<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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.................................. 4,830,000 shares (1) $13.19 $63,707,700
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $0.05
per share.................................. $21,968
</TABLE>
(1) Includes 630,000 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.
--------------------------
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 OCTOBER 25, 1995
[LOGO]
4,200,000 SHARES OF COMMON STOCK
--------------------
Of the 4,200,000 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 2,200,000 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 October 24, 1995, the last reported sale price of the Common Stock on
the Nasdaq National Market was $ 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 and the Selling
Shareholders, estimated at $350,000 and $10,000, respectively.
(3) The Company and certain Selling Shareholders have granted the Underwriters a
30-day option to purchase up to an aggregate of 630,000 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, Proceeds to
Company and Proceeds to Selling Shareholders 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
Stock 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: (i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and (ii) the Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1995, June 30, 1995 and September 30, 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 made hereby 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, Suite 1700, 1845 Woodall Rodgers Freeway,
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 (to be acquired in the Acacia Acquisition) 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 of the real estate pension advisory
business of Acacia Realty Advisors, Inc.
"ACC" means AMRESCO Capital Corporation, a subsidiary of the Company.
"ARCC" means AMRESCO Residential Credit Corporation, a subsidiary 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.
"CGW" means, collectively, CGW Southeast Partners I, L.P. and CGW Southeast
Partners II, L.P.
"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 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 and James P. Cotton, Jr.
"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, and (ii) the credit facility dated as of August 15, 1995, between
ACC and Residential 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 is in the initial stages of forming 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 over $34.0 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 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 (87%) 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, placement,
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 commerical 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, Holliday Fenoglio 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 also is in the
initial stages of forming 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:
- capitalizing on the Company's expertise in managing and resolving Asset
Portfolios for third parties by increasing the amount that the Company
invests for its own account in Asset Portfolios;
- 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............. 2,200,000 shares
Common Stock outstanding after the
Offering......................... 26,169,125 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 1,784,213 shares of Common Stock issuable upon exercise of
outstanding stock options, or 2,444,276 shares available for future grants
under the Company's stock option plans. See Note 11 of Notes to
Consolidated Financial Statements.
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............ $12,260,400 $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................................ -- -- 576 572 762
</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 Agreement contains 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 approximately
32.2% of the Common Stock then outstanding (approximately 29.3% if the
Underwriters' over-allotment option is exercised in full), and eight designees
of the Selling Shareholders will continue to be members of the Company's Board
of Directors. In addition, the Selling Shareholders are party to a voting
agreement with one other person whereby the parties thereto have agreed to vote
their shares of Common Stock for eight designees nominated by the parties to
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 26,169,125 shares
of Common Stock, assuming no exercise of the Underwriters' over-allotment
option. Of these shares, a total of 17,212,596, including the 4,200,000 shares
offered hereby, will be eligible for sale in the open market without
restriction. The remaining 8,956,529 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 8,189,137 shares
are currently eligible for sale in the public market pursuant to Rules 144 and
145. 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. 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."
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 September 13, 1995, the Company entered into a
definitive agreement, to acquire for approximately $16.6 million, the
third-party securitized, commercial mortgage loan Master Servicer and Special
Servicer businesses of EQS. At September 30, 1995, the EQS businesses being
acquired by the Company had contracts to service approximately $6.2 billion of
securitized commercial mortgage loans. This acquisition is expected to close in
October 1995. The Company believes that upon completion of the EQS Acquisition
it will be one of the largest servicers of securitized commercial mortgages in
the United States.
ACQUISITION OF ACACIA. On October 11, 1995, the Company entered into an
agreement to purchase for $4.5 million 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 $900.0 million in commercial real estate representing
approximately 50 properties with over nine million square feet of commercial
space and approximately 700 apartment units. Acacia is based in Boston and has
approximately 21 employees. The transaction is expected to close in November
1995.
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 $77.0 million at September 30, 1995).
For the nine months ended September 30, 1995, the weighted average interest rate
on indebtedness under the Company's bank credit agreement replaced 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, and other general
corporate purposes. The Company anticipates drawing an additional $16.6 million
under the Revolving Loan Agreement to finance the EQS Acquisition and $4.5
million to finance the purchase of Acacia. 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 October 24, 1995).............. 13.375 12.500 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 October 24, 1995, was
$13.125 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
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 and the Acacia
Acquisition 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 $ 125,222 $
Mortgage warehouse debt................................................. 5,693 5,693 5,693
Nonrecourse debt........................................................ 30,605 30,605 30,605
---------- ----------- -----------
Total debt............................................................ 140,520 161,520
---------- ----------- -----------
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 $ 290,544 $
---------- ----------- -----------
---------- ----------- -----------
</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 and the Acacia Acquisition.
(3) Gives effect to the offering of Common Stock by the Company and the
application of the net proceeds therefrom as described in "Use of
Proceeds."
(4) Does not include an aggregate of 1,784,213 shares of Common Stock reserved
for issuance upon the exercise of outstanding stock options and 2,444,276
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
<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............... $12,260,400 $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................................... -- -- 576 572 762
</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 $4.0
million in revenue relating to the inclusion in 1994 of operations from 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 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) 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 150
basis points. 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.
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 1995, 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 1995 by cash flows and borrowings under the Company's Revolving
Loan Agreement and Common Stock which is the subject of this offering. As a
result, interest expense in 1995 will be higher than the interest expense in
1994.
The Company believes that its funds on hand of $12.7 million at September
30, 1995, cash flow from operations, its unused borrowing capacity under its
credit lines 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 equity and/or
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 is in the initial stages of forming 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 over $34.0 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 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:
- capitalizing on the Company's expertise in managing and resolving Asset
Portfolios for third parties by increasing the amount that the Company
invests for its own account in Asset Portfolios;
- 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 $370.0 million (US$ Face Value)
Canadian Asset Portfolio.
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 1,619.1 53.3
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 29.2 700.3 23.0
--------- ----- --------- ----- --------- -----
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 $360.9 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....................................... 29 1,772
Owned by third parties:
Securitized mortgage pools (1)............................................. 3 426
Government and other owners................................................ 9 2,114
--
-----
Total under management................................................... 76 5,436
--
--
-----
-----
</TABLE>
-----------------------------
(1) Does not include 5 Asset Portfolios containing 586 assets 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 10% of the
aggregate purchase price. Asset Portfolios acquired solely by the Company have
ranged between $1.0 million (Face Value) and $40.0 million (Face Value), whereas
Asset Portfolios owned by the Company with co-investors have ranged up to $400.0
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 54% 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 overall
recovery. 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..................................... $ 467.9 24.3% 1,208 41.7%
West.......................................... 810.9 42.0 799 27.6
Southwest..................................... 227.7 11.8 453 15.6
Midwest....................................... 109.1 5.7 96 3.3
Southeast..................................... 260.3 13.4 220 7.6
Canada........................................ 53.2 2.8 120 4.2
--------- ----- ----- -----
Total....................................... $ 1,929.1 100.0% 2,896 100.0%
--------- ----- ----- -----
--------- ----- ----- -----
</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 cover Asset Portfolios that range in size from $100.0 million
to $400.0 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 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, 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 also has applied to
become a seller/servicer for the Fannie Mae multi-family 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 periods indicated, as
well as the number of offices at period end:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, (1) ENDED
------------------------------- SEPTEMBER 30,
1992 1993 1994 1995
--------- --------- --------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Origination:
Dollar volume........................................... $ 549.1 $ 883.9 $ 1,709.5 $ 1,585.0
Number of loans......................................... 99 123 294 255
Origination and underwriting fees earned.................. $ 4.8 $ 7.5 $ 14.2 $ 12.2
Number of offices......................................... 4 4 6 10
</TABLE>
-----------------------------
(1) Includes Holliday Fenoglio's originations, fees and offices prior to
its acquisition by the Company effective August 1, 1994.
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 294 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 September 13, 1995, the Company entered into an agreement to purchase a
substantial portion of the assets of EQS, consisting exclusively of EQS'
third-party loan pool servicing contracts. See "Recent Developments." EQS is a
major, Atlanta-based loan pool servicer which serves as a Master and Special
Servicer. The EQS Acquisition is expected to be completed in late October 1995.
At September 30, 1995, EQS was Master Servicer on approximately $5.9 billion
(Face Value), including $1.6 billion (Face Value) as full servicer, in loans
under the servicing contracts to be purchased in the EQS Acquisition.
32
<PAGE>
RESIDENTIAL MORTGAGE SECURITIZATION. Through its newly-formed subsidiary,
ARCC, 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.
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. Between 1991 and 1995, this group 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 pending 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 September 30, 1995, the Company and its subsidiaries employed
approximately 610 employees. Approximately 350 persons are employed in the
Company's asset management and resolution group, 160 persons are employed in the
Company's real estate mortgage banking and services group, 10 persons are
employed in its residential mortgage group, and 90 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 & Whalen 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 & Whalen 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 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 September 30, 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%
James P. Cotton, Jr. (2)(4)
Two Concourse Parkway, Suite 650
Atlanta, Georgia 30328.................... 964,636 4.0% 200,000 764,636 2.9%
OTHERS:
Gerald E. Eickhoff (2)
125 Clairmont Road, Suite 500
Decatur, Georgia 30030.................. 28,000 * -- 28,000 *
Robert L. Adair III (5).................. 346,206 1.4% -- 346,206 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).................. 157,493 * -- 157,493 *
John J. McDonough........................ 5,000 * -- 5,000 *
Bruce W. Schnitzer (7)................... 143,000 * -- 143,000 *
Douglas R. Urquhart (8).................. 191,310 * -- 191,310 *
All executive officers and directors as a
group (a total of 16 persons) (9)....... 11,339,433 45.6% 2,200,000 9,139,433 34.0%
</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 and Mr. Eickhoff may be deemed to beneficially own
all of the 10,078,802 (40.5%) shares subject to the Voting Agreement. After
the Offering, the total shares subject to the Voting Agreement will be
7,878,802 (29.3%). 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. Whalen, Jr., may also be
deemed to beneficially own the 5,860,248 shares and 3,225,918 shares held
of record by CGWI and CGWII, respectively, because they are managing
directors of the corporate general partner of each such limited partnership
and therefore share voting and investment power with respect to the shares
owned of record by it. In addition,
38
<PAGE>
each such limited partnership may be deemed to beneficially own the shares
owned by the other as a result of such common control. The data for these
entities under the columns "Shares to be Sold in Offering" and "After the
Offering" do not reflect any shares that might be sold pursuant to the
Underwriters over-allotment option.
(4) Includes 156,803 shares allocated to Mr. Cotton's account in the Company's
401(k) plan and 370,000 shares held in a charitable trust in which Mr.
Cotton retains a beneficial interest.
(5) Includes currently exercisable options to purchase 266,788 shares and
16,970 restricted shares with respect to which he has voting rights.
(6) Includes currently exercisable options to purchase 126,821 shares and
30,060 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 109,367 shares and 7,000
restricted shares with respect to which he has voting rights.
(9) Includes currently exercisable options to purchase 695,616 shares and 84,150
restricted shares with respect to which they have voting rights. See also
footnotes (2) and (3) above.
CERTAIN TRANSACTIONS WITH THE SELLING SHAREHOLDERS
GENERAL. The Selling Shareholders and Mr. 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 CGW and for four
designees collectively nominated by Messrs. Eickhoff and Cotton. The Voting
Agreement also provides that CGW and Messrs. Eickhoff and Cotton 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 CGW ceases to own at least 10% of the issued and outstanding
Common Stock or (ii) December 29, 1996.
CGW. Pursuant to the terms of certain agreements for consulting services
between Holdings and CGW in effect until December 31, 1996, CGW has 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 CGW, 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 CGW.
MR. JAMES P. COTTON, JR. BEI made a loan of approximately $214,000 to Mr.
Cotton on October 31, 1990, in connection with the termination of the BEI
Wealth-Op Plan, a deferred compensation arrangement formerly maintained by BEI
for the benefit of certain officers. In connection with the termination of such
arrangement, the life insurance policies maintained by BEI in order to fund its
obligations under such plan were surrendered, and the cash value thereof was
paid to BEI. Such cash amounts were then loaned by BEI to Mr. Cotton for a
five-year term at an interest rate of 8.5% per annum. The loan is secured by the
assignment of an insurance policy on the life of Mr. Cotton. During 1991, an
additional $27,000 was loaned to Mr. Cotton, on the same terms.
The Company assists Mr. Cotton in obtaining and maintaining a split dollar
life insurance policy. This policy provides aggregate death benefits of
approximately $10 million to Mr. Cotton's beneficiaries. In addition, the policy
provides death benefits payable to the Company of approximately $2,168,000 in
the event of Mr. Cotton's death during 1995. The Company has agreed to pay the
entire premium for Mr. Cotton's policy through the premium due for October 2006,
regardless of his employment status with the Company. The premiums during 1995
for Mr. Cotton's policies are $294,766. A portion of each such premium payment
is treated as compensation to Mr. Cotton and the remainder is treated as a loan
to the policy owner. The cash surrender value of the policy (as of September 30,
1995, approximately $1.8 million) has been assigned to the Company to secure the
repayment of such loan. The outstanding principal balance of the loan as of the
date hereof (after deduction of the cash surrender value) is approximately $1.6
million. In addition, any payment of the death benefits described above would be
applied to the repayment of such loan.
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 September 30, 1995, the Company had
issued and outstanding 24,169,125 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.
OTHER MATTERS
The Common Stock is listed on Nasdaq under the symbol "AMMB." SunTrust Bank,
Atlanta, Georgia, is the transfer agent and registrar for the Common Stock.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
26,169,125 shares of Common Stock (26,484,125 shares if the Underwriters'
over-allotment option is exercised in full), of which 8,956,529 shares
(8,641,529 shares if the Underwriters' over-allotment option is exercised in
full) will be "affiliate securities," as that term is defined in Rule 144 or 145
promulgated under the Securities Act. 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 September 30, 1995, options to purchase 1,784,213 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................................................................................. 4,200,000
--------------
--------------
</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) for a period of 180 days from the date of
this Prospectus without the prior written consent of the Representatives.
The Company and CGW have granted the Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase up to 315,000 and 315,000
additional shares of Common Stock, respectively (630,000 shares in the
aggregate), 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 4,200,000 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. In the event that the Underwriters exercise less than their full
over-allotment option, the number of shares to be sold pursuant thereto by the
Company and CGW shall be allocated equally between the two.
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
43
<PAGE>
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 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 (CPONTINUED)
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>
4,200,000 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.......................................................... *
Accounting Fees and Expenses............................................... *
Legal Fees and Expenses.................................................... *
Blue Sky Fees and Expenses (including counsel fees)........................ *
Fees of Transfer Agent and Registrar....................................... *
Miscellaneous Expenses..................................................... *
---------
Total.................................................................... $ *
---------
---------
</TABLE>
- ------------------------------
* To be supplied by amendment.
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.
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 (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.
5.1 Form of Opinion of L. Keith Blackwell, General Counsel of the Company, as to the validity of Common
Stock to be offered.
23.1 Form of 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>
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
II-2
<PAGE>
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 25th day of October,
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 25th day of October, 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
Registration Statement on behalf of each of the above-named officers and
directors of the Registrant on this 25th day of October, 1995, pursuant to
powers of attorneys executed on behalf of each of such officers and directors,
and contemporaneously filed herewith 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 (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.
5.1 Form of Opinion of L. Keith Blackwell, General Counsel of the Company, as to the
validity of Common Stock to be offered.
23.1 Form of 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>
<PAGE>
-------------------------
DRAFT
SMITH, GAMBRELL & RUSSELL
October 24, 1995
-------------------------
AMRESCO, INC.
COMMON STOCK
------------------------------------------------
UNDERWRITING AGREEMENT
------------------------------------------------
, 1995
THE ROBINSON-HUMPHREY COMPANY, INC.
PIPER JAFFRAY, INC.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Dear Sirs:
AMRESCO, Inc., a Delaware corporation (the "Company") proposes, subject to
the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I (the "Underwriters") an aggregate of 2,000,000 shares of
common stock, par value $.05 per share (the "Common Stock"), of the Company (the
"Company Firm Shares"), and the shareholders of the Company named in Schedule II
hereto (the "Selling Shareholders") propose, subject to the terms and conditions
stated herein, to sell to the Underwriters an aggregate of 2,830,000 shares of
Common Stock in the respective amounts set forth opposite their names in
Schedule II hereto (such shares together with the Company Firm Shares, the "Firm
Shares") and, at the election of the Underwriters, subject to the terms and
conditions stated herein, the Company and certain Selling Shareholders propose,
subject to the terms and conditions stated herein, to sell to the Underwriters
up to 630,000 additional shares of Common Stock (the "Optional Shares") (the
Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are collectively called the "Shares").
1. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-3 (File No. 33- )
with respect to the Shares, including a prospectus subject to
completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Act"), and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A)
if such registration statement, as it may have been amended, has
become effective under the Act and information has been omitted
therefrom in accordance with Rule 430A under the Act, a prospectus in
the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such
registration statement) with such changes or insertions as are
required by Rule 430A or permitted by Rule 424(b) under the Act and as
have been provided to and approved by the Representatives, or (B) if
such registration statement, as it may have been amended, has not
become effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment
has been provided to and approved by the Representatives prior to the
<PAGE>
execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended
at the time when it was or is declared effective, including (i) all
financial statements, schedules and exhibits thereto, (ii) all
documents incorporated by reference therein filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (iii) any
information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion
included in such registration statement or any amendment or post-
effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at the time
it was or is declared effective), including all documents incorporated
by reference therein filed under the Exchange Act; and the term
"Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required
to be so filed, such term means the prospectus included in the
Registration Statements in either case, including all documents
incorporated by reference therein filed under the Exchange Act. Any
reference in this Agreement to an "amendment or supplement" to any
Preliminary Prospectus or the Prospectus or an "amendment" to any
registration statement (including the Registration Statement) shall be
deemed to include any document incorporated by reference therein and
filed with the Commission under the Exchange Act after the date of
such Preliminary Prospectus, Prospectus or Registration Statement, as
the case may be. For purposes of the preceding sentence, any
reference to the "effective date" of an amendment to a registration
statement shall, if such amendment is effected by means of the filing
with the Commission under the Exchange Act of a document incorporated
by reference in such registration statement, be deemed to refer to the
date on which such document was so filed with the Commission. As used
herein, any reference to any statement or information as being "made",
"included", "contained", "disclosed", or "set forth" in any
Preliminary Prospectus, a Prospectus or any amendment or supplement
thereto, or the Registration Statement or any amendment thereto (or
other similar references) shall refer both to information and
statements actually appearing in such document as well as information
and statements incorporated by reference therein.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission or the
securities authority of any state or other jurisdiction. If the
Registration Statement has become effective under the Act, no stop
order suspending the effectiveness of the Registration Statement or
any part thereof has been issued and no proceeding for that purpose
has been instituted or threatened or, to the best knowledge of the
Company, contemplated by the Commission or the securities authority of
any state or other jurisdiction.
(iii) When any Preliminary Prospectus and any amendment or
supplement thereto was filed with the Commission it (A) contained all
statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the Act
and the rules and regulations of the Commission thereunder, and (B)
did not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. When the Registration Statement or any amendment
thereto was or is declared effective, and at each Time of Delivery (as
hereinafter defined), it (A) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and
the rules and regulations of the Commission thereunder, and (B) did
not or will not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or such amendment or supplement is not
required
-2-
<PAGE>
to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was
or is declared effective) and at each Time of Delivery, the
Prospectus, as amended or supplemented at any such time, (A) contained
or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made not misleading. The
foregoing provisions of this paragraph (iii) do not apply to
statements or omissions made in any Preliminary Prospectus and any
amendment or supplement thereto, the Registration Statement or any
amendment thereto, or the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you specifically
for use therein.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or
contracts and other documents are accurate and fairly present the
information required to be shown; and there are no statutes or legal
or governmental proceedings required to be described in the
Registration Statement or the Prospectus that are not described as
required and no contracts or documents of a character that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described and filed as required.
(v) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, and has full
power and authority (corporate and other) to own or lease its
properties and conduct its business as described in the Prospectus.
The Company has full power and authority (corporate and other) to
enter into this Agreement and to perform its obligations hereunder.
Each of the Company and its subsidiaries is duly qualified to transact
business as a foreign corporation and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, except
where the failure to so qualify would not have a material adverse
effect on the financial position, results of operations or business of
the Company and its subsidiaries.
(vi) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Stock contained in the Prospectus. None of
the issued shares of capital stock of the Company or its predecessors
or any of its subsidiaries has been issued or is owned or held in
violation of any preemptive rights of shareholders, and no person or
entity (including any holder of outstanding shares of capital stock of
the Company or its subsidiaries) has any preemptive or other rights to
subscribe for any of the Shares.
(vii) All of the issued shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and are owned beneficially by
the Company free and clear of all liens, security interests, pledges,
charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever. Other than the
subsidiaries listed on Exhibit 21 to the Registration Statement, the
Company does not own, directly or indirectly, any capital stock or
other equity securities of any other corporation or any partnership
interest in any partnership, joint venture or other association other
than as disclosed in the Prospectus.
-3-
<PAGE>
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any
such capital stock or any such convertible or exchangeable securities
or obligations, or (C) obligations of the Company or any such
subsidiary to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants,
rights or options.
(ix) Since the date of the most recent audited financial
statements included in the Prospectus and except as disclosed or
anticipated in the Prospectus, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as disclosed in
or contemplated by the Prospectus.
(x) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
disclosed or anticipated in the Prospectus, (A) neither the Company
nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, or entered into any transactions,
not in the ordinary course of business, that are material to the
Company and its subsidiaries, (B) the Company has not purchased any of
its outstanding capital stock or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock, (C) there
has not been any change in the capital stock, long-term debt or short-
term debt of the Company or any of its subsidiaries, and (D) there has
not been any material adverse change, or any development involving a
prospective material adverse change, in or affecting the financial
position, results of operations or business of the Company and its
subsidiaries, in each case other than as disclosed in or contemplated
by the Prospectus.
(xi) The Shares to be issued and sold by the Company have
been duly authorized and, when issued and delivered against payment
therefor as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectus; and the certificates evidencing the
Shares will comply with all applicable requirements of Delaware law.
(xii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has been
effectively waived) or any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(xiii) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly registered
under the Act or exempt from the registration requirements of the Act
by reason of Sections 3(b), 4(2) or 4(6) thereof and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities or blue
sky laws.
(xiv) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both would be, in
violation of its Articles of Incorporation or Bylaws or in default
under any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement
-4-
<PAGE>
or instrument to which the Company or any of its subsidiaries is a
party or to which any of their respective properties or assets are
subject.
(xv) The issue and sale of the Shares to be issued and sold
by the Company and the performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with, or (with or without the giving of notice or the passage of time
or both) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or to which
any of their respective properties or assets is subject, nor will such
action conflict with or violate any provision of the Articles of
Incorporation or Bylaws of the Company or any of its subsidiaries or
any statute, rule or regulation or any order, judgment or decree of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective
properties or assets.
(xvi) The Company and its subsidiaries have good and
marketable title in fee simple to all real property, if any, and good
title to all personal property owned by them, in each case free and
clear of all liens, security interests, pledges, charges,
encumbrances, mortgages and defects, except such as are disclosed in
the Prospectus or such as do not materially and adversely affect the
value of such property and do not interfere with the use made or
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company or any of its subsidiaries are held under valid,
subsisting and enforceable leases, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere
with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary.
(xvii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for the sale of
the Shares or the consummation of the transactions contemplated by
this Agreement, except the registration of the Shares under the Act
(which, if the Registration Statement is not effective as of the time
of execution hereof, shall be obtained as provided in this Agreement)
and such as may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of the Shares by the
Underwriters.
(xviii) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or threatened (or any basis therefor) in which
the Company or any of its subsidiaries is a party or of which any of
their respective properties or assets are the subject which, if
determined adversely to the Company or any such subsidiary, would
individually or in the aggregate have a material adverse effect on the
financial position, results of operations or business of the Company
and its subsidiaries. Neither the Company nor any of its subsidiaries
is in violation of, or in default with respect to, any statute, rule,
regulation, order, judgment or decree, except as described in the
Prospectus or such as do not and will not individually or in the
aggregate have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries,
and neither the Company nor any of its subsidiaries is required to
take any action in order to avoid any such violation or default.
(xix) Deloitte & Touche, L.L.P., who have certified certain
financial statements of the Company and its consolidated subsidiaries,
are and were during the periods covered by their reports included in
the Registration Statement and the Prospectus, independent public
-5-
<PAGE>
accountants as required by the Act and the Exchange Act and the
respective rules and regulations of the Commission thereunder.
(xx) The consolidated financial statements and schedules
(including the related notes) of the Company and its consolidated
subsidiaries included in the Registration Statement, the Prospectus or
any Preliminary Prospectus were prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved and fairly present the financial position and results
of operations of the Company and its subsidiaries, on a consolidated
basis, at the dates and for the periods presented. The selected
financial data set forth under the caption "Summary Consolidated
Financial and Other Data" in the Prospectus fairly present, on the
basis stated in the Prospectus, the information included therein.
(xxi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding
agreement of the Company enforceable against the Company in accordance
with its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws relating
to or affecting the enforcement of creditors' rights generally and to
general equitable principles.
(xxii) Neither the Company nor any of its officers, directors
or affiliates has (A) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares, or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Shares or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(xxiii) The Company has obtained for the benefit of the Company
and the Underwriters from each of its directors, officers and certain
Selling Shareholders a written agreement that for a period of 180 days
from the date of the Prospectus such director, officer or Selling
Shareholder will not, without your prior written consent, offer,
pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of (or announce any offer, pledge, sale, grant of an
option to purchase or other disposition), directly or indirectly, any
shares of Common Stock or securities convertible into, or exercisable
or exchangeable for, shares of Common Stock.
(xxiv) Neither the Company nor any of its subsidiaries, nor
any director, officer, agent, employee or other person associated with
or acting on behalf of the Company or any such subsidiary has,
directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity; made any unlawful payment to foreign
or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated
any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
(xxv) The operations of the Company and its subsidiaries with
respect to any real property currently leased or owned or by any means
controlled by the Company or any subsidiary (the "Real Property") are
in compliance with all federal, state, and local laws, ordinances,
rules, and regulations relating to occupational health and safety and
the environment (collectively, "Laws"), and the Company and its
subsidiaries have all licenses, permits and authorizations necessary
to operate under all Laws and are in compliance with all terms and
conditions of such licenses, permits and authorizations; neither the
Company nor any subsidiary
-6-
<PAGE>
has authorized, conducted or has knowledge of the generation,
transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous
constituent, toxic substance, pollutant, contaminant, petroleum
product, natural gas, liquefied gas or synthetic gas defined or
regulated under any environmental law on, in or under any Real
Property; and there is no pending or threatened claim, litigation or
any administrative agency proceeding, nor has the Company or any
subsidiary received any written or oral notice from any governmental
entity or third party that: (A) alleges a violation of any Laws by the
Company or any subsidiary; (B) alleges the Company or any subsidiary
is a liable party under the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 ET SEQ. or any
state superfund law; (C) alleges possible contamination of the
environment by the Company or any subsidiary; or (D) alleges possible
contamination of the Real Property.
(xxvi) The Company and its subsidiaries own or have the right
to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises,
trade secrets, proprietary or other confidential information and
intangible properties and assets (collectively, "Intangibles")
necessary to their respective businesses as presently conducted or as
the Prospectus indicates the Company or such subsidiary proposes to
conduct; to the best knowledge of the Company, neither the Company nor
any subsidiary has infringed or is infringing, and neither the Company
nor any subsidiary has received notice of infringement with respect
to, asserted Intangibles of others; and, to the best knowledge of the
Company, there is no infringement by others of Intangibles of the
Company or any of its subsidiaries.
(xxvii) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a comparable cost, except as
disclosed in the Prospectus.
(xxviii) Each of the Company and its subsidiaries makes and
keeps accurate books and records reflecting its assets and maintains
internal accounting controls which provide reasonable assurance that
(A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of the Company's consolidated financial statements in
accordance with generally accepted accounting principles and to
maintain accountability for the assets of the Company, (C) access to
the assets of the Company and each of its subsidiaries is permitted
only in accordance with management's authorization, and (D) the
recorded accountability for assets of the Company and each of its
subsidiaries is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xxix) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distributions on such subsidiary's capital stock,
from repaying to the Company any loans or advances to such subsidiary
or from transferring any of such subsidiary's property or assets to
the Company or any other subsidiary of the Company, except as
disclosed in the Prospectus.
(xxx) The Company and its subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be
filed by them and have paid all taxes shown as due on such returns as
well as all other taxes, assessments and governmental charges that are
due and payable; and no deficiency with respect to any such return has
been assessed or proposed.
-7-
<PAGE>
(xxxi) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
(xxxii) The conditions for use of a Registration Statement on
Form S-3 set forth in the General Instructions to Form S-3 have been
satisfied with respect to the Company and the transactions
contemplated by this Agreement and the Registration Statement.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
Selling Shareholder, severally as respects each Selling Shareholder
individually, and not jointly, represents and warrants to, and agrees with, each
of the several Underwriters and the Company that:
(i) Such Selling Shareholder has full right, power
(corporate and other) and authority to enter into this Agreement, the
Power of Attorney and the Custody Agreement (as hereinafter defined)
and to sell, assign, transfer and deliver to the Underwriters the
Shares to be sold by such Selling Shareholder hereunder; and the
execution and delivery of this Agreement, the Power of Attorney or the
Custody Agreement have been duly authorized by all necessary action of
such Selling Shareholder.
(ii) Such Selling Shareholder has duly executed and
delivered this Agreement, the Power of Attorney and the Custody
Agreement, and each constitutes the valid and binding agreement of
such Selling Shareholder enforceable against such Selling Shareholder
in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws relating to or affecting the enforcement of creditors'
rights generally and to general equitable principles.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for the sale of
the Shares to be sold by such Selling Shareholder or the consummation
of the transactions contemplated by this Agreement, the Power of
Attorney or the Custody Agreement, except the registration of such
Shares under the Act (which, if the Registration Statement is not
effective as of the time of execution hereof, shall be obtained as
provided in this Agreement) and such as may be required under state
securities or blue sky laws in connection with the offer, sale and
distribution of such Shares by the Underwriters.
(iv) The sale of the Shares to be sold by such Selling
Shareholder and the performance of this Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with,
or (with or without the giving of notice or the passage of time or
both) result in a breach of violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which such Selling Shareholder is a party or to which any of their
respective properties or assets is subject, nor will such action
conflict with or violate any provision of the Articles of
Incorporation or Bylaws or other governing instruments of such Selling
Shareholder or any of its subsidiaries or any statute, rule or
regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over such Selling
Shareholder or any of such Selling Shareholder's properties or assets.
(v) Such Selling Shareholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof), such Selling
Shareholder will have, good and valid title to the
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Shares to be sold by such Selling Shareholder hereunder, free and
clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting trusts,
equities or claims of any nature whatsoever; and, upon delivery of
such Shares against payment therefor as provided herein, good and
valid title to such Shares, free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature
whatsoever, will pass to the several Underwriters.
(vi) Neither such Selling Shareholder nor any of its
officers, directors or affiliates has (A) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares, or (B) since
the filing of the Registration Statement (l) sold, bid for, purchased
or paid anyone any compensation for soliciting purchases of, the
Shares or (2) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(vii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (B) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared effective and at
each Time of Delivery, it (A) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and
the rules and regulations of the Commission thereunder, and (B) did
not or will not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective), and at each Time of
Delivery, the Prospectus, as amended or supplemented at any such time,
(A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (vii) do not
apply to statements or omissions made in any Preliminary Prospectus,
the Registration Statement or any amendment thereto or the Prospectus
or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through you specifically for use therein.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Internal Revenue Code of 1986, as amended, with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the First Time of Delivery
(as hereinafter defined) a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
Each of the Selling Shareholders represents and warrants that certificates
in negotiable form representing all of the Shares to be sold by such Selling
Shareholder hereunder have been placed in custody under a Custody Agreement, in
the form heretofore furnished to and approved by you, duly executed and
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delivered by such Selling Shareholder to [INSERT NAME OF CUSTODIAN], as
custodian (the "Custodian"), and that such Selling Shareholder has duly executed
and delivered a Power of Attorney, in the form heretofore furnished to and
approved by you, appointing the persons indicated in Schedule II hereto as such
Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority
to execute and deliver this Agreement on behalf of such Selling Shareholder, to
determine the purchase price to be paid by the Underwriters to the Selling
Shareholders as provided in Section 2 hereof, to authorize the delivery of the
Shares to be sold by such Selling Shareholder hereunder, and otherwise to act on
behalf of such Selling Shareholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement.
Each of the Selling Shareholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the Attorneys-in-
Fact by the Power of Attorney, are irrevocable. Each of the Selling
Shareholders specifically agrees that the obligations of the Selling
Shareholders hereunder shall not be terminated by operation of law, whether by
the death or incapacity of any individual Selling Shareholder or, in the case of
an estate or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company and each Selling Shareholder agree, severally
and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company and
each Selling Shareholder, at a purchase price of $__________ per share, the
number of Firm Shares (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying the aggregate number of Shares to be sold by
the Company and the Selling Shareholders as set forth opposite their respective
names in Schedule II hereto by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule I hereto, and the denominator
of which is the aggregate number of Firm Shares to be purchased by the
Underwriters from the Company and the Selling Shareholders hereunder, and (b) in
the event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares that such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of the Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election in whole or in part from time to time up to 315,000 Optional
Shares, at the purchase price per share set forth in clause (a) in the paragraph
above, for the sole purpose of covering over-allotments in the sale of Firm
Shares. Any such election to purchase Optional Shares may be exercised by
written notice from you to the Company, given from time to time within a period
of 30 calendar days after the date of this Agreement and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as hereinafter defined) or, unless you
and the Company otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice. In the event you elect to purchase
all or a portion of the Optional Shares, the Company agrees to furnish or cause
to be furnished to you the certificates, letters and opinions, and to satisfy
all conditions, set forth in Section 7 hereof at each Subsequent Time of
Delivery (as hereinafter defined).
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3. OFFERING BY THE UNDERWRITERS. Upon the authorization by you of the
release of the Shares, the several Underwriters propose to offer the Shares for
sale upon the terms and conditions disclosed in the Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as The Robinson-Humphrey Company, Inc. may request
upon at least 48 hours' prior notice to the Company shall be delivered by or on
behalf of the Company and the Selling Shareholders to you for the account of
such Underwriter, against payment by such Underwriter on its behalf of the
purchase price therefor by official bank check or checks (payable in next day
funds) drawn on an Atlanta, Georgia bank, payable to the order of the Company
and the Custodian, as their interests may appear, in next-day available funds.
The closing of the sale and purchase of the Shares shall be held at the offices
of Smith, Gambrell & Russell, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326,
except that physical delivery of such certificates shall be made at the office
of The Depository Trust Company, 55 Water Street, New York, New York 10041. The
time and date of such delivery and payment shall be, with respect to the Firm
Shares, at 10:00 a.m., Atlanta time, on the fifth full business day after this
Agreement is executed or at such other time and date as you and the Company and
the Attorneys-in-Fact, on behalf of the Selling Shareholders, may agree upon in
writing, and, with respect to the Optional Shares, at 10:00 a.m., Atlanta time,
on the date specified by you in the written notice given by you of the
Underwriters' election to purchase all or part of such Optional Shares, or at
such other time and date as you and the Company may agree upon in writing. Such
time and date for delivery of the Firm Shares is herein called the "First Time
of Delivery," such time and date for delivery of any Optional Shares, if not the
First Time of Delivery, is herein called a "Subsequent Time of Delivery," and
each such time and date for delivery is herein called a "Time of Delivery." The
Company will make such certificates available for checking and packaging at
least 24 hours prior to each Time of Delivery at the office of The Depository
Trust Company, 55 Water Street, New York, New York 10041 or at such other
location in New York, New York specified by you in writing at least 48 hours
prior to such Time of Delivery.
5. (a) COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Underwriters:
(i) If the Registration Statement has been declared
effective prior to the execution and delivery of this Agreement, the
Company will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to by
you, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifth business day after the date on which the Registration
Statement is declared effective. The Company will advise you promptly of
any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the
Prospectus or the amendment referred to in the second sentence of Section
l(a)(i) hereof, any amendment or supplement to the Prospectus or any
amendment to the Registration Statement unless you have received a
reasonable period of time to review any such proposed amendment or
supplement and consented to the filing thereof and will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. Upon the request of the
Representatives or counsel for the Underwriters, the Company will promptly
prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, any amendments to the Registration Statement
or amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares by the several
Underwriters and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective as promptly as
possible. If required, the Company will file any amendment or supplement
to the Prospectus with the Commission in the manner and within the time
period required by Rule 424(b) under the Act. The
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<PAGE>
Company will advise the Representatives, promptly after receiving notice
thereof, of the time when the Registration Statement or any amendment
thereto has been filed or declared effective or the Prospectus or any
amendment or supplement thereto has been filed and will provide evidence to
the Representatives of each such filing or effectiveness.
(iii) The Company will advise you promptly after receiving
notice or obtaining knowledge of (A) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
any part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (B) the suspension of the qualification of the Shares for offer or
sale in any jurisdiction or of the initiation or threatening of any
proceeding for any such purpose, or (C) any request made by the Commission
or any securities authority of any other jurisdiction for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued,
to obtain the withdrawal thereof as promptly as possible.
(iv) If the delivery of a Prospectus relating to the Shares
is required under the Act at any time prior to the expiration of nine
months after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary during such same period to
amend or supplement the Prospectus or to file under the Exchange Act any
document incorporated by reference in the Prospectus to comply with the Act
or the Exchange Act or the respective rules and regulations thereunder, the
Company will prepare and notify you and upon your request (but at the
Company's expense) prepare and file with the Commission an amendment or
supplement to the Prospectus or any such incorporated document that
corrects such statement or omission or effects such compliance and will
furnish without charge to each Underwriter and to any dealer in securities
as many copies of such amended or supplemented Prospectus as you may from
time to time reasonably request.
(v) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for offering and
sale under the securities or blue sky laws of such jurisdictions as you may
request and will continue such qualifications in effect for as long as may
be necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction.
(vi) The Company will promptly provide you, without charge,
(i) three manually executed copies of the Registration Statement as
originally filed with the Commission and of each amendment thereto,
including all documents or information incorporated by reference therein,
(ii) for each other Underwriter a conformed copy of the Registration
Statement as originally filed and of each amendment thereto, without
exhibits but including all documents or information incorporated by
reference therein, and (iii) so long as a prospectus relating to the Shares
is required to be delivered under Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as you
may reasonably request.
(vii) As soon as practicable, but in any event not later than
the last day of the thirteenth month after the effective date of the
Registration Statement, the Company will make generally available to its
security holders an earnings statement of the Company and its subsidiaries,
if any, covering a period of at least 12 months beginning after the
effective date of the Registration
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Statement (which need not be audited) complying with Section 11(a) of the
Act and the rules and regulations thereunder.
(viii) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, without your prior written consent,
offer, pledge, issue, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of (or announce any offer, pledge, sale, grant of
an option to purchase or other disposition), directly or indirectly, any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for, shares of Common Stock, except as provided in Section 2
and except for the issuance of Common Stock upon the exercise of stock
options or warrants outstanding on the date of this Agreement to the extent
that such stock options or warrants are disclosed in the Prospectus.
(ix) During a period of five years from the effective date
of the Registration Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, without charge, (A) copies of
all reports or other communications (financial or other) furnished to
shareholders, (B) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange, and (C) such additional information
concerning the business and financial condition of the Company and its
subsidiaries, if any, as you may reasonably request.
(x) Neither the Company nor any of its officers, directors
or affiliates will (A) take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this Agreement,
any action designed to cause or to result in, or that might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of any of the
Shares, (B) sell, bid for, purchase or pay anyone any compensation for
soliciting purchases of, the Shares, or (C) pay or agree to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(xi) The Company will apply the net proceeds from the
offering in the manner set forth under "Use of Proceeds" in the Prospectus.
(xii) The Company will cause the Shares to be listed on the
National Association of Securities Dealers Automated Quotation National
Market System at each Time of Delivery.
(xiii) If at any time during the period beginning on the date
the Registration Statement becomes effective and ending on the later of (A)
the date 30 days after such effective date and (B) the date that is the
earlier of (1) the date on which the Company first files with the
Commission a Quarterly Report on Form 10-Q after such effective date and
(2) the date on which the Company first issues a quarterly financial report
to shareholders after such effective date, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in
your reasonable opinion the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates an amendment of or supplement to the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(xiv) The Company will file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as
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the delivery of a prospectus is required in connection with the offering,
sale and distribution of the Shares.
(b) COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
covenants and agrees with each of the Underwriters:
(i) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, such selling Shareholder will not, without your prior written
consent, offer, pledge, issue, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of (or announce any offer, pledge, sale,
grant of an option to purchase or other disposition), directly or
indirectly, any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock, except as provided
in Section 2.
(ii) Neither such Selling Shareholder (nor any of its
officers, directors or affiliates) will (A) take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of any of the Shares, (B) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares, or (C) pay to or
agree to pay any person any compensation for soliciting another to purchase
any other securities of the Company.
6. EXPENSES. The Company and each of the Selling Shareholders will pay
all costs and expenses incident to the performance of their respective
obligations under this Agreement in such proportions as they agree among
themselves, whether or not the transactions contemplated hereby are consummated
or this Agreement is terminated pursuant to Section 10 hereof, including,
without limitation, all costs and expenses incident to (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and, if applicable, filing
of the Registration Statement (including all amendments thereto), any
Preliminary Prospectus, the Prospectus and any amendments and supplements
thereto, this Agreement and any blue sky memoranda; (ii) the delivery of copies
of the foregoing documents to the Underwriters; (iii) the filing fees of the
Commission and the National Association of Securities Dealers, Inc. relating to
the Shares; (iv) the preparation, issuance and delivery to the Underwriters of
any certificates evidencing the Shares, including transfer agent's and
registrar's fees; (v) the qualification of the Shares for offering and sale
under state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto; (vi) any listing
of the Shares on the National Association Securities Dealers Automated Quotation
National Market System; and (vii) any expenses for travel, lodging and meals
incurred by the Company and any of its officers, directors and employees in
connection with any meetings with prospective investors in the Shares. In
addition, each Selling Shareholder will pay all costs and expenses incident to
(i) the fees, disbursements and expenses of counsel for such Selling
Shareholder, (ii) such Selling Shareholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and the Custodian, and (iii) the sale and
delivery of the Shares to be sold by such Selling Shareholder to the
Underwriters hereunder. It is understood, however, that, except as provided in
this Section, Section 8 and Section 10 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses relating to the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company and the Selling Shareholders
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company and the Selling
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Shareholders of their respective covenants and agreements hereunder, and to the
following additional conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have been declared effective not later than 11:00 a.m., Atlanta time, on
the date of this Agreement or such later date and/or time as shall have been
consented to by you in writing. The Prospectus and any amendment or supplement
thereto shall have been filed with the Commission Pursuant to Rule 424(b) within
the applicable time period prescribed for such filing and in accordance with
Section 5(a) of this Agreement; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceedings for that purpose shall have been instituted, threatened or, to the
knowledge of the Company and the Representatives, contemplated by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction.
(b) Smith, Gambrell & Russell, counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Company, the validity of the Shares
being delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of Delivery,
of Haynes and Boone, L.L.P., counsel for the Company in form and substance
satisfactory to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and to enter into this Agreement
and perform its obligations hereunder. The Company is duly qualified to
transact business as a foreign corporation and is in good standing under
the laws of each other jurisdiction in which it owns or leases property, or
conducts any business, so as to require such qualification, except where
the failure to so qualify would not have a material adverse effect on the
financial position, results of operations or business of the Company and
its subsidiaries.
(ii) Each of the subsidiaries of the Company has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus. Each such
subsidiary is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which
it owns or leases property, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries.
(iii) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued shares
of capital stock of the Company (including the Shares to be sold by the
Selling Shareholders) have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description of the Common
Stock contained in the Prospectus. None of the issued shares of capital
stock of the Company or its predecessors or any of its subsidiaries has
been issued or is owned or held in violation of any preemptive rights of
shareholders, and no person or entity (including any holder of outstanding
shares of capital stock of the Company or its subsidiaries) has any
preemptive or other rights to subscribe for any of the Shares.
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(iv) All of the issued shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned beneficially by the Company
free and clear of all liens, security interests, pledges, charges,
encumbrances, shareholders' agreements, voting trusts, defects, equities or
claims of any nature whatsoever. Other than the subsidiaries listed on
Exhibit 21 to the Registration Statement, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
other corporation or any ownership interest in any partnership, joint
venture or other association.
(v) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such subsidiary, (B) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any such
capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or any such subsidiary to
issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(vi) The Shares to be issued and sold by the Company have
been duly authorized and, when issued and delivered against payment
therefor as provided herein, will be validly issued and fully paid and
nonassessable and will conform to the description of the Common Stock
contained in the Prospectus; the certificates evidencing the Shares comply
with all applicable requirements of Delaware law; the Shares have been
listed on the National Association of Securities Dealers Automated
Quotation National Market System.
(vii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement (or any such right has been effectively waived) or
in any securities being registered pursuant to any other registration
statement filed by the Company under the Act.
(viii) All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times duly registered under
the Act or exempt from the registration requirements of the Act by reason
of Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the
subject of an available exemption from the registration requirements of the
applicable state securities or blue sky laws.
(ix) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both, would be, in
violation of its Articles of Incorporation or Bylaws or in default under
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any such subsidiary is a
party or to which any of their respective properties or assets is subject.
(x) The issue and sale of the Shares being issued at such
Time of Delivery and the performance of this Agreement and the consummation
of the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company or any such
subsidiary is a party or to which any of their respective properties or
assets is subject, nor will such action conflict with or violate any
provision of the Articles of Incorporation or Bylaws of the Company or any
of its subsidiaries or any statute, rule or regulation or any order,
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judgment or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets.
(xi) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good title to all
personal property owed by them, in each case free and clear of all liens,
security interests, pledges, charges, encumbrances, mortgages and defects
except such as are disclosed in the Prospectus or such as do not materially
and adversely affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease by
the Company or any of its subsidiaries are held by the Company or such
subsidiary under valid, subsisting and enforceable leases with such
exceptions as are disclosed in the Prospectus or are not material and do
not interfere with the use made and proposed to be made of such property
and buildings by the Company or such subsidiary.
(xii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with, any
court or governmental agency or body is required for the issue and sale of
the Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such as
may be required under state securities or blue sky laws in connection with
the offer, sale and distribution of the Shares by the Underwriters.
(xiii) To such counsel's knowledge and other than as disclosed
in or contemplated by the Prospectus, there is no litigation, arbitration,
claim, proceeding (formal or informal) or investigation pending or
threatened (or any basis therefor) in which the Company or any of its
subsidiaries is a party or of which any of their respective properties or
assets is the subject which, if determined adversely to the Company or any
such subsidiary, would individually or in the aggregate have a material
adverse effect on the financial position, results of operations or business
of the Company and its subsidiaries; and, to such counsel's knowledge,
neither the Company nor any of its subsidiaries is in violation of, or in
default with respect to, any statute, rule, regulation, order, judgment or
decree, except as described in the Prospectus, nor is the Company or any
subsidiary required to take any action in order to avoid any such violation
or default.
(xiv) This Agreement has been duly authorized, executed and
delivered by the Company.
(xv) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to
form in all material respects with the requirements of the Act and the
Exchange Act and the respective rules and regulations thereunder. The
descriptions in the Registration Statement and the Prospectus of statutes,
legal and governmental proceedings or contracts and other documents are
accurate and fairly present the information required to be shown; and such
counsel do not know of any statutes or legal or governmental proceedings
required to be described in the Registration Statement or Prospectus that
are not described as required or of any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement which
are not described and filed as required.
(xvi) The Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no
stop order suspending the effectiveness of the Registration Statement or
any
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part thereof has been issued and, to such counsel's knowledge, no
proceedings for that purpose have been instituted or threatened or are
contemplated by the Commission.
(xvii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, or any further amendment thereto made prior to such Time
of Delivery, on its effective date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, or any amendment or
supplement thereto made prior to such Time of Delivery, as of its issue date and
as of such Time of Delivery, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials.
(d) You shall have received an opinion, dated such Time of Delivery,
of Alston & Bird, counsel for the Selling Shareholders in form and substance
satisfactory to you and your counsel, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Shareholder, each of which is
enforceable against such Selling Shareholder in accordance with its terms
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(ii) This Agreement has been duly executed and delivered by
or on behalf of such Selling Shareholder; the sale of the Shares to be sold
by such Selling Shareholder at such Time of Delivery and the performance of
this Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with, or (with or without the giving of notice or the passage of
time or both) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
such Selling Shareholder is a party or to which any of its properties or
assets is subject, nor will such action conflict with or violate any
provision of the Articles of Incorporation or Bylaws or other governing
instruments of such Selling Shareholder or any statute, rule or regulation
or any order, judgment or decree of any court or governmental agency or
body having jurisdiction over such Selling Shareholder or any of such
Selling Shareholder's properties or assets.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with, any
court or governmental agency or body is required for the issue and sale of
the Shares being sold by such Selling Shareholder or the consummation of
the transactions contemplated by this Agreement, the Power of Attorney or
the Custody Agreement, except the registration of such Shares under the Act
and such as may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of such Shares by the
Underwriters.
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(iv) Such Selling Shareholder has, and immediately prior to
such Time of Delivery such Selling Shareholder will have, good and valid
title to the Shares to be sold by such Selling Shareholder hereunder, free
and clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever; and, upon delivery of such Shares against payment
therefor as provided herein, good and valid title to such Shares, free and
clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever, will pass to the several Underwriters.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company, the Selling Shareholders and public officials.
(e) You shall have received from Deloitte & Touche, L.L.P. letters
dated, respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement, dated
such effective date and the date of this Agreement) and each Time of Delivery,
in form and substance satisfactory to you, to the effect set forth in Annex I
hereto. In the event that the letters referred to in this Section 7(e) set
forth any changes, decreases or increases in the items specified in paragraph
___ of Annex I, it shall be a further condition to the obligations of the
Underwriters that (i) such letters shall be accompanied by a written explanation
by the Company as to the significance thereof, unless the Representatives deem
such explanation unnecessary, and (ii) such changes, decreases or increases do
not, in your sole judgment, make it impracticable or inadvisable to proceed with
the purchase, sole and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as of the
date of such letter.
(f) Since the date of the latest audited financial statements
included in the Prospectus, neither the Company nor any of its subsidiaries
shall have sustained (i) any loss or interference with their respective
businesses from fire, explosion, flood, hurricane or other calamity, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as disclosed in or contemplated by the
Prospectus, or (ii) any change, or any development involving a prospective
change (including without limitation a change in management or control of the
Company), in or affecting the position (financial or otherwise), results of
operations, net worth or business prospects of the Company and its subsidiaries,
otherwise than as disclosed in or contemplated by the Prospectus, the effect of
which, in either such case, is in your judgment so material and adverse as to
make it impracticable or inadvisable to proceed with the purchase, sale and
delivery of the Shares being delivered at such Time of Delivery as contemplated
by the Registration Statement, as amended as of the date hereof.
(g) Subsequent to the date hereof there shall not have occurred any
of the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices for
trading on such exchange, or in the Common Stock by the Commission or the
National Association of Securities Dealers Automated Quotation National Market
System; (ii) a moratorium on commercial banking activities in New York declared
by either federal or state authorities; (iii) any downgrading in the rating of
any debt securities of the Company by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance or
review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); or (iv) any outbreak or
escalation of hostilities involving the United States, declaration by the United
States of a national emergency or war or any other national or international
calamity or emergency if the effect of any such event specified in this clause
(iv) in your judgment makes it impracticable or inadvisable to proceed with the
purchase, sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as of the
date hereof.
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(h) The Company shall have furnished to you at such Time of Delivery
certificates of officers of the Company and certificates of the Selling
Shareholders, satisfactory to you, as to the accuracy of the representations and
warranties of the Company and such Selling Shareholders herein at and as of such
Time of Delivery, as to the performance by the Company and such Selling
Shareholders of all of their respective obligations hereunder to be performed at
or prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (f) of
this Section 7, and as to such other matters as you may reasonably request.
(i) The Shares shall be listed on the National Association of
Securities Dealers Automated Quotation National Market System.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement made by the Company in Section 1(a) of this Agreement;
(ii) any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Shares under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"); or (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or any Application a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein; PROVIDED FURTHER, HOWEVER, that the Company shall not be liable to any
Underwriter in respect of any Preliminary Prospectus to the extent that (i) the
Prospectus did not contain the untrue statement or alleged untrue statement or
omission or alleged omission giving rise to such loss, claim, damage, liability
or action, (ii) the Prospectus was not sent or given to the purchaser of the
Shares in question at or prior to the time at which the written confirmation of
the sale of such Shares was sent or given to such person, and (iii) the failure
to deliver such Prospectus was not the result of the Company's noncompliance
with its obligations under Sections 5(a) (ii) and 5(a) (vi) hereof. The Company
will not, without the prior written consent of each Underwriter, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding (or related cause of action or portion
thereof) in respect of which indemnification may be sought hereunder (whether or
not such Underwriter is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional release
of such Underwriter from all liability arising out of such claim, action, suit
or proceeding (or related cause of action or portion thereof).
(b) Each Selling Shareholder, severally as to each individual Selling
Shareholder and not jointly, agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or
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liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement made by such Selling
Shareholder in Section 1(b) of this Agreement; or (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or any Application or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that no such
Selling Shareholder shall be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein; PROVIDED FURTHER, HOWEVER, that no Selling Shareholder shall be liable
to any Underwriter in respect of any Preliminary Prospectus to the extent that
(i) the Prospectus did not contain the untrue statement or alleged untrue
statement or omission or alleged omission giving rise to such loss, claim,
damage, liability or action, (ii) the Prospectus was not sent to given to the
purchaser of the Shares in question at or prior to the time at which the written
confirmation of sale of such Shares was sent or given to such person, and (iii)
the failure to deliver such Prospectus was not the result of the Company's
noncompliance with its obligations under Sections 5(a) (ii) and 5(a) (vi)
hereof); PROVIDED FURTHER, HOWEVER, that such Selling Shareholder shall be
liable hereunder in any case only to the extent of the total net proceeds from
the offering (before deducting expenses) received by such Selling Shareholder
from the Underwriters for the Shares sold by such Selling Shareholder hereunder
unless any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any amendment or supplement thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and conformity with written information
furnished to the Company by such Selling Shareholder expressly for use therein,
in which case such limitation of the liability of such Selling Shareholder shall
not apply. No Selling Shareholder will, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding (or related cause
of action or portion thereof) in respect of which indemnification may be sought
hereunder (whether or not such Underwriter is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of such
claim, action, suit or proceeding (or related cause of action or portion
thereof).
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or any Selling Shareholder
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through you expressly for use therein; and will reimburse the Company and each
Selling Shareholder for any legal or other expenses reasonably incurred by the
Company or such Selling Shareholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
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(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party); PROVIDED, HOWEVER, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnified party shall have the right to select
separate counsel to defend such action on behalf of such indemnified party.
After such notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances, which
separate counsel shall be designated by the Representatives in the case of
indemnity arising under paragraphs (a) or (b) of this Section 8), or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. Nothing in this Section 8(d)
shall preclude an indemnified party from participating at its own expense in the
defense of any such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholders bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Selling Shareholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to
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this subsection (e) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. Further,
notwithstanding the provisions of this subsection (e), no Selling Shareholder
shall be required to contribute any amount that, together with the amount of any
damages which such Selling Shareholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, exceeds the limit on such Selling Shareholder's liability prescribed
by Section 8(b). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders under
this Section 8 shall be in addition to any liability which the Company or such
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and any Selling Shareholder and to each
person, if any, who controls the Company or any Selling Shareholder within the
meaning of the Act.
9. DEFAULT OF UNDERWRITERS.
(a) If any Underwriter defaults in its obligation to purchase Shares
at a Time of Delivery, you may in your discretion arrange for you or another
party or other parties to purchase such Shares on the terms contained herein.
If within thirty-six (36) hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, the Company and the Selling
Shareholders shall be entitled to a further period of thirty-six (36) hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company and the Selling Shareholders that you
have so arranged for the purchase of such Shares, or the Company and the Selling
Shareholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Shareholders shall have the right to
postpone a Time of Delivery for a period of not more than seven days in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus that in your opinion may thereby be made necessary. The cost of
preparing, printing and filing any such amendments shall be paid for by the
Underwriters. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of Shares to be purchased at such Time of Delivery, then
the Company and the Selling Shareholders shall have the right to require each
non-defaulting Underwriter to purchase the number
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of Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm Shares
or any Optional Shares in the sole discretion of the Representatives by notice
to the Company given prior to the First Time of Delivery or any Subsequent Time
of Delivery, respectively, in the event that (i) any condition to the
obligations of the Underwriters set forth in Section 7 hereof has not been
satisfied, or (ii) the Company or the Selling Shareholders shall have failed,
refused or been unable to deliver the Shares or to perform all obligations and
satisfy all conditions on their respective parts to be performed or satisfied
hereunder at or prior to such Time of Delivery, in either case other than by
reason of a default by any of the Underwriters. If this Agreement is terminated
pursuant to this Section 10(a), the Company and the Selling Shareholders, pro
rata in accordance with the number of Shares proposed to be sold hereunder will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by them
in connection with the proposed purchase and sale of the Shares. Neither the
Company nor any Selling Shareholder shall in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholders as provided in Section 9(a), the aggregate number
of such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, or if the Company and
the Selling Shareholders shall not exercise the right described in Section 9(b)
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase and
of the Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholders, except for the expenses to be borne by the Company, the
Selling Shareholders and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
any controlling person referred to in Section 8(e) or the Company, any Selling
Shareholder or any officer or director or controlling person of the Company or
any Selling Shareholder referred to in Section 8(e), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or telegraphed and
confirmed in writing to you in care of The Robinson-Humphrey Company, Inc., 3333
Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: Corporate Finance
Department (with a copy to Smith, Gambrell & Russell, 3343 Peachtree Road,
Atlanta, Georgia 30326, Attention: Robert C. Schwartz); if to any Selling
Shareholder shall be sufficient in all respects if delivered or sent by
registered mail to counsel for such Selling Shareholder at its address set forth
in
-24-
<PAGE>
Schedule II hereto; and if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed in writing to the Company at AMRESCO, Inc., 1845
Woodall Rogers Freeway, Dallas, Texas 75201, Attention: Robert H. Lutz, Jr.
13. REPRESENTATIVES. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you jointly or by The Robinson-Humphrey Company,
Inc. will be binding upon all the Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and inure solely
to the benefit of, the Underwriters, the Company and the Selling Shareholders
and to the extent provided in Sections 8 and 10 hereof, the officers and
directors and controlling persons referred to therein and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
provisions regarding conflicts of laws.
16. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
-25-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us one of the counterparts hereof, and upon the
acceptance hereof by The Robinson-Humphrey Company, Inc., on behalf of each of
the Underwriters, this letter will constitute a binding agreement among the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
AMRESCO, INC.
By:
-------------------------------------------
Name:
Title:
[INSERT NAMES OF THE SELLING SHAREHOLDERS]
By:
--------------------------------------------
[INSERT NAME]
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above at
Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, INC.
PIPER JAFFRAY, INC.
BY: THE ROBINSON-HUMPHREY COMPANY, INC.
By:
---------------------------------------
(Authorized Representative)
On behalf of each of the Underwriters
-26-
<PAGE>
SCHEDULE I
Number of
Optional
Total Shares to be
Number of Firm Purchase if
Shares to be Maximum Option
Underwriter Purchased Exercised
----------- -------------- --------------
The Robinson-Humphrey Company, Inc.
[INSERT NAMES OF OTHER
REPRESENTATIVES AND
UNDERWRITERS]
------ ------
Total ------ ------
------ ------
<PAGE>
SCHEDULE II
Total
Number of Firm
Shares to be
Selling Shareholders(1) Sold
- ----------------------- --------------
_________________________
(1) Each of the Selling Shareholders has executed and delivered a Power of
Attorney appointing _______________ and ________________ such Selling
Shareholder's Attorneys-in-Fact and is represented by Alston & Bird.
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Deloitte & Touche,
L.L.P. shall furnish letters to the Underwriters to the effect that:
(i) they are independent public accountants with respect to the
Company and its consolidated subsidiaries within the meaning the Act and
the Exchange Act and the respective applicable published rules and
regulations thereunder;
(ii) in their opinion, the consolidated financial statements and
schedules audited by them and included in the Prospectus and the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations thereunder;
(iii) the financial statements of the Company as of and for the
______ period ended [insert date] were reviewed by them in accordance with
the standards established by the American Institute of Certified Public
Accountants and based upon their review they are not aware of any material
modifications that should be made to such financial statements for them to
be in conformity with generally accepted accounting principles, and such
financial statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable rules and
regulations thereunder;
(iv) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries responsible for financial
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus do not comply in form in all
material respects with the applicable accounting requirements of the
Act and the Exchange Act and the respective related published rules
and regulations thereunder or are not in conformity with generally
accepted principles applied on the basis substantially consistent with
that of the audited consolidated financial statements included in the
Registration Statement and the Prospectus;
(B) as of a specified date not more than 5 days prior to the
date of such letter, there were any changes in the capital stock
(other than the issuance of capital stock upon exercise of options
which were outstanding on the date of the latest balance sheet
included in the Prospectus) or any increase in inventories or the
long-term debt or short-term debt of the Company and its subsidiaries,
or any decreases in net current assets or net assets or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (B) there were any decreases in net sales or operating
income or the total or per share amounts of net income or other items
specified by
<PAGE>
the Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
increases or decreases which the Prospectus discloses have occurred or
may occur which are described in such letter; and
(v) In addition to the audit referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraph (iv) above, they
have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, included in the Registration Statement
and the Prospectus, or which appear in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its subsidiaries
and have found them to be in agreement.
References to the Registration Statement and the Prospectus in this Annex I
shall include any amendment or supplement thereto at the date of such letter.
-2-
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT 4.4
NUMBER [AMRESCO LOGO] SHARES
C
AMRESCO, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 031909 10 4
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.05 EACH OF THE COMMON STOCK OF
AMRESCO, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation of the Corporation and all amendments thereof to all of which the holder by the
acceptance hereof assents. This certificate is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the seal of the Corporation and the signatures of its duly authorized officers.
Dated
[Corporate Seal]
/s/ L. Keith Blackwell /s/ Robert L. Adair III
Secretary President
Countersigned And Registered:
TRUST COMPANY BANK
(Atlanta, Georgia) Transfer Agent
By And Registrar
Authorized Signature
AMERICAN BANK NOTE COMPANY.
</TABLE>
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ___________Custodian____________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right
of survivorship and not as Act ______________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE________________________________________________
______________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, __________________________
_______________________________________
SIGNATURE(S) GUARANTEED:_______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
EXHIBIT 5.1
DRAFT OF OCTOBER 24, 1995
___________ ___, 1995
AMRESCO, INC.
1845 Woodall Rodgers Freeway
Dallas, Texas 75201
Re: Registration on Form S-3 of 4,830,000 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 4,830,000
shares of Common Stock, par value $0.05 per share, of the Company (the
"Shares"), comprised of up to 2,315,000 Shares (the "Company Shares") to be
issued and sold by the Company and up to 2,515,000 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 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
Registration Statement No. 33- 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,
L. Keith Blackwell
General Counsel and Secretary
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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
October 25, 1995
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Robert H. Lutz, Jr., Robert L. Adair III
and L. Keith Blackwell, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, acting alone, to sign, execute and file
with the Securities and Exchange Commission and any state securities regulatory
board or commission any documents relating to the proposed issuance and
registration of the securities offered pursuant to the Registration Statement of
AMRESCO, INC. on Form S-3 under the Securities Act of 1933, including any
amendment or amendments relating thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he might or could do
if personally present, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done.
SIGNATURE TITLE DATE
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert H. Lutz, Jr. Chairman of the Board and October 25, 1995
- ------------------------------- Chief Executive Officer
Robert H. Lutz, Jr.
/s/ Robert L. Adair III Director, President and October 25, 1995
- ------------------------------- Chief Operating Officer
Robert L. Adair III
/s/ Barry L. Edwards Executive Vice President and October 25, 1995
- -------------------------------- Chief Financial Officer
Barry L. Edwards (Principal Financial Officer)
/s/ James P. Cotton, Jr. Director October 25, 1995
- --------------------------------
James P. Cotton, Jr.
/s/ Richard L. Cravey Director October 25, 1995
- --------------------------------
Richard L. Cravey
/s/ Gerald E. Eickhoff Director October 25, 1995
- -------------------------------
Gerald E. Eickhoff
Director October ___, 1995
- --------------------------------
William S. Green
/s/ Amy J. Jorgensen Director October 25, 1995
- --------------------------------
Amy J. Jorgensen
/s/ John J. McDonough Director October 25, 1995
- -------------------------------
John J. McDonough
/s/ Bruce W. Schnitzer Director October 25, 1995
- -------------------------------
Bruce W. Schnitzer
/s/ Ronald B. Kirkland Vice President and Chief October 25, 1995
- -------------------------------- Accounting Officer
Ronald B. Kirkland (Principal Accounting Officer)
</TABLE>
2
