UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8630
AMRESCO, INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-1781257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
700 N. Pearl Street, Suite 2400 LB 342 75201-7424
Dallas, Texas
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (214) 953-7700
1845 Woodall Rodgers Fwy, Dallas, Texas 75201
(Former name, former address and former year; if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
26,901,621 shares of common stock, $.05 par value per share, as
of August 1, 1996.
Location of Exhibit Index: Page 15
Page 1
<PAGE>
AMRESCO, INC.
INDEX
Page No.
COVER PAGE 1
INDEX 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets - 3
June 30, 1996 and December 31, 1995
Consolidated Condensed Statements of Income -
Three and Six Months Ended June 30, 1996 and 4
1995
Consolidated Condensed Statement of
Shareholders' Equity - Six Months Ended June 5
June 30, 1996
Consolidated Condensed Statements of Cash
Flows - Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Condensed Financial 7
Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 15
EXHIBIT INDEX 15
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
<TABLE>
AMRESCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, December 31,
1996 1995
ASSETS _________ _________
<S> <C> <C>
Cash and cash equivalents $ 14,650 $ 16,139
Temporary investments 32,921 21,942
Accounts receivable, net of reserves of
$1,182 and $1,737, respectively 18,469 20,158
Mortgage loans held for sale 190,257 160,843
Investments:
Loans 164,656 138,180
Partnerships and joint ventures 32,246 34,694
Asset-backed and other securities 55,687 46,187
Real estate 16,050 5,686
Deferred income taxes 12,201 12,184
Premises and equipment, net of accumulated
depreciation of $3,518 and $2,335,
respectively 6,373 5,904
Intangible assets, net of accumulated
amortization of $6,780 and $4,136,
respectively 52,394 51,878
Other assets 8,007 7,918
________ ________
TOTAL ASSETS $603,911 $521,713
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 8,502 $ 14,124
Accrued employee compensation and
benefits 9,522 10,487
Notes payable (Notes 2 and 3) 121,991 127,796
Warehouse loans payable 181,024 153,158
Senior subordinated notes 57,500
Convertible debt 45,000 45,000
Income taxes payable 2,983 2,897
Other liabilities 3,193 7,457
_______ _______
Total liabilities 429,715 360,919
------- -------
SHAREHOLDERS' EQUITY:
Common stock, $0.05 par value, authorized
50,000,000 shares; 26,901,621 and
26,689,331 shares issued in 1996 and
1995, respectively 1,345 1,334
Capital in excess of par 107,655 106,054
Reductions for employee stock (1,500) (2,238)
Treasury stock, $0.05 par value, 24,339
shares (160) (160)
Net unrealized gains (losses) (977) 114
Retained earnings 67,833 55,690
Total shareholders' equity 174,196 160,794
________ ________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $603,911 $521,713
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
Page 3
<PAGE>
<TABLE>
AMRESCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1996 1995 1996 1995
_______ _______ _______ _______
REVENUES:
<S> <C> <C> <C> <C>
Asset management and
resolution fees $ 8,814 $ 8,271 $18,037 $18,441
Interest and other
investment income 25,075 8,388 43,247 14,569
Mortgage banking fees 8,332 5,549 14,937 8,324
Gain on sale of loans and
investments, net 3,781 23 5,789 46
Other revenues 811 1,251 1,699 2,279
_______ _______ _______ _______
Total revenues 46,813 23,482 83,709 43,659
------- ------- ------- -------
EXPENSES:
Personnel 19,131 12,306 35,631 22,976
General and administrative 6,827 3,757 13,445 6,956
Interest 8,328 863 13,495 1,278
Depreciation 652 280 1,160 546
Profit participations 24 71 32 362
------- ------- ------- -------
Total expenses 34,962 17,277 63,763 32,118
------- ------- ------- -------
Income from continuing
operations before taxes 11,851 6,205 19,946 11,541
Income tax expense 4,503 2,126 7,803 4,307
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS 7,348 4,079 12,143 7,234
Gain from sale of
discontinued operations, net 2,425 2,425
------- ------- ------- -------
NET INCOME $ 7,348 $ 6,504 $12,143 $ 9,659
======= ======= ======= =======
Weighted average number of common
shares outstanding and common
share equivalents 27,568,981 24,428,849 27,469,186 24,305,838
Earnings per share from
continuing operations:
Primary $0.27 $0.17 $0.44 $0.30
Fully-diluted 0.25 0.17 0.42 0.30
Earnings per share:
Primary 0.27 0.27 0.44 0.40
Fully-diluted 0.25 0.26 0.42 0.40
</TABLE>
See notes to consolidated condensed financial statements.
Page 4
<PAGE>
<TABLE>
AMRESCO, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 1996
(Dollars in thousands, except share data)
<CAPTION>
Common Stock Reductions Net
$0.05 Par Value Capital for Unrealized Total
Number of in Excess Employee Treasury Gains Retained Shareholders'
Shares Amount of Par Stock Stock (Losses) Earnings Equity
--------- ------- --------- -------- -------- ------ -------- ---------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 26,689,331 $1,334 $106,054 $(2,238) $(160) $114 $55,690 $160,794
Exercise of stock
options 164,384 8 704 712
Issuance of common
stock for earnout 57,186 3 774 777
Cancellation of
common stock
restricted for
unearned stock
compensation (9,280) (79) 79
Amortization of
unearned stock
compensation 659 659
Tax benefits from
employee stock
compensation 202 202
Foreign currency
translation (243) (243)
adjustments
Unrealized loss on
securities
available for
sale, net (848) (848)
Net income 12,143 12,143
---------- ------ -------- -------- ------ ------ ------- --------
JUNE 30, 1996 26,901,621 $1,345 $107,655 $(1,500) $(160) $(977) $67,833 $174,196
========== ====== ======== ======== ====== ====== ======= ========
</TABLE>
See notes to consolidated condensed financial statements.
Page 5
<PAGE>
<TABLE>
AMRESCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Six Months Ended June 30,
1996 1995
--------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 12,143 $ 9,659
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on sale of discontinued operation (2,425)
Gain on sale of mortgage loans and related
securities (5,591)
Depreciation and amortization 3,980 1,763
Deferred tax provision 499 1,853
Loss on disposition of premises and equipment 72
Employee stock compensation 659 74
Increase (decrease) in cash for changes in:
Accounts receivable 1,689 12,108
Accrued interest receivable (2,944)
Purchase of mortgage loans held for sale
and related securities, net (68,823) (3,000)
Proceeds from warehouse loans payable, net 27,866
Other assets (825) 1,841
Accounts payable (1,739) 88
Income taxes payable 86 771
Other liabilities (5,472) (20,195)
-------- ---------
Net cash provided by (used in) operating
activities (38,472) 2,609
-------- --------
INVESTING ACTIVITIES:
Purchase of temporary investments, net (10,979)
Purchase of investments (82,332) (92,811)
Collections on investments 47,940 24,681
Purchase of investment securities available
for sale (4,255)
Collections on investment securities
available for sale 1,560
Proceeds from sale of interest in
securitizations 39,775
Proceeds from sale of subsidiary 6,250
Cash used for purchase of subsidiary (3,106) (3,106)
Purchase of premises and equipment (1,629) (932)
-------- --------
Net cash used in investing activities (13,026) (65,918)
-------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable and other debt 325,491 98,831
Repayment of notes payable and other debt (276,396) (36,512)
Stock options exercised 712 902
Tax benefit of employee stock compensation 202 678
Payment of dividends (2,371)
Acquisition of treasury stock (71)
Repayment of notes receivable for officers'
shares 89
------- --------
Net cash provided by financing activities 50,009 61,546
------- --------
Net decrease in cash and cash equivalents (1,489) (1,763)
Cash and cash equivalents,beginning of period 16,139 20,446
-------- --------
Cash and cash equivalents, end of period $ 14,650 $ 18,683
======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $14,260 $1,524
Income taxes paid 4,507 1,683
Exchange of loans for interest in
securitization 47,578
Common stock issued for earnout related to
purchase of subsidiary 777 777
Common stock issued (canceled) for unearned
stock compensation (79) 649
Accounts payable recorded in connection with
acquisition 1,295
</TABLE>
See notes to consolidated condensed financial statements.
Page 6
<PAGE>
AMRESCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
1. Basis of Presentation and Summary of Significant Accounting
Policies
The accompanying unaudited consolidated condensed financial
statements of AMRESCO, INC. and subsidiaries (the "Company") have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
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 three
and six month periods ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire fiscal
year or any other interim period. For further information, refer to
the consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. Certain reclassifications of prior period amounts
have been made to conform to the current period presentation.
Securitization and Sale of Assets - Revenues from the Company's
residential capital markets activities consist of interest earned on
residential mortgage loans purchased, gains on the securitization and
sale of such loans and other related securities, accrued earnings on
certificates purchased or retained from securitization trusts and
gains on sales, if any, of such retained certificates. The gains on
the securitization and sale of mortgage loans and other related
securities represent the amount by which the proceeds received
(including the estimated value of any certificates retained) exceed
the sum of the basis of the assets sold and the cost of
securitization. When assets are securitized and sold, the
certificates retained are valued at the discounted present value of
the cash flow expected to be realized over the anticipated average
life of the assets sold less future estimated credit losses and
normal servicing and other fees relating to the assets sold. The
discounted present value of such certificates is computed using
management's assumptions of market discount rates (currently
approximately 20%), prepayment rates, default rates and other costs.
Interest income on mortgage loans held for sale and retained
interests in securitizations is recorded as earned. Interest income
represents the interest earned on the loans during the warehousing
period (the period prior to their securitization) and the recognition
of interest income on the securities retained after securitization,
which generally is the recognition of the increased time value of the
discounted estimated cash flows.
2. Banking Arrangements
Effective June 13, 1996, the Company entered into a First
Amendment of the First Amended and Restated Revolving Loan Agreement
(the "Revolving Loan Agreement") with a syndicate of lenders, led by
NationsBank of Texas, N.A. (the "Bank"), which matures on May 31,
1998 and replaced its September 29, 1995, revolving loan agreement.
The syndicates' current commitment under the $200,000,000 revolving
loan agreement was limited to a total of $185,000,000 at June 30,
1996. The additional $15,000,000 under the revolving loan agreement
became available to the Company on August 12, 1996.
Pursuant to a Commitment Letter dated May 29, 1996, CS First
Boston Mortgage Capital Corp. agreed to provide AMRESCO Residential
Mortgage Corporation, a subsidiary of the Company, with a repurchase
facility in an amount not to exceed $500,000,000 (the "Repurchase
Facility"), which supplements, forms a part of and is subject to a
Global Master Repurchase Agreement dated May 28, 1996 to finance the
acquisition and warehousing of residential mortgage loans. As of
June 28, 1996, $133,500,000 was outstanding under the Repurchase
Facility. Indebtedness under the Repurchase Facility bears interest
at a rate of LIBOR (5.50% at June 28, 1996 for a term of 90 days)
plus 0.85% to 2.1% based upon the purchase price, market value and
unpaid principal amount of mortgage loans related to each repurchase
transaction. Indebtedness under the Repurchase Facility is secured
by a first priority security interest in the mortgage loans acquired
with funds advanced under the Repurchase Facility.
3. Senior Notes
On July 16, 1996, the Company completed a sale of $57,500,000
principal amount of Senior Notes. The net proceeds (aggregating
approximately $55,775,000) from such sale were used to repay
borrowings under the Revolving Loan Agreement. The Senior Notes bear
interest at a rate of 8.75% per annum and will mature on July 1,
1999. There is no sinking fund or amortization of principal prior to
maturity. The capitalized debt offering costs will be included in
intangibles and amortized over three years. The Senior Notes will not
be redeemable prior to July 1, 1999. The Senior Notes will be unsecured
senior obligations of the Company and subordinated to the rights of
holders of secured unsubordinated indebtedness of the Company to the
extent of the value of the collateral securing such indebtedness.
There are certain limited restrictions on the ability of the Company
to, among other things, create or incur any additional senior debt,
pay dividends or make certain other restricted payments.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company is engaged primarily in the business of asset
acquisition and resolution, residential mortgage securitization,
commercial mortgage banking and institutional real estate investment
advisory services. The Company's business may be affected by many
factors, including real estate and other asset values, the
availability and price of assets and residential mortgages to be
purchased, the level of and fluctuations in interest rates, changes
in the securitization market and competition. In addition, the
Company's operations require continued access to short and long term
sources of financing.
Since the second quarter of 1995, the Company has extended its
business lines to offer a full range of mortgage banking services,
including commercial loan origination and servicing, developed its
capital markets activities, increased the amount it invests in asset
portfolios and developed its institutional real estate investment
advisory business. 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 financial condition and results of continuing operations
of the Company by primary business lines for the three and six months
ended June 30, 1996 and 1995. 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 condensed financial statements and
notes thereto.
The following is a summary of the Company's results of
operations for the three and six months ended June 30, 1996 and 1995.
<TABLE>
Three Months Ended Six Months Ended
(dollars in thousands, except per June 30, June 30,
share data) 1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Asset acquisition and resolution $23,811 $17,473 $44,762 $34,704
Residential capital markets 11,089 - 16,866 -
Commercial mortgage banking 11,018 5,837 20,394 8,767
Institutional investment advisory 1,006 - 1,974 -
Corporate, other and intercompany
eliminations (111) 172 (287) 188
------- ------- ------- -------
Total revenues 46,813 23,482 83,709 43,659
------- ------- ------- -------
Operating expenses:
Asset acquisition and resolution 12,294 8,670 23,447 16,770
Residential capital markets 4,323 - 6,623 -
Commercial mortgage banking 9,071 4,550 17,204 7,626
Institutional investment advisory 1,003 - 1,820 -
Corporate, other and intercompany
eliminations 8,271 4,057 14,669 7,722
------- ------- ------- -------
Total operating expenses 34,962 17,277 63,763 32,118
------- ------- ------- -------
Operating profit:
Asset acquisition and resolution 11,517 8,803 21,315 17,934
Residential capital markets 6,766 - 10,243 -
Commercial mortgage banking 1,947 1,287 3,190 1,141
Institutional investment advisory 3 - 154 -
Corporate, other and intercompany
eliminations (8,382) (3,885) (14,956) (7,534)
------- ------- ------- -------
Total operating profit 11,851 6,205 19,946 11,541
Income tax expense 4,503 2,126 7,803 4,307
------- ------- ------- -------
Income from continuing operations 7,348 4,079 12,143 7,234
Gain from sale of discontinued
operations, net - 2,425 - 2,425
------- ------- ------- -------
Net income $ 7,348 $ 6,504 $12,143 $ 9,659
======= ======= ======= =======
Weighted average shares
outstanding and equivalents 27,568,981 24,428,849 27,469,186 24,305,838
Earnings per share from continuing
operations:
Primary $0.27 $0.17 $0.44 $0.30
Fully-diluted 0.25 0.17 0.42 0.30
Earnings per share:
Primary 0.27 0.27 0.44 0.40
Fully-diluted 0.25 0.26 0.42 0.40
</TABLE>
Results of Operations
Revenues from the Company's asset management and resolution
activities primarily consist of fees charged for the management of
portfolios comprised of performing, non-performing or underperforming
commercial, industrial, agricultural and real estate loans and for
the successful resolution of the assets within such portfolios. The
asset base of each portfolio declines over the life of the portfolio,
thus reducing asset management fees as assets within the 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 the attainment of specified earnings levels
on behalf of investors or investment partners. Certain direct costs
incurred in 1995 in the management of assets for the Federal Deposit
Insurance Corporation (the "FDIC") were paid by the Company and
billed to the FDIC.
The original cost of an investment in loan and real estate
portfolios is allocated to individual assets within that portfolio
based on their relative fair value to the total purchase price. The
difference between gross estimated cash flows from loans and
asset-backed and other 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 its pro rata
share of earnings as if it had a direct investment in the underlying
loans. 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 and other 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 and other 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 real estate mortgage loans, the placement of such loans
with permanent investors and the 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.
Revenues from the Company's residential capital markets
activities consist of interest earned on residential mortgage loans
purchased, gains on the securitization and sale of such loans and
other related securities, accrued earnings on certificates purchased
or retained from securitization trusts and gains on sales, if any, of
such retained certificates. The gains on the securitization and sale
of mortgage loans and other related securities represent the amount
by which the proceeds received (including the estimated value of any
certificates retained) exceed the sum of the basis of the assets sold
and the cost of securitization. When assets are securitized and
sold, the certificates retained are valued at the discounted present
value of the cash flow expected to be realized over the anticipated
average life of the assets sold less future estimated credit losses
and normal servicing and other fees relating to the assets sold. The
discounted present value of such certificates is computed using
management's assumptions of market discount rates (currently
approximately 20%), prepayment rates, default rates and other costs.
Revenues from the Company's institutional investment advisory
business are earned from providing real estate investment advisory
services, including acquisition, portfolio/asset management and
disposition services, to institutional and corporate investors.
Other revenues consist of consulting revenues earned on due
diligence, gains on sales of other assets and other miscellaneous
income.
In December 1994, the Company elected to dispose of the
operations of its data processing and home banking subsidiary. The
net gain from the sale (effective June 1995) of such discontinued
operations totaled approximately $2.4 million, or $0.10 per share.
Three Months Ended June 30, 1996 Compared to Three Months Ended June
30, 1995
The Company reported 1996 second quarter revenues of $46.8
million, a 99% increase from the same period in 1995. Operating
profit increased 91% primarily due to the inclusion of residential
capital markets operations initiated in September 1995. Commercial
mortgage banking posted a 51% increase in operating profit, and asset
acquisition and resolution operating profit rose 31%. Weighted
average shares outstanding and equivalents at June 30, 1996 increased
13% over June 30, 1995, primarily due to the issuance of 2,300,000
shares common stock late in 1995. Fully-diluted earnings per share
from continuing operations for the second quarter of 1996 were $0.25
compared to $0.17 for the second quarter of 1995, a 47% increase.
Asset Acquisition and Resolution Revenues for the second
quarter of 1996 were comprised of $7.9 million in asset management
and resolution fees, $15.2 million in interest and other investment
income, $0.5 million in other revenues and $0.2 million in gain from
sale of investments. The $6.3 million, or 36%, increase in revenues
from the same period of 1995 was primarily comprised of a
$6.9 million increase in interest and other investment income due to
an increase in aggregate investments of $102.2 million from June 30,
1995, $0.5 million in reversed reserves on accounts receivable
related to the expired RTC asset management contract collections
during the period and a $0.2 million gain from sale of investments,
which increases were offset in part by a $0.9 million decrease in
asset management and resolution fees due to a shift from primarily
managing and investing in partnerships and joint ventures to
investing in wholly-owned portfolios.
Expenses for the quarter ended June 30, 1996 were comprised of
$5.3 million in personnel costs, $3.0 million in other general and
administrative expenses and $4.0 million in interest expense. The
$3.6 million, or 42%, increase in expenses over the same period in
1995 was due to a $2.4 million increase in interest expense and a
$1.2 million increase in other general and administrative expenses.
The increase in interest expense was due to the financing incurred
for a $102.2 million increase in aggregate investments.
Residential Capital Markets The Company initiated the
operation of the residential capital markets business in September
1995. Revenues for the three months ended June 30, 1996 consisted of
$7.6 million in interest and other investment income and $3.5 million
in gains on the securitization and sale of residential mortgage
loans. Interest and other investment income primarily consists of
interest earned on mortgage loans held for sale, which averaged
$255.7 million during the three months ended June 30, 1996, compared
to no such loans held during the same period of 1995. The $3.5
million in gains was realized on the three securitizations and sales
of a total of $569.5 million in residential mortgage loans and
related securities during the second quarter of 1996.
Expenses for the three months ended June 30, 1996 were comprised
of $3.7 million in interest expense, $0.4 million in personnel
expense and $0.2 million in other general and administrative expense.
The $3.7 million in interest expense relates to borrowing under
warehouse loans payable which funded the acquisition of mortgage
loans held for sale.
Commercial Mortgage Banking Revenues for the three months
ended June 30, 1996 consisted of $8.3 million in origination,
underwriting and servicing revenues and $2.7 million in interest and
other investment income. Origination, underwriting and servicing
revenues increased $2.8 million and interest and other investment
income increased $2.4 million due to the inclusion of the operations
of the commercial loan servicing business acquired in October 1995
and increases in the loan originations and servicing volumes of the
Company's previously existing mortgage banking operations.
Expenses for the three months ended June 30, 1996 were comprised
of $6.8 million in personnel expense, $1.9 million in other general
and administrative expense and $0.4 million in interest expense. The
$4.5 million increase in expenses is primarily due to a $3.1 million
increase in personnel expenses, a $1.0 million increase in other
general and administrative expense and a $0.4 million increase in
interest expense. Expenses increased primarily due to the inclusion
of operations of the commercial loan servicing business acquired
during October 1995 and the growth in commercial mortgage banking
operations begun late in 1994.
Institutional Investment Advisory The Company acquired
substantially all of the assets of Acacia Realty Advisors, Inc. in
November 1995. Second quarter 1996 revenues of $1.0 million were
earned in conjunction with providing real estate investment advisory
services to institutional and corporate investors, including
acquisition, portfolio/asset management and disposition services.
Expenses of $1.0 million were incurred, including $0.7 million in
personnel expense and $0.3 million in other general and
administrative expenses.
Corporate and Other Net revenues in this category for the
quarters ended June 30, 1996 and 1995 were nominal. Expenses for the
quarter ended June 30, 1996 were $8.3 million, compared to
$4.1 million during the same period in 1995, a 104% increase. The
$4.2 million increase in expenses was primarily due to increases in
personnel costs and other overhead related to expanded operations
since the second quarter of 1995.
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 1993 merger with BEI
Holdings, Inc. Certain of these benefits expire beginning in 1998
and are subject to annual utilization limitations. Management
believes that recorded deferred tax assets will be realized in the
normal course of business.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30,
1995
The Company reported revenues for the six months ended June 30,
1996 of $83.7 million, a 92% increase from the same period in 1995.
Operating profit increased 73% over the same period in 1995 primarily
due to the inclusion of residential capital markets operations which
were initiated in September 1995. Commercial mortgage banking posted
a significant increase in operating profit, and asset acquisition and
resolution operating profit rose 19%. Fully-diluted earnings per
share from continuing operations for the six months ended June 30,
1996 were $0.42, compared to $0.30 for the same period in 1995, a 40%
increase.
Asset Acquisition and Resolution Revenues for the first six
months of 1996 were comprised of $16.1 million in asset management
and resolution fees, $27.4 million in interest and other investment
income, $1.1 million in other revenues and $0.2 million in gain from
sale of investments. The $10.1 million, or 29%, increase in revenues
from the same period of 1995 was primarily comprised of a
$12.8 million increase in interest and other investment income due to
an increase in aggregate investments of $102.2 million from June 30,
1995 and $0.5 million in reversed reserves on accounts receivable
related to the expired RTC asset management contract collections
during the period, which increases were offset in part by a $2.8
million decrease in asset management and resolution fees due to a
shift from primarily managing and investing in partnerships and joint
ventures to investing in wholly-owned portfolios.
Expenses for the six months ended June 30, 1996 were comprised
of $10.7 million in personnel costs, $7.8 million in interest expense
and $4.9 million in other general and administrative expenses. The
$6.7 million, or 40%, increase in expenses over the same period in
1995 was primarily due to a $5.0 million increase in interest expense
and a $1.6 million increase in other general and administrative
expenses. The increase in interest expense was due to the financing
incurred for a $102.2 million increase in aggregate investments.
Residential Capital Markets The Company initiated the
operation of the residential capital markets business in September
1995. Revenues for the six months ended June 30, 1996 consisted of
$11.3 million in interest and other investment income and
$5.6 million in gains on the securitization and sale of residential
mortgage loans. Interest and other investment income primarily
consisted of interest earned on mortgage loans held for sale which
averaged $171.2 million during the six months ended June 30, 1996,
compared to no such loans held during the same period of 1995. The
$5.6 million in gains was realized on the four securitizations and
sales of a total of $844.4 million in residential mortgage loans and
related securities during the first six months of 1996.
Expenses for the six months ended June 30, 1996 were comprised
of $5.3 million in interest expense, $0.7 million in personnel
expense and $0.6 million in other general and administrative expense.
The $5.3 million in interest expense relates to borrowing under
warehouse loans payable which funded the acquisition of mortgage
loans held for sale.
Commercial Mortgage Banking Revenues for the six months ended
June 30, 1996 consisted of $14.9 million in origination, underwriting
and servicing revenues and $5.5 million in interest and other
investment income. Origination, underwriting and servicing revenues
increased $6.4 million and interest and other investment income
increased $5.2 million due to the inclusion of the operations of the
commercial loan servicing business acquired in October 1995, and
increases in the loan originations and servicing volumes of the
Company's previously existing mortgage banking operations.
Expenses for the six months ended June 30, 1996 were comprised
of $12.6 million in personnel expense, $3.8 million in other general
and administrative expense and $0.8 million in interest expense. The
$9.6 million increase in expenses was primarily due to a $6.6 million
increase in personnel expenses, a $2.2 million increase in other
general and administrative expense and a $0.8 million increase in
interest expense. Expenses increased primarily due to the inclusion
of operations of the commercial loan servicing business which was
acquired during October 1995 and the growth in commercial mortgage
banking operations which were initiated late in 1994.
Institutional Investment Advisory The Company acquired
substantially all of the assets of Acacia Realty Advisors, Inc. in
November 1995. Revenues for the first six months of 1996 totaled
$2.0 million and were earned in conjunction with providing real
estate investment advisory services to institutional and corporate
investors, including acquisition, portfolio/asset management and
disposition services. Expenses of $1.8 million were incurred,
including $1.3 million in personnel expense and $0.5 million in other
general and administrative expenses.
Corporate and Other Net revenues in this category for the six
months ended June 30, 1996 and 1995 were nominal. Expenses for the
six months ended June 30, 1996 were $14.7 million, compared to
$7.7 million during the same period in 1995, a 90% increase. The
$6.9 million increase was primarily due to increases in personnel
costs and other overhead related to expanded operations since the
second quarter of 1995.
Liquidity and Capital Resources
Cash and cash equivalents totaled $14.7 million at June 30,
1996. Cash flows from operating activities plus principal cash
collections on investments totaled $50.8 million for the first six
months of 1996, compared to $27.3 million for the same period in
1995. The increase in cash flows from these activities resulted
primarily from increased investments. The following table is a
summary of cash flow activity during the first six months of 1996
(dollars in millions):
For the Six
Months Ended
June 30,
--------------
1996 1995
------ ------
Cash provided by operations and
collections on investments $50.8 $27.3
Cash provided by borrowings, net 49.1 62.3
Cash used for purchase of investments (86.6) (92.8)
Cash used for purchase of mortgage loans, net (68.8) (3.0)
net
Ratio of core debt (excluding warehouse
debt and investment line) to capital 1.1:1 0.6:1
Ratio of total debt (excluding investment
line) to capital 2.1:1 0.6:1
Interest coverage ratio * 2.8x 11.4x
* Interest coverage ratio means the ratio of earnings before gain
from sale of discontinued operations, interest, taxes,
depreciation and amortization to cash interest expense.
The following table shows the components of the Company's
capital structure at June 30, 1996 (dollars in millions):
June 30, % of
1996 Total
------- -----
Shareholders' equity $174.2 32%
Warehouse loans payable 181.0 33%
Notes payable (excluding investment line) 89.1 16%
Senior convertible debentures 45.0 8%
Senior subordinated debentures 57.5 11%
Total assets decreased $40.2 million to $603.9 million at June
30, 1996 from $644.1 million at March 31, 1996 primarily due to the
reduction in mortgage loans held for sale, primarily residential, of
$45.3 million which is a result of the securitization and sale of
such loans and related securities.
On February 26, 1996, and as amended June 28, 1996, AMRESCO
Residential Mortgage Corporation ("ARMC"), a wholly-owned subsidiary
of the Company, entered into a $400.0 million line of credit under
the Prudential Warehouse Facility to finance the acquisition and
warehousing of residential mortgage loans. A total of $43.6 million
was outstanding under the Prudential Warehouse Facility at June 30,
1996 bearing interest at 6.3%.
On May 29, 1996, ARMC entered into a $500.0 million repurchase
facility (the "Repurchase Facility"), with CS First Boston Mortgage
Capital Corp. to finance the acquisition and warehousing of
residential mortgage loans. As of June 28, 1996, $133,500,000 was
outstanding under the Repurchase Facility bearing interest at 6.4%
On August 12, 1996, the lenders commitment under the Revolving
Loan Agreement was increased to $200.0 million, subject to borrowing
base limitations. Effective April 25, 1996, the Company replaced its
$150.0 million revolving loan agreement, under which the lenders had
a $105.0 million commitment at March 31, 1996, with a $200.0 million
revolving loan agreement.
On June 28, 1996, the Company received approximately $39.8
million of proceeds from the sale of certain certificates retained by
the Company in connection with the securitization and sale of
residential mortgage loans. The proceeds from this sale were used to
reduce outstanding borrowings under the Revolving Loan Agreement.
Although the Company intends, from time to time, to continue to
pursue opportunities to sell other such retained certificates to
generate additional borrowing capacity under its Revolving Loan
Agreement and reduce the Company's capital exposure with respect to
such retained certificates, no assurance can be given that such
opportunities will be available in the future.
During the next twelve months, the Company intends to pursue (i)
additional investment opportunities by acquiring assets both for its
own account and as an investor with various capital partners who
acquire such investments, (ii) acquisitions of new businesses and
(iii) expansion of current businesses. The funds for such
acquisitions and investments are anticipated to be provided by cash
flows and borrowings under the Company's Revolving Loan Agreement.
As a result, interest expense for the remainder of 1996 is expected
to be higher than interest expense for the corresponding period in
1995.
The Company believes its funds on hand of $14.7 million at June
30, 1996, its cash flow from operations, its unused borrowing
capacity under its credit lines ($914.5 million at June 30, 1996,
excluding availability under a mortgage warehouse line which has no
stated limit) 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.
PART II. OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders.
(a) On May 29, 1996, the Company held its 1996 Annual Meeting
of Stockholders.
(c) The only matter voted upon at this meeting was the election
of three (3) persons as Class III directors to serve as members of
the Company's Board of Directors for terms of three (3) years ending
at the 1999 Annual Meeting of Stockholders, or until their successors
are duly elected and qualified. The number of votes cast for each
nominee and the number of votes are as follows:
VOTES
NOMINEE CAST FOR WITHHELD
Richard L. Cravey 24,102,832 317,506
Gerald E. Eickhoff 24,095,259 325,079
Robert H. Lutz, Jr. 24,102,987 317,351
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits as required by Item 601 of Regulation S-K are set
forth on the Exhibit Index on this page.
(b) The Registrant filed a Current Report on Form 8-K, dated
February 2, 1996, reporting pursuant to Items 5 and 7 of
such Form the sale of its 10% Senior Subordinated Notes.
The Registrant filed a Current Report on Form 8-K dated
July 19, 1996, reporting pursuant to Items 5 and 7 of
such Form the offering of Senior Notes.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMRESCO, INC.
Registrant
Date: August 14, 1996 By: /s/Barry L. Edwards
Barry L. Edwards
Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX
10.(a) First Amendment to First Amended and Restated
Revolving Loan Agreement, dated as of June 13,
1996, among AMRESCO, INC. and Other Entities
Designated Within as Borrowers and NationsBank of
Texas, N.A. as Agent and NationsBank of Texas,
N.A. and Other Entities Designated Within as
Lenders.
10.(b) Stock Appreciation Rights Agreement
10.(c) Severance Compensation Agreement
11. Computation of Per Share Earnings
27. Financial Data Schedule
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
This FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING
LOAN AGREEMENT (this "Agreement") is entered into as of the 13th
day of June, 1996, by and among AMRESCO, INC., a Delaware
corporation ("AMRESCO"), and the other entities designated as
"Borrowers" on the signature pages hereof (collectively,
"Borrowers"), NationsBank of Texas, N.A., a national banking
association, as agent ("Agent") for the Lenders (as defined in
the Loan Agreement (defined below)), the Lenders and the New
Lenders (defined below).
W I T N E S S E T H:
WHEREAS, reference is made to the revolving credit facility
in the original aggregate principal amount of $200,000,000,
governed by that certain First Amended and Restated Revolving
Loan Agreement (the "Loan Agreement") dated April 25, 1996,
executed by and among certain Lenders (the "Existing Lenders"),
Agent and Borrowers (each term used herein but not otherwise
defined herein shall be defined as set forth in the Loan
Agreement); and
WHEREAS, Comerica Bank - Texas, a state banking association,
Bank United of Texas, a federal savings bank, and The Nippon
Credit Bank, Ltd., New York Branch, a Japanese corporation
(collectively, "New Lenders") have each agreed to become a
"Lender" as defined in the Loan Agreement and the other Loan
Documents; and
WHEREAS, Borrowers and Existing Lenders have requested that
certain additional changes be made to the Loan Agreement; and
WHEREAS, Borrowers, Agent, New Lenders and Existing Lenders
desire to amend the Loan Agreement and Schedule I and Exhibit I
thereto to reflect the increase in the Available Commitment
resulting from the addition of the New Lenders and the additional
changes agreed to by the parties.
A G R E E M E N T:
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS: That, for
and in consideration of the covenants and agreements set forth
herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and
confessed, Borrowers, Agent, New Lenders and Existing Lenders
hereby agree as follows:
1. Modification of Schedule I; Execution of Additional
Notes. Borrowers, Agent, New Lenders and Existing Lenders hereby
agree that Schedule I to the Loan Agreement is hereby deleted in
its entirety and replaced with Schedule I attached hereto and
incorporated herein by reference for all purposes. Borrowers
shall pay to each of the New Lenders on the date hereof the
Participation Fees required to be paid to each such Lender as
noted on Schedule I attached hereto. In addition, Borrowers
shall execute and deliver to Agent (for delivery to the New
Lenders) a Note in favor of each New Lender to reflect the
addition of each such New Lender to Schedule I. Notwithstanding
the foregoing amendments, Borrowers have requested that the
Existing Lenders continue in effect any Alternate Currency
Advances existing on the date hereof. To accommodate Borrowers'
request, the Existing Lenders and the New Lenders agree that the
Existing Lenders shall, until the expiration of the related
Interest Period, continue in effect (except as otherwise provided
by the Loan Agreement) any Alternate Currency Advances
outstanding as of the date hereof and shall be entitled to
receive (in accordance with the Existing Loan Percentages) all
interest and principal which is paid by Borrowers related to such
Alternate Currency Advances.
2. References to Lockbox and Lockbox Account. Borrowers,
Agent, New Lenders and Existing Lenders hereby agree that the
following paragraph is hereby added to the end of Section 5.7 of
the Loan Agreement:
(c) Notwithstanding anything herein to the contrary, Agent
shall be entitled to establish, in lieu of the lock-box
arrangement otherwise described in this Section 5.7, a trust
or similar account arrangement in those countries where lock-
box arrangements are not commonly used. Without limiting
the generality of the previous sentence, Lenders and
Borrowers agree that AMRESCO UK Holdings Limited, AMRESCO UK
Ventures Limited, AMRESCO UK Limited and Old Midland House
Limited shall not be subject to the previous provisions of
this Section 5.7, but shall be subject to similar
obligations with respect to any "Trust Account" established
by or for the benefit of such Borrowers in the United
Kingdom as set forth in Clause 6 of that certain Composite
Guarantee and Debenture dated June 7, 1996, executed by and
among each of such Borrowers and Agent.
3. Modification of Section 10.6. Pursuant to Section 10.6
of the Loan Agreement, Borrowers, Agent and the Lenders have
agreed that upon the occurrence and continuance of a Default or
Event of Default, "[I]f the Required Lenders cannot agree on a
course of action to be taken within sixty (60) days following
Agent's initial recommendation, Agent shall thereafter take such
action as Agent deems advisable to enforce the Rights of
Lenders." Notwithstanding anything herein or in the Loan
Agreement to the contrary (including in Section 10.6 thereof),
Borrowers, Agent and the Lenders hereby agree that, if, after
Agent has begun taking action pursuant to the immediately
preceding sentence, the Required Lenders do agree on a course of
action contrary to that being taken by Agent, Agent shall change
its course of action so as to follow the course of action agreed
to by the Required Lenders.
4. Modification of Exhibit I. Borrowers, Agent, New
Lenders and Existing Lenders hereby agree that Exhibit I to the
Loan Agreement (Asset Portfolio Reports) is hereby deleted in its
entirety and replaced with Exhibit I attached hereto and
incorporated herein by reference for all purposes.
5. Representations, Warranties and Agreements of
Borrowers. Each Borrower hereby represents and warrants to, and
agrees with, Agent, New Lenders and Existing Lenders as follows:
(a) Authorization. The execution and delivery of this
Agreement and each other document executed herewith and the
performance of all covenants contemplated herein and therein have
been duly authorized by each Borrower and will not violate the
articles of incorporation, bylaws or partnership agreement, as
applicable, of any Borrower or any other material agreement to
which any Borrower is a party, and the consent of no other party
or parties is required.
(b) No Claims or Defenses. No Borrower has any
offsets, claims, counterclaims, defenses or other causes of
action against Agent or any Lender arising out of the Credit
Facility, the Loan Documents, the modifications of the Credit
Facility pursuant to this Agreement, any document executed in
connection herewith or otherwise.
(c) Binding Obligation. This Agreement and each other
document executed in connection herewith has been duly and
validly executed and delivered by each Borrower and constitutes a
valid and legally binding obligation of each Borrower enforceable
in accordance with its terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
enforcement of creditors' rights generally.
6. Confirmation By New Lenders. Each New Lender hereby
confirms and acknowledges that, except as specifically set forth
herein, Agent: (i) makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any
Loan Document, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan
Document or any other instrument or document furnished pursuant
thereto; (ii) makes no representation or warranty and assumes no
responsibility with respect to the value or condition of, or
title to, the Assigned Credit Facility or any other Collateral,
or the financial condition of any Borrower; and (iii) makes no
representation or warranty and assumes no responsibility with
respect to the performance or observance by any Borrower of any
of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto.
7. Agreements of New Lenders. Each New Lender hereby: (i)
appoints Agent as the Agent under the Loan Agreement and the
other Loan Documents and authorizes Agent to take such action as
agent on its behalf and to exercise such powers under the Loan
Agreement and the other Loan Documents as are delegated to Agent
by the terms thereof; (ii) confirms that it has received a copy
of the Loan Documents, together with copies of such financial
statements of Borrowers and such other documents and information
as it has deemed appropriate to make its own credit analysis and
decision to enter into this Agreement; (iii) agrees that it will,
independently and without reliance upon Agent, any Lender or any
other Person, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan
Documents, subject to and in accordance with Article X of the
Loan Agreement; (iv) agrees with Agent for the benefit of each
Lender and Borrower and any other Person that it will perform all
of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender thereunder, and that
it shall be liable directly to Agent, Borrowers, each Lender or
any other Person for the performance of such obligations;
(v) agrees not to disclose any financial information of the
Borrowers or other confidential information regarding the Credit
Facility as and to the extent provided in Section 7.3 of the Loan
Agreement; (vi) agrees, as of the date hereof, that such New
Lender shall be a "Lender" under the Loan Documents and, to the
extent provided in this Agreement, and subject to the terms of
Article X of the Loan Agreement, shall have the rights and
obligations of a Lender thereunder; and (vii) represents and
warrants that such New Lender is legally authorized to enter into
this Agreement.
8. Non-Waiver of Rights or Remedies. Except as otherwise
set forth herein, neither this Agreement nor any other document
executed in connection herewith constitutes or shall be deemed
(a) a waiver of, or consent by Agent or any Lender to any default
or event of default which may exist or hereafter occur under any
of the Loan Documents, (b) a waiver by Agent or any Lender of any
of Borrowers' obligations under the Loan Documents, or (c) a
waiver by Agent or any Lender of any rights, offsets, claims, or
other causes of action that Agent or any Lender may have against
any Borrower.
9. Modification Expenses. Borrowers agree to pay all
reasonable legal fees and other expenses of the Agent incurred in
connection with the preparation and negotiation of this Agreement
and each other document executed in connection herewith.
10. Validity of Existing Documents. The Notes, the Loan
Agreement and all other Loan Documents, as modified hereby and by
the other documents executed in connection herewith, are each
legal, valid, binding and enforceable in accordance with their
respective terms, are each in full force and effect, and shall
continue to inure to the benefit of and be binding upon each
Borrower, Agent and each Lender, and their respective successors
and assigns.
11. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
12. Conforming Provisions. Any and all of the terms and
provisions of the Notes, the Loan Agreement, the Security
Documents and all of the other Loan Documents, are hereby amended
and modified wherever necessary, and even though not specifically
addressed herein, so as to conform to the amendments and
modifications thereto set forth in this Agreement and each other
document executed in connection herewith.
13. Captions. The captions, headings and arrangements used
in this Agreement are for convenience only and do not in any way
affect, limit, amplify, or modify the terms and provisions
hereof.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
15. Counterparts. This Agreement may be executed in a
number of duplicate counterparts, each of which shall be deemed
an original for all purposes, and all of which, collectively,
shall constitute one agreement.
16. NO ORAL AGREEMENTS. THIS AGREEMENT, TOGETHER WITH EACH
OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH AND LOAN DOCUMENT,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO
CONCERNING THE MATTERS SET FORTH HEREIN, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day, month and year first above written.
BORROWERS:
AMRESCO, INC., a
Delaware corporation, for itself and as
agent and attorney-in-fact for each of
the Borrowers listed on Schedule I
hereto
By:
Thomas J. Andrus,
Treasurer
AGENT:
NATIONSBANK OF TEXAS, N.A.,
a national banking association, as
Agent for Lenders
By:
Brian K. Schneider,
Vice President
EXISTING LENDERS:
NATIONSBANK OF TEXAS, N.A., a
national banking association
By:
Brian K. Schneider,
Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, a New York state bank
By:
Name:
Title:
BANK ONE, TEXAS, NA,
a national banking association
By:
Name:
Title:
WELLS FARGO BANK (TEXAS), N.A.,
a national banking association,
successor by merger to First Interstate
Bank of Texas, N.A.
By:
Name:
Title:
NEW LENDERS:
COMERICA BANK - TEXAS, a state banking
association
By:
Name:
Title:
BANK UNITED OF TEXAS, a federal savings bank
By:
Name:
Title:
THE NIPPON CREDIT BANK, LTD., New York
Branch, a Japanese corporation
By:
Name:
Title:
STOCK APPRECIATION RIGHTS AWARD AGREEMENT
This Stock Appreciation Rights Award Agreement is made and
entered into effective as of May 17, 1994, by and between
_______________________________________, a Texas corporation (the
"Company"), and ____________________________ ("________").
WHEREAS, the Company wishes to promote the growth and
success of the Company by issuing to ____________ stock
appreciation rights (the "__________s") with respect to shares of
the Company's Common Stock, subject to the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties agree as follow:
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties agree as follows:
I. GRANT
1.1 The Company hereby grants to ____________, effective as
of January 1, 1994, __________________ with respect to
_____________ shares (the "Shares") of the Company's outstanding
common stock, par value $.01 per share (the "Common Stock"), with
an ________ price of $_______ per share as of December 31, 1993,
subject to the terms and conditions set forth below.
For the purpose of calculating the number of shares of
Common Stock constituting the Shares (it being intended that the
Shares represent 5% of the equity of the Company as of the date
hereof), there shall be included in determining the number of
shares of outstanding Common Stock (i) all shares of Common Stock
outstanding on the date of this Agreement, (ii) all contract
rights which provide a third party with certain rights similar to
the rights of an owner of Common Stock, and (iii) the Shares. A
schedule of such calculation is attached as Exhibit "A." The
calculation of the _________________ price per share is attached
as Exhibit "B."
II. VESTING
2.1 _______________________ shall become vested in the
______________________ on January 1, 1999. However, if the
Company is sold prior to January 1, 1999, the
_________________________ shall become fully vested as of 10 days
immediately prior to the consummation of the sale of the Company.
2.2 If ______________________________'s employment with the
Company terminates for any reason whatsoever (whether voluntarily
or involuntarily, or due to death, disability, or any other
reason) prior to January 1, 1999, the _____________________ shall
be forfeited and _______________________ shall have no further
rights with respect to the ________________________.
III. MANNER OF EXERCISE
3.1 After January 1, 1999, _______________________ may
exercise the ___________ only if the Company is proposed to be
sold. The exercise may only occur on a date which is 10 days
immediately prior to the date the Company is to be sold. If the
_____________ are exercised and the proposed sale of the Company
is not consummated, then the _______________ shall be deemed not
to have been exercised. The _________________ may be exercised
for cash as set forth below:
(a) Method of Exercise. _________________________ may
exercise vested ____________, in whole but not in part,
by delivering a written notice of exercise to the
Company.
(b) Amount Payable. Upon consummation of the sale of the
Company, the Company shall pay _____________________
the value of the ________________. Such amount shall
be paid in cash. The value of the
______________________ shall be equal to the excess of
(A) the aggregate Market Value (defined below) of the
Shares as of the end of the Company's most recently
completed quarter of its fiscal year prior to the sale
of the Company over (B) the aggregate _______________
price of the Shares as of December 31, 1993.
(c) Market Value. The Market value of the Shares shall be
calculated as of the end of the Company's most recently
completed quarter of its fiscal year prior to the
calculation. The method of calculation to be used for
this purpose shall be the same method used in
calculating the value of the Company's Common Stock as
of December 31, 1993 by ___________________, Inc.
IV. OPTION TO PURCHASE
4.1 After vesting, if ________________________ leaves the
employment of the Company for any reason whatsoever (whether
voluntarily or involuntarily, or due to death, disability, or any
other reason), the Company will have the option (but not the
obligation) to purchase the _______________ from
_________________. In connection with such purchase,
_____________________ shall be entitled to receive the lesser of:
(a) the excess of (A) the aggregate Market Value of
the Shares at the end of the calendar year in which
___________________ leaves the employment of the Company
over (B) the aggregate ________________ price of the Shares
as of December 31, 1993; or
(b) the excess of (A) the aggregate Market Value of
the Shares at the end of the calendar year following the
calendar year in which _______________ leaves the employment
of the Company over (B) the aggregate ________________ price
of the Shares as of December 31, 1993.
4.2 The Company shall pay to _____________________________
20% of such amount within 10 days after the calculation of the
amount due to _______________. The Company shall pay the balance
of the amount owed to ______________________ in four (4) equal
annual payments commencing one year from the initial payment
date, together with interest on the remaining unpaid balance at
the prime rate of interest charged by NationsBank, Texas, N.A. as
announced or published by such bank on the initial payment date.
4.3 Notwithstanding the foregoing, if after January 1, 1999
____________________'s employment with the Company is terminated
for any of the following reasons, then the __________________
shall be forfeited and ______________________ shall have no
further rights with respect to the
______________________________:
(a) ___________________ commits any fraud,
misappropriation, embezzlement, dishonesty or similar act,
whether or not a punishable criminal offense;
(b) ___________________ neglects or fails to fulfill
and discharge her assigned duties or responsibilities to the
Company;
(c) ____________________ fails to discharge the
reasonable instructions of the Company's Chairman of the
Board or President;
(d) ____________________ does not act in good faith in
performing her duties to the Company, or engages in willful
and malicious conduct in performing her duties to the
Company; or
(e) ____________________ commits any act which could
seriously damage the reputation of the Company.
V. CAPITAL ADJUSTMENTS
5.1 If at any time prior to the exercise of the
________________ (i) there shall be any increase or decrease in
the number of issued and outstanding shares of Common Stock due
to additional stock issuances or through the declaration of a
stock dividend or through any recapitalization resulting in a
stock split-up, combination, or exchange of shares of Common
Stock, or (ii) the Company has a contractual obligation which
provides a third party with certain rights similar to the rights
of an owner of Common Stock, then the Company may (in its sole
discretion) make an appropriate adjustment in the number of
Shares and the __________ price per share.
VI. MISCELLANEOUS
6.1 Severability. In the event that any sentence,
paragraph, provision, section, or article of this Agreement is
declared to be void by a court of competent jurisdiction, such
sentence, paragraph, provision, section, or article shall be
deemed severed from the remainder of this Agreement and the
balance of the Agreement shall remain in effect.
6.2 Binding Effect. Subject to the restrictions contained
herein, this Agreement shall be binding on and inure to the
benefit of the parties and their respective heirs, personal
representatives, successors and assigns.
6.3 Amendments; Waivers. This instrument contains the
entire agreement of the parties hereto and no modification,
amendment, change, or discharge of any term or provision of this
Agreement shall be valid or binding unless the same is in writing
and signed by the parties hereto. No waiver of any of the terms
of this Agreement shall be valid unless signed by the party
against whom such waiver is asserted.
6.4 Notices. Any notice or communication required or
permitted to be given hereunder shall be in writing, and shall be
delivered in person or sent postage prepaid by registered mail or
certified mail, return receipt requested, or by prepaid courier
to the other party at the following addresses:
If to Company: ____________________________
____________________________
Dallas, Texas 75201
Attn: Mr. ____________________
If to _______________: ____________________________
____________________________
____________________________
____________________________
or such other address as shall be furnished in writing by any
such party, and such notice or communication shall be deemed to
have been given as of the date so delivered or mailed.
6.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas. The
parties hereto stipulate and agree that this Agreement shall be
executed and performed in Dallas County, Texas. In the event
that litigation should arise concerning the validity or
interpretation of any provision of this Agreement, venue over
such litigation shall reside in the proper federal or state
district court sitting in Dallas County, Texas.
6.6 Assignment. Neither this Agreement nor any portion
hereof may be assigned by ______________________________ without
the express written consent of the Company.
6.7 Tax Requirements. The Company shall, to the extent
permitted by law, have the right to deduct any applicable taxes
from any payment of any kind otherwise due to ___________________
hereunder.
6.8 No Right to Continue Employment. Nothing in this
Agreement confers upon _______________ the right to continue in
the employ of the Company or interferes with or restricts in any
way the right of the Company to discharge
________________________ at any time (subject to the rights of
__________________________ set forth in any other agreement with
the Company).
6.9 Entire Agreement. This Agreement contains all of the
covenants and agreements, and supersedes any and all other
agreements (whether oral or written), between the Company and
_________________ with respect to the _______________________.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
AMRESCO, INC.
By: ____________________________
Robert H. Lutz, Jr.
Chairman of the Board and
Chief Executive Officer
___________________________________
___________________________________
EXHIBIT "A"
CALCULATION OF NUMBER OF SHARES
Common Stock Owned/
Owner Deemed Owned Percentage
_____________________________________ _________ 71%
_____________________________________ _________ 24%
_____________________________________ _________ 5%
TOTAL: ========= ======
EXHIBIT "B"
CALCULATION OF PRICE
The fair market value of 100% of the Company as of December 31, 1993
(based upon the report of __________________, Inc.) was from $________ to
$_________, with the mid-point value being $________________.
For the purposes of this Agreement, the mid- point value will be utilized.
__________ price per Share is calculated by dividing the
total fair market value ($____________) by the total number of
shares of Common Stock outstanding or deemed outstanding
(_________).
_____________ price per Share: $____________ / _______ = $___________.
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT made and entered into as of ___________________, 1996, by
and between AMRESCO,INC., a Delaware corporation (together with its
subsidiaries, "AMRESCO"), and ________________________________("Executive").
W I T N E S S E T H:
WHEREAS, AMRESCO recognizes that the current business environment makes it
difficult to attract and retain highly qualified executives unless a certain
degree of security can be offered to such individuals against organizational
and personnel changes which frequently follow Changes of Control (as defined
below) of a corporation; and
WHEREAS, even rumors of acquisitions or mergers may cause executives
to consider major career changes in an effort to assure financial
security for themselves and their families; and
WHEREAS, AMRESCO desires to assure fair treatment of its key executives in
the event of a Change of Control and to allow them to make critical career
decisions without undue time pressure and financial uncertainty, thereby
increasing their willingness to remain with AMRESCO notwithstanding the outcome
of a possible Change of Control transaction; and
WHEREAS, AMRESCO recognizes that its key executives will be involved in
evaluating or negotiating any offers, proposals or other transactions which
could result in Changes of Control of AMRESCO and believes that it is in the
best interest of AMRESCO and its stockholders for such key executives to be in a
position, free from personal financial and employment considerations,to be able
to assess objectively and pursue aggressively the interests of AMRESCO and its
stockholders in making these evaluations and carrying on such negotiations; and
WHEREAS, the Board of Directors of AMRESCO (the "Board") believes it is
essential to provide the Executive with compensation arrangements upon a Change
of Control which provide the Executive with individual financial security and
which are competitive with those of other corporations, and in order to
accomplish these objectives, the Board has caused AMRESCO to enter into this
Agreement.
NOW, THEREFORE, in consideration of the mutual premises and conditions
contained herein, the parties hereto agree as follows:
1. TERM. This Agreement shall commence on the date hereof, and shall
continue until April 30, 2001; thereafter the term hereof shall be extended
automatically from year-to-year unless (i) there has been no Change of Control
and (ii) no fewer than thirty (30) days prior to April 30, 2001 or the
appropriate April 30 thereafter, AMRESCO shall have given notice that it does
not wish to extend this Agreement; and provided, further, that after a Change of
Control of AMRESCO during the term hereof, this Agreement shall remain in effect
until all of the obligations of the parties hereunder are satisfied.
2. CHANGE OF CONTROL. Except as provided herein, no benefits shall be
payable hereunder unless there shall have been a Change of Control of AMRESCO,
as defined below, and Executive's employment by AMRESCO shall thereafter have
been terminated within two (2) years of the date of such Change of Control in
accordance with Section 3. For purposes hereof, a "Change of Control" or
"Change of Control of AMRESCO" shall mean any one of the following:
(i) Continuing Directors (The term "Continuing Director" means any individual
who is a member of the Board on the date hereof or was nominated for election as
a director by, or whose nomination as a director was approved by, the
Board with the affirmative vote of a majority of the Continuing Directors.) no
longer constitute a majority of the Board; (ii) any person or group of
persons (as defined in Rule 13d-5 under the Securities Exchange Act of 1934, as
amended {"Rule 13d-5"}) (other than Richard L. Cravey, CGW Southeast Partners I,
L.P. or CGW Southeast Partners II, L.P. {collectively, the "Control Group"})
together with his or its affiliates, becomes the beneficial owner, directly or
indirectly, of 25% or more of the voting power of AMRESCO's then outstanding
securities entitled generally to vote for the election of AMRESCO's directors;
(iii) the merger or consolidation of AMRESCO with any other entity if
AMRESCO is not the surviving entity and any person or group of persons
(as defined in Rule 13d-5) (other than the Control Group), together with
his or its affiliates, is the beneficial owner, directly or indirectly, of 25%
or more of the surviving entity's then outstanding securities entitled generally
to vote for the election of the surviving entity's directors; or (iv) the sale
of all or substantially all of the assets of AMRESCO or the liquidation or
dissolution of AMRESCO. Notwithstanding the foregoing provisions of this
Section 2, if the Executive's employment with AMRESCO is terminated in
accordance with the provisions of Section 3 prior to the date on which a Change
of Control occurs, and it is reasonably demonstrated that such termination
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose
in connection with a Change of Control, then for all purposes hereof,
such termination shall be deemed to have occurred immediately following a Change
of Control.
3. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE OF CONTROL. If
any of the events described in Section 2 constituting a Change of Control of
AMRESCO shall have occurred, Executive shall be entitled to the
benefits provided in Section 4 upon the subsequent termination of his
employment, provided that such termination occurs within two (2) years of a
Change of Control of AMRESCO and unless such termination is (a) because of his
death or his "Disability" or "Retirement" (as defined in Section 3.1),
(b) by AMRESCO for "Cause" (as defined in Section 3.2), or (c) by Executive
other than for "Good Reason" (as defined in Section 3.3).
3.1 Disability; Retirement.
(a) If, as a result of Executive's incapacity due to physical or
mental illness, Executive shall have been absent from his duties with AMRESCO on
a full time basis for one hundred twenty (120) consecutive business days,
and within thirty (30) days after written Notice of Termination (as hereinafter
defined) is given, Executive shall not have returned to the full time
performance of his duties, AMRESCO may terminate Executive's employment for
"Disability."
(b) Termination by AMRESCO or Executive of his employment based
on "Retirement" shall mean termination in accordance with AMRESCO's retirement
policy, including early retirement, generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with Executive's consent with respect to him.
3.2 Cause. For the purposes hereof, AMRESCO shall have "Cause" to
terminate Executive's employment hereunder upon (i) the willful and continued
failure by Executive to perform his duties with AMRESCO (other than any such
failure resulting from incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to Executive by the Board which
specifically identifies the manner in which the Board believes that he has not
substantially performed his duties, or (ii) the willful engaging by Executive in
gross misconduct materially and demonstrably injurious to AMRESCO. For purposes
of this Section 3.2, no act, or failure to act, on Executive's part shall be
considered "willful" if, in the Executive's sole judgment, his action or
omission was done, or omitted to be done, in good faith and with a reasonable
belief that his action or omission was in the best interest of AMRESCO.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds (2/3) of the entire authorized membership of the Board at a meeting
of the Board called and held for the purpose (after reasonable notice and
an opportunity for Executive, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board he was guilty of
conduct set forth above in clauses (i) or (ii) of the first sentence of this
Section 3.2 and specifying the particulars thereof in detail.
3.3 Good Reason. Executive may terminate his employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
(a) Without his express written consent, the assignment to
Executive of any duties inconsistent with his positions, duties,
responsibilities and status with AMRESCO immediately prior to a Change of
Control, or a change in his reporting responsibilities, titles or offices as in
effect immediately prior to a Change of Control, or any removal of Executive
from or any failure to re-elect Executive to any of such positions, except in
connection with the termination of his employment for Cause, death, Disability
or Retirement or by Executive other than for Good Reason;
(b) A reduction by AMRESCO in Executive's base salary as in
effect on the date of a Change of Control or as the same may be increased from
time to time thereafter;
(c) A reduction by AMRESCO in the bonus payable to Executive in
any year below a percentage of Executive's then base salary equal to the average
percentage of Executive's base salary represented by the bonuses received by
Executive for the three (3) years (or, if shorter, the years of Executive's
employment by AMRESCO) immediately preceding the year in which a Change of
Control occurs as percentages of his base salaries in each of such three
(3) years (or shorter number of years). By way of example, but not in
limitation of the provisions of this paragraph (c), assume a Change of
Control occurs in 1998, and Executive received bonuses for each of 1995, 1996
and 1997 as follows: 30% of his base salary for 1995; 50% of his base salary
for 1996; and 50% of his base salary for 1997. If Executive receives a bonus
for 1998 which is less than 43.33% of his 1998 base salary, Executive shall have
"Good Reason" for terminating his employment under this Section 3.3. If
Executive was only employed during 1996 and 1997, using the same facts as
recited herein, Executive would have "Good Reason" to terminate his employment
if his 1998 bonus was less than 50% of his 1998 base salary;
(d) AMRESCO's requiring Executive to be based anywhere other
than either AMRESCO's offices at which he was based immediately prior to a
Change of Control or AMRESCO's offices which are no more than 75 miles from the
offices at which the Executive was based immediately prior to a Change of
Control, except for required travel on AMRESCO's business to an extent
substantially consistent with his business travel obligations
immediately prior to the Change of Control (excluding, however, any travel
obligations prior to the Change of Control that are associated with or caused
by the Change of Control events or circumstances), or, in the event Executive
consents to any relocation beyond such 75-mile radius, the failure by AMRESCO
to pay (or reimburse Executive) for all reasonable moving expenses
incurred by him relating to a change of his principal residence in connection
with such relocation and to indemnify Executive against any loss (defined as
the difference between the actual sale price of such residence and the higher
of (a) his aggregate investment in such residence or (b) the fair market value
of such residence as determined by a real estate appraiser designated by
Executive and reasonably satisfactory to AMRESCO) realized on the sale of
Executive's principal residence in connection with any such change of residence;
(e) The failure by AMRESCO to continue in effect any benefit or
compensation plan (including but not limited to any stock option plan, pension
plan, life insurance plan, health and accident plan or disability plan)
in which Executive is participating at the time of a Change of Control of
AMRESCO (or plans providing substantially similar benefits), the taking of any
action by AMRESCO which would adversely affect Executive's participation in or
materially reduce his benefits under any of such plans or deprive him of any
material fringe benefit enjoyed by him at the time of the Change of Control,
or the failure by AMRESCO to provide Executive with the number of paid vacation
days to which he is then entitled on the basis of years of service with AMRESCO
in accordance with AMRESCO's normal vacation policy in effect immediately prior
to the Change of Control;
(f) Any failure of AMRESCO to obtain the assumption of, or the
agreement to perform, this Agreement by any successor as
contemplated in Section 5;
(g) Any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the requirements
of Section 3.4 (and, if applicable, Section 3.2); and for purposes hereof,
no such purported termination shall be effective; or
(h) Any termination of employment by Executive for any reason
(other than death, Disability or Retirement) during the thirty (30)-day period
beginning on the first anniversary of the date on which a Change of Control
occurs.
For purposes of this Section 3.3, any good faith determination of "Good Reason"
made by the Executive shall be conclusive and binding on the parties.
3.4 Notice of Termination. Any termination pursuant to the
foregoing provisions of this Section (including termination due to Executive's
death) shall be communicated by written Notice of Termination to the other
party hereto. For purposes hereof, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision herein relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. In the event that Executive seeks to terminate his
employment with AMRESCO pursuant to Section 3.3, he must communicate his
written Notice of Termination to AMRESCO within sixty (60) days of being
notified of such action or actions by AMRESCO which constitute Good Reasons for
termination.
3.5 Date of Termination. "Date of Termination" shall mean (i) if
this Agreement is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty (30)-day
period); (ii) if Executive's employment is terminated pursuant to Section 3.3,
the date specified in the Notice of Termination; and (iii) if Executive's
employment is terminated for any other reason, the date on which a Notice of
Termination is given.
4. COMPENSATION UPON TERMINATION.
4.1 Termination Without Cause or for Good Reason. If Executive's
employment is terminated other than on account of Executive's death or pursuant
to Sections 3.1 or 3.2, or if Executive shall terminate his employment for Good
Reason, then, subject to Section 4.2, Executive shall be entitled, if such
termination occurred within two (2) years of a Change of Control, to the
following benefits:
(a) AMRESCO shall pay to Executive as severance pay in a lump
sum not later than the tenth (10th) day following the Date of Termination, an
amount equal to the greater of (i) or (ii) as follows:
(i) The product of (A) Executive's Total Compensation
(as defined below) for the calendar year immediately preceding the calendar
year in which the Date of Termination occurs, multiplied by (B) the number
three (3).
(ii) The sum of Executive's Total Compensation (as defined
below) for the three (3) calendar years immediately preceding the calendar year
in which the Date of Termination occurs.
For purposes of this Section 4.1(a), the Executive's Total Compensation"
for a given calendar year shall mean the total amount reportable on Form W-2,
or the successor Federal income tax wage reporting form, for such given
calendar year except that the amount of any bonus reportable on such W-2 Form
shall not be counted as part of Total Compensation for such given calender year
if such bonus was not payable for services performed in such given calendar
year, and the amount of any bonus payable to Executive for services performed
in such given calendar year (which may be reportable on a later Form W-2) shall
be counted as part of Total Compensation for such given calendar year.
(b) Notwithstanding any provision to the contrary in any stock
option agreement or restricted stock agreement that may be outstanding between
Executive and AMRESCO, all stock options then held by Executive shall
immediately become exercisable and Executive shall become 100% vested in all
shares of restricted stock held by or for the benefit of Executive.
(c) Notwithstanding any provision to the contrary in any stock
option agreement that may be outstanding between Executive and AMRESCO,
Executive's right to exercise any previously unexercised options under any
such stock option agreement shall not terminate until the latest date on which
the option granted under such agreement would expire under the terms of such
agreement but for Executive's termination of employment.
(d) AMRESCO shall continue to provide Executive with medical/
dental and related benefits and long-term disability benefits equal to the
benefits in effect for Executive at the time of the Change of Control, and
AMRESCO shall provide such benefits at the same cost to Executive as the cost,
if any, charged to Executive for those benefits prior to termination of
employment. AMRESCO shall provide the foregoing benefits for the period from
Executive's termination of employment until the earlier of (i) three (3) years
from the date of Executive's termination of employment, or (ii) the date
Executive obtains employment which provides him with comparable medical/dental
and related benefits and/or long-term disability benefits. For purposes of the
preceding sentence, benefits will not be comparable during any waiting period
for eligibility for such benefits or during any period during which there is a
preexisting condition limitation on such benefits.
4.2 Limitation on Payments.
(a) Anything in Section 4.1 to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution made, or
benefit provided, by AMRESCO to or for the benefit of Executive (whether paid
or payable or distributed or distributable or provided pursuant to the terms
hereof or otherwise) would constitute a "parachute payment" as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
then the lump sum severance payment payable pursuant to Section 4.1(a) shall be
reduced so that the aggregate present value of all payments in the nature of
compensation to (or for the benefit of) Executive which are contingent on a
change of control (as defined in Code Section 280G(b)(2)(A)) is One Dollar
($1.00) less than the amount which Executive could receive without being
considered to have received any parachute payment (the amount of this reduction
in the lump sum severance payment is referred to herein as the "Excess Amount")
The determination of the amount of any reduction required by this Section 4.2
shall be made by an independent accounting firm (other than AMRESCO's
independent accounting firm) selected by AMRESCO and acceptable to Executive,
and such determination shall be conclusive and binding on the parties hereto.
(b) Notwithstanding the provisions of Section 4.2(a), if it is
established pursuant to a final determination of a court or an Internal Revenue
Service proceeding which has been finally and conclusively resolved, that an
Excess Amount was received by Executive from AMRESCO, then such Excess Amount
shall be deemed for all purposes to be a loan to Executive made on the date
Executive received the Excess Amount and Executive shall repay the Excess Amount
to AMRESCO on demand (but no less than ten (10) days after written demand is
received by Executive) together with interest on the Excess Amount at the
"applicable Federal rate" (as defined in Section 1274(d) of the Code) from the
date of Executive's receipt of such Excess Amount until the date of such
repayment.
4.3 Mitigation or Set-off of Amounts Payable Hereunder. Executive
shall not be required to mitigate the amount of any payment provided for in
this Section 4 by seeking other employment or otherwise, nor shall the amount
of any payment provided for in this Section 4 be reduced by any compensation
earned by Executive as the result of employment by another employer after the
Date of Termination, or otherwise. AMRESCO's obligations hereunder also shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which AMRESCO may have against Executive.
5. SUCCESSORS; BINDING AGREEMENT.
5.1 Successors of AMRESCO. AMRESCO will require any successor
(whether direct or indirect, by purchase,merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of AMRESCO, by
agreement in form and substance satisfactory to Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that AMRESCO would be required to perform it if there had been a Change of
Control but no such succession had taken place. Failure of AMRESCO to obtain
such agreement prior to the effectiveness of any such succession shall be a
breach hereof and shall entitle Executive to compensation from AMRESCO
in the same amount and on the same terms as Executive would be entitled
hereunder if Executive terminated his employment for Good Reason, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used
herein, "AMRESCO, INC." shall mean AMRESCO as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 5 or which otherwise
becomes bound by all the terms and provisions hereof by operation of law.
5.2 Executive's Heirs, etc. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts would still be payable to
him hereunder as if he had continued to live, all such amounts, unless other
provided herein, shall be paid in accordance with the terms hereof to his
designee or, if there be no such designee, to his estate.
6. NOTICE. For the purposes hereof, notices and all other
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to AMRESCO at its principal place of business and to Executive at
his address as shown on the records of AMRESCO, provided that all notices to
AMRESCO shall be directed to the attention of the Chief Executive Officer of
AMRESCO with a copy to the Secretary of AMRESCO, or to such other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions hereof may be amended, modified,
waived or discharged unless such amendment, waiver, modification or discharge
is agreed to in writing signed by Executive and such officer as may be
specifically designated by the Board (which shall in any event include
AMRESCO's Chief Executive Officer). No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision hereof to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly herein.
8. VALIDITY. The invalidity or unenforceability of any provisions
hereof shall not affect the validity or enforceability of any other provision
hereof, which shall remain in full force and effect.
9. NON-EXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit
the Executive's continuing or future participation in any benefit, bonus,
incentive or other plans, practices, policies or programs provided by AMRESCO
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option
or other agreements with AMRESCO. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, practice,
policy or program of AMRESCO at or subsequent to the Date of Termination shall
be payable in accordance with such plan, practice, policy or program.
10. LEGAL EXPENSES. AMRESCO agrees to pay, upon written demand therefor
by Executive, all legal fees and expenses which Executive may reasonably incur
as a result of any dispute or contest (regardless of the outcome thereof) by
or with AMRESCO or others regarding the validity or enforceability of, or
liability under, any provision hereof (including as a result of any contest
about the amount of any payment pursuant to Section 4.2), plus in each case
interest at the "applicable Federal rate" (as defined in Section 1274(d) of
the Code). In any such action brought by Executive for damages or to enforce
any provisions hereof, he shall be entitled to seek both legal and equitable
relief and remedies, including, without limitation, specific performance of
AMRESCO's obligations hereunder, in his sole discretion.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
12. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Texas.
13. CAPTIONS AND GENDER. The use of captions and Section headings herein
is for purposes of convenience only and shall not effect the interpretation or
substance of any provisions contained herein. Similarly, the use of the
masculine gender with respect to pronouns herein is for purposes of convenience
and includes either sex who may be a signatory.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
AMRESCO, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
EXECUTIVE
D-SEVCOMP.AGR
<TABLE>
AMRESCO, INC.
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
Primary: -------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income $7,348,000 $6,504,000 $12,143,000 $9,659,000
Weighted average common
shares outstanding 26,845,993 23,945,761 26,783,719 23,826,330
Net effect of dilutive
stock options based on the
Treasury stock method
using average market price 722,988 483,088 685,467 479,508
---------- ---------- ---------- ----------
Total 27,568,981 24,428,849 27,469,186 24,305,838
Earnings per share $0.27 $0.27 $0.44 $0.40
Fully diluted:
Net income $7,348,000 $6,504,000 $12,143,000 $9,659,000
Interest expense related to
convertible debentures,
net of income tax expense 549,000 1,098,000
---------- ---------- ----------- ----------
Adjusted net income $7,897,000 $6,504,000 $13,241,000 $9,659,000
========== ========== =========== ==========
Weighted average common
shares outstanding,
assuming conversion of
convertible debentures to
3,600,000 shares of common
stock in November 1995 30,445,993 23,945,761 30,383,719 23,826,330
Net effect of dilutive
stock options based on the
Treasury stock method
using the higher of
average or ending market
price 1,021,532 603,095 973,893 567,499
---------- ---------- ---------- ----------
Total 31,467,525 24,548,856 31,357,612 24,393,829
Earnings per share $0.25 $0.26 $0.42 $0.40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the AMRESCO,
INC. June 30, 1996 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,650
<SECURITIES> 32,921
<RECEIVABLES> 19,651
<ALLOWANCES> 1,182
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,891
<DEPRECIATION> 3,518
<TOTAL-ASSETS> 603,911
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,345
<OTHER-SE> 172,851
<TOTAL-LIABILITY-AND-EQUITY> 603,911
<SALES> 0
<TOTAL-REVENUES> 46,813
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,328
<INCOME-PRETAX> 11,851
<INCOME-TAX> 4,503
<INCOME-CONTINUING> 7,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,348
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.25
</TABLE>
