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, 1997
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,
Dallas, Texas 75201-7424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code:(214) 953-7700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
36,264,522 shares of common stock, $.05 par value per share,
as of August 7, 1997.
AMRESCO, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997 and 3
December 31, 1996
Consolidated Statements of Income - Three and Six
Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Shareholders' Equity -
Six Months Ended June 30, 1997 5
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of 16
Security Holders
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
AMRESCO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
June 30, December 31,
1997 1996
(Unaudited)
ASSETS
Cash and equivalents $ 23,148 $ 29,046
Temporary investments 34,190
Accounts receivable, net of reserves of $2,832 12,537 12,243
and $1,611, respectively
Loans held for sale, net 844,318 376,029
Loans, net 150,613 42,188
Investments in purchased loan and other asset
portfolios, net 333,048 251,060
Asset backed and other securities-available for sale 78,608 55,678
Retained interests in securitizations-trading 240,342 130,328
Deferred income taxes 26,050 13,285
Premises and equipment, net of accumulated
depreciation of $7,920 and $5,285, respectively 18,046 18,228
Intangible assets, net of accumulated
amortization of $15,256 and $11,110, respectively 115,795 87,219
Other assets 59,743 26,447
TOTAL ASSETS $1,902,248 $1,075,941
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued compensation and
benefits $ 26,683 $ 30,509
Notes payable 397,766 260,092
Warehouse loans payable 784,736 354,562
Senior notes 57,500 57,500
Senior subordinated notes 250,000 57,500
Income taxes payable 8,629 3,742
Other liabilities 20,784 10,521
Total liabilities 1,546,098 774,426
SHAREHOLDERS' EQUITY:
Common stock, $0.05 par value, authorized
150,000,000 shares; 36,062,336 and 33,796,145
shares issued, respectively 1,803 1,690
Capital in excess of par 249,664 213,843
Reductions for employee stock (3,570) (1,129)
Treasury stock, $0.05 par value, 24,339 shares
in 1997 and 1996, respectively (160) (160)
Net unrealized gains 344 249
Retained earnings 108,069 87,022
Total shareholders' equity 356,150 301,515
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,902,248 $1,075,941
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
AMRESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Monts Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
REVENUES:
<S> <C> <C> <C> <C>
Interest and other investment income $45,319 $25,075 $81,334 $43,247
Gain on sale of loans and investments, net 26,515 3,781 44,626 5,789
Mortgage banking and servicing fees 16,025 8,332 29,353 14,937
Asset management and resolution fees 6,164 8,814 11,891 18,037
Income from equity affiliate 9,401 10,457
Other revenues 457 811 1,060 1,699
Total revenues 103,881 46,813 178,721 83,709
EXPENSES:
Personnel 35,181 19,131 64,976 35,631
Interest 25,253 8,328 41,412 13,495
Other general and administrative 13,660 5,520 24,048 10,657
Provision for loan and investment losses 5,298 7,218
Depreciation and amortization 3,803 1,983 6,775 3,980
Total expenses 83,195 34,962 144,429 63,763
Income before income taxes 20,686 11,851 34,292 19,946
Income tax expense 8,200 4,503 13,245 7,803
NET INCOME $12,486 $ 7,348 $21,047 $12,143
Earnings per share:
Primary $0.34 $0.27 $0.59 $0.44
Fully-diluted $0.34 $0.25 $0.59 $0.42
Weighted average number of common
shares outstanding and common share 36,646,063 27,568,981 35,707,384 27,469,186
equivalents
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
AMRESCO, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 1997
(In thousands, except share data)
(Unaudited)
Common Stock Reductions Net
$0.05 Par Value Capital in for Unrealized Total
Number of Excess of Employee Treasury Gains Retained Shareholders'
Shares Amount Par Stock Stock (losses) Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1997 33,796,145 $1,690 $213,843 $(1,129) $(160) $249 $87,022 $301,515
Purchase of subsidiary 1,935,539 97 30,866 30,963
Grant of restricted stock 166,584 9 3,259 (3,268)
Exercise of stock options 120,446 5 669 674
Issuance of common stock
for earnout 43,622 2 775 777
Amortization of unearned
stock compensation 827 827
Tax benefits from employee
stock compensation 345 345
Additional costs from
conversion of convertible debt (93) (93)
Foreign currency translation
adjustments (82) (82)
Unrealized gain on securities
available for sale, net 177 177
Net income 21,047 21,047
June 30, 1997 36,062,336 $1,803 $249,664 $(3,570) $(160) $344 $108,069 $356,150
</TABLE>
See notes to consolidated financial statements.
<TABLE>
AMRESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
1997 1996
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 21,047 $ 12,143
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on sale of loans and investments (44,626) (5,789)
Undistributed earnings of equity affiliate (10,457)
Depreciation and amortization 6,775 3,980
Accretion of interest income (49,953) (30,178)
Deferred tax provision (benefit) (7,305) 499
Provision for loan and investment losses 7,218
Other 827 659
Increase (decrease) in cash for changes in
(exclusive of assets and liabilities acquired
in business combinations):
Accounts receivable 551 5,914
Loans held for sale, net (437,533) (72,482)
Warehouse loans payable, net 342,883 27,866
Retained interests in securitizations 5,287 39,775
Other assets (5,656) (619)
Accounts payable and accrued compensation
and benefits 1,722 (2,466)
Income taxes payable 4,887 86
Other liabilities 5,319 (5,472)
Net cash used in operating activities (159,014) (26,084)
INVESTING ACTIVITIES:
Sale (purchase) of temporary investments, net 34,190 (10,979)
Originations of loans, net (102,135) (10,411)
Acquisition of purchased loan and other
asset portfolios (135,015) (74,080)
Collections on purchased loan and other
asset portfolios 78,677 74,982
Purchase of asset backed securities (49,975) (2,891)
Collections on asset backed securities 31,608 2,179
Cash received in purchase of subsidiary 930
Cash used for purchase of subsidiary (3,106) (2,379)
Investment in joint venture (9,530)
Purchase of premises and equipment (2,219) (1,629)
Net cash used in investing activities (156,575) (25,208)
FINANCING ACTIVITIES:
Net proceeds from notes payable and other debt 586,923 270,591
Repayment of notes payable and other debt (464,882) (276,396)
Net proceeds from issuance of senior
subordinated notes 186,631 54,694
Stock options exercised and tax benefit of
employee stock compensation 1,019 914
Net cash provided by financing activities 309,691 49,803
Net decrease in cash and cash equivalents (5,898) (1,489)
Cash and cash equivalents, beginning of period 29,046 16,139
Cash and cash equivalents, end of period $ 23,148 $ 14,650
SUPPLEMENTAL DISCLOSURE:
Exchange of loans held for sale for retained
interests in securitizations $44,875 $38,335
Common stock issued for the purchase of
subsidiaries 31,740 777
Interest paid 34,226 14,260
Income taxes paid 16,249 4,507
</TABLE>
See notes to consolidated financial statements.
AMRESCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements
of AMRESCO, INC. and subsidiaries (the "Company") have been
prepared by the Company 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.
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, 1997 are not necessarily
indicative of the results that may be expected for the entire
fiscal year or any other interim period. It is recommended that
these statements be read in conjunction with the Company's
consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. Certain reclassifications of prior period
amounts have been made to conform to the current period
presentation.
New Accounting Standards - On January 1, 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," which requires an entity to
recognize the financial and servicing assets it controls and the
liabilities it has incurred and to derecognize financial assets
when control has been surrendered. Retained interests in assets
sold are measured by allocating the previous carrying amount
between the assets sold and retained interests based on their
relative fair values at the date of transfer.
The gain on sale of loans and other investments for the
three and six months ended June 30, 1997 includes approximately
$1.6 million and $2.3 million, respectively, related to
unrealized gains on valuation of retained interests in the
Company's March and June 1997 securitizations as the Company
reports its retained interests in securitizations as trading
securities which must be measured at fair value.
The provision for loan and investment losses has been made
as a reserve for management's estimate of losses on existing
loans and investments which may be uncollectible. Such estimate
is based on evaluation of the collectability of loans and
investments.
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings Per Share," which establishes new
standards for computing and presenting earnings per share ("EPS")
and is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods;
earlier application is not permitted. Under the requirements of
SFAS No. 128, basic and diluted EPS for the three and six months
ended June 30, 1997 and 1996 would have been as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Basic $0.35 $0.27 $0.60 $0.45
Diluted 0.34 0.25 0.59 0.42
2. Acquisition
On March 31, 1997, the Company purchased the stock of
Commercial Lending Corporation and the operations and specific
assets of certain of its affiliates ("CLC"). CLC's primary line
of business is originating, securitizing, selling and servicing
franchise loans. The purchase price consisted of (i)
approximately 1.9 million shares of the Company's common stock
valued at $31.0 million, (ii) the assumption of certain
liabilities estimated at $14,000,000 and (iii) contingent earnout
payments of additional shares of the Company's common stock based
upon the operating performance of the acquired entities through
March 31, 2000. The acquisition of CLC was recorded as a
purchase acquisition.
3. Notes Payable and Other Debt
Revolving Loan Agreement - During the first half of 1997,
the Company amended its revolving loan agreement (the "Revolving
Loan Agreement") with a syndicate of lenders, led by NationsBank
of Texas, N.A. ("Bank"). The Revolving Loan Agreement was
amended to provide for a maximum credit facility of $350.0
million of which $60.0 million could be available on a term
basis. As of June 30, 1997, $311.2 million was outstanding under
the Revolving Loan Agreement.
Senior Subordinated Notes - On March 12, 1997, the Company
issued $192,500,000 aggregate principal amount of additional
senior subordinated notes. The notes bear interest at 10% per
annum and mature on March 15, 2004. The notes are unsecured
obligations of the Company and are subordinated to prior payment
of all existing and future senior debt and to indebtedness and
other liabilities of the Company's subsidiaries. The notes are
not redeemable prior to maturity.
Warehouse Debt - On April 1, 1997, a subsidiary of the
Company entered into an Interim Warehouse and Security Agreement,
which replaced an existing warehouse agreement, with Prudential
Securities Credit Corporation for an amount not to exceed $150.0
million (the "Repurchase Facility") to finance the origination of
certain franchise loans and construction loans to franchisees of
certain approved franchise concepts. Indebtedness under the
Repurchase Facility is secured by the loans originated with funds
advanced under the Repurchase Facility. As of June 30, 1997,
$32.2 million was outstanding under the Repurchase Facility.
On June 12, 1997, a subsidiary of the Company entered into
an Interim Warehouse and Security Agreement, replacing an
existing warehouse agreement, with Prudential Securities Credit
Corporation for an amount not to exceed $500.0 million (the
"Second Repurchase Facility") to finance the purchase of fixed
and floating rate "B and C credit," first and second lien and one-
to-four family residential mortgage loans. Indebtedness under
the Second Repurchase Facility is secured by the loans purchased
with funds advanced under the Second Repurchase Facility. The
available debt limit will increase by the amount of
participation's sold by Prudential Securities Credit Corporation
to other participants. At June 30, 1997, $585.0 million was
outstanding under the Second Repurchase Facility. As of July 29,
1997, the available debt limit was $728.0 million.
4. Shareholder Rights Plan
On May 28, 1997, the Board of Directors of the Company
adopted a shareholders rights plan and declared a dividend
distribution of one Right for each outstanding share of the
Company's common stock to stockholders of record at the close of
business on June 9, 1997. Each Right entitles the registered
holder to purchase from the Company 1/1,000 of a share of Series
A Preferred Stock, (the "Preferred Stock"), at a Purchase Price
of $125 per 1/1,000 of a share, subject to adjustment.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no
separate Rights Certificates will be distributed. The Rights
will separate from the Common Stock upon the earlier of (i) ten
business days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person")
has acquired, or obtained the right to acquire, beneficial
ownership of fifteen percent or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date"), or (ii) ten business
days (or such later date as the Board of Directors determines)
following the commencement of a tender or exchange offer that
would result in a person or group beneficially owning fifteen
percent or more of such outstanding shares of Common Stock. The
date the Rights separate is referred to as the "Distribution
Date."
Until the Distribution Date, (i) the Rights will be
evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates,
(ii) new Common Stock certificates issued after June 9, 1997 will
contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any
certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock
represented by such certificates.
In the event that any person or group becomes an Acquiring
Person each holder of a Right (other than the Acquiring Person
and certain related parties) will thereafter have the right to
receive, upon exercise, Common Stock (or, in certain
circumstances, cash, property or other securities of the Company)
having a value equal to two times the Purchase Price of the
Right.
At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of
fifty percent or more of the outstanding shares of Common Stock,
the Board of Directors of the Company may, without payment of the
Purchase Price by the holder, exchange the rights (other than
Rights owned by such person or group, which will become void), in
whole or in part, for shares of Common Stock at an exchange ratio
of one-half the number of shares of Common Stock (or in certain
circumstances Preferred Stock) for which a Right is exercisable
immediately prior to the time of the Company's decision to
exchange the Rights (subject to adjustment).
At any time until ten business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but
not in part, at a price of $0.001 per Right (payable in cash,
shares of Common Stock or other considerations deemed appropriate
by the Board of Directors). Immediately upon the action of the
Board of Directors ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will
be to receive the $0.001 redemption price. The rights expire on
June 9, 2007.
5. Equity Affiliate
In July 1997, a joint venture in which the Company holds a
50% interest completed a securitization of approximately $460.0
million of commercial loans. The Company recorded additional
income of approximately $3.4 million in July 1997 associated with
this securitization.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
AMRESCO, INC. (the "Company") is a leading specialty
financial services company engaged in residential mortgage
banking, commercial mortgage banking, asset management and
commercial finance. The residential mortgage banking business
involves originating, acquiring, warehousing and securitizing non-
conforming (sub-prime) loans. The commercial mortgage banking
business involves the origination, underwriting, placement,
securitization and servicing of commercial real estate mortgages.
The asset management business involves acquiring asset portfolios
at a substantial discount to face value and managing and
resolving such asset portfolios to maximize cash recoveries and
providing real estate investment advice to various institutional
investors (primarily pension funds). The commercial finance
business involves providing short and mid-term special situation
and franchise financing, securitization and servicing. The
Company's business may be affected by many factors, including
fluctuations in 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.
On March 31, 1997, the Company purchased the stock of
Commercial Lending Corporation and the operations and specific
assets of certain of its affiliates ("CLC"). CLC's primary line
of business is originating, securitizing, selling and servicing
franchise loans. The purchase price consisted of (i)
approximately 1.9 million shares of the Company's common stock
valued at $31.0 million, (ii) the assumption of certain
liabilities estimated at $14,000,000 and (iii) contingent earnout
payments of additional shares of the Company's common stock based
upon the operating performance of the acquired entities through
March 31, 2000.
Throughout 1996 and continuing into 1997, the Company has
extended its business lines to offer a full range of mortgage
banking services including the origination, acquisition and
securitization of sub-prime residential mortgages and commercial
loan origination, securitization and servicing. The Company has
also increased its investment in asset portfolios and developed
and expanded its commercial finance operations. 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.
Results of Operations
The following discussion and analysis presents the
significant changes in results of operations of the Company for
the three and six months ended June 30, 1997 and 1996 by primary
business lines. The results of operations of acquired businesses
are included in the consolidated financial statements from the
date of acquisition. This discussion should be read in
conjunction with the consolidated financial statements and notes
thereto.
Three Months Ended Six Months Ended
(dollars in thousands, except June 30, June 30,
per share data)
1997 1996 1997 1996
Revenues:
Residential mortgage banking $34,783 $11,088 $71,214 $16,864
Commercial mortgage banking 27,640 11,020 44,312 20,395
Asset management 27,420 24,248 48,167 45,923
Commercial finance 13,883 570 15,836 816
Corporate, other and 155 (113) (808) (289)
intercompany eliminations
Total revenues 103,881 46,813 178,721 83,709
Operating expenses:
Residential mortgage banking 27,181 4,322 51,811 6,622
Commercial mortgage banking 16,894 9,068 29,140 17,202
Asset management 18,503 12,833 29,524 24,702
Commercial finance 6,948 470 9,019 572
Corporate, other and 13,669 8,269 24,935 14,665
intercompany eliminations
Total operating expenses 83,195 34,962 144,429 63,763
Operating profit:
Residential mortgage banking 7,602 6,766 19,403 10,242
Commercial mortgage banking 10,746 1,952 15,172 3,193
Asset management 8,917 11,415 18,643 21,221
Commercial finance 6,935 100 6,817 244
Corporate, other and (13,514) (8,382) (25,743) (14,954)
intercompany eliminations
Total operating profit 20,686 11,851 34,292 19,946
Income tax expense 8,200 4,503 13,245 7,803
Net income $12,486 $ 7,348 $21,047 $12,143
Earnings per share:
Primary $0.34 $0.27 $0.59 $0.44
Fully-diluted $0.34 $0.25 $0.59 $0.42
Weighted average shares 36,646,063 27,568,981 35,707,384 27,469,186
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company reported a 122% increase in revenues, a 75%
increase in operating profit and a 70% increase in net income.
The increases were due primarily to additional contributions by
the residential and commercial mortgage banking businesses and
the commercial finance business. Weighted average shares
outstanding and equivalents increased 33% due primarily to the
late 1996 conversion of the Company's convertible subordinated
debentures, the late 1996 public offering of the Company's common
stock and the March 1997 purchase of CLC for common stock. Fully-
diluted earnings per share increased 36% from $0.25 to $0.34 per
share.
Residential Mortgage Banking. Revenues for the three months
ended June 30, 1997 primarily consisted of $18.0 million in
interest and other investment income and $15.2 million of gain on
the securitization and sale of residential mortgage loans. The
$23.7 million increase in revenues relates to increased volumes
and the acquisition of the assets of Quality Mortgage USA, Inc.,
("Quality") in October 1996. The increase in revenues was
primarily composed of an $11.7 million increase in gain on the
securitization and sale of residential mortgage loans and a $10.5
million increase in interest and other investment income.
The increased gain on the securitization and sale of
residential mortgage loans was due primarily to the
securitization and sale of approximately $725.0 million of
residential mortgage loans, including gains recognized from the
transfer to the securitization trustee of approximately $49.0
million of loans securitized in March 1997 which were not
transferred to the trust until the second quarter of 1997,
compared to gains on approximately $524.0 million of loans
securitized in the second quarter of 1996. Additionally, loans
originated by the newly created AMRESCO Residential Mortgage
Corporation ("ARMC") (the subsidiary which acquired substantially
all of the assets of Quality), which have a lower basis than
loans purchased from third parties and thus resulting in larger
gains, were included in the second quarter 1997 securitization.
However, the gain on the second quarter 1997 securitization was
negatively impacted by $1.9 million of losses from futures
contracts used for hedging activities and a change in product
mix. A gain related to approximately $64.0 million of
residential loans pre-funded in the second quarter of 1997
securitization was recognized when the loans were transferred to
the trustee in July 1997. Returns on securitizations are
anticipated to increase as the Company shifts more from purchased
loans to Company originations.
Interest and other investment income primarily consists of
interest earned on loans held for sale, which have increased
significantly since early 1996, and accrued earnings on retained
interests in securitizations, including hedging and mark-to-
market activities. In the second quarter of 1997, the Company
recognized a loss of $4.2 million from futures contracts used for
hedging activities which were designed to protect the Company
from a loss in earnings associated with the Company's retained
interests in securitizations. This loss was partially offset by
a mark-to-market gain of $2.5 million on the retained interests
in securitizations.
Operating expenses for the three months ended June 30, 1997
were primarily comprised of $11.9 million in interest expense,
$10.1 million in personnel expense and $4.4 million in other
general and administrative expense. The $11.9 million in
interest expense primarily relates to borrowings under warehouse
loans payable which funded the origination, acquisition and
warehousing of mortgage loans held for sale. Personnel and other
general and administrative costs increased significantly due
primarily to the increased operations of the residential business
through ARMC.
Commercial Mortgage Banking. Revenues for the three months
ended June 30, 1997 consisted of $13.7 million in origination,
underwriting and servicing revenues, $9.4 million in income from
equity affiliate and $4.6 million in interest and other
investment income. Origination, underwriting and servicing
revenues increased $5.4 million due primarily to originations of
$1.7 billion in the current period compared to $0.6 billion in
the same period of 1996. Income from equity affiliate generated
$9.4 million in income during the second quarter of 1997 due
primarily to income from the AMRESCO Capital Corporation ("ACC")
joint venture which included ACC's 50% share of approximately
$18.8 million of earnings. In July 1997, the joint venture
securitized approximately $460.0 million of loans which resulted
in ACC recording approximately $3.4 million in additional income
in July. Due to the recent narrowing of margins on these types
of loans, the Company anticipates gains earned in the future on
these securitizations to tighten. Interest and other investment
income increased $1.9 million due primarily to interest earned on
loans held for sale and escrow deposits, both of which have
increased significantly since early 1996.
Operating expenses for the three months ended June 30, 1997
were primarily comprised of $11.0 million in personnel expense,
$3.4 million in other general and administrative expense, $1.2
million in interest expense and a $1.0 million provision for
investment and loan losses. The $7.8 million, or 86%, increase
in expenses was due primarily to an increase of $4.3 million in
personnel expenses related to commissions on increased
originations, an increase of $1.7 million in other general and
administrative expense due to expanded operations, a $1.0 million
provision for investment and loan losses and an increase of $0.8
million in interest expense related to warehousing a higher
volume of loans.
Asset Management. Revenues for the second quarter of 1997
were primarily comprised of $16.0 million in interest and other
investment income, $6.2 million in asset management and
resolution fees and a $4.9 million gain on sale of loans and
investments. The $3.2 million, or 13%, increase in revenues was
primarily comprised of a $4.6 million increase in gain on sale of
loans and investments resulting from the sale of an asset backed
security and a $1.4 million increase in interest and other
investment income offset, in part, by a $2.7 million decrease in
management and resolution fees. Interest and other investment
income increased due to a significant increase in aggregate
investments for the Company's own account since early 1996.
Asset management and resolution fees decreased as a result of a
shift in business away from primarily managing and investing in
partnerships and joint ventures to investing in wholly-owned
portfolios.
Operating expenses for the quarter ended June 30, 1997 were
primarily comprised of $6.5 million in interest expense, $5.0
million in personnel cost, $4.4 million in other general and
administrative expenses and a $2.5 million provision for
investment and loan losses. The $5.7 million, or 44%, increase
in expenses was due primarily to a $2.6 million increase in
interest expense related to the financing for increased levels of
investments from early 1996, a $2.5 million provision on owned
portfolios and special servicing receivables and a $1.6 million
increase in other general and administrative expenses offset, in
part, by a $1.0 million decrease in personnel expenses resulting
from a lower level of assets being managed.
Commercial Finance. The Company acquired CLC on March 31,
1997 and hired an experienced team formerly with a financial
institution to form its home construction finance unit in the
first quarter of 1997. Revenues for the second quarter of 1997
consisted primarily of $6.6 million of interest and other
investment income and $6.4 million of gain on sale of loans and
investments. Interest and other investment income primarily
consisted of interest earned on loans and retained interests in
securitizations. The $6.4 million gain relates primarily to a
$6.1 million gain on securitization of approximately $109.0
million of franchise loans in the second quarter of 1997 by
AMRESCO Commercial Lending Corporation ("ACLC") (formerly CLC).
It is anticipated that a gain related to approximately $24.0 million
of franchise loans pre-funded in the second quarter of
1997 securitization will be recognized when the loans are transferred
to the trustee in the third quarter of 1997.
Operating expenses of $6.9 million were primarily comprised
of $3.1 million in interest expense related to the financing of
franchise and commercial loans, $1.8 million in personnel
expenses, $1.2 million in provision for loan losses and $0.7
million in other general and administrative expenses.
Corporate, Other and Intercompany Eliminations. Operating
losses in this area for the three months ended June 30, 1997
increased $5.1 million, or 61%. The increase is primarily due to
increases in personnel costs and other overhead related to
expanded operations from the second quarter of 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June
30, 1996
The Company reported a 114% increase in revenues, a 72%
increase in operating profit and a 73% increase in net income.
The increases were due primarily to additional contributions by
the commercial mortgage banking, residential mortgage banking and
commercial finance businesses. Weighted average shares
outstanding and equivalents increased 30% due primarily to the
late 1996 conversion of the Company's convertible subordinated
debentures, the late 1996 public offering of the Company's common
stock and the March 1997 purchase of CLC for common stock. Fully-
diluted earnings per share increased 40% from $0.42 per share to
$0.59 per share.
Residential Mortgage Banking. Revenues for the first six
months of 1997 primarily consisted of $35.0 million in interest
and other investment income and $33.1 million of gain on the
securitization and sale of residential mortgage loans. The $54.4
million increase in revenues relates to increased volumes and the
acquisition of the assets of Quality. The increase in revenues
was primarily comprised of a $27.5 million increase in gain on
the securitization and sale of residential mortgage loans and a
$23.7 million increase in interest and other investment income.
The increased gain on the securitization and sale of residential
mortgage loans is due primarily to the securitization and sale of
approximately $1.4 billion of residential mortgage loans,
including gains recognized from the transfer to the
securitization trustee of approximately $142.0 million of loans
securitized in December 1996 which were transferred to the trust
during the first quarter of 1997, compared to gains on
approximately $799.0 million of loans securitized in the first
six months of 1996. Additionally, loans originated by the newly
created ARMC, which have a lower basis than loans purchased from
third parties resulting in larger gains, were included in the
1997 securitizations offset, in part, by the second quarter's
securitization containing a loss from futures contracts used for
hedging activities and a change in product mix.
Interest and other investment income primarily consists of
interest earned on loans held for sale, which have increased
significantly since early 1996, and accrued earnings on retained
interests in securitizations, including hedging and mark-to-
market activities. In the first six months of 1997, the Company
recognized a loss of $4.2 million from futures contracts used for
hedging activities associated with its retained interests in
securitizations offset, in part, by mark-to-market gains of $0.4
million on its retained interests in securitizations.
Operating expenses for the six months ended June 30, 1997
were primarily comprised of $22.6 million in interest expense,
$18.4 million in personnel expense, $8.1 million in other general
and administrative and a $2.0 million provision for investment
and loan losses. Interest expense primarily relates to
borrowings under warehouse loans payable which funded the
origination, acquisition and warehousing of mortgage loans held
for sale. Personnel and other general and administrative costs
increased significantly from the prior year period due primarily
to the increased operations of the residential business through
ARMC.
Commercial Mortgage Banking. Revenues for the six months
ended June 30, 1997 consisted of $25.4 million in origination,
underwriting and servicing revenues, $10.5 million in income from
equity affiliate and $8.4 million in interest and other
investment income. Origination, underwriting and servicing
revenues increased $10.6 million due primarily to originations of
$2.7 billion in the current period compared to $1.1 billion in
the same period of 1996. Income from equity affiliate generated
$10.5 million in income during the first six months of 1997 due
primarily to income from the ACC joint venture which included
ACC's 50% share of approximately $20.9 million of earnings.
Interest and other investment income increased $2.9 million due
primarily to interest earned on loans held for sale and escrow
deposits, both of which have increased significantly since early
1996.
Operating expenses for the six months ended June 30, 1997
were primarily comprised of $19.8 million in personnel expense,
$5.7 million in other general and administrative expense, $2.2
million in interest expense and a $1.0 million provision for
investment and loan losses. The $11.9 million, or 69%, increase
in expenses was due primarily to an increase of $7.3 million in
personnel expenses related to commissions on increased
originations, an increase of $2.2 million in other general and
administrative expense due to expanded operations, an increase of
$1.4 million in interest expense related to warehousing a higher
volume of loans and a $1.0 million provision for investment and
loan losses.
Asset Management. Revenues for the six months ended June
30, 1997 were primarily comprised of $30.2 million in interest
and other investment income, $11.9 million in asset management
and resolution fees and a $5.2 million gain on sale of loans and
investments. The $2.2 million, or 5%, increase in revenues was
primarily comprised of a $5.0 million increase in gain on sale of
loans and investments, primarily resulting from the sale of an
asset backed security, and a $3.6 million increase in interest
and other investment income offset, in part, by a $6.1 million
decrease in management and resolution fees. Interest and other
investment income increased due to a significant increase in
aggregate investments for the Company's own account since early
1996. Asset management and resolution fees decreased as a result
of a shift in business away from primarily managing and investing
in partnerships and joint ventures to investing in wholly-owned
portfolios.
Operating expenses for the six months ended June 30, 1997
were primarily comprised of $9.7 million in interest expense,
$9.1 million in personnel cost, $7.9 million in other general and
administrative expenses and a $2.5 million provision for
investment and loan losses. The $4.8 million, or 20%, increase
in expenses was due primarily to a $3.0 million increase in other
general and administrative expenses, a $2.5 million provision on
owned portfolios and special servicing receivables, a $2.1
million increase in interest expense related to the financing for
increased levels of investments from early 1996 offset, in part,
by a $2.8 million decrease in personnel expenses resulting from a
lower level of assets being managed.
Commercial Finance. Revenues for the first six months of
1997 consisted primarily of $8.6 million of interest and other
investment income and $6.4 million of gain on sale of loans and
investments. Interest and other investment income primarily
consisted of interest earned on loans and retained interests in
securitizations. The $6.4 million gain primarily relates to a
$6.1 million gain on securitization of approximately $109.0
million of franchise loans in the second quarter of 1997 by ACLC
(formerly CLC).
Operating expenses of $9.0 million were primarily comprised
of $3.7 million in interest expense related to the financing of
franchise and commercial loans, $2.5 million in personnel
expenses, $1.7 million in provision for loan losses and $1.1
million in other general and administrative expenses.
Corporate, Other and Intercompany Eliminations. Operating
losses for the six months ended June 30, 1997 increased $10.8
million, or 72%. The increase is primarily due to increases in
personnel costs and other overhead related to expanded
operations.
Liquidity and Capital Resources
Cash and equivalents totaled $23.1 million at June 30, 1997.
Cash flows used by operating activities plus principal
collections on investments totaled $48.7 million for the first
six months of 1997 compared to $51.1 million in cash provided for
the same period in 1996. The variance from the prior period is
due primarily to the Company's increased investment related to
increased levels of mortgage loans held for sale at June 30, 1997
compared to 1996. In addition, the Company completed a sale of
retained interests in securitizations in the second quarter of
1996 which provided an additional $39.8 million in cash from
operating activities in the first six months of 1996. The
following table is a summary of selected cash flow activity and
debt ratios during the first six months of 1997 and 1996 (dollars
in millions):
For the Six
Months Ended June 30,
1997 1996
Cash provided by (used in) operations and
collections on investments, net $ (48.7) $51.1
Cash flows used by operations (159.0) (26.1)
Cash provided by borrowings, net 308.7 48.9
Cash used for purchase of investments and
originations of commercial loans (287.1) (87.4)
Ratio of core debt (excluding warehouse debt
and investment line) to capital 2.0:1 1.1:1
Ratio of total debt (excluding investment
line) to capital 4.2:1 2.3:1
Interest coverage ratio * 2.0x 2.8x
* Interest coverage ratio is defined as the ratio of
earnings before interest, taxes, depreciation and
amortization to interest expense.
The following table shows the components of the Company's
capital structure at June 30, 1997 and December 31, 1996 (dollars
in millions):
June 30, December 31,
1997 % of 1996 % of
Total Total
Stockholders' equity $356.2 19% $301.5 30%
Warehouse loans payable 784.7 43% 354.6 36%
Notes payable (excluding 397.8 22% 225.9 22%
investment line)
Senior notes, due 1999 57.5 3% 57.5 6%
Senior subordinated notes, 57.5 3% 57.5 6%
due 2003
Senior subordinated notes, 192.5 10% - -
due 2004
Total assets increased $826.3 million to $1,902.2 million at
June 30, 1997 from $1,075.9 million at December 31, 1996. This
increase was due primarily to (i) an increase in mortgage loans
held for sale resulting from the origination and acquisition of
residential loans for securitization and sale and the related
increase in retained interests in securitizations due to the
securitization of approximately $1,423 million of residential
mortgage loans and approximately $109.0 million of franchise
loans, (ii) an increase in commercial loans extended and (iii) an
increase in purchased loan and other asset portfolios.
On March 12, 1997, the Company issued $192,500,000 aggregate
principal amount of additional senior subordinated notes. The
notes bear interest at 10% per annum and mature on March 15,
2004. The notes are unsecured obligations of the Company and are
subordinated to prior payment of all existing and future senior
debt and to indebtedness and other liabilities of the Company's
subsidiaries. The notes are not redeemable prior to maturity.
On May 30, 1997, the Revolving Loan Agreement was amended to
provide a $350.0 million commitment under the revolving credit
facility with a maturity date of May 31, 1999 and a $60.0 million
commitment under the term facility which matures May 31, 2001.
As of June 30, 1997, $311.2 million was outstanding under the
credit facility.
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) additional loans by
the commercial finance business and (iii) expansion of other
businesses. The funds for such growth are anticipated to be
provided by cash flows, borrowings under the Company's Revolving
Loan Agreement or other debt facilities and/or the issuance of
additional debt or equity. As a result, interest expense for the
remainder of 1997 is expected to be higher than interest expense
for the corresponding period in 1996.
The Company believes its funds on hand of $23.1 million at
June 30, 1997, its cash flow from operations, its unused
borrowing capacity under its credit lines and its continuing
ability to obtain financing and/or issue equity should be
sufficient to meet its anticipated operating needs and capital
expenditures, as well as planned new investments, for at least
the next twelve months. The magnitude of the Company's investment
program will be governed to some extent by the availability of
capital.
Other Matters
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share," which establishes new
standards for computing and presenting earnings per share and is
effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier
application is not permitted. The Company does not expect the
adoption of SFAS No. 128 to have a significant impact upon the
Company's reported earnings per share.
The FASB issued, in February 1997, SFAS No. 129, "Disclosure
of Information about Capital Structure," which establishes
standards for disclosing information about an entity's capital
structure and is effective for financial statements for periods
ending after December 15, 1997. The FASB also issued, in June
1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which establishes standards for the way
public companies disclose information about operating segments,
products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
Private Litigation Securities Reform Act of 1995
This report contains forward-looking statements based on
current expectations that involve a number of risks and
uncertainties. The forward-looking statements are made pursuant
to safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The factors that could cause actual results
to differ materially include the following: industry conditions
and competition, interest rates, business mix, availability of
additional financing, and the risks described from time to time
in the Company's reports to the Securities and Exchange
Commission.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a vote of Security Holders.
On May 28, 1997, the Company held its 1997 Annual Meeting of
stockholders at which the following matters were considered and
voted upon:
(a) Election of Directors
Three persons were elected as Class One Directors for a
three year term ending at the Annual Meeting of Stockholders
after the close of the fiscal year ending in 1999 or until
their successors have been duly elected.
SHARES SHARES
NOMINEE VOTED FOR WITHHELD
Robert L. Adair III 26,347,425 716,292
John J. McDonough 26,372,070 691,647
Bruce W. Schnitzer 26,347,385 716,332
(b) Amendment of Restated Certificate of Incorporation
A proposal to amend the Company's Restated Certificate
of Incorporation in order to increase the number of shares
of common stock which may be issued from 50,000,000 to
150,000,000 was approved. The number of shares voting for
the proposal: 20,276,339; shares against the proposal:
6,744,761; shares abstaining: 42,617.
(c) AMRESCO, INC. 1997 Stock Option and Award Plan
A proposal to adopt the AMRESCO, INC. 1997 Stock Option
and Award Plan was approved. The number of shares voting
for the proposal: 18,996,311; shares against the proposal:
2,304,338; shares abstaining: 68,081.
(d) Appointment of Deloitte & Touche LLP.
A proposal to appoint Deloitte & Touche LLP as the
Company's independent public accountants for 1997 was
approved. The number of shares voting for the proposal:
26,984,766; shares against the proposal: 56,732; shares
abstaining: 22,219.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits and Exhibit Index
Exhibit No.
10.(a) Third Modification of Second Amended and Restated
Loan Agreement among AMRESCO INC., and Morgan
Stanley Mortgage Capital, Inc. and other entities
designated as "Borrowers", and NationsBank of Texas,
N.A., as agent for the "Lenders".
10.(b) AMRESCO, INC. 1997 Stock Option Plan, dated as of
February 25, 1997, filed as exhibit 4(a) to the
Registrant's Form S-8 dated April 17, 1997, which
exhibit is incorporated herein by reference.
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K,
dated May 28, 1997, reporting pursuant to Items 5 and
7 of such Form the adoption of a shareholder rights
plan pursuant to which a dividend of one Right for each
outstanding share of the Company's stock was
distributed.
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 11, 1997 By: /s/Barry L. Edwards
Barry L. Edwards
Executive Vice President
and Chief Financial Officer
THIRD MODIFICATION OF SECOND AMENDED
AND RESTATED LOAN AGREEMENT
THIS THIRD MODIFICATION OF SECOND AMENDED AND RESTATED LOAN
AGREEMENT (this "Agreement") is entered into as of the 30th day of
May, 1997, by and between AMRESCO, INC., a Delaware corporation
("AMRESCO"), and the other entities designated as "Borrowers" in
Exhibit A attached hereto (collectively, "Borrowers"), NationsBank
of Texas, N.A., a national banking association, as agent ("Agent")
for itself and the other Lenders (as defined in the Loan Agreement
(defined below)), and the other Lenders.
W I T N E S S E T H:
WHEREAS, reference is made to the credit facilities in the
maximum principal amount of $350,000,000, governed by that certain
Second Amended and Restated Loan Agreement (as amended from time to
time, the "Loan Agreement") dated February 7, 1997, executed by and
among certain Lenders (the "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, Borrowers and certain Lenders have requested that
certain changes be made to the Loan Agreement, including without
limitation, (a) the addition of several entities as lenders
thereunder, and (b) the modification of certain definitions and
other provisions set forth therein; and
WHEREAS, Agent and the other Lenders have agreed to the above
requests, subject to the terms and conditions contained herein.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, That for and
in consideration of the terms and conditions contained herein and
for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto,
Agent, the Lenders and Borrowers hereby agree as follows:
1. Definitions. Section 1.1 of the Loan Agreement is hereby
amended as follows:
(a) The following definitions are amended and restated
in their entirety to read as follows:
Eligible Assignee means (a) a Lender; (b) an Affiliate of
a Lender; and (c) any other Person approved by the Agent (such
approval not to be unreasonably withheld or delayed) and,
unless an Event of Default has occurred and is continuing at
the time any assignment is effected in accordance with Section
11.10, AMRESCO, such approval not to be unreasonably withheld
or delayed by AMRESCO; provided, however, that none of the
Borrowers nor any Affiliate of any of the Borrowers shall
qualify as an Eligible Assignee.
Term Facility Termination Date means May 31, 2001.
(b) In connection with the Term Facility, the definition
of "Borrowers" shall be, and is hereby, modified to exclude AMRESCO
Canada, Inc., AMRESCO Equities Canada, Inc., AMRESCO Jersey
Ventures Limited, AMRESCO Retail Ventures II Limited, AMRESCO
Services Canada, Inc., AMRESCO UK Holdings Limited, AMRESCO UK
Limited, AMRESCO UK Ventures Limited, Old Midland House Limited and
any future foreign subsidiaries of AMRESCO (collectively the
"Foreign Entities"), and none of the Foreign Entities shall be a
"Maker" as such term is defined in each Term Note. However, each
Foreign Entity agrees to jointly and severally guarantee the
payment in full of all amounts outstanding under the Term Notes (in
the Dollar Equivalent of such amounts). Lenders, Borrowers and the
Foreign Entities understand and agree that wherever the term
"Borrowers" is used in the Loan Documents, such term shall also
refer to the Foreign Entities in their capacity as guarantors of
the Term Facility.
2. Remedies. The first paragraph of Section 9.2 of the Loan
Agreement shall be amended and restated in its entirety as follows:
Section 9.2. Remedies. Upon the occurrence of an Event
of Default, Agent may, and at the direction and election of
the Required Lenders shall, acting by or through any of its
agents, trustees or other Persons, without notice (unless
expressly provided for herein), demand or presentment
(including, without limitation, notice of default, notice of
intent to accelerate or of acceleration) all of which are
hereby waived, and in addition to any other provision of this
Agreement or any other Loan Document, exercise any or all of
the following rights, remedies and recourses:
3. Assignments and Participations. Section 11.10 of the
Loan Agreement shall be amended such that subsection (g) is deleted
in its entirety, and the parenthetical referencing such
subparagraph in subsection (d) is deleted.
4. Taxes. Subsection (a) of Section 11.20 shall be amended
and restated in its entirety as follows:
(a) (x) two duly completed and signed copies of
either Internal Revenue Service Form 1001 (relating to such
Non-U.S. Lender and entitling it to a complete exemption from
withholding of U.S. Taxes on all amounts to be received by
such Non-U.S. Lender pursuant to this Agreement and the other
Loan Documents) or Form 4224 (relating to all amounts to be
received by such Non-U.S. Lender pursuant to this Agreement
and the other Loan Documents), or successor and related
applicable forms, as the case may be, or (y) two duly
completed and signed copies of Internal Revenue Service Form
W-8 or W-9, or successor and related applicable forms, as the
case may be; ;or
5. Amended Schedule I. Schedule I of the Loan Agreement
shall be, and is hereby, amended and restated in its entirety as
set forth on Exhibit A attached hereto and incorporated herein by
reference for all purposes.
6. Amended Schedule II. Schedule II of the Loan Agreement
shall be, and is hereby, amended and restated in its entirety as
set forth on Exhibit B attached hereto and incorporated herein by
reference for all purposes. The changes made pursuant to this
paragraph 6 shall be effective as of the date of the first Advance
under the Term Facility.
7. Amended Exhibit A-1. Exhibit A-1 of the Loan Agreement
shall be, and is hereby, amended and restated in its entirety as
set forth on Exhibit C attached hereto and incorporated herein by
reference for all purposes.
8. Definition of Loan Documents. The definition of "Loan
Documents", as defined in the Loan Agreement and as used in the
Loan Agreement, the other Loan Documents and herein, shall be, and
is hereby, modified to include this Agreement and any and all
documents executed in connection herewith.
9. Conditions Precedent to this Agreement. As conditions
precedent to this Agreement and the modifications to the Loan
Agreement pursuant hereto, all of the following shall have been
satisfied:
(a) Borrowers shall have executed and delivered to Agent (i)
this Agreement and (ii) each new Note required to be executed
pursuant to the Loan Agreement payable to each new Lender under the
Credit Facilities; and
(b) Borrowers shall have delivered to Agent all resolutions,
powers of attorney, certificates or documents as Agent may request
relating to (i) the existence of Borrowers, and (ii) the corporate
and partnership authority for the execution and validity of this
Agreement, together with all other documents, instruments and
agreements and any other matters relevant hereto or thereto, all in
form and content satisfactory to Agent.
10. Reaffirmation of Debt. Borrowers hereby agree and
acknowledge that they are well and truly indebted to Lenders
pursuant to the terms of the Notes and the other Loan Documents, as
modified hereby.
11. Ratification. Except as otherwise expressly modified by
this Agreement, all terms and provisions of the Loan Agreement, the
Notes, and the other Loan Documents shall remain unchanged and
hereby are ratified and confirmed and shall be and shall remain in
full force and effect, enforceable in accordance with their terms.
12. Default. Except as otherwise expressly modified by this
Agreement, no Event of Default has occurred and is continuing under
any of the Loan Documents.
13. Payment of Expenses. Borrowers agree to provide to
Lenders, upon demand, the reasonable attorneys' fees and expenses
of Agent's counsel, filing and recording fees and other reasonable
expenses incurred by Agent in connection with this Agreement.
14. Further Assurances. Borrowers shall execute and deliver
to Agent such other documents as may be necessary or as may be
required, in the opinion of counsel to Agent, to effect the
transactions contemplated hereby and to protect the liens and
security interests.
15. Binding Agreement. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties' respective heirs,
representatives, successors and assigns.
16. Enforceability. In the event the enforceability or
validity of any portion of this Agreement, the Loan Agreement, the
Notes, or any of the other Loan Documents is challenged or
questioned, such provision shall be construed in accordance with,
and shall be governed by, whichever applicable federal or Texas law
would uphold or would enforce such challenged or questioned
provision.
17. Counterparts. This Agreement may be executed in several
counterparts, all of which are identical, each of which shall be
deemed an original, and all of which counterparts together shall
constitute one and the same instrument.
18. Choice of Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT FEDERAL LAWS
PREEMPT THE LAWS OF THE STATE OF TEXAS.
19. Entire Agreement. This Agreement, the Loan Agreement and
the Notes, together with the other Loan Documents, contain the
entire agreements between the parties relating to the subject
matter hereof and thereof and all prior agreements relative thereto
which are not contained herein or therein are terminated.
THIS AGREEMENT AND THE OTHER WRITTEN INSTRUMENTS, AGREEMENTS
AND DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, AND THE
LOAN AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES 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.<PAGE>
IN WITNESS WHEREOF, this Agreement is executed effective as of
the date first written above.
BORROWERS:
AMRESCO, INC., a Delaware corporation
By:_____________________________________
Thomas J. Andrus,
Treasurer
AFC EQUITIES, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CANADA, INC.
AMRESCO CAPITAL CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CONSOLIDATION CORP. f/k/a AMRESCO
MORTGAGE CAPITAL, INC.
AMRESCO EQUITIES CANADA INC.
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO JERSEY VENTURES LIMITED
AMRESCO MANAGEMENT, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC. f/k/a AMRESCO
SERVICES, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CONDUIT, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RHODE ISLAND, INC.
AMRESCO SERVICES CANADA INC.
AMRESCO UK HOLDINGS LIMITED
AMRESCO UK LIMITED
AMRESCO UK VENTURES LIMITED
AMRESCO VENTURES, INC. f/k/a AMRESCO
GENERAL PARTNERS, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
CLC LEASING, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
COMMERCIAL LENDING CORPORATION
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO, INC.
LIFETIME HOMES, INC., f/k/a LIFETIME
HOMES OF NEW JERSEY, INC.
OAK CLIFF FINANCIAL, INC.
OLD MIDLAND HOUSE LIMITED
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FUNDING, INC.
QUALITY TRUSTEE SERVICES, INC.
SAVE-MORE INSURANCE SERVICES, INC.
WHITEROCK INVESTMENTS, INC.
By: AMRESCO, INC., a Delaware
corporation, as attorney-in-fact
By:________________________________
Thomas J. Andrus, as
Treasurer
AGENT:
NATIONSBANK OF TEXAS, N.A.,
a national banking association, as
Agent for Lenders
By:_____________________________________
Brian K. Schneider,
Vice President
REVOLVING LENDERS:
NATIONSBANK OF TEXAS, N.A., a
national banking association
By:_________________________________
Brian K. Schneider,
Vice President
BANK ONE, TEXAS, NA,
a national banking association
By:________________________________
Name:______________________________
Title:_____________________________
WELLS FARGO BANK (TEXAS), N.A.,
a national banking association
By:________________________________
Name:______________________________
Title:_____________________________
COMERICA BANK - TEXAS,
a state banking association
By:________________________________
Name:______________________________
Title:_____________________________
BANK UNITED,
a federal savings bank
By:________________________________
Name:______________________________
Title:_____________________________
THE BANK OF NEW YORK,
a national banking association
By:________________________________
Name:______________________________
Title:_____________________________
THE NIPPON CREDIT BANK, LTD.
By:________________________________
Name:______________________________
Title:_____________________________
FLEET BANK, N.A.,
a national banking association
By:________________________________
Name:______________________________
Title:_____________________________
THE SUMITOMO BANK, LTD.
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
PNC BANK, KENTUCKY, INC.
By:________________________________
Name:______________________________
Title:_____________________________
IMPERIAL BANK
By:________________________________
Name:______________________________
Title:_____________________________
TERM LENDERS:
NATIONSBANK OF TEXAS, N.A., a
national banking association
By:____________________________________
Brian K. Schneider,
Vice President
ALLSTATE INSURANCE COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
INDOSUEZ CAPITAL FUNDING II, LIMITED
By: Indosuez Capital Luxembourg, SA, as
Collateral Manager
By:___________________________
Name:_________________________
Title:________________________
INDOSUEZ CAPITAL FUNDING III, LIMITED
By: Indosuez Capital Luxembourg, SA, as
Collateral Manager
By:___________________________
Name:_________________________
Title:________________________
KZH HOLDING CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
EXHIBIT A
SCHEDULE I
LENDERS AND BORROWERS
I. LENDERS, AGENT AND ARRANGER
A. AGENT:
NationsBank of Texas, N.A.
Commercial Banking Division
901 Main Street, 7th Floor
Dallas, Texas 75202
Attn: Brian Schneider
Fax No.: (214) 508-0388
B. ARRANGER:
NationsBanc Capital Markets, Inc.
901 Main Street, 66th Floor
Dallas, Texas 75202
Attn: Joseph Siegel, Jr.
Fax No.: (214) 508-2881
C. REVOLVING LENDERS:
NationsBank of Texas, N.A.
901 Main Street, 7th Floor
Dallas, Texas 75202
Attn: Brian Schneider
Tel: (214) 508-0365
Fax: (214) 508-3138
Bank One, Texas, NA
1717 Main Street, 4th Floor
Dallas, Texas 75201
Attn: Kathleen C. Stewart
Tel: (214) 290-2709
Fax: (214) 290-2275
with a copy of all notices to:
Bank One, Texas, NA
1717 Main Street, 4th Floor
Dallas, Texas 75201
Attn: Kristin Blanchard
Tel: (214) 290-3028
Fax: (214) 290-2275
Wells Fargo Bank (Texas), N.A.
1445 Ross Avenue, 3rd Floor
Dallas, Texas 75202
Attn: Craig T. Scheef
Tel: (214) 740-1548
Fax: (214) 740-1519
Comerica Bank - Texas
8828 Stemmons, Suite 441
Dallas, Texas 75247
Attn: David Terry
Tel: (972) 841-4419
Fax: (972) 263-9837
Bank United of Texas
101 Ygnacio Valley Road
Walnut Creek, CA 94596
Attn: Michael D. McAuley
Tel: (510) 210-8060
Fax: (510) 210-8065
The Bank of New York
One Wall Street, 17th Floor
New York, New York 10286
Attn: Robert A. Tweed
Tel: (212) 635-6465
Fax: (212) 635-6468
The Nippon Credit Bank, Ltd.
New York Branch
245 Park Avenue
New York, New York 10167
Attn: Peter Amari
Tel: (212) 984-1319
Fax: (212) 490-3895
Fleet Bank, N.A.
592 5th Avenue
New York, New York 10036
Attn: Robert Pierson
The Sumitomo Bank, Limited
1601 Elm Street, Suite 4250
Dallas, Texas 75201
Attn: Michael R. Pavell
PNC Bank, Kentucky, Inc.
500 West Jefferson, Suite 1200
Louisville, KY 40202
Attn: Janice Wallace
Imperial Bank
9920 S. LaCienega Blvd.
Englewood, CA 90301
Attn: Rya Vadalma
D. TERM LENDERS:
NationsBank of Texas, N.A.
901 Main Street, 7th Floor
Dallas, Texas 75202
Attn: Brian Schneider
Tel: (214) 508-0365
Fax: (214) 508-3138
Allstate Insurance Companies
3075 Sanders Road, Suite G3A
Northbrook, IL 60062-7127
Attn: Jerry Zinkula
Indosuez Capital Funding II, Limited
c/o Indosuez Capital
1211 Avenue of the Americas
New York, New York 10036-8701
Indosuez Capital Funding III, Limited
c/o Indosuez Capital
1211 Avenue of the Americas
New York, New York 10036-8701
KZH Holding Corporation
c/o The Chase Manhatten Bank
450 W. 33rd Street, 15th Floor
New York, New York 10001
Revolving Revolving Participation
Loan Loan Fee Amount
Commitment Percentage
Amount
Revolving
Lenders:
NationsBank $50,000,000 17.24138% $100,000
Bank One $45,000,000 15.51724% $90,000
Wells Fargo $25,000,000 8.62069% $31,250
Comerica $20,000,000 6.89655% $15,000
Bank United $30,000,000 10.34483% $37,500
Bank of New York $30,000,000 10.34483% $37,500
Nippon Credit Bank $15,000,000 5.17241% $11,250
Sumitomo $25,000,000 8.62069% $62,500
Fleet $25,000,000 8.62069% $62,500
PNC $15,000,000 5.17241% $22,500
Imperial $10,000,000 3.44828% $15,000
Total $290,000,000 100% $485,000
Term Loan Term Loan Participation
Commitment Percentage Fee Amount
Amount
Term
Lenders:
Allstate $10,000,000 16.66667% $25,000
KZH $15,000,000 25.00000% $37,500
NationsBank $20,000,000 33.33333% $50,000
Indosuez $15,000,000 25.00000% $37,500
Total $60,000,000 100% $150,000
II. BORROWERS
AFC EQUITIES, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CANADA, INC.
AMRESCO CAPITAL CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CONSOLIDATION CORP. f/k/a AMRESCO
MORTGAGE CAPITAL, INC.
AMRESCO EQUITIES CANADA INC.
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO JERSEY VENTURES LIMITED
AMRESCO MANAGEMENT, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC. f/k/a AMRESCO
SERVICES, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CONDUIT, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RHODE ISLAND, INC.
AMRESCO SERVICES CANADA INC.
AMRESCO UK HOLDINGS LIMITED
AMRESCO UK LIMITED
AMRESCO UK VENTURES LIMITED
AMRESCO VENTURES, INC. f/k/a AMRESCO GENERAL
PARTNERS, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
CLC LEASING, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
COMMERCIAL LENDING CORPORATION
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO, INC.
LIFETIME HOMES, INC., f/k/a LIFETIME HOMES OF
NEW JERSEY, INC.
OAK CLIFF FINANCIAL, INC.
OLD MIDLAND HOUSE LIMITED
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FNDING, INC.
QUALITY TRUSTEE SERVICES, INC.
SAVE-MORE INSURANCE SERVICES, INC.
WHITEROCK INVESTMENTS, INC.
c/o AMRESCO, INC.
700 N. Pearl Street
Suite 2400, LB 342
Dallas, Texas 75201-7424
Attn: Treasurer
Fax No.: (214) 953-7757
Exhibit B
SCHEDULE II
COMMITMENT FEE PERCENTAGE; LIBOR MARGIN
Qualified Applicable Commitment
Senior Consolidated Funded Debt/ Investment LIBOR Fee
Adjusted EBITDA Rating Margin Percentages
Greater than 2.25 to 1.0 BB+/Ba1, or (a) 175.0 b.p. 37.5 b.p.
Lower (b) 250.0 b.p.
Less than or equal to 2.25 to 1.0, BBB-/Baa3 (a) 150.0 b.p. 25.0 b.p.
but greater than 1.75 to 1.0 (b) 225.0 b.p.
Less than or equal to 1.75 to 1.0, BBB/Baa2 (a) 125.0 b.p. 25.0 b.p.
but greater than 1.25 to 1.0 (b) 200.0 b.p.
Less than or equal to 1.25 to 1.0 A-/A3, or (a) 100.0 b.p. 20.0 b.p.
better (b) 175.0 b.p.
(a) - The Applicable LIBOR Margin for the Revolving Credit Facility.
(b) - The Applicable LIBOR Margin for the Term Facility.
Borrowers' Senior Consolidated Funded Debt to Adjusted EBITDA ratio
shall be computed on a trailing four quarter basis. The applicable LIBOR
Margin or Commitment Fee Percentage shall be based on whichever of the
Senior Consolidated Funded Debt to Adjusted EBITDA ratio or Qualified
Investment Rating would produce the lowest LIBOR Margin or Commitment
Fee Percentage.
Exhibit C
Exhibit A-1
TERM NOTE
$_________________.00 Dallas, Texas ___________, 1997
FOR VALUE RECEIVED, AMRESCO, INC., a Delaware corporation, and the
other parties executing this Note or hereafter added hereto as "Maker"
(collectively "Makers"), hereby, jointly and severally, promise to pay
to the order of _________________, a _______________("Lender") in
care of Agent, at its banking house in the City of Dallas, Dallas County,
Texas, or at such other address in Dallas County, Texas, given to Makers
by Agent, the principal sum of ______________ and No/100 Dollars
($________________), or so much thereof as may be advanced and outstanding,
together with interest, as hereinafter described.
This Note has been executed and delivered pursuant to the terms of that
certain Second Amended and Restated Loan Agreement (as the same may be
modified, amended, supplemented, extended or restated from time to time,
the "Loan Agreement") dated as of February 7, 1997, executed by and among
Makers, Guarantors (as herein defined), Agent and the Lenders (which
includes the payee of this Note) and is one of the notes defined therein
as a "Term Note", the terms and provisions of the Loan Agreement related
to this Note being incorporated herein by reference for all purposes.
Each capitalized term not expressly defined herein shall have the meaning
given to such term under the Loan Agreement. The terms of the Loan
Agreement shall govern in the case of any inconsistency between such
terms and the terms hereof.
This Note is secured by the Collateral Assignment, the Pledge Agreements,
the Security Agreement, the Mortgages, the other Security Documents and
all the other Loan Documents, and all liens and security interests created
or evidenced thereby. Any holder shall be entitled to all benefits
and remedies and security set forth in the Loan Agreement and all the
other Loan Documents.
1. Interest and Payment.
(a) Maturity. The principal of this Note and all accrued but unpaid
interest hereon shall be due and payable in full on the Term
Facility Termination Date.
(b) Accrual of Interest. Subject to Paragraph 1(f) below, interest on
this Note shall accrue at a rate per annum equal to the lesser of
(i) at Makers' option, the Variable Rate or the Adjusted LIBOR Rate,
subject, however, to the provisions of the Loan Agreement, or (ii) the
Maximum Lawful Rate; provided, however, that as to any portion of the
outstanding principal balance hereof that is not subject to an effective
election of or conversion to the Adjusted LIBOR Rate in accordance with
the terms of the Loan Agreement, interest on such portion of this Note shall
accrue interest at the lesser of (i) the Variable Rate or (ii) the Maximum
Lawful Rate. Interest on this Note shall be calculated at a daily rate
equal to 1/360 of the annual percentage rate which this Note bears,
subject to the provisions hereof limiting interest to the Maximum Lawful
Rate. Without notice to any Maker or any other Person, the Variable Rate
and the Maximum Lawful Rate shall each automatically fluctuate upward
and downward as and in the amount by which the Base Rate and the
Maximum Lawful Rate, respectively, fluctuate, subject always to limitations
contained in this Note and the Loan Agreement.
(c) Agreements Concerning Pricing Election. Reference should be made
to the provisions of Section 3.5 of the Loan Agreement concerning the terms,
manner and agreements related to the interest rate elections available to
Makers under this Note.
(d) Principal and Interest Payments. Principal and interest hereon shall
be due and payable as is provided in Article III of the Loan Agreement, which
provides, in part, for (i) quarterly payments of interest on the first
(1st) day of each calendar quarter, commencing on July 1, 1997, and
continuing on the first (1st) day of each January, April, July and
October during the Credit Period, and (ii) an annual principal payment in
an amount equal to $50,000.00, on April 15 of each year, commencing on
April 15, 1998, and continuing on each April 15 thereafter during the
Credit Period.
(e) Costs Due to Regulatory Changes. Makers shall indemnify Lender against
and reimburse Lender for increased costs to Lender, as a result of any
Regulatory Change, in the maintaining of any LIBOR Rate Portion. All
payments made pursuant to this paragraph shall be made free and clear,
without reduction for, or account of, any present or future taxes or
other levies of any nature, excluding net income and franchise taxes.
(f) Default Rate. After maturity of this Note or the occurrence of an
Event of Default, the outstanding principal balance of this Note shall,
at the option of the Required Lenders, bear interest at the Default Rate.
Any past due principal, and to the extent permitted by law, past due
interest on this Note shall bear interest, payable as it accrues on demand,
for each day until paid at the Default Rate. Such interest shall continue
to accrue at the Default Rate notwithstanding the entry of a judgment with
respect to any of the Obligations or the foreclosure of any of the
Lenders' Liens, unless otherwise provided by law.
(g) Maximum Lawful Rate Adjustments. If at any time the Applicable Rate
shall be limited to the Maximum Lawful Rate, any subsequent reductions in
the Applicable Rate shall not reduce the rate of interest on this Note
below the Maximum Lawful Rate until the total amount of interest accrued
equals the amount of interest which would have accrued if the Applicable
Rate had at all times been in effect. In the event that at maturity
(stated or by acceleration), or at the final payment of the Term Facility,
the total amount of interest paid or accrued on the Term Facility
is less than the amount of interest which would have accrued if the
Applicable Rate had at all times been in effect with respect thereto,
then at such time, to the extent permitted by law, Makers shall
pay to Agent, for the ratable benefit of the Lenders, an amount equal
to the difference between (a) the lesser of the amount of interest which
would have accrued if the Applicable Rate had at all times
been in effect and the amount of interest which would have accrued if
the Maximum Lawful Rate had at all times been in effect, and (b) the
amount of interest actually paid on the Term Facility.
2. Default. The occurrence of a Default or an Event of Default,
under and as defined in the Loan Agreement, shall constitute, respectively,
a Default or an Event of Default under this Note.
3. Remedies.
(a) All Remedies Available. Upon the occurrence of an Event of
Default, the holder hereof, acting by and through Agent in accordance
with the terms of Articles IX and X of the Loan Agreement, shall have
the right to declare the entire unpaid principal balance of, and all
accrued unpaid interest on, this Note at once due and payable (and upon
such declaration, the same shall be at once due and payable), to
foreclose any and all liens and security interests securing
payment hereof, to offset against this Note any sum or sums owed by
it to Maker, and to exercise any of its other rights, powers and
remedies under this Note, under the Loan Agreement or any other
Loan Document, or at law or in equity.
(b) No Waiver. Neither the failure by the holder hereof to exercise,
nor delay by the holder hereof in exercising, the right to accelerate the
maturity of this Note or any other right, power or remedy upon any Default
or Event of Default shall be construed as a waiver of such Default
or Event of Default or as a waiver of the right to exercise any such
right, power or remedy at any time. No single or partial exercise by
the holder hereof of any right, power or remedy shall exhaust
the same or shall preclude any other or further exercise thereof,
and every such right, power or remedy may be exercised at any time
and from time to time. All rights and remedies provided for
in this Note and in any other Loan Document are cumulative of each
other and of any and all other rights and remedies existing at law
or in equity, and the holder hereof shall, in addition to the rights
and remedies provided herein or in any other Loan Document, be entitled
to avail itself of all such other rights and remedies as may now or
hereafter exist at law or in equity for the collection of the
indebtedness owing hereunder, and the resort to any right or remedy
provided for hereunder or under any such other Loan Document or
provided for by law or in equity shall not prevent the concurrent
or subsequent employment of any other appropriate rights or remedies.
Without limiting the generality of the foregoing provisions, the
acceptance by the holder hereof from time to time of any payment under
this Note which is past due or which is less than the payment in full
of all amounts due and payable at the time of such payment, shall not
(i) constitute a waiver of or impair or extinguish the rights of the
holder hereof to accelerate the maturity of this Note or to exercise any
other right, power or remedy at the time or at any subsequent time, or
nullify any prior exercise of any such right, power or remedy, or
(ii) constitute a waiver of the requirement of punctual payment
and performance, or a novation in any respect.
4. Usury Savings Provisions.
(a) General Limitation. Notwithstanding anything herein or in
any other Loan Documents, expressed or implied, to the contrary, in no
event shall any interest rate charged hereunder or under any of the
other Loan Documents, or any interest contracted for, collected or
received by Lender or any holder hereof, exceed the Maximum Lawful Rate.
(b) Intent of Parties. It is expressly stipulated and agreed to be
the intent of Makers and Lender at all times to comply with the applicable
law governing the maximum rate or amount of interest payable on or in
connection with this Note. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under this
Note or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to this Note,
or if acceleration of the maturity of this Note, any prepayment by
Makers, or any other circumstance whatsoever, results in Lender having
been paid any interest in excess of that permitted by applicable
law, then it is the express intent of Makers and Lender that all excess
amounts theretofore collected by Lender be credited on the principal
balance of this Note (or, if this Note has been or would
thereby be paid in full, refunded to Makers), and the provisions of
this Note and the other applicable Loan Documents immediately be deemed
reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to
permit the recovery of the fullest amount otherwise called for
hereunder and thereunder. The right to accelerate the maturity of
this Note does not include the right to accelerate any interest which
has not otherwise accrued on the date of such acceleration, and
Lender does not intend to collect any unearned interest in the event
of acceleration. All sums paid or agreed to be paid to Lender for
the use, forbearance or detention of the indebtedness evidenced
hereby or by any other Loan Document shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full
so that the rate or amount of interest on account of such indebtedness
does not exceed the Maximum Lawful Rate. The term "applicable law"
as used herein shall mean the laws of the State of Texas,
or DIDMCA or any other applicable United States federal law to the
extent that it permits Lender to contract for, charge, take, reserve
or receive a greater amount of interest than under Texas law.
The provisions of this paragraph shall control all agreements
between Makers and Lender.
5. General Provisions.
(a) Business Days. Whenever any payment shall be due under this Note on a
day which is not a Business Day, the date on which such payment is due
shall be extended to the next succeeding Business Day, and such extension
of time shall be included in the computation of the amount of interest
then payable.
(b) Manner of Payment. The manner in which payments are to be made on
this Note shall be governed by the provisions hereof and the Loan Agreement,
including, without limitation, Article III of the Loan Agreement.
(c) Prepayments. Prepayments may be made, and as provided in Section
3.6 of the Loan Agreement are required to be made, on this Note subject
to and in accordance with Section 3.6 of the Loan Agreement.
(d) Application of Payments. All payments made on this Note shall
be applied in accordance with Sections 3.6, 3.9 and 9.10 of the Loan
Agreement, as applicable. Nothing herein shall limit or impair any
rights of any holder hereof to apply as provided in the Loan Documents any
past due payments, any proceeds from the disposition of any collateral
by foreclosure or other collections after default. Except to the
extent specific provisions are set forth in this Note or another
Loan Document with respect to application of payments, all payments
received by the holder hereof shall be applied, to the extent thereof,
to the indebtedness owing by Makers to the holder hereof in
such order and manner as the Required Lenders shall deem appropriate,
any instructions from Makers or anyone else to the contrary notwithstanding.
(e) Costs of Collection. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect,
enforce or defend this Note or any other Loan Document in any lawsuit
or in any probate, reorganization, bankruptcy or other proceeding, or
if any Maker sues any holder of this Note in connection with this Note
or any other Loan Document and does not prevail, then Makers agree to
pay to each such holder, in addition to principal and interest,
all costs and expenses incurred by such holder in trying to collect
this Note or in any such suit or proceeding, including reasonable
attorneys' fees.
(f) Waivers and Acknowledgments. Each Maker and all sureties, endorsers,
guarantors and any other party now or hereafter liable for the payment of
this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest,
notice of protest, notice of intent to accelerate, notice of acceleration
and all other notice (except only for any notice that is specifically
required by the terms of the Loan Agreement or any other Loan Document),
filing of suit and diligence in collecting this Note or
enforcing any of the security herefor; (ii) agree to any substitution,
subordination, exchange or release of any such security or the release
of any party primarily or secondarily liable hereon; (iii)
agree that the holder hereof shall not be required first to institute
suit or exhaust its remedies against any Maker or others liable or to
become liable hereon or to enforce its rights against them or any
security herefor; (iv) consent to any extension or postponement of
time of payment of this Note for any period or periods of time and
to any partial payments, before or after maturity, and to any other
indulgences with respect hereto, without notice thereof to any of them;
and (v) submit (and waive all rights to object) to personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas,
for the enforcement of any and all obligations under the Loan Documents.
(g) Amendments in Writing. This Note may not be changed, amended or
modified except in a writing expressly intended for such purpose and
executed by the party against whom enforcement of the change, amendment
or modification is sought.
(h) Purpose of Proceeds. The proceeds of this Note will be used
solely for business purposes and not for personal, family, household or
agricultural purposes.
(i) Notices. Any notice required or which any party desires to
give under this Note shall be given and effective as provided in Section
11.2 of the Loan Agreement.
(j) Assignments/Participations. Makers acknowledge and agree that
the holder of this Note may, at any time and from time to time, assign
all or a portion of its interest in the Term Facility or transfer to
any Person a participation interest in the Term Facility, subject to and in
accordance with the terms and conditions of the Loan Agreement, including
Section 11.10 thereof.
(k) Successors and Assigns. All of the covenants, stipulations,
promises and agreements contained in this Note by or on behalf of
Makers shall bind their successors and assigns and shall be for the
benefit of Lender and any holder hereof, and their successors and assigns,
whether so expressed or not, subject, however, to the provisions of
Section 11.10 of the Loan Agreement.
(l) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY TEXAS LAW, EXCEPT TO THE EXTENT
THAT THE LAWS OF ANOTHER JURISDICTION GOVERN THE CREATION,
PERFECTION OR ENFORCEMENT OF INTERESTS, OR THE REMEDIES RELATED
TO ANY PART OF THE COLLATERAL, OR TO THE EXTENT THAT UNITED STATES
FEDERAL LAW APPLIES PURSUANT TO SECTION 11.8 OF THE LOAN AGREEMENT
OR OTHERWISE.
(m) Time of the Essence. Time shall be of the essence in this
Note with respect to all of Makers' obligations hereunder.
(n) INTEGRATION. THIS NOTE AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES 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, Maker has duly executed this Note as of the date
first above written.
MAKERS:
AMRESCO, INC., a Delaware corporation
By:_____________________________________
Thomas J. Andrus,
Treasurer
AFC EQUITIES, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CAPITAL CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CONSOLIDATION CORP. f/k/a AMRESCO
MORTGAGE CAPITAL, INC.
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO MANAGEMENT, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC. f/k/a AMRESCO
SERVICES, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CONDUIT, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RHODE ISLAND, INC.
AMRESCO VENTURES, INC. f/k/a AMRESCO
GENERAL PARTNERS, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
CLC LEASING, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
COMMERCIAL LENDING CORPORATION
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO, INC.
LIFETIME HOMES, INC., f/k/a LIFETIME HOMES OF
NEW JERSEY, INC.
OAK CLIFF FINANCIAL, INC.
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FUNDING, INC.
QUALITY TRUSTEE SERVICES, INC.
SAVE-MORE INSURANCE SERVICES, INC.
WHITEROCK INVESTMENTS, INC.
By: AMRESCO, INC., a Delaware corporation, as
attorney-in-fact
By:
Thomas J. Andrus, as
Treasurer
The undersigned (each a "Guarantor") hereby agree that (a) each is
jointly and severally liable for the payment in full of the indebtedness
evidenced by this Term Note, (b) each shall take any and all actions
necessary to insure Lender is paid such amount in full, (c) each shall
increase the amount payable to such Lender to an amount which, after
deduction from such increased amount of the taxes required to be held
or deducted therefrom solely as a result of the payment by Guarantor of
such amount, will yield to the Lender the amount stated to be payable
with respect thereto, and (d) any and all amounts paid pursuant to
this guaranty shall be paid in U.S. Dollars without consideration
to any currency exchange rate.
AMRESCO CANADA, INC.
AMRESCO EQUITIES CANADA INC.
AMRESCO JERSEY VENTURES LIMITED
AMRESCO RETAIL VENTURES II LIMITED
AMRESCO SERVICES CANADA INC.
AMRESCO UK HOLDINGS LIMITED
AMRESCO UK LIMITED
AMRESCO UK VENTURES LIMITED
OLD MIDLAND HOUSE LIMITED
By: AMRESCO, INC., a Delaware corporation, as
attorney-in-fact
By:
Thomas J. Andrus, as
Treasurer
AMRESCO, INC.
1997 STOCK OPTION PLAN
ARTICLE 1. Establishment, Purpose and Duration
1.1 Establishment of the Plan. AMRESCO, INC., a Delaware
corporation (hereinafter referred to as AMRESCO), hereby
establishes a stock option plan to be known as the AMRESCO, INC.
1997 Stock Option Plan (the Plan), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options and
Incentive Stock Options.
The Plan shall become effective as of February 25, 1997 (the
Effective Date) and shall remain in effect as provided in Section
1.3.
1.2 Purpose of the Plan. The purpose of the Plan is to
secure for AMRESCO and its stockholders the benefits of the
incentive inherent in stock ownership in AMRESCO by key
employees, directors and other persons who are largely
responsible for its future growth and continued success. The
Plan promotes the success and enhances the value of AMRESCO by
linking the personal interests of Participants to those of
AMRESCO's stockholders and by providing Participants with an
incentive for outstanding performance.
The Plan is further intended to provide flexibility to
AMRESCO in its ability to motivate, attract and retain the
services of Participants upon whose judgment, interest and
special effort the successful conduct of its operation largely
depends.
1.3 Duration of the Plan. The Plan shall commence on the
Effective Date and shall remain in effect, subject to the right
of the Board of Directors to amend or terminate the Plan at any
time pursuant to Article 11, until the day prior to the tenth
(10th) anniversary of the Effective Date.
ARTICLE 2. Definitions
Whenever used herein, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) Award means, individually or collectively, a grant
under this Plan of Nonqualified Stock Options or Incentive Stock
Options.
(b) Award Agreement means an agreement entered into by each
Participant and AMRESCO, setting forth the terms and provisions
applicable to Awards granted to Participants hereunder.
(c) Beneficial Owner or Beneficial Ownership shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules
and Regulations under the Exchange Act.
(d) Board or Board of Directors means the board of
directors of AMRESCO.
(e) Cause means: (i) willful misconduct on the part of a
Participant that is materially detrimental to AMRESCO; or (ii)
the indictment of a Participant for the commission of a felony.
The existence of Cause under either (i) or (ii) shall be
determined by the Committee. Notwithstanding the foregoing, if
the Participant has entered into an employment agreement that is
binding as of the date of employment termination, and if such
employment agreement defines Cause and/or provides a means of
determining whether Cause exists, the definition of Cause and the
means of determining whether Cause exists provided for in the
employment agreement shall apply to the Participant for purposes
hereof.
(f) Change in Control shall be deemed to have occurred if:
(i) An acquisition by any Person of Beneficial
Ownership of the Shares then outstanding (AMRESCO Common
Stock Outstanding) or the voting securities of AMRESCO then
outstanding entitled to vote generally in the election of
directors (AMRESCO Voting Securities Outstanding); provided
such acquisition of Beneficial Ownership would result in the
Person's beneficially owning (within the meaning of Rule
13d-3 promulgated under the Exchange Act) twenty-five
percent (25%) or more of AMRESCO Common Stock Outstanding or
twenty-five percent (25%) or more of the combined voting
power of AMRESCO Voting Securities Outstanding; and provided
further, that immediately prior to such acquisition such
Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of AMRESCO Common Stock
Outstanding or twenty-five percent (25%) or more of the
combined voting power of AMRESCO Voting Securities
Outstanding, as the case may be; or
(ii) The approval of the stockholders of AMRESCO of a
reorganization, merger, consolidation, complete liquidation
or dissolution of AMRESCO, the sale or disposition of all or
substantially all of the assets of AMRESCO or similar
corporate transaction (in each case referred to in this
Section 2(f) as a Corporate Transaction) or, if consummation
of such Corporate Transaction is subject, at the time of
such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such
consent (either explicitly or implicitly); or
(iii) A change in the composition of the Board such
that the individuals who, as of the Effective Date,
constitute the Board (such Board shall be hereinafter
referred to as the Incumbent Board) cease for any reason to
constitute at least a majority of the Board; provided,
however, for purposes of this Section 2(f), that any
individual who becomes a member of the Board subsequent to
the Effective Date whose election, or nomination for
election by AMRESCO's stockholders, was approved by a vote
of at least a majority of those individuals who are members
of the Board and who were also members of the Incumbent
Board (or deemed to be such pursuant to this proviso) shall
be considered as though such individual were a member of the
Incumbent Board; but, provided, further, that any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, including any successor
to such Rule) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board shall not be so considered as a member of the
Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and
(ii) of this Section 2(f), the following shall not constitute a
Change in Control for purposes hereof: (1) any acquisition of
shares of common stock of AMRESCO by, or consummation of a
Corporate Transaction with, any Subsidiary or an employee benefit
plan (or related trust) sponsored or maintained by AMRESCO or an
affiliate; or (2) any acquisition of shares of common stock of
AMRESCO, or consummation of a Corporate Transaction, following
which more than fifty percent (50%) of the shares of common stock
then outstanding of the corporation resulting from such
acquisition or Corporate Transaction and more than fifty percent
(50%) of the combined voting power of the voting securities then
outstanding of such corporation entitled to vote generally in the
election of directors, is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were Beneficial Owners of AMRESCO Common Stock
Outstanding and AMRESCO Voting Securities Outstanding,
respectively, immediately prior to such acquisition or Corporate
Transaction in substantially the same proportions as their
ownership, immediately prior to such acquisition or Corporate
Transaction, of AMRESCO Common Stock Outstanding and AMRESCO
Voting Securities Outstanding, as the case may be.
(g) Code means the Internal Revenue Code of 1986, as
amended from time to time.
(h) Committee means the committee appointed by the Board to
administer the Plan with respect to grants of Awards, as
specified in Article 3.
(i) Director means any individual who is a member of the
Board of Directors.
(j) Disability shall have the meaning ascribed to such term
in the AMRESCO long-term disability plan covering the
Participant, or in the absence of such plan, a meaning consistent
with Section 22(e)(3) of the Code.
(k) Employee means any full-time, salaried employee of
AMRESCO, or AMRESCO's Subsidiaries.
(l) Exchange Act means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(m) Fair Market Value shall be determined as follows:
(i) If, on the relevant date, the Shares are traded on
a national or regional securities exchange or on The Nasdaq Stock
Market (Nasdaq) and closing sale prices for the Shares are
customarily quoted, on the basis of the closing sale price on the
principal such securities exchange on which the Shares may then
be traded or, if there is no such sale on the relevant date, then
on the immediately preceding day on which a sale was reported;
(ii) If, on the relevant date, the Shares are not
listed on any securities exchange or traded on Nasdaq, but
nevertheless are publicly traded and reported on Nasdaq
without closing sale prices for the Shares being customarily
quoted, on the basis of the mean between the closing bid and
asked quotations in such other over-the-counter market as
reported by Nasdaq; but, if there are no bid and asked
quotations in the over-the-counter market as reported by
Nasdaq on that date, then the mean between the closing bid
and asked quotations in the over-the-counter market as
reported by Nasdaq on the immediately preceding day such bid
and asked prices were quoted; and
(iii) If, on the relevant date, the Shares are not
publicly traded as described in (i) or (ii), on the basis of
the good faith determination of the Committee.
(n) Incentive Stock Option or ISO means an option to
purchase Shares, granted under Article 6 which is designated as
an Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(o) Insider shall mean a Person who is, on the relevant
date, a director, officer or ten percent (10%) beneficial owner
of any class of AMRESCO's equity securities that is registered
pursuant to Section 12 of the Exchange Act, all as defined under
Section 16 of the Exchange Act.
(p) Named Executive Officer means a Participant who, as of
the date of vesting and/or payout of an Award is one of the group
of covered employees, as defined in the regulations promulgated
under Code Section 162(m), or any successor statute.
(q) Nonqualified Stock Option or NQSO means an option to
purchase Shares granted under Article 6 which is not intended to
meet, or does not meet, the requirements of Code Section 422.
(r) Option means an Incentive Stock Option or a
Nonqualified Stock Option.
(s) Option Price means the price at which a Share may be
purchased by a Participant pursuant to an Option, as determined
by the Committee.
(t) Participant means an Employee, director or other Person
who has been granted an Award which is outstanding.
(u) Person shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Section 13(d) and
14(d) thereof, including a group as defined in Section 13(d)
thereof.
(v) Retirement shall have the meaning ascribed to such term
in the AMRESCO, INC. Retirement Savings and Profit Sharing Plan
and Trust.
(w) Shares means the shares of common stock of AMRESCO, par
value $0.05 per share.
(x) Subsidiary means any corporation, partnership, joint
venture or other entity in which AMRESCO has a fifty percent
(50%) or greater voting interest.
ARTICLE 3. Administration
3.1 The Committee. The Plan shall be administered by the
Stock Option and Bonus Committee of the Board, or by any other
Committee appointed by the Board consisting of not less than two
(2) Directors who meet the disinterested administration
requirements of Rule 16b-3 or any successor thereto under the
Exchange Act. The members of the Committee shall be appointed
from time to time by, and shall serve at the discretion of, the
Board of Directors.
The Committee shall be comprised solely of Directors who are
eligible to administer the Plan pursuant to Rule 16b-3(c)(2) or
any successor thereto under the Exchange Act. However, if for
any reason any member of the Committee does not qualify to
administer the Plan, as contemplated by Rule 16b-3(c)(2) of the
Exchange Act, the Board of Directors may appoint a new Committee
member who complies with Rule 16b-3(c)(2).
3.2 Authority of the Committee. Subject to the provisions
hereof, the Committee shall have full power to select the
Employees and other Persons who are responsible for the future
growth and success of AMRESCO, who may include, without
limitation, consultants, independent contractors or other
providers of services to AMRESCO, who shall participate herein
(who may change from year to year); determine the size and types
of Awards; determine the terms and conditions of Awards in a
manner consistent herewith (including vesting provisions and the
duration of the Awards); construe and interpret the Plan and any
agreement or instrument entered into hereunder; establish, amend
or waive rules and regulations for the Plan's administration; and
(subject to the provisions of Article 11) amend the terms and
conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided
herein, including to establish different terms and conditions
relating to the effect of the termination of employment or other
service to AMRESCO. Further, the Committee shall make all other
determinations which may be necessary or advisable for the
administration hereof. As permitted by law, the Committee may
delegate its authority hereunder.
3.3 Decisions Binding. All determinations and decisions
made by the Committee pursuant to the provisions hereof and all
related orders and resolutions of the Board shall be final,
conclusive and binding on all Persons, including AMRESCO, the
stockholders, Employees, Participants and their estates and
beneficiaries.
ARTICLE 4. Shares Subject to the Plan
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3, the total number of Shares available for grant of
Awards shall be an aggregate of eight hundred seventy-five
thousand (875,000). These Shares may, in the discretion of
AMRESCO, be either authorized but unissued Shares or shares held
as treasury shares, including Shares purchased by AMRESCO.
The following rules shall apply for purposes of the
determination of the number of Shares available for grant
hereunder;
(a) The grant of an Option shall reduce the Shares
available for grant hereunder by the number of shares
subject to such Award.
(b) While an Option is outstanding, it shall be
counted against the authorized pool of Shares, regardless of
its vested status.
4.2 Lapsed Awards. If any Award is canceled, terminates,
expires or lapses for any reason, any Shares subject to such
Award shall again be available for the grant of an Award.
However, in the event that prior to the Award's cancellation,
termination, expiration or lapse, the holder of the Award at any
time received one (1) or more benefits of ownership pursuant to
such Award (as defined by the Securities and Exchange Commission,
pursuant to any rule or interpretation promulgated under Section
16 of the Exchange Act), the Shares subject to such Award shall
not be made available for regrant hereunder.
4.3 Adjustments in Authorized Shares. In the event of any
change in corporate capitalization, such as a stock split, or a
corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock
or property of AMRESCO, any reorganization (whether or not such
reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of AMRESCO,
such adjustment shall be made in the number and class of Shares
which may be delivered hereunder, and in the number and class of
and/or price of Shares subject to outstanding Awards, as may be
determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number and the Committee shall
make such adjustments as are necessary to insure Awards of whole
Shares.
ARTICLE 5. Eligibility and Participation
Any key Employee of AMRESCO, or of any Subsidiary, including
any such Employee who is also a director of AMRESCO, or of any
Subsidiary, or any other Person, including consultants,
independent contractors or other service providers, whose
judgment, initiative and efforts contribute or may be expected to
contribute materially to the successful performance of AMRESCO or
any Subsidiary shall be eligible to receive an Award. In
determining the Employees and other Persons to whom an Award
shall be granted and the number of Shares which may be granted
pursuant to that Award, the Committee shall take into account the
duties of the respective Person, their present and potential
contributions to the success of AMRESCO or any Subsidiary, and
such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose hereof.
No person who is a member of the Committee shall be eligible
to be granted any Award hereunder while so serving.
ARTICLE 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions
hereof, Options may be granted to Employees or other Persons at
any time and from time to time as shall be determined by the
Committee. The Committee shall have discretion in determining
the number of Shares subject to Options granted to each
Participant; provided, however, that in the case of any ISO, only
an Employee may receive such grant and the aggregate Fair Market
Value (determined at the time such Option is granted) of the
Shares to which ISOs are exercisable for the first time by the
Optionee during any calendar year (hereunder and under all other
Incentive Stock Option Plans of AMRESCO and any Subsidiary) shall
not exceed $100,000. The Committee may grant a Participant ISOs,
NQSOs or a combination thereof, and may vary such Awards among
Participants.
6.2 Award Agreement. Each Option grant shall be evidenced
by an Award Agreement that shall specify the Option Price, the
duration of the Option, the number of Shares to which the Option
pertains and such other provisions as the Committee shall
determine. The Award Agreement shall further specify whether the
Award is intended to be an ISO or an NQSO. Any portion of an
Option that is not designated as an ISO or otherwise fails or is
not qualified to be treated as an ISO (even if designated as an
ISO) shall be a NQSO.
6.3 Option Price. The Option Price for each grant of an
ISO shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the date the ISO is granted. In no
event, however, shall any Participant, who at the time he would
otherwise be granted an Option owns (within the meaning of
Section 424(d) of the Code) stock of AMRESCO possessing more than
ten percent (10%) of the total combined voting power of all
classes of stock of AMRESCO be eligible to receive an ISO at an
Option Price less than one hundred ten percent (110%) of the Fair
Market Value of a Share on the date the ISO is granted. The
price at which each Share covered by each NQSO shall be purchased
by an Optionee shall be established by the Committee, but in no
event shall such price be less than eighty-five percent (85%) of
the Fair Market Value (or such lower percentage of Fair Market
Value as may be established by Internal Revenue Service rules or
regulations as the limit for granting discounted stock options
without causing immediate tax consequences to the Participant) of
a Share on the date the Option is granted.
6.4 Duration of Options. Each Option shall expire at
such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than
the tenth (10th) anniversary date of its grant; provided,
further, however, that any ISO granted to any Participant who at
such time owns (within the meaning of Section 424(d) of the Code)
stock of AMRESCO possessing more than ten percent (10%) of the
total combined voting power of all classes of stock in AMRESCO,
shall be exercisable not later than the fifth (5th) anniversary
date of its grant.
6.5 Exercise of Options. Options shall be exercisable
at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not
be the same for each grant or for each Participant. Each Option
shall be exercisable for such number of Shares and at such time
or times, including periodic installments, as may be determined
by the Committee at the time of the grant. Except as otherwise
provided in the Award Agreement or Article 10, the right to
purchase Shares that are exercisable in periodic installments
shall be cumulative so that when the right to purchase any Shares
has accrued, such Shares or any part thereof may be purchased at
any time thereafter until the expiration or termination of the
Option.
6.6 Payment. Options shall be exercised by the delivery of
a written notice of exercise to AMRESCO, setting forth the number
of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares. The Option Price
upon exercise of any Option shall be payable to AMRESCO in full
either: (a) in cash, or (b) if approved by the Committee, by
tendering previously acquired Shares having an aggregate Fair
Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been
held by the Participant for at least six (6) months prior to
their tender to satisfy the Option Price), or (c) by a
combination of (a) and (b). The Committee also may allow
cashless exercises as permitted under Federal Reserve Board's
Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written
notification of exercise and full payment, AMRESCO shall deliver
to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares
purchased under the Option(s).
6.7 Termination of Employment Due to Death, Disability or
Retirement. Unless otherwise provided by the Committee in an
Award Agreement, the following rules shall apply in the event of
the Participant's termination of employment due to death,
Disability, or Retirement. With respect to a Participant that is
a non-employee director of AMRESCO or is otherwise not an
Employee, the following references to employment shall be deemed
to be references to service as a director or in such other
capacity as is determined by the Committee:
(a) Termination by Death. In the event the
Participant dies while actively employed, all outstanding
Options granted to that Participant shall immediately vest
and shall remain exercisable at any time prior to their
expiration date, or for two (2) years after the date of
death, whichever period is shorter, by (i) such Person(s) as
shall have been named as the Participant's beneficiary, (ii)
such Person(s) that have acquired the Participant's rights
under such Options by will or by the laws of descent and
distribution, (iii) the Participant's estate or
representative of the Participant's estate or (iv) by a
transferee of the Option who has acquired the Option in a
transaction that is permitted by Section 6.9.
(b) Termination by Disability. In the event the
employment of a Participant is terminated by reason of
Disability, all outstanding Options granted to that
Participant shall immediately vest as of the date the
Committee determines the definition of Disability to have
been satisfied and shall remain exercisable at any time
prior to their expiration date, or for one (1) year after
the date that the Committee determines the definition of
Disability to have been satisfied, whichever period is
shorter, by the Participants duly appointed guardian or
other legal representative.
(c) Termination by Retirement. In the event the
employment of a Participant is terminated by reason of
Retirement, all outstanding Options granted to that
Participant shall immediately vest and shall remain
exercisable at any time prior to their expiration date, or
for three (3) months after the effective date of Retirement,
whichever period is shorter.
(d) Employment Termination Followed by Death. In the
event that a Participant's employment terminates by reason
of Disability or Retirement, and within the exercise period
following such termination the Participant dies, then the
remaining exercise period for outstanding Options shall be
one (1) year following death. Such Options shall be
exercisable by the persons specified in subsection (a)
above.
6.8 Termination of Employment for Other Reasons. If the
employment of a Participant shall terminate for any reason other
than the reasons set forth in Section 6.7, all Options held by
the Participant which are not vested as of the effective date of
employment termination immediately shall be forfeited to AMRESCO
(and shall once again become available for grant hereunder).
However, the Committee, in its sole discretion, shall have the
right to immediately vest all or any portion of such Options,
subject to such terms as the Committee, in its sole discretion,
deems appropriate.
In the event an Employee's employment is terminated by
AMRESCO for Cause, or an Employee voluntarily terminates his
employment (other than upon retirement), the rights under any
then vested outstanding Options shall terminate immediately upon
such termination of employment. If the Employee's employment is
terminated by AMRESCO without Cause, any Options vested as of the
date of termination shall remain exercisable at any time prior to
their expiration date or for three (3) months after his date of
termination of employment, whichever period is shorter.
6.9 Limited Transferability. A Participant may transfer an
Option to members of his or her Immediate Family, to one or more
trusts for the benefit of such Immediate Family members, or to
one or more partnerships where such Immediate Family members are
the only partners, if (i) the Award Agreement evidencing such
Option expressly provides that the Option may be transferred and
(ii) the Participant does not receive any consideration in any
form whatsoever for said transfer. Any Option so transferred
shall continue to be subject to the same terms and conditions in
the hands of the transferee as were applicable to said Option
immediately prior to the transfer thereof. Any reference in any
such Award Agreement to the employment by or performance of
services for AMRESCO by the Participant shall continue to refer
to the employment of or performance by the transferring
Participant. For purpose hereof, Immediate Family shall mean the
Participant and the Participant's spouse, and their respective
ancestors and descendants. Any Option that is granted pursuant
to any Award Agreement that did not initially expressly allow the
transfer of said Option and that has not been amended to
expressly permit such transfer, shall not be transferable by the
Participant otherwise than by will or by the laws of descent and
distribution and such Option thus shall be exercisable during the
Participant's lifetime only by the Participant.
ARTICLE 7. Beneficiary Designation
Each Participant hereunder may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit hereunder is to be paid in case
of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form
prescribed by AMRESCO and shall be effective only when filed by
the Participant, in writing, with AMRESCO during the
Participant's lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
The spouse of a married Participant domiciled in a community
property jurisdiction shall join in any designation of
beneficiary or beneficiaries other than the spouse.
ARTICLE 8. Deferrals
The Committee may permit a Participant to defer to another
plan or program delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option. If any
such deferral election is required or permitted, the Committee
shall, in its sole discretion, establish rules and procedures for
such deferrals.
ARTICLE 9. Rights of Employees
9.1 Employment. Nothing herein shall interfere with or
limit in any way the right of AMRESCO or a Subsidiary to
terminate any Participant's employment or engagement by AMRESCO
at any time, nor confer upon any Participant any right to
continue in the employ or service of AMRESCO or a Subsidiary.
For purpose hereof, transfer of employment of a Participant
between AMRESCO and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
9.2 Participation. No Employee shall have the right to be
selected to receive an Award, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 10. Change in Control
Upon the occurrence of a Change in Control, except as
provided in the Award Agreement or unless otherwise specifically
prohibited by the terms of Article 15.
(a) Any and all Options granted hereunder shall become
fully vested and immediately exercisable;
(b) Subject to Article 11, the Committee shall have
the authority to make any modifications to the Awards as
determined by the committee to be appropriate before the
effective date of the Change in Control.
ARTICLE 11. Amendment, Modification and Termination
11.1 Amendment Modification and Termination. The Board may,
at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part.
11.2 Awards Previously Granted. No termination, amendment
or modification hereof shall adversely affect in any material way
any Award previously granted hereunder, without the written
consent of the Participant holding such Award. The Committee
with the written consent of the Participant holding such Award,
shall have the authority to cancel Awards outstanding and grant
replacement Awards therefore.
11.3 Compliance With Code Section 162(m). At all times
when the Committee determines that compliance with Code Section
162(m) is desired, all Awards shall comply with the requirements
of Code Section 162(m). In addition, in the event that changes
are made to Code Section 162(m) to permit greater flexibility
with respect to any Award or Awards, the Committee may, subject
to this Article 11, make any adjustments it deems appropriate.
ARTICLE 12. Withholding
12.1 Tax Withholding. AMRESCO shall have the power and
the right to deduct or withhold, or require a Participant to
remit to AMRESCO, an amount sufficient to satisfy federal, state
and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any taxable event
arising in connection with an Award.
12.2 Share Withholding. With respect to withholding
required upon the exercise of Options, or upon any other taxable
event arising as a result of Awards granted hereunder which are
to be paid in the form of Shares, a Participant may elect,
subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having AMRESCO
withhold Shares having a Fair Market Value on the date the tax is
to be determined equal to the minimum statutory total tax which
could be imposed on the transaction. All elections shall be
irrevocable, made in writing, signed by the Participant, and
elections by Insiders shall additionally comply with all legal
requirements applicable to Shares transactions by such
Participants.
ARTICLE 13. Indemnification
Each person who is or shall have been a member of the
Committee, or the Board, shall be indemnified and held harmless
by AMRESCO against and from any loss, cost, liability or expense
that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit or
proceeding to which he or she may be party or in which he or she
may be involved by reason of any action taken or failure to act
hereunder and against and from any and all amounts paid by him or
her in settlement thereof, with AMRESCO's approval, or paid by
him in satisfaction of any judgment in any such action, suit or
proceeding against him, provided he shall give AMRESCO an
opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall be in addition to
any other rights of indemnification to which such persons may be
entitled under AMRESCO's Certificate of Incorporation or Bylaws,
as a matter of law, or otherwise, or any power that AMRESCO may
have to indemnify them or hold them harmless.
ARTICLE 14. Successors
All obligations of AMRESCO hereunder, with respect to
Awards, shall be binding on any successor to AMRESCO, whether the
existence of such successor is the result of a direct or indirect
purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of AMRESCO.
ARTICLE 15. Legal Construction
15.1 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include
the feminine; the plural shall include the singular and the
singular shall include the plural.
15.2 Severability. In the event any provision hereof shall
be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts hereof, and the
Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
15.3 Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
15.4 Regulatory Approvals and Listing. AMRESCO shall not be
required to issue any certificate or certificates for Shares
hereunder prior to (i) obtaining any approval from any
governmental agency which AMRESCO shall, in its discretion,
determine to be necessary or advisable, (ii) the admission of
such Shares to listing on any national securities exchange or
Nasdaq on which AMRESCO's Shares may be listed and (iii) the
completion of any registration or other qualification of such
Shares under any state or federal law or ruling or regulations of
any governmental body which AMRESCO shall, in its sole
discretion, determine to be necessary or advisable.
Notwithstanding any other provision set forth herein, if
required by the then-current Section 16 of the Exchange Act, any
derivative security or equity security offered pursuant hereto to
any Insider may not be sold or transferred for at least six (6)
months after the date of grant of such Award. The terms equity
security and derivative security shall have the meanings ascribed
to them in the then-current Rule 16(a) under the Exchange Act.
15.5 Securities Law Compliance. With respect to Insiders,
transactions hereunder are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provisions hereof or action by the
Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the
Committee.
15.6 Governing Law. To the extent not preempted by federal
law, the Plan, and all agreements hereunder, shall be construed
in accordance with and governed by the laws of the State of
Delaware.
AMRESCO, INC.
<TABLE>
<CAPTION>
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Primary:
<S> <C> <C> <C> <C>
Net income $12,486,000 $7,348,000 $21,047,000 $12,143,000
Weighted average common shares outstanding 36,023,853 26,845,993 34,966,629 26,783,719
Net effect of dilutive stock options based
on the Treasury stock method using average
market price 622,210 722,988 740,756 685,467
Total 36,646,063 27,568,981 35,707,385 27,469,186
Earnings per share $0.34 $0.27 $0.59 $0.44
Fully diluted:
Net income $12,486,000 $7,348,000 $21,047,000 $12,143,000
Interest expense related to convertible
debentures, net of income tax expense 549,000 1,098,000
Adjusted net income $12,486,000 $7,897,000 $21,047,000 $13,241,000
Weighted average common shares outstanding,
assuming conversion of convertible
debentures to 3,600,000 shares of common
stock in November 1995 36,023,853 30,445,993 34,966,629 30,383,719
Net effect of dilutive stock options based
on the Treasury stock method using the
higher of average or ending market price 709,958 1,021,532 784,630 973,893
Total 36,733,811 31,467,525 35,751,259 31,357,612
Earnings per share $0.34 $0.25 $0.59 $0.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 23,148
<SECURITIES> 0
<RECEIVABLES> 15,369
<ALLOWANCES> (2,832)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 25,966
<DEPRECIATION> 7,920
<TOTAL-ASSETS> 1,902,248
<CURRENT-LIABILITIES> 0
<BONDS> 705,266
0
0
<COMMON> 1,803
<OTHER-SE> 354,347
<TOTAL-LIABILITY-AND-EQUITY> 1,902,248
<SALES> 0
<TOTAL-REVENUES> 178,721
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 95,799
<LOSS-PROVISION> 7,218
<INTEREST-EXPENSE> 41,412
<INCOME-PRETAX> 34,292
<INCOME-TAX> 13,245
<INCOME-CONTINUING> 21,047
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,047
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
