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As filed with the Securities and Exchange Commission on June 24, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 NORTH PEARL STREET L. KEITH BLACKWELL
SUITE 2400, LB 342 SENIOR VICE PRESIDENT,
DALLAS, TEXAS 75201 GENERAL COUNSEL AND SECRETARY
(214) 953-7700 700 NORTH PEARL STREET
(Address, including zip code, SUITE 2400, LB 342
and telephone number, including DALLAS, TEXAS 75201
area code, of registrant's (214) 953-7700
principal executive offices) (Name, address, including zip code,
and telephone number, including area
code, of agent for service)
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COPY TO:
ALLEN B. LEVITHAN
LOWENSTEIN SANDLER PC
65 LIVINGSTON AVENUE
ROSELAND, NEW JERSEY 07068
(973) 597-2500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) FEE
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<C> <C> <C> <C> <C>
Common Stock, par value
$0.05 per share ............... 1,180,221 shares $31.16 $36,775,686 $10,849
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</TABLE>
(1) The shares of Common Stock being registered hereby are issuable upon
conversion of the Registrant's Convertible Promissory Notes to be issued in
July 1998 (the "Notes"). Pursuant to Rule 416, the Registration Statement
also covers such indeterminate additional shares of Common Stock as may be
issuable on the conversion of the Note as a result of any future
adjustments in the conversion price in accordance with the terms of the
Notes.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, Dated June 24, 1998
PROSPECTUS
AMRESCO, INC.
1,180,221 SHARES OF COMMON STOCK
The shares of Common Stock, $0.05 par value per share (the "Common
Stock"), of AMRESCO, INC. (the "Company") covered by this Prospectus are shares
which may be offered and sold (the "Offering"), from time to time, by certain
stockholders of the Company (including trusts, limited partnerships or other
limited liability entities to which one or more current stockholders of the
Company may transfer all or some of their shares of Common Stock) (collectively,
the "Selling Stockholders"). See "Selling Stockholders." All of the shares
covered hereby will be sold only by the Selling Stockholders. This Prospectus
does not purport to cover the initial issuance by the Company of the shares of
Common Stock, but only the reoffer and resale of such shares by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the shares of Common Stock by the Selling Stockholders.
The Selling Stockholders may from time to time sell the shares of
Common Stock covered by this Prospectus to or through one or more underwriters,
and may also sell shares of Common Stock directly to other purchasers or through
agents, on the Nasdaq National Market in ordinary brokerage transactions, in
negotiated transactions, or otherwise, at market prices prevailing at the time
of sale, at prices related to the then prevailing market price or at negotiated
prices. See "Plan of Distribution."
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "AMMB."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
Page
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Available Information......................................................2
Incorporation of Certain Documents by Reference............................3
The Company................................................................4
Risk Factors...............................................................7
Forward-looking Statements................................................13
Recent Developments.......................................................13
Use of Proceeds...........................................................15
Selling Shareholders......................................................16
Description of Capital Stock..............................................17
Plan of Distribution......................................................21
Legal Matters.............................................................21
Experts .................................................................21
Certain Definitions.......................................................22
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, the Company files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). The reports, proxy statements and other information can be
inspected and copied at the public reference facilities that the Commission
maintains at the Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at 7 World Trade Center,
13th Floor, New York, New York 10048, and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed
rates from the Public Reference Section of the Commission at the principal
offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Such
documents may also be obtained at the website maintained by the Commission
(http://www.sec.gov). Information on the operation of the Commission's Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The
Company's Common Stock is quoted on the Nasdaq National Market and such reports,
proxy and information statements and other information may be inspected at the
National Association of Securities Dealers, Inc., 1735 K. Street N.W.,
Washington, D.C. 20006. The Company's 10% Senior Subordinated Notes due 2003,
8.75% Senior Notes due 1999 and 10% Senior Subordinated Notes due 2004 are
listed for trading on the New York Stock Exchange. Reports, proxy and
information statements and other information concerning the Company can be
inspected at the offices of such Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
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Statement as permitted by the rules and regulations of the Commission.
Statements made in the Prospectus concerning the contents of any documents
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description, and each such
statement shall be deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1997 (filed March 27, 1998; File No. 001-11599), (ii) Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (filed May 5, 1998; File No.
001-11599), (iii) Registration Statement on Form 8-A, as amended by Form 8-A/A
No. 1, dated November 7, 1996 (filed November 7, 1996; File No. 001-11599), and
(iv) Registration Statement on Form 8-A dated May 28, 1997 (filed May 30, 1997;
File No. 000-08630).
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus shall
be deemed to be incorporated by reference herein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed superseded or modified for purposes of this Prospectus to the extent that
a statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference herein (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to the Company, 700 North Pearl Street, Suite
2400, LB 342, Dallas, Texas 75201, Attention: L. Keith Blackwell, Senior Vice
President, General Counsel and Secretary. Telephone requests may be directed to
L. Keith Blackwell, Senior Vice President, General Counsel and Secretary of the
Company, at (214) 953-7700.
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THE COMPANY
GENERAL
The Company is a leading diversified financial services company
specializing in real estate lending, commercial finance and the acquisition,
resolution and servicing of nonperforming and underperforming commercial loans.
The Company began operations in 1987 providing asset management and resolution
services to governmental agencies, financial institutions and others relating to
nonperforming and underperforming loans. In early 1994, the Company made the
decision to diversify its business lines and build "franchise" business units
that could use the Company's core real estate management and lending expertise
to pursue growth in markets that were being underserved by traditional lenders.
Since that time, the Company has entered the commercial mortgage banking,
residential mortgage banking, commercial finance and loan servicing businesses
and oriented its asset management activities towards direct investments in asset
portfolios and the special servicing of large portfolios of asset-backed
securities.
As a result of the Company's diversification efforts, the Company
currently operates in the following four different business lines: asset
management, commercial mortgage banking, residential mortgage banking and
commercial finance. The Company's revenues principally consist of interest and
other investment income (including interest on loans held for sale and from
retained interests in securitizations), fees from asset management activities
and from the origination, underwriting and servicing of loans and revenues
derived from the gain on sale of loans and investments. The Company funds these
operations with its credit lines (including warehouse lines of credit) and with
the proceeds received from securitizations.
The Company is a Delaware corporation. The Company's principal
executive offices are located at and its mailing address is 700 North Pearl
Street, Suite 2400, Dallas, Texas 75201, and its telephone number at that
address is (214) 953-7700.
ASSET MANAGEMENT
The Company acquires, manages and resolves portfolios of real estate
loans and other assets acquired at a discount and provides special servicing for
nonperforming and underperforming loans in commercial mortgage-backed bond
trusts and similar securitized commercial asset-backed loan portfolios.
The Company is the product of the December 1993 merger of two asset
management and resolution companies, BEI Holdings, Inc. and the former asset
management and resolution unit of NationsBank of Texas, N.A. The 1993 merger
created one of the leading asset management and resolution service companies in
the United States. The Company and its predecessors have managed over $35.0
billion (Face Value) of asset portfolios since 1987. A majority of these assets
have been located in the United States, with the remainder located primarily in
Canada and Western Europe. The Company has recently begun to open additional
offices outside the United States and seek opportunities for asset management
and investments in other international markets. See "Recent Developments -
AMRESCO Mexico."
As a special servicer, the Company receives an annual fee (typically,
approximately 50 basis points of the Face Value of the delinquent or
nonperforming loan being serviced), plus a 50 to 200 basis points fee based on
the total cash flow from resolution of each loan as it is received. The Company
has received a "strong" rating from Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies ("Standard & Poor's"), the highest rating
given by that rating agency for special servicers such as the Company as of the
date of this Prospectus. The Company is also rated "superior" by Fitch Investors
Services, L.P. ("Fitch") as a special servicer.
COMMERCIAL MORTGAGE BANKING
General. The Company performs a wide range of commercial mortgage
banking services, including originating, underwriting, placing, selling,
securitizing and servicing commercial real estate loans, through its
subsidiaries Holliday Fenoglio Fowler, AMRESCO Capital and AMRESCO Services.
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Real Estate Capital Markets. Holliday Fenoglio Fowler, a commercial
mortgage banker, primarily serves commercial real estate developers and owners
by arranging commercial real estate loans and acting as a broker on commercial
real estate sales through its own commission-based mortgage bankers. The loans
arranged by Holliday Fenoglio Fowler generally are funded by institutional
lenders, principally insurance companies, and by AMRESCO Capital and other
Conduit Purchasers.
Commercial Real Estate Lending. AMRESCO Capital originates,
underwrites, warehouses and securitizes commercial real estate loans. AMRESCO
Capital serves its market directly through branch offices, as well as through a
network of independent mortgage brokers and commercial mortgage bankers,
including Holliday Fenoglio Fowler. AMRESCO Capital is approved by Fannie Mae to
participate in its DUS program, which AMRESCO Capital believes makes it a more
competitive loan originator and underwriter of multifamily mortgages. AMRESCO
Capital is also an approved lender in the Freddie Mac Program Plus(R)
multifamily seller/servicer program in the states of Florida, New York, North
Carolina and South Carolina.
Commercial Loan Servicing. AMRESCO Services is a servicer for
securitized pools of commercial mortgages and whole loans. The dominant users of
commercial loan servicers are commercial mortgage-backed bond trusts and other
owners of commercial real estate loans, including lenders accumulating loans for
securitization or sale that contract for servicing on an interim basis.
Historically, the revenue stream from servicing contracts on commercial
mortgages has been relatively predictable due in part to prepayment penalties in
commercial mortgages that tend to discourage early loan payoffs. AMRESCO
Services is currently rated "above average" as a master servicer and "strong" as
a primary servicer by Standard & Poor's, which are the highest ratings given by
that rating agency to master servicers and primary servicers as of the date of
this Prospectus. AMRESCO Services is also rated "acceptable" by Fitch as a
master and primary servicer.
RESIDENTIAL MORTGAGE BANKING
Through AMRESCO Residential, the Company originates, acquires,
warehouses, services and securitizes conventional, nonconforming residential
mortgage loans.
The Company targets borrowers having credit profiles that preclude
their loans from being sold in the secondary markets to government agencies.
Such credit profiles may include consumer or mortgage loan delinquencies, high
debt-to-income ratios, previous bankruptcy or inability to provide income
documentation. Borrowers in the Company's targeted market typically have
significant equity in their homes and may be charged higher interest rates for
loans than more creditworthy borrowers. The Company believes that the higher
interest rates and the more favorable loan-to-value characteristics of this
market mitigate the greater credit risk associated with such borrowers and make
this an attractive market for the Company.
The Company obtains residential mortgage loans through portfolio
acquisitions, correspondent lending, wholesale broker operations and various
retail channels, including telemarketing, direct mail and retain branches. The
Company has adopted a diversification strategy to reduce its reliance on
portfolio acquisitions through the development of multiple product channels.
The Company has performed delinquency management and related servicing
functions for certain asset portfolios it acquired in October 1996 and for loans
originated by the Company after October 1, 1997 or acquired by it on a servicing
released basis. In addition, the Company is in the process of developing the
appropriate infrastructure and systems to support a broader array of customer
intensive servicing functions, including general customer relations, which the
Company believes will provide the opportunity to manage and improve the
performance of its residential mortgage loan portfolios by mitigating credit
losses and prepayment risk through direct involvement with borrowers. The
Company will continue to utilize recognized third party providers for
standardized, systems intensive servicing functions, such as payment processing
and tax, insurance and investor reporting.
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COMMERCIAL FINANCE
In 1996, the Company organized the Commercial Finance Group to provide
financing to commercial borrowers in various targeted lending markets. The
Commercial Finance Group focuses on (i) loans to franchisees of nationally
recognized restaurant, hospitality and service organizations, (ii) special
situation mid-to-high yield lending, with an emphasis on the real estate and
communications industries, and (iii) single family residential construction
lending. Loans originated by the franchise lending operation are sold to third
parties, principally through securitization, while the real estate,
communications and single family residential construction loans are generally
retained for the Company's own portfolio. Other ancillary products, services and
investments provided by the Commercial Finance Group include equipment leasing,
small business lending and loan servicing.
On June 1, 1998, the Company entered into the IFC/Telecapital Asset
Purchase Agreement for the acquisition of substantially all of the assets of IFC
and Telecapital. IFC is a lender to small businesses under a United States Small
Business Administration program. Telecapital is a lender to independent pay
phone operators. For a discussion of the IFC/Telecapital Acquisition, see
"Recent Developments - IFC/Telecapital Acquisition."
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RISK FACTORS
Investors should carefully consider the following matters in connection
with an investment in the Common Stock, in addition to the other information
contained or incorporated by reference in this Prospectus.
RISKS ASSOCIATED WITH RAPID GROWTH AND ENTRY IN NEW BUSINESS
In early 1994, the Company made the strategic decision to diversify its
business lines. The Company has entered the commercial mortgage banking,
residential mortgage banking and commercial finance businesses through a
combination of acquisitions and the internal start-up of new business lines.
These businesses recently have contributed a substantial portion of the
Company's operating profit and the Company expects they will continue to
contribute a substantial portion of its revenue and operating income for the
foreseeable future. The Company has also increased its investments in asset
portfolios. The rapid entry of the Company into these business lines has
resulted in increased demands on the Company's personnel and systems. As part of
its business strategy, the Company intends to acquire additional businesses
which complement the Company's core capabilities in financial services. The
Company must successfully continue its assimilation of multiple acquired
businesses with differing markets, customer bases, financial products, systems
and managements. An inability to assimilate acquired businesses could have an
adverse effect on the Company's financial condition and results of operations.
The Company's ability to support, manage and control continued growth is
dependent upon, among other things, its ability to hire, train, supervise and
manage its workforce and to continue to develop the skills necessary for the
Company to compete successfully in its new business lines. There can be no
assurance that the Company will successfully meet all of these challenges.
NEED FOR ADDITIONAL FINANCING
General. The Company's ability to execute its business strategy depends
to a significant degree on its ability to obtain additional indebtedness and
equity capital. The Company has no commitments for additional borrowings or
sales of equity capital and there can be no assurance that the Company will be
successful in consummating any such future financing transactions on terms
satisfactory to the Company, if at all. Factors which could affect the Company's
access to the capital markets, or the costs of such capital, include changes in
interest rates, general economic conditions and the perception in the capital
markets of the Company's business, results of operations, leverage, financial
condition and business prospects. Each of these factors is to a large extent
subject to economic, financial and competitive factors beyond the Company's
control. In addition, covenants under the Company's current and future debt
securities and credit facilities may significantly restrict the Company's
ability to incur additional indebtedness and to issue Preferred Stock. The
Company's ability to repay its outstanding indebtedness at maturity may depend
on its ability to refinance such indebtedness, which could be adversely affected
if the Company does not have access to the capital markets for the sale of
additional debt or equity securities through public offerings or private
placements on terms reasonably satisfactory to the Company.
Dependence on Warehouse Financing. The Company's residential mortgage
banking, commercial mortgage banking and commercial finance securitization
businesses depend upon warehouse facilities with financial institutions or
institutional lenders to finance the Company's origination and purchase of loans
on a short-term basis pending sale or securitization. Implementation of the
Company's growth strategy requires continued availability of warehouse
facilities and may require increases in the capacity of warehouse facilities.
There can be no assurance that such financing will be available on terms
reasonably satisfactory to the Company. The inability of the Company to arrange
additional warehouse facilities or to extend or replace existing facilities when
they expire would have a material adverse effect on the Company's business,
financial condition and results of operations and on the Company's outstanding
securities.
RISKS OF SECURITIZATION
Significance of Securitization. The Company currently believes that it
will become increasingly dependent upon its ability to securitize mortgage loans
and other loans by pooling and subsequently selling them in the secondary market
in order to generate revenues, earnings and cash flows. Accordingly, adverse
changes in the secondary market for such loans could impair the Company's
ability to originate, purchase and sell mortgage loans on a favorable or
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timely basis. Any such impairment could have a material adverse effect upon the
Company's business and results of operations. The Company endeavors to effect a
securitization of its residential mortgage loans on at least a quarterly basis
and its commercial mortgage and commercial finance loans on at least a
semi-annual basis. However, market and other considerations, including the
conformity of loans to insurance company and rating agency requirements, could
affect the timing of such transactions. Any delay in the sale of loans beyond
the reporting period in which such sale is anticipated to occur would delay any
expected gain on sale and adversely affect the Company's reported earnings for
reporting period.
Investment in Subordinated Certificates. The Company invests in
Subordinated Certificates created in securitizations completed by the Company or
purchased from third parties. At March 31, 1998, the Company's aggregate
investment in Subordinated Certificates was approximately $306.9 million based
on the estimated fair value of Subordinated Certificates at that time. The
Subordinated Certificates entitle the holder to the excess of the interest and
principal paid by borrowers on the loans pooled in the securitization over the
interest and principal passed through to other investors in the securities
created in the securitization transaction, less the normal servicing and other
fees and credit losses realized. The estimated fair value of the Subordinated
Certificates is computed using prepayment, default and interest rate assumptions
that the Company believes market participants would use for similar instruments
at the time of sale. These assumptions may not reflect actual future results.
Accordingly, no assurance can be given that these securities could in fact be
sold or recovered at their stated values on the balance sheet, if at all.
Contingent Risks. Although the Company sells substantially all the
mortgage loans and other loans which it originates or purchases, the Company
retains some degree of credit risk on substantially all loans sold. During the
period of time that loans are held pending sale, the Company is subject to the
various business risks associated with the lending business, including the risk
of borrower default, the risk of foreclosure and the risk that a rapid increase
in interest rates would result in a decline in the value of loans to potential
purchasers. The documents governing the Company's securitization program require
the Company to establish deposit accounts or build over-collateralization levels
through retention of distributions otherwise payable to the holders of the
Subordinated Certificates. Such amounts serve as credit enhancement for the
related trust and are therefore available to fund losses realized on loans held
by such trust. In addition, documents governing the Company's securitization
program require the Company to commit to repurchase or replace loans which do
not conform to the representations and warranties made by the Company at the
time of sale.
Retained Risks of Securitized Loans. The Company makes various
representations with respect to the loans that it pools and securitizes. The
Company's representations rely in part on similar representations made by the
originators of such loans when they were purchased by the Company. In the event
of a breach of its representations, the Company may be required to repurchase or
replace the related loan using its own funds. While the Company may have a claim
against the originator in the event of a breach of any of these representations
made by the originators, the Company's ability to recover on any such claim will
be dependent on the financial condition of the originator. There can be no
assurance that the Company will not experience a material loss in respect of any
of these contingencies.
Importance of Credit Enhancement. To market residential
mortgage-backed, commercial mortgage-backed and commercial loan-backed
securities, the Company has in the past used various means of credit enhancement
to obtain a "AAA/Aaa" rating for such securities. In its residential
mortgage-backed and commercial loan-backed securitizations, the Company has
relied to a significant extent on monoline insurance companies to provide such
credit enhancement. Any unwillingness of monoline insurance companies to
guarantee the senior interests in the Company's loan pools could have a material
adverse effect on the Company's financial position and results of operations.
RISKS RELATED TO SUB-PRIME LOANS
The sub-prime loan market is comprised of credit-impaired borrowers who
generally have significant equity in their homes and whose borrowing needs are
not currently met by traditional financial institutions. Loans made to such
borrowers may entail a higher risk of delinquency and higher losses than loans
made to more creditworthy borrowers. While the Company believes that the
underwriting criteria and collection methods it employs enable it to
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reduce the higher risks inherent in loans made to credit-impaired borrowers, no
assurance can be given that such criteria or methods will afford adequate
protection against higher delinquencies, foreclosures or losses than anticipated
and, as a result, the Company's financial condition or results of operation
could be adversely affected.
SERVICING RISKS; BORROWER DELINQUENCIES AND CLAIMS
When borrowers are delinquent in making monthly payments on commercial
mortgage loans serviced by the Company, the Company is required to advance
interest payments with respect to such delinquent loans to the extent that the
Company deems such advances ultimately recoverable. These advances require
funding from the Company's capital resources but have priority of repayment from
collections or recoveries on the loans in the related pool in the succeeding
month. In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees and officers of the Company (including its appraisers), incomplete
documentation and failures by the Company to comply with various laws and
regulations applicable to its business. The Company believes that liability with
respect to any currently asserted claims or legal actions is not likely to be
material to the Company's consolidated financial position or results of
operations; however, any claims asserted in the future may result in legal
expenses or liabilities which could have a material adverse effect on the
Company's financial position and results of operations.
As a participant in the Fannie Mae DUS program, the Company must accept
a first loss risk on loans originated by the Company. In addition, the Company
must also make certain representations and warranties concerning loans
originated by the Company and sold to Conduit Purchasers or Fannie Mae. These
representations cover such matters as title to the property, lien priority,
environmental reviews and certain other matters.
ASSET PERFORMANCE ASSUMPTIONS
The Company's business, financial condition, results of operations and
liquidity depend, to a material extent, on the performance of loans owned
directly or backing securities purchased and sold by the Company. The carrying
value of the Company's asset portfolios, Subordinated Certificates and certain
other assets have been determined in part using estimates of future cash flows
based on assumptions concerning future default and prepayment rates that are
consistent with the Company's historical experience and market conditions and
present value discount rates that the Company believes would be requested by an
unrelated purchaser of an identical stream of estimated cash flows. Management
believes that the Company's estimates of cash flows were reasonable at the time
such estimates were made. However, the actual rates of default and/or prepayment
on such assets may exceed those estimated and consequently may adversely affect
the carrying values of such assets, anticipated future cash flows, results of
operations and reported earnings. The Company periodically reviews its loss and
prepayment assumptions in relation to current performance of the loans and
market conditions and, if necessary, provides for the impairment of the
respective asset. The Company's business, financial condition and results of
operations could be materially adversely affected by such adjustments in the
future. No assurance can be given that loan losses and prepayments will not
exceed the Company's estimates or that such assets could be sold at their stated
value on the balance sheet, if at all.
INTEREST RATES
The value of the Company's interest-earning assets and liabilities may
be directly affected by the level of and fluctuations in interest rates. For
example, a decline in interest rates could result in increased prepayment of
outstanding loans, which could affect the carrying value of the Subordinated
Certificates held by the Company. In addition, since certain of the Company's
borrowings, including borrowings under the Revolving Loan Agreement, are at
variable rates of interest, the Company may be impacted by increases in interest
rates. The Company monitors the interest rate environment and employs prefunding
or other hedging strategies designed to mitigate the impact of changes in
interest rates. However, there can be no assurance that the profitability of the
Company would not be adversely affected during any period of changes in interest
rates.
A substantial and sustained increase in interest rates could adversely
affect the ability of the Company to originate loans and could reduce the gains
recognized by the Company upon their securitization and sale. A significant
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<PAGE> 11
decline in interest rates could decrease the size of the Company's residential
Subordinated Certificates by increasing the level of loan prepayments.
Fluctuating interest rates also may affect the net interest income earned by the
Company resulting from the difference between the yield to the Company on
mortgage loans held pending sale and the interest paid by the Company for funds
borrowed under the Company's warehouse credit facilities or otherwise. In
addition, inverse or flattened interest yield curves could have an adverse
impact on the earnings of the Company because the loans pooled and sold by the
Company have long-term rates while the senior interest in the related trusts are
priced on the basis of intermediate rates.
RISKS OF HEDGING TRANSACTIONS
The Company has in the past and may in the future enter into interest
rate or foreign currency financial instruments used for hedging purposes. While
intended to reduce the effects of volatility in interest rate or foreign
currency price movements, such transactions could cause the Company to recognize
losses depending on the terms of the instrument and the interest rate or foreign
currency price movements.
FOREIGN OPERATIONS; CURRENCY RISKS
The Company's asset management and resolution business has entered
into, and intends to continue to enter into, contracts to purchase and to manage
and resolve asset portfolios located in Canada, Mexico and Western Europe and
may in the future expand into other foreign countries. Foreign operations are
subject to various special risks, including currency translation risks and
currency exchange rate fluctuations (which the Company intends to mitigate with
currency hedging arrangements as available and economical) and exchange
controls. Changes in foreign exchange rates may have an adverse effect on the
Company's financial condition and results of operations. In addition, earnings
of foreign operations are subject to foreign income taxes that reduce cash flow
available to meet debt service requirements and other obligations of the
Company, which may be payable even if the Company has no earnings on a
consolidated basis.
CYCLICALITY OF AND COMPETITION IN THE ASSET MANAGEMENT BUSINESS
The asset management business is affected by long-term cycles in the
general economy. In addition, the volume of domestic asset portfolios available
for purchase by investors or management by third party servicers such as the
Company has generally declined since 1993 as large pools of distressed assets
acquired by governmental agencies in the 1980's and early 1990's have been
resolved or sold. The Company cannot predict what will be a normal annual volume
of asset portfolios to be sold or outsourced for management and resolution.
Moreover, future asset portfolio purchases will depend on the availability of
asset portfolios offered for sale, the availability of capital and the Company's
ability to submit successful bids to purchase asset portfolios. The acquisition
of asset portfolios has become highly competitive in the United States. This may
require the Company to acquire asset portfolios at higher prices thereby
lowering profit margins on the resolutions of such asset portfolios. Under
certain circumstances, the Company may choose not to bid for asset portfolios
which it believes cannot be acquired at attractive prices. As a result of all
the above factors, asset portfolio purchases may vary significantly from quarter
to quarter.
GENERAL ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate may adversely affect certain segments of the
Company's business. Although such economic conditions may increase the number of
nonperforming loans available for sale to or for management by the Company, such
conditions could adversely affect the resolution of asset portfolios held by the
Company for its own account or managed for others, lead to a decline in prices
or demand for collateral underlying asset portfolios or, in the case of asset
portfolios held for the Company's own account, increase the cost of capital
invested by the Company and the length of time that capital is invested in a
particular asset portfolio, thereby negatively impacting the rate of return
realized from such asset portfolio. Economic downturns and rising interest rates
also may reduce the number of loan originations by the Company's residential
mortgage banking, commercial mortgage banking and commercial finance businesses
and negatively impact its securitization activity.
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<PAGE> 12
In addition, periods of economic slowdown or recession, whether
general, regional or industry-related, may increase the risk of default on
mortgage loans and other loans and may have an adverse effect on the Company's
business, financial condition and results of operations. Such periods also may
be accompanied by decreased consumer demand for residential mortgages, resulting
in declining values of homes securing outstanding loans, thereby weakening
collateral coverage and increasing the possibility of losses in the event of
default. Significant increases in homes for sale during recessionary economic
periods may depress the prices at which foreclosed homes may be sold or delay
the timing of such sales. There can be no assurance that the housing markets
will be adequate for the sale of foreclosed homes and any material deterioration
of such markets could reduce recoveries from the sale of collateral.
GOVERNMENT REGULATION
The operations of the Company are subject to regulation by federal,
state and local government authorities, as well as to various laws and judicial
and administrative decisions, that impose requirements and restrictions
affecting, among other things, the Company's loan originations, credit
activities, maximum interest rates, finance and other charges, disclosures to
customers, the terms of secured transactions, collection, repossession and
claims handling procedures, multiple qualification and licensing requirements
for doing business in various jurisdictions, and other trade practices. Although
the Company believes that it is in compliance in all material respects with
applicable local, state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules or regulations will not be adopted
in the future that could make compliance more difficult or expensive, restrict
the Company's ability to originate, purchase or sell loans, further limit or
restrict the amount of interest and other charges earned on loans originated or
purchased by the Company, further limit or restrict the terms of loan
agreements, or otherwise adversely affect the business or prospects of the
Company. There are also, among other risks, uncertainties concerning the
business practice of paying back points to residential mortgage brokers.
COMPETITION
General. The Company's competition varies by business line and
geographic market. Generally, competition within each of the business lines in
which the Company competes is fragmented, with national, local and regional
competitors, none of which dominates a particular business line. Certain of the
Company's competitors within each of its business lines are larger and have
greater financial resources than the Company.
Asset Management. The Asset Management business is a nationwide (and
increasingly international) business with numerous financially strong and
experienced competitors. The Company believes that its ability to acquire asset
portfolios for its own account will be important to its future growth. Recently,
the Company has encountered increased competition in the market for asset
portfolios which could cause the Company to experience decreasing profit margins
in this business line in order to remain a competitive bidder for asset
portfolios. In addition, declining profit margins presented by current bidding
opportunities has caused the Company to redeploy its capital in more profitable
product lines. Asset portfolio acquisitions also require significant capital.
The Company's competitors in the Asset Management business include Lennar Corp.,
Archon (an affiliate of Goldman, Sachs & Co.), J.E. Roberts Companies, GMAC and
First City Financial Corp.
Commercial Mortgage Banking. The Company's commercial mortgage banking
business consists of real estate capital markets, commercial real estate lending
and commercial loan servicing business lines. In each of these business lines,
the Company competes on a nationwide basis. The real estate capital markets and
commercial real estate lending businesses are fragmented, composed primarily of
small local or regional firms. The Company believes that the commercial mortgage
banking industry is moving toward greater consolidation and that well
capitalized, full service, nationwide mortgage banking firms will emerge from
this consolidation. The Company's objective is to improve its position as a
major nationwide full service mortgage banker to the commercial real estate
industry. The Company's competitors in the commercial mortgage banking business
include Nomura Asset Capital Corporation, GMAC (commercial real estate finance),
L.J. Melody & Co. and Washington Mortgage Corporation.
The commercial loan servicing business is highly competitive. Distinct
markets have developed for the servicing of performing loan pools,
under-performing loan pools and non-performing loan pools. The Company has
focused its commercial loan servicing business on the market for performing loan
pools, the servicing market that
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<PAGE> 13
management believes has the greatest potential for growth. The Company's
competitors in the commercial loan servicing business include GMAC Commercial
Mortgage Corporation, Midland Loan Services, L.P., G.E. Capital Asset Management
and First Union Bank.
Residential Mortgage Banking. The Company recently has encountered
increased competition in the market for conventional, nonconforming residential
mortgage loans as more originators and Conduit Purchasers enter this market.
This could impact origination and acquisition volume and profit margins. Certain
of the Company's larger, national competitors have access to greater financial
resources and lower costs of capital. The Company's competitors in the
residential mortgage banking business include the Associates, United Companies
Financial, The Money Store (an affiliate of First Union Bank) and Conti Mortgage
Corp.
Commercial Finance. The markets in which the Commercial Finance Group
operates are highly competitive and are characterized by competitive factors
that vary based upon product and geographic region. The Commercial Finance
Group's competitors include captive and independent diversified finance
companies, specialty finance companies (including specialty franchise finance
companies), commercial banks, thrift institutions, asset-based lenders, real
estate investment trusts and leasing companies. Many of the competitors of the
Commercial Finance Group are large companies that have substantial capital,
technological and marketing resources, and some of these companies may have
lower costs of capital than is available to the Commercial Finance Group.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Restated Certificate of Incorporation, as amended, and
Amended and Restated Bylaws include a number of provisions that may have the
effect of encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with the Company's Board of Directors
rather than pursue non-negotiated takeover attempts. These provisions include a
staggered Board of Directors, authorized "blank check" preferred stock, super
majority voting requirements on certain matters and prohibitions against certain
business combinations. The Indentures governing the Senior Subordinated Notes
and Senior Notes require the Company to repurchase all outstanding Senior
Subordinated Notes and Senior Notes in the event of certain change of control
transactions. In addition, on May 28, 1997, the Company adopted a Stockholders
Rights Plan pursuant to which rights were distributed to stockholders of record
as of June 9, 1997. The Stockholders Rights Plan provides, among other things,
that if a person (or group of affiliated or associated persons) acquires (or ten
(10) days after the commencement of a tender offer to acquire) "beneficial
ownership" of 15% or more of the outstanding shares of Common Stock, the rights
previously distributed to stockholders, other than those owned by such acquiring
person or group, will become exercisable. Under the Stockholders Rights Plan,
the acquisition of 15% or more of the outstanding Common Stock or the completion
of the tender offer will entitle the holder to purchase shares of Common Stock
having a market value equal to twice the purchase price of the right. These
anti-takeover provisions could have the effect of discouraging or making more
difficult a merger, tender offer, other business combination or proxy contest,
even if such event would be favorable to the interests of the stockholders. See
"Description of Capital Stock - Delaware Law and Certain Corporate Provisions."
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date fields containing a
two-digit year is commonly referred to as the "Year 2000 Compliance" issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain date-based information.
The Company has reviewed its computer systems in order to evaluate
necessary modifications for Year 2000 Compliance. The Company does not
anticipate any material difficulties in achieving Year 2000 Compliance with
respect to the Company's computer systems. Furthermore, the Company does not
anticipate that it will incur material expenditures in connection with any
modifications necessary to achieve Year 2000 Compliance. In addition, the
Company has communicated with others with whom it does significant business to
determine their Year 2000 Compliance status and the extent to which the Company
could be affected by any third party Year 2000 Compliance issues. However, there
can be no assurance that the systems of other companies on which the Company's
systems rely
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<PAGE> 14
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
The anticipated costs and timeliness of completion of Year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions relating to future events, including, without limitation,
the continued availability of certain resources and third party modification
plans. However, there can be no assurance that the estimates and assumptions
will prove to be accurate.
FORWARD-LOOKING STATEMENTS
This Prospectus may contain or incorporate by reference forward-looking
statements. The factors identified under "Risk Factors" are important factors
(but not necessarily all important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made by,
or on behalf of, the Company (or its subsidiaries).
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. Where, in any forward-
looking statement, the Company (or its subsidiaries), or its management, express
an expectation or belief as to future results, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis, but there
can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished. The words "believe", "expect", "estimate",
"project" and "anticipate" and similar expressions identify forward-looking
statements.
RECENT DEVELOPMENTS
OFFERING OF COMMON STOCK
On February 23, 1998, the Company completed a public offering of
4,500,000 shares of Common Stock. Subsequently, an additional 675,000 shares of
Common Stock were sold as a result of the exercise of an over-allotment option
granted to the underwriters in respect of the Common Stock offering. The Common
Stock was registered pursuant to the Company's $500 million shelf registration
statement, which was declared effective by the Commission on August 20, 1997.
The Common Stock offering was made concurrently with the offering of $290
million aggregate principal amount of 9 7/8% Senior Subordinated Notes due 2005
described below. The net proceeds from the offering were used to reduce the
Company's borrowings under the Revolving Loan Agreement, the Builders Warehouse
Facility and certain other credit lines.
OFFERINGS OF 9 7/8% SENIOR SUBORDINATED NOTES DUE 2005
On February 23, 1998, the Company completed a public offering of $290
million aggregate principal amount of 9 7/8% Senior Subordinated Notes due 2005.
The 9 7/8% Senior Subordinated Notes due 2005 were registered pursuant to the
Company's $500 million shelf registration statement, which was declared
effective by the Commission on August 20, 1997. The offering of the 9 7/8%
Senior Subordinated Notes due 2005 was made concurrently with the offering of
Common Stock described above. The net proceeds from the offering were used to
reduce the Company's outstanding borrowings under the Revolving Loan Agreement,
the Builders Warehouse Facility and certain other credit lines.
On March 5, 1998, the Company completed a public offering of $40
million aggregate principal amount of 9 7/8% Senior Subordinated Notes due 2005.
The 9 7/8% Senior Subordinated Notes due 2005 were registered pursuant to the
Company's $500 million shelf registration statement, which was declared
effective by the Commission on August 20, 1997. The net proceeds from the
offering were used for general corporate purposes.
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The 9 7/8% Senior Subordinated Notes due 2005 mature on March 15, 2005, and
are redeemable at the option of the Company, in whole or in part, at any time
on or after March 15, 2002, initially at 104.938% of their principal amount,
plus accrued interest, declining ratably to 100% of their principal amount,
plus accrued interest, on or after March 15, 2004. Interest on the 9 7/8%
Senior Subordinated Notes due 2005 is payable semi-annually on March 15 and
September 15 of each year, at the rate of 9 7/8% per annum. The 9 7/8% Senior
Subordinated Notes due 2005 are not secured.
AMRESCO MEXICO
On March 18, 1998, the Company announced the formation of AMRESCO
Mexico, a joint venture with Banco Bilbao Vizcaya for asset acquisitions and
loan management throughout Mexico. In June 1998, AMRESCO Mexico became a
servicer of a 3.02 billion-peso portfolio of nonperforming and subperforming
Mexican loans originated by the former Banco del Oriente, S.A. AMRESCO Mexico
paid 80 million pesos (approximately $9 million) for this asset management
engagement, pursuant to which AMRESCO Mexico will receive a management fee and a
participation in a portion of the overall portfolio recoveries.
PNS REALTY TRANSACTION
Effective April 30, 1998, the Company acquired the commercial mortgage
banking business of PNS Realty Partners, L.P., PNS Realty Partners/Kentucky
L.L.C., PNS Realty Partners/Indiana L.P. and PNS Realty Partners Multifamily for
$8,334,758 in cash and Common Stock, plus up to an additional $5,650,000 in cash
and Common Stock over a three-year period in the event certain performance goals
are met or exceeded during the fiscal years 1998, 1999 and 2000.
OFFERING OF AMRESCO CAPITAL TRUST
On May 7, 1998, the initial public offering of 10,350,000 common shares
of beneficial interest, par value $.01 per share, of AMRESCO Capital Trust (the
"REIT") was completed. The REIT is a newly organized Texas real estate
investment trust formed to take advantage of certain mid- to high-yield lending
and investment opportunities in real estate related assets, including various
types of commercial mortgage loans, mortgage-backed securities and commercial
real properties. The REIT's operations are managed by AMREIT Managers, L.P. (the
"Manager"), an affiliate of the Company. The Manager has entered into a
management agreement with the REIT, pursuant to which the Manager (i) is
generally responsible for administering the day-to-day operations of the REIT
and (ii) will receive a fee for providing such services. Additionally, the
Company and its affiliates own approximately 15% of the outstanding equity
interests in the REIT.
IFC/TELECAPITAL ACQUISITION
Pursuant to the IFC/Telecapital Asset Purchase Agreement, the Company
and two of its wholly-owned subsidiaries agreed to purchase substantially all of
the assets of IFC and Telecapital. IFC is primarily in the business of
originating and servicing loans under certain loan programs of the United States
Small Business Administration, and selling interests in such loans through
securitization and otherwise. Telecapital is primarily in the business of
originating, acquiring and servicing loans to the independent pay phone industry
and providing other incidental financing and servicing. At the closing of the
IFC/Telecapital Acquisition, which is expected to occur on July 15, 1998, the
Company is to deliver (a) to IFC (i) $34,610,000 in cash and (ii) the IFC Note
in the principal amount of $28,320,000, which IFC Note will be convertible in
accordance with its terms into the number of shares of Common Stock which
results from dividing the principal amount plus accrued interest thereon by the
average closing sales prices (adjusted for any stock splits, stock dividends,
reclassifications, reorganization or similar event during the applicable time
period) for the Common Stock as reported on the Nasdaq National Market for the
five trading days immediately preceding the effective date of the Registration
Statement, and (b) to Telecapital (i) $10,047,000 in cash and (ii) the
Telecapital Note in the principal amount of $8,223,000, which Telecapital Note
will be convertible in accordance with its terms into the number of shares of
Common Stock which results from dividing the principal amount plus accrued
interest thereon by the average closing sales prices (adjusted for any stock
splits, stock dividends, reclassifications,
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<PAGE> 16
reorganization or similar event during the applicable time period) for the
Common Stock as reported on the Nasdaq National Market for the five trading days
immediately preceding the effective date of the Registration Statement.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
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<PAGE> 17
SELLING STOCKHOLDERS
This Prospectus covers offers from time to time by each Selling
Stockholder (after such person becomes a holder of Common Stock) of the Common
Stock owned by such person. The Selling Stockholders will hold shares of Common
Stock issued upon the conversion of the Notes. The Notes will be issued in a
private placement upon the closing of the IFC/Telecapital Acquisition. See
"Recent Developments - IFC/Telecapital Acquisition." The Notes are convertible
at the option of the Company or the applicable Selling Stockholder at any time
on or after the effective date of the Registration Statement. Each Note is are
convertible at the option of the Company or the applicable Selling Stockholder
into the number of shares of Common Stock which results from dividing the
principal amount plus accrued interest thereon by the average closing sales
prices, subject to adjustment under certain circumstances, for the Common Stock
as reported on the Nasdaq National Market for the five trading days immediately
preceding the effective date of the Registration Statement. If the Registration
Statement is not declared effective by the fifteenth day after the closing of
the IFC/Telecapital Acquisition, each Note is convertible, at the option of the
applicable Selling Stockholder, into the number of shares of Common Stock which
results from dividing the principal amount plus interest accrued thereon by the
average closing sales prices, subject to adjustment under certain circumstances,
for the Common Stock as reported on the Nasdaq National Market for the five
trading days immediately preceding the date of conversion. Based on an assumed
average closing sales price of $30.9628 (the average closing sales price for the
five trading days between June 17, 1998 and June 23, 1998, inclusive) and
assuming no interest has accrued on the Notes, the Notes would be convertible
into an aggregate of 1,180,221 shares of Common Stock. The registration of the
shares of Common Stock offered for resale hereby is pursuant to the Registration
Agreement, dated effective as of June 11, 1998, by and among the Company, IFC
and Telecapital (the "Registration Agreement"). Pursuant to the Registration
Agreement, the Company and the Selling Stockholders agreed to indemnify each
other against certain civil liabilities under the Securities Act. See
"Description of Capital Stock - Registration Agreement" for a more complete
description of the Registration Agreement.
Upon a conversion of the Notes, IFC and Telecapital expect to
distribute some or all of the shares of Common Stock received in the conversion
to its members or partners who are "accredited investors" (as defined pursuant
to Regulation D under the Securities Act) and, if such members or partners are
limited liability companies, partnerships or corporations themselves, such
shares may be distributed to their respective members, partners or stockholders
who are accredited investors. Accredited investors receiving shares of Common
Stock in such a distribution may sell such shares pursuant to the Registration
Statement as Selling Stockholders.
The following table lists the name of each Selling Stockholder, the
number of shares of Common Stock owned by each Selling Stockholder before this
Offering, the number of shares of Common Stock that may be offered by each
Selling Stockholder pursuant to this Prospectus and the number of shares of
Common Stock to be owned by each Selling Stockholder upon completion of the
Offering if all shares registered hereby are sold. The information below is as
of the date of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES NUMBER OF SHARES
NAME OF SHARES OWNED BEING REGISTERED OWNED AFTER
SELLING STOCKHOLDER BEFORE THIS OFFERING FOR RESALE THIS OFFERING(1)
------------------- -------------------- ---------- ----------------
<S> <C> <C> <C>
Independence Funding Company, LLC 0 914,645 0
Telecapital, L.P. 0 265,576 0
--- -------- --
TOTAL 0 1,180,221 0
=== ========= ==
</TABLE>
- -----------
(1) Assumes all shares held by such Selling Stockholder and registered hereby
will be offered and sold.
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DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 150,000,000 shares of Common Stock,
par value $0.05 per share, and 5,000,000 shares of Preferred Stock, par value
$1.00 per share. As of June 17, 1998, the Company had issued and outstanding
42,893,705 shares of Common Stock and no shares of Preferred Stock. As of such
date, there were approximately 2,662 holders of record of the outstanding shares
of Common Stock.
The following summary of the Company's Common Stock and Preferred Stock
is qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation (the "Certificate of Incorporation"), its Amended and Restated
Bylaws (the "Bylaws"), and the Delaware General Corporation Law, as amended (the
"DGCL").
COMMON STOCK
Subject to such preferential rights as may be granted by the Board of
Directors in connection with any issuances of Preferred Stock, holders of shares
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors in its discretion from funds legally available therefor.
Since October 1995, the Company has not paid cash dividends. The Board of
Directors currently intends to retain all earnings to support anticipated growth
in the current operations of the Company and to finance future expansion. The
Company's Revolving Loan Agreement and the indentures governing certain of the
Company's debt securities restrict the payment of cash dividends unless certain
earnings tests are satisfied. Additional restrictions on the payment of cash
dividends may be imposed in connection with future issuances of Preferred Stock
and indebtedness by the Company. Further declarations and payments of cash
dividends, if any, will also be determined in light of then-current conditions,
including the Company's earnings, operations, capital requirements, liquidity,
financial condition, restrictions in financing agreements and other factors
deemed relevant by the Board of Directors. Upon the liquidation, dissolution or
winding up of the Company, after payment of creditors, the remaining net assets
of the Company will be distributed pro rata to the holders of Common Stock,
subject to any liquidation preference of the holders of additional shares or
series of Preferred Stock which may then be outstanding. There are no preemptive
rights, conversion rights, or redemption or sinking fund provisions with respect
to the shares of Common Stock. All of the outstanding shares of Common Stock are
duly and validly authorized and issued, fully paid and non-assessable.
Holders of Common Stock are entitled to one vote per share of Common
Stock held of record on all such matters submitted to a vote of the
stockholders. With respect to any act or action required of or by the holders of
the Common Stock, the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at a meeting and entitled to
vote thereon is sufficient to authorize, affirm, ratify or consent to such act
or actions, except as otherwise provided by law or in the Certificate of
Incorporation. The DGCL requires the approval of the holders of a majority of
the outstanding stock entitled to vote for certain extraordinary corporate
transactions, such as a merger, sale of substantially all assets, dissolution or
amendment of the Certificate of Incorporation. Holders of the shares of Common
Stock do not have cumulative voting rights. As a result, the holders of a
majority of the outstanding shares of Common Stock voting for the election of
directors can elect all the directors, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any persons to the
Board of Directors.
PREFERRED STOCK
The Board of Directors may, without approval of the Company's
stockholders, from time to time, authorize the issuance of Preferred Stock in
one or more series for such consideration and, within certain limits, with such
relative rights, preferences and limitations as the Board of Directors may
determine. The relative rights, preferences and limitations that the Board of
Directors has the authority to determine as to any such series of Preferred
Stock include, among other things, dividend rates, voting rights, conversion
rights, redemption rights and liquidation preferences. Because the Board of
Directors has the power to establish the relative rights, preferences and
limitations of each series of Preferred Stock, it may afford to the holders of
any such series preferences and rights senior to the rights of the holders of
shares of Common Stock. In connection with the Stockholder Rights Plan described
below, the Board of Directors has authorized the issuance of 100,000 shares of
Series A Preferred Stock. As of June 17, 1998, no shares of Series A Preferred
Stock have been issued. Although the Board of Directors has no intention at the
present time of doing so, it could cause the issuance of additional shares or
series of Preferred Stock that could
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discourage an acquisition attempt or other transaction that some, or a majority
of, the stockholders might believe to be in their best interest or in which the
stockholders might receive a premium for their shares of Common Stock over the
market price of such shares.
STOCKHOLDER RIGHTS PLAN
On May 28, 1997, the Board of Directors of the Company declared a
dividend of one right to purchase one one-thousandth of a share of Series A
Preferred Stock (a "Right") for each outstanding share of Common Stock to the
holders of record on June 9, 1997 and authorized and directed the issuance of
one Right with respect to each share of Common Stock that shall become
outstanding prior to the occurrence of certain terminating events. The Rights
were issued with a purchase price of $125 per one one-thousandth of a share of
Series A Preferred Stock (the "Purchase Price"). Currently, the Rights trade
with the shares of Common Stock. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and The
Bank of New York, as Rights Agent (the "Rights Agent").
The Purchase Price, the number and kind of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
to prevent dilution upon the occurrence of certain events described in the
Rights Agreement. The Rights will separate from the Common Stock upon the
earlier of (i) ten (10) 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 (15%) or more of the outstanding shares of Common Stock (the "Stock
Acquisition Date"), or (ii) ten (10) business days (or such later date as the
Board of Directors shall determine) following the commencement of a tender or
exchange offer that would result in a person or group beneficially owning
fifteen percent (15%) or more of such outstanding shares of Common Stock. The
date the Rights separate is referred to as the "Distribution Date." The Rights
are not exercisable until the Distribution Date and will expire at the close of
business on June 9, 2007, unless earlier redeemed by the Company as described
below. As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates will represent the Rights.
In the event that (i) the Company is the surviving corporation in a
merger or other business combination with an Acquiring Person (or any associate
or affiliate thereof) and its Common Stock remains outstanding and unchanged,
(ii) any person shall acquire beneficial ownership of more than fifteen percent
(15%) of the outstanding shares of Common Stock (except pursuant to (A) certain
consolidations or mergers involving the Company or sales or transfers of the
combined assets, cash flow or earning power of the Company and its subsidiaries
or (B) an offer for all outstanding shares of Common Stock at a price and upon
terms and conditions which a majority of the Disinterested Directors (as defined
below) determines to be in the best interests of the Company and its
stockholders), or (iii) there occurs a reclassification of securities, a
recapitalization of the Company or any of certain business combinations or other
transactions (other than certain consolidations and mergers involving the
Company and sales or transfers of the combined assets, cash flow or earning
power of the Company and its subsidiaries) involving the Company or any of its
subsidiaries which has the effect of increasing by more than 1% the
proportionate share of any class of the outstanding equity securities of the
Company or any of its subsidiaries beneficially owned by an Acquiring Person (or
any associate or affiliate thereof), 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. However, Rights are not exercisable following
the occurrence of any of the events described above until such time as the
Rights are no longer redeemable by the Company as described below.
Notwithstanding any of the foregoing, following the occurrence of any of the
events described in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company enters into a merger or other business combination transaction
in which the Company is not the surviving corporation, (ii) the Company is the
surviving corporation in a consolidation, merger or similar transaction pursuant
to which all or part of the outstanding shares of Common Stock are changed into
or exchanged for stock or other securities of any other person or cash or any
other property or (iii) more than 50% of the combined assets, cash flow or
earning power of the Company and
18
<PAGE> 20
its subsidiaries is sold or transferred (in each case other than certain
consolidations with, mergers with and into, or sales of assets, cash flow or
earning power by or to subsidiaries of the Company as specified in the Rights
Agreement), each holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the Purchase Price of the Right. The events described in this paragraph
and in the preceding paragraph are referred to as "Triggering Events."
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% 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).
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become exercisable. The Company believes,
however, that the Rights should neither affect any prospective offeror that is
willing to negotiate with the Board of Directors of the Company nor interfere
with any merger or other business combination approved by the Board of Directors
of the Company. At any time until 10 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
consideration deemed appropriate by the Board of Directors).
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date; provided, that
any amendments after the Stock Acquisition Date must be approved by a majority
of the Disinterested Directors. The term "Disinterested Director" means any
member of the Board of Directors of the Company who was a member of the Board
prior to the date of the Rights Agreement, and any person who is subsequently
elected to the Board if such person is recommended or approved by a majority of
the Disinterested Directors, but shall not include an Acquiring Person, or an
affiliate or associate of an Acquiring Person, or any representative of the
foregoing entities. After the Distribution Date, the provisions of the Rights
Agreement may be amended by the Board in order to cure any ambiguity,
inconsistency or defect, to make changes which do not adversely affect the
interest of holders of Rights (excluding the interest of any Acquiring Person)
or to shorten or lengthen any time period under the Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable; and, provided, that any
amendments after the Stock Acquisition Date must be approved by a majority of
the Disinterested Directors.
Copies of the Rights Agreement are also available free of charge from
the Rights Agent. The foregoing description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement.
DELAWARE LAW AND CERTAIN CORPORATE PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL. In
general, this statute prohibits a publicly-held Delaware corporation from
engaging, under certain circumstances, in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless either
(i) prior to the date at which the stockholder became an interested stockholder
the Board of Directors approved either the business combination or the
transaction in which the person became an interested stockholder, (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of the transaction in which the
stockholder became an interested stockholder or (iii) the business combination
is approved by the Board of Directors and by two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder) at a meeting of the stockholders (and not by written consent) held
on or subsequent to the date on which the person became an "interested
stockholder" of the business combination. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or is an affiliate or
associate of the
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<PAGE> 21
corporation and, together with affiliates and associates, at any time within the
prior three years did own) 15% or more of the corporation's voting stock and the
affiliates and associates of such person. Section 203 defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
The Company's Certificate of Incorporation and Bylaws contain a number
of provisions relating to corporate governance and to the rights of
stockholders. Certain of these provisions may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer or prevent a
change of control of the Company. These provisions include (i) the
classification of the Board of Directors into three classes, each class serving
for staggered three-year terms; (ii) the authority of the Board of Directors to
determine the size of the Board of Directors, subject to certain minimums and
maximums; (iii) the authority of certain members of the Board of Directors to
fill vacancies on the Board of Directors; (iv) a requirement that special
meetings of stockholders may be called only by the Board of Directors, the
Chairman of the Board or holders of at least one-tenth of all the shares
entitled to vote at the meeting; (v) the elimination of stockholder action by
written consent; (vi) the authority of the Board of Directors to issue series of
Preferred Stock with such voting rights and other powers as the Board of
Directors may determine; (vii) the requirement that the Article in the
Certificate of Incorporation creating the staggered board may only be amended by
the vote of at least 66 2/3% of the voting securities of the Company; and (viii)
a requirement that any business combinations between the Company and a
beneficial owner of more than five percent of any class of an equity security of
the Company must be approved by the holders of a majority of the Company's
securities, excluding those securities held by such beneficial owner, voted at a
meeting called for the purpose of approving such business combination.
INDEMNIFICATION AND LIMITED LIABILITY
The Company's Certificate of Incorporation and Bylaws require the
Company to indemnify the directors and officers of the Company to the fullest
extent permitted by law. In addition, as permitted by the DGCL, the Company's
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
that no director of the Company will be personally liable to the Company or its
stockholders for monetary damages for such director's breach of duty as a
director. This limitation of liability does not relieve directors from liability
for (i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any liability under
Section 174 of the DGCL for unlawful distributions, or (iv) any transaction from
which the director derived an improper personal benefit. This provision of the
Restated Certificate of Incorporation will limit the remedies available to a
stockholder who is dissatisfied with a decision of the Board of Directors
protected by this provision, and such stockholder's only remedy in that
circumstance may be to bring a suit to prevent the action of the Board of
Directors. In many situations, this remedy may not be effective, including
instances when stockholders are not aware of a transaction or an event prior to
action of the Board of Directors in respect of such transaction or event.
Subject to certain limitations, the Company's executive officers and
directors are insured against losses arising from claims made against them for
wrongful acts which they may become obligated to pay or for which the Company
may be required to indemnify them.
REGISTRATION AGREEMENT
In connection with the IFC/Telecapital Acquisition, the Company entered
into the Registration Agreement effective June 11, 1998, whereby the Company
agreed to register shares of the Common Stock to be issued to IFC and
Telecapital. Pursuant to the Registration Agreement, the Company agreed to file
this Registration Statement and to use commercially reasonable efforts to cause
the Registration Statement to become effective as soon as practicable. The
rights of IFC and Telecapital under the Registration Agreement cease to apply on
the earlier of (i) the time when all such shares have been sold by IFC,
Telecapital and any accredited investors receiving such shares in a distribution
by IFC or Telecapital or by a member or partner of IFC or Telecapital or (ii)
the time when all such shares are eligible to be sold (a) pursuant to Rule
144(k) or (b) in a single transaction pursuant to Rule 144. Additionally, the
Registration Agreement terminates automatically if the IFC/Telecapital Asset
Purchase Agreement is terminated.
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<PAGE> 22
OTHER MATTERS
The Common Stock is quoted as a national market security by the Nasdaq
Stock Market, Inc. The Common Stock is identified as such market by the symbol
"AMMB." The Bank of New York, New York, New York, is the transfer agent and
registrar for the Common Stock.
PLAN OF DISTRIBUTION
The shares of Common Stock covered hereby may be offered and sold from
time to time by the Selling Stockholders. The Selling Stockholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. Such sales may be made on the Nasdaq National
Market in ordinary brokerage transactions or otherwise, at market prices
prevailing at the time of the sale, at prices related to the then prevailing
market price or in negotiated transactions, including pursuant to an
underwritten offering or pursuant to one or more of the following methods: (i)
purchases by a broker-dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (ii) ordinary brokerage
transactions and transactions in which a broker solicits purchasers; and (iii)
block trades in which a broker-dealer so engaged will attempt to sell the shares
as agent but may take a position and resell a portion of the block as principal
to facilitate the transaction. In effecting sales, broker-dealers engaged by the
Selling Stockholders may arrange for other broker-dealers to participate.
Broker-dealers may receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated immediately prior to the sale.
In connection with the sale of shares of Common Stock covered hereby,
underwriters or agents may receive compensation from the Selling Stockholders or
from purchasers of the shares of Common Stock covered hereby for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell shares of Common Stock to or through dealers and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they act as agents. Underwriters, dealers and agents that participate in
the distribution of shares of Common Stock covered hereby may be deemed to be
underwriters, and any discounts or commissions received by them from the Selling
Stockholders and any profit on the resale of shares of Common Stock by them may
be deemed to be underwriting discounts and commissions under the Securities Act.
The Registration Agreement with IFC and Telecapital provides that the
Company will indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act.
This Offering will terminate on the earlier of (i) the time when all
shares offered hereby have been sold by the Selling Stockholders or (ii) the
time when all such shares are eligible to be sold (a) pursuant to Rule 144(k) or
(b) in a single transaction pursuant to Rule 144.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by L. Keith Blackwell, General Counsel of the
Company. Mr. Blackwell currently owns beneficially 33,295 shares of Common Stock
(excluding 12,265 unvested shares allocated under the Company's restricted stock
plan) and holds options to purchase 88,275 shares of Common Stock.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
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<PAGE> 23
CERTAIN DEFINITIONS
The following are certain defined terms which may be used in this
Prospectus:
"AMMB" is the symbol used to trade the Company's Common Stock on the
Nasdaq National Market.
"AMRESCO CAPITAL" means AMRESCO Capital, L.P., a subsidiary of the
Company.
"AMRESCO MEXICO" means AMRESCO Mexico, S.A. de C.V.
"AMRESCO SERVICES" means a division of AMRESCO Services, L.P., a
subsidiary of the Company.
"BASIS POINT" means one one-hundredth of a percentage point.
"BUILDERS WAREHOUSE FACILITY" means that certain Loan and Security
Agreement between AMRESCO Builders Group, Inc. and Bank United dated September
16, 1997.
"COMPANY" means, unless otherwise stated in this Prospectus or unless
the context otherwise requires, the Company and each of its subsidiaries.
"CONDUIT PURCHASERS" means investment bankers and other financial
intermediaries who purchase or otherwise accumulate pools or portfolios of loans
having common features (e.g., real estate mortgages, etc.), with the intent of
securitizing such loan assets and selling them to a trust that obtains its funds
by selling ownership interests in the trust to public or private investors.
"CREDIT ENHANCEMENT" means the method by which a seller of asset-backed
securities achieves a higher credit rating with respect to such securities than
the credit rating of the assets collateralizing such securities. Credit
enhancement is often achieved through the use of financial guaranty insurance
policies.
"DUS" means the Delegated Underwriting and Servicing program
established by Fannie Mae that permits a DUS approved lender to commit and close
loans for multifamily mortgages for resale to Fannie Mae without Fannie Mae's
prior approval of such loans.
"FACE VALUE" means, with respect to any loan or asset portfolio, the
aggregate unpaid principal balance of a loan or loans.
"FANNIE MAE" means the Federal National Mortgage Association.
"FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.
"HOLLIDAY FENOGLIO FOWLER" means Holliday Fenoglio Fowler, L.P., a
subsidiary of the Company.
"IFC" means Independence Funding Company, LLC, a Texas limited
liability company.
"IFC NOTE" means the Convertible Promissory Note to be delivered by the
Company to IFC on the date of the closing of the IFC/Telecapital Acquisition in
the principal amount of $28,320,000, convertible into shares of Common Stock as
described therein.
"IFC/TELECAPITAL ACQUISITION" means the acquisition by the Company of
substantially all of the assets of IFC and Telecapital and the related
assumption of certain liabilities of IFC and Telecapital.
"IFC/TELECAPITAL ASSET PURCHASE AGREEMENT" means the Asset Purchase
Agreement dated June 1, 1998, by and among IFC Telecapital and AMRESCO
Independence Funding Inc., AMRESCO Commercial Lending Corp., and AMRESCO, INC.
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<PAGE> 24
"MASTER SERVICER" means an entity which provides administrative
services with respect to securitized pools of mortgage-backed securities.
"NOTES" means the IFC Note and the Telecapital Note.
"PREFERRED STOCK" means the Company's preferred stock, par value $1.00
per share.
"PRIMARY SERVICER" means an entity which provides various
administrative services with respect to loans such as collecting monthly
mortgage payments, maintaining escrow accounts for the payment of taxes and
insurance premiums on behalf of borrowers, remitting payments of principal and
interest promptly to investors in mortgages or the Master Servicer of a pool and
reporting to those investors or the Master Servicer on financial transactions
related to such mortgages.
"PRIOR LOAN AGREEMENT" means the First Amended and Restated Revolving
Loan Agreement dated as of April 25, 1996 and as subsequently amended, among the
Company, NationsBank of Texas, as Agent, and the banks which are parties thereto
from time to time.
"REVOLVING LOAN AGREEMENT" means the Third Amended and Restated
Revolving Loan Agreement dated as of September 30, 1997 and as subsequently
amended, among the Company and certain of its subsidiaries, and NationsBank of
Texas, N.A., as Agent, Bank One, Texas, N.A., as Co-Agent, and the lenders which
are parties thereto from time to time.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"SECURITIZATION" and "SECURITIZED" mean a transaction in which loans
originated or purchased by an entity are sold to special purpose entities
organized for the purpose of issuing asset-backed, mortgage-backed or commercial
loan-backed securities.
"SENIOR NOTES" means the Company's 8.75% Senior Notes, Series 1996-A,
due 1999.
"SENIOR SUBORDINATED NOTES" means the Company's 10% Senior Subordinated
Notes due 2003, the Company's 10% Senior Subordinated Notes due 2004 and the
Company's 9 7/8% Senior Subordinated Notes due 2005, collectively.
"SPECIAL SERVICER" means an entity which provides asset management and
resolution services with respect to nonperforming or underperforming loans
within a pool of performing loans and/or mortgages.
"SUBORDINATED CERTIFICATES" means the unrated and uninsured tranches of
collateralized residential or commercial mortgage-backed securities which are
included under the caption "Retained Interests in Securitizations Trading" in
the Company's consolidated balance sheet.
"SUB-PRIME LOAN" means a residential mortgage loan to borrowers who do
not qualify for conventional loans or whose borrowing needs are not met by
traditional residential mortgage lenders. Such borrowers may not satisfy the
more rigid underwriting standards of the traditional residential mortgage
lending market for a number of reasons, such as blemished credit histories (from
past loan delinquencies or bankruptcy), inability to provide income verification
data or lack of established credit history.
"TELECAPITAL" means Telecapital, L.P., a Delaware limited partnership.
"TELECAPITAL NOTE" means the Convertible Promissory Note to be
delivered by the Company to Telecapital on the date of the closing of the
IFC/Telecapital Acquisition in the principal amount of $8,223,000, convertible
into shares of Common Stock as described therein.
"WAREHOUSE" means a type of lending arrangement whereby loans funded or
purchased and held for sale are financed by financial institutions or
institutional lenders on a short-term basis and secured by the underlying loans.
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<PAGE> 25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $10,849
Nasdaq National Market Listing Fee.............................. 17,500
Printing Expenses............................................... 5,000
Accounting Fees and Expenses.................................... 5,000
Legal Fees and Expenses......................................... 10,000
Fees of Transfer Agent and Registrar............................ 10,000
Miscellaneous Expenses.......................................... 10,000
-------
Total........................................................ $68,349
=======
</TABLE>
All of the above expenses except the Securities and Exchange Commission
registration fee and the Nasdaq National Market listing fee are estimated. All
of such expenses will be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate") and the Company's Amended and Restated Bylaws (the "Bylaws")
provide that the Company shall indemnify, to the full extent permitted by law,
any person against liabilities arising from their service as directors,
officers, employees or agents of the Company. Section 145 of the DGCL empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnify for such
expenses which the court shall deem proper.
Section 145 further provides that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled, and that the corporation is empowered to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The Certificate and the Bylaws provide that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this provision related to director's
liability shall not adversely affect any right or protection of a director of
the Company existing immediately prior to such repeal or modification. Further,
if the DGCL shall be repealed or
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<PAGE> 26
modified, the elimination of liability of a director provided in the Certificate
and the Bylaws shall be to the fullest extent permitted by the DGCL as so
amended.
Pursuant to the Registration Agreement with IFC and Telecapital, the
Company has agreed to indemnify such Selling Stockholders against certain
liabilities, including liabilities under the Securities Act or otherwise. For
the undertaking with respect to indemnification, see Item 17 herein.
The Company maintains insurance for its officers and directors which
provides for indemnification of officers and directors. The premiums for such
insurance are paid by the Company.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
2.1* Asset Purchase Agreement dated June 1, 1998 by and among
Independence Funding Company, LLC, Telecapital, L.P. and
AMRESCO Independence Funding Inc., AMRESCO Commercial Lending
Corp., and AMRESCO, INC.
4.1 Restated Certificate of Incorporation, filed as Exhibit 3(a)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, which exhibit is incorporated
herein by reference.
4.2 Amended and Restated Bylaws effective as of February 25,
1997, filed as Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, which
exhibit is incorporated herein by reference.
4.3 Third Amended and Restated Revolving Loan Agreement, dated as
of September 30, 1997, by and among AMRESCO, INC. and certain
of its subsidiaries, and NationsBank of Texas, N.A., as
Agent, Bank One, Texas, N.A., as Co-Agent and the lenders
which are parties thereto from time to time, filed as Exhibit
10(v) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, which exhibit is
incorporated herein by reference.
4.4 Specimen Common Stock Certificate, filed as Exhibit 4.4 to
the Company's Registration Statement on Form S-3 (No.
33-63683), which exhibit is incorporated herein by reference.
4.5* Form of Registration Agreement, dated effective as of June
11, 1998, by and among the Company and Independence Funding
Company, LLC and Telecapital, L.P.
4.6 Rights Agreement, dated as of May 28, 1997, by and between
the Company and the Bank of New York, as Rights Agent, filed
as Exhibit 4 to the Company's Current Report on Form 8-K
dated May 28, 1997, which exhibit is incorporated herein by
reference.
5.1* Opinion of L. Keith Blackwell, General Counsel of the
Company, as to the validity of Common Stock to be offered.
23.1* Consent of L. Keith Blackwell, contained in the opinion
filed as Exhibit 5.1.
23.2* Consent of Deloitte & Touche LLP.
24.1* Power of Attorney of the Directors and certain Executive
Officers of the Company(included on pages II-4 and II-5).
</TABLE>
- ------------
* Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
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<PAGE> 27
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 24th day of June,
1998.
AMRESCO, INC.
By: /s/ L. KEITH BLACKWELL
--------------------------------
L. Keith Blackwell
Senior Vice President, General
Counsel and Secretary
Each person whose signature appears below does hereby make, constitute
and appoint Robert H. Lutz, Jr., Robert L. Adair III and L. Keith Blackwell and
each of them his true and lawful attorney with full power of substitution to
execute, deliver and file with the Securities and Exchange Commission, for and
on his behalf and in his capacity or capacities as stated below, any amendment
(including post-effective amendments) to the Registration statement with all
exhibits thereto, making such changes in the Registration Statement as the
Registrant deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the 24th day of June, 1998:
SIGNATURE TITLE
--------- -----
/s/ ROBERT H. LUTZ, JR. Chairman of the Board and
- ---------------------------------- Chief Executive Officer
Robert H. Lutz, Jr.
/s/ ROBERT L. ADAIR III Director, President and
- ---------------------------------- Chief Operating Officer
Robert L. Adair III
/s/ BARRY L. EDWARDS Executive Vice President and
- ---------------------------------- Chief Financial Officer
Barry L. Edwards (Principal Financial Officer)
/s/ JAMES P. COTTON, JR. Director
- ----------------------------------
James P. Cotton, Jr.
/s/ RICHARD L. CRAVEY Director
- ----------------------------------
Richard L. Cravey
/s/ GERALD E. EICKHOFF Director
- ----------------------------------
Gerald E. Eickhoff
/s/ SIDNEY E. HARRIS Director
- ----------------------------------
Sidney E. Harris
/s/ AMY J. JORGENSEN Director
- ----------------------------------
Amy J. Jorgensen
/s/ BRUCE W. SCHNITZER Director
- ----------------------------------
Bruce W. Schnitzer
II-4
<PAGE> 29
/s/ EDWIN A. WAHLEN, JR. Director
- ----------------------------------
Edwin A. Wahlen, Jr.
/s/ RONALD B. KIRKLAND Vice President and Chief
- ---------------------------------- Accounting Officer
Ronald B. Kirkland (Principal Accounting Officer)
II-5
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
----------- ------- ------------
<S> <C> <C>
2.1* Asset Purchase Agreement dated June 1, 1998 by and among Independence
Funding Company, LLC, Telecapital, L.P. and AMRESCO Independence
Funding Inc., AMRESCO Commercial Lending Corp., and AMRESCO,
INC.
4.1 Restated Certificate of Incorporation, filed as Exhibit 3(a)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, which exhibit is incorporated
herein by reference.
4.2 Amended and Restated Bylaws effective as of February 25,
1997, filed as Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, which
exhibit is incorporated herein by reference.
4.3 Third Amended and Restated Revolving Loan Agreement, dated as of
September 30, 1997, by and among AMRESCO, INC. and certain of its
subsidiaries, and NationsBank of Texas, N.A., as Agent, Bank One, Texas,
N.A., as Co-Agent, and the lenders which are parties thereto from time to
time, filed as Exhibit 10(v) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, which exhibit is incorporated
herein by reference.
4.4 Specimen Common Stock Certificate, filed as Exhibit 4.4 to
the Company's Registration Statement on Form S-3 (No.
33-63683), which exhibit is incorporated herein by reference.
4.5* Form of Registration Agreement, dated effective as of June
11, 1998, by and among the Company, Independence Funding
Company, LLC and Telecapital, L.P.
4.6 Rights Agreement, dated as of May 28, 1997, by and between
the Company and the Bank of New York, as Rights Agent, filed
as Exhibit 4 to the Company's Current Report on Form 8-K
dated May 28, 1997, which exhibit is incorporated herein by
reference.
5.1* Opinion of L. Keith Blackwell, General Counsel of the
Company, as to the validity of Common Stock to be offered.
23.1* Consent of L. Keith Blackwell, contained in the opinion filed
as Exhibit 5.1.
23.2* Consent of Deloitte & Touche LLP.
24.1* Power of Attorney of the Directors and certain Executive
Officers of the Company (included on pages II-4 and II-5).
</TABLE>
- ------------
* Filed herewith.
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
DATED
JUNE 1, 1998
BY AND AMONG
INDEPENDENCE FUNDING COMPANY, LLC,
TELECAPITAL, L.P.
AND
AMRESCO INDEPENDENCE FUNDING CO., INC.,
AMRESCO COMMERCIAL LENDING CORP.,
AND
AMRESCO, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<S> <C>
Certain Definitions................................................................................ 1
1.1 Certain Definitions.............................................................. 1
1.2 Terms Defined in Other Articles.................................................. 9
1.3 Interpretation................................................................... 10
ARTICLE II
Purchase and Sale of Assets; Assumption of Liabilities;
Additional Covenants............................................................................... 10
2.1 Purchase and Sale of Assets...................................................... 10
2.2 Purchase Price................................................................... 10
2.3 Allocation of the Purchase Price................................................. 13
2.4 Closing.......................................................................... 13
ARTICLE III
Representations and Warranties of IFC.............................................................. 13
3.1 Organization and Qualification of IFC
and the IFC Subsidiaries....................................................... 13
3.2 Authorization.................................................................... 13
3.3 Non-contravention................................................................ 14
3.4 No Consents...................................................................... 13
3.5 The IFC Purchased Assets......................................................... 13
3.6 Personal Property................................................................ 13
3.7 Real Property.................................................................... 13
3.8 No Condemnation.................................................................. 13
3.9 Financial Statements............................................................. 15
3.10 Absence of Certain Developments.................................................. 15
3.11 Governmental Authorizations; Licenses; Etc....................................... 15
3.12 Litigation....................................................................... 16
3.13 Undisclosed Liabilities.......................................................... 16
3.14 Taxes............................................................................ 16
3.15 Insurance........................................................................ 16
3.16 Proprietary Rights............................................................... 16
3.17 Accounts and Loans Receivable ................................................... 17
3.18 Material Contracts............................................................... 17
3.19 Books and Records................................................................ 18
3.20 Brokers.......................................................................... 18
3.21 Disclosure....................................................................... 18
3.22 Agreements and Transactions with Related Parties................................. 18
3.23 Disclaimer of Warranties......................................................... 19
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
Representations and Warranties of Telecapital...................................................... 19
4.1 Organization and Qualification of Telecapital.................................... 19
4.2 Authorization.................................................................... 19
4.3 Non-contravention................................................................ 19
4.4 No Consents...................................................................... 20
4.5 The Telecapital Purchased Assets................................................. 20
4.6 Personal Property................................................................ 20
4.7 Real Property.................................................................... 20
4.8 No Condemnation.................................................................. 20
4.9 Financial Statements............................................................. 20
4.10 Absence of Certain Developments.................................................. 21
4.11 Governmental Authorizations; Licenses; Etc....................................... 21
4.12 Litigation....................................................................... 22
4.13 Undisclosed Liabilities.......................................................... 22
4.14 Taxes............................................................................ 22
4.15 Insurance........................................................................ 22
4.16 Proprietary Rights............................................................... 22
4.17 Accounts and Loans Receivable.................................................... 22
4.18 Material Contracts............................................................... 23
4.19 Books and Records................................................................ 23
4.20 Brokers.......................................................................... 23
4.21 Disclosure....................................................................... 23
4.22 Agreements and Transactions with Related Parties................................. 23
4.23 Disclaimer of Warranties......................................................... 24
ARTICLE V
Representations and Warranties of the Purchaser Parties............................................ 24
5.1 Organization..................................................................... 24
5.2 Authorization.................................................................... 24
5.3 Non-contravention................................................................ 25
5.4 No Consents...................................................................... 25
5.5 Financial Resources.............................................................. 25
5.6 Financial Statements............................................................. 25
5.7 Absence of Certain Developments.................................................. 25
5.8 Litigation....................................................................... 25
5.9 Capitalization................................................................... 26
5.10 Compliance with Laws............................................................. 26
5.11 SEC Filings; Financial Statements................................................ 26
5.12 Undisclosed Liabilities.......................................................... 27
5.13 Brokers.......................................................................... 27
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
Covenants and Agreements........................................................................... 27
6.1 Access and Information........................................................... 27
6.2 Affirmative Covenants............................................................ 28
6.3 Negative Covenants............................................................... 28
6.4 Closing Documents................................................................ 29
6.5 Transfer and Property Taxes...................................................... 29
6.6 Best Efforts: Further Assurances................................................. 29
6.7 Employment Matters............................................................... 29
6.8 Registration Agreement........................................................... 30
6.9 Hart-Scott-Rodino Filings........................................................ 31
6.10 Unassignable Contracts or Licenses............................................... 31
6.11 Covenant Against Competition..................................................... 32
6.12 Publicity........................................................................ 33
6.13 Legending of Common Stock........................................................ 33
6.14 Rothschild....................................................................... 34
6.15 Transitional Services............................................................ 34
ARTICLE VII
Conditions to Closing.............................................................................. 34
7.1 Mutual Conditions................................................................ 34
7.2 Conditions to the Purchaser Parties' Obligations................................. 35
7.3 Conditions to the Sellers' Obligations........................................... 36
ARTICLE VIII
Termination........................................................................................ 38
8.1 Termination...................................................................... 38
8.2 Effect of Termination............................................................ 38
ARTICLE IX
Duration of Representations and Warranties; Indemnification........................................ 39
9.1 Duration of Representations and Warranties....................................... 39
9.2 Indemnification.................................................................. 39
9.3 Procedures for Third Party Claims................................................ 40
9.4 Procedures for Inter-Party Claims................................................ 41
ARTICLE X
Miscellaneous...................................................................................... 41
10.1 Notices........................................................................ 41
10.2 Expenses....................................................................... 42
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
10.3 Governing Law; Consent to Jurisdiction......................................... 42
10.4 Assignment; Successors and Assigns; No Third Party Rights...................... 43
10.5 Counterparts................................................................... 43
10.6 Titles and Headings............................................................ 43
10.7 Entire Agreement............................................................... 43
10.8 Amendment and Modification..................................................... 43
10.9 Waiver......................................................................... 43
10.10 Severability................................................................... 43
10.11 Obligations Several............................................................ 44
10.12 No Strict Construction......................................................... 44
</TABLE>
-iv-
<PAGE> 6
SCHEDULES
Schedule 1.1(i) IFC Real Property
Schedule 1.1(ii) IFC Approvals
Schedule 1.1(iii) Telecapital Real Property
Schedule 1.1(iv) Telecapital Approvals
Schedule 1.1(v) IFC Assumed Related Liabilities
Schedule 1.1(vi) Telecapital Assumed Related Liabilities
Schedule 3.1 IFC Foreign Qualification
Schedule 3.3 IFC Non-contravention
Schedule 3.4 IFC Consents
Schedule 3.5 IFC Third Party Interests
Schedule 3.6 IFC Encumbrances
Schedule 3.7 IFC Real Property Encumbrances
Schedule 3.9 IFC GAAP Disclosures
Schedule 3.10 IFC Certain Developments
Schedule 3.12 IFC Litigation
Schedule 3.14 IFC Tax Contests
Schedule 3.15 IFC Insurance
Schedule 3.16 IFC Proprietary Rights
Schedule 3.17 IFC Accounts and Loans Receivable
Schedule 3.18 IFC Material Contracts
Schedule 3.22 IFC Related Party Agreements
Schedule 4.1 Telecapital Foreign Qualification
Schedule 4.3 Telecapital Non-contravention
Schedule 4.4 Telecapital Consents
Schedule 4.5 Telecapital Third Party Interests
Schedule 4.6 Telecapital Encumbrances
Schedule 4.7 Telecapital Real Property Encumbrances
Schedule 4.9 Telecapital GAAP Disclosures
Schedule 4.10 Telecapital Certain Developments
Schedule 4.12 Telecapital Litigation
Schedule 4.14 Telecapital Tax Contests
Schedule 4.15 Telecapital Insurance
Schedule 4.16 Telecapital Proprietary Rights
Schedule 4.17 Telecapital Accounts and Loans Receivable
Schedule 4.18 Telecapital Material Contracts
Schedule 4.22 Telecapital Related Party Agreements
Schedule 5.4 Purchaser Consents
Schedule 5.7 Purchaser Certain Developments
Schedule 5.8 Purchaser Litigation
Schedule 6.7 Employees
-v-
<PAGE> 7
EXHIBITS
Exhibit A-1 IFC Allocation of Purchase Price
Exhibit A-2 Telecapital Allocation of Purchase Price
Exhibit B Form of Bill of Sale
Exhibit C Form of Blanket Assignment
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E IFC Escrow Agreement
Exhibit F Telecapital Escrow Agreement
-vi-
<PAGE> 8
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated June 1, 1998, by and among
Independence Funding Company, LLC, a Texas limited liability company ("IFC"),
Telecapital, L.P., a Delaware limited partnership ("Telecapital" and together
with IFC, "Sellers"), AMRESCO Independence Funding Co., Inc., a Delaware
corporation ("Purchaser1," each of Purchaser1 and Purchaser2 being a
"Purchaser"), AMRESCO Commercial Lending Corp. ("Purchaser 2") and AMRESCO,
Inc., a Delaware corporation ("Parent," and collectively with Purchaser1 and
Purchaser2, the "Purchaser Parties").
W I T N E S S E T H:
WHEREAS, prior to the date hereof, IFC has engaged, among
other things, in the business of originating and servicing loans including,
without limitation, loans originated pursuant to certain loan programs of the
United States Small Business Administration ("SBA") and selling interests in
such loans (collectively, the "IFC Business") and Telecapital has engaged in the
business of originating, acquiring and servicing loans to the independent
payphone industry and other incidental financing and servicing (collectively,
the "Telecapital Business"); and
WHEREAS, Sellers desire to sell and transfer to Purchaser1 and
Purchaser2, and Purchaser1 and Purchaser2 desire to purchase and assume from
Sellers, all of the IFC Purchased Assets (as defined) and Telecapital Purchased
Assets (as defined), respectively, and all of the IFC Assumed Liabilities (as
defined) and Telecapital Assumed Liabilities (as defined), respectively, all as
more specifically provided herein; and
WHEREAS, each Purchaser is a wholly-owned subsidiary of
Parent, and Sellers are relying upon Parent being a party to this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and intending to be legally bound, Sellers and the Purchaser
Parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement,
the following terms have the respective meanings set forth below.
"Accounts Receivable" means all accounts and notes receivable
and other claims for money payable and all reserves related thereto, deposits,
and advances.
"Accountants" means Ernst & Young LLP, independent accountants
to IFC and Telecapital.
<PAGE> 9
"Affiliate" means, with respect to any Person, any other
Person who directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlled" and "controlling" have meanings correlative thereto.
"Agreement" means this Asset Purchase Agreement and the
exhibits and schedules referred to herein.
"Business Day" means a day, other than a Saturday or Sunday,
on which commercial banks in Texas are open for the general transaction of
business.
"Code" means the Internal Revenue Code of 1986, as amended.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Governmental Authority" means any national, federal, state,
provincial, county, municipal or local government, foreign or domestic, or the
government of any political subdivision of any of the foregoing, or any entity,
authority, agency, ministry or other similar body exercising executive,
legislative, judicial, regulatory or administrative authority or functions of or
pertaining to government and any authority or other quasi-governmental entity
established to perform any of such functions, including the SBA.
"IFC Assumed Liabilities" means all liabilities and
obligations of IFC, whether absolute, contingent, mature, or otherwise, known or
unknown, (i) reflected in any IFC Financial Statements (including any notes
thereto), (ii) disclosed on any Schedule hereto, (iii) arising or incurred in
the ordinary course of business of the IFC Business to the extent such
liabilities or obligations are not required to be reflected in the IFC Financial
Statements (including any notes thereto) as of the date thereof or were incurred
or arose since April 30, 1998, and (iv) liabilities and obligations due or owing
on the Closing Date to any employee of the IFC Business that is employed by
Purchaser1 after the Closing Date for accrued compensation, vacation, sick leave
and holiday pay, severance pay set forth in the memorandum dated May 15, 1998
regarding a termination package to IFC's employees (a copy of which is included
as part of Schedule 3.18 hereto) and other benefits.
"IFC Excluded Assets" means:
(a) any books and records that IFC or any of its Affiliates is
required to retain pursuant to any statute, rule, regulation or ordinance, or
which do not relate to the IFC Purchased Assets, IFC Assumed Liabilities or IFC
Business (it being agreed that copies of any such materials relating to the IFC
Purchased Assets or the IFC Business shall be provided to the Purchaser Parties
upon their reasonable request);
-2-
<PAGE> 10
(b) all payments and consideration to be received by IFC from
the Purchaser Parties and their Affiliates, and all rights and remedies of IFC,
under this Agreement or any agreement, instrument or other document delivered by
or on behalf of any Purchaser Party pursuant hereto; and
(c) any assets, property, or rights which by law cannot be
transferred, subject to Section 6.10 hereof.
"IFC Purchased Assets" means all of the right, title and
interest of IFC in and to all assets owned, held or used in the conduct of the
IFC Business of every kind and description, whether tangible or intangible,
except for the IFC Excluded Assets. The IFC Purchased Assets include, without
limitation, the following:
(a) all of IFC's cash, cash equivalents, money on deposit or
in the process of collection with banks, factors and others, certificates of
deposit, commercial paper, letters of credit, stock, bonds and other investment
securities;
(b) all real property and real estate ("Real Property") owned
or leased by IFC and all buildings and improvements thereto, including those
assets listed on Schedule 1.1(i);
(c) all authorizations, consents, approvals, licenses, orders,
permits, exemptions of, filings or registrations with, any Governmental
Authority ("Governmental Licenses") held by IFC, including those assets listed
on Schedule 1.1(ii), to the extent transferable;
(d) all right, title and interest of IFC in loans, mortgages,
indentures, promissory notes, evidences of indebtedness, other debt, deeds of
trust, loan or credit agreements, certificates of interest in all or part of the
foregoing, or similar agreements or instruments evidencing indebtedness of
borrowers, other than Accounts Receivable;
(e) all IFC Servicing Rights;
(f) the IFC Class B Certificate;
(g) all right, title and interest in Independence Funding
Holding Company, LLC, Independence Funding Holding Corporation and any other
direct or indirect subsidiary of IFC;
(h) all computer equipment, computer terminals, machinery, and
other equipment (including spare parts), automobiles and other vehicles,
furniture, fixtures, supplies, capital improvements in process, and all other
tangible personal property employed in the conduct of the IFC Business;
(i) all easements, rights of way, servitudes, leases, permits,
licenses or options used or held by the IFC Business;
-3-
<PAGE> 11
(j) all Accounts Receivable;
(k) all prepaid rentals, deposits, advances and other prepaid
expenses;
(l) all rights and claims of IFC, whether mature, contingent
or otherwise, against third parties, whether in tort, contract or otherwise,
including causes of action, unliquidated rights and claims under or pursuant to
all warranties, representations and guarantees made by manufacturers, suppliers
or vendors, claims for refunds, rights of off-set and credits of all kinds and
all other general intangibles;
(m) all trademarks, service marks, trademark and service mark
registrations and applications therefor, copyrights, copyright registrations,
copyrights applications, trade names, corporate names, technology, inventions,
computer software, data and documentation (including electronic media), trade
secrets, know-how, customer lists, processes, other intellectual property and
proprietary information or rights, and permits, licenses or other agreements to
or from third parties regarding the foregoing, (collectively the "Proprietary
Rights") related to or used in the conduct of the IFC Business and all goodwill
associated therewith;
(n) all rights under any executory contract related to the IFC
Business to which IFC or any of its Affiliates is a party, including the
Material Contracts listed on Schedule 3.18; and
(o) all other assets used in the conduct of the IFC Business,
whether or not reflected on the books and records of IFC, including, the IFC
Business as a going concern, its goodwill and franchises, all credit balances of
or inuring to IFC under any state unemployment compensation plan or fund, its
employment contracts, restrictive covenants and obligations of present and
former employees, agents, representatives, independent contractors and others,
all books, records, files and papers relating to, or necessary to the conduct
of, the IFC Business, including operating and training manuals, computer
programs, manuals and data, catalogs, quotations, bids, sales and promotional
materials, correspondence, trade association memberships (to the extent
transferable), lists of present and former customers and suppliers, customer
credit information, customers' pricing information, business plans, studies and
analyses, whether prepared by IFC or a third party, relating to the IFC
Business, books of account, accounting records and personnel, employment and
other records relating to the IFC Business.
"IFC Retained Liabilities" means any obligation or liability
of IFC of any kind except for IFC Assumed Liabilities. IFC Retained Liabilities
shall include, without limitation, the following obligations and liabilities:
(a) any liability of IFC or its Affiliates relating to or
arising out of any IFC Excluded Assets;
(b) any liability of IFC or its Affiliates to any member of
IFC in his capacity as a member, including without limitation with respect to
distributions to members and the purchase of the membership interest of any
member of IFC;
-4-
<PAGE> 12
(c) any liability of IFC or its Affiliates to Bear Stearns
arising out of the transactions contemplated by this Agreement and all expenses
and costs of IFC and its Affiliates incident to the transactions contemplated by
the Agreement;
(d) any liability of IFC to any Purchaser Party resulting from
any breach by IFC of any representation or warranty or resulting from any
default by IFC of its obligations under this Agreement or any other agreement
delivered by or on behalf of IFC pursuant hereto;
(e) any liability arising out of any business activity of IFC
that is not part of the IFC Business;
(f) any lien, claim or encumbrance on any IFC Purchased Asset,
except as set forth on Schedule 3.5;
(g) any liability of IFC for any federal, state or local
income or franchise taxes or taxes relating to the payment of the IFC Purchase
Price (other than the taxes for which the Purchaser Parties are responsible
under Section 6.5) and any penalties or other payments with respect thereto;
(h) except as may be included as IFC Assumed Liabilities, any
liability of any Seller for vacation, sick leave, holiday or severance
obligations or compensation, if any, to any employee or former employee of IFC,
including any severance and other post-Closing obligation to Charles P. Bell,
Jr., W. David Jenkins, Dianna Seaborn, and Stuart Mitchell; and
(i) any liability of IFC to any Affiliate of IFC, including
without limitation those disclosed on Schedule 3.22 except as specifically set
forth on Schedule 1.1(v).
"IFC Servicing Rights" means the rights and responsibilities
of IFC with respect to the servicing or subservicing of loans originated,
acquired or sold, in whole or in part, by IFC and any right to receive servicing
fees and ancillary income relating thereto.
"IFC Subsidiaries" means Independence Funding Holding Company,
LLC, Independence Funding Holding Corporation, and any other direct or indirect
subsidiary owned by IFC.
"Material Adverse Change" means a material adverse change in
the financial condition or results of operations of the applicable party.
"Person" means an individual, partnership, corporation,
limited liability company, joint stock company, unincorporated organization or
association, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Rothschild" means Rothschild, Inc.
-5-
<PAGE> 13
"Seller Principals" means David W. Mills and James S. Regan.
"Telecapital Assumed Liabilities" means all liabilities and
obligations of Telecapital, whether absolute, contingent, mature, or otherwise,
known or unknown, (i) reflected in any Telecapital Financial Statements
(including any notes thereto), (ii) disclosed on any Schedule hereto, (iii)
arising or incurred in the ordinary course of business of the Telecapital
Business to the extent such liabilities or obligations are not required to be
reflected in the Telecapital Financial Statements (including any notes thereto)
as of the date thereof or were incurred or arose since April 30, 1998, and (iv)
liabilities and obligations due or owing on the Closing Date to any employee of
the Telecapital Business that is employed by Purchaser2 after the Closing Date
for accrued compensation, vacation, sick leave and holiday pay, severance pay in
accordance with the provisions of the memorandum dated May 15, 1998, which is
applicable to Telecapital, (a copy of which is included as part Schedule 3.18
hereto) and other benefits.
"Telecapital Excluded Assets" means:
(a) any books and records that Telecapital or any of its
Affiliates is required to retain pursuant to any statute, rule, regulation or
ordinance, or which do not relate to the Telecapital Purchased Assets,
Telecapital Assumed Liabilities or Telecapital Business (it being agreed that
copies of any such materials relating to the Telecapital Purchased Assets or the
Telecapital Business shall be provided to the Purchaser Parties upon their
reasonable request);
(b) all payments and consideration to be received by
Telecapital from the Purchaser Parties and their Affiliates, and all rights and
remedies of Telecapital, under this Agreement or any agreement, instrument or
other document delivered by or on behalf of any Purchaser Party pursuant hereto;
and
(c) any assets, property, or rights which by law cannot be
transferred, subject to Section 6.10 hereof.
"Telecapital Purchased Assets" means all of the right, title
and interest of Telecapital in and to all assets owned, held or used in the
conduct of the Telecapital Business, of every kind and description, wherever
located, whether tangible or intangible, except for the Telecapital Excluded
Assets. The Telecapital Purchased Assets include, without limitation, the
following:
(a) all of Telecapital's cash, cash equivalents, money on
deposit or in the process of collection with banks, factors and others,
certificates of deposit, commercial paper, letters of credit, stock, bonds and
other investment securities;
(b) all Real Property owned or leased by Telecapital and all
buildings and improvements thereto, including those assets listed on Schedule
1.1(iii);
(c) all Government Licenses of Telecapital, including those
assets listed on Schedule 1.1(iv), to the extent transferable;
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(d) all right, title and interest of Telecapital in loans,
mortgages, indentures, promissory notes, evidences of indebtedness, other debt,
deeds of trust, loan or credit agreements, certificates of interest in all or
part of the foregoing or similar agreements or instruments evidencing
indebtedness of borrowers, other than Accounts Receivable;
(e) all Telecapital Servicing Rights;
(f) all computer equipment, computer terminals, machinery, and
other equipment (including spare parts), automobiles and other vehicles,
furniture, fixtures, supplies, capital improvements in process, and all other
tangible personal property employed in the conduct of the Telecapital Business;
(g) all easements, rights of way, servitudes, leases, permits,
licenses or options used or held by the Telecapital Business;
(h) all Accounts Receivable;
(i) all prepaid rentals, deposits, advances and other prepaid
expenses;
(j) all rights and claims of Telecapital, whether mature,
contingent or otherwise, against third parties, whether in tort, contract or
otherwise, including causes of action, unliquidated rights and claims under or
pursuant to all warranties, representations and guarantees made by
manufacturers, suppliers or vendors, claims for refunds, rights of off-set and
credits of all kinds and all other general intangibles;
(k) all Proprietary Rights related to or used in the
Telecapital Business and all goodwill associated therewith;
(l) all rights under any executory contract related to the
Telecapital Business to which Telecapital or any of its Affiliates is a party,
including the Material Contracts listed on Schedule 4.18; and
(m) all other assets used in the conduct of the Telecapital
Business, whether or not reflected on the books and records of Telecapital,
including, the Telecapital Business as a going concern, its respective goodwill
and franchises, all credit balances of or inuring to Telecapital under any state
unemployment compensation plan or fund, its employment contracts, restrictive
covenants and obligations of present and former employees, agents,
representatives, independent contractors and others, all books, records, files
and papers relating to, or necessary to the conduct of, the Telecapital
Business, including, operating and training manuals, computer programs, manuals
and data, catalogs, quotations, bids, sales and promotional materials,
correspondence, trade association memberships (to the extent transferable),
lists of present and former customers and suppliers, customer credit
information, customers' pricing information, business plans, studies and
analyses, whether prepared by Telecapital or a third party, relating to
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<PAGE> 15
the Telecapital Business, books of account, accounting records and personnel,
employment and other records relating to the Telecapital Business.
"Telecapital Retained Liabilities" means any obligation or
liability of Telecapital of any kind except for Telecapital Assumed Liabilities.
Telecapital Retained Liabilities shall include, without limitation, the
following obligations and liabilities:
(a) any liability of Telecapital or its Affiliates relating to
or arising out of any Telecapital Excluded Assets;
(b) any liability of Telecapital or its Affiliates to any
partner of Telecapital in his capacity as a partner, including without
limitation with respect to distributions to partners and the purchase of the
limited partnership interest of any partner of Telecapital;
(c) any liability of Telecapital or its Affiliates to Bear
Stearns arising out of the transactions contemplated by this Agreement and all
expenses and costs of Telecapital and its Affiliates incident to the
transactions contemplated by this Agreement; and
(d) any liability of Telecapital to any Purchaser Party
resulting from any breach by Telecapital of any representation or warranty or
resulting from any default by Telecapital of its obligations under this
Agreement or any other agreement delivered by or on behalf of Telecapital
pursuant hereto;
(e) any liability arising out of any business activity of
Telecapital that is not part of the Telecapital Business;
(f) any lien, claim or encumbrance on any Telecapital
Purchased Asset, except as set forth on Schedule 4.5;
(g) any liability of Telecapital for any federal, state or
local income or franchise taxes or taxes relating to the payment of the
Telecapital Purchase Price (other than the taxes for which the Purchaser Parties
are responsible under Section 6.5) and any penalties or other payments with
respect thereto;
(h) except as may be included as Telecapital Assumed
Liabilities, any liability of any Seller for vacation, sick leave, holiday or
severance obligations or compensation, if any, to any employee or former
employee of Telecapital, including any severance and other post-Closing
obligation to David Harvey;
(i) any liability of Telecapital to any Affiliate of
Telecapital, including without limitation those disclosed on Schedule 4.22
except as specifically set forth on Schedule 1.1(vi); and
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(j) any liability of Telecapital to Rothschild arising under
Telecapital's agreement with Rothschild, dated as of January 17, 1997 (which is
described on Schedule 4.18), subject to the Purchaser Parties' obligations under
Section 6.14 hereof.
"Telecapital Servicing Rights" means the rights and
responsibilities of Telecapital with respect to the servicing of loans
originated, acquired, or sold, in whole or in part, by Telecapital and any right
to receive servicing fees and ancillary income relating thereto.
"Third Party Claim" has the meaning ascribed to such term in
Section 9.3.
Section 1.2. Terms Defined in Other Articles. The following
terms have the meanings set forth in the respective Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acceptable Letter of Credit 2.2
Antitrust Division 6.9
Bear Stearns 3.20
Closing 2.4
Closing Date 2.4
Continuation Coverage 6.7
Damages 9.2
Employees 6.7
Encumbrances 3.3
Exchange Act 5.9
FTC 6.9
HSR Act 6.9
Government Licenses Definition of IFC Purchased Assets
IFC Recitals
IFC Business Recitals
IFC Escrow Agreement 2.2
IFC Financial Statements 3.9
IFC Note 2.2
IFC Purchase Price 2.2
Indemnified Party 9.2
Indemnifying Party 9.2
Material Contracts 3.18
Parent Recitals
Parent Financial Statements 5.6
Proprietary Rights Definition of IFC Purchased Assets
Purchaser Recitals
Purchaser1 Recitals
Purchaser2 Recitals
Purchaser Parties Recitals
Purchaser Common Stock 5.9
Real Property Definition of IFC Purchased Assets
Registration Statement 6.8
Related Parties 3.22
</TABLE>
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<PAGE> 17
<TABLE>
<S> <C>
Report 6.9
SBA Recitals
SEC 5.11
SEC Reports 5.11
Securities Act 6.8
Survival Period 9.1
Telecapital Recitals
Telecapital Business Recitals
Telecapital Escrow Agreement 2.2
Telecapital Financial Statements 4.9
Telecapital Note 2.2
Telecapital Purchase Price 2.2
Third Party Claim 9.3
</TABLE>
Section 1.3. Interpretation. Unless otherwise indicated to the
contrary herein by the context or use thereof: (i) the words, "herein,"
"hereto," "hereof" and words of similar import refer to this Agreement as a
whole and not to any particular Section or paragraph hereof; (ii) words
importing the masculine gender shall also include the feminine and neutral
genders, and vice versa; (iii) words importing the singular shall also include
the plural, and vice versa; and (iv) the term "including" shall mean "including
without limitation."
ARTICLE II
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES;
ADDITIONAL COVENANTS
Section 2.1. Purchase and Sale of Assets. Upon the terms and
subject to the conditions of this Agreement, at the Closing (as defined in
Section 2.4), (a) IFC shall sell, assign, transfer, convey and deliver to
Purchaser1 all of IFC's right, title and interest in and to the IFC Purchased
Assets and Purchaser1 shall purchase such IFC Purchased Assets from IFC; and (b)
Telecapital shall sell, assign, transfer, convey and deliver to Purchaser2 all
of Telecapital's right, title and interest in and to the Telecapital Purchased
Assets and Purchaser2 shall purchase such Telecapital Purchased Assets from
Telecapital.
Section 2.2. Purchase Price.
(a) IFC Purchase Price. In consideration of the sale,
assignment, transfer and conveyance of the IFC Purchased Assets, and in reliance
upon the covenants, representations and warranties made herein by IFC, the
Purchaser Parties shall pay or assume the following (collectively, the "IFC
Purchase Price"):
(i) At the Closing the Purchaser Parties shall pay to IFC cash
in an amount equal to $34,610,000 in immediately available funds by
wire transfer to an account designated by IFC.
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<PAGE> 18
(ii) The Purchaser Parties shall deliver a convertible
promissory note (the "IFC Note") in the principal amount of
$28,320,000, convertible into the number of shares of common stock, par
value $.05 per share ("Common Stock"), of Parent which results from
dividing the principal amount plus accrued interest by the average
closing sales prices (adjusted for any stock splits, stock dividends,
reclassification, reorganization or similar event during the applicable
time period) for the Common Stock as reported on the Nasdaq National
Market System for the five (5) trading days immediately preceding the
effective date of the Registration Statement. The IFC Note shall be
convertible at the option of IFC or Parent at any time on or after the
effective date of the Registration Statement. The IFC Note shall bear
interest at the rate of 10% per annum payable monthly except that no
interest shall be due for the first two days of the term of the Note.
After the IFC Note has been outstanding for more than ninety (90) days,
the interest rate shall increase to twelve percent (12%) per annum. The
term of the IFC Note shall be six months from the Closing Date, at
which time all principal and accrued interest shall be due and payable.
Notwithstanding the foregoing, if the Registration Statement is not
effective by the fifteenth day after the Closing Date, on or after such
fifteenth day IFC shall have the right to convert the principal and
accrued interest of the IFC Note based on the five (5) trading days
immediately preceding the date of conversion; such a conversion shall
not relieve the Purchaser Parties of their obligations under Section
6.8. At the Closing $5,000,000 of the cash consideration payable under
subsection (a)(i) above or an irrevocable letter of credit issued by
Chase Manhattan Bank, N.A. or another United States financial
institution with over $10 billion in assets reasonably acceptable to
Parent, on terms acceptable to Parent, (an "Acceptable Letter of
Credit") shall be deposited into escrow under an escrow agreement (the
"IFC Escrow Agreement") between the Purchaser Parties, IFC and an
independent escrow agent selected by Parent and reasonably acceptable
to IFC, to be the exclusive source for all indemnification claims
against IFC under Article IX hereof. IFC shall be permitted to
substitute cash for an Acceptable Letter of Credit, or vice versa, as
the escrow fund once during the term of the IFC Escrow Agreement, and
in such event the parties shall make all necessary amendments to the
IFC Escrow Agreement to effect such substitution. At the Closing the
Purchaser Parties, IFC and the escrow agent shall execute and deliver
the IFC Escrow Agreement in the form of Exhibit E hereto. The IFC
escrow will be held and disbursed in accordance with the terms of the
IFC Escrow Agreement and Article IX hereof and shall not be deemed paid
to IFC until so disbursed to IFC under the IFC Escrow Agreement.
(iii) The Purchaser Parties shall assume at the Closing the
IFC Assumed Liabilities.
(b) Telecapital Purchase Price. In consideration of the sale,
assignment, transfer and conveyance of the Telecapital Purchased Assets, and in
reliance upon the covenants, representations and warranties made herein by the
Telecapital, the Purchaser Parties shall pay or assume the following
(collectively, the "Telecapital Purchase Price"):
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<PAGE> 19
(i) At the Closing the Purchaser Parties shall pay to
Telecapital cash in an amount equal to $10,047,000 in immediately
available funds by wire transfer to an account designated by
Telecapital.
(ii) The Purchaser Parties shall deliver a convertible
promissory note (the "Telecapital Note") in the principal amount of
$8,223,000, convertible into the number of shares of common stock, par
value $.05 per share ("Common Stock"), of Parent which results from
dividing the principal amount plus accrued interest by the average
closing sales prices (adjusted for any stock splits, stock dividends,
reclassification, reorganization or similar event during the applicable
time period) for the Common Stock as reported on the Nasdaq National
Market System for the five (5) trading days immediately preceding the
effective date of the Registration Statement. The Telecapital Note
shall be convertible at the option of Telecapital or Parent at any time
on or after the effective date of the Registration Statement. The
Telecapital Note shall bear interest at the rate of 10% per annum
payable monthly except that no interest shall be due for the first two
days of the term of the Note. After the Telecapital Note has been
outstanding for more than ninety (90) days, the interest rate shall
increase to twelve percent (12%) per annum. The term of the Telecapital
Note shall be six months from the Closing Date, at which time all
principal and accrued interest shall be due and payable.
Notwithstanding the foregoing, if the Registration Statement is not
effective by the fifteenth day after the Closing Date, on or after such
fifteenth day Telecapital shall have the right to convert the principal
and accrued interest of the Telecapital Note based on the five (5)
trading days immediately preceding the date of conversion; such a
conversion shall not relieve the Purchaser Parties of their obligations
under Section 6.8 At the Closing $2,500,000 of the cash consideration
payable under subsection (b)(i) above or an irrevocable letter of
credit issued by Chase Manhattan Bank, N.A. or another United States
financial institution with over $10 billion in assets reasonably
acceptable to Parent, on terms acceptable to Parent, (an "Acceptable
Letter of Credit") shall be deposited into escrow under an escrow
agreement (the "Telecapital Escrow Agreement") between the Purchaser
Parties, Telecapital and an independent escrow agent selected by Parent
and reasonably acceptable to Telecapital, to be the exclusive source
for all indemnification claims against Telecapital under Article IX
hereof. Telecapital shall be permitted to substitute cash for an
Acceptable Letter of Credit, or vice versa, as the escrow fund once
during the term of the Telecapital Escrow Agreement, and in such event
the parties shall make all necessary amendments to the Telecapital
Escrow Agreement to effect such substitution. At the Closing the
Purchaser Parties, Telecapital and the escrow agent shall execute and
deliver the Telecapital Escrow Agreement in the form of Exhibit F
hereto. The Telecapital escrow will be held and disbursed in accordance
with the terms of the Telecapital Escrow Agreement and Article IX
hereof and shall not be deemed paid to Telecapital until so disbursed
to Telecapital under the Telecapital Escrow Agreement.
(iii) The Purchaser Parties shall assume at the Closing the
Telecapital Assumed Liabilities.
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<PAGE> 20
Section 2.3. Allocation of the Purchase Price. The IFC
Purchase Price and the Telecapital Purchase Price shall be allocated amongst the
IFC Purchased Assets and Telecapital Purchased Assets, respectively, for
federal, state, local and foreign (if any) tax purposes as set forth in Exhibits
A-1 and A-2, respectively, which shall be reasonably agreed upon by the
Purchaser Parties and IFC and Telecapital, respectively, and attached hereto
within 10 days after the date hereof. The Purchaser Parties and IFC and
Telecapital shall use such allocation in filing their respective Internal
Revenue Service Form 8594s and such allocations will be controlling in
connection with any federal, state, local or foreign tax consequences resulting
from the transactions contemplated hereby.
Section 2.4. Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place at the offices of
LOWENSTEIN SANDLER PC, 65 Livingston Avenue, Roseland, New Jersey, at 10:00 A.M.
within five Business Days of the satisfaction or waiver of the conditions set
forth in Article VII, or at such other time and place as is mutually agreed by
the Purchaser Parties and the Sellers. The time and date of the Closing is
herein called the "Closing Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF IFC
IFC represents and warrants to the Purchaser Parties, with
respect to IFC, as follows:
Section 3.1. Organization and Qualification of IFC and the IFC
Subsidiaries. IFC is a limited liability company duly organized and validly
existing under the laws of the State of Texas, with full limited liability
company power and authority to own or lease its property and assets and to carry
on the IFC Business as presently conducted, and is duly qualified to do business
as a foreign limited liability company and is in good standing in each
jurisdiction listed in Schedule 3.1, which constitute all of the jurisdictions
in which IFC is currently conducting the IFC Business where the failure to be so
qualified and in good standing could reasonably be expected to result in a
Material Adverse Change. Each of the IFC Subsidiaries is duly organized and
validly existing and if a corporation, in good standing, under the laws of the
State of Delaware, with full limited liability or corporate, as the case may be,
power and authority to own or lease their property and to carry on their
business as presently conducted.
Section 3.2. Authorization. IFC has full limited liability
power and authority to execute and deliver this Agreement and the instruments of
transfer and to perform its obligations hereunder and thereunder, all of which
have been duly authorized by all requisite limited liability action. Each of
this Agreement and such instruments of transfer has been or, at the time of
delivery will be, duly authorized, executed and delivered by IFC and constitutes
or, at the time of delivery will constitute, a valid and binding agreement of
IFC, enforceable against IFC in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
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<PAGE> 21
Section 3.3. Non-contravention. Except as set forth in
Schedule 3.3, neither the execution and delivery of this Agreement nor the
instruments of transfer nor the performance by IFC of its obligations hereunder
and thereunder will (i) contravene any provision contained in IFC's Articles of
Organization or Regulations, (ii) materially violate or result in a material
breach (with or without the lapse of time, the giving of notice or both) of or
constitute a material default under (A) any contract, agreement, commitment,
indenture, mortgage, lease, pledge, note, license, permit or other instrument or
obligation or (B) any judgment, order, decree, law, rule or regulation or other
restriction of any Governmental Authority, in each case to which IFC is a party
or by which it is bound or to which any of its assets or properties are subject,
(iii) result in the creation or imposition of any lien, claim, charge, mortgage,
pledge, security interest, equity, restriction or other encumbrance
(collectively, "Encumbrances") on any of the IFC Purchased Assets, or (iv)
result in the acceleration of, or permit any Person to accelerate or declare due
and payable prior to its stated maturity, any IFC Assumed Liability.
Section 3.4. No Consents. Except as set forth in Schedule 3.4,
no notice to, filing with, or authorization, registration, consent or approval
of any Governmental Authority or other Person is necessary for the execution,
delivery or performance of this Agreement or the instruments of transfer or the
consummation of the transactions contemplated hereby or thereby by IFC.
Section 3.5. The IFC Purchased Assets. Except for any
Government Licenses which may not be transferable, the IFC Purchased Assets
constitute all of the rights, properties and assets (real, personal or mixed,
tangible or intangible) which are necessary for the conduct of the IFC Business
in the manner which it is conducted by IFC on the date of this Agreement. Except
as disclosed in Schedule 3.5, no third party (including any Affiliate) owns or
has any interest by lease, license or otherwise in any of the IFC Purchased
Assets. The documents of transfer to be executed and delivered by IFC at the
Closing will be sufficient to convey good title to the IFC Purchased Assets to
Purchaser1, free and clear of all Encumbrances, other than IFC Assumed
Liabilities.
Section 3.6. Personal Property. Except as disclosed in
Schedule 3.6, IFC has good title to (or valid leasehold or contractual interests
in) all personal property included in the IFC Purchased Assets, free and clear
of any Encumbrances, other than those which, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Change or
materially impair the value or usefulness of the IFC Purchased Assets taken as a
whole.
Section 3.7. Real Property. Except as disclosed in Schedule
3.7, IFC has good, marketable and insurable fee simple (or leasehold title) to
the Real Property included in the IFC Purchased Assets, free and clear of all
Encumbrances, other than those which, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Change or materially
impair the value or usefulness of the IFC Purchased Assets taken as a whole.
Section 3.8. No Condemnation. To IFC's knowledge, neither the
whole nor any portion of the Real Property included in the IFC Purchased Assets
is subject to any governmental
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<PAGE> 22
decree or order to be sold nor have any proceedings for the condemnation,
expropriation or other taking of all or any portion of such Real Property been
instituted or overtly threatened by any Governmental Authority, with or without
payment therefor.
Section 3.9. Financial Statements. IFC has previously
furnished to the Purchaser Parties (i) a true and complete copy of IFC's balance
sheet as of December 31, 1997 and the related statements of operations, cash
flows and changes in members' capital for the year then ended, certified by the
Accountants, (ii) a true and complete copy of IFC's balance sheet as of December
31, 1996 and the related statements of operations, cash flows and changes in
members' capital for the year then ended, certified by Arthur Andersen LLP, and
(iii) a true and complete copy of IFC's unaudited balance sheet as of April 30,
1998 and the related unaudited statements of operations, cash flows and changes
in members' capital for the four month period then ended (collectively, the "IFC
Financial Statements"). Except as disclosed in Schedule 3.9, the IFC Financial
Statements have been prepared in conformity with GAAP, applied on a consistent
basis except as described in the notes thereto and except, in the case of the
Financial Statements for the four month period ended April 30, 1998, for
year-end adjustments consisting only of normal recurring accruals and presents
fairly the financial condition and results of operations of the Seller as of and
for the periods included therein.
Section 3.10. Absence of Certain Developments. Except as set
forth in Schedule 3.10 or any other Schedule hereto, since April 30, 1998, (a)
there has not been any Material Adverse Change with respect to IFC except for
(i) changes in general economic or financial conditions or in generally
prevailing commercial interest rates, (ii) changes resulting from the actions of
any Purchaser Party or any of its Affiliates or representatives, and (iii)
changes contemplated by this Agreement; (b) IFC has not transferred or disposed
of any material properties or assets used in the IFC Business except in the
ordinary course of business of the IFC Business consistent with past practices
or as contemplated by this Agreement; (c) except for actions contemplated by
this Agreement, IFC has conducted the IFC Business in the ordinary course
consistent with past practice, including, without limitation, with respect to
repayment of subordinated debt and other obligations to Affiliates and
distributions to members out of excess working capital; (d) IFC has not
increased the compensation of any officer, director or employee except for
annual salary or wage increases consistent with past practices; (e) IFC has not
adopted any new benefit program, plan or similar arrangement for officers,
directors or employees; (f) IFC has not changed its accounting methods or
practices; and (g) IFC has paid, discharged and satisfied claims, liabilities
and obligations relating to the IFC Business in the ordinary course of business
of the IFC Business consistent with past practices (including as referred to in
(c) above) except as may otherwise be contemplated by this Agreement.
Section 3.11. Governmental Authorizations; Licenses; Etc. The
IFC Business has been operated in compliance in all material respects with all
applicable laws, rules, regulations, codes, ordinances, orders, policies and
guidelines of all Governmental Authorities. IFC has and has made all
notifications, registrations, certifications and filings with all Governmental
Authorities with respect to Governmental Licenses necessary or, to its
knowledge, advisable for the operation of the IFC Business as currently
conducted by IFC. As of the date of this Agreement, there is no action, case or
proceeding pending or, to IFC's knowledge, overtly
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<PAGE> 23
threatened by any Governmental Authority with respect to (i) any alleged
violation by IFC of any law, rule, regulation, code, ordinance, order, policy or
guideline of any Governmental Authority, or (ii) any alleged failure by IFC to
have any Government License required in connection with the operation of the IFC
Business. As of the date of this Agreement, no notice of any violation of such
laws has been received by IFC which, to IFC's knowledge, has not been cured in
all material respects.
Section 3.12. Litigation. Except as set forth in Schedule
3.12, as of the date of this Agreement there are no lawsuits, actions,
proceedings, claims, orders or investigations by or before any Governmental
Authority pending or, to the IFC's knowledge, overtly threatened against IFC or
its Affiliates relating to the IFC Business, the IFC Purchased Assets, or the
IFC Assumed Liabilities or seeking to enjoin the transactions contemplated
hereby, other than litigation incident to the normal conduct of the IFC Business
which, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Change.
Section 3.13. Undisclosed Liabilities Other than those
reflected in any of the IFC Financial Statements (including the notes thereto)
or disclosed on any Schedule hereto, there are no material liabilities of IFC of
any kind or nature whatsoever, whether known or unknown, absolute, accrued,
contingent or otherwise, whether due or to become due, that are required to be
disclosed on financial statements prepared in accordance with GAAP, other than
liabilities which have been incurred or which have arisen in the ordinary course
of business since the date of the IFC Financial Statements or which have been
incurred or have arisen in connection with this Agreement or the transactions
contemplated herein.
Section 3.14. Taxes. Except as set forth in Schedule 3.14, all
federal, state, county, local and foreign tax returns and reports of IFC or any
Affiliate required to be filed which relate to or affect the IFC Business have
been filed. Except as set forth in Schedule 3.14, all federal, state, county,
local, foreign and any other taxes (including all income, withholding and
employment taxes), assessments (including interest and penalties), fees and
other governmental charges relating to or affecting the IFC Business have been
paid or duly provided for, or are being contested in good faith by appropriate
proceedings as disclosed on Schedule 3.14 and adequate reserves therefor have
been established pursuant to GAAP, or have arisen after the date hereof in the
ordinary course of business.
Section 3.15. Insurance. Schedule 3.15 sets forth a true and
correct list of all insurance policies or binders maintained by IFC on the date
hereof. Such policies and binders are, as of the date hereof, in full force and
effect.
Section 3.16. Proprietary Rights. All of IFC's Proprietary
Rights are listed in Schedule 3.16. Except as disclosed therein, IFC owns and
possesses all right, title and interest in and to the Proprietary Rights. To
IFC's knowledge, no claim by any third party contesting the validity,
enforceability, use or ownership of any Proprietary Right of IFC is pending or
overtly threatened as of the date of this Agreement.
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<PAGE> 24
Section 3.17. Accounts and Loans Receivable. Schedule 3.17
sets forth a true and complete listing of all Accounts Receivable and loans
receivable as of the date of this Agreement and an aging schedule as of such
date for the loans receivable reflecting the aggregate amount of all Accounts
Receivable outstanding and loans receivable past due (i) 30 days or less, (ii)
more than 30 days but less than or equal to 60 days, (iii) more than 60 days but
less than or equal to 90 days, and (iv) more than 90 days. All of the Accounts
Receivable and loans receivable have arisen in the ordinary and regular course
of business and represent bona fide transactions with third parties.
Section 3.18. Material Contracts. (a) Schedule 3.18 describes
all contracts agreements, leases, commitments, instruments, plans, permits or
licenses (except for loans originated or acquired (and the promissory notes,
credit agreements, mortgages, security agreements and other agreements and
instruments related thereto) or servicing rights which have arisen in the
ordinary course of the Seller's business), whether written or oral, of the type
described below (the "Material Contracts"), with respect to the IFC Business to
which IFC is a party or is otherwise bound on the date of this Agreement and
which are not described on Schedule 3.5, 3.6, 3.7, 3.15 or 3.16 hereto:
(i) all agreements or commitments for the purchase by IFC
of machinery, equipment or other personal property other than those
that are for amounts not to exceed $25,000;
(ii) all capitalized leases, pledges, conditional sale or
title retention agreements;
(iii) all employment agreements and commitments and all
consulting or severance agreements or arrangements;
(iv) all agreements relating to the consignment or lease of
personal property, other than such agreements that provide for annual
payments of less than $((25,000));
(v) all license, royalty or other agreements relating to
Proprietary Rights;
(vi) all agreements prohibiting the free engagement of
business in any geographic area; and
(vii) any agreement other than those covered by clauses (i)
through (vi) above relating to the IFC Business and involving payment
or receipt of more than $150,000 in the aggregate.
(b) Except as disclosed in Schedule 3.18, all of the
Material Contracts which are intended to be assigned hereunder to Purchaser1 by
IFC are fully assignable to Purchaser1 by IFC without the consent of any third
party. Except as disclosed in Schedule 3.18, all consents of third parties
required for the assignment of such Material Contracts to Purchaser1 have been
obtained or will have been obtained prior to or on the Closing Date. To IFC's
knowledge on the date of this Agreement, none of the other parties to any such
Material Contracts intends to terminate or
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materially alter such Material Contracts either as a result of the transactions
contemplated hereby or otherwise.
(c) Except as disclosed in Schedule 3.18, as of the date of
this Agreement IFC is not in, nor has IFC given or received notice of, any
default or claimed, purported or alleged default, or facts that, with notice or
lapse of time, or both, would constitute a default (or give rise to a
termination right) on the part of any party in the performance of any obligation
to be performed under any of the Material Contracts of IFC.
(d) True and complete copies of all written Material
Contracts, with respect to the IFC Business, including any amendments thereto,
have been delivered to the Purchaser Parties.
Section 3.19. Books and Records. The books and records of IFC,
including financial records and books of account, are complete and accurate in
all material respects and have been maintained in accordance with GAAP, to the
extent applicable.
Section 3.20. Brokers. With the exception of Bear Stearns &
Co. Inc. ("Bear Stearns"), no Person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from IFC in
connection with this Agreement or any of the transactions contemplated hereby.
The fees and expenses of Bear Stearns are the sole responsibility of, and shall
be paid by, the Sellers.
Section 3.21. Disclosure. Certain matters reflected in the
Schedules referred to in this Article III are not necessarily required by this
Agreement to be reflected in such Schedules. Such additional matters are merely
set forth for informational purposes and do not necessarily include other
matters of a similar nature not required to be disclosed hereunder. In addition
to the foregoing, any matter disclosed pursuant to one provision of this
Agreement shall be deemed to be disclosed for all purposes hereunder to the
extent this Agreement requires such disclosure.
Section 3.22. Agreements and Transactions with Related
Parties. Except as set forth in Schedule 3.22, IFC is not directly or indirectly
a party to any contract, agreement or lease with, or any other commitment to,
(a) any Seller Principal and any other party owning, beneficially or of record,
any of the shares of or other equity interest in any Seller, (b) any person
related (as parent, child, grandchild, uncle, aunt, nephew or niece) by blood,
adoption or marriage to any Seller Principal or any such other party, (c) any
director or officer of any Seller, (d) any corporation or other entity in which
any of the foregoing parties has, directly or indirectly, at least a five
percent (5.0%) beneficial interest in the share capital or other type of equity
interest in such corporation or (e) any partnership in which any such party is a
general partner (any or all of the foregoing, other than IFC, being herein
referred to as "Related Parties"). Without limiting the generality of the
foregoing, except as disclosed in Schedule 3.22, (i) none of the Related
Parties, directly or indirectly, owns or controls any assets or properties which
are or within the preceding three (3) years have been used in the IFC Business
and (ii) to the knowledge of IFC and its officers and directors, none of the
Related Parties, directly or indirectly, engages in any business which is or
which, within the last three (3) years, has been a competitor of IFC or has done
business with IFC.
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Section 3.23. Disclaimer of Warranties. EXCEPT AS EXPRESSLY
SET FORTH IN THIS ARTICLE III, NEITHER IFC NOR ANY OF ITS AFFILIATES MAKES ANY
WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER AND IFC AND ITS
AFFILIATES EXPRESSLY DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, OR
ARISING BY COURSE OF DEALING OR PERFORMANCE, CUSTOM OR USAGE IN THE TRADE OR
OTHERWISE, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF FITNESS FOR
A PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TELECAPITAL
Telecapital represents and warrants to the Purchaser Parties,
with respect to Telecapital, as follows:
Section 4.1. Organization and Qualification of Telecapital.
Telecapital is a limited partnership duly organized and validly existing under
the laws of the State of Delaware, with full limited partnership power and
authority to own or lease its property and assets and to carry on the
Telecapital Business as presently conducted, and is duly qualified to do
business as a foreign limited partnership and is in good standing in each
jurisdiction listed in Schedule 4.1, which constitute all of the jurisdictions
in which Telecapital is currently conducting the Telecapital Business where the
failure to be so qualified and in good standing could reasonably be expected to
result in a Material Adverse Change.
Section 4.2. Authorization. Telecapital has full limited
partnership power and authority to execute and deliver this Agreement and the
instruments of transfer and to perform its obligations hereunder and thereunder,
all of which have been duly authorized by all requisite limited partnership
action. Each of this Agreement and such instruments of transfer has been or, at
the time of delivery will be, duly authorized, executed and delivered by
Telecapital and constitutes or, at the time of delivery will constitute, a valid
and binding agreement of Telecapital, enforceable against Telecapital in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
Section 4.3. Non-contravention. Except as set forth in
Schedule 4.3, neither the execution and delivery of this Agreement nor the
instruments of transfer nor the performance by Telecapital of its obligations
hereunder and thereunder will (i) contravene any provision contained in
Telecapital's Limited Partnership Agreement, (ii) materially violate or result
in a material breach (with or without the lapse of time, the giving of notice or
both) of or constitute a material default under (A) any contract, agreement,
commitment, indenture, mortgage, lease, pledge, note, license, permit or other
instrument or obligation or (B) any judgment, order, decree, law, rule or
regulation or other restriction of any Governmental Authority, in each case to
which Telecapital is a party or by which it is bound or to which any of its
assets or properties are
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subject, (iii) result in the creation or imposition of any Encumbrances on any
of the Telecapital Purchased Assets, or (iv) result in the acceleration of, or
permit any Person to accelerate or declare due and payable prior to its stated
maturity, any Telecapital Assumed Liability.
Section 4.4. No Consents. Except as set forth in Schedule 4.4,
no notice to, filing with, or authorization, registration, consent or approval
of any Governmental Authority or other Person is necessary for the execution,
delivery or performance of this Agreement or the instruments of transfer or the
consummation of the transactions contemplated hereby or thereby by Telecapital.
Section 4.5. The Telecapital Purchased Assets. Except for any
Government Licenses which may not be transferable, the Telecapital Purchased
Assets constitute all of the rights, properties and assets (real, personal or
mixed, tangible or intangible) which are necessary for the conduct of the
Telecapital Business in the manner which it is conducted by Telecapital on the
date of this Agreement. Except as disclosed in Schedule 4.5, no third party
(including any Affiliate) owns or has any interest by lease, license or
otherwise in any of the Telecapital Purchased Assets. The documents of transfer
to be executed and delivered by Telecapital at the Closing will be sufficient to
convey good title to the Telecapital Purchased Assets to the Purchaser2, free
and clear of all Encumbrances, other than Telecapital Assumed Liabilities.
Section 4.6. Personal Property. Except as disclosed in
Schedule 4.6, Telecapital has good title to (or valid leasehold or contractual
interests in) all personal property included in the Telecapital Purchased
Assets, free and clear of any Encumbrances, other than those which, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Change or materially impair the value or usefulness of the Telecapital
Purchased Assets taken as a whole.
Section 4.7. Real Property. Except as disclosed in Schedule
4.7, Telecapital has good, marketable and insurable fee simple (or leasehold
title) to the Real Property included in the Telecapital Purchased Assets, free
and clear of all Encumbrances, other than those which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change or materially impair the value or usefulness of the Telecapital Purchased
Assets taken as a whole.
Section 4.8. No Condemnation. To Telecapital's knowledge,
neither the whole nor any portion of the Real Property included in the
Telecapital Purchased Assets is subject to any governmental decree or order to
be sold nor have any proceedings for the condemnation, expropriation or other
taking of all or any portion of such Real Property been instituted or overtly
threatened by any Governmental Authority, with or without payment therefor.
Section 4.9. Financial Statements. Telecapital has previously
furnished to the Purchaser Parties (i) a true and complete copy of its balance
sheet as of December 31, 1997 and the related statements of operations, cash
flows and changes in partners' capital for each of the years in the two year
period then ended, certified by the Accountants and (ii) a true and complete
copy of its unaudited balance sheet as of April 30, 1998 and the related
unaudited statements of
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operations, cash flows and changes in partners' capital for the four month
period then ended, (collectively, the "Telecapital Financial Statements").
Except as disclosed in Schedule 4.9, the Telecapital Financial Statements have
been prepared in conformity with GAAP, applied on a consistent basis except as
described in the notes thereto and except, in the case of the Telecapital
Financial Statements for the four month period ended April 30, 1998, for
year-end adjustments consisting only of normal recurring accruals and presents
fairly the financial condition and results of operations of the Seller as of and
for the periods included therein.
Section 4.10. Absence of Certain Developments. Except as set
forth in Schedule 4.10, since April 30, 1998, (a) there has not been any
Material Adverse Change with respect to Telecapital, except for (i) changes in
general economic or financial conditions or in generally prevailing commercial
interest rates, (ii) changes resulting from the actions of any Purchaser Party
or any of its Affiliates or representatives, and (iii) changes contemplated by
this Agreement; (b) Telecapital has not transferred or disposed of any material
properties or assets used in the Telecapital Business except in the ordinary
course of business of the Telecapital Business consistent with past practices or
as contemplated by this Agreement; (c) except for actions contemplated by this
Agreement, Telecapital has conducted the Telecapital Business in the ordinary
course consistent with past practice, including, without limitation, with
respect to repayment of subordinated debt and other obligations to Affiliates
and distributions to members out of excess working capital; (d) Telecapital has
not increased the compensation of any officer, director or employee except for
annual salary or wage increases consistent with past practices; (e) Telecapital
has not adopted any new benefit program, plan or similar arrangement for
officers, directors or employees; (f) Telecapital has not changed its accounting
methods or practices; and (g) Telecapital has paid, discharged and satisfied
claims, liabilities and obligations relating to the Telecapital Business in the
ordinary course of business of the Telecapital Business consistent with past
practices (including as referred to in (c) above) except as may otherwise be
contemplated by this Agreement.
Section 4.11. Governmental Authorizations; Licenses; Etc.
Except as disclosed on Schedule 1.1(iv), the Telecapital Business has been
operated in compliance in all material respects with all applicable laws, rules,
regulations, codes, ordinances, orders, policies and guidelines of all
Governmental Authorities. Telecapital has and has made in all material respects
all notifications, registrations, certifications and filings with all
Governmental Authorities with respect to all Governmental Licenses necessary or,
to its knowledge, advisable for the operation of the Telecapital Business as
currently conducted by Telecapital. As of the date of this Agreement, there is
no action, case or proceeding pending or, to Telecapital's knowledge, overtly
threatened by any Governmental Authority with respect to (i) any alleged
violation by Telecapital of any law, rule, regulation, code, ordinance, order,
policy or guideline of any Governmental Authority, or (ii) any alleged failure
by Telecapital to have any permit, license, approval, certification or other
authorization required in connection with the operation of the Telecapital
Business. As of the date of this Agreement, no notice of any violation of such
laws has been received by Telecapital which, to Telecapital's knowledge, has not
been cured in all material respects.
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Section 4.12. Litigation. Except as set forth in Schedule
4.12, as of the date of this Agreement there are no lawsuits, actions,
proceedings, claims, orders or investigations by or before any Governmental
Authority pending or, to Telecapital's knowledge, overtly threatened against
Telecapital or its Affiliates relating to the Telecapital Business, the
Telecapital Purchased Assets, or the Telecapital Assumed Liabilities or seeking
to enjoin the transactions contemplated hereby, other than litigation incident
to the normal conduct of the Telecapital Business which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change.
Section 4.13. Undisclosed Liabilities Other than those
reflected in the Telecapital Financial Statements (including the notes thereto)
or disclosed in any Schedule hereto, there are no material liabilities of
Telecapital of any kind or nature whatsoever, whether known or unknown,
absolute, accrued, contingent or otherwise, or whether due or to become due,
that are required to be disclosed on financial statements prepared in accordance
with GAAP, other than liabilities which have been incurred or which have arisen
in the ordinary course of business since the date of the Telecapital Financial
Statements or which have been incurred or have arisen in connection with this
Agreement or the transactions contemplated herein.
Section 4.14. Taxes. Except as set forth in Schedule 4.14, all
federal, state, county, local and foreign tax returns and reports of Telecapital
or any Affiliate required to be filed which relate to or affect the Telecapital
Business have been filed. Except as set forth in Schedule 4.14, all federal,
state, county, local, foreign and any other taxes (including all income,
withholding and employment taxes), assessments (including interest and
penalties), fees and other governmental charges relating to or affecting the
Telecapital Business have been paid or duly provided for, or are being contested
in good faith by appropriate proceedings as disclosed on Schedule 4.14 and
adequate reserves therefor have been established pursuant to GAAP, or have
arisen after the date hereof in the ordinary course of business.
Section 4.15. Insurance. Schedule 4.15 sets forth a true and
correct list of all insurance policies or binders maintained by Telecapital on
the date hereof. Such policies and binders are, as of the date hereof, in full
force and effect.
Section 4.16. Proprietary Rights. All of Telecapital's
Proprietary Rights are listed in Schedule 4.16. Except as disclosed therein,
Telecapital owns and possesses all right, title and interest in and to the
Proprietary Rights. To Telecapital's knowledge, no claim by any third party
contesting the validity, enforceability, use or ownership of any Proprietary
Right of Telecapital is pending or overtly threatened as of the date of this
Agreement.
Section 4.17. Accounts and Loans Receivable. Schedule 4.17
sets forth a true and complete listing of all Accounts Receivable and loans
receivable as of the date of this Agreement and an aging schedule as of such
date for the loans receivable. All of the Accounts Receivable and loans
receivable have arisen in the ordinary course of business and represent bona
fide transactions with third parties.
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Section 4.18. Material Contracts. (a) Schedule 4.18 describes
the Material Contracts with respect to the Telecapital Business to which
Telecapital is a party or otherwise bound on the date of this Agreement and
which are not described on Schedule 4.5, 4.6, 4.7, 4.15 or 4.16 hereto.
(b) Except as disclosed in Schedule 4.18, all of the Material
Contracts which are intended to be assigned hereunder to Purchaser2 by
Telecapital are fully assignable to Purchaser2 by Telecapital without the
consent of any third party. Except as disclosed in Schedule 4.18, all consents
of third parties required for the assignment of such Material Contracts to
Purchaser2 have been obtained, or will have been obtained prior to or on the
Closing Date. To Telecapital's knowledge on the date of this Agreement, none of
the other parties to any such Material Contracts intends to terminate or
materially alter such Material Contracts either as a result of the transactions
contemplated hereby or otherwise, except as disclosed in Schedule 4.18.
(c) Except as disclosed in Schedule 4.18, as of the date of
this Agreement Telecapital is not in, nor has Telecapital given or received
notice of, any default or claimed, purported or alleged default, or facts that,
with notice or lapse of time, or both, would constitute a default (or give rise
to a termination right) on the part of any party in the performance of any
obligation to be performed under any of the Material Contracts of Telecapital.
(d) True and complete copies of all written Material Contracts
with respect to the Telecapital Business, including any amendments thereto, have
been delivered to the Purchaser Parties.
Section 4.19. Books and Records. The books and records of
Telecapital, including financial records and books of account, are complete and
accurate in all material respects and have been maintained in accordance with
GAAP, to the extent applicable.
Section 4.20. Brokers. With the exception of Bear Stearns, no
Person is or will be entitled to a broker's, finder's, investment banker's,
financial adviser's or similar fee from Telecapital in connection with this
Agreement or any of the transactions contemplated hereby. The fees and expenses
of Bear Stearns are the responsibility of, and shall be paid by, the Sellers.
Section 4.21. Disclosure. Certain matters reflected in the
Schedules referred to in this Article IV are not necessarily required by this
Agreement to be reflected in such Schedules. Such additional matters are merely
set forth for informational purposes and do not necessarily include other
matters of a similar nature not required to be disclosed hereunder. In addition
to the foregoing, any matter disclosed pursuant to one provision of this
Agreement shall be deemed to be disclosed for all purposes hereunder to the
extent this Agreement requires such disclosure.
Section 4.22. Agreements and Transactions with Related
Parties. Except as set forth in Schedule 4.22, Telecapital is not directly or
indirectly a party to any contract, agreement or lease with, or any other
commitment to, (a) any Seller Principal and any other party owning, beneficially
or of record, any of the shares of or other equity interest in any Seller, (b)
any person related (as parent, child, grandchild, uncle, aunt, nephew or niece)
by blood, adoption or marriage
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<PAGE> 31
to any Seller Principal or any such other party, (c) any director or officer of
any Seller, (d) any corporation or other entity in which any of the foregoing
parties has, directly or indirectly, at least a five percent (5.0%) beneficial
interest in the share capital or other type of equity interest in such
corporation or (e) any partnership in which any such party is a general partner
(any or all of the foregoing, other than Telecapital, being herein referred to
as "Related Parties"). Without limiting the generality of the foregoing, except
as disclosed in Schedule 4.22, (i) none of the Related Parties, directly or
indirectly, owns or controls any assets or properties which are or within the
preceding three (3) years have been used in the Telecapital Business and (ii) to
the knowledge of Telecapital and its officers and directors, none of the Related
Parties, directly or indirectly, engages in any business which is or which,
within the last three (3) years, has been a competitor of Telecapital or has
done business with Telecapital.
Section 4.23. Disclaimer of Warranties. EXCEPT AS EXPRESSLY
SET FORTH IN THIS ARTICLE IV, NEITHER TELECAPITAL NOR ANY OF ITS AFFILIATES
MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND OR NATURE WHATSOEVER AND
TELECAPITAL AND ITS AFFILIATES EXPRESSLY DISCLAIM ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, OR ARISING BY COURSE OF DEALING OR PERFORMANCE, CUSTOM OR USAGE IN
THE TRADE OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER PARTIES
The Purchaser Parties, jointly and severally, represent and
warrant to each of the Sellers as follows:
Section 5.1. Organization. Each of the Parent and Purchaser1
is a Delaware corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has full corporate power and
authority to own or lease its property and assets and to carry on its business
as presently conducted. Purchaser2 is a Nevada corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
has full corporate power and authority to own or lease its property and assets
and to carry on its business as presently conducted.
Section 5.2. Authorization. The Parent and each Purchaser has
full corporate power and authority, to execute and deliver this Agreement and
the instruments of transfer and to perform its obligations hereunder and
thereunder, all of which have been duly authorized by all requisite corporate
action. Each of this Agreement and the instruments of transfer has been or, at
the time of delivery will be, duly authorized, executed and delivered by the
Parent and each Purchaser and constitutes or, at the time of delivery will
constitute, a valid and binding agreement of the Parent and each Purchaser,
enforceable against the Parent and each Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
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moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
Section 5.3. Non-contravention. Neither the execution and
delivery of this Agreement nor the instruments of transfer nor the performance
by the Parent or each Purchaser of their obligations hereunder and thereunder
will (i) contravene any provision in the Certificate of Incorporation or by-laws
of the Parent or any Purchaser or (ii) violate or result in a material breach of
or default under any agreement, instrument, law, rule, regulation, order, decree
or judgment of any Governmental Authority or other restriction that could
prevent the consummation of the transactions contemplated by this Agreement or
result in a Material Adverse Change as to the Parent and its consolidated
subsidiaries, taken as a whole.
Section 5.4. No Consents. Except as set forth in Schedule 5.4,
no notice to, filing with, or authorization, registration, consent or approval
of any Governmental Authority or other Person is necessary for the execution,
delivery or performance of this Agreement and the instruments of transfer or the
consummation of the transactions contemplated hereby and thereby by the
Purchaser Parties.
Section 5.5. Financial Resources. The Purchaser Parties have
cash or other committed financial resources presently available to meet all of
their payment obligations under this Agreement.
Section 5.6. Financial Statements. The Parent has previously
furnished to the Sellers (i) a true and complete copy of its balance sheet as of
December 31, 1997 and the related statements of operations, cash flows and
changes in stockholders equity for each of the years in the two year period then
ended, certified by its regular independent public accountants, and (ii) a true
and complete copy of the Parent's unaudited balance sheet as of March 31, 1998
and the related unaudited statements of operations, cash flows and changes in
stockholders' equity for the three month period then ended (collectively, the
"Parent Financial Statements"). The Parent Financial Statements have been
prepared in conformity with GAAP, applied on a consistent basis except as
described in the notes thereto except, in the case of the Financial Statements
for the three month period ended March 31, 1998, for year-end adjustments
consisting only of normal recurring accruals, and present fairly the financial
condition and results of operations of the Parent as of and for the periods
included therein.
Section 5.7. Absence of Certain Developments. Except as set
forth in Schedule 5.7, since December 31, 1997, there has not been any Material
Adverse Change with respect to Parent and its consolidated subsidiaries, taken
as a whole, except for (i) changes in general economic or financial conditions
or in generally prevailing commercial interest rates, (ii) changes resulting
from the actions of Sellers or any of their Affiliates or representatives, and
(iii) changes contemplated by this Agreement.
Section 5.8. Litigation. Except as set forth in Schedule 5.8,
as of the date of this Agreement there are no lawsuits, actions, proceedings,
claims, orders or investigations by or before any Governmental Authority pending
or, to the Purchaser Parties' knowledge, overtly
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threatened against the Purchaser Parties or their Affiliates seeking to enjoin
the transactions contemplated hereby or which could reasonably be expected to
result in a Material Adverse Change as to Parent and its consolidated
subsidiaries taken as a whole.
Section 5.9. Capitalization. The Parent is authorized to issue
150,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par
value $1.00 per share. As of May 31, 1998, the Parent had issued and outstanding
42,810,299 shares of Common Stock (including 24,339 shares held in treasury) and
no shares of preferred stock. All of the issued and outstanding shares of Common
Stock of the Parent have been duly and validly authorized and are validly
issued, fully paid and non-assessable. The shares of Common Stock to be issued
to Sellers pursuant to Section 2.2 will be duly authorized and reserved for
issuance at or before the Closing and when issued, will be validly issued, fully
paid and nonassessable. There are no preemptive rights to the issuance of the
shares of Common Stock of the Parent. Except as set forth in the SEC Reports,
there are no outstanding (a) securities of the Parent convertible into or
exchangeable for shares of capital stock or other securities of the Parent or
(b) options or other rights to acquire shares of capital stock or other
securities from the Parent. There are no outstanding obligations of the Parent
to repurchase, redeem or otherwise acquire any of its outstanding securities.
The Common Stock of the Parent (including those shares to be issued pursuant to
Section 2.2) are registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Purchaser1's authorized capital stock consists
solely of 1,000 shares of common stock, par value $1.00 per share, of which
1,000 are issued and outstanding. Purchaser2's authorized capital stock consists
solely of 5,000 shares of common stock, par value $5.00 per share. All
outstanding shares of the Common Stock of Purchaser1 and Purchaser2 are owned by
the Parent, free and clear of any liens, claims or encumbrances except for liens
granted to Parent's lenders pursuant to credit agreement(s) currently in effect.
Section 5.10. Compliance with Laws. Parent and its
consolidated subsidiaries have complied with all federal, state and local laws,
rules, regulations and ordinances with respect to their operations and the
conduct of their business except for any noncompliance which could not
reasonably be expected to result in a Material Adverse Change as to the Parent
and its consolidated subsidiaries, taken as a whole.
Section 5.11. SEC Filings; Financial Statements. The Parent
has heretofore made available to Sellers the following reports, documents and
other materials (as amended and including exhibits and documents incorporated by
reference, collectively, the "SEC Reports"):
(a) its Annual Report on Form 10-K for the fiscal
year ended December 31, 1997;
(b) its Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998;
(c) any reports filed by it on Form 8-K since
December 31, 1997; and
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(d) its proxy statement relating to its annual
meeting of stockholders which was held May 18, 1998.
The Parent has timely filed with the Securities and Exchange
Commission (the "SEC") the SEC Reports and any other documents required to be
filed by it since December 31, 1995. As of their respective dates, the SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The SEC Reports complied in all material respects with the
Exchange Act and the regulations promulgated thereunder. The audited
consolidated financial statements and unaudited consolidated interim financial
statements of the Parent and its consolidated subsidiaries included or
incorporated by reference in the SEC Reports have been prepared in accordance
with GAAP applied on a basis consistent with prior years (except as may be
indicated in the notes thereto), and fairly present in all material respects in
accordance with GAAP the financial position, results of operations and changes
in financial position for the Parent and its consolidated subsidiaries for the
periods then ended, subject, in the case of unaudited interim financial
statements, to normal year-end adjustments.
Section 5.12. Undisclosed Liabilities. Other than those
reflected in any of the Parent Financial Statements (including the notes
thereto), the SEC Reports or disclosed on any Schedule hereto, there are no
material liabilities of the Parent of any kind or nature whatsoever, whether
known or unknown, absolute, accrued, contingent or otherwise, whether due or to
become due, that are required to be disclosed on financial statements prepared
in accordance with GAAP, other than liabilities which have been incurred or
which have arisen in the ordinary course of business since the date of the
Parent Financial Statements or which have been incurred or have arisen in
connection with this Agreement or the transactions contemplated herein.
Section 5.13. Brokers. No Person is or will be entitled to a
broker's, finder's, investment banker's, financial adviser's or similar fee from
the Purchaser Parties in connection with this Agreement or any of the
transactions contemplated hereby.
ARTICLE VI
COVENANTS AND AGREEMENTS
Section 6.1. Access and Information. Between the date hereof
and the Closing, the Purchaser Parties shall be entitled to make or cause to be
made such reasonable investigation of the IFC Business and the Telecapital
Business, and the financial and legal condition thereof, as the Purchaser
Parties reasonably deem necessary or advisable, and the Sellers shall cooperate
with any such investigation. In furtherance of the foregoing, but not in
limitation thereof, the Sellers shall permit the Purchaser Parties and their
agents and representatives or cause them to be permitted to have full and
complete access to the premises, books and records of the Sellers upon
reasonable notice during regular business hours and shall furnish such financial
and operating data, projections, forecasts, business plans, strategic plans and
other data relating to the IFC Business and the Telecapital Business, as the
case may be, as the Purchaser Parties shall reasonably request from time to
time. Prior to the Closing, the Purchaser Parties shall
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use any information obtained pursuant to this Section 6.1 only for the purpose
of consummating the transactions contemplated by this Agreement and as otherwise
limited by the Confidentiality Agreement dated April 1, 1998 executed by Parent
in favor of Sellers (the "Confidentiality Agreement") and, if such transactions
are not consummated, it will hold all information and documents in accordance
with the Confidentiality Agreement. No investigation by the Purchaser Parties
heretofore or hereafter made shall modify or otherwise affect the conditions to
the obligation of the Purchaser Parties to consummate the transactions
contemplated hereby.
Section 6.2. Affirmative Covenants. Between the date of this
Agreement and the Closing, except as otherwise expressly provided herein or
disclosed on any Schedule hereto, IFC and Telecapital shall:
(a) conduct the IFC Business or the Telecapital Business, as
the case may be, only in the ordinary course of business consistent with past
practices;
(b) keep in full force and effect their respective corporate
existence and all material Government Licenses, Proprietary Rights and goodwill
relating or obtaining to their respective Business;
(c) reasonably endeavor to retain their respective employees,
to compensate such employees consistent with past practices, and to preserve
their respective present relationships with customers, suppliers, contractors,
and such employees;
(d) use commercially reasonable efforts to maintain the IFC
Purchased Assets or the Telecapital Purchased Assets, as the case may be, in
customary repair, order and condition and maintain insurance reasonably
comparable to that in effect on the date of this Agreement;
(e) maintain the books, accounts and records related to their
respective Business in accordance with GAAP, to the extent applicable,
consistent with past practices; and
(f) promptly inform the Purchaser Parties in writing of any
material breach of or material change in the representations and warranties
contained in Article III or Article IV hereof, as the case may be.
Section 6.3. Negative Covenants.
(a) Between the date of this Agreement and the Closing,
without the prior written consent of the Purchaser Parties, neither IFC nor
Telecapital shall:
(i) enter into any contract, agreement or commitment or take
any other action which, if entered into or taken prior to the date of this
Agreement, would cause any representation or warranty made by it to be untrue or
be required to be disclosed on one or more Schedules referred to in Article III
or Article IV, as the case may be; and
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(ii) take any action, or permit its Affiliates to take any
action, which could reasonably be expected to result in a Material Adverse
Change to its respective business.
(b) Between the date of the Agreement and the Closing, IFC
shall not make any distributions to its members in their capacity as members and
Telecapital shall not make any distributions to its partners in their capacity
as partners.
Section 6.4. Closing Documents. IFC and Telecapital shall,
prior to or on the Closing Date, execute and deliver, or cause to be executed
and delivered to the Purchaser Parties, the documents or instruments described
in Section 7.2. The Purchaser Parties shall, prior to or on the Closing Date,
execute and deliver, or cause to be executed and delivered, to the Sellers, the
documents or instruments described in Section 7.3.
Section 6.5. Transfer and Property Taxes. Purchaser1 shall pay
any transfer, sales, purchase, use or similar tax under the laws of any
Governmental Authority arising out of or resulting from the purchase of the IFC
Purchased Assets and the assumption of the IFC Assumed Liabilities. Purchaser2
shall pay any transfer, sales, purchase, use or similar tax under the laws of
any Governmental Authority arising out of or resulting from the purchase of the
Telecapital Purchased Assets and the assumption of the Telecapital Assumed
Liabilities. The Purchaser Parties shall prepare and file all required tax
returns and other required documents with respect to the taxes and fees required
to be paid by it pursuant to this Section 6.5.
Section 6.6. Best Efforts; Further Assurances. Subject to the
terms and conditions herein provided, each of the parties hereto shall use its
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, in the case of the Purchaser Parties, to qualify for and
obtain all Governmental Licenses from the SBA which are a condition to the
Closing. Each of IFC and Telecapital and the Purchaser will use their respective
best efforts to obtain consents of all Governmental Authorities and third
parties necessary to the consummation of the transactions contemplated by this
Agreement. In the event that at any time after Closing any further action is
necessary to carry out the purposes of this Agreement, the Purchaser Parties and
the Sellers shall take all such action without any further consideration
therefor.
Section 6.7. Employment Matters. (a) The Purchaser Parties
shall offer to hire in comparable positions and at comparable salary all or
substantially all of those employees who are employed on the date hereof in
connection with the IFC Business and the Telecapital Business and are actively
at work on the Closing Date (such employees who are to receive such employment
offers are referred to as the "Employees"), and to maintain benefit plans,
programs and policies and fringe benefits that, in the aggregate, will provide
benefits to the Employees that are no less favorable than those provided by the
Purchaser Parties to their own employees. Within 10 days after the date of this
Agreement, the Purchaser Parties shall provide IFC and Telecapital with a list
of the Employees, and such list shall be attached hereto as Schedule 6.7.
Employees shall be given credit for all service with the Sellers under all
employee benefit plans, programs and policies, and fringe benefits of the
Purchaser Parties in which they become
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participants for purposes of eligibility and vesting. Notwithstanding the
foregoing, the Purchaser Parties shall have no obligation to retain the
employment of any of the Employees for any specified period following the
Closing Date and the Purchaser Parties shall have no obligation to the Employees
(except for contractual obligations owed to those employees which are included
in the IFC Assumed Liabilities or Telecapital Assumed Liabilities) upon
termination, except to the extent required by law.
(b) Effective as of the Closing Date, the Employees shall
cease to actively participate in the pension, profit-sharing and retirement
plan(s) of the Sellers. The benefits of such Employees under the such plans, of
any, shall be paid to the Employees in accordance with the terms thereof.
(c) Effective as of the Closing Date, all Employees shall
cease to be covered by the Sellers' employee welfare benefit plans, including
plans, programs, policies and arrangements which provide medical and dental
coverage, life and accident insurance, disability coverage, and vacation and
severance pay. Each of IFC and Telecapital shall retain responsibility for
providing its respective employees who were employed in connection with the IFC
Business or the Telecapital Business, as the case may be, who terminated
employment prior to the Closing Date, and who elected group health coverage
required by Section 4980B of the Code ("Continuation Coverage") under the terms
of the health plan maintained by such Seller with such Continuation Coverage.
Effective as of the Closing Date, the Purchaser Parties shall, or shall cause
the IFC Business and the Telecapital Business to, perform the duties required of
a successor employer with respect to Continuation Coverage, including making
such coverage available to the employees of the IFC Business and the Telecapital
Business on and after the Closing upon their termination of employment
subsequent to the Closing to the extent required by law.
(d) After the Closing, IFC shall perform its post-Closing
obligations and enforce its post-Closing rights under the respective severance
agreements between IFC and Charles P. Bell, Jr., Dianna Seaborn, W. David
Jenkins, and Stuart Mitchell referred to in Schedule 3.18. After the Closing,
Telecapital shall perform its post-Closing obligations and enforce its
post-Closing rights under the severance agreement between Telecapital and David
Harvey referred to in Schedule 4.18.
Section 6.8. Registration Agreement. The Parent shall, no
later than 20 days after the execution of this Agreement, file a registration
statement and related prospectus (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") for the sale by IFC
and Telecapital of the Common Stock to be issued pursuant to Section 2.2, at the
Parent's sole cost and expense. The Registration Statement shall comply as to
form in all material respects with applicable rules of the SEC providing for
offers and sales by Sellers of the Common Stock. The Parent shall use its
commercially reasonable efforts to cause the Registration Statement to be
effective on the Closing Date, and to remain effective thereafter until the
earlier of (i) the sale by the recipients thereof of all such shares of Common
Stock or (ii) the time when all such shares of Common Stock are eligible to be
sold (x) pursuant to subparagraph (k) of Rule 144 promulgated under the
Securities Act or (y) in a single transaction
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pursuant to Rule 144, or any successor thereto. The parties stipulate and agree
that the registration of the Common Stock to be issued pursuant to Section 2.2
is intended to provide Sellers with flexibility in liquidating their investment
in the Common Stock and does not evidence any present intention to dispose of
such investment. Parent shall provide the Sellers a reasonable number of copies
of the final prospectus and any amendments or supplements thereto. The Parent
shall register or qualify the Common Stock for sale under all applicable state
securities laws. The Registration Statement and the rights of each Seller under
this Section 6.8 shall also apply to Common Stock to be sold by the direct or
indirect partners or members of either Seller who receive Common Stock in
connection with a distribution by a Seller to its partners or members or a
distribution by such partner or member to its partners or members provided that
such distributee is an "Accredited Investor" within the meaning of Regulation D
promulgated under the Securities Act. Within 10 days after the date of the
execution of this Agreement, the parties shall execute and deliver a
Registration Rights Agreement incorporating the provisions of this Section 6.8,
containing customary indemnification and contribution provisions and other
customary terms consistent with the provisions of this Section 6.8.
Section 6.9. Hart-Scott-Rodino Filings. Each of the Sellers
and the Purchaser Parties will use their respective best efforts to file with
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") promptly following the date hereof
the notification and report form (the "Report") required under the Hart-Scott
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with
respect to the transactions contemplated hereby. Each of the Sellers and the
Purchaser Parties shall cooperate with the other party to the extent necessary
to assist the other party in the preparation of its Report, shall request early
termination of the waiting period required by the HSR Act and, if requested,
will promptly amend or furnish additional information thereunder if requested by
the Antitrust Division and/or the FTC. Purchaser shall pay all filing fees
incurred in connection with the filing of any Report.
Section 6.10. Unassignable Contracts or Licenses.
Notwithstanding any provision hereof to the contrary, to the extent that any
Material Contract or license to be assigned or transferred to a Purchaser
hereunder requires the consent of any other party, no Seller shall be deemed to
have assigned or transferred any such contract or license, and such Purchaser
shall not be deemed to have assumed or received any such contract or license,
unless and until such consent shall have been obtained. The Purchaser Parties,
in their sole discretion, may waive the obtaining of any such consent as a
condition to Closing. Notwithstanding any such waiver by the Purchaser Parties,
each Seller agrees to use its reasonable commercial efforts to obtain the
necessary consents to the assignment or transfer of any such contract or license
by it; provided, however, that no Seller shall be required to make any payment
in order to obtain any such consent (unless such payment is due and owing under
the respective contract or license on or prior to the Closing Date). If the
Purchaser Parties elect to proceed with Closing, until any necessary consent to
the assignment or transfer of any Material Contract or license is obtained, such
Seller and the Purchaser shall each cooperate with the other in any reasonable
arrangement which provides the Purchaser with the benefits under such contract
or license, including enforcement by such Seller of any and all rights arising
out of any breach or cancellation by the other party thereto all at the expense
and risk of the Purchaser. Any payments made and
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expenses arising in respect of performance on and after the Closing Date under
any such contract or license as to which the necessary consent has not been
obtained and whose benefits are being enjoyed by Purchaser shall be for the
account of the Purchaser, but the Purchaser shall not be responsible for any
penalties, premiums or other increased charges resulting from the failure to
obtain the necessary consent. Sellers shall be promptly reimbursed by the
Purchaser Parties for any such payments and expenses. Notwithstanding anything
to the contrary contained herein, the Purchaser Parties shall not be obligated
to reimburse any Seller for any amounts the Seller determines to expend to
obtain any consent to the assignment and transfer of any contract or license.
All obligations of Sellers under this Section 6.10 shall terminate on December
15, 1998.
Section 6.11. Covenant Against Competition.
(a) In order to induce the Purchaser Parties to enter into
this Agreement and consummate the transactions contemplated hereby, each Seller
agrees that, for a period of three (3) years beginning on the Closing Date, each
of them will not, without the prior written consent of the Purchaser Parties,
for their own account or jointly with another, directly or indirectly, for or on
behalf of any individual, partnership, corporation or other legal entity, as
principal, agent or otherwise:
(i) engage in, consult with, or own, control, manage
or otherwise participate in the ownership, control or
management of a business engaged in any of the activities of
the IFC Business or the Telecapital Business (as conducted or
proposed to be conducted by IFC and Telecapital immediately
prior to the Closing Date) within any part of the Territory
(as defined in subsection (c) below), except for the benefit
of the Purchaser Parties; or
(ii) solicit or in any manner attempt to solicit the
patronage of any individual, partnership, corporation or other
entity to whom IFC or Telecapital provided financing during
the twenty-four (24) month period immediately preceding the
Closing Date for the provision of financing or other services
included in the IFC Business or the Telecapital Business; or
(iii) solicit or induce, or in any manner attempt to
solicit or induce, any person who is employed by a Purchaser
Party to leave such employment, whether or not such employment
is pursuant to a written contract with Purchaser or otherwise.
(b) Each Seller agrees that it will not, without the prior
written consent of the Purchaser Parties, for its own account or jointly with
another, directly or indirectly, for or on behalf of any individual,
partnership, corporation or other entity, as principal, agent or otherwise, use
or authorize any other person to use any of the Sellers' trade or legal names,
or any part thereof, or any name similar thereto, in connection with the
providing of services similar to those offered by the IFC Business or the
Telecapital Business.
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(c) For the purposes of this Section 6.11, the term
"Territory" means with respect to the Sellers, the continental United States.
(d) Notwithstanding anything herein to the contrary (i) it
shall not be a breach of the covenants contained in subsection (a) above for any
of the Sellers to own Common Stock or to own together less than five percent
(5%) of the capital stock of any corporation whose shares are publicly traded or
of limited partnership interests or similar equity interests of any entity in
which Seller is a passive investor and (ii) the covenants described in this
Section 6.11 shall apply only if the transactions contemplated hereby are
consummated at the Closing.
Section 6.12. Publicity. All press releases and other public
announcements respecting the subject matter hereof shall be made only with the
mutual agreement of the parties hereto; provided, however, that because the
Parent is a publicly held company, it may make such announcements as it deems
necessary to comply with the rules and regulations of the National Association
of Securities Dealers, Inc. (or such other comparable entity), and any and all
applicable federal and state securities laws, after prior notice to Sellers of
such announcement and a fair opportunity to comment thereon and to control the
description of the Sellers. In addition, the Purchaser Parties and Sellers agree
that the Purchaser Parties and Sellers will not disclose to any person the
specific monetary terms of the transaction except as may be necessary to obtain
the consent of the person. Any disclosure of the monetary terms shall be limited
to the Seller who has the contractual relationship with the person. The above
two sentences shall not limit any disclosure required by law.
Section 6.13. Legending of Common Stock.
(a) There shall be placed on all certificates representing
shares of Common Stock issued to the Sellers pursuant hereto appropriate
restrictive legends referencing the restrictions imposed by applicable
securities laws. Each Seller hereby acknowledges and agrees that the shares of
Common Stock to be issued pursuant hereto shall be subject to volume limitations
or other restrictions provided in Rule 144 (or any successor provision thereto)
promulgated under the Securities Act. Each Seller agrees to comply with any
applicable restrictions of Rule 144, and further agrees that it will not offer
to sell, sell or otherwise dispose of any of the shares of Common Stock issued
to such Seller except pursuant to an effective registration statement or another
exemption from registration requirements of the Securities Act, and in
compliance with all applicable requirements of Rule 144. With respect to any
such sale or disposition, each Seller agrees to furnish to the Purchaser Parties
upon request such information as its counsel may deem necessary to assure that
such sale or disposition is made in full compliance herewith, such rule, and
applicable federal and state securities laws.
(b) Reports Under the Exchange Act. With a view to making
available to the holders of shares of Common Stock issued to Sellers pursuant
hereto the benefits of Rule 144 promulgated under the Securities Act (or any
similar successor statute), and the rules and regulations thereunder and any
other rule or regulation of the SEC that may at any time permit a holder of
shares of Common Stock to sell securities of the Parent to the public without
registration, the Parent agrees to:
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(i) file with the SEC in a timely manner all reports
and other documents required of the Parent under the
Securities Act and the Exchange Act and the rules and
regulations thereunder; and
(ii) furnish to any holder of shares of Common Stock
issued to Sellers pursuant hereto, forthwith upon request (A)
a written statement by the Parent that it has complied with
its reporting requirements in order that Rule 144 is available
for any holder of shares of Common Stock issued to Sellers,
(B) a copy of the most recent annual or quarterly report of
the Parent and such other reports or documents so filed with
the SEC by the Parent and (C) such other information as SEC
requires to permit the selling of any such securities without
registration pursuant to Rule 144 or any successor rule to
Rule 144.
Section 6.14. Rothschild. The Purchaser Parties agree to pay
to Rothschild a one-time fee of $250,000 at the time of the first securitization
after the Closing Date ("Securitization") which includes some or all of the
loans included in the Telecapital Purchased Assets. The Purchaser Parties shall
receive a credit for any underwriting or placement fees earned by Rothschild in
the Securitization, provided that Rothschild shall participate in the
Securitization if invited to by the Purchaser Parties upon terms reasonably
satisfactory to Rothschild. In the event the Purchaser Parties have not effected
the Securitization on or before December 31, 1998, the fee described above shall
be paid to Rothschild in full satisfaction of the obligation described in this
Section 6.14.
Section 6.15. Transitional Services. After the Closing,
individuals who were employees of the Sellers and their Affiliates prior to the
Closing who continue to be employed by any Purchaser Party or any Affiliate
thereof shall be made available to the Sellers and their Affiliates, at
reasonable times and in a manner which does not interfere with or impede in any
material respect the performance of their duties for the Purchaser Parties and
their Affiliates, for purposes of the winding up and liquidation of the Sellers,
provided that this obligation shall cease one year after the Closing Date and,
provided, further, that Sellers shall be responsible for all out-of-pocket costs
connected therewith.
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ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1. Mutual Conditions. The respective obligations of
each party to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment at or prior to Closing of the condition that no
Governmental Authority of competent jurisdiction shall have (i) enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, judgment,
decree, injunction or other order which is in effect or (ii) commenced or
threatened any action or proceeding, which in either case would prohibit
consummation of the transactions contemplated by this Agreement
Section 7.2. Conditions to the Purchaser Parties' Obligations.
The obligations of the Purchaser Parties to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment prior to or
at Closing of each of the following conditions:
(a) The representations and warranties made by IFC and
Telecapital in this Agreement and the Schedules hereto shall be true, correct
and complete in all material respects as of the Closing Date as though such
representations and warranties were made on the Closing Date (except as to any
representation or warranty made as of a specific date, in which case such
representation or warranty shall be deemed to have been made again on the
Closing Date but only as of such specific date), and IFC and Telecapital shall
have in all material respects duly performed or complied with all of the
covenants, obligations and conditions to be performed or complied with by them
under the terms of this Agreement prior to or at Closing.
(b) (i) All authorizations, consents, waivers, approvals or
other actions required in connection with the execution, delivery and
performance of this Agreement and the instruments of transfer by Sellers and the
consummation by Sellers of the transactions contemplated hereby and thereby
shall have been obtained and shall be in full force and effect; and (ii) all
authorizations, consents, waivers, approvals or other actions identified on
Schedule 5.4 necessary to permit Purchaser1 and Purchaser2 to operate the IFC
Business and the Telecapital Business, respectively, in material compliance with
all applicable laws immediately after the Closing shall have been obtained and
shall be in full force and effect, including without limitation the all
necessary approvals from the SBA to be a Section 7(a) lender, including the
obtaining of "preferred lender" status in those jurisdictions and districts and
for those SBA programs maintained by IFC on the date hereof.
(c) Prior to or at Closing, IFC and Telecapital shall have
delivered to the Purchaser Parties all instruments of assignment, transfer and
conveyance identified herein and such other closing documents as shall be
reasonably requested by the Purchaser Parties in form and substance reasonably
acceptable to the Purchaser Parties ' counsel, including the following:
(i) such instruments of sale, transfer, assignment,
conveyance and delivery (including all vehicle titles, the Bill of Sale
set forth as Exhibit B (the terms of which shall be reasonably agreed
upon and attached hereto within 20 days from the date hereof), blanket
mortgage assignment set forth as Exhibit C (the terms of which shall be
reasonably agreed upon and attached hereto within 20 days from the date
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hereof), and the Assignment and Assumption Agreement set forth as
Exhibit D (the terms of which shall be reasonably agreed upon and
attached hereto within 20 days from the date hereof), as are required
in order to transfer title to the Purchased Assets as provided herein;
(ii) certificates of an appropriate authorized
Person of each of IFC and Telecapital, dated the Closing Date, to the
effect that (1) the Person signing such certificate is familiar with
this Agreement and (2) the conditions specified in Section 7.2(a) and
(b) applicable to that Seller have been satisfied;
(iii) certificates of an appropriate authorized
Person of each of IFC and Telecapital, dated the Closing Date, as to
the incumbency or authorization of any Person executing on behalf of
IFC or Telecapital, as the case may be, this Agreement, the instruments
of transfer or any document related thereto;
(iv) such other documents or instruments as the
Purchaser Parties reasonably request to effect the transactions
contemplated hereby;
(v) an opinion of counsel of Lowenstein Sandler
PC, dated as of the Closing;
(vi) a noncompetition agreement substantially
identical to Section 6.11 shall have been executed and delivered by
each Seller Principal; and
(vii) Russ Smith shall have entered into a
noncompetition and employment agreement with Purchaser.
(c) There shall have been no Material Adverse
Change in respect of the IFC Business or the Telecapital Business except for (i)
changes in general economic or financial conditions or in generally prevailing
commercial interest rates, (ii) changes resulting from the actions of any
Purchaser Party or any of its Affiliates or representatives, or (iii) changes
contemplated by this Agreement.
(d) Each Seller shall have obtained the third
party consents to the assignment and transfer to the applicable Purchaser of the
Material Contracts the failure of which to obtain would have a material adverse
effect on such Purchaser's conduct of the IFC Business or Telecapital Business
after the Closing as determined in the reasonable judgment of Purchaser. Without
limiting any other provision of this Agreement, the Purchaser Parties
acknowledge that no consent shall be needed from unaffiliated lenders to either
Seller, and the Purchaser Parties shall be responsible for paying off at the
Closing all such indebtedness which is an IFC or Telecapital Assumed Liability.
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Section 7.3. Conditions to the Sellers' Obligations. The
obligations of each of IFC and Telecapital to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing of each of the following conditions:
(a) The representations and warranties made by the Purchaser
Parties in this Agreement shall be true, correct and complete in all material
respects as of the Closing Date as though such representations and warranties
were made as of the Closing Date (except as to any
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representation or warranty made as of a specific date, in which case such
representation or warranty shall be deemed to have been made again on the
Closing Date but only as of such specific date), and the Purchaser Parties shall
have in all material respects duly performed or complied with all of the
covenants, obligations and conditions to be performed or complied with by it
under the terms of this Agreement prior to or at Closing.
(b) (i) All authorizations, consents, waivers, approvals or
other action required in connection with the execution, delivery and performance
of this Agreement and the instruments of transfer by the Purchaser Parties and
the consummation by the Purchaser Parties of the transactions contemplated
hereby and thereby shall have been obtained and shall be in full force and
effect; and (ii) all authorization, consents, waivers, approvals or other
actions identified on Schedule 5.4 necessary to permit the Purchaser1 and
Purchaser2 to operate the IFC Business and the Telecapital Business,
respectively, in material compliance with all applicable laws immediately after
the Closing shall have been obtained and shall be in full force and effect.
(c) Prior to or at Closing, the Purchaser Parties shall have
delivered to each of IFC and Telecapital such closing documents as shall be
reasonably requested, in form and substance reasonably acceptable to the
Sellers' counsel, including the following:
(i) the Assignment and Assumption Agreements
executed by each Purchaser and dated the Closing Date;
(ii) a certificate of an appropriate authorized
Person of the Purchaser Parties, dated the Closing Date, to the effect
that (1) the Person signing such certificate is familiar with this
Agreement and (2) the conditions specified in Section 7.3(a) and (b)
have been satisfied;
(iii) a certificate of an appropriate authorized
Person, dated the Closing Date, as to the incumbency of any officer of
the Purchaser Parties executing this Agreement, the instruments of
transfer or any document related thereto;
(iv) the IFC Purchase Price to IFC and the
Telecapital Purchase Price to Telecapital payable as provided in
Section 2.2, with the cash portion payable by wire transfer in
immediately available funds to accounts designated by IFC and
Telecapital, respectively, by written notice to the Purchaser Parties
at least two (2) Business Days before the Closing Date;
(v) such other documents or instruments as either
Seller reasonably requests to effect the transactions contemplated
hereby; and
(vi) an opinion of counsel of the General Counsel
of Parent, dated as of the Closing.
(d) There shall have been no Material Adverse Change with
respect to Parent and its consolidated subsidiaries, taken as a whole, except
for (i) changes in general economic or
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financial conditions or in generally prevailing commercial interest rates, (ii)
changes resulting from the actions of any Purchaser Party or any of its
Affiliates or representatives, or (iii) changes contemplated by this Agreement.
ARTICLE VIII
TERMINATION
Section 8.1. Termination. This Agreement may be terminated at
any time prior to Closing as follows:
(a) by mutual consent of Sellers and the Purchaser Parties;
(b) by Sellers or the Purchaser Parties if the other party
hereto (treating the Sellers as one party for this purpose) shall breach in any
material respect any of its representations, warranties or obligations contained
in this Agreement and such breach is not cured in all material respects within
the ten-day period commencing on the date written notice of such breach is
received by the breaching party;
(c) by the Purchaser Parties, in the event that the conditions
to its obligations set forth in Article VII hereof have not been satisfied or
waived at the Closing;
(d) by IFC or Telecapital, in the event that the conditions to
their obligations set forth in Article VII hereof have not been satisfied or
waived at the Closing; and
(e) by any party if the transactions contemplated by this
Agreement shall not have been consummated on or before August 14, 1998 (or such
later date as may be agreed upon in writing by the parties hereto), provided
that this date shall automatically be extended until September 19, 1998 if the
transactions have not been consummated by August 14, 1998 because the Purchaser
Parties have not obtained the Governmental Licenses from the SBA which are a
condition to the Closing (subject to Sellers' or the Purchaser Parties' right to
terminate if the SBA has unconditionally rejected the Purchaser Parties'
application therefor).
Section 8.2. Effect of Termination. If this Agreement is
terminated pursuant to Section 8.1 hereof, all rights and obligations of the
Sellers and the Purchaser Parties hereunder shall terminate and no party shall
have any liability to the other party, except for obligations of the parties
hereto in Sections 6.1 and 10.2, which shall survive the termination of this
Agreement, and except nothing herein will relieve any party from liability for
any breach of any representation, warranty, agreement or covenant contained
herein prior to such termination.
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ARTICLE IX
DURATION OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
Section 9.1. Duration of Representations and Warranties. The
representations, warranties, covenants, agreements and indemnifications of the
parties contained herein or in any writing delivered pursuant to the provisions
hereof shall survive any investigation heretofore or hereafter made by the
Purchaser Parties or Sellers, and the consummation of the transactions
contemplated herein, and shall continue in full force and effect for the period
(the "Survival Period") beginning on the Closing Date and continuing until the
first anniversary thereof; provided, however, that the Survival Period shall be
extended automatically to include any time period necessary to resolve a
specific claim for indemnification which was made before expiration of the
Survival Period but not resolved prior to its expiration; and provided, further,
that any such extension shall apply only as to claims asserted and not so
resolved within the Survival Period.
Section 9.2. Indemnification. (a) For the Survival Period, IFC
and Telecapital, severally and not jointly, subject to the limitations set forth
below in this Section 9.2(a) and in Sections 9.2(d) and (e), shall indemnify and
hold harmless the Purchaser Parties, their Affiliates, officers, directors,
employees, agents and representatives, and any Person claiming by or through any
of them, against and in respect of any and all claims, costs, expenses, damages,
liabilities, losses or deficiencies (including counsel's fees and other costs
and expenses incident to any suit, action or proceeding) (the "Damages") arising
out of, resulting from or incurred in connection with (i) any IFC Retained
Liability or Telecapital Retained Liability, as the case may be, (ii) the breach
by IFC or Telecapital, as the case may be, of any covenant or agreement to be
performed by it hereunder or under any other agreement delivered pursuant
hereto, and (iii) any inaccuracy in or breach of any representation or warranty
of IFC or Telecapital, as the case may be. Notwithstanding anything to the
contrary in this Agreement, neither IFC or Telecapital shall be liable under
this Section 9.2(a) unless the aggregate of all Damages for which they would
otherwise be liable under this Section 9.2(a) shall exceed $250,000 and
$125,000, respectively, but in the event that such Damages exceed such
respective threshold, IFC or Telecapital, as the case may be, shall then be
liable for all such Damages subject only to the other limitations contained in
this Section 9.2(a) and in Sections 9.2(d) and (e).
(b) The Purchaser Parties, jointly and severally, shall
indemnify and hold harmless each of IFC and Telecapital, and their respective
Affiliates, members, partners, officers, employees, agents and representatives,
and any Person claiming by or through any of them, against and in respect of any
and all Damages arising out of, resulting from or incurred in connection with
(i) the breach by the Purchaser Parties of any covenant or agreement to be
performed by it hereunder or under any other agreement delivered pursuant
hereto, (ii) any IFC Assumed Liability or Telecapital Assumed Liability, as the
case may be, (iii) the operation of the IFC Business or the Telecapital
Business, as the case may be, following the Closing, and (iv) any inaccuracy in
or breach of any representation or warranty of any Purchaser Party.
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(c) Any Person providing indemnification pursuant to the
provisions of this Section 9.2 is hereinafter referred to as an "Indemnifying
Party" and any Person entitled to be indemnified pursuant to the provisions of
this Section 9.2 is hereinafter referred to as an "Indemnified Party."
(d) The recourse of the Purchaser Parties and all other
Indemnified Parties for Damages and for all claims arising under this Article IX
against IFC or Telecapital shall be limited to the funds or Acceptable Letter of
Credit deposited under the IFC Escrow Agreement or Telecapital Escrow Agreement,
respectively. The aggregate maximum indemnification to be provided by IFC and
Telecapital to the Purchaser Parties and all other Indemnified Parties pursuant
to this Article IX shall be $5,000,000 and $2,500,000, respectively.
(e) All claims for Damages by the Purchaser Parties or any
other Indemnified Party under Section 9.2(a) or (b) shall be computed net of
insurance proceeds received by the Purchaser Parties, any such other Indemnified
Party or any Affiliate thereof as a result of any Damages subject to
indemnification hereunder. In addition, all claims for Damages under Section
9.2(a) or (b) shall be computed net of related, determinable tax benefits, if
any, which are actually used to reduce taxes otherwise due by the Purchaser
Parties, any other Indemnified Party or any Affiliate thereof resulting from any
of the Damages to which the Purchaser Parties or any other Indemnified Party is
entitled to indemnification hereunder.
(f) The rights and remedies of the Purchaser Parties and all
other Indemnified Parties under this Section 9.2 shall constitute the sole and
exclusive remedy of the Purchaser Parties and any such other Indemnified Parties
arising out of, resulting from or incurred in connection with the breach by IFC
or Telecapital of any covenant or agreement to be performed by it under this
Agreement or any instrument of transfer or other agreement delivered pursuant
hereto and for any inaccuracy in or breach of any representation or warranty;
provided that the limitations set forth in this Section 9.2 shall not apply with
respect to Damages resulting from the fraud of IFC or Telecapital with respect
to any Purchaser Party in connection with this Agreement or the transactions
contemplated hereunder.
Section 9.3. Procedures for Third Party Claims. In the case of
any claim for indemnification arising from a claim of a third party (a "Third
Party Claim"), an Indemnified Party shall give prompt written notice to the
Indemnifying Party of any claim or demand which such Indemnified Party has
knowledge and as to which it may request indemnification hereunder. The
Indemnifying Party shall have the right to defend and to direct the defense
against any such Third Party Claim, in its name or in the name of the
Indemnified Party, as the case may be, at the expense of the Indemnifying Party,
and with counsel selected by the Indemnifying Party unless (i) such Third Party
Claim seeks an order, injunction or other equitable relief against the
Indemnified Party, or (ii) the Indemnified Party shall have reasonably concluded
that (x) there is a conflict of interest between the Indemnified Party and the
Indemnifying Party in the conduct of the defense of such Third Party Claim or
(y) the Indemnified Party has one or more defenses not available to the
Indemnifying Party. Notwithstanding anything in this Agreement to the contrary,
the Indemnified Party shall, at the expense of the Indemnifying Party, cooperate
with the Indemnifying Party, and keep the Indemnifying Party fully informed, in
the defense of such Third
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Party Claim. The Indemnified Party shall have the right to participate in the
defense of any Third Party Claim with counsel employed at its own expense;
provided, however, that, in the case of any Third Party Claim or demand
described in clause (i) or (ii) of the second preceding sentence or as to which
the Indemnifying Party shall not in fact have employed counsel to assume the
defense of such Third Party Claim, the reasonable fees and disbursements of such
counsel shall be at the expense of the Indemnifying Party. The Indemnifying
Party shall have no indemnification obligations with respect to any such Third
Party Claim or demand which shall be settled by the Indemnified Party without
the prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Any settlement of any such Third Party Claim
or demand made by the Indemnifying Party shall include a complete release and
discharge of each Indemnified Party or if not so included, shall require the
prior written consent of the Indemnified Party.
Section 9.4. Procedures for Inter-Party Claims. In the event
that an Indemnified Party determines that it has a claim for Damages against an
Indemnifying Party hereunder (other than as a result of a Third Party Claim),
the Indemnified Party shall give prompt written notice thereof to the
Indemnifying Party, specifying the amount of such claim and any relevant facts
and circumstances relating thereto. The Indemnified Party shall provide the
Indemnifying Party with reasonable access to its books and records for the
purpose of allowing the Indemnifying Party a reasonable opportunity to verify
any such claim for Damages. The Indemnified Party and the Indemnifying Party
shall negotiate in good faith regarding the resolution of any disputed claims
for Damages. In the event that the Indemnified Party and the Indemnifying Party
did not resolve the dispute by negotiation and legal proceedings are instituted
seeking to recover Damages hereunder, the prevailing party in such litigation
shall be entitled to recover its cost and expenses in connection with such
proceedings (including costs of investigation and reasonable attorneys' fees and
disbursements).
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices. All notices or other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, or sent by facsimile, sent by certified, registered or express air
mail, postage prepaid, or sent by a reputable overnight courier service, and
shall be deemed given when so delivered personally or by facsimile, if sent by
certified or registered mail, three (3) Business Days after the date of mailing,
or if sent by overnight courier or express air mail, one (1) Business Day after
being sent, as follows:
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If to the Purchaser Parties: AMRESCO, INC.
700 North Pearl Street
Suite 2400 - LB 342
Dallas, Texas 75201
Telephone: (214) 953-7700
Facsimile: (214) 953-7757
Attention: Randolph E. Brown
With a copy to: AMRESCO, INC. 700 North Pearl Street
Suite 2400 - LB 342
Dallas, Texas 75201
Telephone: (214) 953-7700
Facsimile: (214) 953-7757
Attention: General Counsel
If to Sellers: Independence Funding Company, LLC
Telecapital, L.P.
3010 LBJ Freeway, Suite 920
Dallas, Texas 75234
Telephone: 972-247-1776
Facsimile: 972-9190-1776
Attention: B. Russ Smith
and Harbourton Holdings, L.P.
c/o Mills & Lynn Enterprises
1205 Pacific Avenue
Suite 203, 2nd Floor
Santa Cruz, CA 95060
Telephone: 408-458-6000
Facsimile: 408-458-1421
Attention: David W. Mills
With a copy to: LOWENSTEIN SANDLER PC
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (973) 597-2500
Facsimile: (973) 597-2400
Attention: Allen B. Levithan, Esq.
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
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<PAGE> 51
Section 10.2. Expenses. Regardless of whether the transactions
provided for in this Agreement are consummated, except as otherwise provided
herein, each party hereto shall pay its own expenses incident to this Agreement
and the transactions contemplated herein.
Section 10.3. Governing Law; Consent to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of Texas, without reference to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the non-exclusive
jurisdiction of the courts of the State of Texas and the United States District
Court for the Northern District of Texas for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such
suit, action or proceeding may be served on each party hereto anywhere in the
world by the same methods as are specified for the giving of notices under this
Agreement. Each of the parties hereto irrevocably consents to the jurisdiction
of any such court in any such suit, action or proceeding and to the laying of
venue in such court. Each party hereto irrevocably waives any objection to the
laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
Section 10.4. Assignment; Successors and Assigns; No Third
Party Rights. Except as otherwise provided herein, this Agreement may not be
assigned by operation of law or otherwise without the written consent of the
parties hereto, and any attempted assignment shall be null and void. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, permitted assigns and legal representatives.
This Agreement shall be for the sole benefit of the parties to this Agreement
and their respective successors, permitted assigns and legal representatives and
is not intended, nor shall be construed, to give any Person, other than the
parties hereto and their respective successors, assigns and legal
representatives, any legal or equitable right, remedy or claim hereunder.
Section 10.5. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original agreement, but all of
which together shall constitute one and the same instrument.
Section 10.6. Titles and Headings. The headings and table of
contents in this Agreement are for reference purposes only, and shall not in any
way affect the meaning or interpretation of this Agreement.
Section 10.7. Entire Agreement. This Agreement, including the
Schedules and Exhibits attached hereto, constitutes the entire agreement among
the parties with respect to the matters covered hereby and supersedes all
previous written, oral or implied understandings among them with respect to such
matters.
Section 10.8. Amendment and Modification. This Agreement may
only be amended or modified in writing signed by the party against whom
enforcement of such amendment or modification is sought.
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Section 10.9. Waiver. Any of the terms or conditions of this
Agreement may be waived at any time by the party or parties entitled to the
benefit thereof, but only by a writing signed by the party or parties waiving
such terms or conditions.
Section 10.10. Severability. The invalidity of any portion
hereof shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, such restriction shall be
enforced to the maximum extent permitted by law.
Section 10.11. Obligations Several. Representations,
warranties, covenants, agreements, liabilities and obligations of IFC to the
Purchaser Parties are several and shall not bind nor be the responsibility or
obligation of Telecapital in any manner or respect; representations, warranties,
covenants, agreements, liabilities and obligations of Telecapital to the
Purchaser Parties are several and shall not bind nor be the responsibility or
obligation of IFC in any manner or respect.
Section 10.12. No Strict Construction. Each of the Purchaser
and the Sellers acknowledge that this Agreement has been prepared collectively
by the parties hereto, and shall not be strictly construed against any party.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
INDEPENDENCE FUNDING COMPANY, LLC
By: /s/ DAVID W. MILLS
-----------------------------------
Name: David W. Mills
Title: Chairman
TELECAPITAL, L.P.
By: /s/ DAVID W. MILLS
-----------------------------------
Name: David W. Mills
Title: Chairman
AMRESCO INDEPENDENCE
FUNDING CO., INC.
By: /s/ RANDOLPH BROWN
-----------------------------------
Name: Randolph Brown
Title: President
AMRESCO COMMERCIAL
LENDING CORP.
By: /s/ RANDOLPH BROWN
-----------------------------------
Name: Randolph Brown
Title: Vice President
AMRESCO, INC.
By: /s/ RANDOLPH BROWN
-----------------------------------
Name: Randolph Brown
Title: President - Commercial Finance
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EXHIBIT 4.5
FORM OF
REGISTRATION AGREEMENT
This Agreement (the "Agreement") is made and entered into as of June
11, 1998, by and among AMRESCO, INC., a Delaware corporation with its principal
executive offices located at 700 North Pearl Street, Suite 2400, LB 342, Dallas,
Texas 75201 (the "Company"), INDEPENDENCE FUNDING COMPANY, LLC, a Texas limited
liability company ("IFC"), with its principal offices at 3010 LBJ Freeway, Suite
930, Dallas, Texas 75234, TELECAPITAL, L.P., a Delaware limited partnership
("Telecapital"), with its principal offices at 3010 LBJ Freeway, Suite 930,
Dallas, Texas 57234, and the other persons and entities who have executed this
Agreement.
WHEREAS, the Company has issued or will issue to IFC and Telecapital
shares of Common Stock (as hereinafter defined); and
WHEREAS, said shares of Common Stock have been or will be issued to IFC
and Telecapital without registration or qualification under the Securities Act
of 1933, as amended, or any other applicable securities laws;
WHEREAS, the Company is obligated to file a Registration Statement (as
hereinafter defined), by June 21, 1998, to provide for the registration and/or
qualification of the sale of said shares of Common Stock upon the terms
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
"Accredited Investor" shall have the meaning set forth for such term
under Rule 501 of Regulation D promulgated under the Securities Act.
"Business Day" shall mean a day (other than a Saturday or Sunday) on
which commercial banks in the State of Texas are open for the general
transaction of business.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the $.05 par value per share common stock of
the Company.
<PAGE> 2
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, or any federal statute or code which is a successor thereto.
"Holder(s)" shall mean the persons and entities who may hold
Registrable Shares but only during the time period within which they hold such
Registrable Shares.
"Register, Registered and Registration" shall mean a registration
effected by filing a registration statement in compliance with the Securities
Act and the declaration or ordering by the Commission of the effectiveness of
such registration statement.
"Registrable Shares" shall mean the numbers of shares of Common Stock
held by IFC, Telecapital and any Accredited Investors receiving such shares in a
distribution (a "Distribution") pursuant to a distribution plan adopted by IFC
or Telecapital or by a member or partner of IFC or Telecapital, including,
without limitation, Harbourton Holdings, L.P., Preserve General, L.P., Preserve
Capital, L.P., Telecapital Corp., or Telecapital, L.P., which shares were issued
by the Company to IFC and Telecapital in connection with the Transaction. As to
any particular Registrable Shares, such Registrable Shares will cease to be
Registrable Shares when they are no longer beneficially owned by IFC,
Telecapital or an Accredited Investor receiving such shares in a Distribution.
"Registration Period" shall mean the period commencing with the
calendar month during which the Registration Statement is declared effective by
the Commission and ending on the earlier of (i) the sale by the Holders of all
the Registrable Shares (it being understood that the disposition of Registrable
Shares to an Accredited Investor in a Distribution is not a sale), or (ii) the
time when all such Registrable Shares are eligible to be sold (x) pursuant to
subparagraph (k) of Rule 144 promulgated under the Securities Act or (y) in a
single transaction pursuant to Rule 144, or any successor thereto.
"Registration Statement" shall mean the registration statement (No.
333-__________) filed by the Company on June __, 1998.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any federal statute or code which is a successor thereto.
"Transaction" shall mean the sale and purchase and other related
transactions contemplated by that certain Asset Purchase Agreement dated June 1,
1998, by and between the Company, AMRESCO Independence Funding Co., AMRESCO
Commercial Lending Corp., IFC and Telecapital.
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ARTICLE II
AGREEMENTS IN RESPECT OF THE REGISTRABLE SHARES
SECTION 2.1 AGREEMENT TO REGISTER. Upon the terms and conditions and
subject to the limitations hereinafter set forth, the Company hereby agrees to
file the Registration Statement by June 21, 1998 and to use commercially
reasonable efforts to cause the Registration Statement to become effective as
soon as practicable and to remain effective throughout the Registration Period.
SECTION 2.2 SALES OF REGISTRABLE SHARES. Holders agree that all sales
or other dispositions of Registrable Shares will be made by them in compliance
with all applicable laws, including, without limitation, federal and state
securities laws. In connection with each such sale or disposition, the Holders
agree to certify to the Company such compliance. Nothing contained in this
Section 2.2 shall obligate any Holder to assume or perform any of the
obligations of the Company under Section 2.3 hereof.
SECTION 2.3 REGISTRATION PROCEDURES. The Company will:
(a) if necessary, as determined by counsel to the Company, prepare and
file with the Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary to
keep the Registration Statement current and effective throughout the
Registration Period;
(b) furnish to each Holder who effects sales of Registrable Shares
pursuant to the Registration Statement such number of copies of a prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such Holder may reasonably request in order to facilitate the sale or other
disposition of the Registrable Shares by such Holder, and promptly furnish to
each Holder notice of any stop order or similar notice issued by the Commission
or state agency charged with the regulation of securities;
(c) use commercially reasonable efforts to register or qualify the
Registrable Shares under state blue sky or other state securities laws to enable
the Holders to consummate the public sale of the Registrable Shares owned by
such Holders; provided, however, that in no event shall the Company be obligated
to qualify to do business in any jurisdiction where it is not at the time so
qualified or to take any action which would subject it to service of process in
suits other than those arising out of the offer or sale of Registrable Shares in
any jurisdiction where it is not at the time so subject; provided, further, that
in no event shall the Company be obligated to register or qualify the
Registrable Shares under state blue sky or other state securities laws if such
registration or qualification cannot be effected without undue burden or expense
to the Company, as determined by the Board of Directors of the Company;
(d) notify each Holder of Registrable Shares at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in the Registration Statement or any document incorporated therein
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<PAGE> 4
by reference contains an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein not misleading;
(e) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission; and
(f) cause all Registrable Shares to be sold to be listed on each
securities exchange on which the Common Stock may hereafter be listed.
SECTION 2.4 LIMITATIONS ON SALES.
(a) A Holder may not effect a sale of Registrable Shares to be made
pursuant to the Registration Statement except in accordance with the terms of
this Agreement.
(b) No Holder may publicly offer or sell Registrable Shares prior to
the effectiveness of the Registration Statement, except pursuant to Rule 144 or
Rule 145 promulgated under the Securities Act.
(c) Subject to Section 2.2 above, this Agreement shall not preclude a
Holder from effecting a sale of Registrable Securities in a transaction not
involving a public offering.
SECTION 2.5 COOPERATION OF PROSPECTIVE SELLERS.
(a) Each Holder electing to participate in a Registered sale pursuant
to this Agreement agrees to promptly furnish to the Company such information as
the Company may reasonably require from such Holder in connection with the
Registration Statement or any amendment or supplement thereto.
(b) Failure of a Holder to furnish the information described in Section
2.5(a), after reasonable opportunity to cure, shall relieve the Company from any
obligation to Register the Registrable Shares held by such Holder but shall not
affect the obligations of the Company under this Agreement to Holders who timely
furnish such information unless, in the opinion of counsel to the Company, such
failure impairs or may impair the legality of the Registration Statement or the
underlying offering.
(c) The Holders may not (until further notice) effect sales of
Registrable Shares after receipt of telegraphic or written notice from the
Company of (i) the issuance of any stop order or similar notice issued by the
Commission or any state agency charged with the regulation of securities or (ii)
the Company's intention to amend, correct or update the Registration Statement
or any prospectus contained therein (which amendment, correction or update shall
be effected as promptly as is reasonably practicable). Upon the withdrawal of
such stop order or similar notice or the effectiveness of such amendment,
correction or update, the Company will notify Holders of the date as of which
sales may once again be made.
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(d) The Company shall provide Holders with notice of the expiration of
the Registration Period whereupon the Holders shall discontinue sales of shares
pursuant to the Registration Statement. Such notice shall indicate the Company's
intention to remove from Registration any Registrable Shares covered by such
Registration Statement which remain unsold, if any.
SECTION 2.6 EXPENSES OF REGISTRATION AND REGISTERED SALES. All expenses
(other than any discounts and commissions incurred by Holders in effecting any
sales of Registrable Shares pursuant to the Registration Statement), including,
without limitation, all registration and filing fees, printing and engraving
expenses, expenses of compliance with blue sky laws, transfer agent fees, fees
and disbursement of counsel to the Company, and expenses of any audits
incidental to or required by any such registration, shall be borne by the
Company; provided, that, discounts and commissions attributable to sales by a
Holder shall be borne by such Holder; provided, further, that the fees of any
attorneys, accountants or other professionals retained by Holders or any of them
shall be paid by the Holder or Holders retaining any such professionals.
SECTION 2.7 TRANSFER OF RIGHTS UNDER THIS AGREEMENT. Without the prior
written consent of the Company, the rights granted Holders in this Agreement are
not transferable or otherwise assignable except by will or by operation of law.
SECTION 2.8 DELAY OF REGISTRATION. Holders shall have no right to take
any action to restrain, enjoin or otherwise delay any Registration or any sale
pursuant to the Registration Statement as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Agreement or any other agreement relating to any Registration or any sale
pursuant to the Registration Statement.
SECTION 2.9 EXECUTION OF AGREEMENT. Prior to selling any Registrable
Shares pursuant to the Registration Statement, each Holder who is not then a
signatory to this Agreement must sign an Addendum to this Agreement (in
substantially the form attached hereto as Exhibit A) whereby such Holder agrees
to abide and be bound by the terms of this Agreement.
SECTION 2.10 TERMINATION. The rights of Holders to sell Registrable
Shares pursuant to the terms of this Agreement shall terminate at the expiration
of the Registration Period. This Agreement shall automatically terminate in the
event that the Asset Purchase Agreement, dated June 1, 1998, by and between the
Company, AMRESCO Independence Funding Co., AMRESCO Commercial Lending Corp., IFC
and Telecapital is terminated.
SECTION 2.11 ADDITIONAL SHARES. It is expressly acknowledged and agreed
by the parties to this Agreement that the Company, in its sole discretion, may
at any time hereafter agree to Register shares of Common Stock held by any
person or entity and include such shares of Common Stock in a Registration,
including, without limitation, the Registration contemplated by the Registration
Statement.
SECTION 2.12 DEREGISTRATION OF SHARES AT THE REQUEST OF HOLDERS. If,
during the term of this Agreement, a Holder shall request that Registrable
Shares held by such Holder be removed from
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Registration, the Company shall remove such Registrable Shares from Registration
at the earliest practicable date and such Holder's right to require the
Registration of such Registrable Shares shall terminate.
ARTICLE III
INDEMNIFICATION
SECTION 3.1 INDEMNIFICATION.
(a) The Company will indemnify each Holder who is a signatory to this
Agreement requesting or joining in a Registration, each officer, director, agent
or partner thereof, and each person, if any, who controls any thereof within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and each underwriter (within the meaning of the Securities Act) of the
securities so registered, and their respective successors (collectively,
"Indemnitees"), against all claims, losses, damages and liabilities, joint and
several, or actions in respect thereof, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document prepared by or at the direction
of the Company incident to the Registration, qualification or compliance (or in
the Registration Statement or any related registration statement, notification
or the like), including without limitation all documents incorporated therein by
reference or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, or any
violation of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company or relating to any action or inaction
required of the Company in connection with the Registration, qualification or
compliance, and will reimburse each such Indemnitee for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 3.1(a) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
to the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission in any such document made in reliance
on and in conformity with information furnished to the Company by such
Indemnitee(s); provided further, that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in a prospectus but eliminated or remedied in the amended prospectus on file
with the Commission at the time the Registration Statement becomes effective or
in the amended prospectus filed with the Commission pursuant to Rule 424(b) (a
"424(b) Prospectus"), such indemnity agreement shall not inure to the benefit of
any Indemnitee, if a copy of the 424(b) Prospectus was furnished by the Company
to the Indemnitee, but not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act.
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(b) Each Holder who is a signatory to this Agreement requesting or
joining in a Registration will indemnify the Company and its officers and
directors and its legal counsel, and each person, if any, who controls any
thereof within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and each underwriter (within the meaning of the Securities
Act) of the securities so registered, and their respective successors against
all claims, losses, damages and liabilities, joint and several, or actions in
respect thereof, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document incident to the Registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) of a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they were made and will reimburse the Company and
each other person indemnified pursuant to this Section 3.1(b) for any legal and
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided, however,
that this Section 3.1(b) shall apply only if (and only to the extent that) such
statement or omission was made in reliance upon and in conformity with written
information (including, without limitation, written negative responses to
inquiries) furnished to the Company by such Holder (or any shareholder, partner
or member of such Holder) expressly for use in the Registration Statement (or
any amendment or supplement thereto) or any prospectus (or any amendment or
supplement thereto) used in connection therewith.
(c) Each party entitled to indemnification hereunder (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at its expense) to assume the defense of any claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
reasonably satisfactory to the Indemnified Party, and the Indemnified Party may
participate in such defense at such party's expense, and provided, further, that
if the Indemnified Party reasonably determines that a conflict of interest
exists such that it is advisable for the Indemnified Party to be represented by
separate counsel or that, upon advice of counsel, there may be legal defenses
available to it which are different from or in addition to those available to
the Indemnifying Party, then the Indemnifying Party shall not be entitled to
assume such defense and the Indemnified Party shall be entitled to separate
counsel at the Indemnifying Party's expense, and provided, further, that the
omission by any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Article III except
to the extent that the omission is materially prejudicial to the ability of the
Indemnifying Party to defend. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of an unconditional release from all liability in
respect to such claim or litigation.
(d) If the indemnification provided for in this Article III is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to herein,
then the Indemnifying Party hereunder, shall contribute to the
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<PAGE> 8
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense, in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or omissions
which resulted in such loss, liability, claim, damage or expense, as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunities to correct or prevent such
statement or omission.
(e) The indemnity and contribution provided herein shall be in addition
to, and not in lieu of, any other liability that one party may have to another.
(f) The obligation of the Company and the Holders under this Article
III shall survive the completion of any offering of Registrable Shares pursuant
to this Agreement and the Registration Statement, or otherwise.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 AMENDMENT. This Agreement shall not be amended without
the written consent of Holders of at least 51% of the then Registrable Shares.
SECTION 4.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH , THE INTERNAL LAWS OF THE STATE OF TEXAS AND,
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. EACH OF THE PARTIES
HERETO IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF TEXAS AND THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
TEXAS FOR THE PURPOSE OF ANY SUIT, ACTION, PROCEEDING OR JUDGMENT RELATING TO OR
ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. SERVICE
OF PROCESS IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE SERVED
ON EACH PARTY HERETO ANYWHERE IN THE WORLD BY THE SAME METHODS AS ARE SPECIFIED
FOR THE GIVING OF NOTICES UNDER THIS AGREEMENT. EACH OF THE PARTIES HERETO
IRREVOCABLY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT,
ACTION OR PROCEEDING AND TO THE LAYING OF VENUE IN SUCH COURT. EACH PARTY HERETO
IRREVOCABLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN SUCH COURTS AND IRREVOCABLY WAIVES ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
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<PAGE> 9
SECTION 4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors (including any corporation into which the Company
is merged or with which it is consolidated) and assigns, heirs, executors and
administrators of the parties hereto.
SECTION 4.4 NOTICES, ETC. All notices or other communications required
or permitted hereunder shall be in writing and shall be delivered personally, or
sent by facsimile, sent by certified, registered or express air mail, postage
prepaid, or sent by a reputable overnight courier service, and shall be deemed
given when so delivered personally or by facsimile, if sent by certified or
registered mail, three (3) Business Days after the date of mailing, or if sent
by overnight courier or express air mail, one (1) Business day after being sent,
as follows:
If to the Company: AMRESCO, INC.
700 North Pearl Street
Suite 2400, LB 342
Dallas, Texas 75201
Telephone: (214)953-7700
Facsimile: (214)953-7757
Attention: Randolph E. Brown
With a copy to: AMRESCO, INC.
700 North Pearl Street
Suite 2400, LB 342
Dallas, Texas 75201
Telephone: (214)953-7700
Facsimile: (214)953-7757
Attention: General Counsel
If to IFC or Telecapital: Independence Funding Company, LLC
Telecapital, L.P.
c/o Harbourton Enterprises
33 Witherspoon Street
Princeton, New Jersey 08542
Telephone: (609)924-4001
Facsimile: (609)924-4155
Attention: Managing Partner
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<PAGE> 10
and: Harbourton Holdings, L.P.
c/o Mills & Lynn Enterprises
1205 Pacific Avenue
Suite 203, 2nd Floor
Santa Cruz, California 95060
Telephone: (408)458-6000
Facsimile: (408)458-1421
Attention: David W. Mills
With a copy to: Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (973)597-2500
Facsimile: (973)597-2400
Attention: Allen B. Levithan, Esq.
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
SECTION 4.5 SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable, the intent of the parties, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
SECTION 4.6 TITLES AND SUBTITLES. The titles and subtitles of this
Agreement are intended for reference and shall not by themselves determine the
construction or interpretation of this Agreement.
SECTION 4.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 4.8 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed themselves or by their respective representatives thereunto duly
authorized as of the day and year first above written.
AMRESCO, INC.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
INDEPENDENCE FUNDING COMPANY, LLC,
a Texas limited liability company
By:
------------------------------------
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
TELECAPITAL, L.P.,
a Delaware limited partnership
By: Telecapital Corp.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
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<PAGE> 1
EXHIBIT 5.1
June 24, 1998
AMRESCO, INC.
700 North Pearl Street
Suite 2400, LB 342
Dallas, Texas 75201-7424
Re: Registration on Form S-3 of 1,180,221 shares of Common Stock,
par value $0.05 per share, of AMRESCO, INC.
Gentlemen:
I am general counsel of AMRESCO, INC., a Delaware corporation (the
"Company"), in connection with the registration and sale of up to 1,180,221
shares of Common Stock, par value $0.05 per share, of the Company (the "Shares")
to be sold by the Selling Shareholders described in the Prospectus constituting
a part of the Registration Statement on Form S-3 to which this opinion is an
exhibit (the "Selling Shareholders") following conversion of the Company's
Convertible Promissory Note to be issued by the Company to Independence Funding
Company, LLC and the Company's Convertible Promissory Note to be issued by the
Company to Telecapital, L.P.
(collectively, the "Notes").
I have examined such documents, records and matters of law as I have
deemed necessary for purposes of this opinion. Based on the foregoing, I am of
the opinion that the Selling Shareholders' Shares are duly authorized and, when
issued in accordance with the terms of the Notes and sold by the Selling
Shareholders as described in the Prospectus contained in the Company's
Registration Statement on Form S-3 to which this opinion is an exhibit, will be
validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, I have relied as to certain factual
matters upon certificates of officers of the Company, the Selling Shareholders
and public officials, and I have not independently checked or verified the
accuracy of the statements contained therein.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Company's Registration Statement on Form S-3 relating to the Shares and any
amendments thereto filed by the Company to effect registration of the Shares
under the Securities Act of 1933, as amended, and to the reference to me under
the caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement.
Very truly yours,
/s/ L. Keith Blackwell
L. Keith Blackwell
General Counsel
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
AMRESCO, INC. on Form S-3 of our report dated February 2, 1998, appearing in the
Annual Report on Form 10-K of AMRESCO, INC. for the year ended December 31, 1997
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
June 23, 1998
