPTION>
FACE NUMBER OF
VALUE % OF TOTAL ASSETS % OF TOTAL
--------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Northeast..................................... $ 477.5 26.3% 1,228 42.9%
West.......................................... 716.6 39.4 766 26.8
Southwest..................................... 200.7 11.1 434 15.1
Midwest....................................... 109.1 6.0 96 3.3
Southeast..................................... 260.3 14.3 220 7.7
Canada........................................ 53.2 2.9 120 4.2
--------- ----- ----- -----
Total....................................... $ 1,817.4 100.0% 2,864 100.0%
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>
28
<PAGE>
The Company invests in both Asset Portfolios composed of collateralized
business loans and in Asset Portfolios composed of real estate collateralized
loans. Asset Portfolios purchased by the Company alone have tended to be
primarily composed of collateralized business loans, because many such Asset
Portfolios are within the size range generally sought by the Company. Asset
Portfolios composed primarily of real estate loans typically are larger and the
Company's investments in such portfolios usually are made with co-investors. At
September 30, 1995, the Company's total investment in wholly-owned Asset
Portfolios aggregated $310.0 million (Face Value), which was composed of $223.3
million (Face Value) (72.0%) of collateralized business loans, $37.5 million
(12.1%) of real estate loans, $44.0 million (14.2%) of asset-backed securities,
and $5.2 million (1.7%) of real estate.
In addition, as of September 30, 1995, the Asset Portfolios in which the
Company had invested (whether for its own account or with co-investors) included
approximately 2,900 individual assets. The Company has found that the market for
smaller portfolios is less competitive, because larger Asset Portfolio buyers
often elect not to consider these portfolios. In a recent industry trend, some
Asset Portfolio sellers are soliciting bids on portfolios consisting of small
groups of loans.
ASSET MANAGEMENT AND RESOLUTION SERVICES. The Company provides asset
management and resolution services to third parties pursuant to contracts with
the owner of an Asset Portfolio or a purchaser (including a partnership, joint
venture or other group in which the Company is a co-investor) of an Asset
Portfolio. Management of Asset Portfolios includes both loan resolution and
providing routine accounting services, monitoring collections of interest and
principal (if any), confirming (or advancing) insurance premium and tax payments
due on collateral, and generally overseeing and managing, if necessary,
collateral condition and performance.
Asset management and resolution contracts relating to Asset Portfolios
managed by the Company for third parties have a finite duration, typically three
to five years, and at September 30, 1995 covered Asset Portfolios that ranged up
to $429.8 million (Face Value). These contracts generally provide for the
payment of (i) a fixed annual management fee (generally between 50 and 75 basis
points based on the Face Value or original purchase price of the loans) with
revenues declining as assets under management decrease, (ii) a resolution fee
(generally between 50 and 150 basis points based on the net cash collections on
loans and assets) and (iii) a negotiated incentive fee for the successful
resolution of loans or assets, which is earned after a predetermined rate of
return for the portfolio owner or co-investor is achieved.
As part of its third-party asset management and resolution business, the
Company is aggressively pursuing contracts to serve as the designated Special
Servicer for pools of securitized mortgages. After a loan within a securitized
pool of performing loans becomes delinquent or non-performing, the Master
Servicer or Primary Servicer of the pool will contractually transfer
responsibility for resolution of that loan to the pool's designated Special
Servicer. Special Servicers earn an annual fee (typically approximately 50 basis
points of the Face Amount of the delinquent or non-performing loans subject to
Special Servicing), plus a 75 to 100 basis points resolution fee based on the
total cash flow from resolution of each such loan as it is received. As of
September 30, 1995 (pro forma with EQS), the Company was the designated Special
Servicer for securitized pools holding over $4.3 billion (Face Value) of loans,
$772.2 million (Face Value) of which had been assigned to the Company for
resolution in its capacity as Special Servicer.
The Company believes that its willingness to purchase participating
interests in the delinquent or non-performing portion of a securitized portfolio
provides the Company a significant competitive advantage in pursuing Special
Servicer contracts. The Company believes that acceptance of this risk is similar
to its Asset Portfolio acquisition business, and that the risk is acceptable
because the Company understands the loan valuations and will manage the loan
resolutions.
29
<PAGE>
MORTGAGE BANKING BUSINESS
GENERAL. The Company performs a wide range of commercial mortgage banking
services, including originating, underwriting, placement, selling and servicing
of commercial real estate loans through its Holliday Fenoglio and ACC mortgage
banking units. The Company also formed ARCC, a residential mortgage banking
business, through which the Company will purchase and securitize portfolios
composed of residential mortgages of borrowers who do not qualify for
conventional loans and whose borrowing needs are not met by traditional
financial institutions. For the nine month period ended September 30, 1995,
$14.1 million (20%) of the Company's gross revenues were attributable to the
Company's mortgage banking business.
The Company believes that the real estate mortgage banking business offers
significant growth opportunities. There are an estimated $1.0 trillion of
commercial real estate mortgages outstanding and the Company estimates that
$125.0 billion to $150.0 billion in commercial real estate mortgages are
refinanced each year in addition to mortgage financing of new construction.
Originations of loans for new construction projects are cyclical and are
influenced by various factors including interest rates, general economic
conditions and demand patterns in individual real estate markets. The commercial
mortgage banking industry is fragmented, composed primarily of small local or
regional firms. The Company anticipates that expensive technological demands,
increasingly standardized underwriting requirements, more demanding borrowers
and lenders, and the emergence of a market for securitized commercial real
estate mortgage pools will likely push the commercial mortgage banking industry
toward greater consolidation. The Company believes that well-capitalized, full
service mortgage banking firms offering a variety of mortgage banking and loan
management services nationwide will emerge from this consolidation. The
Company's objective is to improve its position as a major nationwide full
service mortgage banker to the commercial real estate industry. The Company
intends to achieve this goal through the internal development of its mortgage
banking group and through strategic acquisitions of mortgage bankers which
either serve key real estate markets in the United States or provide niche or
specialized services that enhance the Company's product line.
COMMERCIAL MORTGAGE BANKING BUSINESS. As a leading full service commercial
mortgage broker and banker with offices in key markets throughout the United
States, the Company provides a wide range of real estate capital markets
services to owners and developers of the full range of commercial real estate
properties. The typical consumers of commercial real estate mortgage banking
services are both real estate developers and owners (as borrowers) and
investor/lenders (as funding sources). Due to the more specialized nature of
commercial mortgage lending and the smaller universe of lenders serving this
market (in each case relative to the residential mortgage market), borrowers
rely on commercial mortgage brokers and bankers to find competitive lenders, and
these lenders (particularly insurance companies and pension plans, which do not
generally have origination staffs located in multiple branches) rely on mortgage
brokers and bankers to source potential borrowers. Lenders generally include
banks, pension funds and insurance companies. In originating loans, Holliday
Fenoglio and ACC each work closely with both the borrower and potential lenders
from the time a loan prospect is first contacted, through the application and
proposal process, and throughout the documentation of the loan to final funding.
Holliday Fenoglio and ACC each typically perform extensive due diligence and
market analysis for the lenders in this process.
Holliday Fenoglio was the third largest commercial mortgage banker in the
United States in 1994 (based on origination volume) and primarily serves
commercial real estate developers and owners by originating commercial real
estate loans. Holliday Fenoglio primarily targets developers and owners of
higher-quality commercial and multi-family real estate properties. Holliday
Fenoglio originates prospective borrowers through its own commission-based
mortgage bankers in its offices located in Atlanta, Boca Raton, Buffalo, Dallas,
Houston, New York City and Orlando. The loans originated by Holliday Fenoglio
generally are funded by institutional lenders, primarily insurance companies,
with Holliday Fenoglio retaining the Primary Servicer rights on approximately
20% of such loans. The Company believes that Holliday Fenoglio's relationship
and credibility with the institutional lender network provide the Company a
competitive advantage in the commercial mortgage banking industry.
30
<PAGE>
ACC, which originated approximately $260.7 million of commercial real estate
mortgages during the nine months ended September 30, 1995, is a mortgage banker
that originates and underwrites commercial real estate loans that are funded
primarily by Conduit Purchasers rather than by institutional lenders such as
insurance companies. ACC, therefore, makes certain representations and
warranties concerning the loans it originates. These representations cover such
matters as title to the property, lien priority, environmental reviews and
certain other matters. ACC primarily targets originators of commercial mortgage
loans for commercial real estate properties that are suitable for sale to
Conduit Purchasers accumulating loans for securitization programs directly
through ACC's offices located in Dallas, Miami and Washington, D.C., as well as
through a network of approximately 20 independent mortgage brokers located
throughout the United States. ACC recently established a relationship with the
22 office commercial real estate finance unit of a major insurance company
whereby the insurance company has agreed to refer prospective borrowers to the
Company in instances where the prospective loan does not meet the insurer's
requirements (typically borrowers for medium-quality commercial properties).
Since ACC commenced underwriting activities and through September 30, 1995,
Holliday Fenoglio originated approximately 31% of the loans underwritten by ACC,
with Holliday Fenoglio and ACC each receiving fees for their respective
services.
The Company believes that through ACC, the Company has certain additional
significant advantages in the mortgage banking marketplace. First, through its
relationships with certain institutional investors, the Company is able to
underwrite and sell commercial mortgage loans, particularly in instances where
the borrower needs relatively quick access to funding for a particular project.
Through a warehouse credit facility arranged in early 1995, the Company is able
to underwrite and fund a loan and hold that loan for resale to a buyer. Second,
because of the Company's extensive experience in real estate markets, the
Company believes it can carefully evaluate the risks of such underwriting
transactions in order to minimize financial exposure to the Company in
underwriting and/or warehousing a loan.
In July 1995, the Company, through ACC, acquired CKSRS, whose primary
business is the origination, sale to Freddie Mac and servicing of multi-family
apartment mortgages in the state of Florida. Through CKSRS, the Company became a
member of the Freddie Mac multi-family seller/servicer program in Florida.
Through this acquisition, the Company will obtain access to a significant source
of funding for multi-family mortgages. The Company intends to expand its Freddie
Mac authorization to operate in other states. The Company has been approved by
Fannie Mae to participate in its DUS program. The Company expects Freddie Mac
and Fannie Mae loan originations to become a significant part of its mortgage
banking activities. Holliday Fenoglio is expected to be a significant source of
such loan originations. See "Recent Developments -- Acquisition of CKSRS."
The Company generally earns a fee of between 75 and 100 basis points of the
loan amount for originated or underwritten loans, plus certain additional
processing fees. From time to time, the Company also originates non-traditional
financing involving hybrid forms of debt, equity participations and other
creative financing structures. Fees for equity or joint venture structures are
typically higher. The table that follows reflects the loan origination activity
and loan origination and underwriting fee revenue for the nine months ended
September 30, 1995:
<TABLE>
<S> <C>
Origination:
Dollar volume................................................... $1,585.0
Number of loans................................................. 255
Origination and underwriting fees earned.......................... $12.2
Number of offices................................................. 10
</TABLE>
31
<PAGE>
After the evaluation of a loan prospect and the project financing needs, and
depending upon the type of property involved and its location, the Company
approaches institutional lenders that the Company believes would be interested
in funding the loan. The Company has established relationships with over 200
institutional lenders that include insurance companies, pension plans and
Conduit Purchasers. In 1994, the Company placed 289 loans with over 80 different
lenders. Twenty-six institutional lenders have retained the Company as their
respective exclusive or semi-exclusive loan originator in selected cities and
regions.
COMMERCIAL LOAN SERVICING BUSINESS. The Company serves as a Primary
Servicer for whole loans and as a Master Servicer for securitized pools of
commercial mortgages. For the nine months ended September 30, 1995, $1.9 million
(2.7%) of the Company's gross revenues were generated by its loan servicing
business (excluding Special Servicing). See "-- Asset Acquisition and Resolution
Business -- Asset Management and Resolution Services." The dominant users of
loan servicers are mortgage-backed bond trusts and similar securitized
asset-backed loan portfolios made up of numerous passive investors. Other
lenders often contract with the originating mortgage banker or other third-party
servicer to manage collection, accounting and other activities with respect to
the loan. The revenue stream from servicing contracts on commercial mortgages is
relatively predictable as prepayment penalties in commercial mortgages
discourage early loan payoffs, a risk that is more significant to servicers of
residential mortgage portfolios.
Primary Servicing involves collecting monthly mortgage payments, maintaining
escrow accounts for the payment of ad valorem taxes and insurance premiums on
behalf of borrowers, remitting payments of principal and interest promptly to
investors in the underlying mortgages, reporting to those investors on financial
transactions related to such mortgages, and generally administering the loans.
The Primary Servicer also must cause properties to be inspected periodically,
determine the adequacy of insurance coverage on each property, monitor
delinquent accounts for payment, and, in cases of extreme delinquency, institute
and complete either appropriate forbearance arrangements or foreclosure
proceedings on behalf of investors. Primary Servicers are typically paid an
annual fee ranging between 6 and 20 basis points of Face Value
of the loans under management. At September 30, 1995, the Company's Primary
Servicing portfolio totaled $3.0 billion (Face Value).
Master Servicing involves providing administrative and reporting services to
securitized pools of mortgage-backed securities. Typically, mortgages underlying
mortgage-backed securities are serviced by a number of Primary Servicers. Under
most master servicing arrangements, the Primary Servicers retain principal
responsibility for administering the mortgage loans and the Master Servicer acts
as an intermediary in overseeing the work of the Primary Servicers, monitoring
their compliance with the issuer's standards, and consolidating their respective
periodic accounting reports for transmission to the issuer of the related
securities. The Company occasionally is designated as the full servicer for a
pool of mortgages, in which case the Company acts as Master, Primary and Special
Servicer for the pool. Master Servicers are typically paid an annual fee ranging
between 4 and 10 basis points of Face Value of the loans under management. The
average life of these securitized pools is expected to be approximately eight
years. At September 30, 1995, the Company's Master Servicing portfolio totaled
$117.0 million (Face Value).
The market for servicing performing loan pools constitutes a much larger
potential market than the market for servicing non-performing and
under-performing assets. The Company believes that by gaining access to these
pools in a servicer capacity, opportunities exist for the Company to originate
loan refinancings as outstanding loans mature. In addition, the Company's
ability to also act as Special Servicer is a competitive advantage. The Company,
therefore, has targeted the market for performing loan management services as a
growth area for the Company. The Company has previously participated in this
market as a Primary Servicer of commercial real estate loans for loans
originated by the Company's mortgage banking unit and for loans owned by
investor clients.
On October 27, 1995, the Company acquired a substantial portion of the
assets of EQS, consisting exclusively of EQS' third-party loan pool servicing
contracts. See "Recent Developments." Management estimates that at September 30,
1995, EQS was Master Servicer on approximately $5.9 billion (Face Value),
including approximately $1.6 billion (Face Value) as full servicer, in loans
under the servicing contracts purchased in the EQS Acquisition.
32
<PAGE>
RESIDENTIAL MORTGAGE SECURITIZATION. Through ARMC, the Company intends to
purchase (in bulk from independent originators), warehouse, and securitize or
sell portfolios of residential mortgages of borrowers who do not qualify for
conventional loans and whose borrowing needs are not met by traditional
financial institutions. Such borrowers may not satisfy the more rigid
underwriting standards of the traditional residential mortgage lending market
for a number of reasons, such as blemished credit histories (from past loan
delinquencies or bankruptcy), inability to provide income verification data, or
lack of established credit history. Because this market is underserved by
traditional lenders, credit is less available, there is less competition, and
interest rates are higher than for higher credit quality mortgage borrowers. The
Company believes that the higher risk-adjusted profit opportunities offered by
this market are attractive. On November 3, 1995, ARMC purchased a portfolio of
approximately $76.3 million of such mortgages.
The Company intends to securitize loans through the sale of mortgage-backed
securities in the public and private capital markets. The Company will seek to
utilize securitization structures that minimize the Company's capital
requirements, while still providing income to the Company. For example, the
Company may sell certificates for senior interests in a securitization, but
retain subordinated and/or interest-only certificates. The Company then would
have limited capital at risk, but would retain a portion of the cash flow from
the securitization. The Company also may seek to place bundled residential
mortgages through non-securitization transactions such as joint ventures with
insurance companies and pension funds.
To lead the Company's entry into this market, the Company recently hired an
experienced team of individuals from a major national consumer finance company.
This group managed their former employer's comparable residential mortgage
business. This group has estimated that between 1991 and 1995, it managed the
acquisition of over $2.0 billion of mortgage assets.
PENSION ADVISORY SERVICES
The Company believes that a market exists for quality real estate advisory
services to pension plans and other institutional investors in commercial real
estate. The Company believes that through the targeted hiring of high quality
personnel with proven track records and the purchase of advisory contracts from
other advisors, the Company can become a major provider of real estate advisory
services to institutional real estate investors such as pension plans. The
Company's acquisition of substantially all of the advisory contracts and the
hiring of pension advisory personnel of Acacia is the first step in the
implementation of this strategy. See "Recent Developments." Acacia principally
provides real estate investment advice to various institutional investors
(primarily pension funds) seeking to invest a portion of their funds in real
estate. The investors establish certain investment parameters with Acacia (E.G.,
amount of funds available for investment, type of property, geographic mix, form
of investment (loan, partnership, direct ownership), target rate of return and
investment term). Acacia then seeks investment opportunities it believes meet
the investors' parameters. The investors exercise varying degrees of control
over Acacia's investment decisions. Depending on the amount of discretion
granted by the client, Acacia also will make a recommendation, or the final
decision, concerning whether to sell a particular property and will direct the
work necessary to complete the sale. Although Acacia is paid acquisition and
disposition fees by some of its clients, its principal source of revenue is
asset management fees, which are based on the cash flow of the investments under
management or are negotiated at the time of the client's investment in a
property.
COMPETITION
The Company's competition varies by business line and geographic market.
Generally, competition within each of the business lines within which the
Company competes is fragmented with very few national competitors, none of which
dominate a particular business line, and many local and regional competitors.
Certain of the Company's competitors within each of its business lines are
larger and have greater financial resources than the Company.
33
<PAGE>
LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings
arising in the ordinary course of business. In connection with the Company's
loan servicing, asset management and resolution activities, the Company
generally is indemnified by the party on whose behalf the Company is acting. The
Company also maintains insurance that management believes is adequate for the
Company's operations. None of the matters in which the Company is currently
involved, either individually or in the aggregate (and after consideration of
available indemnities and insurance), is expected to have a material adverse
effect on the Company's business or financial condition.
EMPLOYEES
At October 31, 1995, the Company and its subsidiaries employed 776
employees. Approximately 348 persons are employed in the Company's asset
management and resolution group, 312 persons are employed in the Company's real
estate mortgage banking and services group, 8 persons are employed in its
residential mortgage group, and 108 persons work in general corporate
administration. The Company believes that its employee relations are generally
good.
PROPERTIES
The Company leases approximately 65,000 square feet in the Woodall Rodgers
Tower in Dallas, Texas for its centralized corporate functions including
executive, business development and marketing, accounting, legal, human
resources and support. The lease provides for annual rent of $693,000 and has an
initial termination date of August 14, 1997. The Company also leases
approximately 197,000 square feet of space for an operations office and branch
offices pursuant to leases with varying terms.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages, and a brief account of the business
experience of each person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
Robert L. Adair III Mr. Adair serves as director, President and Chief Operating Officer of the Company
(52) (since December 1993). Mr. Adair previously served as Executive Vice President and
director of BEI (1989 to December 1993). His term as a director expires in 1997.
L. Keith Blackwell Mr. Blackwell serves as General Counsel and Secretary of the Company (since January
(54) 1994) and previously served as General Counsel and Secretary of Holdings (December
1993). Mr. Blackwell previously was an investor and consultant (May 1992 to December
1993) and served as Executive Vice President, General Counsel and Secretary of First
Gibraltar Bank, FSB (December 1988 to May 1992).
Randolph E. Brown Mr. Brown serves as Senior Vice President -- Commercial Group of the Company (since
(35) June 1995). Mr. Brown previously served as Director -- Business Development and
Acquisitions of the Company (1993 to June 1995), Director, Department Manager of
NationsBank of Texas (1991 to 1993) and Senior Vice President, Department Manager of
NationsBank of Texas (1990 to 1991).
James P. Cotton, Jr. Mr. Cotton serves as a director of the Company (since December 1993). His term expires
(56) in 1998. Mr. Cotton previously served as Chairman of the Board of BEI (1986 to
December 1993). Mr. Cotton also serves as Chairman of the Board and Chief Executive
Officer of USBA Holdings, Ltd., a provider of products and services to financial
institutions (since 1990).
Richard L. Cravey Mr. Cravey serves as a director of the Company. His term expires in 1996. Mr. Cravey
(50) previously served in the following positions: Chairman of the Board and Chief
Executive Officer of the Company (December 1993 to May 1994) and Chairman of the Board
of Holdings (1992 to December 1993). Mr. Cravey also holds the following positions:
Founder and Managing Director of Cravey, Green & Wahlen Incorporated, a private risk
capital investment firm (since 1985), its investment management affiliate, CGW
Southeast Management Company (since 1991) and its affiliates, CGW Southeast I, Inc.
(the general partner of CGW Southeast Partners I, L.P.) and CGW Southeast II, Inc.
(the general partner of CGW Southeast Partners II, L.P.) (since 1991); Director of
Commercial Bancorp of Georgia (since 1988); Director of Commercial Bancorp of Gwinnett
(since 1990); and Director of Cameron Ashley Inc., a national distributor of home
building products (since 1994).
Barry L. Edwards Mr. Edwards serves as Executive Vice President and Chief Financial Officer of the
(48) Company (since November 1994). Mr. Edwards previously served as Vice President and
Treasurer of Liberty Corporation, an insurance holding company (1979 to November
1994).
Gerald E. Eickhoff Mr. Eickhoff serves as a director of the Company. His term expires in 1996. Mr.
(49) Eickhoff also is a private investor (since December 1993). He previously served as
President, Chief Executive Officer and director of BEI (1986 to December 1993).
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
William S. Green Mr. Green serves as a director of the Company (since December 1993). His term expires
(53) in 1998. Mr. Green also holds the following positions: Managing Director of Cravey,
Green & Wahlen Incorporated, a private risk capital investment firm (since 1985), its
investment management affiliate, CGW Southeast Management Company (since 1991) and its
affiliates, CGW Southeast I, Inc. (the general partner of CGW Southeast Partners I,
L.P.) (since 1991) and CGW Southeast II, Inc. (the general partner of CGW Southeast
Partners II, L.P.) (since 1991); Director of DENTSPLY International, Inc., a
manufacturer of dental supplies, dental equipment and medical x-ray products (since
1987); and Director of Cameron Ashley Inc., a national distributor of home building
products (since 1994).
Harold E. Holliday, Jr. Mr. Holliday serves as Chairman of the Board and Chief Executive Officer of Holliday
(48) Fenoglio (since August 1994). Mr. Holliday previously served as President of Holliday,
Fenoglio, Dockerty & Gibson, Inc., a mortgage banking company (for more than five
years prior to August 1994).
Amy J. Jorgensen Ms. Jorgensen serves as a director of the Company. Her term expires in 1998. Ms.
(42) Jorgensen also serves as Managing Director of Greenbriar Associates LLC, which
provides advice and executes transactions relating to real estate assets and companies
(since 1995). Ms. Jorgensen previously served as President of the Jorgensen Company, a
consultant for real estate strategy and finance (April 1992 to September 1995) and as
Managing Director in the Real Estate Department of Morgan Stanley & Co. Incorporated
(1986 to February 1992).
Ronald B. Kirkland Mr. Kirkland serves as Vice President (since January 1994) and Chief Accounting
(51) Officer (since January 1995) of the Company. Mr. Kirkland previously served as
Controller of the Company (December 1993 to January 1995) and Holdings (December 1992
to December 1993) and as Senior Vice President and Controller of the Special Asset
Division of NationsBank of Texas (August 1988 to December 1992).
Robert H. Lutz, Jr. Mr. Lutz serves as Chairman of the Board and Chief Executive Officer of the Company
(46) (since May 1994). Mr. Lutz previously served as President of Allegiance Realty, a real
estate management company (November 1991 to May 1994); Executive Vice President of
Cousins Properties (February 1990 to October 1991); and President or Senior Vice
President of The Landmark Group (1980 to February 1990). His term as a director
expires in 1996.
Michael N. Maberry Mr. Maberry serves as President of ACC (since April 1994). Mr. Maberry previously was
(52) a Shareholder of the law firm of Winstead, Secrest & Minick (April 1989 to April
1994).
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
John J. McDonough Mr. McDonough serves as a director of the Company. His term expires in 1997. Mr.
(59) McDonough also serves or has served in the following positions: President and Chief
Executive Officer of McDonough Capital Company LLC, a company through which Mr.
McDonough conducts personal and family investments (since February 1995); Chairman of
the Board of SoftNet Systems, Inc., a company that develops, markets, installs and
services information and document management systems (since June 1995); Vice Chairman
(since 1993) and Chief Executive Officer (1993 to February 1995) of DENTSPLY
International, Inc., a manufacturer of dental supplies, dental equipment and medical
x-ray products; Chairman of the Board (1992 to 1993), Director (1983 to 1992), Chief
Executive Officer (1983 to 1993), President (1983 to 1991) and Treasurer (1983 to
1989) of GENDEX Corporation, a manufacturer of dental equipment and medical x-ray
products, which merged with DENTSPLY in June 1993; and Senior Vice President, Finance
(1981 to 1983) and Director (since 1992) of Newell Co., a New York Stock
Exchange-listed manufacturer of products for the do-it-yourself hardware and
housewares market.
Bruce W. Schnitzer Mr. Schnitzer serves as a director of the Company. His term expires in 1997. Mr.
(51) Schnitzer previously served as Vice Chairman of the Board of BEI (1986 to December
1993). Mr. Schnitzer also serves as Chairman of Wand Partners Inc., an investment
advisory company (since 1987); Director of Life Partners Group, Inc., a life insurance
holding company (since 1990); and Director of Penncorp Financial Group, Inc. (since
1990).
Douglas R. Urquhart Mr. Urquhart serves as Senior Vice President -- Real Estate Group or Business
(50) Development (since June 1995). Mr. Urquhart previously served as Senior Vice President
-- Portfolio Acquisitions of the Company (January 1994 to June 1995); President of BEI
Real Estate Services, Inc. and BEI Management, Inc., a subsidiary of BEI (December
1992 to January 1994); and President of BEI Asset Managers, Inc., a subsidiary of BEI
(January 1989 to January 1994).
</TABLE>
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the Common
Stock owned as of October 31, 1995, and as adjusted to reflect the sale of the
shares of Common Stock, by: (i) each person who is known by management to be the
beneficial owner of more than five percent of the Common Stock as of such date
(including the Selling Shareholders); (ii) each of the Company's directors;
(iii) the Company's senior executive officers; and (iv) all directors and
executive officers of the Company as a group.
Except as otherwise indicated, all shares shown in the table below are held
with sole voting and investment power. Pursuant to the rules of the Commission,
shares of the Common Stock that a beneficial owner has the right to acquire
within 60 days pursuant to the exercise of stock options are deemed to be
outstanding for the purposes of calculating the number of shares beneficially
owned and the percentage ownership of such owner, but are not deemed outstanding
for the purposes of computing the percentage ownership of any other person
(other than shares owned and percentage ownership of all executive officers and
directors as a group).
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
--------------------------- ----------------------------
SHARES PERCENT OF SHARES TO SHARES PERCENT OF
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY SHARES BE SOLD IN BENEFICIALLY SHARES
AND 5% SHAREHOLDERS OWNED OUTSTANDING OFFERING OWNED OUTSTANDING (1)
- ------------------------------------------- ------------ ------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
SELLING SHAREHOLDERS:
CGW Southeast Partners I, L.P. (2)(3)...... 5,860,248 24.2% 1,290,000 4,570,248 17.5%
CGW Southeast Partners II, L.P. (2)(3)..... 3,225,918 13.3% 710,000 2,515,918 9.6%
OTHERS:
James P. Cotton, Jr. (2)(4)
Two Concourse Parkway, Suite 650
Atlanta, Georgia 30328.................. 640,476 2.6% -- 640,476 2.4%
Gerald E. Eickhoff (2)
125 Clairmont Road, Suite 500
Decatur, Georgia 30030.................. 28,000 * -- 28,000 *
Robert L. Adair III (5).................. 364,147 1.4% -- 364,147 1.3%
Richard L. Cravey........................ (2)(3) (2)(3) (2)(3) (2)(3) (2)(3)
William S. Green......................... (2)(3) (2)(3) (2)(3) (2)(3) (2)(3)
Amy J. Jorgensen......................... 2,000 * -- 2,000 *
Robert H. Lutz, Jr. (6).................. 187,416 * -- 187,416 *
John J. McDonough........................ 5,000 * -- 5,000 *
Bruce W. Schnitzer (7)................... 143,000 * -- 143,000 *
Douglas R. Urquhart (8).................. 198,185 * -- 198,185 *
All executive officers and directors as a
group (a total of 16 persons) (9)....... 11,115,458 44.1% 2,000,000 9,115,458 33.5%
</TABLE>
- ------------------------------
* Less than 1%
(1) Adjusted for the sale of shares of Common Stock offered by the Company
hereby.
(2) As a result of the Voting Agreement (as defined below), before the Offering
the Selling Shareholders, Mr. Cotton, Jr. and Mr. Eickhoff may be deemed to
beneficially own all of the 9,754,642 (40.0%) shares subject to the Voting
Agreement. After the Offering, the total shares subject to the Voting
Agreement will be 7,754,642 (29.4%). The figures in the table reflect direct
ownership of shares only.
(3) The address of CGW Southeast Partners I, L.P. ("CGWI") and CGW Southeast
Partners II, L.P. ("CGWII") and the business address of Messrs. Cravey and
Green is Twelve Piedmont Center, Suite 210, Atlanta, Georgia 30305. Each of
Messrs. Cravey and Green, as well as Edwin A. Wahlen, Jr., may also be
deemed to beneficially own the 5,860,248 shares and 3,225,918 shares held of
38
<PAGE>
record by CGWI and CGWII, respectively, because they are managing directors
of the corporate general partner of each such limited partnership and may
therefore be deemed to share voting and investment power with respect to the
shares owned of record by the Selling Shareholders. In addition, each such
limited partnership may be deemed to beneficially own the shares owned by
the other as a result of such common control. Messrs. Cravey, Green and
Wahlen disclaim beneficial ownership of such shares.
(4) Includes 156,803 shares allocated to Mr. Cotton's account in the Company's
401(k) plan and 157,840 shares held in a charitable trust in which Mr.
Cotton retains a beneficial interest.
(5) Includes currently exercisable options to purchase 273,788 shares and 27,640
restricted shares with respect to which he has voting rights.
(6) Includes currently exercisable options to purchase 138,821 shares and 47,395
restricted shares with respect to which he has voting rights.
(7) Includes currently exercisable options to purchase 110,000 shares.
(8) Includes currently exercisable options to purchase 125,700 shares and 10,875
restricted shares with respect to which he has voting rights.
(9) Includes currently exercisable options to purchase 953,707 shares and
136,330 restricted shares with respect to which they have voting rights. See
also footnotes (2) and (3) above.
CERTAIN TRANSACTIONS WITH THE SELLING SHAREHOLDERS
The Selling Shareholders and Mr. James P. Cotton, Jr. and Mr. Gerald E.
Eickhoff entered into a voting agreement (the "Voting Agreement") on December
29, 1993, pursuant to which the parties thereto agreed to vote for four
designees nominated by the Selling Shareholders and for four designees
collectively nominated by Messrs. Cotton and Eickhoff. The Voting Agreement also
provides that the Selling Shareholders and Messrs. Cotton and Eickhoff have the
right to reject, upon a showing of reasonable cause, any of the other party's
nominees. The Voting Agreement shall terminate upon the first to occur of (i)
the date on which the Selling Shareholders cease to own at least 10% of the
issued and outstanding Common Stock or (ii) December 29, 1996.
See "Description of Capital Stock -- Registration Rights" for a description
of certain registration rights held by the Selling Shareholders and Messrs.
Cotton and Eickhoff.
Pursuant to the terms of certain agreements for consulting services between
Holdings and the Selling Shareholders in effect until December 31, 1996, the
Selling Shareholders have been engaged to render certain advisory and consulting
services to the Company in connection with corporate finance matters. The
agreements currently provide for base payments of $30,000 per month to the
Selling Shareholders, with additional payments of up to $30,000 per month being
allowed in the discretion of the Compensation Committee. Such discretionary
payments totaled $295,000 for 1994. Messrs. Cravey and Green are each Managing
Directors of the corporate general partner of the Selling Shareholders.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $0.05 per share, and 5,000,000 shares of preferred stock (the "Preferred
Stock"), par value $1.00 per share. As of October 31, 1995, the Company had
issued and outstanding 24,274,915 shares of Common Stock and no shares of
Preferred Stock. As of such date, there were approximately 3,100 holders of
record of the outstanding shares of Common Stock.
The following summary of the Company's Common Stock and Preferred Stock is
qualified in its entirety by reference to the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), its Amended
and Restated Bylaws (the "Bylaws"), and the Delaware General Corporation Law, as
amended (the "DGCL").
COMMON STOCK
Subject to such preferential rights as may be granted by the Board of
Directors in connection with any issuances of Preferred Stock, holders of shares
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors in its discretion from funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, after payment of
creditors, the remaining net assets of the Company will be distributed pro rata
to the holders of Common Stock, subject to any liquidation preference of the
holders of Preferred Stock. There are no preemptive rights, conversion rights,
or redemption or sinking fund provisions with respect to the shares of Common
Stock. All of the outstanding shares of Common Stock are duly and validly
authorized and issued, fully paid and non-assessable.
Holders of Common Stock are entitled to one vote per share of Common Stock
held of record on all such matters submitted to a vote of the shareholders.
Holders of the shares of Common Stock do not have cumulative voting rights. As a
result, the holders of a majority of the outstanding shares of Common Stock
voting for the election of directors can elect all the directors, and, in such
event, the holders of the remaining shares of Common Stock will not be able to
elect any persons to the Board of Directors. See "Principal and Selling
Shareholders and Share Ownership of Management."
PREFERRED STOCK
The Board of Directors may, without approval of the Company's shareholders,
from time to time, authorize the issuance of Preferred Stock in one or more
series for such consideration and, within certain limits, with such relative
rights, preferences and limitations as the Board of Directors may determine. The
relative rights, preferences and limitations that the Board of Directors has the
authority to determine as to any such series of Preferred Stock include, among
other things, dividend rates, voting rights, conversion rights, redemption
rights and liquidation preferences. Because the Board of Directors has the power
to establish the relative rights, preferences and limitations of each series of
Preferred Stock, it may afford to the holders of any such series preferences and
rights senior to the rights of the holders of shares of Common Stock. Although
the Board of Directors has no intention at the present time of doing so, it
could cause the issuance of Preferred Stock that could discourage an acquisition
attempt or other transaction that some, or a majority of, the shareholders might
believe to be in their best interest or in which the shareholders might receive
a premium for their shares of Common Stock over the market price of such shares.
DELAWARE LAW AND CERTAIN CORPORATE PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL. In
general, this statute prohibits a publicly-held Delaware corporation from
engaging, under certain circumstances, in a "business combination" with an
"interested shareholder" for a period of three years after the date of the
transaction in which the person becomes an interested shareholder, unless either
(i) prior to the date at which the shareholder became an interested shareholder
the Board of Directors approved either the business combination or the
transaction in which the person becomes an interested shareholder, (ii) the
shareholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of the transaction in which the
shareholder becomes an interested shareholder or (iii) the business combination
is approved by the Board of Directors and by two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
40
<PAGE>
shareholder) at a meeting of the shareholders (and not by written consent) held
on or subsequent to the date on which the person became an "interested
shareholder" of the business combination. An "interested shareholder" is a
person who, together with affiliates and associates, owns (or is an affiliate or
associate of the corporation and, together with affiliates and associates, at
any time within the prior three years did own) 15% or more of the corporation's
voting stock. Section 203 defines a "business combination" to include, without
limitation, mergers, consolidations, stock sales and asset based transactions
and other transactions resulting in a financial benefit to the interested
shareholder.
The Company's Certificate of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and to the rights of shareholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (i) the classification of the Board of
Directors into three classes, each class serving for staggered three-year terms;
(ii) the authority of the Board of Directors to determine the size of the Board
of Directors, subject to certain minimums and maximums; (iii) the authority of
certain members of the Board of Directors to fill vacancies on the Board of
Directors; (iv) a requirement that special meetings of shareholders may be
called only by the Board of Directors, the Chairman of the Board or holders of
at least one-tenth of all the shares entitled to vote at the meeting; (v) the
elimination of shareholder action by written consent; (vi) the authority of the
Board of Directors to issue series of Preferred Stock with such voting rights
and other powers as the Board of Directors may determine; (vii) the requirement
that the Article in the Certificate of Incorporation creating the staggered
board may only be amended by the vote of at least 66 2/3% of the voting
securities of the Company; (viii) the prohibition on amending or rescinding,
before December 31, 1996, the Article in the Certificate of Incorporation
related to the filling of vacancies on the Board of Directors; and (ix) a
requirement that any business combination between the Company and a beneficial
owner of more that five percent of any class of an equity security of the
Company must be approved by the holders of a majority of the Company's
securities, excluding those securities held by such beneficial owner, voted at a
meeting called for the purpose of approving such business combination.
INDEMNIFICATION AND LIMITED LIABILITY
The Company's Certificate of Incorporation and Bylaws require the Company to
indemnify the directors and officers of the Company to the fullest extent
permitted by law. In addition, as permitted by the DGCL, the Company's
Certificate of Incorporation and Bylaws provide that no director of the Company
will be personally liable to the Company or its shareholders for monetary
damages for such director's breach of duty as a director. This limitation of
liability does not relieve directors from liability for (i) any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) any liability under Section 174 of the DGCL for unlawful
distributions, or (iv) any transaction from which the director derived an
improper personal benefit. This provision of the Certificate of Incorporation
will limit the remedies available to a shareholder who is dissatisfied with a
decision of the Board of Directors protected by this provision, and such
shareholder's only remedy in that circumstance may be to bring a suit to prevent
the action of the Board of Directors. In many situations, this remedy may not be
effective, E.G., when shareholders are not aware of a transaction or an event
prior to action of the Board of Directors in respect of such transaction or
event.
Subject to certain limitations, the Company's executive officers and
directors are insured against losses arising from claims made against them for
wrongful acts which they may become obligated to pay or for which the Company
may be required to indemnify them.
REGISTRATION RIGHTS
The Company has entered into various agreements granting registration rights
(collectively, the "Registration Rights Agreements") with certain holders of
Common Stock including the Selling Shareholders and Mr. James P. Cotton, Jr. and
Mr. Gerald E. Eickhoff (both of whom are directors of the Company). Pursuant to
the Registration Rights Agreements, these holders may exercise demand or
"piggyback" registration rights with respect to shares of Common Stock held by
them. The demand registration rights are limited to one or two registrations
under each respective Registration Rights Agreement. Each Registration Rights
41
<PAGE>
Agreement has a term of three years for demand registration rights and either
two years or five years for "piggyback" registration rights. These registration
rights are subject to certain conditions and limitations, including the right of
underwriters to restrict the number of shares offered in a registration.
OTHER MATTERS
The Common Stock is listed on Nasdaq National Market under the symbol
"AMMB." SunTrust Bank, Atlanta, Georgia, is the transfer agent and registrar for
the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
26,274,915 shares of Common Stock (26,874,915 shares if the Underwriters'
over-allotment option is exercised in full), of which 8,184,556 shares will be
"affiliate securities," as that term is defined in Rule 144 or 145 promulgated
under the Securities Act. See "Description of Capital Stock -- Registration
Rights" for a description of the registration rights held by holders of a
substantial portion of the affiliate shares. In general, under Rules 144 and
145, a person may, subject to certain restrictions, sell within any three-month
period a number of shares which does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission as required by Rule 144. Sales by affiliates
under Rule 144 also are subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. The Company, its executive officers and directors and the Selling
Shareholders have agreed that they will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock of the Company for a period of
180 days from the date of this Prospectus without the prior written consent of
the Representatives (as defined below in "Underwriting"), except for the sale of
shares of Common Stock offered hereby and except for bona fide gifts or
transfers effected other than on any securities exchange or in the
over-the-counter market to donees or transferees that agree to be bound by such
restriction.
No predictions can be made as to the effect, if any, that sales of shares of
Common Stock under Rule 144 will have on the market price of the Common Stock.
Sales of substantial amounts of such shares in the public market could adversely
affect the market price of the Common Stock or the ability of the Company to
raise capital through a public offering of its equity securities.
Shares of Common Stock issued pursuant to the Company's stock option plans
generally will be available for sale in the open market and will be freely
tradeable, except to the extent that the holders thereof are affiliates of the
Company, in which case the limitations of Rule 144 (other than the holding
period) will apply. On October 31, 1995, options to purchase 2,297,248 shares of
Common Stock were outstanding under the Company's stock option plans. See
"Principal and Selling Shareholders and Share Ownership of Management."
42
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and Piper
Jaffray Inc. are acting as representatives (collectively, the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholders, and the Company and the Selling Shareholders have agreed
to sell to the Underwriters, the number of shares of Common Stock set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ---------------------------------------------------------------------------------------- --------------
<S> <C>
The Robinson-Humphrey Company, Inc......................................................
Piper Jaffray Inc.......................................................................
--------------
Total................................................................................. 4,000,000
--------------
--------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the Price to Public set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share in sales to certain other dealers. After the
Offering, the Price to Public and other selling terms may be changed.
The Company, each of its directors and executive officers and the Selling
Shareholders have agreed that they will not offer, sell or otherwise dispose of
any shares of Common Stock (other than the shares offered by the Company and the
Selling Shareholders in this offering), subject to certain exceptions, for a
period of 180 days from the date of this Prospectus without the prior written
consent of the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to 600,000 additional shares of
Common Stock to cover over-allotments, if any, at the public offering price less
the underwriting discount, as set forth on the cover page of this Prospectus. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 4,000,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments in connection with the sale of the shares of Common Stock
offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
In connection with the Offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended, during
the two business day period before commencement of offers of sales of the Common
Stock. The passive market making transactions must comply with applicable volume
and price limits and be identified as such. In general, a passive
43
<PAGE>
market maker may display its bid at a price not in excess of the highest
independent bid for the security; however if all independent bids are lowered
below the passive market marker's bid, such bid must then be lowered when
certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by L. Keith Blackwell, General Counsel of the Company.
Certain other legal matters will be passed upon for the Company by Haynes and
Boone, L.L.P., Dallas, Texas. Certain legal matters relating to the shares of
Common Stock offered hereby will be passed upon for the Underwriters by Smith,
Gambrell & Russell, Atlanta, Georgia.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of the Company as of December 31, 1993 and
1994, and the related statements of income, shareholders' equity and cash flows
for the period from November 1, 1992 through December 31, 1992 and the years
ended December 31, 1993 and 1994 and the combined statements of income and cash
flows of Holdings (predecessor of the Company) for the period January 1, 1992
through October 31, 1992 have been audited by Deloitte & Touche LLP, independent
accountants, as stated in their reports appearing herein.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements of AMRESCO, INC.
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets, December 31, 1993 and 1994, and September 30, 1995 (Unaudited).............. F-3
Consolidated Statements of Income for the Two Months Ended December 31, 1992, the Years Ended December
31, 1993 and 1994, and the Nine Months Ended September 30, 1994 and 1995 (Unaudited).................... F-4
Consolidated Statements of Shareholders' Equity for the Two Months Ended December 31, 1992, the Years
Ended December 31, 1993 and 1994, and the Nine Months Ended September 30, 1995 (Unaudited).............. F-5
Consolidated Statements of Cash Flows for the Two Months Ended December 31, 1992, the Years Ended
December 31, 1993 and 1994, and the Nine Months Ended September 30, 1994 and 1995 (Unaudited)........... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Combined Financial Statements of Predecessor Businesses
Independent Auditors' Report............................................................................. F-21
Combined Statement of Income for the Ten Months Ended October 31, 1992................................... F-22
Combined Statement of Cash Flows for the Ten Months Ended October 31, 1992............................... F-22
Notes to Combined Financial Statements................................................................... F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of AMRESCO, INC.:
We have audited the accompanying consolidated balance sheets of AMRESCO,
INC. and subsidiaries as of December 31, 1993 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for the
two months ended December 31, 1992, and the years ended December 31, 1993 and
1994. These financial statements are the responsibility of AMRESCO, INC.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AMRESCO, INC. and subsidiaries
as of December 31, 1993 and 1994, and the results of their operations and their
cash flows for the two months ended December 31, 1992, and the years ended
December 31, 1993 and 1994, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 6, 1995
F-2
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- --------- SEPTEMBER 30,
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents.................................................. $ 43,442 $ 20,446 $ 12,720
Investment securities (Note 5)............................................. 27,222
Accounts receivable, net of reserves of $826, $4,929 and $2,641,
respectively.............................................................. 39,399 20,682 7,657
Mortgage loans held for sale (Note 5)...................................... 6,042
Investments in asset portfolios (Notes 5 and 14):
Loans.................................................................... 33,795 30,920 114,676
Partnerships and joint ventures.......................................... 2,503 22,491 30,052
Real estate.............................................................. 2,504 14,054 11,046
Asset backed securities.................................................. 3,481 19,982
Deferred income taxes (Note 6)............................................. 18,173 17,207 12,810
Premises and equipment, net of accumulated depreciation of $2,108, $1,082
and $1,781, respectively.................................................. 3,422 4,301 5,119
Intangible assets, net of accumulated amortization of $1,170, $1,226 and
$3,056, respectively (Notes 2 and 3)...................................... 10,209 30,668 30,377
Other assets (Notes 4, 10 and 14).......................................... 10,206 8,090 13,379
--------- --------- -------------
TOTAL ASSETS............................................................... $ 163,653 $ 172,340 $ 291,082
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable......................................................... $ 9,830 $ 4,891 $ 4,307
Accrued employee compensation and benefits (Notes 3, 11 and 12).......... 23,419 18,460 8,524
Notes payable (Note 5)................................................... 22,113 15,500 104,222
Mortgage warehouse debt (Note 5)......................................... 5,693
Nonrecourse debt (Note 5)................................................ 6,000 959 30,605
Income taxes payable (Note 6)............................................ 541 1,219 1,329
Payable to partners (Note 7)............................................. 3,399 3,907 950
Net liabilities of discontinued operation (Note 9)....................... 954
Other liabilities (Note 8)............................................... 6,652 12,864 6,428
--------- --------- -------------
Total liabilities...................................................... 71,954 58,754 162,058
--------- --------- -------------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY (Note 11):
Preferred stock, $1.00 par value, authorized 5,000,000 shares; none
outstanding
Common stock, $.05 par value, authorized 50,000,000 shares; 22,309,817,
23,592,647 and 24,193,464 shares issued in 1993, 1994 and 1995,
respectively............................................................ 1,116 1,180 1,210
Capital in excess of par................................................. 67,112 74,691 78,790
Reductions for employee stock............................................ (607) (429) (620)
Treasury stock, $0.05 par value, 24,339 shares in 1995................... (160)
Retained earnings (Note 5)............................................... 24,078 38,144 49,804
--------- --------- -------------
Total shareholders' equity............................................. 91,699 113,586 129,024
--------- --------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 163,653 $ 172,340 $ 291,082
--------- --------- -------------
--------- --------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWO MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------ ------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES (Note 3):
Asset management and resolution fees............. $ 37,678 $ 168,313 $ 120,640 $ 101,221 $ 27,278
Asset portfolio income........................... 2,642 13,089 8,433 23,662
Mortgage banking fees............................ 6,176 1,967 14,077
Other revenues................................... 157 1,207 17,279 16,184 4,585
------------ ----------- ----------- ----------- -----------
Total revenues................................. 37,835 172,162 157,184 127,805 69,602
------------ ----------- ----------- ----------- -----------
EXPENSES:
Personnel........................................ 16,814 84,347 79,018 62,268 36,827
Occupancy........................................ 763 3,329 4,108 3,106 1,903
Equipment........................................ 560 2,121 2,637 1,978 1,580
Professional fees................................ 5,085 17,517 11,593 9,156 2,359
General and administrative....................... 6,903 17,380 22,299 16,136 3,745
Interest (Note 5)................................ 19 754 1,768 1,696 2,771
Profit participations............................ 1,529 3,037 75 (65) 446
------------ ----------- ----------- ----------- -----------
Total expenses................................. 31,673 128,485 121,498 94,275 49,631
------------ ----------- ----------- ----------- -----------
Income from continuing operations before taxes..... 6,162 43,677 35,686 33,530 19,971
Income tax expense (Note 6)........................ 2,279 17,371 14,753 13,874 7,541
------------ ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS.................. 3,883 26,306 20,933 19,656 12,430
------------ ----------- ----------- ----------- -----------
Discontinued operations (Note 9)
Loss from operations, net of $99, $1,392, $891,
and $651 income tax benefit for 1992, 1993,
1994, and the nine months ended September 30,
1994, respectively.............................. (148) (2,088) (1,287) (976)
Loss on disposal of AMRESCO Services, Inc.
(including provision of $923 for operating
losses during the phase-out period), less
applicable income tax benefit of $622........... (898)
Gain from sale of discontinued operations, net of
$1,617 income tax expense....................... 2,425
------------ ----------- ----------- ----------- -----------
Gain (Loss) from discontinued operations........... (148) (2,088) (2,185) (976) 2,425
------------ ----------- ----------- ----------- -----------
NET INCOME......................................... $ 3,735 $ 24,218 $ 18,748 $ 18,680 $ 14,855
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Earnings per share for income from continuing
operations........................................ $ 0.34 $ 2.33 $ 0.88 $ 0.83 $ 0.51
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Earnings per share for net income.................. $ 0.33 $ 2.15 $ 0.79 $ 0.79 $ 0.61
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Weighted average number of shares outstanding...... 11,419,536 11,288,688 23,679,239 23,515,800 24,429,822
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON
CONVERTIBLE COMMON STOCK, STOCK,
PREFERRED STOCK NO PAR VALUE $0.05 PAR
-------------------- --------------------- VALUE
NUMBER NUMBER -----------
OF OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
NOVEMBER 1, 1992....................................................... 126,960 $ 12,696 515,000 $ 3,090
Net income.............................................................
--------- --------- ---------- --------- -----------
DECEMBER 31, 1992...................................................... 126,960 12,696 515,000 3,090
--------- --------- ---------- --------- -----------
Cancellation of stock and notes receivable (Note 11)................... (29,800) (179)
Employee stock compensation (Note 11).................................. 1,188
Dividends paid ($.35 per share)........................................
Conversion of convertible preferred stock (Note 2)..................... (126,960) (12,696) 623,531 12,696
Conversion of common stock (Note 2).................................... (1,108,731) (16,795) 11,120,530
Issuance of common stock for acquisition (Note 2)...................... 11,189,287
Net income.............................................................
--------- --------- ---------- --------- -----------
DECEMBER 31, 1993...................................................... 22,309,817
--------- --------- ---------- --------- -----------
Exercise of stock options (Note 11).................................... 711,590
Issuance of common stock for acquisition (Note 2)...................... 571,240
Tax benefits from employee stock compensation..........................
Repayments of notes receivable for officer's shares....................
Dividends paid ($.15 per share)........................................
Dividends declared ($.05 per share)....................................
Foreign currency translation adjustments...............................
Net income.............................................................
--------- --------- ---------- --------- -----------
DECEMBER 31, 1994...................................................... 23,592,647
--------- --------- ---------- --------- -----------
(Unaudited)
Exercise of stock options............................................ 394,480
Issuance of common stock for earnout................................. 112,002
Issuance of common stock for unearned stock compensation............. 94,335
Amortization of unearned stock compensation..........................
Tax benefits from employee stock compensation........................
Repayment of notes receivable for officers' shares...................
Settlement of notes receivable for officers' shares with common stock
(14,339 shares).....................................................
Acquisition of treasury stock (10,000 shares)........................
Dividends paid ($0.10 per share).....................................
Dividends declared ($0.05 per share).................................
Foreign currency translation adjustments.............................
Unrealized gain on assets available for sale.........................
Net income...........................................................
--------- --------- ---------- --------- -----------
SEPTEMBER 30, 1995 (unaudited)....................................... $ $ 24,193,464
--------- --------- ---------- --------- -----------
--------- --------- ---------- --------- -----------
<CAPTION>
CAPITAL IN REDUCTIONS
EXCESS OF FOR EMPLOYEE TREASURY
AMOUNT PAR STOCK STOCK
----------- ----------- ------------- -----------
<S> <C> <C>
NOVEMBER 1, 1992....................................................... $ $ $ (786) $
Net income.............................................................
----------- ----------- ------ -----------
DECEMBER 31, 1992...................................................... (786)
----------- ----------- ------ -----------
Cancellation of stock and notes receivable (Note 11)................... 179
Employee stock compensation (Note 11)..................................
Dividends paid ($.35 per share)........................................
Conversion of convertible preferred stock (Note 2).....................
Conversion of common stock (Note 2).................................... 556 16,239
Issuance of common stock for acquisition (Note 2)...................... 560 50,873
Net income.............................................................
----------- ----------- ------ -----------
DECEMBER 31, 1993...................................................... 1,116 67,112 (607)
----------- ----------- ------ -----------
Exercise of stock options (Note 11).................................... 35 1,560
Issuance of common stock for acquisition (Note 2)...................... 29 4,291
Tax benefits from employee stock compensation.......................... 1,728
Repayments of notes receivable for officer's shares.................... 178
Dividends paid ($.15 per share)........................................
Dividends declared ($.05 per share)....................................
Foreign currency translation adjustments...............................
Net income.............................................................
----------- ----------- ------ -----------
DECEMBER 31, 1994...................................................... 1,180 74,691 (429)
----------- ----------- ------ -----------
(Unaudited)
Exercise of stock options............................................ 20 1,146
Issuance of common stock for earnout................................. 5 772
Issuance of common stock for unearned stock compensation............. 5 644 (649)
Amortization of unearned stock compensation.......................... 149
Tax benefits from employee stock compensation........................ 1,537
Repayment of notes receivable for officers' shares................... 220
Settlement of notes receivable for officers' shares with common stock
(14,339 shares)..................................................... 89 (89)
Acquisition of treasury stock (10,000 shares)........................ (71)
Dividends paid ($0.10 per share).....................................
Dividends declared ($0.05 per share).................................
Foreign currency translation adjustments.............................
Unrealized gain on assets available for sale.........................
Net income...........................................................
----------- ----------- ------ -----------
SEPTEMBER 30, 1995 (unaudited)....................................... $ 1,210 $ 78,790 $ (620) $ (160)
----------- ----------- ------ -----------
----------- ----------- ------ -----------
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
EARNINGS EQUITY
----------- -------------
NOVEMBER 1, 1992....................................................... $ $ 15,000
Net income............................................................. 3,735 3,735
----------- -------------
DECEMBER 31, 1992...................................................... 3,735 18,735
----------- -------------
Cancellation of stock and notes receivable (Note 11)...................
Employee stock compensation (Note 11).................................. 1,188
Dividends paid ($.35 per share)........................................ (3,875) (3,875)
Conversion of convertible preferred stock (Note 2)..................... --
Conversion of common stock (Note 2).................................... --
Issuance of common stock for acquisition (Note 2)...................... 51,433
Net income............................................................. 24,218 24,218
----------- -------------
DECEMBER 31, 1993...................................................... 24,078 91,699
----------- -------------
Exercise of stock options (Note 11).................................... 1,595
Issuance of common stock for acquisition (Note 2)...................... 4,320
Tax benefits from employee stock compensation.......................... 1,728
Repayments of notes receivable for officer's shares.................... 178
Dividends paid ($.15 per share)........................................ (3,441) (3,441)
Dividends declared ($.05 per share).................................... (1,179) (1,179)
Foreign currency translation adjustments............................... (62) (62)
Net income............................................................. 18,748 18,748
----------- -------------
DECEMBER 31, 1994...................................................... 38,144 113,586
----------- -------------
(Unaudited)
Exercise of stock options............................................ 1,166
Issuance of common stock for earnout................................. 777
Issuance of common stock for unearned stock compensation............. --
Amortization of unearned stock compensation.......................... 149
Tax benefits from employee stock compensation........................ 1,537
Repayment of notes receivable for officers' shares................... 220
Settlement of notes receivable for officers' shares with common stock
(14,339 shares)..................................................... --
Acquisition of treasury stock (10,000 shares)........................ (71)
Dividends paid ($0.10 per share)..................................... (2,398) (2,398)
Dividends declared ($0.05 per share)................................. (1,208) (1,208)
Foreign currency translation adjustments............................. 155 155
Unrealized gain on assets available for sale......................... 256 256
Net income........................................................... 14,855 14,855
----------- -------------
SEPTEMBER 30, 1995 (unaudited)....................................... $ 49,804 $ 129,024
----------- -------------
----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS YEAR ENDED DECEMBER NINE MONTHS ENDED
ENDED 31, SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1992 1993 1994 1994 1995
------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................... $ 3,735 $ 24,218 $ 18,748 $ 18,680 $ 14,855
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 581 2,955 3,028 2,198 2,694
Loss (Gain) on discontinued operation (Note 9).............. 1,645 (2,425)
Write-off of intangible related to contract conclusion...... 2,827 2,827
Deferred tax provision (benefit)............................ (603) (1,650) 966 2,705 4,397
Loss from disposition of premises and equipment............. 16 198 692 78
Employee stock compensation................................. 1,188 149
Increase (decrease) in cash for changes in (exclusive of
assets and liabilities acquired in business combinations):
Accounts receivable....................................... (10,417) 3,287 17,855 20,468 13,025
Other assets.............................................. 94 (3,848) 1,908 3,484 (3,894)
Accounts payable.......................................... 6,641 (4,924) (4,768) (6,614) (630)
Income taxes payable...................................... 2,783 (2,699) 678 3,191 (1,507)
Other liabilities......................................... (2,191) 17,391 (4,137) (2,782) (21,588)
------------- --------- --------- --------- ---------
Net cash provided by operating activities............... 639 35,918 38,948 44,849 5,154
------------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Cash and cash equivalents acquired through BEI merger......... 18,521
Purchase of investment securities, net........................ (27,222)
Cash used for purchase of subsidiaries........................ (17,830) (17,830) (1,295)
Loans originated or purchased................................. (7,767)
Purchase of asset portfolios.................................. (36,894) (62,580) (33,196) (139,123)
Collections on asset portfolios............................... 3,099 30,815 23,175 34,569
Proceeds from sale of subsidiaries............................ 1,385 1,385 6,250
Purchase of premises and equipment............................ (852) (2,141) (2,091) (1,627)
------------- --------- --------- --------- ---------
Net cash used in investing activities................... (16,126) (50,351) (28,557) (136,215)
------------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable, mortgage warehouse debt and
nonrecourse debt............................................. 4,656 42,426 19,894 4,394 238,048
Repayment of notes payable, mortgage warehouse debt and
nonrecourse debt............................................. (3,045) (19,129) (31,547) (23,340) (113,987)
Payment of dividends.......................................... (3,875) (3,441) (2,266) (3,578)
Stock options exercised....................................... 1,595 1,381 1,166
Tax benefit of employee stock compensation.................... 1,728 1,652 1,537
Acquisition of treasury stock................................. (71)
Repayment of notes receivable for officer's shares............ 178 178 220
------------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities..... 1,611 19,422 (11,593) (18,001) 123,335
------------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ 2,250 39,214 (22,996) (1,709) (7,726)
Cash and cash equivalents, beginning of period.................. 1,978 4,228 43,442 43,442 20,446
------------- --------- --------- --------- ---------
Cash and cash equivalents, end of period........................ $ 4,228 $ 43,442 $ 20,446 $ 41,733 $ 12,720
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................. $ 5 $ 678 $ 1,533 $ 1,466 $ 2,912
Income taxes paid............................................. 23,460 8,507 3,619 2,990
Conversion of convertible preferred stock to common stock..... 12,696
Common stock issued for purchase of subsidiary................ 4,320 4,320 777
Common stock issued for unearned stock compensation........... 649
Holliday Fenoglio earnout liability........................... 3,883
Notes receivable received in connection with sale of
subsidiary................................................... 818 818
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1994 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- On December 31, 1993, AMRESCO, INC., formerly BEI
Holdings, Ltd. (BEI), merged with AMRESCO Holdings, Inc. (Holdings). The merger
was accounted for as a "reverse acquisition" whereby Holdings was deemed to have
acquired BEI for financial reporting purposes. However, BEI, renamed AMRESCO,
INC. on May 23, 1994, remains the continuing legal entity and registrant for
Securities and Exchange Commission filing purposes. Consistent with the reverse
acquisition accounting treatment, the historical financial statements of
AMRESCO, INC. presented for the year ended December 31, 1993, and the two months
ended December 31, 1992, are the consolidated financial statements of Holdings
and differ from the consolidated financial statements of BEI as previously
reported. The operations of BEI have been included in the financial statements
from the date of acquisition. AMRESCO, INC. (the Company) is engaged primarily
in the business of portfolio acquisition, asset management and resolution, loan
origination/underwriting, servicing and real estate brokerage.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company, its subsidiaries and its controlled joint ventures.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE AND EXPENSE RECOGNITION -- Asset management and resolution fees from
management contracts are based on the amount of assets under management and the
net proceeds from the resolution of such assets, respectively, and are
recognized as earned. Expenses incurred in managing and administering the assets
subject to management contracts are charged to expense as incurred. Asset
resolution fees are accrued based on estimated collections and related costs.
Differences between estimated and actual amounts are recorded in the period of
determination. Loan placement fees, commitment fees, loan servicing fees and
real estate brokerage commissions are recognized as earned. Placement and
servicing expenses are charged to expense as incurred.
CASH EQUIVALENTS -- Cash equivalents include all highly liquid investments
with a maturity of three months or less when purchased.
INVESTMENT SECURITIES -- Investment Securities consist of short-term
investments such as Treasury bills, Federal agency securities and commercial
paper with a maturity of three months or less. The Company has the intent and
ability to hold these investments to maturity and are carried at amortized cost.
Because of the short maturities, cost estimates fair value. All investment
securities are pledged as collateral under the investment loan agreement. See
Note 5.
RECEIVABLES -- Receivables are recognized as earned according to the
respective management contracts. Included in accounts receivable are other
amounts due as reimbursement for certain expenses incurred or for funds advanced
on behalf of its customers. Receivables are due primarily from the Federal
Deposit Insurance Corporation (FDIC), the Resolution Trust Company (RTC) and
other customers. The Company's exposure to credit loss in the event that payment
is not received for revenue recognized equals the balance of accounts receivable
in the balance sheet.
MORTGAGE BANKING ACTIVITIES -- Mortgage loans held for sale are carried at
the lower of cost or market. Market is determined on an individual loan basis
based upon the estimated fair value of similar loans for the month of expected
delivery.
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights" (an amendment of SFAS No. 65), which is effective for
the fiscal year 1996, requires mortgage banking enterprises to recognize as
separate assets rights to service mortgage loans for others, whether such
F-7
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
rights are originated by the Company's own mortgage banking activities or
purchased from others. The Company will adopt SFAS No. 122 effective January 1,
1996, and expects that the impact of such adoption will be insignificant to its
financial condition and results of operations.
INVESTMENT IN ASSET PORTFOLIOS -- The Company classifies its investments in
asset portfolios as: loans, partnerships and joint ventures, real estate, and
asset-backed securities. The original cost of an asset portfolio is allocated to
individual assets within that asset portfolio based on their relative fair value
to the total purchase price. The difference between gross estimated cash flows
from loans and asset-backed securities and its present value is accrued using
the level yield method. The Company accounts for its investments in partnerships
and joint ventures using the equity method which generally results in the pass-
through of the Company's pro rata share of earnings as if the Company had a
direct investment in the underlying loans. Real estate is accounted for at the
lower of cost or estimated fair value. Gains and losses on the sale or
collection of specific assets are recognized on a specific identification basis.
Loans, partnerships and joint ventures, and real estate are carried at the lower
of cost or estimated fair value. The Company's investments in asset-backed
securities are classified as available for sale and are carried at estimated
fair value determined by discounting estimated cash flows at current market
rates. Any unrealized gains (losses) on asset-backed securities are excluded
from earnings and reported as a separate component of shareholders' equity, net
of tax effects.
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS 118, which is effective
for fiscal year 1995, requires creditors to evaluate the collectibility of both
contractual interest and principal of loans when assessing the need for a loss
accrual. Impairment is measured based on the present value of the expected
future cash flows discounted at the loan's effective interest rate, or the fair
value of the collateral, less estimated selling costs, if the loan is collateral
dependent and foreclosure is probable. In management's judgment, because all
loans are purchased at substantial discounts, the adoption of SFAS 114 will have
an insignificant impact on the Company's financial condition and results of
operations. As of January 1, 1995, the Company adopted the provisions of SFAS
No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
118.
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation. The related assets are depreciated using the
straight-line method over their estimated service lives, which range from three
to twenty years. Improvements to leased property are amortized over the life of
the lease or the life of the improvement, whichever is shorter.
INTANGIBLE ASSETS -- Intangible assets represent the excess of purchase
price over the fair market value of net assets acquired in connection with the
purchases described in Note 2. These intangible assets, principally goodwill,
servicing rights and contracts acquired, are amortized using the straight-line
method over periods ranging from one to fifteen years. The Company periodically
assesses the recoverability of intangible assets and estimates the remaining
useful life by reviewing projected results of acquired operations, servicing
rights and contracts.
INCOME TAXES -- The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are recorded for
temporary differences between the bases of assets and liabilities as recognized
by tax laws and their bases as reported in the financial statements.
EARNINGS PER SHARE -- Earnings per share is computed by dividing net income
by the weighted average number of common shares and common share equivalents
outstanding. The weighted average number of shares outstanding for the years
ended December 31, 1993 and the two months ended December 31, 1992, is based on
the number of BEI shares of common stock and equivalents exchanged for Holdings
shares (see Note 2) and assumes the retroactive conversion of the preferred
stock.
F-8
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN OPERATIONS -- The Company has foreign subsidiaries located in
Canada. Assets and liabilities of the foreign subsidiaries are translated into
United States dollars at the prevailing exchange rate on the balance sheet date.
Revenue and expense accounts for these subsidiaries are translated using the
weighted average exchange rate during the period. These translation methods give
rise to cumulative foreign currency translation adjustments which are reported
as a separate component of equity.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited consolidated
financial statements of AMRESCO, INC. and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month periods ended September 30,
1994 and 1995, are not necessarily indicative of the results that may be
expected for the entire fiscal year or any other interim period.
RECLASSIFICATIONS -- Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.
2. ACQUISITIONS AND ORGANIZATION
On November 20, 1992, a Stock Sale Agreement (the Agreement) was entered
into by AMRESCO Acquisition Corporation (Acquisition), an entity formed by CGW
Southeast Partners, L.P. I and II, to purchase the stock of Asset Management
Resolution Company and AMRESCO Holdings, Inc. effective as of October 31, 1992.
Acquisition and Holdings were merged, and Acquisition was renamed AMRESCO
Holdings, Inc. Prior to the transaction, the acquired companies were wholly
owned by NationsBank Corporation (the Seller). Additional payments were made to
the Seller based on Holdings' earnings. The Seller was entitled to 25% of pretax
income of Holdings in excess of certain agreed upon levels through June 30,
1997. Amounts paid and charged to expense under the Agreement during the two
months ended December 31, 1992 and the year ended December 31, 1993 were
$1,529,000 and $3,037,000, respectively. Certain provisions of the Agreement
related to the additional payments to the Seller were amended effective April 1,
1993, which replaced the earnout provisions with a rebate of 12.25% of revenues
from an asset management contract with the Seller through June 30, 1997. During
1993 and 1994, rebates of $7,347,000 and $6,437,000, respectively, were accrued
and charged against revenues in the period the revenues were earned. See Note 3.
The assets purchased and liabilities assumed as of October 31, 1992, were as
follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 1,978
Accounts receivable............................................... 19,843
Intangible assets................................................. 4,748
Other assets...................................................... 6,771
Liabilities....................................................... (16,659)
---------
Net assets acquired........................................... $ 16,681
---------
---------
</TABLE>
On December 31, 1993, BEI merged with Holdings. The merger was accomplished
first by converting each outstanding share of Holdings' convertible preferred
stock into 4.91 shares of Holdings common stock. Each share of Holdings common
stock was then exchanged for 10.03 shares of BEI common stock for a total of
11,120,530 shares, resulting in Holdings becoming a subsidiary of BEI. The
purchase price, determined
F-9
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND ORGANIZATION (CONTINUED)
based on the fair market value of the stock exchanged plus direct acquisition
costs, was allocated to the BEI assets and liabilities acquired based on their
fair market value at the date of acquisition. The BEI assets purchased and
liabilities assumed as of December 31, 1993, were as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 18,521
Accounts receivable............................................... 12,426
Net deferred tax asset............................................ 14,450
Intangible assets................................................. 6,566
Other assets...................................................... 12,856
Liabilities....................................................... (13,386)
---------
Net assets acquired........................................... $ 51,433
---------
---------
</TABLE>
Effective August 1, 1994, the Company acquired substantially all of the
assets of Holliday Fenoglio Dockerty & Gibson, Inc. and certain of its
affiliates (Holliday Fenoglio), which are originators and servicers of
commercial mortgages, for a maximum of approximately $33,000,000, based upon an
initial payment of $17,280,000 in cash and $4,320,000 in stock, and three
additional annual earnout payments if targeted earnings are met or exceeded in
1994, 1995 and 1996. For the period ended December 31, 1994, $3,883,000 was
accrued for the current year earnout payment. The transaction has been accounted
for as an asset purchase. The purchase price, determined based on the cash paid,
the fair market value of the Company stock issued and direct acquisition costs,
was allocated to the Holliday Fenoglio assets acquired based on the fair market
value at the date of acquisition. The Holliday Fenoglio assets purchased,
including acquisition costs, as of August 1, 1994, were as follows (in
thousands):
<TABLE>
<S> <C>
Premises and equipment............................................. $ 1,015
Loan servicing rights.............................................. 2,200
Goodwill and non-compete agreement................................. 18,907
Other assets....................................................... 78
---------
Net assets acquired............................................ $ 22,200
---------
---------
</TABLE>
The following pro forma consolidated results of operations for the twelve
months ended December 31, 1993 and 1994 are presented as if the acquisitions of
Holliday Fenoglio and BEI occurred on January 1, 1993 (in thousands, except per
share data):
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Revenues.............................................................. $ 222,489 $ 174,017
Net Income............................................................ 25,913 19,661
Earnings per share.................................................... 1.14 .82
</TABLE>
Effective June 30, 1995, a wholly-owned subsidiary of the Company acquired
substantially all of the assets of CKSRS Housing Group, Ltd., a Miami,
Florida-based commercial mortgage banking company specializing in the
origination, sale and servicing of multifamily mortgages in Florida, for
$1,287,000. As of June 30, 1995, the purchase price was allocated as follows (in
thousands):
<TABLE>
<S> <C>
Mortgage servicing asset............................................ $ 300
Equipment, furniture and fixtures................................... 10
Goodwill and non-compete agreement.................................. 1,032
Liabilities......................................................... (55)
---------
Net assets of acquired company.................................. $ 1,287
---------
---------
</TABLE>
The shown allocation of the purchase price is based on the best available
information and is subject to adjustment.
F-10
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND ORGANIZATION (CONTINUED)
On September 13, 1995, the Company signed a definitive agreement to acquire
from EQ Services, Inc. 22 contracts to service a total of $6.2 billion in
commercial real estate mortgages. The closing of the transaction is subject to
the satisfaction of certain customary conditions.
On October 11, 1995, the Company signed a definitive agreement with Acacia
Realty Advisors, Inc. to acquire 16 pension fund advisory contracts. The closing
of the transaction is subject to the satisfaction of certain customary
conditions.
3. ASSET MANAGEMENT CONTRACTS
The Company provides asset management and resolution services for private
investors, financial institutions, and government agencies. Generally, the
contracts provide for the payment of a fixed management fee which is reduced
proportionately as managed assets decrease, a resolution fee using specified
percentage rates based on net cash collections and an incentive fee for
resolution of certain assets. Asset management and resolution contracts are of a
finite duration, typically 3-5 years. Unless new assets are added to these
contracts during their terms, the amount of total assets under management
decreases over the terms of these contracts. The FDIC contract expired on
January 31, 1995. During 1994 all the existing asset management contracts with
the RTC expired.
On August 31, 1994, the Company and NationsBank Corporation concluded their
asset management contract (NationsBank Contract). The NationsBank Contract had
an original term expiring in June 1997 and, as provided, the Company received an
early conclusion fee of $10.0 million which is included in other revenues.
One-time expenses related to the NationsBank Contract conclusion included
incentive compensation of $1.2 million and $2.8 million for related intangible
write-offs.
Revenues from the Company's three largest customers, NationsBank
Corporation, the FDIC and the RTC, constituted 45%, 39% and 10%, respectively,
for the two months ended December 31, 1992, 46%, 39% and 6%, respectively, for
the year ended December 31, 1993, and 38%, 36% and 6% of total asset management
fees, respectively, for the year ended December 31, 1994.
4. OTHER ASSETS
The following table summarizes the components of other assets at December
31, 1993 and 1994, (in thousands):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Investments held for sale................................................ $ 1,637 $ 468
Mortgages/Notes receivable............................................... 1,710 2,236
Deferred compensation agreements with former officers.................... 1,072 1,629
Income taxes receivable.................................................. 2,849 1,135
Prepaid expenses......................................................... 939 412
Other.................................................................... 1,999 2,210
--------- ---------
Total other assets................................................... $ 10,206 $ 8,090
--------- ---------
--------- ---------
</TABLE>
Deferred compensation agreements include notes from two former officers of
BEI, who are currently directors, which were executed prior to its acquisition
by the Company. The amounts due represent the present value of non-interest
bearing notes due in 2006 and 2007 for advances for premiums on split-dollar
life insurance policies owned by the two directors. Cash surrender values of
approximately $607,000 and $850,000 at December 31, 1993 and 1994 respectively,
collateralize these notes, and the Company is a beneficiary under the life
insurance policies to the extent of total premiums advanced. Included in other
liabilities at December 31, 1993 and 1994 is $900,000 and $1,331,000,
respectively, representing the present
F-11
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OTHER ASSETS (CONTINUED)
value of the Company's obligation to make future premium payments on such life
insurance policies. Included in mortgages/notes receivable are unsecured notes
from these former officers totaling $525,000 due in 1995 and bearing interest at
8 1/2%.
5. NOTES PAYABLE, MORTGAGE WAREHOUSE DEBT AND NONRECOURSE DEBT
Notes payable, mortgage warehouse debt and nonrecourse subordinated debt at
December 31, 1993 and 1994, and September 30, 1995 consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1993 1994 1995
--------- --------- -------------
<S> <C> <C> <C>
Revolving credit line agreement with NationsBank of Texas, N.A.
(the Bank) for:
Advances on a 30 day term at 7 5/8%.............................. $ 72,000
Advances at 8 3/4%............................................... 5,000
Revolving credit line agreement with the Bank for:
Advance on a 182 day term at a 8 3/8%............................ $ 8,000
Advance at a prime rate of 8 1/2%................................ 7,500
Senior note payable to the Bank with interest at their prime rate
plus 1 1/2% payable monthly; collateralized by the investment in
asset portfolio. Monthly principal payments are the greater of
90% of the net cash flow of the portfolio or a minimum payment
as defined in the note. The note required that $2,000,000 in
cash and cash equivalents be maintained as a compensating
balance with the Bank........................................... $ 21,953
Revolving investment loan agreement with the Bank at 2%.......... 27,222
Other notes payable.............................................. 160
--------- --------- -------------
Total notes payable............................................ $ 22,113 $ 15,500 $ 104,222
--------- --------- -------------
--------- --------- -------------
Mortgage warehouse debt payable to the Bank at 7 13/16%............ $ 2,702
-------------
-------------
Mortgage warehouse debt payable at 8 33/50%........................ $ 2,991
-------------
-------------
Nonrecourse debt payable to two financial services companies....... $ 6,000 $ 959 $ 30,605
--------- --------- -------------
--------- --------- -------------
</TABLE>
A subsidiary of the Company had a nonrecourse subordinated note payable to a
financial services company collateralized by a second security interest in the
investment in asset portfolio. The note bears basic interest at the 90 day LIBOR
plus 4 1/2% (7 7/8% and 11% at December 31, 1993 and December 30, 1994,
respectively) payable monthly. Principal payments are due monthly, equal to 10%
of the net portfolio cash flow with the remaining outstanding balance due
December 30, 1996. The note is nonrecourse to the borrowing entity and the
Company. After repayment of the outstanding principal and basic interest,
contingent interest to provide the lender a 15% compounded rate is due from any
available net portfolio cash flow. Additionally, after the above payments are
made, and the subsidiary has recovered $6,337,000 (representing its equity in
the asset portfolio at December 31, 1993, the date of the loan, and capitalized
costs), the lender is entitled to receive 6% of the net portfolio cash flow. The
principal balance was fully repaid at January 31, 1995.
F-12
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. NOTES PAYABLE, MORTGAGE WAREHOUSE DEBT AND NONRECOURSE DEBT (CONTINUED)
On November 2, 1994, the Company entered into a $50,000,000 revolving credit
agreement with the Bank, which matures and is payable in full on April 30, 1996.
The line was temporarily increased to $75,000,000 until a greater revolver could
be established. The borrowing terms, including interest, may be selected by the
Company and tied to either the Bank's floating prime (8 1/2% at December 30,
1994) or, for advances on a term basis up to approximately 180 days, a rate
equal to an adjusted LIBOR rate plus 150 basis points (8 1/2% at December 30,
1994 for a term of 180 days). Interest is payable monthly and at the end of each
advance period as to the amounts with respect to which LIBOR is applicable. A
facility fee equal to 3/8% of the average daily unused portion of the line is
payable quarterly in arrears. As part of the agreement, the Company is subject
to both positive and negative covenants, such as liquidity maintenance, tangible
net worth requirements and minimum consolidated net income before taxes,
depreciation, amortization and interest. The credit line is secured by a pledge
of all stock of substantially all of the subsidiaries of the Company. The
Company has outstanding letters of credit totaling $833,000 at December 31,
1994, which reduce the available revolving line. This line of credit was
terminated with the new $175,000,000 revolving loan agreement described below.
Prior to entering into the revolving credit agreement described above,
Holdings maintained a $35,000,000 line of credit with the Bank which bore
interest at their prime rate plus 1/2%. This line of credit was terminated with
the $50,000,000 revolving credit agreement.
On January 20, 1995, the Company entered into a $35,000,000 revolving
investment loan agreement with the Bank. Proceeds of the loan are used to
acquire short-term investments which secure the loan. Interest is computed based
on market rates adjusted for the Company's credited funds at the Bank.
On April 28, 1995, a wholly-owned subsidiary of the Company entered into a
$25,000,000 revolving credit loan agreement with the Bank to facilitate mortgage
loan underwriting and origination. The stated interest rate for this line is the
Bank's floating prime rate (8 3/4% at September 30, 1995); however, the Company
may elect to have up to three traunches of debt bear interest at adjusted 30-day
LIBOR rate plus 2% (7 13/16% at September 30, 1995 for a term of 30 days), and
interest is payable monthly. Principal payments on the note are due monthly, and
are equal to the aggregate amount of all principal payments received by the
borrowing entity with respect to mortgage loan underwriting and origination. The
loan is collateralized by the mortgage loans and the borrowing entity/servicers
collection accounts.
On July 27, 1995, two wholly-owned subsidiaries of the Company jointly
entered into a $27,500,000 nonrecourse term loan agreement with a financial
services company to finance investments in Asset Portfolios. The loan is
collateralized by a security interest in the investments in asset portfolios of
the subsidiaries. The stated interest rate for this debt is the financial
company's floating prime rate plus 1 1/2% (10 1/4% at July 27, 1995); however,
the borrowing entities may elect to have up to three traunches of debt bear
interest at adjusted LIBOR rate plus 3% (8 15/16 at July 27, 1995 for a term of
180 days), with the term of each traunche to be up to 180 days. Interest is
payable monthly. Principal payments are due monthly and are equal to 90% of the
net portfolio cash flow for the preceding month. Additional principal reductions
may be required on a quarterly basis to meet minimum principal payment
requirements. The loan is nonrecourse to the Company and matures on July 31,
1998. As part of the agreement, the borrowing entities and the Company are
subject to both positive and negative covenants.
On August 15, 1995, a wholly-owned subsidiary of the Company entered into a
mortgage warehouse agreement with a funding corporation to facilitate
multi-family mortgage loan underwriting and origination. The stated interest
rate for this line is an adjusted 30-day LIBOR rate plus 3% (8 33/50% at
September 30, 1995), and interest and principal are payable upon the receipt of
the proceeds of the sale or other disposition of related mortgage loans. The
loan is secured by the mortgage loans originated by the Company and held for
sale under the facility. The Company is a guarantor on this facility. At
September 30, 1995, an advance of $2,991,000 was outstanding at an interest rate
of 8 33/50%.
F-13
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE, MORTGAGE WAREHOUSE DEBT AND NONRECOURSE DEBT (CONTINUED)
On September 27, 1995, a wholly-owned subsidiary of the Company entered into
a $8,696,000 Global Master Repurchase Agreement to support the purchase of
certain commercial mortgage pass-through certificates. The Agreement bears
interest at a rate based on LIBOR (7 3/8% at September 30, 1995) payable
monthly. This facility is secured by the commercial mortgage pass-through
certificates and repayment of principal is based on cash flow from such
securities.
On September 29, 1995, the Company entered into a $175,000,000 revolving
loan agreement with a syndicate of banks, led by the Bank which matures and is
payable in full on September 29, 1997. By its terms, the revolving loan
agreement has two primary components, $75,000,000 available under a corporate
facility (including $25,000,000 under a temporary bridge facility) and
$100,000,000 available under a portfolio facility. The syndicate's current
commitment under the revolving loan agreement is limited to a total of
$127,500,000; $68,900,000 under the corporate facility and $58,600,000 under the
portfolio facility. The additional amounts under the revolving loan agreement
would become available to the Company upon the participation by additional
financial institutions in the syndicate for the loan and upon an increase in the
Company's borrowing base under this agreement. There can be no assurance that
such events will occur. The borrowing terms, including interest, may be selected
by the Company and tied to either the Bank's variable rate (8 3/4% at September
30, 1995) or, for advances on a term basis up to approximately 180 days, a rate
equal to an adjusted LIBOR rate (7 5/8% at September 30, 1995 for a term of 180
days). Interest is payable quarterly and at the end of each advance period as to
the amounts with respect to which LIBOR is applicable. The revolving loan
agreement is secured by substantially all of the assets of the Company not
pledged under other credit facilities, including stock of a majority of the
Company's subsidiaries held by the Company. The revolving loan agreement
requires the Company to meet certain financial tests, including minimum
consolidated tangible net worth, maximum consolidated funded debt to
consolidated capitalization ratio, minimum fixed charge coverage ratio, minimum
interest coverage ratio, maximum consolidated funded debt to consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
and maximum corporate facility outstanding to consolidated EBITDA ratio. The
revolving loan agreement contains covenants that, among other things, will limit
the incurrence of additional indebtedness, investments, asset sales, loans to
shareholders, dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements. On September 7, 1995, the Company entered into an interest
rate swap agreement to hedge a portion of this debt agreement. The swap
agreement has a notional amount of $25,000,000 and requires payment of interest
by the Company at a fixed rate of 5 4/5% and receipt of interest by the Company
at a floating rate equal to 30-day LIBOR.
6. INCOME TAXES
Income tax expense (benefit) consists of the following for the two months
ended December 31, 1992, and the years ended December 31, 1993, and 1994, (in
thousands):
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................... $ 2,200 $ 14,533 $ 9,665
State................................................................. 583 3,096 2,609
--------- --------- ---------
Total current tax expense........................................... 2,783 17,629 12,274
Deferred tax expense (benefit).......................................... (603) (1,650) 966
--------- --------- ---------
Total income tax expense............................................ $ 2,180 $ 15,979 $ 13,240
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The net deferred tax asset at December 31, 1993 and 1994, consists of the
tax effects of temporary differences related to the following (in thousands):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Accounts receivable............................................................... $ 221 $ 1,386
Premises and equipment............................................................ 277 235
Intangible assets................................................................. 3,483 2,691
Investment in subsidiaries........................................................ 2,097 930
Accrued employee compensation..................................................... 1,911 3,261
Net operating loss carryforwards.................................................. 8,140 6,775
AMT credit carryforwards.......................................................... 602 602
Other............................................................................. 2,117 2,002
--------- ---------
Total deferred tax asset before valuation allowance............................. 18,848 17,882
Valuation allowance............................................................. (675) (675)
--------- ---------
Net deferred tax asset............................................................ $ 18,173 $ 17,207
--------- ---------
--------- ---------
</TABLE>
A reconciliation of income taxes on reported pretax income at statutory
rates to actual income tax expense for the two months ended December 31, 1992,
and the years ended December 31, 1993 and 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Income tax at statutory rates........................................... $ 2,011 $ 14,069 $ 11,196
State income taxes, net of Federal tax benefit.......................... 169 1,910 1,606
Other................................................................... 438
--------- --------- ---------
Total income tax expense.............................................. $ 2,180 $ 15,979 $ 13,240
--------- --------- ---------
--------- --------- ---------
Income tax expense attributable to continuing operations................ $ 2,279 $ 17,371 $ 14,753
Income tax benefit attributable to discontinued operations.............. (99) (1,392) (1,513)
--------- --------- ---------
Total income tax expense.............................................. $ 2,180 $ 15,979 $ 13,240
--------- --------- ---------
--------- --------- ---------
</TABLE>
As a result of the acquisition of BEI, the Company has available for its use
BEI's net operating loss carryforwards existing at the acquisition date. The
Company is limited to utilizing approximately $4,245,000 of such losses
annually. The following are the expiration dates and the approximate net
operating loss carryforwards at December 31, 1994, (in thousands):
<TABLE>
<CAPTION>
EXPIRATION DATE AMOUNT
- ------------------------------------------------------------------------- ---------
<S> <C>
1995..................................................................... $ 812
1996..................................................................... 739
1997..................................................................... 2,325
1998..................................................................... 2,818
1999..................................................................... 1,333
2001..................................................................... 3,516
2002..................................................................... 2,071
2003..................................................................... 1,459
2006..................................................................... 372
2007..................................................................... 2,867
---------
$ 18,312
---------
---------
</TABLE>
F-15
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PAYABLE TO PARTNERS
Payable to partners represents amounts owed to Esther Ritz Corporation
(Ritz) and other partners for their shares of the undistributed earnings of
various joint ventures and partnerships. The consolidated balance sheets at
December 31, 1993 and 1994, include the accounts of BEI-Ritz Joint Venture #1
and BEI-Ritz Joint Venture #2 (the Joint Ventures) of which the Company owns a
controlling interest. The Joint Ventures were formed in 1991 between BEI and
Ritz to participate in the bidding for contracts for the management and
disposition of assets owned by the RTC. The Joint Ventures make distributions to
the Company and to Ritz as cash is collected on the RTC contracts.
8. OTHER LIABILITIES
The following table summarizes the components of other liabilities at
December 31, 1993 and 1994, (in thousands):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Accrued earnout (Note 2)................................................. 0 $ 3,883
Deferred compensation obligations (Note 4)............................... 900 1,331
Dividends payable........................................................ 560 1,179
Lease abandonment accrual................................................ 1,250 964
Other.................................................................... 3,942 5,507
--------- ---------
Total other liabilities.............................................. $ 6,652 $ 12,864
--------- ---------
--------- ---------
</TABLE>
9. DISCONTINUED OPERATION
The Company adopted a plan on December 1, 1994, to discontinue its data
processing operations for the banking and asset management industry, to sell the
discontinued subsidiary, AMRESCO Services, Inc., or most of the assets of that
subsidiary, by June 30, 1995. The net liabilities of the subsidiary at December
31, 1994, were as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable................................................ $ 666
Premises and equipment and other assets............................ 341
Liabilities........................................................ (718)
Reserve for losses on discontinued operations...................... (1,243)
---------
Net liabilities of discontinued subsidiary..................... $ (954)
---------
---------
</TABLE>
Gross revenues applicable to the discontinued operations were $957,000,
$5,500,000 and $4,542,000 for the two months ended December 31, 1992, the year
ended December 31, 1993, and the eleven months ended November 30, 1994,
respectively. The loss from the discontinued operations for the period December
1, 1994 to December 31, 1994 was $95,000, net of $63,000 income tax benefit.
On June 16, 1995, the Company sold substantially all of the assets of
AMRESCO Services, Inc., for $6,250,000 in cash with a gain of approximately
$2,425,000, or $0.10 per share, net of certain transaction costs and $1,617,000
provision for income taxes. The book values of the net assets sold in the
transaction were as follows (in thousands; unaudited):
<TABLE>
<S> <C>
Cash................................................................. $ 283
Accounts receivable.................................................. 293
Premises and equipment............................................... 302
Other assets......................................................... 65
Liabilities.......................................................... (199)
---------
Net assets of discontinued subsidiary............................ $ 744
---------
---------
</TABLE>
F-16
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SALE OF ASSETS
During 1994, the Company sold to outside parties substantially all of the
assets of its EnterChange division, acquired December 31, 1993 with the
acquisition of BEI, for approximately $1,500,000 in cash and $818,000 in
promissory notes. The sale of the EnterChange division is not expected to have
any material financial impact on the Company.
11. COMMON STOCK
The Company has incentive stock option plans for the benefit of key
individuals, including its directors, officers and key employees. In connection
with the merger of BEI and Holdings (See Note 2), certain granted options became
fully vested. The plans are administered by a committee of the Board of
Directors. The plans were adjusted to reflect the conversion of each share of
Holdings common stock into 10.03 shares of the Company's stock for the two
months ended December 31, 1992 and the years ended December 31, 1993. Stock
option activity under the plans for the two months ended December 31, 1992 and
the years ended December 31, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE PER
SHARES SHARE
---------- ----------------
<S> <C> <C>
Options outstanding at November 1, 1992........................ --
Granted...................................................... 411,230 $0.60
---------- ----------------
Options outstanding at December 31, 1992....................... 411,230 $0.60
Granted...................................................... 431,290 $3.50
Canceled..................................................... (70,210) $0.60
Acquired company options outstanding......................... 1,321,790 $2.25 to $4.50
---------- ----------------
Options outstanding at December 31, 1993....................... 2,094,100 $0.60 to $4.50
Granted...................................................... 500,000 $7.00 to $8.94
Exercised.................................................... (711,590) $0.60 to $3.50
Forfeited.................................................... (10,060) $3.50
---------- ----------------
Options outstanding at December 31, 1994....................... 1,872,450 $0.60 to $8.94
---------- ----------------
---------- ----------------
Options exercisable at December 31, 1994....................... 1,455,256 $0.60 to $8.94
---------- ----------------
---------- ----------------
Options available for grant at December 31, 1994............... 501,766
----------
----------
</TABLE>
At December 31, 1994, the Company has reserved a total of 2,374,216 shares
of common stock for exercise of stock options.
A stock subscription agreement and related shareholders' agreement (the
Stockholder Agreements) were entered into by the Company with various officers
and other parties (the Subscribers) on December 9, 1992. Such Stockholder
Agreements state that the Subscribers agreed to purchase a set number of shares
of capital stock, as defined. The purchase price was based on a purchase price
of $6.00 per share of common stock ($.60 per share after effect of the
conversion into Company stock). Certain executive officers purchased common
stock with cash and promissory notes. The notes accrue interest at 6% per annum
and are due and payable in December 2002 or within one year of termination of
employment. The shares are subject to certain restrictions and repurchase rights
pursuant to the Stockholder Agreements. In the event of termination prior to
December 2002, the Company could cancel unvested shares by canceling related
indebtedness based on the original issue price. Originally, 50% of the notes
were vested based upon performance and the remainder were time notes. As a
result of the merger with BEI, the performance notes were converted into time
notes. The conversion of the notes resulted in additional compensation expense
recorded during 1993 of $1,188,000. In addition, the shares are now fully
vested. The notes are secured by the
F-17
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMON STOCK (CONTINUED)
stock acquired and are nonrecourse to the Subscribers. The notes are classified
as a reduction of shareholders' equity for financial reporting purposes. During
1993, $179,000 in notes receivable for officers' shares and the related common
stock were canceled. During 1994, a $178,000 note receivable was repaid.
On February 6, 1995, the Company's Board of Directors authorized the
repurchase of up to $6,000,000 of its common stock from time to time through
February 6, 1996. Any purchases, if made, would be in the open market at
prevailing prices or in privately negotiated transactions. The repurchased
shares would be held for existing or future stock option or employee benefit
plans and for possible stock splits or dividends.
12. EMPLOYEE COMPENSATION AND BENEFITS
Accrued employee compensation and benefits at December 31, 1993 and 1994,
includes amounts for incentive compensation, severance and benefits. Certain
employees are eligible to receive a bonus from a pool computed on 20% to 25% of
pretax income over predetermined minimum earning levels. In addition, certain
employees are covered by severance plans in the event their employment is
terminated due to reductions in the workforce. The Company accrues for such
costs over the service period. At December 31, 1993 and 1994, a total of
$6,777,000 and $5,144,000, respectively, was accrued for costs incurred or
expected to be incurred under the severance plans of continuing operations.
Effective January 1, 1993, the Company adopted the AMRESCO Retirement
Savings and Profit Sharing Plan (the Plan). The Plan qualifies under Section
401(k) of the Internal Revenue Code and incorporates both a savings component
and a profit sharing component for eligible employees. As determined each year
by the Board of Directors, the Company may match the employee contribution up to
6% of their base pay based on the Company's performance. For 1994, the matching
contribution was set at $.50 for each $1.00 contributed by the employees. In
addition to the matching savings contribution, the Company provides an annual
contribution to the profit sharing retirement component of the Plan on behalf of
all eligible employees. This portion of the Plan has been subsequently amended
to assure that the Company is not required to make an employer profit sharing
contribution to the Plan after 1993. However, it is anticipated that some level
of profit sharing contribution will continue in future periods. For the years
ended December 31, 1993 and 1994, the Company made profit sharing contributions
of $1,700,000 and $1,312,000, respectively. Allocation of the Company's
contribution will be based on a percentage of an employee's "weighted total
pay." Weighted total pay places a stronger emphasis on the age of the employee
and provides an increasingly larger profit sharing contribution as an employee
nears retirement.
13. COMMITMENTS AND CONTINGENCIES
The Company is committed to pay additional consideration to former owners of
an acquired subsidiary based on financial performance during 1994, 1995 and
1996. See Note 2.
The Company has entered into non-cancelable operating leases covering office
facilities which expire at various dates through 2000. Certain of the lease
agreements provide for minimum annual rentals with provisions to increase the
rents to cover increases in real estate taxes and other expenses of the lessor.
The Company also has cancelable leases on equipment which expire on various
dates through 1998. The total rent expense for the two months ended December 31,
1992, and the years ended December 31, 1993 and
F-18
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1994, was approximately $876,000, $3,116,000 and $4,386,000, respectively. The
future minimum annual rental commitments under non-cancelable agreements having
a remaining term in excess of one year at December 31, 1994 are as follows (in
thousands):
<TABLE>
<S> <C>
Year Ended December 31,
1995.............................................................. $ 1,686
1996.............................................................. 1,509
1997.............................................................. 1,233
1998.............................................................. 814
1999.............................................................. 485
Thereafter........................................................ 149
</TABLE>
The Company is a defendant in various legal actions. In the opinion of
management, such actions will not materially affect the financial position or
results of operations of the consolidated company.
14. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirement of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents......................................... $ 43,442 $ 43,442 $ 20,446 $ 20,446
Accounts receivable............................................... 39,399 39,399 20,682 20,682
Investment in asset portfolios:
Loans........................................................... 33,795 36,300 30,920 37,485
Partnerships and joint ventures................................. 22,491 25,200
Asset-backed securities......................................... 3,481 3,500
Other assets...................................................... 6,923 6,923 7,216 7,216
Liabilities:
Accounts payable.................................................. 9,830 9,830 4,891 4,891
Notes payable and other debt...................................... 28,113 28,113 16,459 16,459
Payable to partners............................................... 3,399 3,250 3,907 3,907
Letters of credit ($833).......................................... -- --
</TABLE>
The fair values of the investment in asset portfolios, notes payable and
payable to joint venture partner are estimated based on present values using
applicable rates to approximate current entry-value interest rates applicable to
each category of such financial instruments. The carrying amount of cash and
cash equivalents, accounts receivable, net of reserves, and accounts payable
approximates fair value. The Company has reviewed its exposure on standby
letters of credit and has determined that the fair value of such exposure is not
material. The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1993 and 1994. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the date presented,
and therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
F-19
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations,
revised to reflect discontinued operations, for the years ended December 31,
1993 and 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from continuing operations......................... $ 50,525 $ 36,814 $ 41,080 $ 43,743
Income from continuing operations before taxes.............. 11,756 11,245 12,344 8,332
Income from continuing operations........................... 7,143 6,842 7,442 4,879
Loss from discontinued operations........................... 277 326 355 1,130
Net income.................................................. 6,866 6,516 7,087 3,749
Earnings per share from continuing operations............... 0.63 0.61 0.66 0.43
Earnings per share.......................................... 0.61 0.58 0.63 0.33
</TABLE>
Nonrecurring charges of $2,209,000 related to write-off of software and
merger related compensation accruals were made during the quarter ended December
31, 1993. Quarterly financial data has been revised to reflect discontinued
operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from continuing operations......................... $ 40,563 $ 40,460 $ 46,782 $ 29,379
Income from continuing operations before taxes.............. 9,244 9,307 14,979 2,156
Income from continuing operations........................... 5,358 5,425 8,873 1,277
Loss from discontinued operations........................... 422 316 238 1,209
Net income.................................................. 4,936 5,109 8,635 68
Earnings per share from continuing operations............... 0.23 0.23 0.37 0.05
Earnings per share.......................................... 0.21 0.22 0.36 0.00
</TABLE>
Nonrecurring income of $10,000,000 related to the conclusion of the
NationsBank Contract was recorded during the third quarter of 1994. Nonrecurring
accruals for the loss on discontinued operations were made during the fourth
quarter of 1994.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
AMRESCO:
We have audited the accompanying combined statements of income and cash
flows of Asset Management Resolution Company and AMRESCO Holdings, Inc. and
subsidiaries (together AMRESCO), both of which were under the common ownership
and management of NationsBank Corporation as of October 31, 1992, for the ten
months ended October 31, 1992. These combined financial statements are the
responsibility of AMRESCO management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1992 financial statements, present fairly, in all
material respects, the combined results of AMRESCO's operations and cash flows
for the ten months ended October 31, 1992, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 26, 1993
F-21
<PAGE>
AMRESCO
(PREDECESSOR BUSINESSES)
FOR THE TEN MONTHS ENDED OCTOBER 31, 1992
(DOLLARS IN THOUSANDS)
COMBINED STATEMENT OF INCOME
<TABLE>
<S> <C>
REVENUES:
Asset management fees (Note 3).................................................... $ 129,179
Other............................................................................. 3,680
---------
Total revenues.............................................................. 132,859
---------
EXPENSES:
Personnel (Note 5)................................................................ 64,955
Occupancy......................................................................... 4,918
Equipment......................................................................... 3,534
Professional fees................................................................. 19,817
General and administrative........................................................ 5,533
---------
Total expenses.............................................................. 98,757
---------
Income before taxes............................................................... 34,102
Income tax expense (Note 4)....................................................... 10,795
---------
Net income.................................................................. $ 23,307
---------
---------
COMBINED STATEMENT OF CASH FLOWS
OPERATING ACTIVITIES:
Net income........................................................................ $ 23,307
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on retirement of property and equipment.................................... 16
Depreciation and amortization................................................... 5,240
Expenses paid by parent......................................................... 475
Increase (decrease) in cash for changes in:
Accounts receivable........................................................... 15,788
Deferred income taxes......................................................... (2,068)
Other assets.................................................................. (126)
Other liabilities............................................................. (1,050)
Income taxes payable.......................................................... 8,138
Accounts payable.............................................................. (10,233)
---------
Net cash provided by operating activities................................... 39,487
---------
INVESTING ACTIVITIES:
Expenditures for furniture, fixtures, and equipment............................... (5,117)
---------
FINANCING ACTIVITIES
Dividends paid.................................................................... (20,000)
---------
Net increase in cash and cash equivalents......................................... 14,370
Cash and cash equivalents, beginning of period.................................... 21,216
---------
Cash and cash equivalents, end of period.......................................... $ 35,586
---------
---------
</TABLE>
See notes to combined financial statements.
F-22
<PAGE>
AMRESCO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
Effective October 31, 1992, a Stock Sale Agreement (the Agreement) was
entered into by AMRESCO Acquisition Corporation, an entity formed by CGW
Southeast Partners, L.P. I and II and which was renamed AMRESCO Holdings, Inc.,
to purchase the stock of AMRESCO, Inc. and AMRESCO Holdings, Inc. (AHI). The
combined financial statements of AMRESCO (predecessor businesses of AMRESCO
Holdings, Inc.) consist of Asset Management Resolution Company (dba AMRESCO,
Inc.) and AHI, including its wholly owned subsidiaries, AMRESCO Services, Inc.,
AMRESCO Institutional, Inc. and AMRESCO Management, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AMRESCO is engaged primarily in the business of managing, servicing and
liquidating loans and related assets for various financial institutions,
government agencies and others. All transactions between AHI and its
subsidiaries and AMRESCO, Inc. and their predecessor businesses have been
eliminated in the combined financial statements.
REVENUE AND EXPENSE RECOGNITION -- Revenues, principally fees for the
management and collection of assets subject to management contracts, are
recognized as earned. Expenses incurred in managing and administering the assets
subject to management contracts are charged to expense as incurred. Asset
disposition fees are accrued based on estimated collections and related costs.
Differences between estimated and actual amounts are recorded in the period of
determination. Revenue from AMRESCO's largest customers constituted 42%, 39% and
16% of total asset management fees for the ten months ended October 31, 1992.
INCOME TAXES -- AMRESCO's tax provision and related balance sheet accounts
have been recorded in accordance with Statement of Financial Accounting
Standards No. 96. Current income tax provisions approximate taxes on a stand
alone basis to be paid or refunded for the applicable period. Deferred taxes are
provided on the temporary differences between the bases of assets and
liabilities as measured by tax laws and their bases as reported in the financial
statements.
3. CONTRACTS
AMRESCO performs asset management services primarily for NationsBank, the
FDIC and the RTC under management contracts. Generally, the contracts provide
for the payment of a fixed management fee which is reduced proportionately as
managed assets decrease, a disposition fee using specified percentage rates
based on net cash collections and an incentive fee for resolution of certain
assets. Contracts to manage, service and liquidate assets expire beginning
December 31, 1993 through June 30, 1997. AMRESCO, Inc. and the RTC agreed in
principle to effect an early termination of a full-service contract and a loan
administration contract no later than December 31, 1992. AMRESCO, Inc. collected
an agreed disposition fee on the book value of the remaining assets and, as of
December 31, 1992, returned the management of the assets to the RTC. A
significant amount of AMRESCO's revenues are derived under an asset management
contract beginning in 1992 between AMRESCO and NationsBank Corporation
(NationsBank).
4. INCOME TAXES
Prior to the acquisition, AMRESCO filed a consolidated tax return with its
parent, NationsBank. Income taxes were accrued as if AMRESCO filed separate
returns. No delineation was made of current and deferred taxes as NationsBank
allocated tax benefits to AMRESCO. The receipt of tax benefits were handled as a
capital contribution by the Parent. AMRESCO's acquisition was a taxable
transaction, and as a
F-23
<PAGE>
AMRESCO
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
result, a new tax basis for the AMRESCO group was created. A reconciliation of
income taxes on reported pretax income at statutory rates to total income tax
expense is as follows for the ten months ended October 31, 1992 (in thousands):
<TABLE>
<S> <C>
Income tax at statutory rate (34%)..................................... $ 11,595
State income taxes (net of federal benefit)............................ 1,797
Change in prior-year estimate of Parent tax attributes................. (2,503)
Other.................................................................. (94)
---------
Income tax expense..................................................... $ 10,795
---------
---------
</TABLE>
5. RETIREMENT AND EMPLOYEE BENEFITS
Certain professional employees received a bonus from a pool computed on 20%
to 25% of pretax income over predetermined minimum earning levels for the ten
months ended October 31, 1992 and based upon NationsBank's bonus programs prior
to 1992. Certain employees are covered by severance plans in the event their
employment is terminated by AMRESCO. Until December 9, 1992, the Company
participated in a qualified retirement plan of NationsBank, which covered all
full-time, salaried employees and certain part-time employees. Pension expense
under this plan was accrued. The costs allocated from NationsBank were charged
to current operations and consist of several components of net pension cost
based on various actuarial assumptions regarding future experience under the
plan.
6. COMMITMENTS AND CONTINGENCIES
Total rent expense for the ten months ended October 31, 1992 was
approximately $3,220,000. AMRESCO is a defendant in or party to pending and
threatened legal actions and proceedings. Management believes, based upon the
opinion of legal counsel, that the actions and liability or loss, if any,
resulting from the final outcome of these proceedings will not be material in
the aggregate.
7. STOCKHOLDER'S EQUITY
The activity in stockholder's equity for the ten months ended October 31,
1992 is as follows (in thousands):
<TABLE>
<S> <C>
JANUARY 1, 1992....................................................... $ 30,935
Net income.......................................................... 23,307
Contribution by parent.............................................. 475
Dividends and distributions to parent............................... (42,169)
---------
OCTOBER 31, 1992...................................................... $ 12,548
---------
---------
</TABLE>
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Certain Definitions............................ 4
Summary........................................ 6
Risk Factors................................... 10
Recent Developments............................ 13
Use of Proceeds................................ 14
Price Range of and Dividends on Common Stock... 15
Capitalization................................. 16
Summary Financial and Other Data............... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 24
Management..................................... 35
Principal and Selling Shareholders and Share
Ownership of Management....................... 38
Description of Capital Stock................... 40
Shares Eligible for Future Sale................ 42
Underwriting................................... 43
Legal Matters.................................. 44
Independent Accountants........................ 44
Index to Financial Statements.................. F-1
</TABLE>
4,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
PROSPECTUS
------------------
The Robinson-Humphrey
Company, Inc.
Piper Jaffray Inc.
, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 21,968
NASD Filing Fee........................................................... 6,871
Nasdaq National Market Listing Fee........................................ 17,500
Printing Expenses......................................................... 125,000*
Accounting Fees and Expenses.............................................. 75,000*
Legal Fees and Expenses (including fees of Selling Shareholders'
counsel)................................................................. 160,000*
Blue Sky Fees and Expenses (including counsel fees)....................... 5,000*
Fees of Transfer Agent and Registrar...................................... 2,000*
Miscellaneous Expenses.................................................... 6,661*
---------
Total................................................................... $ 420,000*
---------
---------
</TABLE>
- ------------------------------
* Estimated.
All of the above expenses except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing fee
are estimated. All of such expenses will be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and the Company's Amended and Restated Bylaws (the "Bylaws")
provide that the Company shall indemnify, to the full extent permitted by law,
any person against liabilities arising from their service as directors,
officers, employees or agents of the Company. Section 145 of the DGCL empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnify for such
expenses which the court shall deem proper.
Section 145 further provides that indemnification provided for by Section
145 shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled, and that the corporation is empowered to purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
II-1
<PAGE>
The Certificate and the Bylaws provide that no director of the Company shall
be personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of this provision related to director's liability shall
not adversely affect any right or protection of a director of the Company
existing immediately prior to such repeal or modification. Further, if the DGCL
shall be repealed or modified, the elimination of liability of a director
provided in the Certificate and the Bylaws shall be to the fullest extent
permitted by the DGCL as so amended.
Reference is also made to the indemnification provisions contained in the
Underwriting Agreement (a form of which will be filed as Exhibit 1.1 hereto)
with respect to undertakings to indemnify the Company, its directors, officers
and controlling persons within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), against certain liabilities, including
liabilities under the Securities Act or otherwise.
Pursuant to Registration Rights Agreements with certain shareholders of the
Company, the Company has agreed to indemnify such shareholders (including the
Selling Shareholders) against certain liabilities, including liabilities under
the Securities Act or otherwise. For the undertaking with respect to
indemnification, see Item 17 herein.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation, as amended, filed as Exhibit 3(i) to the Registrant's Form
10-Q for the quarter ended September 30, 1995, as amended by Form 10-Q/A No. 1 dated October 25, 1995
(the "September 1995 10-Q"), which exhibit is incorporated herein by reference.
4.2 Amended and Restated Bylaws as of May 23, 1994, filed as Exhibit 3(f) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, which exhibit is incorporated herein
by reference.
4.3 Revolving Loan Agreement, dated as of September 29, 1995, among the Company, certain subsidiaries of
the Company, NationsBank of Texas, N.A. as Agent, and the Banks named therein, filed as Exhibit 10(b)
to the Registrant's September 1995 10-Q, which exhibit is incorporated herein by reference.
4.4* Specimen Common Stock Certificate.
4.5** Indenture, dated as of November 27, 1995, between the Company and First Interstate Bank of Texas,
National Association in respect of the Company's 8% Convertible Subordinated Debentures due 2005.
5.1** Opinion of L. Keith Blackwell, General Counsel of the Company, as to the validity of Common Stock to
be offered.
23.1** Consent of L. Keith Blackwell, contained in the opinion filed as Exhibit 5.1.
23.2** Consent of Deloitte & Touche LLP.
24.1* Power of Attorney of the Directors and certain Executive Officers of the Company.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 27th day of November, 1995.
AMRESCO, INC.
By: /s/ L. KEITH BLACKWELL
-----------------------------------
L. Keith Blackwell
GENERAL COUNSEL AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the 27th day of November, 1995:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
ROBERT H. LUTZ, JR.*
------------------------------------------- Chairman of the Board and
Robert H. Lutz, Jr. Chief Executive Officer
ROBERT L. ADAIR III*
------------------------------------------- Director, President and Chief Operating Officer
Robert L. Adair III
BARRY L. EDWARDS*
------------------------------------------- Executive Vice President and Chief Financial Officer
Barry L. Edwards (Principal Financial Officer)
JAMES P. COTTON, JR.*
------------------------------------------- Director
James P. Cotton, Jr.
RICHARD L. CRAVEY*
------------------------------------------- Director
Richard L. Cravey
GERALD E. EICKHOFF*
------------------------------------------- Director
Gerald E. Eickhoff
------------------------------------------- Director
William S. Green
AMY J. JORGENSEN*
------------------------------------------- Director
Amy J. Jorgensen
JOHN J. MCDONOUGH*
------------------------------------------- Director
John J. McDonough
BRUCE W. SCHNITZER*
------------------------------------------- Director
Bruce W. Schnitzer
RONALD B. KIRKLAND*
------------------------------------------- Vice President and Chief Accounting Officer (Principal
Ronald B. Kirkland Accounting Officer)
</TABLE>
L. Keith Blackwell, by signing his name hereto, does sign and execute this
Pre-Effective Amendment No. 1 to its Registration Statement on behalf of each of
the above-named officers and directors of the Registrant on this 27th day of
November, 1995, pursuant to powers of attorneys executed on behalf of each of
such officers and directors, and previously filed with the Securities and
Exchange Commission.
*By: /s/ L. KEITH BLACKWELL
- ------------------------------------
L. Keith Blackwell
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. EXHIBIT NUMBERED PAGE
- ----------- ---------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation, as amended, filed as Exhibit 3(i) to the
Registrant's Form 10-Q for the quarter ended September 30, 1995, as amended by Form
10-Q/A No. 1 dated October 25, 1995 (the "September 1995 10-Q"), which exhibit is
incorporated herein by reference.
4.2 Amended and Restated Bylaws as of May 23, 1994, filed as Exhibit 3(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
which exhibit is incorporated herein by reference.
4.3 Revolving Loan Agreement, dated as of September 29, 1995, among the Company, certain
subsidiaries of the Company, NationsBank of Texas, N.A. as Agent, and the Banks named
therein, filed as Exhibit 10(b) to the Registrant's September 1995 10-Q, which exhibit
is incorporated herein by reference.
4.4* Specimen Common Stock Certificate.
4.5** Indenture, dated as of November 27, 1995, between the Company and First Interstate Bank
of Texas, National Association in respect of the Company's 8% Convertible Subordinated
Debentures due 2005.
5.1** Opinion of L. Keith Blackwell, General Counsel of the Company, as to the validity of
Common Stock to be offered.
23.1** Consent of L. Keith Blackwell, contained in the opinion filed as Exhibit 5.1.
23.2** Consent of Deloitte & Touche LLP.
24.1* Power of Attorney of the Directors and certain Executive Officers of the Company.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
<PAGE>
EXHIBIT 4.5
============================================================================
AMRESCO, INC.,
ISSUER
to
FIRST INTERSTATE BANK OF TEXAS, NATIONAL ASSOCIATION,
TRUSTEE
__________________
INDENTURE
Dated as of November 27, 1995
__________________
$45,000,000
8% Convertible Subordinated Debentures Due 2005
============================================================================
<PAGE>
AMRESCO, INC., AS ISSUER
TABLE OF CONTENTS
PAGE
----
PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Acquired Indebtedness . . . . . . . . . . . . . . . . . . . . . 2
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 2
Board Resolution. . . . . . . . . . . . . . . . . . . . . . . . 2
Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capitalized Lease Obligation. . . . . . . . . . . . . . . . . . 2
Closing Price . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Order . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Total Assets . . . . . . . . . . . . . . . . . . . 4
Corporate Trust Office. . . . . . . . . . . . . . . . . . . . . 4
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default. . . . . . . . . . . . . . . . . . . . . . . . 4
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . 5
Interest Swap Obligation. . . . . . . . . . . . . . . . . . . . 5
Junior Securities . . . . . . . . . . . . . . . . . . . . . . . 5
Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . 5
Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
<PAGE>
PAGE
----
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . 6
Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . 6
Outstanding,. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Predecessor Security. . . . . . . . . . . . . . . . . . . . . . 7
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . 7
Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . 7
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . 7
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . 7
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Security Register . . . . . . . . . . . . . . . . . . . . . . . 7
Security Registrar. . . . . . . . . . . . . . . . . . . . . . . 7
Senior Indebtedness of the Company. . . . . . . . . . . . . . . 7
Special Record Date . . . . . . . . . . . . . . . . . . . . . . 8
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . 8
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Tender Offer. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Trading Day . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . 9
Vice President, . . . . . . . . . . . . . . . . . . . . . . . . 9
Whole Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 9
Whole Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. . . . . . . . . . . . . . 9
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. . . . . . . . . . . . .10
SECTION 104. ACTS OF HOLDERS . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY . . . . . . . . . . . . .11
SECTION 106. NOTICE TO HOLDERS; WAIVER . . . . . . . . . . . . . . . . . . .11
SECTION 107. LANGUAGE OF NOTICES . . . . . . . . . . . . . . . . . . . . . .12
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. . . . . . . . . . . .12
SECTION 109. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . .12
SECTION 110. SEPARABILITY CLAUSE . . . . . . . . . . . . . . . . . . . . . .12
SECTION 111. BENEFITS OF INDENTURE . . . . . . . . . . . . . . . . . . . . .12
SECTION 112. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 113. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . . .13
<PAGE>
PAGE
----
ARTICLE TWO
FORM OF SECURITIES
SECTION 201. FORM GENERALLY. . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 202. FORM OF FACE OF SECURITY. . . . . . . . . . . . . . . . . . . .14
SECTION 203. FORM OF REVERSE OF SECURITY . . . . . . . . . . . . . . . . . .16
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION . . . . . . . .20
SECTION 205. FORM OF ELECTION TO CONVERT . . . . . . . . . . . . . . . . . .20
SECTION 206. FORM OF ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . .21
SECTION 207. FORM OF ELECTION TO REPURCHASE. . . . . . . . . . . . . . . . .22
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 302. DENOMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. . . . . . . . .23
SECTION 304. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . . . .24
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE . . . . . .25
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. . . . . . . .26
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. . . . . . . . .27
SECTION 308. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . . . . .28
SECTION 309. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 310. COMPUTATION OF INTEREST . . . . . . . . . . . . . . . . . . . .29
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . . . .29
SECTION 402. APPLICATION OF TRUST MONEY. . . . . . . . . . . . . . . . . . .31
SECTION 403. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . .31
<PAGE>
PAGE
----
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. . . . . . .34
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . . . .35
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . .36
SECTION 506. APPLICATION OF MONEY COLLECTED. . . . . . . . . . . . . . . . .36
SECTION 507. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . . .37
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST AND TO CONVERT . . . . . . . . . . . . . .37
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. . . . . . . . . . . . . . .38
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . .38
SECTION 511. DELAY OR OMISSION NOT WAIVER. . . . . . . . . . . . . . . . . .38
SECTION 512. CONTROL BY HOLDERS. . . . . . . . . . . . . . . . . . . . . . .38
SECTION 513. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . . .39
SECTION 514. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . . .39
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS. . . . . . . . . . . . . . . .40
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES . . . . . . . . . . . . . .40
SECTION 602. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . . .41
SECTION 603. CERTAIN RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . .41
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. . . . .42
SECTION 605. MAY HOLD SECURITIES . . . . . . . . . . . . . . . . . . . . . .43
SECTION 606. MONEY HELD IN TRUST . . . . . . . . . . . . . . . . . . . . . .43
SECTION 607. COMPENSATION AND REIMBURSEMENT. . . . . . . . . . . . . . . . .43
SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY . . . . . . . . . . . .44
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR . . . . . . .44
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. . . . . . . . . . . . .45
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
SECTION 612. APPOINTMENT OF AUTHENTICATING AGENT . . . . . . . . . . . . . .46
<PAGE>
PAGE
----
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS . . .48
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. . . . .48
SECTION 703. REPORTS BY COMPANY. . . . . . . . . . . . . . . . . . . . . . .49
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. . . . . .50
SECTION 802. SUCCESSOR SUBSTITUTED FOR COMPANY . . . . . . . . . . . . . . .51
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. . . . . . .51
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS . . . . . . . .52
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . .53
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . .53
SECTION 905. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. . . . . . .53
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. . . . . . . . . . .53
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . .54
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST . . . . . . . .54
SECTION 1004. STATEMENTS OF OFFICERS OF COMPANY AS TO DEFAULT . . . . . . . .55
SECTION 1005. LIMITATIONS ON DIVIDENDS, REDEMPTIONS, ETC. . . . . . . . . . .55
SECTION 1006. PAYMENT OF TAXES AND OTHER CLAIMS . . . . . . . . . . . . . . .56
SECTION 1007. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS . . . . . . . .56
SECTION 1008. MAINTENANCE OF PROPERTIES.. . . . . . . . . . . . . . . . . . .57
<PAGE>
PAGE
----
SECTION 1009. MAINTENANCE OF INSURANCE. . . . . . . . . . . . . . . . . . . .57
SECTION 1010. MAINTENANCE OF NET WORTH. . . . . . . . . . . . . . . . . . . .58
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . .61
SECTION 1102. APPLICABILITY OF ARTICLE. . . . . . . . . . . . . . . . . . . .61
SECTION 1103. ELECTION TO REDEEM. . . . . . . . . . . . . . . . . . . . . . .61
SECTION 1104. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . . . . .62
SECTION 1105. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . . .62
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE . . . . . . . . . . . . .63
SECTION 1107. CONVERSION ARRANGEMENTS ON CALL FOR REDEMPTION. . . . . . . . .63
ARTICLE TWELVE
CONVERSION OF SECURITIES
SECTION 1201. CONVERSION PRIVILEGE AND CONVERSION PRICE . . . . . . . . . . .64
SECTION 1202. EXERCISE OF CONVERSION PRIVILEGE. . . . . . . . . . . . . . . .65
SECTION 1203. FRACTIONS OF SHARES . . . . . . . . . . . . . . . . . . . . . .66
SECTION 1204. ADJUSTMENT OF CONVERSION PRICE. . . . . . . . . . . . . . . . .67
SECTION 1205. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE . . . . . . . . . . .73
SECTION 1206. NOTICE OF CERTAIN CORPORATE ACTION. . . . . . . . . . . . . . .74
SECTION 1207. COMPANY TO RESERVE COMMON STOCK . . . . . . . . . . . . . . . .75
SECTION 1208. TAXES ON CONVERSIONS. . . . . . . . . . . . . . . . . . . . . .75
SECTION 1209. COVENANT AS TO COMMON STOCK . . . . . . . . . . . . . . . . . .75
SECTION 1210. CANCELLATION OF CONVERTED SECURITIES. . . . . . . . . . . . . .75
SECTION 1211. PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR SALE
OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . .75
SECTION 1212. COMPANY TO CAUSE REGISTRATION OF COMMON STOCK . . . . . . . . .76
SECTION 1213. DISCLAIMER BY TRUSTEE OF RESPONSIBILITY FOR CERTAIN MATTERS . .76
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
SECTION 1301. AGREEMENTS TO SUBORDINATE BY COMPANY. . . . . . . . . . . . . .77
SECTION 1302. DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND
<PAGE>
PAGE
----
REORGANIZATION; SUBROGATION . . . . . . . . . . . . . . . . . .77
SECTION 1303. No Payment in Event of Default on Senior Indebtedness . . . . .79
SECTION 1304. PAYMENTS PERMITTED. . . . . . . . . . . . . . . . . . . . . . .80
SECTION 1305. AUTHORIZATION TO TRUSTEE TO EFFECT SUBORDINATION. . . . . . . .80
SECTION 1306. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . .80
SECTION 1307. TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS OF COMPANY . . . . . .81
SECTION 1308. MODIFICATION OF TERMS OF SENIOR INDEBTEDNESS OF COMPANY . . . .81
SECTION 1309. CERTAIN CONVERSIONS NOT DEEMED PAYMENT. . . . . . . . . . . . .81
SECTION 1310. ARTICLE APPLICABLE TO PAYING AGENTS . . . . . . . . . . . . . .82
ARTICLE FOURTEEN
RIGHT TO REQUIRE REPURCHASE
SECTION 1401. RIGHT TO REQUIRE REPURCHASE . . . . . . . . . . . . . . . . . .82
SECTION 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT . . . . . . . . .82
SECTION 1403. DEPOSIT OF REPURCHASE PRICE . . . . . . . . . . . . . . . . . .83
SECTION 1404. SECURITIES NOT REPURCHASED ON REPURCHASE DATE . . . . . . . . .84
SECTION 1405. SECURITIES REPURCHASED IN PART. . . . . . . . . . . . . . . . .84
SECTION 1406. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .84
TESTIMONIUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
INDENTURE, dated as of November 27, 1995, between AMRESCO, INC., a
corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal executive office
at 1845 Woodall Rodgers Freeway, Suite 1700, Dallas, Texas (214) 953-7700,
and First Interstate Bank of Texas, National Association, as Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 8%
Convertible Subordinated Debentures Due 2005 (herein called the "Securities")
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(3) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
<PAGE>
Certain terms, used principally in Article Five, are defined in that
Article.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in connection
with the acquisition by the Company or a Subsidiary of the Company of assets
from such Person, and not incurred in connection with, or in anticipation of,
such Person becoming a Subsidiary of the Company or such acquisition.
"ACT," when used with respect to any Holder, has the meaning specified
in Section 104.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with, such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Securities.
"BOARD OF DIRECTORS" means the board of directors of the Company or any
duly authorized committee of that board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the City of New
York, New York are authorized or obligated by law, regulation or executive
order to close.
"CAPITAL STOCK" means, with respect to any Person, any shares,
interests, participations or other ownership interests (however designated)
of the capital stock of a Person and any rights (other than debt securities
convertible into capital stock), warrants or options to purchase any of the
foregoing, including without limitation each class of common stock and
preferred stock of such Person if such Person is a corporation and each
general and limited partnership interest or other equity interest of such
Person, if such Person is a partnership.
"CAPITALIZED LEASE OBLIGATION" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance
with GAAP (including
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Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board as in effect from time to time) and the amount of
Indebtedness represented by such obligations shall be the capitalized amount
of such obligations, as determined in accordance with GAAP.
"CLOSING PRICE" on any Trading Day with respect to the per share price
of Common Stock means the last reported sales price or, in case no such
reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, on the Nasdaq National Market or the Nasdaq Small Capitalization
Market, as the case may be, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq
National Market or the Nasdaq Small Capitalization Market, the closing bid
price in the over-the-counter market as furnished by any New York Stock
Exchange member firm that is selected from time to time by the Company for
that purpose and is reasonably acceptable to the Trustee.
"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Securities Exchange Act of 1934, as amended, then the body performing
such duties at such time.
"COMMON STOCK" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company. However,
subject to the provisions of Article 12, shares issuable on conversion of
Securities shall include only shares of the class designated as Common Stock
of the Company at the date of this Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up
of the Company and which are not subject to redemption by the Company.
"COMPANY" means the Person named as the "Company" in the first paragraph
of this Indenture until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture and thereafter "Company" shall
mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by its Chairman of the Board, President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
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"CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, the
consolidated total assets of the Company and its subsidiaries, determined in
accordance with GAAP.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be
administered.
"CORPORATION" means a corporation, association, company, joint-stock
company, limited liability company or business trust.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are applicable to the circumstances from time to
time.
"HOLDER" means a Person in whose name a Security is registered in the
Security Register.
"INDEBTEDNESS" means, with respect to any Person, without duplication,
(i) all liabilities, contingent or otherwise, of such Person (a) for borrowed
money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (b) evidenced by bonds,
notes, debentures or similar instruments or representing the balance deferred
and unpaid of the purchase price of any property or services (except any such
balance that constitutes a trade payable in the ordinary course of business
that is not overdue by more than 90 days or is being contested in good
faith), (c) evidenced by bankers' acceptances or similar instruments issued
or accepted by banks or Interest Swap Obligations or (d) for the payment of
money relating to a Capitalized Lease Obligation; (ii) reimbursement
obligations of such Person with respect to letters of credit (other than
obligations with respect to letters of credit securing obligations (other
than obligations described in (i) above) entered into in the ordinary course
of business of such Person) to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a
demand for reimbursement following a draw on the letter of credit; (iii) all
liabilities of other Persons of the kind described in the preceding clause
(i) or (ii) that such Person has guaranteed or that is otherwise its legal
liability (PROVIDED that the amount of liability attributable to such
guarantee or other legal liability shall be deemed to be the maximum amount
for which such Person could be liable under such guarantee or otherwise);
(iv) all
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obligations by a Lien to which the property (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such Person is subject; and (v) any and all deferrals, renewals, extensions,
refinancings and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any
of the preceding clauses (i) through (iv) whether or not between or among the
same parties.
"INDENTURE" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"INTEREST PAYMENT DATE" means either June 15 or December 15 of each
year, as appropriate.
"INTEREST SWAP OBLIGATION" means any obligation of any Person pursuant
to any arrangement with any other Party whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a fixed or floating rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or floating rate of interest on the same notional amount;
PROVIDED, that the term "Interest Swap Obligation" shall also include
interest rate exchange, collar, cap, swap option or similar agreements
intended to provide interest or currency rate protection.
"JUNIOR SECURITIES" has the meaning specified in Section 1005.
"LIEN" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest
and any option or other agreement to give any security interest).
"MATURITY," when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or the Accelerated Payment
Date, or by declaration of acceleration, call for redemption, repurchase or
otherwise.
"MINIMUM NET WORTH" means $115,891,000, plus the net proceeds to the
Company from any offering of Common Stock by the Company that is consummated
after the date of the Indenture.
"NET WORTH" of a Person as of any date means the amount of equity of the
holders of Capital Stock of such Person which would appear on the balance
sheet of such Person as of such date, determined in accordance with GAAP.
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"OFFICERS' CERTIFICATE" means a certificate signed by the President or a
Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary, of the Company, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company and who shall be reasonably acceptable to the
Trustee. Such counsel may be an employee of or counsel to the Company.
"OUTSTANDING," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities in accordance with the provisions of Section
401 hereof; provided that, if such Securities are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and
(iii) Securities which have been replaced pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which
the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the pledgee is not
the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor.
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"PAYING AGENT" means any Person authorized by the Company to pay at
Maturity the principal of (and premium, if any) or interest on any Securities
on behalf of the Company.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization or government
or any agency or political subdivision thereof.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by
such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date means the June 1 or December 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer,
the cashier, any assistant cashier, any trust officer or assistant trust
officer, the controller or any assistant controller or any other officer of
the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"SECURITIES" has the meaning specified in the first recital of this
Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SENIOR INDEBTEDNESS OF THE COMPANY" means (a) the principal of, and
premium, if any, and unpaid interest (whether accruing before or after filing
of any petition in bankruptcy
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or any similar proceedings by or against the Company and whether or not
allowed as a claim in bankruptcy or any similar proceeding), and all other
amounts due on or in connection with the following, whether heretofore or
hereafter created, incurred, assumed or guaranteed: (i) all Indebtedness for
borrowed money created, incurred, assumed or guaranteed by the Company (other
than Indebtedness evidenced by the Securities and Indebtedness which by the
terms of the instrument creating or evidencing the same is specifically
stated to be not superior in right of payment to the Securities); (ii)
bankers' acceptances and reimbursement obligations under letters of credit;
(iii) obligations of the Company under interest rate and currency swaps,
caps, floors, collars or similar agreements or arrangements intended to
protect the Company against fluctuations in interest or currency rates; (iv)
any other Indebtedness evidenced by a note or written instrument; (v)
obligations of the Company under any agreement to lease, or lease of, any
real or personal property, which obligations are required to be capitalized
on the books of the Company in accordance with GAAP (other than leases which
by their terms are specifically stated to be not superior in right of payment
to the Securities); and (vi) guarantees by the Company of similar obligations
of others similar to those described in clauses (i) through (v) above; and
(b) all deferrals, modifications, renewals or extensions of such
Indebtedness, and any debentures, notes or other evidence of Indebtedness
issued in exchange for such Indebtedness or to refund, replace or refinance
the same.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"STATED MATURITY," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of or the installment of interest on
such Security is due and payable.
"SUBSIDIARY" means a Person more than 50% of the outstanding Voting
Capital Stock of which is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "Voting Capital Stock"
means Capital Stock which originally has voting power for the election of
directors (or similar governing body), whether at all times or only so long
as no senior class of Capital Stock has such voting power by reason of any
contingency.
"TENDER OFFER" has the meaning specified in Section 1204.
"TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
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"TRUSTEE" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Trustee"
shall mean such successor Trustee.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended
and as in force at the date as of which this instrument was executed,
PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required
by any such amendment the Trust Indenture Act of 1939 as so amended.
"VICE PRESIDENT," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"WHOLE SUBSIDIARY" or "WHOLE SUBSIDIARIES" means a Subsidiary or
Subsidiaries which are wholly owned directly or indirectly by the Company.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as
to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
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(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or given an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which this certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company,
stating that the information with respect to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
601) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
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(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems
sufficient.
(c) The record ownership of Securities shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is
made upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company,
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any
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particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given or provided. Where
this Indenture provides for notice in any manner, such notice may be waived
in writing by the Person entitled to receive such notice, either before or
after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 107. LANGUAGE OF NOTICES.
Any request, demand, authorization, direction, notice, consent, election
or waiver required or permitted under this Indenture shall be in the English
language, except that, if the Company so elects, any published notice may be
in an official language of the country of publication.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto (including, without
limitation, any Paying Agent or Registrar) and their successors hereunder,
the holders of Senior Indebtedness of the Company, and the Holders of
Securities, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
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SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York as applied to agreements
made or instruments entered into and, in each case, performed in said state,
without regard to principles of conflict of laws.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date, Accelerated Payment Date or Stated Maturity of any Security or the last
date on which a Holder has the right to convert his Securities shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or
of the Securities) payment of interest or principal (and premium, if any) or
conversion of the Securities need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made
on the Interest Payment Date, Redemption Date, Repurchase Date or Accelerated
Payment Date or at the Stated Maturity, or on such last day for conversion,
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date, Repurchase Date, Accelerated Payment
Date or Stated Maturity, as the case may be.
ARTICLE TWO
FORM OF SECURITIES
SECTION 201. FORM GENERALLY.
The Securities and the Trustee's certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other
marks of identification and such legends (in addition to the legend set forth
in Section 203 below) or endorsements placed thereon as may be required to
comply with the rules of any securities exchange or as may, consistently
herewith, be determined by the officers executing such Securities, as
evidenced by their execution thereof. Any portion of the text of any
Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities as evidenced by their execution thereof.
13
<PAGE>
SECTION 202. FORM OF FACE OF SECURITY.
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR WITH ANY SECURITIES ACT REGULATORY AUTHORITY OF ANY
STATE OR OTHER JURISDICTION OF THE UNITED STATES. UNTIL 40 DAYS AFTER THE
ORIGINAL ISSUE DATE OF THIS SECURITY (THE "RESTRICTED PERIOD"), THE SALE,
PLEDGE OR TRANSFER OF THIS SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE
CONVERTED EACH IS SUBJECT TO CERTAIN CONDITIONS AND RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING OR OTHERWISE ACQUIRING THIS SECURITY, ACKNOWLEDGES THAT
THIS SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT AND AGREES FOR THE BENEFIT OF THE
ISSUER THAT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS SECURITY WILL BEAR A COMPARABLE LEGEND AND MAY BE REOFFERED, RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT
AND OTHER APPLICABLE LAWS OF THE STATES, TERRITORIES AND POSSESSIONS OF THE
UNITED STATES GOVERNING THE OFFER AND SALE OF SECURITIES, AND PRIOR TO THE
EXPIRATION OF THE RESTRICTED PERIOD, ONLY (A)(1) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (2) TO THE
COMPANY AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES.
AMRESCO, INC.
8% Convertible Subordinated Debenture Due 2005
No. $
AMRESCO, INC., a Delaware corporation (herein called the "Company,"
which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
__________________________________ or its registered assigns, the principal
sum of _________________________ United States Dollars on December 15, 2005,
and to pay interest thereon from November 27, 1995 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on June 15 and December 15 in each year, commencing June 15,
1996, at the rate of 8% per annum, based on a 360-day year consisting of
twelve 30-day months, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest,
14
<PAGE>
which shall be the June 1 or December 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to
the Person in whose name this Security (or one or more Predecessor
Securities) is registered on the Security Register maintained by the Security
Registrar at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall
be given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Payment of the
principal of (and premium, if any) and interest on this Security will be made
at the office or agency of the Company maintained for that purpose in the
City of New York, New York, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; PROVIDED, HOWEVER, that at the option of the Company payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
AMRESCO, INC.
By______________________________________
Attest:
____________________________________
15
<PAGE>
SECTION 203. FORM OF REVERSE OF SECURITY.
AMRESCO, INC.
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Security is one of a duly authorized issue of Securities of the
Company designated as its 8% Convertible Subordinated Debentures Due 2005
(herein called the "Securities"), limited in aggregate principal amount to
$45,000,000, issued and to be issued under an Indenture, dated as of November
27, 1995 (herein called the "Indenture"), between the Company and First
Interstate Bank of Texas, National Association, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which the Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the holders of
Senior Indebtedness of the Company, and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his irrevocable option, at any time
and from time to time, on or before the close of business on December 15,
2005, or in case this Security is called for redemption, through optional
redemption by the Company, or otherwise, then in respect of this Security
until and including, but (unless the Company defaults in making the payment
due upon redemption) not after, the close of business on the fifth (5th) day
preceding the Redemption Date, to convert this Security (or any portion of
the principal amount hereof which is $1,000 or an integral multiple thereof),
at the principal amount hereof, or of such portion, into fully paid and
nonassessable shares (calculated as to each conversion to the nearest 1/100
of a share) of Common Stock of the Company at a conversion price equal to
$12.50 per share (or at the current adjusted conversion price if an
adjustment has been made as provided in the Indenture) by surrender of this
Security, duly endorsed or assigned to the Company or in blank, to the
Company at its office or agency in the City of New York, New York,
accompanied by written notice to the Company that the Holder hereof elects to
convert this Security, or if less than the entire principal amount hereof is
to be converted, the portion hereof to be converted, and, in case such
surrender shall be made during the period from the close of business on any
Regular Record Date next preceding any Interest Payment Date to the opening
of business on such Interest Payment Date (unless this Security or the
portion thereof being converted matures prior to such Interest Payment Date
or has been called for redemption on a Redemption Date within such period),
also accompanied by a check made payable to the Company in New York Clearing
House or other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of
this Security then being converted. Subject to the aforesaid requirement for
payment and, in the case of a conversion after the Regular Record Date next
preceding any Interest Payment Date and on or before such Interest Payment
Date, to the right of the Holder of this Security (or any Predecessor
Security) of record at such Regular Record Date
16
<PAGE>
to receive an installment of interest (with certain exceptions provided in
the Indenture), no payment or adjustment is to be made on conversion for
interest accrued hereon or for dividends on the Common Stock issued on
conversion. No fractions of shares or scrip representing fractions of shares
will be issued on conversion, but instead of any fractional interest the
Company may either issue a number of shares of Common Stock which reflects a
rounding up to the next whole number or pay a cash adjustment as provided in
the Indenture. The conversion price is subject to adjustment as provided in
the Indenture. In addition, the Indenture provides that in case of certain
consolidations or mergers to which the Company is a party or the transfer of
substantially all of the assets of the Company, the Indenture shall be
amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the
period this Security shall be convertible as specified above, only into the
kind and amount of securities, cash and other property receivable upon the
consolidation, merger or transfer by a holder of the number of shares of
Common Stock into which this Security might have been converted immediately
prior to such consolidation, merger or transfer (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).
In the event of conversion of this Security in part only, a new Security
or Securities for the unconverted portion hereof will be issued in the name
of the Holder hereof upon the cancellation hereof.
The Securities are redeemable, at the Company's option, as a whole, upon
not less than 45 nor more than 60 days' notice mailed to the Trustee and to
each Holder of Securities to be redeemed at the Trustee's and such Holder's
respective addresses appearing in the Security Register, on any date on or
after December 15, 1996 and prior to Maturity, at a Redemption Price
(expressed as a percentage of principal amount) set forth below with respect
to the indicated Redemption Date, together in the case of any such
redemption, with accrued but unpaid interest to the Redemption Date (subject
to the right of Holders of record on the relevant record date to receive
interest due on the Interest Payment Date that is on or prior to the
Redemption Date):
If redeemed during the
12-month period beginning
December 15: Redemption Price
------------------------- ----------------
1996. . . . . . . . . . . . . . 108.0%
1997. . . . . . . . . . . . . . 107.1%
1998. . . . . . . . . . . . . . 106.2%
1999. . . . . . . . . . . . . . 105.3%
2000. . . . . . . . . . . . . . 104.4%
2001. . . . . . . . . . . . . . 103.6%
2002. . . . . . . . . . . . . . 102.7%
17
<PAGE>
2003. . . . . . . . . . . . . . 101.8%
2004. . . . . . . . . . . . . . 100.9%
On December 15, 2005. . . . . . 100.0%
Notwithstanding the foregoing, the Securities may not be redeemed prior to
December 15, 1998 unless for a period of 20 consecutive Trading Days ending
on the date immediately preceding the fifth day prior to the date on which
notice of the Redemption Date is given, the Closing Price of the Common Stock
has exceeded 145% of the conversion price, subject to adjustment in the case
of the same events which would result in an adjustment of the conversion
price as provided in Section 1204 of this Indenture with any adjustments to
the Redemption Price to be effected in the same manner and to the same extent
as provided in Section 1204 with respect to adjustments to the conversion
price. Interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable on the Interest Payment Date for such
installment to the Holders of such Securities (or one or more Predecessor
Securities) of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Indenture.
The Indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness of the Company, and this Security
is issued subject to the provisions of the Indenture with respect thereto.
Each Holder of this Security, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate
the subordination so provided and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture
at any time by the Company and the Trustee with the consent of the Holders of
a majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities at
the time Outstanding, on behalf of the Holders of all the Securities, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
18
<PAGE>
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed or to convert this Security as provided
in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the City of New York, New York, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
With respect to the registration of any proposed transfer of a Security
to any person who is not a U.S. Person as defined under Regulation S
promulgated under the Securities Act (a "Non-U.S. Person"), the Security
Registrar shall register the transfer of any Security only if (A) the
transferor furnishes to the Company and the Security Registrar such
certifications, legal opinions or other information as they may reasonably
require to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of
the Securities Act, (B) the proposed transferee has delivered to the Security
Registrar a certificate in a form satisfactory to the Company and (C) an
Officer of the Company approves the transfer in writing, whereupon the
Security Registrar shall reflect on its books and records the date and amount
transferred, and the Company shall execute and the Trustee or the
Authenticating Agent shall authenticate and deliver one or more Securities of
like tenor and amount.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to
the contrary.
19
<PAGE>
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
First Interstate Bank of Texas, National Association
AS TRUSTEE
Dated: By:
------------ ---------------------------------------------
AUTHORIZED SIGNATORY
SECTION 205. FORM OF ELECTION TO CONVERT.
To AMRESCO, INC.:
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or the portion below designated, into shares of
Common Stock of AMRESCO, INC. in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned registered
Holder hereof, unless a different name has been indicated in the assignment
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.
Dated:
--------------
Portion of Security to be
converted ($1,000 or an
integral multiple thereof):
$ Your Signature:
----------- -----------------------------------------
(Sign exactly as your name appears on the
face of this Security)
If shares of Common Stock are to be issued and registered
otherwise than to the registered Holder named above, please
print or typewrite name and address, including zip
20
<PAGE>
code, and social security or other taxpayer identification number.
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Signature Guarantee:
---------------------------------------------------------
(Participant in recognized signature guarantee medallion
program or other assurance reasonably acceptable to the
Company and to the Security Registrar)
SECTION 206. FORM OF ASSIGNMENT.
To assign this Security, fill in the form below: (I) or (We) assign and
transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him or her.
Date:
-------------------
Your Signature: ______________________________________
(Sign exactly as your name appears on the face of
this Security)
Signature Guarantee:___________________________________________________________
(Participant in recognized signature guarantee medallion program
or other assurance reasonably acceptable to the Company and to
the Security Registrar)
21
<PAGE>
SECTION 207. FORM OF ELECTION TO REPURCHASE.
If you want to elect to have all or any part of this Security repurchased
by the Company pursuant to Article 14 of the Indenture check the following box.
/ /
If you want to have only part of the Security purchased by the Company
pursuant to Article 14 of the Indenture, state the amount you elect to have
repurchased:
$
---------
Date:
-------------------
Your Signature:__________________________________
(Sign exactly as your name appears on the face of
this Security)
Signature Guarantee: _________________________________________________________
(Participant in recognized signature guarantee medallion program
or other assurance reasonably acceptable to the Company and to
the Security Registrar)
22
<PAGE>
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $45,000,000.
The Securities shall be known and designated as the "8% Convertible
Subordinated Debentures Due 2005" of the Company. Their Stated Maturity shall
be December 15, 2005, and they shall bear interest at the rate of 8% per annum,
from November 27, 1995 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable semi-
annually on June 15 and December 15, commencing June 15, 1996, unless earlier
converted, redeemed or repurchased.
The principal of (and premium, if any) and interest on the Securities shall
be payable at the office or agency of the Company in the City of New York, New
York; provided, however, that at the option of the Company payment of interest
may be made by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be convertible as provided in Article Twelve.
The Securities shall be subordinated in right of payment to Senior
Indebtedness of the Company, as provided in Article Thirteen.
The Securities shall be subject to repurchase by the Company, at the option
of the Holders, as provided in Article Fourteen.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
23
<PAGE>
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company, by its Chairman
of the Board or President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities 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 such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by or on behalf of the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers of the Company executing such Securities may determine, as conclusively
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
24
<PAGE>
deliver in exchange therefor a like principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture
as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office being herein
sometimes referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange or redemption or repurchase shall (if so required by the Company or the
Security Registrar) be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer, exchange
or redemption or repurchase of Securities, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer, exchange or redemption
or repurchase of Securities, other than exchanges pursuant to Section 304, 905,
1202 or 1302 not involving any transfer.
25
<PAGE>
With respect to the registration of any proposed transfer of a Security to
any person who is not a U.S. Person as defined under Regulation S promulgated
under the Securities Act (a "Non-U.S. Person"), the Security Registrar shall
register the transfer of any Security only if (A) the transferor furnishes to
the Company and the Security Registrar such certifications, legal opinions or
other information as they may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act, (B) the proposed transferee
has delivered to the Security Registrar a certificate in a form satisfactory to
the Company and (C) an Officer of the Company approves the transfer in writing,
whereupon the Security Registrar shall reflect on its books and records the date
and amount transferred, and the Company shall execute and the Trustee or the
Authenticating Agent shall authenticate and deliver one or more Securities of
like tenor and amount.
The Company shall not be required to (i) issue, register the transfer of,
or exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing, or (ii) to register
the transfer of or exchange of any Security selected for redemption.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser (or any equivalent person under any applicable statute, rule,
regulation or interpretation then in effect), the Company shall execute and upon
Company Order the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
26
<PAGE>
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date notwithstanding the fact that such Holder was a Holder on
such Regular Record Date, and such Defaulted Interest may be paid by the
Company, at its election, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and no less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security Register,
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not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date and
Securities called for redemption on a Redemption Date within such period), the
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date, subject to such
Person's obligation under Section 1202 to pay to the Company an amount equal to
the interest payable on such Interest Payment Date on the principal amount of
Securities being converted. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Security which is converted,
interest whose Stated Maturity is after the date of conversion of such Security
shall not be payable.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered in the Security Registrar as
the owner of such Security for the purpose of receiving payment of principal of
(and premium, if any) and (subject to Section 307) interest on such Security and
for all other purposes whatsoever, whether or not any payment with respect to
such Security be overdue, and neither the Company, the Trustee nor any agent of
the Company or the Trustee shall be affected by notice to the contrary.
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SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to
any Person other than the Trustee, be delivered to the Trustee and shall be
promptly canceled by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and
all Securities so delivered shall be promptly canceled by the Trustee when
accompanied by a Company Order requesting the Trustee to cancel such
Securities. No Securities shall be authenticated in lieu of or in exchange
for any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities held by the Trustee
shall be destroyed and a certificate of destruction delivered to the Company,
unless by Company Order, the Company directs that destroyed certificates be
returned to it.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a year of
twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been mutilated, destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 1105) have
been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
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(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year from
the date of the deposit referred to in the following paragraph under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as trust funds
in trust, pursuant to a trust agreement in form and substance satisfactory to
the Trustee, an amount sufficient, without consideration of the reinvestment of
interest and after payment of federal, state and local taxes or other charges or
assessments in respect thereof payable by the Trustee, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certificate thereof (in form and substance satisfactory to the Trustee),
to pay and discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if any)
and interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company;
(3) no Event of Default under Sections 501(6) or (7) shall have occurred
or be continuing on the date of such deposit and no default or Event of Default
under Sections 501(6) or (7) shall occur on or before the 123rd day after the
date of such deposit;
(4) no default on any Senior Indebtedness of the Company shall have
occurred and be continuing; and
(5) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 612 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
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SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and
held by it or any Paying Agent) for the payment of Securities subsequently
converted shall be returned to the Company upon Company Request.
SECTION 403. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money in accordance
with Section 402 by reason of any order or judgment or any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to Section 401
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 402; provided, however, that if the Company
makes any payment of interest on or principal of any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Thirteen or be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(1) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of 30
days from such date; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
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(3) default in the payment of the Repurchase Price (as defined in
Section 1401) in respect of any Security on the Repurchase Date (as defined
in Section 1401) therefor in accordance with the provisions of Article
Fourteen and the continuance of such default for a period of 10 days; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default or
breach for a period of 30 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(5) a default under any mortgage, indenture or instrument under which
there may be issued, or by which there may be secured or evidenced, any
Indebtedness (other than non-recourse Indebtedness of any Subsidiary) of
the Company or any Subsidiary in excess of $1,000,000 either for borrowed
money or representing any Senior Indebtedness of the Company, which results
in such Indebtedness being declared due and payable prior to the date on
which it would otherwise become due and payable after the expiration of any
applicable grace period and the holders of such Indebtedness take any
action to collect such Indebtedness; PROVIDED, HOWEVER, that if such
default under such mortgage, indenture or instrument shall be remedied or
cured by the Company, or waived by the holders of such Indebtedness, then
the Event of Default hereunder by reason thereof shall be deemed likewise
to have been thereupon remedied, cured or waived without further action
upon the part of either the Trustee or any of the Holders of the
Securities; and PROVIDED, further, that the Trustee (subject to Sections
601 and 602) shall not have any rights, duties, liabilities or
responsibilities with respect to such default unless and until the Trustee
shall have received written notice thereof at the Corporate Trust Office
from the Company, the trustee under any such mortgage, indenture or
instrument of Indebtedness or the agent of any such holder or holders or
the Holder or Holders of any Outstanding Securities and provided, further,
that any such default by a Subsidiary which arises as a result of or in
connection with a decree or order contemplated by paragraph (6) of this
Section shall not constitute an Event of Default under this paragraph (5)
unless such decree or order also gives rise to an Event of Default under
paragraph (6) of this section; PROVIDED, HOWEVER, that notwithstanding
anything in this clause to the contrary, any action by or against a
Subsidiary or its property shall not constitute an Event of Default unless
such Subsidiary or its property constitutes 15% or more of the Company's
Consolidated Total Assets; or
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(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Subsidiary in
an involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (B) a decree
or order adjudging the Company or any Subsidiary a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Subsidiary or under any applicable federal or state law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial
part of their respective property, or ordering the winding up or
liquidation of their respective affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 30 consecutive days; PROVIDED, HOWEVER, that
notwithstanding anything in this clause to the contrary, any action by or
against a Subsidiary or its property shall not constitute an Event of
Default unless such Subsidiary or its property (together with all other
Subsidiaries and their property with respect to which such a decree or
order shall be continued or unstayed and in effect for a period of 30 days
within the 12 month period preceding such decree or order with respect to
such Subsidiary or its property) constitutes 15% or more of the Company's
Consolidated Total Assets; or
(7) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by any
of them to the entry of decree or order for relief in respect of the
Company or in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Subsidiary, or the filing by the
Company or any Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by the Company or any Subsidiary to the filing of such petition or
to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official or the
Company or of any substantial part of the property of the Company or any
Subsidiary, or the making by the Company or any Subsidiary of an assignment
for the benefit of creditors, or the admission by the Company or any
Subsidiary in writing of their respective inability to pay their respective
debts generally as they become due, or the taking of corporate action by
the Company or any Subsidiary in furtherance of any such action; PROVIDED,
HOWEVER, that notwithstanding anything in this clause to the contrary, any
action by or against a subsidiary or its property shall not constitute an
Event of Default unless such Subsidiary or its property constitutes 15% or
more of the Company's Consolidated Total Assets.
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SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities may declare the principal of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration such
principal shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Securities by written notice
to the Company and the Trustee, may rescind and annul such declaration and
its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any Securities which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of the principal
of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
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(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof, the Company will, upon demand
of the Trustee, pay to it, for the benefit of the Holders of such Securities,
the whole amount then due and payable on such Securities for principal (and
premium, if any) and interest, and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal (and
premium, if any) and on any overdue interest, at the rate borne by the
Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable
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compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan or
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery or judgment, after provision for
the payment of the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, shall be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Subject to Article Thirteen, any money collected by the Trustee pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without
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preference or priority of any kind, according to the amounts due and
payable on such Securities for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Company.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Maturities expressed in such
Security and to convert such Security in accordance
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with Article Twelve and to institute suit for the enforcement of any such
payment and right to convert, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy, to the extent permitted by law, shall be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture or with the Securities, and
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(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities, by notice to the Trustee (and without notice to any
other Holder) on behalf of the Holders of all the Securities, may waive any past
default (including without limitation an Event of Default) hereunder and its
consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in principal
amount of the Outstanding Securities, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of (or premium, if any) or
interest on any Security on or after the respective Stated Maturities expressed
in such Security (or, in the case of redemption, on or after the Redemption
Date) or for the enforcement of the right to convert any Security in accordance
with Article Twelve.
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SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee shall not be liable except for the performance of
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and shall in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
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(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
If a default occurs and is continuing with respect to the Securities and if
it is known to the Trustee, then within 90 days after the occurrence of such
default hereunder (excluding from the calculation of such 90 day period any
period, the continuance of which is required for such default to become an Event
of Default) as to which the Trustee has knowledge, the Trustee shall transmit by
mail to all Holders, as their names and addresses appear in the Security
Register, notice of such default hereunder known to the Trustee, unless such
default shall have been cured or waived; provided, however, that, except in the
case of a default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the best interest of
the Holders. For the purpose of this Section, the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report,
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notice, request, direction, consent, order, bond, debenture, note,
other evidence of Indebtedness or other paper or document believed by
it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
or any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of Indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes
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no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application
by the Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company hereunder, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to a breach of any standard
of care applicable to the Trustee; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without a breach of any standard of
care applicable to the Trustee, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
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SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States
of America, any State thereof or the District of Columbia, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 610.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(2) the Trustee shall become incapable of acting or shall be adjudged
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months, may, on behalf of himself and
all others similarly situated, petition any
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court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to all Holders as
their names and addresses appear in the Security Register. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 612. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may upon receipt of a Company Request appoint an Authenticating
Agent or Agents which shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon original issue and upon exchange,
registration of transfer, partial conversion or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate agency
or corporate trust business of an Authenticating Agent, shall continue to be
an Authenticating Agent, provided such
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corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the
Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Company or the Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company or the Trustee,
as the case may be. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time such Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, the Trustee may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all rights, powers and duties of
its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
First Interstate Bank of Texas, National Association
AS TRUSTEE
Dated:_________________ By:_________________________________________________
As Authenticating Agent
By:_________________________________________________
Authorized Signatory
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE,
AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 5
Business Days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;
provided, however, that so long as the Trustee is the Security Registrar, the
Company shall not be required to furnish any such list.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to or maintained by the Trustee as provided in Section 701 and
the names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants") apply in
writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Indenture or under the Securities and is accompanied by a copy of the
form of proxy or other communication which such applicants propose to transmit,
then the Trustee shall, within five Business Days after the receipt of such
application, at its election, either
(i) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Section 702(a), or
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(ii) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 702(a), and as to the approximate
cost to the applicants of mailing to such Holders the form of proxy or
other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment by the applicants, or provision for the payment by the
applicants, of the reasonable expenses of mailing, unless within five days after
such tender the Trustee shall mail to such applicants, a written statement to
the effect that, in the opinion of the Trustee, such a mailing would be contrary
to the best interest of the Holders or would be in violation of applicable law.
Such written statement shall specify the basis of such opinion.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of any of them shall be held accountable by reason of the disclosure
of any such information as to the names and addresses of the Holders in
accordance with Section 702(b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
SECTION 703. REPORTS BY COMPANY.
The Company shall file with the Trustee, within 15 days after the Company
is required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934; or, if the Company is not required to file information, documents
or reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Securities Exchange Act of 1934 in respect of a security listed and
registered on a national securities exchange or on any national automated
quotation system as may be prescribed from time to time in such rules and
regulations.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, unless:
(1) the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance, transfer or sale, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership, limited liability company or
trust, organized and validly existing under the laws of the United States
of America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered by the successor corporation to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the performance of
every covenant of this Indenture on the part of the Company to be performed
or observed and shall have provided for conversion rights in accordance
with Section 1211;
(2) immediately after giving effect to such merger, consolidation,
conveyance, transfer, sale or lease, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, sale or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with this Article and that all conditions precedent herein provided
for relating to such transaction have been complied with.
For purposes of this Section and Section 802, a conveyance, transfer, sale
or lease of the properties and assets of the Company "substantially as an
entirety" shall mean a conveyance, transfer or lease of properties and assets of
the Company representing 80% or more of the fair value (as determined in good
faith by the Board of Directors) of all the Company's properties and assets on
the date of such conveyance, transfer, sale or lease.
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SECTION 802. SUCCESSOR SUBSTITUTED FOR COMPANY.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer, sale or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer, sale or lease is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by Board
Resolutions, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1211; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action pursuant to this Clause (5) shall not
adversely affect the interests of the Holders in any material respect; or
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(6) to comply with the Trust Indenture Act if the Company reasonably
determines that it is in the Company's best interests to qualify this
Indenture under the Trust Indenture Act.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company, and the Trustee, the Company, when authorized by Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders under this Indenture; PROVIDED, HOWEVER, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date or, in the case of a repurchase
pursuant to Article Fourteen, on or after 10 days following the Repurchase
Date), or adversely affect the right to convert any Security as provided in
Article Twelve (except as permitted by Section 901(5)), or modify the
provisions of this Indenture with respect to the subordination of the
Securities in a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or
(3) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby; or
adversely modify or affect (in any manner adverse to the Holders) the terms
and conditions of the obligations of the Company under Article Fourteen to
repurchase the Securities.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
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SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, City of New York,
New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration
of transfer or exchange, where Securities may be surrendered for conversion
and where notices and demands to or upon the Company in respect of the
Securities relating thereto and this Indenture may be served. The Company
will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of
the Trustee, and the Company hereby appoints the Trustee as its agent to
receive all such presentations, surrenders, notices and demands.
The Company hereby initially designates the Corporate Trust Office of the
Trustee, located in the Borough of Manhattan, City of New York, as such office
of the Company. As of the date of this Indenture, the address of such office is
First Interstate Bank of Texas, National Association, c/o Bank of Montreal Trust
Company, 77 Water Street, 4th Floor, New York, New York 10005.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of (and premium, if any) or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) and/or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of (and premium, if any) or interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due on such Securities, such sum
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Company or the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons
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entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest on the Securities; and
(3) at any time during the continuance of any such Event of Default,
upon the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company, or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or if then held by the Company shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company, as trustee thereof, shall thereupon
cease.
SECTION 1004. STATEMENTS OF OFFICERS OF COMPANY AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate stating whether or not either signatory thereof knows of any Event
of Default that occurred during any such fiscal year and if so, specifying the
nature and status thereof of which such signatory has knowledge. In no case,
however, shall the Company fail to give written notice to the Trustee of an
Event of Default within 30 days of the occurrence of any such Event of Default,
so specifying the nature and status thereof of which the Company has knowledge.
SECTION 1005. LIMITATIONS ON DIVIDENDS, REDEMPTIONS, ETC.
The Company may not (1) declare or pay any dividend or make any other
distribution on any Junior Securities, (other than dividends or distributions
payable in Junior Securities) or (2) purchase, redeem or otherwise acquire or
retire for value any Junior
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Securities, except Junior Securities acquired upon conversion thereof into
other Junior Securities, or (3) permit a Subsidiary to purchase, redeem or
otherwise acquire or retire for value any Junior Securities if, upon giving
effect to such dividend, distribution, purchase, redemption or other
acquisition, a default in the payment of any interest upon any Security when
it becomes due and payable or a default in the payment of the principal of or
premium, if any, on any Security at its Maturity shall have occurred and be
continuing.
The term "Junior Securities" means (1) shares of the Common Stock,
(2) shares of any other class or classes of Capital Stock of the Company,
(3) any other non-debt securities of the Company (whether or not such other
securities are convertible into Junior Securities), or (4) debt securities of
the Company (other than Senior Indebtedness and the Securities) that are
subordinated to the Securities pursuant to an express provision in either the
instrument creating or evidencing such debt securities or pursuant to which
such debt securities are outstanding.
SECTION 1006. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon it or upon its income, profits or
property, and (2) all material lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon its property; PROVIDED,
HOWEVER, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings.
SECTION 1007. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS.
The Company shall not and shall not permit any Subsidiary of the Company
to, create or otherwise cause to become effective any consensual encumbrance
or restriction of any kind on the ability of any Subsidiary of the Company to
(a) pay dividends or make any other distribution on its Capital Stock,
(b) pay any Indebtedness owed to the Company or any other Subsidiary of the
Company or (c) make loans, advances, or capital contributions to the Company
or any other Subsidiary of the Company except (i) as set forth in the
instrument evidencing or the agreement governing Acquired Indebtedness of any
acquired entity which becomes a Subsidiary of the Company, PROVIDED, that any
restriction or encumbrance under such instrument or agreement existed at the
time of acquisition, was not put in place in anticipation of such acquisition,
and is not applicable to any Person, other than the Person or property or
assets of the Person so acquired; (ii) by agreements and transactions permitted
under Section 1005; (iii) customary provisions restricting subletting or
assignment of any lease or license of the Company or any Subsidiary of the
Company; (iv) any encumbrance or restriction arising under applicable law;
(v) any encumbrance or restriction arising under Indebtedness or other
agreements existing on the date of original issuance of the Securities;
(vi) any restrictions, with respect to a Subsidiary of the Company
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imposed pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Subsidiary;
(vii) any encumbrance or restriction arising under the terms of purchase
money obligations, but only to the extent such purchase money obligations
restrict or prohibit the transfer of the property so acquired; (viii) any
encumbrance or restriction arising under customary non-assignment provisions
in installment purchase contracts; (ix) any encumbrance or restriction on the
ability of any Subsidiary to transfer any of its property acquired after the
date hereof to the Company or any Subsidiary that is required by a lender to,
or purchaser of any Indebtedness of, such Subsidiary in connection with a
financing of the acquisition of such property (including with respect to the
purchase of asset portfolios and pursuant to the underwriting or origination
of mortgage loans) by such Subsidiary; and (x) any encumbrance or restriction
pursuant to any agreement that extends, refinances, renews or replaces any
agreement described in the foregoing clauses (i) through (ix).
SECTION 1008. MAINTENANCE OF PROPERTIES.
The Company will cause all its material properties (other than properties
obtained by the Company or any Subsidiary through foreclosure or other
resolution of any loan) used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from
discontinuing the operation and maintenance of any of its properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business.
SECTION 1009. MAINTENANCE OF INSURANCE.
The Company shall carry and maintain, and cause each of its Subsidiaries to
carry and maintain, insurance with financially sound and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by similarly-situated companies engaged in similar operations and owning
similar properties in similar geographic areas in which the Company or such
Subsidiary operates, PROVIDED that such insurance is generally available at
commercially reasonable rates, and further PROVIDED that the Company may self-
insure, or insure through captive insurers or insurance cooperatives to the
extent consistent with prudent business practices. Such insurance shall be in
such amounts, contain such terms, be in such forms and be for such periods as
are customary for such similarly-situated companies in the Company's industry
and as are commercially reasonable. Such insurance may be subject to such
deductibles as are customary for such similarly-situated companies in the
Company's industry or insurance markets reasonably accessible by the Company.
The Company will provide and will cause each Subsidiary to provide such
information and documents reasonably requested by the Trustee from time to
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time with respect to the Company's provision for insurance. The obligations
evidenced by this covenant shall be interpreted to reflect changes in insurance
practices related to the method in which insurance risks are covered in the
North American and European markets or in any other market in which the Company
or its Subsidiaries, as the case may be, reasonably places coverage.
SECTION 1010. MAINTENANCE OF NET WORTH.
If the Company's Net Worth at the end of each of any two consecutive
fiscal quarters (the last day of such second fiscal quarter being referred to
as the "Acceleration Date"), respectively, is less than the Minimum Net
Worth, then the Company shall make an irrevocable, unconditional offer to all
Holders (an "Offer") to acquire, on a PRO RATA basis, on or before the last
day of the next following fiscal quarter or, if the Acceleration Date is the
last day of the Company's fiscal year, the forty-fifth day after the last day
of the next following fiscal quarter (the "Accelerated Payment Date"),
$20.0 million aggregate principal amount of Securities (or if less than such
amount of Securities are then Outstanding, all of the Securities Outstanding at
the time) at a purchase price equal to 100% of the principal amount, plus
accrued and unpaid interest, if any, to and including such Accelerated Payment
Date, which amounts or portion thereof upon acceptance of such Offer by tender
shall thereupon become due and payable (the "Accelerated Payment").
The Company may credit against any Accelerated Payment the principal amount
of any Securities acquired by it subsequent to the first Acceleration Date and
surrendered for cancellation, through purchase, optional redemption or
conversion. The Company, however, may not credit any such Security against more
than one Accelerated Payment. In no event shall the failure to meet the Minimum
Net Worth at the end of any fiscal quarter be counted toward the making of more
than one Offer.
For each fiscal quarter of the Company that its Net Worth is less than or
equal to the Minimum Net Worth, the Company shall deliver to the Trustee an
Officers' Certificate if such quarter is one of the first three quarters of any
fiscal year of the Company, within 45 days of the end of such quarter and, if
such quarter is the fourth quarter of any fiscal year of the Company, within
90 days of the end of such fiscal year, stating that the Minimum Net Worth has
not been achieved.
Any such Officers' Certificate from the Company that states that its Net
Worth is less than the Minimum Net Worth for such two consecutive fiscal
quarters shall also state whether the Company elects to credit its obligation to
repurchase Securities as provided above and set forth the amount of the credit
as of such date and the basis provided above for such credit (including
identification of any previously canceled Securities not theretofore made the
basis for the credit to an Accelerated Payment), and shall be delivered together
with any Securities required to be delivered to the Trustee for cancellation as
provided above that are to be made the basis for such credit to an Accelerated
Payment. The Trustee shall
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notify the Holders that it has received such an Officer's Certificate from
the Company within 10 days after it receives such notice. Failure to give
such notice shall not affect the obligations of the Company pursuant to this
Section 1010.
Notice of an Offer shall be sent, by first-class mail, by the Company to
each Holder at its registered address, with a copy to the Trustee, not less
than 30 days nor more than 60 days before the Accelerated Payment Date. The
notice to the Holders shall contain all information, instructions and
materials required by applicable law or otherwise material to the decision of
Holders generally to tender Securities pursuant to the Offer. The Offer
shall remain open from the time of mailing until five Business Days before
the Accelerated Payment Date. The notice shall be accompanied by a copy of
the information regarding the Company required to be contained in a quarterly
Report on Form 10-Q (x) for the Company's first fiscal quarter if the
Acceleration Date is the end of the Company's second fiscal quarter, (y) for
the Company's second fiscal quarter if the Acceleration Date is the end of
the Company's third fiscal quarter or (z) for the Company's third fiscal
quarter if the Acceleration Date is the end of the Company's last fiscal
quarter. If the Acceleration Date is the end of the Company's first fiscal
quarter, a copy of the information required to be contained in an Annual
Report to Shareholders pursuant to Rule 14a-3 under the Exchange Act of the
fiscal year ending immediately prior to such Acceleration Date and in a
quarterly Report on Form 10-Q for such first fiscal quarter shall accompany
the notice. If the Company is not subject to the filing requirements of
Section 13 or 15(d) of the Exchange Act at the Acceleration Date, then the
notice accompanying the Offer shall contain the correlative information
required to be furnished to the Holders pursuant to this provision. The
notice, which shall govern the terms of the Offer, shall state:
(1) that the Offer is being made pursuant to such notice and this
Section 1010;
(2) the amount of the Accelerated Payment, the purchase price
(including the amount of accrued and unpaid interest, if any) and the
Accelerated Payment Date;
(3) that the Company has elected to credit against the Accelerated
Payment and has delivered to the Trustee for cancellation the Securities
that are to be made the basis for such credit;
(4) that any Security or portion thereof not tendered or accepted for
payment will continue to accrue interest if interest is then accruing;
(5) that unless the Company defaults in depositing U.S. legal tender
with the Paying Agent in accordance with the last paragraph of this
Section 1010 or payment is otherwise prevented, any Security, or portion
thereof, accepted for
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payment pursuant to the Offer shall cease to accrue interest after the
Accelerated Payment Date;
(6) that Holders electing to have a Security, or portion thereof,
purchased pursuant to an Offer will be required to surrender the Security
to the Paying Agent (which may not for purposes of this Section 1010,
notwithstanding any other provision of this Indenture, be the Company, or
any Affiliate of the Company) at the address specified in the notice prior
to the close of business at least five Business Days prior to the
Accelerated Payment Date;
(7) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Accelerated Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement containing a
facsimile signature that such Holder is withdrawing his election to have
such principal amount of Securities purchased;
(8) that if Securities in a principal amount in excess of the
principal amount of Securities to be acquired pursuant to the Offer are
tendered and not withdrawn, the Company shall purchase Securities on a PRO
RATA basis (with such adjustments as may be deemed appropriate by the
Company so that only Securities in denominations of $1,000 or integral
multiples of $1,000 shall be acquired);
(9) that if Securities in a principal amount less than $20 million
are tendered and not withdrawn, the Company is only required to purchase
the principal amount of Securities tendered pursuant to the Offer; and
(10) that Holders whose Securities were purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion
of the Securities surrendered.
Any such Offer shall comply with all applicable provisions of federal and
state laws regulating tender offers, if applicable, and any provisions of this
Indenture that conflict with such laws shall be deemed to be superseded by the
provisions of such laws.
On or before the close of business New York City time on an Accelerated
Payment Date, the Company shall (i) accept for payment Securities or portions
thereof properly tendered pursuant to the Offer (on a PRO RATA basis if required
pursuant to paragraph (8) above), (ii) deposit with the Paying Agent U.S. legal
tender sufficient to pay the purchase price of all Securities or portions
thereof so accepted and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail or deliver to Holders of Securities so accepted payment in an amount equal
to the Accelerated
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Payment for such Securities, and the Company shall execute and the Trustee
shall promptly authenticate and mail or deliver to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Offer on or as soon as practicable after the
Accelerated Payment Date. If the amount required to acquire all Securities
tendered by Holders pursuant to the Offer (the "Acceptance Amount") shall be
less than the aggregate Accelerated Payment amount, the excess of the
aggregate Accelerated Payment amount over the Acceptance Amount may be used
by the Company for general corporate purposes without restriction, unless
otherwise restricted by the other provisions of this Indenture.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
The Securities may be redeemed at the election of the Company, as a whole
at any time on or after December 15, 1996, at the Redemption Price specified in
the form of Security hereinbefore set forth for redemptions, together with
accrued interest to the Redemption Date except that the Securities may not be
redeemed prior to December 15, 1998, unless for a period of 20 consecutive
Trading Days immediately preceding the fifth day prior to the date on which
notice of the Redemption Date is given, the Closing Price has exceeded 145% of
the conversion price as specified in the form of Security hereinbefore set forth
for conversions subject to adjustment in the case of the same events which would
result in an adjustment of the conversion price as provided in Section 1204 of
this Indenture with any adjustments to the Redemption Price to be effected in
the same manner and to the same extent as provided in Section 1204 with respect
to adjustments to the conversion price.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as permitted or
required by any provision of this Indenture, shall be made in accordance with
such provision and this Article.
SECTION 1103. ELECTION TO REDEEM.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution.
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SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 45 nor more than 60 days prior to the Redemption Date, to
the Trustee and to each Holder of Securities to be redeemed at the Trustee's and
such Holder's respective addresses appearing in the Security Register; provided
that, if the Trustee is to give notice of redemption, the Company shall give
reasonable notice to the Trustee to permit the Trustee to give timely notice to
each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and that interest thereon will
cease to accrue on and after said date,
(4) the conversion price, the date on which the right to convert the
principal of the Securities to be redeemed will terminate and the place or
places where such Securities may be surrendered for conversion, and
(5) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money, which shall be good funds on the Redemption Date, sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date other than any Securities called for redemption on that date which
have been converted prior to the date of such deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust
for the redemption of such Security shall (subject to any right of the Holder
of such Security or any Predecessor
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Security to receive interest as provided in the last paragraph of Section
307) be paid to the Company upon Company Request or, if then held by the
Company, shall be discharged from such trust.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable on such
Interest Payment Date to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Security.
SECTION 1107. CONVERSION ARRANGEMENTS ON CALL FOR REDEMPTION.
Notwithstanding anything to the contrary contained in this Indenture, in
connection with any redemption of Securities, the Company, by an agreement with
one or more investment bankers or other purchasers, may arrange for such
purchasers to purchase all Securities called for redemption (the "Called
Securities") which are either (i) surrendered for redemption or (ii) not duly
surrendered for redemption or conversion prior to the close of business on the
Redemption Date, and to convert the same into shares of Common Stock, by the
purchasers' depositing with the Trustee (acting as Paying Agent with respect to
the deposit of such amount and as conversion agent with respect to the
conversion of such Called Securities), in trust for the Holders of the Called
Securities, on or prior to the Redemption Date in the manner agreed to by the
Company and such purchasers, an amount sufficient to pay the Redemption Price,
payable by the Company on redemption of such Called Securities. In connection
with any such arrangement for purchase and conversion, the Trustee as Paying
Agent shall pay on or after the Redemption Date such amounts so deposited by the
purchasers in exchange for Called Securities surrendered for redemption prior to
the close of business on the Redemption Date and for all Called Securities
surrendered after such Redemption Date. Notwithstanding anything to the
contrary contained in this Article Eleven, the obligation of the Company to pay
the Redemption Price of such Called Securities shall be satisfied and discharged
to the extent such amount is so paid by such purchasers, PROVIDED, HOWEVER, that
nothing in this Section 1107 shall in any
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way relieve the Company of the obligation to pay such Redemption Price on all
Called Securities to the extent such amount is not so paid by said
purchasers. For all purposes of this Indenture, any Called Securities
surrendered by the Holders for redemption, and any Called Securities not duly
surrendered for redemption or conversion prior to the close of business on
the Redemption Date, shall be deemed acquired by such purchasers from such
Holders and surrendered by such purchasers for conversion and shall in all
respects be deemed to have been converted, all as of immediately prior to the
close of business on the Redemption Date, subject to the deposit by the
purchasers of the above amount as aforesaid. Nothing in this Section 1107
shall in any way limit the right of any Holder of a Security to convert his
Security pursuant to the terms of this Indenture any time prior to the close
of business on the fifth day preceding the Redemption Date.
ARTICLE TWELVE
CONVERSION OF SECURITIES
SECTION 1201. CONVERSION PRIVILEGE AND CONVERSION PRICE.
Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any Outstanding Security or any portion of the
principal amount thereof which is $1,000 or an integral multiple of $1,000 may
be converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company, obtained by dividing
the principal amount of such Security to be converted by the conversion price,
determined as hereinafter provided, in effect at the time of conversion. Such
conversion right shall expire at the close of business on December 15, 2005. In
case a Security is called for redemption, such conversion right in respect of
the Security so called shall expire at the close of business on the fifth day
preceding the Redemption Date, unless (i) the Company defaults in making the
payment due upon redemption or (ii) the Company has made arrangements under
Section 1107 to have a standby purchaser, provided that, in the case of this
clause (ii) such arrangements shall suspend the expiration of conversion rights
only with respect to Securities to be purchased by such standby purchaser. The
price at which shares of Common Stock shall be delivered upon conversion (herein
called the "conversion price") shall be initially $12.50 per share of Common
Stock. The conversion price shall be reduced in certain instances as provided
in paragraphs (1), (2), (3), (4), (5), (6) and (8) of Section 1204 and shall be
increased in certain instances as provided in paragraph (3) of Section 1204.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Common Stock referred to in paragraph (4) or (5) of Section
1204, the Holder of each Security, upon the conversion thereof pursuant to this
Article subsequent to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution and prior to
the effectiveness of the conversion price adjustment in respect of
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such distribution pursuant to paragraph (4) or (5) of Section 1204, shall
also be entitled to receive for each share of Common Stock into which such
Security is converted, the portion of the evidences of Indebtedness, shares
of capital stock, cash and assets so distributed applicable to one share of
Common Stock, provided that, at the election of the Company (whose election
shall be evidenced by a Board Resolution) with respect to all Holders so
converting, the Company may, in lieu of distributing to such Holder any
portion of such distribution not consisting of cash or securities of the
Company, pay such Holder an amount in cash equal to the fair market value
thereof (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution). If any conversion of a
Security described in the immediately preceding sentence occurs prior to the
payment date for a distribution to holders of Common Stock which the Holder
of the Security so converted is entitled to receive in accordance with the
immediately preceding sentence, the Company may elect (such election to be
evidenced by a Board Resolution) to distribute to such Holder a due bill for
the evidences of Indebtedness, shares of capital stock, cash or assets to
which such Holder is so entitled, provided that such due bill (i) meets any
applicable requirements of the principal national securities exchange or
other market on which the Common Stock is then traded and (ii) requires
payment or delivery of such evidences of Indebtedness, shares of capital
stock, cash or assets no later than the date of payment or delivery thereof
to holders of Common Stock receiving such distribution.
SECTION 1202. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any Security
to be converted shall surrender such Security, duly endorsed or assigned to the
Company or in blank, at any office or agency maintained by the Company pursuant
to Section 1002, accompanied by written notice to the Company at such office or
agency that the Holder elects to convert such Security or, if less than the
entire principal amount thereof is to be converted, the portion thereof to be
converted. Such notice shall also state the name or names (with address and
taxpayer identification number) in which the certificate or certificates for
shares of Common Stock issuable on such conversion shall be issued. Each
Security surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of such
Security, be accompanied by instruments of transfer, in form satisfactory to the
Company and to any person authorized by the Company to deliver Common Stock on
conversion of Securities (herein referred to as the "Conversion Agent"), duly
executed by the Holder or his duly authorized attorney.
Securities surrendered for conversion during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (except for Securities
whose Maturity is prior to such Interest Payment Date and Securities called for
redemption on a Redemption Date within such period) shall be accompanied by a
check made payable to the Company in New York Clearing House funds or other
funds acceptable to the Company of an amount equal to the interest payable on
such Interest Payment Date on the principal amount of Securities
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being surrendered for conversion. Upon receipt of any such check, the
Trustee shall forward such check to the Company. Except as provided in the
preceding sentence and subject to the fourth paragraph of Section 307, no
payment or adjustment shall be made upon any conversion on account of any
interest accrued on the Securities surrendered for conversion or on account
of any dividends on the Common Stock issued upon conversion.
Securities shall be deemed to have been converted immediately prior to the
close of business on the last day prior to day of surrender of such Securities
for conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Securities as Holders shall cease, and the Person
or Persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
at such time; provided, however, that any such surrender on any date when the
stock transfer books of the Company shall be closed shall constitute the Person
or Persons in whose name or names the certificate or certificates for such
shares are to be issued as the record Holder or Holders thereof for all purposes
at the opening of business at the next succeeding day on which such stock
transfer books are opened and the Securities surrendered shall not be deemed to
have been converted, in whole or in part as the case may be, until such date for
the purpose of determining whether any interest is payable thereon. As promptly
as practicable on or after the conversion date, the Company shall issue and
shall deliver at such office or agency a certificate or certificates for the
number of full shares of Common Stock issuable upon conversion, together with
payment in lieu of any fraction of a share, as provided in Section 1203.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee (or the Authenticating
Agent) shall authenticate and deliver to the Holder thereof, at the expense of
the Company, a new Security or Securities of authorized denominations in
aggregate principal amount equal to the unconverted portion of the principal
amount of such Security.
SECTION 1203. FRACTIONS OF SHARES.
No fractional shares of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at
one time by the same Holder, the number of full shares which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise by issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company may either issue a number of shares of
Common Stock which reflects a rounding up to the next whole number or pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Closing Price per share of the Common Stock at the close of business on
the last day prior to the day of conversion (or, if such day is not a Trading
Day, on the Trading Day immediately preceding such day).
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SECTION 1204. ADJUSTMENT OF CONVERSION PRICE.
(1) In case the Company shall pay or make a dividend or other distribution
on its Common Stock exclusively in Common Stock or shall pay or make a dividend
or other distribution on any other class of Capital Stock of the Company which
dividend or distribution includes Common Stock, the conversion price in effect
at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purposes of this paragraph (1),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of Common
Stock.
(2) In case the Company shall issue or distribute Common Stock (pursuant
to an offering effected at a discount of more than 45% from the then-current
market price per share (determined as provided in paragraph (8) of this
Section)) or pay or make a dividend or other distribution on its Common Stock
consisting exclusively of, or shall otherwise issue to holders of its Common
Stock, rights entitling the holders thereof to subscribe for or purchase shares
of Common Stock at a price per share less than the then-current market price per
share (determined as provided in paragraph (8) of this Section provided,
however, that in the case of issuances to other than the Company's stockholders
generally, the current market price shall be the Closing Price of the Common
Stock on the date such rights or warrants are actually issued) of the Common
Stock on the date fixed for the determination of stockholders entitled to
receive such rights or warrants or, in the case of issuances to other than the
Company's stockholders generally, the date such rights or warrants are actually
issued, then the conversion price in effect at the opening of business on the
day following the date fixed for such determination or, in the case of issuances
to other than the Company's stockholders generally, the date such rights or
warrants are actually issued shall be reduced by multiplying such conversion
price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the aggregate of
the offering price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination or, in the case of issuances to
other than the Company's stockholders generally, the date such rights or
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warrants are actually issued. For the purposes of this paragraph (2), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable
in respect of scrip certificates issued in lieu of fractions of shares of
Common Stock.
(3) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the conversion price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(4) Subject to the last sentence of this paragraph (4), in case the
Company or any Subsidiary not a Whole Subsidiary shall, by dividend or
otherwise, distribute to holders of Common Stock generally or to holders (other
than the Company or Whole Subsidiaries) of Capital Stock of any Subsidiary not a
Whole Subsidiary, evidences of Indebtedness of the Company or assets including
shares of any class of Capital Stock, cash or other securities, but excluding
any rights or warrants referred to in paragraph (2) of this Section, excluding
any dividend or distribution paid exclusively in cash out of retained or current
earnings and excluding any dividend or distribution referred to in paragraph (1)
of this Section, the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price reduction
contemplated by this paragraph (4) by a fraction of which the numerator shall be
the current market price per share (determined as provided in paragraph (8) of
this Section) of the Common Stock on the date of such effectiveness less the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution), on the date of such
effectiveness, of the portion of the evidences of Indebtedness, shares of
Capital Stock, cash and assets so distributed (other than to the Company or
Whole Subsidiaries) applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the day
following the later of (a) the date fixed for the payment of such distribution
and (b) the date 20 days after the notice relating to such distribution is given
pursuant to Section 1206(a) (such later date of (a) and (b) being referred to
as the "Reference Date"). If the Board of Directors determines the fair market
value of any distribution for purposes of this paragraph (4) by reference to the
actual or when issued trading market for any securities comprising such
distribution, it must in doing so consider the prices in such market over the
same period used in computing the current market price per share pursuant to
paragraph (8) of this Section. For purposes of this paragraph (4), any
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dividend or distribution that is governed by this paragraph (4) that
includes shares of Common Stock, rights or warrants to subscribe for or
purchase shares of Common Stock or other securities convertible into or
exchangeable for shares of Common Stock shall be deemed instead to be (a) a
dividend or distribution of the evidences of Indebtedness, cash, assets or
shares of Capital Stock other than such shares of Common Stock, such rights
or warrants or such other convertible or exchangeable securities (making any
conversion price reduction required by this paragraph (4)) immediately
followed by (b) in the case of such shares of Common Stock or such rights or
warrants to subscribe for or purchase shares of Common Stock, a dividend or
distribution thereof (making any further conversion price reduction required
by paragraph (1) or (2) of this Section, except (i) the Reference Date of
such dividend or distribution as defined in this paragraph (4) shall be
substituted as "the date fixed for the determination of stockholders entitled
to receive such distribution" and "the date fixed for such determination"
within the meaning of paragraphs (1) and (2) of this Section and (ii) any
shares of Common Stock included in such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of paragraph (1) of this Section) or (c) in
the case of such other securities convertible into or exchangeable for shares
of Common Stock, a dividend or distribution of such number of shares of
Common Stock as would then be issuable upon the conversion or exchange
thereof, whether or not the conversion or exchange of such securities is
subject to any conditions (making any further conversion price reduction
required by paragraph (1) of this Section, except (i) the Reference Date of
such dividend or distribution as defined in this paragraph (4) shall be
substituted as "the date fixed for the determination of stockholders entitled
to receive such distribution" and "the date fixed for such determination" and
(ii) the shares of Common Stock deemed to constitute such dividend or
distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination," each within the meaning of paragraph (1)
of this Section).
(5) In case the Company or any Subsidiary not a Whole Subsidiary shall, by
dividend or otherwise, at any time distribute to holders of Common Stock
generally or to holders (other than the Company or Whole Subsidiary) of Capital
Stock of any Subsidiary not a Whole Subsidiary cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (4) of this
Section for which adjustment is made pursuant to such paragraph (4) of this
Section) in an aggregate amount that, together with (i) the aggregate amount of
any other distributions to holders of Common Stock generally and to holders
(other than the Company or Whole Subsidiary) of Capital Stock of any Subsidiary
not a Whole Subsidiary made exclusively in cash within the 12 months preceding
the date of payment of such distribution and in respect of which no conversion
price adjustment pursuant to this Section has been made and (ii) the aggregate
of any cash plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board Resolution) of
consideration payable in respect of all Tender Offers by the Company or a
Subsidiary not a Whole Subsidiary for all or any portion of the Company's Common
Stock consummated within the 12 months preceding the date of payment of such
distribution and in respect of which no conversion price adjustment pursuant to
paragraph
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(6) of this Section has been made, exceeds 12.5% of the product of the
current market price per share (determined as provided in paragraph (8) of
this Section) of the Common Stock on the date fixed for stockholders entitled
to receive such distribution multiplied by the number of shares of Common
Stock outstanding on such date, the conversion price shall be reduced so that
the same shall equal the price determined by multiplying the conversion price
in effect immediately prior to the effectiveness of the conversion price
reduction contemplated by this paragraph (5) by a fraction of which the
numerator shall be the current market price per share (determined as provided
in paragraph (8) of this Section) of the Common Stock on the date of such
effectiveness less the amount of cash so distributed applicable to one share
of Common Stock and the denominator shall be such current market price per
share of the Common Stock, such reduction to become effective immediately
prior to the opening of business on the later of (a) the day following the
date fixed for the payment of such distribution and (b) the date 20 days
after the notice relating to such distribution is given pursuant to Section
1206(a).
(6) In case a Tender Offer shall expire and such Tender Offer shall
involve an aggregate consideration having a fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution) on the last time (the "Expiration Time") tenders may be made
pursuant to such Tender Offer (as it may be amended) that, together with (i) the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such Tender Offer, of consideration payable
in respect of any Tender Offer by the Company or a Subsidiary not a whole
Subsidiary for all or any portion of the Company's Common Stock expiring within
the 12 months preceding the consummation of such Tender Offer and in respect of
which no conversion price adjustment pursuant to this paragraph (6) has been
made and (ii) the aggregate amount of any distributions to holders of the
Company's Common Stock generally and to holders (other than the Company or any
Subsidiary which is not a Whole Subsidiary) of capital stock of any Subsidiary
not a Whole Subsidiary made exclusively in cash within the 12 months preceding
the expiration of such Tender Offer and in respect of which no conversion price
adjustment pursuant to this Section has been made, exceeds 12.5% of the product
of the current market price per share (determined as provided in paragraph (8)
of this Section) of the Common Stock on the Expiration Time multiplied by the
number of shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time, the conversion price shall be reduced so that the same
shall equal the price determined by multiplying the conversion price in effect
immediately prior to the Expiration Time by a fraction of which the numerator
shall be (i) the product of the current market price per share (determined as
provided in paragraph (8) of this Section) of the Common Stock on the Expiration
Time multiplied by the number of shares of Common Stock outstanding (including
any tendered shares) on the Expiration Time minus (ii) the fair market value
(determined as aforesaid) of the aggregate consideration payable to holders of
Common Stock or holders of Capital Stock of a Subsidiary (other than the Company
or any Subsidiary which is not a Whole Subsidiary) based on the acceptance (up
to any maximum specified in
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the terms of the tender offer) of all shares validly tendered and not
withdrawn as of the Expiration Time pursuant to the Tender Offer referred to
in this paragraph in the definition of "Expiration Time" (the shares deemed
so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and the denominator shall be the product of (i) such current market
price per share (determined as provided in paragraph (8) of this Section) on
the Expiration Time multiplied by (ii) such number of outstanding shares on
the Expiration Time less the number of Purchased Shares, such reduction to
become effective immediately prior to the opening of business on the day
following the Expiration Time. "Tender Offer," wherever used herein, means a
tender offer by the Company or any Subsidiary not a Whole Subsidiary for
Common Stock.
(7) The reclassification of Common Stock into other securities, including
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 1211 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the Reference
Date" within the meaning of paragraph (4) of this Section), and (b) a
subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon which such
combination becomes effective," as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of paragraph
(3) of this Section). Rights or warrants issued by the Company to holders of
Common Stock generally entitling the holders thereof to subscribe for or
purchase shares of Common Stock, which rights or warrants (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not exercisable and (iii)
are also issued in respect of future issuances of Common Stock, in each case in
clauses (i) through (iii) until the occurrence of a specified event or events
("Trigger Event"), shall for purposes of this Section 1204 not be deemed issued
until the occurrence of the earliest Trigger Event.
(8) Unless otherwise expressly specified, for the purpose of any
computation under this paragraph and paragraphs (2), (4) and (5) of this
Section, the current market price per share of Common Stock on any date shall be
deemed to be the average of the daily Closing Prices for the 5 consecutive
Trading Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the date in question provided, however, that
(i) if the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (1), (2), (3), (4), (5) or (6) above occurs on or after
the 20th Trading Day prior to the day in question and prior to the "ex" date for
the issuance or distribution requiring such computation, the Closing Price for
each Trading Day prior to the "ex" date for such other event shall be adjusted
by multiplying such Closing Price by the same fraction by which the conversion
price is so required to be adjusted as a result of such other event, (ii) if the
"ex" date for any event (other than the issuance or distribution requiring such
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computation) that requires an adjustment to the conversion price pursuant to
paragraph (1), (2), (3), (4), (5) or (6) above occurs on or after the "ex"
date for the issuance or distribution requiring such computation and on or
prior to the day in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the fraction by which the conversion
price is so required to be adjusted as a result of such other event, and
(iii) if the "ex" date for the issuance or distribution requiring such
computation is on or prior to the day in question, after taking into account
any adjustment required pursuant to clause (ii) of this proviso, the Closing
Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value on the day in
question (as determined by the Board of Directors in a manner consistent with
any determination of such value for purposes of paragraph (4) or (5) of this
Section, whose determination shall be conclusive and described in a Board
Resolution) of the evidences of Indebtedness, shares of Capital Stock or
assets being distributed applicable to one share of Common Stock, as of the
close of business on the day before such "ex" date. For the purpose of any
computation under paragraph (6) of this Section, the current market price per
share of Common Stock, on any date shall be deemed to be the average of the
daily Closing Prices for the 5 consecutive Trading Days selected by the
Company commencing on or after the latest (the "Commencement Date") of (i)
the date 20 Trading Days before the date in question, (ii) the date of
commencement of the tender offer requiring such computation and (iii) the
date of the last amendment, if any, of such tender offer involving a change
in the maximum number of shares for which tenders are sought or a change in
the consideration offered, and ending not later than the Expiration Time of
such tender offer; PROVIDED, HOWEVER, that if the "ex" date for any event
(other than the tender offer requiring such computation) that requires an
adjustment to the conversion price pursuant to paragraph (1), (2), (3), (4),
(5) or (6) above occurs on or after the Commencement Date and prior to the
Expiration Time for the tender offer requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date, for such other event shall
be adjusted by multiplying such Closing Price by the same fraction by which
the conversion price is so required to be adjusted as a result of such other
event. For purposes of this paragraph, the term "ex" date, (i) when used with
respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the right to receive
such issuance or distribution, (ii) when used with respect to any subdivision
or combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after the
time at which such subdivision or combination becomes effective, and (iii)
when used with respect to any Tender Offer means the first date on which the
Common Stock trades regular way on such exchange or in such market after the
Expiration Time of such Tender Offer.
(9) The Company may, but shall not be required to, make such reductions in
the conversion price, in addition to those required by paragraphs (1), (2), (3),
(4), (5) and (6) of
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this Section, as it considers to be advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights shall
not be taxable to the recipients.
(10) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; PROVIDED, HOWEVER, that any adjustments which by reason of
this paragraph (10) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(11) Subject to paragraph (12) of this Section, the Company from time to
time may, if the Board of Directors of the Company determines such action to be
in the best interest of the Company and such action is not otherwise prohibited
by law, temporarily reduce the conversion price by any amount for any period of
at least 20 days, in which case the Company shall give at least 15 days' notice
of such reduction in the manner provided in Section 1205(a).
(12) Notwithstanding any other provision of this Section 1204, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock other than in connection with one or more reverse stock splits or
(ii) that would or does result in any adjustment in the conversion price that,
if made without giving effect to the previous sentence, would cause the
conversion price to be less than the then par value per share of the Common
Stock; PROVIDED, that the covenant in this sentence shall be suspended if within
10 days of determining in good faith that such action would result in such
adjustment (but not later than the Business Day following the effectiveness of
such adjustment), the Company gives a notice under Section 1103 and effects the
redemption referred to in such notice on the Redemption Date referred to
therein, but shall be retroactively reinstated if such notice or redemption does
not occur.
SECTION 1205. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in accordance
with Section 1204 and shall prepare a certificate signed by the Treasurer of the
Company setting forth the adjusted conversion price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
forthwith be filed (with a copy to the Trustee) at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 1002;
and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be required, and as
soon as practicable after it
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is required, such notice shall be mailed by the Company to all Holders at
their last addresses as they shall appear in the Security Register.
SECTION 1206. NOTICE OF CERTAIN CORPORATE ACTION.
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require a conversion price
adjustment pursuant to paragraph (5) of Section 1204; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares
of Capital Stock of any class or of any other rights (excluding rights,
warrants or options issuable in connection with any employee benefit plan);
or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or
of the sale or transfer of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall commence a
Tender Offer (or shall amend any such Tender Offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 1002, and shall
cause to be mailed to all Holders at their last addresses as they shall appear
in the Security Register, at least 20 days (or 10 days in any case specified in
clause (a), (b) or (e) above) prior to the applicable record, effective or
expiration date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or granting
of rights or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such Tender
Offer commenced, the date on which such Tender Offer
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is scheduled to expire unless extended, the consideration offered and the
other material terms thereof (or the material terms of any amendment thereto).
SECTION 1207. COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Securities.
SECTION 1208. TAXES ON CONVERSIONS.
The Company will pay any and all taxes that may be payable in respect to
the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1209. COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Securities will upon issue be fully paid and nonassessable
and, except as provided in Section 1208, the Company will pay all taxes, liens
and charges with respect to the issue thereof.
SECTION 1210. CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be delivered to the Trustee
to be canceled by or at the direction of the Trustee, which shall dispose of the
same as provided in Section 309.
SECTION 1211. PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR SALE OF ASSETS.
Subject to any applicable right of each Holder of Securities to cause the
Company to purchase his Securities upon a Repurchase Event pursuant to the
provisions of Article Fourteen of this Indenture, in case of any consolidation
of the Company with, or merger of the Company into, any other Person, any merger
of another Person into the Company (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock of the Company) or any sale or transfer of all or substantially
all of the assets of the Company, the Person formed by such
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consolidation or resulting from such merger or which acquires such assets, as
the case may be, shall execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Security then outstanding and
such Person shall have the right thereafter, during the period such Security
shall be convertible as specified in Section 1201, to convert such Security
only into the kind and amount of securities, cash and other property
receivable, if any, upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of the Company into which such
Security might have been converted immediately prior to such consolidation,
merger, sale or transfer, assuming such holder of Common Stock of the Company
(i) is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent Person"), or an Affiliate
of a constituent Person and (ii) failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer (provided that
if the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer is not the same for each share
of Common Stock of the Company held immediately prior to such consolidation,
merger, sale or transfer by other than a constituent Person or an Affiliate
thereof and in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this Section the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of
the nonelecting shares). Such supplemental indenture shall provide for
adjustments which, for events subsequent to the effective date of such
supplemental indenture, shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Article. The above provisions of
this Section shall similarly apply to successive consolidations, mergers,
sales or transfers.
SECTION 1212. COMPANY TO CAUSE REGISTRATION OF COMMON STOCK.
The Company covenants that if any shares of Common Stock, required to be
reserved for purposes of conversion of Securities hereunder, require
registration with or approval of any governmental authority under any federal or
state law, or listing upon any national securities exchange, before such shares
may be issued to and in the name of the Holder of such Security upon conversion,
the Company will in good faith and as expeditiously as possible endeavor to
cause such shares to be duly registered, approved or listed, as the case may be.
SECTION 1213. DISCLAIMER BY TRUSTEE OF RESPONSIBILITY FOR CERTAIN MATTERS.
Subject to Section 601, the Trustee shall not at any time be under any duty
or responsibility to any Holder of Securities to determine whether any facts
exist which may require any adjustment of the conversion price, or with respect
to the nature or extent of any such adjustment when made, or with respect to the
method employed, or herein or in any
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supplemental indenture provided to be employed, in making the same. The
Trustee shall not be accountable with respect to the validity, value, kind or
amount of any shares of Common Stock, or of any securities or property, which
may at any time be issued or delivered upon the conversion of any Security,
and it makes no representation with respect thereto. The Trustee shall not be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property
upon the surrender of any Security for the purpose of conversion or, subject
to Section 601, to comply with any of the covenants of the Company contained
in this Article. Each conversion agent other than the Company shall have the
same protection under this Section as the Trustee.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
SECTION 1301. AGREEMENTS TO SUBORDINATE BY COMPANY.
(a) The Company, for itself, its successors and assigns, covenants and
agrees, and each Holder of Securities, by his or its acceptance thereof,
likewise covenants and agrees, that payment by the Company of the principal of
and premium, if any, and interest on, or the Repurchase Price or Redemption
Price of, each and all of the Securities is hereby expressly subordinated, to
the extent and in the manner hereinafter set forth, in right of payment to the
prior payment in full of all Senior Indebtedness of the Company, and that each
Holder of Senior Indebtedness, whether now outstanding or hereafter created,
incurred or assumed, shall be deemed to have acquired Senior Indebtedness in
reliance upon the covenants and provisions contained in this Indenture and the
Securities.
SECTION 1302. DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND REORGANIZATION;
SUBROGATION.
Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, whether voluntary or
involuntary in bankruptcy, insolvency, reorganization or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Company or otherwise,
(a) the holders of all Senior Indebtedness of the Company shall be
entitled to receive payment in full in cash of the principal thereof, premium,
if any, and the interest and any other amounts due thereon before the Holders of
the Securities are entitled to receive any payment upon the principal of or
premium, if any, or interest or other amounts due on Indebtedness evidenced by
the Securities or on account of any other monetary claims, including such
monetary claims as may result from acceleration, rights of repurchase,
redemption or rescission, under or in respect of the Securities; and
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(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, by setoff or otherwise, to
which the Holders of the Securities or the Trustee would be entitled except for
the provisions of this Article Thirteen shall be paid by the liquidating trustee
or agent or other Person making such payment or distribution, whether a trustee
in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness of the Company or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness of the Company may
have been issued, ratably according to the aggregate amounts remaining unpaid on
account of the principal of, premium, if any, and interest on the Senior
Indebtedness of the Company, held or represented by each, to the extent
necessary to make payment in full in cash of all Senior Indebtedness of the
Company remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness of the Company; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the Holders of the Securities or by
the Trustee before all Senior Indebtedness of the Company is paid in full in
cash, such payment or distribution shall be paid over to the holders of such
Senior Indebtedness of the Company, or their representative or representatives
or to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness of the Company may have been issued,
ratably as aforesaid, for application to the payment of all Senior Indebtedness
of the Company remaining unpaid until all such Senior Indebtedness of the
Company shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness of
the Company.
Subject to the payment in full in cash of all Senior Indebtedness of the
Company, the Holders of the Securities shall be subrogated to the rights of the
holders of Senior Indebtedness of the Company to receive payments or
distributions of cash, property or securities of the Company applicable to
Senior Indebtedness of the Company until the principal of, premium, if any, and
interest on the Securities shall be paid in full and no such payments or
distributions to the Holders of the Securities of cash, property or securities
otherwise distributable to the Senior Indebtedness of the Company shall, as
between the Company, its creditors other than the holders of Senior Indebtedness
of the Company and the Holders of the Securities, be deemed to be a payment by
the Company to or on account of the Securities. It is understood that the
provisions of this Article Thirteen are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities, on the one
hand, and the holders of Senior Indebtedness of the Company, on the other hand.
Nothing contained in this Article Thirteen or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness of the Company and the
Holders of the Securities, the obligations of the Company, which are
unconditional and absolute, to pay to the Holders of the Securities the
principal of, premium, if any, and interest on the Securities as and when the
same shall
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become due and payable in accordance with their terms, or to affect the
relative rights of the Holders of the Securities and creditors of the Company
other than the holders of Senior Indebtedness of the Company, nor shall
anything herein or in the Securities prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article Thirteen of the holders of Senior Indebtedness of the Company in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy. Upon any payment or distribution of assets of
the Company referred to in this Article Thirteen, the Trustee, subject to the
provisions of Section 601, shall be entitled to rely upon a certificate of
the liquidating trustee or agent or other Person making any distribution to
the Trustee for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Senior Indebtedness of the
Company and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Thirteen.
The Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness of the Company. The Trustee shall not be liable
to any such holder if it shall pay over or distribute to or on behalf of Holders
of Securities or the Company moneys or assets to which any holder of Senior
Indebtedness of the Company shall be entitled by virtue of this Article
Thirteen.
If the Trustee or any Holder of Securities does not file a proper claim or
proof of debt in the form required in any proceeding referred to above prior to
30 days before the expiration of the time to file such claim in such proceeding,
then the holder of any Senior Indebtedness of the Company is hereby authorized,
and has the right, to file an appropriate claim or claims for or on behalf of
such Holder of Securities.
SECTION 1303. NO PAYMENT IN EVENT OF DEFAULT ON SENIOR INDEBTEDNESS.
No payment by the Company on account of principal, premium, if any, or
interest on the Securities, no payment in respect of the Redemption Price or any
Repurchase Price nor any other payment or distribution of any assets of the
Company of any kind or character, whether in cash, properties or securities,
shall be made by the Company on account of the Securities, if (i) there is an
event of default on or under any Senior Indebtedness with respect to the payment
of all or any portion of any Senior Indebtedness; or (ii) there shall exist a
non-monetary default with respect to any Senior Indebtedness; and, in such
event, such default shall not have been cured or waived or shall not have ceased
to exist, the Trustee and the Company shall have received written notice from
the holder of such Senior Indebtedness or if there is more than one holder of
such Senior Indebtedness from the trustee, representative or agent of the
holders of such Senior Indebtedness stating that no payment shall be made with
respect to the Securities and such default would permit the maturity of such
Senior Indebtedness to be accelerated, provided that no such default will
prevent any
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payment on or in respect of, the Securities for more than 180 days unless the
maturity of such Senior Indebtedness has been accelerated.
SECTION 1304. PAYMENTS PERMITTED.
Nothing contained in this Indenture or in any of the Securities shall (a)
affect the obligation of the Company to make, or prevent the Company from
making, at any time except as provided in Sections 1302 and 1303, payments of
principal of, premium, if any, or interest on the Securities which is scheduled
to be paid or (b) prevent the application by the Trustee of any moneys deposited
with it hereunder to the payment of or on account of the principal of, premium,
if any, or interest on the Securities, unless the Trustee shall have received at
its Corporate Trust Office written notice of any event prohibiting the making of
such payment more than one Business Day prior to the date fixed for such payment
except as provided in Section 1303 with respect to payments under Article
Eleven.
SECTION 1305. AUTHORIZATION TO TRUSTEE TO EFFECT SUBORDINATION.
Each Holder of Securities by his acceptance thereof authorizes and directs
the Trustee in his behalf to take such action as may be necessary or appropriate
to effectuate the subordination as provided in this Article Thirteen and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1306. NOTICES TO TRUSTEE.
Notwithstanding the provisions of this Article or any other provisions of
this Indenture, neither the Trustee nor any Paying Agent (other than the
Company) shall be charged with knowledge of the existence of any Senior
Indebtedness of the Company or of any event which would prohibit the making of
any payment of moneys to or by the Trustee or such Paying Agent, unless and
until the Trustee or such Paying Agent shall have received (in the case of the
Trustee, at its Corporate Trust Office) written notice thereof from the Company
or from the holder of any Senior Indebtedness of the Company or from the trustee
for any such holder, together with proof satisfactory to the Trustee of such
holding of Senior Indebtedness of the Company or of the authority of such
trustee; PROVIDED, HOWEVER, that if at least one Business Day prior to the date
upon which by the terms hereof any such moneys may become payable for any
purpose (including, without limitation, the payment of either the principal of,
premium, if any, or interest on any Security) the Trustee shall not have
received with respect to any such moneys the notice provided for in this Section
1306, then, anything herein contained to the contrary notwithstanding, the
Trustee shall have the full power and authority to receive such moneys and to
apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary, which may be received by it on or after
such one Business Day prior to such date. The Trustee shall be entitled to rely
on the delivery to it of a written notice by a Person representing himself to be
a holder of Senior Indebtedness of the Company (or a trustee on behalf of such
holder)
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to establish that such a notice has been given by a holder of Senior
Indebtedness of the Company or a trustee on behalf of any such holder. In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness of the Company to participate in any payment or distribution
pursuant to this Article Thirteen, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness of the Company held by such Person, the extent
to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article Thirteen and, if such evidence is not furnished, the Trustee may
defer any payment to such person pending judicial determination as to the
right of such Person to receive such payment.
SECTION 1307. TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS OF COMPANY.
The Trustee shall be entitled to all the rights set forth in this Article
Thirteen in respect of any Senior Indebtedness of the Company at any time held
by it to the same extent as any other holder of Senior Indebtedness of the
Company and nothing in Section 612 or elsewhere in this Indenture shall be
construed to deprive the Trustee of any of its rights as such holder.
SECTION 1308. MODIFICATION OF TERMS OF SENIOR INDEBTEDNESS OF COMPANY.
Any renewal or extension of the time of payment of any Senior Indebtedness
of the Company or the exercise by the holders of Senior Indebtedness of the
Company of any of their rights under any instrument creating or evidencing
Senior Indebtedness of the Company, including without limitation the waiver of
default thereunder, may be made or done all without notice to or assent from the
Holders of the Securities or the Trustee.
No compromise, alteration, amendment, modification, extension, renewal or
other change of, or waiver, consent or other action in respect of, any liability
or obligation under or in respect of, or of any of the terms, covenants or
conditions of any indenture or other instrument under which any Senior
Indebtedness of the Company is outstanding or of such Senior Indebtedness of the
Company, whether or not such release is in accordance with the provisions of any
applicable document, shall in any way alter or affect any of the provisions of
this Article Thirteen or of the Securities relating to the subordination
thereof.
SECTION 1309. CERTAIN CONVERSIONS NOT DEEMED PAYMENT.
For the purposes of this Article only, (1) the issuance and delivery of
Junior Securities upon conversion of Securities in accordance with Article
Twelve shall not be deemed to constitute a payment or distribution on account of
the principal of (or premium, if any) or interest on Securities or on account of
the purchase of other acquisition of Securities unless (i) such conversion would
result in a change of control for purposes of
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Section 382 of the Internal Revenue Code and the rules and regulations
promulgated thereunder and (ii) such change in control would result in the
loss of, or a limitation on, the annual availability of net operating losses
to the Company for tax purposes, and (2) the payment, issuance or delivery of
cash, property or securities (other than Junior Securities) upon conversion
of a Security shall be deemed to constitute payment on account of the
principal of such Security.
SECTION 1310. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article Thirteen shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; PROVIDED,
HOWEVER, that Section 1307 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
ARTICLE FOURTEEN
RIGHT TO REQUIRE REPURCHASE
SECTION 1401. RIGHT TO REQUIRE REPURCHASE.
In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option to
require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 1303, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Repurchase Event as
contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to
101% of the principal amount thereof, together with accrued and unpaid interest
to the Repurchase Date. Such right to require the repurchase of Securities
shall not continue after a discharge of the Company from its obligations with
respect to the Securities in accordance with Article Four.
SECTION 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT.
(a) On or before the 15th day after the Repurchase Event, the Company, or,
upon Company Request transmitted to the Trustee within 5 days of such Repurchase
Event, the Trustee (in the name and at the expense of the Company), shall give
notice of the occurrence of the Repurchase Event and of the repurchase right set
forth herein arising as a result thereof by first-class mail, postage prepaid,
to each Holder of the Securities at such Holder's address appearing in the
Security Register. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
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Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price, and
(4) the instructions a Holder must follow to exercise a repurchase right.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Repurchase
Event.
(b) To exercise the repurchase right, a Holder shall deliver to the
Company (or an agent designated by the Company for such purpose in the notice
referred to in (a) above) and to the Trustee on or before the fifteenth (15th)
day prior to the Repurchase Date (i) written notice of the Holder's exercise of
such right, which notice shall set forth the name of the Holder, the principal
amount of the Security or Securities (or portion of a Security) to be
repurchased, and a statement that an election to exercise the repurchased right
is being made thereby, and (ii) the Security or Securities with respect to which
the repurchase right is being exercised, duly endorsed for transfer to the
Company. Such written notice shall be irrevocable following the close of
business on the fifth (5th) day prior to the Repurchase Date; PROVIDED, HOWEVER
that the Company, in its sole and absolute discretion, may consent to the
withdrawal of any Securities after such date and prior to the Repurchase Date.
If the Repurchase Date falls between any Regular Record Date and the next
succeeding Interest Payment Date, Securities to be repurchased must be
accompanied by a check from the Holder of an amount equal to the interest
thereon which the registered Holder thereof is to receive on such Interest
Payment Date. Upon receipt of any such check, the Trustee shall forward such
check to the Company.
(c) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall on the Repurchase Date pay or cause to be
paid in cash to the Holder thereof the Repurchase Price of the Security or
Securities as to which the repurchase right had been exercised. In the event
that a repurchase right is exercised with respect to less than the entire
principal amount of a surrendered Security, the Company shall execute and
deliver to the Trustee and the Trustee shall authenticate for issuance in the
name of the Holder a new Security or Securities in the aggregate principal
amount of the unrepurchased portion of such surrendered Security.
SECTION 1403. DEPOSIT OF REPURCHASE PRICE.
On or before the Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and
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hold in trust as provided in Section 1003) an amount of
money, which shall be good funds on the Repurchase Date, sufficient to pay the
Repurchase Price of the Securities which are to be repurchased on the Repurchase
Date.
SECTION 1404. SECURITIES NOT REPURCHASED ON REPURCHASE DATE.
If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at a rate per annum borne
by such Security.
SECTION 1405. SECURITIES REPURCHASED IN PART.
Any Security which is to be repurchased only in part shall be surrendered
at any office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so surrendered.
SECTION 1406. CERTAIN DEFINITIONS.
For purposes of this Article:
(a) "Fundamental Change" means the occurrence of any transaction or event
in connection with which all or substantially all of the Common Stock shall be
exchanged for, converted into, acquired for or constitute the right to receive
consideration (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) which is not all or substantially all common stock which is (or, upon
consummation of or immediately following such transaction or event, will be)
listed on a national securities exchange or approved for quotation on the Nasdaq
Stock Market or any similar system of automated dissemination of quotations of
securities prices. A Fundamental Change shall not include any acquisition of
Common Stock by any person or group so long as it does not result in termination
of such listing or approval for quotation. For purposes of the definition of a
"Fundamental Change," (i) "substantially all of the Common Stock" shall mean at
least 85% of the Common Stock outstanding immediately prior to the transaction
or event giving rise to a Fundamental Change and, (ii) consideration shall be
"substantially all common stock" if at least 80% of the fair value (as
determined in good faith by the Board of Directors) of the total consideration
is attributable to common stock.
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(b) A "Repurchase Event" shall have occurred if a Fundamental Change shall
have occurred unless (i) the current market price of the Common Stock per share
(which shall be deemed to be the average of the daily Closing Prices of the
Common Stock for the 5 consecutive Trading Days before the Fundamental Change)
is at least equal to the conversion price per share of the Securities in effect
immediately preceding the time of such Fundamental Change or (ii) (A) the
consideration, in the transaction or event giving rise to a Fundamental Change,
to the holders of Common Stock consists of (w) cash, (x) securities (other than
common stock) that are, or immediately upon issuance will be, listed on a
national securities exchange or quoted on the Nasdaq National Market or similar
system of automated dissemination of quotations of securities prices and (y)
common stock that is, or immediately upon issuance will be, listed on a national
securities exchange or approved for quotation on the Nasdaq National Market or
similar system of automated dissemination of quotations of securities prices, or
(z) any combination of cash and such securities including common stock, and (B)
the aggregate fair market value of such consideration (which, in the case of
such securities, shall be equal to the average of the daily closing prices of
such securities during the 10 consecutive trading days commencing with the sixth
trading day following consummation of such transaction or event) is at least
105% of the conversion price of the Securities in effect on the date immediately
preceding the closing date of such transaction or event.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
AMRESCO, INC.
By
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First Interstate Bank of Texas, National Association
By
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EXHIBIT 5.1
[AMRESCO LETTERHEAD]
November 27, 1995
AMRESCO, INC.
1845 Woodall Rodgers Freeway
Dallas, Texas 75201
Re: Registration on Form S-3 of 4,600,000 shares of Common Stock, par
value $.05 per share, of AMRESCO, INC.
Gentlemen:
I am general counsel of AMRESCO, INC., a Delaware corporation (the
"Company"), in connection with the registration and sale of up to 4,600,000
shares of Common Stock, par value $0.05 per share, of the Company (the
"Shares"), comprised of up to 2,600,000 Shares (the "Company Shares") to be
issued and sold by the Company and up to 2,000,000 Shares (the "Selling
Shareholders' Shares") to be sold by the Selling Shareholders named in the
Underwriting Agreement (the "Selling Shareholders") pursuant to the Underwriting
Agreement (the "Underwriting Agreement") to be entered into among the Company,
the Selling Shareholders and The Robinson-Humphrey Company, Inc. and Piper
Jaffray Inc., as the Representatives of the several Underwriters to be named
in a schedule to the Underwriting Agreement (the "Underwriters").
I have examined such documents, records and matters of law as I have deemed
necessary for purposes of this opinion. Based on the foregoing, I am of the
opinion that (i) the Company Shares are duly authorized and, when issued and
delivered to the Underwriters pursuant to the Underwriting Agreement against
payment of the consideration therefor as provided therein, will be validly
issued, fully paid and nonassessable, and (ii) the Selling Shareholders' Shares
are duly authorized, validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, I have relied as to certain factual
matters upon certificates of officers of the Company, the Selling Shareholders
and public officials, and I have not independently checked or verified the
accuracy of the statements contained therein.
I hereby consent to the filing of this opinion as Exhibit 5.1 to
Pre-Effective Amendment No. 1 to Registration Statement No. 33-63683 on Form
S-3 filed by the Company to effect registration of the Shares under the
Securities Act of 1933, as amended, and to the reference to me under the
caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement.
Very truly yours,
/s/ L. KEITH BLACKWELL
L. Keith Blackwell
General Counsel and Secretary
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to
Registration Statement No. 33-63683 of AMRESCO, INC. on
Form S-3 of our report dated February 6, 1995 on AMRESCO, INC. and
of our report dated March 26, 1993 on AMRESCO (predecessor businesses),
included and incorporated by reference in the Annual Report on Form 10-K
of AMRESCO, INC. for the year ended December 31, 1994, and to the use of
our report dated February 6, 1995 on AMRESCO, INC. and of our report
dated March 26, 1993 on AMRESCO (predecessor businesses), appearing in
the Prospectus, which is part of this Registration Statement. We also
consent to the reference to us under the headings "Summary Financial and
Other Data" and "Independent Accountants" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
November 24, 1995
