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As filed with the Securities and Exchange Commission on August 24, 1998
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.)
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700 North Pearl Street L. KEITH BLACKWELL
Suite 2400, LB 342 Senior Vice President, General Counsel and Secretary
Dallas, Texas 75201 700 North Pearl Street
(214) 953-7700 Suite 2400, LB 342
(Address, including zip code, and telephone number, including Dallas, Texas 75201
area code, of registrant's principal executive offices) (214) 953-7700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
ROBERT J. GRAMMIG STEVEN C. DUPRE
Holland & Knight LLP Carlton, Fields, Ward,
400 North Ashley Drive Emmanuel,
Suite 2300 Smith & Cutler, P.A.
Tampa, Florida 33602 Barnett Tower
(813) 227-8500 P.O. Box 2861
St. Petersberg, Florida 33731
(813) 821-7000
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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
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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 Share (1) Price (1) Fee
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Common Stock, par value
$0.05 per share . . . . . . . . 1,804,441 shares $19.75 $35,637,709 $10,514
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(1) 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 August 24, 1998
PROSPECTUS
AMRESCO, INC.
1,804,441 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
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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
Use of Proceeds........................................................13
Selling Stockholders...................................................14
Description of Capital Stock...........................................15
Plan of Distribution...................................................19
Legal Matters..........................................................20
Experts ..............................................................20
Certain Definitions....................................................21
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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
Statement as permitted by the rules and regulations of the Commission.
Statements made in the Prospectus concerning
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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; Commission File No. 001-11599), (ii) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 (filed May 5, 1998;
Commission File No. 001-11599), (iii) Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (filed August 14, 1998; Commission File No.
001-11599), (iv) Current Report on Form 8-K dated August 19, 1998 (filed August
21, 1998; Commission File No. 001-11599) and (v) the description of the
Company's Common Stock contained in the Company's Registration Statement on Form
8-A dated May 28, 1997 (filed May 30, 1997; Commission File No. 001-11599).
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.
HOME EQUITY LENDING
Through AMRESCO Residential, the Company originates, acquires,
warehouses, services and securitizes conventional, nonconforming home equity
mortgage loans. Prior to July 1998, this business line was known as the
Company's residential mortgage banking line of business.
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 July 17, 1998, the Company completed the acquisition (the
"IFC/Telecapital Acquisition") of substantially all of the assets of
Independence Funding Company, LLC ("IFC") and Telecapital, L.P. ("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."
RESIDENTIAL MORTGAGE BANKING
On August 11, 1998, pursuant to the MIC Merger Agreement, the Company
acquired Mortgage Investors Corporation, a residential mortgage company, and
MSPI, Inc. (formerly known as Marketing Solution Publications, Inc.), an
affiliated company of Mortgage Investors Corporation (unless the context
otherwise requires, such entities are collectively referred to herein as "MIC").
MIC is a Florida-based residential mortgage banking company. MIC conducts retail
loan originations, originating conforming loans through a network of
approximately 30 retail branches throughout the United States. MIC is also the
largest producer of VA streamlined re-financed loans (otherwise known as
interest rate reduction refinance loans) in the United States. MIC immediately
sells all VA loans and servicing rights to third parties in order to realize
immediate cash proceeds and reduce accumulation risk. Pursuant to the MIC Merger
Agreement, the Company acquired MIC for an initial payment of approximately $2.6
million in cash and 1,804,441 shares of the Company's Common Stock.
Additionally, the Company will pay an annual earnout over a three-year period,
the total of which is not to exceed $105 million. At least 82% in value of each
earnout payment will consist of the Company's Common Stock. The activities
conducted by MIC have become the Company's fifth line of business, known as
"Residential Mortgage Banking." See"Risk Factors - Risks Associated with Rapid
Growth and Entry in New Business."
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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, home
equity lending, 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. See "The
Company - Residential Mortgage Banking." 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
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for such loans could impair the Company's ability to originate, purchase and
sell mortgage loans on a favorable or timely basis. Any such impairment could
have a material adverse effect upon the Company's business and results of
operations. 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 June 30, 1998, the Company's aggregate
investment in Subordinated Certificates was approximately $392.8 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
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borrowers. While the Company believes that the underwriting criteria and
collection methods it employs enable it to 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.
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<PAGE> 11
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
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
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<PAGE> 12
Company's residential mortgage banking, commercial mortgage banking and
commercial finance businesses and negatively impact its securitization activity.
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.
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<PAGE> 13
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 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.
Home Equity Lending. The Company recently has encountered increased
competition in the market for conventional, nonconforming home equity 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 home
equity 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.
Residential Mortgage Banking. The Company has recently engaged, through
MIC, in the residential mortgage banking business. There are numerous
competitors in the residential mortgage banking business, certain of which are
larger and have access to greater financial resources and lower costs of capital
than the Company.
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 READINESS
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 Issue". As the year
2000 approaches, such systems may recognize a date using "00" as the year 1900
rather than the year 2000 and be unable to accurately process certain date-based
information.
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<PAGE> 14
The Company has reviewed its mission-critical computer systems in order
to evaluate necessary modifications for Year 2000 readiness. The Company does
not anticipate any material difficulties in achieving Year 2000 readiness with
respect to the Company's mission-critical computer systems. Furthermore, the
Company does not anticipate that it will incur material expenditures in
connection with any modifications necessary to achieve Year 2000 readiness. In
addition, the Company is in the process of communicating with others with whom
it does significant business to determine their Year 2000 readiness status and
the extent to which the Company could be affected by any third party Year 2000
readiness issues. Although the Company has not received responses from all third
parties with whom it does business, the Company does not anticipate that it will
be materially affected by any third party Year 2000 readiness issues. However,
there can be no assurance that the systems of the Company or those of other
companies on which the Company's systems rely 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.
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> 15
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 registration of the shares of Common Stock
offered for resale hereby is pursuant to the Registration Rights Agreement.
Pursuant to the Registration Rights 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
Rights Agreement" for a more complete description of the Registration Rights
Agreement.
The following table lists the name of each initial 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(*)
- ------------------------------------ --------------------------- --------------------- ----------------------
<S> <C> <C> <C>
William Edwards 0 1,472,593 0
Lynn Rushmore 0 33,366 0
Jeffrey J. Crilley 0 83,414 0
Lawrence J. Fisher 0 16,683 0
James A. McMahan 0 16,683 0
James J. Schatz 0 33,366 0
Derek Van Hoose 0 83,414 0
Edwin Hill 0 33,366 0
Raymond James & Associates, Inc. ** 31,556 **
-- --------- --
TOTAL 0 1,804,441 0
== ========= ==
</TABLE>
-----------------------------
* Assumes all shares held by such Selling Stockholder and registered hereby
will be offered and sold.
** Raymond James & Associates, Inc. makes a market in the Common Stock and
trades the Common Stock in the ordinary course of its business.
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<PAGE> 16
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 August 10, 1998, the Company had issued and outstanding
44,243,668 shares of Common Stock and no shares of Preferred Stock. As of such
date, there were approximately 2,646 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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<PAGE> 17
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 its
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<PAGE> 18
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
17
<PAGE> 19
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 RIGHTS AGREEMENT
In connection with the MIC Merger Agreement, the Company entered into
the Registration Rights Agreement dated August 11, 1998, whereby the Company
agreed to register shares of the Common Stock to be issued to the Selling
Stockholders. Pursuant to the Registration Rights Agreement, the Company agreed
to file this Registration Statement and to use commercially reasonable efforts
to cause the Registration Statement to become effective not later than 120 days
after the closing date of the MIC Merger Agreement or as promptly as practicable
thereafter. The rights of the Selling Stockholders under the Registration Rights
Agreement cease to apply on the earliest of (i) the time when all such shares
have been effectively registered under the Securities Act and sold or
distributed pursuant to an effective registration statement covering them, (ii)
the time when all such shares are eligible, in the opinion of counsel to the
Company, to be sold or distributed immediately pursuant to Rule 144 (within the
then-applicable volume limitation pursuant to Rule 144(e)) or Rule 144(k), (iii)
the date on which each party to the Registration Rights Agreement agrees in
writing to such termination and (iv) the fourth anniversary of the closing date
of the MIC Merger Agreement.
18
<PAGE> 20
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; (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; and (iv) exchange distributions in accordance with
applicable rules. 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 distributions of the shares of Common Stock covered
hereby or otherwise, the Selling Stockholders may enter into hedging
transactions with broker-dealers. In connection with such transactions,
broker-dealers may engage in short sales of the shares of Common Stock covered
hereby in the course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders may also sell shares of Common Stock
covered hereby short and redeliver such shares to close out such short
positions. The Selling Stockholders may also enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of shares of Common Stock covered hereby, which the broker-dealer may resell or
otherwise transfer. The Selling Stockholder may also loan or pledge shares of
the Common Stock covered hereby to a broker-dealer and the broker-dealer may
sell the shares so loaned, or upon a default the broker-dealer may effect sales
of the pledged shares.
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 Rights Agreement provides that the Company will
indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act. The Selling Stockholders may agree to
indemnify any broker-dealer or agent that participates in transactions involving
sales of shares of Common Stock covered hereby against certain liabilities,
including liabilities under the Securities Act. The Registration Rights
Agreement also provides that costs, fees and expenses in connection with the
registration of the shares of Common Stock will be borne by the Company, and
that commissions and discounts, if any, attributable to the sale of the shares
of Common Stock will be borne by the Selling Stockholders.
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.
19
<PAGE> 21
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. As of July 28, 1998, Mr. Blackwell owned beneficially 32,295 shares of
Common Stock (excluding 12,265 unvested shares allocated under the Company's
restricted stock plan) and held options to purchase 213,275 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.
20
<PAGE> 22
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.
"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 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, which was converted 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.
"MASTER SERVICER" means an entity which provides administrative
services with respect to securitized pools of mortgage-backed securities.
"MIC", unless the context otherwise requires, means Mortgage Investors
Corporation, an Ohio corporation, and MSPI, Inc., formerly known as Marketing
Solution Publications, Inc., a Michigan corporation and an affiliated company of
Mortgage Investors Corporation.
21
<PAGE> 23
"MIC MERGER AGREEMENT" means the Agreement and Plan of Merger dated
July 14, 1998 by and among AMRESCO, INC., MIC Acquisition, Inc., Mortgage
Investors Corporation, William Edwards and the other stockholders listed on the
signature page thereto.
"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.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated August 11, 1998 by and among AMRESCO, INC., William Edwards, Lynn
Rushmore, Jeffrey Crilley, Larry Fisher, Jim McMahan, Jim Shatz, Derek Van Hoose
and Edwin Hill.
"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 97/8% 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 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, which was converted into
shares of Common Stock as described therein.
"VA" means the United States Department of Veteran Affairs.
"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.
22
<PAGE> 24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee..................... $11,014
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................................................................ $68,514
=======
</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
II-1
<PAGE> 25
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 Rights Agreement, 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* Agreement and Plan of Merger dated July 14, 1998 by and among
AMRESCO, INC., MIC Acquisition, Inc., Mortgage Investors
Corporation, William Edwards and the other stockholders
listed on the signature page thereto.
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* Registration Rights Agreement, dated as of August 11, 1998,
by and among AMRESCO, INC., William Edwards, Lynn Rushmore,
Jeffrey Crilley, Larry Fisher, Jim McMahan, Jim Shatz, Derek
Van Hoose and Edwin Hill.
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 page II-4).
</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,
II-2
<PAGE> 26
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement;
(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> 27
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 August,
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 indicated and on the 24th day of August, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/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
/s/ RONALD B. KIRKLAND Vice President and Chief
- -------------------------------------- Accounting Officer
Ronald B. Kirkland (Principal Accounting Officer)
</TABLE>
II-4
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
------- --- -------
<S> <C> <C>
2.1* Agreement and Plan of Merger dated July 14, 1998 by and among
AMRESCO, INC., MIC Acquisition, Inc., Mortgage Investors
Corporation, William Edwards and the other stockholders
listed on the signature page thereto.
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* Registration Rights Agreement, dated as of August 11, 1998,
by and among AMRESCO, INC., William Edwards, Lynn Rushmore,
Jeffrey Crilley, Larry Fisher, Jim McMahan, Jim Shatz, Derek
Van Hoose and Edwin Hill.
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 page II-4)
</TABLE>
* Filed herewith.
II-5
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMRESCO, INC.
MIC ACQUISITION, INC.
MORTGAGE INVESTORS CORPORATION
WILLIAM EDWARDS
AND
THE OTHER STOCKHOLDERS LISTED ON
THE SIGNATURE PAGE HEREOF
July 14, 1998
An Index of Defined Terms begins on Page vii
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1
Merger............................................................................................................2
1.1 The Merger....................................................................................2
(a) The Merger.............................................................................2
(b) Effective Time of the Mergers..........................................................2
(c) Effect of the Merger...................................................................2
(d) The Surviving Corporation's Articles of Incorporation; Bylaws;
Directors and Officers.................................................................2
(e) Tax Consequences.......................................................................2
1.2 Terms of the Merger...........................................................................3
(a) Merger Consideration...................................................................3
(b) Closing Stock Merger Consideration.....................................................3
(c) Post-Closing Earnout Payments..........................................................4
(d) Delivery of Estimated Earnout Computation Statement....................................5
(e) Earnout True-up Statement..............................................................5
(f) Earnout True-up Payment................................................................6
(g) Exchange Procedure for the Stock.......................................................6
(h) Merger Sub Capital Stock...............................................................7
(i) Marketing Solution Publications, Inc...................................................7
(j) Listed Shares..........................................................................7
ARTICLE 2
Closing The Transaction...........................................................................................7
2.1 Closing.......................................................................................7
2.2 Sellers Deliveries at Closing.................................................................8
(a) Stock Certificates.....................................................................8
(b) Closing Certificate....................................................................8
(c) Consents and Approvals.................................................................8
(d) Resolutions............................................................................8
(e) Proceedings and Documents..............................................................8
(f) Good Standing Certificates.............................................................8
(g) Opinions of Sellers' Counsel...........................................................8
(h) Stockholder Releases...................................................................8
(i) Other Instruments......................................................................9
2.3 Buyer's and Merger Sub's Deliveries at Closing................................................9
(a) The Merger Consideration...............................................................9
(b) Closing Certificate....................................................................9
(c) Resolutions............................................................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(d) Consents and Approvals.................................................................9
(e) Opinion of Buyer's and Merger Sub's Counsel............................................9
2.4 Related Agreements............................................................................9
(a) Employment Agreement...................................................................9
(b) Registration Rights Agreement..........................................................9
ARTICLE 3
Conditions To Consummating The Transaction.......................................................................10
3.1 Joint Conditions.............................................................................10
(a) HSR Act...............................................................................10
(b) No Litigation.........................................................................10
(c) Related Agreements....................................................................10
(d) Stockholder Releases..................................................................10
3.2 Buyer's and Merger Sub's Conditions..........................................................10
(a) Sellers' Representations True.........................................................10
(b) Sellers' Compliance with Agreement....................................................10
(c) Sellers Consents......................................................................10
(d) Permits...............................................................................11
(e) Merger................................................................................11
(f) Approvals.............................................................................11
(g) Termination Agreements................................................................11
(h) Cash Balances.........................................................................11
(i) Stockholder Obligations...............................................................11
(j) Software Issue Resolution.............................................................11
3.3 Sellers' Conditions to Closing...............................................................11
(a) Buyer's and Merger Sub's Representations True.........................................11
(b) Buyer's and Merger Sub's Compliance with Agreement....................................11
ARTICLE 4
Covenants to Satisfy Conditions and Consummate the Transaction...................................................12
4.1 Joint Responsibilities.......................................................................12
(a) Defending the Agreement...............................................................12
(b) Lifting Injunctions...................................................................12
(c) Other Actions.........................................................................12
4.2 Sellers' Responsibilities....................................................................12
(a) Sellers' Delegated Conditions.........................................................12
(i) Section 3.2(a)...............................................................12
(ii) Section 3.2(b)...............................................................13
(b) HSR Act Filings.......................................................................13
(c) Stockholder Approval..................................................................13
4.3 Buyer's and Merger Sub's Responsibilities....................................................13
(a) Buyer's and Merger Sub's Delegated Conditions.........................................13
(i) Section 3.3(a)...............................................................13
(ii) Section 3.3(b)...............................................................13
(b) HSR Act Filings.......................................................................13
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 5
Termination......................................................................................................14
5.1 Reasons for Termination......................................................................14
(a) By Mutual Consent.....................................................................14
(b) By the Buyer or Merger Sub............................................................14
(c) By Sellers............................................................................14
(d) Drop-Dead Date........................................................................14
5.2 Notice of Problems...........................................................................14
5.3 Buyer and Merger Sub Termination Procedure...................................................15
5.4 Sellers' Termination Procedure...............................................................15
5.5 Effect of Termination........................................................................15
ARTICLE 6
Representations and Warranties of Sellers........................................................................15
6.1 Sellers; Entry Into Agreements...............................................................16
(a) Organization and Good Standing........................................................16
(b) Validity and Authorization; Corporate Power and Authority.............................16
(c) Subsidiaries..........................................................................16
(d) No Conflict...........................................................................17
(e) Sellers Consents Required.............................................................17
(f) HSR Act...............................................................................17
(g) MSPI..................................................................................17
6.2 Financial Information........................................................................18
(a) Financial Statements; Books and Records...............................................18
(b) Conduct of Business...................................................................19
(c) No Material Adverse Change............................................................20
6.3 Stock........................................................................................20
(a) Capitalization........................................................................20
(b) Ownership and Transfer by Stockholder.................................................20
6.4 Assets.......................................................................................20
(a) Personal Property.....................................................................20
(i) Title........................................................................20
(ii) Notes and Accounts Receivable................................................21
(iii) Bank Accounts................................................................21
(b) Real Property.........................................................................21
(i) Fee Simple...................................................................21
(ii) Leases; Easements and Other Interests........................................21
(iii) Eminent Domain...............................................................22
(iv) Leased Premises Taxes........................................................22
(c) Intellectual Property.................................................................22
(i) Intellectual Property........................................................22
(ii) Ownership....................................................................23
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
(iii) Technology Contracts.........................................................23
(iv) Trademarks...................................................................23
(v) Copyrights...................................................................23
(vi) Trade Secrets................................................................23
(d) Contracts.............................................................................23
6.5 Liabilities..................................................................................25
(a) No Liabilities........................................................................25
(b) Tax Matters...........................................................................25
(c) Litigation............................................................................26
(d) Employee Liabilities..................................................................27
6.6 Business.....................................................................................27
(a) Mortgage Banking Licenses and Qualifications..........................................27
(b) Mortgage Loans........................................................................28
(c) Enforceability........................................................................28
(d) Title to Certain Mortgage Loans; Mortgage Loan Conveyance
Agreements............................................................................29
(e) No Recourse...........................................................................29
(f) Compliance with Mortgage Banking Regulations..........................................29
(g) Physical Damage.......................................................................30
(h) Tax Identification....................................................................30
(i) ARMs and Conversion Loans.............................................................30
(j) Custodial Accounts....................................................................30
(k) Insurance.............................................................................31
(l) Employees.............................................................................31
(m) Worker's Compensation.................................................................31
(n) ERISA.................................................................................32
(o) Affiliated Transactions...............................................................32
(p) Legal Requirements....................................................................32
(i) Compliance with Laws.........................................................32
(ii) Certain Acts.................................................................32
(q) Environmental Matters.................................................................33
(i) Compliance...................................................................33
(ii) Environmental Claims.........................................................33
6.7 Buyer Stock..................................................................................34
(a) Purchase Entirely for Own Account.....................................................34
(b) Buyer's and Merger Sub's Reliance.....................................................34
(c) Receipt of Information................................................................34
(d) Investment Experience.................................................................34
(e) Accredited Investor...................................................................34
(f) Restricted Securities.................................................................35
(g) Legends...............................................................................35
6.8 Other........................................................................................35
(a) Documents Delivered...................................................................35
(b) No Brokers Fees; No Commissions.......................................................35
(c) Disclaimer............................................................................35
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE 7
Representations and Warranties of Buyer and Merger Sub...........................................................36
7.1 Entry Into Agreements........................................................................36
(a) Organization and Good Standing........................................................36
(b) Corporate Power and Authority; Validity and Authorization.............................36
7.2 Conflicts and Consents.......................................................................36
(a) No Conflict...........................................................................36
(b) Buyer Consents Obtained...............................................................37
7.3 No Brokers Fees; No commissions..............................................................37
7.4 HSR Act......................................................................................37
7.5 Acquisition of Stock.........................................................................37
7.6 Buyer Stock..................................................................................37
7.7 SEC Documents................................................................................37
7.8 No Material Adverse Change...................................................................37
ARTICLE 8
Covenants of Sellers.............................................................................................38
8.1 Conduct of Business of the Company Pending Closing...........................................38
8.2 Access to Information and Employees..........................................................38
8.3 No Solicitation..............................................................................39
8.4 Financial Statements.........................................................................39
8.5 Payment of Indebtedness of Related Persons...................................................39
8.6 Maintain Organization........................................................................39
8.7 Assist in Obtaining Licenses, Etc............................................................39
8.8 Sellers' Consents............................................................................39
8.9 Records of the Company.......................................................................40
8.10 Employee Benefit Plans.......................................................................40
8.11 Other Stockholders...........................................................................40
ARTICLE 9
Post-Closing Agreements..........................................................................................40
9.1 Further Actions..............................................................................40
9.2 Cooperation..................................................................................40
9.3 Tax Returns..................................................................................41
9.4 Employee Benefit Plans.......................................................................41
ARTICLE 10
Indemnification..................................................................................................41
10.1 Survival; Etc................................................................................41
(a) Contents of this Agreement............................................................41
(b) No Effect on Liability................................................................41
(c) Survival..............................................................................42
(d) Commencing Actions....................................................................42
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
10.2 Indemnities..................................................................................42
(a) Indemnification of Buyer..............................................................42
(b) Indemnification of the Stockholder....................................................43
(c) Setoff................................................................................44
10.3 Limitations on Indemnities...................................................................44
(a) Basket................................................................................44
(b) Cap...................................................................................44
(c) Exclusions............................................................................45
(d) Exclusivity...........................................................................45
10.4 Notice and Opportunity to Defend.............................................................45
(a) Notice, Etc...........................................................................45
(b) Defense Costs.........................................................................46
(c) Third Party Claims....................................................................46
10.5 Delays or Omissions, Etc.....................................................................46
10.6 Governing Law; Attorneys' Fees...............................................................47
10.7 Dispute Resolution...........................................................................47
(a) Arbitration...........................................................................47
(b) Emergency Relief......................................................................48
ARTICLE 11
Miscellaneous....................................................................................................48
11.1 Successors and Assigns.......................................................................48
11.2 Entire Agreement; Amendment..................................................................49
11.3 Press Release................................................................................49
11.4 Notices, Etc.................................................................................49
11.5 No Third Party Beneficiary, Etc..............................................................51
11.6 Reformation; Severability....................................................................51
11.7 Counterparts.................................................................................51
11.8 Titles and Subtitles.........................................................................51
11.9 Confidentiality..............................................................................51
11.10 Expenses.....................................................................................52
11.11 Responsibility for Merger Sub................................................................53
11.12 Knowledge....................................................................................53
11.13 Waivers......................................................................................53
11.14 Cooperation with the Stockholder's Accountants...............................................53
</TABLE>
List of Exhibits
Exhibit 2.2(c) - Closing Certificate
Exhibit 2.2(g) - Opinion of Counsel to Sellers
Exhibit 2.3(b) - Closing Certificate
Exhibit 2.3(e) - Opinion of General Counsel of Buyer
Exhibit 2.4(a) - Employment Agreement between Mortgage Investors Corporation and
William Edwards
Exhibit 2.4(b) - Registration Rights Agreement
[The Registrant hereby agrees to provide supplementally a copy of any exhibit
omitted from this Agreement and Plan of Merger to the Commission upon request.]
vi
<PAGE> 8
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
AAA ...................................................................... 47
Closing Deductions ................................................. 3-3
Accounts ................................................................. 21
Accounts Receivable ...................................................... 21
Agreement ................................................................ 1
Analysis ................................................................. 51
Approvals ................................................................ 11
Asserted Liability ....................................................... 45
Breach ................................................................... 41
Buyer .................................................................... 1
Buyer and Merger Sub Closing Certificate ................................. 9
Buyer Indemnitees ........................................................ 42
Buyer Indemnitors ........................................................ 43
Buyer Stock .............................................................. 3
Buyer's Delegated Conditions ............................................. 13
CLCFC .................................................................... 16
Closing .................................................................. 7
Closing Cash Merger Consideration ........................................ 3
Closing Certificate ...................................................... 8
Closing Date ............................................................. 8
Code ..................................................................... 26
Company .................................................................. 1
Company Financial Statements ............................................. 18
Confidential Information ................................................. 51
Contracts ................................................................ 24
Copyrights ............................................................... 22
Corporate Records ........................................................ 35
Custodial Accounts ....................................................... 30
Defense Costs ............................................................ 46
Disclosing Party ......................................................... 52
Earnout Amount ........................................................... 4
Earnout Base Amount ...................................................... 5
Earnout Computation Statement ............................................ 5
Earnout GAAP ............................................................. 5
Earnout Payment .......................................................... 4
Earnout Payment Date ..................................................... 4
Earnout True-up Payment .................................................. 5
Effective Time ........................................................... 2
Employee Benefit Plans ................................................... 32
Employee Pension Benefit Plan ............................................ 32
</TABLE>
vii
<PAGE> 9
<TABLE>
<S> <C>
Employment Agreement ..................................................... 9
Environmental Claim ...................................................... 33
Environmental Laws ....................................................... 33
Equipment Leases ......................................................... 20
ERISA .................................................................... 32
Escrow Funds ............................................................. 30
Established Loss ......................................................... 43
Established Stockholder Loss ............................................. 43
Exchange Act ............................................................. 37
GAAP ..................................................................... 19
Good Standing Certificate ................................................ 8
HSR Act .................................................................. 10
Indemnified Party ........................................................ 45
Indemnifying Party ....................................................... 45
Intellectual Property .................................................... 22
Leased Premises .......................................................... 21
Legal Requirements ....................................................... 32
Letter of Intent ......................................................... 49
Licenses ................................................................. 27
Liens .................................................................... 20
Loan Documents ........................................................... 29
Losses ................................................................... 42
Marks .................................................................... 22
Material Adverse Effect .................................................. 16
Maximum Earnout Payment .................................................. 5
Merger ................................................................... 2
Merger Consideration ..................................................... 3
Merger Sub ............................................................... 1
Minimum Earnout Payment .................................................. 4
Mortgage ................................................................. 28
Mortgage Business ........................................................ 27
Mortgage Loan ............................................................ 28
MSPI ..................................................................... 4
MSPI Merger Sub .......................................................... 7
Note ..................................................................... 28
OBCA ..................................................................... 2
Obligated Party .......................................................... 51
Orders ................................................................... 27
Other Stockholder ........................................................ 1
Other Stockholders ....................................................... 1
Outside Confidentiality Agreement ........................................ 31
Patents .................................................................. 22
Permits .................................................................. 11
Permitted Liens .......................................................... 20
</TABLE>
viii
<PAGE> 10
<TABLE>
<S> <C>
Personal Property ........................................................ 20
Plan of reorganization ................................................... 2
Policies ................................................................. 31
Post-Closing Earnout Payments ............................................ 4
Prior Policies ........................................................... 31
Proceedings .............................................................. 26
Real Estate Contracts .................................................... 22
Real Property ............................................................ 21
Recourse Mortgage Loans .................................................. 28
Registration Rights Agreement ............................................ 9
Regulations .............................................................. 29
Related Agreements ....................................................... 9
Representatives .......................................................... 39
SEC Documents ............................................................ 37
Seller Consents .......................................................... 17
Seller Indemnitors ....................................................... 42
Sellers' Delegated Conditions ............................................ 12
Sellers .................................................................. 1
Short Period ............................................................. 3
Stock .................................................................... 1
Stockholder .............................................................. 1
Stockholders ............................................................. 1
Stockholders Release ..................................................... 8
Surviving Corporation .................................................... 2
Tax ...................................................................... 26
Tax Returns .............................................................. 26
Taxes .................................................................... 26
Technology Contracts ..................................................... 22
Trade Secrets ............................................................ 22
</TABLE>
ix
<PAGE> 11
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of July 14, 1998, by and among AMRESCO, INC., a Delaware corporation ("Buyer"),
MIC Acquisition, Inc., an Ohio corporation and a direct wholly owned subsidiary
of Buyer ("Merger Sub"), Mortgage Investors Corporation, an Ohio corporation
(the "Company"), the controlling stockholder of the Company, William Edwards
(the "Stockholder"), and the other stockholders of the Company as of the date
hereof, Lynn Rushmore, Jeffrey Crilley, Larry Fisher, Jim McMahan, Jim Shatz and
Derek Van Hoose (collectively, the "Other Stockholders" and each an "Other
Stockholder").
R E C I T A L S
A. The Stockholder and the Other Stockholders own, in the aggregate, all
of the issued and outstanding shares of capital stock of the Company
(collectively, the "Stock"), consisting in the aggregate of 180.744
shares, (which number is subject to increase as described herein) of
common stock, no par value, of the Company. At or immediately prior to
the Closing, the Stockholder will have the right, but not the
obligation, to cause the Company to issue up to 3.843 shares of stock
in the Company to Edwin Hill (upon completion of such issuance on the
terms set forth herein, such individual shall be deemed to be an "Other
Stockholder" hereunder). The Stockholder and the Other Stockholders are
sometimes referred to herein as the "Stockholders." The Company (prior
to Closing (defined below) only) and the Stockholders are sometimes
collectively referred to herein as the "Sellers."
B. The respective Boards of Directors of Buyer, Merger Sub and the Company
deem it advisable and in the best interests of their respective
stockholders that the Company be acquired by, and become a wholly-owned
subsidiary of, Buyer, and in furtherance thereof, the respective Boards
of Directors and stockholders of Merger Sub and the Company and the
Board of Directors of Buyer have approved, as applicable, the merger of
Merger Sub with and into the Company, upon the terms and subject to the
conditions set forth herein.
C. It is intended that the merger described herein shall qualify, for
federal income tax purposes, as a reorganization within the meaning of
Section 368(a)(2)(E) of the Code (defined below).
D. The Buyer, the Merger Sub and the Sellers acknowledge that they have
received adequate consideration for entering into, and have relied upon
the promises, covenants, representations and warranties contained in,
this Agreement, and that they will be benefitted by the transactions
contemplated herein.
E. Sellers have delivered to Buyer certain Disclosure Schedules (herein so
called) of even date herewith referred to herein. The Disclosure
Schedules and the Exhibits (herein so called) referred to herein are a
part hereof.
<PAGE> 12
A G R E E M E N T
Based on the recitals set forth above and the representation,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE 1
Merger
1.1 The Merger.
(a) The Merger. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the Ohio General Corporation
Law (the "OGCL"), at the Effective Time, Merger Sub shall be merged with and
into the Company (the "Merger"), in accordance with the terms set forth herein.
From and after the Effective Time, the separate corporate existence of Merger
Sub shall cease. The Company shall continue as the surviving corporation in the
Merger (the "Surviving Corporation") and shall continue to be governed by the
laws of the State of Ohio. The Merger shall be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Ohio, together
with all other documents, notices and filings required by the OGCL.
(b) Effective Time of the Mergers. The Certificate of Merger
shall provide that the Merger shall be effective as of the date and time of
filing of the Certificate of Merger with the Secretary of State of the State of
Ohio (the "Effective Time").
(c) Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in Section 1701.82 of the OGCL.
(d) The Surviving Corporation's Articles of Incorporation;
Bylaws; Directors and Officers. The Articles of Incorporation and Bylaws of the
Company, in each case as in effect at the Effective Time, shall be the Articles
of Incorporation and Bylaws of the Surviving Corporation. At the Effective Time,
(i) the Board of Directors of the Surviving Corporation shall be composed of the
directors of the Merger Sub (and the Stockholder, if the Stockholder determines
that he wants to be a member of the Board of Directors of the Surviving
Corporation) and (ii) the officers of the Surviving Corporation shall be the
officers of the Company serving immediately before the Effective Time; in each
case, to hold office until their respective successors are duly elected or
appointed and qualified.
(e) Tax Consequences. It is intended that the Merger shall
constitute a reorganization described in Section 368(a)(2)(E) of the Code
(defined below) and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code. It shall not be a
condition to the consummation of the Merger that any party hereto shall have
received a ruling of the Internal Revenue Service as to the federal income tax
consequences of the Merger.
2
<PAGE> 13
1.2 Terms of the Merger.
(a) Merger Consideration.
(i) At the Effective Time, by virtue of the Merger
and without any action by the holder of the Stock, all Stock issued and
outstanding immediately prior to the Effective Time shall be canceled and
retired, shall cease to exist and shall be converted into and become rights to
receive, upon surrender of certificates evidencing the Stock, the Merger
Consideration in the manner described in this Section 1.2.
(ii) Each share of the Stock shall be converted into
(i) the right to receive, in cash, a pro rata portion attributable to each
outstanding share of Stock of the aggregate of the excess (if any) of (A) $12.6
million over (B) the sum of (x) an amount equal to 60.4% of the funds withdrawn
from the Company by, or paid or distributed by the Company to, the Stockholders
(to the extent such withdrawn, paid or distributed funds reduce the Company's
cash to an amount less than $17.0 million at the Effective Time) during the
period beginning April 1, 1998 and ending on the Closing Date (the "Short
Period") which amount shall be certified to Buyer in writing by the Stockholder
prior to the Closing and (y) an amount equal to the fees and expenses payable by
the Company to Raymond James & Associates, Inc. ("Raymond James") at the Closing
in connection with the transactions contemplated herein and in the Related
Agreements, which amount shall be certified to Buyer in writing by the
Stockholder prior to the Closing and which amount shall be paid by the Surviving
Corporation (or one of its affiliates) at the Effective Time (the sum of (x) and
(y) being referred to herein as the "Closing Deductions") (such excess of (A)
over (B) being referred to herein as the "Closing Cash Merger Consideration"),
by wire transfer of the immediately-available funds to an account designated in
writing not later than the fifth day prior to the Effective Time by the
respective Stockholders to the Buyer (provided, however, that if the Closing
Deductions exceed $12.6 million, then the Closing Stock Merger Consideration
(defined below) shall be reduced by a number of shares of Buyer Stock having a
value equal to $31.8104 (which is the average closing sale price per share of
the Buyer Stock for the 30 trading-day period ending on the fifth trading day
prior to the date hereof) equal to the amount by which the Closing Deductions
exceed $12.6 million), (ii) the right to receive a pro rata portion attributable
to each outstanding share of Stock of the aggregate Closing Stock Merger
Consideration (as determined and defined below) and (iii) the right to receive,
from time to time, Post-Closing Earnout Payments (as determined and defined
below), if any, distributed pursuant to Section 1.2(c) (Post-Closing Earnout
Payments). The Closing Cash Merger Consideration, the Closing Stock Merger
Consideration and the Post-Closing Earnout Payments are collectively referred to
as the "Merger Consideration."
(b) Closing Stock Merger Consideration. At the Closing, upon
receipt of certificates evidencing the Stock, Merger Sub shall deliver to the
Stockholders (pro rata in accordance with their respective percentage ownership
of the Stock at the Effective Time) shares of common stock, par value $0.05 per
share, of Buyer (each share being referred to herein as a share of "Buyer
Stock") as set forth below. The aggregate number of Buyer Stock delivered at the
Closing (the "Closing Stock Merger Consideration") shall be 1,631,149 shares
(the "Base Shares"). The Base
3
<PAGE> 14
Shares shall be reduced by (i) a number of shares equal to the amount of Closing
Deductions in excess of $12.6 million divided by $31.8104 and (ii) the number of
shares of Buyer Stock payable at the Closing by Buyer on behalf of the Surviving
Corporation in payment of fees payable at the Closing to Raymond James (as
certified by the Stockholder pursuant to Section 1.2(a)(ii) above). No
fractional shares will be delivered. Buyer and the Stockholders acknowledge that
the value of the Closing Stock Merger Consideration received by the Stockholders
for the Stock is equal to $31.8104 per share.
(c) Post-Closing Earnout Payments. Subject to Section 10.2(c)
(Setoff), on or before each of April 30, 1999, April 30, 2000 and April 30, 2001
(each an "Earnout Payment Date"), as additional consideration for the Merger,
Buyer will deliver to the Stockholders cash and Buyer Stock having an aggregate
value (the Buyer Stock being valued based on the average of the closing sale
price of the Buyer Stock for the 30 trading-day period ending on the fifth
trading day prior to the applicable Earnout Payment Date) equal to the greater
of (i) the Minimum Earnout Amount (if applicable) or (ii) the lesser of (A) 90%
of the Earnout Amount (defined below) if the Earnout Base Amount is greater than
zero or (B) the applicable Maximum Earnout Payment (defined below).
Each payment made to the Stockholders on each Earnout Payment Date
shall consist of 18% (by value) cash and 82% (by value as determined in the
immediately preceding paragraph) of Buyer Stock. The cash and shares of Buyer
Stock delivered on any Earnout Payment Date are collectively referred to herein
as an "Earnout Payment." The Earnout Payments are collectively referred to
herein as "Post-Closing Earnout Payments."
"Minimum Earnout Payment" shall mean: (i) for the April 30, 1999
Earnout Payment Date, an amount equal to $36.0 million, (ii) for the April 30,
2000 Earnout Payment Date, an amount equal to $17.0 million and (iii) for the
April 30, 2001 Earnout Payment Date, an amount equal to $17.0 million; provided,
however, the Minimum Earnout Payment shall be zero for each Earnout Payment if
the sum of (A) the Earnout Base Amount, (B) compensation expenses paid to the
Stockholder, (c) payments made by the Company to Marketing Solution
Publications, Inc. ("MSPI") during the Short Period and (D) non-cash
compensation expense paid to the Other Stockholders in connection with the
Company's issuance to them of shares of Stock during the Short Period is less
than $25.0 million.
"Earnout Amount" shall mean: (i) for the April 30, 1999 Earnout Payment
Date, an amount equal to 50% of the Earnout Base Amount if the sum of (A) the
Earnout Base Amount, (B) compensation expenses paid to the Stockholder during
the Short Period, (c) payments made by the Company to MSPI, and (D) non-cash
compensation expenses paid to the Other Stockholders in connection with the
Company's issuance to them of shares of Stock during the Short Period is equal
to or greater than $61,698,375; provided, however, that in all other cases,
"Earnout Amount" for the April 30, 1999 Earnout Payment shall mean 25% of the
Earnout Base Amount and (ii) for the Earnout Payments for April 30, 2000 and
2001, "Earnout Amount" shall mean an amount equal to 25% of the Earnout Base
Amount.
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"Earnout Base Amount" for each twelve-month period of the Surviving
Corporation ending on March 31, shall mean the income before taxes, amortization
of goodwill associated with the transactions contemplated herein and any portion
of the fees paid to Raymond James hereunder that are recorded as an expense of
the Surviving Corporation for that fiscal year, as determined in accordance with
GAAP (defined below), without the application to the Surviving Corporation of
any corporate overhead, but after reduction for the cost of services actually
provided by Buyer and approved by the Stockholder (which approval shall not be
unreasonably withheld (and it being deemed reasonable for the Stockholder to
withhold his approval if, inter alia, the services provided by the Buyer are (a)
materially more costly or (b) materially less efficient than those otherwise
available to the Surviving Corporation), including without limitation legal,
accounting, accounts payable, payroll and information technology services, which
costs shall be charged at rates not in excess of those charged to Buyer's other
subsidiaries for comparable services ("Earnout GAAP"). Notwithstanding anything
herein to the contrary, for purposes of calculating the Earnout Base Amount for
any period, the Surviving Corporation shall recognize the sale of its mortgage
loans on the date on which funding of such mortgage loan occurs.
"Maximum Earnout Payment" shall mean: (i) for the April 30, 1999
Earnout Payment Date, an amount equal to $54.0 million and (ii) for the Earnout
Payments for April 30, 2000 and 2001, an amount equal to $25.5 million.
(d) Delivery of Estimated Earnout Computation Statement. On or
before each Earnout Payment Date, the Surviving Corporation shall prepare and
deliver to the Stockholder a statement (the "Earnout Computation Statement")
approved by Buyer setting forth in reasonable detail an estimated calculation of
the Earnout Amount, the Earnout Base Amount, the amount of the applicable
Minimum Earnout Payment (if any) and the amount of the Earnout Payment to be
paid for such Earnout Period. If at any time prior to the preparation of the
final Earnout Computation Statement the Surviving Corporation ceases to have an
in-house accounting staff that participates in the preparation of the Earnout
Computation Statement (for approval by Buyer), then the Surviving Corporation
shall permit an accountant or accountants selected by the Stockholder reasonably
to participate in the preparation of the Earnout Computation Statement.
(e) Earnout True-up Statement. As soon as is practicable after
the delivery of each Earnout Computation Statement (but in any event not later
than May 31 of 1999, 2000 and 2001), the Surviving Corporation shall prepare and
deliver to the Stockholder a statement (the "Earnout True-up Statement" setting
forth in reasonable detail the calculation of the final Earnout Amount and
Earnout Base Amount for such earnout period and the amount necessary to be paid
by Buyer to the Stockholders (in cash and stock as set forth above (with the
value of any additional Buyer Stock delivered by Buyer being valued based on the
average of the closing sale price of the Buyer Stock for the 30 trading-day
period ending on the fifth trading day prior to the date on which Buyer delivers
such shares)) in order for the Earnout Payment for such period (after taking
into account the amount paid on the applicable Earnout Payment Date) to equal
(i) the lesser of the Maximum Earnout Payment (defined below) or (ii) 100% of
the Earnout Amount for such period (any such payment an "Earnout True-up
Payment"). If at any time prior to the calculation of the final Earnout True-up
Statement the Surviving Corporation ceases to have an in-house accounting staff
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<PAGE> 16
that participates in the preparation of the Earnout True-up Statement (for
approval by Buyer), then the Surviving Corporation shall permit an accountant or
accountants selected by the Stockholder reasonably to participate in the
preparation of the Earnout True-Up Statement. If, within 30 days after delivery
of the Earnout True-up Statement, Buyer has not received a written notice signed
by the Stockholder disputing the Earnout True-up Statement and indicating in
reasonable detail the basis of such dispute, then such Earnout True-up Statement
shall be conclusive and binding on the Stockholder, subject to later discovery
of fraud. If the Stockholder gives the Buyer such notice of dispute within such
30-day period, the Stockholder and Buyer will use commercially reasonable
efforts to settle such dispute within 20 days after the giving of such notice.
Any dispute unresolved after such 20-day period shall be submitted to a national
public accounting firm satisfactory to Buyer and the Stockholder, or, in the
absence of agreement on such firm, to a panel of three public accounting firms,
one designated by the Stockholder, one designated by Buyer and one jointly
designated by the other two firms. The decision of such accounting firm or such
panel of accounting firms, as the case may be, with respect to such dispute
shall be final and binding on the parties hereto. Such decision shall include a
decision as to which party or parties shall bear the costs of the accounting
firm or panel of accounting firms and the decision-maker shall determine that
the prevailing party's costs and expenses shall be borne by the party who did
not prevail in such matter in accordance with the terms and conditions of
Section 10.6 (Governing Laws, Attorneys' Fees).
Buyer shall not take any action and shall not cause the
Surviving Corporation to take any action, in each case prior to the delivery of
the final Earnout True-up Statement, that would prevent the Surviving
Corporation (or its successor in interest (if any) or Buyer) from preparing the
Earnout Computation Statements and Earnout True-up Statements contemplated
herein. If Buyer takes any such action or causes the Surviving Corporation to
take any such action prior to April 30, 1999, then the Minimum Earnout Payment
for such Earnout Payment Date shall be $36.0 million and the Minimum Earnout
Payment for the April 30, 2000 and 2001 Earnout Payment Dates shall be $17.0
million and $17.0 million, respectively, in each case notwithstanding the
proviso set forth in the definition of "Minimum Earnout Payment" herein.
(f) Earnout True-up Payment. Any Earnout True-up Payment
required to be made shall be made on or before the later to occur of (i) the
31st day after the date on which the Earnout True-up Statement is delivered and
(ii) with respect only to that portion of an Earnout True-up Payment that is
disputed pursuant to Section 1.2(e) (Earnout True-up Statement), the tenth day
after any dispute regarding the Earnout True-up Statement is resolved in
accordance with Section 1.2(e) (Earnout True-up Statement).
Notwithstanding anything in this Agreement to the contrary,
each Earnout Payment made on an Earnout Payment Date and each Earnout True-up
Payment paid hereunder shall be reduced by 1% of the total amount thereof, to
reflect the Surviving Corporation's payment of fees to Raymond James in
connection therewith.
(g) Exchange Procedure for the Stock. After the Effective
Time, each holder of a certificate or certificates that immediately prior to the
Effective Time represented outstanding Stock shall surrender such certificate or
certificates to the Surviving Corporation, duly endorsed and
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<PAGE> 17
executed as the Surviving Corporation may reasonably require, to the Surviving
Corporation for cancellation, at which time the Merger Consideration applicable
to such Stock shall be delivered to the holder of such Stock. At the Effective
Time, the holders of certificates evidencing the Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
stock, and their sole right shall be to receive their respective portions of the
Merger Consideration, as set forth above. All rights to receive the Merger
Consideration shall be deemed, when paid or issued hereunder, to have been paid
or issued, as the case may be, in full satisfaction of all rights pertaining to
the Stock.
(h) Merger Sub Capital Stock. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Merger shall be
converted into and become the right to receive one share of common stock of the
Surviving Corporation.
(i) Marketing Solution Publications, Inc. Prior to the
Effective Time, the Stockholder shall (i) transfer out of MSPI all assets held
by MSPI that are not related to the business conducted by the Company and (ii)
assume all liabilities of MSPI in existence at the Effective Time or that arise
out of events occurring up to and including the Effective Time. The Stockholder
may change the name of MSPI and may retain ownership of the name "Marketing
Solution Publications, Inc." Also prior to the Effective Time, Buyer shall
organize a direct, wholly-owned subsidiary ("MSPI Merger Sub"). At the Effective
Time, MSPI Merger Sub shall be merged with and into MSPI and MSPI shall be the
surviving corporation in such merger, the issued and outstanding shares of
capital stock of MSPI outstanding immediately prior to the Effective Time shall
be converted into the right to receive an aggregate amount of Buyer Stock having
a value (based on $31.8104, which is the average closing sale price per share of
the Buyer Stock for the 30 trading-day period ending on the fifth trading day
prior to the date hereof) equal to $5,512,500 and each share of MSPI Merger Sub
capital stock outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of MSPI as the surviving corporation in
such merger. Such transactions shall be consummated on terms reasonably
satisfactory to Buyer.
(j) Listed Shares. Within 90 days after the Closing Date,
Buyer shall cause the Closing Stock Merger Consideration deliverable pursuant to
the Merger and an additional number of shares of Buyer Stock as estimated by
Buyer to be sufficient hereunder to be duly listed for trading on the Nasdaq
National Market and/or approved for listing upon official notice of issuance.
ARTICLE 2
Closing The Transaction
2.1 Closing. On the third business day after the satisfaction or
written waiver of the conditions (other than execution or delivery of
agreements, certificates, legal opinions or other instruments to be delivered at
Closing) contained herein, and unless this Agreement has been terminated
pursuant to the provisions of Article 5 (Termination), the consummation of the
transactions provided for herein (the "Closing") shall take place at the offices
of
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Holland & Knight LLP, located at 400 North Ashley Drive, Suite 2300, Tampa,
Florida, at 10:00 A.M., local time. The time and date of the Closing are
referred to herein as the "Closing Date."
2.2 Sellers Deliveries at Closing. At the Closing, the Sellers shall
deliver, or cause to be delivered, to Buyer and Merger Sub the following items:
(a) Stock Certificates. The Stockholder shall deliver a
certificate or certificates representing all of the Stock for tender in
connection with the Merger.
(b) Closing Certificate. If the conditions of Sections 3.2(a)
(Sellers' Representations True) and 3.2(b) (Sellers' Compliance with Agreement)
are satisfied, then the Sellers shall jointly deliver to Buyer and Merger Sub a
closing certificate executed by each of the Sellers (the "Closing Certificate")
in the form attached as Exhibit 2.2(b).
(c) Consents and Approvals. The Sellers jointly shall deliver
copies of all Sellers' Consents (defined below) and Approvals (defined below)
obtained by Sellers.
(d) Resolutions. Sellers shall deliver certified copies of
resolutions of the Stockholder (and, if necessary, the Other Stockholders) and
the Board of Directors of the Company approving the merger.
(e) Proceedings and Documents. Sellers shall deliver copies,
certified or otherwise identified to Buyer's satisfaction, of all corporate
documents that Buyer and Merger Sub shall reasonably request, including
resolutions of the board of directors of the Company and resolutions of the
Stockholder, dated on or before the date hereof to authorize this Agreement, the
Related Agreements (defined below) and the transactions and other acts
contemplated either by this Agreement or the Related Agreements.
(f) Good Standing Certificates. The Company shall deliver
certificates, issued within 30 days of the date of the Closing, (i) from the
Secretary of State of Ohio, evidencing that the Company is existing and in good
standing under the laws of its jurisdiction of organization and (ii) from each
state listed on the Disclosure Schedule to Section 6.1(a) (Organization and Good
Standing) evidencing that the Company is qualified to do business and is in good
standing as a foreign entity (each, a "Good Standing Certificate") in each such
state.
(g) Opinions of Sellers' Counsel. Sellers shall deliver an
opinion of Holland & Knight LLP, counsel to Sellers, dated as of the Closing
Date, in form and substance reasonably satisfactory to Buyer and Merger Sub
regarding the matters set forth in Exhibit 2.2(g).
(h) Stockholder Releases. The Stockholder and the Other
Stockholders shall execute and deliver releases (the "Stockholder Releases")
which release any and all claims held or to be held by the Stockholders against
the Company and its successors, assigns, officers, directors,
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<PAGE> 19
employees and agents, but excluding any claims the Stockholder or any Other
Stockholder may have to unpaid compensation and benefits.
(i) Other Instruments. Such other instruments, documents or
information that Buyer or Merger Sub reasonably requests in connection herewith
and the transactions contemplated hereby, in form and substance reasonably
satisfactory to Buyer and Merger Sub.
2.3 Buyer's and Merger Sub's Deliveries at Closing. At the Closing,
Buyer and Merger Sub shall deliver and Buyer shall cause the Merger Sub to
deliver the following items to the Stockholder:
(a) The Merger Consideration. Merger Sub shall deliver the
Closing Cash Merger Consideration and Buyer shall deliver the Closing Stock
Merger Consideration to the Stockholder.
(b) Closing Certificate. If the conditions of Sections 3.3(a)
(Buyer's and Merger Sub's Representations True) and 3.3(b) (Buyer's and Merger
Sub's Compliance with Agreement) are satisfied, then Buyer and Merger Sub shall
deliver to the Stockholder a closing certificate executed by Buyer and Merger
Sub (the "Buyer and Merger Sub Closing Certificate") in the form attached as
Exhibit 2.3(b).
(c) Resolutions. Merger Sub shall deliver certified copies of
resolutions of the sole stockholder and the Board of Directors of the Merger
Sub, and Buyer shall deliver certified copies of resolutions of the Board of
Directors of Buyer, approving the Merger, this Agreement and the transactions
set forth herein.
(d) Consents and Approvals. Buyer shall deliver copies of all
Approvals obtained by Buyer.
(e) Opinion of Buyer's and Merger Sub's Counsel. Buyer and
Merger Sub shall deliver an opinion of L. Keith Blackwell, Esq., General Counsel
of Buyer and Merger Sub, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Stockholder regarding the matters set forth in
Exhibit 2.3(e) hereto.
2.4 Related Agreements. The parties, as appropriate, shall execute and
deliver at Closing the following documents (collectively, the "Related
Agreements"):
(a) Employment Agreement. Respective employment agreements,
effective as of the Closing Date, between the Company and (i) the Stockholder
(in substantially the form attached as Exhibit 2.4(a)(1)), and (ii) the Other
Stockholders (other than Edwin Hill) (in form and substance satisfactory to
Buyer and the Stockholder (collectively, the "Employment Agreements")).
(b) Registration Rights Agreement. A Registration Rights
Agreement, effective as of the Closing Date, between Buyer and the Stockholder
in substantially the form attached as Exhibit 2.4(b) (the "Registration Rights
Agreement").
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ARTICLE 3
Conditions To Consummating The Transaction
3.1 Joint Conditions. The obligations of the parties to consummate the
transactions provided for in this Agreement and the Related Agreements are
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) HSR Act. The waiting period prescribed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder (the "HSR Act") shall have expired or early
termination of the waiting period under the HSR Act shall have been granted.
(b) No Litigation. No action, suit or proceeding (other than
such an action, suit or proceeding directly or indirectly instituted by a party
hereto seeking to terminate this Agreement) shall be threatened or pending, and
no injunction, order, decree or ruling shall be in effect, seeking to restrain
or prohibit, or to obtain damages or other relief in connection with, the
execution and delivery hereof or any Related Agreement or the consummation of
the transactions contemplated hereby or by any Related Agreement.
(c) Related Agreements. The parties shall have entered into
the Related Agreements.
(d) Stockholder Releases. The Stockholder Releases shall have
been executed and delivered by the Stockholders and shall be binding and in full
force and effect.
3.2 Buyer's and Merger Sub's Conditions. The obligations of Buyer and
Merger Sub to consummate the transactions contemplated by this Agreement and the
Related Agreements are subject to the satisfaction or waiver by Buyer and Merger
Sub, at or prior to the Closing Date, of the following conditions:
(a) Sellers' Representations True. Sellers' representations
and warranties made in this Agreement or any Related Agreement shall be true and
correct in all material respects at the Closing Date, except as affected by the
transactions contemplated hereby, and the Sellers shall have delivered the
Closing Certificate to that effect.
(b) Sellers' Compliance with Agreement. Sellers, in all
material respects, shall have performed each agreement, and shall have complied
with each covenant, to be performed or complied with by them, or any of them, on
or prior to the Closing Date under this Agreement or any Related Agreement, and
the Sellers shall have delivered the Closing Certificate to that effect.
(c) Sellers Consents. Sellers shall have obtained the Sellers
Consents.
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(d) Permits. Sellers shall have obtained all governmental
licenses and permits, or binding commitments, if any, from governmental
authorities to issue, transfer or consent to a change of control with respect
to, all governmental licenses and permits necessary to consummate the Merger,
and to operate the Company in the manner that it has been conducted (the
"Permits").
(e) Merger. The Secretary of State of the State of Ohio must
have accepted for filing the Certificate of Merger.
(f) Approvals. All material authorizations, consents and
approvals, if any, of, and filings, if any, with, any governmental authority
that are required to validly execute, deliver and perform this Agreement or the
Related Agreements or to consummate the transactions provided for in this
Agreement or the Related Agreements (collectively, "Approvals"), shall have been
obtained or made.
(g) Termination Agreements. The Company shall have completed
termination of all agreements referenced in Exhibit 2.2(I).
(h) Cash Balances. The Company shall have aggregate cash
balances on deposit with commercial banks on the Closing Date, free and clear of
all liens, encumbrances and claims by third parties, of not less than the amount
of $17.0 million minus the amount of funds withdrawn from the Company by, or
paid or distributed by the Company to, the Stockholder during the Short Period.
(i) Stockholder Obligations. The Stockholder shall have repaid
to the Company all amounts, if any, owed by the Stockholder to the Company.
(j) Software Issue Resolution. The Company shall have finally
resolved to Buyer's reasonable satisfaction the existing dispute with the
Company's computer software vendor.
3.3 Sellers' Conditions to Closing. The obligations of Sellers to
consummate the transactions contemplated by this Agreement and the Related
Agreements are subject to the satisfaction or waiver in writing by Sellers, at
or prior to the Closing Date, of the following conditions:
(a) Buyer's and Merger Sub's Representations True. The
representations and warranties made by Buyer and Merger Sub herein shall be true
and correct in all material respects at the Closing Date, except as affected by
the transactions contemplated hereby, and each of Buyer and Merger Sub shall
have delivered the Buyer and Merger Sub Closing Certificate to that effect.
(b) Buyer's and Merger Sub's Compliance with Agreement. Each
of Buyer and Merger Sub, in all material respects, shall have performed each
agreement, and complied with each covenant to be performed or complied with by
it on or prior to the Closing Date under this Agreement or any Related
Agreement, and Buyer and Merger Sub shall have delivered the Buyer and Merger
Sub Closing Certificate to that effect.
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(c) Merger. The Secretary of State of the State of Ohio must
have accepted for filing the Certificate of Merger.
(d) Approvals. All Approvals shall have been obtained or made.
ARTICLE 4
Covenants to Satisfy Conditions and Consummate the Transaction
4.1 Joint Responsibilities. Each party shall use his or its
commercially reasonable efforts to satisfy the conditions to the obligations of
the parties hereunder, and to consummate and make effective as promptly as
practicable the transactions provided for herein including:
(a) Defending the Agreement. Defending lawsuits or other legal
proceedings challenging this Agreement or any Related Agreement or the
consummation of the transactions provided for in this Agreement or any Related
Agreement;
(b) Lifting Injunctions. Using commercially reasonable efforts
to lift or rescind any injunction, restraining order or other order adversely
affecting the ability of the parties to consummate the transactions provided for
in this Agreement or any Related Agreement; and
(c) Other Actions. Taking such other commercially reasonable
actions that are necessary, appropriate or advisable, unless responsibility for
taking such actions has been delegated to certain parties pursuant to Sections
4.2 (Sellers' Responsibilities) or 4.3 (Buyer's and Merger Sub's
Responsibilities).
The parties shall reasonably cooperate with one another in connection
with the foregoing.
4.2 Sellers' Responsibilities.
(a) Sellers' Delegated Conditions. Sellers shall have the
responsibility for satisfying the following conditions ("Sellers' Delegated
Conditions"), for which Sellers shall have the obligations set forth in this
Section. Buyer and Merger Sub shall reasonably cooperate with Sellers in
connection with the following:
(i) Section 3.2(a) (Sellers' Representations True),
for which Sellers' obligation shall be as follows: (x) Sellers shall perform the
covenants contained in Article 8 (Covenants of Sellers), (y) Sellers shall take
no action that will cause any of their representations or warranties to be
untrue or incorrect in any material respect and (z) Sellers shall not omit any
action that any of them would take in the ordinary course of business, which
omission will cause their representations or warranties to be untrue or
incorrect in any material respect; and
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(ii) Section 3.2(b) (Sellers' Compliance with
Agreement), for which Sellers shall have the obligations set forth elsewhere
herein.
(b) HSR Act Filings. Sellers shall make their HSR Act filings
(including causing any filings by any ultimate parent entities as required under
the HSR Act) and provide any additional information that the Federal Trade
Commission or the Justice Department requests as promptly as practicable, and
perform all other acts required of them under the HSR Act in order to satisfy
the condition contained in Section 3.1(a) (HSR Act).
(c) Stockholder Approval. The Stockholder (and if necessary
the Other Stockholders) shall approve the Merger and the consummation of
transactions contemplated herein.
4.3 Buyer's and Merger Sub's Responsibilities.
(a) Buyer's and Merger Sub's Delegated Conditions. Buyer and
Merger Sub shall have the responsibility for satisfying the following conditions
("Buyer's and Merger Sub's Delegated Conditions"), for which Buyer and Merger
Sub shall have the obligations set forth in this Section. Sellers shall
reasonably cooperate with Buyer and Merger Sub in connection with the following:
(i) Section 3.3(a) (Buyer's and Merger Sub's
Representations True), for which Buyer's and Merger Sub's obligation shall be as
follows: (x) Buyer and Merger Sub shall take no action that will cause any of
its representations and warranties to be untrue or incorrect in any material
respect and (y) Buyer and Merger Sub shall not omit any action that they would
take in the ordinary course of business, which omission will cause any of their
representations and warranties to be untrue or incorrect in any material
respect; and
(ii) Section 3.3(b) (Buyer's and Merger Sub's
Compliance with Agreement), for which Buyer and Merger Sub shall have the
obligations set forth elsewhere herein.
(b) HSR Act Filings. Buyer and Merger Sub shall make its HSR
Act filings and provide any additional information that the Federal Trade
Commission or the Justice Department requests as promptly as practicable, and
perform all other acts required of them under the HSR Act in order to satisfy
the condition contained in Section 3.1(a) (HSR Act). Buyer shall pay the HSR Act
filing fee relating to any filing requirement arising out of Buyer's acquisition
of voting securities of the Company and the Stockholder's acquisition of voting
securities of Buyer.
(c) Approvals. Buyer and Merger Sub shall approve the Merger
and the consummation of the transactions contemplated herein.
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ARTICLE 5
Termination
5.1 Reasons for Termination. This Agreement may be terminated before
the Closing only by following the termination procedures set forth in this
Article for the following reasons:
(a) By Mutual Consent. By the mutual written consent of the
parties.
(b) By the Buyer or Merger Sub. By Buyer or Merger Sub after
compliance with the procedure set forth in this Article, if (i) any of the
Sellers' representations or warranties contained herein is or becomes or, when
executed any Related Agreement would be, untrue or incorrect in any material
respect, (ii) any Seller fails to perform any of his or its covenants or
agreements contained herein, or would be in breach of his or its covenants upon
execution of any Related Agreement in any material respect or (iii) any of
Buyer's or Merger Sub's conditions to the consummation of the transactions
provided for herein shall have become impossible to satisfy.
(c) By Sellers. By the Stockholder, after compliance with the
procedure set forth in this Article, if (i) any of Buyer's or Merger Sub's
representations or warranties contained herein is or becomes or, when executed
any Related Agreement would be, untrue or incorrect in any material respect,
(ii) Buyer or Merger Sub fails to perform its covenants or agreements contained
herein, or would be in breach of its respective covenants upon execution of any
Related Agreement in any material respect or (iii) any of Sellers' conditions to
the consummation of the transactions provided for herein shall become impossible
to satisfy.
(d) Drop-Dead Date. By either Buyer or Merger Sub, or by the
Stockholder, if the Closing shall not have occurred by August 31, 1998,
provided, however, such date shall be extended by the number of days, if any, to
cure any curable matter that is the subject of a notice under Section 5.3 (Buyer
and Merger Sub Termination Procedure) or Section 5.4 (Sellers' Termination
Procedure).
5.2 Notice of Problems. Each party will promptly give written notice to
the other parties when any of them becomes aware of the occurrence or failure to
occur, or the impending or threatened occurrence or failure to occur, of any
fact or event that would cause or constitute, or would be likely to cause or
constitute (i) any of its representations or warranties contained herein being
or becoming untrue or incorrect, (ii) its failure to perform any of its
covenants or agreements contained herein or (iii) any of its Delegated
Conditions, or any condition to the obligation of the parties contained in
Section 3.1 (Joint Conditions), being or becoming impossible to satisfy.
No such notice shall affect the representations, warranties, covenants,
agreements or conditions of the parties hereunder, or prevent any party from
relying on the representations and warranties contained herein.
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5.3 Buyer and Merger Sub Termination Procedure. If either Buyer or
Merger Sub discovers, by reason of a notice given pursuant hereto or otherwise,
that (i) any of Sellers' representations or warranties is or has become untrue
or incorrect in a material respect, (ii) any Seller has failed to perform any of
his or its respective covenants or agreements contained herein in any material
respect or (iii) any of the conditions to either Buyer's or Merger Sub's
obligations to consummate the transactions provided for herein has become
impossible to satisfy, then either Buyer or Merger Sub may deliver a notice to
Sellers of such event, specifying the factual basis therefor in reasonable
detail. Sellers shall have the right to cure any matter referred to in clause
(I), (ii) or (iii) of this Section within 15 business days following the date of
delivery of such notice. Upon such notice and, in the case of clause (I), (ii)
or (iii) upon Sellers' failure to cure, either Buyer or Merger Sub may terminate
this Agreement by giving a notice of termination to Sellers.
5.4 Sellers' Termination Procedure. If the Stockholder discovers by
reason of a notice given pursuant hereto or otherwise, that (i) any of Buyer's
or Merger Sub's representations or warranties is or has become untrue or
incorrect in a material respect, (ii) Buyer or Merger Sub has failed to perform
any of its respective covenants or agreements contained herein in any material
respect or (iii) any of the conditions to Sellers' obligations to consummate the
transactions provided for herein has become impossible to satisfy, then the
Stockholder may deliver a notice to Buyer and Merger Sub of such event,
specifying the factual basis therefor in reasonable detail. Buyer and Merger Sub
shall have the right to cure any matter referred to in clause (I), (ii) or (iii)
of this Section within 15 business days following the date of delivery of such
notice. Upon such notice and, in the case of clause (I), (ii) or (iii), upon
Buyer's or Merger Sub's failure to cure, the Stockholder may terminate this
Agreement by giving a notice of termination to Buyer and Merger Sub.
5.5 Effect of Termination. Upon termination hereof pursuant to this
Article, no party shall have any liability or continuing obligation to another
party arising out of this Agreement, or out of actions taken in connection
herewith, except that Sections 10.5 (Delays or Omissions, Etc.), 10.6 (Governing
Laws; Attorneys' Fees) and 10.7 (Dispute Resolution) and Article 11
(Miscellaneous) (other than Section 11.3 (Press Release)) shall survive
termination hereof. Notwithstanding the foregoing, termination hereof shall not
relieve any party from its liability for (i) the failure, prior to termination,
of such party to perform or comply with its covenants or agreements or (ii) the
representations or warranties made by such party being untrue or incorrect in
any material respect when made.
ARTICLE 6
Representations and Warranties of Sellers
The Company (solely prior to Closing) and the Stockholder, jointly and
severally, represent and warrant to Buyer and Merger Sub as follows:
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6.1 Sellers; Entry Into Agreements.
(a) Organization and Good Standing. The Company is a
corporation duly organized and validly existing under the laws of the State of
Ohio and is in good standing under such laws. The Company has all requisite
corporate power and authority to own, lease and operate all properties and
assets owned or leased by it and to conduct its business as previously and
currently conducted by it. The Company is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which it is
required to be so qualified, except where the lack of such qualification would
not have a material adverse effect on the assets, liabilities, condition
(financial or other), results of operations or cash flows of the Company
(hereinafter, such an effect shall be referred to as a "Material Adverse
Effect"). The Disclosure Schedule to this Section lists all jurisdictions in
which the Company is qualified to do business as a foreign corporation.
(b) Validity and Authorization; Corporate Power and Authority.
The Company has full corporate power and authority to consummate the Merger and
to execute, deliver and perform this Agreement, the Related Agreements and the
other instruments called for hereby to which it is a party. This Agreement has
been duly authorized, executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws governing creditors' rights and by
equitable principles.
The Stockholder has full requisite power and capacity to execute,
deliver and perform this Agreement, the Related Agreements and the other
instruments called for hereby to which the Stockholder is a party. This
Agreement has been duly executed and delivered by the Stockholder and
constitutes the legal, valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws governing
creditors' rights and by equitable principles.
When the Related Agreements and the other instruments called for hereby
to which the Stockholder is a party are executed and delivered at the Closing,
such agreements and instruments will have been duly executed and delivered by
the Stockholder pursuant to full requisite power and capacity to execute,
deliver and perform such Related Agreements and the other instruments called for
hereby and will constitute the legal, valid and binding obligations of the
Stockholder, enforceable against the Stockholder in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
governing creditors' rights and by equitable principles.
(c) Subsidiaries. Except as set forth in the Disclosure
Schedule to this Section, the Company does not own, control, or have voting
rights with respect to, directly or indirectly, any interest in any other
corporation, partnership, association or other business entity and the Company
is not a party to any agreement relating to the acquisition or disposition of
such an interest.
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(d) No Conflict. Except as set forth in the Disclosure
Schedule to this Section, neither the execution, delivery or performance of this
Agreement or the Related Agreements, nor the consummation of the Merger or the
transactions contemplated hereby or thereby will (i) result in any violation of
the terms of, (ii) contravene or conflict with, (iii) accelerate the performance
of the obligations required under, (iv) constitute a default under, (v) give any
right of termination or cancellation under or (vi) give any right to make any
change in any of the liabilities or obligations under, the articles of
incorporation or bylaws of the Company, any Order (defined below), or any
agreement, contract, note, bond, debenture, indenture, mortgage, deed of trust,
lease, license, judgment, decree, order, law, rule or regulation or other
restriction applicable to the Company or the Stockholder or to which the Company
or the Stockholder is a party or by which the Company or the Stockholder or
their property or assets are bound or affected. Neither the execution, delivery
and performance of this Agreement or the Related Agreements, nor the
consummation of the transactions contemplated hereby or thereby will result in
the creation of any Lien (defined below) upon any of the properties or assets of
the Company or the Stock.
(e) Sellers Consents Required. The Disclosure Schedule to this
Section lists all material consents, approvals or authorizations of third
parties required in connection with each party's (other than Buyer's and Merger
Sub's) valid execution, delivery or performance of this Agreement and the
Related Agreements or the consummation of the Merger or any of the transactions
contemplated hereby or thereby on the part of any of them (collectively, the
"Sellers Consents"), including but not limited to the consents required under
the Contracts (defined below) and consents required in connection with Licenses
(defined below). The Stockholder has taken, or on or prior to Closing the
Stockholder shall have taken, all other actions necessary for the consummation
by the Company of the transactions contemplated by this Agreement and the
Related Agreements.
(f) HSR Act. Sellers have made all filings required under the
HSR Act, have fully complied with the provisions of the HSR Act and the rules
and regulations promulgated thereunder and have fully complied with all requests
for information from the Federal Trade Commission and the Department of Justice.
The information contained in such filings under the HSR Act is accurate and
complete and such filings do not include any incorrect statements or omit to
include any information necessary to make the statements therein not misleading.
Sellers have provided Buyer and Merger Sub with a true and complete copy of such
filings.
(g) MSPI. MSPI is a corporation duly organized and validly
existing under the laws of State of Michigan and is in good standing under such
laws. MSPI has all requisite corporate power and authority to own, lease and
operate all properties and assets owned or leased by it and to conduct its
business as previously and currently conducted by it. MSPI is qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which it is required to be so qualified, except where the lack of such
qualification would not have a material adverse effect on the assets,
liabilities, condition (financial or other), results of operations or cash flows
of MSPI.
MSPI has full corporate power and authority to consummate the merger
described in Section 1.2(i) (Marketing Solution Publications, Inc.). Such merger
has been duly authorized, and the documents relating thereto, when executed and
delivered at the Closing, will have been duly
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executed and delivered by MSPI (and, if applicable, the Stockholder) and will
constitute the legal, valid and binding obligation of MSPI (and, if applicable,
the Stockholder), enforceable against MSPI (and, if applicable, the Stockholder)
in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws governing creditors' rights and by
equitable principles.
The Stockholder has good, valid and marketable title to all the issued
and outstanding shares of capital stock of MSPI, free clear of any Liens.
Neither MSPI nor the Stockholder is a party to any contract, agreement or
understanding (other than the Agreement) relating to the issuance, sale,
redemption, repurchase or other transfer of any shares of the capital stock or
any other equity security of MSPI.
6.2 Financial Information.
(a) Financial Statements; Books and Records. Included in the
Disclosure Schedule to this Section are true and correct copies of (i) the
audited, balance sheets for the Company at March 31, 1998, 1997 and 1996 and the
related statements of profit and loss and cash flows for the one-year periods
then ended, (ii) the unaudited, balance sheet for the Company at May 31, 1998
and the related statement of profit and loss for the two-month period then ended
and (iii) when delivered pursuant hereto, similar financial statements for each
additional month ending more than 30 days before the Closing Date (collectively,
the "Company Financial Statements").
The Company Financial Statements fairly present the financial position
of the Company as of the dates thereof and the results of the Company's
operations and cash flows for the periods then ended, in accordance with GAAP,
except for the variances from GAAP set forth in the notes to the Company
Financial Statements, subject in the case of the Company Financial Statements
listed in items (ii) and (iii) of the immediately-preceding paragraph, to normal
recurring period-end adjustments and absence of notes and a statement of cash
flows in each case that, if presented, would not differ materially from those
included in the financial statements for the fiscal year ended March 31, 1998.
The Company maintains a standard system of accounting, including without
limitation internal controls, established and administered in accordance with
GAAP, except for the variances from GAAP set forth in the notes to the Company
Financial Statements.
The Company's books and records (including without limitation, all
financial records, business records, minute books, stock transfer records,
client lists, referral source lists and records pertaining to services or
products delivered to clients) (i) are complete and correct in all respects and
all transactions to which the Company is or has been a party are accurately
reflected therein, (ii) reflect all discounts, returns and allowances granted by
the Company with respect to the periods covered thereby, (iii) have been
maintained in accordance with customary and sound business practices in the
Company's industry, (iv) form the basis for the Company Financial Statements and
(v) accurately reflect the assets, liabilities, financial position, results of
operations and cash flows of the Company. The Company's management information
systems are adequate for the preservation of relevant information and the
preparation of accurate reports.
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"GAAP" shall mean those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods, so as to properly reflect the financial position, results of
operations and operating cash flow on a consolidated basis of the party, except
that any accounting principle or practice required to be changed by the
Accounting Principles Board or Financial Accounting Standards Board (or other
appropriate board or committee) in order to continue as a generally accepted
accounting principle or practice may be so changed for periods for which such
change is applicable.
(b) Conduct of Business. Except as set forth on the Disclosure
Schedule to this Section and except as specifically contemplated herein, since
March 31, 1998, the Company has not (i) changed its authorized or issued capital
stock; granted any stock option or right to purchase shares of capital stock;
issued any security convertible into such capital stock; granted any
registration rights; purchased, redeemed, retired or otherwise acquired any
shares of any such capital stock; or declared or paid any dividend or other
distribution or payment in respect of shares of capital stock; (ii) amended its
organizational documents; (iii) sold or transferred (other than in the ordinary
course of business) any assets with a fair market value in excess of $25,000
individually, or $100,000 in the aggregate, including without limitation
Mortgage Loans (defined below); (iv) mortgaged, pledged or subjected to any Lien
or other encumbrance any assets; (v) incurred or become subject to any debt,
liability (including repurchase obligations) or lease obligation, other than
current liabilities incurred in the ordinary course of business that do not
exceed $25,000 individually, or $100,000 in the aggregate; (vi) incurred
obligations or entered into contracts outside of the ordinary course of
business; (vii) suffered any damage, destruction or loss of any assets in the
aggregate in excess of $100,000; (viii) waived or relinquished any rights or
canceled or compromised any debt or claim owing to it, in either case, without
adequate consideration or not in the ordinary course of business; (ix) made any
change in its accounting methods or practices or increased any reserves for
Taxes (defined below); (x) made any material change in its billing and
collection practices and procedures; (xi) paid any bonuses or made any increase
in the compensation, commissions or benefits payable or to become payable to any
of its officers, directors, employees or agents over the amounts paid or payable
as of such date, or entered into or terminated any employment, deferred
compensation, severance or bonus agreement with any of such parties, or made any
loan, or commitment to loan, monies to any such parties, other than customary
cash travel advances which do not exceed $1,000 individually or $10,000 in the
aggregate; (xii) declared or made any dividend, payment or distribution to the
Stockholder other than ordinary employment compensation; (xiii) entered into any
transaction with any Affiliate (defined below) of the Company (including without
limitation by paying, distributing or transferring any funds or assets to the
Stockholder, whether in his capacity as stockholder or in any other capacity);
(xiv) made any capital expenditures in excess of $10,000 on a single basis or
$50,000 in the aggregate (other than in the ordinary course of business and
consistent with past practices); or (xvi) agreed to do any of the foregoing.
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(c) No Material Adverse Change. Since the date of the most
recent Company Financial Statements delivered prior to the date hereof, the
Company has conducted its business only in the ordinary course consistent with
past practice and there has been no event or occurrence that has caused a
Material Adverse Effect.
6.3 Stock.
(a) Capitalization. The authorized capital stock of the
Company consists (i) of 2,000 shares of common stock, no par value, of which
180.744 shares are currently issued and outstanding and which together with such
additional shares as may be issued to the Stockholders prior to Closing comprise
the Stock and (ii) no shares of preferred stock. All of the issued and
outstanding shares of the Stock have been duly authorized and validly issued,
are fully paid and nonassessable and are free and clear of any preemptive
rights. There are no outstanding preemptive, conversion or other rights, or
other options, warrants or agreements granted by, issued by, or binding upon,
the Company for the issuance, purchase, redemption or acquisition of its equity
securities.
(b) Ownership and Transfer by Stockholder. The Stockholder has
good, valid and marketable title to the Stock, free and clear of any Liens. At
the Effective Time, the Stockholder and (if applicable) each Other Stockholder,
will have good valid and marketable title to the Stock (in the aggregate), free
and clear of any Liens. No legend or other reference to any Lien or purported
Lien appears on any certificate representing any shares of the Stock. Neither
the Company nor the Stockholder is a party to any contract, agreement or
understanding (other than the Agreement) relating to the issuance, sale,
redemption, repurchase or other transfer of any shares of the Stock or any other
equity security of the Company.
6.4 Assets.
(a) Personal Property.
(i) Title. The Company is the sole owner of the
assets reflected in the Company Financial Statements and has good and marketable
title to all assets that are personalty (the "Personal Property") (other than
the leased Personal Property described below), in each case free and clear of
all Liens, except for (A) liens for non-delinquent taxes and assessments, (B)
liens of lessors arising under statute and (c) other liens, claims and
encumbrances or charges that do not materially detract from the value of, or
impair the use or transfer of, such Personal Property ("Permitted Liens"). For
purposes hereof, "Liens" shall mean security interests, liens (choate or
inchoate), encumbrances, mortgages, pledges, equities, charges, assessments,
easements, covenants, restrictions, reservations, defects in title,
encroachments and other burdens, whether arising by contract or under law, other
than inchoate statutory liens for amounts not yet payable. With respect to any
Personal Property that is leased, the Company is in compliance with each such
lease and is the sole holder of a valid and subsisting leasehold interest, free
and clear of any Liens, other than Permitted Liens. The Disclosure Schedule to
this Section lists all lease agreements, service agreements or other agreements
related to leased Personal Property (the "Equipment Leases"). EXCEPT AS
SPECIFICALLY SET FORTH HEREIN, NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, OF
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ANY NATURE IS BEING MADE WITH RESPECT TO ANY OF THE PERSONAL PROPERTY,
INCLUDING, BUT NOT LIMITED TO, ITS MERCHANTABILITY, DESIGN OR USE FOR A
PARTICULAR PURPOSE.
(ii) Notes and Accounts Receivable. Except as set
forth on the Disclosure Schedule to this Section, all notes (excluding the
Mortgage Loans) payable to, and accounts receivable of, the Company (the
"Accounts Receivable") were created in the ordinary course of business and have
been collected or are collectible in the amounts thereof reflected in the books
and records of the Company, net of reserves or contractual allowances reflected
in the Company Financial Statements. For purposes of this Agreement and the
Related Agreements, Accounts Receivable shall be deemed to be uncollectible if
payment is not collected by Buyer through Buyer's utilization of ordinary
collection efforts on the ninetieth day after the applicable payment date.
Payments to the Company in respect of Accounts Receivable are deposited, upon
receipt, directly into the Company's Accounts (defined below) and such amounts
can only be withdrawn therefrom by the Company or its duly authorized agents. To
the Company's Knowledge, none of the Accounts Receivable is or was subject to
any counterclaim or set off. All of such Accounts Receivable arose out of bona
fide, arms-length transactions.
(iii) Bank Accounts. The Disclosure Schedule to this
Section sets forth the names and locations of all banks, trust companies,
savings and loan associations and other financial institutions at which the
Company maintains accounts of any nature (collectively, the "Accounts"), the
numbers of such accounts and the names of all persons authorized to draw thereon
or to make withdrawals therefrom.
(b) Real Property.
(i) Fee Simple. The Disclosure Schedule to this
Section sets forth a description of each parcel of real property owned by the
Company (the "Real Property"), together with a summary description of the
buildings, structures and improvements thereon. Except as set forth in the
Disclosure Schedule to this Section, the Company has good, indefeasible and
marketable title in fee simple absolute to all Real Property, including but not
limited to those properties reflected on the Company Financial Statements, and
to the buildings, structures and improvements thereon, in each case free and
clear of all Liens other than Permitted Liens. Except as set forth in the
Disclosure Schedule to this Section, the Company has not granted any leases on,
and there are no tenancies on, the Real Property.
(ii) Leases; Easements and Other Interests. The
Disclosure Schedule to this Section sets forth (A) a description of the nature
of the Company's use of the land, premises, buildings, structures and
improvements covered by each lease of real property used in the business of the
Company and (B) a list of all other contracts and instruments, whether or not in
writing, relating to or affecting real property or any interest therein to which
the Company is a party or by which the assets of the Company or the Company's
business is bound or affected. The interests described in items (A) and (B)
above are collectively referred to herein as the "Leased Premises" and
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the leases, easements, concessions, contracts and instruments described in items
(A) and (B) above are referred to herein as the "Real Estate Contracts."
The Company is the sole holder of valid and subsisting leasehold
interests in the Leased Premises leased thereby free and clear of any Liens,
other than Permitted Liens. All lease or rental payments and other amounts due
and payable in connection with the Real Estate Contracts are current, there are
no defaults by the Company with respect thereto and no event has occurred that
with the passing of time or the giving of notice or both would constitute a
default (x) by the Company thereunder and (y), to the Sellers' Knowledge, by any
other party thereunder. All options in favor of the Company to purchase any of
the Leased Premises, if any, are in full force and effect. The Company has the
right to quiet enjoyment of the Leased Premises for the full term of the related
Real Estate Contract and any renewal option related thereto, and no leasehold or
other interest of the Company in such real property is subject or subordinate to
any Lien, other than Permitted Liens.
(iii) Eminent Domain. Neither the whole nor any
portion of any Leased Premises has been condemned, taken by right of eminent
domain, requisitioned or otherwise taken by any public authority and the Company
has not received written notice from any governmental body with power of eminent
domain of pending or threatened taking by eminent domain, requisition or
condemnation.
(iv) Leased Premises Taxes. To the extent the Company
is liable for payment therefor, there is no Tax assessment pending or, to the
Sellers' Knowledge, threatened with respect to any portion of the Leased
Premises, except for ad valorem taxes for the calendar year 1998 or as otherwise
set forth in the Disclosure Schedules.
(c) Intellectual Property.
(i) Intellectual Property. The term "Intellectual
Property" shall include the names "Amerigroup Mortgage Corporation, a division
of Mortgage Investors Corporation," "Mortgage Investors Corporation of Ohio,"
and "Mortgage Investors of Utah Corporation," (but shall not include the name
"Marketing Solution Publications, Inc." if the Stockholder retains such name as
described in Section 2.2(i) (Sellers Deliveries at Closing)), all fictitious
business names, trade names, registered and unregistered trademarks, service
marks and applications owned, used or licensed by the Company (collectively
"Marks"), all patents and patent applications (if any) owned, used or licensed
by the Company (collectively "Patents"), all registered and unregistered
copyrights (if any) in both published works and unpublished works owned, used or
licensed by the Company (collectively "Copyrights"), and all know-how, trade
secrets, confidential information, software, technical information, process
technology, plans, drawings and blue prints owned, used or licensed by the
Company as licensee or licensor (collectively, "Trade Secrets"). The
Intellectual Property also includes all such rights and assets of the Company
under all contracts to which the Company is a party or by which it is bound
relating to the Intellectual Property including, without limitation, contracts
by which the Company licenses Intellectual Property to third parties and
contracts by which third parties license to, or otherwise permit the use of its
intellectual property by, the Company (collectively "Technology Contracts"). To
the Company's Knowledge, the Company is in compliance
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with all Technology Contracts, is not currently in default thereunder, and no
event has occurred that with the passing of time or the giving of notice or both
would constitute a default thereunder.
(ii) Ownership. Except with respect to licensed
Intellectual Property or as listed in the Disclosure Schedule to this Section,
the Company is the owner of all right, title and interest in and to the
Intellectual Property free and clear of all Liens. The Intellectual Property
includes all such property necessary for the operation of the business of the
Company (A) as it currently is or has been conducted and (B) without violating
or infringing upon the rights of any third party. Without limiting the
foregoing, the Company is properly licensed to use all computer software (and
copies thereof) used by it. No current and former employee of the Company has
any rights to any inventions, improvements, discoveries or information which
relate to any software used by the Company. No right, license or consent of, or
payment to, any third party will be required after consummation of the
transactions contemplated hereby for the continued use of the Intellectual
Property by the Company.
(iii) Technology Contracts. The Disclosure Schedule
to this Section contains an accurate and complete list of all the Technology
Contracts.
(iv) Trademarks. The Disclosure Schedule to this
Section contains an accurate and complete list of all material Marks, including
application and registration dates and numbers, and jurisdiction thereof, if
any. The Sellers are not aware of any potentially interfering mark or
application therefor of any third party. No Mark is infringed or has been
challenged or threatened in any way. None of the Marks used by the Company
infringe or are alleged to infringe any business name, trade name, trademark or
service mark of any third party.
(v) Copyrights. The Disclosure Schedule to this
Section contains an accurate and complete list of all registered Copyrights,
including application and registration dates and numbers, and jurisdictions
thereof. None of the Copyrights infringe or are alleged to infringe any
copyright of any third party.
(vi) Trade Secrets. The Company has taken all
reasonable precautions to protect the secrecy, confidentiality and value of the
Trade Secrets. To the Sellers' Knowledge, no Trade Secret is subject to any
adverse claim nor has any Trade Secret been challenged or, to the Sellers'
Knowledge, threatened in any way. None of the Trade Secrets infringe or are
alleged to infringe any proprietary right of any third party.
(d) Contracts.
(i) The Disclosure Schedule to this Section lists all
agreements, contracts, notes, bonds, debentures, indentures, mortgages, deeds of
trust, leases, licenses, obligations, promises, settlements, repurchase
obligations (including, but not limited to, repurchase obligations pertaining to
whole loan sales, securitizations, pooling and servicing agreements, servicing
agreements and other such agreements and understandings (whether written or oral
and whether express or implied) (together with the Equipment Leases, the Real
Estate Contracts and the
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Technology Contracts, the "Contracts")) that are material to the business of the
Company, including without limitation all the foregoing (A) that provide for
future payments, claims or obligations to or from the Company of $100,000 or
more per year or $500,000 or more over the term thereof or (B) that are (1)
collective bargaining agreements or other agreements with any labor union, (2)
joint venture agreements, partnership agreements or other agreements involving a
sharing of profits, losses, costs or liabilities, (3) agreements containing
covenants that in any way purport to restrict the business activity of the
Company or limit the freedom of the Company to engage in any line of business or
to compete with any other person, (4) standard forms of agreements providing for
payments to or for any person based on sales, originations, closings, purchases
or profits (other than direct payments for goods), (5) powers of attorney, (6)
agreements providing for the payment of special or consequential damages by the
Company, (7) agreements relating to capital expenditures in excess of $50,000 by
the Company, (8) warranties, guarantees or other similar undertakings by the
Company, (9) agreements involving material indemnification, (10) employment,
secrecy or confidentiality agreements with key employees, (11) requirements or
output contracts, (12) business alliance or joint marketing agreements, (13)
pooling and servicing agreements under which the Company may have repurchase
obligations or special servicing duties, custodial agreements, loan agreements,
master loan purchase agreements, master loan repurchase agreements or
underwriting agreements or (14) amendments, modifications or supplements to any
of the foregoing; provided, however, that Mortgage Loans are disclosed
separately in the Disclosure Schedule to Section 6.6(b) (Mortgage Loans). As
used herein, the term "Contracts" also shall be deemed to refer to all
agreements between the Company, on the one hand, and the Stockholder, any
affiliate of the Stockholder, or any director or executive officer of the
Company, on the other hand.
(ii) Except as set forth on the Disclosure Schedule
to this Section, all of the Contracts are legal, valid and binding on the
parties thereto, are in full force and effect and represent legitimate
transactions; the Company is not in violation of or default under any of the
Contracts and to Sellers' Knowledge, no other party to any Contract is in
violation or default thereunder; no event, occurrence or condition exists which,
with the lapse of time, the giving of notice, or both, or the happening of any
further event or condition, would become a violation or default by the Company
or any other party thereto, under any Contract; there are no outstanding, and to
the Sellers' Knowledge, no threatened disputes or disagreements with respect to
any of the Contracts; the Company has not released any material rights under any
Contract; the Company is not subject to any legal obligations to renegotiate,
nor to Sellers' Knowledge is there any right to renegotiate, any Contract; and
the Company is not subject to any liability, or claim therefor, for or with
respect to price adjustment under any Contract with the United States Government
or any agency thereof, including any liability for defective pricing.
(iii) The Contracts constitute all of the material
contracts, leases and agreements necessary for the conduct of the businesses of
the Company in the manner and to the extent conducted by it. Except as listed on
the Disclosure Schedule to this Section, all rights of the Company under the
Contracts will be enforceable by it after the Closing without the consent or
agreement of any other party.
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(iv) The Sellers have delivered or made available to
Buyer true and complete copies of each Contract, including all amendments
thereto. There are no unwritten amendments to, or waivers under, any Contract.
6.5 Liabilities.
(a) No Liabilities. The Company does not have any debt,
guaranty, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, whether due or to become due, and whether known or
unknown, and there is no basis for the assertion against it of any such debt,
guaranty, liability or obligation except (i) to the extent set forth or reserved
against in full in the Company Financial Statements, (ii) current liabilities
incurred in the ordinary course of business since March 31, 1998 and (iii) to
the extent set forth in the Disclosure Schedule to this Section.
(b) Tax Matters. Except as set forth in the Disclosure
Schedule to this Section:
(i) The Company has filed or will timely file all Tax
Returns (defined below) that it was or is required to file on its behalf and on
behalf of any other party. All such Tax Returns were correct and complete in all
respects. All Taxes due and owing by the Company (whether or not shown on any
Tax Return, whether known or unknown, asserted or unasserted) have been paid.
The Company is not a party to any tax sharing or other agreement that will
require any payment with respect to Taxes. The Company currently is not the
beneficiary of any extension of time within which to file any Tax Return. The
Company has not waived any statute of limitations in respect of Taxes and has
not agreed to any extension of time with respect to a Tax assessment or
deficiency or the collection of Taxes.
(ii) The Company does not expect any taxing authority
or other governmental unit to assess any additional Taxes. No taxing authority
or other governmental unit has proposed or threatened in writing by notice or
correspondence received by the Company any assessment, deficiency, adjustment,
dispute or claim concerning any Tax Return or any Tax liability of any of the
Company. There is no unpaid assessment, deficiency or adjustment concerning any
Tax Return or Tax liability of the Company. None of the Tax Returns of the
Company has been selected for or are now under audit or examination by any
taxing authority or other governmental unit, and there are no suits, actions,
proceedings or investigations pending or, to the Sellers' Knowledge, threatened
against the Company with respect to any Taxes.
(iii) The Company has withheld and timely deposited
or paid all Taxes required to have been withheld and deposited or paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
(iv) The Company has not filed a consent under Sec.
341(f) of the Code concerning collapsible corporations. The Company has not made
any payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that would be characterized as "excess parachute payments" under Code
Sec. 280G of the Code. None of the assets of the Company (A) is property which
is required
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to be treated as being owned by any other person pursuant to the so-called "safe
harbor lease" provisions of former Code Sec. 168(f)(8) of the Code; (B) directly
or indirectly secures any debt the interest on which is tax exempt under Code
Sec. 103(a) of the Code; or (C) is "tax-exempt use property" within the meaning
of Code Sec. 168(h) of the Code. The Company has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662. The
Company (X) is not a party to any Tax allocation or sharing agreement; (Y) has
not been a member of an affiliated group filing a consolidated federal income
Tax Return; and (Z) has no liability for the Taxes of any person under Treas.
Reg. Sec. 1.1502-6 or any similar provision of state, local, or foreign law, as
a member of a consolidated group, transferee or successor, by contract, or
otherwise. Neither the Stockholder nor the Company is a person other than a
United States person within the meaning of the Code and the transaction
contemplated herein is not subject to the withholding provisions of Code Sec.
3406 of the Code or subchapter A of Chapter 3 of the Code.
(v) Any unpaid Taxes of the Company, including all
Taxes not yet due for any and all periods through the Closing Date, whether
known or unknown, asserted or unasserted (A) do not exceed the reserve for Tax
liability (other than any reserve for deferred Taxes established to reflect
timing differences between book and Tax basis in assets and liabilities)
included in the Company Financial Statements and (B) do not exceed those
reserves as adjusted for the passage of time through the Closing Date.
As used herein, the term "Taxes" means all federal, state, local,
foreign and other governmental net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, unemployment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees, assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes; the term "Tax Returns"
means all returns, declarations, reports, statements and other documents
required to be filed in respect of Taxes; the term "Code" means the Internal
Revenue Code of 1986, as amended (all citations to the Code, or to the Treasury
Regulations promulgated thereunder, shall include any amendments or any
substitute or successor provisions thereto).
(c) Litigation.
(i) Other than the items listed on the Disclosure
Schedule to this Section, there is no pending action, arbitration, audit,
hearing, investigation, litigation or suit (whether civil, criminal,
administrative (including Equal Employment Opportunity Commission and similar
state or federal agencies), investigative or informal) (A) that has been
commenced by or against the Company or that otherwise relates to or may affect
the Merger, the Company, the Stock, this Agreement, any Related Agreement or the
transactions contemplated herein or therein or (B) that has been commenced by or
against the Stockholder and that relates to the Company or that otherwise
relates to or may affect the Company, the Stock, this Agreement, any Related
Agreement or the transactions contemplated herein or therein (collectively, the
"Proceedings"). To the Sellers' Knowledge, no Proceeding has been overtly
threatened.
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(ii) Except as set forth on the Disclosure Schedule
to this Section, there is no award, decision, injunction, judgment, order,
ruling, subpoena, writ or verdict of any court, arbitrator or government agency
or instrumentality (A) to which the Company, the Stock, this Agreement, any
Related Agreement or the transactions contemplated herein or therein is subject
or by which any of the foregoing may be affected or (B) to which the Stockholder
is subject and that relates to or affects the Company, the Stock, this
Agreement, any Related Agreement or the transactions contemplated herein and
therein (collectively, the "Orders").
(iii) The Disclosure Schedule to this Section sets
forth a brief description of each Proceeding pending or, to the Seller's
Knowledge, overtly threatened at the date hereof.
(d) Employee Liabilities. The Disclosure Schedule to this
Section accurately lists as of the date set forth therein, (i) the hire date of
and year-to-date compensation paid to each employee (specifying as to each
employee the respective amounts of base salary, bonus and commissions paid to
such employee), (ii) all written employee policies and (iii) all accrued and
unpaid commissions or bonus payments due to employees of the Company as of May
31, 1998.
6.6 Business.
(a) Mortgage Banking Licenses and Qualifications.
(i) The Company has all certifications,
authorizations, licenses, permits, approvals, governmental licenses, exemptions,
classifications and registrations, (collectively, the "Licenses"), necessary to
conduct its business, to the extent such business has been or is being conducted
by the Company in those jurisdictions where such Licenses are required (the
"Mortgage Business"). The Disclosure Schedule to this Section lists every
material License that is in effect, has been applied for or is pending. Sellers
have made available to Buyer the originals, or if the originals are not
available, then true and complete copies of, all of the Licenses.
(ii) All Licenses are in full force and effect. No
event has occurred that will constitute or result in a violation of a License,
or result in the revocation, suspension, modification or non-renewal of any
License. No Seller has received any notice of any actual, alleged or potential
violation, revocation, suspension, modification or non-renewal of any License.
The Company has complied with all Licenses, and the Sellers know of no
threatened suspension, cancellation or invalidation of, or penalties (including
fines or refunds) under, any License.
(iii) The Company has not originated mortgage loans
through brokers or correspondents since July 1, 1995.
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(iv) Except as set forth in the Disclosure Schedule
to this Section, the Company is (and has been at all times when each mortgage
loan was originated) approved and qualified and in good standing in all states
where it has originated mortgage loans under all applicable federal, state and
local laws and regulations thereunder (as such laws and regulations existed when
each such loan was originated) as a mortgage lender, eligible to originate,
purchase, hold, sell and service mortgage loans (to the extent necessary to
carry on the Mortgage Business).
(b) Mortgage Loans. The Disclosure Schedule to this Section
lists the aggregate principal dollar amount of the mortgage loans that have been
endorsed by the Company but that have not yet been funded by Paine Weber or any
other party under a repurchase obligation (each a "Mortgage Loan"). All (i)
Mortgage Loans, (ii) other mortgage loans for which the Company may be subject
to recourse under any whole loan sale, securitization, pooling and servicing
agreement, servicing agreement or other agreement and (iii) mortgage loans sold
wherein the Company has made representations and warranties on which the Company
has any continuing contingent liability (the items described in (i), (ii) and
(iii) above are referred to collectively herein as the "Recourse Mortgage
Loans") are (A) evidenced by a promissory note or notes, or other evidence of
indebtedness (a "Note"), properly payable or endorsed to the Company or an
assignee of the Company (as applicable), secured by a mortgage, deed of trust or
other security instrument creating a lien on real property, a leasehold estate
or furniture, fixtures and equipment and other personal property, and any other
property described therein which secures such Note, together with any
assignment, reinstatement, extension, endorsement or modification thereof (a
"Mortgage") properly assigned to the Company or an assignee of the Company (as
applicable), with such terms as are customary in the appropriate segment of the
mortgage lending business, (B) duly secured by a Mortgage in full force and
effect, with customary terms in accordance with industry practice, which grants
the holder thereof a first or second priority lien on the subject property
(including any improvements thereon) or leasehold estate, as applicable, each
such Mortgage constituting a security interest that has been duly perfected and
maintained (or is in the process of perfection in due course) as a first lien or
second lien, where applicable, subject only to taxes and assessments not yet
delinquent and to such other matters as evidenced by a lender's title insurance
policy for mortgages or deeds of trust on fee or leasehold estates (for
Mortgages on certain ground leases), (c) accompanied by a hazard insurance
policy (and a flood insurance policy and certification where required under the
terms of the National Flood Insurance Act of 1968 and the Flood Disaster
Protection Act of 1973, each as amended) covering improvements on the premises
subject to such Mortgage, with a loss payee clause in favor of the Company or an
assignee of the Company, such insurance policy covering such risks as are
customarily insured against in accordance with industry practice, and (D) other
files and documents as are customary in industry practice.
(c) Enforceability. Except as set forth in the Disclosure
Schedule to this Section, all Recourse Mortgage Loans are (i) valid and legally
binding obligations of the borrowers thereunder, have been duly executed by a
borrower of legal capacity, are enforceable in accordance with their terms
(except as enforcement thereof may be limited by (A) bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity (whether applied in a proceeding in equity or at
law), (B) state laws requiring creditors to proceed against the collateral
before pursuing the borrower and (c) state laws on deficiencies or election of
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remedies and (iii) conform to all applicable federal, state and local laws,
rules and regulations with respect to the origination, insuring, purchase, sale,
pooling, servicing, subservicing, master servicing or filing of claims in
connection with a mortgage loan, as well the Company's underwriting, closing and
servicing guidelines (collectively, the "Regulations"). Neither the operation of
any of the terms of any Recourse Mortgage Loan, nor the exercise of any right
thereunder, has rendered or will render the related Mortgage or Note
unenforceable, in whole or in part, or subject it to any right of rescission,
setoff, counterclaim or defense, and no such right of rescission, setoff,
counterclaim or defense has been asserted with respect thereto. The file or
files containing the photostatic copy or copies on other media, and to the
extent required by the Regulations, original documents of the Mortgage, the Note
and other loan documents with respect to each Recourse Mortgage Loan, as well as
the related credit and closing packages, disclosures, custodial documents, and
all other files, books, records, and documents reasonably necessary or customary
in accordance with industry practice for the sale and servicing of such mortgage
loan (the "Loan Documents"), including without limitation Recourse Mortgage
Loans, are in compliance in all material respects with applicable Regulations
and are complete in all material respects.
(d) Title to Certain Mortgage Loans; Mortgage Loan Conveyance
Agreements. Except as set forth on the Disclosure Schedule to this Section, all
mortgage loans owned by the Company that are not subject to (or not qualified
for) any agreement pursuant to which the Company is bound to sell or convey such
loan to any party, are owned by the Company free and clear of all Liens. Such
mortgage loans have been duly recorded or submitted for recordation in due
course in the appropriate filing office in the name of the Company as mortgagee.
The Company has not, with respect to any such mortgage loan currently held by
the Company, released any security therefor, except upon receipt of commercially
reasonable consideration for such release, or accepted prepayment of any such
mortgage loan which has not been promptly applied to such mortgage loan. The
Disclosure Schedule to this Section lists all agreements, contracts and other
documents or instruments to which the Company is a party and by which the
Company is bound to sell or convey mortgage loans to any party or to reacquire
any Mortgage Loans under any repurchase agreement, reverse repurchase agreement
or similar agreement.
(e) No Recourse. The Company has no obligation to repurchase,
reimburse, indemnify or hold harmless any person based solely on the default
under or the foreclosure or sale of the collateral for, any mortgage loan at any
time originated, held, owned, sold, transferred or otherwise conveyed by the
Company, without regard to a breach or default of any contract containing any
representation, warranty, undertaking, misfeasance or malfeasance by the
Company, as the case may be. The Disclosure Schedule to this Section describes
each contract containing any representation, warranty and undertaking by the
Company that obligates the Company to repurchase, reimburse, indemnify or hold
harmless any person in respect of any such mortgage loan.
(f) Compliance with Mortgage Banking Regulations. With respect
to each Recourse Mortgage Loan, the Company and each prior and current
originator, if any, of any such mortgage loan has been and is in compliance in
all material respects with all Regulations, orders, writs, decrees, injunctions
and other requirements of any court or governmental authorities applicable
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to any of them, including without limitation any applicable local, state or
federal law or ordinance, and any regulations or orders issued thereunder.
(g) Physical Damage. Except as set forth on the Disclosure
Schedule to this Section, to the Sellers' Knowledge, there exists no physical
damage to the collateral securing the Mortgage Loans, whether from fire, flood,
windstorm, earthquake, tornado, hurricane or any other similar casualty, which
physical damage has caused any such Mortgage Loan to become delinquent or
adversely affect the value or marketability of any such Mortgage Loan or the
collateral securing such Mortgage Loan.
(h) Tax Identification. All tax identifications for the
mortgagors under the Mortgage Loans (or evidence that reasonable attempts have
been made to obtain such in accordance with applicable regulations) are
contained in the Loan Documents relating to each Mortgage Loan. All of such tax
identifications are correct and complete in all material respects, and property
descriptions contained in any loan documents are legally sufficient in
accordance with applicable law and regulations.
(i) ARMs and Conversion Loans. None of the Mortgage Loans are
adjustable rate mortgages.
(j) Custodial Accounts. The Company has full authority to
maintain Custodial Accounts for all of the Mortgage Loans, as required by
applicable law, and, when required, has established Custodial Accounts for all
Escrow Funds relating to any servicing rights. Such Custodial Accounts comply in
all respects with all laws and regulations and any terms of the mortgage loans.
Except as set forth in the Disclosure Schedule to this Section, there
are no pooling, participation, servicing or other agreements to which the
Company is a party which obligate it to make servicing advances with respect to
defaulted or delinquent mortgage loans.
The Disclosure Schedule to this Section contains a true and correct
list of (i) all of the completed audits and investigations of the Company by any
agency, investor or insurer that were commenced since June 30, 1995, the results
of which audits and investigations claimed a failure to comply with applicable
laws, regulations, guidelines or other standards and (ii) to the Sellers'
Knowledge, all pending audits and investigations of the Company by any agency,
investor or insurer.
"Custodial Accounts" shall mean all escrow, impound, suspense (loan
level and other) and custodial accounts maintained with respect to the mortgage
loans for purposes of receiving and disbursing payments of principal, interest,
taxes, insurance, assessments and similar charges (and interest, if any, accrued
on such funds for the benefit of mortgagors) relating to mortgage loans.
"Escrow Funds" shall mean all amounts held in Custodial Accounts, with
respect to mortgage loans held for the purpose of paying property taxes, hazard
insurance premiums, assessments and other such items as provided in the Mortgage
and applicable laws and regulations.
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(k) Insurance. The Company maintains insurance on its assets,
and upon its business and operations, against loss or damage, risks, hazards and
liabilities (the "Policies"), with insurers the Stockholder reasonably believes
to be financially sound and reputable. The premiums due and owing with respect
to the Policies have been paid, premiums not yet due have been adequately
accrued for, and no Seller has received any notice of cancellation or of
intention not to renew any such Policy. The Disclosure Schedule to this Section
contains a list of the Policies, copies of which have been provided to Buyer.
The Disclosure Schedule to this Section sets forth a list of each other
insurance policy or insurance contract relating to the Company and its business
pursuant to which the Company is or may hereafter be entitled to assert claims
for insurance coverage (the "Prior Policies"). The Company has timely pursued
all rights to recover (if any) under the Policies and the Prior Policies.
(l) Employees. No officer or employee of the Company is in
violation of any term of any contract, proprietary information agreement,
noncompetition agreement, or any other agreement or any restrictive covenant or
any other common law obligation to a former employer relating to the right of
any such person to be engaged by it or to the use of trade secrets or
proprietary information of others (an "Outside Confidentiality Agreement"), and
the engagement of such persons by the Company before or after the Closing does
not subject the Company or Buyer to any liability with respect thereto. There
are neither pending, nor to the Sellers' Knowledge threatened, any Proceedings
with respect to any Outside Confidentiality Agreement. The Disclosure Schedule
to this Section lists every Outside Confidentiality Agreement about which the
Company has Knowledge.
There is no labor strike, dispute, slowdown, picketing or stoppage
pending or, to the Sellers' Knowledge, threatened against or directly affecting
the Company, nor has the Company experienced any of the foregoing since January
1, 1995. The Company is not subject to any collective bargaining agreement. No
union representation question exists and, to Sellers' Knowledge, there has been
no union organization effort since January 1, 1995, respecting the employees of
the Company. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed by them prior to the Closing Date or amounts required to
be reimbursed to such employees. The Disclosure Schedule to this Section lists
every retired employee entitled to receive compensation from the Company or to
participate in any benefit plan. The books and records of the Company accurately
reflect all changes in compensation since April 1, 1995.
The employment of each of the Company's employees is terminable at will
without cost to the Company for severance obligations, except for payment of
accrued salaries or wages and vacation pay. No employee or former employee has
any right to be rehired by the Company prior to the hiring of a person not
previously employed by the Company. To Sellers' Knowledge, no officer, director
or key employee intends to terminate employment with the Company.
(m) Worker's Compensation. Except as set forth on the
Disclosure Schedule to this Section, the Company subscribes to, or is otherwise
insured under, the worker's compensation or similar statute in every state in
which it owns or leases real estate or has employees. The
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Disclosure Schedule to this Section lists all material claims filed by employees
of the Company in respect of employment-related injury or illness since June 30,
1995. The Company has not received any report or notice from the Occupational
Safety and Health Administration.
(n) ERISA. The Disclosure Schedule to this Section lists each
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that the Company maintains or
ever has maintained after June 30, 1995, or to which the Company contributes,
ever has contributed or ever has been required to contribute after June 30, 1998
(the "Employee Benefit Plans"). Each Employee Benefit Plan (and each related
trust, insurance contract or fund) complies in form and in operation in all
respects with the applicable requirements of all laws, rules and regulations
governing or applying to such Employee Benefit Plan, including without
limitation ERISA and the Code. All contributions (including all employer and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA (hereinafter, an "Employee Pension Benefit
Plan")). Sellers have delivered or made available to Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts
and other funding agreements which implement each Employee Benefit Plan.
No action, suit, proceeding, hearing or investigation with respect to
the administration or the investment of the assets of any Employee Benefit Plan
is pending or, to the Sellers' Knowledge, threatened, except for routine claims
for benefits under such plans.
The Disclosure Schedule to this Section lists all contracts with
third-party administrators, insurers, actuaries, investment managers,
consultants and other independent contractors that relate to any Employee
Benefit Plan.
(o) Affiliated Transactions. At the time of the Closing, there
will be no executory transactions between the Company and the Stockholder, or an
Associate or Affiliate (as such terms are defined in Rule 405 promulgated
pursuant to the Securities Act) of the Company, except as described herein.
(p) Legal Requirements. Except as set forth in the Disclosure
Schedule to this Section:
(i) Compliance with Laws. The Company has not
violated any term of any judgment, writ, decree, order, law, statute, rule or
regulation to which it is subject or a party, or by which the business or assets
of the Company is bound or affected (collectively, "Legal Requirements"). The
Company has not received written notice of any actual, alleged or potential
violation of a Legal Requirement.
(ii) Certain Acts. Neither any Seller nor any of
their former or current officers, directors, employees, agents or
representatives has made or agreed to make, directly or
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indirectly, with respect to the businesses or assets of the Company, any (A)
bribes or kickbacks, illegal political contributions, payments from corporate
funds not recorded on the books and records of the Company, or funds to
governmental officials (or any such official's family members or affiliates) for
the purpose of affecting their action or the action of the government they
represent, to obtain favorable treatment in securing business or licenses or to
obtain special concessions, or illegal payments from corporate funds to obtain
or retain business or (B) payments from corporate funds to governmental
officials for the purpose of affecting their action or the action of the
government they represent, to obtain favorable treatment in securing business or
licenses or to obtain special concessions. Without limiting the generality of
the foregoing, none of the foregoing persons or entities has made or agreed to
make, directly or indirectly, (whether or not said payment is lawful) any
payment to obtain, or with respect to, sales other than usual and regular
compensation to its employees and sales representatives with respect to such
sales.
(q) Environmental Matters.
(i) Compliance. To the Seller's Knowledge, the
Company is in compliance with all applicable Environmental Laws (defined below)
and the Company has not received any written communication, from any person that
alleges that the Company is not in compliance with applicable Environmental
Laws. As used herein, "Environmental Laws" mean all laws or orders relating to
the regulation or protection of human health, safety or the environment
(including, without limitation, ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata), including, without limitation, laws and
regulations relating to releases or threatened releases of hazardous materials,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, recycling or handling of hazardous
materials.
(ii) Environmental Claims. There is no Environmental
Claim (defined below) pending or to the Seller's Knowledge, threatened (A)
against the Company, (B) against any person or entity whose liability for any
Environmental Claim the Company has or may have retained or assumed either
contractually or by operation of law or (c) against any real or personal
property or operations which are now or have been previously owned, leased,
operated or managed, in whole or in part, by the Company.
As used herein, "Environmental Claim" means any and
all administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, Liens, investigations, proceedings or notices of
compliance or violation (written or oral) by any person or entity (including any
governmental authority) alleging potential liability (including, without
limitation, potential liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or release or threatened
release into the environment, of any hazardous material at any location, whether
owned, operated, leased or managed by the Seller with respect to the business of
the Company; or (B) any violation, or alleged violation, of any Environmental
Law; or (c) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence or release of any hazardous materials.
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6.7 Buyer Stock.
(a) Purchase Entirely for Own Account. Each of the
Stockholders is acquiring the shares of Buyer Stock for investment for such
Stockholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the Securities Act.
Each of the Stockholders does not have any present intention of selling,
granting any participation in, or otherwise distributing the shares of Buyer
Stock otherwise than pursuant to an effective registration statement under the
Securities Act as contemplated by the Registration Rights Agreement or in a
transaction exempt from the registration requirements under the Securities Act
and applicable state securities laws. Except as set forth in the Registration
Rights Agreement, each of the Stockholders does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
shares of Buyer Stock.
(b) Buyer's and Merger Sub's Reliance. Each of the
Stockholders acknowledges that the issuance of the shares of Buyer Stock will
not be registered under the Securities Act or any state securities laws on the
basis that the issuance of the shares of Buyer Stock as provided for herein is
exempt from registration under the Securities Act and such state laws. Each of
the Stockholders acknowledges that the availability of such exemptions is
predicated in part on such Stockholder's representations set forth in this
Section and that Buyer, Merger Sub and Buyer are relying on such
representations.
(c) Receipt of Information. Each of the Stockholders has
received all the information he considers necessary or appropriate for deciding
whether to consummate the transactions described herein and to accept the shares
of Buyer Stock. Each of the Stockholders has had an opportunity to ask questions
and to receive answers from Buyer and Merger Sub regarding the terms and
conditions of the issuance of the shares of Buyer Stock and the business
properties, prospects and financial condition of Buyer and Merger Sub and to
obtain additional information (to the extent Buyer or Merger Sub possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to such
Stockholder or to which such Stockholder had access.
(d) Investment Experience. Each of the Stockholders, alone or
with his representative, acknowledges that he is able to fend for himself and
bear the economic risk of the investment in the shares of Buyer Stock, and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the investment in the shares of
Buyer Stock.
(e) Accredited Investor. Each of the Stockholders is an
Accredited Investor as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act.
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(f) Restricted Securities. Each of the Stockholders
acknowledges that the shares of Buyer Stock may not be sold, transferred or
otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom and that in the absence of an effective
registration statement covering the shares of Buyer Stock or an available
exemption from registration under the Securities Act, the shares of Buyer Stock
must be held indefinitely. Each of the Stockholders further acknowledges that
the shares of Buyer Stock may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(g) Legends. Each of the Stockholders acknowledges that each
certificate representing any shares of the Buyer Stock will be endorsed with a
legend substantially similar to the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION THAT IS EXEMPT
UNDER SUCH ACT OR LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT OR LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT OR LAWS OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
6.8 Other.
(a) Documents Delivered. The minute books and stock transfer
records of the Company (the "Corporate Records") that have been made available
to Buyer, Merger Sub and their agents are complete in all material respects. The
Corporate Records contain accurate records of all meetings held of, and
corporate action taken by the respective boards of directors and stockholders of
the Company, and any committee or representative thereof. No meeting has been
held and no action has been taken, by any such board of directors or equity
security holders for which accurate records have not been prepared and included
in the Corporate Records. At the Closing, all of the Corporate Records will be
in the possession of the Company.
(b) No Brokers Fees; No Commissions. All negotiations relative
hereto and the transactions contemplated hereby have been carried on by Sellers
directly with Buyer and Merger Sub without any act by Sellers that would give
rise to any claim against the Company, Buyer, Merger Sub or their respective
Affiliates for a brokerage commission, finder's fee or other similar payment,
except for a fee to be paid by the Surviving Corporation to Raymond James at the
Closing and fees to be paid to Raymond James by the Surviving Corporation after
the Closing in connection with the Earnout Payments and any Earnout True-up
Payments, as described in Section 1.2(a)(ii).
(c) Disclaimer. Neither Seller shall be deemed to have made to
Buyer or Merger Sub any representation or warranty other than as expressly made
by Sellers herein. Without limiting
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the generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by Sellers herein, Sellers make no
representation or warranty with respect to any projections, estimates or budgets
heretofore, delivered to or made available to Buyer or Merger Sub of future
revenues, expenses or expenditures or future results of operations.
ARTICLE 7
Representations and Warranties of Buyer and Merger Sub
Buyer and Merger Sub, jointly and severally, represent and warrant to
Sellers as follows:
7.1 Entry Into Agreements.
(a) Organization and Good Standing. Buyer is a corporation
duly organized and validly existing under the laws of the State of Delaware and
is in good standing under such laws. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of Ohio. Buyer owns,
beneficially and of record, all of the issued and outstanding shares of capital
stock of Merger Sub.
(b) Corporate Power and Authority; Validity and Authorization.
Buyer and Merger Sub have full corporate power and authority to execute, deliver
and perform this Agreement and the Related Agreements. This Agreement has been
duly authorized, executed and delivered by Buyer and Merger Sub, and is
enforceable against Buyer and Merger Sub in accordance with its terms.
When the Related Agreements to which each of Buyer and Merger
Sub is a party are delivered at the Closing, such agreements will have been duly
authorized, executed and delivered by Buyer and Merger Sub, and will constitute
the legal, valid and binding obligations of Buyer and Merger Sub, enforceable
against Buyer and Merger Sub in accordance with their terms.
7.2 Conflicts and Consents.
(a) No Conflict. The execution, delivery and performance of
this Agreement and the Related Agreements, and the consummation of the
transactions contemplated hereby and thereby will not result in any violation of
the terms of and will not contravene, conflict with, accelerate the performance
of the obligations required under, or constitute a default under, the
Certificate of Incorporation or Bylaws of Buyer or Articles of Incorporation or
Bylaws of Merger Sub, or any agreement, judgment, decree, order, law, rule or
regulation or other restriction applicable to it, or to which it is a party or
by which Buyer or Merger Sub or their property or assets is bound, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of Buyer or Merger Sub.
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(b) Buyer Consents Obtained. Other than the approval referred
to in Section 3.1(a) (HSR Act) and the Permits, no consents, approvals or
authorizations of third parties are required in connection with Buyer's and
Merger Sub's valid execution, delivery, or performance of this Agreement and the
Related Agreements or the consummation of the Merger or any of the transactions
contemplated hereby or thereby on the part of such party.
7.3 No Brokers Fees; No commissions. All negotiations relative hereto
and the transactions contemplated hereby have been carried on by Buyer and
Merger Sub directly with the Sellers without any act by Buyer or Merger Sub that
would give rise to any claim against the Sellers or their Affiliates for a
brokerage commission, finder's fee or other similar payment.
7.4 HSR Act. Buyer and Merger Sub have made all filings required under
the HSR Act, have fully complied with the provisions of the HSR Act and the
rules and regulations promulgated thereunder, and have fully complied with all
requests for information from the Federal Trade Commission and the Department of
Justice. The information contained in Buyer's and Merger Sub's filings under the
HSR Act is accurate and complete and such filings do not include any incorrect
statements or omit to include any information necessary to make the statements
therein not misleading. The copies of Buyer's and Merger Sub's filings under the
HSR Act that have been provided to Sellers are true and complete copies of such
filings.
7.5 Acquisition of Stock. Buyer is acquiring the Stock for investment
for its own account, not as a nominee or agent, and not with a view to the
resale or present distribution of any part thereof in violation of the
Securities Act. Buyer has no present intention of selling, granting any
participation in or otherwise distributing the shares of Stock and Buyer has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer, grant participations to such person or to any third person, with
respect to any of the shares of Stock.
7.6 Buyer Stock. The shares of Buyer Stock, when issued, sold and
delivered in accordance with the terms hereof in exchange for the Stock will be
duly and validly issued, fully paid and nonassessable and free and clear of any
Liens.
7.7 SEC Documents. Buyer has heretofore delivered or made available to
the Sellers all reports filed by Buyer under Sections 13(a), 14(a), 14(c) and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
with the Securities and Exchange Commission on or after March 31, 1997 (the "SEC
Documents"). As of their respective dates, each of the SEC Documents complied in
all material respects with all applicable requirements of the Securities Act and
the Exchange Act. The audited consolidated financial statements and unaudited
consolidated financial statements of Buyer included in the SEC Documents fairly
present the financial position of Buyer as of the dates of such financial
statements and the results of Buyer's operations and cash flows for the periods
then ended, in accordance with GAAP, except for the variances from GAAP set
forth in the notes thereto.
7.8 No Material Adverse Change. Since the date of the most recent
filing by the Buyer under the Exchange Act prior to the date hereof, Buyer has
suffered no material adverse change in
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its condition (financial or other), results of operations or cash flows or any
developments that have had a material adverse effect on its condition (financial
or other), results of operations, or cash flows (other than general economic or
industry conditions).
ARTICLE 8
Covenants of Sellers
From the execution hereof until the Closing, the Stockholder, and until
the Closing occurs the Company jointly and severally with the Stockholder,
covenants and agrees as follows:
8.1 Conduct of Business of the Company Pending Closing. Unless
otherwise expressly contemplated hereby or approved in writing by Buyer and
Merger Sub, the business and operations of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary course of
business and consistent with past practices. Without limitation, the Company
shall not take any of the following actions without Buyer's and Merger Sub's
prior written approval: (a) dispose of any assets, including without limitation
disposing of any Mortgage Loans, other than a sale of assets in the ordinary
course of business, (b) incur any indebtedness, other than in the ordinary
course of business, (c) pay any discretionary bonuses (other than bonuses
already accrued on the date hereof) to, alter the commission rates received by,
or alter the salaries of, any director, officer or key employee, (d) enter into
any transaction or agreement with any Affiliate or associate of the Company or
the Stockholder (including, without limitation by paying, distributing or
transferring any funds or assets to the Stockholder, whether in his capacity as
a stockholder or in any other capacity), (e) institute any planned reduction in
force, (f) close any branch office of the Company, (g) take any action that will
cause any of the Sellers' representations or warranties to be untrue or
incorrect, (h) omit any action that the Company would take in the ordinary
course of business, which omission will cause the Sellers' representations or
warranties to be untrue or incorrect or (i) increase any reserves for Taxes
(other than through any adjustments necessitated by the Company's filing of its
change in accounting method under Code Section 3115). The Sellers shall use
commercially reasonable efforts to maintain and preserve the Company, and its
organization, franchises, authorizations, prospects, goodwill, employees and
advantageous business relationships. Nothing in this provision shall prevent the
Company from distributing an amount equal to the Company's taxable income for
the Short Period to the Stockholder.
8.2 Access to Information and Employees. Sellers shall permit, upon
reasonable notice during normal business hours, Buyer and its Representatives to
visit and inspect any of the properties of the Company, including books and
records, and to discuss the affairs, finances and accounts of the Company, and
Buyers' prospects, plans and intentions with the Company's officers, employees,
brokers and independent public accountants, as often as any such person may deem
necessary or desirable and reasonably request. Sellers shall furnish to Buyer
copies of any existing Phase 1 or other existing environmental reports relating
to the Real Property. Sellers shall permit Buyer to conduct, at Buyer's sole
discretion, environmental investigations and analyses of the Real Property.
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In this Agreement, "Representatives" means, collectively, a party's
directors, officers, employees, stockholders, partners, financial parties in
interest, agents, advisors, attorneys, accountants, consultants, Affiliates,
financing sources and representatives of any such source, representatives, and
any person or entity being considered for any such role.
8.3 No Solicitation. Sellers shall not directly or indirectly, through
any Representatives or otherwise, solicit, accept, or entertain offers from,
negotiate with or in any manner encourage, accept or consider any proposal of,
or enter into any agreement with any person other than Buyer or Merger Sub
relating to the acquisition of the Company or any stock, business or substantial
asset of the Company, whether through purchase, merger, consolidation or other
business combination. If any Seller receives any contact, inquiry or proposal
regarding the foregoing, then such Seller shall notify the party making such
proposal that the Sellers are contractually prohibited from engaging in such
discussions. Sellers then shall promptly notify Buyer and Merger Sub of any
contact received by Sellers relating to any such transaction and shall furnish
to Buyer and Merger Sub, in writing, the nature of the contact and the terms of
the proposal or offer, if any, the name of the person who received the contact
on behalf of Sellers, and the response given by such person to the person who
initiated the contact.
8.4 Financial Statements. Sellers shall deliver to Buyer and Merger Sub
not later than the 30th business day of each succeeding month, financial
statements of the kind described in Section 6.2 (Financial Information) for the
month ended May 31, 1998 and each subsequent month before the Closing.
8.5 Payment of Indebtedness of Related Persons. The Stockholder will
cause all indebtedness that the Stockholder or any of his Affiliates owes to the
Company to be paid in full prior to Closing.
8.6 Maintain Organization. Sellers shall cause the Company to take such
action as may be necessary to maintain, preserve, renew and keep in favor and
effect the existence, rights and franchises of the Mortgage Business and shall
use their commercially reasonable efforts to maintain, preserve and renew the
Mortgage Business intact, and to preserve, protect and maintain for Buyer and
Merger Sub the good will of the employees of the Mortgage Business, to keep
available to Buyer and Merger Sub the present officers, employees and brokers of
the Mortgage Business, and to preserve for Buyer and Merger Sub the present
relationships with payors, suppliers, referral sources, customers and clients of
the Mortgage Business and others having business relationships with the Mortgage
Business. Sellers shall consult with Buyer and Merger Sub on strategies for
maintaining and preserving the Mortgage Business and effecting an orderly
transition to Buyer and Merger Sub's ownership of the Mortgage Business.
8.7 Assist in Obtaining Licenses, Etc. Sellers shall reasonably assist
Buyer in obtaining all Permits necessary for Buyer to operate the Mortgage
Business.
8.8 Sellers' Consents. Sellers shall use their commercially reasonable
efforts to obtain the Sellers' Consents.
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8.9 Records of the Company. On or prior to the Closing Date, the
Sellers shall transfer or cause to be transferred to the Company any files,
books, records or other documents relating to the business of the Company that
are the property of the Company and that are possessed by any Seller and that
are not otherwise possessed by the Company. Sellers may make and retain copies
(at their expense) of any such files, books, records and documents transferred
to the Company.
8.10 Employee Benefit Plans. The Company shall maintain in accordance
with all legal requirements the Employee Benefit Plans and shall not take any
action to terminate or discontinue any such plan without Buyer's and Merger
Sub's prior written consent.
8.11 Other Stockholders. The Stockholder shall not sell any shares of
the Stock to any person other than an Other Stockholder who agrees in a writing
(in substantially the form of Exhibit 8.11) executed by all parties hereto (a)
to be a party hereto, and subject to the terms hereof, and (b) to appoint, and
does thereby appoint, the Stockholder as the attorney-in-fact (the
"Stockholders' Representative") for such person hereunder. The Company shall not
issue, and the Stockholder shall cause the Company to not issue, any shares of
capital stock of the Company to any person other than an Other Stockholder who
agrees in a writing (in substantially the form of Exhibit 8.11) executed by all
parties hereto (i) to be a party, and subject to the terms hereof, and (ii) to
appoint, and does thereby appoint, the Stockholders' Representative as
attorney-in-fact for such person hereunder.
ARTICLE 9
Post-Closing Agreements
After the Closing, the Stockholders, on the one hand, and Buyer and the
Surviving Corporation collectively, on the other, covenant and agree as follows:
9.1 Further Actions. The Stockholders shall execute and deliver at
their own expense, such further instruments of transfer and conveyance,
documents and certificates as may be reasonably requested by Buyer in order to
more effectively convey and transfer to Buyer the Stock, to aid and assist in
reducing to possession or exercising rights with respect to the Stock, or to
consummate any of the transactions contemplated hereby.
The Stockholders shall as promptly as practical after receipt deliver
to Buyer any cash, checks, mail, packages, notices and other similar
communications he receives (in his respective former roles as Stockholders,
directors, officers, employees or agents of the Company). The Stockholders shall
endorse in favor of Buyer any checks or other instruments of payment that by
their terms are payable to the Stockholders but that are property of the
Company.
9.2 Cooperation. The Stockholders shall use commercially reasonable
efforts to aid Buyer in establishing itself as the new owner and operator of the
Company and, in connection therewith, shall use commercially reasonable efforts
to maintain the Company's goodwill and reputation with
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all suppliers, customers, distributors, creditors and others having business
relations with the Company and in the business community generally. The
Stockholders shall cooperate, and shall cause their Representatives to
cooperate, with Buyer at Buyer's expense, in connection with Buyer's preparation
and filing under the Securities Act of any Registration Statement for which the
assistance of Sellers or their respective Representatives is reasonably
required.
9.3 Tax Returns. The Stockholders shall cooperate with Buyer in
connection with, and shall use commercially reasonable efforts to cause the
Surviving Corporation to, file on behalf of the Company (and, if necessary, on
behalf of any Stockholder), all tax returns for the Company's fiscal year ended
March 31, 1998, by not later than July 31, 1998, and all tax returns for the
Short Period by not later than the 60th day after the Closing Date.
9.4 Employee Benefit Plans. For so long as the Stockholder serves as
the Chief Executive Officer of the Surviving Corporation, Buyer shall not cause
the Surviving Corporation to materially amend or modify any Employee Benefit
Plan of the Surviving Corporation in effect at the Closing, except (a) with the
Stockholder's prior written consent (which consent shall not be unreasonably
withheld) or (b) in accordance with any change in the laws, rules or regulations
governing such Employee Benefit Plans.
9.5 Working Capital. Buyer shall make available to the Surviving
Corporation, at all times prior to April 30, 2001, funds in amounts not less
than $10.0 million, which may be utilized by the Surviving Corporation for its
working capital requirements in the ordinary course of business.
ARTICLE 10
Indemnification
10.1 Survival; Etc.
(a) Contents of this Agreement. The representations,
warranties, covenants and agreements made in any Related Agreement, Exhibit or
Disclosure Schedule shall be deemed representations, warranties, covenants and
agreements made herein.
(b) No Effect on Liability. None of (i) the consummation of
the transactions contemplated by this Agreement or the Related Agreements, (ii)
the delay or omission of any party to exercise any of its rights under this
Agreement or any Related Agreement or (iii) any investigation or disclosure that
any party makes, any notice that any party gives, or any knowledge that any
party obtains as a result thereof, or otherwise, shall (A) affect the liability
of the parties to one another for Breaches (defined below) of this Agreement or
any Related Agreement or (B) prevent any party from relying on the
representations or warranties contained in this Agreement or any Related
Agreement.
As used herein, a party's "Breach" shall mean any
representation or warranty being untrue when made by such party, any breach of
any of such party's covenants or agreements or any
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other claim that may be asserted against such party arising from the document in
question or the transactions contemplated thereby.
(c) Survival. The representations and warranties of Buyer, the
Merger Sub and the Stockholder made in this Agreement or any Related Agreement
shall survive the Closing. The representations and warranties of the Company
made herein shall be extinguished at the Closing and the Company shall have no
liability thereafter for Breach hereof. Effective at the Closing, the
Stockholder waives and releases any claim for Breach by the Company, including
without limitation any claim for indemnification or contribution.
(d) Commencing Actions. If the Closing occurs, then any action
against any party hereof for Breaches herein that is not commenced pursuant to
Section 10.7 (Dispute Resolution) within two years of the Closing Date shall be
deemed waived, and no person shall have any remedy against any party for any
such Breaches; provided, however, if the Buyer is subject to Losses (defined
below) for Breaches in Sections 6.5(b) (Tax Matters), 6.6(p) (Legal
Requirements) or 6.6(q) (Environmental Matters), the Buyer may commence an
action against the Stockholder to recover such Losses at any time that Buyer or
the Company is subject to Losses (defined below) with respect thereto and shall
not be barred by the first clause of this Section; provided, however, that Buyer
shall use commercially reasonable efforts to obtain (for itself and for the
Stockholder) the benefit of any statute of limitations applicable as against any
third party.
10.2 Indemnities.
(a) Indemnification of Buyer. Subject to the other provisions
of this Article, before the Closing the Sellers jointly and severally, and after
the Closing the Stockholder and the Other Stockholders, jointly and severally
(collectively, as applicable, the "Seller Indemnitors"), shall defend, indemnify
and hold Buyer, the Surviving Corporation (from and after the Closing), and
their respective directors, officers, employees, stockholders, subsidiaries,
agents, advisors, attorneys, accountants, consultants and affiliates
(collectively, the "Buyer Indemnitees"), harmless from and against, and promptly
reimburse the Buyer Indemnitees for, any loss, expense, damage, deficiency,
liability, claim or obligation, including investigative costs, costs of defense,
settlement costs (subject to approval as provided below) and attorneys' and
accountants' fees (collectively, "Losses") that any Buyer Indemnitee suffers or
incurs or to which any Buyer Indemnitee becomes subject, which Losses arise out
of or in connection with (i) any Breach by any Seller of this Agreement or any
Related Agreement, (ii) any claim asserted by any third party that, assuming the
truth thereof, would constitute a Breach by any Seller of this Agreement or any
Related Agreement, (iii) the Proceedings, whether or not listed on the
Disclosure Schedule to Section 6.5(c) (Litigation) (provided, however, that the
Seller Indemnitors' obligation to indemnify for any Loss arising out of any
Proceeding shall be reduced by any amount previously collected by the Surviving
Corporation in satisfaction of judgments in the Surviving Corporation's favor
arising out of any Proceeding, or, if any such collection by the Surviving
Corporation occurs after the reduction of any Earnout Payment by the amount of
any Loss arising out of any Proceeding, and prior to April 30, 2001, then the
Surviving Corporation shall pay to the Stockholders (without duplication in the
calculation or payment of future Earnout Payments) an amount equal to the lesser
of the amount offset or the amount of the collection,
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provided further, that the Seller Indemnitors shall be entitled to utilize such
reduction only once with respect to the amount collected pursuant to each such
judgment), (iv) any Tax in excess of the applicable reserve (other than any
reserve for deferred Taxes established to reflect temporary differences between
book and Tax basis in assets and liabilities) for accrued but unpaid Taxes owed
by the Company for any period prior to the Closing or (v) any liability arising
out of Marketing Solution Publications, Inc.
The Seller Indemnitors shall promptly pay or reimburse to the Buyer
Indemnitees the amount of all Losses after the amount of any such Loss and such
Seller Indemnitor's liability therefor is established by (A) agreement in
writing between Buyer and the Stockholders' Representative or (B) arbitration
pursuant to Section 10.7 (Dispute Resolution) (any Loss so determined is
referred to herein as an "Established Loss"). If each Seller Indemnitor does not
pay to the Buyer Indemnitees the amount of the Established Loss on or before the
30th day after the determination described in item (A) or (B) above, then on the
31st day after such determination, the amount of the Established Loss payable by
such Seller Indemnitor shall bear interest at a rate of interest per annum that
shall, from day to day, equal the lesser of (X) the variable rate of interest
published in the Money Rates section of the Wall Street Journal (or the
comparable section of such newspaper) as the prime rate of interest on corporate
loans at large United States money center commercial banks plus five percent
(5%) and (Y) the maximum rate allowed under applicable law. Notwithstanding the
foregoing, no such interest shall accrue on the portion of any Established Loss
that is set off against an Earnout Payment pursuant to Section 10.2(c) (Setoff).
(b) Indemnification of the Stockholder. Subject to the other
provisions of this Article, Buyer and the Surviving Corporation (the "Buyer
Indemnitors") shall defend, indemnify and hold the Stockholder (and after the
Closing, the Other Stockholders) harmless from and against, and promptly
reimburse him (or them) for, any Losses that the Stockholder incurs (and the
Other Stockholders incur after the Closing) or to which the Stockholder becomes
subject (and the Other Stockholders or any of them become subject after the
Closing), which Losses arise out of or in connection with (i) any Breach by
Buyer or Merger Sub of this Agreement or any Related Agreement or (ii) any claim
asserted by any third party that, assuming the truth thereof, would constitute a
Breach by Buyer or Merger Sub of this Agreement or any Related Agreement.
The Buyer Indemnitors shall promptly pay to the Stockholders the
aggregate amount of all Losses after the amount of any such Loss and the Buyer
Indemnitors' liability therefor is established by (A) agreement in writing
between the Stockholder's Representative and the Buyer Indemnitors or (B)
arbitration pursuant to Section 10.7 (Dispute Resolution) (any Loss so
determined is referred to herein as an "Established Stockholder Loss"). If the
Buyer Indemnitors do not pay to the Stockholders the aggregate amount of any
Established Stockholder Loss on or before the 30th day after the determination
described in item (A) or (B) above, then on the 31st day after such
determination, the amount of the Established Stockholder Loss shall bear
interest at a rate of interest per annum that shall, from day to day, equal the
lesser of (X) the variable rate of interest published in the Money Rates section
of the Wall Street Journal (or the comparable section of such newspaper) as the
prime rate of interest on corporate loans at large United States money center
commercial banks plus five percent (5%) and (Y) the maximum rate allowed under
applicable law.
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(c) Setoff. For any Established Loss determined prior to the
final Earnout Payment Date, the Buyer Indemnitees shall offset such Established
Loss against any Earnout Payment, pro-rata among the Stockholders and pro-rata
between cash and Buyer Stock, with the Common Stock Portion of any such setoff
Earnout Payments being valued at the value of such setoff Earnout Payment on the
applicable Earnout Payment Date. Any such set off will be an adjustment to the
Merger Consideration.
The exercise of such right of offset by the Buyer Indemnitees in good
faith, whether or not ultimately determined to be justified, will not constitute
an event of default under, or Breach of, the Buyer Indemnitees' obligations to
the Stockholders.
If the Buyer Indemnitees commence any action pursuant to Section
10.1(d) (Commencing Actions) prior to the third anniversary of the Closing Date,
then the parties shall use commercially reasonable efforts to resolve such
action or to convert the applicable Loss into an Established Loss prior to the
final Earnout Payment Date. If, however, any such action is pending on the final
Earnout Payment Date, then the payment of a portion of the Earnout Payments in
an amount equal to the value of the claimed Loss, pro-rata between cash and
Buyer's Stock and pro-rata among the Stockholders, shall be delayed until the
action is resolved or until the loss is converted to an Established Loss.
10.3 Limitations on Indemnities.
(a) Basket.
(i) Notwithstanding anything to the contrary in this
Article, after the Closing the Seller Indemnitors shall not have any obligation
to indemnify the Buyer Indemnitees for Losses incurred hereunder until the
indemnifiable Losses incurred by the Buyer Indemnitees or to which the Buyer
Indemnitees become subject, exceed $500,000, and then the Seller Indemnitors
shall indemnify the Buyer Indemnitees pursuant to this Article only for Losses
in excess of such amount.
(ii) Notwithstanding anything to the contrary in this
Article, the Buyer Indemnitors shall not have any obligation to indemnify the
Stockholders for Losses incurred hereunder until the indemnifiable Losses
incurred by the Stockholders or to which the Stockholders become subject, exceed
$500,000 and then the Buyer Indemnitors shall indemnify the Stockholders
pursuant to this Article only for Losses in excess of such amount.
(b) Cap.
(i) The Seller Indemnitors shall not have any
liability to the Buyer Indemnitees for indemnifiable Losses after the
Stockholders have suffered setoffs of Earnout Payments pursuant to Section
10.2(c) (Setoff) (and, if applicable, have paid to the Buyer Indemnitees cash)
having an aggregate value equal to the sum of $7.5 million; plus an additional
amount equal to any indemnifiable Losses relating to Taxes or Tax Returns of the
Company or MSPI (or of the Surviving Corporation or any successor to MSPI, in
each case relating to periods up to and including the Effective Time), in an
amount not to exceed an additional $2.5 million, for an aggregate maximum
indemnifiable amount of $10.0 million; provided, however, that any amounts paid
by the Stockholder
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to the Surviving Corporation after the Effective Time in respect of claims by
Buyer on behalf of the Surviving Corporation for breaches of the Stockholder's
fiduciary duties to the Company or related claims shall reduce such aggregate
maximum indemnification obligation.
(ii) The Buyer Indemnitors shall not have any
liability to the Stockholders for indemnifiable Losses after the Buyer
Indemnitors have paid to the Stockholders, in the aggregate, the sum of $7.5
million.
(c) Exclusions.
(i) The limitations in clause (a)(I) and clause
(b)(I) of this Section shall not apply to claims for fraud by any Seller in
connection with the consummation of the transactions described herein or any
Stockholders' failure to pay any Earnout True-up Payment. Notwithstanding any
other provision hereof, the Seller Indemnitors shall defend, indemnify and hold
the Buyer Indemnitees harmless from and against, and promptly reimburse the
Buyer Indemnitees for, any Losses that any Buyer Indemnitee incurs or to which
any Buyer Indemnitee becomes subject, arising out of such fraud.
(ii) The limitations in clause (a)(ii) and clause
(b)(ii) of this Section shall not apply to claims for (A) the Buyer's failure to
deliver possession or title to the Closing Stock Merger Consideration or to pay
any Earnout Payment or Earnout True-up Payment, all as provided herein or (B)
fraud by the Buyer or Merger Sub in connection with the consummation of the
transactions described herein. Notwithstanding any other provision hereof, the
Buyer Indemnitors shall defend, indemnify and hold the Stockholders harmless
from and against, and promptly reimburse the Stockholders for, any Losses that
any Stockholder incurs or to which any Stockholder becomes subject, arising out
of the foregoing matters.
(d) Exclusivity. The indemnification provisions of this
Article 10 shall be the exclusive remedy for any loss, expense, damage,
deficiency, liability, claim or obligation, including investigative costs, costs
of defense, settlement costs (subject to consent as provided in Section 10.4(b)
(Defense Costs) below) and attorneys' and accountants' fees in connection with
this Agreement or any Breach hereof.
10.4 Notice and Opportunity to Defend.
(a) Notice, Etc. If any party (the "Indemnified Party")
receives notice of any third-party claim or commencement of any third-party
action or proceeding (an "Asserted Liability") with respect to which any other
party (an "Indemnifying Party") is obligated to provide indemnification pursuant
to Section 10.2(a) (Indemnification of Buyer) or Section 10.2(b)
(Indemnification of the Stockholders), the Indemnified Party shall promptly give
all Indemnifying Parties notice thereof. The Indemnified Party's failure so to
notify an Indemnifying Party shall not cause the Indemnified Party to lose its
right to indemnification under this Article, except to the extent that such
failure materially prejudices the Indemnifying Party's ability to defend against
an Asserted Liability that such Indemnifying Party has the right to defend
against hereunder (and except as otherwise set forth in this Article). Such
notice shall describe the Asserted Liability in reasonable detail, and if
practicable shall indicate the amount (which may be estimated) of the Losses
that have
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been or may be asserted by the Indemnified Party. Each of the Indemnifying
Parties may defend against an Asserted Liability on behalf of the Indemnified
Party utilizing counsel reasonably acceptable to the Indemnified Party, unless
(i) the Indemnified Party reasonably objects to the assumption of such defense
on the grounds that counsel for such Indemnifying Parties cannot represent both
the Indemnified Party and the Indemnifying Parties because such representation
would be reasonably likely to result in a conflict of interest or because there
may be defenses available to the Indemnified Party that are not available to
such Indemnifying Parties, (ii) the Indemnifying Party is not capable (by reason
of insufficient financial capacity, bankruptcy, receivership, liquidation,
managerial deadlock, managerial neglect or similar events) of maintaining a
reasonable defense of such action or proceeding, or (iii) the action or
proceeding seeks injunctive or other equitable relief against the Indemnified
Party.
(b) Defense Costs. If any Indemnifying Party defends an
Asserted Liability, it shall do so at its own expense and shall not be
responsible for the costs of defense, investigative costs, attorney's fees or
other expenses incurred to defend the Asserted Liability (collectively, "Defense
Costs") of the Indemnified Party (which may continue to defend, at its own
expense). Notwithstanding the foregoing, if the person or entity asserting the
Asserted Liability against the Indemnified Party claims or seeks amounts in
excess of the amount set forth in Section 10.3(b) (Cap), then the Indemnifying
Party shall remain liable for the Costs of Defense incurred by the Indemnified
Party, subject to the limitation contained in Section 10.3(b) (Cap). If the
Indemnified Party assumes the defense of an Asserted Liability by reason of
clauses (i), (ii) or (iii) of Subsection (a) above, or because the Indemnifying
Party has not elected to assume the defense, then such Indemnifying Party shall
indemnify the Indemnified Party for its Defense Costs; provided, however, the
Indemnifying Parties shall not be liable for the costs of more than one counsel
for all Indemnified Parties in any one jurisdiction. An Indemnifying Party may
settle any Asserted Liability only with the consent of the Indemnified Party,
which consent shall not be unreasonably withheld.
(c) Third Party Claims. The parties shall cooperate with each
other with respect to the defense of any claims or litigation made or commenced
by third parties subsequent to the Closing Date with respect to which
indemnification is not available (for any reason) under this Article, provided
that the party requesting cooperation shall reimburse the other party for the
other party's reasonable out-of-pocket costs and expenses of furnishing such
cooperation.
10.5 Delays or Omissions, Etc.. Except as provided in Section 10.1
(Survival; Etc.) and Section 10.4(a) (Notice, Etc.), no delay or omission to
exercise any right, power or remedy inuring to any party upon any breach or
default of any party under this Agreement or any Related Agreement shall impair
any such right, power or remedy of such party nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Neither the exercise of nor the failure to
exercise any remedy under this Agreement or any Related Agreement will
constitute an election of remedies or limit in any manner enforcement of any
remedies. All remedies either under this Agreement or any Related Agreement or
by law or otherwise afforded to the parties shall be cumulative and not
alternative.
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<PAGE> 57
10.6 Governing Law; Attorneys' Fees. This Agreement and the Related
Agreements shall be governed by, construed, interpreted and applied in
accordance with the laws of the State of Florida, without giving effect to any
conflict of laws rules that would refer the matter to the laws of another
jurisdiction.
Subject to Section 10.7 (Dispute Resolution), each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the Middle District of Florida and, if such court does not have
jurisdiction, of the courts of the State of Florida in Pinellas County, for the
purposes of any action arising out of this Agreement or any of the Related
Agreements, or the subject matter hereof or thereof, brought by any other party.
Subject to Section 10.7 (Dispute Resolution), to the extent permitted
by applicable law, each party hereby waives and agrees not to assert, by way of
motion, as a defense or otherwise in any such action, any claim (i) that it is
not subject to the jurisdiction of the above-named courts, (ii) that the action
is brought in an inconvenient forum, (iii) that it is immune from any legal
process with respect to itself or its property, (iv) that the venue of the suit,
action or proceeding is improper or (v) that this Agreement or any Related
Agreement, or the subject matter hereof or thereof, may not be enforced in or by
such courts.
The prevailing party in any action or proceeding relating to this
Agreement or any Related Agreement shall be entitled to recover reasonable
attorneys' fees and other costs from the non-prevailing parties, in addition to
any other relief to which such prevailing party may be entitled.
10.7 Dispute Resolution.
(a) Arbitration. All disputes and controversies of every kind
and nature between the parties hereto arising out of or in connection with this
Agreement (including without limitation this Article 10) or the Related
Agreements as to the construction, validity, interpretation or meaning,
performance, non-performance, enforcement, operation, or breach, shall be
submitted to arbitration pursuant to the following procedures:
(i) After a dispute or controversy arises, either
party may, in a written notice delivered to the other party, demand such
arbitration. Such notice shall designate the name of the arbitrator (who shall
be an impartial person) appointed by such party demanding arbitration, together
with a statement of the matter in controversy.
(ii) Within 30 days after receipt of such demand, the
other party shall, in a written notice delivered to the other party, name such
party's arbitrator (who shall be an impartial person). If such party fails to
name an arbitrator, then the second arbitrator shall be named by the American
Arbitration Association (the "AAA"). The two arbitrators so selected shall name
a third arbitrator (who shall be an impartial person) within 30 days, or in lieu
of such agreement on a third arbitrator by the two arbitrators so appointed, the
third arbitrator shall be appointed by the AAA. If any arbitrator appointed
hereunder shall die, resign, refuse, or become unable to act before an
arbitration decision is rendered, then the vacancy shall be filled by the
methods set forth in this Section for the original appointment of such
arbitrator.
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<PAGE> 58
(iii) Each party shall bear its own arbitration costs
and expenses. The arbitration hearing shall be held in Tampa, Florida at a
location designated by a majority of the arbitrators. The Commercial Arbitration
Rules of the American Arbitration Association shall be incorporated by reference
at such hearing, the substantive laws of the State of Florida (excluding
conflict of laws provisions) shall apply.
(iv) The arbitration hearing shall be concluded
within ten days unless otherwise ordered by the arbitrators and the written
award thereon shall be made within 15 days after the close of submission of
evidence. An award rendered by a majority of the arbitrators appointed pursuant
hereto shall be final and binding on all parties to the proceeding, shall
resolve the question of costs of the arbitrators and all related matters, and
judgment on such award may be entered and enforced by either party in any court
of competent jurisdiction.
(v) Except as set forth in Section 10.7(b) (Emergency
Relief), the parties stipulate that the provisions of this Section shall be a
complete defense to any suit, action or proceeding instituted in any federal,
state or local court or before any administrative tribunal with respect to any
controversy or dispute arising out of this Agreement or any of the Related
Agreements. The arbitration provisions hereof shall, with respect to such
controversy or dispute, survive the termination or expiration of this Agreement
or the Related Agreements.
Neither any party hereto nor the arbitrators may disclose the existence
or results of any arbitration hereunder without the prior written consent of the
other party; nor will any party hereto disclose to any third party any
confidential information disclosed by any other party hereto in the course of an
arbitration hereunder without the prior written consent of such other party.
Notwithstanding the foregoing, the parties acknowledge that Buyer may disclose
the existence or results of an arbitration hereunder, as well as information
otherwise required to be disclosed by deposition, subpoena or other court or
governmental action in connection with Buyer's obligations under the Exchange
Act and the rules and regulations promulgated thereunder and in connection with
Buyer's registration of offerings of securities under the Securities Act and the
rules and regulations promulgated thereunder.
(b) Emergency Relief. Notwithstanding anything in Section 10.7
(Dispute Resolution) to the contrary and subject to the provisions of Section
10.6 (Governing Law; Attorneys' Fees), either party may seek from a court any
provisional remedy that may be necessary to protect any rights or property of
such party pending the establishment of the arbitral tribunal or its
determination of the merits of the controversy.
ARTICLE 11
Miscellaneous
11.1 Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the permitted assigns, successors, heirs,
executors and administrators of the parties hereto. This Agreement may not be
assigned without the written consent of all other parties and any attempted
assignment without such consent shall be null and void; provided, however, Buyer
and/or
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Merger Sub may assign all of its rights and obligations hereunder to one
of its affiliates; provided, further, that any assignment hereunder shall not
relieve any party of any obligations or liabilities hereunder.
11.2 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto), the other documents delivered pursuant hereto
and referenced herein constitute the full and entire understanding and agreement
between the parties and supersede any other agreement, written or oral, with
regard to the subject matter hereof. This Agreement supersedes that certain
Letter of Intent dated June 2, 1998 among certain of the parties hereto (the
"Letter of Intent"). Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated, except by
a written instrument signed by the parties hereto.
11.3 Press Release. Prior to the Closing, none of the parties hereto,
nor any of their Representatives shall, without the prior written consent of the
others, which shall not be unreasonably withheld, make any statement, public
announcement or release to the press, or any other third party with respect to
their discussions or this Agreement or permit any of its employees or agents to
make any such statement, announcement or release, until such time as either
party may be permitted, under this Section, or required by law, regulation or
order to make disclosure.
The parties hereto also agree to notify each other promptly of any
disclosure with respect to such discussions or this Agreement which is required
by law, regulation or otherwise and to coordinate the disclosure of any
information so required. If any party hereto becomes legally compelled by
deposition, subpoena, or other court or governmental action to disclose any of
the information described in this Section, then such party will give the other
parties prompt notice to that effect, and will cooperate with the other parties
if the other parties seek to obtain a protective order concerning the
information described in this Section. The legally compelled party will disclose
only such information as its counsel shall advise is legally required.
Notwithstanding the foregoing, the parties acknowledge that Buyer may
disclose these discussions and this Agreement in connection with Buyer's
obligations under the Exchange Act and the rules and regulations promulgated
thereunder, in connection with Buyer's registration of offerings of securities
under the Securities Act and the rules and regulations promulgated thereunder,
and in connection with any presentation or delivery of information to any rating
agency.
11.4 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by certified or
registered mail, postage prepaid with return receipt requested, telecopy (with
hard copy delivered by overnight courier service), or delivered by hand,
messenger or overnight courier service, and shall be deemed given when received
at the addresses of the parties set forth below, or at such other address
furnished in writing to the other parties hereto:
If to the Company: Mortgage Investors Corporation
6090 Central Avenue
St. Petersburg, Florida 33707
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with copies to: Holland & Knight LLP
400 North Ashley Drive
Suite 2300
Tampa, Florida 33602
Attn: Robert J. Grammig
(813) 229-0134 (fax)
Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
Barnett Tower
P.O. Box 2861
St. Petersburg, Florida 33731
Attn: Steven C. Dupre
(813) 882-3768 (fax)
If to the Stockholder: William Edwards
6090 Central Avenue
St. Petersburg, Florida 33707
with copies to: Holland & Knight LLP
400 North Ashley Drive
Suite 2300
Tampa, Florida 33602
Attn: Robert J. Grammig
(813) 229-0134 (fax)
Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
Barnett Tower
P.O. Box 2861
St. Petersburg, Florida 33731
Attn: Steven C. Dupre
(813) 882-3768 (fax)
If to Buyer or Merger Sub: AMRESCO
Suite 2400
700 North Pearl Street
Dallas, TX 75201
Attention: General Counsel
(214) 953-7757 (fax)
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with copies to: Haynes and Boone, LLP
Suite 3100
901 Main Street
Dallas, Texas 75202
Attention: Tom D. Harris
(214) 651-5940 (fax)
11.5 No Third Party Beneficiary, Etc. There shall be no third party
beneficiary hereof. Neither the availability of, nor any limit on, any remedy
hereunder limit the remedies of any party hereto against third parties.
11.6 Reformation; Severability. In case any provision hereof shall be
invalid, illegal or unenforceable, such provision shall be reformed to best
effectuate the intent of the parties and permit enforcement thereof, and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. If such provision is not capable of
reformation, it shall be severed from this agreement and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
11.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Any counterpart may be delivered
by facsimile; provided that attachment thereof shall constitute the
representation and warranty of the person delivering such signature that such
person has full power and authority to attach such signature and to deliver this
Agreement. Any facsimile signature shall be replaced with an original signature
as promptly as practicable.
11.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs hereof are for convenience of reference only and are not to be
considered in construing this Agreement. References to "Sections" herein are
references to sections of this Agreement. The words "herein," "hereof," "hereto"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
11.9 Confidentiality.
(a) As used herein, "Confidential Information" means
confidential business information regarding any party hereto or its affiliates,
including, without limitation, marketing lists used by the Company or any
information identifying the source of, and the process used by the Company to
obtain, such marketing lists; customer lists and files; prices and costs;
business and financial records; information relating to personnel contracts;
stock ownership; liabilities; litigation and the terms of this Agreement or any
Related Agreement and any written analysis or other document reflecting such
information that a party hereto (the "Obligated Party") prepared (an
"Analysis"). However, "Confidential Information" shall not include:
(i) any information properly obtained and already in
the possession of a party hereto prior to the execution of the Letter of Intent,
or information available to the Obligated Party from public records or from
other sources in accordance with law,
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(ii) any information that is in the public domain or
subsequently enters the public domain otherwise than through disclosure by the
Obligated Party or any of the Obligated Party's Representatives,
(iii) any information that is independently developed
by or on behalf of the Obligated Party without reference to the Confidential
Information,
(iv) any information that is acquired from a person
(other than the party disclosing Confidential Information (the "Disclosing
Party")) not known by the Obligated Party to be providing such information in
breach of a confidentiality obligation to the Disclosing Party, or
(v) information the release of which has been
approved in writing by the Disclosing Party.
(b) The Sellers on the one hand, and Buyer and Merger Sub
collectively on the other, will treat the Confidential Information disclosed by
the other as confidential, will use the Confidential Information only in
connection with their evaluation of the transactions hereunder, and will not
disclose it to others, except that each party shall have the right to
communicate the information to any of such party's Representatives, provided
that such Representative is informed that the Confidential Information is
confidential and such Representative agrees to be bound by the terms of this
Section. The Obligated Party shall be liable for any breach of this Section by
any of its Representatives.
The parties acknowledge that Buyer may disclose Confidential
Information in connection with Buyer's obligations under the Exchange Act and
the rules and regulations promulgated thereunder, and in connection with Buyer's
registration of offerings of securities under the Securities Act, and the rules
and regulations promulgated thereunder. Any such disclosures of Confidential
Information by Buyer shall not be a breach or violation of this Section.
If the Obligated Party becomes legally compelled by deposition,
subpoena or other court or governmental action to disclose any of the
Confidential Information, then the Obligated Party will give the Disclosing
Party prompt notice to that effect, and will cooperate with the Disclosing Party
if the Disclosing Party seeks to obtain a protective order concerning the
Confidential Information. The Obligated Party will disclose only such
Confidential Information as its counsel shall advise is legally required.
The parties acknowledge that remedies at law may be inadequate to
protect against breach of this Section, and the Obligated Party hereby in
advance agrees to the granting of injunctive relief in the Disclosing Party's
favor without proof of actual damages as a remedy for breach of this Section.
11.10 Expenses. Except as otherwise expressly provided herein, each
party hereto will bear its respective third-party expenses incurred in
connection with the preparation, execution and performance of this Agreement,
the Related Agreements and the transactions contemplated herein or therein,
including without limitation all fees and expenses of agents, representatives,
counsel and accountants. The Sellers shall not utilize assets of the Company to
pay such expenses.
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11.11 Responsibility for Merger Sub. Buyer shall be directly
responsible for assuring that Merger Sub performs all of its obligations
hereunder.
11.12 Knowledge. The term "Knowledge" shall mean the actual awareness
of a party. Knowledge of the Company shall be the Knowledge of the Stockholder
and any Other Stockholder (other than Edwin Hill).
11.13 Waivers. Any and all waivers shall only be effective if set forth
in writing and signed by the party waiving the rights in question.
11.14 Cooperation with the Stockholder's Accountants. Prior to the
Closing, Buyer shall use commercially reasonable efforts to cooperate with the
reasonable requests of the Stockholder's accountants with a view toward
permitting such accountants to render to the Stockholder an opinion regarding
the tax effect of the transactions contemplated herein.
* * * * *
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This Agreement has been executed and delivered as of the date first
written above.
The Company:
Mortgage Investors Corporation
By: /s/ William Edwards
----------------------------------------------
William Edwards
Chairman of the Board and
Chief Executive Officer
The Stockholders:
/s/ WILLIAM EDWARDS
--------------------------------------------------
WILLIAM EDWARDS
/s/ LYNN RUSHMORE
--------------------------------------------------
LYNN RUSHMORE
/s/ JEFFREY CRILLEY
--------------------------------------------------
JEFFREY CRILLEY
/s/ LARRY FISHER
--------------------------------------------------
LARRY FISHER
/s/ JIM MCMAHAN
--------------------------------------------------
JIM MCMAHAN
/s/ JIM SHATZ
--------------------------------------------------
JIM SHATZ
/s/ DEREK VAN HOOSE
--------------------------------------------------
DEREK VAN HOOSE
Buyer:
AMRESCO, INC.
By: /s/ SCOTT J. READING
-----------------------------------------------
Scott J. Reading
President - Residential Mortgage Banking
Merger Sub:
MIC Acquisition, Inc.
By: /s/ SCOTT J. READING
----------------------------------------------
Scott J. Reading, President
<PAGE> 1
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of August 11, 1998, by and between AMRESCO, INC., a Delaware corporation (the
"Company"), William Edwards (the "Principal Stockholder") and Lynn Rushmore,
Jeffrey Crilley, Larry Fisher, Jim McMahan, Jim Shatz and Derek Van Hoose and
Edwin Hill [ ](the "Other Stockholders"). The Principal Stockholder and
the Other Stockholders are referred to collectively herein as the
"Stockholders."
R E C I T A L S
A. This Agreement is entered into pursuant to the Agreement and Plan of
Merger dated as of July 14, 1998 (the "Merger Agreement"), by and among
the Company, MIC Acquisition, Inc., Mortgage Investors Corporation and
the Principal Stockholder.
B. The Merger Agreement provides for the issuance by the Company of an
aggregate of up to 1,804,442 shares of its common stock, par value
$0.05 per share (each share of such class being referred to herein as a
share of "Common Stock"), to the Stockholders on the date hereof (the
shares issued on such date being referred to herein as the "Original
Shares").
C. The Merger Agreement also provides for the issuance by the Company of
an as yet undetermined number of shares of Common Stock to the
Stockholders on or before each of April 30, 1999, April 30, 2000 and
April 30, 2001 (each such date being referred to herein as an "Earnout
Payment Date" and the shares of Common Stock (if any) being issued to
the Stockholders on any Earnout Payment Date being referred to herein
as "Earnout Shares").
D. The Company and the Stockholders wish to provide for the registration
of the Original Shares and the Earnout Shares on the terms and
conditions set forth herein.
A G R E E M E N T
Based on the recitals set forth above and the promises contained
herein, the parties agree as follows:
1. Definitions. Any capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Merger Agreement. As used
herein, the following terms shall have the following meanings:
"Agreement" has the meaning set forth in the preamble.
"Blocking Notice" has the meaning set forth in Section 12 (Blocking
Periods).
"Blocking Period" has the meaning set forth in Section 12 (Blocking
Periods).
<PAGE> 2
"Blocking Termination Notice" has the meaning set forth in Section 12
(Blocking Periods).
"Closing Date" means the date hereof.
"Company" has the meaning set forth in the preamble.
"Common Stock" has the meaning set forth in the Recitals.
"Demand Notice" has the meaning set forth in Section 3 (Demand
Registration).
"Demand Penalty Payment" has the meaning set forth in Section 3 (Demand
Registration).
"Demand Registration" means a registration pursuant to Section 3
(Demand Registration).
"Earnout Payment Date" has the meaning set forth in the Recitals.
"Earnout Shares" has the meaning set forth in the preamble.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Information" has the meaning set forth in Section 5 (Stockholder
Information).
"Merger Agreement" has the meaning set forth in the Recitals.
"Original Shares" has the meaning set forth in the Recitals.
"Prospectus" has the meaning set forth in Section 9(b) (Amendments and
Supplements).
"Penalty Payment" has the meaning set forth in Section 2 (Registration
of Original Shares).
"Registration Expenses" means all costs and expenses of each
Registration Statement, including without limitation printing, legal and
accounting expenses, SEC filing fees and "Blue Sky" fees and expenses relating
to the registration of Shares; provided, however, that "Registration Expenses"
also shall mean the reasonable fees and disbursements of a single special
counsel for the Stockholders (selected by the Principal Stockholder) in
connection with (a) a Registration Statement in which the Company has required
that the Stockholders utilize an underwriter or (b) any sale of Shares pursuant
to Rule 144 in connection with which a Stockholder is required to furnish an
opinion of counsel to the effect that the legend on such Shares may be removed.
"Registration Notice" has the meaning set forth in Section 4(b)
(Registration Notice).
"Registration Statement" means any registration statement under the
Securities Act that is filed by the Company to register sales of Shares by the
Stockholder (whether or not such registration statement also registers the
issuance or sale of other securities).
2
<PAGE> 3
"Rule 144" means Rule 144 (as currently in effect or as amended or any
successor or similar provision) promulgated by the SEC under the Securities Act.
"Rule 415" means Rule 415 (as currently in effect or as amended or any
successor or similar provision) promulgated by the SEC under the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Selling Expenses" means all underwriters' commissions or discounts,
brokers' fees or commissions, transfer or other taxes attributable to Shares
being offered and sold by the Stockholders, all fees and expenses of counsel
incurred by the Stockholders, other than such fees and expenses as are defined
as "Registration Expenses" above, and all fees and expenses of the Stockholders'
accountants.
"Shares" means (a) the Original Shares and the Earnout Shares and (b)
any securities issued or issuable in respect of the Original Shares or the
Earnout Shares by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, reclassification, merger, consolidation
or similar event, and any other securities issued pursuant to any other pro rata
distribution with respect to such shares of Common Stock. For purposes hereof, a
share of Common Stock ceases to be an Original Share, an Earnout Share or a
Share (each as defined herein) when (i) it has been effectively registered under
the Securities Act and sold or distributed pursuant to an effective Registration
Statement covering it or (ii) all of the Shares owned by the Stockholders have
become eligible, in the opinion of counsel to the Company, to be sold or
distributed immediately pursuant to Rule 144 (within the then-applicable volume
limitation pursuant to Rule 144(e)) or Rule 144(k).
"Stockholder" has the meaning set forth in the preamble.
"Violations" has the meaning set forth in Section 13(a)
(Indemnification by Company).
2. Registration of Original Shares. The Company has filed with the
SEC a Registration Statement on Form S-3 to register the sale by the
Stockholders (in accordance with the intended methods of disposition thereof) of
the Original Shares. The Company shall use commercially reasonable efforts to
cause the Registration Statement to be declared effective under the Securities
Act not later than the 120th day after the Closing Date or as promptly as
practicable thereafter; provided, however, that if such Registration Statement
is not declared effective under the Securities Act on or before the 120th day
after the Closing Date, then the Company shall pay a penalty consisting of a
one-time issuance of shares of Common Stock in an aggregate amount equal to 15%
of the number of shares that constitute the Original Shares, to each Stockholder
pro rata in accordance with his percentage ownership of the Original Shares, on
or before the 125th day after the Closing Date (a "Penalty Payment").
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<PAGE> 4
3. Demand Registration. At any time after the issuance of any
Earnout Shares, the Stockholder may require by a written notice signed by the
Principal Stockholder and delivered to the Company (a "Demand Notice") that the
Company prepare and file as soon as practicable (but in any event within 60 days
of receipt of the Demand Notice) a Registration Statement for the sale by the
Stockholders of Shares. The Company then shall use commercially reasonable
efforts to prepare and file a Registration Statement on a form for which the
Company then qualifies and which shall be available for the sale by the
Stockholders (in accordance with the intended methods of disposition thereof) of
any of the Shares, the registration of which is requested in the Demand Notice.
The Company shall use commercially reasonable efforts to cause such Registration
Statement to be declared effective under the Securities Act not later than the
120th day after the date on which the Company receives the Demand Notice or as
promptly as practicable thereafter; provided, however, that if such Registration
Statement is not declared effective under the Securities Act on or before the
120th day after the date on which the Company receives the Demand Notice, then
the Company shall pay a penalty consisting of a one-time issuance of shares of
Common Stock in an aggregate amount equal to 15% of the number of Earnout Shares
included in the Registration Statement, to each Stockholder pro rata in
accordance with his percentage ownership of the Original Shares on or before the
120th day after the date on which the Company receives the Demand Notice (a
"Demand Penalty Payment"). The Stockholders shall be entitled to one Demand
Registration (requested by the Principal Stockholder) during each twelve-month
period after each Earnout Payment Date on which Shares are issued. On each
Earnout Payment Date on which Shares are issued, any unexercised right to a
Demand Registration during the preceding twelve months shall expire. A Demand
Registration may include any Shares held by the Stockholders on the date the
Demand Notice is delivered.
4. Restrictions on Demand Registration.
(a) Minimum Number of Shares. Notwithstanding anything in
Section 3 (Demand Registration) hereof to the contrary, the Company shall not be
required to effectuate a Demand Registration of fewer than 100,000 Shares.
(b) Registration Notice. Notwithstanding anything in Section 3
(Demand Registration) to the contrary, the Company shall have no obligation
under Section 3 (Demand Registration) with respect to any Demand Registration
if, within 15 days after the date of the Company's receipt of the Demand Notice,
the Company notifies the Principal Stockholder in writing (a "Registration
Notice") that the Company proposes to file, within 30 days after the date of the
Registration Notice, a registration statement on any form for the general
registration of securities for cash under the Securities Act for the account of
the Company (other than in connection with an offering solely to the Company's
employees pursuant to a registration statement on Form S-8 under the Securities
Act or an offering pursuant to a registration statement on Form S-4 under the
Securities Act, or any successor forms thereto), in which event such Demand
Registration shall be postponed until the conclusion or termination of the
transaction described by the Company in the Registration Notice.
(c) Pending Company Registration. Notwithstanding anything in
Section 3 (Demand Registration) to the contrary, the Company shall have no
obligation under Section 3
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(Demand Registration) with respect to any Demand Registration during the period
commencing 15 days prior to the filing of, and ending 180 days following the
effectiveness (or upon the withdrawal) of, any registration statement (other
than in connection with an offering solely to the Company's employees pursuant
to a registration statement on Form S-8 under the Securities Act or an offering
pursuant to a registration statement on Form S-4 under the Securities Act, or
any successor forms thereto) filed by the Company with the SEC with respect to
shares of Common Stock or securities convertible into shares of Common Stock.
(d) Rule 144. Notwithstanding anything in Section 3 (Demand
Registration) to the contrary, the Company shall have no obligation to file or
have declared effective a Registration Statement for any shares of Common Stock
that have ceased to be Shares because they are eligible to be sold immediately
by the Stockholder pursuant to Rule 144 (within the then-applicable volume
limitation pursuant to Rule 144(e)) or Rule 144(k).
5. Stockholder Information. Each Stockholder shall, not later than
the tenth day after the Closing Date or the tenth day after the date on which a
Demand Notice is delivered to the Company (as applicable), furnish the Company
with such information (the "Information") regarding such Stockholder, the Shares
held by such Stockholder, such Stockholder's intended method of distribution of
the Shares and such other information as may be required under the Securities
Act for preparation of the Registration Statement. Such Stockholder thereafter
promptly shall furnish to the Company all Information as may be requested in
writing by the Company from time to time to maintain the effectiveness of any
Registration Statement.
If, within ten business days, such Stockholder has not complied with a
written request from the Company for Information, then the Company's obligation
to register Shares on behalf of the Stockholders shall be suspended until such
Stockholder has complied with such request.
6. Other Securities. The Company may, in its sole discretion,
include in any Registration Statement the issuance of securities by the Company
and the sale or distribution of securities previously issued to, or securities
issuable upon exercise of options or warrants previously issued to, other
persons; provided, however, that if a Demand Registration Statement involves an
underwritten distribution, the Company may not include any other securities
other than the Shares in such Demand Registration Statement if, in the
reasonable opinion of the managing underwriter of such offering, the
distribution of all or a portion of such other securities would materially
interfere with the registration and sale of the Shares.
7. Means of Distribution. If any proposed distribution of Shares by
the Stockholders pursuant to a Registration Statement is proposed to include in
the aggregate 750,000 or more Shares, then the Company may require in the
Company's sole discretion that such Shares to be distributed by the Stockholders
through one or more underwriters selected by the Company with the identity of
such underwriter being subject to the Principal Stockholder's prior written
consent (which shall not be unreasonably withheld). In any proposed distribution
of Shares by a Stockholder pursuant to a Registration Statement, the Company may
require in the Company's sole discretion that such Shares to be distributed by
such Stockholder through (a) routine brokerage transactions or (b)
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<PAGE> 6
directly-negotiated transactions (to one or more purchasers identified by the
Company who will agree to purchase the applicable Shares at a price not less
than the net price such Stockholder would have received if the applicable Shares
were sold on a firm underwriting basis in a public distribution).
8. Underwritten Distributions. In any underwritten distribution of
Shares, the Stockholders shall, if requested by the Company or the underwriter
or underwriters in connection with such distribution, (a) agree to sell all or
the applicable portion of the Stockholders' Shares on the basis provided in any
underwriting arrangements entered into in connection therewith and (b) complete
and execute all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents that are required under the terms of such
underwriting arrangements. The underwriters' commissions or discounts for an
underwritten distribution of Shares shall not exceed 5%. Notwithstanding the
provisions of Section 13 (Indemnification; Contribution) below, no Stockholder
shall have any obligation to indemnify or hold harmless any underwriter, the
Company, the Company's directors or officers or any person who controls (within
the meaning of the Securities Act) the Company (i) unless such indemnification
is based on the reliance upon written information furnished expressly for use in
connection with the applicable Registration Statement and (ii) in an amount
exceeding the proceeds actually received by such Stockholder from his sale of
Shares in connection with such Registration Statement.
9. Registration Procedures. In connection with the registration of
Shares pursuant hereto.
(a) Registration Statement Content. Subject to compliance with
applicable laws and regulations, the Company shall have the sole right to
determine the content of any Registration Statement, Prospectus, supplement
thereto or amendment thereof.
(b) Amendments and Supplements. The Company shall use
commercially reasonable efforts to prepare and file with the SEC such amendments
and supplements to any Registration Statement and the final prospectus (a
"Prospectus") used in connection therewith, as the Company deems necessary to
keep the Registration Statement or Prospectus in effect for a period of one year
from the effective date of such Registration Statement and comply with the
provisions of the Securities Act with respect to the disposition of all Shares
covered by the Registration Statement until the earlier of such time (i) as all
of such Shares have been disposed of in accordance with the intended methods of
disposition by the Stockholders as set forth in the Registration Statement, (ii)
the expiration of such one year period or (iii) the deregistration of unsold
Shares remaining under the Registration Statement, pursuant to a written
agreement among the Company and the Principal Stockholder.
(c) Exchange Listing. The Company shall cause the Shares to be
listed on the Nasdaq National Market or such other securities exchange or
national market system on which shares of the Common Stock are principally
traded at the time of such listing, in accordance with the rules and practices
of the Nasdaq National Market, such other securities exchange or national market
system and the SEC.
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(d) Blue Sky Laws. The Company shall use commercially
reasonable efforts to register or qualify (to the extent required by law) the
Shares covered by any Registration Statement under the applicable securities or
"Blue Sky" laws of such jurisdictions as the Principal Stockholder reasonably
requests; provided, however, that the Company shall not be obligated so to
register or qualify any the Shares in any jurisdiction (i) if the Company would
be required to qualify to do business in any jurisdiction where it is not now so
qualified, (ii) if the Company would be required to take any action which would
subject it to the service of process in suits other than those arising out of
the offer or sale of the securities covered by the Registration Statement or
subject it to taxation in any jurisdiction where it is not now so subject or
(iii) if the Company would be required to conform its capitalization or the
composition of its assets at the time to the securities or "Blue Sky" laws of
such jurisdiction.
(e) Removal of Legend. When any Shares become eligible under
Rule 144(k) (as currently in effect or as amended or any successor or similar
provision) under the Securities Act to be sold by a Stockholder without
restriction, upon the written request either of the Company or such Stockholder,
such Shares will be returned to the Company's transfer agent in exchange for
appropriate new share certificates reflecting the removal of the private
placement legend, unless otherwise required by the Securities Act.
10. Stockholder Undertakings. Each Stockholder covenants with the
Company as follows:
(a) No Stabilization. The Stockholder shall not effect any
stabilization transactions or engage in any stabilization activity proscribed by
Regulation M under the Exchange Act in connection with any securities of the
Company during the period of any distribution of the Shares by the Stockholder
pursuant to any Registration Statement.
(b) Brokers. The Stockholder (i) shall furnish each broker
through whom the Stockholder offers the Shares such number of copies of any
Prospectus and any supplements thereto or amendments thereof which such broker
may require (provided that the Company has provided the Stockholder with such
Prospectus, supplements and amendments), (ii) shall inform such broker as to the
number of Shares offered through such broker, that such Shares are part of a
distribution and that such broker is subject to the provisions of Regulation M
under the Exchange Act until such time as such broker has completed the sale of
all such Shares, and (iii) shall notify such broker when distribution of the
Shares by the Stockholder pursuant to any Registration Statement has been
completed or any Registration Statement is no longer effective or is withdrawn.
(c) Amendments and Supplements. The Stockholder shall promptly
furnish to each person (including each broker) to whom the Stockholder has
delivered copies of the Prospectus an equivalent number of copies of any
amendment thereof or supplement thereto (provided that the Company has provided
the Stockholder with such amendment or supplement).
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<PAGE> 8
(d) Transaction Information. The Stockholder shall report
promptly to the Company upon any disposition of Shares by the Stockholder and
upon completion of the distribution of the Stockholder's Shares pursuant to any
Registration Statement.
(e) Exchange Act Compliance. The Stockholder shall, at any
time such Stockholder is engaged in a distribution of the Shares under any
Registration Statement, comply to the extent required with Rules 10b-5 and
Regulation M (as currently in effect or as amended or any successor or similar
provisions) promulgated under the Exchange Act and shall distribute the Shares
solely in the manner described in any Registration Statement, and shall not do
any of the following during the period from the effective date of any
Registration Statement until the completion of any offering of the Shares by the
Stockholder pursuant to such Registration Statement:
(i) Bid for or purchase, for any account in which the
Stockholder or any affiliate of the Stockholder has a beneficial interest, any
securities of the Company other than in transactions permitted by Regulation M
under the Exchange Act;
(ii) Attempt to induce any person to purchase any
securities of the Company other than in transactions permitted by Regulation M
under the Exchange Act; and
(iii) Pay or offer or agree to pay to anyone, directly or
indirectly, any compensation for soliciting another to purchase any securities
of the Company on a national securities exchange or pay or offer or agree to pay
to anyone any compensation for purchasing securities of the Company on a
national securities exchange other than those securities offered by the
Stockholder.
(f) Publicity; Selling Efforts. The Stockholder shall not,
during the period of any offering by the Stockholder of any Shares under any
Registration Statement, use or disseminate any information concerning the
Company other than the Prospectus (or any amendment thereof or supplement
thereto furnished by the Company) and may not undertake any form of publicity
with respect to the Company or engage in any similar activities that may be
deemed to be an unlawful selling effort within the meaning of Section 10 of the
Exchange Act.
(g) Material Nonpublic Information. The Stockholder shall not
offer to sell, sell or otherwise enter into any transaction in connection with
any Shares if the Stockholder is aware of material nonpublic information
regarding the Company or its subsidiaries.
(h) Brokerage Commissions. Except as disclosed in the
Prospectus, the Stockholder will not pay unusual or special brokerage
commissions (other than ordinary brokerage arrangements) on any sales effected
through a broker, and no selling arrangement will have been entered into between
the Stockholder and any securities dealer or broker.
(i) Method of Disposition. In any distribution of Shares
pursuant to Rule 415, at least five business days prior to any disposition of
the Shares, the Stockholder shall advise the Company of the dates on which such
disposition is expected to commence and terminate, the number of the
Stockholder's Shares expected to be sold, the method of disposition and such
other information
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<PAGE> 9
as the Company may reasonably request in order to supplement the Prospectus in
accordance with the rules and regulations of the SEC.
11. Company Undertakings. The Company covenants with the
Stockholders as follows:
(a) Furnish Information. Before filing a Registration
Statement, a preliminary prospectus or a Prospectus, the Company will furnish
the Principal Stockholder copies of such documents. The Company also will
furnish to the Principal Stockholder such copies of each preliminary prospectus
and Prospectus as the Principal Stockholder may reasonably request. The Company
will furnish to the Principal Stockholder a copy of all documents filed with and
all correspondence from or to the SEC in connection with the offering covered by
any Registration Statement. Notwithstanding any of the obligations of the
Company set forth herein, the Company shall only be required to furnish such
audited annual or unaudited quarterly or monthly financial statements required
to keep the Registration Statement effective under the Securities Act.
(b) Material Developments. The Company will notify the
Stockholders of the happening of any event as a result of which a Prospectus
being used by the Stockholders to sell Shares pursuant to a Registration
Statement contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Following such notice and upon the Company's written request, the
Stockholders shall deliver to the Company all copies (other than permanent file
copies then in the Stockholder's possession) of the Prospectus that was in
effect prior to such written notice. Subject to Section 12 (Blocking Periods),
the Company thereafter will use commercially reasonable efforts to prepare
promptly a supplement or amendment of such Prospectus so that, as thereafter
delivered to the purchaser of the Shares, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(c) Underwriting Agreements. In any underwritten distribution
of Shares, the Company shall, to the extent required by the managing underwriter
of such distribution (i) enter into and perform the Company's obligations under
the applicable underwriting agreement, (ii) furnish to the managing underwriter
an opinion of counsel to the Company (which may be the Company's in-house
counsel) addressing customary legal issues reasonably requested by the managing
underwriter and (iii) furnish to the managing underwriter a customary "comfort
letter" addressed to the managing underwriter from the Company's independent
certified public accountants.
12. Blocking Periods. The Stockholders shall cease any distribution
of the Shares under any Registration Statement upon receipt of a Blocking Notice
(defined below) from the Company. The period of time during which the
Stockholders shall cease distribution of the Shares (the "Blocking Period")
shall be the earlier of 60 days from the receipt of such Blocking Notice by the
Stockholders or the date upon which such transaction, proposed transaction or
negotiations have been publicly disclosed or terminated. The Company promptly
shall send the Principal Stockholder written notice (the "Blocking Termination
Notice") at the earliest of such times as (a) such
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<PAGE> 10
transaction, proposed transaction or negotiations have been publicly disclosed
or terminated, (b) such non-public information has been publicly disclosed, or
(c) counsel to the Company has determined that such disclosure is not required
due to subsequent events. If any Blocking Period occurs after the effective date
of a Registration Statement, then the period during which the Company is
obligated to use commercially reasonable efforts to keep such Registration
Statement effective and from time to time to amend such Registration Statement
shall be extended by a number of days equal to the length in days of the
Blocking Period.
Any sale, offer to sell or other transaction involving Shares by a
Stockholder during a Blocking Period shall constitute a material breach by such
Stockholder of his obligations hereunder. Blocking Notices for the reasons and
for the periods of time set forth in this Section shall not constitute a breach
hereof by the Company.
The Company also may delay the filing of any Registration Statement,
Prospectus, amendment or supplement, or the effectiveness of any Registration
Statement, Prospectus, amendment or supplement, filed pursuant hereto upon
delivery of a Blocking Notice to the Principal Stockholder. The Company's delay
in filing or pursuing the effectiveness of a Registration Statement, Prospectus,
amendment or supplement during a Blocking Period shall not constitute a breach
hereof. At the conclusion of the Blocking Period, the Company shall resume its
efforts in connection with any such Registration Statement, Prospectus,
amendment or supplement and shall send a Blocking Termination Notice to
Stockholders.
"Blocking Notice" shall mean a written notice to the effect that (i) a
distribution of Shares or the filing or effectiveness of a Registration
Statement, Prospectus, amendment or supplement, at such time would require the
public disclosure of material nonpublic information concerning a transaction,
proposed transaction or negotiations involving the Company or any of its
affiliates that, in the Company's reasonable judgment, could interfere with such
transaction, proposed transaction or negotiations or (ii) such distribution of
Shares or the filing or effectiveness of a Registration Statement, Prospectus,
amendment or supplement at such time otherwise would require premature
disclosure of nonpublic information that, in the Company's reasonable judgment,
could adversely affect or otherwise be detrimental to the Company.
13. Indemnification; Contribution.
(a) Indemnification by Company. The Company shall indemnify
and hold harmless, to the extent permitted by law, each Stockholder against all
losses, claims, damages, liabilities and expenses (including without limitation
reasonable attorneys' fees) insofar as such losses, claims, damages, liabilities
and expenses arise out of or are based on (i) any untrue or alleged untrue
statement of a material fact contained in any Registration Statement under which
Shares owned by such Stockholder were registered under the Securities Act, any
Prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any documents filed under state securities or "Blue Sky" laws in
connection therewith, (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a Prospectus, in the light of the circumstances under
which they were made) not misleading or (iii)
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<PAGE> 11
any violations or alleged violation of the Securities Act, the Exchange Act, any
applicable state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any applicable state securities law in
connection with the offering covered by such Registration Statement (items (I),
(ii) and (iii) are collectively referred to herein as "Violations"); and the
Company shall reimburse each Stockholder for reasonable legal or other expenses
reasonably incurred by him in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 13(a) (Indemnification by Company)
shall not apply to amounts paid in settlement of any such loss, claim, 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 for any loss, claim, damage, liability or action to
the extent that it arises out of or is based on a Violation that occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Stockholder. In connection with
an underwritten offering, the Company also will indemnify the underwriter(s)
thereof, their officers and directors and each person who controls (within the
meaning of the Securities Act) such underwriter(s) to the same extent as
provided above with respect to the indemnification of each Stockholder.
(b) Indemnification by Stockholders. In connection with any
Registration Statement in which a Stockholder is participating, such Stockholder
shall, severally and not jointly, indemnify and hold harmless, to the extent
permitted by law, the Company, the Company's directors and officers and each
person, if any, who controls (within the meaning of the Securities Act) the
Company against any losses, claims, damages, liabilities and expenses (including
without limitation reasonable attorneys' fees) insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based on a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Stockholder; and
such Stockholder shall reimburse the Company, its officers and directors and
each person, if any, who controls the Company for reasonable legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action. Notwithstanding the
foregoing, no Stockholder shall have any obligation to indemnify or hold
harmless the Company, the Company's directors or officers or any person who
controls (within the meaning of the Securities Act) the Company in an amount
exceeding the proceeds actually received by such Stockholder from his sale of
Shares in connection with such Registration Statement.
(c) Indemnification Procedures. Any person entitled to
indemnification hereunder shall give prompt written notice to the indemnifying
party after the receipt by such person of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which such person will claim indemnification or contribution
pursuant hereto and permit the indemnifying party to participate therein and, to
the extent that it desires, jointly with any other indemnifying party similarly
situated, to assume the defense of such claim with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of a claim, it shall not be liable to such indemnified party
for legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and except
as otherwise provided below; provided, however, that such indemnified party
shall, at all times, cooperate in the defense of the indemnified party. The
indemnifying party
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<PAGE> 12
shall be liable to the indemnified party for legal or other expenses incurred by
the indemnified party even if the indemnifying party has offered to assume the
defense thereof if (i) the employment of counsel by the indemnified party has
been authorized in writing by the indemnifying party, (ii) the indemnified party
shall have reasonably concluded that there may be a conflict of interest between
the indemnified party and the indemnifying party in conduct of the defense of
such action or (iii) the indemnifying party shall not in fact have employed
counsel to assume the defense of such action. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim, then it will not
be obligated to pay the fees and expenses of more than one counsel with respect
to such claim. The indemnifying party will not be subject to any liability for
any settlement made without its consent. If the failure of any person to give
prompt notice to the indemnifying party of any claim with respect to which it
seeks indemnification prejudices such indemnifying party, such indemnifying
party shall be relieved of its obligation to indemnify such person to the extent
that such indemnifying party has been prejudiced; provided, however, that the
indemnifying party shall not be so relieved if the failure to give prompt notice
to the indemnifying party was beyond the control of the indemnified party. No
indemnifying party will consent to entry of any judgment or enter into any
settlement agreement which does not include as an unconditional term thereof the
giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
(including without limitation reasonable attorneys' fees) referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (including
without limitation reasonable attorneys' fees) in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statements of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses (including without limitation
reasonable attorneys' fees) referred to above shall be deemed to include,
subject to the limitations set forth in Section 13(c) (Indemnification
Procedures), any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
The parties hereto acknowledge that it would not be just and
equitable if contribution pursuant to this Section 13(d) (Contribution) were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to in the
immediately-preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
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14. Expenses. The Company shall bear all Registration Expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
bear the Selling Expenses of a Stockholder.
15. Termination. This Agreement and the obligations of the Company
hereunder shall terminate on the earliest of (a) the first date on which no
shares of Common Stock held by the Stockholders constitute Shares hereunder, (b)
the date on which each party hereto agrees in writing to such termination and
(c) the fourth anniversary of the Closing Date; provided, however, that if this
Agreement terminates pursuant to item (a) of this Section at a time when shares
formerly constituting Shares and held by any Stockholder are eligible for sale
pursuant to Rule 144 but are not eligible to be sold pursuant to Rule 144(k),
then the Company's obligations pursuant to Section 16 (Rule 144 Reporting)
hereof shall remain in effect until all such shares are sold pursuant to Rule
144 or otherwise become eligible to be sold pursuant to Rule 144(k); provided
further, that
solely with respect to item (c) of this Section, such termination date shall be
extended in the event any Demand Registration is postponed pursuant to the
provisions of Section 4 (Restrictions on Demand Registration) for a time period
equal to the period of such delay or postponement.
16. Rule 144 Reporting. With a view to making available to the
Stockholder the benefits of certain rules and regulations of the SEC that may
permit the sale of the Shares to the public without registration, the Company
agrees to use commercially reasonable efforts during the term hereof to (a) make
and keep public information available, as those terms are understood and defined
in Rule 144, (b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act and (c) so long as any
Stockholder owns any Shares, furnish to the Stockholder upon written request a
written statement by the Company as to the Company's compliance with the
reporting requirements of Rule 144, a copy of the most recent annual or
quarterly report of the Company and such other reports, documents and
information as a Stockholder may reasonably request in availing himself of any
rule or regulation of the SEC allowing it to sell any such securities without
registration.
17. Miscellaneous.
(a) Successors and Assigns. The registration rights provided
hereunder are not transferable and shall not inure to the benefit of any persons
other than the Stockholder. Any transfer or assignment in contravention of this
Section shall be null and void.
(b) Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto and referenced herein constitute the full
and entire understanding and agreement between the parties and supersede any
other agreement, written or oral, with regard to the subject matter hereof.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written instrument
signed by the parties hereto.
(c) Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
certified or registered mail, postage prepaid with return receipt requested,
telecopy (with hardcopy delivered by overnight courier service), or delivered
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by hand, messenger or overnight courier service, and shall be deemed given when
received at the addresses of the parties set forth below, or at such other
address furnished in writing to the other parties hereto.
If to the Company: AMRESCO, INC.
Suite 2400
700 North Pearl Street
Dallas, TX 75201
Attention: General Counsel
(214) 953-7757 (fax)
with a copy to: Haynes and Boone, LLP
Suite 3100
901 Main Street
Dallas, Texas 75202
Attention: Tom D. Harris
(214) 651-5940 (fax)
If to the Stockholders: c/o William Edwards
6090 Central Avenue
St. Petersburg, Florida 33707
with copies to: Holland & Knight LLP
400 North Ashley Drive
Suite 2300
Tampa, Florida 33602
Attn: Robert J. Grammig
(813) 229-0134 (fax)
Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
Barnett Tower
P.O. Box 2861
St. Petersburg, Florida 33731
Attn: Steven C. Dupre
(813) 882-3768 (fax)
(d) No Third Party Beneficiary, Etc. There shall be no third
party beneficiary hereof. Neither the availability of, nor any limit on, any
remedy hereunder shall limit the remedies of any party hereto against third
parties.
(e) Reformation; Severability. In case any provision hereof
shall be invalid, illegal or unenforceable, such provision shall be reformed to
best effectuate the intent of the parties and permit enforcement thereof, and
the validity, legality and enforceability of the remaining provisions
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<PAGE> 15
shall not in any way be affected or impaired thereby. If such provision is not
capable of reformation, it shall be severed from this agreement and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby
(f) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Any counterpart may be delivered
by facsimile; provided, however, that attachment thereof shall constitute the
representation and warranty of the person delivering such signature that such
person has full power and authority to attach such signature and to deliver this
Agreement. Any facsimile signature shall be replaced with an original signature
as promptly as practicable.
(g) Titles and Subtitles. The titles of the paragraphs and
subparagraphs hereof are for convenience of reference only and are not to be
considered in construing this Agreement. References to "Sections" herein are
references to sections of this Agreement. The words "herein," "hereof," "hereto"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
(h) Governing Law; Attorneys' Fees. This Agreement shall be
governed by, construed, interpreted and applied in accordance with the laws of
the State of Florida, without giving effect to any conflict of laws rules that
would refer the matter to the laws of another jurisdiction.
Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Middle District of
Florida and, if such court does not have jurisdiction, of the courts of the
State of Florida in Pinellas County, for the purposes of any action arising out
of this Agreement, or the subject matter hereof, brought by any other party.
To the extent permitted by applicable law, the Stockholder
hereby waives and agrees not to assert, by way of motion, as a defense or
otherwise in any such action, any claim (i) that it is not subject to the
jurisdiction of the above-named courts, (ii) that the action is brought in an
inconvenient forum, (iii) that it is immune from any legal process with respect
to itself or its property, (iv) that the venue of the suit, action or proceeding
is improper or (v) that this Agreement, or the subject matter hereof, may not be
enforced in or by such courts.
The prevailing party in any action or proceeding relating hereto shall
be entitled to recover reasonable attorneys' fees and other costs from the
non-prevailing parties, in addition to any other relief to which such prevailing
party may be entitled.
* * * * *
15
<PAGE> 16
This Agreement has been executed and delivered as of the date first
written above.
The Company:
AMRESCO, INC.
By: /s/ L. KEITH BLACKWELL
------------------------------------
Printed Name: L. Keith Blackwell
Title: Senior Vice President
The Principal Stockholder:
/s/ WILLIAM EDWARDS
---------------------------------------
William Edwards
The Other Stockholders:
/s/ LYNN RUSHMORE
---------------------------------------
Lynn Rushmore
/s/ JEFFREY CRILLEY
---------------------------------------
Jeffrey Crilley
/s/ LARRY FISHER
---------------------------------------
Larry Fisher
/s/ JIM MCMAHAN
---------------------------------------
Jim McMahan
/s/ JIM SHATZ
---------------------------------------
Jim Shatz
/s/ DEREK VAN HOOSE
---------------------------------------
Derek Van Hoose
/s/ EDWIN HILL
---------------------------------------
Edwin Hill
<PAGE> 1
EXHIBIT 5.1
August 24, 1998
AMRESCO, INC.
700 North Pearl Street
Suite 2400, LB 342
Dallas, Texas 75201-7424
Re: Registration Statement on Form S-3 of AMRESCO, INC.
Gentlemen:
I have acted as counsel for AMRESCO, INC., a Delaware corporation (the
"Company"), in connection with the above referenced Registration Statement on
Form S-3 (the "Registration Statement") being filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended, and covering 1,804,441 shares of common stock, par value
$0.05 per share (the "Common Stock"), to be sold by the Selling Stockholders
described in the Prospectus constituting a part of the Registration Statement on
Form S-3 to which this Opinion Letter is an exhibit (the "Selling
Stockholders"). This Opinion Letter is rendered pursuant to Item 16 of Form S-3
and Item 601(b)(5) of Regulation S-K.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications and exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith.
Subject to the foregoing, I am of the opinion that the 1,804,441 shares
of Common Stock issued to the Selling Stockholders are duly authorized, legally
and validly issued, fully paid and nonassessable.
The opinion expressed herein is limited to the laws of the State of
Delaware as codified in the General Corporation Law of the State of Delaware.
This Opinion Letter is provided to you for your benefit and for the benefit of
the Commission, in each case, solely with regard to the Registration Statement,
may be relied upon by you and the Commission only in connection with the
Registration Statement, and may not be relied upon by any other person or for
any other purpose without the prior written consent of the undersigned.
I hereby consent to the filing of this Opinion Letter as an exhibit to
the Registration Statement and the use of my name wherever appearing in the
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.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
August 24, 1998
