AMRESCO INC, S-3/A, 1996-01-16

AMRESCO INC
S-3/A, 1996-01-16
INVESTMENT ADVICE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1996

REGISTRATION NO. 33-65329

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

AMRESCO, INC.
(Exact name of registrant as specified in its charter)

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<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:

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MICHAEL M. BOONE PATRICK DELANEY
HAYNES AND BOONE, L.L.P. LINDQUIST & VENNUM, P.L.L.P.
3100 NATIONSBANK PLAZA 4200 IDS CENTER
901 MAIN STREET MINNEAPOLIS, MINNESOTA 55402
DALLAS, TEXAS 75202-3789 (612) 371-3211
(214) 651-5000
</TABLE>

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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. / /

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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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.
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SUBJECT TO COMPLETION, DATED JANUARY 16, 1996

PROSPECTUS
DATED , 1996
$50,000,000

[LOGO]

% SENIOR SUBORDINATED NOTES DUE 2003

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The % Senior Subordinated Notes due 2003 (the "Notes") offered hereby are
senior subordinated obligations of AMRESCO, INC. (the "Company"). Interest on
the Notes is payable on the fifteenth day of each month, commencing March 15,
1996 and will accrue at the rate of % per annum until maturity or earlier
redemption. The Notes mature on January 15, 2003. The Notes are not redeemable
prior to January 15, 2001. However, the Notes are redeemable thereafter at the
option of the Company at par plus accrued interest upon not less than 30 nor
more than 60 days' notice to the holders thereof. The Notes will be issued only
in fully registered form and in denominations of $1,000 and integral multiples
thereof. The Notes will be unsecured general obligations of the Company and will
be subordinated to all existing and future "Senior Indebtedness," as defined, of
the Company. As of December 31, 1995, Senior Indebtedness of the Company and its
subsidiaries totaled approximately $281.0 million. The Notes will also be
structurally subordinated in right of payment to all other liabilities of the
Company's subsidiaries, which at December 31, 1995, totaled approximately $28.6
million. The shares of capital stock, the Company's 8% Convertible Debentures
due 2005, and any other indebtedness that the Company may issue which is
subordinated to the Notes by its terms will be junior to the Notes. The Company
will redeem, at par plus accrued interest to the date of redemption, Notes
tendered by the personal representative or surviving joint tenant or tenant by
the entirety of a deceased holder, after presentation of necessary documents, up
to an annual maximum of $30,000 per holder and subject to a maximum aggregate of
$300,000 during any twelve month period. The Company has made application to
list the Notes on the New York Stock Exchange. See "Description of the Notes."

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.

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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.

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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Note.................................. % % %
Total (3)................................. $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting offering expenses payable by the Company estimated at
$300,000.

(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to an additional
$7,500,000 aggregate principal amount of Notes, at the Price to Public less
Underwriting Discount, solely for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."

------------------------

The Notes are offered by the Underwriters named herein, subject to prior sale
and when, as and if delivered to and accepted by the Underwriters. It is
expected that delivery of certificates for the Notes will be made at the offices
of Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1996.

PIPER JAFFRAY INC.

J.C. BRADFORD & CO.

MORGAN KEEGAN & COMPANY, INC.

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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 Company's
Common Stock is listed on the Nasdaq National Market and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Notes. 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) Annual Report on Form 10-K for the year ended December 31,
1994, (ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, (iv)
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, as
amended by its Form 10-Q/A No. 1 dated October 25, 1995, (v) Current Report on
Form 8-K dated November 22, 1995 and (vi) Current Report on Form 8-K dated
December 13, 1995.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
herein. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed superseded or modified for
purposes of this Prospectus to the extent that a statement contained herein (or
in any other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Company, 1845 Woodall Rodgers Freeway, Suite 1700,
Dallas, Texas 75201, Attention: L. Keith Blackwell, General Counsel and
Secretary. Telephone requests may be directed to L. Keith Blackwell, General
Counsel and Secretary of the Company at (214) 953-7700.

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[Map of the United States showing the locations of the Company's Asset
Acquisition and Resolution offices, Mortgage Banking offices, Real Estate
Pension Advisory office and Corporate Headquarters, and a listing of
International Offices in Toronto and London.]

The Company intends to furnish holders of the Notes with (i) annual reports
containing audited financial statements and (ii) quarterly reports for each of
the first three quarters of each fiscal year, which will contain unaudited
summary financial information.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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CERTAIN DEFINITIONS

The following are certain defined terms used in this Prospectus:

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"ACACIA" means Acacia Realty Advisors, Inc.

"ACACIA ACQUISITION" means the acquisition by the Company of the real estate
pension advisory business of Acacia Realty Advisors, Inc.

"ACC" means AMRESCO Capital Corporation, a subsidiary of the Company.

"AMRESCO RESIDENTIAL" means, collectively, ARMC and AMRESCO Residential Credit
Corporation, subsidiaries of the Company.

"ARMC" means, AMRESCO Residential Mortgage 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.

"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.

"CONVERTIBLE SUBORDINATED DEBENTURES" means the Company's 8% Convertible
Subordinated Debentures due 2005.

"CONVERTIBLE SUBORDINATED DEBENTURE INDENTURE" means that certain Indenture
dated November 27, 1995, governing the Convertible Subordinated Debentures.

"CREDIT AGREEMENTS" means the Revolving Loan Agreement and the Warehouse
Agreements.

"EQS" means, collectively, EQ Services, Inc. and Equitable Real Estate
Investment Management, Inc.

"EQS ACQUISITION" means the acquisition by the Company of the third-party
securitized, commercial mortgage loan Master Servicer and Special Servicer
business of EQS.

"FACE VALUE" means, with respect to any loan or Asset Portfolio, the aggregate
unpaid principal balance of a loan or loans.

"FANNIE MAE" means the Federal National Mortgage Association.

"FDIC" means the Federal Deposit Insurance Corporation.

"FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.

"HOLDINGS" means AMRESCO Holdings, Inc.

"HOLLIDAY FENOGLIO" means Holliday Fenoglio, Inc., a subsidiary of the Company.

"MASTER SERVICER" means an entity which provides administrative services to
securitized pools of mortgage-backed securities.
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"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.

"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.

"OFFERING" means the offering of Notes made hereby.

"REVOLVING LOAN AGREEMENT" means the Revolving Loan Agreement dated as of
September 29, 1995 and as subsequently amended, 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.

"SPECIAL SERVICER" means an entity which provides asset management and
resolution services for non-performing or under-performing loans within a
pool of performing loans and/or mortgages.

"WAREHOUSE" means a type of lending arrangement whereby loans funded and held
for sale are financed by financial institutions or institutional lenders on
a short-term basis.

"WAREHOUSE AGREEMENTS" means, collectively, (i) the $25.0 million credit
facility dated as of April 28, 1995, among ACC, the Company and NationsBank
of Texas, (ii) the credit facility dated as of August 15, 1995, between ACC
and Residential Funding Corporation and (iii) the $150.0 million credit
facility dated as of November 1, 1995 and as subsequently amended, between
ARMC and Prudential Securities Realty Funding Corporation.
</TABLE>

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SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED 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 NOTES.

THE COMPANY

GENERAL. The Company is a leading specialty financial services company
engaged primarily in Asset Portfolio acquisition and resolution and mortgage
banking. The Asset Portfolio acquisition and resolution business involves
acquiring at a substantial discount to Face Value and managing and resolving
Asset Portfolios to maximize cash recoveries. The Company manages and resolves
Asset Portfolios acquired by the Company alone, acquired by the Company with
co-investors and owned by third-parties. The Company's mortgage banking business
involves the origination, placement and servicing of commercial real estate
mortgages. In addition, the Company has formed a residential mortgage banking
business through which the Company will purchase and securitize portfolios of
residential mortgages of borrowers who do not qualify for conventional loans and
whose borrowing needs are not being met by traditional financial institutions.
The Company has also entered the real estate pension advisory business through
the purchase of substantially all of the advisory contracts of Acacia.

HISTORY. The Company is the product of the December 1993 merger of two
Asset Portfolio management and resolution service companies: BEI and Holdings.
Holdings was the former Asset Portfolio management and resolution unit of
NationsBank of Texas, which was created in 1988 in connection with NationsBank
Corporation's acquisition from the FDIC of certain assets and liabilities of the
collapsed First RepublicBank. BEI, a publicly-held company that was in the real
estate and asset management services businesses, began providing asset
management and resolution services to the RTC in 1990. BEI also participated in
certain non-real estate service businesses, which were not retained after the
BEI Merger. The BEI Merger created one of the largest Asset Portfolio management
and resolution service companies in the United States. Since 1987, the Company
and its predecessors have managed approximately $30.0 billion (Face Value) of
Asset Portfolios.

DEVELOPMENT OF BUSINESS STRATEGY. The Company's original business of
managing and resolving Asset Portfolios for third parties developed as a result
of the takeover of failed thrifts and banks by the federal government's deposit
insurance agencies in the late 1980s. Due to the substantial volume of
under-performing and non-performing loans and foreclosed assets (much of it
commercial real estate loans and properties) and a lack of sufficient internal
staffing, the RTC and FDIC turned to private contractors to assist in the
management and resolution of Asset Portfolios.

In early 1994, the Company made the strategic decision to diversify its
business lines and to reduce the Company's dependence on asset management and
resolution contracts with governmental agencies and certain other entities. As a
result, the Company shifted its strategic focus in order to take advantage of
business opportunities in the specialty finance markets that capitalize on the
Company's competitive strengths and reputation within its core business.

ASSET ACQUISITION AND RESOLUTION BUSINESS. The Company manages and resolves
Asset Portfolios acquired at a substantial discount to Face Value by the Company
alone and by the Company with co-investors. The Company also resolves Asset
Portfolios owned by third parties. Asset Portfolios generally include secured
loans of varying qualities and collateral types. The resolution of an Asset
Portfolio typically involves either (i) negotiating with debtors a discounted
payoff, which may be accomplished through a refinancing by the obligor with a
lender other than the Company or (ii) foreclosure and sale of the collateral.
Since the Company's objective is to resolve an Asset Portfolio as quickly as
practicable, the Company's policy is to not extend credit to debtors by
advancing cash or by renewing and extending their obligations. As of September
30, 1995, the Company's management and resolution service contracts with
third-parties (including Asset Portfolios owned by the Company with
co-investors) covered Asset Portfolios having an aggregate

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Face Value of $2.7 billion of which $411.3 million was represented by
securitized commercial mortgage pools with respect to which the Company is the
named Special Servicer. At September 30, 1995, the Company's total investment in
Asset Portfolios was $175.8 million compared to $70.9 million at December 31,
1994 and $48.8 million at September 30, 1994. For the nine month period ended
September 30, 1995 and the fiscal year ended December 31, 1994, $54.3 million
(78%) and $139.1 million (88%) respectively of the Company's gross revenues were
attributable to its Asset Portfolio acquisition and resolution business.

MORTGAGE BANKING BUSINESS. The Company performs a wide range of commercial
mortgage banking services, including originating, underwriting, placing, selling
and servicing of commercial real estate loans through its Holliday Fenoglio and
ACC mortgage banking units. Holliday Fenoglio was one of the largest mortgage
bankers in the United States in 1994 (based on origination volume) and primarily
serves commercial real estate developers and owners by originating commercial
real estate loans. Holliday Fenoglio primarily targets developers and owners of
higher-quality commercial and multi-family real estate properties. Holliday
Fenoglio originates prospective borrowers through its own commission-based
mortgage bankers in its offices located in Atlanta, Boca Raton, Buffalo, Dallas,
Houston, New York City and Orlando. The loans originated by Holliday Fenoglio
generally are funded by institutional lenders, primarily insurance companies,
with Holliday Fenoglio retaining the Primary Servicer rights on approximately
20% of such loans. The Company believes that Holliday Fenoglio's relationship
and credibility with the institutional lender network provide the Company a
competitive advantage in the commercial mortgage banking industry.

ACC, which originated approximately $260.7 million of commercial real estate
mortgages during the nine months ended September 30, 1995, is a mortgage banker
that originates and underwrites commercial real estate loans that are funded
primarily by Conduit Purchasers rather than by institutional lenders such as
insurance companies. ACC, therefore, makes certain representations and
warranties concerning the loans it originates. These representations cover such
matters as title to the property, lien priority, environmental reviews and
certain other matters. ACC primarily targets originators of commercial mortgage
loans for commercial real estate properties that are suitable for sale to
Conduit Purchasers accumulating loans for securitization programs. ACC markets
its services directly through ACC's offices located in Dallas, Miami and
Washington, D.C., as well as through a network of approximately 20 independent
mortgage brokers located throughout the United States. ACC recently established
a relationship with the 22 office commercial real estate finance unit of a major
insurance company whereby the insurance company has agreed to refer prospective
borrowers to the Company in instances where the prospective borrower does not
meet the insurer's requirements (typically borrowers for medium-quality
commercial properties). Since ACC commenced its underwriting activities and
through September 30, 1995, Holliday Fenoglio has originated approximately 31%
of the loans underwritten by ACC, with Holliday Fenoglio and ACC each receiving
fees for their respective services.

As of September 30, 1995, the Company was the servicer for approximately
$3.1 billion of commercial mortgages of which $117.0 million was as a Master
Servicer and $3.0 billion was as a Primary Servicer. On October 27, 1995, the
Company acquired additional servicing business in the EQS Acquisition. See
"Recent Developments -- Acquisition of EQS." The Company has formed a
residential mortgage banking business through which the Company will purchase
and securitize portfolios of non-conforming residential mortgages. For the
nine-month period ended September 30, 1995, $14.1 million (20.2%) of the
Company's gross revenues were attributable to the Company's mortgage banking
business.

BUSINESS STRATEGY. The Company seeks to continue to increase its market
share in its existing business lines and to enter related businesses through
both internal growth and acquisitions. See "Recent Developments." Key elements
of this strategy include:

- increasing the amount that the Company invests for its own account in
Asset Portfolios by capitalizing on its expertise in managing and
resolving Asset Portfolios for third parties;

- continuing to provide high quality management and resolution services to
co-investors and other third-party owners of Asset Portfolios;

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- 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

- developing its new 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

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Notes offered..................... $50,000,000 principal amount of % Senior
Subordinated Notes due 2003. See "Description of the
Notes -- General."
Denomination...................... $1,000 and integral multiples thereof.
Maturity.......................... January 15, 2003.
Interest payment dates............ Monthly, commencing March 15, 1996, and on the fifteenth
day of each month thereafter. The first interest payment
will represent interest from the date of issuance of the
Notes through March 14, 1996.
Redemption at option of the
Company.......................... The Notes may not be redeemed prior to January 15, 2001.
Thereafter, the Notes may be redeemed in whole or in
part at any time at the option of the Company, upon not
less than 30 nor more than 60 days' written notice, at
par plus accrued interest to the date of redemption. See
"Description of the Notes -- Redemption at Option of the
Company."
Repayment option upon death....... Upon the death of any holder of Notes, the Company will
redeem, at par plus accrued interest, such holder's
Notes upon request up to $30,000 in principal amount per
holder per year subject to an aggregate limit for all
holders of $300,000 in principal amount in any twelve
month period and certain conditions being met, including
the condition that the Company would not be in default
on any Senior Indebtedness as a result of such
redemption. See "Description of the Notes -- Repayment
Option Upon Death."
Subordination..................... The Notes are subordinated to the prior payment of all
existing and future Senior Indebtedness. See
"Description of the Notes -- Subordination." The Notes
will also be structurally subordinated to all
liabilities of and the rights of holders of preferred
stock, if any, of the Company's subsidiaries. The Notes
are not secured by any collateral. Upon consummation of
the Offering, only the capital stock and the Convertible
Subordinated Debentures of the Company will be junior to
the Notes. At December 31, 1995, Senior Indebtedness of
the Company and its subsidiaries totaled approximately
$281.0 million. At December 31, 1995, other liabilities
of the Company's subsidiaries totaled approximately
$28.6 million. Following the Offering, the Company will
have the ability to incur a significant amount of
additional indebtedness, including indebtedness which
may have rights that are senior to
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or equivalent to those of the Notes in respect of
payments and distributions on liquidation. See
"Description of the Notes -- Restrictions on Additional
Indebtedness."
Limited rights of acceleration or
repurchase....................... Payment of principal on the Notes may be accelerated
upon the occurrence of Events of Default (as defined)
only upon the action of the Trustee or the holders of at
least 25% in aggregate principal amount of outstanding
Notes, and such acceleration may be rescinded by the
holders of a majority of the aggregate principal amount
of the outstanding Notes if all Events of Default are
remedied and all payments due are made before a judgment
or decree for payment of money due is obtained. See
"Description of the Notes -- Events of Default."
Covenants......................... The indenture under which the Notes will be issued (the
"Indenture") will contain certain covenants that, among
other things, will limit (i) the Company's ability to
incur Indebtedness for Money Borrowed (as defined), (ii)
the payment of dividends or distributions to holders of
the Company's equity securities and (iii)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. All of these
covenants, however, are subject to a number of important
qualifications. See "Description of the Notes --
Covenants."
Listing........................... The Company has made application to list the Notes on
the New York Stock Exchange.
Trustee........................... Bank One, Columbus, N.A.
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USE OF PROCEEDS

The net proceeds from the sale of the Notes 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 $
million 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."

RISK FACTORS

Prior to making an investment decision, prospective purchasers of the Notes
should consider all of the information set forth in this Prospectus and should
evaluate the considerations set forth in "Risk Factors."

9
<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:
Ratio of earnings to fixed charges (3)............ N/A(4) 58.9x 21.2x 20.8x 8.2x
EBITDA (5)........................................ $40,294(1) $45,668 $43,177 $37,325 $25,436
Interest coverage ratio (6)....................... N/A(4) 60.6x 24.4x 22.0x 9.2x
Face Value of assets under management............. $8,060,400 $5,756,900 $3,088,700 $2,436,800 $3,040,700
Commercial mortgage loans originated (for the
period ended):
Face Value...................................... -- -- $610,000 $185,200 $1,585,000
Number of loans................................. -- -- 106 28 255
Commercial mortgage loans serviced:
Face Value...................................... -- -- $2,555,000 $2,592,000 $2,970,000
Number of loans................................. -- -- 592 559 749
</TABLE>

10
<PAGE>
- ------------------------------
(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.

(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of operating income before income taxes and fixed charges. Fixed
charges consist of interest expense.

(4) The Company had nominal interest expense in 1992 and it was not meaningful,
therefore, to calculate these ratios for the year ended December 31, 1992.

(5) EBITDA is calculated as operating income (excluding gain (loss) from
discontinued operations) before interest, income taxes, depreciation and
amortization. The Company has included information concerning EBITDA because
EBITDA is one measure of an issuer's historical ability to service its debt.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income as an indicator of the Company's operating performance or
to cash flows as a measure of liquidity.

(6) Interest coverage ratio means the ratio of EBITDA to cash interest expense.

11
<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE
FOLLOWING FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING
THE NOTES OFFERED HEREBY.

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 has
purchased 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 the significant involvement of senior
management to achieve a successful outcome. There is no assurance that the
Company will successfully execute this strategic transition.

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 thereby may adversely affect the Company's
mortgage banking business.

FINANCIAL LEVERAGE

Following the Offering, the Company will have substantial indebtedness and,
as a result, significant debt service obligations. As of September 30, 1995,
after giving effect to all the adjustments described in "Capitalization"
(including the Offering), the Company would have had approximately $ million
aggregate amount of indebtedness outstanding, representing approximately %
of its total capitalization. See "Use of Proceeds" and "Capitalization."

The ratio of the Company's debt to equity could have important consequences
to purchasers of the Notes, including: (i) limiting the Company's ability to
obtain necessary 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, (iii) requiring all of the indebtedness incurred under
the Revolving Loan Agreement

12
<PAGE>
to be repaid prior to the time any principal payments are required on the Notes,
thereby potentially impairing the Company's ability to make payments on the
Notes, and (iv) 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 Company may incur additional indebtedness in the future, although its
ability to do so will be restricted by the Indenture and the Credit Agreements.
The ability of the Company to make scheduled payments under its present and
future indebtedness, or to refinance such indebtedness, will depend on, among
other things, the future operating performance of the Company, 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. Each of these factors is to a large extent
subject to economic, financial, competitive and other factors beyond the
Company's control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

The Credit Agreements contain numerous financial and operating covenants
that will limit the discretion of the Company's management with respect to
certain business matters. These covenants will place significant restrictions
on, among other things, the ability of the Company to make certain payments and
investments, and to sell or otherwise dispose of assets and merge or consolidate
with other entities. See "Description of Other Indebtedness." The Credit
Agreements also require the Company to meet certain financial ratios and tests.
A failure to comply with the obligations contained in the Credit Agreements
could result in an event of default under any of the Credit Agreements, the
Convertible Subordinated Debenture Indenture or the Indenture, which could
permit acceleration of the related indebtedness and acceleration of indebtedness
under other instruments that may contain cross-acceleration or cross-default
provisions. See "Description of Other Indebtedness."

SUBORDINATION OF THE NOTES

The Notes will be subordinated in right of payment in full to all existing
and future Senior Indebtedness of the Company, which includes all indebtedness
under the Revolving Loan Agreement. As of December 31, 1995, after giving effect
to the Offering and the application of the net proceeds therefrom, the Company
and its subsidiaries would have had Senior Indebtedness aggregating
approximately $ million and would have had up to $ million available under
the Revolving Loan Agreement which, if borrowed, would be included as Senior
Indebtedness. In the event of the liquidation, dissolution, reorganization or
any similar proceeding regarding the Company, the assets of the Company will be
available to pay obligations on the Notes only after Senior Indebtedness of the
Company has been paid in full. Accordingly, there may not be sufficient assets
remaining to pay amounts due on all or any of the Notes. See "Description of the
Notes -- Subordination."

The Notes will be effectively subordinated to indebtedness, preferred stock
(if any) and liabilities of the Company's subsidiaries. As of December 31, 1995,
the aggregate amount of these liabilities of the Company's subsidiaries was
approximately $220.1 million (excluding $118.8 million representing intercompany
notes of subsidiaries payable to the Company). The Company's operations are
conducted principally through its wholly-owned subsidiaries. Accordingly, the
Company will be dependent upon the cash flow of, and receipt of dividends or
advances from, its subsidiaries in order to meet its debt obligations, including
the Company's obligations under the Notes. Since the Notes are obligations of
the parent company only, the Company's subsidiaries are not obligated or
required to pay any amounts pursuant to the Notes or to make funds available
therefor in the form of dividends or advances to the Company. In addition, since
the Company is a holding company, its principal assets consist of its equity
ownership position in its wholly-owned subsidiaries. The claims of holders of
the Notes effectively will be subordinated to the prior claims of holders of
preferred stock, if any, and creditors, including trade creditors, of the
Company's subsidiaries.

In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes will not be secured by any of the
Company's assets. 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. If the Company
becomes insolvent or is liquidated, or if payment

13
<PAGE>
under the Revolving Loan Agreement is accelerated, the lenders under the
Revolving Loan Agreement would be entitled to exercise the remedies available to
a secured lender under applicable law and pursuant to the Revolving Loan
Agreement. Accordingly, such lenders will have a prior claim with respect to
such assets and subsidiary capital stock.

LIMITED COVENANTS

The covenants in the Indenture are limited and are not designed to protect
holders of the Notes in the event of a material adverse change in the Company's
financial condition or results of operations. The provisions of the Indenture
should not be a significant factor in evaluating whether the Company will be
able to comply with its obligations under the Notes. See "Description of the
Notes."

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. 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 likely will 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 Asset
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). Asset
Portfolio acquisitions also require significant capital.

14
<PAGE>
There currently is substantial competition for Asset Portfolio acquisitions and
such competition could increase in the future. See "Business -- Asset
Acquisition and Resolution Business -- Asset Portfolio Investment."

LIMITED MARKET FOR THE NOTES

The Notes are not currently authorized for quotation on any quotation system
or listed on any securities exchange. The Company has made application to list
the Notes on the New York Stock Exchange. No assurance can be given that an
active trading market for the Notes will develop or that the Notes will not
trade at a discount to their principal amount.

15
<PAGE>
RECENT DEVELOPMENTS

ACQUISITION OF CKSRS. Effective June 30, 1995, the Company acquired for
approximately $1.3 million substantially all of the assets of CKSRS, a
Miami-based commercial mortgage banking limited partnership specializing in the
origination, sale and servicing of mortgages on multi-family properties in
Florida.

ACQUISITION OF EQS. On October 27, 1995, the Company completed the
acquisition of the third-party securitized, commercial mortgage loan Master
Servicer and Special Servicer businesses of EQS. The purchase price was
approximately $16.9 million. At September 30, 1995, the EQS businesses acquired
by the Company had contracts to service approximately $6.0 billion of
securitized commercial mortgage loans. The Company believes that it is now one
of the largest servicers of securitized commercial mortgages in the United
States.

ACQUISITION OF ACACIA. Effective November 20, 1995, the Company completed
the purchase for approximately $4.5 million of substantially all of the pension
fund advisory contracts and certain other assets of Acacia. Acacia provides real
estate investment advisory services to pension and other institutional investors
in respect of investments in office, industrial and distressed real estate
properties. Through these contracts, approximately 35 clients have invested over
$970.0 million in commercial real estate representing approximately 63
properties with over 13.5 million square feet of commercial space and
approximately 670 apartment units. Acacia is based in Boston.

CONVERTIBLE SUBORDINATED DEBENTURE OFFERING. On November 27, 1995, the
Company completed an offering conducted in Europe (the "Convertible Subordinated
Debenture Offering"), pursuant to Regulation S promulgated under the Securities
Act, of $45.0 million aggregate principal amount of Convertible Subordinated
Debentures. The net proceeds (aggregating approximately $43.0 million) from such
offering were used to repay borrowings under the Revolving Loan Agreement. The
Convertible Subordinated Debentures bear interest at 8% per annum and will
mature on December 15, 2005. There is no sinking fund or amortization of
principal prior to maturity. The Convertible Subordinated Debentures are not
redeemable prior to December 15, 1996. The Convertible Subordinated Debentures
are convertible at the option of the holders into shares of Common Stock at a
conversion price of $12.50 per share (equivalent to a conversion rate of 80
shares of Common Stock per $1,000 principal amount of Convertible Subordinated
Debentures), subject to adjustment in certain events. The Convertible
Subordinated Debentures are unsecured obligations of the Company and
subordinated to all existing and future Senior Indebtedness (as defined in the
Convertible Subordinated Debenture Indenture) of the Company. The Convertible
Subordinated Debentures contain certain rights of the holder to require the
repurchase of the Convertible Subordinated Debentures (i) upon a Fundamental
Change (as defined in the Convertible Subordinated Debenture Indenture) and (ii)
if the Company is not able to maintain a Net Worth (as defined in the
Convertible Subordinated Debenture Indenture) of approximately $141.0 million
(which includes the net proceeds to the Company from the Common Stock offering
described below) plus the net proceeds to the Company from any other offering of
Common Stock by the Company subsequent to the date hereof. There are certain
other covenants restricting dividends on and redemptions of capital stock. See
"Description of Other Indebtedness -- Convertible Subordinated Debentures."

The Convertible Subordinated Debentures have not been registered under the
Securities Act and may not be offered or sold in the United States without
registration under the Securities Act or absent an applicable exemption from the
registration requirements of the Securities Act. On January 11, 1996, the
Company filed with the Commission a registration statement on Form S-3 to
register the resale by Debentureholders of shares of Common Stock issuable to
such holders upon conversion of the Convertible Subordinated Debentures.

COMMON STOCK OFFERING. On December 13, 1995, the Company completed a
registered public offering of 2,000,000 shares of Common Stock (the "Common
Stock Offering"). Subsequent thereto, the Company sold an additional 300,000
shares of Common Stock upon exercise of the Underwriters' over-allotment option.
The net proceeds from such offering, including the over-allotment shares,
aggregated approximately $25.1 million and were used to repay borrowings under
the Revolving Loan Agreement. The price to the public was $11.75 per share and
the price to the Company per share was $11.10 (after an underwriting discount of
$ .65 per share). In addition to the offering of shares of Common Stock by the
Company, two institutional shareholders sold an aggregate of 2,300,000 shares of
Common Stock (including 300,000 shares sold pursuant to the exercise of the
underwriters' over-allotment option). The Company did not receive any proceeds
from the sale of these shares.

16
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes 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 intends to use the net proceeds to reduce the Company's
outstanding borrowings under the Revolving Loan Agreement (which had an
outstanding balance of approximately $67.5 million at December 31, 1995). For
the year ended December 31, 1995, the weighted average interest rate on
indebtedness under the Company's bank credit agreement (which was replaced on
September 29, 1995 by the Revolving Loan Agreement) was 8 3/10% per annum. The
indebtedness under the predecessor credit agreement and the Revolving Loan
Agreement was incurred primarily in connection with investments in Asset
Portfolios, the acquisition of CKSRS, the EQS Acquisition, the Acacia
Acquisition and other general corporate purposes. After application of the net
proceeds to the Company of the Offering, $ million would be available for
reborrowing under the Revolving Loan Agreement to be used for general corporate
purposes, which may include funding investments in Asset Portfolios, acquiring
new businesses or making strategic investments in companies that complement the
Company's business lines and strategies. The Company has no understandings or
agreements in respect of any material acquisition. See "Description of Other
Indebtedness -- Revolving Loan Agreement" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

17
<PAGE>
CAPITALIZATION

The following table presents the capitalization of the Company at September
30, 1995, and (i) as adjusted to reflect the EQS Acquisition, the incurrence
through December 31, 1995 of $135.6 million of indebtedness under a warehouse
facility, the Acacia Acquisition, completion of the Convertible Subordinated
Debenture Offering and completion of the Common Stock Offering, and (ii) as
further adjusted to reflect the application of the estimated net proceeds from
the sale of the Notes offered 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 $ 60,806 $
Mortgage warehouse debt................................................. 5,693 141,294 141,294
Nonrecourse debt........................................................ 30,605 30,605 30,605
Senior Subordinated Notes............................................... -- --
Convertible Subordinated Debentures..................................... -- 45,000 45,000
---------- ----------- -----------
Total debt............................................................ 140,520 277,705
---------- ----------- -----------
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 1,310 1,310
Capital in excess of par................................................ 78,790 100,470 100,470
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............................................ 129,024 150,804 150,804
---------- ----------- -----------
Total capitalization.................................................. $ 269,544 $ 428,509
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

- ------------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "Description of
Other Indebtedness" and Note 5 of Notes to Consolidated Financial
Statements for a description of this indebtedness.

(2) Gives effect to the EQS Acquisition, the incurrence through December 31,
1995 of $135.6 million of indebtedness under a warehouse facility, the
Acacia Acquisition and completion of the Convertible Subordinated Debenture
Offering and the Common Stock Offering.

(3) Gives effect to the offering of Notes by the Company hereby and the
application of the net proceeds therefrom as described in "Use of
Proceeds."

(4) Does not include an aggregate of 1,775,948 shares of Common Stock reserved
for issuance at September 30, 1995, upon the exercise of outstanding stock
options and 2,405,665 shares available for future grants of options under
the Company's stock option plans. See Note 11 of Notes to Consolidated
Financial Statements.

18
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA

19
<PAGE>
- ------------------------------
(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.

(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of operating income before income taxes and fixed charges. Fixed
charges consist of interest expense.

(4) The Company had nominal interest expense in 1992 and it was not meaningful,
therefore, to calculate these ratios for the year ended December 31, 1992.

(6) Interest coverage ratio means the ratio of EBITDA to cash interest expense.

20
<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 Consolidated
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>

21
<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

22
<PAGE>
investments in Asset Portfolios, and a $12.1 million increase in mortgage
banking revenue, primarily due to the inclusion of Holliday Fenoglio, which was
purchased in August 1994, and ACC, which commenced underwriting activities in
the fourth quarter of 1994.

EXPENSES. Total expenses before reimbursable costs decreased $25.7 million,
or 34.4%, for the first nine months of 1995 compared to the corresponding period
in 1994. The first nine months of 1994 included expenses of $20.7 million as
compared to none in the corresponding period in 1995 for the NationsBank
Contract that concluded in the third quarter of 1994 and for government sector
contracts that were concluding during 1994. Additionally, during the nine months
ended September 30, 1995, general and administrative expenses were reduced by a
$3.7 million change in estimate of accounts receivable bad debt reserve and
other accrued expenses related to concluded asset management contracts,
particularly the FDIC and RTC contracts. Receivables related to these contracts
declined $16.7 million between December 31, 1994 and September 30, 1995. Also,
the decrease in expenses for the nine months ended September 30, 1995, compared
to the nine months ended September 30, 1994, reflected the corporate downsizing
initiatives that began in the second half of 1994. The decline in expenses
related to concluding contracts was partially offset by increased operating
expenses related to the addition of the mortgage banking line of business and
the growth in the asset acquisition and resolution operations. The $1.1 million,
or 63.4%, increase in interest expense in 1995 reflects greater borrowing
related to increased investments in Asset Portfolios.

INCOME TAXES. The Company must have future taxable income to realize
recorded deferred tax assets, including net operating loss carryforward tax
benefits obtained in the BEI Merger. Certain of these benefits expire beginning
in 1995 and are subject to annual utilization limitations. Management believes
that recorded deferred tax assets will be realized in the normal course of
business. The decrease in the effective income tax rate for the nine months
ended September 30, 1995 was primarily due to permanent tax differences related
to mortgages sold by a partnership in which the Company owns an interest for
which the acquired tax basis exceeded the book basis.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

REVENUES. Revenues before assistance revenue for 1994 totaled $130.3
million compared to $122.4 million for 1993, an increase of $7.9 million, or
6.5%. Management fees decreased $2.5 million, or 8.3%, and resolution fees
declined $22.3 million, or 25.3%, during 1994, principally due to only eight
months of operations under the NationsBank Contract, as well as reduced revenues
from the government sector contracts as the contracts continued to conclude.
These declines were offset by a $10.4 million increase in Asset Portfolio
income, a $6.2 million increase in mortgage banking revenue due to the
acquisition of Holliday Fenoglio and the commencement of business by ACC. In
addition, there was an increase in other revenues of $16.1 million primarily due
to the $10.0 million conclusion fee from the NationsBank Contract and $3.8
million in revenue relating to the inclusion in 1994 of BEI operations,
primarily from the operations of a subsidiary for the period prior to its sale
in the first quarter of 1994 and its resulting sale.

EXPENSES. Total expenses before reimbursable costs increased by $15.9
million, or 20.2%, in 1994 primarily due to an increase in personnel costs of
$2.0 million and an increase in other general and administrative expenses of
$15.9 million. These increases were partially offset by a decrease in the profit
participations of $3.0 million. The increase in personnel costs was due to the
addition of personnel costs for BEI, Holliday and ACC, which was partially
offset by reductions in full time employees associated with concluded asset
management contracts. Other general and administrative expenses increased $15.9
million over 1993, primarily due to the inclusion of BEI and Holliday Fenoglio
in 1994 and the $2.8 million intangible write-off related to the conclusion of
the NationsBank Contract in 1994. The decrease of the profit participations of
$3.0 million, or 97.5%, was primarily due to the modification of the NationsBank
Contract effective April 1, 1993, that effected an exchange of NationsBank's
profit participation in the Company's income before taxes for a rebate of fees.
See "-- Year Ended December 31, 1993 Compared to Pro Forma Year Ended December
31, 1992 -- Profit Participation."

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

23
<PAGE>
of $14.7 million. The decline in revenues is primarily related to the conclusion
of certain asset management contracts 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 revenue before assistance
revenues, 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%.

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 $150.0 million Revolving
Loan Agreement which matures and is payable in full on September 29, 1997. (The
Revolving Loan Agreement initially included a $25.0 temporary bridge facility
that was permanently repaid with a portion of the net proceeds of the
Convertible Subordinated Debenture Offering.) By its terms, the Revolving Loan
Agreement has two primary components: (i) a $50.0 million revolving credit
facility (the "Corporate Facility") to be used for (A) general

24
<PAGE>

working capital purposes, (B) acquisitions of equity interests in other persons,
(C) certain permitted investments, and (D) other business needs approved by the
Banks that constitute at least 50% of the lenders in number and have loaned 51%
or more of the amount then outstanding under the Revolving Loan Agreement and
(ii) a $100.0 million revolving credit facility (the "Portfolio Facility") to be
used to (A) refinance indebtedness incurred in connection with the purchase of
certain Asset Portfolios acquired prior to execution and delivery of the
Revolving Loan Agreement, (B) finance future acquisitions of Asset Portfolios,
and (C) finance acquisitions of entities for the purpose of resolving Asset
Portfolios owned by such entities. The banks' current commitment under the
Revolving Loan Agreement is limited to a total of $105.0 million, $35.0 million
under the Corporate Facility and $70.0 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). At
September 30, 1995, there was a balance of $33.0 million at 7 5/8% outstanding
under the Corporate Facility and $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. At December 31, 1995, the balance outstanding
under the Corporate Facility was $6.5 million at 8 1/2%, and the balance
outstanding under the Portfolio Facility was $61.0 million, including $21.0
million at 7 3/4%, $20.0 million at 7 5/8%, $15.0 million at 7 61/98% and $5.0
million at 7 11/16%. The combined balance outstanding under the Revolving Loan
Agreement was $67.5 million at December 31, 1995.

The Revolving Loan Agreement is secured by substantially all of the assets
of the Company not pledged under other credit facilities, including stock of a
majority of the Company's subsidiaries held by the Company. The Revolving Loan
Agreement requires the Company to meet certain financial tests, including
minimum consolidated tangible net worth, maximum consolidated funded debt to
consolidated capitalization ratio, minimum fixed charge coverage ratio, minimum
interest coverage ratio, maximum consolidated funded debt to consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
and maximum corporate facility outstanding to consolidated EBITDA ratio. The
Revolving Loan Agreement contains covenants that, among other things, will limit
the incurrence of additional indebtedness, investments, asset sales, loans to
shareholders, dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements.

Prior to entering into the Revolving Loan Agreement, Holdings maintained a
$75.0 million line of credit with NationsBank of Texas which bore interest at
NationsBank of Texas' floating prime rate or an adjusted LIBOR rate plus 1 1/2%.
This line of credit was terminated with the execution of the Revolving Loan
Agreement.

During July 1995, two wholly-owned subsidiaries of the Company jointly
entered into a nonrecourse debt agreement for $27.5 million to support
wholly-owned Asset Portfolio purchases. This nonrecourse facility is secured by
all wholly-owned Asset Portfolios purchased with borrowings under this debt and
bears interest at the financing company's prime rate plus 1 1/2% or LIBOR plus
3%. There was a balance outstanding at September 30, 1995, of $21.9 million
under this nonrecourse debt agreement, $3.4 million at 10 1/4% and $18.5 million
at 8 15/16%. At December 31, 1995, the balance outstanding under this debt
agreement was $17.8 million, $1.3 million at 10 1/4% and $16.5 million at
9 1/32%. This facility matures on July 31, 1998.

On April 28, 1995, ACC, a wholly-owned subsidiary of the Company, entered
into a $25.0 million warehouse line of credit agreement with NationsBank of
Texas (the "NationsBank Warehouse Facility") 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 Company also is a guarantor on this facility. A total
of $2.7 million at 7 13/16% and $9.0 million at 7 3/4% was outstanding at
September 30, 1995 and December 31, 1995, respectively. The NationsBank
Warehouse Facility matures on January 25, 1997.

25
<PAGE>

On August 15, 1995, ACC, a wholly-owned subsidiary of the Company, entered
into a warehouse line of credit agreement with Residential Funding Corporation
(the "RFC Warehouse Facility") 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).
At September 30, 1995, an advance of $3.0 million was outstanding at an interest
rate of 8 33/50%. At December 31, 1995, $8.6 million was outstanding, including
$5.0 million at 7 13/20% and $3.6 million at 7 10/27%. Each borrowing under the
RFC Warehouse Facility is due 60 days after funding.

On September 27, 1995, a wholly-owned subsidiary of the Company entered into
a Global Master Repurchase Agreement to support the purchase of certain
commercial mortgage pass-through certificates. A total of $8.7 million was
outstanding under this facility at September 30, 1995 and was repaid in full on
December 15, 1995. This facility bore interest at 7 3/8%. This facility was
secured by the Company's investments in certain asset-backed securities.

Effective November 1, 1995, ARMC, a wholly-owned subsidiary of the Company,
entered into a $100.0 million warehouse line of credit (the "Prudential
Warehouse Facility"), increased to $150.0 million on November 30, 1995, with
Prudential Securities Realty Funding Corporation to finance the acquisition and
warehousing of residential mortgage loans. This facility is secured by the loans
purchased through borrowings under this facility and held for sale. The stated
interest rate for this line is LIBOR (as defined in the facility) plus 7/8%
(which can be adjusted retroactively under certain circumstances to LIBOR plus
2 2/5%). At December 31, 1995, $135.6 million was outstanding under this
facility. The Prudential Warehouse Facility matures on March 29, 1996.

On November 27, 1995, the Company completed the sale of $45.0 million
principal amount of Convertible Subordinated Debentures. The net proceeds
(approximately $43.0 million) were used to repay indebtedness under the
Revolving Credit Agreement. See "Recent Developments."

On December 13, 1995, the Company completed a public offering of 2,000,000
shares of Common Stock. An additional 300,000 shares of Common Stock were sold
on December 19, 1995, upon exercise of the underwriters' over-allotment option.
The aggregate net proceeds to the Company (estimated to be approximately $25.1
million) were used to repay indebtedness under the Revolving Credit Agreement.
See "Recent Developments."

On December 19, 1995, a wholly-owned subsidiary of the Company entered into
a Global Master Repurchase Agreement to support the purchase of certain
commercial mortgage pass-through certificates. A total of $20.6 million was
outstanding under this facility at December 31, 1995. This facility bears
interest at a rate of 30 day LIBOR plus 1 2/5% (7 1/3% at December 31, 1995).
This facility is secured by the Company's investments in certain asset-backed
securities.

Accounts receivable decreased from $20.7 million at December 31, 1994, to
$7.7 million at September 30, 1995, due to the conclusion and expiration of
certain asset management contracts.

In 1996, the Company intends to pursue (i) additional Asset Portfolio
acquisition opportunities, by acquiring Asset Portfolios both for its own
account and as an investor with various capital partners who acquire such Asset
Portfolios, (ii) acquisitions of new businesses and (iii) expansion of current
businesses. The funds for such acquisitions and investments are anticipated to
be provided in 1996 by cash flows and borrowings under the Company's Revolving
Loan Agreement and the Notes offered hereby. As a result, interest expense in
1996 will be higher than the interest expense in 1995.

The Company believes that its funds on hand of $16.1 million at December 31,
1995, cash flow from operations, its unused borrowing capacity under its credit
lines, the anticipated net proceeds from this Offering, and its continuing
ability to obtain financing should be sufficient to meet its anticipated
operating needs and capital expenditures, as well as planned new acquisitions
and investments, for at least the next twelve months. The 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.

26
<PAGE>
BUSINESS

GENERAL

The Company is a leading specialty financial services company engaged
primarily in Asset Portfolio acquisition and resolution and mortgage banking.
The Asset Portfolio acquisition and resolution business involves acquiring at a
substantial discount to Face Value and managing and resolving Asset Portfolios
to maximize cash recoveries. The Company manages and resolves Asset Portfolios
acquired by the Company alone, acquired by the Company with co-investors and
owned by third parties. The Company's mortgage banking business involves the
origination, placement and servicing of commercial real estate mortgages. In
addition, the Company has formed a residential mortgage banking business through
which the Company will purchase and securitize portfolios of residential
mortgages of borrowers who do not qualify for conventional loans and whose
borrowing needs are not being met by traditional financial institutions. The
Company has also entered the real estate pension advisory business through the
purchase of substantially all of the advisory contracts of Acacia.

BACKGROUND

- increasing the amount that the Company invests for its own account in
Asset Portfolios by capitalizing on its expertise in managing and
resolving Asset Portfolios for third parties;

- continuing to provide high quality management and resolution services to
co-investors and other third-party owners of Asset Portfolios;

- expanding its presence in the traditional mortgage banking market through
greater market penetration and by participating in the expanding market
for securitization of commercial and residential real estate mortgages;
and

- developing its new real estate pension advisory business to complement the
Company's existing business lines.

27
<PAGE>
ASSET ACQUISITION AND RESOLUTION BUSINESS

GENERAL. The Company manages and resolves Asset Portfolios acquired at a
substantial discount to Face Value by the Company alone and by the Company with
co-investors. The Company also manages and resolves Asset Portfolios owned by
third parties. Asset Portfolios generally include secured loans of varying
qualities and collateral types. The Company estimates that typically
approximately 85% of the loans in the Asset Portfolios in which the Company
invests are in payment default at the time of acquisition. Although some Asset
Portfolios include foreclosed real estate and other collateral, the Company
generally seeks Asset Portfolios that do not include such assets. Some Asset
Portfolio loans are loans for which resolution is tied primarily to the real
estate securing the loan. Other loans, however, are collateralized business
loans, the resolution of which may be based either on cash flow of a business or
on real estate and other collateral securing the loan. Collateralized business
loans generally have smaller Face Values and often are more quickly resolved
than more traditional real estate loans. The Company intends to focus to a
greater extent on collateralized business loans.

The Company obtains information on available Asset Portfolios from many
sources. Repeat business and referrals from Asset Portfolio sellers with whom
the Company previously has transacted business are an important and frequent
source of Asset Portfolios. The Company has developed relationships in which it
is a preferred Asset Portfolio purchaser for certain sellers. The Company
believes that it receives many Asset Portfolio solicitations that result
primarily from the Company's reputation as an active portfolio purchaser. Other
important sources of business include referrals from co-investors who seek the
Company's participation in Asset Portfolio purchases, focused contacts initiated
by senior management, public advertising of Asset Portfolios for sale and the
Company's nationwide presence.

Although the need for asset management and resolution services by
governmental agencies has substantially declined in recent years, the Company
believes that a permanent market for Asset Portfolio acquisition, management and
resolution services has emerged within the private sector. Whether because a
financial institution desires to reduce overhead costs, is not staffed to handle
large volumes of Asset Portfolios or simply does not want to distract management
and personnel with the intensive and time-consuming job of resolving Asset
Portfolios, many financial institutions now recognize that outside contractors
often are better staffed to manage and resolve Asset Portfolios. These financial
institutions include multi-national, money center, super-regional and regional
banking institutions nationwide and in Canada, as well as insurance companies.
Moreover, financial institutions have embraced the concept of packaging and
selling Asset Portfolios to investors as a means of disposing of non-performing
and under-performing loans and improving the financial institution's balance
sheet. Consolidations within the banking industry have reinforced this trend.
Insurance companies, which historically have avoided outsourcing Asset Portfolio
management or selling Asset Portfolios, also are emerging as sellers of Asset
Portfolios due in part to the implementation of risk-based capital rules for
insurance companies. Additionally, there is a market for management and
resolution services for delinquent or non-performing loans within performing
securitized loan pools. The Company believes that the significant volume of
annual performing loan securitizations makes this an attractive market in which
to participate.

The Company believes that opportunities for the acquisition, management and
resolution of Asset Portfolios are becoming increasingly evident in certain
international markets and that lenders in these markets are adopting many of the
Asset Portfolio management and resolution outsourcing techniques currently
utilized in the United States. Accordingly, the Company has opened offices in
Toronto (August 1994) and London (October 1995) in order to take advantage of
opportunities in Canada, the United Kingdom and certain other Western European
nations. The Company had $53.2 million (US$ Face Value) in Canadian Asset
Portfolios under management as of September 30, 1995, and subsequently was
designated as the Special Servicer for a Canadian Asset Portfolio of
approximately $370.0 million (US$ Face Value).

Because of the significant decline in Asset Portfolio management and
resolution services required by governmental agencies and the trend toward
outright sales of Asset Portfolios, the Company shifted its strategic focus to
becoming an active Asset Portfolio investor for its own account and a
co-investor with other Asset Portfolio buyers. The Company believes that as a
direct investor in Asset Portfolios it has a significant

28
<PAGE>
competitive advantage relative to the Company's competitors in the management
and resolution business. Moreover, the Company believes that direct investment
permits the Company to take advantage of the profit opportunities of Asset
Portfolio investing. The Company believes that it can gain market share in the
Asset Portfolio acquisition, management and resolution business due to its
financial strength; experience in managing and resolving Asset Portfolios;
national reputation; and strategic relationships with sellers and purchasers of
Asset Portfolios, including financial institutions, large corporate buyers,
investment banking firms and sophisticated private investors.

For the nine months ended September 30, 1995, $54.3 million (78.0%) of the
Company's gross revenues were attributable to its Asset Portfolio acquisition
and resolution business. The following table reflects the ownership composition
of the Asset Portfolios (based on their Face Value) under management by the
Company as of the dates indicated and further reflects the decline in the
management of Asset Portfolios for governmental agencies and the increase in the
Company's investment in Asset Portfolios since December 31, 1993:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 AT DECEMBER 31, 1994 AT SEPTEMBER 30,
1995
---------------------- ---------------------- -------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
--------- ----------- --------- ----------- ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholly-owned by the Company (1)........... $ 92.9 1.6% $ 143.3 4.6% $ 310.0 10.2%
Owned by the Company with co-investors
(2)...................................... 392.4 6.8 1,729.9 56.0 1,507.4 49.6
Owned by third parties:
Securitized mortgage pools.............. 268.8 4.7 315.0 10.2 411.3(3) 13.5
Government and other owners............. 5,002.8 86.9 900.5 29.2 812.0 26.7
--------- ----- --------- ----- ------------ -----
Total under management................ $ 5,756.9 100.0% $ 3,088.7 100.0% $ 3,040.7 100.0%
--------- ----- --------- ----- ------------ -----
--------- ----- --------- ----- ------------ -----
</TABLE>

-----------------------------
(1) Includes $0.0, $13.9 million and $44.0 million, respectively, of
asset-backed securities, and $2.5 million, $3.5 million and $5.2
million of real estate, respectively, at December 31, 1993 and 1994,
and at September 30, 1995.

(2) Includes the securitized Asset Portfolios managed by the Company as
Special Servicer in which the Company has invested, which aggregated
$354.3 million, $973.8 million and $790.7 million, respectively, at
December 31, 1993 and 1994, and at September 30, 1995.

(3) Does not include approximately $300.0 million of securitized
commercial mortgages for which EQS served as Special Servicer. See
"Recent Developments -- Acquisition of EQS."

The following table reflects, by ownership category, the number of Asset
Portfolios managed by the Company at September 30, 1995 and the number of assets
included in such portfolios:

<TABLE>
<CAPTION>
NUMBER OF ASSET NUMBER OF
PORTFOLIOS ASSETS
----------------- -----------
<S> <C> <C>
Wholly-owned by the Company.................................................. 35 1,124
Owned by the Company with co-investors....................................... 28 1,740
Owned by third parties:
Securitized mortgage pools (1)............................................. 3 426
Government and other owners................................................ 10 2,146
--- -----
Total under management................................................... 76 5,436
--- -----
--- -----
</TABLE>

-----------------------------
(1) Does not include Asset Portfolios for which EQS served as Special
Servicer. See "Recent Developments -- Acquisition of EQS."

29
<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 purchased during the nine months ended September 30, 1995 was 20% of
the aggregate purchase price. Asset Portfolios acquired solely by the Company
have ranged up to $36.9 million (Face Value), whereas Asset Portfolios owned by
the Company with co-investors have ranged up to $405.5 million (Face Value). The
Company generally funds its share of any investment with a combination of
borrowings under its existing credit lines and internal cash flow. Future Asset
Portfolio purchases will depend on the availability of Asset Portfolios offered
for sale, the availability of capital and the Company's ability to submit
successful offers to purchase Asset Portfolios. As a result, Asset Portfolio
purchases can vary significantly from quarter to quarter. The following table
reflects the Company's total purchases (at cost) by fiscal quarter in Asset
Portfolios over the past seven quarters:

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1994 1994 1994 1995 1995 1995
----------- ------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Wholly-owned by
the Company (1)......... $ 6,761 $ 6,941 $ -- $ 21,014 $ 15,539 $ 62,499 $ 45,987
Owned by the Company with
co-investors (2)........ 5,125 8,948 11,306 7,900 6,294 8,480 325
----------- ------------- ------------- ------------- ------------- ------------- -------------
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.

30
<PAGE>
Unlike the original lender, the Company values Asset Portfolio loans based on
the present value of estimated total cash flow from resolution, with the
expectation that the loans will be resolved prior to scheduled maturity. The
Company's policy is to not refinance or renew purchased loans or grant new
credit.

Asset Portfolio evaluations are conducted almost exclusively by the
Company's employees who specialize in analysis of non-performing and
under-performing loans, often with further specialization based on geographic or
collateral-specific factors. Most of these employees have previously served the
Company (and some continue to serve) as asset managers with responsibility for
resolving such loans. Their asset management experience aids these individuals,
working together in teams, in making informed judgments about the status of each
loan and the underlying collateral, the probable cash flows from the loan, the
likely resolution of the loan and the time and expense required for such
resolution. The Company's personnel document these evaluations in standardized
Company formats.

Upon completion of evaluation forms, the Company compiles a database of
information about the loans in the Asset Portfolio. The primary focus of the
database is the anticipated recovery amount, timing and cost of the resolution
of the Asset Portfolio. Using its proprietary modeling system and loan
information database, the Company then determines the amount it will offer. The
offer is structured to achieve certain minimum rates of return. As of September
30, 1995, the Company had paid an average purchase price of 46% of the aggregate
Face Value on all of its wholly-owned Asset Portfolios and an average purchase
price of 56% of the aggregate Face Value on all of the Asset Portfolios owned by
the Company with co-investors.

When an Asset Portfolio is acquired (whether for the Company's own account
or with co-investors), the Company assumes the management of the loans in the
portfolio. Management includes responsibility both for servicing and for
resolving such loans. The Company's asset managers are given the supporting due
diligence information and projections relating to each newly-acquired loan for
which the manager assumes management responsibility. Because asset managers are
actively involved in the Asset Portfolio evaluation process, it is not unusual
for an asset manager to be given management responsibility for the specific
loans that the asset manager assisted in evaluating in the due diligence or
pricing processes. The Company believes that by combining the resolution and
evaluation activities, the Company achieves efficiency in loan resolution and
accuracy in loan evaluations.

Resolutions typically are accomplished through (i) negotiating with debtors
a discounted payoff, which may be accomplished through a refinancing by the
obligor with a lender other than the Company or (ii) foreclosure and sale of the
collateral. The Company generally seeks consensual resolution of each loan,
having found that a negotiated resolution usually maximizes the Company's or
investor's rate of return. The Company resolves most assets within an Asset
Portfolio within 18 months. The goal of the Company's asset resolution process
is to maximize in a timely manner cash recovery on each loan in an Asset
Portfolio.

In evaluating Asset Portfolios, the Company takes into account
concentrations of collateral located in specific regions of the United States
and Canada. As of September 30, 1995, the geographic dispersion of each primary
asset securing the loans in the Asset Portfolios in which the Company had
invested (whether for its own account or with co-investors) was as follows:

<TABLE>
<CAPTION>
FACE NUMBER OF
VALUE % OF TOTAL ASSETS % OF TOTAL
--------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Northeast..................................... $ 477.5 26.3% 1,228 42.9%
West.......................................... 716.6 39.4 766 26.8
Southwest..................................... 200.7 11.1 434 15.1
Midwest....................................... 109.1 6.0 96 3.3
Southeast..................................... 260.3 14.3 220 7.7
Canada........................................ 53.2 2.9 120 4.2
--------- ----- ----- -----
Total....................................... $ 1,817.4 100.0% 2,864 100.0%
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>

31
<PAGE>
The Company invests in both Asset Portfolios composed of collateralized
business loans and in Asset Portfolios composed of real estate collateralized
loans. Asset Portfolios purchased by the Company alone have tended to be
primarily composed of collateralized business loans, because many such Asset
Portfolios are within the size range generally sought by the Company. Asset
Portfolios composed primarily of real estate loans typically are larger and the
Company's investments in such portfolios usually are made with co-investors. At
September 30, 1995, the Company's total investment in wholly-owned Asset
Portfolios aggregated $310.0 million (Face Value), which was composed of $223.3
million (Face Value) (72.0%) of collateralized business loans, $37.5 million
(12.1%) of real estate loans, $44.0 million (14.2%) of asset-backed securities,
and $5.2 million (1.7%) of real estate.

In addition, as of September 30, 1995, the Asset Portfolios in which the
Company had invested (whether for its own account or with co-investors) included
approximately 2,900 individual assets. The Company has found that the market for
smaller portfolios is less competitive, because larger Asset Portfolio buyers
often elect not to consider these portfolios. In a recent industry trend, some
Asset Portfolio sellers are soliciting bids on portfolios consisting of small
groups of loans.

ASSET MANAGEMENT AND RESOLUTION SERVICES. The Company provides asset
management and resolution services to third parties pursuant to contracts with
the owner of an Asset Portfolio or a purchaser (including a partnership, joint
venture or other group in which the Company is a co-investor) of an Asset
Portfolio. Management of Asset Portfolios includes both loan resolution and
providing routine accounting services, monitoring collections of interest and
principal (if any), confirming (or advancing) insurance premium and tax payments
due on collateral, and generally overseeing and managing, if necessary,
collateral condition and performance.

Asset management and resolution contracts relating to Asset Portfolios
managed by the Company for third parties have a finite duration, typically three
to five years, and at September 30, 1995 covered Asset Portfolios that ranged up
to $429.8 million (Face Value). These contracts generally provide for the
payment of (i) a fixed annual management fee (generally between 50 and 75 basis
points based on the Face Value or original purchase price of the loans) with
revenues declining as assets under management decrease, (ii) a resolution fee
(generally between 50 and 150 basis points based on the net cash collections on
loans and assets) and (iii) a negotiated incentive fee for the successful
resolution of loans or assets, which is earned after a predetermined rate of
return for the portfolio owner or co-investor is achieved.

As part of its third-party asset management and resolution business, the
Company is aggressively pursuing contracts to serve as the designated Special
Servicer for pools of securitized mortgages. After a loan within a securitized
pool of performing loans becomes delinquent or non-performing, the Master
Servicer or Primary Servicer of the pool will contractually transfer
responsibility for resolution of that loan to the pool's designated Special
Servicer. Special Servicers earn an annual fee (typically approximately 50 basis
points of the Face Amount of the delinquent or non-performing loans subject to
Special Servicing), plus a 75 to 100 basis points resolution fee based on the
total cash flow from resolution of each such loan as it is received. As of
September 30, 1995 (pro forma with EQS), the Company was the designated Special
Servicer for securitized pools holding over $4.3 billion (Face Value) of loans,
$772.2 million (Face Value) of which had been assigned to the Company for
resolution in its capacity as Special Servicer.

The Company believes that its willingness to purchase participating
interests in the delinquent or non-performing portion of a securitized portfolio
provides the Company a significant competitive advantage in pursuing Special
Servicer contracts. The Company believes that acceptance of this risk is similar
to its Asset Portfolio acquisition business, and that the risk is acceptable
because the Company understands the loan valuations and will manage the loan
resolutions.

32
<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 AMRESCO Residential Credit Corporation, 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 one of the largest commercial mortgage bankers 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.

33
<PAGE>
ACC, which originated approximately $260.7 million of commercial real estate
mortgages during the nine months ended September 30, 1995, is a mortgage banker
that originates and underwrites commercial real estate loans that are funded
primarily by Conduit Purchasers rather than by institutional lenders such as
insurance companies. ACC, therefore, makes certain representations and
warranties concerning the loans it originates. These representations cover such
matters as title to the property, lien priority, environmental reviews and
certain other matters. ACC primarily targets originators of commercial mortgage
loans for commercial real estate properties that are suitable for sale to
Conduit Purchasers accumulating loans for securitization programs directly
through ACC's offices located in Dallas, Miami and Washington, D.C., as well as
through a network of approximately 20 independent mortgage brokers located
throughout the United States. ACC recently established a relationship with the
22 office commercial real estate finance unit of a major insurance company
whereby the insurance company has agreed to refer prospective borrowers to the
Company in instances where the prospective loan does not meet the insurer's
requirements (typically borrowers for medium-quality commercial properties).
Since ACC commenced underwriting activities and through September 30, 1995,
Holliday Fenoglio originated approximately 31% of the loans underwritten by ACC,
with Holliday Fenoglio and ACC each receiving fees for their respective
services.

The Company believes that through ACC, the Company has certain additional
significant advantages in the mortgage banking marketplace. First, through its
relationships with certain institutional investors, the Company is able to
underwrite and sell commercial mortgage loans, particularly in instances where
the borrower needs relatively quick access to funding for a particular project.
Through a warehouse credit facility arranged in early 1995, the Company is able
to underwrite and fund a loan and hold that loan for resale to a buyer. Second,
because of the Company's extensive experience in real estate markets, the
Company believes it can carefully evaluate the risks of such underwriting
transactions in order to minimize financial exposure to the Company in
underwriting and/or warehousing a loan.

In July 1995, the Company, through ACC, acquired CKSRS, whose primary
business is the origination, sale to Freddie Mac and servicing of multi-family
apartment mortgages in the state of Florida. Through CKSRS, the Company became a
member of the Freddie Mac multi-family seller/servicer program in Florida.
Through this acquisition, the Company will obtain access to a significant source
of funding for multi-family mortgages. The Company intends to expand its Freddie
Mac authorization to operate in other states. The Company has been approved by
Fannie Mae to participate in its DUS program. The Company expects Freddie Mac
and Fannie Mae loan originations to become a significant part of its mortgage
banking activities. Holliday Fenoglio is expected to be a significant source of
such loan originations. See "Recent Developments -- Acquisition of CKSRS."

The Company generally earns a fee of between 75 and 100 basis points of the
loan amount for originated or underwritten loans, plus certain additional
processing fees. From time to time, the Company also originates non-traditional
financing involving hybrid forms of debt, equity participations and other
creative financing structures. Fees for equity or joint venture structures are
typically higher. The table that follows reflects the loan origination activity
and loan origination and underwriting fee revenue for the nine months ended
September 30, 1995:

<TABLE>
<S> <C>
Origination:
Dollar volume................................................... $1,585.0
Number of loans................................................. 255
Origination and underwriting fees earned.......................... $12.2
Number of offices................................................. 10
</TABLE>

34
<PAGE>
After the evaluation of a loan prospect and the project financing needs, and
depending upon the type of property involved and its location, the Company
approaches institutional lenders that the Company believes would be interested
in funding the loan. The Company has established relationships with over 200
institutional lenders that include insurance companies, pension plans and
Conduit Purchasers. In 1994, the Company placed 289 loans with over 80 different
lenders. Twenty-six institutional lenders have retained the Company as their
respective exclusive or semi-exclusive loan originator in selected cities and
regions.

COMMERCIAL LOAN SERVICING BUSINESS. The Company serves as a Primary
Servicer for whole loans and as a Master Servicer for securitized pools of
commercial mortgages. For the nine months ended September 30, 1995, $1.9 million
(2.7%) of the Company's gross revenues were generated by its loan servicing
business (excluding Special Servicing). See "-- Asset Acquisition and Resolution
Business -- Asset Management and Resolution Services." The dominant users of
loan servicers are mortgage-backed bond trusts and similar securitized
asset-backed loan portfolios made up of numerous passive investors. Other
lenders often contract with the originating mortgage banker or other third-party
servicer to manage collection, accounting and other activities with respect to
the loan. The revenue stream from servicing contracts on commercial mortgages is
relatively predictable as prepayment penalties in commercial mortgages
discourage early loan payoffs, a risk that is more significant to servicers of
residential mortgage portfolios.

Primary Servicing involves collecting monthly mortgage payments, maintaining
escrow accounts for the payment of ad valorem taxes and insurance premiums on
behalf of borrowers, remitting payments of principal and interest promptly to
investors in the underlying mortgages, reporting to those investors on financial
transactions related to such mortgages, and generally administering the loans.
The Primary Servicer also must cause properties to be inspected periodically,
determine the adequacy of insurance coverage on each property, monitor
delinquent accounts for payment, and, in cases of extreme delinquency, institute
and complete either appropriate forbearance arrangements or foreclosure
proceedings on behalf of investors. Primary Servicers are typically paid an
annual fee ranging between 6 and 20 basis points of Face Value of the loans
under management. At September 30, 1995, the Company's Primary Servicing
portfolio totaled approximately $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
approximately $117.0 million (Face Value).

The market for servicing performing loan pools constitutes a much larger
potential market than the market for servicing non-performing and
under-performing assets. The Company believes that by gaining access to these
pools in a servicer capacity, opportunities exist for the Company to originate
loan refinancings as outstanding loans mature. In addition, the Company's
ability to also act as Special Servicer is a competitive advantage. The Company,
therefore, has targeted the market for performing loan management services as a
growth area for the Company. The Company has previously participated in this
market as a Primary Servicer of commercial real estate loans for loans
originated by the Company's mortgage banking unit and for loans owned by
investor clients.

On October 27, 1995, the Company acquired a substantial portion of the
assets of EQS, consisting exclusively of EQS' third-party loan pool servicing
contracts. See "Recent Developments." Management estimates that at September 30,
1995, EQS was Master Servicer on approximately $5.9 billion (Face Value),
including approximately $1.6 billion (Face Value) as full servicer, in loans
under the servicing contracts purchased in the EQS Acquisition.

35
<PAGE>

RESIDENTIAL MORTGAGE SECURITIZATION. Through AMRESCO Residential, 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. As of December 31, 1995, AMRESCO Residential held
mortgage portfolios aggregating approximately $142.7 million.

The Company intends to securitize loans through the sale of mortgage-backed
securities in the public and private capital markets. The Company will seek to
utilize securitization structures that minimize the Company's capital
requirements, while still providing income to the Company. For example, the
Company may sell certificates for senior interests in a securitization, but
retain subordinated and/or interest-only certificates. The Company then would
have limited capital at risk, but would retain a portion of the cash flow from
the securitization. The Company also may seek to place bundled residential
mortgages through non-securitization transactions such as joint ventures with
insurance companies and pension funds.

To lead the Company's entry into this market, the Company recently hired an
experienced team of individuals from a major national consumer finance company.
This group managed their former employer's comparable residential mortgage
business. This group has estimated that between 1991 and 1995, it managed the
acquisition of over $2.0 billion of mortgage assets.

PENSION ADVISORY SERVICES

The Company believes that a market exists for quality real estate advisory
services to pension plans and other institutional investors in commercial real
estate. The Company believes that through the targeted hiring of high quality
personnel with proven track records and the purchase of advisory contracts from
other advisors, the Company can become a major provider of real estate advisory
services to institutional real estate investors such as pension plans. The
Company's acquisition of substantially all of the advisory contracts and the
hiring of pension advisory personnel of Acacia is the first step in the
implementation of this strategy. See "Recent Developments." Acacia principally
provides real estate investment advice to various institutional investors
(primarily pension funds) seeking to invest a portion of their funds in real
estate. The investors establish certain investment parameters with Acacia (E.G.,
amount of funds available for investment, type of property, geographic mix, form
of investment (loan, partnership, direct ownership), target rate of return and
investment term). Acacia then seeks investment opportunities it believes meet
the investors' parameters. The investors exercise varying degrees of control
over Acacia's investment decisions. Depending on the amount of discretion
granted by the client, Acacia also will make a recommendation, or the final
decision, concerning whether to sell a particular property and will direct the
work necessary to complete the sale. Although Acacia is paid acquisition and
disposition fees by some of its clients, its principal source of revenue is
asset management fees, which are based on the cash flow of the investments under
management or are negotiated at the time of the client's investment in a
property.

COMPETITION

The Company's competition varies by business line and geographic market.
Generally, competition within each of the business lines within which the
Company competes is fragmented, with national, local and regional competitors,
none of which dominates a particular business line. Certain of the Company's
competitors within each of its business lines are larger and have greater
financial resources than the Company.

36
<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 December 31, 1995, the Company and its subsidiaries employed 810
employees. Approximately 357 persons are employed in the Company's asset
management and resolution group, 300 persons are employed in the Company's
commercial real estate mortgage banking and services group, 9 persons are
employed in its residential mortgage group, 21 persons are employed in its
pension advisory services business, and 123 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.

37
<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
(51) previously served in the following positions: Chairman of the Board and Chief
Executive Officer of the Company (December 1993 to May 1994) and Chairman of the Board
of Holdings (1992 to December 1993). Mr. Cravey also holds the following positions:
Founder and Managing Director of Cravey, Green & Wahlen Incorporated, a private risk
capital investment firm (since 1985), its investment management affiliate, CGW
Southeast Management Company (since 1991) and its affiliates, CGW Southeast I, Inc.
(the general partner of CGW Southeast Partners I, L.P.) and CGW Southeast II, Inc.
(the general partner of CGW Southeast Partners II, L.P.) (since 1991); Director of
Commercial Bancorp of Georgia (since 1988); Director of Commercial Bancorp of Gwinnett
(since 1990); and Director of Cameron Ashley Inc., a national distributor of home
building products (since 1994).

Barry L. Edwards Mr. Edwards serves as Executive Vice President and Chief Financial Officer of the
(48) Company (since November 1994). Mr. Edwards previously served as Vice President and
Treasurer of Liberty Corporation, an insurance holding company (1979 to November
1994).

Gerald E. Eickhoff Mr. Eickhoff serves as a director of the Company. His term expires in 1996. Mr.
(49) Eickhoff also is a private investor (since December 1993). He previously served as
President, Chief Executive Officer and director of BEI (1986 to December 1993).
</TABLE>

38
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME (AGE) OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
William S. Green Mr. Green serves as a director of the Company (since December 1993). His term expires
(53) in 1998. Mr. Green also holds the following positions: Managing Director of Cravey,
Green & Wahlen Incorporated, a private risk capital investment firm (since 1985), its
investment management affiliate, CGW Southeast Management Company (since 1991) and its
affiliates, CGW Southeast I, Inc. (the general partner of CGW Southeast Partners I,
L.P.) (since 1991) and CGW Southeast II, Inc. (the general partner of CGW Southeast
Partners II, L.P.) (since 1991); Director of DENTSPLY International, Inc., a
manufacturer of dental supplies, dental equipment and medical x-ray products (since
1987); and Director of Cameron Ashley Inc., a national distributor of home building
products (since 1994).

Harold E. Holliday, Jr. Mr. Holliday serves as Chairman of the Board and Chief Executive Officer of Holliday
(48) Fenoglio (since August 1994). Mr. Holliday previously served as President of Holliday,
Fenoglio, Dockerty & Gibson, Inc., a mortgage banking company (for more than five
years prior to August 1994).

Amy J. Jorgensen Ms. Jorgensen serves as a director of the Company. Her term expires in 1998. Ms.
(42) Jorgensen also serves as Managing Director of Greenbriar Associates LLC, which
provides advice and executes transactions relating to real estate assets and companies
(since 1995). Ms. Jorgensen previously served as President of the Jorgensen Company, a
consultant for real estate strategy and finance (April 1992 to September 1995) and as
Managing Director in the Real Estate Department of Morgan Stanley & Co. Incorporated
(1986 to February 1992).

Ronald B. Kirkland Mr. Kirkland serves as Vice President (since January 1994) and Chief Accounting
(51) Officer (since January 1995) of the Company. Mr. Kirkland previously served as
Controller of the Company (December 1993 to January 1995) and Holdings (December 1992
to December 1993) and as Senior Vice President and Controller of the Special Asset
Division of NationsBank of Texas (August 1988 to December 1992).

Robert H. Lutz, Jr. Mr. Lutz serves as Chairman of the Board and Chief Executive Officer of the Company
(46) (since May 1994). Mr. Lutz previously served as President of Allegiance Realty, a real
estate management company (November 1991 to May 1994); Executive Vice President of
Cousins Properties (February 1990 to October 1991); and President or Senior Vice
President of The Landmark Group (1980 to February 1990). His term as a director
expires in 1996.

Michael N. Maberry Mr. Maberry serves as President of ACC (since April 1994). Mr. Maberry previously was
(52) a Shareholder of the law firm of Winstead, Secrest & Minick (April 1989 to April
1994).
</TABLE>

39
<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.

Scott J. Reading Mr. Reading serves as President of AMRESCO Residential Credit Corporation (since
(51) August 1995). Mr. Reading previously served as Managing Director of Household
Financial Services, Inc., a division of Household International, Inc., a diversified
financial services company (June 1991 to August 1995), and Senior Vice President --
Human Resources of Household Finance Corporation, a subsidiary of Household
International, Inc., for more than one year prior thereto.

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>

40
<PAGE>
DESCRIPTION OF THE NOTES

The Notes are to be issued under the Indenture, dated as of January 15,
1996, between the Company and Bank One, Columbus, N.A., as trustee (the
"Trustee"). The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the provisions of the Indenture (including the definition of
certain terms in the Indenture), the form of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Wherever
particular provisions and definitions of the Indenture are referred to, such
provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by such
reference. Article and Section references are to Articles and Sections of the
Indenture.

GENERAL

The Notes offered by this Prospectus will be limited to $50.0 million
aggregate principal amount, plus up to an additional $7.5 million aggregate
principal amount if the Underwriters' over-allotment option is exercised in
full. The Notes will be issued in global or registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof. Interest
on the Notes will accrue from the date of original issuance and will be payable
on the 15th day of each month, commencing March 15, 1996, at the rate per annum
stated on the cover page of this Prospectus. Interest will be payable to the
person in whose name the Note is registered at the close of business on the 10th
day of the month of such Interest Payment Date. (Sections 201, 202, 301, 307,
308 and 311) The Notes will mature on January 15, 2003, unless redeemed earlier
at the option of the Company or repaid earlier upon the death of a Holder or
upon the exercise of the conditional repayment option, each as set forth below.
See "-- Redemption at Option of the Company" and "-- Repayment Option Upon
Death."

Principal and interest will be payable at an office or agency to be
maintained by the Company in New York, New York and Columbus, Ohio, except that,
at the option of the Company, principal and interest may be paid by check mailed
to the person entitled thereto. (Sections 301, 307 and 1002) The Notes may be
presented for registration of transfer or exchange at an office or agency to be
maintained by the Company in New York, New York and Columbus, Ohio. (Section
305) The Notes will be exchangeable without service charge but the Company may
require payment to cover taxes or other government charges. (Section 305) The
Notes will not be secured by the assets of the Company or any of its
subsidiaries or Affiliates or otherwise. In addition, the rights of the Company
to participate in any distribution of assets of any subsidiary, including
Holliday Fenoglio, ACC, AMRESCO Advisors, Inc. (a subsidiary of the Company
formed in connection with the Acacia Acquisition) and AMRESCO Residential, upon
its liquidation or reorganization or otherwise (and thus the ability of the
Holders of the Notes to benefit indirectly from such distribution) are subject
to the prior claims of creditors of the subsidiary.

So long as the Company is a reporting company under the Exchange Act, the
Company will furnish to Holders of the Notes annual reports of the Company
containing audited consolidated financial statements and interim reports with
unaudited consolidated summary financial data on a quarterly basis. If the
Company ceases to be a reporting company under the Exchange Act, the Company
will furnish to Holders of the Notes annual audited consolidated financial
statements and quarterly unaudited consolidated summary financial statements.
(Section 704)

REDEMPTION AT OPTION OF THE COMPANY

The Notes may not be redeemed prior to January 15, 2001. The Notes are
subject to redemption at 100% of the principal amount thereof plus accrued
interest, at the option of the Company in whole at any time or in part from time
to time, commencing on January 15, 2001, upon not less than 30 nor more than 60
days' notice mailed to the registered Holders thereof. The redemption price will
be paid with interest accrued to the date fixed for redemption. If the Company
elects to redeem less than all of the Notes, the Trustee will select which Notes
to redeem using such method as it shall deem fair and appropriate, including the
selection for redemption of a portion of the principal amount of any Note but
not less than $1,000. On and after the redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption. (Article Eleven)

41
<PAGE>
REPAYMENT OPTION UPON DEATH

Upon the death of any Holder of Notes, the Company will purchase such
Holder's Notes on request, if (i) the Notes have been registered in the Holder's
name since their date of issuance or for a period of six months prior to the
date of such Holder's death, whichever is less, (ii) the redemption payments
with respect to such Holder's Notes will not exceed $30,000 in principal amount
in any calendar year, (iii) the Company will not, after giving effect to such
payment, have made redemption payments on Notes of deceased Holders in an
aggregate amount exceeding $300,000 in principal amount in any twelve month
period (if such aggregate principal amount exceeds $300,000, then the Trustee
will repay such Notes up to $300,000 in principal amount in the order in which
such requests for repayment were received), (iv) either the Company or the
Trustee has been notified in writing of the request for redemption within one
year after the Holder's death, and if less than all of such Holder's Notes are
redeemed pursuant to such initial request, either the Company or the Trustee has
been notified in writing of subsequent requests for redemption of additional
Notes of such Holder within one year after any such preceding notice, (v) the
Company is not, after giving effect to such payment, in default under any Senior
Indebtedness, and (vi) the Company is not subject to any law, regulation,
agreement or administrative directive preventing such repayment. Notes for which
such repayment is requested shall, subject to the limitations described above,
be repaid at 100% of the principal amount thereof, together with interest
accrued to the repayment date, within 30 days following receipt by the Company
of the following: (i) a written request for payment signed by a duly authorized
representative of the Holder, which shall indicate the name of the deceased
Holder, the date of death of the deceased Holder and the principal amount of
Notes to be repaid, (ii) the certificates representing the Notes to be repaid
and (iii) evidence satisfactory to the Company and the Trustee of the death of
the Holder and evidence of authority of the representative to the extent
required by the Trustee. Authorized representatives of a Holder shall include
executors, administrators or other legal representatives of an estate, trustees
of a trust, joint owners of Notes owned in joint tenancy or tenancy by the
entirety, custodians, conservators, guardians, attorneys-in-fact and other
persons generally recognized as having legal authority to act on behalf of
others. (Section 1201)

The death of a person owning a Note in joint tenancy or tenancy by the
entirety with another or others shall be deemed the death of the Holder of the
Note, and the entire principal amount of the Note so held shall be subject to
repayment, together with interest accrued thereon to the repayment date. The
death of a person owning a Note by tenancy in common shall be deemed the death
of a Holder of a Note only with respect to the deceased Holder's interest in the
Note so held by tenancy in common; except that in the event a Note is held by
husband and wife as tenants in common, the death of either shall be deemed the
death of the Holder of the Note, and the entire principal amount of the Note so
held shall be subject to repayment. The death of a person who, during his or her
lifetime, was entitled to substantially all of the beneficial interests of
ownership of a Note, will be deemed the death of the Holder thereof for purposes
of this provision, regardless of the registered Holder, if such beneficial
interest can be established to the satisfaction of the Trustee. Such beneficial
interest will be deemed to exist in typical cases of nominee ownership,
ownership under the Uniform Transfers (or Gifts) to Minors Act, community
property or other joint ownership arrangements between a husband and wife and
trust arrangements where one person has substantially all of the beneficial
ownership interests in the Note during his or her lifetime. (Section 1201)

CONDITIONAL REPAYMENT OPTION

The Indenture provides that each Holder shall have the right to require the
Company to repurchase the Notes at a purchase price equal to 100% of the
principal amount, plus accrued and unpaid interest, upon the occurrence of any
event requiring that the Company repurchase, or make an offer to repurchase, any
Subordinated Indebtedness other than the Notes. In the event such a requirement
is effected with respect to Junior Indebtedness, the Holders of the Notes
requiring the Company to repurchase Notes must be paid in full prior to any
payment to the holders of Junior Indebtedness. In the event such a requirement
is effected with respect to Subordinated Indebtedness that is pari passu with
the Notes, the Holders of the Notes requiring the Company to repurchase Notes
must be paid concurrently with the holders of the pari passu Subordinated
Indebtedness. The Convertible Subordinated Debenture Indenture contains such a
repurchase requirement (i) in the event of any Fundamental Change (as defined in
the Convertible Subordinated Debenture Indenture) or (ii) if the Company's Net
Worth (as defined in the Convertible Subordinated

42
<PAGE>
Debenture Indenture) at the end of each of any two consecutive fiscal quarters
is less than the Minimum Net Worth (defined in the Convertible Subordinated
Debenture Indenture as approximately $141.0 million (which includes the net
proceeds to the Company from the Common Stock Offering) plus the net proceeds to
the Company from any other offering of Common Stock by the Company subsequent to
the date hereof). See "-- Convertible Subordinated Debentures."

SUBORDINATION

The Notes are subordinated, in the manner and to the extent hereinafter
described to the prior payment of all "Senior Indebtedness" of the Company.
Senior Indebtedness is defined as any Indebtedness for Money Borrowed (see
"Covenants -- Restrictions on Additional Indebtedness") whether outstanding on
the date of execution of the Indenture or thereafter created or incurred, unless
it is provided in the appropriate instrument that such Indebtedness for Money
Borrowed is subordinated to any other Indebtedness for Money Borrowed. (Sections
101 and 1301) Indebtedness for Money Borrowed is defined in the Indenture as any
of the following obligations of the Company or any subsidiary which by its terms
matures at or is extendable or renewable at the sole option of the obligor
without requiring the consent of the obligee to a date more than 360 days after
the date of the creation or incurrence of such obligation: (i) any obligations,
contingent or otherwise, for borrowed money or for the deferred purchase price
of property or services (including, without limitation, any interest accruing
subsequent to an event of default), (ii) all obligations (including the Notes)
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), except any such
obligation that constitutes a trade payable and an accrued liability arising in
the ordinary course of business, if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet prepared in
accordance with generally accepted accounting principles, (iv) all Capitalized
Lease Obligations, (v) liabilities of the Company actually due and payable under
banker's acceptances or letters of credit, (vi) all indebtedness of the type
referred to in clause (i), (ii), (iii), (iv) and (v) above secured by (or for
which the holder of such indebtedness has an existing right, content or
otherwise, to be secured by) any lien upon or security interest in property of
the Company or any subsidiary (including, without limitation, accounts and
contract rights), even though the Company or any subsidiary has not assumed or
become liable for the payment of such indebtedness and (vii) any guarantee or
endorsement (other than for collection or deposit in the ordinary course of
business) or discount with recourse of, or other agreement, contingent or
otherwise, to purchase, repurchase, or otherwise acquire, to supply or advance
funds or become liable with respect to, any indebtedness or any obligation of
the type referred to in any of the foregoing clauses (i) through (vi),
regardless of whether such obligation would appear on a balance sheet. As of
December 31, 1995, the Company and its subsidiaries had an aggregate of $281.0
million in outstanding Senior Indebtedness and an aggregate of $326.0 million in
Indebtedness for Money Borrowed.

The Indenture contains certain standstill provisions, which provide that no
payments of principal of, or interest on, the Notes may be made and no Notes may
be redeemed or repurchased if at the time thereof the Trustee has received a
written notice (a "Default Notice") from the holder or holders of not less than
51% in principal amount of the outstanding Senior Indebtedness or any agent
therefor (a "Senior Agent") specifying that an event of default (a "Senior Event
of Default") under any Senior Indebtedness has occurred. Such standstill
provisions remain in effect until the first to occur of the following: (i) the
Senior Event of Default is cured, (ii) the Senior Event of Default is waived by
the holders of such Senior Indebtedness or the Senior Agent or (iii) the
expiration of 180 days after the date the Default Notice is received by the
Trustee if the maturity of such Senior Indebtedness has not been accelerated at
such time. Upon a distribution of assets, dissolution, winding up, total
liquidation or reorganization of the Company, all Senior Indebtedness must be
paid in full before any payment of principal or interest on the Notes can be
made. (Section 1301) Any subordination will not prevent the occurrence of an
"Event of Default" (as defined below) under the Indenture.

43
<PAGE>

By reason of the subordination of the Notes, in the event of liquidation of
the Company, the Holders of the Notes will not receive payment until the Holders
of Senior Indebtedness have been satisfied and in such event Holders of Senior
Indebtedness may recover more than Holders of the Notes. Senior Indebtedness may
also be issued or incurred in the future, subject only to certain limitations on
the ratio of Senior Recourse Indebtedness to Consolidated Capitalization. See
"-- Covenants -- Restrictions on Additional Indebtedness."

COVENANTS

The Indenture will contain a number of covenants relating to the Company and
its operations, including the following:

RESTRICTIONS ON ADDITIONAL INDEBTEDNESS AND INTEREST COVERAGE RATIO. The
Indenture limits the amount of Indebtedness for Money Borrowed of the Company on
a consolidated basis and contains a minimum Interest Coverage Ratio. The Company
may not create, incur, assume, guarantee or otherwise be liable for any
Indebtedness for Money Borrowed if, immediately after giving effect thereto: (i)
the aggregate amount of the Senior Recourse Indebtedness outstanding would
exceed 450% of the Company's Consolidated Capitalization or (ii) the aggregate
amount of Subordinated Indebtedness outstanding would exceed 100% of the
Company's Consolidated Net Worth. In addition, the Company may not permit the
Interest Coverage Ratio to be less than 1.25 to 1. "Consolidated Capitalization"
is defined as the sum of the Company's Subordinated Indebtedness plus its
Consolidated Net Worth. "Subordinated Indebtedness" is defined as all
Indebtedness for Money Borrowed except Senior Indebtedness (including the Notes,
any indebtedness issued on a pari passu basis with the Notes and any Junior
Indebtedness). "Junior Indebtedness" is defined as any Indebtedness for Money
Borrowed of the Company, whether outstanding on the date of execution of the
Indenture or thereafter created or incurred, if, in the instrument creating or
evidencing such Indebtedness for Money Borrowed or pursuant to which such
Indebtedness for Money Borrowed is outstanding, it is provided that (i) such
indebtedness is junior in right of payment to the Notes, (ii) no payments with
respect to such indebtedness may be made at any time that an Event of Default
shall have occurred and be continuing and (iii) no payments other than the
payment of interest may be made with respect to such indebtedness at any time
the Notes are outstanding. "Consolidated Net Worth" is defined as the excess, as
determined in accordance with generally accepted accounting principles, after
appropriate deduction for minority interests in the net worth of consolidated
subsidiaries, of the Company's assets over its liabilities. (Sections 101 and
1007) "Senior Recourse Indebtedness" is defined as Senior Indebtedness minus any
Indebtedness for Money Borrowed of the Company or any of its subsidiaries that
is (A)(i) specifically advanced to finance the acquisition of assets classified
on the Company's balance sheet as "assets held for sale" and (ii) either (a)
secured by the assets to which such indebtedness relates without recourse to the
Company or any of its subsidiaries or (b) issued under a loan agreement that
requires each advance to be repaid upon sale of the assets to which such advance
relates within no more than one year of the date of such advance or (B) advanced
to a subsidiary or group of subsidiaries formed for the sole purpose of
acquiring or holding a portfolio of assets (i) against which a loan is obtained
that is made without recourse to, and with no cross-collateralization against
the assets of, the Company or any other subsidiary, and (ii) upon complete or
partial liquidation of which the loan must be correspondingly completely or
partially repaid, as the case may be. The Interest Coverage Ratio is defined to
mean, for any date of determination, the ratio of Consolidated EBITDA for the
immediately preceding twelve calendar months to Consolidated Interest Expense
for the immediately preceding twelve calendar months. Consolidated EBITDA is
defined as the sum of consolidated net income of the Company and its
subsidiaries before taxes and non-recurring gains or losses, plus depreciation,
amortization and interest expense. Consolidated Interest Expense is defined as
the interest expense required to be shown as such on the financial statements of
the Company and its subsidiaries, on a consolidated basis. At September 30,
1995, after giving effect to the adjustments described in "Capitalization" (but
without giving effect to the Offering), the Company's Consolidated
Capitalization was approximately $428.5 million, including Consolidated Net
Worth in the amount of approximately $150.8 million and $45.0 million of
Subordinated Indebtedness on a consolidated basis. After giving effect to the
sale of $50.0 million principal amount of the Notes hereby (assuming the $7.5
million over-allotment option is not

44
<PAGE>
exercised), the Company could have incurred approximately $ million of
additional Senior Recourse Indebtedness and approximately $ million of
additional Subordinated Indebtedness. (Sections 101 and 1007)

RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. The Indenture
provides that the Company cannot (i) declare or pay any dividend, either in cash
or property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company) or (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, either directly or indirectly
through any subsidiary, in respect of its capital stock (such dividends,
purchases, redemptions, retirements, payments and distributions being herein
collectively called "Restricted Payments") if, after giving effect thereto,

(1) an Event of Default would have occurred; or

(2) (A) the sum of (i) such Restricted Payments plus (ii) the aggregate
amount of all Restricted Payments made during the period after December 31,
1995 would exceed (B) the sum of (i) $10 million plus (ii) 50% of the
Company's Consolidated Net Income for each fiscal year commencing subsequent
to December 31, 1995 (with 100% reduction for a loss in any fiscal year),
plus (iii) the cumulative net proceeds received by the Company from the
issuance or sale after December 31, 1995 of capital stock of the Company
(including in such proceeds, the face amount of indebtedness, including the
Convertible Subordinated Debentures, that has been converted to Common Stock
after December 31, 1995).

Notwithstanding the foregoing, the Company may make a previously-declared
Restricted Payment if the declaration of such Restricted Payment was permitted
when made. The amount of any Restricted Payment payable in property shall be
deemed to be the fair market value of such property as determined by the Board
of Directors of the Company. (Section 1006)

CONSOLIDATION, MERGER OR TRANSFER. The Company may not consolidate with,
merge with, or transfer all or substantially all of its assets to another entity
where the Company is not the surviving corporation unless (i) such other entity
assumes the Company's obligations under the Indenture, and (ii) after giving
effect thereto, no event shall have occurred and be continuing which, after
notice or lapse of time, would become an Event of Default. (Section 801)

LIMITATION ON RANKING OF FUTURE INDEBTEDNESS. The Indenture provides that
the Company will not, directly or indirectly, incur, create, assume or guarantee
any Indebtedness for Money Borrowed which is expressly subordinate in right of
payment to any Senior Indebtedness, other than Junior Indebtedness or
indebtedness that is pari passu with the Notes in right of payment. The
incurrence of Senior Indebtedness which is unsecured shall not, because of its
unsecured status, be deemed to be subordinate in right of payment to Senior
Indebtedness which is secured. (Section 1013)

LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS. The Indenture provides
that neither the Company nor its subsidiaries may create or otherwise cause to
become effective any consensual encumbrance or restriction of any kind on the
ability of any subsidiary of the Company to (i) pay dividends or make any other
distribution on its capital stock, (ii) pay any indebtedness owed to the Company
or any other subsidiary of the Company or (iii) make loans, advances or capital
contributions to the Company or any other subsidiary of the Company except in
certain specified circumstances. (Section 1014)

LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither the Company nor any
subsidiary may enter into any transactions with any Affiliate on terms and
conditions less favorable to the Company or such subsidiary, as the case may be,
than would be available at such time in a comparable transaction in arm's length
dealings with an unrelated Person as determined by the Company's Board of
Directors. These provisions do not apply to Restricted Payments otherwise
permitted under the Indenture, fees and compensation paid to, and indemnity
provided on behalf of, officers, directors, employees or consultants of the
Company or any subsidiary, as determined by the Company's Board of Directors or
its senior management in the exercise of their reasonable business judgment or
payments for goods and services purchased in the ordinary course of business on
an arm's length basis. (Section 1015)

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EVENTS OF DEFAULT

An Event of Default includes: (i) failure to pay the principal on the Notes
when due at Maturity, upon redemption or upon repayment, as provided in the
Indenture, whether or not prohibited by the subordination provisions of the
Indenture, (ii) failure to pay any interest on the Notes for 10 days, whether or
not prohibited by the subordination provisions of the Indenture, (iii) failure
to perform any other covenants set forth in the Indenture for 30 days after
receipt of written notice from the Trustee or Holders of at least 25% in
principal amount of the outstanding Notes specifying the default and requiring
the Company to remedy such default, (iv) default in the payment at stated
maturity of indebtedness of the Company for money borrowed having an outstanding
principal amount due at stated maturity greater than $1 million and such default
having continued for a period of 30 days beyond any applicable grace period, (v)
an event of default as defined in any mortgage, indenture or instrument of the
Company shall have happened and resulted in acceleration of indebtedness which,
together with the principal amount of any other indebtedness so accelerated,
exceeds $1 million or more at any time, and such default shall not be cured or
waived and such acceleration shall not have been rescinded or annulled, (vi)
certain events of insolvency, receivership or reorganization of the Company or
any subsidiary and (vii) entry of a final judgment, decree or order against the
Company for the payment of money in excess of $5 million and such judgment,
decree or order continues unsatisfied for 30 days without a stay of execution.
(Section 501)

The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a "default" (meaning, for this purpose, the events specified above
without grace periods), give the Holders of the Notes notice of all defaults
known to it which have occurred and remained uncured; provided that, except in
the case of a default in the payment of principal or interest on any of the
Notes, the Trustee shall be protected in withholding such notice if and so long
as it in good faith determines that the withholding of such notice is in the
interest of the Holders. (Section 602)

If an Event of Default shall occur and be continuing, the Trustee, in its
discretion may, and, at the written request of Holders of a majority in
aggregate principal amount of the outstanding Notes shall, proceed to protect
and enforce its rights and the rights of the Holders. If an Event of Default
shall occur and be continuing, either the Trustee or the Holders of at least 25%
in aggregate principal amount of outstanding Notes may accelerate the maturity
of all such outstanding Notes. The Holders of a majority in aggregate principal
amount of outstanding Notes may waive a default, except a default in the payment
of principal of or interest on any Note. If any Event of Default has occurred
and a declaration of acceleration made before a judgment or decree for payment
of money due is obtained, Holders of a majority of the outstanding Notes may
rescind the acceleration of the Notes if all Events of Default have been
remedied and all payments due, other than those due as a result of acceleration,
have been made. (Sections 502, 503, 512 and 513)

The Company must furnish quarterly to the Trustee an Officers Certificate
stating whether to the best knowledge of the signers, the Company is in default
under any of the provisions of the Indenture, and specifying all such defaults
and the nature thereof, of which they have knowledge. (Section 1011)

A Holder will not have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless (i) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
(ii) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes shall have made a written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, (iii) the
Trustee shall have failed to institute such proceeding within 60 days and (iv)
the Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request. (Section 507) However, the Holder of any Note will have an absolute
right to receive payment of the principal of and interest on such Note on or
after the respective due dates and to institute suit for the enforcement of any
such payment. (Section 508)

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MODIFICATION AND WAIVER

With certain limited exceptions which permit modifications of the Indenture
by the Company and the Trustee only, the Indenture may be modified by the
Company with the consent of Holders of not less than a majority in aggregate
principal amount of outstanding Notes; provided, however, that no such changes
shall without the consent of the Holder of each Note affected thereby (i) change
the maturity date of the principal of, or the due date of any installment of
interest on, any Note, (ii) reduce the principal of, or the rate of interest on,
any note, (iii) change the currency in which any portion of the principal of, or
interest on, any Note is payable, (iv) impair the right on institute suit for
the enforcement of any such payment, (v) reduce the above-stated percentage of
Holders of the outstanding Notes necessary to modify the Indenture, (vi) modify
the foregoing requirements or reduce the percentage of outstanding Notes
necessary to waive any past default or (vii) impair the optional right to
repayment provided the Holders. (Sections 513 and 902)

The Holders of a majority in aggregate principal amount of outstanding Notes
may waive compliance by the Company with certain restrictive provisions of the
Indenture. (Section 1012)

SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE

The Indenture provides that the Company may terminate its obligations under
the Indenture with respect to all the Notes by delivering to the Trustee, in
trust for such purpose, money, Government Obligations or both which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide on the due dates of any payment of principal and interest,
or a combination thereof, money in an amount sufficient to discharge the entire
indebtedness of the Notes. (Sections 401 and 402)

GOVERNING LAW

The Indenture and the Notes will be governed and construed in accordance
with the laws of the State of Texas, without giving effect to such State's
conflict of laws principles.

CONCERNING THE TRUSTEE

Bank One, Columbus, N.A. is Trustee under the Indenture and is also the Note
Registrar.

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DESCRIPTION OF OTHER INDEBTEDNESS

THE FOLLOWING SUMMARIES OF THE PRINCIPAL TERMS OF THE VARIOUS CREDIT
FACILITIES AND THE CONVERTIBLE SUBORDINATED DEBENTURE INDENTURE DO NOT PURPORT
TO BE COMPLETE AND ARE SUBJECT TO THE DETAILED PROVISIONS OF, AND QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO, SUCH AGREEMENTS. THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AGREEMENT
DESCRIBED IN THIS SECTION. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."

REVOLVING LOAN AGREEMENT

GENERAL. On September 29, 1995, the Company and certain of its subsidiaries
entered into the Revolving Loan Agreement with NationsBank of Texas, as agent
(the "Agent"), and other lending institutions party thereto (the "Banks"), which
replaced the Company's previous revolving line of credit with NationsBank. A
total of $77.0 million and $67.5 million was outstanding under such facility at
September 30, 1995 and December 31, 1995, respectively. The Company had no
outstanding letters of credit at September 30, 1995. At December 31, 1995, the
Company had outstanding $239,000 in face amount of letters of credit.

The Revolving Loan Agreement provides for (i) a $50.0 million Corporate
Facility to be used for (A) general working capital purposes, (B) acquisitions
of equity interests in other persons, (C) certain permitted investments, and (D)
other business needs approved by the Banks that constitute at least 50% of the
lenders in number and have loaned 51% or more of the amount then outstanding
under the Revolving Loan Agreement; (ii) a $100.0 million Portfolio Facility to
be used to (A) refinance indebtedness incurred in connection with the purchase
of certain Asset Portfolios acquired prior to execution and delivery of the
Revolving Loan Agreement, (B) finance future acquisitions of Asset Portfolios,
and (C) finance acquisitions of entities for the purpose of resolving Asset
Portfolios owned by such entities; and (iii) a sublimit of $10.0 million for
letters of credit. (The Revolving Loan Agreement initially included a $25.0
million temporary bridge facility that was permanently repaid with a portion of
the net proceeds of the Convertible Subordinated Debenture Offering.) The Banks'
current commitment under the Revolving Loan Agreement is limited to a total of
$105.0 million, $35.0 million under the Corporate Facility and $70.0 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 Company uses the Corporate Facility for general corporate purposes
including acquisitions and investments in asset portfolios, partnerships and
joint ventures and the Portfolio Facility to support investments in wholly-owned
asset portfolios.

RANKING. Indebtedness under the Revolving Loan Agreement constitutes Senior
Indebtedness.

SECURITY. Indebtedness under the Revolving Loan Agreement is secured by
substantially all the assets of the Company not pledged under other facilities,
including stock of a majority of the Company's subsidiaries.

INTEREST. Indebtedness under the Corporate Facility and the Portfolio
Facility generally bears interest at a rate based (at the Company's option) upon
the lesser of (i) the Variable Rate (defined as Agent's prime rate, as announced
from time to time) or (ii) the Adjusted LIBOR Rate (as defined in the Revolving
Loan Agreement).

MATURITY. The Corporate Facility will mature on September 29, 1997. The
Portfolio Facility will mature on September 27, 1996, subject to the Company's
right to extend the maturity date for the outstanding balance of the Portfolio
Facility for one additional year. Loans made pursuant to the Corporate Facility
and the Portfolio Facility may be borrowed, repaid and reborrowed from time to
time until the respective maturity thereof, subject to the satisfaction of
certain conditions on the date of any such borrowing.

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FEES. The Company paid to the Banks, upon execution and delivery of the
Revolving Loan Agreement, an aggregate commitment fee equal to $770,000. The
Company also will be required to pay to the Banks a facility fee (ranging from
20 to 37.5 basis points) per annum, payable in arrears on a quarterly basis, on
the committed undrawn amount of the Corporate Facility and the Portfolio
Facility, after adjustment for any letters of credit issued by the Banks under
the Revolving Loan Agreement. In addition, the Company will be required to pay
to the Agent (for the account of each Bank) certain fees in respect of letters
of credit issued under the Revolving Loan Agreement. The Company also will pay
to the Agent certain other fees for the Agent's role in structuring and
administering the Revolving Loan Agreement.

CONDITIONS TO FUNDING EXTENSIONS OF CREDIT. The obligation of the Banks to
make loans or extend letters of credit will be subject to the satisfaction of
certain customary conditions, including, without limitation, the absence of any
default under the Revolving Loan Agreement and all representations and
warranties under the Revolving Loan Agreement being true and correct in all
material respects.

COVENANTS. 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 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 stockholders,
dividends, transactions with affiliates, acquisitions, mergers and
consolidations, liens and encumbrances and other matters customarily restricted
in such agreements. The Revolving Loan Agreement also contains additional
covenants that require the Company to maintain its properties and those of its
subsidiaries (including corporate franchises), together with insurance thereon,
to provide certain information to the Agent, including financial statements,
notices and reports, to permit inspections of the books and records of the
Company and its subsidiaries by the Agent, to comply with applicable laws,
including environmental laws and ERISA, to pay taxes, and to use the proceeds of
the loans solely for certain specified purposes.

EVENTS OF DEFAULT. The Revolving Loan Agreement contains customary events
of default, including payment defaults, covenant defaults (subject to certain
cure periods to be mutually agreed upon by the Company and the Agent), breaches
of representations and warranties, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgment defaults in excess of
$500,000, failure of any guaranty or security agreement supporting the Revolving
Loan Agreement to be in full force and effect and change of control of the
Company.

INDEMNIFICATION. Under the Revolving Loan Agreement, the Company has agreed
to indemnify the Agent and the Banks from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitations,
reasonable fees and disbursements of counsel for Agent and the Banks) that may
be incurred by Agent or any Bank relating to or arising out of the Revolving
Loan Agreement, provided that the Company is not liable for any such
liabilities, losses, damages, costs or expenses resulting from such indemnified
party's own gross negligence or willful misconduct. In addition, the Company has
agreed to indemnify the Banks against any and all present and future claims
related to tax payments (excluding income taxes of any Bank) in connection with
the loans made under the Revolving Loan Agreement.

ACC WAREHOUSE FACILITIES

NATIONSBANK

GENERAL. On April 28, 1995, ACC and the Company entered into the $25.0
million NationsBank Warehouse Facility, which ACC uses to finance the
origination and warehousing of certain mortgage loans. See "Business -- Mortgage
Banking Business." The Company has guaranteed certain of ACC's obligations under
the NationsBank Warehouse Facility. A total of $2.7 million and $9.0 million was
outstanding under the NationsBank Warehouse Facility at September 30, 1995 and
December 31, 1995, respectively. ACC uses the NationsBank Warehouse Facility to
support investments in mortgages pending sale.

RANKING. The NationsBank Warehouse Facility constitutes Senior Indebtedness
of the Company.

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SECURITY. ACC's indebtedness under the NationsBank Warehouse Facility is
secured by all mortgage loans originated by ACC using funds obtained under the
NationsBank Warehouse Facility and related collection accounts.

INTEREST. Indebtedness under the NationsBank Warehouse Facility generally
bears interest at a rate based (at ACC's option) upon the lesser of (i) the
prime rate established by NationsBank of Texas, as announced from time to time
or (ii) the Adjusted LIBOR Rate (as defined in the NationsBank Warehouse
Facility) plus 2%.

MATURITY. The original maturity date of the NationsBank Warehouse Facility
is January 25, 1997, subject to certain limitations. Under certain
circumstances, ACC may extend the maturity date to January 25, 1998.

CONDITIONS TO EXTENSIONS OF CREDIT. The obligation of NationsBank of Texas
to make loans to ACC under the NationsBank Warehouse Facility is subject to
certain customary conditions including, without limitation, the delivery of
certain documents, instruments and applications by ACC, approval by NationsBank
of Texas of the mortgage loan to be originated by ACC, the absence of any
default under the NationsBank Warehouse Facility and all representations and
warranties under the NationsBank Warehouse Facility being true and correct.

COVENANTS. The NationsBank Warehouse Facility requires ACC to meet certain
financial tests, including minimum liquidity, maximum ratios of total
liabilities to tangible net worth and minimum tangible net worth. The
NationsBank Warehouse Facility also contains covenants that, among other things,
limit the incurrence of additional indebtedness, investments, asset sales,
distributions, transactions with affiliates, acquisitions, mergers and
consolidations, liens, encumbrances and other matters customarily restricted in
such agreements. The NationsBank Warehouse Facility also contains additional
covenants that require ACC to provide certain information to NationsBank of
Texas, including financial statements, notices and reports, to permit
inspections of the books and records of the Company and its subsidiaries by
NationsBank of Texas and to comply with applicable laws and to pay taxes.

EVENTS OF DEFAULT. The NationsBank Warehouse Facility contains customary
events of default, including payment defaults, breaches of representations and
warranties, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, judgment defaults in excess of certain amounts,
failure of any guarantee or security agreement supporting the NationsBank
Warehouse Facility to be in full force and effect, a change in control of ACC,
changes in the basic business of ACC and changes in the individuals holding
certain offices with ACC.

INDEMNIFICATION. Under the NationsBank Warehouse Facility, ACC has agreed
to indemnify NationsBank of Texas and certain related parties from and against
any and all losses, liabilities, claims, damages, deficiencies, interest,
judgments, costs and expenses (including, without limitation, reasonable fees
and disbursements of counsel for NationsBank of Texas) that arise out of certain
matters described in the NationsBank Warehouse Facility, provided that ACC is
not liable for such matters resulting from the gross negligence or willful
misconduct of an indemnitee thereunder.

RESIDENTIAL FUNDING CORPORATION

GENERAL. On August 15, 1995, ACC entered into the RFC Warehouse Facility,
which ACC uses to facilitate multi-family mortgage loan underwriting and
origination. See "Business -- Mortgage Banking Business." A total of $3.0
million and $8.6 million was outstanding under the RFC Warehouse Facility at
September 30, 1995 and December 31, 1995, respectively. The RFC Warehouse
Facility is non-recourse to the Company.

SECURITY. ACC's indebtedness under the RFC Warehouse Facility is secured by
all mortgage loans originated by ACC using funds obtained under the RFC
Warehouse Facility.

INTEREST. Indebtedness under the RFC Warehouse Facility generally bears
interest at a rate based upon the LIBOR Rate (as defined in the RFC Warehouse
Facility) plus 3%.

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MATURITY. The stated maturity date will be provided in each note related to
each borrowing under the RFC Warehouse Facility and is expected to be
approximately 60 days from the date of each such borrowing.

CONDITIONS TO EXTENSIONS OF CREDIT. The obligation of Residential Funding
Corporation to make loans to ACC under the RFC Warehouse Facility is subject to
certain customary conditions including, without limitation, the delivery of
certain documents, instruments and applications by ACC, approval by Residential
Funding Corporation of the mortgage loans to be originated by ACC, the absence
of any default under the RFC Warehouse Facility, and all representations and
warranties under the RFC Warehouse Facility being true and correct.

COVENANTS. The RFC Warehouse Facility requires ACC to meet certain
financial tests, including a maximum ratio of debt to tangible net worth,
minimum tangible net worth and minimum Servicing Portfolio (as defined in the
RFC Warehouse Facility). The RFC Warehouse Facility also contains covenants
that, among other things, limit ACC's ability to liquidate, dissolve,
consolidate or merge or sell any substantial part of its assets, or acquire any
substantial part of the assets of another business. The RFC Warehouse Facility
also contains additional covenants that require ACC to provide certain
information to Residential Funding Corporation, including financial statements,
notices and reports, permit inspections of the books and records of ACC by
Residential Funding Corporation and to comply with applicable laws and to pay
taxes.

EVENTS OF DEFAULT. The RFC Warehouse Facility contains customary events of
default, including payment defaults (subject to certain cure periods), breaches
of covenants or representations and warranties, cross-defaults to certain other
indebtedness, certain events of bankruptcy and insolvency (including of the
Company) and judgment defaults in excess of certain amounts.

INDEMNIFICATION. Under the RFC Warehouse Facility, ACC has agreed to
indemnify Residential Funding Corporation and certain related parties from and
against any and all losses, liabilities, claims, damages, deficiencies,
interest, judgments, costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel for Residential Funding
Corporation) that arise out of certain matters described in the RFC Warehouse
Facility, provided that ACC is not liable for such matters resulting from the
gross negligence or willful misconduct of an indemnitee thereunder.

ARMC WAREHOUSE FACILITY

GENERAL. Effective November 1, 1995, ARMC entered into the Prudential
Warehouse Facility. The Prudential Warehouse Facility is currently a $150.0
million credit facility that ARMC uses to finance the acquisition and
warehousing of certain residential mortgage loans. See "Business -- Mortgage
Banking Business -- Residential Mortgage Securitization." A total of $135.6
million was outstanding under the Prudential Warehouse Facility at December 31,
1995. The Prudential Warehouse Facility is non-recourse to the Company.

SECURITY. ARMC's indebtedness under the Prudential Warehouse Facility is
secured by all residential mortgage loans acquired by ARMC using funds obtained
under the Prudential Warehouse Facility.

INTEREST. Indebtedness under the Prudential Warehouse Facility generally
bears interest at a rate based upon LIBOR (as defined in the Prudential
Warehouse Facility) plus 7/8%; if Prudential Securities, Inc. is not the
underwriter on the eventual securitization of the mortgage loans securing this
warehouse loan, the interest rate may be increased to LIBOR plus 2 2/5%,
applicable retroactively.

MATURITY. The stated maturity date for the Prudential Warehouse Facility is
the earlier of (i) March 29, 1996 or (ii) the date on which the loans
collateralizing the Prudential Warehouse Facility are securitized.

CONDITIONS TO EXTENSIONS OF CREDIT. The obligation of Prudential Securities
Realty Funding Corporation to make loans to ARMC under the Prudential Warehouse
Facility is subject to certain customary conditions, including, without
limitation, the delivery of certain documents, instruments and applications by
ARMC, approval by Prudential Securities Realty Funding Corporation of the
mortgage loan pool to be acquired by ARMC, the absence of any default under the
Prudential Warehouse Facility, and all representations and warranties under the
Prudential Warehouse Facility being true and correct.

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COVENANTS. The Prudential Warehouse Facility requires ARMC to meet certain
financial tests, including minimum tangible equity capital, a minimum net equity
amount and a maximum leverage ratio. The Prudential Warehouse Facility also
contains covenants that, among other things, require ARMC to provide certain
information to Prudential Securities Realty Funding Corporation, including
financial statements and other reports regarding the mortgage loans, to maintain
adequate insurance, and to comply with the applicable laws.

EVENTS OF DEFAULT. The Prudential Warehouse Facility contains customary
events of default, including payment default, breaches of covenants or
representations and warranties, certain events of bankruptcy and insolvency
(including of the Company) and material adverse changes in the financial
condition of ARMC or the Company.

INDEMNIFICATION. Under the Prudential Warehouse Facility, ARMC has agreed
to indemnify Prudential Securities Realty Funding Corporation against all
liabilities, losses, damages, judgments, costs and expenses of any kind which
relate to or arise out of the Prudential Warehouse Facility, provided that ARMC
is not liable for such matters resulting from the negligence or willful
misconduct of Prudential.

AMBS REPURCHASE TRANSACTION

GENERAL. On December 19, 1995, AMRESCO MBS I, INC., a wholly-owned
subsidiary of the Company ("AMBS"), entered into a Repurchase Transaction (the
"Repurchase Transaction") which supplements, forms part of and is subject to a
Global Master Repurchase Agreement (the "Repurchase Agreement") with Nomura
Grand Cayman, Ltd. ("Nomura") to support the purchase on margin of certain
commercial mortgage pass-through certificates (the "Purchased Securities"). As
of December 31, 1995, $20.6 million outstanding under the Repurchase
Transaction.

SECURITY. Indebtedness under the Repurchase Transaction is secured by a
first priority security interest
in the Purchased Securities.

INTEREST. Indebtedness under the Repurchase Transaction bears interest at a
rate of 30 day LIBOR plus 1 2/5% (7 1/3% at December 31, 1995).

REPURCHASE DATE. The repurchase date for the Repurchase Transaction is
December 18, 1996, with a six month extension, at the option of Nomura.

EVENTS OF ACCELERATION. Upon the occurrence of (i) a material adverse
impact on (A) the creditworthiness of AMBS, (B) the ability of AMBS to perform
its obligations under the Repurchase Agreement, (C) the marketability or value
of the Purchased Securities or (D) the economic, political or financial
stability of the issuing or domicile country, (ii) governmental changes in
taxation or exchange controls which affect the Purchased Securities or relevant
financial markets or (iii) a drop of more than 5% in the market value of the
Purchased Securities in one day, Nomura may immediately accelerate the
repurchase date.

EVENTS OF DEFAULT. The Repurchase Transaction contains certain events of
default, including, among others, payment defaults, failure to maintain a
minimum margin, insolvency, breaches of representations and warranties,
suspension from a securities exchange or association, failure to maintain a
first priority security interest in the Purchased Securities and cross-defaults
in excess of certain amounts.

CONVERTIBLE SUBORDINATED DEBENTURES

GENERAL. On November 27, 1995, the Company entered into the Convertible
Subordinated Debenture Indenture with First Interstate Bank of Texas, National
Association, as trustee. Pursuant to the terms of the Convertible Subordinated
Debenture Indenture, an aggregate of $45.0 million of Convertible Subordinated
Debentures were issued. All of the net proceeds from the sale of the Convertible
Subordinated Debentures were applied to pay down indebtedness under the
Company's Revolving Loan Agreement.

RANKING. Indebtedness under the Convertible Subordinated Debenture
Indenture does not constitute Senior Indebtedness and will be subordinated to
the Notes.

SECURITY. Indebtedness under the Convertible Subordinated Debenture
Indenture is unsecured.

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INTEREST. Indebtedness under the Convertible Subordinated Debenture
Indenture bears interest at the rate of 8% per annum.

MATURITY. The Convertible Subordinated Debenture Indenture will mature on
December 15, 2005.

CONVERSION RIGHTS. The Convertible Subordinated Debentures are convertible
into Common Stock at the option of holders thereof at any time and from time to
time prior to and including maturity. The initial conversion price is $12.50 per
share, subject to adjustment in certain events.

CERTAIN RIGHTS TO REQUIRE REPURCHASE OF CONVERTIBLE SUBORDINATED
DEBENTURES. In the event of any Fundamental Change (as described below)
affecting the Company which constitutes a Repurchase Event (as described below)
occurring after the date of issuance of the Convertible Subordinated Debentures
and on or prior to maturity, each holder of Convertible Subordinated Debentures
will have the right, at the holder's option, to require the Company to
repurchase all or any part of the holder's Convertible Subordinated Debentures
at a price (the "Repurchase Price") equal to 101% of the principal amount
thereof, together with accrued and unpaid interest to the repurchase date.

The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation on the Nasdaq Stock Market or any similar system of
automated dissemination of quotations of securities prices. For purposes of the
definition of a "Fundamental Change," (i) "substantially all of the Common
Stock" shall mean at least 85% of the Common Stock outstanding immediately prior
to the transaction or event giving rise to a Fundamental Change and (ii)
consideration shall be "substantially all common stock" if at least 80% of the
fair value (as determined in good faith by the Board of Directors) of the total
consideration is attributable to common stock. A Fundamental Change would not
include an acquisition of a majority of the outstanding Common Stock by any
person or group so long as it does not result in termination of such listing or
approval for quotation.

A Repurchase Event is a right to require the Company to repurchase the
Convertible Subordinated Debentures and a Repurchase Event shall have occurred
if a Fundamental Change shall have occurred unless (i) the current market price
of the Common Stock is at least equal to the conversion price of the Convertible
Subordinated Debentures in effect immediately preceding the time of such
Fundamental Change or (ii) the consideration in the transaction or event giving
rise to such Fundamental Change to the holders of Common Stock consists of cash,
securities that are, or immediately upon issuance will be, listed on a national
securities exchange or quoted on the Nasdaq National Market (or any similar
system of automated dissemination of quotations of securities prices), or a
combination of cash and such securities, and the aggregate fair market value of
such consideration (which, in the case of such securities, shall be equal to the
average of the daily closing prices of such securities during the 10 consecutive
trading days commencing with the sixth trading day following consummation of
such transaction or event) is at least 105% of the conversion price of the
Convertible Subordinated Debentures in effect on the date immediately preceding
the closing date of such transaction or event.

OPTIONAL REDEMPTION. The Convertible Subordinated Debentures are not
redeemable prior to December 15, 1996. Thereafter the Convertible Subordinated
Debentures will be redeemable, at the Company's option, in whole and not in
part, at various redemption prices (expressed as a percentage). The Convertible
Subordinated Debentures may not be redeemed, however, after December 15, 1996,
and prior to December 15, 1998, unless, for twenty consecutive trading days
ending on the day immediately preceding the fifth day prior to notice of
redemption, the Closing Price (as defined) equals or exceeds 145% of the
conversion price.

COVENANTS. The Convertible Subordinated Debenture Indenture contains
covenants limiting dividends and redemptions, limiting restrictions on
subsidiary dividends and requiring that certain conditions be met prior to any
consolidation, merger or sale of assets of the Company.

53
<PAGE>
In addition, the Convertible Subordinated Debenture Indenture provides that
if the Company's Net Worth (as defined below) at the end of each of any two
consecutive fiscal quarters (the last day of such second fiscal quarter being
referred to as the "Acceleration Date"), respectively, is less than the Minimum
Net Worth (as defined below), then the Company shall make an irrevocable,
unconditional offer to all holders (an "Offer") to acquire, on a PRO RATA basis,
on or before the last day of the next following fiscal quarter or, if the
Acceleration Date is the last day of the Company's fiscal year, the 45th day
after the last day of the next following fiscal quarter (the "Accelerated
Payment Date"), $20.0 million aggregate principal amount of Convertible
Subordinated Debentures (or if less than such amount of Convertible Subordinated
Debentures are then outstanding, all of the Convertible Subordinated Debentures
outstanding at the time) at a purchase price equal to 100% of the principal
amount, plus accrued and unpaid interest, if any, to and including such
Accelerated Payment Date, which amounts or portion thereof upon acceptance of
such Offer by tender shall thereupon become due and payable.

"Minimum Net Worth" means approximately $141.0 million (which includes the
net proceeds to the Company from the Common Stock Offering) plus the net
proceeds to the Company from any other offering of Common Stock by the Company
subsequent to the date hereof. "Net Worth" of the Company as of any date means
the amount of equity of the holders of capital stock of the Company which would
appear on the balance sheet of the Company as of such date, determined in
accordance with generally accepted accounting principles.

EVENTS OF DEFAULTS. The Convertible Subordinated Debenture Indenture
contains certain customary events of default, including payment defaults,
covenant defaults (subject to certain cure periods), defaults of certain other
indebtedness, certain events of bankruptcy and insolvency and judgment defaults
in excess of $1.0 million.

54
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Purchase Agreement between the
Company and the Underwriters and to the receipt of certain legal opinions and
other closing conditions contemplated thereby, the Underwriters named below have
severally agreed to purchase from the Company the respective principal amount of
the Notes set forth opposite their names in the table below:

<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Piper Jaffray Inc...................................................................... $
J.C. Bradford & Co. ...................................................................
Morgan Keegan & Company, Inc. .........................................................
---------------
$ 50,000,000
---------------
---------------
</TABLE>

The nature of the obligations of the Underwriters is such that if any of the
Notes are purchased, all of them must be purchased.

The Underwriters have advised the Company that they propose to offer the
Notes to the public at the Price to Public and to selected dealers at such price
less a concession of not more than % of the principal amount of the Notes.
The Underwriters may allow, and such dealers may re-allow, concessions not in
excess of % of the principal amount of the Notes to certain other brokers and
dealers. After the initial public offering, the Price to Public and other
selling terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional $7.5
million in aggregate principal amount of the Notes at the Price to Public less
the Underwriting Discount. The Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, incurred in the sale
of the Notes offered hereby. To the extent that the Underwriters exercise the
option, each of the Underwriters will be committed, subject to certain
exceptions, to purchase a principal amount of the Notes approximately
proportionate to the Underwriter's initial commitment, and the Company will be
obligated, pursuant to the option, to sell such Notes to the Underwriters.

The Company has made application to list the Notes on the New York Stock
Exchange under the symbol "AMMB03." However, there can be no assurance that an
active trading market in the Notes will develop or that the Notes will not trade
at a discount to their principal amount.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereto.

LEGAL MATTERS

The validity of the Notes 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 Notes offered hereby will be passed
upon for the Underwriters by Lindquist & Vennum P.L.L.P., Minneapolis,
Minnesota. Lindquist & Vennum P.L.L.P. has represented the Company in certain
litigation matters.

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 Asset Management Resolution Company and AMRESCO Holdings, Inc. and
subsidiaries (predecessors 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.

55
<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-22
Combined Statement of Income for the Ten Months Ended October 31, 1992................................... F-23
Combined Statement of Cash Flows for the Ten Months Ended October 31, 1992............................... F-23
Notes to Combined Financial Statements................................................................... F-24
</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,
------------------ SEPTEMBER 30,
1993 1994 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
--------- --------- ---------- --------- -----------
--------- --------- ---------- --------- -----------

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)
----------- ----------- ------ -----------
----------- ----------- ------ -----------

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. SUBSEQUENT EVENTS (UNAUDITED)

CONVERTIBLE SUBORDINATED DEBENTURE OFFERING. On November 27, 1995, the
Company completed an offering conducted in Europe, pursuant to Regulation S
promulgated under the Securities Act, of $45.0 million aggregate principal
amount of Convertible Subordinated Debentures. The net proceeds (aggregating
approximately $43.0 million) from such offering were used to repay borrowings
under the revolving credit line. The Convertible Subordinated Debentures bear
interest at 8% per annum and will mature on December 15, 2005. There is no
sinking fund or amortization of principal prior to maturity. The Convertible
Subordinated Debentures are not redeemable prior to December 15, 1996. The
Convertible Subordinated Debentures are convertible at the option of the holders
into shares of Common Stock at a conversion price of $12.50 per share
(equivalent to a conversion rate of 80 shares of Common Stock per $1,000
principal amount of Convertible Subordinated Debentures), subject to adjustment
in certain events. The Convertible Subordinated Debentures are unsecured
obligations of the Company and subordinated to all existing and future Senior
Indebtedness (as defined in the Convertible Subordinated Debenture Indenture) of
the Company. The Convertible Subordinated Debentures contain certain rights of
the holder to require the repurchase of the Convertible Subordinated Debentures
(i) upon a Fundamental Change (as defined in the Convertible Subordinated
Debenture Indenture) and (ii) if the Company is not able to maintain a Net Worth
(as defined in the Convertible Subordinated Debenture Indenture) of
approximately $141.0 million (which includes the net proceeds to the Company
from the Common Stock offering described below) plus the net proceeds to the
Company from any other offering of Common Stock by the Company subsequent to the
date hereof. There are certain other covenants restricting dividends on and
redemptions of capital stock.

COMMON STOCK OFFERING. On December 13, 1995, the Company completed a
registered public offering of 2,000,000 shares of Common Stock. Subsequent
thereto, the Company sold an additional 300,000 shares of Common Stock upon
exercise of the Underwriters' over-allotment option. The net proceeds from such
offering, including the over-allotment shares, aggregated approximately $25.1
million and were used to repay borrowings under the revolving credit line. The
price to the public was $11.75 per share and the price to the Company per share
was $11.10 (after an underwriting discount of $ .65 per share). In addition to
the offering of shares of Common Stock by the Company, two institutional
shareholders sold an aggregate of 2,300,000 shares of Common Stock (including
300,000 shares sold pursuant to the exercise of the underwriters' over-allotment
option). The Company did not receive any proceeds from the sale of these shares.
Assuming issuance of 2,300,000 shares of common stock at the beginning of each
of the periods January 1, 1994 and 1995 and application of related net proceeds
to the repayment of borrowings bearing an average interest cost of 8.2%,
earnings per share for the year ended December 31, 1994 and the nine months
ended September 30, 1995 for income from continuing operations would have been
$0.85 and $0.50, respectively, while earnings per share for net income would
have been $0.77 and $0.59, respectively.

GLOBAL MASTER REPURCHASE AGREEMENT. On December 19, 1995, a wholly owned
subsidiary of the Company entered into a $20,593,000 Global Master Repurchase
Agreement to support the purchase of certain commercial mortgage pass-through
certificates. The agreement bears interest at a rate based on 30 day LIBOR plus
1 2/5% (7 1/3% at December 31, 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.

F-20
<PAGE>
AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. 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-21
<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-22
<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-23
<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-24
<PAGE>
AMRESCO

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONTINUED)
result, a new tax basis for the AMRESCO group was created. A reconciliation of
income taxes on reported pretax income at statutory rates to total income tax
expense is as follows for the ten months ended October 31, 1992 (in thousands):

<TABLE>
<S> <C>
Income tax at statutory rate (34%)..................................... $ 11,595
State income taxes (net of federal benefit)............................ 1,797
Change in prior-year estimate of Parent tax attributes................. (2,503)
Other.................................................................. (94)
---------
Income tax expense..................................................... $ 10,795
---------
---------
</TABLE>

5. RETIREMENT AND EMPLOYEE BENEFITS
Certain professional employees received a bonus from a pool computed on 20%
to 25% of pretax income over predetermined minimum earning levels for the ten
months ended October 31, 1992 and based upon NationsBank's bonus programs prior
to 1992. Certain employees are covered by severance plans in the event their
employment is terminated by AMRESCO. Until December 9, 1992, the Company
participated in a qualified retirement plan of NationsBank, which covered all
full-time, salaried employees and certain part-time employees. Pension expense
under this plan was accrued. The costs allocated from NationsBank were charged
to current operations and consist of several components of net pension cost
based on various actuarial assumptions regarding future experience under the
plan.

6. COMMITMENTS AND CONTINGENCIES
Total rent expense for the ten months ended October 31, 1992 was
approximately $3,220,000. AMRESCO is a defendant in or party to pending and
threatened legal actions and proceedings. Management believes, based upon the
opinion of legal counsel, that the actions and liability or loss, if any,
resulting from the final outcome of these proceedings will not be material in
the aggregate.

7. STOCKHOLDER'S EQUITY
The activity in stockholder's equity for the ten months ended October 31,
1992 is as follows (in thousands):

<TABLE>
<S> <C>
JANUARY 1, 1992....................................................... $ 30,935
Net income.......................................................... 23,307
Contribution by parent.............................................. 475
Dividends and distributions to parent............................... (42,169)
---------
OCTOBER 31, 1992...................................................... $ 12,548
---------
---------
</TABLE>

F-25
<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..................................... 12
Recent Developments.............................. 16
Use of Proceeds.................................. 17
Capitalization................................... 18
Summary Financial and Other Data................. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 21
Business......................................... 27
Management....................................... 38
Description of the Notes......................... 41
Description of Other Indebtedness................ 48
Underwriting..................................... 55
Legal Matters.................................... 55
Independent Accountants.......................... 55
Index to Financial Statements.................... F-1
</TABLE>

$50,000,000

[LOGO]

% SENIOR SUBORDINATED NOTES
DUE 2003
--------------------

P R O S P E C T U S

--------------------
PIPER JAFFRAY INC.

J.C. BRADFORD & CO.
MORGAN KEEGAN & COMPANY, INC.

, 1996
<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....................... $ 11,500
NASD Filing Fee........................................................... 6,250
New York Stock Exchange listing fee....................................... 2,900
Printing Expenses......................................................... 125,000
Accounting Fees and Expenses.............................................. 25,000
Legal Fees and Expenses................................................... 75,000
Blue Sky Fees and Expenses (including counsel fees)....................... 7,500
Fees of Trustee and Registrar Fees and Expenses........................... 2,500
Rating Agency Fees and Expenses........................................... 30,000
Miscellaneous Expenses.................................................... 14,350
---------
Total................................................................... $ 300,000
---------
---------
</TABLE>

All of the above expenses except the Securities and Exchange Commission
registration fee, the New York Stock Exchange listing fee and the NASD filing
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
Purchase Agreement (a form of which is 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.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Purchase Agreement.
4.1 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.
4.2** First Amendment to Credit Agreement, dated as of November 21, 1995, among the Company and NationsBank
of Texas, N.A., as agent, and the Banks named therein, and consented to by certain of the Company's
subsidiaries.
4.3 Indenture dated as of November 27, 1995, between the Company and First Interstate Bank of Texas,
National Association, as Trustee, in respect of the 8% Convertible Subordinated Debentures due 2005,
filed as Exhibit 4.5 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form
S-3 (No. 33-63683), which exhibit is incorporated herein by reference.
4.4* Form of Indenture to be entered into between the Company and Bank One, Columbus, N.A. in respect of
the Senior Subordinated Notes due 2003.
5.1** Opinion of L. Keith Blackwell, General Counsel of the Company, as to the validity of the Notes to be
offered.
12.1** Computation of Ratios.
23.1** Consent of L. Keith Blackwell, contained in the opinion filed as Exhibit 5.1.
23.2* Consent of Deloitte & Touche LLP.
24.1** Power of Attorney of the Directors and certain Executive Officers of the Company.
25.1** Statement of Eligibility Qualification of Trustee on Form T-1.
</TABLE>

- ------------------------
* Filed herewith.

** Previously filed.

II-2
<PAGE>
ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 15th day of January, 1996.

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 15th day of January, 1996:

<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

------------------------------------------- Director
Gerald E. Eickhoff

WILLIAM S. GREEN*
------------------------------------------- Director
William S. Green

AMY J. JORGENSEN*
------------------------------------------- Director
Amy J. Jorgensen

JOHN J. MCDONOUGH*
------------------------------------------- Director
John J. McDonough

BRUCE W. SCHNITZER*
------------------------------------------- Director
Bruce W. Schnitzer

RONALD B. KIRKLAND*
------------------------------------------- Vice President and Chief Accounting Officer (Principal
Ronald B. Kirkland Accounting Officer)
</TABLE>

L. Keith Blackwell, by signing his name hereto, does sign and execute this
Pre-Effective Amendment No. 1 to its Registration Statement on behalf of each of
the above-named officers and directors of the Registrant on this 15th day of
January, 1996, pursuant to powers of attorneys executed on behalf of each of
such officers and directors, and filed with the Securities and Exchange
Commission.

*By: /s/ L. KEITH BLACKWELL
- ------------------------------------
L. Keith Blackwell
ATTORNEY-IN-FACT

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. EXHIBIT NUMBERED PAGE
- ----------- ---------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1* Form of Purchase Agreement.
4.1 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.
4.2** First Amendment to Credit Agreement, dated as of November 21, 1995, among the Company
and NationsBank of Texas, N.A., as agent, and the Banks named therein, and consented to
by certain of the Company's subsidiaries.
4.3 Indenture dated as of November 27, 1995, between the Company and First Interstate Bank
of Texas, National Association, as Trustee, in respect of the 8% Convertible
Subordinated Debentures due 2005, filed as Exhibit 4.5 to Pre-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3 (No. 33-63683), which exhibit is
incorporated herein by reference.
4.4* Form of Indenture to be entered into between the Company and Bank One, Columbus, N.A. in
respect of the Senior Subordinated Notes due 2003.
5.1** Opinion of L. Keith Blackwell, General Counsel of the Company, as to the validity of the
Notes to be offered.
12.1** Computation of Ratios.
23.1** Consent of L. Keith Blackwell, contained in the opinion filed as Exhibit 5.1.
23.2* Consent of Deloitte & Touche LLP.
24.1** Power of Attorney of the Directors and certain Executive Officers of the Company.
25.1** Statement of Eligibility Qualification of Trustee on Form T-1.
</TABLE>

- ------------------------

* Filed herewith.

** Previously filed.

<PAGE>

EXHIBIT 1.1

DRAFT 1/15/96

$50,000,000 PRINCIPAL AMOUNT OF __% SENIOR SUBORDINATED NOTES
DUE 2003(1)

AMRESCO, INC.

PURCHASE AGREEMENT
------------------

, 1996
--------------

PIPER JAFFRAY INC.
J.C. BRADFORD & CO.
MORGAN KEEGAN & COMPANY, INC.
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

Ladies and Gentlemen:

AMRESCO, INC., a Delaware corporation (the "Company"), proposes to issue
and sell to you (the "Underwriters") its __% Senior Subordinated Notes due 2003
in an aggregate principal amount of $50,000,000 (the "Firm Notes"). The Company
has also granted to the Underwriters an option to purchase up to an additional
$7,500,000 in aggregate principal amount of its __% Senior Subordinated Notes
due 2003 on the terms and for the purposes set forth in Section 3(b) hereof.
Such additional __% Senior Subordinated Notes due 2003 are referred to in this
Agreement as the "Option Notes," and the Firm Notes and the Option Notes, if
purchased, are hereinafter referred to as the "Notes" or the "Securities." The
Notes shall be issued under an indenture, dated as of January 15, 1996 (the
"Indenture"), between the Company and Bank One, Columbus, N.A., as trustee (the
"Trustee").

The Company hereby confirms its agreement with respect to the sale of the
Securities to the Underwriters.

- --------------------------
(1)Plus an option to purchase up to an additional $7,500,000 aggregate
principal amount of Notes to cover over-allotments.

<PAGE>

1. REGISTRATION STATEMENT. A registration statement on Form S-3 (File
No. 33-65329) with respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations
("Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under those acts, and has been filed with the Commission. One or
more amendments to such registration statement have also been so prepared and
have been, or will be, so filed. Copies of such registration statement and
amendments and each related preliminary prospectus have been delivered to the
Underwriters.

If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, it will prepare and file a
prospectus pursuant to Rule 424(b) that discloses the information previously
omitted from the prospectus in reliance upon Rule 430A. Such registration
statement as amended at the time it is or was declared effective by the
Commission and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), but only from and
after the effectiveness of such amendment, including all financial statements,
schedules and exhibits thereto, all documents incorporated by reference therein
filed under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any information deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430A(b), if applicable, is
hereinafter called the "Registration Statement." The prospectus included in the
Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any prospectus
filed by the Company with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or any other prospectus provided to the Underwriters by the
Company for use in connection with the offering of the Securities (whether or
not required to be filed by the Company with the Commission pursuant to Rule
424(b) of the Rules and Regulations) differs from the prospectus on file at the
time the Registration Statement is or was declared effective by the Commission,
the term "Prospectus" shall refer to such differing prospectus from and after
the time such prospectus is filed with the Commission or transmitted to the
Commission for filing pursuant to such Rule 424(b) or from and after the time it
is first provided to the Underwriters by the Company for such use. The term
"Preliminary Prospectus" as used herein means any preliminary prospectus
included in the Registration Statement prior to the time it becomes or became
effective under the Act and any prospectus subject to completion as described in
Rule 430A of the Rules and Regulations. Reference made herein to any
Preliminary Prospectus or Prospectus, as amended or supplemented, shall include
all documents incorporated by reference therein.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the Underwriters as follows:

(a) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission or the securities authority of
any state or other jurisdiction

<PAGE>

in which the Notes are to be offered and sold and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
foregoing shall not apply to statements in or omissions from any
Preliminary Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter specifically for
use in the preparation thereof.

(b) As of the time the Registration Statement (or any post-effective
amendment thereto) is or was declared effective by the Commission, upon the
filing or first delivery to the Underwriters of the Prospectus (or any
supplement to the Prospectus) and at the First Closing Date and Option
Notes Closing Date (as hereinafter defined), (i) the Registration Statement
and Prospectus (in each case, as so amended and/or supplemented) will
conform in all material respects to the applicable requirements of the Act,
the Trust Indenture Act and the Rules and Regulations, (ii) the
Registration Statement (as so amended) will not or did not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (iii) the Prospectus (as so supplemented) will not or
did not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are or were
made, not misleading; except that the foregoing clauses (i), (ii) and (iii)
shall not apply to statements in or omissions from any such document in
reliance upon, and in conformity with, written information furnished to the
Company by any Underwriter specifically for use in the preparation thereof.
The documents incorporated by reference in the Registration Statement, the
Prospectus, and any Preliminary Prospectus pursuant to Item 12 of Form S-3,
as of the date they were or are filed with the Commission, conformed or
will confirm in all material respects to the requirements of the Exchange
Act, and, as of the date of filing, none of such documents contained or
will contain an untrue statement of a material fact or omitted or will omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.

(c) The consolidated financial statements of the Company, together
with the related notes thereto, set forth or otherwise included in the
Registration Statement and Prospectus comply in all material respects with
the requirements of the Act and fairly present the financial condition and
the results of operations and changes in cash flows of the Company and its
Subsidiaries (as hereinafter defined) or its predecessor or acquired
businesses, as the case may be, at the date and for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
stated therein), and the independent public accountants whose reports are
contained therein are independent public accountants as required by the
Act, The Exchange Act and the Rules and Regulations. The financial
statement schedules, if any, included in the Registration Statement or
incorporated by reference therein, or in any post-effective amendment
thereto, and the other financial and statistical information included in

3
<PAGE>

the Prospectus under the captions "Prospectus Summary " and "Summary
Financial and Other Data," present fairly in all material respects and on a
basis consistent with the books and records of the Company the information
stated therein. The terms "Subsidiary" and "Material Subsidiary" shall
have the meanings assigned thereto in the Indenture.

(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly authorized, executed and delivered by the Company,
and constitutes a valid, legal and binding obligation of the Company,
enforceable in accordance with its terms, except as rights to indemnity
hereunder may be limited by federal or state securities laws and 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.

(e) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Indenture and the
Notes. The Indenture has been duly and validly authorized by the Company
and, when the Indenture has been executed and delivered, will be a valid
and binding obligation 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. The Notes sold hereunder have been duly
and validly authorized by the Company and, when the Notes have been
executed and authenticated in the manner set forth in the Indenture and
issued, sold, and delivered in the manner set forth in the Prospectus, will
be the valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms and the terms of the Indenture,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws affecting the enforcement of creditors'
rights generally and to general equitable principles. The Indenture will
have been duly qualified under the Trust Indenture Act upon effectiveness
of the Registration Statement. The Indenture will be substantially in the
form filed as an exhibit to the Registration Statement and will comply with
the Trust Indenture Act and the regulations thereunder. The Indenture and
the Notes conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.

(f) The authorized capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus. All of the outstanding
shares of capital stock have been duly authorized, validly issued and are
fully paid and non-assessable. All offers and sales of the Company's
capital stock or other securities 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. 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 pre-emptive

4
<PAGE>

rights of shareholders, and no preemptive rights or similar rights of any
security holders of the Company exist with respect to the Notes. The
Company has no agreement with any security holder as to which the Company
has not obtained waiver which gives such security holder the right to
require the Company to register under the Act any securities of any nature
owned or held by such person in connection with the transactions
contemplated by this Agreement.

(g) The execution, delivery and performance of this Agreement, the
Indenture and the Securities, the issuance and delivery of the Securities,
and the consummation of the transactions herein and therein contemplated
will not conflict with, or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any statute,
(ii) any material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which either the Company or any
Subsidiary is bound or to which any of their property is subject, (iii) the
Company's or any Subsidiary's charter or (iv) by-laws, or any order, rule,
regulation or decree of any court or governmental agency or body having
jurisdiction over the Company, any Subsidiary or any of their respective
properties, which breach, violation or default reasonably could or might be
expected, individually or in the aggregate with other such breaches,
violations or defaults, to result in a material adverse effect on the
financial condition, results of operations or business of the Company and
its Subsidiaries, taken as a whole. Other than those already obtained or
waivers from which have been obtained, no consent, approval, authorization
or order of, or filing with, any court or governmental agency or body is
required by the Company or any Subsidiary for the execution, delivery and
performance of this Agreement, the Indenture or the Securities or for the
consummation of the transactions contemplated hereby and thereby, including
the issuance, sale and delivery of the Securities by the Company, except
such as may be required under the Act, the Trust Indenture Act or state
securities or blue sky laws.

(h) Neither the Company nor any Subsidiary is (i) in violation of its
respective certificate of incorporation or charter or its respective by-
laws or other organizational documents, (ii) in default (nor has an event
occurred which with notice or passage of time or both would constitute such
a default) under any bond, indenture, mortgage, deed of trust, note, loan
or credit agreement or other material agreement or instrument to which any
of them is a party or by which any of them or any of their properties or
assets may be bound or affected, (iii) in violation of any order of any
court, arbitrator or governmental body or (iv) except as disclosed in the
Registration Statement and the Prospectus, in violation of or has violated
any franchise, grant, authorization, license, permit, judgment, decree,
order, statute, rule or regulation, which, in the case of clauses (i)-(iv)
of this sentence, would (individually or in the aggregate) (x) adversely
affect the legality, validity or enforceability of this Agreement, the
Indenture or the Securities, or any document related hereto or thereto or
(y) have a material adverse effect on the financial condition, results of
operations or business of the Company and the Subsidiaries, taken as a
whole, or (z) materially impair the Company's ability to perform fully on a
timely basis any obligations which it has under this Agreement, the
Indenture or the Securities. The Company or the Subsidiaries hold all
franchises, grants,

5
<PAGE>

authorizations, licenses, permits, easements, consents, certificates and
orders of any governmental or self-regulatory body required for the conduct
of their respective businesses, except where any such failure to hold will
not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole. The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts and
other documents are accurate in all material respects 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.

(i) Each of the Company and the Material Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation with full corporate
power and authority to own or lease its properties and conduct its business
as currently being carried on and as described in the Registration
Statement and Prospectus; and is duly qualified to do business as a foreign
corporation and is in good standing in each other jurisdiction in which it
owns or leases real property of a nature, or transacts business of a type,
that would make such qualification necessary and in which the failure to so
qualify would have a material adverse effect on the financial condition,
results of operations or business of the Company and the Subsidiaries,
taken as a whole. Each of the Company and the Subsidiaries is in compliance
with the rules, regulations or other lawful directives established by each
regulatory authority having jurisdiction over the Company's or the
Subsidiary's respective business, conduct and affairs, including without
limitation the timely and accurate filing of all reports, statements,
documents, registrations, filings or submissions required to be filed by it
with any such regulatory authority, where the failure to comply with such
rules, regulations or other lawful directives reasonably could or might be
expected to result in a material adverse effect on the financial condition,
results of operations or business of the Company and its Subsidiaries,
taken as a whole.

(j) Except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit, investigation or proceeding,
governmental or otherwise, pending or overtly threatened, to which the
Company or any Subsidiary is or may be a party or of which the business or
property of the Company or any Subsidiary is or may be the subject which,
in each case, is material to the Company and the Subsidiaries, taken as a
whole, or which seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance of the Securities or any of the other
transactions contemplated hereby or by the Indenture, or which questions
the legality or validity of any such transactions or which seeks to recover
damages or obtain other relief in connection with any of such transactions;
and there is no contract or document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.

(k) All of the outstanding capital stock of each Subsidiary has been
duly authorized, validly issued and is fully paid and non-assessable, and
except as otherwise noted

<PAGE>

in the Prospectus, is owned directly or indirectly by the Company free and
clear of any security interest, claim, lien or other encumbrance.

(l) 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 those properties which individually or in the
aggregate are material to the Company and its Subsidiaries taken as a whole
and do not interfere with the use made or proposed to be made of such
property by the Company or any one of its Subsidiaries, as the case may be;
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.

(m) The Company and each of its Subsidiaries have filed all necessary
foreign, federal and state and local income and franchise tax returns and,
other than taxes the Company or its Subsidiaries are consisting in good
faith and for which the Company has established adequate reserves, paid all
taxes shown as due thereon. Except as is otherwise expressly stated in the
Registration Statement or Prospectus, the Company has no knowledge of any
tax deficiency which might be asserted against it which would materially
and adversely affect the financial condition, results of operations or
business of the Company and its Subsidiaries, taken as a whole.

(n) Since the date of the most recent audited financial statements
included in the prospectus, neither the Company nor any of the Subsidiaries
has sustained any loss or interference with its business, which loss or
interference was material to the Company and its Subsidiaries, taken as a
whole, 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, other than as disclosed in or contemplated by the
Prospectus.

(o) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor any
of the 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 the Subsidiaries taken as a
whole, (ii) 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, (iii) there has not been any change in the
capital stock (except as a result of shares issued upon exercise of stock
options pursuant to existing stock option plans of the Company and the
Subsidiaries), long-term debt or, otherwise than in the ordinary course of
business consistent with past practice, short-term debt of the Company or
any of the Subsidiaries and (iv) there has not been any material adverse
change, or any development involving a

7
<PAGE>

prospective material adverse change, in or affecting the financial
condition, results of operations or business of the Company and the
Subsidiaries taken as a whole, in each case other than as disclosed in or
contemplated by the Prospectus.

(p) Neither the Company nor any of its officers, directors or
affiliates has 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 of the Notes.

(q) Neither the Company nor any of the 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
(i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to political activity,
(ii) made any unlawful payment to foreign or domestic government officials
or employees or to foreign or domestic political parties or campaigns from
corporate funds, (iii) violated any provisions of the Foreign Corrupt
Practices Act of 1977, as amended, or (iv) made any bride, rebate, payoff,
influence payment, kick back or other unlawful payment.

(r) To the Company's knowledge, 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"), except where the failure
to so comply would not have a material adverse effect on the Company's
business or results of operations, 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, except where such failure would not
have a material adverse effect on the Company's and its Subsidiaries'
business or results of operations taken as a whole; neither the Company nor
any Subsidiary 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, contaminate, petroleum product,
natural gas, liquefied gas or synthetic gas defined in or regulated under
any environmental law on, in or under any Real Property in violation of any
Laws, except where such violation would not have a material adverse effect
on the Company's business or results of operations; and there is no
material 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 (i)
alleges a violation of any Laws by the Company or any Subsidiary; (ii)
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; (iii) alleges
possible contamination of the environment by the Company or any Subsidiary
or (iv) alleges possible contamination of the Real Property, except as to
each of the above, for any violations, liability or contamination that
would not have a material

8
<PAGE>

adverse effect on the Company's and Subsidiaries' business or results of
operations taken as a whole.

(s) 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 Company's knowledge, 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 Company's knowledge, there
is no infringement by others of Intangibles of the Company or any of its
Subsidiaries which would have a material adverse effect on the Company and
its Subsidiaries taken as a whole.

(t) 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 business in which they are
engaged by similarly situated companies; 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.

(u) Each of the Company and its Subsidiaries makes and keeps accurate
books, records and accounts, which, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of its assets and
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general and specific authorization, (ii) 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,
(iii) access to the assets of the Company and each of its Subsidiaries is
permitted only in accordance with management's general and specific
authorization and (iv) 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.

(v) No Subsidiary 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, except as disclosed in the Prospectus.

9
<PAGE>

(w) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in any 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.

(x) The Company's common stock, par value $0.05 per share (the "Common
Stock") is registered pursuant to Section 12(g) of the Exchange Act and is
qualified as a Nasdaq National Market security of The Nasdaq Stock Market,
Inc. The Company has taken no action designed to terminate, or likely to
have the effect of terminating, the registration of the Common Stock under
the Exchange Act or qualification of the Common Stock on the Nasdaq
National Market, nor has the Company received any notification that the
Commission or The Nasdaq Stock Market, Inc. is contemplating terminating
such registration or qualification.

(y) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.

(z) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). The Company
does not do any business, directly or indirectly, with the government of
Cuba, to the Company's knowledge, or with any person or entity located in
Cuba.

(aa) 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.

(bb) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as
to the matters covered thereby.

(cc) Other than as contemplated herein, the Company has not incurred
any liability for any finder's or broker's fee or agent's commission in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.

3. PURCHASE, SALE AND DELIVERY OF SECURITIES.

(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company agrees to issue and sell the Firm Notes to the Underwriters,
and the Underwriters agree to purchase the respective principal amounts of
Firm Notes set forth opposite each Underwriter's name in Schedule I hereto.
The purchase price for each Firm Note shall be ____% of the principal

<PAGE>

amount thereof, which shall reflect an Underwriting Discount of ____% of
the principal amount of the Firm Notes payable to the Underwriters. The
obligation of each Underwriter to the Company shall be to purchase from the
Company that principal amount of Firm Notes set forth opposite the name of
such Underwriter in Schedule I hereof. In making this Agreement, each
Underwriter is contracting severally and not jointly. Except as provided
in paragraph (c) of this Section 3 and in Section 8 hereof, the agreement
of each Underwriter is to purchase only its respective principal amount of
Firm Notes as specified in Schedule I.

The Firm Notes will be delivered by the Company to Piper Jaffray Inc.
for each Underwriter's account against payment of the purchase price
therefor by wire transfer of same day funds to the account designated by
the Company, at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota, or such other location as may
be mutually acceptable, at 9:00 a.m., Minneapolis time, on the third (or,
if the Notes are priced, as contemplated by Rule 15c6-1(c) promulgated
pursuant to the Exchange Act, after 4:30 p.m. Washington, D.C. time, the
fourth) full business day following the date hereof, or at such other time
as the Underwriters and the Company determine, such time and date of
delivery being herein referred to as the "First Closing Date."
Certificates for the Firm Notes, each in definitive form and in such
denominations and registered in such names as the Underwriters may request
upon at least two business days' prior notice to the Company, will be made
available for checking and packaging at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or
such other location as may be mutually acceptable, at least one business
day prior to the First Closing Date.

(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants to the Underwriters an option to purchase up to
$7,500,000 principal amount of Option Notes, at the same purchase price as
the Firm Notes, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Securities. The option
granted hereunder may be exercised at any time (but not more than once)
within 30 days after the effective date of this Agreement upon notice
(confirmed in writing) by the Underwriters to the Company setting forth the
aggregate principal amount of Option Notes as to which the Underwriters are
exercising the option, the names and denominations in which the Option
Notes are to be registered and the date and time, as determined by the
Underwriters, when the Option Notes are to be delivered, such time and date
of purchase of the Option Notes being herein referred to as the "Option
Notes Closing" and "Option Notes Closing Date," respectively; provided,
however, that the Option Notes Closing Date shall not be earlier than the
First Closing Date nor earlier than the third business day after the date
on which the option shall have been exercised. The First Closing Date and
the Option Notes Closing Date are sometimes herein individually called the
"Closing Date" and collectively called the "Closing Dates." The principal
amount of Option Notes to be sold by the Company to the Underwriters and
purchased by the Underwriters from the Company shall

11
<PAGE>

be determined by the Underwriters. The option granted hereby may be
canceled by the Underwriters as to the Option Notes for which the options
are unexercised, at any time prior to the expiration of the 30-day period,
upon notice to the Company. No Option Notes shall be sold and delivered
unless the Firm Notes previously have been, or simultaneously are, sold and
delivered.

The Option Notes will be delivered by the Company to Piper Jaffray
Inc. for each Underwriter's account against payment of the purchase price
therefor by wire transfer of same day funds to the account designated by
the Company, at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota, or such other location as may
be mutually acceptable at 9:00 a.m., Minneapolis time, on the Option Notes
Closing Date. The Option Notes in definitive form and in such
denominations and registered in such names as the Underwriters have set
forth in the notice of option exercise, will be made available for checking
and packaging at the office of Piper Jaffray Inc., Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota, or such other location as may
be mutually acceptable, at least one business day prior to the Option Notes
Closing Date.

(c) It is understood that each Underwriter may (but shall not be
obligated to) make payment to the Company on behalf of another Underwriter
for the Securities to be purchased by such Underwriter. Nothing herein
contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company or with each other.

(d) The Underwriters propose to make a public offering of the Notes
directly to the public (which may include selected dealers and special
purchasers) as soon as the Underwriters deem practicable after the
Registration Statement becomes effective, at the initial public offering
price as set forth on the cover page of the Prospectus, subject to the
terms and conditions of this Agreement and in accordance with the
Prospectus. Such concessions from the public offering price may be allowed
to selected dealers and other members of the National Association of
Securities Dealers, Inc. as the Underwriters may determine, and the
Underwriters will furnish the Company with such information about the
distribution arrangements as may be necessary for inclusion in the
Registration Statement. It is understood that the public offering price
and concessions may vary after the initial public offering.

4. COVENANTS. The Company covenants and agrees with the Underwriters as
follows:

(a) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause
the Registration Statement or any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify the
Underwriters promptly of the time when the Registration Statement or any
post-effective amendment to the Registration Statement has become effective
or any supplement to the Prospectus has been filed and of any request by
the Commission for any amendment or supplement to the Registration
Statement or Prospectus or additional

12
<PAGE>

information; if the Company has elected to rely on Rule 430A of the Rules
and Regulations, the Company will file a Prospectus containing the
information omitted therefrom pursuant to such Rule 430A with the
Commission within the time period required by, and otherwise in accordance
with the provisions of, Rules 424(b) and 430A of the Rules and Regulations;
the Company will prepare and file with the Commission, promptly upon the
request of the Underwriters, any amendments or supplements to the
Registration Statement or Prospectus that, in the Underwriters' reasonable
opinion, may be necessary or advisable in connection with the distribution
of the Securities by the Underwriters; and the Company will not file any
amendment or supplement to the Registration Statement or Prospectus to
which the Underwriters shall reasonably object by notice to the Company
after having been furnished a copy a reasonable time prior to the filing.

(b) The Company will advise the Underwriters, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation
or threatening of any proceeding for any such purpose; and the Company will
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such a stop order should be issued.

(c) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company will
comply as far as it is able with all requirements imposed upon it by the
Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance
of sales of or dealings in the Securities as contemplated by the provisions
hereof and the Prospectus. If during such period any event occurs as a
result of which the Prospectus would include an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act,
the Company will promptly notify the Underwriters and will amend the
Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such
compliance.

(d) The Company will use its best efforts to qualify the Securities
for sale under the securities laws of such jurisdictions as the
Underwriters may reasonably designate and to continue such qualifications
in effect so long as required for the distribution of the Securities,
except that the Company shall not be required in connection therewith to
qualify as a foreign corporation or to execute a general consent to service
of process in any state. In each jurisdiction in which the Notes shall
have been qualified as above provided, the Company will make and file such
statements and reports as may be identified as requiring post-sale filings
in any blue sky memoranda delivered in connection with the offer and sale
of the Notes contemplated hereby or as otherwise reasonably requested by
the Underwriters or officials of such jurisdictions.

13
<PAGE>

(e) The Company will furnish to the Underwriters copies of the
Registration Statement (two of which will be manually signed and will
include all exhibits), the Indenture, each Preliminary Prospectus, the
Prospectus, and all amendments and supplements to such documents, in each
case as soon as available and in such quantities as each Underwriter may
from time to time reasonably request.

(f) During a period of five years commencing with the date hereof,
the Company will furnish to each Underwriter who may so request in writing,
copies, without charge, of (i) all periodic and special reports furnished
to the securities holders of the Company, (ii) all information, documents
and reports filed with the Commission or any national securities exchange.

(g) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than 15 months after the
end of the Company's current fiscal quarter, an earnings statement (which
need not be audited) covering a 12-month period beginning after the
effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.

(h) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming
effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (i) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (ii) all expenses and fees
(including, without limitation, fees and expenses of the Company's
accountants and counsel but, except as otherwise provided below, not
including fees and expenses of the Underwriters' counsel) in connection
with the preparation, printing, filing, delivery, and shipping of the
Registration Statement (including the financial statements therein and all
amendments, schedules and exhibits thereto), the Securities, the Indenture,
each Preliminary Prospectus, the Prospectus, and any amendment thereof or
supplement thereto, and underwriting documents, including Blue Sky
Memoranda, (iii) all filing fees and reasonable fees and disbursements of
the Underwriters' counsel incurred in connection with the qualification of
the Securities for offering and sale by the Underwriters or by dealers
under the securities or blue sky laws of the states and other jurisdictions
which the Underwriters shall designate in accordance with Section 4(d)
hereof, (iv) the fees and expenses of the Trustee and counsel for the
Trustee, (v) the filing fees incident to any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale
of the Securities, (vi) listing fees, if any, (vii) fees or expenses, if
any, of Underwriters' counsel incurred in connection with investigating the
legality of an investment in the Securities by certain purchasers in
certain jurisdictions and the preparation of memoranda relating thereto,
and (viii) all other reasonable costs and expenses incident to the
performance of its obligations hereunder that are not otherwise
specifically provided for herein. If the sale of the Securities provided
for herein is not consummated by reason of action by the Company pursuant
to Section 9(a) hereof which prevents this Agreement from becoming
effective, or by reason of any failure, refusal or inability on the part of
the

<PAGE>

Company to perform any material agreement on its part to be performed, or
because any other material condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, the
Company will reimburse the Underwriters for all reasonable out-of-pocket
disbursements (including fees and disbursements of counsel) incurred by the
Underwriters in connection with their investigation, preparing to market
and marketing the Securities or in contemplation of performing their
obligations hereunder. The Company shall not in any event be liable to
either Underwriter for loss of anticipated profits from the transactions
covered by this Agreement.

(i) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in the
Prospectus.

(j) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.

(k) For so long as the delivery of a prospectus is required in
connection with the offering, sale and distribution of the Notes, the
Company will file on a timely basis such registration statements and other
filings and take such other action as is required pursuant to the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder.

(l) So long as any of the Notes are outstanding, the Company will
furnish to each of you the reports required to be filed with the Trustee
pursuant to the Indenture, concurrently with such filing.

(m) The Company will use its best efforts to cause the Notes to be
listed on the New York Stock Exchange, Inc. upon issuance of the Notes and
will use its best efforts to cause the Notes to be so listed as long as the
Notes remain outstanding.

5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder are subject to the accuracy, as of the date hereof and at
each of the First Closing Date and the Option Notes Closing Date (as if made at
such Closing Date), of and compliance with all representations, warranties and
agreements of the Company contained herein, to the performance by the Company of
its obligations hereunder and to the following additional conditions:

(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Minneapolis time, on the date of this Agreement, or at such
later time and date as the Underwriters shall approve and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall have
been timely made; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been issued; no
proceedings for the issuance of such an order shall be pending or
threatened; and any request of the

<PAGE>

Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to
the Underwriters' satisfaction.

(b) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any Subsidiary shall
have incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the ordinary
course of business; and there shall not have been any change in the capital
stock (other than capital stock issued upon exercise of outstanding stock
options or upon conversion of convertible debentures), or any material
change in the short-term or long-term debt of the Company, or any material
adverse change, or any development involving a prospective material adverse
change, in the general affairs, condition (financial or otherwise),
business, key personnel, property, prospects, net worth or results of
operations of the Company and the Subsidiaries, considered as a whole,
that, in your judgment, makes it unpractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Prospectus.

(c) On each Closing Date, there shall have been furnished to the
Underwriters, the opinion of Haynes and Boone, L.L.P., counsel for the
Company, dated such Closing Date and addressed to the Underwriters, to the
effect that:

(i) The Company has all requisite corporate power to execute,
deliver and perform this Agreement and this Agreement has been duly
authorized by all requisite corporate action, duly executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable in accordance with its terms
except as rights to indemnity hereunder may be limited by federal or
state securities laws and except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally and subject to general principals of
equity.

(ii) The Company has all requisite corporate power to execute,
deliver and perform its obligations under the Indenture. The
Indenture has been duly authorized by all requisite corporate action,
duly executed and delivered by the Company and constitutes a valid
and binding instrument of the Company, enforceable against the Company
in accordance with its terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principals of equity. The Notes being delivered on the Closing Date
have been duly authorized, and, when executed, authenticated, issued
and delivered in accordance with the terms of the Indenture, will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity. The Notes and the Indenture conform in all
material

16
<PAGE>

respects, as to legal matters, to the descriptions thereof contained
in the Registration Statement and the Prospectus. The Indenture
complies in all respects with the Trust Indenture Act. The Notes have
been listed for trading on the New York Stock Exchange, Inc.

(iii) The execution and delivery by the Company of, and
performance of its obligations in, this Agreement, the Indenture and
the Notes do not (a) violate the Company's or any Material
Subsidiary's Certificate or Articles of Incorporation and Bylaws, (b)
breach, or result in a default under, any existing obligation of the
Company (or, as applicable, the Material Subsidiaries) under the
written contracts listed on an exhibit to such opinion, or (c) violate
applicable provisions of statutory law or regulation. Except for
permits and similar authorizations required under the Act, the Trust
Indenture Act and the securities or Blue Sky laws of certain
jurisdictions and except for permits and authorizations which have
been obtained and registrations which have been effected, no consent,
approval, authorization, registration or order of, or filing with, any
court or governmental agency or body is required by the Company or any
Subsidiary for the execution, delivery and performance of this
Agreement, the Indenture or the Securities or for the consummation of
the transactions contemplated hereby and thereby, including the
issuance or sale of the Securities by the Company.

(iv) 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 and are fully paid and non-assessable. No statutory preemptive
rights or registration rights, or, to such counsel's actual knowledge,
except as disclosed in the Prospectus, any contractual or other
preemptive rights or registration rights, of security holders of the
Company exist with respect to the issuance or sale of the Securities
by the Company pursuant to this Agreement and, to such counsel's
actual knowledge, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require registration of shares of Common Stock or other securities of
the Company because of the filing of the Registration Statement
(except such rights as to which adequate waiver has been obtained).
All of the shares of capital stock of each Material Subsidiary have
been duly authorized and validly issued, are fully paid and non-
assessable, and to such counsel's actual knowledge are owned of record
by the Company and the Company has not received notice of any adverse
claim, except for security interests in a majority of the present and
future capital stock of all the Material Subsidiaries granted by the
Company pursuant to the Revolving Loan Agreement dated as of September
29, 1995, among the Company, NationsBank of Texas, N.A. as agent and
the banks which are parties thereto from time to time. Except as set
forth in the Prospectus, the Company or another Subsidiary is the
registered holder of all the outstanding shares of capital stock of

<PAGE>

each Subsidiary, and such shares are not subject to any liens, pledges
or other encumbrances.

(v) To such counsel's actual knowledge, the Company is not named
as a party to any pending or overtly threatened litigation,
arbitration, claim or proceeding that is material to the Company and
its Subsidiaries taken as a whole, except as disclosed on the
Company's Defensive Litigation/Counterclaim Report for the Fourth
Quarter 1995, and all attachments thereto. The statements contained
in the Prospectus under the captions "Recent Developments,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources,"
"Description of the Notes" and "Description of Other Indebtedness,"
insofar as they purport to summarize the provisions of statutes, legal
and governmental proceedings or contracts or other documents are
materially accurate and fairly present in all material respects the
information required to be shown.

(vi) The Registration Statement has become effective under the
Act and the Indenture has been qualified under the Trust Indenture
Act, and, to such counsel's Knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or threatened by the
Commission.

(vii) Each of the Company and the Material Subsidiaries has been
duly incorporated and is existing as a corporation in good standing
under the laws of its jurisdiction of incorporation with full
corporate power to own, lease and operate its properties and conduct
its business as described in the Registration Statement and
Prospectus.

(viii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company (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, the Rules and Regulations,
the Exchange Act and the rules and regulations promulgated thereunder.

(ix) The Company is not, and immediately after the applicable
Closing Date will not be, required to be registered under the
Investment Company Act of 1940, as amended, as an "investment
company," and, to the actual knowledge of such counsel, is not a
company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940, as amended.

In rendering such opinion such counsel may rely as to matters of fact
upon certificates of officers of the Company or any Subsidiary, as
appropriate, provided that the

<PAGE>

extent of such reliance is specified in such opinion and such certificates
are attached to the opinion delivered to the Underwriters.

Such counsel shall also advise the Underwriters that although they do
not assume any responsibility for, and cannot guarantee the accuracy,
completeness or fairness of, the statements contained in the Registration
Statement or the Prospectus, on the basis of the information such counsel
developed during the course of preparing the Prospectus, which involved
attending conferences with officers of the Company, the Company's
accountants and other parties for the purpose of preparing the Prospectus
and an examination of documents referred to or incorporated by reference in
the Registration Statement and Prospectus, and as a result of such
counsel's participation in such conferences and review of such documents,
but otherwise without independent check or verification except as
specified, such counsel has no reason to believe that the Registration
Statement or any further amendment thereto (other than the financial
statements and related schedules therein, as to which such counsel need
express no comment), contained or contains an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus or any further amendment or supplement thereto (other than
the financial statements and related schedules therein, as to which such
counsel need express no comment) contained or contains an untrue statement
of a material fact or omits or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances in which
they were made, not misleading.

(d) On each Closing Date, there shall have been furnished to the
Underwriters, the opinion of L. Keith Blackwell, Esq., General Counsel for
the Company, dated such Closing Date and addressed to the Underwriters, to
the effect that

(i) the Company is duly qualified to transact business as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which it owns or leases material property, or conducts
material 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 of the Company and its Subsidiaries, taken as a
whole.

(ii) Each of the United States and Canadian Subsidiaries of the
Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
United States and Canadian jurisdiction in which it owns or leases
material property, or conducts material 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 of the
Company and its Subsidiaries, taken as a whole.

<PAGE>

(iii) Each sale of the Company's capital stock during the period
from December 13, 1992 through each Closing Date was, at the time of
each sale, registered or exempt from the registration requirements of
the Act and applicable state securities or Blue Sky laws.

(iv) To such counsel's actual knowledge, neither the Company nor
any of the Subsidiaries has (a) breached or otherwise violated any
existing obligation of the Company under any court order that names
the Company as a party or (b) violated applicable provisions of
statutory law or regulation, in either case where any such breach or
violation would have a material adverse effect on the financial
position of the Company and its Subsidiaries, taken as a whole.

(v) To such counsel's actual knowledge, (a) the Company has not
violated its Certificate of Incorporation or Bylaws and (b) neither
the Company nor any of the Material Subsidiaries has breached or
otherwise violated any existing obligation under any material
agreement to which the Company or any Material Subsidiary is a party,
in either case where such breach or violation would have a material
adverse effect on the financial position of the Company and its
Subsidiaries, taken as a whole.

(vi) Except as disclosed in the Registration Statement and the
Prospectus, such counsel knows of no action, suit, investigation or
proceeding, governmental or otherwise, pending or overtly threatened
against the Company or any Subsidiary, or involving the business or
properties of the Company or any Subsidiary with respect to the
issuance and sale of the Securities pursuant to this Agreement and the
Indenture or which is required to be described in the Registration
Statement or Prospectus that is not disclosed as required. The
contracts listed on an exhibit to the opinion of Haynes and Boone,
L.L.P. referenced in Section 5(c)(iii) hereof constitute all material
contracts to which the Company or any of its Subsidiaries is a party
which could be breached or violated in connection with the execution
and delivery by the Company of, and performance of its obligations in,
this Agreement, the Indenture and the Notes and the consummation of
the transactions herein and therein contemplated. Such counsel does
not know of any contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement which are not
described or filed as required. The descriptions contained in the
Registration Statement and Prospectus of contracts and other documents
are accurate and fairly present the information required to be shown.
The statements contained in the Registration Statement or the
Prospectus to the extent such statements relate to matters of law,
descriptions of statutes, legal or governmental proceedings,
regulatory matters or other legal matters or conclusions of law,
fairly summarize such matters.

<PAGE>

(e) On each Closing Date, there shall have been furnished to the
Underwriters, such opinion or opinions from Lindquist & Vennum P.L.L.P.,
counsel for the Underwriters, dated such Closing Date and addressed to the
Underwriters, with respect to the formation of the Company, the validity of
the Securities, the Registration Statement, the Prospectus and other
related matters as the Underwriters reasonably may request, and such
counsel shall have received such papers and information as they request to
enable them to pass upon such matters.

(f) On each Closing Date the Underwriters shall have received letters
from Deloitte & Touche, LLP, dated such Closing Date and addressed to the
Underwriters, confirming that they are independent public accountants
within the meaning of the Act and are in compliance with the applicable
requirements relating to the qualifications of accountants under Rule 2-01
of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the date
of such letter), the conclusions and findings of said firm with respect to
the financial information and other matters covered by its letter (as
provided in Exhibit A hereto) delivered to the Underwriters concurrently
with the execution of this Agreement, and the effect of the letter so to be
delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.

(g) On each Closing Date, there shall have been furnished to the
Underwriters a certificate, dated such Closing Date and addressed to the
Underwriters, signed by the Chief Executive Officer and by the Chief
Financial Officer of the Company, to the effect that:

(i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if made
at and as of such Closing Date, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date;

(ii) To the best of their knowledge, no stop order or other
order suspending the effectiveness of the Registration Statement or
any amendment thereof or the qualification of the Securities for
offering or sale has been issued, and, to the best of their knowledge,
no proceeding for that purpose has been instituted or is contemplated
by the Commission or any state or regulatory body; and

(iii) The signers of said certificate have carefully examined
the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto, and (A) such documents contain all
statements and information required to be included therein, the
Registration Statement, or any amendment thereof, does not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented, does not include any

<PAGE>

untrue statement of material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since
the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
prospectus which has not been so set forth, (C) except as disclosed in
the Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any Subsidiary has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions not in the ordinary course of business, or
declared or paid any dividends or made any distribution of any kind
with respect to its capital stock, and except as disclosed in the
Prospectus, there has not been any change in the capital stock, or any
material change in the short-term or long-term debt, or any issuance
of options, warrants, convertible securities or other rights to
purchase the capital stock of the Company or any Subsidiary, or any
material adverse change, or any development involving a prospective
material adverse change, in the general affairs, condition (financial
or otherwise), business, key personnel, property, prospects, net worth
or results of operations of the Company and the Subsidiaries,
considered as a whole, and (D) except as stated in the Registration
Statement and the Prospectus, there is not pending, or, to the
knowledge of the Company, threatened or contemplated, any action, suit
or proceeding to which the Company or any Subsidiary is a party before
or by any court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects or results of
operations of the Company and the Subsidiaries, considered as a whole.

(h) The Company shall have furnished to the Underwriters and their
counsel such additional documents, certificates and evidence as the
Underwriters or their counsel may have reasonably requested.

All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters. The Company will furnish the Underwriters with such
conformed copies of such opinions, certificates, letters and other
documents as the Underwriters shall reasonably request.

6. 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 (including in settlement of any litigation if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration

<PAGE>

Statement or incorporated therein by reference, including the information
deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A, if applicable, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, 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 it in connection
with investigating or defending against such loss, claim, damage, liability
or action; provided, however, that neither the Company nor any Subsidiary
shall be liable in any such case to the extent that 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, any Preliminary Prospectus, the Prospectus, or any
such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by the Underwriters
specifically for use in the preparation thereof; provided further, however,
that the Company shall not be liable to any Underwriter in respect of any
untrue statement or alleged untrue statement contained in, or omission or
alleged omission from, any Preliminary Prospectus to the extent that (i)
the Prospectus did not contain such 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 Notes in question at or prior to the time at which the
written confirmation of the sale of Notes was sent or given to such person,
and (iii) the failure to deliver such Prospectus was not the result of the
Company's non-compliance with its obligations under Section 4(e) hereof.

(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, 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 the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any such amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter, specifically for use in the preparation
thereof, and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or
defending against any such loss, claim, damage, liability or action.

(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) 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

<PAGE>

the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may have to any indemnified
party except to the extent that the indemnifying party is substantially
prejudiced thereby. 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 in, 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, and after notice from
the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party under such subsection for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the sole judgment of the
Underwriters, it is advisable for the Underwriters to be represented as a
group by separate counsel, the Underwriters shall have the right to employ
a single counsel to represent all Underwriters who may be subject to a
liability arising from any claim in respect of which indemnity may be
sought by the Underwriters under paragraph (a) of this Section 6, in which
event the reasonable fees and expenses of such separate counsel shall be
borne by the indemnifying party or parties and remitted to the Underwriters
for payment to such counsel as such fees and expenses are incurred. An
indemnifying party shall not be obligated under any settlement agreement
relating to any action under this Section 6 to which it has not agreed in
writing.

(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) or (b)
above, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on
the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
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, as well as any other relevant equitable considerations. The
relative benefits received by the Company 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 bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. 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 Underwriters and the parties' relevant intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Underwriters agree that it
would not be just and

<PAGE>

equitable if contributions pursuant to this subsection (d) were to be
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 in the
first sentence of this subsection (d). The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to
in the first sentence of this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending against any action or claim
which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. 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 (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.

(e) The obligations of the Company or any Subsidiary under this
Section 6 shall be in addition to any liability which the Company or any
Subsidiary 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 6 shall be in addition to any liability that the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company (including any person who, with
his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.

7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the Underwriters
and the Company (and any Subsidiary) contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof, or the
Company or any of its officers, directors, or controlling persons and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.

8. SUBSTITUTION OF UNDERWRITERS.

(a) If any Underwriter shall fail to take up and pay for the principal
amount of Firm Notes agreed by such Underwriter to be purchased hereunder,
upon tender of such Firm Notes in accordance with the terms hereof, and the
principal amount of Firm Notes not purchased does not in either case
aggregate more than 10% of the aggregate principal amount

<PAGE>

of Firm Notes set forth in Schedule I hereto, the remaining Underwriters
shall be obligated, severally, in proportion to the respective principal
amount of Firm Notes which they are obligated to purchase hereunder, to
take up and pay for the principal amount of Firm Notes that the withdrawing
or defaulting Underwriter agreed but failed to purchase.

(b) If any Underwriter shall fail to take up and pay for the
principal amount of Firm Notes agreed by such Underwriter to be purchased
hereunder, upon tender of such Firm Notes in accordance with the terms
hereof, and the principal amount of Firm Notes not purchased aggregates
more than 10% of the aggregate principal amount of Firm Notes set forth in
Schedule I hereto, and arrangements for the purchase of such Firm Notes by
other persons reasonably satisfactory to the Company are not made within 36
hours thereafter, this Agreement shall terminate. In the event of any such
termination the Company shall not be under any liability to any Underwriter
(except to the extent provided in Section 4(h) and Section 6 hereof) nor
shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some material reason permitted under this Agreement, to
purchase the principal amount of Firm Notes agreed by such Underwriter to
be purchased hereunder) be under any liability to the Company (except to
the extent provided in Section 6 hereof). Nothing contained herein shall
relieve a defaulting Underwriter from liability for its default.

If Firm Notes to which a default relates are to be purchased by non-
defaulting Underwriters or by any other party or parties, the non-
defaulting Underwriters or the Company shall have the right to postpone the
First Closing Date for not more than seven business days in order that the
necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 8.

9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.

(a) This Agreement shall become effective at 10:00 a.m., Minneapolis
time, on the first business day following the date hereof, or at such
earlier time after the effective date of the Registration Statement as the
Underwriters in their discretion shall first release the Securities for
sale to the public. For the purpose of this Section, the Securities shall
be deemed to have been released for sale to the public upon release by the
Underwriters of the publication of a newspaper advertisement relating
thereto or upon release by the Underwriters of telexes offering the
Securities for sale to securities dealers, whichever shall first occur. By
giving notice as hereinafter specified before the time this Agreement
becomes effective, the Underwriters or the Company may prevent this
Agreement from becoming effective without liability of any party to any
other party, except that the provisions of Section 4(h) and Section 6
hereof shall at all times be effective.

(b) The Underwriters shall have the right to terminate this Agreement
by giving notice as hereinafter specified at any time at or prior to the
First Closing Date, and the option

<PAGE>

referred to in Section 3(b), if exercised, may be canceled at any time
prior to the First Closing Date, if (i) the Company shall have failed,
refused or been unable, at or prior to such Closing Date, to perform any
agreement on its part to be performed hereunder, (ii) any other condition
of the Underwriters' obligations hereunder is not fulfilled, (iii) trading
on the New York Stock Exchange or the American Stock Exchange shall have
been wholly suspended, (iv) minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have
been required, on the New York Stock Exchange or the American Stock
Exchange, by such Exchange or by order of the Commission or any other
governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by Federal, New York, Texas or Minnesota authorities, or
(vi) there has occurred any material adverse change in the financial
markets in the United States or an outbreak of major hostilities (or an
escalation thereof) in which the United States is involved, a declaration
of war by Congress, any other substantial national or international
calamity or any other event or occurrence of a similar character shall have
occurred since the execution of this Agreement that, in the Underwriters'
judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such
termination shall be without liability of any party to any other party
except that the provisions of Section 4(h) and Section 6 hereof shall at
all times be effective.

(c) If the Underwriters elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company shall be notified promptly by the Underwriters by telephone or
telegram, confirmed by letter. If the Company elects to prevent this
Agreement from becoming effective, the Underwriters shall be notified by
the Company by telephone or telegram, confirmed by letter.

10. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in the
last paragraph of the cover page, in the last paragraph of page 3, and under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the written information furnished by or on behalf of the Underwriters
referred to in Section 2 and Section 6 hereof.

11. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Underwriters c/o Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402, with
a copy to Patrick Delaney, Esq., Lindquist & Vennum P.L.L.P., 4200 IDS Center,
Minneapolis, MN 55402, except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such Underwriter at the addresses of such
Underwriters appearing in the Agreement Among Underwriters entered into in
connection with the offer and sale of the Notes; if to the Company, shall be
mailed, telegraphed or delivered to it at 1845 Woodall Rodgers Freeway, Dallas,
Texas 75201 Attention: Chief Executive Officer, with a copy to Michael M. Boone,
Esq., Haynes and Boone, L.L.P., 3100 NationsBank Plaza, 901 Main Street, Dallas,
Texas 75202. All notices given by telegram shall be promptly confirmed by
letter. Any party to this Agreement may change such address for notices by
sending to the parties to this Agreement written notice of a new address for
such purpose.

<PAGE>

12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the Underwriters.

13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.

Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the Company
and the Underwriters in accordance with its terms.

Very truly yours,

AMRESCO, INC.

By
----------------------------------
Its
------------------------------

CONFIRMED
as of the date first
above mentioned

By: PIPER JAFFRAY INC.

By
----------------------------
Managing Director
Acting on behalf of itself
and the other Underwriters

<PAGE>

SCHEDULE I

Principal Amount
Underwriter of Firm Notes(1)
- ----------- ----------------

Piper Jaffray Inc. . . . . . . . . . $

J. C. Bradford & Co. . . . . . . . .

Morgan Keegan & Company, Inc.. . . .

--------------

Total. . . . . . . . $50,000,000
-----------
-----------

- ------------

(1) The Underwriters may purchase up to an additional $7,500,000 in aggregate
principal amount of Notes, to the extent the option to purchase Option
Notes described in Section 3(b) of the Agreement is exercised, in the
proportions and in the manner described in the Agreement.

<PAGE>

EXHIBIT A

ACCOUNTANTS' LETTERS

1. A letter from Deloitte & Touche, LLP dated and delivered on the date
this Agreement is executed and a similar certificate or letter dated and
delivered on each Closing Date, confirming that they are independent public
accountants within the meaning of the Act and the published rules and
regulations thereunder, shall be issued to the Underwriters stating that:

(a) 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; the financial statements of the Company
as and for the ____ month period ended ______________ [THE LATEST UNAUDITED
FINANCIAL STATEMENTS INCLUDED IN OR INCORPORATED BY REFERENCE INTO THE
PROSPECTUS] (the "Latest Balance Sheet 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;

(c) on the basis of a limited review of unaudited consolidated
financial statements, including a reading of the latest available financial
statements, a reading of the minutes of the meetings of the Board of
Directors of the Company, and discussions with officials of the Company
responsible for financial and accounting matters as to transactions and
events subsequent to the Latest Balance Sheet Date, and such other
inquiries and procedures as they may specify, nothing has come to their
attention which, in their judgment, would indicate,

(i) that the unaudited consolidated financial statements of the
Company included or incorporated by reference in the Registration
Statement and Prospectus do not comply in form in all material
respects with the applicable accounting requirements of the Act and of
the related published rules and regulations, or that such unaudited
consolidated financial information contained or incorporated by
reference in the Registration Statement was not prepared in conformity
with generally accepted accounting principles applied on a basis
substantially consistent, in all material respects, with those
followed in the preparation of the audited financial statements of the
Company included therein;

(ii) at the date of the latest balance sheet read by them and at
a subsequent specified date not more than five business days prior to
the date of such letter there was any decrease in the common stock or
increase in long-term debt of the Company as compared with amounts
shown in the unaudited consolidated balance sheet dated as of the
Latest Balance Sheet Date, included in the Registration Statement,
except for changes which the Registration Statement discloses have
occurred or may occur;

<PAGE>

(iii) at the date of the latest balance sheet read by them and
at a subsequent specified date not more than five business days prior
to the date of such letter there were any decreases, as compared with
amounts shown in the balance sheet dated as of the Latest Balance
Sheet Date included in the Registration Statement, in total assets,
stockholders' equity of the Company, except for decreases which the
Registration Statement discloses have occurred or may occur or which
are described in such letter;

(iv) for the period from the Latest Balance Sheet Date to the
date of the latest statement of operations read by them there were any
decreases, as compared with the corresponding period of the preceding
year, in revenues or the total or per share amounts of net income of
the Company, except for decreases which the Registration Statement
discloses have occurred or may occur or which are described in such
letter;

(v) for the period from the date of the latest statement of
operations to a subsequent specified date not more than five business
days prior to the date of such letter, that certain conclusions
described in such letter were not correct, except as otherwise
described in the Registration Statement or such letter; and

(d) they have compared specific dollar amounts, numbers of shares,
and other financial information pertaining to the Company set forth in the
Registration Statement, which have been specified by the Underwriters prior
to the date of this Agreement, to the extent that such amounts, numbers and
information may be derived from the general accounting records of the
Company, and excluding any questions requiring any interpretation by legal
counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do
not constitute an audit in accordance with generally accepted auditing
standards) set forth in the letter, and found them to be in agreement.

<PAGE>
DRAFT 1/15/96

AMRESCO, INC.

AS ISSUER

Bank One, Columbus, N.A.

AS TRUSTEE

INDENTURE

JANUARY 15, 1996

% SENIOR SUBORDINATED NOTES DUE 2003
---

<PAGE>

AMRESCO, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939, AS AMENDED
AND INDENTURE, DATED AS OF JANUARY 15, 1996
<TABLE>
<CAPTION>

Trust Indenture Act Indenture
Section Section

<S> <C>

Section 310 (a)(1) . . . . . . . . . . . . . . . . 608
Section 310 (a)(2) . . . . . . . . . . . . . . . . 608
Section 310 (a)(3) . . . . . . . . . . . . . . . . Inapplicable
Section 310 (a)(4) . . . . . . . . . . . . . . . . Inapplicable
(b) . . . . . . . . . . . . . . . . 605
. . . . . . . . . . . . . . . . 609
Section 311 . . . . . . . . . . . . . . . . 605
Section 312 (a) . . . . . . . . . . . . . . . . 701
. . . . . . . . . . . . . . . . 702
(b) . . . . . . . . . . . . . . . . 702
(c) . . . . . . . . . . . . . . . . 702
Section 313 (a) . . . . . . . . . . . . . . . . 703
(b)(1) . . . . . . . . . . . . . . . . Inapplicable
(b)(2) . . . . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . . . . 703
Section 314 (a) . . . . . . . . . . . . . . . . 704
. . . . . . . . . . . . . . . . 1012
(b) . . . . . . . . . . . . . . . . Inapplicable
(c)(1) . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . Inapplicable
(d) . . . . . . . . . . . . . . . . Inapplicable
(e) . . . . . . . . . . . . . . . . 102
Section 315 (a) . . . . . . . . . . . . . . . . 601
. . . . . . . . . . . . . . . . 603
(b) . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . 601
. . . . . . . . . . . . . . . . 603
(e) . . . . . . . . . . . . . . . . 603
. . . . . . . . . . . . . . . . 607
Section 316 (a)(1)(A) . . . . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . . . . 513

ii
<PAGE>

(a)(2) . . . . . . . . . . . . . . . . . Inapplicable
(b) . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . 104
Section 317 (a)(1) . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . 1003
Section 318 (a) . . . . . . . . . . . . . . . . . 108

______________________________________________________
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.

</TABLE>

iii

<PAGE>

TABLE OF CONTENTS
Page

ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 101. Definitions. . . . . . . . . . . . . . . . . . . . 1
ACQUIRED INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . 2
ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AFFILIATE. . . . . . . . . . . . . . . . . . . . . . . . . . 2
AUTHENTICATING AGENT . . . . . . . . . . . . . . . . . . . . 2
AUTHORIZED NEWSPAPER . . . . . . . . . . . . . . . . . . . . 2
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . 3
BOARD RESOLUTION . . . . . . . . . . . . . . . . . . . . . . 3
BUSINESS DAY . . . . . . . . . . . . . . . . . . . . . . . . 3
CAPITALIZED LEASE OBLIGATION . . . . . . . . . . . . . . . . 3
COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . 3
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
COMPANY REQUEST AND COMPANY ORDER. . . . . . . . . . . . . . 3
CONSOLIDATED . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED CAPITALIZATION. . . . . . . . . . . . . . . . . 3
CONSOLIDATED EBITDA. . . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED INTEREST EXPENSE. . . . . . . . . . . . . . . . 4
CONSOLIDATED NET INCOME. . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED NET WORTH . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED SUBSIDIARY. . . . . . . . . . . . . . . . . . . 4
CORPORATE TRUST OFFICE . . . . . . . . . . . . . . . . . . . 4
CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . 4
DEFAULT NOTICE . . . . . . . . . . . . . . . . . . . . . . . 4
DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . . . 4
DEPOSITORY . . . . . . . . . . . . . . . . . . . . . . . . . 4
EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 5
EXCLUSIVE POWER. . . . . . . . . . . . . . . . . . . . . . . 5
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
GOVERNMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . 5
HOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INDEBTEDNESS FOR MONEY BORROWED. . . . . . . . . . . . . . . 5
INDENTURE. . . . . . . . . . . . . . . . . . . . . . . . . . 6
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . 6
INITIAL INTEREST ACCRUAL DATE. . . . . . . . . . . . . . . . 6
INTEREST COVERAGE RATIO. . . . . . . . . . . . . . . . . . . 6
INTEREST PAYMENT DATE. . . . . . . . . . . . . . . . . . . . 6
ISSUE DATE . . . . . . . . . . . . . . . . . . . . . . . . . 6
JUNIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . 6

<PAGE>

LEGAL HOLIDAY. . . . . . . . . . . . . . . . . . . . . . . . 7
MATERIAL SUBSIDIARY. . . . . . . . . . . . . . . . . . . . . 7
MATURITY . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MAXIMUM ANNUAL REPAYMENT AMOUNT. . . . . . . . . . . . . . . 7
MONEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
NONRECOURSE INDEBTEDNESS . . . . . . . . . . . . . . . . . . 7
NOTE OR NOTES. . . . . . . . . . . . . . . . . . . . . . . . 8
NOTE REGISTER AND NOTE REGISTRAR . . . . . . . . . . . . . . 8
OFFICE OR AGENCY . . . . . . . . . . . . . . . . . . . . . . 8
OFFICERS' CERTIFICATE. . . . . . . . . . . . . . . . . . . . 8
OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . 8
OUTSTANDING. . . . . . . . . . . . . . . . . . . . . . . . . 8
PAYING AGENT . . . . . . . . . . . . . . . . . . . . . . . . 9
PERMITTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . 9
PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PLACE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . 9
PREDECESSOR NOTE . . . . . . . . . . . . . . . . . . . . . . 9
REDEMPTION DATE. . . . . . . . . . . . . . . . . . . . . . . 9
REDEMPTION PRICE . . . . . . . . . . . . . . . . . . . . . . 9
REGULAR RECORD DATE. . . . . . . . . . . . . . . . . . . . . 9
REPAYMENT DATE . . . . . . . . . . . . . . . . . . . . . . . 10
REPAYMENT PRICE. . . . . . . . . . . . . . . . . . . . . . . 10
RESPONSIBLE OFFICER. . . . . . . . . . . . . . . . . . . . . 10
RESTRICTED PAYMENT . . . . . . . . . . . . . . . . . . . . . 10
SENIOR AGENT . . . . . . . . . . . . . . . . . . . . . . . . 10
SENIOR EVENT OF DEFAULT. . . . . . . . . . . . . . . . . . . 10
SENIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . 10
SENIOR RECOURSE INDEBTEDNESS . . . . . . . . . . . . . . . . 10
SPECIAL RECORD DATE. . . . . . . . . . . . . . . . . . . . . 10
STATED MATURITY. . . . . . . . . . . . . . . . . . . . . . . 10
SUBORDINATED INDEBTEDNESS. . . . . . . . . . . . . . . . . . 10
SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . 11
TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . 11
TRUST INDENTURE ACT. . . . . . . . . . . . . . . . . . . . . 11
TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
UNITED STATES. . . . . . . . . . . . . . . . . . . . . . . . 11
VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . 11
VOTING STOCK . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 102. COMPLIANCE CERTIFICATES AND OPINIONS . . . . . . . 11
Section 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE . . . . . . 12
Section 104. ACTS OF HOLDERS. . . . . . . . . . . . . . . . . . 13
Section 105. NOTICES, ETC. TO TRUSTEE AND COMPANY . . . . . . . 14
Section 106. NOTICE TO HOLDERS OF NOTES; WAIVER . . . . . . . . 15

<PAGE>
Section 107. LANGUAGE OF NOTICES. . . . . . . . . . . . . . . . 15
Section 108. CONFLICT WITH TRUST INDENTURE ACT. . . . . . . . . 15
Section 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS . . . . . 15
Section 110. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . 15
Section 111. SEPARABILITY CLAUSE. . . . . . . . . . . . . . . . 16
Section 112. BENEFITS OF INDENTURE. . . . . . . . . . . . . . . 16
Section 113. GOVERNING LAW. . . . . . . . . . . . . . . . . . . 16
Section 114. LEGAL HOLIDAYS . . . . . . . . . . . . . . . . . . 16
Section 115. SCHEDULES. . . . . . . . . . . . . . . . . . . . . 16
Section 116. COUNTERPARTS . . . . . . . . . . . . . . . . . . . 16

ARTICLE TWO - FORM OF NOTES. . . . . . . . . . . . . . . . . . . . . . 17
Section 201. FORMS GENERALLY. . . . . . . . . . . . . . . . . . 17
Section 202. FORM OF FACE OF NOTE . . . . . . . . . . . . . . . 18
Section 203. FORM OF REVERSE OF NOTE. . . . . . . . . . . . . . 20
Section 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. . 23
Section 205. NOTES IN GLOBAL FORM . . . . . . . . . . . . . . . 23

ARTICLE THREE - THE NOTES. . . . . . . . . . . . . . . . . . . . . . . 24
Section 301. TITLE AND TERMS. . . . . . . . . . . . . . . . . . 24
Section 302. CURRENCY; DENOMINATIONS. . . . . . . . . . . . . . 24
Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING . . 25
Section 304. TEMPORARY NOTES. . . . . . . . . . . . . . . . . . 26
Section 305. REGISTRATION, TRANSFER AND EXCHANGE. . . . . . . . 26
Section 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES. . . . 28
Section 307. PAYMENT OF INTEREST; RIGHTS TO INTEREST PRESERVED. 29
Section 308. PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . 30
Section 309. CANCELLATION . . . . . . . . . . . . . . . . . . . 31
Section 310. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE. . . 31
Section 311. COMPUTATION OF INTEREST. . . . . . . . . . . . . . 31

ARTICLE FOUR - SATISFACTION AND DISCHARGE. . . . . . . . . . . . . . . 32
Section 401. SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . 32
Section 402. APPLICATION OF TRUST MONEY . . . . . . . . . . . . 33

ARTICLE FIVE - REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . 33
Section 501. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . 33
Section 502. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT. . . . . . . . . . . . . . . . . . . . . 35
Section 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE . . . . . . . . . . . . . . 36
Section 504. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . 37
Section 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES. . . . . . . . . . . . . . . . . . . . . . . 38
Section 506. APPLICATION OF MONEY COLLECTED . . . . . . . . . . 38
Section 507. LIMITATIONS ON SUITS . . . . . . . . . . . . . . . 39

<PAGE>

Section 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL AND INTEREST . . . . . . . . . . . . . . 39
Section 509. RESTORATION OF RIGHTS AND REMEDIES . . . . . . . . 40
Section 510. RIGHTS AND REMEDIES CUMULATIVE . . . . . . . . . . 40
Section 511. DELAY OR OMISSION NOT WAIVER . . . . . . . . . . . 40
Section 512. CONTROL BY HOLDERS OF NOTES. . . . . . . . . . . . 40
Section 513. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . 41
Section 514. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . 41
Section 515. WAIVER OF STAY OR EXTENSION LAWS . . . . . . . . . 41

ARTICLE SIX - THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 42
Section 601. CERTAIN DUTIES AND RESPONSIBILITIES. . . . . . . . 42
Section 602. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . 43
Section 603. CERTAIN RIGHTS OF TRUSTEE. . . . . . . . . . . . . 43
Section 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
NOTES. . . . . . . . . . . . . . . . . . . . . . . 44
Section 605. MAY HOLD NOTES . . . . . . . . . . . . . . . . . . 45
Section 606. MONEY HELD IN TRUST. . . . . . . . . . . . . . . . 45
Section 607. COMPENSATION AND REIMBURSEMENT . . . . . . . . . . 45
Section 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. . . . . . 46
Section 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. 46
Section 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR . . . . . . 48
Section 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS. . . . . . . . . . . . . . . . . . . . 48
Section 612. APPOINTMENT OF AUTHENTICATING AGENT. . . . . . . . 48

ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY. . . 50
Section 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS. . . . . . . . . . . . . . . . . . . . . . 50
Section 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS. . . . . . . . . . . . . . . . . . . . . . 50
Section 703. REPORTS BY TRUSTEE . . . . . . . . . . . . . . . . 51
Section 704. REPORTS BY COMPANY . . . . . . . . . . . . . . . . 51

ARTICLE EIGHT - CONSOLIDATION, MERGER AND SALES. . . . . . . . . . . . 52
Section 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS. . . . . . . . . . . . . . . . . . . . . . . 52
Section 802. SUCCESSOR PERSON SUBSTITUTED FOR COMPANY . . . . . 53

ARTICLE NINE - SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . 53
Section 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS . . . . . . . . . . . . . . . . . . . . . 53
Section 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS . 54
Section 903. EXECUTION OF SUPPLEMENTAL INDENTURES. . . . . . . 55
Section 904. EFFECT OF SUPPLEMENTAL INDENTURES . . . . . . . . 55
Section 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES . . 55
Section 906. EFFECT ON SENIOR INDEBTEDNESS . . . . . . . . . . 56
Section 907. RECORD DATE . . . . . . . . . . . . . . . . . . . 56

vii

<PAGE>

ARTICLE TEN - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 56
Section 1001. PAYMENT OF PRINCIPAL AND INTEREST. . . . . . . . 56
Section 1002. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . 56
Section 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST. . . 57
Section 1004. CORPORATE EXISTENCE. . . . . . . . . . . . . . . 58
Section 1005. MAINTENANCE OF PROPERTIES. . . . . . . . . . . . 58
Section 1006. RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND
OTHER PAYMENTS . . . . . . . . . . . . . . . . . 59
Section 1007. LIMITATION ON INDEBTEDNESS FOR MONEY BORROWED. . 59
Section 1008. INSURANCE. . . . . . . . . . . . . . . . . . . . 60
Section 1009. PAYMENT OF TAXES AND OTHER CLAIMS. . . . . . . . 60
Section 1010. BOOKS AND RECORDS. . . . . . . . . . . . . . . . 61
Section 1011. STATEMENT BY OFFICERS AS TO DEFAULT. . . . . . . 61
Section 1012. WAIVER OF CERTAIN COVENANTS. . . . . . . . . . . 61
Section 1013. LIMITATION ON RANKING OF FUTURE INDEBTEDNESS . . 61
Section 1014. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS. 62
Section 1015. LIMITATION ON TRANSACTIONS WITH AFFILIATES . . . 62
Section 1016. MINIMUM INTEREST COVERAGE RATIO. . . . . . . . . 63
Section 1017. EXCEPTIONS TO COVENANTS. . . . . . . . . . . . . 63

ARTICLE ELEVEN - REDEMPTION OF NOTES . . . . . . . . . . . . . . . . 63
Section 1101. RIGHT OF REDEMPTION. . . . . . . . . . . . . . . 63
Section 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. . . . . . 64
Section 1103. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED . . 64
Section 1104. NOTICE OF REDEMPTION . . . . . . . . . . . . . . 64
Section 1105. DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . 65
Section 1106. NOTES PAYABLE ON REDEMPTION DATE . . . . . . . . 65
Section 1107. NOTES REDEEMED IN PART . . . . . . . . . . . . . 66

ARTICLE TWELVE - REPAYMENT AT THE OPTION OF HOLDERS. . . . . . . . . 66
Section 1201. REPAYMENT OPTION UPON DEATH OF HOLDER. . . . . . 66
Section 1202. DEPOSIT OF REPAYMENT PRICE . . . . . . . . . . . 68
Section 1203. NOTES PAYABLE ON REPAYMENT DATE. . . . . . . . . 69
Section 1204. NOTES REPAID IN PART . . . . . . . . . . . . . . 69

ARTICLE THIRTEEN - SUBORDINATION OF NOTES. . . . . . . . . . . . . . 70
Section 1301. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS. . . . 70
Section 1302. SUBROGATION. . . . . . . . . . . . . . . . . . . 73
Section 1303. OBLIGATION OF COMPANY UNCONDITIONAL. . . . . . . 73
Section 1304. PAYMENTS ON NOTES PERMITTED. . . . . . . . . . . 74
Section 1305. EFFECTUATION OF SUBORDINATION BY TRUSTEE . . . . 74
Section 1306. NOTICE TO TRUSTEE AND KNOWLEDGE OF TRUSTEE . . . 74
Section 1307. TRUSTEE MAY HOLD SENIOR INDEBTEDNESS . . . . . . 74
Section 1308. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT
IMPAIRED . . . . . . . . . . . . . . . . . . . . 75

viii
<PAGE>

ARTICLE FOURTEEN - RIGHT TO REQUIRE REPURCHASE . . . . . . . . . . . 75
Section 1401. RIGHT TO REQUIRE REPURCHASE. . . . . . . . . . . 75
Section 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT. . 75
Section 1403. DEPOSIT OF REPURCHASE PRICE. . . . . . . . . . . 77
Section 1404. NOTES NOT REPURCHASED ON REPURCHASE DATE . . . . 77
Section 1405. NOTES REPURCHASED IN PART. . . . . . . . . . . . 77
Section 1406. PRIORITY OF REPURCHASE RIGHTS. . . . . . . . . . 77
Section 1407. DEFINITION OF REPURCHASE EVENT . . . . . . . . . 77

<PAGE>

INDENTURE, dated as of January 15, 1996 (the "Indenture"), between AMRESCO,
INC., a corporation duly organized and existing under the laws of the State of
Delaware (hereinafter called the "Company"), having executive offices located at
1845 Woodall Rodgers Freeway, Suite 1700, Dallas, Texas 75201 and Bank One,
Columbus, N.A., a national banking corporation duly organized and existing under
the laws of United States (hereinafter called the "Trustee"), having its
principal corporate trust office at 100 East Broad Street, Columbus, Ohio 43215.

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its __% Senior Subordinated Notes due
2003 (hereinafter called the "Notes"), to be issued in such amount and to have
such provisions as are hereinafter set forth. All things necessary to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been done.

This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder that are required to be part of this Indenture
and, to the extent applicable, shall be governed by such provisions.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Notes by
the Holders (as hereinafter defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders from time to time
of the Notes, as follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 101. DEFINITIONS.

Except as otherwise expressly provided in this Indenture or unless the
context otherwise requires, for all purposes of this Indenture:

(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act (as hereinafter defined), either directly or by reference
therein, have the meanings assigned to them therein;

<PAGE>

(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with United States generally
accepted accounting principles set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board in effect from time to time ("GAAP") and, except
as otherwise herein expressly provided, the term "GAAP" with respect to any
computation required or permitted hereunder shall mean GAAP at the date of
such computation;

(4) the words "herein", "hereof", "hereto" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and

(5) the word "or" is always used inclusively (for example, the phrase
"A or B" means "A or B or both", not "either A or B but not both").

Certain terms used principally in certain Articles hereof are defined in
those Articles.

"ACQUIRED INDEBTEDNESS" means indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company or assumed in connection
with the acquisition by the Company or a Subsidiary of the Company of assets
from such Person, and not incurred in connection with, or in anticipation of,
such Person becoming a Subsidiary of the Company or such acquisition.

"ACT", when used with respect to any Holder, has the meaning specified in
Section 104.

"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"AUTHENTICATING AGENT" means any Person authorized by the Trustee
pursuant to Section 612 to act on behalf of the Trustee to authenticate Notes.

"AUTHORIZED NEWSPAPER" means a newspaper, in an official language of the
place of publication or in the English language, customarily published on
each day that is a Business Day in the place of publication, whether or not
published on days that are Legal Holidays in the place of publication, and of
general circulation in each place in connection with which the term is used
or in the financial community of each such place. Where successive
publications are required to be made in Authorized Newspapers, the successive
publications may be made in the same or in

<PAGE>

different newspapers in the same city meeting the foregoing requirements and
in each case on any day that is a Business Day in the place of publication.

"BOARD OF DIRECTORS" means the board of directors of the Company or any
duly authorized committee of that board.

"BOARD RESOLUTION" means a copy of one or more resolutions, certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification and delivered to the Trustee.

"BUSINESS DAY", with respect to any Place of Payment or other location,
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
Legal Holiday in such Place of Payment or other location.

"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as capital lease
obligations on a balance sheet of such Person under GAAP and, for purposes of
this Indenture, the amount of such obligations at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.

"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934 or, if
at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.

"COMPANY" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company"
shall mean such successor Person.

"COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, a written
request or order, as the case may be, signed in the name of the Company by
the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President, a Vice President, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, of the Company, or by
another officer of the Company duly authorized to sign by a Board Resolution,
and delivered to the Trustee.

"CONSOLIDATED" when used in conjunction with any other defined term means
the aggregate amount of the items included within the defined term of the
Company on a consolidated basis, eliminating inter-company items.

"CONSOLIDATED CAPITALIZATION" means Subordinated Indebtedness plus
Consolidated Net Worth.

<PAGE>

"CONSOLIDATED EBITDA" means, for any period, determined in accordance with
GAAP on a consolidated basis for the Company and its Subsidiaries, the sum of
Consolidated Net Income before taxes and non-recurring gains or losses, plus
depreciation, plus amortization, plus interest expense, each as deducted in
determining such consolidated net income before taxes.

"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense which is required to be shown as such on the financial statements of
the Company and its Subsidiaries, on a consolidated basis, prepared in
accordance with GAAP.

"CONSOLIDATED NET INCOME" means, for any period, the amount of
consolidated net income (loss) of the Company determined in accordance with
GAAP; PROVIDED, HOWEVER, that there shall not be included in Consolidated Net
Income (1) any net income (loss) of a Subsidiary for any period during which
it was not a Consolidated Subsidiary or (2) any net income (loss) of
businesses, properties or assets acquired or disposed of (by way of merger,
consolidation, purchase, sale or otherwise) by the Company or any Subsidiary
for any period prior to the acquisition thereof or subsequent to the
disposition thereof.

"CONSOLIDATED NET WORTH" means the excess, as determined in accordance
with GAAP, after making appropriate deductions for any minority interest in
the net worth of Consolidated Subsidiaries, of (1) the assets of the Company
and its Consolidated Subsidiaries over (2) the liabilities of the Company and
its Consolidated Subsidiaries; PROVIDED, HOWEVER, that any write-up in the
book value of any assets owned subsequent to the date of this Indenture
(other than a write-up required for assets acquired in connection with the
purchase of a Person or business and taken at the time of such acquisition)
shall not be taken into account.

"CONSOLIDATED SUBSIDIARY" means a Subsidiary of the Company the financial
statements of which are consolidated with the financial statements of the
Company.

"CORPORATE TRUST OFFICE" means the principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of original execution of this
Indenture is located at 100 East Broad Street, Columbus, Ohio 43215.

"CORPORATION" includes corporations, associations, companies, joint stock
companies, limited liability companies or business trusts.

"DEFAULT NOTICE" has the meaning specified in Section 1301.

"DEFAULTED INTEREST" has the meaning specified in Section 307.

"DEPOSITORY" means, with respect to any Note issued in the form of one or
more global Notes, the Person designated as Depository by the Company in or
pursuant to this Indenture, which Person must be, to the extent required by
applicable law or regulation, a clearing agency

<PAGE>

registered under the Securities Exchange Act of 1934, as amended, and any
successor to such Person. If at any time there is more than one such Person,
"Depository" shall mean, with respect to any Notes, the qualifying entity
which has been appointed with respect to such Notes.

"EVENT OF DEFAULT" has the meaning specified in Section 501.

"EXCLUSIVE POWER" has the meaning specified in Section 1301.

"GAAP" has the meaning specified in Section 101(3).

"GOVERNMENT OBLIGATIONS" means direct obligations of the United States of
America, or any Person controlled or supervised by and acting as an agency or
instrumentality of such government, in each case where the payment or
payments thereunder are unconditionally guaranteed as a full faith and credit
obligation by such government and which are not callable or redeemable at the
option of the issuer or issuers thereof, and shall also include a depository
receipt issued by a bank or trust company as custodian with respect to any
such Government Obligation or a specific payment of interest on or principal
of or other amount with respect to any such Government Obligation held by
such custodian for the account of the holder of a depository receipt,
PROVIDED that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the
Government Obligation or the specific payment of interest on or principal of
or other amount with respect to the Government Obligation evidenced by such
depository receipt.

"HOLDER", when used with respect to the Notes, means the Person in whose
name such Note is registered in the Note Register.

"INDEBTEDNESS FOR MONEY BORROWED" means any of the following obligations
of the Company or any Subsidiary which by its terms matures at, or is
extendable or renewable at the sole option of the obligor without requiring
the consent of the obligee to, a date more than 360 days after the date of
the creation or incurrence of such obligation: (1) any obligations,
contingent or otherwise, for borrowed money or for the deferred purchase
price of property, assets, securities or services (including, without
limitation, any interest accruing subsequent to an event of default), (2) all
obligations (including the Notes) evidenced by bonds, notes, debentures or
other similar instruments, (3) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), except any such obligation that constitutes a trade payable
and an accrued liability arising in the ordinary course of business, if and
to the extent any of the foregoing indebtedness would appear as a liability
upon a balance sheet prepared in accordance with GAAP, (4) all Capitalized
Lease Obligations, (5) liabilities of the Company actually due and payable
under bankers acceptances and letters of credit, (6) all indebtedness of the
type referred to in Clause (1), (2), (3), (4) or (5) above secured by (or for
which the holder of such

<PAGE>

indebtedness has an existing right, contingent or otherwise, to be secured
by) any lien upon or security interest in property of the Company or any
Subsidiary (including, without limitation, accounts and contract rights),
even though the Company or any Subsidiary has not assumed or become liable
for the payment of such indebtedness, and (7) any guarantee or endorsement
(other than for collection or deposit in the ordinary course of business) or
discount with recourse of, or other agreement, contingent or otherwise, to
purchase, repurchase, or otherwise acquire, to supply, or advance funds or
become liable with respect to, any indebtedness or any obligation of the type
referred to in any of the foregoing Clauses (1) through (6), regardless of
whether such obligation would appear on a balance sheet.

"INDENTURE" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.

"INDEPENDENT PUBLIC ACCOUNTANTS" means a nationally recognized firm of
accountants that, with respect to the Company, are independent public
accountants within the meaning of the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder, who may
be the independent public accountants regularly retained by the Company or
who may be other independent public accountants. Such accountants or firm
shall be entitled to rely upon any Opinion of Counsel as to the
interpretation of any legal matters relating to the Indenture or certificates
required to be provided hereunder.

"INITIAL INTEREST ACCRUAL DATE" as to any Note means the date from which
interest shall begin to accrue in connection with the original issuance of
such Note, which shall be the date as of which such Note originally issued by
the Company to the initial purchaser thereof shall be dated, which shall be
the date upon which it was originally sold to such initial purchaser as
designated by the Company Order requesting authentication and delivery
thereof.

"INTEREST COVERAGE RATIO" means, for any date of determination, the ratio
of (1) Consolidated EBITDA for the immediately preceding twelve calendar
months to (2) Consolidated Interest Expense for the immediately preceding
twelve calendar months.

"INTEREST PAYMENT DATE" means the Stated Maturity of an installment of
interest on the Notes.

"ISSUE DATE" means the date on which the Notes are originally issued in
accordance with the terms of this Indenture.

"JUNIOR INDEBTEDNESS" means the principal amount of, and interest on, any
Indebtedness for Money Borrowed, whether now outstanding or hereafter
created, incurred, assumed or guaranteed, PROVIDED that in the instrument
creating or evidencing such Indebtedness for Money Borrowed or pursuant to
which such Indebtedness for Money Borrowed is outstanding it is provided that
(1) such indebtedness is junior in right of payment to the Notes; (2) no
payments

<PAGE>

with respect to such indebtedness may be made at any time that an Event of
Default shall have occurred and be continuing and (3) no payments other than
the payment of interest may be made with respect to such indebtedness at any
time the Notes are Outstanding; PROVIDED FURTHER that the Company's 8%
Convertible Subordinated Debentures due 2005, in the current aggregate
outstanding principal amount of $45,000,000, shall be considered "Junior
Indebtedness" and shall be subordinate to the Notes in right of payment and
in rights upon liquidation.

"LEGAL HOLIDAY" with respect to any Place of Payment or other location,
means a Saturday, a Sunday or a day on which banking institutions or trust
companies in such Place of Payment or other location are not authorized or
obligated to be open.

"MATERIAL SUBSIDIARY" means Holliday Fenoglio, Inc., AMRESCO Management,
Inc., AMRESCO Residential Mortgage, Inc., AMRESCO Advisors, Inc., AMRESCO
Residential Credit Corporation, AMRESCO Capital Corporation, AMRESCO New
England, Inc., Oak Cliff Financial, Inc. and any other Subsidiary whose
assets or revenues comprise at least five percent (5%) of the assets or
revenues of the Company and the Subsidiaries on a consolidated basis as of
the end of, or for the, Company's most recently completed fiscal quarter, as
determined from time to time.

"MATURITY" means the date on which the principal of the Notes or an
installment of principal becomes due and payable as provided in this
Indenture, whether at the Stated Maturity or by declaration of acceleration,
notice of redemption, notice of option to elect repayment or otherwise, and
includes any Redemption Date.

"MAXIMUM ANNUAL REPAYMENT AMOUNT" means $300,000.

"MONEY", with respect to any payment, deposit or other transfer pursuant
to or contemplated by the terms hereof, means United States dollars or other
equivalent unit of legal tender for payment of public or private debts in the
United States of America.

"NONRECOURSE INDEBTEDNESS" means Indebtedness for Money Borrowed of the
Company or any of its Subsidiaries that is (A) (i) specifically advanced to
finance the acquisition of assets classified on the Company's balance sheet
as "assets held for sale" and (ii) either (a) secured by the assets to which
such indebtedness relates without recourse to the Company or any of its
Subsidiaries or (b) issued under a loan agreement that requires each advance
to be repaid upon sale of the assets to which such advance specifically
relates within no more than one (1) year from the date of such advance or (B)
advanced to a Subsidiary or group of Subsidiaries formed for the sole purpose
of acquring or holding a portfolio of assets (i) against which a loan is
obtained that is made without recourse to, and with no cross-collaterization
against the assets of, the Company or any other Subsidiary, and (ii) upon
complete or partial liquidation of which the loan must be correspondingly
completely or partially repaid, as the case may be .

<PAGE>

"NOTE" or "NOTES" means any note or notes, as the case may be,
authenticated and delivered under this Indenture.

"NOTE REGISTER" AND "NOTE REGISTRAR" have the respective meanings
specified in Section 305.

"OFFICE OR AGENCY" means an office or agency of the Company maintained or
designated in a Place of Payment for the Notes pursuant to Section 1002 or
any other office or agency of the Company maintained or designated for, the
payment or surrender of the Notes pursuant to Section 1002 or, to the extent
designated or required by Section 1002 in lieu of such office or agency, the
Corporate Trust Office of the Trustee.

"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, that complies with
the requirements of Section 314(e) of the Trust Indenture Act and is
delivered to the Trustee.

"OPINION OF COUNSEL" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be
reasonably acceptable to the Trustee, that complies with the requirements of
Section 314 (e) of the Trust Indenture Act.

"OUTSTANDING", when used with respect to any Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under
this Indenture, except:

(1) any Note theretofore canceled by the Trustee or the Note Registrar or
delivered to the Trustee or the Note Registrar for cancellation;

(2) any Note or portion thereof for whose payment at the Maturity thereof
Money in the necessary amount has been theretofore deposited pursuant
hereto with the Trustee or any Paying Agent (other than the Company)
in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of the
Notes, PROVIDED that, if the Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;

(3) any Note with respect to which the Company has effected defeasance
pursuant to Clauses (1)(b) and (3) of Section 401 hereof; and

(4) any Note which has been paid pursuant to Section 306 or in exchange
for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, unless there shall have been
presented to the Trustee proof satisfactory

<PAGE>

to it that such Note is held by a bona fide purchaser in whose hands
such Note is a valid obligation of the Company;

PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in making any such determination or relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee knows to be so owned shall be so disregarded. Notes so owned
which shall have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee (a) the pledgee's
right so to act with respect to such Notes and (b) that the pledgee is not
the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor.

"PAYING AGENT" means any Person authorized by the Company to pay the
principal of or interest on any Note on behalf of the Company.

"PERMITTED PAYMENTS" has the meaning specified in Section 1301.

"PERSON" means any individual, Corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

"PLACE OF PAYMENT" has the meaning set forth in Section 301.

"PREDECESSOR NOTE" of a Note means every previous Note evidencing all or a
portion of the same debt as that evidenced by such particular Note; and, for
the purposes of this definition, any Note authenticated and delivered under
Section 306 in exchange for or in lieu of a lost, destroyed, mutilated or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed,
mutilated or stolen Note.

"REDEMPTION DATE", with respect to any Note or portion thereof to be
redeemed, means the date fixed for such redemption pursuant to Article Eleven
of this Indenture.

"REDEMPTION PRICE", with respect to any Note or portion thereof to be
redeemed, means the price at which it is to be redeemed pursuant to Article
Eleven of this Indenture.

"REGULAR RECORD DATE" for the interest payable on any Note on any Interest
Payment Date therefor means the date, if any, specified in or pursuant to
this Indenture as the "Regular Record Date".

<PAGE>

"REPAYMENT DATE", with respect to any Note or portion thereof to be repaid
pursuant to Article Twelve, means the date fixed for such repayment pursuant
to Article Twelve of this Indenture.

"REPAYMENT PRICE", with respect to any Note or portion thereof to be
repaid pursuant to Article Twelve, means the price at which it is to be
repaid pursuant to Article Twelve of this Indenture.

"RESPONSIBLE OFFICER" means any officer of the Trustee at its Corporate
Trust Office and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.

"RESTRICTED PAYMENT" has the meaning specified in Section 1006.

"SENIOR AGENT" has the meaning specified in Section 1301.

"SENIOR EVENT OF DEFAULT" has the meaning specified in Section 1301.

"SENIOR INDEBTEDNESS" means the principal amount of, and interest on and
all other amounts due on or in connection with (1) any Indebtedness for Money
Borrowed, whether now outstanding or hereafter created, incurred, assumed or
guaranteed, unless in the instrument creating or evidencing such Indebtedness
for Money Borrowed or pursuant to which such Indebtedness for Money Borrowed
is outstanding it is provided that such indebtedness is subordinate in right
of payment or in rights upon liquidation to any other Indebtedness for Money
Borrowed and (2) renewals, extensions and refundings of any such indebtedness.

"SENIOR RECOURSE INDEBTEDNESS" means Senior Indebtedness of the Company
and its Subsidiaries, on a consolidated basis, minus Nonrecourse Indebtedness
of the Company and its Subsidiaries, on a consolidated basis.

"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on any
Note means a date fixed by the Trustee pursuant to Section 307.

"STATED MATURITY" with respect to any Note or any installment of principal
thereof or interest thereon means the date established by this Indenture as
the fixed date on which the principal of such Note or such installment of
principal or interest is due and payable.

"SUBORDINATED INDEBTEDNESS" means all Indebtedness for Money Borrowed
except Senior Indebtedness.

<PAGE>

"SUBSIDIARY" means any Corporation of which at the time of determination
the Company or one or more Subsidiaries owns or controls directly or
indirectly more than 50% of the shares of Voting Stock;

"TRANSACTION" has the meaning specified in Section 1015.

"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended,
and any reference herein to the Trust Indenture Act or a particular provision
thereof shall mean such Act or provision, as the case may be, as amended or
replaced from time to time or as supplemented from time to time by rules or
regulations adopted by the Commission under or in furtherance of the purposes
of such Act or provision, as the case may be.

"TRUSTEE" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Trustee"
shall mean each Person who is then a Trustee hereunder.

"UNITED STATES", except as otherwise provided herein, means the United
States of America (including the states thereof and the District of
Columbia), its territories and possessions and other areas subject to its
jurisdiction.

"VICE PRESIDENT", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "Vice President".

"VOTING STOCK" means stock of a Corporation of the class or classes having
general voting power under ordinary circumstances to elect at least a
majority of the board of directors, managers or trustees of such Corporation
PROVIDED that, for the purposes hereof, stock which carries only the right to
vote conditionally on the happening of an event shall not be considered
Voting Stock whether or not such event shall have happened.

SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.

Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents or any of them is specifically required by any provision of
this Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.

<PAGE>

Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:

(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;

(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to
enable such individual to express an informed opinion as to whether or not
such condition or covenant has been complied with; and

(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.

SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate of counsel or Opinion of Counsel or
representation of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Note, they may, but need not, be
consolidated and form one instrument.

<PAGE>

SECTION 104. ACTS OF HOLDERS.

(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent, or of the
holding by any Person of a Note, shall be sufficient for any purpose of
this Indenture and (subject to Section 315 of the Trust Indenture Act)
conclusive in favor of the Trustee and the Company and any agent of the
Trustee or the Company, if made in the manner provided in this Section.

Without limiting the generality of this Section, unless otherwise
provided in or pursuant to this Indenture, a Holder, including a Depository
that is a Holder of a global Note, may make, give or take, by a proxy, or
proxies, duly appointed in writing, any request, demand, authorization,
direction, notice, consent, waiver or other action provided in or pursuant
to this Indenture to be made, given or taken by Holders, and a Depository
that is a Holder of a global Note may provide its proxy or proxies to the
beneficial owners of interests in any such global Note through such
Depository's standing instructions and customary practices.

The Trustee shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interests in any permanent global Note
held by a Depository entitled under the procedures of such Depository to
make, give or take, by a proxy or proxies duly appointed in writing, any
request, demand, authorization, direction, notice, consent, waiver or other
action provided in or pursuant to this Indenture to be made, given or taken
by Holders. If such a record date is fixed, the Holders on such record
date or their duly appointed proxy or proxies, and only such Persons, shall
be entitled to make, give or take such request, demand, authorization,
direction, notice, consent, waiver or other action, whether or not such
Holders remain Holders after such record date. No such request, demand,
authorization, direction, notice, consent, waiver or other action shall be
valid or effective if made, given or taken more than 90 days after such
record date.

(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient and in accordance with such reasonable rules as
the Trustee may determine; and the Trustee may in any instance require
further proof with respect to any of the matters referred to in this
Section.

<PAGE>

(3) The ownership, principal amount and serial numbers of Notes held
by any Person, and the date of the commencement and the date of the
termination of holding the same, shall be proved by the Note Register.

(4) If the Company shall solicit from the Holders of any Notes any
request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may at its option (but is not obligated to), by Board
Resolution, fix in advance a record date for the determination of Holders
of Notes entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other Act. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
Notes of record at the close of business on such record date shall be
deemed to be Holders for the purpose of determining whether Holders of the
requisite proportion of Outstanding Notes have authorized or agreed or
consented to such request, demand, authorization, direction, notice,
consent, waiver or other Act, and for that purpose the Outstanding Notes
shall be computed as of such record date; PROVIDED that no such
authorization, agreement or consent by the Holders of Notes on such record
date shall be deemed effective unless it shall become effective pursuant to
the provisions of this Indenture not later than six months after the record
date.

(5) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done or suffered to be done by the Trustee, any Note
Registrar, any Paying Agent or the Company in reliance thereon, whether or
not notation of such action is made upon such Note.

SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY.

Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:

(1) the Trustee by any Holder or the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, or

(2) the Company by the Trustee or any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, or sent by facsimile and
U.S. mail, first-class postage prepaid, to the Company addressed to the
attention of its Chief Financial Officer at the address of its principal
office specified in the first paragraph of this instrument or at any other
address previously furnished in writing to the Trustee by the Company.

<PAGE>

SECTION 106. NOTICE TO HOLDERS OF NOTES; WAIVER.

Except as otherwise expressly provided in this Indenture, where this
Indenture provides for notice to Holders of Notes of any event, such notice
shall be sufficiently given to Holders of Notes if in writing and mailed, first-
class postage prepaid, to each Holder of a Note affected by such event, at such
Holder's address as it appears in the Note Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice.

In any case where notice to Holders of Notes is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder of a Note shall affect the sufficiency of such notice with
respect to other Holders of Notes. Any notice which is mailed in the manner
herein provided shall be conclusively presumed to have been duly given or
provided. In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Notes shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.

SECTION 107. LANGUAGE OF NOTICES.

Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language.

SECTION 108. CONFLICT WITH TRUST INDENTURE ACT.

If any provision hereof limits, qualifies or conflicts with any duties
under any required provision of the Trust Indenture Act imposed hereon by
Section 318(d) thereof, such required provision shall control.

SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS.

The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

SECTION 110. SUCCESSORS AND ASSIGNS.

All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.

<PAGE>

SECTION 111. SEPARABILITY CLAUSE.

In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, either wholly or partially, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and such provisions shall be given effect to the fullest
extent permitted by law.

SECTION 112. BENEFITS OF INDENTURE.

Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, any Note Registrar, any Paying
Agent, any Authenticating Agent and their respective successors hereunder and
the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.

SECTION 113. GOVERNING LAW.

This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of Texas applicable to agreements made or
instruments entered into and, in each case, performed in said state, without
regard to principles of conflict of laws.

SECTION 114. LEGAL HOLIDAYS.

In any case where any Interest Payment Date, Redemption Date, Repayment
Date or Stated Maturity of any Note shall be a Legal Holiday at any Place of
Payment, then (notwithstanding any other provision of this Indenture) payment
need not be made at such Place of Payment on such date, but may be made on the
next succeeding day that is a Business Day at such Place of Payment with the
same force and effect as if made on the Interest Payment Date, Redemption Date,
Repayment Date or at the Stated Maturity, and no interest shall accrue on the
amount payable on such date or at such time for the period from and after such
Interest Payment Date, Redemption Date, Repayment Date or Stated Maturity, as
the case may be.

SECTION 115. SCHEDULES.

Any Schedules attached hereto are by this reference made a part hereof with
the same effect as if herein set forth in full.

SECTION 116. COUNTERPARTS.

This Indenture may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same instrument.

<PAGE>

ARTICLE TWO

FORM OF NOTES

SECTION 201. FORMS GENERALLY.

Each Note issued pursuant to this Indenture shall be in substantially the
forms set forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture or any indenture supplemental hereto and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with any law or with any rule or regulation
of any stock exchange or as may, consistently herewith, be determined by the
officers executing such Note as evidenced by their execution of such Note. The
Notes shall be issuable in global and registered form only without coupons. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.

Definitive Notes shall be printed, lithographed or engraved or produced by
any combination of these methods on a steel engraved border or steel engraved
borders or may be produced in any other manner, all as determined by the
officers of the Company executing such Notes, as evidenced by their execution of
such Notes.

<PAGE>

SECTION 202. FORM OF FACE OF NOTE.

AMRESCO, INC.

__% SENIOR SUBORDINATED NOTE DUE 2003

$________________________ NO._____________________

AMRESCO, INC., a Delaware corporation (herein called the "Company"), for
value received, hereby promises to pay to _____________________
______________________________, or registered assigns, the principal sum of
________________________ Dollars on January 15, 2003 and to pay interest thereon
at the rate of __% per annum from the Initial Interest Accrual Date or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, on the fifteenth (15th) day of each month commencing March 15,
1996 (each an "Interest Payment Date"), until the principal hereof is paid or
made available for payment.

The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, except as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the tenth (10th) day, whether or not a
Business Day, of the month of the respective Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and either may be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on a Special Record Date for the payment of such
defaulted interest to be fixed by the Trustee, notice whereof shall be given to
the Holders not less than ten days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more fully provided in the
Indenture. Payment of the principal of and interest on this Note will be made
at the office or agency of the Company maintained for that purpose in Borough of
Manhattan, New York, New York and Columbus, Ohio, or in such other office or
agency as may be established by the Company pursuant to the Indenture (initially
the principal corporate trust office of the Trustee in Columbus, Ohio (the
"Corporate Trust Office")), in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; PROVIDED, HOWEVER, that payment of interest on any Interest
Payment Date other than at Maturity may be made at the option of the Company by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Note Register. Payments of principal and interest at maturity
will be made against presentation of this Note at the Corporate Trust Office (or
such other office as may be established pursuant to the Indenture), by check.

<PAGE>

Reference is hereby made to the further provisions of this Note set forth
on the reverse side hereof, which further provisions shall for all purposes have
the same effect as though fully set forth at this place.

Unless the Certificate of Authentication hereon has been executed by the
Trustee or an Authenticating Agent under the Indenture referred to on the
reverse hereof by the manual signature of one of its authorized officers, this
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by the manual or facsimile signature of its Chief Executive Officer, its
President, its Treasurer or one of its Vice Presidents and its corporate seal,
or a facsimile thereof, to be impressed or imprinted hereon, attested by the
manual or facsimile signature of its Secretary or one of its Assistant
Secretaries.

Date:

AMRESCO, INC.

[Corporate Seal]
By:_______________________________________
Chief Executive Officer
ATTEST:
____________________________________
Secretary

<PAGE>

SECTION 203. FORM OF REVERSE OF NOTE.

AMRESCO, INC.

__% SENIOR SUBORDINATED NOTE DUE 2003

This Note is one of a duly authorized issue of Notes of the Company
designated as its __% Senior Subordinated Notes due 2003 (herein called the
"Notes') limited in aggregate principal amount to $50,000,000 (except for such
additional principal amounts, not to exceed $7,500,000, of Notes issued to cover
over-allotments in the initial public offering of the Notes) issued and to be
issued under an Indenture dated as of January 15, 1996 (herein called the
"Indenture"), between the Company and Bank One, Columbus, N.A., as Trustee
(herein called the "Trustee," which term includes any successor Trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights thereunder of
the Company, the Trustee and the Holders of the Notes, and the terms upon which
the Notes are, and are to be, authenticated and delivered.

The indebtedness of the Company evidenced by the Notes, including the
principal thereof and interest thereon (including post-default interest), (1) is
expressly subordinated, to the extent and to the manner set forth in the
Indenture, in right of payment to the prior payment in full of all of the
Company's obligations to holders of Senior Indebtedness and (2) is unsecured by
any collateral, including the assets of the Company or any of its Subsidiaries
or Affiliates. Each Holder of Notes, by acceptance thereof, (a) agrees to and
shall be bound by such provisions of the Indenture and all other provisions of
the Indenture; (b) authorizes and directs the Trustee to take such action on
such Holder's behalf as may be necessary or appropriate to effectuate the
Subordination of the Notes as provided in the Indenture; and (c) appoints the
Trustee as such Holder's attorney-in-fact for any and all such purposes.

The Notes may not be redeemed by the Company prior to January 15, 2001. On
or after January 15, 2001, the Notes may be redeemed, at the option of the
Company, in whole at any time or from time to time in part in increments of
$1,000, at 100% of the principal amount thereof, without premium, together with
interest thereon accrued to such Redemption Date. If fewer than all Notes are
redeemed, the Trustee will select the Notes to be redeemed by such method as the
Trustee may deem fair and appropriate.

Notice of redemption shall be given to the Holders of Notes to be redeemed
by mailing a notice of such redemption not less than 30 or more than 60 days
prior to the Redemption Date at their addresses as they shall appear on the Note
Register, all as provided in the Indenture.

If this Note (or a portion hereof) is duly called for redemption and funds
for payment are duly provided, this Note (or such portion hereof) shall cease to
bear interest from and after such Redemption Date.

<PAGE>

Upon the death of the Holder of this Note (if such person is a natural
Person), and upon the further receipt of a written request for repayment from a
duly authorized representative of the deceased Holder, along with a certified
copy of the Holder's death certificate, the Company will repay the principal
amount of this Note (up to $30,000 in principal amount per Holder in any
calendar year), together with interest accrued to the Repayment Date, within 30
days following receipt of such request (which shall be accompanied by the Notes
to be repaid and evidence of such representative's authority to act on behalf of
the Holder), in accordance with the provisions of the Indenture, if (1) this
Note has been registered in the Holder's name since its issue date or for a
period of at least six months prior to the date of the Holders's death,
whichever is less, (2) either the Company or the Trustee receives such written
request for repayment within one year after the Holder's death or, in the case
of subsequent requests for repayment, within one year of the preceding request,
provided that if either the Company or the Trustee receives such a written
request it will promptly notify the other, (3) the aggregate principal amount of
Notes repaid during the then current calendar year on account of the deaths of
all Holders does not exceed the Maximum Annual Repayment Amount (if such
aggregate principal amount exceeds the Maximum Annual Repayment Amount, the
Company shall repay such Notes up to the Maximum Annual Repayment Amount in
principal amount in the order in which requests for repayment were received),
(4) the Company is not and, after giving effect to such repayment, would not be
in default under any Senior Indebtedness, and (5) the Company is not subject to
any law, regulation, agreement or administrative directive preventing such
repayment.

In accordance with the terms of the Indenture, upon the occurrence of a
Repurchase Event, the Holder of this Note shall have the right, at such Holder's
option, to require the Company to purchase, and upon exercise of such right, the
Company shall purchase, all or any part of this Note on the date that is 30 days
after the date the Company gives notice of the Repurchase Event at a price equal
to 100% of the principal amount thereof, together with accrued and unpaid
interest.

Interest installments whose Stated Maturity is on the Redemption Date or
Repayment Date will be payable to the Holders of such Notes, or one or more
Predecessor Notes, of record at the close of business on the relevant Regular
Record Date referred to on the face hereof, all as provided in the Indenture.
In the event of redemption or repayment of this Note in part only, a new Note or
Notes for the unredeemed or unrepaid portion hereof shall be issued in the name
of the Holder hereof upon the surrender hereof.

Except as may be provided in the Indenture, if an Event of Default with
respect to the Notes shall occur and be continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Notes may declare
the principal of all the Notes due and payable in the manner and with the effect
provided in the Indenture. The Indenture provides that such declaration and its
consequences may, in certain events, be annulled by the Holders of a majority in
principal amount of the Outstanding Notes.

<PAGE>

The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.

No reference herein to the Indenture and no provisions of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, places and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company to be maintained for that purpose in the Borough of
Manhattan, New York, New York and Columbus, Ohio or at such other office or
agency as may be established by the Company for such purpose pursuant to the
Indenture (initially the principal corporate trust office of the Trustee in
Columbus, Ohio), duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company, and duly executed by the Holder
hereof or such Holder's attorney duly authorized in writing, and thereupon one
or more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.

The Notes are issuable only in registered form, without coupons, in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000. As provided in the Indenture, and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes in authorized denominations, as requested by the
Holder surrendering the same.

No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

Prior to the due presentment of this Note for registration of transfer or
exchange, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note

<PAGE>

be overdue, and neither the Company, the Trustee, nor any such agent shall be
affected by notice to the contrary.

Each Holder of a Note covenants and agrees by such Holder's acceptance
thereof to comply with and be bound by the foregoing provisions.

All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.

SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.

Subject to Section 612, the Trustee's certificate of authentication shall
be in substantially the following form:

This is one of the Notes described herein.

Bank One, Columbus, N.A. as Trustee

Authentication
Date:_____________ By______________________________________
Authorized Signatory

SECTION 205. NOTES IN GLOBAL FORM.

Notes may be issuable in global form (i.e., in the name of the nominee of a
Depository for purposes of book entry transfer), such that any such Note may
provide that it or any number of such Notes shall represent the aggregate amount
of all Outstanding Notes (or such lesser amount as is permitted by the terms
thereto from time to time endorsed thereon) and may also provide that the
aggregate amount of Outstanding Notes represented thereby may from time to time
be increased or reduced to reflect exchanges. Any endorsement of any Note in
global form to reflect the amount, or any increase or decrease in the amount, or
changes in the rights of Holders, of Outstanding Notes represented thereby shall
be made in such manner and by such Person or Persons as shall be specified
therein or in the Company Order to be delivered pursuant to Section 303 or 304
with respect thereto. Subject to the provisions of Section 303 and, if
applicable, Section 304, the Trustee shall deliver and redeliver any Note in
permanent global form in the manner and upon instructions given by the Person or
Persons specified therein or in the applicable Company Order. If a Company
Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered,
any instructions by the Company with respect to a Note in global form shall be
in writing but need not be accompanied by or contained in an Officers'
Certificate and need not be accompanied by an Opinion of Counsel.

<PAGE>

ARTICLE THREE

THE NOTES

SECTION 301. TITLE AND TERMS.

The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $50,000,000 (except for such
additional principal amounts, not to exceed $7,500,000, of Notes issued to cover
over-allotments in the initial public offering of the Notes), except for Notes
authenticated and delivered upon transfer of, or in exchange for, or in lieu of
other Notes pursuant to Sections 304, 305, 306, 905, 1107 and 1204.

The Notes shall be known and designated as the "__% Senior Subordinated
Notes due 2003 of the Company". The Stated Maturity of all principal shall be
___________, 2003, and they shall bear interest from the date and at the rate
per annum specified in, and such interest shall be payable on the dates
specified in, the form of Note set forth in Sections 202 and 203, until the
principal thereof is paid or made available for payment.

The principal of and interest on the Notes shall be payable at the Office
or Agency of the Company in the Borough of Manhattan, New York, New York and
Columbus, Ohio ("PLACE OF PAYMENT") maintained for such purposes pursuant to
Section 1002; PROVIDED, HOWEVER, that, at the option of the Company, payment of
interest may be made (subject to collection) by check mailed to the address of
the Person entitled thereto as such address shall appear on the Note Register.

The Notes shall be redeemable prior to their Stated Maturity as provided in
Article Eleven.

The Notes may be repayable prior to their Stated Maturity as provided in
Article Twelve upon the death of a Noteholder or as provided in Article Fourteen
upon the occurrence of a Repurchase Event.

The Notes shall be subordinated in right of payment to Senior Indebtedness,
whether outstanding at the date of this Indenture or thereafter created, as
provided in Article Thirteen.

SECTION 302. CURRENCY; DENOMINATIONS.

The principal of and interest on the Notes shall be payable in United
States dollars or other equivalent unit of legal tender for payment of public or
private debts in the United States of America. Notes shall be issuable in
registered form only without coupons in denominations of $1,000 and any integral
multiple thereof.

<PAGE>

SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.

Notes shall be executed on behalf of the Company by its Chairman of the
Board, one of its Vice Chairmen of the Board, its Chief Executive Officer, its
President, its Treasurer or one of its Vice Presidents under its corporate seal
reproduced thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.

Notes bearing the manual or facsimile signatures of individuals who were at
any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.

At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Notes, executed by the Company, to the
Trustee for authentication and, PROVIDED that a Company Order for the
authentication and delivery of such Notes has been delivered to the Trustee, the
Trustee, in accordance with the Company Order and subject to the provisions
hereof, shall authenticate and deliver such Notes.

The Company may establish by Company Order that the Notes are to be issued
in whole or in part in the form of one or more global Notes. If so established,
the Company shall execute and the Trustee shall, in accordance with this Section
and the Company Order with respect to such Notes, authenticate and deliver one
or more global Notes in permanent form that (i) shall represent and shall be
denominated in an amount equal to the aggregate principal amount of the
Outstanding Notes to be represented by such global Note or Notes, (ii) shall be
registered in the name of the Depository for such global Note or Notes or the
nominee of such Depository, (iii) shall be delivered by the Trustee to such
Depository or pursuant to such Depository's instruction and (iv) shall bear a
legend substantially to the following effect: "Unless and until it is exchanged
in whole or in part for Notes in certificated form, this Note may not be
transferred except as a whole by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository" or to such other effect as the
Depository and the Trustee may agree.

Each Note shall be dated the date of its authentication.

No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for in Section 204 or 612
executed by or on behalf of the Trustee by the manual signature of one of its
authorized officers or by an Authenticating Agent. Such certificate upon any
Note shall be conclusive evidence, and the only evidence, that such Note has
been duly authenticated and delivered hereunder.

<PAGE>

SECTION 304. TEMPORARY NOTES.

Pending the preparation of definitive Notes, the Company may execute and
deliver to the Trustee and, upon Company Order, the Trustee shall authenticate
and deliver, in the manner provided in Section 303, temporary Notes in lieu
thereof which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued, in registered form and with
such appropriate insertions, omissions, substitutions and other variations as
the officers of the Company executing such Notes may determine, as conclusively
evidenced by their execution of such Notes. Such temporary Notes may be in
global form.

Except in the case of temporary Notes in global form, which shall be
exchanged in accordance with the provisions thereof, if temporary Notes are
issued, the Company shall cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, such temporary
Notes shall be exchangeable for such definitive Notes upon surrender of such
temporary Notes at an Office or Agency for such Notes, without charge to any
Holder thereof. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Notes of authorized
denominations. Unless otherwise provided in or pursuant to this Indenture with
respect to a temporary global Note, until so exchanged the temporary Notes shall
in all respects be entitled to the same benefits under this Indenture as
definitive Notes.

SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE.

The Company shall cause to be kept a register (herein sometimes referred to
as the "NOTE REGISTER") at an Office or Agency maintained pursuant to Section
1002 in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of the Notes and of transfers of the
Notes. The Trustee is hereby initially appointed as Note Registrar for the
Notes. In the event that the Trustee shall cease to be Note Registrar it shall
have the right to examine the Note Register at all reasonable times.

Upon surrender for registration of transfer of any Note at the Office or
Agency of the Company, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes, denominated as authorized in this Indenture,
of a like aggregate principal amount bearing a number not contemporaneously
outstanding and containing identical terms and provisions.

At the option of the Holder, Notes (except a global Note representing all
of the Outstanding Notes) may be exchanged for other Notes, in any authorized
denominations, and of a like aggregate principal amount, upon surrender of the
Notes to be exchanged at such Office or Agency. Whenever any Notes are so
surrendered for exchange, the Company shall execute, and

<PAGE>

the Trustee shall authenticate and deliver, the Notes which the Holder
making the exchange is entitled to receive.

Whenever any Notes are surrendered for exchange as contemplated by the
immediately preceding two paragraphs, the Company shall execute, and the Trustee
shall authenticate and deliver, the Notes which the Holder making the exchange
is entitled to receive.

Notwithstanding the foregoing, except as otherwise provided in or pursuant
to this Indenture, any global Note shall be exchangeable for definitive Notes
only if (i) the Depository is at any time unwilling, unable or ineligible to
continue as Depository and a successor depository is not appointed by the
Company within 60 days of the date the Company is so informed in writing, (ii)
the Company executes and delivers to the Trustee a Company Order to the effect
that such global Note shall be so exchangeable, or (iii) an Event of Default has
occurred and is continuing with respect to the Notes. If the beneficial owners
of interests in a global Note are entitled to exchange such interests for
definitive Notes of such series and of like tenor and principal amount of any
authorized form and denomination as specified as contemplated by Section 304,
then without unnecessary delay but in any event not later than the earliest date
on which such interests may be so exchanged, the Company shall deliver to the
Trustee definitive Notes in such form and denominations as are required by or
pursuant to this Indenture, containing identical terms and in aggregate
principal amount equal to the principal amount of such global Note, executed by
the Company. On or after the earliest date on which such interests may be so
exchanged, such global Note shall be surrendered from time to time by the
Depository, and in accordance with instructions given to the Trustee and the
Depository (which instructions shall be in writing but need not be contained in
or accompanied by an Officers' Certificate or be accompanied by an Opinion of
Counsel), as shall be specified in the Company Order with respect thereto to the
Trustee, as the Company's agent for such purpose, to be exchanged; provided,
however, that no such exchanges may occur during a period beginning at the
opening of business 15 days before any such selection of Notes for redemption of
the same series and containing identical terms to be redeemed and ending on the
relevant Redemption Date. Promptly following any such exchange in part, such
global Note shall be returned by the Trustee to such Depository in accordance
with the instructions of the Company referred to above. If a Note is issued in
exchange for any portion of a global Note after the close of business at the
Office or Agency for such Note where such exchange occurs on or after (i) any
Regular Record Date for such Note and before the opening of business at such
Office or Agency on the next Interest Payment Date, or (ii) any Special Record
Date for such Note and before the opening of business at such Office or Agency
on the related proposed date for payment of interest or Defaulted Interest, as
the case may be, interest shall not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of such Note, but
shall be payable on such Interest Payment Date or proposed date for payment, as
the case may be, only to the Person to whom interest in respect of such portion
of such global Note shall be payable in accordance with the provisions of this
Indenture.

<PAGE>

All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company evidencing the same debt and
entitling the Holders thereof to the same benefits under this Indenture as the
Notes surrendered upon such registration of transfer or exchange.

Every Note presented or surrendered for registration of transfer or for
exchange or redemption shall (if so required by the Company or the Note
Registrar for such Note) be duly endorsed by, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing.

No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304, 905 or 1107 not involving any transfer.

The Company shall not be required (1) to issue, register the transfer of or
exchange any Notes during a period beginning at the opening of business 15
calendar days before the day of the selection for redemption of Notes under
Section 1103 and ending at the close of business on the day of the mailing of
the relevant notice of redemption, or (2) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except in the
case of any Note to be redeemed in part, the portion thereof not to be redeemed,
or (3) to issue, register the transfer of or exchange any Note which, in
accordance with its terms, has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Note not to be so repaid.

SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.

If any mutilated Note is surrendered to the Trustee, subject to the
provisions of this Section, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Note containing identical
terms and of like principal amount and bearing a number not contemporaneously
outstanding.

If there be delivered to the Company and to the Trustee (1) evidence to
their satisfaction of the destruction, loss or theft of any Note, and (2) such
Note or indemnity as may be required by them to save each of them and any agent
of either of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser (or any
equivalent person under any applicable statute, rule or regulation or
interpretation then in effect), the Company shall execute and, upon the
Company's request the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such destroyed, lost or stolen Note, a new Note containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding.

<PAGE>

Notwithstanding the foregoing provisions of this Section, in case any
mutilated, destroyed, lost or stolen Note has become or is about to become due
and payable or redeemed by the Company pursuant to Article Eleven hereof, the
Company in its discretion may, instead of issuing a new Note, pay such Note.

Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.

Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an additional original contractual
obligation of the Company, whether or not the destroyed, lost or stolen Note
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.

The provisions of this Section, as amended or supplemented pursuant to this
Indenture, shall be exclusive and shall preclude (to the extent lawful) all
other rights and remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes.

SECTION 307. PAYMENT OF INTEREST; RIGHTS TO INTEREST PRESERVED.

Any interest on any Note which shall be payable and is punctually paid or
duly provided for on any Interest Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered as of the
close of business on the Regular Record Date for such interest.

Any interest on any Note which shall be payable, but shall not be
punctually paid or duly provided for, on any Interest Payment Date for such Note
(herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the
Holder thereof on the relevant Regular Record Date by virtue of having been a
Holder on such date; and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in Clause (1) or (2) below.

(1) The Company may elect to make payment of any Defaulted Interest
to the Person in whose name such Note (or a Predecessor Note thereof) shall
be registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on such Note and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of Money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit on or prior to the date of the
proposed payment, such Money when so deposited to be held in trust for the
benefit of the Person entitled to such Defaulted

<PAGE>

Interest as in this Clause provided. Thereupon, the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to the Holder of such Note (or a Predecessor
Note thereof) at such Holder's address as it appears in the Note Register
not less than 10 days prior to such Special Record Date. The Trustee may,
in its discretion, in the name and at the expense of the Company cause a
similar notice to be published at least once in an Authorized
Newspaper of general circulation in each Place of Payment, but such
publication shall not be a condition precedent to the establishment
of such Special Record Date and the failure of a Holder to observe
such published notice shall not entitle such Holder to additional
benefits or interest with respect to such Holder's Notes. Notice of
the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Person in whose name such Note (or a
Predecessor Note thereof) shall be registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).

(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this Clause, such
payment shall be deemed practicable by the Trustee.

At the option of the Company, interest on the Notes may be paid (i) by
mailing a check to the address of the Person entitled thereto as such address
shall appear in the Note Register, or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the Note Register.

Subject to the foregoing provisions of this Section and Section 305, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.

SECTION 308. PERSONS DEEMED OWNERS.

Prior to due presentment of a Note for registration of transfer or
exchange, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name such Note is registered in the
Note Register as the owner of such Note for the purpose of receiving payment
of principal of and (subject to Sections 305 and 307) interest on such Note
and for all other purposes whatsoever, whether or not any payment with
respect to such Note

<PAGE>

shall be overdue, and neither the Company, nor the Trustee or any agent of
the Company or the Trustee shall be affected by notice to the contrary.

No holder of any beneficial interest in any global Note held on its behalf
by a Depository shall have any rights under this Indenture with respect to such
global Note, and such Depository may be treated by the Company, the Trustee, and
any agent of the Company or the Trustee as the owner of such global Note for all
purposes whatsoever. None of the Company, the Trustee, any Paying Agent or the
Note Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.

SECTION 309. CANCELLATION.

All Notes surrendered for payment, redemption, repayment pursuant to
Article Twelve, registration of transfer or exchange shall, if surrendered to
any Person other than the Trustee, be delivered to the Trustee, and any such
Notes, as well as Notes surrendered directly to the Trustee for any such
purpose, shall be canceled promptly by the Trustee. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be canceled promptly by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes held by the Trustee shall be destroyed by
the Trustee (who shall deliver a certificate of destruction thereof to the
Company), unless by a Company Order the Company directs their return to it.

SECTION 310. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE.

Forthwith upon the execution and delivery of this Indenture, or from time
to time thereafter, Notes up to the aggregate principal amount of $50,000,000
(plus such additional principal amounts, not to exceed $7,500,000, of Notes
issued to cover over allotments in the initial public offering of the Notes) may
be executed by the Company and delivered to the Trustee for authentication, and
shall thereupon be authenticated and delivered by the Trustee upon Company
Order, without any further action by the Company.

SECTION 311. COMPUTATION OF INTEREST.

Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months. Interest shall be payable through and excluding any
Interest Payment Date and interest shall be payable through and including any
Redemption Date or Repayment Date.

<PAGE>

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.

Upon the direction of the Company by a Company Order, this Indenture shall
cease to be of further effect and the Trustee, on receipt of such Company Order,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when

(1) either

(a) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been mutilated, destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Notes for whose payment Money has theretofore been deposited in
trust with the Trustee or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or

(b) as to all Notes not so theretofore delivered to the Trustee
for cancellation the Company has irrevocably deposited or caused to be
deposited with the Trustee, as trust funds and/or obligations in trust
for such purpose, Money and/or Government Obligations which through
the payment of interest and principal in respect thereof in accordance
with their terms, without consideration of any reinvestment thereof,
will provide not later than the opening of business on the due dates
of any payment of principal and interest with respect thereto, or a
combination thereof, Money in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, including the principal
thereof and interest thereon, to the date of such deposit (in the case
of Notes which have become due and payable) or to the Maturity
thereof, as the case may be;

(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company, including amounts owing to the Trustee; and

(3) the Company has delivered to the Trustee a certificate of
Independent Public Accountants certifying as to the sufficiency of the
amounts deposited pursuant to subclause (b) of Clause (1) of this Section
for payment of the principal and interest on the dates such payments are
due, and an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent herein providing for or relating to the
satisfaction and discharge of this Indenture have been complied with.

<PAGE>

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 612 and, if Money and/or
Government Obligations shall have been deposited with the Trustee pursuant to
subclause (b) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.

SECTION 402. APPLICATION OF TRUST MONEY.

Subject to the provisions of the last paragraph of Section 1003, all Money
and Government Obligations deposited with the Trustee pursuant to Section 401
and all Money received by the Trustee in respect of Government Obligations
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such Money has or Government Obligations have been deposited with
or received by the Trustee; but such Money and Government Obligations need not
be segregated from other funds of the Trustee except to the extent required by
law.

ARTICLE FIVE

REMEDIES

SECTION 501. EVENTS OF DEFAULT.

"EVENT OF DEFAULT", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or be effected by operation of law pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):

(1) default in the payment of any interest on any Note when such
interest becomes due and payable, and continuance of such default for a
period of 10 days, whether or not such payment is prohibited by the
provisions of Article Thirteen; or

(2) default in the payment of the principal of any Note when it
becomes due and payable at its Maturity or upon redemption or repayment,
whether or not such payment is prohibited by the provisions of Article
Thirteen; or

(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture or the Notes (other than a
covenant or warranty a default in the performance or the breach of which is
elsewhere in this Section specifically dealt with), and continuance of such
default or breach for a period of 30 days after there has

<PAGE>

been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Notes a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or

(4) default in the payment at stated maturity of any indebtedness of
the Company or any Subsidiary for money borrowed in principal amount due at
stated maturity in excess of $1,000,000, and such default shall continue,
without being cured, waived or consented to and without such indebtedness
being discharged, for a period of 30 days beyond any applicable period of
grace; or

(5) the occurrence of an event of default as defined in any mortgage,
indenture or instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness of the Company or any
Subsidiary for money borrowed (or the payment of which is guaranteed by the
Company), whether such indebtedness now exists or shall hereafter be
created, PROVIDED, HOWEVER, that no such event of default shall constitute
an Event of Default hereunder unless the effect of such event of default is
to cause the acceleration of such indebtedness prior to its expressed
maturity, which together with the principal amount of any such other
indebtedness so caused to be accelerated, aggregates $1,000,000 or more at
any one point in time and such default shall not have been cured or waived
and such acceleration shall not have been rescinded or annulled; or

(6) the entry by a court or agency or supervisory authority having
competent jurisdiction of:

(a) a decree or order for relief in respect of the Company or
any Material Subsidiary in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law
and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or

(b) a decree or order adjudging the Company or any Material
Subsidiary to be insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Company
or any Material Subsidiary and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or

(c) a decree or order appointing any Person to act as a
custodian, receiver, liquidator, assignee, trustee or other similar
official of the Company or any Material Subsidiary or of any
substantial part of the property of the Company or any Material
Subsidiary, as the case may be, or ordering the winding up or
liquidation of the affairs of the Company or any Material Subsidiary
and such

<PAGE>

decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or

(7) the commencement by the Company or any Material Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or of a voluntary proceeding seeking to
be adjudicated insolvent or the consent by the Company or any Material
Subsidiary to the entry of a decree or order for relief in an involuntary
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any insolvency proceedings
against it, or the filing by the Company or any Material Subsidiary of a
petition or answer or consent seeking reorganization or relief under any
applicable law, or the consent by the Company or any Material Subsidiary to
the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee or similar official
of the Company or any Material Subsidiary or any substantial part of the
property of the Company or any Material Subsidiary or the making by the
Company or any Material Subsidiary of an assignment for the benefit of
creditors, or the taking of corporate action by the Company or any Material
Subsidiary in furtherance of any such action; or

(8) a final judgment, judicial decree or order for the payment of
money in excess of $5,000,000 shall be rendered against the Company or any
Subsidiary and such judgment, decree or order shall continue unsatisfied
for a period of 30 days without a stay of execution.

SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

If an Event of Default occurs and is continuing, then the Trustee or the
Holders of not less than 25% in principal amount of the outstanding Notes may
declare the principal of all the Notes, and the interest accrued thereon, to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by the Holders), and upon any such declaration such amount
shall become immediately due and payable.

At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the Money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of not less
than a majority in principal amount of the Outstanding Notes, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if

(1) the Company has paid or deposited with the Trustee a sum of Money
sufficient to pay

(a) all overdue installments of any interest on all Notes,

<PAGE>

(b) the principal of any Notes which have become due otherwise
than by such declaration of acceleration and interest thereon at the
rate borne by such Notes,

(c) to the extent that payment of such interest is lawful,
interest upon overdue installments of any interest at the rate borne
by such Notes, and

(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and

(2) all Events of Default, other than the non-payment of the
principal of and interest on Notes which shall have become due solely by
such declaration of acceleration, shall have been cured or waived as
provided in Section 513.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.

The Company covenants that if

(1) default is made in the payment of any installment of interest on
any Note when such interest shall have become due and payable and such
default continues for a period of 10 days, or

(2) default is made in the payment of the principal of any Note at
its Maturity, the Company shall, upon demand of the Trustee, pay to the
Trustee, for the benefit of the Holders of such Notes, the whole amount of
money then due and payable with respect to such Notes, with interest upon
the overdue principal and, to the extent that payment of such interest
shall be legally enforceable, upon any overdue installments of interest at
the rate borne by such Notes, and, in addition thereto, such further amount
of Money as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.

If the Company fails to pay the Money it is required to pay the Trustee
pursuant to the preceding paragraph forthwith upon the demand of the Trustee,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the Money so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Notes and collect the Money
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon such Notes, wherever situated.

<PAGE>

If an Event of Default with respect to the Notes occurs and is continuing,
the Trustee may in its discretion proceed to protect and enforce its rights and
the rights of the Holders of Notes by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or such Notes or in aid of the exercise of any power granted herein or
therein, or to enforce any other proper remedy.

The rights and remedies under this Section 503 are in addition to the other
rights and remedies available under this Article 5 or otherwise legally
available.

SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.

In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of any overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,

(1) to file and prove a claim for the whole amount of the principal
and interest owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents or counsel) and of the Holders of Notes allowed in such judicial
proceeding, and

(2) to collect and receive any Money or other property payable or
deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Notes to make such payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the Holders
of Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due the Trustee under Section 607.

Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Note any
plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder of a Note in any such proceeding.

<PAGE>

SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.

All rights of action and claims under this Indenture or any of the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery or judgment, after provision for
the payment of the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, shall be for the ratable benefit of each
and every Holder of a Note in respect of which such judgment has been recovered.

SECTION 506. APPLICATION OF MONEY COLLECTED.

Any Money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such Money on account of principal or interest,
upon presentation of the Notes, and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 607;

SECOND: In the case the principal of the Notes shall not have become
due and payable, to the payment of the amounts then due and unpaid upon the
Notes for interest in respect of which or for the benefit of which such
Money has been collected, in the order of the Maturity of the installments
of such interest, with interest, to the extent that such interest is lawful
and has been collected by the Trustee, upon overdue installments of
interest at the rate borne by the Notes, such payments to be made ratably,
without preference or priority of any kind, according to the aggregate
amounts due and payable on such Notes for interest;

THIRD: In the case the principal of the Notes shall have become due
and payable, to the payment of the amounts then due and unpaid upon the
Notes for principal and interest in respect of which or for the benefit of
which such Money has been collected, with interest, to the extent that such
interest is lawful and has been collected by the Trustee, upon overdue
installments of interest at the rate borne by the Notes, such payments to
be made ratably, without preference or priority of any kind, according to
the aggregate amounts due and payable on such Notes for principal and
interest, respectively; and

FOURTH: The balance, if any, to the Company.

<PAGE>

SECTION 507. LIMITATIONS ON SUITS.

No Holder of any Note shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless

(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;

(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;

(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against the costs, fees, expenses and
liabilities to be incurred in compliance with such request (including
reasonable fees of counsel);

(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Notes;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all such Holders.

SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND
INTEREST.

Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and (subject to Sections 305 and 307) interest on
such Note on the respective Stated Maturity or Maturities therefor specified in
such Note (or, in the case of redemption, on the Redemption Date or, in the case
of repayment at the option of such Holder, on the date such repayment is due)
and to institute suit for the enforcement of any such payment, and such right
shall not be impaired without the consent of such Holder.

<PAGE>

SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.

If the Trustee or any Holder of a Note has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and each such Holder shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and each such
Holder shall continue as though no such proceeding had been instituted.

SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.

Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 306,
no right or remedy herein conferred upon or reserved to the Trustee or to each
and every Holder of a Note is intended to be exclusive of any other right or
remedy, and every right and remedy, to the extent permitted by law, shall be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.

SECTION 511. DELAY OR OMISSION NOT WAIVER.

No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to any Holder of a Note may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by such Holder, as the
case may be.

SECTION 512. CONTROL BY HOLDERS OF NOTES.

The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Notes, PROVIDED that

(1) such direction shall not be in conflict with any rule of law or
with this Indenture,

(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and

<PAGE>

(3) subject to Section 601, the Trustee need not take any action
which might be unjustly prejudicial to the rights of the other Holders of
Notes not joining in such action.

SECTION 513. WAIVER OF PAST DEFAULTS.

The Holders of not less than a majority in principal amount of the
Outstanding Notes on behalf of the Holders of all the Notes may waive any past
default hereunder and its consequences, except a default

(1) in the payment of the principal of or interest on any Note, or

(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note.

Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.

SECTION 514. UNDERTAKING FOR COSTS.

All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in principal
amount of the Outstanding Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Note on or after the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on or after the Redemption Date).

SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.

The Company covenants that (to the extent that it may lawfully do so) it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company expressly waives (to the extent
that it may lawfully do so) all benefit or advantage of any such law and
covenants that

<PAGE>

it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.

ARTICLE SIX

THE TRUSTEE

SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.

(1) Except during the continuance of an Event of Default,

(a) the Trustee undertakes to perform such duties, and only such
duties, as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and

(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.

(2) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

(3) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that

(a) this Subsection shall not be construed to limit the effect of
Subsection (1) of this Section;

(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;

(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a

<PAGE>

majority in principal amount of the Outstanding Notes, relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture with respect to the Notes, provided
such direction shall not be in conflict with any rule of law or with this
Indenture; and

(d) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.

(4) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.

SECTION 602. NOTICE OF DEFAULTS.

Within 90 days after the occurrence of any Event of Default hereunder, the
Trustee shall transmit to the Holders of Notes, in the manner and to the extent
provided in Section 313 (c) of the Trust Indenture Act, notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; PROVIDED, HOWEVER, that, except in the case of a default in the payment
of the principal of or interest on any Note, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders of Notes; and PROVIDED, FURTHER, that in the case of any
default of the character specified in Section 501 (3) with respect to Notes, no
such notice to Holders shall be given until at least 30 days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.

SECTION 603. CERTAIN RIGHTS OF TRUSTEE.

Subject to Sections 315(a) through 315(d) of the Trust Indenture Act:

(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by the
proper party or parties;

<PAGE>

(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or a Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;

(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence shall be herein specifically prescribed) may, in the absence
of bad faith on its part, rely upon an Officers' Certificate and/or Opinion
of Counsel;

(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;

(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Notes pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, fees, expenses and liabilities which might be incurred
by it, including reasonable fees of counsel, in complying with such request
or direction;

(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, coupon or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine,
during business hours and upon reasonable notice, the books, records and
premises of the Company, personally or by agent or attorney; and

(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.

SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.

The recitals contained herein and in the Notes, except the Trustee's
certificate of authentication, shall be taken as the statements of the Company
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Notes, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the

<PAGE>

Notes and perform its obligations hereunder and that the statements made by
it in a Statement of Eligibility and Qualification on Form T-1 supplied to
the Company are true and accurate, subject to the qualifications set forth
therein. Neither the Trustee nor any Authenticating Agent shall be
accountable for the use or application by the Company of the Notes or the
proceeds thereof. The Trustee shall not be responsible for any statement
made in any prospectus or similar document used to sell the Notes.

SECTION 605. MAY HOLD NOTES.

The Trustee, any Authenticating Agent, any Paying Agent, any Note Registrar
or any other Person that may be an agent of the Trustee or the Company, in its
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Note Registrar or such other Person.

SECTION 606. MONEY HELD IN TRUST.

Except as provided in Section 402 and Section 1003, Money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law and shall be held uninvested. The Trustee shall be under
no liability for interest on any Money received by it hereunder except as
otherwise agreed with the Company.

SECTION 607. COMPENSATION AND REIMBURSEMENT.

The Company agrees:

(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by the Trustee hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);

(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable costs, expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to the Trustee's
negligence or bad faith; and

(3) to indemnify the Trustee and its agents for, and to hold them
harmless against, any loss, liability or expense incurred without
negligence or bad faith on their part, arising out of or in connection with
the acceptance or administration of the trust hereunder, including the
costs and expenses of defending themselves against any claim or

<PAGE>

liability in connection with the exercise or performance of any of their
powers or duties hereunder.

As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Notes upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the payment of principal of and interest on Notes. "Trustee" for the
purposes of this Section includes any predecessor Trustee, but negligence or bad
faith of any Trustee shall not be attributed to any other Trustee.

When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(6) or Section 501(7), the expenses
(including the reasonable compensation, expenses and disbursements of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.

The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee and each predecessor Trustee.

SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.

There shall at all times be a Trustee hereunder that is a Corporation
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, authorized under such laws to
exercise corporate trust powers, or any other person permitted by the Trust
Indenture Act to act as trustee under an indenture qualified under the Trust
Indenture Act and that has a combined capital and surplus (computed in
accordance with Section 310(a)(2) of the Trust Indenture Act) of at least
$50,000,000. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.

SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.

(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 610.

(2) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 610 shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

<PAGE>

(3) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes delivered to the
Trustee and the Company.

(4) If at any time:

(a) the Trustee shall fail to comply with the obligations
imposed upon it under Section 310(b) of the Trust Indenture Act
after written request therefor by the Company or any Holder of a
Note who has been a bona fide Holder of a Note for at least six
months, or

(b) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or
of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,

then, in any such case, (i) the Company, by or pursuant to a Board
Resolution, may remove the Trustee, or (ii) subject to Section 315 (e) of
the Trust Indenture Act, any Holder of a Note who has been a bona fide
Holder of a Note for at least six months may, on behalf of such Holder and
all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.

(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee and shall comply with the applicable requirements of
Section 610. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall
be appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 610,
become the successor Trustee and supersede the successor Trustee appointed
by the Company. If no successor Trustee shall have been so appointed by
the Company or the Holders of Notes and accepted appointment in the manner
required by Section 610, any Holder of a Note who has been a bona fide
Holder of a Note for at least six months may, on behalf of such Holder and
all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.

(6) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by
mailing written notice of such event by first-class mail, postage prepaid,
to the Holders of Notes as their names and

<PAGE>

addresses appear in the Note Register. Each notice shall include the name
of the successor Trustee and the address of its Corporate Trust Office.

SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.

Upon the appointment hereunder of any successor Trustee, such successor
Trustee so appointed shall execute, acknowledge and deliver to the Company and
the retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties hereunder of the retiring
Trustee; but, on the request of the Company or such successor Trustee, such
retiring Trustee, upon payment of all of its charges, shall execute and deliver
an instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and Money held by such retiring Trustee
hereunder, subject nevertheless to its claim, if any, provided for in Section
607.

Upon request of any Person appointed hereunder as a successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts referred to in this Section.

No Person shall accept its appointment hereunder as a successor Trustee
unless at the time of such acceptance such successor Person shall be qualified
and eligible under this Article.

SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.

Any Corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated but
not delivered by the Trustee then in office, any successor by merger, conversion
or consolidation to such authenticating Trustee may adopt such authentication
and deliver the Notes so authenticated with the same effect as if such successor
Trustee had itself authenticated such Notes.

SECTION 612. APPOINTMENT OF AUTHENTICATING AGENT.

The Trustee may appoint one or more Authenticating Agents acceptable to the
Company with respect to the Notes which shall be authorized to act on behalf of
the Trustee to authenticate Notes issued upon original issue, exchange,
registration of transfer, partial redemption or pursuant to Section 306, and
Notes so authenticated shall be entitled to the benefits of this Indenture and
shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of

<PAGE>

Notes by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent.

Each Authenticating Agent shall be acceptable to the Company and, except as
provided in this Indenture, shall at all times be a Corporation that would be
permitted by the Trust Indenture Act to act as trustee under an indenture
qualified under the Trust Indenture Act, is authorized under applicable law and
by its charter to act as an Authenticating Agent and has a combined capital and
surplus (computed in accordance with Section 310(a) (2) of the Trust Indenture
Act) of at least $50,000,000. If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect specified in this Section.

Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, provided such Corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of Notes,
if any, as their names and addresses appear in the Note Register. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.

The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section. If the Trustee
makes such payments, it shall be entitled to be reimbursed for such payments,
subject to the provisions of Section 607.

The provisions of Sections 308, 604 and 605 shall be applicable to each
Authenticating Agent.

If an Authenticating Agent is appointed pursuant to this Section, the Notes
may have endorsed thereon, in addition to or in lieu of the Trustee's
certificate of authentication, an alternate certificate of authentication in the
following form:

<PAGE>

This is one of the Notes described herein.

________________________________________________
As Authenticating Agent

By_____________________________________________
Authorized Signatory
Authentication Date

____________________

ARTICLE SEVEN

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.

In accordance with Section 312 (a) of the Trust Indenture Act, the Company
shall furnish or cause to be furnished to the Trustee

(1) semi-annually on __________ and __________ of each year, a list,
in each case in such form as the Trustee may reasonably require, of the
names and addresses of Holders as of the applicable date, and

(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished,

PROVIDED, HOWEVER, that so long as the Trustee is the Note Registrar no such
list shall be required to be furnished for Notes for which the Trustee acts as
Note Registrar.

SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.

The Trustee shall comply with the obligations imposed upon it pursuant to
Section 312 of the Trust Indenture Act.

Every Holder of Notes, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company, the Trustee, any Paying Agent
or any Note Registrar shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders of Notes in
accordance with Section 312 of the Trust Indenture Act, regardless of the source
from which such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.

<PAGE>

SECTION 703. REPORTS BY TRUSTEE.

(1) Within 60 days after May 15 of each year, if required by Section
313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to
Section 313(c) of the Trust Indenture Act, a brief report dated as of such
May 15 with respect to any of the events specified in said Section 313 (a)
which may have occurred since the later of the immediately preceding May 15
and the date of this Indenture.

(2) The Trustee shall transmit the reports required by Section 313(a)
of the Trust Indenture Act at the times specified therein.

(3) Reports pursuant to this Section shall be transmitted in the
manner and to the Persons required by Sections 313(c) and 313(d) of the
Trust Indenture Act.

SECTION 704. REPORTS BY COMPANY.

The Company, pursuant to Section 314(a) of the Trust Indenture Act, shall:

(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a Note listed and registered on a national securities exchange
as may be prescribed from time to time in such rules and regulations;
provided that notwithstanding the requirements of such rules and
regulations, so long as any Note is Outstanding the Company shall file with
the Trustee at a minimum (a) as soon as practicable, but in any event no
more than ninety (90) days, after the end of each fiscal year, copies of a
balance sheet and statements of income and retained earnings of the Company
as of the end of and for such fiscal year, audited by Independent Public
Accountants, and (b) as soon as practicable, but in any event no more than
forty-five (45) days, after the end of each quarterly fiscal period, except
for the last quarterly fiscal period in each fiscal year, a summary
statement (which need not be audited) of income and retained earnings of
the Company for such period;

(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company, as the case may be,

<PAGE>

with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations;

(3) transmit to the Holders of Notes within 30 days after the filing
thereof with the Trustee, in the manner and to the extent provided in
Section 313(c) of the Trust Indenture Act, such summaries of any
information, documents and reports required to be filed by the Company
pursuant to paragraphs (1) and (2) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission;
provided that notwithstanding the requirements of such rules and
regulations, so long as any Note is Outstanding the Company shall transmit
to the Holders of Notes, within 30 days after the filing thereof with the
Trustee, in the manner and to the extent provided in Section 313(c) of the
Trust Indenture Act, the information, documents and other reports required
to be filed by the Company pursuant to paragraph (1) of this Section;
PROVIDED FURTHER that in lieu of any Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, the Company may transmit an annual or
quarterly report, respectively, containing financial statements and an
undertaking to transmit such Form 10-K or Form 10-Q, as the case may be, to
any Holder upon request; and

(4) furnish to the Trustee the Officers' Certificates and notices
required by Section 1011 hereof.

ARTICLE EIGHT

CONSOLIDATION, MERGER AND SALES

SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.

Nothing contained in this Indenture shall prevent any consolidation or
merger of the Company with or into any other Person or Persons (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any conveyance, transfer or lease of the property of the Company as an
entirety or substantially as an entirety, to any other Person (whether or not
affiliated with the Company); PROVIDED, HOWEVER, that:

(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the entity formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a Person organized and existing under
the laws of the United States of America, any state thereof or the District
of Columbia and shall expressly assume, by an indenture supplemental
hereto, executed by the successor Person and delivered to the Trustee, in
form satisfactory to the Trustee,

<PAGE>
the due and punctual payment of the principal of and interest on all the
Notes and the performance of every other covenant of this Indenture on
the part of the Company to be performed or observed;

(2) immediately after giving effect to such transaction, no event
which, after notice or lapse of time, or both, would become an Event of
Default shall have occurred and be continuing; and

(3) either the Company or the successor Person shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, stating
that such consolidation, merger, conveyance, transfer or lease and such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.

For purposes of this Section and Section 802, a conveyance, transfer, sale
or lease of the properties and assets of the Company "substantially as an
entirety" shall mean a conveyance, transfer or lease of properties and assets of
the Company representing 80% or more of the fair value (as determined in good
faith by the Board of Directors) of all the Company's properties and assets on
the date of such conveyance, transfer, sale or lease.

SECTION 802. SUCCESSOR PERSON SUBSTITUTED FOR COMPANY.

Upon any consolidation or merger or any conveyance, transfer or lease of
the properties and assets of the Company substantially as an entirety to any
Person in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
and thereafter, except in the case of a lease to another Person, the predecessor
Person shall be released from all obligations and covenants under this Indenture
and the Notes.

ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.

Without the consent of any Holder of Notes, the Company (when authorized by
or pursuant to a Board Resolution) and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, which shall
conform with the requirements of the Trust Indenture Act as then in effect and
be in form satisfactory to the Trustee, for any of the following purposes:

<PAGE>

(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein
and in the Notes; or

(2) to add to or change any of the provisions of this Indenture to
change or eliminate any restrictions on the payment of principal of or
interest on Notes or to permit or facilitate the issuance of Notes in
uncertificated form, provided any such action shall not adversely affect
the interests of the Holders of Notes in any material respect; or

(3) to cure any ambiguity or to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not adversely affect the
interests of the Holders of Notes in any material respect; or

(4) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of any Notes pursuant to Article Four; provided that any such
action shall not adversely affect the interests of any Holder of a Note in
any material respect; or

(5) to add to the covenants of the Company for the benefit of the
Holders of the Notes (as shall be specified in such supplemental indenture
or indentures) or to surrender any right or power herein conferred upon the
Company; or

(6) to evidence and provide acceptance of the appointment of a
successor Trustee hereunder.

SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.

With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Notes, by Act of said Holders delivered to the Company
and the Trustee, the Company (when authorized by or pursuant to a Board
Resolution), and the Trustee may enter into one or more indentures supplemental
hereto (which shall conform with the requirements of the Trust Indenture Act as
then in effect) for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of modifying in
any manner the rights of the Holders of Notes under this Indenture; PROVIDED,
HOWEVER, that no such supplemental indenture, without the consent of the Holder
of each Outstanding Note, shall

(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
payable upon the redemption thereof or otherwise, or change the rate of
interest thereon, or adversely affect the right of repayment at the option
of any Holder as contemplated by Article Twelve, or change the Place of
Payment, currency in which the principal of or interest on, is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated

<PAGE>

Maturity thereof (or, in the case of redemption, on or after the
Redemption Date or, in the case of repayment at the option of the Holder,
on or after the date for repayment), or

(2) reduce the percentage in principal amount of the Outstanding
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or

(3) modify any of the provisions of this Section, or Section 513 or
Section 1012, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note.

It shall not be necessary for any Act of Holders of Notes under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.

SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.

As a condition to executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trust created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.

SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.

Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of a Note theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.

SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.

Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.

<PAGE>

SECTION 906. EFFECT ON SENIOR INDEBTEDNESS.

No supplemental indenture shall directly or indirectly modify the
provisions of Article Thirteen in any manner which might terminate or impair the
rights and benefits of subordination provided to the holders of Senior
Indebtedness pursuant to Article Thirteen.

SECTION 907. RECORD DATE.

If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
but shall not be obligated to, fix a record date for the purpose of determining
the Holders entitled to consent to any supplemental indenture, agreement or
instrument or any waiver, and shall promptly notify the Trustee of any such
record date. If a record date is fixed those Persons who were Holders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such supplemental indenture, agreement or instrument or
waiver or to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. The record date shall be a date
no more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such solicitation is completed.
No such consent shall be valid or effective for more than six months after such
record date. Subject to applicable law, until any supplemental indenture,
agreement, instrument or waiver becomes effective, or a consent to it by a
Holder of a Note shall cease to be valid and effective as set forth in the
preceding sentence, such consent is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note.

ARTICLE TEN

COVENANTS

SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.

The Company will duly and punctually pay the principal of and interest on
the Notes in accordance with the terms thereof and this Indenture.

SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.

The Company shall maintain in each Place of Payment an Office or Agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration, transfer or exchange and where notices and demands
to or upon the Company in respect of the Notes and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
any change in the location, of such Office or Agency. The Company hereby
initially designates the Corporate Trust Office of the Trustee as its Office or
Agency for

<PAGE>

each of the foregoing purposes. If at any time the Company shall fail to
maintain any such required Office or Agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee,
and the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.

If the Company shall at any time act as its own Paying Agent, it shall, on
or before each due date of the principal of or interest on the Notes, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum of Money
sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents, it shall, on or
prior to each due date of the principal of or interest on the Notes, deposit
with any Paying Agent a sum of Money sufficient to pay the principal or interest
so becoming due, such sum to be held in trust for the benefit of the Persons
entitled thereto, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.

The Company shall cause each Paying Agent other than the Trustee or the
Company to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent shall:

(1) hold all sums held by it for the payment of the principal of or
interest on Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as
provided in this Indenture;

(2) give the Trustee notice of any Event of Default by the Company
(or any other obligor upon the Notes) in the making of any payment of
principal or interest on the Notes; and

(3) at any time during the continuance of any such Event of Default,
upon the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same terms as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such Money.

<PAGE>

Any Money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or interest on any
Note and remaining unclaimed for two years after such principal or interest
shall have become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust Money, and all liability of the
Company as trustee thereof, shall thereupon cease.

SECTION 1004. CORPORATE EXISTENCE.

Subject to Article Eight, the Company shall do or cause to be done all
things reasonably necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and its Material Subsidiaries; PROVIDED, HOWEVER, that the foregoing
shall not obligate the Company to preserve any such right or franchise if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Material Subsidiaries and
that the loss thereof will not have a material adverse effect on the business or
financial condition of the Company and its Subsidiaries, taken as a whole.

SECTION 1005. MAINTENANCE OF PROPERTIES.

The Company will:

(1) cause its properties and the properties of its Material
Subsidiaries (other than properties obtained by the Company or any Material
Subsidiary through foreclosure or other resolution of any loan) used or
useful in the conduct of the business of the Company and its Material
Subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary facilities and equipment and
will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; PROVIDED,
HOWEVER, that the foregoing shall not prevent the Company or a Material
Subsidiary from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business and will not have a material
adverse effect on the business or financial condition of the Company and
its Subsidiaries, taken as a whole;

(2) take all appropriate steps to preserve, protect and maintain the
trademarks, trade names, copyrights, licenses and permits used in the
conduct of the business of the Company and its Material Subsidiaries;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Company or a
Material Subsidiary from selling, abandoning or otherwise disposing of any
such trademark, trade name, copyright, license or permit if such sale,

<PAGE>
abandonment or disposition is, in the judgment of the Company, desirable in
the conduct of its business and will not have a material adverse effect on
the business or financial condition of the Company and its Subsidiaries,
taken as a whole; and

(3) The Company and each of its Material Subsidiaries shall comply
with all statutes, laws, ordinances, or government rules and regulations to
which it is subject, noncompliance with which would materially adversely
affect the business or financial condition of the Company and its
Subsidiaries, taken as a whole.

SECTION 1006. RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS.

The Company shall not (i) declare or pay any dividend, either in cash or
property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company), (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, either directly or indirectly
through any Subsidiary, in respect of the Company's capital stock (such
dividends, purchases, redemptions, retirements, payments and distributions being
herein collectively called "RESTRICTED PAYMENTS") if, after giving effect
thereto,

(1) an Event of Default would have occurred; or

(2) (A) the sum of (i) such Restricted Payments plus (ii) the
aggregate amount of all Restricted Payments made during the
period after December 31, 1995 would exceed (B) the sum of (i)
$10 million plus (ii) 50% of the Company's Consolidated Net
Income for each fiscal year commencing subsequent to December 31,
1995 (with 100% reduction for a loss in any fiscal year), plus
(iii) the cumulative net proceeds received by the Company from
the issuance or sale after December 31, 1995 of capital stock of
the Company (including in such net proceeds the face amount of
any indebtedness that has been converted into common stock of the
Company after December 31, 1995).

Notwithstanding the foregoing, the Company may make a previously-declared
Restricted Payment if the, declaration of such Restricted Payment was permitted
under this Section when made. For purposes of this Section, the amount of any
Restricted Payment payable in property shall be deemed to be the fair market
value of such property as determined by the Board of Directors of the Company.

SECTION 1007. LIMITATION ON INDEBTEDNESS FOR MONEY BORROWED.

Neither the Company nor any Subsidiary will create, incur, assume,
guarantee or become liable with respect to any Indebtedness for Money Borrowed
if, immediately after giving effect

<PAGE>

to any such creation, incurrence, assumption or guarantee (including giving
effect to the retirement of any existing indebtedness from the proceeds of
such additional Indebtedness for Money Borrowed):

(1) The aggregate amount of Senior Recourse Indebtedness outstanding would
exceed 450% of the Company's Consolidated Capitalization; or

(2) The aggregate amount of Subordinated Indebtedness outstanding would
exceed 100% of the Company's Consolidated Net Worth.

SECTION 1008. INSURANCE.

The Company shall carry and maintain, and cause each of its Subsidiaries to
carry and maintain, insurance with financially sound and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by similarly-situated companies engaged in similar operations and owning
similar properties in similar geographic areas in which the Company or such
Subsidiary operates, PROVIDED that such insurance is generally available at
commercially reasonable rates, and further PROVIDED that the Company may self-
insure, or insure through captive insurers or insurance cooperatives to the
extent consistent with prudent business practices. Such insurance shall be in
such amounts, contain such terms, be in such forms and be for such periods as
are customary for such similarly-situated companies in the Company's industry or
insurance markets reasonably accessible by the Company. The Company will
provide and will cause each Subsidiary to provide such information and documents
reasonably requested by the Trustee from time to time with respect to the
Company's provision for insurance. The obligations evidenced by this covenant
shall be interpreted to reflect changes in insurance practices related to the
method in which insurance risks are covered in the North American and European
markets or in any other market in which the Company or its Subsidiaries, as the
case may be, reasonably places coverage.

SECTION 1009. PAYMENT OF TAXES AND OTHER CLAIMS.

The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (2)
all material lawful claims for labor, material and supplies which, if unpaid,
might by law become a lien upon the property of the Company or any Subsidiary;
PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves have
been established in accordance with GAAP.

<PAGE>

SECTION 1010. BOOKS AND RECORDS.

The Company shall, and shall cause each Material Subsidiary to, at all
times keep proper books of record and account in which proper entries shall be
made in accordance with GAAP and, to the extent applicable, regulatory
accounting principles.

SECTION 1011. STATEMENT BY OFFICERS AS TO DEFAULT.

(1) The Company will deliver to the Trustee, within 45 days after
the end of each calendar quarter, an Officers' Certificate, stating whether
or not to the best knowledge of the signers thereof the Company is in
default in the performance and observance of any of the terms, provisions
and conditions of this Indenture, (other than a term, provision or
condition specifically dealt with in Clause (2) of this Section 1011)
setting forth the arithmetical computations required to show compliance
with the provisions of Sections 1006, 1007 and 1015 during the previous
twelve month period, and, if the Company shall be in default, specifying
all such defaults and the nature and status thereof of which they may have
knowledge.

(2) The Company will deliver to the Trustee, within five days after
any officer eligible hereunder to sign an Officers' Certificate becomes
aware of the occurrence thereof, written notice of any event which after
notice or lapse of time or both would become an Event of Default pursuant
to Clause (4) of Section 501, or the occurrence of any Repurchase Event
pursuant to Article Fourteen hereof.

SECTION 1012. WAIVER OF CERTAIN COVENANTS.

The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1004 through 1007 and 1013 through
1015 with respect to the Notes if before the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Notes, by
Act of such Holders, either shall waive such compliance in such instance or
generally shall have waived compliance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.

SECTION 1013. LIMITATION ON RANKING OF FUTURE INDEBTEDNESS.

The Company will not, directly or indirectly, incur, create, assume or
guarantee any Indebtedness for Money Borrowed which is expressly subordinate in
right of payment to any Senior Indebtedness, other than Junior Indebtedness or
indebtedness that is pari passu with the Notes in right of payment. For
purposes of this Section 1013, the incurrence of Senior

<PAGE>

Indebtedness which is unsecured shall not, because of its unsecured status,
be deemed to be subordinate in right of payment to any Senior Indebtedness
which is secured.

SECTION 1014. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS.

The Company shall not and shall not permit any Subsidiary of the Company
to, create or otherwise cause to become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary of the Company to (a)
pay dividends or make any other distribution on its capital stock, (b) pay any
indebtedness owed to the Company or any other Subsidiary of the Company or (c)
make loans, advances, or capital contributions to the Company or any other
Subsidiary of the Company except (i) as set forth in the instrument evidencing
or the agreement governing Acquired Indebtedness of any acquired entity which
becomes a Subsidiary of the Company, PROVIDED, that any restriction or
encumbrance under such instrument or agreement existed at the time of
acquisition, was not put in place in anticipation of such acquisition, and is
not applicable to any Person, other than the Person or property or assets of the
Person so acquired; (ii) by agreements and transactions permitted under Section
1006; (iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Subsidiary of the Company; (iv) any
encumbrance or restriction arising under applicable law; (v) any encumbrance or
restriction arising under indebtedness or other agreements existing on the date
of original issuance of the Notes; (vi) any restrictions, with respect to a
Subsidiary of the Company imposed pursuant to an agreement that has been entered
into for the sale or disposition of the stock, business, assets or properties of
such Subsidiary; (vii) any encumbrance or restriction arising under the terms of
purchase money obligations, but only to the extent such purchase money
obligations restrict or prohibit the transfer of the property so acquired;
(viii) any encumbrance or restriction arising under customary non-assignment
provisions in installment purchase contracts; (ix) any encumbrance or
restriction on the ability of any Subsidiary to transfer any of its property
acquired after the date hereof to the Company or any Subsidiary that is required
by a lender to, or purchaser of any indebtedness of, such Subsidiary in
connection with a financing of the acquisition of such property (including with
respect to the purchase of asset portfolios and pursuant to the underwriting or
origination of mortgage loans) by such Subsidiary; and (x) any encumbrance or
restriction pursuant to any agreement that extends, refinances, renews or
replaces any agreement described in the foregoing clauses (i) through (ix).

SECTION 1015. LIMITATION ON TRANSACTIONS WITH AFFILIATES.

The Company shall not, and shall not permit any of its Material
Subsidiaries to, enter into any transaction (or series of related transactions),
including, without limitation, any loan, advance, guarantee or capital
contribution to, or for the benefit of, or any sale, purchase, lease, exchange
or other disposition of any property or the rendering of any service, or any
other direct or indirect payment, transfer or other disposition (a
"Transaction"), involving payments in excess of $60,000, with any Affiliate of
the Company (other than a wholly-owned Subsidiary), on terms and conditions less
favorable to the Company or such Material Subsidiary, as the case may be, than
would be available at such time in a comparable Transaction in arm's length
dealings with

<PAGE>

an unrelated Person as determined by the Board of Directors, such approval to
be evidenced by a Board Resolution.

The provisions of the immediately preceding paragraph will not apply to:

(1) Restricted Payments otherwise permitted pursuant to this
Indenture;

(2) fees and compensation (including amounts paid pursuant to
employee benefit plans) paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any
Subsidiary, as determined by the Board of Directors or the senior
management thereof in the exercise of their reasonable business judgment;
or

(3) payments for goods and services purchased in the ordinary course
of business on an arms-length basis.

SECTION 1016. MINIMUM INTEREST COVERAGE RATIO.

The Company will not permit the Interest Coverage Ratio to be less than
1.25 to 1.00.

SECTION 1017. EXCEPTIONS TO COVENANTS.

The Company shall not, and shall not permit any Subsidiary to, take or
permit to be taken any action or fail to take any action which is permitted by
any of the covenants contained in this Indenture if such action or omission
would result in the breach of any other covenant contained in this Indenture.

ARTICLE ELEVEN

REDEMPTION OF NOTES

SECTION 1101. RIGHT OF REDEMPTION.

The Notes shall not be redeemable at the option of the Company prior to
January 15, 2001. The Company may, at its option, redeem all or any part of the
Notes at any time on or after January 15, 2001, at the Redemption Price of 100%
of the principal amount thereof, without premium, together with interest accrued
to the Redemption Date. Redemption of Notes at the option of the Company as
permitted hereby shall be made in accordance with the terms of such Notes and
this Article.

<PAGE>

SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.

The election of the Company to redeem any Notes shall be evidenced by or
pursuant to a Board Resolution. In case of any redemption at the election of
the Company of less than all of the Notes, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Notes to be redeemed.

SECTION 1103. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.

If less than all the Notes are to be redeemed, the particular Notes to be
redeemed shall be selected not less than 30 days prior to the Redemption Date by
the Trustee from the Outstanding Notes, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions of the principal amount of Notes; PROVIDED, HOWEVER, that no such
partial redemption shall reduce the portion of the principal amount of a Note
not redeemed to less than the minimum denomination for a Note established
herein.

The Trustee shall promptly notify the Company and the Note Registrar (if
other than itself) in writing of the Notes selected for redemption and, in the
case of any Notes selected for partial redemption, the principal amount thereof
to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Notes shall relate, in the case of
any Notes redeemed or to be redeemed only in part, to the portion of the
principal of such Notes which has been or is to be redeemed.

SECTION 1104. NOTICE OF REDEMPTION.

Notice of redemption shall be given in the manner provided in Section 106,
not less than 30 nor more than 60 days prior to the Redemption Date, to the
Holders of Notes to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Notes designated for redemption as a whole
or in part, or any defect in the notice to any such Holder, shall not affect the
validity of the proceedings for the redemption of any other Notes or portion
thereof.

Any notice that is mailed to the Holder of any Notes in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
such Holder receives the notice.

All notices of redemption shall state:

(1) the Redemption Date,

<PAGE>

(2) the Redemption Price,

(3) if fewer than all Outstanding Notes are to be redeemed, the
identification (and, in the case of partial redemption, the principal
amount) of the particular Notes to be redeemed,

(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the Holder of such Note will receive,
without charge to such Holder, a new Note or Notes of authorized
denominations for the principal amount thereof remaining unredeemed,

(5) that, on the Redemption Date, the Redemption Price shall become
due and payable upon each such Note or portion thereof to be redeemed and
that interest thereon shall cease to accrue on and after said date,

(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price, and

(7) the CUSIP number of such Notes, if any (or any other numbers
used by a Depository to identify such Notes).

Notice of redemption of Notes to be redeemed at the election of the Company
shall be given by the Company or, at the Company's request, by the Trustee in
the name and at the expense of the Company.

SECTION 1105. DEPOSIT OF REDEMPTION PRICE.

On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) Money, in funds
available for payment by the Trustee on the Redemption Date, in an amount
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) any accrued interest on, all the Notes or
portions thereof which are to be redeemed on that date.

SECTION 1106. NOTES PAYABLE ON REDEMPTION DATE.

Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with any accrued interest to the Redemption Date;
PROVIDED,

<PAGE>

HOWEVER, that installments of interest on Notes whose Stated Maturity is on
or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the Regular Record Dates therefor according to their terms and
the provisions of Section 307.

If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal, until paid, shall bear interest from the
Redemption Date at the rate prescribed therefor in the Note.

SECTION 1107. NOTES REDEEMED IN PART.

Any Note which is to be redeemed only in part shall be surrendered at any
Office or Agency for such Note (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute and
the Trustee shall authenticate and deliver to the Holder of such Note, without
service charge, a new Note or Notes, of any authorized denomination as requested
by such Holder in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Note so surrendered. If a Note in
global form is so surrendered, the Company shall execute, and the Trustee shall
authenticate and deliver to the Depository for such Note in global form as shall
be specified in the Company Order with respect thereto to the Trustee, without
service charge, a new Note in global form in a denomination equal to and in
exchange for the unredeemed portion of the principal of the Note in global form
so surrendered.

ARTICLE TWELVE

REPAYMENT AT THE OPTION OF HOLDERS

SECTION 1201. REPAYMENT OPTION UPON DEATH OF HOLDER.

(1) Upon the death of any Holder of Notes who is a natural Person,
and upon the further receipt by the Company or the Trustee of a written
request for repayment and satisfaction of the conditions set forth in
subsection (2) below, the Company shall be required to pay, in accordance
with the terms of this Article, the Repayment Price of, and (except if the
Repayment Date shall be an Interest Payment Date) any accrued interest on
all or such portion (which portion shall be an integral multiple of $1,000
in excess of the minimum authorized denomination) of the Note or Notes held
by the deceased Holder at the date of such Holder's death as requested,
provided that the Company shall not be required to make repayment payments
aggregating more than $30,000 in principal amount (plus accrued interest)
in any calendar year on a Note or Notes held by any one deceased Holder or
aggregating more than the Maximum Annual Repayment Amount in principal
amount (plus accrued interest) in any calendar year on Notes held by any
number of deceased Holders. The "REPAYMENT PRICE" of any Note repaid
pursuant to this

<PAGE>

Article shall be 100% of the principal amount thereof. Subject to
subsection (2) below, repayment of such Notes shall be made in the
order in which requests therefor are received (subject to the aforesaid
Maximum Annual Repayment Amount limitation) within 30 days following
receipt by the Company or the Trustee of the following:

(a) a written request for repayment of the Note or Notes signed
by a duly authorized representative of the Holder, which request shall
set forth the name of the deceased Holder, the date of death of the
deceased Holder, and the principal amount of the Note or Notes to be
repaid; and

(b) the certificates representing the Note or Notes to be
repaid; and

(c) evidence satisfactory to the Company and the Trustee of the
death of such deceased Holder and the authority of the representative
to such extent as may be required by the Trustee.

Notes not repaid in any calendar year because of the Maximum Annual
Repayment Amount may be held by the Trustee at the request of the authorized
representative of the deceased Holder and repaid in subsequent years in the
order in which such Notes are received.

(2) A Note or Notes held by the deceased Holder shall not be
entitled to repayment pursuant to this Section unless all of the following
conditions are met:

(a) the Notes to be repaid shall have been registered on the
Note Register in the name of the deceased Holder since the issue date
of such Notes or for a period of at least six months prior to the date
of the deceased Holder's death, whichever is less; and

(b) the Company or the Trustee shall have received a written
request for repayment within one year after the date of the deceased
Holder's death or, in the case of requests for a subsequent repayment
of a Note or Notes held by such deceased Holder, within one year after
any such preceding request; and

(c) the Company shall not, after giving effect to such
repayment, have made repayment payments aggregating more than the
Maximum Annual Repayment Amount in principal amount (plus accrued
interest) of Notes within any twelve month period; and

(d) the Company shall not, after giving effect to such
repayment, be in default with respect to any Senior Indebtedness; and

(e) the Company shall not be subject to any law, regulation,
agreement or administrative directive preventing such repayment.

<PAGE>

(3) Authorized representatives of a Holder shall include the
following: executors, administrators or other legal representatives of an
estate; trustees of a trust; joint owners of Notes owned in joint tenancy
or tenancy by the entirety; custodians; conservators; guardians; attorneys-
in-fact; and other Persons generally recognized as having legal authority
to act on behalf of another.

(4) For purposes of this Section, the death of a natural Person
owning a Note or Notes in joint tenancy or tenancy by the entirety with
another or others shall be deemed the death of the Holder of the Note or
Notes, and the entire principal amount of the Note or Notes so held shall
be subject to repayment, together with accrued interest thereon to the
Repayment Date, in accordance with the provisions of this Article. For
purposes of this Section, the death of a natural Person owning a Note or
Notes by tenancy in common shall be deemed the death of a Holder of Note or
Notes only with respect to the deceased Holder's interest in the Note or
Notes so held by tenancy in common; except that in the event a Note or
Notes are held by husband and wife as tenants in common, the death of
either shall be deemed the death of the Holder of the Note or Notes, and
the entire principal amount of the Note or Notes so held shall be subject
to repayment in accordance with the provisions of this Article. A natural
Person who, during such Person's lifetime, was entitled to substantially
all of the beneficial interests of ownership of Notes will, upon such
Person's death, be deemed the Holder thereof for purposes of this Section,
regardless of the registered holder, if such beneficial interest can be
established to the satisfaction of the Trustee. Such beneficial interest
will be deemed to exist in typical cases of nominee ownership, ownership
under the Uniform Transfers (or Gifts) to Minors Act, community property or
other joint ownership arrangements between a husband and wife, and trust
arrangements where one Person has substantially all of the beneficial
ownership interests in Notes during such Person's lifetime. Beneficial
interests shall include the power to sell, transfer or otherwise dispose of
Notes and the right to receive the proceeds therefrom, as well as principal
thereof and interest thereon.

(5) If Notes are issued in global form (i.e., in the name of the
nominee of a Depository for purposes of book-entry transfer) the Company or
the Trustee may adopt appropriate procedures to allow beneficial owners of
Notes to obtain payment in accordance with the requirements of the
Depository in the event of a request for repayment of the Notes pursuant to
this Section.

SECTION 1202. DEPOSIT OF REPAYMENT PRICE.

Within 30 days after the receipt by the Company or the Trustee of any
request for repayment of a Note or Notes or any portion thereof duly made
pursuant to Section 1201, the Company shall deposit with the Trustee or with a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 1003) an amount of Money sufficient to
pay the Repayment Price of, and (except if the Repayment Date shall be an

<PAGE>

Interest Payment Date) any accrued interest on all the Notes or portions thereof
which are to be repaid on that date.

SECTION 1203. NOTES PAYABLE ON REPAYMENT DATE.

A written request having been made as aforesaid, the Note or Notes so to be
repaid shall, on the Repayment Date, become due and payable at the Repayment
Price, and from and after such date (unless the Company shall default in the
payment of the Repayment Price and accrued interest) such Notes shall cease to
bear interest. Upon surrender of any such Note for repayment in accordance with
said request, such Note shall be paid by the Company at the Repayment Price,
together with any accrued interest to the Repayment Date; PROVIDED, HOWEVER,
that installments of interest on Notes whose Stated Maturity is on or prior to
the Repayment Date shall be payable to the Holders of such Notes, or one or more
Predecessor Notes, registered as such at the close of business on the Regular
Record Dates therefor according to their terms and the provisions of Section
307.

If any Note to be repaid shall not be so paid upon surrender thereof for
repayment, the principal, until paid, shall bear interest from the Repayment
Date at the rate prescribed therefor in the Note.

SECTION 1204. NOTES REPAID IN PART.

Any Note which is to be repaid only in part shall be surrendered at any
office or Agency for such Note (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute and
the Trustee shall authenticate and deliver to the Holder of such Note, without
service charge, a new Note or Notes, containing identical terms and provisions,
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unpaid portion of the
principal of the Note so surrendered. If a Note in global form is so
surrendered, the Company shall execute, and the Trustee shall authenticate and
deliver to the Depository for such Note in global form as shall be specified in
the Company Order with respect thereto to the Trustee, without service charge, a
new Note in global form in a denomination equal to and in exchange for the
unpaid portion of the principal of the Note in global form so surrendered.

<PAGE>

ARTICLE THIRTEEN

SUBORDINATION OF NOTES

SECTION 1301. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS.

(1) The Company covenants and agrees, and each Holder of Notes, by
such Holder's acceptance thereof, likewise covenants and agrees, and for
purposes of Section 508 consents, that the indebtedness represented by the
Notes and the payment of the principal of and interest on each and all of
the Notes is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of
all Senior Indebtedness.

(2) The Trustee, the Company and the Holders of Notes hereby agree
that, until all Senior Indebtedness has been paid in full, the Holders of
Notes shall be permitted to retain only the following payments of principal
and interest paid by the Company in respect of Notes (all such payments
being referred to herein as "PERMITTED PAYMENTS"), and all such payments
that are not Permitted Payments will be turned over by the Trustee or the
Holders of Notes to the holder or holders of Senior Indebtedness or any
agent therefor (a "SENIOR AGENT") for the benefit of the holder or holders
of Senior Indebtedness:

(a) principal payment of the Notes, whether (i) at the Stated
Maturity, (ii) at the Company's option as provided in Article Eleven,
(iii) as a result of the death of one or more Holders as provided in
Section 1201 or (iv) following exercise by a Holder of the repurchase
rights provided in Section 1401; provided that all such principal
payments are subject to the restrictions set forth in Section 1301(3)
hereof; and

(b) payments of interest in respect of the Notes; provided that
all such principal payments are subject to the restrictions set forth
in Section 1301(3) hereof.

(3) From and after the receipt by the Trustee of a written notice
(the "Default Notice") from the holder or holders of not less than 51% in
principal amount of the outstanding Senior Indebtedness or any Senior Agent
specifying that an event of default under any Senior Indebtedness (a
"Senior Event of Default") has occurred, the Company may not make any
principal payments described in Section 1301(2)(a) or interest payments
described in Section 1301(2)(b) to the Holders of Notes and neither the
Trustee nor the Holders of not less than 25% in principal amount of the
Outstanding Notes may accelerate the maturity of such Notes as provided in
Section 502, until the first to occur of the following:

(a) such Senior Event of Default is cured, or

<PAGE>

(b) such Senior Event of Default is waived by the holders of
such Senior Indebtedness or the Senior Agent, or

(c) the expiration of 180 days after the date the Default Notice
is received by the Trustee, if the maturity of such Senior
Indebtedness has not been accelerated at such time.

Upon payment in full of the Senior Indebtedness, payment of principal
and interest may be made to the Holders of Notes.

(4) Upon a payment or distribution to creditors of the Company in a
liquidation, dissolution, or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
the Company or its property or an assignment for the benefit of creditors
or any marshaling of the Company's assets and liabilities:

(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment of the full amount due thereon in respect
of principal and interest, or adequate provision shall be made for
such payment, before the Holders of any of the Notes are entitled to
receive any payment on account of the principal of or interest on the
indebtedness evidenced by the Notes;

(b) any payment by, or distribution of assets of, the Company of
any kind or character, whether in cash, property or securities (other
than securities of the Company as reorganized or readjusted or
securities of the Company or any other Corporation provided for by a
plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Article with
respect to the Notes, to the payment of all Senior Indebtedness,
provided that the rights of the holders of Senior Indebtedness are not
impaired by such reorganization or readjustment), to which the Holders
of any of the Notes or the Trustee would be entitled except for the
provisions of this Article shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy,
a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or any Senior Agent, ratably according
to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid after
giving effect to any concurrent payment or distribution (or provision
therefor) to the holders of such Senior Indebtedness, before any
payment or distribution is made to the Holders of the indebtedness
evidenced by the Notes or to the Trustee under this Indenture; and

(c) in the event that, notwithstanding the foregoing, any
payment by, or distribution of assets of, the Company of any kind or
character, whether in

<PAGE>

cash, property or securities (other than securities of the Company
as reorganized or readjusted or securities of the Company or any
other Corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the
extent provided in this Article with respect to the Notes, to the
payment of all Senior Indebtedness, provided that the rights of the
holders of Senior Indebtedness are not impaired by such
reorganization or readjustment), shall be received by the Trustee
or the Holders of any of the Notes before all Senior Indebtedness
is paid in full, such payment or distribution shall be paid over to
the holders of such Senior Indebtedness or any Senior Agent,
ratably as aforesaid, for application to the payment of all Senior
Indebtedness remaining unpaid until all such Senior Indebtedness
shall have been paid in full, after giving effect to any concurrent
payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness.

(5) The Holders and the Trustee acknowledge that the holders of
Senior Indebtedness and the Holders of Notes, respectively, are entitled to
exercise certain rights and powers with respect to the Company from time to
time, whether before or after an occurrence of an Event of Default, and the
exercise of any such right or power by one creditor may preclude the
exercise of a similar right or power by one or more other creditors (any
such right or power being herein called an "Exclusive Power"). To the
extent that any holder or holders of Senior Indebtedness or any Senior
Agent actually exercises any Exclusive Power, then the Trustee and the
Holders of Notes agree to refrain from exercising any substantially similar
Exclusive Power to the extent necessary to permit the holders of Senior
Indebtedness to benefit from their actions.

(6) Any renewal or extension of the time of payment of any
Senior Indebtedness of the Company or the exercise by the holders of Senior
Indebtedness of the Company or any Senior Agent of any of their rights
under any instrument creating or evidencing Senior Indebtedness of the
Company, including without limiting the waiver of default thereunder, may
be made or done all without notice to or assent from the Holders of the
Notes or the Trustee. No compromise, alteration, amendment, modification,
extension, renewal or other change of, or waiver, consent or other action
in respect of, any liability or obligation under or in respect of, or of
any of the terms, covenants or conditions of any indenture or other
instrument under which any Senior Indebtedness of the Company is
outstanding or of such Senior Indebtedness of the Company, whether or not
such relief is in accordance with the provisions of any applicable
document, shall in any way alter or affect any of the provisions of this
Article Thirteen or of the Notes relating to the subordination thereof.

(7) Notices to holders of Senior Indebtedness shall be made to each
holder of Senior Indebtedness or, if holders of Senior Indebtedness have
appointed a Senior Agent, then to such Senior Agent, and shall be made in
the manner specified in the document evidencing such holder's Senior
Indebtedness if such a manner is so specified therein.

<PAGE>

(8) References in this Article Thirteen to "payment in full of all
Senior Indebtedness" shall mean payment in cash unless the holders of such
Senior Indebtedness or the Senior Agent consent to payment through other
means, including but not limited to restructed notes or in-kind payments.

SECTION 1302. SUBROGATION.

Subject to the payment in full of all Senior Indebtedness, the Holders of
the Notes shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of cash, property or Notes of
the Company applicable to such Senior Indebtedness until all amounts owing on
the Notes shall be paid in full, and, as between the Company, its creditors
other than holders of Senior Indebtedness, and the Holders of the Notes, no such
payment or distribution made to the holders of Senior Indebtedness by virtue of
this Article which otherwise would have been made to the Holders of the Notes
shall be deemed to be a payment by the Company on account of the Senior
Indebtedness, and no such payments or distributions to the Holders of the Notes
of cash, property or Notes otherwise distributable to the holders of Senior
Indebtedness shall, as between the Company, its creditors other than the holders
of Senior Indebtedness, and the Holders of the Notes, be deemed to be a payment
by the Company on account of the Notes, it being understood that the provisions
of this Article are and are intended solely for the purpose of defining the
relative rights of the Holders of the Notes, on the one hand, and the holders of
Senior Indebtedness, on the other hand.

SECTION 1303. OBLIGATION OF COMPANY UNCONDITIONAL.

Nothing contained in this Article or elsewhere in this Indenture or in the
Notes is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Indebtedness, and the Holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights of the Holders of the Notes and creditors
of the Company other than the holders of Senior Indebtedness, nor shall anything
herein or therein prevent the Trustee or the Holder of any Note from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness in respect of cash, property or Notes of the Company
received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee and the Holders of the Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
any such dissolution, winding up, liquidation or reorganization proceeding
affecting the affairs of the Company is pending or upon a certificate of the
trustee in bankruptcy, receiver, assignee for the benefit of creditors,
liquidating trustee or agent or other person making any payment or distribution,
delivered to the Trustee or to the Holders of the Notes, for the purpose of
ascertaining the persons entitled to participate in such

<PAGE>

payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable
thereon, the amount paid or distributed thereon and all other facts
pertinent thereto or to this Article.

SECTION 1304. PAYMENTS ON NOTES PERMITTED.

Nothing contained in this Article or elsewhere in this Indenture, or in any
of the Notes, shall affect the obligation of the Company to make, or prevent the
Company from making, payment of the principal of and interest on the Notes in
accordance with the provisions hereof and thereof, except as otherwise provided
in this Article.

SECTION 1305. EFFECTUATION OF SUBORDINATION BY TRUSTEE.

Each Holder of Notes, by such Holder's acceptance thereof, authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article and appoints the Trustee such Holder's attorney-in-fact for any and all
such purposes.

SECTION 1306. NOTICE TO TRUSTEE AND KNOWLEDGE OF TRUSTEE.

Notwithstanding the provisions of this Article or any other provisions of
this Indenture, the Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment of Moneys
to or by the Trustee, or the taking of any other action by the Trustee, unless
and until the Trustee shall have received written notice thereof from the
Company, any Holder of Notes, any Paying Agent of the Company or the holder or
representative of any class of Senior Indebtedness.

The Company shall give written notice to the Trustee of any fact known to
the Company which would prohibit the making of any payment to or by the Trustee
in respect of the Notes. Prior to the receipt of such notice, the Trustee shall
be entitled in all respects to assume that no such facts exist.

SECTION 1307. TRUSTEE MAY HOLD SENIOR INDEBTEDNESS.

The Trustee shall be entitled to all the rights set forth in this Article
with respect to any Senior Indebtedness at the time held by it, to the same
extent as any other holder of Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder.

<PAGE>

SECTION 1308. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT IMPAIRED.

No right of any present or future holder of any Senior Indebtedness to
enforce the subordination herein shall at any time or in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.

ARTICLE FOURTEEN

RIGHT TO REQUIRE REPURCHASE

SECTION 1401. RIGHT TO REQUIRE REPURCHASE.

In the event that there shall occur a Repurchase Event (as defined in
Section 1407), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall purchase, all or any part of such Holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Repurchase Event as contemplated in Section 1402(a) at a price (the
"Repurchase Price") equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the Repurchase Date. Such right to require the
repurchase of Notes shall not continue after a discharge of the Company from its
obligations with respect to the Notes in accordance with Article Four.

SECTION 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT.

(1) On or before the 15th day after the Repurchase Event, the
Company, or, upon Company Request transmitted to the Trustee within 5
days of such Repurchase Event, the Trustee (in the name and at the
expense of the Company), shall give notice of the occurrence of the
Repurchase Event and of the repurchase right set forth herein arising
as a result thereof by first-class mail, postage prepaid, to each
Holder of the Notes at such Holder's address appearing n the Note
Register. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.

Each notice of a repurchase right shall state:

(a) that the notice is being made pursuant to Section 1401 and a
description of the circumstances triggering the repurchase
right,

(b) the Repurchase Date,

<PAGE>

(d) the Repurchase Price,

(e) the instructions a Holder must follow to exercise a
repurchase right, and

No failure of the Company to give the foregoing notice shall
limit any Holder's right to exercise a repurchase right. The Trustee
shall have no affirmative obligation to determine if there shall have
occurred a Repurchase Event.

(2) To exercise the repurchase right, a Holder shall deliver to
the Company (or an agent designated by the Company for such purpose in
the notice referred to in (1) above) and to the Trustee on or before
the fifteenth (15th ) day prior to the Repurchase Date (i) written
notice of the Holder's exercise of such right, which notice shall set
forth the name of the Holder, the principal amount of the Note or
Notes (or portion of a Note) to be repurchased, and a statement that
an election to exercise the repurchase right is being made thereby,
and (ii) the Note or Notes with respect to which the repurchase right
is being exercised, duly endorsed for transfer to the Company. Such
written notice shall be irrevocable following the close of business on
the fifth (5th) day prior to the Repurchase Date; PROVIDED, HOWEVER,
that the Company, in its sole and absolute discretion, may consent to
the withdrawal of any Notes after such date and prior to the
Repurchase Date. If the Repurchase Date falls between any Regular
Record Date and the next succeeding Interest Payment Date, Notes to be
repurchased must be accompanied by a check from the Holder of an
amount equal to the interest thereon which the registered Holder
thereof is to receive on such Interest Payment Date. Upon receipt of
any such check, the Trustee shall forward such check to the Company.

(3) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall on the Repurchase
Date pay or cause to be paid in cash to the Holder thereof the
Repurchase Price of the Note or Notes as to which the repurchase right
had been exercised. In the event that a repurchase right is exercised
with respect to less than the entire principal amount of a surrendered
Note, the Company shall execute and deliver to the Trustee and the
trustee shall authenticate for issuance in the name of the Holder a
new Note or Notes in the aggregate principal amount of the
unrepurchased portion of such surrendered Note.

<PAGE>

SECTION 1403. DEPOSIT OF REPURCHASE PRICE.

On or before the Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money, which shall be good funds on the Repurchase Date, sufficient to pay the
Repurchase Price of the Notes which are to be repurchased on the Repurchase
Date.

SECTION 1404. NOTES NOT REPURCHASED ON REPURCHASE DATE.

If a Note surrendered for repurchase shall not be so paid on the Repurchase
Date, the principal shall, until paid, bear interest to the extent permitted by
applicable law from the Repurchase Date at a rate per annum borne by such Note.

SECTION 1405. NOTES REPURCHASED IN PART.

Any Note which is to be repurchased only in part shall be surrendered at
any office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes of any authorized denomination as requested by such Holder, in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Note so surrendered.

SECTION 1406. PRIORITY OF REPURCHASE RIGHTS.

If the Repurchase Event is effected with respect to Junior Indebtedness,
the Holders of the Notes requiring the Company to repurchase Notes must be paid
in full pursuant to the terms and conditions of this Article Fourteen prior to
any payments being made to the Holders of Junior Indebtedness. If the
Repurchase Event is effected with respect to Subordinated Indebtedness that is
pari passu with the Notes, the Holders of the Notes requiring the Company to
repurchase Notes must be paid concurrently with the Holders of the pari passu
Subordinated Indebtedness.

SECTION 1407. DEFINITION OF REPURCHASE EVENT.

For purposes of this article, a "Repurchase Event" shall have occurred upon
the occurrence of any event requiring that the Company repurchase, or make an
offer to repurchase, any Subordinated Indebtedness, whether now outstanding or
issued in the future, other than the Notes, including, without limitation, the
repurchase options contained in the Section 1010 and Article Fourteen of the
Indenture dated as of November 27, 1995 between the Company and First
Interstate Bank of Texas, National Association, issued with respect
to the Company's 8% Convertible Subordinated Debentures Due 2005.

* * * * *

This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals, if any, to be hereunto
affixed, all as of the day and year first above written.

[SEAL] AMRESCO, INC.

By______________________________________
Name:
Title:

Attest:

________________________________

[SEAL] BANK ONE, COLUMBUS, N.A., AS TRUSTEE

By_______________________________________
Name:
Title:

Attest:

_______________________________

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 33-65329 of AMRESCO, INC. 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

January 16, 1996