<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) AUGUST 6, 1996
--------------------------------
SEARCH CAPITAL GROUP, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 0-9539 41-1356819
- ---------------------------- ------------------- ----------------------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
700 N. PEARL STREET
SUITE 400, L.B. 401
DALLAS, TEXAS 75201-7490
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 965-6000
------------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 6, 1996, the Company completed its acquisition of
substantially all of the assets of Dealers Alliance Credit Corp. ("DACC").
DACC's assets consisted primarily of used motor vehicle retail installment
sales contracts, repossessed motor vehicles, cash, and certain furniture and
equipment. As of June 30, 1996, DACC had contracts with total unpaid future
installments of approximately $35 million and net finance receivables of
approximately $14.3 million after reduction for unearned finance charges of
approximately $8.1 million and after an allowance for credit losses of
approximately $12.5 million.
The Company assumed all balance sheet liabilities of DACC, other than
approximately $4.1 million of subordinated debt and warrants and certain other
claims. These liabilities consisted primarily of indebtedness owing to senior
lenders, accounts payable, accrued expenses, an office lease expiring 2002,
service and equipment maintenance agreements and an employment agreement for a
DACC employee. As of June 30, 1996, DACC owed approximately $18 million to its
senior lenders and had accounts payable and accrued expenses of approximately
$0.7 million. The assumed senior debt bears interest at the prime rate plus 1%,
matures on August 2, 1997 and is secured by the contracts purchased from DACC.
The Company must make monthly prepayments of the debt in amounts equal to any
excess of (i) the monthly collections on the purchased contracts over (ii) up to
$475,000 of permitted monthly operating expenses. In addition to assuming the
foregoing liabilities, the Company issued to DACC (i) 766,218 shares of a new
series of preferred stock designated "Series B 9%/7% Convertible Preferred
Stock" (the "Series B Preferred Stock"), (ii) 1,277,030 shares of Common Stock,
and (iii) five-year warrants to purchase 1,277,030 shares of Common Stock at
$2.00 per share (increasing by $0.25 each year). One-half of the securities
issued to DACC were escrowed until May 2, 1997, and the remaining securities
were escrowed until August 3, 1997, to secure certain indemnification
obligations of DACC in favor of the Company under the purchase agreement.
The Company also purchased the subordinated debt owing by DACC and
certain related warrants to purchase DACC stock. All of the debt and warrants
were canceled by the Company as part of the consideration for the transfer of
DACC's assets. The Company issued a total of 1,787,842 shares of Series B
Preferred Stock to the two holders of such debt and warrants. One-fourth of
these shares were escrowed until May 2, 1997, and an additional 25% of these
shares were escrowed until August 3, 1997, to secure certain indemnification
obligations of the holders in favor of the Company.
As a result of the acquisition of DACC and the issuance of the
Company's securities in connection therewith, the total stockholders' equity of
the Company increased approximately $8.357 million. See "Pro Forma Condensed
Consolidated Balance Sheets."
The Company and the recipients of the Company's securities, including
DACC, also entered into shareholders' agreements that require the Company to
file within six months after the closing, and to use best efforts to cause to
become effective within 90 days thereafter, a registration statement with the
Securities and Exchange Commission for the offer and resale of the securities
issued by the Company in this acquisition. The Company will bear all of the
costs of such registration (other than underwriting discounts, commissions and
expenses incurred by the security holders) and up to $40,000 of the fees of
counsel for the security holders.
The terms of the Series B Preferred Stock are similar to the terms of
the Company's existing 9%/7% Convertible Preferred Stock (the "New Preferred
Stock"). According to its terms, the shares of Series B Preferred Stock will
be automatically converted, on a one-for-one basis, into newly issued shares of
New Preferred Stock when certain clarifying amendments to the terms of the New
Preferred Stock are approved by the Company's stockholders and filed with the
Delaware Secretary of State. The Company has filed with the Securities and
Exchange Commission proxy materials with respect to a special stockholders'
meeting called for the purpose of considering such amendments.
-1-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
INDEX TO FINANCIAL STATEMENTS FOR
DEALERS ALLIANCE CREDIT CORP.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements for the three-month period ended
March 31, 1996 and year ended December 31, 1995
Independent auditors' report F-1
Statements of financial condition F-2
Statements of operations F-3
Statements of common stockholders' deficit F-4
Statements of cash flows F-5
Notes to financial statements F-6
Financial Statements for the year ended December 31, 1994 and
for the period from inception, July 16, 1993, to December 31, 1993
Independent auditors' report F-20
Statements of financial condition F-21
Statements of operations F-22
Statements of common shareholders' deficit F-23
Statements of cash flows F-24
Notes to financial statements F-25
Financial Statements for the three-month period
ended June 30, 1996
Statement of financial condition F-32
Statement of operations F-33
Statement of cash flows F-34
</TABLE>
-2-
<PAGE> 4
[BDO SEIDMAN, LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dealers Alliance Credit Corp.
Atlanta, Georgia
We have audited the accompanying statements of financial condition of Dealers
Alliance Credit Corp. as of March 31, 1996 and December 31, 1995, and the
related statements of operations, common stockholders' deficit, and cash flows
for the three months ended March 31, 1996 and for the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dealers Alliance Credit Corp.
as of March 31, 1996 and December 31, 1995, and the results of its operations
and its cash flows for the three months ended March 31, 1996 and for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations, negative
capital position and notices of default from its principal lenders raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
May 21, 1996, except for Note 7 /s/ BDO SEIDMAN, LLP
which is as of May 24, 1996
F-1
<PAGE> 5
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF FINANCIAL CONDITION
================================================================================
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Net finance receivables (Note 3) $ 35,125,860 $ 33,686,474
Allowance for credit losses (Note 3) (13,450,000) (14,506,538)
- -----------------------------------------------------------------------------------------------------------------
21,675,860 19,179,936
Cash and cash equivalents 368,767 325,678
Repossessed collateral 437,804 569,556
Furniture and equipment, net 248,940 228,570
Prepaid rent (Note 6) 272,167 327,750
Other assets (Note 6) 647,889 711,832
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 23,651,427 $ 21,343,322
=================================================================================================================
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
LIABILITIES
Revolving credit agreement advances (Note 4) $ 19,250,000 $ 16,850,000
Accounts payable and accrued expenses 1,138,330 1,001,815
Due to related party (Note 11) 19,399 60,111
Senior subordinated notes payable, net (Note 8) 3,486,991 3,460,872
- -----------------------------------------------------------------------------------------------------------------
23,894,720 21,372,798
WARRANTS (Note 8) 563,767 521,945
REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK,
$0.01 par value; 200,000 share authorized, 176,313 and
177,630 shares issued and outstanding, net of $24,645 note
receivable from stockholder (Notes 9 and 11) 8,752,971 8,674,880
COMMON STOCKHOLDERS' DEFICIT (Notes 10 and 11)
Common stock, $0.01 par value; 250,000
shares authorized, 9,402 shares issued and outstanding 94 94
Additional paid-in capital - 82,893
Note receivable from stockholder (25,000) (25,000)
Accumulated deficit (9,535,125) (9,284,288)
- -----------------------------------------------------------------------------------------------------------------
Total common stockholders' deficit (9,560,031) (9,226,301)
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT $ 23,651,427 $ 21,343,322
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 6
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
THREE MONTHS Year
ENDED ended
MARCH 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET FINANCE REVENUES
Interest income on finance contracts $1,908,371 $ 5,638,347
Ancillary and other operating income 140,062 326,193
- ----------------------------------------------------------------------------------------------------------------------
Net finance revenues 2,048,433 5,964,540
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE, NET
Interest expense 699,337 1,342,363
Interest income (9,666) (21,048)
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense, net 689,671 1,321,315
- ----------------------------------------------------------------------------------------------------------------------
Finance income before provision for credit losses 1,358,762 4,643,225
Provision for credit losses - (7,415,113)
- ----------------------------------------------------------------------------------------------------------------------
Net finance income (loss) 1,358,762 (2,771,888)
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Employee compensation and related expenses 961,881 2,909,563
General and administrative 390,749 965,659
Consulting and professional fees 219,950 980,117
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,572,580 4,855,339
- ----------------------------------------------------------------------------------------------------------------------
NET LOSS $ (213,818) $(7,627,227)
======================================================================================================================
</TABLE>
Interim results are not necessarily indicative of the results that may be
expected for the entire year.
See accompanying notes to financial statements.
F-3
<PAGE> 7
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 1996
AND YEAR ENDED DECEMBER 31, 1995
================================================================================
<TABLE>
<CAPTION>
Note Total
Common Stock Additional receivable common
------------------ paid-in from Accumulated stockholders'
Shares Amount capital stockholder deficit deficit
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
at December 31, 1994 9,402 $94 $ 330,574 $ (25,000) $(1,657,061) $(1,351,393)
Compensatory
common stock options - - 39,450 - - 39,450
Preferred stock dividend - - (219,172) - - (219,172)
Preferred stock accretion - - (48,910) - - (48,910)
Warrant accretion - - (19,049) - - (19,049)
Net loss - - - - (7,627,227) (7,627,227)
- --------------------------------------------------------------------------------------------------------------------
BALANCE,
at December 31, 1995 9,402 94 82,893 (25,000) (9,284,288) (9,226,301)
Preferred stock dividend - - (66,280) - - (66,280)
Preferred stock accretion - - (11,810) - - (11,810)
Warrant accretion - - (4,803) - (37,019) (41,822)
Net loss - - - - (213,818) (213,818)
- --------------------------------------------------------------------------------------------------------------------
BALANCE,
at March 31, 1996 9,402 $94 $ - $ (25,000) $(9,535,125) $(9,560,031)
====================================================================================================================
</TABLE>
Interim results are not necessarily indicative of the results that may be
expected for the entire year.
See accompanying notes to financial statements.
F-4
<PAGE> 8
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
THREE MONTHS Year
ENDED ended
MARCH 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (213,818) $ (7,627,227)
Adjustments:
Provision for credit losses - 7,415,113
Depreciation and amortization 21,568 80,970
Amortization of debt discount and organization fees 62,917 222,212
Compensatory stock options issued to related party - 39,450
Changes in assets and liabilities:
Repossessed collateral 131,752 (511,493)
Other assets 35,321 (1,213,368)
Accounts payable and acrued expenses 136,517 835,542
Due to related party (40,712) 48,254
- ---------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 133,545 (710,547)
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of installment contracts receivable (4,966,659) (27,358,521)
Payments received on installment contracts receivable 2,514,695 3,729,126
Purchases of equipment (41,995) (129,685)
Proceeds from sale of assets 3,505 -
- ---------------------------------------------------------------------------------------------------------------
Cash used in investing activities (2,490,454) (23,759,080)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Revolving credit agreement advances 2,400,000 16,850,000
Subordinated debt issuance - 4,000,000
Issuance of preferred stock - 2,972,832
- ---------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 2,400,000 23,822,832
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 43,091 (646,795)
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS at beginning of period 325,678 972,473
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS at end of period $ 368,767 $ 325,678
===============================================================================================================
NON-CASH ACTIVITIES
Accretion of put value of warrants $ 41,822 $ 19,049
Accretion of value of preferred stock 11,810 48,910
Preferred stock dividend 66,280 219,172
</TABLE>
Interim cash flows are not necessarily indicative of the cash flows
that may be expected for the entire year.
See accompanying notes to financial statements.
F-5
<PAGE> 9
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT BUSINESS DESCRIPTION
ACCOUNTING POLICIES
Dealers Alliance Credit Corp. (the
"Company"), is a specialized indirect
consumer finance company engaged in
financing the purchase of used automobiles
by purchasing retail installment sales
contracts ("Installment Contracts")
primarily from independent used automobile
dealers. The Company was incorporated in
the state of Delaware on July 16, 1993.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
NON-REFUNDABLE ACQUISITION DISCOUNT
Generally, Installment Contracts are
purchased from dealers at non-refundable
acquisition discounts ("Discount") from the
principal amounts financed by the
borrowers. Prior to January 1, 1996 when an
Installment Contract was purchased, the
Company allocated to the allowance for
credit losses the portion of the Discount
deemed necessary to absorb estimated future
credit losses for the Installment Contract
portfolio. Any remaining amount was
deferred as unearned acquisition discount
and was amortized to interest income using
the interest method over the term of the
Installment Contract. The entire Discount
related to Installment Contracts purchased
subsequent to December 31, 1995 has been
allocated to the Allowance for Credit
Losses, and no discount revenue recognized.
REVENUE RECOGNITION
Each installment contract requires the
customer to make monthly payments over a
fixed term. The difference between the
total amount of contractual payments and
the principal amount financed represents
unearned finance charges. Unearned finance
charges are amortized and recorded as
interest income using the interest method
over the term and at the interest rate
stated in the Installment Contract. When an
Installment Contract becomes 61 or more
days past due or the customer becomes the
subject of a bankruptcy proceeding, income
recognition is suspended until the
Installment Contract is restored to a
current status.
F-6
<PAGE> 10
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company derives income from product
warranties sold by a third party that are
financed under the Installment Contracts
(ancillary income). That income is
deferred and recorded as unearned
ancillary income and amortized to revenue
using the sum-of-the-digits method, which
approximates the results of the interest
method, over the terms of the underlying
warranty contracts.
Other operating income, which includes
late charges and deferral fees charged to
customers, is recognized as collected.
ALLOWANCE FOR CREDIT LOSSES
Allowance for credit losses is established
through an allocation at the acquisition
date of the Discount based upon
management's estimate of future credit
losses. Commencing January 1, 1996, the
entire discount has been allocated to the
allowance account. Management
periodically evaluates the adequacy of the
allowance for credit losses by reviewing
credit loss experience, delinquencies, the
value of the collateral and general
economic conditions.
If the allowance for credit losses is
insufficient in comparison to the amount
management believes necessary to absorb
potential losses in the Installment
Contract portfolio, the Company first
transfers amounts from the unearned
acquisition discount, to the extent
available, and then, if necessary, a
provision for credit losses is charged
against earnings.
An Installment Contract is charged to the
allowance for credit losses at the
earliest of the time when the automobile
securing the Installment Contract is
repossessed, the payment under the
Installment Contract is 180 days or more
past due, or the Installment Contract is
otherwise deemed to be uncollectible.
REPOSSESSED AUTOMOBILES
A repossessed automobile is recorded at
its estimated realizable value less
estimated costs of disposition. The
Company commences repossession against the
automobile securing a delinquent account
when it determines that additional
collection efforts are not likely to be
successful. Generally, repossession
occurs when a borrower becomes 60 days
delinquent on an Installment Contract.
Upon repossession, the amount due under an
Installment Contract, net of the related
unearned acquisition discount, if any, is
reduced to the estimated realizable value
of the automobile less estimated costs of
disposition through a charge to the
allowance for credit losses.
F-7
<PAGE> 11
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
DEFERRED CONTRACT ACQUISITION COSTS
The Company defers costs directly
associated with the acquisition of
Installment Contracts such as the fees,
commission and dealers incentives and
amortizes such costs using the interest
method as a reduction of interest income
over the term of the Installment
Contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include liquid
investments with original maturities of
three months or less.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at
cost and are depreciated over their
estimated useful lives, ranging from 4 to
6 years, using the straight-line method.
Accumulated depreciation at March 31, 1996
and December 31, 1995 was $75,699 and
$57,579, respectively.
DEFERRED LOAN COSTS
Commitment, placement and other fees and
expenses incurred in connection with the
Company's Revolving Credit Agreement and
Subordinated Debt are deferred, as other
assets, and amortized under the
sum-of-the-years digits method to interest
expense over the terms of the related
agreements.
INCOME TAXES
The Company records income taxes in
accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". Deferred
taxes are recorded based upon temporary
differences between the financial
statement and tax bases of assets and
liabilities using enacted tax rates in
effect for the year in which the
differences are expected to reverse.
Management provides a valuation allowance
for deferred tax assets when they
determine it is more likely than not that
the benefits from such deferred tax assets
will not be realized.
2. FUTURE PROSPECTS The Company's financial statements for the
three months ended March 31, 1996 and for
the year ended December 31, 1995 have been
prepared on a going concern basis, which
contemplates the realization of assets and
settlement of liabilities and commitments
in the normal course of business. The
Company incurred net losses of $213,818
for the three months ended March 31, 1996
and $7,627,227 for the year ended
F-8
<PAGE> 12
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
December 31, 1995 resulting in an
accumulated deficit of $9,535,125 and
$9,284,288 at March 31, 1996 and December
31, 1995, respectively. During 1996, the
Company's principal lenders notified the
Company that the Company was in default of
certain financial convenants of the loan
agreement and subordinated note
agreements. In these circumstances, the
outstanding borrowings become immediately
due and payable upon notification of the
lenders. These matters raise substantial
doubt about the ability of the Company to
continue as a going concern. Management's
plans in regard to these matters are
discussed below. The financial statements
do not include any adjustments that might
result from the outcome of this
uncertainty.
In early March 1996 Company determined
that its portfolio of installment
contracts was not performing as had been
previously estimated and, consequently, a
significant provision for credit losses
and resulting addition to the allowance
for credit losses was required as of and
for the period ended December 31, 1995.
The Company immediately informed its senior
revolving credit lenders ("Senior
Lenders") and subordinated debt lenders
("Subdebt Lenders") of its determination
and that, as a consequence, the Company
would be in default on a number of
covenants contained in the revolving
credit agreement with the Senior Lenders
("Senior Loan") and subordinated note
agreement with the Subdebt Lenders
("Subordinated Loan"). On March 19, 1996
the Senior Lenders notified Company that
events of default had occurred under the
Senior Loan and that Company would not be
permitted to make any additional
borrowings thereunder. On March 22, 1996
the Subdebt Lenders notified Company than
events of default had occurred under the
Subordinated Loan.
Neither the Senior Lenders nor the Subdebt
Lenders have demanded payment in full or
accelerated the maturity of those debts.
However, the Senior Loan expired by its
terms on May 1, 1996 and in accordance
with an agreement with the Senior Lenders
the Subdebt Lenders cannot currently
accelerate the Subordinated Loan. The
Senior Lenders have informed Company that
they will not renew the Senior Loan;
however, for an unspecified period of time
they will permit Company to use most of
its cash collections from its loan
portfolio to operate its business less
interest payments.
F-9
<PAGE> 13
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
On April 2, 1996 Company retained two
investment banking firms to aid and assist
its efforts to recapitalize the Company
through direct investment, sale or merger.
Although the effort to recapitalize is
continuing and the Senior Lenders are
permitting the Company to operate, no
assurance can be given that Company will
be successful in recapitalizing or that
the Senior Lenders will not accelerate the
Senior Debt and foreclose on the portfolio
collateral prior to the time that any
recapitalization is completed.
3. NET RECEIVABLES Generally, the Company's Installment
Contracts have terms of 24 to 36 months.
The net finance receivables balance
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
Contractual payments due $ 46,371,288 $ 44,900,063
Unearned finance charges (11,328,861) (11,278,054)
--------------------------------------------------------------------------
Contractual principal balance 35,042,427 33,622,009
Unearned ancillary income (84,662) (93,358)
Deferred contract acquisition
costs, net 168,095 157,823
--------------------------------------------------------------------------
Net finance receivables $ 35,125,860 $ 33,686,474
==========================================================================
</TABLE>
F-10
<PAGE> 14
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
Activity in the unearned contract
acquisition discount and allowance for
credit losses accounts for the three
months ended March 31, 1996 and the year
ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
UNEARNED CONTRACT ACQUISITION
DISCOUNT
Balance - beginning of period $ - $ 507,783
Discounts allocated to
unearned acquisition -
discount 1,968,292
Amortized to interest income - (546,402)
Transferred to allowance for -
credit losses (1,376,787)
Related to charge-offs, net - (552,886)
--------------------------------------------------------------------------
Balance - end of period $ - $ -
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
Balance - beginning of period $14,506,538 $ 598,120
Discounts allocated to
allowance for credit losses 2,185,597 9,383,810
Transferred from unearned
acquisition discount - 1,376,787
Provision for credit losses - 7,415,113
Charge-offs (3,273,975) (4,283,206)
Recoveries 31,840 15,914
--------------------------------------------------------------------------
Balance - end of period $13,450,000 $ 14,506,538
==========================================================================
</TABLE>
The Company's exposure to credit loss in
the event of non-performance by the
customer is represented by the amount of
the Installment Contract less the
acquisition discount. At March 31, 1996
approximately 32%, 24% and 14%, of the
Company's Installment Contracts were
purchased from dealers located in
Tennessee, Georgia and Texas,
respectively.
F-11
<PAGE> 15
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
4. REVOLVING CREDIT At March 31, 1996 the Company had a $35
AGREEMENT million revolving credit agreement
("Revolving Credit Agreement"), which was
in default, with three banks, which
expired on May 1, 1996. The Company's
obligations under the Revolving Credit
Agreement are secured by substantially all
of the Company's assets. Borrowings under
the Revolving Credit Agreement were $19.25
million and $16.85 million at March 31,
1996 and December 31, 1995, respectively.
Interest on the borrowings under the
Revolving Credit Agreement is payable
monthly based upon the referenced prime
rate (which was 8.25% at March 31, 1996)
plus 2% per annum. For the three months
ended March 31, 1996 interest expense
amounted to $470,600 and consisted of
interest on advances (weighted average
interest rate of 10.25%) under the
Revolving Credit Agreement, amortization of
the Revolving Credit Agreement fees and
expenses. For the year ended December 31,
1995 interest expense amounted to $975,340
and consisted of interest on advances
(weighted average interest rate of 11.5%)
under the Revolving Credit Agreement,
amortization of the Revolving Credit
Agreement fees and expenses, and
amortization of the cost of an option to
purchase an interest rate protection
agreement.
The Revolving Credit Agreement requires
the Company to maintain specified
financial ratios and to comply with other
covenants. At March 31, 1996 the Company
was in default under this agreement due to
failure to maintain these agreed upon
covenants, including the minimum interest
coverage ratio, minimum tangible net worth
and the ratio of charge-offs to average
net finance receivables.
5. INCOME TAXES The Company has incurred net operating
losses since its inception in 1993 and,
accordingly, no provision for income taxes
for the three months ended March 31, 1996
or for the year ended December 31, 1995
has been recorded.
Net operating loss carryovers, which
aggregate approximately $4,345,000 at
March 31, 1996, are available to reduce
future federal and state income taxes and
expire through December 31, 2010.
Deferred taxes reflect the net tax effect
of temporary differences between the
financial reporting bases of assets and
liabilities and the amounts applicable for
income tax purposes.
F-12
<PAGE> 16
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company's net deferred tax assets were
as follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Pre-operating expenses $ 80,000 $ 87,000
Allowance for credit losses 1,718,000 2,348,000
Net operating loss carryover 1,520,000 812,000
--------------------------------------------------------------------------
3,318,000 3,247,000
Less valuation allowance (3,318,000) (3,247,000)
--------------------------------------------------------------------------
Net deferred tax asset $ - $ -
==========================================================================
</TABLE>
6. LEASES AND OTHER OFFICE FACILITY AND EQUIPMENT LEASES
COMMITMENTS
The Company rents its office under a
non-cancellable lease agreement which
terminates in September 2002 and provides
the Company with options, subject to
certain conditions, to lease additional
space in 1996 and 1997. The new lease
requires the Company to reimburse the
landlord for increases over the base year
amounts for certain expenses, such as real
estate taxes, utilities and maintenance.
Upon executing the lease in August 1995
the Company was required to fund $364,000
of future rental payments and $150,000
representing a security deposit. The
unamortized portion of the future rental
payments and the security deposit are
included in "prepaid rent" and "other
assets" at March 31, 1996 and December 31,
1995. The rental prepayment will reduce
future rental payments through March 1997.
Some of the Company's office equipment is
subject to operating leases. The aggregate
rent expense for the office facility and
equipment leases was $58,900 for the three
months ended March 31, 1996 and $74,200
for the year ended December 31, 1995.
DATA PROCESSING AGREEMENT
The Company entered into a five-year
contract, which expires in June 1999, to
receive data processing services. The
contract requires minimum monthly fees for
services rendered.
F-13
<PAGE> 17
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
At March 31, 1996, future minimum payments
for non-cancellable leases, including the
new office lease, and data processing
services were as follows:
<TABLE>
<CAPTION>
Data
Leases Processing
---------------------------------------------------------------------------
<S> <C> <C>
Year ending March 31, 1997 $ 128,000 $218,000
Year ending March 31, 1998 383,400 180,000
Year ending March 31, 1999 360,200 180,000
Year ending March 31, 2000 292,300 45,000
Year ending March 31, 2001 287,700 -
Thereafter 424,500 -
---------------------------------------------------------------------------
Total $1,876,100 $623,000
===========================================================================
</TABLE>
7. CONTINGENCIES Subsequent to March 31, 1996, the
employment by the Company of its then
president and then chief financial officer
was terminated. Each believes they were
dismissed without cause. The Company has
been notified by counsel representing
these two former employees that legal
action may be initiated against the
Company for, among other things, severance
payments, recommendations and release of
non-compete agreements.
8. SUBORDINATED DEBT During 1995, the Company issued $4 million
AND WARRANTS of subordinated debt, which is
subordinated to the Company's Revolving
Credit Agreement and bears interest at 10%
per annum, payable quarterly. The first
issue of $2.5 million occurred on October
16, 1995 and the remaining $1.5 million was
issued on December 20, 1995. The
Subordinated Debt matures October 16, 2000,
unless repayment is required by redemption
of the Preferred Stock or the completion of
an initial public offering.
In connection with the issuance of the
Subordinated Debt the lenders were issued
warrant ("Warrants") to purchase 18,467
shares of the Company's Common Stock for
an exercise price of $0.01 per share.
These Warrant are exercisable immediately
and expire in 10 years. If the Warrants
are outstanding on November 1, 1998,
unless the repurchase feature is otherwise
accelerated, the Warrant holders have the
right, under certain conditions, to
require the Company to repurchase the
Warrants at a price per share determined
by dividing
F-14
<PAGE> 18
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
the largest of: (i) the Company's then fair
value, (ii) 12 times the Company's net
income for the last 4 quarters or (iii) $14
million divided by the number of
fully-diluted shares of common stock and
common stock equivalents then outstanding.
Upon issuance, the $554,139 fair value of
the Warrants was recorded as original issue
discount. The Company incurred costs
aggregating $369,894 in connection with the
Subordinated Debt. Those costs, which are
included in other assets, and the original
issue discount are amortized as interest
expense over the term of the Subordinated
Debt using the interest method. For the
three months ended March 31, 1996 interest
expense for the subordinated debt was
$101,111 and for the year ended December
31, 1995 interest expense was $64,085. The
Warrant is being accreted over a 36 month
period to an estimated repurchase value of
$995,925 through a charge against net
income available for common stockholders.
Subordinated debt consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
Principal outstanding $4,000,000 $4,000,000
Less:
Original issue discount, net of
accumulated amortization (513,009) (539,128)
--------------------------------------------------------------------------
$3,486,991 $3,460,872
==========================================================================
</TABLE>
9. REDEEMABLE SERIES A The Company has authorized 200,000 shares
CONVERTIBLE PREFERRED of Series A Convertible Preferred Stock
STOCK ("Preferred Stock"), par value $.01 per
share. Holders of the Preferred Stock are
entitled to cumulative annual stock
dividends of 3% on December 30 of each
year. In December 1993, the Company
received commitments to buy 110,000 shares
(gross proceeds of $5.5 million) of its
Preferred Stock, 60% of which was purchased
in December 1993 with the remaining 40%
purchased in September 1994. The December
1993 closing resulted in the issuance of
66,000 shares of Preferred Stock with
proceeds, net of offering costs, of
approximately $3,120,000. The September
1994 closing resulted in the issuance of
44,000 shares of Preferred Stock, with net
proceeds of approximately $2,196,000.
F-15
<PAGE> 19
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
On January 25, 1995 the Company's Board of
Directors approved an offering of 60,000
shares of Preferred Stock at $50 per share
to current holders of the Company's
Preferred and Common Stock. The offering
("Rights Offering") resulted in the
Company receiving commitments to purchase
the entire 60,000 shares of Preferred
Stock offered. The terms of the offering
provided for two closings. The initial
closing in May 1995 resulted in the
issuance of 30,000 shares of Preferred
Stock (net proceeds of $1,480,780). The
second closing was on July 24, 1995 and an
additional 30,000 shares of Preferred
Stock (gross proceeds of $1,500,000) were
issued.
Each share of Preferred Stock may be
converted into 1 share of Common Stock at
any time at the option of the holder.
Conversion into Common Stock is mandatory
in the event of a qualified initial public
offering of the Company's Common Stock, as
defined ("IPO").
If an IPO does not occur before December
1, 1998, each holder of Preferred Stock
may require the Company to redeem its
Preferred Stock at the greater of the
Common Stock's per share fair market value
or its liquidation preference. Redemption
is mandatory on November 30, 1999 at the
greater of the Common Stock's per share
fair market value on September 1, 1999 or
its liquidation preference. The
liquidation preference aggregated
$8,903,600 at March 31, 1996 and
$8,837,300 at December 31, 1995. For
financial accounting purposes, the
Preferred Stock is accreted to the greater
of its liquidation preference ($50 per
share) or the Common Stock's per share
fair market value. Management believes
the fair market value of its Common Stock
was $50 per share at December 31, 1995 and
December 31, 1994. For financial
accounting purposes, the dividends were
valued at $50 per share and were charged
to additional paid-in capital, to the
extent available, and then to accumulated
deficit.
Holders of Preferred Stock are entitled to
one vote per share on all stockholder
matters. The Company's Shareholders
Agreement provides that all stockholders
vote for an eight member Board of
Directors comprised of four nominees of
the majority Common Stockholder (see
Related Party Transactions), one nominee
of a specified Preferred Stock holder
group, two nominees of the stockholders
other than majority Common Stockholder and
one nominee who is the Company's chief
executive officers. The Shareholders
Agreement terminates upon completion of an
IPO.
The Preferred Stock ranks senior to the
Common Stock with respect to
F-16
<PAGE> 20
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
dividends and liquidation rights.
The provisions of the Revolving Credit
Agreement prohibit the payment of
dividends in cash or property, other than
stock dividends on the Preferred Stock.
10. OPTIONS TO PURCHASE On May 1, 1995, the options to purchase
COMMON STOCK Common Stock granted to certain key
officers of the Company during 1994 were
modified. The modification increased the
number of shares under grant from 17,500 to
25,500. Additionally, the rights of those
grantees under the options vest in their
entirety on December 30, 2000, unless
vesting is accelerated by the Company's
achievement of established operating
performance objectives in 1995 and 1996.
The exercise price per share is $50, which
approximated fair market value per share at
the date of the modification.
On November 30, 1993, a member of the
Board of Directors was granted an option,
which vested immediately, to purchase
2,000 shares of Common Stock at an
exercise price per share of $50, which
approximated fair value per share at the
date of grant, through November 30, 2003.
On May 1, 1995, the option granted to
Chicago Holdings, Inc. ("CHI") (see
Related Party Transactions) in November
1993 to purchase 10,000 shares of Common
Stock at an exercise price of $50 per
share was modified. CHI's option to
purchase those shares vest in its entirety
on December 31, 2000, unless vesting is
accelerated by the Company's achievement
of established operating performance
objectives in 1995 and 1996.
On November 30, 1993, CHI was granted an
option, which vested immediately, to
purchase 10,000 shares of Common Stock. On
May 1, 1995 CHI was granted an option,
which vested immediately, to purchase an
additional 2,500 shares of common stock.
The exercise prices per share of the
options are: $100 during 1996, $150 during
1997 and $200 thereafter through November
30, 2003.
F-17
<PAGE> 21
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company obtained valuations from an
independent party for the Common Stock
options granted to CHI. The appraiser
determined the fair value of CHI options
granted or modified in 1995 was
approximately $39,450 at the date of
grant. The Company recognized a non-cash
compensatory charge for such options in
1995. The fair value of the options
granted in 1993 was not material.
11. RELATED PARTY COMMON STOCK TRANSACTIONS
TRANSACTIONS
Approximately 89.4% (8,401 shares) of the
Company's outstanding Common Stock is
owned by a wholly-owned subsidiary of CHI,
a founder of the Company. The remaining
outstanding shares of Common Stock are
owned by the Company's President and its
Chairman. The Chairman purchased 1
founding share. CHI's subsidiary
purchased 1 founding share, 5,040 shares
of the Company's Common Stock in the
December 1993 closing for $240,005 and
3,360 shares in the September 1994 closing
for $160,003.
In September 1994, the Company's then
President purchased 1,000 shares of Common
Stock for $50 per share, payable $25,000
in cash and $25,000 by a five-year full
recourse promissory note which bears
interest at 6% per annum. This note is
collateralized by a pledge of the
Company's stock owned by the President,
requires partial repayments in the event
that the President earns an incentive
bonus in 1996, 1997 or 1998, and
accelerates if the President ceases to be
employed by the Company.
PREFERRED STOCK TRANSACTIONS
In 1995 the Company's then President, as a
participant in the Rights Offering,
purchased a total of 493 shares of
Preferred Stock at $50 per share payable
$98 in cash and $24,552 by full recourse
promissory notes due on September 1, 1999
which bear interest at 6% per annum. Those
notes are collateralized by a pledge of
the Company's stock owned by the
President, require partial repayments in
the event that the President earns an
incentive bonus in 1996, 1997 or 1998, and
accelerate if the President ceases to be
employed by the Company.
F-18
<PAGE> 22
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
================================================================================
In 1995, a wholly-owned subsidiary of CHI,
as a participant in the Right Offering,
purchased 4,138 shares of preferred stock
for a cash price of $206,900 ($50 per
share).
MANAGEMENT ADVISORY AGREEMENT
The Company has a management advisory
agreement with CHI. CHI agreed to provide
accounting, legal and other services for
the Company through November 1996. CHI's
compensation for those services is $125
per hour, together with reimbursement of
out-of-pocket expenses, for actual time
devoted to assisting the Company. The
terms of the agreement also provide for
CHI to make its senior management
available, at the Company's request, for
advisory and consulting services through
November 1, 1998. CHI is also entitled to
a monthly fee of $10,000 for 36 months
commencing after the Company achieves and
continues to be profitable on a monthly
basis. The agreement provides for the
Company's payment of a market rate fee to
CHI if CHI successfully arranges
additional indebtedness for the Company.
For the three months ended March 31, 1996
and the year ended December 31, 1995, CHI
charged the Company $64,800 and $249,200,
respectively, in hourly management fees
and reimbursement of out-of-pocket
expenses. During 1995 CHI charged the
Company $111,280 and $75,000 as fees for
negotiating increases to the Company's
Revolving Credit Agreement and its
Subordinated Debt.
In August 1995, the Company entered into
an advisory agreement, which expires in
four years, with EQ Corporation, a
shareholder of the Company, pursuant to
which EQ Corporation will provide certain
financial advisory services to the
Company. The terms of the agreement
required the Company to prepay all fees,
which amounted to approximately $149,000,
upon execution of the agreement. Such
amount has been included in other assets
and will be amortized to expense over the
term of the agreement.
F-19
<PAGE> 23
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Dealers Alliance Credit Corp.:
We have audited the accompanying statements of financial condition of Dealers
Alliance Credit Corp. as of December 31, 1994 and 1993, and the related
statements of operations, shareholders' deficit, and cash flows for the year
ended December 31, 1994 and the period from July 16, 1993 (date of
incorporation) to December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dealers Alliance Credit Corp. as of
December 31, 1994 and 1993, and the results of its operations and its cash
flows for the year ended December 31, 1994 and the period from July 16, 1993
(date of incorporation) to December 31, 1993 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 17, 1995
F-20
<PAGE> 24
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Net finance receivables $ 3,629,717 $ -
Allowance for credit losses (598,120) -
----------- -----------
Net receivables 3,031,597 -
Cash and cash equivalents 972,473 3,026,389
Repossessed collateral 58,063 -
Furniture and equipment, net 131,411 -
Other assets 67,158 131,507
----------- -----------
$ 4,260,702 $ 3,157,896
=========== ===========
LIABILITIES AND COMMON SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 166,271 $ 127,265
Due to related party 11,857 148,165
----------- -----------
Total liabilities 178,128 275,430
Series A Convertible Preferred Stock,
$0.01 par value; 200,000 shares authorized,
112,363 and 66,000 shares issued and
outstanding at December 31, 1994 and
1993, respectively 5,433,967 3,120,000
Common Shareholders' Deficit:
Common stock, $0.01 par value; 250,000
shares authorized, 9,402 and 6,302 shares
issued and outstanding at December 31, 1994
and 1993, respectively 94 63
Additional paid-in capital 330,574 299,962
Note receivable from shareholder (25,000) (59,987)
Accumulated deficit (1,657,061) (477,572)
----------- -----------
Total common shareholders' deficit (1,351,393) (237,534)
----------- -----------
$ 4,260,702 $ 3,157,896
=========== ===========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 25
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 AND PERIOD FROM JULY 16, 1993
(DATE OF INCORPORATION) TO DECEMBER 31, 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
REVENUES:
Interest income:
Finance contracts $ 428,450 $ -
Other 81,411 5,794
Ancillary and other operating income 11,501 -
----------- ---------
Total revenues 521,362 5,794
INTEREST EXPENSE 119,787 -
----------- ---------
NET INTEREST INCOME 401,575 5,794
----------- ---------
OPERATING EXPENSES:
Employee compensation and related expenses 864,183 42,218
Other 716,881 441,148
----------- ---------
Total expenses 1,581,064 483,366
----------- ---------
NET LOSS $(1,179,489) $(477,572)
=========== =========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 26
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF COMMON SHAREHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1994 AND PERIOD FROM JULY 16, 1993
(DATE OF INCORPORATION) TO DECEMBER 31, 1993
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL COMMON
------------------- PAID-IN FROM ACCUMULATED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT STOCK DEFICIT
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 16, 1993 - $ - $ - $ - $ - $ - $ -
Issuance of common stock 6,302 63 299,962 (59,987) - - 240,038
Net loss - - - - (477,572) - (477,572)
----- ----- --------- -------- -------- ------ --------
BALANCE, DECEMBER 31, 1993 6,302 63 299,962 (59,987) (477,572) - (237,534)
Repayment of note receivable
from shareholder - - - 29,987 - - 29,987
Repurchase of common stock
for treasury stock (1,260) - - 30,000 - (61,210) (31,210)
Issuance of shares from
treasury stock 1,000 - 1,421 (25,000) - 48,579 25,000
Treasury stock retired - (3) (12,628) - - 12,631 -
Issuance of common stock 3,360 34 159,969 - - - 160,003
Preferred stock dividend - - (118,150) - - - (118,150)
Net loss - - - - (1,179,489) - (1,179,489)
----- ----- -------- -------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1994 9,402 $ 94 $330,574 $(25,000) $(1,657,061) $ - $(1,351,393)
===== ===== ======== ======== =========== ======== ===========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 27
DEALERS ALLIANCE CREDIT CORP.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994 AND PERIOD FROM JULY 16, 1993
(DATE OF INCORPORATION) TO DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES:
Interest income received - finance contracts $ 291,197 $ -
Interest income - short-term investments 87,205 -
Ancillary and other operating receipts 5,533
Payments for borrowing fees (36,889) (100,000)
Payments for operating expenses (1,683,453) (233,649)
----------- ----------
Net cash used in operating activities (1,336,407) (333,649)
INVESTING ACTIVITIES:
Purchases of finance contracts (3,316,689) -
Principal payments received on finance contracts 374,836 -
Purchases of furniture and equipment (156,463) -
----------- ----------
Net cash used in investing activities (3,098,316) -
FINANCING ACTIVITIES:
Purchase of treasury stock (30,000) -
Proceeds from issuance of common stock 185,003 240,038
Proceeds from issuance of preferred stock, net 2,195,817 3,120,000
Repayment of note receivable from shareholder 29,987 -
----------- ----------
Net cash provided by financing activities 2,380,807 3,360,038
----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,053,916) 3,026,389
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,026,389 -
----------- ----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 972,473 $3,026,389
=========== ==========
RECONCILIATION OF NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Net loss $(1,179,489) $ (477,572)
Depreciation and amortization:
Furniture and equipment 25,051 -
Contract acquisition discount income (158,331) -
Ancillary income (5,969) -
Contract acquisition costs 21,078 -
Decrease (increase) in other assets 58,555 (131,507)
Increase in accounts payable and accrued expenses 39,006 127,265
Increase (decrease) in due to related party (136,308) 148,165
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES $(1,336,407) $ (333,649)
=========== ==========
</TABLE>
See notes to financial statements.
F-24
<PAGE> 28
DEALERS ALLIANCE CREDIT CORP.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994 AND PERIOD FROM JULY 16, 1993
(DATE OF INCORPORATION) TO DECEMBER 31, 1993
- -------------------------------------------------------------------------------
1. BUSINESS DESCRIPTION
Dealers Alliance Credit Corp. (the "Company") was incorporated in the
state of Delaware on July 16, 1993, and operates from leased office
space in Atlanta, Georgia. The Company is a finance company specializing
in purchasing and servicing sub-prime automobile installment sales
contracts ("finance contracts"), originated by automobile dealers and
secured by the purchased automobiles. The Company began operations on
December 1, 1993. As of December 31, 1994, the Company had purchased
finance contracts from dealers located in seven southeastern states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nonrefundable Contract Acquisition Discount - Generally, finance
contracts are purchased from dealers at nonrefundable contract
acquisition discounts from the principal amounts financed by the
borrowers, "Dealer Discount." The amount of this Dealer Discount, which
includes both credit and yield enhancement, is negotiated by the Company
with the dealer.
When a finance contract is purchased, the Company allocates to the
allowance for credit losses the portion of the Dealer Discount deemed
necessary to absorb estimated future credit losses for the finance
contract portfolio. Any remaining amount is deferred as unearned
contract acquisition discount and is amortized to interest income using
the interest method over the term of the finance contract. When a
specific finance contract is determined to be uncollectible, any
unearned contract acquisition discount related to that contract is
offset against the unpaid contract balance prior to charging the
allowance for credit losses.
Revenue Recognition - Each finance contract requires the borrower to
make monthly payments over a fixed term. The difference between the
total amount of contractual payments and the principal amount financed
represents unearned finance charges. Unearned finance charges are
amortized and recorded as interest income using the interest method over
the term and at the interest rate stated in the finance contract. When a
finance contract becomes 61 or more days past due, income recognition is
suspended until the contractual aging is restored to a current status.
The Company receives commissions from the sale of warranty contracts.
Those commissions are deferred and recorded as unearned ancillary income
and amortized to revenue using the sum-of-the-digits method, which
approximates the results of the interest method, over the terms of the
underlying warranty contracts.
Other operating income, which includes late charges and extension fees
charged to customers, is recognized as collected.
Allowance for Credit Losses - Allowance for credit losses is established
through an allocation of the Dealer Discount based upon management's
estimate of future credit losses. Management believes that the allowance
for credit losses and the related unearned contract acquisition
discounts are adequate to
F-25
<PAGE> 29
absorb potential losses in the portfolio. Management evaluates the
adequacy of the allowance for credit losses by reviewing credit loss
experience, delinquencies, the value of the underlying collateral and
general economic conditions.
If necessary, a provision for credit losses will be charged against
earnings to maintain the allowance for credit losses at an amount
management believes necessary to absorb potential losses in the finance
contract portfolio. Through December 31, 1994, the allocations of Dealer
Discounts to the allowance for credit losses together with unearned
contract acquisition discounts have been adequate to absorb all
estimated credit losses. Accordingly, no provision for credit losses has
been required.
A finance contract is charged to the allowance for credit losses at the
earliest of the month in which the related collateral is repossessed,
the finance contract is six months or more past due, or the finance
contract is otherwise deemed to be uncollectible.
Repossessed Collateral - Repossessed collateral is recorded at its
estimated net realizable value. The Company commences repossession
against collateral when it determines that other collection efforts are
not likely to be successful. Usually repossession occurs before a
borrower has defaulted on two consecutive monthly payments. Upon
repossession, the net amount due under a finance contract is reduced to
the estimated net realizable value of the collateral through a charge to
the related unearned contract acquisition discount with any remaining
amount charged to the allowance for credit losses.
Deferred Contract Acquisition Costs - The Company defers costs directly
associated with the acquisition of finance contracts and amortizes such
costs using the interest method as a reduction of interest income over
the term of finance contracts.
Cash and Cash Equivalents - Cash and cash equivalents include highly
liquid investments with an original maturity of three months or less.
Furniture and Equipment - Furniture and equipment are recorded at cost
and are depreciated over their estimated useful lives, ranging from 4 to
6 years, using the straight-line method. Accumulated depreciation at
December 31, 1994 was $25,051.
Revolving Credit Facility Fees - Commitment and facility fees and
expenses are paid to the Company's lender in accordance with the
provisions of the Company's revolving credit facility. Those deferred
costs are included in other assets and amortized to interest expense
over the term of the facility.
Income Taxes - The Company records income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Deferred taxes are recorded based upon
temporary differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The Company incurred net
operating losses in 1994 and 1993 and, accordingly, no provision for
income taxes was made for the year ended December 31, 1994 and the
period from July 16, 1993 (date of incorporation) to December 31, 1993.
Postretirement and Postemployment Benefits - The Company does not offer
postretirement or postemployment benefits to its employees. Accordingly,
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," have no effect upon the Company's financial
position or results of operations.
F-26
<PAGE> 30
3. FINANCE RECEIVABLES
Generally, the Company's finance contracts have terms of 12 to 36 months.
The net finance receivables balance consisted of the following at December
31, 1994:
<TABLE>
<S> <C>
Contractual payments due $ 5,492,830
Unearned finance charges (1,433,492)
-----------
Total finance receivables 4,059,338
Unearned contract acquisition discount (507,783)
Unearned ancillary income (11,741)
Deferred contract acquisition costs, net 89,903
-----------
Net finance receivables $ 3,629,717
===========
</TABLE>
At December 31, 1994 contractual payments due under finance contracts are
scheduled to be received as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1995 $2,342,707
1996 2,096,651
1997 1,049,816
1998 3,656
----------
Total $5,492,830
==========
</TABLE>
The Company's experience has shown that some payments will be received prior
to contractual due dates.
When a finance contract is determined to be uncollectible, the unpaid
account balance due is reduced by the net realizable value of the
repossessed collateral and any remaining unearned contract acquisition
discount. The net amount remaining, if any, is charged to the allowance for
credit losses. Activity in the unearned contract acquisition discount and
allowance for credit losses accounts for the year ended December 31, 1994,
was as follows:
<TABLE>
<CAPTION>
UNEARNED ALLOWANCE
CONTRACT FOR
ACQUISITION CREDIT
DISCOUNT LOSSES
<S> <C> <C>
Balance - beginning of year $ - $ -
Discounts negotiated 703,422 747,441
Amortized to interest income (158,331) -
Charge-offs, net (37,308) (149,321)
--------- ---------
Balance - end of year $ 507,783 $ 598,120
========= =========
</TABLE>
F-27
<PAGE> 31
4. REVOLVING CREDIT FACILITY
The Company has an $8 million revolving credit facility with a bank
("Facility"), which expires on December 31, 1995. Borrowings are
secured by substantially all of the Company's assets. During 1994, the
Company's operations did not require advances under the Facility.
Interest on the borrowings under the Facility is payable monthly based
upon the referenced prime rate, which was 8.5% at December 31, 1994,
plus 2% per annum. Interest expense, which consisted solely of
commitment and facility fees and expenses, for the year ended December
31, 1994 was $119,787. The Facility requires the Company to maintain
specified financial ratios and to comply with other covenants.
In January 1995, the Company acquired an option, exercisable on or
before December 31, 1995, to purchase a contract which would provide
interest rate protection during 1996 and 1997 on various notional
amounts up to $15 million. The option is held for purposes other than
trading. If the Company exercised its option and if the contract's
referenced interest rate exceeds 12% during 1996 and 1997, then the
Company would receive a payment computed using the rate differential
multiplied by the applicable notional amount for that period. The
contract exposes the Company to credit risk through counterparty
nonperformance which risk is mitigated by the counterparty's financial
condition. The Company would not require collateral or other security to
support financial instruments with off-balance sheet credit risk.
5. INCOME TAXES
Net operating loss carryovers, which aggregate approximately
$1,255,000, are available to reduce future federal and state income
taxes and expire in 2008 and 2009.
Deferred tax asset reflects the net tax effect of temporary differences
between the financial reporting bases of assets and liabilities and the
amounts applicable for income tax purposes. The Company's net deferred
tax asset at December 31, 1994 and 1993 was:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax asset:
Preoperating expenses $ 116,000 $ 145,000
Allowance for credit losses 34,000
Net operating loss carryover 477,000 36,000
-------- ---------
627,000 181,000
Less valuation allowance (627,000) (181,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
6. LEASES AND OTHER COMMITMENTS
Office Lease - The Company rents its office under a noncancellable
lease agreement with an initial term of four years. The lease requires
the Company to reimburse the landlord for increases over the base year
amounts for certain expenses, such as real estate taxes, utilities, and
maintenance. Some of the Company's office equipment is subject to
operating leases. The aggregate rental expense for the office and
equipment leases was $41,429 for the year ended December 31, 1994 and
$5,984 for the period from July 16, 1993 (date of incorporation) to
December 31, 1993.
Data Processing Agreement - The Company entered into a five-year
contract, which expires in May 1999, to receive data processing
services. The contract requires minimum monthly servicing fees.
F-28
<PAGE> 32
At December 31, 1994, future minimum payments for noncancellable leases
and data processing services were as follows:
<TABLE>
<CAPTION>
DATA
YEAR ENDING DECEMBER 31: LEASES PROCESSING
<S> <C> <C>
1995 $ 41,756 $117,500
1996 41,239 218,000
1997 38,655 184,000
1998 - 180,000
1999 - 75,000
-------- --------
Total $121,650 $774,500
======== ========
</TABLE>
Employment Agreements - The Company has employment agreements with
certain key officers which provide for aggregate base annual
compensation of $426,500 plus bonuses based on certain operating
performance goals in 1995. The agreements expire on various dates
through December 31, 1995 and may be extended by mutual agreement.
Additionally, the agreements require termination payments in the event
of the employee's involuntary termination. At December 31, 1994, the
aggregate amount of the contingent termination obligation was $196,375.
7. SERIES A CONVERTIBLE PREFERRED STOCK
The Company has authorized 200,000 shares of Series A Convertible
Preferred Stock ("Preferred Stock"), par value $.01 per share. In
December 1993, the Company received commitments to buy 110,000 shares
(gross proceeds of $5.5 million) of its Preferred Stock, 60% of which
was purchased in December 1993 with the remaining 40% purchased in
September 1994. The December closing resulted in the issuance of 66,000
shares of Preferred Stock with proceeds, net of offering costs, of
approximately $3,120,000. The September closing resulted in the issuance
of 44,000 shares of Preferred Stock, with net proceeds of approximately
$2,196,000. Holders of the Preferred Stock are entitled to an annual
stock dividend of 3% on December 30 of each year. Additionally, for
financial reporting purposes, the Preferred Stock is accreted to the
greater of the Common Stock's per share fair market value or its
liquidation preference ($50 per share). Management believes the fair
market value of its Common Stock was $50 per share at December 31, 1994.
A stock dividend of 2,363 shares was declared for holders of record as
of December 31, 1994. For financial accounting purposes, that dividend
was valued at $50 per share, or $118,500 and was charged to additional
paid-in capital.
Each share of Preferred Stock may be converted into one share of Common
Stock at any time at the option of the holder. Conversion into Common
Stock is mandatory in the event of a qualified initial public offering
("IPO") of the Company's Common Stock.
If an IPO does not occur before December 1, 1998, each holder of
Preferred Stock may require the Company to redeem its Preferred Stock at
the greater of the Common Stock's per share fair market value or its
liquidation preference. Redemption is mandatory on November 30, 1999 at
the greater of the Common Stock's per share fair market value on
September 1, 1999 or its liquidation preference. The liquidation
preference aggregated $5,618,150 at December 31, 1994.
F-29
<PAGE> 33
Holders of Preferred Stock are entitled to one vote per share on all
shareholder matters. The Company's Shareholders' Agreement provides that
all shareholders vote for a seven-member Board of Directors comprised of
four nominees of the majority Common Stockholder (see Related Party
Transactions), one nominee of a specified Preferred Stockholder group,
and two nominees of the stockholders other than the majority Common
Stockholder.
The Preferred Stock ranks senior to the Common Stock with respect to
dividends and liquidation rights.
8. COMMON STOCK
On December 1, 1993, the Company received commitments to buy 10,500
shares (gross proceeds of $500,000) of its Common Stock (see Related
Party Transactions) of which 60% were purchased in December 1993, with
the remaining 40% purchased at a second closing which occurred in
September 1994. The December closing resulted in the issuance of 6,300
shares of Common Stock, with the Company receiving cash of $240,038 and
a note receivable in the amount of $59,987. In September 1994, the
Company received cash of $160,003 for purchase of the remaining
committed shares of Common Stock.
The provisions of the Facility prohibit the payment of dividends in cash
or property, other than stock dividends on the Preferred Stock.
9. COMMON STOCK OPTIONS
At December 31, 1994, the Company had outstanding options to acquire
shares of the Company's Common Stock, as follows:
<TABLE>
<CAPTION>
DATE NUMBER
OF OF EXERCISE EXERCISE
OPTION HOLDER GRANT SHARES PRICE CONDITION
<S> <C> <C> <C> <C>
Chicago Holdings, Inc. 1993 10,000 $50 (a)
Chicago Holdings, Inc. 1993 10,000 Various (b)
Management 1994 17,500 $50 (c)
Member of the Board
of Directors 1993 2,000 $50 Expires
December,
2003
</TABLE>
(a) Chicago Holdings, Inc. ("CHI") (see Related Party Transactions),
has options to acquire 10,000 shares of the Company's Common
Stock at $50 per share. Those options are exercisable after the
second, third, and fourth years of the Company's operations if
certain financial goals are achieved. Those options expire in
December 2003.
(b) CHI also has vested options, which expire in December 2003, to
acquire an additional 10,000 shares of the Company's Common
Stock. The exercise prices per share of those options are: $75
during 1994, $100 during 1995 and 1996, $150 during 1997, and
$200 thereafter through December 2003.
(c) Management's options to acquire 17,500 shares of the Company's
Common Stock at $50 per share are exercisable after the second
and third years of the Company's operations if financial goals
are achieved.
F-30
<PAGE> 34
10. RELATED PARTY TRANSACTIONS
Common Stock Transactions - Approximately 89.4% (8,401 shares) of the
Company's outstanding Common Stock is owned by a wholly owned subsidiary
of CHI, a founder of the Company. The remaining outstanding shares of
Common Stock are owned by the Company's President and its Chairman.
CHI's subsidiary purchased one founding share, 5,040 shares of the
Company's Common Stock in the December 1993 closing for $240,005, and
3,360 shares in the September 1994 closing for $160,003.
Approximately $60,000 of the $300,000 proceeds from the issuance of the
Company's Common Stock in December 1993 was paid with a 6% note due from
the Company's former President. The note was due in two installments
($29,987 on January 17, 1994 and $30,000 on December 1, 1998).
In connection with the resignation of the Company's former President
during June 1994, the following were consummated: (i) consulting
services of the former President were retained through the end of 1994
for a fee of $75,000, (ii) his stock options were terminated, (iii) his
commitment to acquire additional shares of Common Stock was terminated,
and (iv) his 1,260 shares of the Common Stock were purchased by the
Company, as treasury stock, in exchange for the original purchase price
of $61,210 ($30,000 of cash and the cancellation the above promissory
note).
In September 1994, the Company's new President purchased 1,000 shares of
treasury Common Stock for $50 per share, payable $25,000 in cash and
$25,000 by a five-year promissory note which bears interest at 6% per
annum.
Management Advisory Agreement - The Company has a management advisory
agreement with CHI. CHI agreed to provide accounting, legal, and other
services for an initial term expiring on November 30, 1996. CHI's
compensation for services performed under the agreement is (i) $125 per
hour, together with reimbursement of out-of-pocket expenses, for actual
time devoted to the Company's business, (ii) a transaction structuring
fee of $120,000 (which was paid during 1994), and (iii) a monthly fee of
$10,000 for 36 months commencing after the Company achieves and
continues to be profitable on a monthly basis. The agreement provides
for the Company's payment of a market rate fee to CHI if CHI
successfully arranges additional indebtedness for the Company. During
1994 and 1993, CHI charged the Company $125,875 and $23,875,
respectively, in hourly management fees and $26,806 and $390,815,
respectively, for reimbursement of out-of-pocket expenses.
11. IMPACT OF NEW ACCOUNTING STANDARDS
The Company expects to adopt SFAS No. 107, "Disclosure About Fair Value
Of Financial Instruments," in 1995. Since SFAS No. 107 requires
disclosures only as to the fair value of financial instruments, the
adoption of SFAS No. 107 will have no effect on the Company's financial
position or results of operations.
12. SUBSEQUENT EVENT
On January 25, 1995, the Company's Board of Directors approved an
offering of 60,000 shares of Preferred Stock at $50 per share (gross
proceeds of $3,000,000) to current holders of the Company's Preferred
and Common Stock. The terms of the offering provide for two closings
with proceeds of $1.5 million to be derived from the initial closing.
F-31
<PAGE> 35
DEALERS ALLIANCE CREDIT CORP.
STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS: June 30, 1996
- ------ -------------
Gross finance receivables $ 34,947,444
Unearned finance charges (8,092,739)
------------
Net finance receivables 26,854,705
Unearned ancillary income (50,578)
------------
Net finance receivables after ancillary 26,804,127
Allowance for credit losses (7,502,390)
Deferred acquisition costs, net 142,816
------------
19,444,553
Cash and cash equivalents 687,806
Repossessed collateral 603,512
Furniture and equipment, net 233,332
Prepaid rent, net 200,243
Subordinated debt issuance costs, net 280,589
Other assets, net 323,007
------------
$ 21,773,042
============
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT:
- --------------------------------------------
Revolving credit agreement advances $ 18,000,000
Accounts payable and accrued expenses 671,331
Due to related party 8,017
Senior subordinated notes payable, net 3,513,598
------------
Total liabilities $ 22,192,946
------------
Warrants 563,767
Redeemable Series A Convertible Preferred Stock, $0.01 par value;
200,000 shares authorized, 176,746 issued and outstanding 8,787,972
Common stockholders' deficit:
Common stock, $0.01 par value; 250,000 shares
authorized, 9,402 shares issued and outstanding 94
Additional paid-in capital 0
Note receivable from stockholder (25,000)
Accumulated deficit (9,746,737)
------------
Total common stockholders' deficit (9,771,643)
------------
$ 21,773,042
============
</TABLE>
F-32
<PAGE> 36
DEALERS ALLIANCE CREDIT CORP.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
-----------------
<S> <C>
Revenues:
Interest income on finance contracts $ 3,628,051
Ancillary income 99,537
Late charges and other income 139,647
-----------
Total finance revenues 3,867,235
Amortization of deferred contract acquisition costs (138,813)
-----------
Net finance revenues 3,728,422
Interest expense, net (1,428,357)
-----------
Net finance income 2,300,065
-----------
Operating expenses:
2,690,496
-----------
Net loss $ (390,431)
===========
</TABLE>
F-33
<PAGE> 37
DEALERS ALLIANCE CREDIT CORP.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
-----------------
<S> <C>
Operating activities
Net loss $ (390,431)
Adjustments:
Provision for credit losses --
Depreciation and amortization 41,956
Amortization of debt discount and organization fees 204,099
Compensatory stock options issued to related party --
Changes in assets and liabilities:
Repossessed collateral (33,633)
Other assets 235,742
Accounts payable and accrued expenses (330,484)
Due to related party (52,094)
------------
Cash provided by (used in) operating activities (325,491)
------------
Investing activities
Purchases of installment contracts receivable (6,145,407)
Payments received on installment contracts receivable 5,721,516
Purchases of equipment (41,995)
Proceeds from sales of assets 3,505
------------
Cash used in investing activities (462,381)
------------
Financing activities
Revolving credit agreement advances 1,150,000
------------
Cash provided by financing activities 1,150,000
------------
Net increase (decrease) in cash and cash equivalents 362,128
Cash and cash equivalents at beginning of period 325,678
------------
Cash and cash equivalents at end of period $ 687,806
============
</TABLE>
F-34
<PAGE> 38
(B) PRO FORMA FINANCIAL INFORMATION.
The following condensed consolidated financial statements of the
Company and its subsidiaries set forth unaudited condensed consolidated balance
sheets as of June 30, 1996 and unaudited condensed consolidated statements of
operations for the six-month transition period ended March 31, 1996 and the
three month period ended June 30, 1996, on an actual historical basis and on a
pro forma adjusted basis to give effect to the purchase of DACC's assets, the
assumption of certain of DACC's liabilities, the issuance by the Company of
Common Stock, Series B Preferred Stock and warrants, and the assumption and
restructuring of DACC's revolving credit agreement in connection therewith.
-3-
<PAGE> 39
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Adjustments (a) Pro Forma
---------- ---------------- ---------
<S> <C> <C> <C>
ASSETS
- ------
Gross contracts receivable $ 30,344 $ 34,947 $ 65,291
Unearned interest (5,621) (8,143) (b) (13,764)
--------- ---------- ---------
Net contracts receivable 24,723 26,804 51,527
Allowance for credit losses (10,506) (12,502) (23,008)
Net loan origination costs 274 -- 274
--------- ---------- ---------
Net contracts receivable - after 14,491 14,302 28,793
--------- ---------- ---------
allowance for credit losses and
other costs
Cash and cash equivalents 20,871 531 (e) 21,402
Vehicles held for resale 356 604 960
Property and equipment, net 988 233 1,221
Other assets, net 210 200 410
Goodwill -- 11,158 (d) 11,158
--------- ---------- ---------
Total assets $ 36,916 $ 27,038 $ 63,944
========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Lines of credit -- 18,000 18,000
Accrued settlements 500 -- 500
Dividends payable 1,610 -- 1,610
Accounts payable and other liabilities 2,477 671 3,148
--------- ---------- ---------
Total liabilities 4,587 18,671 23,258
--------- ---------- ---------
Stockholders' Equity
- --------------------
Preferred stock 175 26 (c) 201
Common stock 302 13 (c) 315
Additional paid-in capital 86,532 8,318 (c) 94,850
Accumulated deficit (53,530) -- (53,530)
Treasury stock (1,150) -- (1,150)
--------- ---------- ---------
Total stockholders' equity 32,329 8,357 40,686
--------- ---------- ---------
Total liabilities and stockholders' equity $ 36,916 $ 27,028 $ 63,944
========= ========== =========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
-4-
<PAGE> 40
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1996 Adjustments (f) Pro Forma
----------------- ---------------- -----------
<S> <C> <C> <C>
Interest revenue $ 3,541 $ 3,554 $ 7,095
Interest expense (1,306) (813) (g) (2,119)
------------ ------------ ---------
Net interest income (loss) 2,235 2,741 4,976
Provision for credit losses (4,982) -- (h) (4,982)
------------ ------------ ---------
Net interest income (loss) after provision for
credit losses (2,747) 2,741 (6)
------------ ------------ ---------
General and administrative expense (8,098) (1,700) (i) (9,798)
Goodwill amortization -- (372) (j) (372)
Settlement expense (535) -- (535)
------------ ------------ ---------
Income (loss) before extraordinary item (11,380) 669 (10,711)
Extraordinary gain on discharge of debt 8,709 -- 8,709
------------ ------------ ---------
Net income (loss) (2,671) 669 (2,002)
Preferred stock dividends (327) (402) (k) (729)
------------ ------------ ---------
Net income (loss) attributable to common
stockholders $ (2,998) $ 267 $ (2,731)
============ ============ =========
Common stock dividends $ 0 $ 0 $ 0
============ ============ =========
Income (loss) per common share before
extraordinary item $ (1.12) $ 0.21 $ (0.97)
Gain on extraordinary item 0.83 -- 0.74
------------ ------------ ---------
Income (loss) per common share $ (0.29) $ 0.21 $ (0.23)
============= ============ =========
Weighted average number of common
shares outstanding 10,447 1,277 (l) 11,724
============ ============ =========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
-5-
<PAGE> 41
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1996 Adjustments (e) Pro Forma
------------------ ---------------- -----------
<S> <C> <C> <C>
Interest revenue $ 1,659 $ 1,777 $ 3,436
Interest expense -- (407)(g) (407)
------------ ----------- -----------
Net interest income (loss) 1,659 1,370 3,029
Recovery of (provision for) credit losses 1,382 -- (h) 1,382
------------ ----------- -----------
Net interest income (loss) after provision for 3,041 1,370 4,411
------------ ----------- -----------
credit losses
General and administrative expense (2,528) (850)(i) (3,378)
Goodwill amortization -- (186)(j) (186)
------------ ----------- -----------
Net income (loss) before dividends 513 334 847
------------ ----------- -----------
Preferred stock dividends (1,404) (201)(k) (1,605)
------------ ----------- -----------
Net income (loss) attributable to common $ (891) $ 133 $ (758)
============ =========== ===========
stockholders
Common stock dividends $ 0 $ 0 $ 0
============ =========== ===========
Income (loss) per common share $ (.03) $ 0.10 $ .03
============ =========== ===========
Weighted average number of common
shares outstanding 26,628 1,277(l) 27,905
============ =========== ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
-6-
<PAGE> 42
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(a) Represents the assets purchased and liabilities assumed from
DACC, as though the transaction had occurred on June 30, 1996.
Except as otherwise noted, each line item adjustment is taken
directly from a corresponding line item in the Statement of
Financial Condition for DACC as of June 30, 1996. Excluded
from the adjustments are the following line items from DACC's
balance sheet which represent either liabilities not assumed
or assets that have no value to the Company:
<TABLE>
<S> <C>
Subordinate debt issue costs $ 280,589
Other assets 323,008
Due to related party 8,017
Senior subordinated notes payable, net 3,513,598
Warrants 563,767
Redeemable Series A preferred stock 8,787,972
</TABLE>
(b) Represents unearned finance charges of $(8,092,739) plus
unearned ancillary income of $(50,578).
(c) Represents the issuance of 2,554,060 shares of $0.01 par value
Series B Preferred Stock valued at $2.54 per share, 1,277,030
shares of $0.01 par value Common Stock valued at $1.06 per
share and 1,277,030 warrants to purchase Common Stock valued
at $0.41 per warrant.
(d) Goodwill is derived from the total value of issued stock less
the net assets (assets less liabilities) acquired from DACC:
<TABLE>
<CAPTION>
As of June 30, 1996
-------------------
<S> <C>
Total assets $ 15,870,000
Goodwill 11,158,000
------------
$ 27,028,000
============
Total liabilities $ 18,671,000
Stockholders' equity 8,357,000
------------
$ 27,028,000
============
</TABLE>
(e) Represents DACC's cash and cash equivalents at June 30, 1996
of $687,806 net of $157,000 of cash retained by DACC to pay
certain obligations and transaction expenses.
(f) Represents the revenues and expenses attributable to the
assets purchased and liabilities assumed from DACC as though
the transaction had occurred on October 1, 1995. Except as
otherwise noted, each line item is the sum of (x) the
corresponding line item in the audited Statement of Operations
of DACC for the three months ended March 31, 1996 plus (y) an
estimate of the line item for the fourth quarter of 1995
derived from the corresponding line item in DACC's audited
Statement of Operations for the year ended December 31, 1995.
(g) Represents interest on DACC's revolving credit agreement and
excludes interest on senior subordinated notes payable which
the Company did not assume.
(h) Assumes sufficient provisions for credit losses at the time of
the Company's acquisition.
(i) Represents estimated general and administrative expenses after
taking into account a reduction of operations at DACC's
facilities. Without reduction, these expenses would have been
$2,788,000 for the six months ended
-7-
<PAGE> 43
March 31, 1996. Reduction in personnel, occupancy,
consulting, professional and data processing expenses have
been and will be made. Additionally, non-recurring costs have
been eliminated.
(j) Represents amortization of goodwill over 180-month period.
(k) Represents six or three months, as the case may be, of
dividends at a rate of $0.315 per annum per share on 2,554,060
new shares of Series B Preferred Stock issued in the
acquisition from DACC.
(l) Represents number of new shares of Common Stock issued in the
acquisition from DACC.
-8-
<PAGE> 44
(C) EXHIBITS.
Exhibit No. Description
- ----------- -----------
2.1 Asset Acquisition Agreement among Search Capital Group, Inc.,
Search Funding IV, Inc. and Dealers Alliance Credit Corp.
dated as of August 2, 1996
2.2 Sub-Debt Acquisition Agreement among Search Capital Group,
Inc., Search Funding IV, Inc., R-H Capital Partners, L.P. and
Kellett Investment Corporation dated as of August 2, 1996
2.3 Escrow Agreement among Search Capital Group, Inc., Dealers
Alliance Credit Corp., Search Funding IV, Inc., R-H Capital
Partners, L.P., Kellett Investment Corporation and U.S. Trust
Company of Texas, N.A., dated as of August 6, 1996
2.4 Search-DACC Shareholders Agreement dated as of August 2, 1996
between Search Capital Group, Inc. and Dealers Alliance Credit
Corp.
2.5 Sub-Debt Shareholders Agreement dated as of August 2, 1996
among Search Capital Group, Inc., R-H Capital Partners, L.P.
and Kellett Investment Corporation
2.6 Debt Assumption Agreement dated as of August 2, 1996 among
Search Capital Group, Inc., Search Funding IV, Inc., LaSalle
National Bank, as Agent, Bank One Chicago, N.A. and Fleet
Capital Corporation
4.1 Certificate of Designation of Series B 9%/7% Convertible
Preferred Stock
-9-
<PAGE> 45
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEARCH CAPITAL GROUP, INC.
By: /s/ Robert Idzi
--------------------------------------------
Robert Idzi, Senior Executive Vice President
Dated: August 19, 1996
-10-
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Asset Acquisition Agreement among Search Capital Group, Inc., Search Funding IV, Inc. and Dealers
Alliance Credit Corp. dated as of August 2, 1996
2.2 Sub-Debt Acquisition Agreement among Search Capital Group, Inc., Search Funding IV, Inc., R-H Capital
Partners, L.P. and Kellett Investment Corporation dated as of August 2, 1996
2.3 Escrow Agreement among Search Capital Group, Inc., Dealers Alliance Credit Corp., Search Funding IV,
Inc., R-H Capital Partners, L.P., Kellett Investment Corporation and U.S. Trust Company of Texas, N.A.,
dated as of August 6, 1996
2.4 Search-DACC Shareholders Agreement dated as of August 2, 1996 between Search Capital Group, Inc. and
Dealers Alliance Credit Corp.
2.5 Sub-Debt Shareholders Agreement dated as of August 2, 1996 among Search Capital Group, Inc., R-H
Capital Partners, L.P. and Kellett Investment Corporation
2.6 Debt Assumption Agreement dated as of August 2, 1996 among Search Capital Group, Inc., Search
Funding IV, Inc., LaSalle National Bank, as Agent, Bank One Chicago, N.A. and Fleet Capital Corporation
4.1 Certificate of Designation of Series B 9%/7% Convertible Preferred Stock
</TABLE>
<PAGE> 1
EXHIBIT 2.1
ASSET ACQUISITION
AGREEMENT
BY AND AMONG
SEARCH CAPITAL GROUP, INC.
SEARCH FUNDING IV, INC.
AND
DEALERS ALLIANCE CREDIT CORP.
DATED AS OF AUGUST 2, 1996
<PAGE> 2
ASSET ACQUISITION AGREEMENT
THIS ASSET ACQUISITION AGREEMENT (the "Agreement") is made as of
August 2, 1996, by and among (i) Search Capital Group, Inc., a Delaware
corporation ("Search"); (ii) Dealers Alliance Credit Corp., a Delaware
corporation ("DACC"); and (iii) Search Funding IV, Inc., a Texas corporation
and a wholly-owned subsidiary of Search ("Newco").
BACKGROUND
A. DACC is an Atlanta based specialized indirect consumer finance company
engaged in financing the purchase of used automobiles by purchasing installment
sales contracts from independent used automobile dealers; and
B. DACC and Search have reached an agreement dated June 19, 1996 (the
"June 19th Agreement") regarding the sale by DACC of its assets to Search, and
the assumption by Search of certain specified obligations of DACC.
NOW, THEREFORE, in consideration of the foregoing premises, which are
incorporated herein by reference, and of the representations, warranties,
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by all
parties, the parties hereto, intending to be legally bound, agree as follows:
1. Sale of Assets
1.1 (a) Assets Purchased. Subject to the terms and conditions set
forth in this Agreement, at the Closing (as defined in Article 2) DACC shall
sell, convey, assign, transfer and deliver to Newco, and Newco shall purchase
from DACC (this transaction is hereafter referred to as the "Sale"), all of
DACC's assets, except those set forth below in Section 1.1(b) (collectively
the "Assets"), free and clear of all claims, liens and encumbrances of any kind
(collectively "Liens"), other than those Liens specifically assumed pursuant to
Section 1.3 below, which Assets include, but are not limited to, the following:
-1-
<PAGE> 3
(i) All "Receivables" (as hereinafter defined). The term
"Receivables" means all receivables of DACC, whether current or
delinquent, and all previously charged-off accounts, skipped
accounts and/or bad debt accounts; and all rights related to
said receivables, including all contract rights against motor
vehicle dealers and all other entities which transferred
installment contract obligations to DACC; all chattel paper;
all rights in the vehicle(s) that secures each said receivable;
and all rights in all other security for said receivables,
including but not limited to all guaranties, indemnities,
insurance proceeds, and premium refunds;
(ii) All accounts, contract rights and/or intangibles,
including, but not limited to, all cash (excluding the amounts
set forth below in Section 1.1(b)) and all bank accounts, all
contracts or agreements with motor vehicle dealers, all
insurance contracts and all rights thereunder, and assignable
right, title and interest in all finance company licenses,
software licenses, personal property leases, franchises, and
all discoveries and other intellectual property used or usable
in DACC's business as listed on SCHEDULE 1.1(ii) attached
hereto;
(iii) All real estate leases to which DACC is a party, and
all other real estate interests owned by DACC, all as listed
on SCHEDULE 1.1(iii);
(iv) All of DACC's tangible personal property, including but
not limited to, all furniture, fixtures and equipment. If an
inventory of such property exists it shall be attached hereto
as SCHEDULE 1.1(iv), otherwise Newco may with DACC's
assistance prepare such an inventory to be attached to the
Bill of Sale delivered to Newco at Closing;
(v) DACC's rights in all repossessed collateral;
-2-
<PAGE> 4
(vi) All loan forms and advertising materials, together with
the artwork, formats and copy used in the preparation thereof;
and all records and files pertaining to DACC's customers and
suppliers, including, without limitation, sales records,
correspondence with customers, customer files and account
histories, records of purchases from suppliers and
correspondence with suppliers;
(vii) The name "Dealers Alliance Credit Corp.", and DACC's
rights in all telephone numbers and other trade names
associated with DACC's business (excluding telephone numbers
used in common with Affiliates of DACC);
(viii) All of DACC's books and records pertaining to the
Assets and the Assumed Liabilities (as defined in Section 1.3
below), whether said books and records are in paper or
electronic media form; and
(ix) Any and all other real property and rights therein, and
any and all other tangible and intangible personal property of
any kind, now owned or leased or acquired by DACC between the
date of this Agreement and Closing.
(b) Excluded Assets. Notwithstanding Section 1.1(a), the
following assets of DACC are specifically excluded from the Assets:
(i) An amount of cash (in a separate account not to be
transferred to Search) required to pay the expenses set forth
in SCHEDULE 1.1(b)(i); provided that if any liability or
expense of DACC, either identified pursuant to Schedule
1.1(b)(i), or which does not constitute an Assumed Liability,
is paid by DACC prior to Closing, the amount of money so paid
by DACC shall be deducted from the amount of cash which DACC
would otherwise be entitled to retain pursuant to this Section
1.1(b)(i) after Closing. Cash may be shifted among line items
on SCHEDULE 1.1(b)(i), provided that the total cash retained
by DACC may not
-3-
<PAGE> 5
exceed $200,000, and provided further that the amounts to be
paid for legal fees may not be increased above the amounts
stated on SCHEDULE 1.1(b)(i);
(ii) DACC's general ledger, corporate minute books, stock
transfer ledger, income tax records and any other similar
corporate records and documents; and
(iii) All of DACC's rights under this Agreement and the
Related Documents (as defined in Schedule 3).
1.2 Purchase Price. The aggregate purchase price (the "Purchase
Price") to be paid to DACC for the purchase of the Assets shall be the issuance
by Search of the Search securities listed below (the "Search Securities"),
cancellation of the Subordinated Claims (as defined in Section 1.9) and
assumption by Newco of the Assumed Liabilities (as defined in Section 1.3
hereof):
(a) 766,218 shares of Search 9%/7% Convertible Preferred Series B,
which shall be governed by the Certificate of Designation set forth on
SCHEDULE 1.2(a) attached hereto, (the "Convertible Stock").
(b) 1,277,030 shares of Search's common stock, par value $.01 per
share ("Common Stock"), which shall be identical to the Search common
stock issued to noteholders under the Chapter 11 Bankruptcy Code plan
of reorganization for which Search was a co-proponent (the "Plan");
and
(c) 1,277,030 Search warrants which shall be identical to Search
warrants issued to noteholders under the Plan and shall be in the form
attached hereto as SCHEDULE 1.2(c) (the "Warrants").
(d) At Closing (as defined in Section 2.1), provided that Search is
able to acquire from the holders (the "Subordinated Debt Holders") of
the Subordinated Debt (as defined in Schedule 3.3), the Subordinated
Claims, for consideration equal to 1,787,842 shares of Convertible
Stock (893,921 shares of which is to be delivered to the
-4-
<PAGE> 6
Escrow Agent as described in Section 10.1 below), Search will deliver
to DACC for cancellation the Subordinated Claims.
(e) DACC hereby acknowledges that the number of shares of Search
Securities to be issued to DACC has been based upon a value of Two
Dollars Fifty-Four Cents ($2.54) per share for the Convertible Stock,
One Dollar Six Cents ($1.06) per share for the Common Stock, and
Forty-One Cents ($.41) for the Warrants.
1.3 Assumed Liabilities.
(a) Subject to the terms and conditions of Section 1.4 below, DACC
shall transfer and assign at Closing, and Newco shall assume at the
Closing, and pay, perform and discharge when due, the following
liabilities and obligations of DACC:
(i) The liabilities and obligations of DACC disclosed on
DACC's interim balance sheet (the "Current Balance Sheet")
dated as of May 31, 1996 (the "Balance Sheet Date"), a copy of
which interim balance sheet is attached hereto as SCHEDULE
1.3(a)(i);
(ii) The liabilities and obligations of DACC which shall
have been incurred by DACC after May 31, 1996 in the ordinary
course of business; and
(iii) The liabilities and obligations of DACC which shall have
been incurred by DACC other than in the ordinary course of
business that have been approved by Search (acting in a
commercially reasonable manner); and
(iv) The liabilities and obligations listed on Schedule 1.3.
(The liabilities identified in Section 1.3(a)(i),(ii), (iii) and (iv)
are collectively referred to as the "Assumed Liabilities"). As soon
after Closing as
-5-
<PAGE> 7
possible, DACC shall deliver to Search a separate statement certified
by the chief financial officer of DACC showing all of the liabilities
and obligations of DACC which shall have been incurred by DACC in the
ordinary course of business since May 31, 1996 and prior to Closing
and which remain unsatisfied as of Closing for Search's review (the
"Post-Closing List"). In addition, DACC shall not pay any portion of
the Senior Bank Debt after May 31, 1996 other than as set forth on
Schedule 1.3(v).
(b) In addition to the Assumed Liabilities described in Section
1.3(a) above, Search shall also assume, on terms reasonably acceptable
to Search (and which provide for the release of DACC from further
liability), DACC's Senior Bank Debt (as defined in Section 3.3(b) of
Schedule 3).
1.4 No Other Liabilities Assumed. Except for the Assumed
Liabilities, neither Newco nor Search shall assume or be liable for in any
manner, any and all other liabilities or obligations of DACC, whether known or
unknown, contingent or fixed, secured or unsecured. This includes, but is not
limited to, the items set forth on SCHEDULE 1.4 attached hereto.
1.5 Payment. At the Closing, Search shall deliver (i) to the Escrow
Agent (defined in Section 10.1 below) the Search Securities required to be
issued to DACC and the Indemnity Shares (defined below in Section 1.9(d)); and
(ii) to the Subordinated Debt Holders the Non-Indemnity Shares (defined below
in Section 1.9(d)), all of which Search Securities shall be validly issued,
fully-paid and nonassessable and free and clear of all Liens.
1.6 Allocation. At the Closing, Newco and DACC shall execute a joint
certificate allocating the Purchase Price among the Assets. Newco and DACC
acknowledge that such allocation shall have been arrived at by arms length
negotiation, and Newco and DACC hereby agree, subject to the requirements of
Section 1060 of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder, to report consistently, in any tax return
completed or filed by them, such sale and assumption pursuant to this Agreement
in accordance with said allocation.
-6-
<PAGE> 8
1.7 Shareholders Agreement. At Closing, DACC and Search shall
execute a Shareholders Agreement (the "DACC Shareholders Agreement") in the
form attached hereto as SCHEDULE 1.7.
1.8 Additional Provisions.
(a) All dividends and other distributions made after the Closing
on the Search Securities held by the Escrow Agent on behalf of DACC
shall be made to the Escrow Agent on behalf of DACC and held in Escrow
until the First Expiration Date or Final Expiration Date (each as
defined in Section 8.2), as the case may be.
(b) Search shall pay a minimum of three consecutive quarterly cash
dividends on the Convertible Stock provided, that if the Convertible
Stock shall have been converted into Search's 9%/7% Convertible
Preferred shares issued to noteholders under the Plan (the "9/7
Noteholder Convertible Preferred"), such dividends shall be paid on
the shares of the 9/7 Noteholder Convertible Preferred held by the
previous holders of the Convertible Preferred. Each such dividend
shall be paid on the 15th day after the close of the quarter (or, if
such day is not a business day, on the first business day thereafter).
The first such quarter's dividends shall begin to accrue on the date
the Convertible Stock is issued by Search, which DACC acknowledges
will entitle DACC to receive only a partial quarter's dividend
payment. In addition, at the same time as Search pays its first of
the aforesaid quarterly dividend payments, Search shall also pay to
DACC an amount of cash equal to the difference between a full
quarter's dividend payment with respect to the Convertible Stock and
the partial dividend amount paid pursuant to the immediately preceding
sentence.
(c) As promptly as possible after Closing, Search shall request,
and shall use best efforts to obtain, Search shareholder approval for
the conversion of the Convertible Stock into the same class of
convertible preferred shares as the 9/7 Noteholder Convertible
Preferred. If Search fails to effect the aforesaid conversion by
April 1, 1997,
-7-
<PAGE> 9
Search shall pay to DACC the sum of Two Hundred Thousand Dollars
($200,000.00).
1.9 Subordinated Debt.
(a) Search will use reasonable efforts to enter into an asset
acquisition agreement (the "Sub-Debt Acquisition Agreement") with the
Subordinated Debt Holders whereby each of the Subordinated Debt
Holders will transfer to Search, or any other designee reasonably
acceptable to Search: (i) all Subordinated Debt and all warrants to
acquire DACC stock; and (ii) all DACC Claims (as defined in the
Sub-Debt Acquisition Agreement) against DACC, together with all other
rights each of the Subordinated Debt Holders possess regarding DACC,
if any, (clauses (i) and (ii) are collectively referred to as the
"Subordinated Claims"), in exchange for 1,787,842 shares of
Convertible Stock. Search's transfer of the Subordinated Claims to
DACC at Closing for cancellation is part of the Purchase Price and is
a condition to the obligation of DACC to consummate the transactions
contemplated hereby.
(b) Search, with DACC's assistance shall, prior to Closing and as
promptly as possible, use all reasonable efforts to negotiate with the
Subordinated Debt Holders the form of the Sub-Debt Acquisition
Agreement (and all agreements contemplated therein) (collectively, the
"Sub-Debt Agreements") to implement the agreement described in Section
1.9(a); a copy of the Sub-Debt Agreements shall be attached hereto at
Closing as SCHEDULE 1.9.
(c) All of the Sub-Debt Agreements shall be subject to Search's and
DACC's prior reasonable approval, which shall not be unreasonably
withheld. In addition, at or prior to Closing, Search shall have the
right to verify that all of the terms and conditions of the Sub-Debt
Agreements have been fully performed and satisfied by both DACC and
the Subordinated Debt Holders, except for the items described in
Section 2.2 below.
(d) At Closing Search will (i) deliver to each of the Subordinated
Debt Holders, in the respective amounts set
-8-
<PAGE> 10
forth in Section 1.5 of the Sub-Debt Acquisition Agreement, two (2)
certificates representing 893,921 shares of Convertible Stock (the
"Non-Indemnity Shares"), and (ii) deliver to the Escrow Agent for the
benefit of the Subordinated Debt Holders one (1) certificate
representing 893,921 shares (the "Indemnity Shares") of the
Convertible Stock (for a total of 1,787,842 shares of the Convertible
Stock), all of which shall be validly issued, fully paid and
nonassessable and free and clear of any Liens, except for the Escrow
Agreement, in exchange for the fully signed and completed Sub-Debt
Agreements. (The Indemnity Shares and Non-Indemnity Shares are
sometimes collectively referred to as "Search Sub-Debt Securities").
The Search Sub-Debt Securities shall be subject to the terms of the
Sub-Debt Shareholders Agreement; in addition, the Indemnity Shares
shall be subject to the Escrow Agreement.
2. Closing.
2.1 Date and Location. The consummation of the Sale and the other
transactions contemplated by this Agreement (the "Closing") shall take place as
promptly as possible after the execution of this Agreement, but in no event
later than August 2, 1996, or at such other earlier time and date as Search,
DACC and Newco may mutually agree, provided that all conditions to Closing
shall have been satisfied or waived. The parties intend to close by exchanging
signed counterparts of all necessary documents.
2.2 Documents to be Delivered at Closing. At the Closing the
following documents, in a form reasonably satisfactory to Search and DACC,
shall be delivered and executed by the parties as follows:
(a) By DACC.
(i) To Newco a Bill of Sale conveying to Newco title to
the Assets being purchased from DACC, free and clear of all
Liens other than the Assumed Liabilities and the Senior Bank
Debt, and incorporating by reference the representations and
warranties
-9-
<PAGE> 11
contained in Sections 3.11, 3.12 and 3.13 of Schedule 3.
(ii) To Newco a special power of attorney in recordable
form authorizing Newco or Newco's agent to sign any and all
titles, documents or instruments in connection with the Assets
on behalf of DACC.
(iii) To Newco an Assignment and Assumption Agreement (the
"Assignment Agreement") pursuant to which DACC shall assign to
Newco, and Newco shall assume from DACC, and agree to pay,
perform and discharge when due, the Assumed Liabilities. The
Assignment and Assumption Agreement shall include a list, to
the extent known and identifiable by DACC as of Closing, of
the Assumed Liabilities and the amount of each Assumed
Liability.
(iv) Transfer to Newco title to the Receivables by
endorsement or assignment as reasonably specified by Search or
Newco; in addition, DACC shall deliver to Newco as part of its
books and records a summary of all Receivables (which need not
be in print or paper form), which shall include the name and
address of the obligor, the loan number, the balance
outstanding, the date the most recent payment was made, and a
description of the collateral for the loan.
(v) To Newco and Search a Closing Certificate confirming
that the representations and warranties in Schedule 3 of this
Agreement are true and correct as of the Closing, with
corrections to any representations that have changed since the
date of this Agreement, provided that if any change is made
based upon the occurrence of a DACC Material Adverse Effect
(as defined in Section 6.5 below), Search shall have the right
to terminate this Agreement pursuant to Section 11.2 below;
provided, further, that if Search and Newco shall consummate
the transactions contemplated hereby, Search and Newco shall
automatically be deemed to have waived, to the
-10-
<PAGE> 12
extent set forth in such Closing Certificate, any breach or
violation of the representations and warranties of DACC
contained in this Agreement.
(vi) To Newco such other documents, including instruments
of sale, transfer and assignment, as is reasonably believed
necessary by Search to enable Newco immediately after Closing
to use, operate, collect, sell, assign and enjoy the benefits
of the Assets.
(vii) To Newco and Search copies of the resolutions adopted
by the Board of Directors of DACC and the shareholders of
DACC, authorizing the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby,
duly certified as of the Closing by the Secretary of DACC.
(viii) To Newco and Search a corporate good standing
certificate and incumbency certificate, each dated within 10
business days of Closing.
(ix) To Search the original signed Amendment to the
Articles of Incorporation changing DACC's legal name to a
name reasonably acceptable to Search.
(x) To Search a legal opinion concerning this transaction
from DACC's counsel in form reasonably acceptable to Search.
(xi) To the extent any consents or approvals shall be
reasonably requested by Search in connection with any of the
transactions herein contemplated, or to the effective transfer
or assignment of any of the Assets being purchased by Search
from DACC, DACC shall deliver to Search copies of all such
consents or approvals so requested by Search.
(xii) To Newco proof reasonably satisfactory to Search that
all Liens affecting the Assets shall be released of record
immediately after Closing, except
-11-
<PAGE> 13
for Liens expressly assumed by Newco pursuant to this
Agreement.
(xiii) To Newco a detailed list (in a form reasonably
satisfactory to Search) of all repossessed collateral with
corresponding loan number, location of the collateral and a
status report on each of said loans.
(xiv) Possession of all Assets shall be delivered to Newco
at Closing.
(xv) To Search triplicates of the DACC Shareholders
Agreement, the Escrow Agreement, and all related documents
which have been executed by DACC.
(xvi) To Search a DACC executed securities "big boy" letter
in the form reasonably satisfactory to Search.
(xvii) To Search a Certificate certifying that no DACC
Material Adverse Effect has been experienced regarding the
Assets between May 31, 1996 and Closing.
(xviii) To the parties so specified, all other documents
reasonably requested in order to consummate the transactions
contemplated hereby.
(b) Senior Bank Debt
(i) Newco and the holders of the Senior Bank Debt shall
have entered into a Debt Assumption Agreement (and all other
agreements contemplated thereby) for assumption of the Senior
Bank Debt on terms reasonably acceptable to Search and DACC.
(c) By Subordinated Debt Holders
(i) Each of the Subordinated Debt Holders shall have
executed the Sub-Debt Agreements and Search shall have verified
compliance by the Subordinated Debt
-12-
<PAGE> 14
Holders with all of the material terms and conditions of the
Sub-Debt Agreements.
(ii) To Search, each of the Subordinated Debt Holders shall
have executed a securities "big boy" letter in the form
reasonably satisfactory to Search.
(d) By Search/Newco
(i) To the Escrow Agent the Search Securities specified
in Section 1.5 and the Indemnity Shares described in Section
1.9(d) and to the Subordinated Debt Holders the Non-Indemnity
Shares specified in Section 1.9(d).
(ii) To DACC certified charters and corporate good standing
certificates and incumbency certificates for each corporation,
each such certificate dated within 10 business days of
Closing.
(iii) To DACC Closing Certificates for Search and Newco
confirming that the representations in Schedule 4 of this
Agreement are true and correct as of the Closing, with
corrections to any representations that have changed since the
date of this Agreement, provided, that if DACC shall
consummate the transactions contemplated hereby, DACC shall
automatically be deemed to have waived, to the extent set
forth in such Closing Certificate, any breach or violation of
the representations and warranties of Search and Newco
contained in this Agreement.
(iv) To DACC a copy of the resolutions adopted by the Board
of Directors of Search authorizing the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby, duly certified as of the Closing by the
Secretary of Search.
(v) To DACC a Certificate certifying that to the best of
Search's information, knowledge and belief no Search Material
Adverse Effect (as defined in Section
-13-
<PAGE> 15
7.2 below) has been experienced by Search since the date
Search's 1996 SEC Form 10-K was filed with the SEC ("10-K
Filing Date").
(vi) To DACC from Newco the Assignment Agreement pursuant
to which DACC shall assign to Newco, and Newco shall assume
from DACC, and agree to pay, perform and discharge when due,
the Assumed Liabilities.
(vii) To DACC a legal opinion concerning this transaction
from Search's counsel in form reasonably acceptable to DACC.
(viii) To DACC triplicates of the DACC Shareholders Agreement,
the Escrow Agreement, and all related documents which have
been executed by Search and/or Newco.
(ix) To DACC a Quit Claim Bill of Sale and Assignment of the
Subordinated Claims, including any documents evidencing the
Subordinated Claims to the extent received from the
Subordinated Debt Holders.
(x) To the parties so specified, all other documents
reasonably requested in order to consummate the transactions
contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES OF DACC
To induce Search and Newco to enter into this Agreement and consummate
the transactions contemplated hereby, DACC represents and warrants to Search
and Newco as set forth in SCHEDULE 3 attached hereto, which representations and
warranties are incorporated in this Section 3 by reference and are deemed to be
part of this Agreement.
4. REPRESENTATIONS OF SEARCH AND NEWCO
To induce DACC to enter into this Agreement and consummate the
transactions contemplated hereby, each of Search and Newco represents and
warrants to DACC as set forth in SCHEDULE 4
-14-
<PAGE> 16
attached hereto, which representations and warranties are incorporated in this
Section 4 by reference and are deemed to be part of this Agreement.
5. COVENANTS
5.1 Access to Information; Confidentiality.
(a) Between the date of this Agreement and the Closing, DACC will
afford to the officers and authorized representatives of Search and
Newco access to (i) all of the sites, properties, books and records of
DACC and (ii) such additional financial and operating data and other
information as to the business and properties of DACC as Search and
Newco may from time to time reasonably request, including without
limitation access to DACC's employees, customers and vendors for due
diligence inquiry. DACC will cooperate with Search and Newco and
their representatives in the preparation of any documents or other
material which may be required in connection with this Agreement.
DACC's representations, warranties, covenants and obligations as set
forth in this Agreement (y) shall survive Search's due diligence
inquiry and (z) shall not be affected or modified in any manner
whatsoever by any due diligence inquiry conducted by Search. In
addition, Search's due diligence inquiry shall not be a defense by
DACC to any breach of any of DACC's representations, warranties,
covenants or obligations.
(b) DACC agrees that it will not disclose any confidential or
proprietary information which it obtains or acquires regarding Search
or Newco to any person, firm, corporation, association or other entity
for any purpose or reason whatsoever, except to authorized employees
or other authorized representatives of DACC and to counsel and other
advisers, provided that such advisors (other than counsel) agree to
the confidentiality provisions of this Section 5.1(b), subject to
Section 5.1(d) below.
(c) Each of Search and Newco agree that prior to Closing they will
not disclose any confidential or proprietary information which either
may obtain or acquire regarding
-15-
<PAGE> 17
DACC to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except to authorized representatives
of Search and Newco and to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality
provisions of this Section 5.1(c), subject to Section 5.1(d) below.
DACC acknowledges that after the Closing all such confidential and
proprietary information shall belong to Newco.
(d) The confidentiality obligations of a party hereto shall be
terminated regarding any confidential or proprietary information
obtained or acquired if (i) such information becomes known to the
public generally through no fault of the receiving party, (ii)
disclosure is required by law or the order of any governmental
authority under color of law, or (iii) the disclosing party receives
the written opinion of its counsel that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to clause
(i), (ii) or (iii) above, such party shall, if possible, give prior
written notice thereof to the other party and provide the other party
with the opportunity to contest such disclosure, and disclose only
such portion of such confidential information which is legally
required to be disclosed and exercise its best efforts to obtain
assurances that confidential treatment will be accorded such
information.
(e) In order to facilitate the resolutions of any Claims (as
defined in Section 8.1 below) made by or against or incurred by DACC
after the Closing, upon reasonable notice to Search and Newco, each of
Search and Newco shall (i) permit DACC, its counsel, accountants and
other representatives to have reasonable access during regular
business hours to the offices, properties, books and records of Search
and Newco relating to the Assets, (ii) furnish DACC, its counsel,
accountants and other representatives such additional financial and
other information regarding the Assets as DACC may from time to time
reasonably request, (iii) make available to DACC, its
-16-
<PAGE> 18
counsel, accountants and other representatives the employees of Search
and Newco whose assistance, testimony or presence is necessary to
assist DACC in evaluating any Claims and defending any Claims;
provided, however, that such investigation and access shall not
unreasonably interfere with any of the businesses or operations of
Search or Newco. Costs and expenses incurred by Search and Newco in
connection with this Section 5.1(e) which are connected to or related
to Claims covered by Section 8.1(a) below shall be deemed an
includable part of the Claims when so incurred by Search. Costs and
expenses incurred by Search and Newco in connection with this Section
5.1(e) not connected or related to Claims under Section 8.1(a) shall
be paid for by Search and/or Newco.
5.2 Conduct of Business Pending Closing. Between May 31, 1996 and
the Closing, DACC will:
(a) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting the Assets;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use commercially reasonable efforts to maintain and preserve
the goodwill associated with its name and its relationships with
customers and others having business relations with it;
(f) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities to the extent its
-17-
<PAGE> 19
failure to do so would have a DACC Material Adverse Effect;
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments; and
(h) inform Search immediately if any event occurs that may have a
DACC Material Adverse Effect.
5.3 Prohibited Activities. Between May 31, 1996 and the Closing,
DACC has not, and will not, without the prior written consent of Search, which
shall not be unreasonably withheld:
(a) declare or pay any dividend, or make any other distribution
(whether in cash, stock or property) in respect of its stock whether
now or hereafter outstanding, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, or purchase, redeem or otherwise acquire or retire
for value any shares of its stock (DACC acknowledges that any such a
prohibited occurrence which relates to the distribution of DACC stock
could affect Search's compliance with the relevant securities laws in
the distribution of the Search Securities);
(b) except for expenses set forth on Schedule 1.1(b)(i), the
Material Contracts listed in Schedule 3.13 and the Finance Contracts
acquired in the ordinary course of business, enter into any contract
or commitment or incur or agree to incur any liability or make any
capital expenditures, or guarantee any Indebtedness (as defined in
Schedule 3) in an amount not in excess of $10,000, including contracts
to provide services to customers;
(c) except as may be required by law as disclosed on Schedule
5.3(c), increase the compensation payable or to become payable to any
officer, director, stockholder, employee or agent; make any bonus or
management fee payment to any such person; make any loans or advances;
adopt or amend any employee benefit plan; grant any severance or
termination pay, or in any other manner
-18-
<PAGE> 20
increase the compensation payable to and/or fringe benefits provided
to any of the aforesaid parties; provided, however, that raises in the
ordinary course of business to non-key employees shall be permitted;
(d) except for the payments listed on Schedule 1.1(b)(i) and for
payments on the Senior Debt (as set forth in Schedule 1.3), make any
payment other than in the "ordinary course of business," which shall
not include paying any past due amounts except to the extent such past
due amounts constitute part of the Assumed Liabilities.
(e) directly or indirectly make or cause to be made any payment to
an "Affiliate," other than Chicago Holdings, Inc., and then only to
the extent any such payments are in the ordinary course of business.
For purposes of this Agreement, the term "Affiliate" shall mean any
entity which is directly or indirectly owned (partially or totally) or
controlled by any officer, director, employee or shareholder of DACC;
(f) directly or indirectly make, or cause to be made, any payments
to or for the benefit of the Subordinated Debt Holders;
(g) create or assume any mortgage, pledge or other Lien or
encumbrance upon any assets or properties whether now owned or
hereafter acquired, other than any Liens relating to the Senior Bank
Debt;
(h) sell, assign, lease, pledge or otherwise transfer or dispose
of any property or equipment except in the ordinary course of business
consistent with past practice;
(i) acquire or negotiate for the acquisition of (by merger,
consolidation, purchase of a substantial portion of assets or
otherwise) any business or the start-up of any new business, or
otherwise acquire or agree to acquire any assets that are material,
individually or in the aggregate, to DACC;
-19-
<PAGE> 21
(j) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(k) waive any material rights or claims of DACC, provided that
DACC may negotiate and adjust claims in the course of good faith
disputes with account debtors, employees and governmental agencies in
a manner consistent with past practice;
(l) commit a material breach of or amend or terminate any material
agreement, permit, license or other right, except for amending or
terminating Finance Contracts in the ordinary course of business;
(m) enter into any other transaction (i) that is not negotiated at
arm's length or (ii) outside the ordinary course of business
consistent with past practice or (iii) prohibited hereunder;
(n) commence a lawsuit other than for routine collection of loans;
(o) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.3(a) through (n) above, or any action
which would make any of the representations and warranties of DACC
contained in this Agreement untrue or result in any of the conditions
set forth in Sections 6 and 7 not being satisfied.
5.4 No Solicitation of Offers. Prior to the first to occur of the
Closing or the termination of this Agreement pursuant to Section 11.1, neither
DACC nor any agent, officer, director or any representative of DACC will,
during the period commencing on the date of this Agreement and ending with the
Closing, directly or indirectly: (a) solicit, encourage or initiate the
submission of proposals or offers from any person for, (b) participate in any
discussions pertaining to, or (c) furnish any information to any person other
than Search and Newco relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, DACC or a merger,
consolidation or business combination of DACC, except, in each case, to the
extent required by fiduciary
-20-
<PAGE> 22
obligations under applicable law. In addition to the foregoing, if DACC
receives any unsolicited offer or proposal relating to any of the above, DACC
shall immediately notify Search thereof, including the identity of the party
making such offer or proposal and the specific terms of such offer or proposal.
5.5 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party
hereunder; provided, that in the event that the other party consummates the
transactions contemplated hereby despite being provided with such written
notice, then the other party shall automatically be deemed to have waived
compliance with such representation, warranty, covenant, condition or agreement
to the extent set forth in such written notice.
5.6 Cooperation in Obtaining Required Consents and Approvals. For
all consents and approvals which DACC is required to obtain pursuant to this
Agreement, Search shall cooperate and provide to DACC such documentation or
other information as DACC shall reasonably request. For all consents and
approvals which Search is required to obtain pursuant to this Agreement, DACC
shall cooperate and provide to Search such documentation or other information
as Search shall reasonably request. Each party shall use all reasonable
efforts to obtain all consents and approvals as shall be necessary for the
performance of its obligations under this Agreement.
5.7 Tax Returns. DACC shall timely file all federal and state tax
returns required to be filed by DACC for taxable periods ending on or prior to
the Closing and shall have paid or will pay when due all taxes which DACC is
required to pay attributable to such periods, except for such payments which
are the subject of a bona fide dispute, which shall be paid upon resolution of
such dispute. Such returns will be prepared
-21-
<PAGE> 23
and filed in accordance with applicable law and in a manner consistent with
past practices. After the Closing, Search, on the one hand, and DACC, on the
other hand, will make available to the other, as reasonably requested, all
information, records or documents relating to the liability for Taxes of DACC
for all periods prior to and after the Closing and will preserve such
information, records or documents until the expiration of any applicable
statute of limitations or extensions thereof.
5.8 Employees. Newco shall immediately hire all employees of DACC
upon the Closing, but, except as set forth below, neither Search nor Newco is
obligated to pay said employees any compensation or other amounts owed to them
by DACC for periods prior to the date they are hired by Newco except to the
extent included by the Assumed Liabilities (e.g. accrued vacation). On or
before Closing DACC shall terminate all of its employees and pay all amounts
owed to them through Closing, except to the extent any such amounts are either
part of the Assumed Liabilities and/or constitute accrued but unpaid vacation
pay. Notwithstanding the foregoing, Newco hereby agrees to assume DACC's
obligations under DACC's employment agreement with Edmond McGinty effective as
of Closing, provided that Newco retains McGinty as an employee for at least 61
days after Closing. If Newco terminates McGinty at any time during the period
ending on the 60th day after Closing, DACC shall be responsible for all
obligations regarding the termination of McGinty's employment. Newco and
Search shall provide to all employees of DACC hired by Newco the employee
benefit plans currently offered as of Closing by Search to Search's employees.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SEARCH AND NEWCO
The obligation of Search and Newco to effect the Closing is subject to the
satisfaction or waiver, at or before the Closing, of the following conditions:
6.1 Representations and Warranties; Performance of Obligations.
All of the representations and warranties of DACC contained in this Agreement
shall be true, correct and complete in all material respects on and as of the
Closing with the same effect as though such representations and warranties had
been
-22-
<PAGE> 24
made on and as of such date and all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by
DACC on or before the Closing shall have been duly complied with, performed or
satisfied in all material respects.
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Newco's proposed acquisition of the Assets, or limiting or restricting Newco's
conduct or operation of its business following the Sale shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit claim or proceeding
of any nature pending against Search, Newco or DACC, their respective
properties or any of their officers or directors, that would,if adversely
determined, be reasonably likely to have a DACC Material Adverse Effect on the
Assets.
6.3 Consents and Approvals. All necessary consents of and filings
with any governmental authority or agency or third party relating to the
consummation by DACC of the transactions contemplated hereby shall have been
obtained and made.
6.4 DACC Shareholders. DACC's shareholders shall have approved
the Sale.
6.5 No Material Adverse Effect. No "DACC Material Adverse Effect"
shall have occurred between May 31, 1996 and Closing. For purposes of this
Agreement, the term "DACC Material Adverse Effect" means any change or event
which materially harms, damages, decreases the value of or interferes with the
servicing, collection, maintenance and/or use of the Assets. Search
acknowledges that the decrease in the value of DACC's Receivables due to the
collection of DACC's Receivables between May 31, 1996 and Closing in the
ordinary course of business shall not constitute a DACC Material Adverse
Effect, and that continued and increased operating losses during that period
shall not constitute a DACC Material Adverse Effect if the operating loss for
each month is not more than 10% greater
-23-
<PAGE> 25
than the operating loss for the month of May or June, whichever is greater. In
addition, Search acknowledges that DACC is currently insolvent and that neither
such current insolvency nor any continued insolvency of DACC shall constitute a
DACC Material Adverse Effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DACC
The obligation of DACC to effect the Sale are subject to the
satisfaction or waiver, at or before the Closing, of the following conditions:
7.1 Representations and Warranties; Performance of Obligations.
All of the representations and warranties of Search and Newco contained in this
Agreement shall be true, correct and complete in all material respects on and
as of the Closing as though such representations and warranties had been made
as of such date and all of the terms, covenants, agreements and conditions of
this Agreement to be complied with, performed or satisfied by Search and Newco
on or before the Closing shall have been duly complied with, performed or
satisfied in all material respects.
7.2 No Material Adverse Effect. No "Search Material Adverse
Effect" shall have occurred between the 10-K Filing Date and Closing. For
purposes of this Agreement, the term "Search Material Adverse Effect" has the
meaning specified in Section 4.1 of Schedule 4. DACC acknowledges, covenants
and agrees that if a Search Material Adverse Effect has occurred, DACC's sole
remedy shall be to terminate this Agreement upon notice to Search pursuant to
the terms of Section 11.1 below.
7.3 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Newco's proposed acquisition of the Assets, or limiting or restricting Newco's
conduct or operation of its business following the Sale shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit
-24-
<PAGE> 26
claim or proceeding of any nature pending against Search, Newco or DACC, their
respective properties or any of their officers or directors, that would,if
adversely determined, be reasonably likely to have a Search Material Adverse
Effect.
7.4 Consents and Approvals. All necessary consents of and filings
with any governmental authority or agency or third party relating to the
consummation by Search and Newco of the transactions contemplated hereby shall
have been obtained and made.
7.5 DACC Shareholders. DACC's shareholders shall have approved
the Sale.
8. INDEMNIFICATION BY DACC
8.1 Indemnification by DACC.
(a) Subject to the terms of Sections 8.1(b) and 8.5 below, DACC
covenants and agrees to indemnify, defend, protect and hold harmless
Search and Newco and their respective officers, directors, employees,
successors and assigns (individually, a "Search Indemnified Party" and
collectively "Search Indemnified Parties") from, against and in
respect of:
(i) all liabilities, losses, claims, damages, punitive
damages, courses of actions, lawsuits, administrative
proceedings (including informal proceedings), investigations,
audits, demands, assessments, adjustments, judgments,
settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs
and expenses (including without limitation, reasonable
attorneys' fees and disbursements of every kind, nature and
description) (collectively, "Claims") suffered, sustained,
incurred or paid by the Search Indemnified Parties in
connection with, resulting from or arising out of, directly or
indirectly:
-25-
<PAGE> 27
(1) any material breach of any representation or
warranty of DACC set forth in this Agreement or any
certificate, document or instrument delivered by or
on behalf of DACC in connection herewith;
(2) any material nonfulfillment of any covenant
or agreement on the part of DACC in this Agreement,
or
(3) all liabilities and obligations of DACC except
for the Assumed Liabilities.
(ii) any and all Claims incident to any of the foregoing
or to the enforcement of this Section 8.1.
(b) DACC shall not have any obligation under Section 8.1(a) to any
Search Indemnified Party with respect to any Claim except to the
extent the total amount of all Claims governed by Section 8.1(a)
shall, in the aggregate, exceed $500,000.00 (the "Deductible"). All
Claims in excess of the Deductible shall become eligible for
indemnification under the terms and conditions of this Section 8.1
(c) Notwithstanding anything to the contrary in Section 8.1(a),
any Claim which alleges fraud or violation of "laws" and/or
"regulations" (each as defined in Section 3.15 of Schedule 3) by DACC
or usury with respect to a Finance Contract (as defined in Schedule 3)
that is raised or brought by the obligor or a guarantor of said
Finance Contract by way of a counterclaim in a proceeding instituted
by or on behalf of Search with respect said Finance Contract shall not
be eligible for indemnification hereunder if the aforesaid allegations
of fraud or violation of law and/or regulation by DACC or usury are
not successfully proven by said obligor or guarantor in such
proceeding, in which event Search shall bear the entire cost of such
proceedings. If, however, the aforesaid allegations are successfully
proven in such proceeding, said Claim shall be eligible for
indemnification and be deemed to be a Claim governed by Section 8.1(a)
of this Agreement. In addition, any such
-26-
<PAGE> 28
Claim governed by this Section 8.1(c) shall be treated as a "Pending
Claim" (as defined below in Section 10.2) for purposes of Sections 8.5
and 10.2 below.
8.2 Expiration.
(a) Subject to the resolution of all Pending Claims, the
indemnification obligations of DACC under this Section 8 shall
terminate as follows:
(i) With respect to all Claims based upon fraud, usury
and/or violation of "laws" and "regulations" (each as defined
in Section 3._ of Schedule 3) by or on the part of DACC with
respect to Finance Contracts, one day after the first (1st)
anniversary of the Closing (the "Final Expiration Date").
(ii) With respect to all other Claims governed by this
Section 8, nine (9) months after Closing (the "First
Expiration Date").
(The Final Expiration Date and the First Expiration Date are
collectively sometimes referred to as the "Expiration Dates").
8.3 No Substitution of Shareholders. If DACC liquidates prior to
the Final Expiration Date, all of the Search Securities held by the Escrow
Agent shall remain in Escrow except as set forth below in Section 10. No
shareholder of DACC shall be personally liable for DACC's obligations under
this Section 8, except in the event they have received Search Securities in
connection with or as a result of a breach or violation of the Escrow
Agreement, and recovery for such liability shall be limited to such Search
Securities. Once Search Securities are properly distributed by the Escrow
Agent from Escrow, none of the DACC Shareholders shall have any responsibility
or obligation to Search, except as may be set forth in the DACC Shareholders
Agreement.
8.4 Indemnification Procedures. All Claims for indemnification
under this Section 8 (including any Claims
-27-
<PAGE> 29
subject to the Deductible) shall be asserted and resolved as follows:
(a) In the event a Search Indemnified Party has a Claim against
DACC (DACC, including all successors, shall be known collectively as
the "Indemnifying Party") hereunder which does not involve a Claim
being asserted against or sought to be collected by a third party, the
Search Indemnified Party shall with reasonable promptness send a Claim
Notice (the "Claim Notice") with respect to such Claim to Richard J.
Uhl (the "Representative") and, in the event the Deductible shall have
been satisfied, to the Escrow Agent. Such Claim Notice shall:
(i) state that the Search Indemnified Party has
paid or incurred a DACC 100% Claim or a Shared Claim and is
entitled to indemnification under Section 8 of this Agreement
(an "Indemnification Item");
(ii) state the aggregate dollar amount of such
Indemnification Item;
(iii) specify in reasonable detail the nature and
amount of each individual Indemnification Item;
(iv) specify in detail those DACC Escrow Shares,
in the order of class and Value as specified in Section 8.4 of
this Agreement, that Escrow Agent shall deliver to the Search
Indemnified Party or as otherwise directed by the Search
Indemnified Party in satisfaction of the Indemnification
Item(s) set forth in the Claim Notice in accordance with
Sections 8.4(e) and 10.3 of this Agreement; and
(v) state the amount remaining in the Deductible
after applying the Indemnification Item(s) in such Claim
Notice towards the Deductible.
Any Claim Notice may include multiple Indemnification Items.
If the Representative does not notify the Search Indemnified Party within 30
days of receipt of the Claim Notice (the
-28-
<PAGE> 30
"Notice Period") that the Indemnifying Party disputes such Claim, the amount of
such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case the Representative shall, within the Notice Period, object
in writing to any Claim made in accordance with this Section 8.4(a), the Search
Indemnified Party shall have fifteen (15) days to respond in a written
statement to the objection of the Representative. If after such fifteen (15)
day period there remains a dispute as to any Claims, the parties shall attempt
in good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such Claims. If the parties should so agree, a
memorandum setting forth such agreement shall be prepared and executed by both
parties. If no such agreement can be reached after good faith negotiations the
parties may pursue applicable remedies as provided by Section 11.18.
(b) In the event that any Claim for which the Indemnifying Party
would be liable to a Search Indemnified Party hereunder is asserted
against a Search Indemnified Party by a third party, the Search
Indemnified Party shall with reasonable promptness notify the
Representative of such Claim, specifying the nature of such claim and
the amount or the estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final amount of such
Claim). The actions and decisions of the Representative shall be
binding upon the Indemnifying Party. The Representative shall have 30
days from the receipt of the Claim Notice (the "Notice Period") to
notify the Search Indemnified Party (i) whether or not the
Indemnifying Party disputes the Indemnifying Party's liability to the
Search Indemnified Party hereunder with respect to such Claim and (ii)
if the Indemnifying Party does not dispute such liability, whether or
not the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend against such Claim, provided that
the Indemnifying Party is hereby authorized (but not obligated) prior
to and during the Notice Period to file any motion, answer or other
pleading and to take any other action which the Indemnifying Party
shall deem necessary or appropriate to protect the Indemnifying
Party's interests. If the Representative notifies the
-29-
<PAGE> 31
Search Indemnified Party within the Notice Period that the
Indemnifying Party does not dispute the Indemnifying Party's
obligation to indemnify hereunder and desires to defend the Search
Indemnified Party against such Claim, except as hereinafter provided,
the Indemnifying Party shall have the right to defend by appropriate
proceedings, which proceedings shall be promptly settled or prosecuted
by the Indemnifying Party to a final conclusion; provided that, unless
the Search Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release
of the Search Indemnified Party. If the Search Indemnified Party
desires to participate in, but not control, any such defense or
settlement the Search Indemnified Party may do so at the Search
Indemnified Party's sole cost and expense. If the Indemnifying Party
elects not to defend the Search Indemnified Party against such Claim,
whether by failure of the Representative to give the Search
Indemnified Party timely notice as provided above or otherwise, then
the Search Indemnified Party, without waiving any rights against the
Indemnifying Party, may settle or defend against any such Claim in the
Search Indemnified Party's commercially reasonable discretion
(provided, that the Search Indemnified Party may not settle any matter
(in whole or part) unless such settlement includes a complete and
unconditional release of the Indemnifying Party) and the Search
Indemnified Party shall be entitled to recover from the Indemnifying
Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the Search Indemnified
Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(c) If at any time, in the reasonable opinion of the Search
Indemnified Party, notice of which shall be given in writing to the
Representative, any such Claim seeks material prospective relief which
could have a materially adverse effect on the assets, liabilities,
financial condition, results of operations or business prospects of
any Search Indemnified Party, the Search Indemnified Party
-30-
<PAGE> 32
shall have the right to control or assume (as the case may be) the
defense of any such Claim and the amount of any judgment or, subject
to the prior approval of the Indemnifying Party, settlement and the
reasonable costs and expenses of defense shall be included as part of
the indemnification obligations of the Indemnifying Party hereunder.
If the Search Indemnified Party should elect to exercise such right,
the Representative shall have the right to participate in, but not
control, the defense of such claim or demand at the sole cost and
expense of the Indemnifying Party.
(d) The Search Indemnified Party's failure to give reasonably
prompt notice to the Representative of any actual or threatened claim
or demand which may give rise to a right of indemnification hereunder
shall not relieve the Indemnifying Party of any liability which the
Indemnifying Party may have to the Search Indemnified Party unless the
failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) All shares of Search Securities issued to and/or on behalf of
DACC pursuant to this Agreement and delivered to the Escrow Agent (the
"DACC Escrow Shares") shall be available to satisfy the
indemnification obligations of the Indemnifying Party pursuant to this
Section 8 through the First Expiration Date or Final Expiration Date,
as the case may be, subject to the retention of that portion of the
DACC Escrow Shares required pursuant to Section 10.2 below for Pending
Claims. Upon determination of the dollar amount owed to a Search
Indemnified Party in satisfaction of the Indemnifying Party's
obligations with respect to "DACC 100% Claims" (defined below in
Section 10.3) and the Indemnifying Party's obligations with respect to
the Indemnifying Party's portion of the "Shared Claims" (defined below
in Section 10.3), the Escrow Agent shall, pursuant to the terms of the
Escrow Agreement, deliver to the Search Indemnified Party that number
of DACC Escrow Shares having a Value (as defined below) equal to the
dollar amount so determined as set forth herein in this Section 8.4(e)
from the respective classes of DACC Escrow Shares identified below.
For purposes of this
-31-
<PAGE> 33
Agreement, the term "Value" per share of DACC Escrow Shares shall mean
(i) the allocated price of each class of the DACC Escrow Shares,
namely Two Dollars Fifty-Three and Eight Tenths Cents ($2.538) per
share for the Convertible Stock, One Dollar Five and Seven Tenths
Cents ($1.057) per share for the Common Stock, and Forty- One Cents
($.41) for the Warrants. In the event of any stock split, reverse
stock split, stock combination or reclassification of any of the DACC
Escrow Shares or any merger, consolidation or combination of Search
with any other entity or entities, the Value of the DACC Escrow Shares
shall be proportionally adjusted so that the Value of the DACC Escrow
Shares after such event shall be the same as the Value such DACC
Escrow Shares possessed immediately prior to such event. Such
adjustment shall be made successively upon the occurrence of the
events listed in the immediately preceding sentence. Subject to
Section 10.3, the order by class in which the Escrow Agent shall
deliver DACC Escrow Shares to the Search Indemnified Parties pursuant
to this Section 8 is as follows: (1) the Warrants, until no more
Warrants are held by the Escrow Agent; then (2) the Common Stock,
until no more shares of Common Stock is held by the Escrow Agent; then
(3) the Convertible Stock, until no more shares of Convertible Stock
is held by the Escrow Agent; then (4) cash. The foregoing order of
distribution shall be followed with respect to all DACC Escrow Shares
held by the Escrow Agent in Escrow.
8.5 Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and indemnities made by DACC in or
pursuant to this Agreement or in any document delivered pursuant hereto will
survive the Closing and will remain in effect until, and will expire upon, the
First Expiration Date or Final Expiration Date as set forth above in Section
8.2, provided, however, that the indemnification obligations with respect to
any Pending Claim (and the related representations, warranties and covenants)
existing as of either of the aforesaid Dates will survive until the final
resolution of such Pending Claim.
9. INDEMNIFICATION BY SEARCH
-32-
<PAGE> 34
9.1 Indemnification by Search. Search covenants and agrees to
indemnify, defend, protect and hold harmless DACC and its officers, directors
and employees, and also DACC's stockholders, but only as set forth in Section
9.2 below (individually, a "DACC Indemnified Party" and collectively "DACC
Indemnified Parties") from, against and in respect of:
(a) all Claims suffered, sustained, incurred or paid by the DACC
Indemnified Parties in connection with, resulting from or arising out
of, directly or indirectly:
(i) any material breach of any representation or warranty
of Search or Newco set forth in this Agreement or any
certificate, document or instrument delivered by or on behalf
of Search or Newco in connection herewith;
(ii) any material nonfulfillment of any covenant or
agreement on the part of Search or Newco in this Agreement, or
(iii) the Assumed Liabilities and/or the Senior Bank Debt.
(b) any and all Claims incident to any of the foregoing or to the
enforcement of this Section 9.1.
9.2 Exclusive Agent. Search's indemnification obligations to
DACC's stockholders are conditioned on the DACC stockholders appointing Richard
J. Uhl ("Agent") as their exclusive agent for handling all matters related to
indemnity claims of DACC stockholders. Without limiting the preceding
sentence, Agent is the only one who can assert, prosecute or settle indemnity
claims of DACC stockholders, and Agent is the only one who can give or receive
notices on behalf of the DACC stockholders with respect to their indemnity
claims. Search shall have no indemnity obligations to any DACC stockholder who
directly asserts a claim against Search or who does not otherwise comply with
the requirements of this Section 9.2.
9.3 Expiration. Search's indemnification obligations under this
Section 9 shall terminate as follows:
-33-
<PAGE> 35
(a) With respect to Claims based upon the Assumed Liabilities
and/or the Senior Bank Debt, upon Search satisfying in full the
Assumed Liabilities and the Senior Bank Debt.
(b) With respect to all other Claims, one day after the first
(1st) anniversary of the Closing.
9.4 Indemnification Procedures. All Claims for indemnification
under this Section 9 shall be asserted and resolved as follows:
(a) In the event a DACC Indemnified Party has a Claim against
Search hereunder which does not involve a Claim being asserted against
or sought to be collected by a third party, the DACC Indemnified Party
shall with reasonable promptness send a Claim notice (the "Claim
Notice") with respect to such Claim to Search. If Search does not
notify the DACC Indemnified Party within 30 days of receipt of the
Claim Notice (the "Notice Period") that Search disputes such Claim,
the amount of such Claim shall be conclusively deemed a liability of
Search hereunder. In case Search shall, within the Notice Period,
object in writing to any Claim made in accordance with this Section
9.3(a), the DACC Indemnified Party shall have fifteen (15) days to
respond in a written statement to the objection of Search. If after
such fifteen (15) day period there remains a dispute as to any Claims,
the parties shall attempt in good faith for sixty (60) days to agree
upon the rights of the respective parties with respect to each of such
Claims. If the parties should so agree, a memorandum setting forth
such agreement shall be prepared and executed by both parties. If no
such agreement can be reached after good faith negotiations the
parties may pursue applicable remedies as provided by Section 11.18.
(b) If any Claim for which Search would be liable to a DACC
Indemnified Party hereunder is asserted against a DACC Indemnified
Party by a third party, the DACC Indemnified Party shall with
reasonable promptness notify Search of such Claim, specifying the
nature of such claim and the amount or the estimated amount thereof to
the
-34-
<PAGE> 36
extent then feasible (which estimate shall not be conclusive of the
final amount of such Claim). Search shall have 30 days from the
receipt of the Claim Notice (the "Notice Period") to notify the DACC
Indemnified Party (i) whether or not Search disputes Search's
liability to the DACC Indemnified Party hereunder with respect to such
Claim and (ii) if Search does not dispute such liability, whether or
not Search desires, at Search's sole cost and expense, to defend
against such Claim, provided that Search is hereby authorized (but not
obligated) prior to and during the Notice Period to file any motion,
answer or other pleading and to take any other action which Search
shall deem necessary or appropriate to protect Search's interests. If
Search notifies the DACC Indemnified Party within the Notice Period
that Search does not dispute Search's obligation to indemnify
hereunder and agrees to defend the DACC Indemnified Party against such
Claim, except as hereinafter provided, Search shall have the right to
defend by appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by Search to a final conclusion; provided that,
unless the DACC Indemnified Party otherwise agrees in writing, Search
may not settle any matter (in whole or in part) unless such settlement
includes a complete and unconditional release of the DACC Indemnified
Party. If the DACC Indemnified Party desires to participate in, but
not control, any such defense or settlement the DACC Indemnified Party
may do so at the DACC Indemnified Party's sole cost and expense. If
Search elects not to defend the DACC Indemnified Party against such
Claim, whether by failure of Search to give the DACC Indemnified Party
timely notice as provided above or otherwise, then the DACC
Indemnified Party, without waiving any rights against Search, may
settle or defend against any such Claim in the DACC Indemnified
Party's commercially reasonable discretion (provided, that the DACC
Indemnified Party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release
of the Search Indemnifying Party) and the DACC Indemnified Party shall
be entitled to recover from Search the amount of any settlement or
judgment and, on an ongoing basis, all indemnifiable costs
-35-
<PAGE> 37
and expenses of the DACC Indemnified Party with respect thereto,
including interest from the date such costs and expenses were
incurred.
(c) Nothing herein shall be deemed to prevent a DACC Indemnified
Party from making a claim, and a DACC Indemnified Party may make a
claim hereunder, for potential or contingent claims or demands
provided the Claim Notice sets forth the specific basis for any such
potential or contingent claim or demand to the extent then feasible
and the DACC Indemnified Party has reasonable grounds to believe that
such a claim or demand may be made.
(d) The DACC Indemnified Party's failure to give reasonably prompt
notice to Search of any actual, threatened or possible claim or demand
which may give rise to a right of indemnification hereunder shall not
relieve Search of any liability which Search may have to the DACC
Indemnified Party unless the failure to give such notice materially
and adversely prejudiced Search.
9.5 Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and indemnities made by Search and Newco
in or pursuant to this Agreement or in any document delivered pursuant hereto
will survive the Closing and will remain in effect, and will expire as provided
in Section 9.3, provided, however, that the indemnification obligations with
respect to any Pending Claim (and the related representations, warranties and
covenants) will survive until the final resolution of such Pending Claim.
10. ESCROW
10.1 Escrow. At Closing the Search Securities as specified in
Section 1.5 (also referred to as the DACC Escrow Shares for purposes of Section
8 above, this Section 10 and the Escrow Agreement), and the Indemnity Shares
specified in Section 1.9(d) shall be delivered to U.S. Trust Company of Texas,
N.A. ("Escrow Agent") to be held by the Escrow Agent pursuant to that certain
Escrow Agreement entered into by and among Search, Newco, DACC, each of the
Subordinated Debt
-36-
<PAGE> 38
Holders, and Escrow Agent in substantially the form as attached hereto as
Schedule 10.1 on the Closing (the "Escrow Agreement"). The Escrow Agent shall
hold the DACC Escrow Shares and the Indemnity Shares pursuant to the Escrow
Agreement. The Escrow Agent shall distribute the DACC Escrow Shares pursuant
to the terms of this Section 10 and the Escrow Agreement; the Escrow Agent
shall distribute the Indemnity Shares pursuant to the terms of Section 10 of
the Sub-Debt Acquisition Agreement and the Escrow Agreement. The parties agree
to instruct the Escrow Agent to transfer the DACC Escrow Shares and all cash
attributable thereto as follows in the following order:
(a) Prior to the First Expiration Date, to Search for cancellation of
that amount of DACC Escrow Shares and/or cash, in the order of class
as specified in Section 8.4 above, to the extent necessary to satisfy
all finally resolved DACC 100% Claims and DACC's portion of the Shared
Claims.
(b) At the First Expiration Date, but subject to Section 10.2
below, to DACC and/or the shareholders of DACC 638,515 Warrants less
the number of Warrants delivered to Search for cancellation, 638,515
shares of Common Stock less the number of shares of Common Stock
delivered to Search for cancellation, and 383,109 shares of
Convertible Stock less the number of shares of Convertible Stock
delivered to Search for cancellation, and all dividends which shall
have been received by the Escrow Agent attributable to the DACC Escrow
Shares released to DACC and not distributed to Search pursuant to
Section 10.1(a).
(c) After the First Expiration Date and prior to the Final
Expiration Date, and to the extent still held by the Escrow Agent in
Escrow, to Search for cancellation of that amount of DACC Escrow
Shares and/or cash, in the order of class as specified in Section 8.4
above, to the extent necessary to satisfy all finally resolved DACC
100% Claims and DACC's portion of the Shared Claims.
(d) At the Final Expiration Date, but subject to Section 10.2
below, to DACC and/or the shareholders of DACC the
-37-
<PAGE> 39
balance of the DACC Escrow Shares and all dividends which shall have
been received by the Escrow Agent attributable to the DACC Escrow
Shares released to DACC and not distributed to Search pursuant to
Sections 10.1(a) or 10.1(c).
10.2 Pending Claims. Notwithstanding anything to the contrary in
Section 10.1, if the aggregate amount of all DACC 100% Claims and the Shared
Claims (including the amount of all Pending Claims as determined below) shall
have exceeded the Deductible and Pending Claims exist as of an Expiration Date,
the Escrow Agent shall retain in Escrow that portion, in excess of the
Deductible, of the DACC Escrow Shares and/or cash, in the order specified in
Section 8.4, with a Value equal to: (i) 100% of the amount of the DACC 100%
Claims and DACC's portion of the Shared Claims, as determined by Search acting
in good faith in a commercially reasonable manner, if Search determines the
amount of any of such Claims is reasonably certain, or (ii) 125% of the amount
of the DACC 100% Claims and DACC's portion of the Shared Claims, as determined
by Search acting in good faith in a commercially reasonable manner, if Search
determines the amount of any such Claims is not reasonably certain. Upon the
final resolution of any Pending Claim, the Escrow Agent shall likewise
distribute in the priorities specified in Section 10.1 the DACC Escrow Shares
and/or cash reserved by the Escrow Agent with respect to such types of Pending
Claim. The term "Pending Claim" shall mean any Claim governed by Section 8
which has not been resolved finally as of an Expiration Date.
10.3 Pro Rata Payment of Claims. Search and DACC acknowledge that
there are three types of indemnity Claims governed by either this Agreement
and/or the Sub-Debt Acquisition Agreement: (i) those for which only DACC has
liability (the "DACC 100% Claims"), (ii) those for which only the Subordinated
Debt Holders have liability (the "SDH 100% Claims"), and (iii) those for which
both DACC and the Subordinated Debt Holders have liability (the "Shared
Claims"). With respect to DACC 100% Claims only DACC Escrow Shares and/or cash
attributable thereto shall be used to pay such Claims. With respect to SDH
100% Claims only Indemnity Shares and/or cash attributable thereto shall be
used to pay such Claims. With respect to Shared Claims, 62% of such Claims
shall be paid
-38-
<PAGE> 40
from DACC Escrow Shares and/or cash attributable thereto, and 38% of such
Claims shall be paid from Indemnity Shares and/or cash attributable thereto,
provided, that if either the DACC Escrow Shares or the cash attributable
thereto, on the one hand, or the Indemnity Shares and the cash attributable
thereto, on the other, are insufficient to pay such party's share of the Shared
Claim, then the other party shall pay any deficiency so that Search receives
payment for 100% of the Shared Claim.
11. GENERAL
11.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of Search and DACC; or
(b) by DACC, on the one hand, or by Search, on the other hand, if
the Closing shall not have occurred on or before August 2, 1996;
provided that the right to terminate this Agreement under this Section
11.1(b) shall not be available to either party (Search and Newco
deemed to be a single party for this purpose) whose material
misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in,
the failure of the Closing to occur on or before such date; or
(c) by DACC, on the one hand, or by Search, on the other hand, if
there is or has been a material breach, failure to fulfill or default
on the part of the other party of any of the representations and
warranties contained herein or in the due and timely material
performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not
have been made or shall not reasonably be expected to occur before the
Closing; or
(d) by DACC, on the one hand, or by Search, on the other hand, if
there shall be a final nonappealable order of a federal or state Court
in effect preventing consummation of the Sale or any other transaction
contemplated hereby;
-39-
<PAGE> 41
or there shall be any action taken, or any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the
Sale or any other transaction contemplated hereby by any governmental
entity which would make the consummation of the Sale or any other
transaction contemplated hereby illegal.
11.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 11.1, this Agreement shall forthwith become
void, and except as hereinafter provided, there shall be no liability or
obligation on the part of any party hereto or its officers, directors or
stockholders. Notwithstanding the foregoing sentence, (a) the provisions of
this Section 11.2, Section 5.l(b) and (c) (confidentiality) and the other
provisions of Section 11 (including without limitation brokers and expenses),
shall remain in full force and effect and survive any termination of this
Agreement; (b) DACC and the Search/Newco Group shall remain liable to the other
for any breach of this Agreement prior to its termination; and (c) in the event
of termination of this Agreement pursuant to Section 11.1(c) above, then
notwithstanding the provisions of Section 11.8 below, the breaching party shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with Section 11.18.
11.3 Cooperation. DACC, Search and Newco shall each deliver or
cause to be delivered to the other on the Closing, and at such other times and
places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
DACC will also cooperate and use its reasonable efforts to have the present
officers, directors and employees of DACC, and have all "contract employees"
provided to DACC by Chicago Holdings, Inc. or any other Affiliate, cooperate
with Search on and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods
-40-
<PAGE> 42
prior to the Closing, in each case at the cost and expense of Search.
11.4 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, and their
permitted successors and assigns.
11.5 Entire Agreement. This Agreement (which includes the
Schedules attached hereto) sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby. It shall not be
amended or modified except by a written instrument duly executed by each of the
parties hereto. Any and all previous agreements and understandings between or
among the parties regarding the subject matter hereof, whether written or oral,
are superseded by this Agreement, including, without limitation, the June 19
Agreement.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties.
11.7 Brokers and Agents. Search and Newco (as a group) and DACC
each represents and warrants to the other that it has not employed any broker
or agent in connection with the transactions contemplated by this Agreement and
agrees to indemnify the other against all loss, damages or expense relating to
or arising out of claims for fees or commissions of any broker or agent
employed or alleged to have been employed by such indemnifying party, except
that DACC has an obligation to pay a brokerage commission to The Chicago
Corporation and EVEREN Securities, Inc. in connection with the consummation of
the Sale, which obligation shall be solely that of DACC.
-41-
<PAGE> 43
11.8 Expenses. Search has and will pay the fees, expenses and
disbursements of Search and Newco and their agents, representatives, financial
advisors, accountants and counsel incurred in connection with the subject
matter of this Agreement. DACC has and will pay the fees, expenses and
disbursements of DACC and its agents, representatives, financial advisors,
accountants and counsel incurred in connection with the subject matter of this
Agreement.
11.9 Specific Performance; Remedies. Each party hereto
acknowledges that the other parties will be irreparably harmed and that there
will be no adequate remedy at law for any violation by any of them of any of
the covenants or agreements contained in this Agreement, including without
limitation, the confidentiality obligations set forth in Section 5.1(b) and
(c). It is accordingly agreed that, in addition to any other remedies which may
be available upon the breach of any such covenants or agreements, each party
hereto shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties' covenants and agreements contained in this Agreement.
11.10 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail,
postage prepaid, or by recognized courier service, as follows:
If to Search
or Newco to: Search Capital Group, Inc.
700 N. Pearl Street
Suite 400, L.B. 401
Dallas, Texas 75201-2809
Attention: George C. Evans, President & CEO
Facsimile No.: 214-965-6098
-42-
<PAGE> 44
With a copy to:
Riezman & Blitz, P.C.
120 S. Central, 10th Floor
St. Louis, Missouri 63105
Attention: Richard M. Riezman, Esq.
Facsimile No.: 314-727-6458
If to DACC Dealers Alliance Credit Corp.
c/o Chicago Holdings, Inc.
1000 RIDC Plaza
P.O. Box 11432
Pittsburgh, PA 15238
Attention: Richard J. Uhl, President & CEO
Facsimile No.: 412-963-9841
-43-
<PAGE> 45
With a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attention: Russell S. Berman, Esq.
Facsimile No.: 212-479-6275
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such
notice, request, claim, demand, waiver, consent, approval or other
communication shall be deemed to have been given as of the date so delivered,
telefaxed, mailed or dispatched and, if given by any other means, shall be
deemed given only when actually received by the addressees.
11.11 Governing Law . This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Delaware.
11.12 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any jurisdiction, shall not
be affected thereby, and to this end the provisions of this Agreement shall be
severable.
11.13 Absence of Third Party Beneficiary Rights. No provision of
this Agreement is intended, nor will be interpreted, to provide or to create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee, partner of any party hereto
or any other person or entity.
11.14 Mutual Drafting. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not
be construed for or against any party hereto.
-44-
<PAGE> 46
11.15 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement,
with the opportunity to seek advice as to its legal rights from such counsel.
Each party further represents that it is being independently advised as to the
tax consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
11.16 Amendment; Waiver. This Agreement may be amended by the
parties hereto at any time prior to the Closing by execution of an instrument
in writing signed on behalf of each of the parties hereto. Any extension or
waiver by any party of any provision hereto shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
11.17 Public Disclosure.
(a) Between the date of this Agreement and Closing: (i) DACC shall
not make any disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement unless previously approved by
Search in writing; (ii) Search shall provide to DACC a copy of all
materials to be filed by Search with the Securities and Exchange
Commission ("SEC") regarding this Agreement and the Sale for DACC's
review and comment; and (iii) DACC and Search shall mutually prepare
and approve a joint press release to be issued contemporaneously with
Closing regarding this Agreement and the Sale.
(b) After Closing, Search shall provide to DACC a copy of all
materials to be filed with the SEC regarding this Agreement and the
Sale for DACC's review and comment.
(c) Search shall consider all comments and/or reasonable suggested
changes made by DACC pursuant to Sections 11.17(a) and (b), provided,
however, that the determination of Search's securities counsel on any
DACC suggested changes regarding any materials to be filed by
-45-
<PAGE> 47
Search with the SEC shall be final and binding on the parties hereto.
11.18 Arbitration.
(a) Any controversy, claim or dispute arising out of or
relating to this Agreement or the breach, termination,
enforceability or validity hereof, including without
limitation the determination of the scope or applicability of
the agreement to arbitrate set forth in this Section 11.18,
shall be determined exclusively by binding arbitration in a
city mutually agreed to by DACC and Search before three
arbitrators. The arbitration shall be governed by the
American Arbitration Association (the "AAA") under its
Commercial Arbitration Rules, provided that Persons eligible
to be selected as arbitrators shall be limited to
attorneys-at-law each of whom has actively practiced law (in
private or corporate practice or as a member of the judiciary)
for at least 15 years concentrating in either general
commercial litigation or general corporate and commercial
matters.
(b) Judgment upon the award rendered may be entered in
any court having jurisdiction.
(c) Each of DACC and the Subordinated Debt Holders, on
the one hand, and Search and Newco, on the other, shall,
subject to the award of the arbitrators, pay an equal share of
the arbitrators' fees. The arbitrators shall have the power
to award recovery of all costs (including attorneys' fees,
administrative fees, arbitrators' fees and court costs) to the
prevailing party.
11.19 WAIVER. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT
OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES,
-46-
<PAGE> 48
EXCEPT TO THE EXTENT OF ANY SUCH DAMAGES OCCASIONED BY AN INTENTIONAL BREACH BY
ANY PARTY OF ITS OBLIGATIONS UNDER THIS AGREEMENT. EACH OF THE PARTIES HEREBY
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL IN THE NEGOTIATION, EXECUTION
AND DELIVERY OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, SUCH WAIVER OF
THE RIGHT TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES TO THE EXTENT WAIVED BY THE
PARTIES HERETO.
[THE REST OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
-47-
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
SEARCH CAPITAL GROUP, INC.
By:/s/ ROBERT D. IDZI
-------------------------------------
Robert D. Idzi, E.V.P. & CFO
DEALERS ALLIANCE CREDIT CORP.
By:/s/ RICHARD J. UHL
-------------------------------------
Chief Executive Officer
SEARCH FUNDING IV, INC.
By:/s/ ROBERT D. IDZI
-------------------------------------
Robert D. Idzi, S.V.P. & CFO
-48-
<PAGE> 50
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 (ii) - DACC Intangible Property List
Schedule 1.1 (iii) - DACC Owned and Leased Real Estate
Schedule 1.1 (iv) - DACC Furniture, Fixtures and Equipment
Schedule 1.2 (a) - Form of Search Convertible Preferred Stock
Schedule 1.2 (c) - Form of Search Warrant
Schedule 1.3 - DACC May 31, 1996 Balance Sheet, Additional Assumed Specific DACC Liabilities And
Senior Bank Debt Amount
Schedule 1.4 - List of DACC Excluded Liabilities Not Assumed
Schedule 1.7 - Form of Shareholder Agreement
Schedule 1.9 - Form of Sub-Debt Agreements
Schedule 3 - Representations and Warranties of DACC
Schedule 4 - Representations and Warranties of Search and Newco
Schedule 10.1 - Form of Escrow Agreement
</TABLE>
-49-
<PAGE> 51
SCHEDULE 3 and 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
3. REPRESENTATIONS AND WARRANTIES OF DACC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
--------------------------------------
3.1 DUE ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
----------------
3.2 AUTHORIZATION; VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
-----------------------
3.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
------------
3.4 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
------------
3.5 PREDECESSOR STATUS; ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
------------------------
3.6 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
--------------------
3.7 LIABILITIES AND OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
---------------------------
3.8 ACCOUNTS AND NOTES RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
-----------------------------
3.9 PERMITS AND INTANGIBLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
-----------------------
3.10 VALIDITY OF FINANCE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
-----------------------------
3.11 FINANCE CONTRACTS ASSIGNABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
----------------------------
3.12 LEASES ASSIGNABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
-----------------
3.13 SIGNIFICANT CAR DEALER, MATERIAL CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . -5-
----------------------------------------------------------
3.14 EMPLOYEE BENEFIT PLANS AND LABOR UNIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
---------------------------------------
3.15 CONFORMITY WITH LAW; LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
-------------------------------
3.16 RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
--------
3.17 ABSENCE OF CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
------------------
3.18 BANK ACCOUNTS; POWERS OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
---------------------------------
3.19 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
----------
3.20 SEARCH SECURITIES REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
---------------------------------
3.21 COMPLETE COPIES OF MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
----------------------------
3.22 OFFICES, FTC; WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
------------------------
3.23 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
---------------------
4. REPRESENTATIONS OF SEARCH AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
-----------------------------------
4.1 DUE ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
----------------
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
--------------------------------------
4.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
------------
4.4 SEARCH CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
---------------------
4.5 SEARCH SECURITIES DISCLOSURE DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
--------------------------------------
4.6 ABSENCE OF MATERIAL CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
---------------------------
4.7 SEARCH SEC FILINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
------------------
4.8 RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
--------
4.9 SEARCH FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
---------------------------
4.10 OWNERSHIP OF NEWCO; NO PRIOR ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
---------------------------------------
4.11 CONFORMITY WITH LAW; LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
-------------------------------
</TABLE>
<PAGE> 52
Note: For purposes of Schedules 3 and 4, the term "Agreement" refers to the
Asset Acquisition Agreement, dated as of August __, 1996, by and among Search
Capital Group, Inc. ("Search"), Search Funding IV, Inc. ("Newco") and Dealers
Alliance Credit Corp. ("DACC"), including all Schedules thereto.
SCHEDULE 3
3. REPRESENTATIONS AND WARRANTIES OF DACC:
3.1 DUE ORGANIZATION. DACC is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own its properties and to carry on its business in the places and in the manner
as now conducted except where the failure to be so authorized or qualified
would not have a DACC Material Adverse Effect (as defined in Section 6.5 of the
Agreement) on the Assets or materially adversely affect the ability of DACC to
consummate the Sale. SCHEDULE 3.1 hereto contains a list of all jurisdictions
in which DACC is authorized or qualified to do business and DACC is in good
standing in each of said jurisdictions.
3.2 AUTHORIZATION; VALIDITY. DACC has all requisite corporate power and
authority to enter into and perform its obligations pursuant to the terms of
the Agreement and all of the agreements and documents referred to therein (the
"Related Documents"). The execution and delivery of the Agreement and the
Related Documents to which DACC is a party by DACC and the performance by DACC
of its obligations thereunder have been duly and validly authorized by the
Board of Directors of DACC and by all necessary corporate action, except that
the Sale must still be approved by DACC's stockholders. This Agreement is, and
upon execution by DACC the Related Documents will be, legal, valid and binding
obligations of DACC enforceable against DACC in accordance with their terms,
subject to approval of the Sale by DACC's stockholders, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief
or other equitable remedies.
3.3 NO CONFLICTS. The execution, delivery and performance of the
Agreement, the consummation of the transactions
-1-
<PAGE> 53
contemplated thereby, and the fulfillment of the terms thereof will not:
(a) conflict with, or result in a breach or violation of, DACC's
certificate of incorporation or bylaws;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which DACC is a
party, or result in the creation or imposition of any lien, charge or
encumbrance on any of DACC's properties pursuant to (i) any law or
regulation to which either DACC or any of its property is subject or
(ii) any judgment, order or decree to which DACC is bound or any of
its property is subject, provided that the holders ("Senior Debt
Holders") of the Senior Bank Debt (defined below) and the holders of
the Subordinated Debt (defined below) consent to this transaction,
except, in each case, as would not, individually or in the aggregate,
have a DACC Material Adverse Effect. "Senior Bank Debt" means all
debt owed by DACC from time to time under the Amended and Restated
Loan and Security Agreement dated October 30, 1995, as amended (as
amended, the "Senior Loan Agreement"), between DACC and LaSalle
National Bank, as agent for the financial institutions that are
parties to said loan agreement from time to time. "Subordinated Debt"
means all debt owed by DACC from time to time under the Senior
Subordinated Note and Warrant Purchase Agreement dated October 16,
1995, as amended, originally between DACC and R-H Capital Partners,
L.P.; and
(c) except as would not materially adversely effect Search's
ability to service, collect, maintain and/or use the Assets and/or
would not constitute a DACC Material Adverse Effect:
(i) result in termination or impairment of any material
permit, license, franchise, contractual right or other
authorization of DACC, but, in each case, only if and to the
extent such licenses, permits, franchises, contractual rights
and other authorizations are assignable by DACC; or
(ii) violate any law, order, judgment, rule, regulation,
decree or ordinance to which DACC is subject or by which the
Assets are bound.
-2-
<PAGE> 54
3.4 SUBSIDIARIES. DACC has no subsidiaries and does not presently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, nor is DACC, directly or
indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
3.5 PREDECESSOR STATUS; ETC. SCHEDULE 3.5 sets forth a listing of all
names of all predecessor companies of DACC during the five-year period
immediately preceding the date hereof, including without limitation the names
of any entities from whom DACC has acquired material assets. DACC has not at
any time during the five year period immediately preceding the date hereof been
a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded.
3.6 FINANCIAL STATEMENTS.
(a) DACC acknowledges that Search is relying upon DACC's "Audited
Financials" (as defined below) for purposes of satisfying the
applicable Securities and Exchange Commission requirements governing
Search's proxy materials (a preliminary draft of which was filed by
Search with the SEC on July 19, 1996), and upon the consent of DACC's
auditors (which such auditors have provided) to use such Audited
Financials as part of the aforesaid proxy materials.
(b) For the purpose of acknowledging Search's reliance on DACC's
Audited Financials as set forth in the foregoing Section 3.6(a), and
for no other purposes, DACC affirms that SCHEDULE 3.6 includes true,
complete and correct copies of DACC's audited Statement of Financial
Condition as of December 31, 1995 (the end of its most recent
completed fiscal year) and as of March 31, 1996, and audited Related
Statements of Operations, Common Stockholders Deficit and Cash Flows
for the year ended December 31, 1995 and for the three (3) months
ended March 31, 1996 (collectively, the "Audited Financials").
3.7 LIABILITIES AND OBLIGATIONS. DACC is not liable for or subject to any
"liabilities" which will either materially adversely affect Search's ability to
service, collect, maintain and/or use the Assets, constitute a DACC Material
Adverse Effect, or cause Search to become obligated for any such liabilities,
except for the following:
-3-
<PAGE> 55
(a) those liabilities reflected on the Current Balance Sheet and
not previously paid or discharged;
(b) those liabilities arising in the ordinary course of DACC's
business consistent with past practice after the Balance Sheet Date;
(c) those liabilities incurred since the Balance Sheet Date other
than in the ordinary course of business which were approved by Search;
and
(d) those liabilities identified on Schedules 1.3 and 1.4.
For purposes of this Section 3.7, the term "liabilities" shall include without
limitation any direct or indirect liability, indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, either accrued, absolute, contingent, mature, unmature or
otherwise and whether known or unknown, fixed or unfixed, liquidated or
unliquidated, secured or unsecured.
3.8 ACCOUNTS AND NOTES RECEIVABLE. DACC will deliver to Search at Closing
DACC's books and records (as described in Section 1.1(a)(viii) of the
Agreement), which contain the accounts and notes receivable of DACC as of June
30, 1996 (including without limitation receivables from and advances to
employees, DAAC's stockholders and others), and which include all aging of all
accounts and notes receivable as of June 30, 1996 showing amounts due in 30-day
aging categories.
3.9 PERMITS AND INTANGIBLES. Except as would not have a DACC Material
Adverse Effect, DACC owns or holds all licenses, franchises, permits and other
governmental authorizations in each jurisdiction identified above in Section
3.1 necessary for DACC to operate the Assets (the "Material Permits"). DACC
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Material
Permits is not in violation of any of the foregoing except where such
noncompliance or violation would not have a DACC Material Adverse Effect.
3.10 VALIDITY OF FINANCE CONTRACTS. Except for the exceptions noted on
SCHEDULE 3.10, with respect to each "Finance Contract" (as defined below in
Section 3.10): (i) such Finance Contract does not contravene any applicable
usury laws, rules or regulations; (ii) DACC has not at any time violated any
other laws, rules or regulations with respect thereto, except as
-4-
<PAGE> 56
would not have a DACC Material Adverse Effect or as would not materially
adversely affect Search's ability to service, collect, maintain and/or use the
Assets; (iii) DACC has not pledged, transferred or encumbered the Finance
Contract or Related Security, except to the Senior Debt Holders; (iv) to DACC's
knowledge, the Finance Contract was validly assigned to DACC by the assignor
thereof and, except as noted below in this Section 3.10, DACC is in physical
possession of such Finance Contract; (v) to DACC's knowledge, there are no
deferred sales taxes due and owing on or with respect to the Finance Contract;
and (vi) such Finance Contract was not procured by fraud on the part of DACC.
DACC further represents that (y) DACC has physical possession of substantially
all, but not necessarily all, of the Finance Contracts; and (z) except for
DACC's obligations under its agreement(s) with "WYNN'S" and/or any affiliate of
WYNN'S, DACC has not incurred any liability or obligation under any extended
service or warranty agreement regarding any Car Dealer or obligor. The term
"Finance Contracts" shall mean all consumer finance contracts being sold by
DACC to Search and the term "Finance Contract" shall mean any one of such
Finance Contracts. The term "Related Security" means all collateral and
security agreements for the Finance Contracts and all tangible or intangible
collateral therefor, including but not limited to all physical collateral
therefor (i.e. all motor vehicles) and the proceeds thereof, and all
guaranties, indemnities, warranties, insurance proceeds and premium refunds and
other property of whatever character at any time held as security for such
Finance Contract.
3.11 FINANCE CONTRACTS ASSIGNABLE. To the best of DACC's knowledge, all of
DACC's Finance Contracts and all collateral for said Finance Contracts,
including but not limited to recourse rights against Car Dealers, guaranties,
insurance rights and lien rights are fully assignable to Newco without the
consent of any other person, and all such Finance Contracts and the collateral
therefor are enforceable by Newco to the same extent they would have been
enforceable by DACC.
3.12 LEASES ASSIGNABLE. Except as set forth in SCHEDULE 3.12, DACC
represents and warrants all leases of real property and personal property being
assigned are assignable without the lessor's consent. DACC agrees to use
reasonable efforts to obtain the consent to the assignment to Newco of the
leases listed on SCHEDULE 3.12, and will provide Newco with a copy of each
lessor's written consent obtained with respect to the assignment of said
leases. Search agrees to fully cooperate with DACC in obtaining such consents.
Newco is not liable under and is not assuming any leases listed on SCHEDULE
3.12,
-5-
<PAGE> 57
except for those leases that the lessor has consented in writing to the
assignment thereof to Newco.
3.13 SIGNIFICANT CAR DEALER, MATERIAL CONTRACTS AND COMMITMENTS. SCHEDULE
3.13, which is attached hereto, sets forth a substantially complete list of all
vehicle dealers ("Car Dealers") from whom DACC purchased Finance Contracts
between January 1, 1996 and June 30, 1996 and the aggregate monthly amount
purchased by DACC from such Car Dealers. SCHEDULE 3.13 also contains an
accurate list of all material contracts, commitments, leases, instruments,
agreements, licenses or permits to which DACC is a party or by which it or its
properties are bound (including without limitation contracts with significant
car dealers, joint venture or partnership agreements, real estate leases,
equipment leases, software licenses, contracts with any labor organizations,
loan agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements) (i) as of the
Balance Sheet Date and (ii) entered into since the Balance Sheet Date
(collectively, the "Material Contracts"). DACC will deliver to Search at
Closing as part of DACC's books and records, true, complete and correct copies
of the Material Contracts. Except to the extent set forth on SCHEDULE 3.13 and
except as would not have a DACC Material Adverse Effect or materially adversely
effect Search's ability to service, collect, maintain and/or use the Assets,
(y) DACC has complied with all of its commitments and obligations and is not in
default under any of the Material Contracts and no notice of default has been
received with respect to any thereof and (z) there are no Material Contracts
that were not negotiated at arm's length with third parties not affiliated with
DACC or any officer, director or stockholder of DACC.
Each Material Contract is valid and binding on DACC and is in full
force and effect and to the knowledge of DACC is not subject to any material
default thereunder by any party obligated to DACC pursuant thereto. DACC has
obtained, or will use its reasonable efforts to obtain prior to the Closing,
all necessary consents, waivers and approvals of parties to any Material
Contracts as are required in connection with any of the transactions
contemplated hereby, or as are required of any governmental agency or other
third party advisable in order that any such Material Contract remain in effect
without material modification after the Sale and without giving rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Search agrees to fully cooperate with DACC in obtaining such
consents. All DACC third party consents are listed on SCHEDULE 3.13.
-6-
<PAGE> 58
3.14 EMPLOYEE BENEFIT PLANS AND LABOR UNIONS.
(a) BENEFIT PLANS. Schedule 3.14 sets forth a list of all DACC's
employee benefit plans. DACC shall maintain the availability of COBRA
coverage through its health insurance plan to the extent required by
law (provided that Search is willing to administer the same with
respect to all DACC employees hired by Search post-closing).
(b) LABOR UNION. DACC is not bound by or subject to (and none of
its respective assets or properties is bound by or subject to) any
arrangement with any labor union. No employee of DACC is represented
by any labor union or covered by any collective bargaining agreement
and, to the knowledge of DACC, no campaign to establish such
representation is in progress. There is no pending or, to the best
knowledge of DACC, threatened labor dispute involving DACC and any
group of its employees nor has DACC experienced any labor
interruptions over the past three years and DACC considers its
relationship with its employees to be good.
3.15 CONFORMITY WITH LAW; LITIGATION. DACC has complied in all material
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any federal, state or local
statute, law or regulation with respect to the Assets which would constitute a
DACC Material Adverse Effect, or which would materially adversely effect
Search's ability to service, collect, maintain and/or use the Assets. Except
as set forth in Schedule 3.15 there are no claims, actions, suits or
proceedings, pending or, to the knowledge of DACC, threatened, against or
affecting DACC at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality having jurisdiction over it which, if adversely determined,
would have a DACC Material Adverse Effect. There are no judgments, orders,
injunctions, decrees, stipulations or awards (whether rendered by a Court or
administrative agency or by arbitration) against DACC or against any of the
Assets which would have a DACC Material Adverse Effect.
The terms "law" and "regulation" as used in this Agreement include all
state and federal laws and regulations applicable to DACC's business, and such
laws and regulations include but are not limited to the federal Fair Debt
Collections Practices Act, the federal Truth in Lending act, the Federal Trade
Commission rule dealing with preservation of consumers' claims
-7-
<PAGE> 59
and defenses, the Fair Credit Reporting Act, the uniform commercial code,
applicable state usury laws, laws regulating financing of motor vehicles, and
laws regulating consumer finance companies.
3.16 RESERVED
3.17 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
contemplated herein or as set forth on SCHEDULE 3.17 there has not been:
(a) any change that by itself or together with other changes, has
had a DACC Material Adverse Effect;
(b) any cancellation, or agreement to cancel, any Indebtedness (as
defined below) or other obligation owing to DACC, provided that DACC
may negotiate and adjust claims in the course of good faith disputes
with account debtors and car dealers in a manner consistent with past
practice;
(c) any entry into, amendment of, relinquishment, termination or
nonrenewal by DACC of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by DACC in
excess of $50,000, except as set forth on Schedules 3.13 and/or
1.1(b)(i) and except for Finance Contracts acquired in the ordinary
course of business; nor has DACC entered into any agreement, contract
or commitment with any Car Dealer requiring the purchase of Finance
Contracts in bulk.
(d) any loan by DACC to any person or entity except for Finance
Contracts acquired in the ordinary course of business, incurring by
DACC of any Indebtedness, guaranteeing by DACC of any Indebtedness,
issuance or sale of any debt securities of DACC or guaranteeing of any
debt securities of others;
(e) any commencement or notice or, to the knowledge of DACC,
threat of commencement of any material lawsuit or proceeding against
or investigation of DACC or any of the assets; or
(f) any negotiation or agreement by DACC or any officer or
employee thereof to do any of the things described in the preceding
clauses (a) through (e) (other than negotiations with Search and its
representatives regarding the transactions contemplated by this
Agreement).
-8-
<PAGE> 60
For purposes of this Section 3.17, "Indebtedness" means (i) all indebtedness of
DACC, whether or not contingent, for borrowed money, (ii) all obligations of
DACC evidenced by notes, bonds, debentures or other similar instruments, (iii)
all obligations of DACC as lessee under leases that have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, (iv) all obligations, contingent or otherwise, of DACC under
acceptance, letter of credit or similar facilities, (v) all Indebtedness of
others referred to in clauses (i) through (iv) above guaranteed directly or
indirectly in any manner by DACC, or in effect guaranteed directly or
indirectly by DACC through any agreement or arrangement, and (vi) all
Indebtedness referred to in clauses (a) through (d) above secured by any lien
on property owned by DACC, even though DACC has not assumed or become liable
for the payment of such Indebtedness.
3.18 BANK ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 3.18 sets forth an
accurate list, as of the date of this Agreement, of: (i) the name and address
of each financial institution in which DACC has any account or safe deposit
box; (ii)the names in which the accounts or boxes are held; (iii) the type of
account; and (iv) the name of each person authorized to draw thereon or have
access thereto.
3.19 DISCLOSURE. Reserved.
3.20 SEARCH SECURITIES REPRESENTATIONS. DACC (a) has such knowledge,
sophistication and experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Search
Securities; (b) fully understands the nature, scope and duration of the
limitations on transfer contained in the Shareholder Agreement: (c) understands
that the Search Securities are not registered and that their resale is
restricted by law; and (d) can bear the economic risk of any investment in the
Search Securities. DACC has had an adequate opportunity to ask questions and
receive answers (and has asked such questions and received answers to its
satisfaction) from the officers of Search concerning the business, operations
and financial condition of Search and/or the Search Securities Disclosure
Documents (as defined below in Section 4.5). DACC has no contract,
undertaking, agreement or arrangement, written or oral, with any other person
to sell, transfer or grant participations in any shares of Search Securities to
be acquired by DACC in the Sale and is not acquiring the Search Securities with
a view to their distribution. In addition, DACC understands the nature of the
restrictions imposed by Rules 145 and 144 of the rules and
-9-
<PAGE> 61
regulations of the Securities and Exchange Commission under the Securities Act
of 1933, as amended, as well as the restrictions on resale of the Search
Securities imposed by the Shareholder Agreement to which DACC is a party.
3.21 COMPLETE COPIES OF MATERIALS. DACC has delivered, and/or will deliver
at Closing, to Search and Newco true and complete copies of each agreement,
contract, commitment or other document (or summaries of same) that is referred
to in DACC Schedules or that has been requested by Search and Newco or its
counsel.
3.22 OFFICES, FTC; WARRANTIES. Except as would not have a DACC Material
Adverse Effect, DACC has at all times that it has been in business operated
each of its offices as a licensed location in any jurisdiction requiring such
license in conformity with all such licensing and other laws applicable to the
purchase of Finance Contracts, including Motor Vehicle Retail Installment Sales
Acts, Sales Finance Agency Acts, or any other law regulating the business of
acquiring Finance Contracts from DACC.
3.23 ENVIRONMENTAL MATTERS. To DACC's knowledge and except as would not
have a DACC Material Adverse Effect: (a) DACC is in full compliance with all
federal, state and local environmental laws, rules, regulations and ordinances
regarding its business operations and (b) DACC has not engaged in any
activities that could create claims against DACC under federal or state
environmental laws.
SCHEDULE 4
4. REPRESENTATIONS OF SEARCH AND NEWCO
4.1 DUE ORGANIZATION. Search is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and each of Search and Newco is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to carry on their respective
businesses in the places and in the manner as now conducted except for where
the failure to be so authorized or qualified would not have a material adverse
effect on the business, operations, affairs, prospects, properties, assets,
profits, or condition (financial or otherwise) of Search and its subsidiaries,
taken as a whole (a "Search Material Adverse Effect").
-10-
<PAGE> 62
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. Each of Search and Newco has
the full legal right, power and corporate authority to enter into and perform
its obligations pursuant to the terms of the Agreement and the Related
Documents. The execution and delivery of this Agreement and the Related
Documents by Search and Newco and the performance by each of Search and Newco
of its obligations thereunder have been duly and validly authorized by the
respective Boards of Directors of Search and Newco and by all necessary
corporate action. The Agreement is, and upon execution by Search and Newco the
Related Documents will be, legal, valid and binding obligations of each of
Search and Newco enforceable in accordance with their terms except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief
or other equitable remedies.
4.3 NO CONFLICTS. The execution, delivery and performance of the
Agreement, the consummation of the transactions contemplated thereby and the
fulfillment of the terms thereof will not:
(a) conflict with, or result in a breach or violation of the
Certificate of Incorporation and the Bylaws, each as amended, of
Search and Newco.
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which either
Search or Newco is a party, or result in the creation or imposition of
any lien, charge or encumbrance on any of Search's or Newco's
properties pursuant to (i) any law or regulation to which either
Search or Newco or any of their respective property is subject, or
(ii) any judgment, order or decree to which Search or Newco is bound
or any of their respective property is subject, except, in each case,
as would not individually or in the aggregate, have a Search Material
Adverse Effect.
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization
of Search or Newco ("Search Third Party Consents"); or
-11-
<PAGE> 63
(d) violate any law, order, judgement, rule or regulation to which
Search or Newco is subject or by which Search or Newco is bound.
4.4 SEARCH CAPITALIZATION. The authorized capital stock of Search
consists of 130,000,000 shares of Common Stock and 60,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), of which
400,000 shares have been designated as the 12% Senior Convertible Preferred
Stock (the "12% Stock"), 55,000,000 shares have been designated as the 9/7
Noteholder Convertible Preferred and 4,000,000 shares have been designated as
the Convertible Stock. As of the date of this Agreement, 26,189,094 shares of
Common Stock were issued and outstanding (excluding treasury shares), 3,026,389
shares of Common Stock were held in treasury, 11,462,678 shares of Common Stock
were reserved for issuance upon exercise of options and warrants issued by
Search. In addition, as of the date of this Agreement 400,000 shares of 12%
Stock, 16,983,143 shares of 9/7 Noteholder Convertible Preferred and no shares
of Convertible Stock were issued and outstanding. All of the outstanding
shares of capital stock of Search have been duly authorized and validly issued
and are fully paid and nonassessable and were not issued in violation of any
preemptive or other rights. When issued to DACC and the Subordinated Debt
Holders pursuant to the terms of this Agreement, the Convertible Stock and the
Common Stock to be issued by Search pursuant to this Agreement will be duly
authorized and validly issued and fully paid and nonassessable and not issued
in violation of any preemptive or other rights. When issued to DACC and the
Subordinated Debt Holders pursuant to the terms of this Agreement, the Search
Securities shall be free and clear of all Liens and shall be issued and
delivered in compliance with all applicable federal, state and local laws,
rules and regulations. When issued to DACC, the Warrants will be duly
authorized and validly issued and will be legal, valid and binding obligations
of Search, enforceable against Search in accordance with their terms.
4.5 SEARCH SECURITIES DISCLOSURE DOCUMENTS. As promptly as possible after
the date of the Agreement, Search will provide to DACC the following:
(a) a copy of Search's SEC Form 10-K dated July 2, 1996, including all
supplements or amendments thereto, a copy of all SEC 10-Q's and 8-K's
filed by Search since March 31, 1996, a copy of all proxy statements
relating to Search's meetings of stockholders (whether annual or
special) held
-12-
<PAGE> 64
since January 1, 1996 and a copy of all other forms, reports and other
registration statements filed by Search with the Commission since
January 1, 1996 (the forms, reports and other documents referred to in
this clauses (a) being referred to, collectively, as the "SEC
Reports").
(b) a copy of Search's bankruptcy Plan of Reorganization,
including the Plan's disclosure documents and all amendments and
supplements thereto, and all other documents and information related
thereto; and
(c) such other documents and information as are deemed relevant
and material in connection with the issuance of the Search Securities
to DACC (collectively the "Search Disclosure Documents").
In addition, Search shall make available to DACC those officers or
representatives of Search as are necessary to respond to any questions DACC may
reasonably have regarding Search and the Search Securities.
4.6 ABSENCE OF MATERIAL CHANGES. Since March 31, 1996, except as
contemplated by this Agreement, as disclosed in any SEC Report filed since
March 31, 1996 and prior to the date of this Agreement or as set forth in
Schedule 4.6, Search and its subsidiaries have conducted their businesses in
accordance with the description in Search's Form 10-K and, since March 31,
1996, there has not been:
(a) any change that by itself or together with other changes has
had a Search Material Adverse Effect;
(b) any damage, destruction or loss (whether or not covered by
insurance) having a Search Material Adverse Effect;
(c) any material change by Search in its accounting methods,
principles or practices; or
(d) any entry by Search or any of its subsidiaries into any
commitment or transaction which has a Search Material Adverse Effect.
4.7 SEARCH SEC FILINGS. Search has filed with the Commission all required
filings on a timely basis since the date of its Plan of Reorganization and such
filings as well as the SEC
-13-
<PAGE> 65
Reports are, (i) to the best of Search's knowledge, true, accurate and
complete, and were prepared in accordance with the requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations thereunder, and (ii)
did not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Search shall file
with the Commission a Form 8-K regarding the subject matter of this transaction
within the time limits specified by the Commission after Closing has occurred.
4.8 RESERVED.
4.9 SEARCH FINANCIAL STATEMENTS.
(a) SCHEDULE 4.9 includes (i) true, complete and correct copies of
Search's audited consolidated financial statements as of March 31,
1996 (the "Audited Financials") and (ii) true, complete and correct
copies of Search's unaudited interim consolidated financial statements
as of for the period ending June 30, 1996 (the "Interim Financials;"
and together with the Audited Financials, the "Search Financial
Statements"). The Search Financial Statements have been prepared in
accordance with GAAP, subject, in the case of the Interim Financials
to normal year-end audit adjustments, which individually or in the
aggregate will not be material, and to the omission of footnote
information. The Search Financial Statements present fairly (i) the
consolidated financial condition of Search as of the date indicated
thereon, and (ii) the results of its consolidated operations for the
periods indicated thereon. Since the date of the Interim Financials
there have been no material changes in Search's accounting policies.
In addition, Search will deliver to DACC the most recent available
interim unaudited or audited financial statements (or portions
thereof) as soon as the same have been prepared for all time periods
after the date of the Interim Financials up to and including the month
of July, 1996.
(b) Except as disclosed in the SEC Reports filed prior to the date
of this Agreement, as set forth in the Search Financial Statements or
as set forth in Schedule 4.9, since March 31, 1996, neither Search nor
any of its
-14-
<PAGE> 66
subsidiaries has incurred any liability or obligation of any nature
which would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with generally accepted
accounting principles, except for liabilities and obligations incurred
in the ordinary course of business in accordance with the description
contained in Search's Form 10-K or liabilities which would not,
individually or in the aggregate, have a Search Material Adverse
Effect.
4.10 OWNERSHIP OF NEWCO; NO PRIOR ACTIVITIES.
(a) Newco was formed solely for the purpose of engaging in the
Sale and the other transactions contemplated by the Agreement.
(b) As of the date of the Agreement and as of the Closing, all of
the outstanding capital stock of Newco is and will be owned directly
by Search. As of the Closing, there will be no options, warrants or
other rights (including registration rights), agreements, arrangements
or commitments to which Newco is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in,
Newco, or obligating Newco to grant, issue or sell any shares of the
capital stock of, or other equity interests in, Newco, by sale, lease,
license or otherwise. There are no obligations, contingent or
otherwise, of Newco to repurchase, redeem or otherwise acquire any
shares of the capital stock of Newco.
(c) As of the date hereof and the Closing, except for the obligations
or liabilities incurred in connection with its incorporation or
organization and the Sale and other transactions contemplated hereby,
Newco has not and will not have incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or liabilities or
engaged in any business activities of any type or kind whatsoever or
entered into any agreements or arrangements with any person.
4.11 CONFORMITY WITH LAW; LITIGATION. Search has complied in all material
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any federal, state or local
statute, law or regulation with respect to Search, any of its subsidiaries or
any of their assets or properties which would constitute a
-15-
<PAGE> 67
Search Material Adverse Effect, or which would materially adversely affect
Search's ability to perform its obligations under the Agreement. Except as set
forth in Schedule 4.11 there are no claims, actions, suits or proceedings,
pending or, to the knowledge of Search, threatened, against or affecting Search
at law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it which, if adversely determined, would have a Search
Material Adverse Effect. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a Court or administrative agency or
by arbitration) against Search, any of its subsidiaries or any of their assets
or properties which would have a Search Material Adverse Effect.
-16-
<PAGE> 1
EXHIBIT 2.2
SUB-DEBT ACQUISITION
AGREEMENT
BY AND AMONG
SEARCH CAPITAL GROUP, INC.
SEARCH FUNDING IV, INC.
R-H CAPITAL PARTNERS, L.P.
AND KELLETT INVESTMENT
CORPORATION
dated as of August 2, 1996
<PAGE> 2
SUB-DEBT ACQUISITION AGREEMENT
THIS SUB-DEBT ACQUISITION AGREEMENT (the "Sub-Debt Acquisition
Agreement") is made as of August 2, 1996, by and among (i) Search Capital
Group, Inc., a Delaware corporation ("Search"); (ii) R-H Capital Partners, L.P.
("R-H"), a Georgia limited partnership; (iii) Kellett Investment Corporation
("Kellett"), a Georgia corporation (hereinafter R-H and Kellett may be
individually or collectively referred to as the "Subordinated Debt Holders" or
"SDH"); and (iv) Search Funding IV, Inc., a Texas corporation and a
wholly-owned subsidiary of Search ("Newco").
BACKGROUND
A. DACC is an Atlanta based specialized indirect consumer finance company
engaged in financing the purchase of used automobiles by purchasing installment
sales contracts from independent use automobile dealers; and
B. DACC and Search have reached an Asset Acquisition Agreement dated as of
August 2, 1996 (the "DACC Acquisition Agreement") regarding the sale (the "DACC
Sale") by DACC of its assets (the "DACC Assets") to Newco and the assumption by
Newco of certain specified obligations of DACC; and
C. Each SDH and Search have entered into this Sub-Debt Acquisition Agreement
regarding the sale by each SDH of certain assets to Newco.
D. Unless otherwise expressly stated in this Sub-Debt Acquisition Agreement, all
capitalized terms shall have the same definition as given in the DACC
Acquisition Agreement and all references to schedules shall mean and refer to
the schedules defined or referenced in the DACC Acquisition Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, which are
incorporated herein by reference, and of
-1-
<PAGE> 3
the representations, warranties, covenants and agreements herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged by all parties, the parties hereto, intending to be legally
bound, agree as follows:
1. Sale of Assets
1.1 Assets Purchased. Subject to the terms and conditions set forth
in this Sub-Debt Acquisition Agreement, at the Closing each SDH shall sell,
convey, assign, transfer and deliver to Newco, and Newco shall purchase from
each SDH (both transactions are individually and collectively referred to as
the "Sub-Debt Sale"), all of the assets of each SDH listed below in Section
1.1(a)-(c) below (collectively the "Sub-Debt Assets"), free and clear of all
claims, liens and encumbrances of any kind (collectively "Liens"):
(a) the Subordinated Debt (as defined in Section 3.3 of
SUB-DEBT SCHEDULE 3).
(b) The Warrants (the word "Warrants" is defined in the
Senior Subordinated Note and Warrant Purchase Agreement dated
as of 10/16/95 among DACC and R-H Capital Partners, L.P., as
amended on December 21, 1995 ("Previous Agreement"), and is
incorporated herein by reference), together with all other
rights each SDH possesses regarding DACC.
(c) Subject to the provisions of Section 1.10 below, all
"DACC Claims" (as defined below) held jointly or severally by
the SDH. "DACC Claims" means all liabilities, losses, claims
(whether based upon violation of securities laws or
otherwise), damages, punitive damages, causes of actions,
lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies,
penalties, fines, interest
-2-
<PAGE> 4
(including interest from the date of such damages) and costs
and expenses (including without limitation, reasonable
attorneys' fees and disbursements of every kind, nature and
description) held jointly or severally by the SDH against
DACC, or any officer, employee, agent, representative,
shareholder or director of DACC, whether known or unknown,
contingent or fixed, secured or unsecured.
1.2 Purchase Price. The aggregate purchase price (the "Purchase
Price") to be paid to the SDH for the purchase of the Sub-Debt Assets shall be
the issuance by Search of the Search securities listed below (the "Search Sub-
Debt Securities"):
(a) 1,787,842 shares of Search 9%/7% Convertible
Preferred Series B. The Indemnity Shares (893,921 of such
shares) shall be placed into escrow on behalf of the
Subordinated Debt Holders pursuant to the escrow agreement
among Dealers, Search, the Escrow Agent and the Subordinated
Debt Holders ("Escrow Agreement"), which is attached as
SCHEDULE 10.1 to the DACC Acquisition Agreement, and the
remaining 893,921 shares shall be distributed as follows: (i)
a certificate representing 614,571 shares of the Non-Indemnity
Shares shall be delivered to R-H (which shall be subject to
the Sub-Debt Shareholders Agreement) and (ii) a certificate
representing 279,350 shares of the Non-Indemnity Shares shall
be distributed to Kellett (which shall be subject to the
Sub-Debt Shareholders Agreement).
(b) Each SDH hereby acknowledges that the number of
shares of Search Sub-Debt Securities to be issued to such SDH
has been based upon a value of Two Dollars Fifty-Four Cents
($2.54) per share for the Convertible Stock.
1.3 Reserved
-3-
<PAGE> 5
1.4 No Other Liabilities Assumed. Except as expressly provided in
this Sub-Debt Acquisition Agreement, neither Newco nor Search shall assume or
be liable for in any manner, any and all other liabilities, commitments, claims
or obligations of either SDH, whether known or unknown, contingent or fixed,
secured or unsecured.
1.5 Payment. At the Closing, (a) Search shall deliver to the Escrow
Agent (defined in Section 10.1 below) pursuant to this Sub-Debt Acquisition
Agreement two certificates representing the Indemnity Shares (893,921 shares of
the Convertible Stock required to be issued on behalf of the Subordinated Debt
Holders and held by the Escrow Agent) so that such shares may be used to
satisfy the indemnification obligations of SDH pursuant to the terms of this
Sub-Debt Acquisition Agreement, if necessary; and (b) Search shall deliver to
R-H a certificate representing 614,571 shares of the Non-Indemnity Shares
(which shall be subject to the Sub-Debt Shareholders Agreement); and (c) Search
shall deliver to Kellett a certificate representing 279,350 shares of the
Non-Indemnity Shares (which shall be subject to the Sub-Debt Shareholders
Agreement). All of the Search Sub-Debt Securities shall be validly issued,
fully-paid and nonassessable and free and clear of all Liens, except as
provided for in this Sub-Debt Acquisition Agreement and the Escrow Agreement.
1.6 Allocation. At the Closing, Newco and each SDH shall execute a
joint certificate allocating the Purchase Price among the Sub-Debt Assets.
Newco and each SDH acknowledge that such allocation shall have been arrived at
by arms length negotiation, and Newco and each SDH hereby agree, subject to the
requirements of Section 1060 of the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations promulgated thereunder, to report consistently, in
any tax return completed or filed by them, such sale pursuant to this Sub-Debt
Acquisition Agreement in accordance with said allocation.
1.7 Sub-Debt Shareholders Agreement. At Closing, each SDH and Search
shall execute the Sub-Debt Shareholders
-4-
<PAGE> 6
Agreement (the "Sub-Debt Shareholders Agreement") in the form attached hereto
as SUB-DEBT SCHEDULE 1.7.
1.8 Additional Provisions.
(a) All dividends and other distributions made after the
Closing on the Search Sub-Debt Securities held by the Escrow
Agent shall be made to the Escrow Agent on behalf of the
beneficial owners of such Search Sub-Debt Securities and held
in Escrow until the First Expiration Date or Final Expiration
Date, as the case may be. All dividends and other
distributions made after the Closing on the Non-Indemnity
Shares shall be made directly to the beneficial owners of such
Securities.
(b) Search shall pay a minimum of three consecutive
quarterly cash dividends on the Convertible Stock
contemporaneously with Search's dividend payments with respect
to the Convertible Stock issued on behalf of DACC pursuant to
the DACC Acquisition Agreement. The first such quarter's
dividends shall begin to accrue on the date the Convertible
Stock is issued by Search, which each SDH acknowledges will
entitle such SDH to receive only a partial quarter's dividend
payment. In addition, at the same time as Search pays its
first of the aforesaid quarterly dividend payments, Search
shall also pay to each SDH an amount of cash equal to the
difference between a full quarter's dividend payment with
respect to such Convertible Stock and the partial dividend
amount paid pursuant to the immediately preceding sentence.
(c) As promptly as possible after Closing, Search shall
request, and shall use best efforts to obtain, Search
shareholder approval for the conversion of the Convertible
Stock into the same class of convertible preferred shares as
issued to noteholders under the Chapter 11 Bankruptcy Code
plan of reorganization
-5-
<PAGE> 7
("Plan") for which Search was a co-proponent (the "9/7
Noteholder Convertible Preferred").
1.9 Subject to Sub-Debt Shareholders Agreement. The Indemnity
Shares and the Non-Indemnity Shares shall be subject to the Sub-Debt
Shareholders Agreement and the terms of this Sub-Debt Acquisition Agreement.
1.10 Excess Amount. In the event the SDH shall pay more than its
portion of the Shared Claims pursuant to the provisions of Section 10.3 through
Indemnity Shares and/or cash attributable thereto (the amount paid in excess of
SDH's portion of the Shared Claims is hereinafter referred to as the "Excess
Amount"), the parties agree that the DACC Claims shall exclude the rights of
the SDH to receive DACC Escrow Shares and/or cash pursuant to Section 7 of the
Escrow Agreement. The parties agree that no shareholder, employee, director,
officer, representative or agent of DACC shall have personal liability
whatsoever with respect to the Excess Amount.
2. Closing.
2.1 Date and Location. The Closing shall take place
contemporaneously with the Closing specified in the DACC Acquisition Agreement,
provided that all conditions to Closing shall have been satisfied or waived.
The parties intend to close by exchanging signed counterparts of all necessary
documents.
2.2 Documents to be Delivered at Closing. At the Closing the
following documents, in a form reasonably satisfactory to Search and each SDH,
shall be delivered and executed by the parties as follows:
(a) By Each SDH.
(i) To Newco Assignments conveying to Newco all rights of
the SDH in the Warrants.
-6-
<PAGE> 8
(ii) To Newco Irrevocable Note Powers conveying to Newco
all rights of the SDH in the Subordinated Debt.
(iii) To Newco a Bill of Sale and Assignment conveying to
Newco title to the Sub-Debt Assets referenced in Section
1.1(c) above being purchased from such SDH, free and clear of
all Liens, and incorporating by reference the representations
and warranties contained in SUB-DEBT SCHEDULE 3.
(iv) To Newco and Search a Sub-Debt Closing Certificate
confirming that the representations and warranties in SUB-DEBT
SCHEDULE 3 of this Sub-Debt Acquisition Agreement are true and
correct as of the Closing, with corrections to any
representations that have changed since the date of this
Sub-Debt Acquisition Agreement, provided that if any change is
made based upon the occurrence of a Sub-Debt Material Adverse
Effect (as defined in Section 6.5 below), Search shall have
the right to terminate this Sub-Debt Acquisition Agreement
pursuant to Section 11.2 below; provided, further, that if
Search and Newco shall consummate the transactions
contemplated hereby, Search and Newco shall automatically be
deemed to have waived, to the extent set forth in the Sub-Debt
Closing Certificate, any breach or violation of the
representations and warranties of the SDH contained in this
Sub-Debt Acquisition Agreement.
(v) To Newco such other documents, including instruments
of sale, transfer and assignment, as is reasonably believed
necessary by Search to enable Newco immediately after Closing
to use, operate, collect, sell, and assign the Sub-Debt
Assets.
(vi) To the extent any consents or approvals shall be
reasonably requested by Search in connection with any of the
transactions herein contemplated, or to the effective transfer
or assignment of any of the Sub-
-7-
<PAGE> 9
Debt Assets being purchased by Search from each SDH, each SDH
shall deliver to Search copies of all such consents or
approvals so requested by Search.
(vii) Possession of all Sub-Debt Assets shall be delivered
to Newco within one business day of Closing.
(viii) To Search triplicates of the Sub-Debt Shareholders
Agreement, the Escrow Agreement, and all related documents
which have been executed by each SDH.
(ix) To Search a Sub-Debt Certificate certifying that no
Sub-Debt Material Adverse Effect has been experienced
regarding the Sub-Debt Assets between the date of this
Sub-Debt Acquisition Agreement and Closing.
(x) To the parties so specified, all other documents
reasonably requested in order to consummate the transactions
contemplated hereby.
(xi) Each SDH shall have executed this Sub-Debt Acquisition
Agreement and Search shall have verified compliance by each
SDH with all of the material terms and conditions of this
Sub-Debt Acquisition Agreement.
(xii) To Search, each SDH shall have executed a securities
"big boy" letter in the form reasonably satisfactory to
Search.
(b) By Search/Newco
(i) To the Escrow Agent the Indemnity Shares to be held
by the Escrow Agent for the benefit of the SDH.
-8-
<PAGE> 10
(ii) To the SDH, the Non-Indemnity Shares (in the amounts
specified in Section 1.5).
(iii) To each SDH Sub-Debt Closing Certificates for Search
and Newco confirming that the representations in SUB-DEBT
SCHEDULE 4 of this Sub-Debt Acquisition Agreement are true and
correct as of the Closing, with corrections to any
representations that have changed since the date of this Sub-
Debt Acquisition Agreement, provided, that if a SDH shall
consummate the transactions contemplated hereby, such SDH shall
automatically be deemed to have waived, to the extent set forth
in such Sub-Debt Closing Certificate, any breach or violation
of the representations and warranties of Search and Newco
contained in this Sub-Debt Acquisition Agreement.
(iv) To each SDH a Sub-Debt Certificate certifying that
to the best of Search's information, knowledge and belief no
Search Sub-Debt Material Adverse Effect (as defined in Section
7.2 below) has been experienced by Search since the 10-K
Filing Date.
(v) To each SDH triplicates of the Sub-Debt Shareholders
Agreement, the Escrow Agreement, and all related documents
which have been executed by Search.
(vi) To the parties so specified, all other documents
reasonably requested in order to consummate the transactions
contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES OF EACH SDH
To induce Search and Newco to enter into this Sub-Debt Acquisition
Agreement and consummate the transactions contemplated hereby, each SDH
represents and warrants to Search and Newco as set forth in SUB-DEBT SCHEDULE 3
attached hereto (with respect to that particular SDH and not the other SDH),
which representations and warranties are incorporated in this
-9-
<PAGE> 11
Section 3 by reference and are deemed to be part of this Sub-Debt Acquisition
Agreement.
4. REPRESENTATIONS OF SEARCH AND NEWCO
To induce each SDH to enter into this Sub-Debt Acquisition Agreement
and consummate the transactions contemplated hereby, each of Search and Newco
represents and warrants to each SDH as set forth in SUB-DEBT SCHEDULE 4
attached hereto, which representations and warranties are incorporated in this
Section 4 by reference and are deemed to be part of this Sub-Debt Acquisition
Agreement.
5. COVENANTS
5.1 Access to Information; Confidentiality.
(a) Between the date of this Sub-Debt Acquisition Agreement and
the Closing, each SDH will afford to the officers and authorized
representatives of Search and Newco access to all of the information,
documents, books and records of such SDH relevant to the Sub-Debt
Assets, and such other information relevant to the Sub-Debt Assets as
Search may reasonably request. Each SDH will cooperate with Search
and Newco and their representatives in the preparation of any
documents or other material which may be required in connection with
this Sub-Debt Acquisition Agreement. Each SDH's representations,
warranties, covenants and obligations as set forth in this Sub-Debt
Acquisition Agreement (y) shall survive Search's inquiry and (z) shall
not be affected or modified in any manner whatsoever by any inquiry
conducted by Search. In addition, Search's inquiry shall not be a
defense by either SDH to any breach of any of such SDH's
representations, warranties, covenants or obligations.
(b) Each SDH agrees that it will not disclose any confidential or
proprietary information which it obtains or acquires regarding Search
or Newco to any person, firm,
-10-
<PAGE> 12
corporation, association or other entity for any purpose or reason
whatsoever, except to authorized employees or other authorized
representatives of such SDH and to counsel and other advisers,
provided that such advisors (other than counsel) agree to the
confidentiality provisions of this Section 5.1(b), subject to Section
5.1(d) below.
(c) Each of Search and Newco agree that prior to Closing they will
not disclose any confidential or proprietary information which either
may obtain or acquire regarding each SDH to any person, firm,
corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of Search, Newco and
DACC and to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this
Section 5.1(c), subject to Section 5.1(d) below.
(d) The confidentiality obligations of a party hereto shall be
terminated regarding any confidential or proprietary information
obtained or acquired if (i) such information becomes known to the
public generally through no fault of the receiving party, (ii)
disclosure is required by law or the order of any governmental
authority under color of law, or (iii) the disclosing party receives
the written opinion of its counsel that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to clause
(i), (ii) or (iii) above, such party shall, if possible, give prior
written notice thereof to the other party and provide the other party
with the opportunity to contest such disclosure, and disclose only
such portion of such confidential information which is legally
required to be disclosed and exercise its best efforts to obtain
assurances that confidential treatment will be accorded such
information.
-11-
<PAGE> 13
5.2 Conduct of Business Pending Closing. Between May 31, 1996 and
the Closing, each SDH will:
(a) perform in all material respects its obligations under
agreements relating to or affecting the Sub-Debt Assets;
(b) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities to the extent its failure to do so would have a Sub-Debt
Material Adverse Effect; and
(c) inform Search immediately if any event occurs that may have a
Sub-Debt Material Adverse Effect.
5.3 Prohibited Activities. Prior to Closing, each SDH has not, and
will not, without the prior written consent of Search, which shall not be
unreasonably withheld:
(a) sell, assign, lease, pledge or otherwise transfer or dispose
of any of the Sub-Debt Assets;
(b) take, agree (in writing or otherwise) to take, or omit or take
any action which would have a Sub-Debt Material Adverse Effect, or any
action which would make any of the representations and warranties of
either SDH contained in this Sub-Debt Acquisition Agreement untrue or
result in any of the conditions set forth in Sections 6 and 7 not
being satisfied.
5.4 No Solicitation of Offers. Since July 15, 1996 and prior to
the first to occur of the Closing or the termination of this Sub-Debt
Acquisition Agreement pursuant to Section 11.1, neither SDH nor any agent,
officer, director or any representative of either SDH will, during the period
commencing on the date of this Sub-Debt Acquisition Agreement and ending with
the Closing, directly or indirectly: (a) solicit,
-12-
<PAGE> 14
encourage or initiate the submission of proposals or offers from any person
for, (b) participate in any discussions pertaining to, or (c) furnish any
information to any person other than Search and Newco relating to, any
acquisition or purchase of all or a material amount of the Sub-Debt Assets of,
or any equity interest in, either SDH or a merger, consolidation or business
combination of either SDH, except in each case, to the extent required by
fiduciary obligations under applicable law. In addition to the foregoing, if a
SDH receives any unsolicited offer or proposal relating to any of the above,
such SDH shall immediately notify Search thereof, including the identity of the
party making such offer or proposal and the specific terms of such offer or
proposal.
5.5 Notification of Certain Matters. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party
hereunder; provided, that in the event that the other party (for purposes of
this paragraph, the SDH shall be deemed to be one party and Search and Newco
shall be deemed to be the other party) consummates the transactions
contemplated hereby despite being provided with such written notice, then the
other party shall automatically be deemed to have waived compliance with such
representation, warranty, covenant, condition or agreement to the extent set
forth in such written notice.
5.6 Cooperation in Obtaining Required Consents and Approvals. For
all consents and approvals which a SDH is required to obtain pursuant to this
Sub-Debt Acquisition Agreement, Search shall cooperate and provide to such SDH
such documentation or other information as such SDH shall reasonably request.
For all consents and approvals which Search is required to obtain pursuant to
this Sub-Debt Acquisition
-13-
<PAGE> 15
Agreement, each SDH shall cooperate and provide to Search such documentation or
other information as Search shall reasonably request. Each party shall use all
reasonable efforts to obtain all consents and approvals as shall be necessary
for the performance of its obligations under this Sub-Debt Acquisition
Agreement.
5.7 Ownership of Sub-Debt Assets.
(a) R-H possesses and owns all right, title and interest
in and to the Subordinated Notes and the R-H Warrants, copies of which are
attached hereto as SUB-DEBT SCHEDULE 5.7(A).
(b) Kellett possesses and owns all right, title and
interest in and to the Subordinated Note and the Kellett Warrants, copies of
which are attached hereto as SUB-DEBT SCHEDULE 5.7(B).
(c) R-H and Kellett jointly and severally own all right,
title, and interest in and to all of the Sub-Debt Assets except as set forth
above in Section 5.7(a) and (b) above.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SEARCH AND NEWCO
The obligation of Search and Newco to effect the Closing is subject to the
satisfaction or waiver, at or before the Closing, of the following conditions:
6.1 Representations and Warranties; Performance of Obligations.
All of the representations and warranties of each SDH contained in this
Sub-Debt Acquisition Agreement shall be true, correct and complete in all
material respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of such date and all of
the terms, covenants, agreements and conditions of this Sub-Debt Acquisition
Agreement to be complied with, performed or satisfied by each SDH on or before
the Closing
-14-
<PAGE> 16
shall have been duly complied with, performed or satisfied in all
material respects.
6.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Newco's proposed acquisition of the Sub-Debt Assets, or limiting or restricting
Newco's conduct or operation of its business following the Sub-Debt Sale shall
be in effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. There shall be no action,
suit claim or proceeding of any nature pending against Search, Newco or SDH or
either of their respective properties or any of their officers or directors,
that would, if adversely determined, be reasonably likely to have a Sub-Debt
Material Adverse Effect on the Sub-Debt Assets.
6.3 Consents and Approvals. All necessary consents of and filings
with any governmental authority or agency or third party relating to the
consummation by either SDH of the transactions contemplated hereby shall have
been obtained and made.
6.4 SDH. All necessary approval for the Sub-Debt Sale by each SDH
has been obtained.
6.5 No Material Adverse Effect. No "Sub-Debt Material Adverse
Effect" shall have occurred prior to the time of Closing. For purposes of this
Sub-Debt Acquisition Agreement, the term "Sub-Debt Material Adverse Effect"
means any change or event which materially interferes with or causes either SDH
to be unable to execute this Sub-Debt Acquisition Agreement and consummate the
Sub-Debt Sale and all other transactions contemplated hereby.
-15-
<PAGE> 17
6.6 Contemporaneous Closing. Closing under this Sub-Debt
Acquisition Agreement takes place contemporaneously with the Closing under the
DACC Acquisition Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH SDH
The obligation of each SDH to effect the Sub-Debt Sale are subject to
the satisfaction or waiver, at or before the Closing, of the following
conditions:
7.1 Representations and Warranties; Performance of Obligations.
All of the representations and warranties of Search and Newco contained in this
Sub-Debt Acquisition Agreement shall be true, correct and complete in all
material respects on and as of the Closing as though such representations and
warranties had been made as of such date and all of the terms, covenants,
agreements and conditions of this Sub-Debt Acquisition Agreement to be complied
with, performed or satisfied by Search and Newco on or before the Closing shall
have been duly complied with, performed or satisfied in all material respects.
7.2 No Material Adverse Effect. No "Search Sub-Debt Material
Adverse Effect" shall have occurred between the 10-K Filing Date and Closing.
For purposes of this Sub-Debt Acquisition Agreement, the term "Search Sub-Debt
Material Adverse Effect" has the meaning specified in Section 4.1 of SUB-DEBT
SCHEDULE 4. Each SDH acknowledges, covenants and agrees that if a Search
Sub-Debt Material Adverse Effect has occurred, such SDH's sole remedy shall be
to terminate this Sub-Debt Acquisition Agreement upon notice to Search
pursuant to the terms of Section 11.1 below.
7.3 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Newco's proposed acquisition of the Sub-Debt Assets, or limiting or restricting
Newco's conduct or operation of its business following the Sub-
-16-
<PAGE> 18
<PAGE> 19
Debt Sale shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit claim or proceeding of any nature pending
against Search, Newco or either SDH, their respective properties or any of
their officers or directors, that would, if adversely determined, be reasonably
likely to have a Search Sub-Debt Material Adverse Effect.
7.4 Consents and Approvals. All necessary consents of and filings
with any governmental authority or agency or third party relating to the
consummation by Search and Newco of the transactions contemplated hereby shall
have been obtained and made.
7.5 Contemporaneous Closing. Closing under this Sub-Debt
Acquisition Agreement takes place contemporaneously with the Closing under the
DACC Acquisition Agreement.
8. INDEMNIFICATION BY EACH SDH
8.1 Indemnification by Each SDH. Subject to the terms of Section
8.5 below, each SDH jointly and severally covenants and agrees to indemnify,
defend, protect and hold harmless Search and Newco and their respective
officers, directors, employees, successors and assigns (individually, a
"Sub-Debt Search Indemnified Party" and collectively "Sub- Debt Search
Indemnified Parties") from, against and in respect of:
(i) all Claims suffered, sustained, incurred or paid by
the Sub-Debt Search Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(1) Claims governed by Section 8.1(a) of the DACC
Acquisition Agreement that are based upon fraud,
usury and/or violation of laws and regulations by or
on the part of DACC with
-17-
<PAGE> 20
respect to Finance Contracts to the extent such
Claims exceed the Deductible as set forth in the DACC
Acquisition Agreement, except if such Claims are not
subject to indemnification pursuant to Section 8.1(c)
of the DACC Acquisition Agreement (In addition, any
Claim subject to indemnification pursuant to Section
8.1(c) of the DACC Acquisition Agreement shall be
treated as a Pending Claim for purposes of Sections
8.5 and 10.2 below);
(2) any material breach of any representation or
warranty of a SDH set forth in this Sub- Debt
Acquisition Agreement or any certificate, document or
instrument delivered by or on behalf of such SDH in
connection herewith; or
(3) any material nonfulfillment of any covenant
or agreement on the part of a SDH prior to the
Expiration Dates.
(ii) any and all Claims incident to any of the foregoing
or to the enforcement of this Section 8.1.
8.2 Expiration.
(a) Subject to the resolution of all Pending Claims, the
indemnification obligations of the SDH under this Section 8 shall
terminate as follows:
(i) With respect to all Claims based upon fraud, usury
and/or compliance with all "laws" and "regulations" (each as
defined in Section 3.15 of Schedule 3 of the DACC Acquisition
Agreement) by DACC or on the part of DACC with respect to
Finance Contracts, the Final Expiration Date.
(ii) With respect to all other Claims governed by this
Section 8, the First Expiration Date.
-18-
<PAGE> 21
8.3 No Substitution of Entities. If either SDH liquidates prior
to the Final Expiration Date, all of the Indemnity Shares held by the Escrow
Agent shall remain in Escrow except as set forth below in Section 10. No
shareholder/partner of the SDH shall be personally liable for SDH's obligations
under this Section 8, except in the event they have received Indemnity Shares
in connection with or as a result of a breach or violation of the Escrow
Agreement, and recovery for such liability shall be limited to such Indemnity
Shares. Once the Indemnity Shares are properly distributed by the Escrow Agent
from Escrow, neither SDH shall have any responsibility or obligation to Search,
except as may be set forth in the Sub-Debt Shareholders Agreement.
8.4 Indemnification Procedures. All Claims for indemnification
under this Section 8 shall be asserted and resolved as follows.
(a) In the event a Sub-Debt Search Indemnified Party has a Claim
against the SDH (the SDH, including all successors, shall be known
collectively as the "Sub-Debt Indemnifying Parties") hereunder which
does not involve a Claim being asserted against or sought to be
collected by a third party, the Sub-Debt Search Indemnified Party
shall with reasonable promptness send a Claim Notice with respect to
such Claim to R-H c/o Ken Millar (the "Representative") and Escrow
Agent. Such Claim Notice shall:
(i) state that the Sub-Debt Search Indemnified Party has paid
or incurred a SDH 100% Claim or a Shared Claim and is entitled to
indemnification under Section 8 of this Sub-Debt Acquisition Agreement
(an "Indemnification Item");
(ii) state the aggregate dollar amount of such Indemnification
Item;
-19-
<PAGE> 22
(iii) specify in reasonable detail the nature
and amount of each individual Indemnification Item; and
(iv) specify in detail those Indemnity Shares
in Value that Escrow Agent shall deliver to the Sub-Debt Search
Indemnified Party or as otherwise directed by the Sub-Debt
Search Indemnified Party in satisfaction of the Indemnification
Item(s) set forth in the Claim Notice in accordance with
Sections 8.4(e) and 10.3 of this Sub-Debt Acquisition Agreement.
Any Claim Notice may include multiple Indemnification Items. If the
Representative does not notify the Sub-Debt Search Indemnified Party within 30
days of receipt of the Claim Notice (the "Notice Period") that the Sub-Debt
Indemnifying Parties disputes such Claim, the amount of such Claim shall be
conclusively deemed a liability of the Sub-Debt Indemnifying Parties hereunder.
In case the Representative shall, within the Notice Period, object in writing
to any Claim made in accordance with this Section 8.4(a), the Sub-Debt Search
Indemnified Party shall have fifteen (15) days to respond in a written
statement to the objection of the Representative. If after such fifteen (15)
day period there remains a dispute as to any Claims, the parties shall attempt
in good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such Claims. If the parties should so agree, a
memorandum setting forth such agreement shall be prepared and executed by both
parties. If no such agreement can be reached after good faith negotiations the
parties may pursue applicable remedies as provided by Section 11.18.
(b) In the event that any Claim for which the Sub-Debt
Indemnifying Parties would be liable to a Sub-Debt Search
Indemnified Party hereunder is asserted against a Sub-Debt
Search Indemnified Party by a third party, the Sub-Debt Search
Indemnified Party shall with reasonable promptness notify the
Representative of such Claim, specifying the nature of such
claim and the amount or
-20-
<PAGE> 23
the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such
Claim). The actions and decisions of the Representative shall
be binding upon the Sub-Debt Indemnifying Parties. The
Representative shall have 30 days from the receipt of the Claim
Notice (the "Notice Period") to notify the Sub-Debt Search
Indemnified Party (i) whether or not the Sub- Debt Indemnifying
Parties disputes the Sub-Debt Indemnifying Parties' liability to
the Sub-Debt Search Indemnified Party hereunder with respect to
such Claim and (ii) if the Sub-Debt Indemnifying Parties does
not dispute such liability, whether or not the Sub-Debt
Indemnifying Parties desires, at the sole cost and expense of
the Sub-Debt Indemnifying Parties, to defend against such Claim,
provided that the Sub-Debt Indemnifying Parties is hereby
authorized (but not obligated) prior to and during the Notice
Period to file any motion, answer or other pleading and to take
any other action which the Sub-Debt Indemnifying Parties shall
deem necessary or appropriate to protect the Sub-Debt
Indemnifying Parties' interests. If the Representative notifies
the Sub-Debt Search Indemnified Party within the Notice Period
that the Sub-Debt Indemnifying Parties does not dispute the
Sub-Debt Indemnifying Parties' obligation to indemnify hereunder
and desires to defend the Sub-Debt Search Indemnified Party
against such Claim, except as hereinafter provided, the
Sub-Debt Indemnifying Parties shall have the right to defend by
appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by the Sub-Debt Indemnifying Parties to a
final conclusion; provided that, unless the Sub-Debt Search
Indemnified Party otherwise agrees in writing, the Sub-Debt
Indemnifying Parties may not settle any matter (in whole or in
part) unless such settlement includes a complete and
unconditional release of the Sub-Debt Search Indemnified Party.
If the Sub-Debt Search Indemnified Party desires to participate
in, but not control, any such defense or settlement the Sub-Debt
-21-
<PAGE> 24
Search Indemnified Party may do so at the Sub-Debt Search
Indemnified Party's sole cost and expense. If the Sub-Debt
Indemnifying Parties elects not to defend the Sub-Debt Search
Indemnified Party against such Claim, whether by failure of the
Representative to give the Sub-Debt Search Indemnified Party
timely notice as provided above or otherwise, then the Sub-Debt
Search Indemnified Party, without waiving any rights against the
Sub-Debt Indemnifying Parties, may settle or defend against any
such Claim in the Sub-Debt Search Indemnified Party's
commercially reasonable discretion (provided, that the Sub-Debt
Search Indemnified Party may not settle any matter (in whole or
part) unless such settlement includes a complete and
unconditional release of the Sub-Debt Indemnifying Parties) and
the Sub-Debt Search Indemnified Party shall be entitled to
recover from the Sub-Debt Indemnifying Parties the amount of any
settlement or judgment and, on an ongoing basis, all
indemnifiable costs and expenses of the Sub-Debt Search
Indemnified Party with respect thereto, including interest from
the date such costs and expenses were incurred.
(c) If at any time, in the reasonable opinion of the
Sub-Debt Search Indemnified Party, notice of which shall be
given in writing to the Representative, any such Claim seeks
material prospective relief which could have a materially
adverse effect on the assets, liabilities, financial condition,
results of operations or business prospects of any Sub-Debt
Search Indemnified Party, the Sub-Debt Search Indemnified Party
shall have the right to control or assume (as the case may be)
the defense of any such Claim and the amount of any judgment or,
subject to the prior approval of the Sub-Debt Indemnifying
Parties, settlement and the reasonable costs and expenses of
defense shall be included as part of the indemnification
obligations of the Sub-Debt Indemnifying Parties hereunder. If
the Sub-Debt Search Indemnified Party should elect to exercise
such right,
-22-
<PAGE> 25
the Representative shall have the right to participate in, but
not control, the defense of such claim or demand at the sole
cost and expense of the Sub-Debt Indemnifying Parties.
(d) The Sub-Debt Search Indemnified Party's failure to
give reasonably prompt notice to the Representative of any
actual or threatened claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the
Sub-Debt Indemnifying Parties of any liability which the
Sub-Debt Indemnifying Parties may have to the Sub-Debt Search
Indemnified Party unless the failure to give such notice
materially and adversely prejudiced the Sub-Debt Indemnifying
Parties.
(e) All of the Indemnity Shares delivered to the Escrow
Agent shall be available to satisfy the indemnification
obligations of the Sub-Debt Indemnifying Parties pursuant to
this Section 8 through the First Expiration Date or Final
Expiration Date, as the case may be, subject to the retention of
that portion of the Indemnity Shares required pursuant to
Section 10.1 below for Pending Claims. Upon determination of
the dollar amount owed to a Sub-Debt Search Indemnified Party in
satisfaction of the Sub-Debt Indemnifying Parties' obligations
with respect to SDH 100% Claims (as defined below in Section
10.3) and the Sub-Debt Indemnifying Parties' obligations with
respect to the Sub-Debt Indemnifying Parties' portion of the
Shared Claims, the Escrow Agent shall, pursuant to the terms of
the Escrow Agreement, promptly deliver to the Sub-Debt Search
Indemnified Party that number of Indemnity Shares having a Value
(as defined below) equal to the dollar amount so determined as
the obligation of such Sub-Debt Indemnifying Parties, from the
class of Indemnity Shares identified below. For purposes of
this Sub-Debt Acquisition Agreement, the term "Value" per share
of Indemnity Shares shall mean the allocated price of the Search
Sub-Debt Securities, namely Two Dollars Fifty-
-23-
<PAGE> 26
Three and Eight Tenths Cents ($2.538) per share for the
Convertible Stock. In the event of any stock split, reverse
stock split, stock combination or reclassification of any of the
Indemnity Shares or any merger, consolidation or combination of
Search with any other entity or entities, the Value of the
Indemnity Shares shall be proportionally adjusted so that the
Value of the Indemnity Shares after such event shall be the same
as the Value such Indemnity Shares possessed immediately prior
to such event. Such adjustment shall be made successively upon
the occurrence of the events listed in the immediately preceding
sentence.
(f) Notwithstanding anything in Section 8.4 of this
Sub-Debt Acquisition Agreement to the contrary, all Claims under
Section 8.1(i)(1) of this Sub-Debt Acquisition Agreement and any
and all Claims under Section 8.1(ii) of this Sub-Debt
Acquisition Agreement which are incident to 8.1(i)(1) of this
Sub-Debt Acquisition Agreement or to the enforcement of
8.1(i)(1) of this Sub-Debt Acquisition Agreement shall be
governed by the indemnification provisions of Section 8.4 of the
DACC Acquisition Agreement, and once a determination has been
made under Section 8.4 of the DACC Acquisition Agreement, such
determination shall be final, binding and conclusive upon such
SDH. Search agrees that it will provide notice to each SDH of
all Claims that Search, acting in a commercially reasonable
manner, considers to be Shared Claims (as defined below in
Section 10.3).
8.5 Survival of Representations, Warranties and
Covenants. All representations, warranties, covenants and indemnities made by
a SDH in or pursuant to this Sub-Debt Acquisition Agreement or in any document
delivered pursuant hereto will survive the Closing and will remain in effect
until, and will expire upon, the First Expiration Date or Final Expiration Date
as set forth above in section 8.2, provided, however, that the indemnification
obligations with respect to
-24-
<PAGE> 27
any Pending Claim (and the related representations, warranties and covenants)
existing as of either of the aforesaid Dates will survive until the final
resolution of such Pending Claim.
8.6 Limitations of SDH Indemnification Obligations.
Notwithstanding anything in this Sub-Debt Acquisition Agreement to the
contrary, each SDH's liability for indemnification under this Agreement is
limited to the extent of such SDH's Indemnity Shares, and neither SDH shall be
required to utilize any of such SDH's other assets, including, but not limited
to, such SDH's Non-Indemnity Shares, to discharge an indemnification obligation
under this Sub-Debt Acquisition Agreement.
9. INDEMNIFICATION BY SEARCH
9.1 Indemnification by Search. Search covenants and
agrees to indemnify, defend, protect and hold harmless each SDH and each SDH's
officers, directors and employees, and also the beneficial owners (which may be
referred to as the "SDH Owners") of each SDH (but only as set forth in Section
9.2 below) (individually, a "SDH Indemnified Party" and collectively "SDH
Indemnified Parties") from, against and in respect of:
(a) all Claims suffered, sustained, incurred or paid by
the SDH Indemnified Parties in connection with, resulting from
or arising out of, directly or indirectly:
(i) any material breach of any representation
or warranty of Search or Newco set forth in this
Sub-Debt Acquisition Agreement or any certificate,
document or instrument delivered by or on behalf of
Search or Newco in connection herewith; or
(ii) any material nonfulfillment of any
covenant or agreement on the part of Search or Newco
in this Sub-Debt Acquisition Agreement, or
-25-
<PAGE> 28
(b) any and all Claims incident to any of the foregoing
or to the enforcement of this Section 9.1.
9.2 Exclusive Agent. Search's indemnification
obligations to the SDH Owners are conditioned on such beneficial owners
appointing R-H c/o Ken Millar ("Agent") as their exclusive agent for handling
all matters related to indemnity claims of the SDH Owners. Without limiting
the preceding sentence, Agent is the only one who can assert, prosecute or
settle indemnity claims of SDH Owners, and Agent is the only one who can give
or receive notices on behalf of the SDH Owners with respect to their indemnity
claims. Search shall have no indemnity obligations to any SDH Owners who
directly asserts a claim against Search or who does not otherwise comply with
the requirements of this Section 9.2.
9.3 Expiration. Search's indemnification obligations
under this Section 9 shall terminate with respect to all Claims, one day after
the first (1st) anniversary of the Closing.
9.4 Indemnification Procedures. All Claims for
indemnification under this Section 9 shall be asserted and resolved as follows:
(a) In the event a SDH Indemnified Party has a Claim
against Search hereunder which does not involve a Claim being
asserted against or sought to be collected by a third party, the
SDH Indemnified Party shall with reasonable promptness send a
Claim notice (the "Claim Notice") with respect to such Claim to
Search. If Search does not notify the SDH Indemnified Party
within 30 days of receipt of the Claim Notice (the "Notice
Period") that Search disputes such Claim, the amount of such
Claim shall be conclusively deemed a liability of Search
hereunder. In case Search shall, within the Notice Period,
object in writing to any Claim made in accordance with this
Section 9.3(a), the SDH Indemnified Party shall have fifteen
(15) days to respond in a
-26-
<PAGE> 29
written statement to the objection of Search. If after such
fifteen (15) day period there remains a dispute as to any
Claims, the parties shall attempt in good faith for sixty (60)
days to agree upon the rights of the respective parties with
respect to each of such Claims. If the parties should so agree,
a memorandum setting forth such agreement shall be prepared and
executed by both parties. If no such agreement can be reached
after good faith negotiations the parties may pursue applicable
remedies as provided by Section 11.18.
(b) If any Claim for which Search would be liable to a
SDH Indemnified Party hereunder is asserted against a SDH
Indemnified Party by a third party, the SDH Indemnified Party
shall with reasonable promptness notify Search of such Claim,
specifying the nature of such claim and the amount or the
estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such
Claim). Search shall have 30 days from the receipt of the Claim
Notice (the "Notice Period") to notify the SDH Indemnified Party
(i) whether or not Search disputes Search's liability to the SDH
Indemnified Party hereunder with respect to such Claim and (ii)
if Search does not dispute such liability, whether or not Search
desires, at Search's sole cost and expense, to defend against
such Claim, provided that Search is hereby authorized (but not
obligated) prior to and during the Notice Period to file any
motion, answer or other pleading and to take any other action
which Search shall deem necessary or appropriate to protect
Search's interests. If Search notifies the SDH Indemnified
Party within the Notice Period that Search does not dispute
Search's obligation to indemnify hereunder and agrees to defend
the SDH Indemnified Party against such Claim, except as
hereinafter provided, Search shall have the right to defend by
appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by Search to a final conclusion; provided
that, unless the
-27-
<PAGE> 30
SDH Indemnified Party otherwise agrees in writing, Search may
not settle any matter (in whole or in part) unless such
settlement includes a complete and unconditional release of the
SDH Indemnified Party. If the SDH Indemnified Party desires to
participate in, but not control, any such defense or settlement
the SDH Indemnified Party may do so at the SDH Indemnified
Party's sole cost and expense. If Search elects not to defend
the SDH Indemnified Party against such Claim, whether by failure
of Search to give the SDH Indemnified Party timely notice as
provided above or otherwise, then the SDH Indemnified Party,
without waiving any rights against Search, may settle or defend
against any such Claim in the SDH Indemnified Party's
commercially reasonable discretion (provided, that the SDH
Indemnified Party may not settle any matter (in whole or in
part) unless such settlement includes a complete and
unconditional release of the Sub-Debt Search Indemnifying
Parties) and the SDH Indemnified Party shall be entitled to
recover from Search the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses
of the SDH Indemnified Party with respect thereto, including
interest from the date such costs and expenses were incurred.
(c) Nothing herein shall be deemed to prevent a SDH
Indemnified Party from making a claim, and a SDH Indemnified
Party may make a claim hereunder, for potential or contingent
claims or demands provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or
demand to the extent then feasible and the SDH Indemnified Party
has reasonable grounds to believe that such a claim or demand
may be made.
(d) The SDH Indemnified Party's failure to give
reasonably prompt notice to Search of any actual, threatened or
possible claim or demand which may give rise to a right of
indemnification hereunder shall not
-28-
<PAGE> 31
relieve Search of any liability which Search may have to the SDH
Indemnified Party unless the failure to give such notice
materially and adversely prejudiced Search.
9.5 Survival of Representations, Warranties and
Covenants. All representations, warranties, covenants and indemnities made by
Search and Newco in or pursuant to this Sub-Debt Acquisition Agreement or in
any document delivered pursuant hereto will survive the Closing and will remain
in effect, and will expire as provided in Section 9.3, provided, however, that
the indemnification obligations with respect to any Pending Claim (and the
related representations, warranties and covenants) will survive until the final
resolution of such Pending Claim.
10. ESCROW
10.1 Escrow. At Closing the Indemnity Shares (as
specified in Section 1.5) shall be delivered to U.S. Trust of Texas, N.A.
("Escrow Agent") to be held by the Escrow Agent pursuant to that certain Escrow
Agreement entered into by and among DACC, Search, Newco, each SDH and Escrow
Agent in substantially the form as attached as SCHEDULE 10.1 to the DACC
Acquisition Agreement on the Closing (the "Escrow Agreement"). The Escrow
Agent shall hold the Indemnity Shares pursuant to the Escrow Agreement. The
Escrow Agent shall distribute the Indemnity Shares pursuant to the terms of
this Section 10 and the Escrow Agreement. The parties agree to instruct the
Escrow Agent to transfer the Indemnity Shares and all cash attributable thereto
as follows in the following order:
(a) Prior to the First Expiration Date, to Search for
cancellation of that amount of Indemnity Shares and/or cash, in
the order of class as specified in Section 8.4 above, to the
extent necessary to satisfy all finally resolved SDH 100% Claims
and the SDH's portion of the Shared Claims.
-29-
<PAGE> 32
(b) At the First Expiration Date, but subject to Section
10.2 below, to the Subordinated Debt Holders, 446,960 shares of
the Indemnity Shares less the number of Indemnity Shares
delivered to Search for cancellation, but including all
dividends which shall have been received by the Escrow Agent
attributable to the Indemnity Shares released to the
Subordinated Debt Holders and not distributed to Search pursuant
to Section 10.1(a).
(c) After the First Expiration Date and prior to the
Final Expiration Date, and to the extent still held by the
Escrow Agent in Escrow, to Search for cancellation of that
amount of Indemnity Shares and/or cash, in the order of class as
specified in Section 8.4 above, to the extent necessary to
satisfy all finally resolved SDH 100% Claims and the SDH's
portion of the Shared Claims.
(d) At the Final Expiration Date, but subject to Section
10.2 below, to the Subordinated Debt Holders the balance of the
Indemnity Shares, but including all dividends which shall have
been received by the Escrow Agent attributable to the Indemnity
Shares released to SDH and not distributed to Search pursuant to
Section 10.1(a).
(e) Notwithstanding anything in this Section 10.1 to the
contrary, (i) all of the Indemnity Shares to be distributed to
the SDH shall be distributed based on the following percentages
(68.75% to R-H and 31.25% to Kellett), and (ii) all of the
Indemnity Shares to be cancelled shall be cancelled based on the
following percentages (68.75% to R-H and 31.25% to Kellett).
10.2 Pending Claims. Notwithstanding anything to the
contrary in Section 10.1, if SDH 100% Claims or Pending Claims with respect to
SDH 100% Claims exist as of the Expiration Date, the Escrow Agent shall retain
in Escrow that portion of the Indemnity Shares and/or cash with a Value equal
to: (i)
-30-
<PAGE> 33
100% of the amount of the SDH 100% Claims, as determined by Search acting in
good faith in a commercially reasonable manner, if Search determines the amount
of any of such Claims is reasonably certain, or (ii) 125% of the amount of the
SDH 100% Claims, as determined by Search acting in good faith in a commercially
reasonable manner, if Search determines the amount of any such Claims is not
reasonably certain. Upon the final resolution of any such Pending Claim, the
Escrow Agent shall likewise distribute in the priorities specified in Section
10.1 the Indemnity Shares and/or cash reserved by the Escrow Agent with respect
to such types of Pending Claim. The term "Pending Claim" shall mean any Claim
governed by Section 8 which has not been resolved finally as of an Expiration
Date.
Notwithstanding anything to the contrary in Section 10.1, in
addition to the amounts to be retained, if any, by the Escrow Agent pursuant to
the immediately preceding paragraph, if the aggregate amount of all DACC 100%
Claims and the Shared Claims (including the amount of all Pending Claims with
respect to DACC 100% Claims and the Shared Claims as determined pursuant to
Section 10 of the DACC Agreement), shall have exceeded the Deductible, and
Pending Claims with respect to DACC 100% Claims and/or the Shared Claims exist
as of an Expiration Date, the Escrow Agent shall retain in Escrow that portion,
in excess of the Deductible, of the Indemnity Shares and/or cash with a Value
equal to: (i) 100% of the amount of the SDH's portion of the Shared Claims, as
determined by Search acting in good faith in a commercially reasonable manner,
if Search determines the amount of any of such Claims is reasonably certain, or
(ii) 125% of the amount of SDH's portion of the Shared Claims, as determined by
Search acting in good faith in a commercially reasonable manner, if Search
determines the amount of any such Claims is not reasonably certain. Upon the
final resolution of any such Pending Claim, the Escrow Agent shall likewise
distribute in the priorities specified in Section 10.1 the Indemnity Shares
and/or cash reserved by the Escrow Agent with respect to such types of Pending
Claim.
-31-
<PAGE> 34
10.3 Pro Rata Payment of Claims. The parties acknowledge
that there are three types of indemnity Claims covered by this Agreement and/or
the DACC Acquisition Agreement: (i) those for which only DACC has liability
(the "DACC 100% Claims"), (ii) those for which only the SDH has liability (the
"SDH 100% Claims"), and (iii) those for which both DACC and the SDH have
liability (the "Shared Claims").
With respect to DACC 100% Claims only, only DACC Escrow Shares
and/or cash attributable thereto shall be used to pay such Claims. With
respect to SDH 100% Claims only, only Indemnity Shares and/or cash attributable
thereto shall be used to pay such Claims. With respect to Shared Claims,
62.741% of such Claims shall be paid from DACC Escrow Shares and/or cash
attributable thereto, and 37.259% of such Claims shall be paid from Indemnity
Shares and/or cash attributable thereto, provided that if either the DACC
Escrow Shares or the cash attributable thereto, on the one hand, or the
Indemnity Shares and the cash attributable thereto, on the other, are
insufficient to pay such party's share of the Shared Claim, then the other
party (subject to Section 8.6 above) shall pay any deficiency so that Search
receives payment for 100% of the Shared Claim.
11. GENERAL
11.1 Termination. This Sub-Debt Acquisition Agreement may
be terminated at any time prior to the Closing:
(a) by mutual consent of Search, Newco and each SDH; or
(b) by each SDH, on the one hand, or by Search and Newco,
on the other hand, if the Closing shall not have occurred on or
before August 15, 1996; provided that the right to terminate
this Sub-Debt Acquisition Agreement under this Section 11.1(b)
shall not be available to either party (Search and Newco deemed
to be a single party for this purpose) whose material
-32-
<PAGE> 35
misrepresentation, breach of warranty or failure to fulfill any
obligation under this Sub-Debt Acquisition Agreement has been
the cause of, or resulted in, the failure of the Closing to
occur on or before such date; or
(c) by each SDH, on the one hand, or by Search and Newco,
on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party of
any of the representations and warranties contained herein or in
the due and timely material performance and satisfaction of any
of the covenants, agreements or conditions contained herein, and
the curing of such default shall not have been made or shall not
reasonably be expected to occur before the Closing; or
(d) by each SDH, on the one hand, or by Search and Newco,
on the other hand, if there shall be a final nonappealable order
of a federal or state Court in effect preventing consummation of
the Sub-Debt Sale or any other transaction contemplated hereby;
or there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed
applicable to the Sub-Debt Sale or any other transaction
contemplated hereby by any governmental entity which would make
the consummation of the Sub-Debt Sale or any other transaction
contemplated hereby illegal.
11.2 Effect of Termination. In the event of the
termination of this Sub-Debt Acquisition Agreement pursuant to Section 11.1,
this Sub-Debt Acquisition Agreement shall forthwith become void, and except as
hereinafter provided, there shall be no liability or obligation on the part of
any party hereto or its officers, directors or stockholders. Notwithstanding
the foregoing sentence, (a) the provisions of this Section 11.2, Section 5.l(b)
and (c) (confidentiality) and the other provisions of Section 11 (including
without
-33-
<PAGE> 36
limitation brokers and expenses), shall remain in full force and effect
and survive any termination of this Sub-Debt Acquisition Agreement; (b) Each
SDH, on the one hand, and Search and Newco, on the other hand, shall remain
liable to the other for any breach of this Sub-Debt Acquisition Agreement prior
to its termination; and (c) in the event of termination of this Sub-Debt
Acquisition Agreement pursuant to Section 11.1(c) above, then notwithstanding
the provisions of Section 11.8 below, the breaching party shall be liable to
the other party to the extent of the expenses incurred by such other party in
connection with this Sub-Debt Acquisition Agreement and the transactions
contemplated hereby, as well as any damages in accordance with Section 11.18.
11.3 Cooperation. Both SDH, Search and Newco shall each
deliver or cause to be delivered to the other on the Closing, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of carrying out this
Sub-Debt Acquisition Agreement. Each SDH will also cooperate and use its
reasonable efforts to have its present officers, directors, partners and/or
employees cooperate with Search on and after the Closing in furnishing
information, evidence, testimony and other assistance in connection with any
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing, in each case
at the cost and expense of Search.
11.4 Successors and Assigns. This Sub-Debt Acquisition
Agreement and the rights of the parties hereunder may not be assigned (except
by operation of law) and shall be binding upon and shall inure to the benefit
of the parties hereto, and their permitted successors and assigns.
11.5 Entire Agreement. This Sub-Debt Acquisition
Agreement (which includes the Sub-Debt Schedules attached hereto) sets forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby.
-34-
<PAGE> 37
It shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto. Any and all previous agreements and
understandings between or among the parties regarding the subject matter
hereof, whether written or oral, are superseded by this Sub-Debt Acquisition
Agreement.
11.6 Counterparts. This Sub-Debt Acquisition Agreement
may be executed in any number of counterparts and any party hereto may execute
any such counterpart, each of which when executed and delivered shall be deemed
to be an original and all of which counterparts taken together shall constitute
but one and the same instrument. This Sub-Debt Acquisition Agreement shall
become binding when one or more counterparts taken together shall have been
executed and delivered (which deliveries may be by telefax) by the parties.
11.7 Brokers and Agents. Search and Newco (as a group)
and the SDH each represents and warrants to the other that it has not employed
any broker or agent in connection with the transactions contemplated by this
Sub-Debt Acquisition Agreement and agrees to indemnify the other against all
loss, damages or expense relating to or arising out of claims for fees or
commissions of any broker or agent employed or alleged to have been employed by
such indemnifying party.
11.8 Expenses. Search has and will pay the fees, expenses
and disbursements of Search and Newco and their agents, representatives,
financial advisors, accountants and counsel incurred in connection with the
subject matter of this Sub-Debt Acquisition Agreement. Each SDH has and will
pay the fees, expenses and disbursements of such SDH and its agents,
representatives, financial advisors, accountants and counsel incurred in
connection with the subject matter of this Sub-Debt Acquisition Agreement.
11.9 Specific Performance; Remedies. Each party hereto
acknowledges that the other parties will be irreparably harmed and that there
will be no adequate remedy at law for any
-35-
<PAGE> 38
violation by any of them of any of the covenants or agreements contained in
this Sub-Debt Acquisition Agreement, including without limitation, the
confidentiality obligations set forth in Section 5.1(b) and (c). It is
accordingly agreed that, in addition to any other remedies which may be
available upon the breach of any such covenants or agreements, each party
hereto shall have the right to obtain injunctive relief to restrain a breach or
threatened breach of, or otherwise to obtain specific performance of, the other
parties' covenants and agreements contained in this Sub- Debt Acquisition
Agreement.
11.10 Notices. Any notice, request, claim, demand, waiver,
consent, approval or other communication which is required or permitted
hereunder shall be in writing and shall be deemed given if delivered personally
or sent by telefax (with confirmation of receipt), by registered or certified
mail, postage prepaid, or by recognized courier service, as follows:
If to Search
or Newco to:
Search Capital Group, Inc.
700 N. Pearl Street
Suite 400, L.B. 401
Dallas, Texas 75201-2809
Attention: George C. Evans,
President & CEO
Facsimile No.: 214-965-6098
-36-
<PAGE> 39
With a copy to:
Riezman & Blitz, P.C.
120 S. Central, 10th Floor
St. Louis, Missouri 63105
Attention: Richard M. Riezman, Esq.
Facsimile No.: 314-727-6458
If to SDH:
(1)
R-H Capital Partners, L.P.
Atlanta Financial Center
3333 Peachtree Road
Atlanta, GA 30326
Attention: Mr. Ken Millar
Facsimile No.: (404) 266-5966
With a copy to:
King & Spalding
191 Peachtree Street
Atlanta, GA 30303
Attention: John J. Kelley III, Esq.
Facsimile No.: (404) 572-5100
(2)
Kellett Investment Corporation
200 Galleria Parkway, Suite 1800
Atlanta, GA 30339
Attention: John E. Cunningham
Facsimile No.: (770) 956-7412
-37-
<PAGE> 40
With a copy to:
Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, GA 30308-2216
Attention: Hazen H. Dempster
Facsimile No.: (404) 885-3900
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such
notice, request, claim, demand, waiver, consent, approval or other
communication shall be deemed to have been given as of the date so delivered,
telefaxed, mailed or dispatched and, if given by any other means, shall be
deemed given only when actually received by the addressees.
11.11 Governing Law . This Sub-Debt Acquisition Agreement
shall be governed by and construed, interpreted and enforced in accordance with
the laws of the State of Delaware.
11.12 Severability. If any provision of this Sub-Debt
Acquisition Agreement or the application thereof to any person or circumstances
is held invalid or unenforceable in any jurisdiction, the remainder hereof, and
the application of such provision to such person or circumstances in any
jurisdiction,
-38-
<PAGE> 41
shall not be affected thereby, and to this end the provisions of this Sub-Debt
Acquisition Agreement shall be severable.
11.13 Absence of Third Party Beneficiary Rights. No
provision of this Sub-Debt Acquisition Agreement is intended, nor will be
interpreted, to provide or to create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, shareholder,
employee, partner of any party hereto or any other person or entity.
11.14 Mutual Drafting. This Sub-Debt Acquisition Agreement
is the mutual product of the parties hereto, and each provision hereof has been
subject to the mutual consultation, negotiation and agreement of each of the
parties, and shall not be construed for or against any party hereto.
11.15 Further Representations. Each party to this Sub-Debt
Acquisition Agreement acknowledges and represents that it has been represented
by its own legal counsel in connection with the transactions contemplated by
this Sub-Debt Acquisition Agreement, with the opportunity to seek advice as to
its legal rights from such counsel. Each party further represents that it is
being independently advised as to the tax consequences of the transactions
contemplated by this Sub-Debt Acquisition Agreement and is not relying on any
representation or statements made by the other party as to such tax
consequences.
11.16 Amendment; Waiver. This Sub-Debt Acquisition
Agreement may be amended by the parties hereto at any time prior to the Closing
by execution of an instrument in writing signed on behalf of each of the
parties hereto. Any extension or waiver by any party of any provision hereto
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
11.17 Public Disclosure.
(a) After Closing, Search shall provide to each SDH a
copy of all materials to be filed with the SEC regarding
-39-
<PAGE> 42
this Sub-Debt Acquisition Agreement, the DACC Acquisition
Agreement, the Sale and the Sub-Debt Sale for such SDH's review
and comment.
(b) Search shall consider all comments and/or reasonable
suggested changes made by a SDH pursuant to Section 11.17(a),
provided, however, that the determination of Search's securities
counsel on any such SDH suggested changes regarding any
materials to be filed by Search with the SEC shall be final and
binding on the parties hereto.
11.18 Arbitration.
(a) Any controversy, claim or dispute arising
out of or relating to this Sub-Debt Acquisition
Agreement or the breach, termination, enforceability
or validity hereof, including without limitation the
determination of the scope or applicability of the
agreement to arbitrate set forth in this Section
11.18, shall be determined exclusively by binding
arbitration in a city mutually convenient to both SDH
and Search before three arbitrators. The arbitration
shall be governed by the AAA under its Commercial
Arbitration Rules, provided that Persons eligible to
be selected as arbitrators shall be limited to
attorneys-at-law each of whom has actively practiced
law (in private or corporate practice or as a member
of the judiciary) for at least 15 years concentrating
in either general commercial litigation or general
corporate and commercial matters.
(b) Judgment upon the award rendered may be
entered in any court having jurisdiction.
(c) Both SDH, on the one hand, and Search and
Newco, on the other, shall, subject to the award
-40-
<PAGE> 43
of the arbitrators, pay an equal share of the
arbitrators' fees. The arbitrators shall have the
power to award recovery of all costs (including
attorneys' fees, administrative fees, arbitrators'
fees and court costs) to the prevailing party.
11.19 WAIVER. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF THIS SUB-DEBT ACQUISITION AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS SUB-DEBT ACQUISITION AGREEMENT ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, EXCEPT TO THE EXTENT OF ANY SUCH
DAMAGES OCCASIONED BY AN INTENTIONAL BREACH BY ANY PARTY OF ITS OBLIGATIONS
UNDER THIS SUB-DEBT ACQUISITION AGREEMENT. EACH OF THE PARTIES HEREBY
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL IN THE NEGOTIATION, EXECUTION
AND DELIVERY OF THIS SUB-DEBT ACQUISITION AGREEMENT, INCLUDING, WITHOUT
LIMITATION, SUCH WAIVER OF THE RIGHT TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF THIS SUB-DEBT ACQUISITION AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS SUB-DEBT ACQUISITION AGREEMENT ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES TO THE EXTENT WAIVED BY THE
PARTIES HERETO.
11.20 INCORRECT CERTIFICATES. If Search delivers Stock
Certificates to the Escrow Agent which are incorrectly titled, upon receipt of
notice that such Stock Certificates were incorrectly titled, Search shall
promptly prepare new correctly titled replacement Stock Certificates and
deliver such Stock Certificates to the Escrow Agent, and the incorrectly titled
Stock Certificates shall be deemed null and void, without any further action by
any of the parties to this Sub-Debt Acquisition Agreement.
THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK
-41-
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have signed this Sub-Debt
Acquisition Agreement as of the day and year first above written.
SEARCH CAPITAL GROUP, INC.
By: /s/ ROBERT D. IDZI
-------------------------------------
Robert D. Idzi, E.V.P. & CFO
R-H CAPITAL PARTNERS, L.P.
By: R-H/Travelers, L.P., its general partner
By: R-H Capital, Inc., its general partner
By: /s/ KENNETH T. MILLAR
-------------------------------------
Kenneth T. Millar
Managing Director
KELLETT INVESTMENT CORPORATION
By:/s/ STILES A. KELLETT JR.
-------------------------------------
SEARCH FUNDING IV, INC.
By: /s/ ROBERT D. IDZI
-------------------------------------
Robert D. Idzi, S.V.P. & CFO
-42-
<PAGE> 45
SUB-DEBT SCHEDULES
<TABLE>
<S> <C> <C>
Sub-Debt Schedule 1.7 - Form of Sub-Debt Shareholder Agreement
Sub-Debt Schedule 3 - Representations and Warranties of Each SDH
Sub-Debt Schedule 4 - Representations and Warranties of Search and Newco
Sub-Debt Schedule 5.7(a) - Subordinated Notes and the R-H Warrants
Sub-Debt Schedule 5.7(b) - Subordinated Note and the Kellett Warrants
</TABLE>
-43-
<PAGE> 46
SCHEDULE 3 and 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
3. REPRESENTATIONS AND WARRANTIES OF SUBORDINATED DEBT HOLDERS . . -1-
-----------------------------------------------------------
3.1 DUE ORGANIZATION . . . . . . . . . . . . . . . . . . . . -1-
----------------
3.2 AUTHORIZATION; VALIDITY . . . . . . . . . . . . . . . . -1-
-----------------------
3.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . -1-
------------
3.4 LIABILITIES AND OBLIGATIONS . . . . . . . . . . . . . . -2-
---------------------------
3.5 PERMITS AND INTANGIBLES . . . . . . . . . . . . . . . . -2-
-----------------------
3.6 CONFORMITY WITH LAW; LITIGATION . . . . . . . . . . . . -3-
-------------------------------
3.7 ABSENCE OF CHANGES . . . . . . . . . . . . . . . . . . . -3-
------------------
3.8 SEARCH SUB-DEBT SECURITIES REPRESENTATIONS . . . . . . . -3-
------------------------------------------
3.9 COMPLETE COPIES OF MATERIALS . . . . . . . . . . . . . . -4-
----------------------------
4. REPRESENTATIONS OF SEARCH AND NEWCO . . . . . . . . . . . . . . -5-
-----------------------------------
4.1 DUE ORGANIZATION . . . . . . . . . . . . . . . . . . . . -5-
----------------
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS . . . . . . . . . -5-
--------------------------------------
4.3 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . -5-
------------
4.4 SEARCH CAPITALIZATION . . . . . . . . . . . . . . . . . -6-
---------------------
4.5 SEARCH SUB-DEBT SECURITIES DISCLOSURE DOCUMENTS . . . . -6-
-----------------------------------------------
4.6 ABSENCE OF MATERIAL CHANGES . . . . . . . . . . . . . . -7-
---------------------------
4.7 SEARCH SEC FILINGS . . . . . . . . . . . . . . . . . . . -7-
------------------
4.8 SEARCH FINANCIAL STATEMENTS . . . . . . . . . . . . . . -8-
---------------------------
4.9 OWNERSHIP OF NEWCO; NO PRIOR ACTIVITIES . . . . . . . . -8-
---------------------------------------
4.10 CONFORMITY WITH LAW; LITIGATION . . . . . . . . . . . . -9-
-------------------------------
</TABLE>
<PAGE> 47
Note: For purposes of Sub-Debt Schedules 3 and 4, the term "Sub-Debt
Acquisition Agreement" refers to the Asset Acquisition Sub-Debt Acquisition
Agreement, dated as of August 2, 1996, by and among Search Capital Group, Inc.
("Search"), Search Funding IV, Inc. ("Newco"), R-H Capital Partners, L.P.
("R-H"); and Kellett Investment Corporation ("Kellett") (hereinafter R-H and
Kellett may be individually or collectively referred to as the "Subordinated
Debt Holders" or "SDH"), including all Sub-Debt Schedules thereto.
SUB-DEBT SCHEDULE 3
3. REPRESENTATIONS AND WARRANTIES OF SUBORDINATED DEBT HOLDERS:
3.1 DUE ORGANIZATION. R-H is duly organized and validly existing as a
limited partnership and is in good standing under the laws of the State of
Georgia. Kellett is duly organized and validly existing as a corporation and
is in good standing under the laws of the State of Georgia.
3.2 AUTHORIZATION; VALIDITY. Each SDH has all requisite power and
authority to enter into and perform its obligations pursuant to the terms of
the Sub-Debt Acquisition Agreement and all of the agreements and documents
referred to therein (the "Related Documents"). The execution and delivery of
the Sub-Debt Acquisition Agreement and the Related Documents to which each SDH
is a party by each SDH and the performance by each SDH of its obligations
thereunder have been duly and validly authorized by the respective governing
bodies of each SDH and by all necessary action. This Sub-Debt Acquisition
Agreement is, and upon execution by each SDH, the Related Documents will be,
legal, valid and binding obligations of each SDH enforceable against each SDH
in accordance with their terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
-1-
<PAGE> 48
3.3 NO CONFLICTS. The execution, delivery and performance of the Sub-Debt
Acquisition Agreement, the consummation of the transactions contemplated
thereby, and the fulfillment of the terms thereof will not:
(a) conflict with, or result in a breach or violation of, the
organizational documents for R-H, or conflict with, or result in a
breach or violation of, the Certificate of Incorporation and the
By-Laws for Kellett;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which either SDH
is a party, or result in the creation or imposition of any lien,
charge or encumbrance on any of the properties of either SDH pursuant
to (i) any law or regulation to which either SDH is subject or on any
of either SDH's properties or (ii) any judgment, order or decree to
which either SDH is bound or any of the property owned by either SDH
is subject. "Subordinated Debt" means all debt owed by Dealers
Alliance Credit Corp., a Delaware corporation ("DACC") from time to
time under the Senior Subordinated Note and Warrant Purchase Agreement
dated October 16, 1995, as amended, originally between DACC and R-H
Capital Partners, L.P.; and
(c) except as would not materially adversely affect Search's or
Newco's ability to acquire, possess, sell, assign, transfer and/or
convey the Sub-Debt Assets and/or would not constitute a Sub-Debt
Material Adverse Effect:
(i) result in termination or impairment of any material
permit, license, franchise, contractual right or other
authorization of either SDH, but, in each case, only if and to
the extent such licenses, permits, franchises, contractual
rights and other authorizations are assignable by such SDH; or
-2-
<PAGE> 49
(ii) violate any law, order, judgment, rule, regulation,
decree or ordinance to which either SDH is subject or by which
the Sub-Debt Assets are bound.
3.4 LIABILITIES AND OBLIGATIONS. Each SDH is not liable for or subject to
any "liabilities" which will either materially adversely affect Search's or
Newco's ability to acquire, possess, sell, transfer, assign and/or convey the
Sub-Debt Assets and/or would not constitute a Sub-Debt Material Adverse Effect
or cause Search or Newco to become obligated for any such liabilities.
For purposes of this Section 3.4, the term "liabilities" shall include without
limitation any direct or indirect liability, indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, either accrued, absolute, contingent, mature, unmature or
otherwise and whether known or unknown, fixed or unfixed, liquidated or
unliquidated, secured or unsecured.
3.5 PERMITS AND INTANGIBLES. Except as would not have a Sub-Debt Material
Adverse Effect, each SDH owns or holds all licenses, franchises, permits and
other governmental authorizations in each jurisdiction necessary for such SDH
to own, possess, sell, assign, convey and transfer the Sub-Debt Assets (the
"Material Permits").
3.6 CONFORMITY WITH LAW; LITIGATION. Each SDH has complied in all
material respects with, is not in violation in any material respect of, and has
not received any notices of violation with respect to, any federal, state or
local statute, law or regulation with respect to the Sub-Debt Assets which
would constitute a Sub-Debt Material Adverse Effect, or which would materially
adversely affect Search's or Newco's ability to service, collect, maintain
and/or use the Sub-Debt Assets. There are no claims, actions, suits or
proceedings, pending or, to the knowledge of each SDH, threatened, against or
affecting either SDH at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality having jurisdiction
-3-
<PAGE> 50
over it which, if adversely determined, would have a Sub-Debt Material Adverse
Effect. There are no judgments, orders, injunctions, decrees, stipulations or
awards (whether rendered by a Court or administrative agency or by arbitration)
against either SDH or against any of the Sub-Debt Assets which would have a
Sub-Debt Material Adverse Effect.
The terms "law" and "regulation" as used in this Sub-Debt Acquisition
Agreement include all state and federal laws and regulations applicable to
either SDH's business.
3.7 ABSENCE OF CHANGES. Prior to Closing, there has not been any change
that by itself or together with other changes, has had a Sub-Debt Material
Adverse Effect.
3.8 SEARCH SUB-DEBT SECURITIES REPRESENTATIONS. Each SDH (a) has such
knowledge, sophistication and experience in business and financial matters that
it is capable of evaluating the merits and risks of an investment in the Search
Sub-Debt Securities; (b) fully understands the nature, scope and duration of
the limitations on transfer contained in the Sub-Debt Shareholders Agreement:
(c) understands that the Search Sub-Debt Securities are not registered and that
their resale is restricted by law; and (d) can bear the economic risk of any
investment in the Search Sub-Debt Securities. Each SDH has had an adequate
opportunity to ask questions and receive answers (and has asked such questions
and received answers to its satisfaction) from the officers of Search
concerning the business, operations and financial condition of Search and/or
the Search Sub-Debt Securities Disclosure Documents (as defined below in
Section 4.5). Except as has been previously stated or established in the
organizational documents for each SDH, each SDH has no contract, undertaking,
agreement or arrangement, written or oral, with any other person to sell,
transfer or grant participation in any shares of Search Sub-Debt Securities to
be acquired by such SDH in the Sub-Debt Sale and is not acquiring the Search
Sub-Debt Securities with a view to their distribution, except as may be
permitted under the Sub-Debt Shareholders Agreement once the registration
statement for such Search Sub-Debt Securities has become effective as set forth
-4-
<PAGE> 51
therein. In addition, each SDH understands the nature of the restrictions
imposed by Rules 145 and 144 of the rules and regulations of the Securities and
Exchange Commission under the Securities Act of 1933, as amended, as well as
the restrictions on resale of the Search Sub-Debt Securities imposed by the
Sub-Debt Shareholders Agreement to which such SDH is a party.
3.9 COMPLETE COPIES OF MATERIALS. Each SDH has delivered, and/or will
deliver at Closing, to Search and Newco true and complete copies of each
agreement, contract, commitment or other document (or summaries of same) that
is referred to in SDH Sub-Debt Schedules or that has been requested by Search
and Newco or its counsel.
[THE REST OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
-5-
<PAGE> 52
SUB-DEBT SCHEDULE 4
4. REPRESENTATIONS OF SEARCH AND NEWCO
4.1 DUE ORGANIZATION. Search is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas, and each of Search and Newco is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to carry on their respective
businesses in the places and in the manner as now conducted except for where
the failure to be so authorized or qualified would not have a material adverse
effect on the ability of Search to consummate the transaction contemplated by
this Sub-Debt Acquisition Agreement and the DACC Acquisition Agreement (a
"Search Sub-Debt Material Adverse Effect").
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. Each of Search and Newco has
the full legal right, power and corporate authority to enter into and perform
its obligations pursuant to the terms of the Sub-Debt Acquisition Agreement and
the Related Documents. The execution and delivery of this Sub-Debt Acquisition
Agreement and the Related Documents by Search and Newco and the performance by
each of Search and Newco of its obligations thereunder have been duly and
validly authorized by the respective Boards of Directors of Search and Newco
and by all necessary corporate action. The Sub-Debt Acquisition Agreement is,
and upon execution by Search and Newco, the Related Documents will be a legal,
valid and binding obligations of each of Search and Newco enforceable in
accordance with their terms except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.3 NO CONFLICTS. The execution, delivery and performance of the Sub-Debt
Acquisition Agreement, the consummation of the
-6-
<PAGE> 53
transactions contemplated thereby and the fulfillment of the terms thereof will
not:
(a) conflict with, or result in a breach or violation of the
Certificate of Incorporation and the Bylaws, each as amended, of
Search and Newco.
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which either
Search or Newco is a party, or result in the creation or imposition of
any lien, charge or encumbrance on any of Search's or Newco's
properties pursuant to (i) any law or regulation to which either
Search or Newco or any of their respective property is subject, or
(ii) any judgment, order or decree to which Search or Newco is bound
or any of their respective property is subject, except, in each case,
as would not individually or in the aggregate, have a Search Sub-Debt
Material Adverse Effect;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization
of Search or Newco; or
(d) violate any law, order, judgement, rule or regulation to which
Search or Newco is subject or by which Search or Newco is bound.
4.4 SEARCH CAPITALIZATION. The authorized capital stock of Search
consists of 130,000,000 shares of Common Stock and 60,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), of which
400,000 shares have been designated as the 12% Senior Convertible Preferred
Stock (the "12% Stock"), 55,000,000 shares have been designated as the 9/7
Noteholder Convertible Preferred and 4,000,000 shares have been designated as
the Convertible Stock. As of the date of this Sub-Debt Acquisition Agreement,
26,189,094 shares of Common Stock were issued and outstanding (excluding
treasury shares), 3,026,389 shares of Common Stock were held in treasury,
11,462,678 shares of Common Stock were reserved for issuance
-7-
<PAGE> 54
upon exercise of options and warrants issued by Search. In addition, as of the
date of this Sub-Debt Acquisition Agreement 400,000 shares of 12% Stock,
16,983,143 shares of 9/7 Noteholder Convertible Preferred and no shares of
Convertible Stock were issued and outstanding. All of the outstanding shares
of capital stock of Search have been duly authorized and validly issued and are
fully paid and nonassessable and were not issued in violation of any preemptive
or other rights. When issued to a SDH pursuant to the terms of this Sub-Debt
Acquisition Agreement, the Search Sub-Debt Securities to be issued by Search
pursuant to this Sub-Debt Acquisition Agreement will be duly authorized and
validly issued and fully paid and nonassessable, not issued in violation of any
preemptive or other rights, free and clear of all Liens (except for as provided
in the Escrow Agreement and this Sub-Debt Acquisition Agreement), and shall be
issued and delivered in compliance with all applicable federal, state and local
laws, rules and regulations.
4.5 SEARCH SUB-DEBT SECURITIES DISCLOSURE DOCUMENTS. As promptly as
possible after the date of the Sub-Debt Acquisition Agreement, Search will
provide to each SDH the following:
(a) a copy of Search's SEC Form 10-K dated July 2, 1996, including all
supplements or amendments thereto, a copy of all SEC 10-Q's and 8-K's
filed by Search since March 31, 1996, a copy of all proxy statements
relating to Search's meetings of stockholders (whether annual or
special) held since January 1, 1996 and a copy of all other forms,
reports and other registration statements filed by Search with the
Commission since January 1, 1996 (the forms, reports and other
documents referred to in this clauses (a) being referred to,
collectively, as the "SEC Reports")
(b) a copy of Search's bankruptcy Plan of Reorganization,
including the Plan's disclosure documents and all amendments and
supplements thereto, and all other documents and information related
thereto; and
(c) such other documents and information as are deemed relevant
and material in connection with the issuance of
-8-
<PAGE> 55
the Search Sub-Debt Securities to a SDH (collectively the "Search
Sub-Debt Disclosure Documents").
In addition, Search shall make available to each SDH those officers or
representatives of Search as are necessary to respond to any questions a SDH
may reasonably have regarding Search and the Search Sub-Debt Securities.
4.6 ABSENCE OF MATERIAL CHANGES. Since March 31, 1996, except as
contemplated by this Sub-Debt Acquisition Agreement, as disclosed in any SEC
Report filed since March 31, 1996 and prior to the date of this Sub-Debt
Acquisition Agreement or as set forth in Sub-Debt Schedule 4.6, Search and its
subsidiaries have conducted their businesses in accordance with the description
in Search's Form 10-K and, since March 31, 1996, there has not been:
(a) any change that by itself or together with other changes has
had a Search Sub-Debt Material Adverse Effect;
(b) any damage, destruction or loss (whether or not covered by
insurance) having a Search Sub-Debt Material Adverse Effect;
(c) any material change by Search in its accounting methods,
principles or practices; or
(d) any entry by Search or any of its subsidiaries into any
commitment or transaction which has a Search Sub-Debt Material Adverse
Effect.
4.7 SEARCH SEC FILINGS. Search has filed with the Commission all required
filings on a timely basis since the date of its Plan of Reorganization and such
filings as well as the SEC Reports are, (i) to the best of Search's
information, true, accurate and complete, and were prepared in accordance with
the requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, as the case may be, and the rules and
regulations thereunder and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required
to be
-9-
<PAGE> 56
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
Search shall file with the Commission a Form 8-K regarding the subject matter
of the DACC transaction and this Sub-Debt Acquisition Agreement within the time
limits specified by the Commission after Closing has occurred.
4.8 SEARCH FINANCIAL STATEMENTS.
(a) The representations and warranties set forth in Section 4.9(a)
of Schedule 4 to the DACC Acquisition Agreement are hereby
incorporated herein. In addition, Search will deliver to each SDH the
most recent available interim unaudited or audited financial
statements (or portions thereof) as soon as the same have been
prepared for all time periods after the date of the Interim
Financials.
(b) Except as disclosed in the SEC Reports filed prior to the date
of this Sub-Debt Acquisition Agreement, as set forth in the Search
Financial Statements or as set forth in Sub-Debt Schedule 4.8, since
March 31, 1996, neither Search nor any of its subsidiaries has
incurred any liability or obligation of any nature which would be
required to be reflected on a balance sheet, or in the notes thereto,
prepared in accordance with generally accepted accounting principles,
except for liabilities and obligations incurred in the ordinary course
of business in accordance with the description contained in Search's
Form 10-K or liabilities which would not, individually or in the
aggregate, have a Search Sub-Debt Material Adverse Effect.
4.9 OWNERSHIP OF NEWCO; NO PRIOR ACTIVITIES.
(a) Newco was formed solely for the purposes of engaging in the
DACC Sale and the Sub-Debt Sale and the other transactions
contemplated by the DACC Acquisition Agreement and this Sub-Debt
Acquisition Agreement.
-10-
<PAGE> 57
(b) As of the date of the Sub-Debt Acquisition Agreement and as of
the Closing, all of the outstanding capital stock of Newco is and will
be owned directly by Search. As of the Closing, there will be no
options, warrants or other rights (including registration rights),
agreements, arrangements or commitments to which Newco is a party of
any character relating to the issued or unissued capital stock of, or
other equity interests in, Newco, or obligating Newco to grant, issue
or sell any shares of the capital stock of, or other equity interests
in, Newco, by sale, lease, license or otherwise. There are no
obligations, contingent or otherwise, of Newco to repurchase, redeem
or otherwise acquire any shares of the capital stock of Newco.
(c) As of the date hereof and the Closing, except for the
obligations or liabilities incurred in connection with its
incorporation or organization and the DACC Sale and the Sub-Debt Sale
and other transactions contemplated hereby, Newco has not and will not
have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
4.10 CONFORMITY WITH LAW; LITIGATION. Search has complied in all material
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any federal, state or local
statute, law or regulation with respect to Search, any of its subsidiaries or
any of their assets or properties which would constitute a Search Sub-Debt
Material Adverse Effect, or which would materially adversely affect Search's
ability to perform its obligations under the Sub-Debt Acquisition Agreement.
Except as set forth in Sub-Debt Schedule 4.10, there are no claims, actions,
suits or proceedings, pending or, to the knowledge of Search, threatened,
against or affecting Search at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over it which, if adversely
determined, would have a Search Sub-Debt Material Adverse
-11-
<PAGE> 58
Effect. There are no judgments, orders, injunctions, decrees, stipulations or
awards (whether rendered by a Court or administrative agency or by arbitration)
against Search, any of its subsidiaries or any of their assets or properties
which would have a Search Sub-Debt Material Adverse Effect.
-12-
<PAGE> 1
EXHIBIT 2.3
ESCROW AGREEMENT
This Escrow Agreement is entered into as of August 6, 1996, by and
among: (i) Search Capital Group, Inc., a Delaware corporation ("Search"); (ii)
Dealers Alliance Credit Corp., a Delaware corporation ("DACC"); (iii) Search
Funding IV, Inc. a Texas corporation and a wholly-owned subsidiary of Search
("Newco"); (iv) R-H Capital Partners, L.P. ("R-H"); (v) Kellett Investment
Corporation ("Kellett") (hereinafter R-H and Kellett may be individually or
collectively referred to as the "Subordinated Debt Holders" or "SDH") and (vi)
U.S. Trust Company of Texas, N.A. ("Escrow Agent"). Search and Newco are
sometimes collectively referred to as "Buyer".
W I T N E S S E T H:
WHEREAS, DACC entered into an Asset Acquisition Agreement with Buyer
dated as of August 2, 1996 (the "Asset Acquisition Agreement"), pursuant to
which Buyer agreed to purchase DACC's "Assets" (as defined in the Asset
Acquisition Agreement; capitalized terms used herein shall have the same
definition as in the Asset Acquisition Agreement unless otherwise specifically
indicated);
WHEREAS, Search has agreed to issue the Search Securities in partial
payment for the Assets; and
WHEREAS, the Asset Acquisition Agreement provides that part of the
Search Securities are to be held in escrow pursuant to this Escrow Agreement in
order to guaranty payment of DACC's indemnification obligations under the Asset
Acquisition Agreement (such part of the Search Securities to be held in escrow
under the Asset Acquisition Agreement shall be referred to herein as the "DACC
Escrow Shares");
WHEREAS, DACC and Buyer desire that Escrow Agent hold the DACC Escrow
Shares in escrow, and Escrow Agent has agreed to do so, on the terms and
conditions set forth in the Asset Acquisition Agreement and this Escrow
Agreement.
WHEREAS, Buyer has entered into an Asset Acquisition Agreement with
SDH dated as of August 2, 1996 (the "Sub-Debt
Search-DACC Escrow Agreement
-1-
<PAGE> 2
Acquisition Agreement"), pursuant to which Buyer agreed to purchase certain
"Sub-Debt Assets" (as defined in the Sub-Debt Acquisition Agreement); and
WHEREAS, Search has agreed to issue the Search Sub-Debt Securities (as
defined in the Sub-Debt Acquisition Agreement) in payment for the Sub-Debt
Assets; and
WHEREAS, the Sub-Debt Acquisition Agreement provides that the
Indemnity Shares (as defined in the Sub-Debt Acquisition Agreement), are to be
held in escrow pursuant to this Escrow Agreement in order to guaranty payment
of SDH's indemnification obligations under the Sub-Debt Acquisition Agreement;
and
WHEREAS, Buyer and SDH desire that Escrow Agent hold the Indemnity
Shares in escrow, and Escrow Agent has agreed to do so, on the terms and
conditions set forth in the Sub-Debt Acquisition Agreement and this Escrow
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated into the Agreement as if fully set forth, and for other good and
valuable consideration, the receipt and sufficiency of all of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Establishment of DACC Escrow. DACC and Buyer hereby deliver the DACC
Escrow Shares to Escrow Agent to hold in escrow on the terms and conditions set
forth herein. All dividends or other distributions made by Search with respect
to any of the DACC Escrow Shares while the DACC Escrow Shares are held in
escrow by Escrow Agent shall be paid to Escrow Agent and held in escrow under
the terms of this Escrow Agreement (the DACC Escrow Shares together with the
dividends or other distributions paid thereon are collectively referred to as
the "DACC Escrow Deposit"). The DACC Escrow Shares consist of:
(i) 766,218 shares of Convertible Stock;
(ii) 1,277,030 shares of Common Stock; and
(iii) 1,277,030 Warrants.
Search-DACC Escrow Agreement
-2-
<PAGE> 3
The DACC Escrow Shares and cash attributable thereto shall be held in escrow
pursuant this Agreement and shall be available to satisfy the indemnification
obligations of DACC under the Asset Acquisition Agreement with respect to the
"DACC 100% Claims" and DACC's portion of the "Shared Claims".
2. Establishment of Sub-Debt Escrow. SDH and Buyer hereby deliver the
Indemnity Shares to Escrow Agent to hold in escrow on the terms and conditions
set forth herein. All dividends or other distributions made by Search with
respect to any of the Indemnity Shares while the Indemnity Shares are held in
escrow shall be paid to Escrow Agent and held in escrow by Escrow Agent under
the terms of this Agreement (the Indemnity Shares together with the dividends
or other distributions paid thereon are collectively referred to as the
"Sub-Debt Escrow Deposit"). The Indemnity Shares consists of 893,921 shares of
Convertible Stock issued for the benefit of SDH pursuant to the Sub-Debt
Acquisition Agreement. The Indemnity Shares and cash attributable thereto
shall be held in escrow pursuant this Agreement and shall be available to
satisfy the indemnification obligations of SDH under the Sub-Debt Acquisition
Agreement with respect to the "SDH 100% Claims" and SDH's portion of the
"Shared Claims".
3. Receipt. By Escrow Agent's executing Schedule 3.1 attached hereto and
incorporated herein, Escrow Agent hereby acknowledges receipt of (i) the DACC
Escrow Shares funding the DACC Escrow Deposit; and (ii) the Indemnity Shares
funding the Sub-Debt Escrow Deposit, and agrees to hold the DACC Escrow Deposit
and the Sub-Debt Escrow Deposit in escrow in accordance with the terms of this
Agreement. For purposes of this Agreement, "Master Escrow Deposit" shall mean
collectively the DACC Escrow Deposit and the Sub-Debt Escrow Deposit.
4. Definitions. As stated above, the parties hereto acknowledge that the
Master Escrow Deposit has been established to secure DACC's indemnification
obligations under the Asset Acquisition Agreement and SDH's indemnification
obligations under the Sub-Debt Acquisition Agreement. For purposes of this
Agreement, there are three types of indemnity Claims governed by this Escrow
Agreement: (i) those for which only DACC has liability (the "DACC 100%
Claims"), (ii) those for which only
Search-DACC Escrow Agreement
-3-
<PAGE> 4
the Subordinated Debt Holders have liability (the "SDH 100% Claims"), and (iii)
those for which both DACC and SDH have liability (the "Shared Claims"). With
respect to DACC 100% Claims only DACC Escrow Shares and/or cash attributable
thereto shall be used to pay such Claims. With respect to SDH 100% Claims only
Indemnity Shares and/or cash attributable thereto shall be used to pay such
Claims. With respect to Shared Claims, 62.741% of such Claims shall be paid
from DACC Escrow Shares and/or cash attributable thereto, and 37.259% of such
Claims shall be paid from Indemnity Shares and/or cash attributable thereto,
provided, that if either the DACC Escrow Shares and the cash attributable
thereto, on the one hand, or the Indemnity Shares and the cash attributable
thereto, on the other, are insufficient to pay such party's share of the Shared
Claim, then the other party shall pay any deficiency so that Search receives
payment for 100% of the Shared Claim, provided further, however, that the other
party shall be responsible for paying such deficiency only to the extent that
DACC Escrow Shares and/or cash attributable thereto or Indemnity Shares and/or
cash attributable thereto, as the case may be, continue to be held in escrow by
Escrow Agent.
5. Disbursement Instructions for the DACC Escrow Deposit. Escrow Agent
shall hold the DACC Escrow Deposit and disburse the DACC Escrow Deposit as
follows:
(a) Prior to the Final Expiration Date, a Search Indemnified Party may
make claims for payment from the DACC Escrow Deposit for a DACC 100% Claim
and/or DACC's portion of a Shared Claim by delivering to the Escrow Agent a
Claim Notice (as defined in Section 8.4(a) of the Asset Acquisition Agreement)
which shall:
(i) state that the Search Indemnified Party has
paid or incurred a DACC 100% Claim or a Shared Claim and is
entitled to indemnification under Section 8 of the Asset
Acquisition Agreement (an "Indemnification Item");
(ii) state the aggregate dollar amount of such
Indemnification Item;
Search-DACC Escrow Agreement
-4-
<PAGE> 5
(iii) specify in reasonable detail the nature
and amount of each individual Indemnification Item; and
(iv) specify in detail those DACC Escrow
Shares, in the order of class and Value as specified in Section
8.4(e) of the Asset Acquisition Agreement, that Escrow Agent
shall deliver to the Search Indemnified Party or as otherwise
directed by the Search Indemnified Party in satisfaction of the
Indemnification Item(s) set forth in the Claim Notice in
accordance with Sections 8.4(e) and 10.3 of the Asset
Acquisition Agreement.
The Search Indemnified Party shall deliver a copy of such Claim Notice to DACC
pursuant to the Asset Acquisition Agreement and provide to the Escrow Agent
evidence of receipt of a copy of such Claim Notice by DACC. Any Claim Notice
may include multiple Indemnification Items. The first Claim Notice shall, in
addition to the items mentioned above, state that the Deductible has been
satisfied and include in reasonable detail all items of indemnification which
shall have been attributable to the satisfaction of the Deductible.
(b) If DACC does not notify the Search Indemnified Party
and Escrow Agent within thirty (30) days of receipt by DACC of the Claim Notice
(the "Notice Period") that DACC disputes any Indemnification Item included in a
Claim Notice, DACC shall be deemed to have acknowledged the correctness of the
amount claimed for such Indemnification Item in such Claim Notice as well as
the direction as to what class and Value of DACC Escrow Shares shall be
delivered to Search to satisfy such Indemnification Item, and the Escrow Agent
shall thereafter deliver to the Search Indemnified Party from the DACC Escrow
Deposit the number of shares of the DACC Escrow Shares and/or cash (to the
extent such DACC Escrow Shares and/or cash have not been distributed to DACC
pursuant to Section 5(d) below) by class and equal in Value to the amount
specified in the Claim Notice with respect to such Indemnification Item.
(c) If DACC shall, within the Notice Period, object in
writing to any Indemnification Item, DACC and the Search Indemnified Party
shall proceed to resolve any dispute with respect to such Indemnification Item
pursuant the provisions
Search-DACC Escrow Agreement
-5-
<PAGE> 6
set forth in Section 8.4 of the Asset Acquisition Agreement and the amount so
objected to shall be held by the Escrow Agent and shall not be released from
the DACC Escrow Deposit except in accordance with either (i) written
instructions executed by DACC and Search or (ii) the final nonappealable order
of a court of competent jurisdiction directing the Escrow Agent with respect to
the matters relating to the claims by the Search Indemnified Party for
indemnification from DACC, promptly after which time the Escrow Agent shall
deliver to the Search Indemnified Party out of the DACC Escrow Deposit the
number of shares of the DACC Escrow Shares and/or cash by class and equal in
Value to the portion of such amount set forth in such written instructions or
in such order, as the case may be.
(d) Thirty (30) days prior to the First Expiration Date,
DACC shall deliver to Search and to the Escrow Agent a written notice (the
"DACC Distribution Notice") setting forth an estimate of the amount (the "DACC
Distribution Amount") of shares of the DACC Escrow Shares and/or cash by class
and Value DACC shall be entitled to have distributed to DACC out of the DACC
Escrow Deposit pursuant to Sections 10.1(b) and 10.2 of the Asset Acquisition
Agreement. If Search objects to the DACC Distribution Amount specified in the
DACC Distribution Notice, Search shall, within twenty (20) days after receipt
by Search and the Escrow Agent of the DACC Distribution Notice, deliver to the
Escrow Agent and to DACC a certificate specifying in reasonable detail the
nature and basis for such objection. If the Escrow Agent shall not have
received such a certificate from Search objecting to the DACC Distribution
Amount specified in the DACC Distribution Notice within twenty (20) days after
receipt by Search and Escrow Agent of the DACC Distribution Notice, Search
shall be deemed to have acknowledged the correctness of the DACC Distribution
Amount specified in the DACC Distribution Notice, and the Escrow Agent shall
thereafter deliver to DACC out of the DACC Escrow Deposit the amount of shares
of the DACC Escrow Shares and/or cash by class and equal in Value to the DACC
Distribution Amount specified in the DACC Distribution Notice. If the Escrow
Agent shall receive, within twenty (20) days after receipt by Search and the
Escrow Agent of the DACC Distribution Notice, a certificate of Search objecting
to the DACC Distribution Amount specified in the DACC Distribution Notice, then
no payment shall be made from the
Search-DACC Escrow Agreement
-6-
<PAGE> 7
DACC Escrow Deposit except in accordance with either (i) written instructions
executed by Search and DACC, or (ii) the final nonappealable order of a court
of competent jurisdiction directing the Escrow Agent to make such a payment.
(e) After the Final Expiration Date, a Search Indemnified
Party may make claims for payment from the DACC Escrow Deposit only in respect
of Claims that were included in determining the Reserved Amount (as defined
below).
(f) Thirty (30) days prior to the Final Expiration Date,
Search shall deliver to DACC and the Escrow Agent a written notice (the
"Reserve Notice") setting forth the amount of shares of DACC Escrow Shares
and/or cash by class and Value (the "Reserved Amount") of the DACC Escrow
Deposit required to be reserved and retained to secure payment of Pending
Claims pursuant to Section 10.2 of the Asset Acquisition Agreement. If DACC
shall object to the Reserved Amount specified in the Reserve Notice, DACC
shall, within twenty (20) days after receipt by DACC and the Escrow Agent of
the Reserve Notice, deliver to the Escrow Agent and to Search a certificate
specifying in reasonable detail the nature and basis for such objection. If
the Escrow Agent shall not have received a DACC certificate objecting to the
Reserved Amount specified in the Reserve Notice within twenty (20) days after
receipt by DACC and Escrow Agent of the Reserve Notice, DACC shall be deemed to
have acknowledged the correctness of the Reserved Amount specified in the
Reserve Notice, and the Escrow Agent shall promptly thereafter deliver to DACC
out of the DACC Escrow Deposit an amount equal to the shares of the DACC Escrow
Shares and/or cash then remaining in the DACC Escrow Deposit less the Reserved
Amount specified by class and Value in the Reserve Notice. If the Escrow Agent
shall receive, within twenty (20) days after receipt by DACC and Escrow Agent
of the Reserve Notice, a DACC certificate objecting to the Reserved Amount
specified in the Reserve Notice, then Escrow Agent shall deliver to DACC out of
the DACC Escrow Deposit the amount of shares of the DACC Escrow Shares and/or
cash equal to the shares of the DACC Escrow Deposit then remaining in the DACC
Escrow Deposit less the Reserved Amount specified in the Reserve Notice.
Subject to Section 5(g) below, no additional payment shall be made from the
DACC Escrow Deposit until Escrow
Search-DACC Escrow Agreement
-7-
<PAGE> 8
Agent is provided with either (i) written instructions executed by Search and
DACC, or (ii) the final nonappealable order of a court of competent
jurisdiction directing the Escrow Agent to make such a payment.
(g) Thereafter, Escrow Agent shall retain in the DACC
Escrow Deposit the Reserve Amount pending final resolution of the Pending
Claims as defined in Section 10.2 of the Asset Acquisition Agreement. Upon
final resolution of a Pending Claim, Search shall submit a Claim Notice to
Escrow Agent and comply with the procedures set forth above in Sections
5(a),(b), and (c). Upon final resolution of all Pending Claims and
distributions from the DACC Escrow Deposit as payment for such Claims, any
remaining DACC Escrow Shares and/or cash held in the DACC Escrow Deposit shall
be delivered to DACC.
6. Disbursement Instructions for the Sub-Debt Escrow Deposit.
Escrow Agent shall hold the Sub-Debt Escrow Deposit and disburse the Sub-Debt
Escrow Deposit as follows:
(a) Prior to the Final Expiration Date, a Sub-Debt Search
Indemnified Party, as defined in the Sub-Debt Acquisition Agreement, may make
claims for payment from the Sub-Debt Escrow Deposit for a SDH 100% Claim and/or
SDH's portion of a Shared Claim by delivering to the Escrow Agent a Claim
Notice (for purposes of this Section 6, "Claim Notice" shall be as defined in
Section 8.4(a) of the Sub-Debt Acquisition Agreement") which shall:
(i) state that the Sub-Debt Search Indemnified
Party has paid or incurred a SDH 100% Claim or a Shared Claim
and is entitled to indemnification under Section 8 of the
Sub-Debt Acquisition Agreement (an "Indemnification Item");
(ii) state the aggregate dollar amount of such
Indemnification Item;
(iii) specify in reasonable detail the nature
and amount of each individual Indemnification Item; and
Search-DACC Escrow Agreement
-8-
<PAGE> 9
(iv) specify in detail those Indemnity Shares
in Value as specified in Section 8.4(e) of the Sub-Debt
Acquisition Agreement that Escrow Agent shall deliver to the
Sub-Debt Search Indemnified Party or as otherwise directed by
the Sub-Debt Search Indemnified Party in satisfaction of the
Indemnification Item(s) set forth in the Claim Notice in
accordance with Sections 8.4(e) and 10.3 of the Sub-Debt
Acquisition Agreement.
The Sub-Debt Search Indemnified Party shall deliver a copy of such Claim Notice
to SDH and provide to the Escrow Agent evidence of receipt of a copy of such
Claim Notice by SDH. Any Claim Notice may include multiple Indemnification
Items.
(b) If SDH does not notify the Sub-Debt Search
Indemnified Party and Escrow Agent within thirty (30) days of receipt by SDH of
the Claim Notice (the "Notice Period") that SDH disputes any Indemnification
Item included in a Claim Notice, SDH shall be deemed to have acknowledged the
correctness of the amount claimed for such Indemnification Item in such Claim
Notice as well as the direction as to what Value of Indemnity Shares shall be
delivered to Search to satisfy such Indemnification Item, and the Escrow Agent
shall thereafter deliver to the Sub-Debt Search Indemnified Party from the
Sub-Debt Escrow Deposit the number of shares of the Indemnity Shares and/or
cash (to the extent such Indemnity Shares and/or cash have not been distributed
to the SDH pursuant to Section 6(d) below) equal in Value to the amount
specified in the Claim Notice with respect to such Indemnification Item.
(c) If SDH shall, within the Notice Period, object in
writing to any Indemnification Item, SDH and the Sub-Debt Search Indemnified
Party shall proceed to resolve any dispute with respect to such Indemnification
Item pursuant the provisions set forth in Section 8.4 of the Sub-Debt
Acquisition Agreement and the amount so objected to shall be held by the Escrow
Agent and shall not be released from the Sub-Debt Escrow Deposit except in
accordance with either (i) written instructions executed by SDH and Search or
(ii) the final nonappealable order of a court of competent jurisdiction
directing the Escrow Agent with respect to the matters relating
Search-DACC Escrow Agreement
-9-
<PAGE> 10
to the claims by the Sub-Debt Search Indemnified Party for indemnification from
SDH, promptly after which time the Escrow Agent shall deliver to the Sub-Debt
Search Indemnified Party out of the Sub-Debt Escrow Deposit the number of
shares of the Indemnity Shares and/or cash equal in Value to the portion of
such amount set forth in such written instructions or in such order, as the
case may be.
(d) Thirty (30) days prior to the First Expiration Date,
SDH shall deliver to Search and to the Escrow Agent a written notice (the "SDH
Distribution Notice") setting forth an estimate of the amount (the "SDH
Distribution Amount") of shares of the Indemnity Shares and/or cash equal in
Value that SDH shall be entitled to have distributed to SDH out of the Sub-Debt
Escrow Deposit pursuant to Sections 10.1(b) and 10.2 of the Sub-Debt
Acquisition Agreement. If Search objects to the SDH Distribution Amount
specified in the SDH Distribution Notice, Search shall, within twenty (20) days
after receipt by Search and the Escrow Agent of the SDH Distribution Notice,
deliver to the Escrow Agent and to SDH a certificate specifying in reasonable
detail the nature and basis for such objection. If the Escrow Agent shall not
have received such a certificate from Search objecting to the SDH Distribution
Amount specified in the SDH Distribution Notice within twenty (20) days after
receipt by Search and Escrow Agent of the SDH Distribution Notice, Search shall
be deemed to have acknowledged the correctness of the SDH Distribution Amount
specified in the SDH Distribution Notice, and the Escrow Agent shall promptly
thereafter deliver to SDH out of the Sub-Debt Escrow Deposit the amount of
shares of the Indemnity Shares and/or cash equal in Value to the SDH
Distribution Amount specified in the SDH Distribution Notice. If the Escrow
Agent shall receive, within twenty (20) days after receipt by Search and Escrow
Agent of the SDH Distribution Notice, a certificate of Search objecting to the
SDH Distribution Amount specified in the SDH Distribution Notice, then no
payment shall be made from the Sub-Debt Escrow Deposit except in accordance
with either (i) written instructions executed by Search and SDH, or (ii) the
final nonappealable order of a court of competent jurisdiction directing the
Escrow Agent to make such a payment.
Search-DACC Escrow Agreement
-10-
<PAGE> 11
(e) After the Final Expiration Date, a Sub-Debt Search
Indemnified Party may make claims for payment from the Sub-Debt Escrow Deposit
only in respect of Claims that were included in determining the Sub-Debt
Reserved Amount (as defined below).
(f) Thirty days prior to the Final Expiration Date,
Search shall deliver to SDH and the Escrow Agent a written notice (the
"Sub-Debt Reserve Notice") setting forth the amount of shares of Indemnity
Shares and/or cash by Value (the "Sub-Debt Reserved Amount") of the Sub-Debt
Escrow Deposit required to be reserved and retained to secure payment of SDH's
indemnification obligations for the Pending Claims pursuant to Section 10.2 of
the Sub-Debt Acquisition Agreement. If SDH shall object to the Sub-Debt
Reserved Amount specified in the Sub-Debt Reserve Notice, SDH shall, within
twenty (20) days after receipt by SDH and the Escrow Agent of the Sub-Debt
Reserve Notice, deliver to the Escrow Agent and to Search a certificate
specifying in reasonable detail the nature and basis for such objection. If
the Escrow Agent shall not have received a certificate objecting to the
Sub-Debt Reserved Amount specified in the Sub-Debt Reserve Notice within twenty
(20) days after receipt by SDH and the Escrow Agent of the Sub-Debt Reserve
Notice, SDH shall be deemed to have acknowledged the correctness of the
Sub-Debt Reserved Amount specified in the Sub-Debt Reserve Notice, and the
Escrow Agent shall promptly thereafter deliver to SDH out of the SDH Escrow
Deposit an amount equal to the shares of the Indemnity Shares and/or cash then
remaining in the Sub-Debt Escrow Deposit less the Sub-Debt Reserved Amount
specified in the Sub-Debt Reserve Notice. If the Escrow Agent shall receive,
within twenty (20) days after receipt by SDH and Escrow Agent of the Sub-Debt
Reserve Notice, a SDH Certificate objecting to the Sub-Debt Reserved Amount
specified in the Sub-Debt Reserve Notice, then Escrow Agent shall deliver to
SDH out of the Sub-Debt Escrow Deposit the amount of shares of the Indemnity
Shares and/or cash equal to the shares of the Sub-Debt Escrow Deposit then
remaining in the Sub-Debt Escrow Deposit less that Sub-Debt Reserved Amount
specified in the Sub-Debt Reserve Notice. Subject to Section 6(g), no
additional payment shall be made from the Sub-Debt Escrow Deposit until Escrow
Agent is provided with either (i) written instructions executed by SDH and
Search
Search-DACC Escrow Agreement
-11-
<PAGE> 12
or (ii) the final nonappealable order of a court of competent jurisdiction
directing the Escrow Agent to make such a payment.
(g) Thereafter, Escrow Agent shall retain in the Sub-Debt
Escrow Deposit the Sub-Debt Reserved Amount pending final resolution of the
Pending Claims as defined in Section 10.2 of the Sub-Debt Acquisition
Agreement. Upon final resolution of a Pending Claim, Search shall submit a
Claim Notice to Escrow Agent and comply with the procedures set forth above in
Sections 6(a),(b), and (c). Upon final resolution of all Pending Claims and
distributions from the Sub-Debt Escrow Depoist as payment for such Claims, any
remaining Indemnity Shares and/or cash held in the Sub-Debt Escrow Deposit
shall be delivered to SDH.
7. Reservation of DACC Claims. In the event SDH shall pay more
than its portion of the Shared Claims pursuant to the provisions of Section 4
of this Agreement through Indemnity Shares and/or cash attributable thereto
(the amount paid in excess of SDH's portion of the Shared Claims is hereinafter
referred to as the "Excess Amount"), DACC and SDH agree that SDH shall be
entitled to receive, out of any shares of DACC Escrow Shares and/or cash
remaining in the DACC Escrow Deposit after satisfaction in full of all
indemnity obligations of DACC to Search pursuant to the Asset Acquisition
Agreement and Section 5 of this Escrow Agreement, an amount of DACC Escrow
Shares and/or cash equal in Value to the Excess Amount. The parties agree that
no shareholder, employee, director, officer, representative or agent of DACC
shall have personal liability whatsoever with respect to the Excess Amount.
This provision shall not affect Escrow Agent's duties or obligations hereunder
except that the Escrow Agent shall distribute the DACC Escrow Shares and/or
cash out of the DACC Escrow Deposit to SDH pursuant to either (i) written
instructions executed by DACC and SDH or (ii) the final nonappealable order of
a court of competent jursidiction directing Escrow Agent with respect to such
matters.
8. Investment. Any portion of the DACC Escrow Deposit or the
Sub-Debt Escrow Deposit consisting of cash shall be: (i) invested as directed
by joint instructions of DACC and Buyer for the DACC Escrow Deposit or Buyer
and SDH for the Sub-Debt
Search-DACC Escrow Agreement
-12-
<PAGE> 13
Escrow Deposit, as the case may be, or (ii) in the absence of such joint
instructions, shall be deposited in a commingled short term investment fund
managed by an investment manager and available to Escrow Agent (e.g. Excelsior
govt money fund). For tax purposes (1) all earnings on the DACC Escrow Shares
shall be reported as earned by DACC; DACC's federal employer identification
number is 25-1713866 and all tax notification forms or reports shall use the
address set forth in Section 16 below as DACC's address for such forms or
reports; and (2) 68.75% of the earnings on the Indemnity Shares shall be
reported as earned by R-H and R-H's federal employer identification number is
58-2179728 and 31.25% of the earnings on the Indemnity Shares shall be reported
as earned by Kellett and Kellett's federal employer identification number is
58-2158433. All tax notification forms or reports shall use the address set
forth in Section 16 below as R-H's and Kellett's addresses for such forms or
reports.
9. Certificate Legend. All certificates representing the DACC
Escrow Shares shall bear the legend required by the Shareholders Agreement
until said legend is removed pursuant to the terms and conditions of the
Shareholders Agreement. All certificates representing the Indemnity Shares
shall bear the legend required by the Sub-Debt Shareholders Agreement (as
defined in the Sub-Debt Acquisition Agreement) until said legend is removed
pursuant to the terms and conditions of the Sub-Debt Shareholders Agreement.
Thereafter, all certificates representing the DACC Escrow Shares and the
Indemnity Shares still constituting a part of the Master Escrow Deposit shall
bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISTRIBUTED
OR DISPOSED OF EXCEPT IN ACCORDANCE WITH THE CONDITIONS
SPECIFIED IN THAT CERTAIN ESCROW AGREEMENT DATED AUGUST 2, 1996
AMONG SEARCH CAPITAL GROUP, INC, SEARCH FUNDING IV, INC.,
DEALERS ALLIANCE CREDIT CORP., R-H CAPITAL PARTNERS, L.P.,
KELLETT INVESTMENT CORPORATION AND U.S. TRUST COMPANY OF TEXAS,
N.A. A COPY OF SUCH AGREEMENT WILL BE MAILED TO THE HOLDER
HEREOF WITHOUT CHARGE WITHIN FIVE DAYS AFTER
Search-DACC Escrow Agreement
-13-
<PAGE> 14
RECEIPT OF WRITTEN REQUEST THEREFOR DIRECTED TO SEARCH AT ITS
HEADQUARTERS IN DALLAS, TEXAS."
Notwithstanding the foregoing, Escrow Agent shall not be responsible for
placing legends on certificates delivered to Escrow Agent hereunder, or
changing legends on certificates delivered to Escrow Agent hereunder.
10. Fees. Escrow Agent is charging for its services hereunder the
fees set forth on Schedule A, attached hereto and incorporated herein. The
Escrow Agent's fees for the first year shall be paid by Search upon Search's
receipt of invoice therefor and thereafter, Escrow Agent's fees shall be paid
as follows: 62.741% of the fees shall be paid by deducting cash from the DACC
Escrow Deposit and 37.259% of the fees shall be paid by deducting cash from the
Sub-Debt Escrow Deposit.
11. Duties. The duties of the Escrow Agent hereunder are only such
as are herein specifically provided, being purely administrative in nature, and
the Escrow Agent shall incur no liability whatsoever except for fraudulent or
grossly negligent conduct. Other than the obligations of the Escrow Agent set
forth in this Agreement, the Escrow Agent shall have no other obligations,
rights, or duties with reference to this Agreement. The Escrow Agent shall not
be bound by any modification of this Agreement unless in writing and signed by
all of the parties hereto.
12. Uncertainty or Conflict: In the event that the Escrow Agent
shall be uncertain as to its duties or obligations hereunder or shall receive
instructions from any party hereto with respect to any part or all of the
Master Escrow Deposit, which are in conflict with any of the provisions of this
Agreement, the Escrow Agent shall be entitled to refrain from taking any action
other than to keep safely the Master Escrow Deposit and any other property so
received by it until it shall be directed by a court as provided in the
following Section.
13. Litigation: If (a) the Escrow Agent becomes involved in or is
threatened with litigation for any reason resulting from its capacity as Escrow
Agent, and/or (b) the Escrow Agent is uncertain as to its duties or obligations
hereunder, the Escrow
Search-DACC Escrow Agreement
-14-
<PAGE> 15
Agent is hereby authorized to deposit with the U.S. district court in Dallas,
Texas the Master Escrow Deposit and notify the parties hereto of the same.
Thereupon, the Escrow Agent shall stand fully relieved and discharged of any
further duties hereunder in respect of such action and the matters giving rise
thereto except as may be instructed by said court. In the event Escrow Agent
is a party to any litigation, DACC, Buyer and SDH severally agree to reimburse
Escrow Agent on demand for any reasonable out-of-pocket expenses incurred by
Escrow Agent in connection with such litigation, and Escrow Agent shall also
have the right to deduct said expenses from the Master Escrow Deposit.
14. Escrow Agent Replacement. If Escrow Agent resigns as Escrow
Agent, the parties shall have thirty (30) days to select a new Escrow Agent.
If the parties fail to select a new Escrow Agent within said thirty (30) day
period, Escrow Agent shall appoint a successor Escrow Agent, which shall be a
federally chartered national bank or trust company with assets in excess of $1
billion. Any successor Escrow Agent shall agree to be bound by all of the
terms and conditions of this Agreement.
15. Termination. Upon disbursement of the entire Master Escrow
Deposit, this Agreement shall terminate.
16. Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail,
postage prepaid, or by recognized courier service, as follows:
If to Search
or Newco to: Search Capital Group, Inc.
700 N. Pearl Street
Suite 400, L.B. 401
Dallas, Texas 75201-2809
Attention: George C. Evans, Pres. & CEO
Facsimile No.: 214-965-6098
Search-DACC Escrow Agreement
-15-
<PAGE> 16
With a copy to: Riezman & Blitz, P.C.
120 S. Central, 10th Floor
St. Louis, Missouri 63105
Attention: Richard M. Riezman, Esq.
Facsimile No.: 314-727-6458
If to DACC: Dealers Alliance Credit Corp.
c/o Chicago Holdings, Inc.
10000 RIDC Plaza Suite 200
Pittsburgh, PA 15238
Attention: Richard J. Uhl, Pres.& CEO
Facsimile No.: 412-963-9841
With a copy to: Kronish, Lieb, Weiner & Hellman, LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attention: Russell S. Berman, Esq.
Facsimile No.: 212-479-6275
If to SDH:
(1)
R-H Capital Partners, L.P.
Atlanta Financial Center
3333 Peachtree Road
Atlanta, GA 30326
Attention: Mr. Ken Millar
Facsimile No.: (404) 266-5966
With a copy to:
Search-DACC Escrow Agreement
-16-
<PAGE> 17
King & Spalding
191 Peachtree Street
Atlanta, GA 30303
Attention: John J. Kelley III, Esq.
Facsimile No.: (404) 572-5100
(2) Kellett Investment Corporation
200 Galleria Parkway, Suite 1800
Atlanta, GA 30339
Attention: John E. Cunningham
Facsimile No.: (770) 956-7412
With a copy to:
Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, GA 30308-2216
Attention: Hazen H. Dempster
Facsimile No.: (404) 885-3900
If to Escrow
Agent to: Bill Barber
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
Facsimile No.: 214-754-1303
Search-DACC Escrow Agreement
-17-
<PAGE> 18
or to such other address as the person to whom notice is to be given may have
specified in a written notice duly given to the sender as provided herein.
Such notice, request, claim, demand, waiver, consent, approval or other
communication shall be deemed to have been received: (i) as of the date
delivered personally; (ii) as of the date of the telefax confirmation; (iii) as
of the date the registered or certified mail acknowledgement of receipt is
signed or the date of refusal to accept delivery; (iv) the date the
acknowledgement of receipt is signed if delivered by courier; and, (v) if given
by any other means, shall be deemed received only when actually received by the
addressees.
17. Miscellaneous.
a. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
successors and assigns.
b. This Agreement may be executed in one or more
counterparts, and each such counterpart shall, for all purposes,
be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument.
c. If any provision(s) of this Agreement are held to be
invalid, illegal or unenforceable by a court of competent
jurisdiction, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be
affected or impaired thereby.
d. The obligations and duties of Escrow Agent herein are
personal to Escrow Agent and Escrow Agent may not assign any
and/or all of its obligations or duties hereunder except as set
forth herein.
e. Escrow Agent is hereby severally indemnified by
Buyer, DACC and SDH against any liability resulting from the
exercise of its duties under this Agreement which are not
performed with fraud or gross negligence.
Search-DACC Escrow Agreement
-18-
<PAGE> 19
THE REST OF THIS PAGE LEFT INTENTIONALLY BLANK.
Search-DACC Escrow Agreement
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SEARCH CAPITAL GROUP, INC. ("Search")
By: /s/ ROBERT D. IDZI - E.V.P. & CFO
-------------------------------------
Robert D. Idzi
SEARCH FUNDING IV, INC. ("Newco")
By: /s/ ROBERT D. IDZI - E.V.P. & CFO
-------------------------------------
Robert D. Idzi
DEALERS ALLIANCE CREDIT CORP. ("DACC")
By: /s/ RICHARD J. UHL
-------------------------------------
R-H CAPITAL PARTNERS, L.P. ("R-H")
By: R-H/Travelers, L.P., its general partner
By: R-H Capital, Inc., its general partner
By: /s/ KENNETH T. MILLAR
-------------------------------------
Kenneth T. Millar
Managing Director
KELLETT INVESTMENT CORPORATION ("Kellett")
By:/s/ STILES A. KELLETT, JR.
-------------------------------------
Search-DACC Escrow Agreement
20
<PAGE> 21
U.S. TRUST COMPANY OF TEXAS, N.A. ("Escrow Agent")
By: /s/ BILL BARBER
---------------------------------------------
Bill Barber
Vice President
Search-DACC Escrow Agreement
-21-
<PAGE> 22
SCHEDULE A
ESCROW AGENT FEES
First year annual Escrow Agent Fee: $3,000.00
For each additional year: $1,500.00 per year
(due in advance)
** plus out of pocket extraordinary expenses
Search-DACC Escrow Agreement
-22-
<PAGE> 23
SCHEDULE 3.1
ESCROW AGENT RECEIPT
Escrow Agent acknowledges receipt of certificates for the following securities:
<TABLE>
<CAPTION>
Title Type of Security Number of Shares
----- ---------------- ----------------
<S> <C> <C>
US Trust of Texas, N.A. as escrow Series B 9%/7% Convertible 766,218
agent f/b/o Dealers Alliance Credit Preferred Stock
Corp.
US Trust of Texas, N.A. as escrow Search Common Stock 1,277,030
agent f/b/o Dealers Alliance Credit
Corp.
US Trust of Texas, N.A. as escrow Warrants expiring March 14, 1,277,030
agent f/b/o Dealers Alliance Credit 2001
Corp.
US Trust of Texas, N.A. as escrow Series B 9%/7% Convertible 893,921
agent f/b/o R-H Capital Partners, Preferred Stock
L.P. and Kellett Investment
Corporation
</TABLE>
U.S. TRUST COMPANY OF TEXAS, N.A.
By /s/ BILL BARBER
---------------------------------
Bill Barber, Vice President
Date 8/06/96
-------------------------------
Search-DACC Escrow Agreement
-23-
<PAGE> 1
EXHIBIT 2.4
SEARCH-DACC
SHAREHOLDERS AGREEMENT
THIS SEARCH-DACC SHAREHOLDERS AGREEMENT ("Agreement") is made and
entered into as of August 2, 1996, by and between (i) Search Capital Group,
Inc., a Delaware corporation ("Search") and (ii) Dealers Alliance Credit Corp.,
a Delaware corporation ("DACC"), on behalf of itself and all "DACC
Shareholders" (as defined below).
R E C I T A L S
A. Search, Newco and DACC have entered into that certain Asset
Acquisition Agreement dated August 2, 1996 (the "Asset Acquisition
Agreement"). The delivery of this Agreement is a condition to the consummation
of the transactions contemplated by the Asset Acquisition Agreement.
Capitalized terms that are not defined herein have the meanings assigned to
them in the Asset Acquisition Agreement.
B. Pursuant to the Asset Acquisition Agreement, Search will issue
to DACC and the Subordinated Debt Holders the Search Securities specified in
the Asset Acquisition Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt, adequacy and sufficiency of all of which
are hereby acknowledged, Search and DACC hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following definitions:
"Commission" means the Securities and Exchange Commission, or any other federal
agency at the time administering the Securities act.
"DACC Shareholders" means all of the stockholders of DACC as of Closing, and
their respective successors and assigns.
"Registration Expenses" means the expenses so described in Section 4 hereof.
Search-DACC Shareholders
-1-
<PAGE> 2
"Registrable Securities" means (i) the Search Securities issued to DACC and the
Subordinated Debt Holders pursuant to the Asset Acquisition Agreement, (ii) any
of the securities of search issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Search Securities; provided, however, that shares of the Search Securities
or other securities shall only be treated as Registrable Securities if and so
long as they have not been sold to or through a broker-dealer or underwriter in
a public distribution or public securities transaction.
"Restricted Securities" means securities subject to the terms and conditions
of Rule 145 and Rule 144 promulgated by the Commission pursuant to the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. RESTRICTED SEARCH SECURITIES.
2.1 Stop Transfer Instructions/Securities Legend. DACC acknowledges and
agrees that all of the Search Securities issued by Search at the closing will
be Restricted Securities. DACC further acknowledges and agrees that stop
transfer instructions have been given to Search's transfer agent and the Escrow
Agent with respect to certificates evidencing the Search Securities and that
there will be placed on the certificates evidencing the Search Securities a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULES 145 AND 144 PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISTRIBUTED OR DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
CONDITIONS SPECIFIED IN THAT CERTAIN ESCROW AGREEMENT DATED AUGUST 2,
1996 AMONG SEARCH CAPITAL GROUP, INC., SEARCH FUNDING IV, INC.,
DEALERS ALLIANCE CREDIT CORP., R-H CAPITAL PARTNERS, L.P., KELLETT
Search-DACC Shareholders
-2-
<PAGE> 3
INVESTMENT CORPORATION AND U.S. TRUST COMPANY OF TEXAS, N.A. A COPY
OF SUCH AGREEMENT WILL BE MAILED TO THE HOLDER HEREOF WITHOUT CHARGE
WITHIN FIVE DAYS AFTER RECEIPT OF WRITTEN REQUEST THEREFOR DIRECTED TO
SEARCH AT ITS HEADQUARTERS IN DALLAS, TEXAS."
2.2 Removal of Securities Legend. Search agrees to remove promptly the
stop transfer instructions and securities legend described in Section 2.1 by
delivery of substitute certificates without such legend upon (i) the
declaration by the Commission and all relevant state securities regulators of
the effectiveness of the registration statement under the Securities Act
("Registration Effectiveness"), (ii) the expiration of the restrictive period
set forth in Rule 145(d), or (iii) the delivery by DACC to Search of a copy of
a letter from the staff of the Commission, or an opinion of counsel in form and
substance reasonably satisfactory to Search, to the effect that such securities
legend is not required for purposes of the Securities Act.
2.3 Escrow Legend. DACC acknowledges and agrees that even after removal
of the legend described in Section 2.1 on the certificates representing the
Search Securities, the legend required by the Escrow Agreement shall remain on
the certificates representing all of the Search Securities which are held by
the Escrow Agent. Search agrees to remove promptly the escrow legend by
delivery of substitute certificates without such legend upon the proper release
of the aforesaid Search Securities from escrow.
3. REQUIRED REGISTRATION. Search shall (i) within six (6) months after
Closing, file a registration statement with the Commission to effect the
registration for the purposes of the reoffering and resale of the Search
Securities under the Securities Act with respect to all, but not less than all,
of the Registrable Securities held on behalf of DACC and the DACC Shareholders;
and (ii) use its best efforts to cause the Commission to declare said
registration statement effective under the Securities Act as promptly as
possible but no later than ninety (90) days after filing the aforesaid
registration statement with the Commission. Search shall be obligated to
register Registrable Securities pursuant to this Section 3 on
Search-DACC Shareholders
-3-
<PAGE> 4
one (1) occasion only. Notwithstanding anything to the contrary contained
herein, the obligation of Search with respect to a registration under this
Section 3 shall be deemed satisfied only at such time as the registration
statement covering all shares of Registrable Securities shall have become
effective.
4. EXPENSES. All expenses incurred by Search in complying with this
Agreement, including, without limitation, all registration, qualifications and
filing fees, blue sky fees and expenses printing expenses, fees and
disbursements of counsel and independent public accountants for Search, fees of
the National Association of Securities Dealers, Inc., transfer taxes, escrow
fees, fees of transfer agents and registrars, and costs of insurance, but
excluding any Selling Expenses, are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, plus all costs incurred by DACC or the DACC
Shareholders in connection with or applicable to the sale of the Registrable
Securities, are herein called "Selling Expenses." Search and DACC agree that
the Registration Expenses shall include the reasonable fees and expenses of one
(1) counsel for DACC and all DACC Shareholders in connection with the
registration filed pursuant to this Agreement, provided that Search shall not
be responsible for counsel fees and expenses in excess of Thirty Thousand
Dollars ($30,000.00).
Search will pay all Registration Expenses in connection with the
registration statement filed pursuant to this Agreement. All Selling Expenses
in connection with any registration statement filed pursuant to this Agreement
shall be borne by DACC and/or the DACC Shareholders.
5. INDEMNIFICATION. In the event of a registration of any of the
Registrable Securities under the Securities Act pursuant to this Agreement,
Search will indemnify and hold harmless DACC and the DACC Shareholders against
any losses, claims, damages, or liabilities, joint or several, to which DACC or
the DACC Shareholders may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of
Search-DACC Shareholders
-4-
<PAGE> 5
any material fact contained in any registration under which such Registrable
Securities were registered under the Securities Act pursuant to this Agreement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by Search of any rule or regulation promulgated under the Securities
Act applicable to Search and relating to action or inaction by Search in
connection with any such registration, and will reimburse DACC and the DACC
Shareholders for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Search will not be liable in any
such case if and to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and conformity with
information furnished to Search by or on behalf of DACC in writing specifically
for use in such registration statement or prospectus.
Promptly after receipt by DACC of notice of the commencement of any
action for which indemnification may be obtained hereunder, DACC shall, if a
claim in respect thereof is to be made against Search hereunder, notify Search
in writing thereof; but the omission to so notify Search shall not relieve
Search from any liability which Search may have to DACC and the DACC
Shareholders other than under this Section 5 and, in any event, only to the
extent Search has been materially prejudiced by the failure to provide Search
with such notice. In case any such action shall be brought against DACC ,
Search shall be entitled to participate in and, to the extent Search shall
agree that it is liable to DACC or the DACC Shareholders for indemnification
hereunder, to assume and undertake the defense thereof with counsel of search's
own choosing, and, after notice from Search to DACC of Search's election so to
assume and undertake the defense thereof and of its agreement that it is liable
for indemnification hereunder, Search shall not be liable to DACC under this
Section 5 for any legal expenses subsequently incurred by DACC in connection
with the
Search-DACC Shareholders
-5-
<PAGE> 6
defense thereof other than reasonable costs of investigation and of liaison
with counsel so elected; provided, however, that if the defendants in any such
action include both DACC and Search and DACC or the DACC Shareholders shall
have reasonably concluded that there may be reasonable defenses available to
DACC or the DACC Shareholders which are different from or additional to those
available to Search or if the interests of DACC or the DACC Shareholders
reasonably may be deemed to conflict with the interests of Search, DACC or the
DACC Shareholders shall have the right to select separate counsel, satisfactory
to Search in its commercially reasonable discretion, and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by Search as incurred.
6. CHANGE IN COMMISSION FORMS OR PROCEDURES. In the event that the
Commission shall adopt new forms or procedures which authorize or permit other
means of secondary distribution which may require action by Search other than
registration under the Securities Act, the parties agree that the foregoing
provisions shall apply, as nearly as may be possible, to such new forms or
procedures so long as the economic or other burden of compliance therewith to
Search or DACC is not materially greater than the burden contemplated by the
foregoing provisions.
7. TRANSFER OF REGISTRATION RIGHTS.
7.1 Transfers Permitted. DACC may assign its rights under this Agreement,
but only to the trustee of a liquidating trust, and then only upon the prior
written approval of Search, whose approval shall not be unreasonably withheld.
DACC acknowledges that only DACC or the aforesaid liquidating trust trustee
shall have the right to enforce DACC's rights under this Agreement prior to
Registration Effectiveness.
7.2 Compliance with Laws and Agreements. Each such transfer shall comply
with all applicable securities laws and any agreements between Search and the
transferor.
Search-DACC Shareholders
-6-
<PAGE> 7
7.3 Transfer Instruments. The transferee shall execute and deliver to
Search an agreement in form and substance satisfactory to Search by which the
transferee agrees to be bound by all terms and provisions of this Agreement as
an assignee of the transferred rights.
8. REGISTRATION PROCEDURES.
8.1 In accordance with Section 3 above, when Search is required by the
provisions of this Agreement to effect the registration of the Registrable
Securities under the Securities Act, Search will:
(a) prepare and file with the Commission a registration statement
(which shall be on Form S-1 or other form of general applicability
satisfactory to Search) with respect to such securities and use its
best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby
(determined as hereinafter provided in Section 8.1(b)). Search may
include other securities in such registration statement in addition to
the Registrable Securities at Search's option; provided that Search
shall withdraw from such registration statement any securities that
prevent Search from registering the Registrable Securities.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith, including, without limitation, all filings and
reports required to be filed under Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, as may be necessary to
keep such registration statement effective (i) if Search, using its
commercially reasonable efforts, is able to maintain said registration
pursuant to a Commission Form S-3 (including by way of amending such
registration statement into a Form S-3 registration), until the
earlier of (1) such time as all of the Registrable Securities shall
have been sold and (2) such time as DACC and the DACC Shareholders
shall no longer be subject to the restrictions on resale of the
Registrable Securities of Rule 144 under the Securities Act; and (ii)
if Search is
Search-DACC Shareholders
-7-
<PAGE> 8
not able to utilize said Form S-3, then for a period of fifteen (15)
months after the date said registration statement is declared
effective by the Commission (provided, that in the event this clause
(ii) shall become operative, Search shall continue to file with the
Commission all filings and reports required to be filed under Section
13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended, until the earlier of (A) such time as all of the Registrable
Securities shall have been sold and (B) such time as DACC and the DACC
Shareholders shall no longer be subject to the restrictions on resale
of the Registrable Securities of Rule 144 under the Securities Act),
and as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement for such period (for
purposes of this paragraph (b), Form S-3 shall include any successor
form promulgated by the Commission);
(c) furnish to DACC and each DACC Shareholder such number of
copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may
reasonably request in order to facilitate the sale or other
disposition of the Registrable Securities covered by such registration
statement;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under state "blue
sky" laws in Texas and New York to the extent legally required;
(e) use its commercially reasonable efforts to list or have
approved for trading the Registrable Securities covered by such
registration statement on each securities exchange upon which Search's
other securities are listed and/or each over the counter market in
which Search's other securities have been approved for trading, and if
such securities are not so listed on the New York Stock Exchange or on
the American Stock Exchange, than on the NASDAQ's National Market
System at the time the registration statement becomes effective;
Search-DACC Shareholders
-8-
<PAGE> 9
(f) immediately notify DACC at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained
in such registration statement, as then in effect, included an untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(g) make available for inspection by DACC, and any attorney,
accountant, or other agent retained by DACC, all financial and other
records, pertinent corporate documents, and properties of Search, and
cause Search's officers, directors, and employees to supply all
information reasonably requested by DACC or any such attorney,
accountant, or agent in connection with such registration statement;
and
(h) in connection with each registration hereunder, DACC and each
DACC Shareholder will furnish to Search in writing such information
with respect to itself and the proposed distribution by it as shall be
reasonably requested by Search in order to assure compliance with
federal and applicable state securities laws.
9. DACC VOTES. DACC agrees that DACC shall vote the Search Securities in
favor of adoption by Search's shareholders of the matters proposed for adoption
at a special shareholders meeting as further described in Search's preliminary
proxy materials as filed with the Commission on July 19, 1996 and provided to
DACC. Search has provided a copy of all proxy materials to DACC for DACC's
review prior to Closing. DACC and Search both further acknowledge that the
above referenced preliminary proxy materials have been or will be amended.
Search agrees to provide DACC with a copy of all amendments to the above
referenced preliminary proxy materials prior to the date of said special
shareholders meeting. DACC agrees to review all such preliminary proxy
materials, and to vote the Search Securities in favor of all matters proposed
for adoption as set forth in the amended proxy materials which it approves,
acting in a commercially reasonable manner.
Search-DACC Shareholders
-9-
<PAGE> 10
10. MISCELLANEOUS.
10.1 Further Assurances. The parties shall execute and deliver such other
and further instruments and perform such other and further acts as may
reasonably be required to fully consummate the transactions contemplated
hereby.
10.2 Counterparts. This Agreement may be executed in one or more
counterparts (which may be facsimile copies thereof), each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
10.3 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns and legal
representatives.
10.4 Notices. All notices or other communications hereunder shall be in
writing and shall be sent by courier, or shall be sent by personal delivery,
messenger or by electronic transmission (with answerback) to the addresses set
forth for notices in the Asset Acquisition Agreement.
10.5 Governing Law. This Agreement shall be construed and governed by the
laws of the State of Delaware without giving effect to the principles of
conflicts of laws thereof.
10.6 Entire Agreement. This Agreement (together with the Asset Acquisition
Agreement and the other agreements entered into pursuant thereto) constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof, and no party hereto shall be bound by any communications between
them on the subject matter hereof unless such communications are in writing and
bear a date contemporaneous with or subsequent to the date hereof.
10.7 Waivers and Amendments; Noncontractual Remedies; Preservation of
Remedies. This Agreement may be amended, superseded, cancelled, renewed or
extended, and the terms hereof may be waived, only by a written instrument duly
executed and acknowledged with the same formality as this Agreement, and signed
by all the parties.
Search-DACC Shareholders
-10-
<PAGE> 11
10.8 Construction. Whenever used herein, the neuter gender includes the
feminine and masculine, the masculine includes the feminine and neuter, the
singular number includes the plural, and the plural number includes the
singular. The captions of the sections of this Agreement are for convenience
of reference only, and the words contained therein shall in no way be held to
explain, modify, amplify, or aid in the interpretation, construction or meaning
of the provisions of this Agreement. The normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the construction or the interpretation of this Agreement or
any amendments hereto.
10.9 Severability. The illegality, unenforceability or invalidity or any one
or more covenants, phrases, clauses, sentences or sections of this Agreement,
as determined by a court of competent jurisdiction, shall not affect the
remaining portions of this Agreement, or any part thereof; and if any
provision, section or subsection of this Agreement is adjudged by any court to
e void or unenforceable in whole or in part, such provision, section or
subsection, or portion thereof, shall be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent or, if it cannot be so amended without materially altering the intention
of the parties as expressed herein, it shall be stricken and the remainder of
this Agreement shall continue in full force and effect. Each provision,
section and subsection of this Agreement is separable from every other
provision, section and subsection and constitutes a separate distinct covenant.
10.10 Authority. Each party signing this Agreement, either directly or on
behalf of another person or entity, represents and warrants that such party has
all requisite authority to execute this Agreement and that such party will be
bound hereby.
Search-DACC Shareholders
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
SEARCH CAPITAL GROUP, INC ("Search")
By: /s/ ROBERT D. IDZI
--------------------------------
Title: E.V.P. & CFO
-----------------------------
DEALERS ALLIANCE CREDIT CORP., on behalf of itself and all DACC Shareholders
By: /s/ RICHARD J. UHL
--------------------------------
Title: CHIEF EXECUTIVE OFFICER
-----------------------------
Search-DACC Shareholders
<PAGE> 1
EXHIBIT 2.5
SUB-DEBT
SHAREHOLDERS AGREEMENT
THIS SUB-DEBT SHAREHOLDERS AGREEMENT ("Agreement") is made and entered
into as of August 2, 1996, by and between (i) Search Capital Group, Inc., a
Delaware corporation ("Search") (ii) R-H Capital Partners, L.P. ("R-H"); (iii)
Kellett Investment Corporation ("Kellet") (hereinafter R-H and Kellet may be
individually or collectively referred to as the "Subordinated Debt Holders" or
"SDH").
R E C I T A L S
A. Search, Newco and the Subordinated Debt Holders have entered
into that certain Asset Acquisition Agreement dated August 2, 1996 (the
"Sub-Debt Acquisition Agreement"). The delivery of this Agreement is a
condition to the consummation of the transactions contemplated by the Sub-Debt
Acquisition Agreement. Capitalized terms that are not defined herein have the
meanings assigned to them in the Sub-Debt Acquisition Agreement.
B. Pursuant to the Sub-Debt Acquisition Agreement, Search will
issue to the Sub-Debt Holders the Search Sub-Debt Securities specified in the
Sub-Debt Acquisition Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt, adequacy and sufficiency of all of which
are hereby acknowledged, Search and SDH hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following definitions:
"Commission" means the Securities and Exchange Commission, or any other federal
agency at the time administering the Securities act.
"Registration Expenses" means the expenses so described in Section 4 hereof.
-1-
<PAGE> 2
"Registrable Securities" means (i) the Search Sub-Debt Securities issued to R-H
and Kellett pursuant to the Sub-Debt Acquisition Agreement, (ii) any of the
securities of Search issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Search Sub-Debt Securities; provided, however, that shares of the Search Sub-
Debt Securities or other securities shall only be treated as Registrable
Securities if and so long as they have not been sold to or through a
broker-dealer or underwriter in a public distribution or public securities
transaction.
"Restricted Securities" means securities subject to the terms and conditions
of Rule 145 and Rule 144 promulgated by the Commission pursuant to the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. RESTRICTED SEARCH SUB-DEBT SECURITIES.
2.1 Stop Transfer Instructions/Securities Legend. SDH acknowledges and
agrees that all of the Search Sub-Debt Securities issued by Search at the
Closing will be Restricted Securities. SDH further acknowledges and agrees that
stop transfer instructions have been given to Search's transfer agent and the
Escrow Agent with respect to certificates evidencing the Search Sub-Debt
Securities and that there will be placed on the certificates evidencing the
Search Sub-Debt Securities a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULES 145 AND 144 PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISTRIBUTED OR DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
CONDITIONS SPECIFIED IN THAT CERTAIN ESCROW AGREEMENT DATED AUGUST 2,
1996 AMONG SEARCH CAPITAL GROUP,
-2-
<PAGE> 3
INC., SEARCH FUNDING IV, INC., DEALERS ALLIANCE CREDIT CORP., R-H
CAPITAL PARTNERS, L.P., KELLETT INVESTMENT CORPORATION AND U.S. TRUST
COMPANY OF TEXAS, N.A. A COPY OF SUCH AGREEMENT WILL BE MAILED TO THE
HOLDER HEREOF WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT OF WRITTEN
REQUEST THEREFOR DIRECTED TO SEARCH AT ITS HEADQUARTERS IN DALLAS,
TEXAS."
2.2 Removal of Securities Legend. Search agrees to remove promptly the
stop transfer instructions and securities legend described in Section 2.1 by
delivery of substitute certificates without such legend upon (i) the
declaration by the Commission and all relevant state securities regulators of
the effectiveness of the registration statement under the Securities Act
("Registration Effectiveness"), (ii) the expiration of the restrictive period
set forth in Rule 145(d), or (iii) the delivery by SDH to Search of a copy of a
letter from the staff of the Commission, or an opinion of counsel in form and
substance reasonably satisfactory to Search, to the effect that such securities
legend is not required for purposes of the Securities Act.
2.3 Escrow Legend. SDH acknowledges and agrees that even after removal of
the legend described in Section 2.1 on the certificates representing the Search
Sub-Debt Securities, the legend required by the Escrow Agreement shall remain
on the certificates representing all of the Search Sub-Debt Securities which
are held by the Escrow Agent. Search agrees to remove promptly the escrow
legend by delivery of substitute certificates without such legend upon the
proper release of the aforesaid Search Sub-Debt Securities from escrow.
3. REQUIRED REGISTRATION. Search shall (i) within six (6) months after
Closing, file a registration statement with the Commission to effect the
registration for the purposes of the reoffering and resale of the Search
Sub-Debt Securities under the Securities Act with respect to all, but not less
than all, of the Registrable Securities held on behalf of SDH and the SDH
Shareholders; and (ii) use its best efforts to cause the Commission to declare
said registration statement effective under the Securities Act as promptly as
possible but no later than ninety (90) days after filing the aforesaid
registration
-3-
<PAGE> 4
statement with the Commission. Search shall be obligated to register
Registrable Securities pursuant to this Section 3 on one (1) occasion only.
Notwithstanding anything to the contrary contained herein, the obligation of
Search with respect to a registration under this Section 3 shall be deemed
satisfied only at such time as the registration statement covering all shares
of Registrable Securities shall have become effective.
4. EXPENSES. All expenses incurred by Search in complying with this
Agreement, including, without limitation, all registration, qualifications and
filing fees, blue sky fees and expenses printing expenses, fees and
disbursements of counsel and independent public accountants for Search, fees of
the National Association of Securities Dealers, Inc., transfer taxes, escrow
fees, fees of transfer agents and registrars, and costs of insurance, but
excluding any Selling Expenses, are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, plus all costs incurred by either R-H or Kellett in
connection with or applicable to the sale of the Registrable Securities, are
herein called "Selling Expenses." Search and SDH agree that the Registration
Expenses shall include the reasonable fees and expenses of one (1) counsel for
both R-H and Kellett, in connection with the registration filed pursuant to
this Agreement, provided that Search shall not be responsible for counsel fees
and expenses in excess of $10,000.
Search will pay all Registration Expenses in connection with the
registration statement filed pursuant to this Agreement. All Selling Expenses
in connection with any registration statement filed pursuant to this Agreement
shall be borne by R-H and/or Kellett as they so agree.
5. INDEMNIFICATION. In the event of a registration of any of the
Registrable Securities under the Securities Act pursuant to this Agreement,
Search will indemnify and hold harmless the Subordinated Debt Holders against
any losses, claims, damages, or liabilities, joint or several, to which the
Subordinated Debt Holders may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are
-4-
<PAGE> 5
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration under which such Registrable Securities were
registered under the Securities Act pursuant to this Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
Search of any rule or regulation promulgated under the Securities Act
applicable to Search and relating to action or inaction by Search in connection
with any such registration, and will reimburse SDH for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Search will not be liable in any such case if and to the extent that any
such loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and conformity with information furnished to Search by or on
behalf of SDH in writing specifically for use in such registration statement or
prospectus.
Promptly after receipt by SDH of notice of the commencement of any
action for which indemnification may be obtained hereunder, SDH shall, if a
claim in respect thereof is to be made against Search hereunder, notify Search
in writing thereof; but the omission to so notify Search shall not relieve
Search from any liability which Search may have to SDH other than under this
Section 5 and, in any event, only to the extent Search has been materially
prejudiced by the failure to provide Search with such notice. In case any such
action shall be brought against SDH, Search shall be entitled to participate
in and, to the extent Search shall agree that it is liable to SDH for
indemnification hereunder, to assume and undertake the defense thereof with
counsel of Search's own choosing, and, after notice from Search to SDH of
Search's election so to assume and undertake the defense thereof and of its
agreement that it is liable for indemnification hereunder, Search shall not be
liable to SDH under this Section 5 for any legal expenses subsequently incurred
by SDH in connection with the defense thereof other than reasonable costs of
investigation
-5-
<PAGE> 6
and of liaison with counsel so elected; provided, however, that if the
defendants in any such action include both SDH and Search and SDH shall have
reasonably concluded that there may be reasonable defenses available to SDH
which are different from or additional to those available to Search or if the
interests of SDH reasonably may be deemed to conflict with the interests of
Search, SDH shall have the right to select separate counsel, satisfactory to
Search in its commercially reasonable discretion, and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by Search as incurred.
6. CHANGE IN COMMISSION FORMS OR PROCEDURES. In the event that the
Commission shall adopt new forms or procedures which authorize or permit other
means of secondary distribution which may require action by Search other than
registration under the Securities Act, the parties agree that the foregoing
provisions shall apply, as nearly as may be possible, to such new forms or
procedures so long as the economic or other burden of compliance therewith to
Search or SDH is not materially greater than the burden contemplated by the
foregoing provisions.
7. No TRANSFER OF REGISTRATION RIGHTS PERMITTED. Neither R-H nor Kellett
may assign their respective rights under this Agreement without the prior
written approval of Search, whose approval shall not be unreasonably withheld.
8. REGISTRATION PROCEDURES.
8.1 In accordance with Section 3 above, when Search is required by the
provisions of this Agreement to effect the registration of the Registrable
Securities under the Securities Act, Search will:
(a) prepare and file with the Commission a registration statement
(which shall be on Form S-1 or other form of general applicability
satisfactory to Search) with respect to such securities and use its
best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby
-6-
<PAGE> 7
(determined as hereinafter provided in Section 8.1(b)). Search may
include other securities in such registration statement in addition to
the Registrable Securities at Search's option; provided that Search
shall withdraw from such registration statement any securities that
prevent Search from registering the Registrable Securities.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith, including, without limitation, all filings and
reports required to be filed under Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, as may be necessary to
keep such registration statement effective (i) if Search, using its
commercially reasonable efforts, is able to maintain said registration
pursuant to a Commission Form S-3 (including by way of amending such
registration statement into a Form S-3 registration), until the
earlier of (1) such time as all of the Registrable Securities shall
have been sold and (2) such time as SDH shall no longer be subject to
the restrictions on resale of the Registrable Securities of Rule 144
under the Securities Act; and (ii) if Search is not able to utilize
said Form S-3, then for a period of fifteen (15) months after the date
said registration statement is declared effective by the Commission
(provided, that in the event this clause (ii) shall become operative,
Search shall continue to file with the Commission all filings and
reports required to be filed under Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, until the earlier of (A)
such time as all of the Registrable Securities shall have been sold
and (B) such time as SDH shall no longer be subject to the
restrictions on resale of the Registrable Securities of Rule 144 under
the Securities Act), and as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of
all Registrable Securities covered by such registration statement for
such period (for purposes of this paragraph (b), Form S-3 shall
include any successor form promulgated by the Commission);
-7-
<PAGE> 8
(c) furnish to SDH such number of copies of the registration
statement and the prospectus included therein (including each
preliminary prospectus) as SDH may reasonably request in order to
facilitate the sale or other disposition of the Registrable Securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under state "blue
sky" laws in Georgia, Texas and New York to the extent legally
required;
(e) use its commercially reasonable efforts to list or have
approved for trading the Registrable Securities covered by such
registration statement on each securities exchange upon which Search's
other securities are listed and/or each over the counter market in
which Search's other securities have been approved for trading, and if
such securities are not so listed on the New York Stock Exchange or on
the American Stock Exchange, than on the NASDAQ's National Market
System at the time the registration statement becomes effective;
(f) immediately notify SDH at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained
in such registration statement, as then in effect, included an untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(g) make available for inspection by SDH, and any attorney,
accountant, or other agent retained by SDH, all financial and other
records, pertinent corporate documents, and properties of Search, and
cause Search's officers, directors, and employees to supply all
information reasonably requested by SDH or any such attorney,
accountant, or agent in connection with such registration statement;
and
-8-
<PAGE> 9
(h) in connection with each registration hereunder, SDH will
furnish to Search in writing such information with respect to itself
and the proposed distribution by it as shall be reasonably requested
by Search in order to assure compliance with federal and applicable
state securities laws.
9. SDH VOTES. SDH agrees that SDH shall vote the Search Sub-Debt
Securities in favor of adoption by Search's shareholders of the matters
proposed for adoption at a special shareholders meeting as further described in
Search's preliminary proxy materials as filed with the Commission on July 19,
1996 and provided to SDH. Search has provided a copy of all proxy materials to
SDH for SDH's review prior to Closing. SDH and Search both further acknowledge
that the above referenced preliminary proxy materials have been or will be
amended. Search agrees to provide SDH with a copy of all amendments to the
above referenced preliminary proxy materials prior to the date of said special
shareholders meeting. SDH agrees to review all such preliminary proxy
materials, and to vote the Search Securities in favor of all matters proposed
for adoption as set forth in the amended proxy materials which it approves,
acting in a commercially reasonable manner.
10. MISCELLANEOUS.
10.1 Further Assurances. The parties shall execute and deliver such other
and further instruments and perform such other and further acts as may
reasonably be required to fully consummate the transactions contemplated
hereby.
10.2 Counterparts. This Agreement may be executed in one or more
counterparts (which may be facsimile copies thereof), each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
10.3 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns and legal
representatives.
10.4 Notices. All notices or other communications hereunder shall be in
writing and shall be sent by courier, or shall be
-9-
<PAGE> 10
sent by personal delivery, messenger or by electronic transmission (with
answerback) to the addresses set forth for notices in the Sub-Debt Acquisition
Agreement.
10.5 Governing Law. This Agreement shall be construed and governed by the
laws of the State of Delaware without giving effect to the principles of
conflicts of laws thereof.
10.6 Entire Agreement. This Agreement (together with the Sub-Debt
Acquisition Agreement and the other agreements entered into pursuant thereto)
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof, and no party hereto shall be bound by any communications
between them on the subject matter hereof unless such communications are in
writing and bear a date contemporaneous with or subsequent to the date hereof.
10.7 Waivers and Amendments; Noncontractual Remedies; Preservation of
Remedies. This Agreement may be amended, superseded, cancelled, renewed or
extended, and the terms hereof may be waived, only by a written instrument duly
executed and acknowledged with the same formality as this Agreement, and signed
by all the parties.
10.8 Construction. Whenever used herein, the neuter gender includes the
feminine and masculine, the masculine includes the feminine and neuter, the
singular number includes the plural, and the plural number includes the
singular. The captions of the sections of this Agreement are for convenience
of reference only, and the words contained therein shall in no way be held to
explain, modify, amplify, or aid in the interpretation, construction or meaning
of the provisions of this Agreement. The normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the construction or the interpretation of this Agreement or
any amendments hereto.
10.9 Severability. The illegality, unenforceability or invalidity or any
one or more covenants, phrases, clauses, sentences or sections of this
Agreement, as determined by a court of competent jurisdiction, shall not affect
the remaining portions of this Agreement, or any part thereof; and if any
-10-
<PAGE> 11
provision, section or subsection of this Agreement is adjudged by any court to
be void or unenforceable in whole or in part, such provision, section or
subsection, or portion thereof, shall be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent or, if it cannot be so amended without materially altering the intention
of the parties as expressed herein, it shall be stricken and the remainder of
this Agreement shall continue in full force and effect. Each provision,
section and subsection of this Agreement is separable from every other
provision, section and subsection and constitutes a separate distinct covenant.
10.10 Authority. Each party signing this Agreement, either directly or on
behalf of another person or entity, represents and warrants that such party has
all requisite authority to execute this Agreement and that such party will be
bound hereby.
[THE REST OF THIS PAGE LEFT INTENTIONALLY BLANK
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
SEARCH CAPITAL GROUP, INC ("Search")
By: /s/ ROBERT D. IDZI
--------------------------------
Title: E.V.P. & CFO
-----------------------------
R-H CAPITAL PARTNERS, L.P.
By: R-H/Travelers, L.P., its general partner
By: R-H Capital, Inc., its general partner
By: /s/ KENNETH T. MILLAR
-------------------------------
Kenneth T. Millar
Managing Director
KELLETT INVESTMENT CORPORATION
By: /s/ STILES A. KELLETT, JR.
---------------------------------
Title: CHAIRMAN
------------------------------
<PAGE> 1
EXHIBIT 2.6
================================================================================
DEBT ASSUMPTION AGREEMENT
Dated as of August 2, 1996
among
SEARCH CAPITAL GROUP, INC.
and
SEARCH FUNDING IV, INC.
and
LASALLE NATIONAL BANK, as Agent
and
BANK ONE CHICAGO, N.A.
and
FLEET CAPITAL CORPORATION
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 2. Assumption . . . . . . . . . . . . . . . . . . . . . . . . -10-
Section 3. Payments and Prepayments. . . . . . . . . . . . . . . . . -10-
Section 4. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . -11-
Section 7. Interest. . . . . . . . . . . . . . . . . . . . . . . . . -12-
Section 8. Deposit Accounts, Use of Funds . . . . . . . . . . . . . . -12-
Section 10. Mandatory Prepayment; Mandatory Reduction. . . . . . . . . -13-
Section 11. Conditions to Closing. . . . . . . . . . . . . . . . . . . -13-
(a) Consents . . . . . . . . . . . . . . . . . . . . -13-
(b) Fees, Costs and Expenses . . . . . . . . . . . . -13-
(c) Required Documents . . . . . . . . . . . . . . . -13-
(i) Agreement . . . . . . . . . . . . . . -13-
(ii) Legal Opinion . . . . . . . . . . . . -14-
(iii) UCC Financing Statements . . . . . . -14-
(iv) Officer's Certificate . . . . . . . . -14-
(v) Insurance Policies and Endorsements . -14-
(vi) Articles and Bylaws . . . . . . . . . -14-
(vii) Good Standing Certificates . . . . . -14-
(viii) Board Resolutions . . . . . . . . . . -14-
(ix) Incumbency Certificates . . . . . . . -14-
(x) Borrowing Base Certificate . . . . . -14-
(xi) Release . . . . . . . . . . . . . . . -15-
(xii) Closing of Purchase. . . . . . . . . -15-
Section 12. Security for Obligations . . . . . . . . . . . . . . . . . -15-
Section 13. Agent's and Lenders' Closing and Administrative Costs and
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Section 14. Representations and Warranties . . . . . . . . . . . . . . -17-
(a) Organization of Borrowers . . . . . . . . . . . . -17-
(b) Due Authorization . . . . . . . . . . . . . . . . -17-
(c) Validity of This Agreement . . . . . . . . . . . -17-
(d) Absence of Default . . . . . . . . . . . . . . . -17-
(e) Litigation . . . . . . . . . . . . . . . . . . . -18-
(f) Regulation U . . . . . . . . . . . . . . . . . . -18-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(g) Employee Benefit Plans . . . . . . . . . . . . . -18-
(h) Good Title and Absence of Liens . . . . . . . . . -18-
(i) Licenses, Compliance with Laws . . . . . . . . . -18-
(j) Impairment of Contract Collateral . . . . . . . . -18-
(k) Validity of Contracts . . . . . . . . . . . . . . -18-
(l) Obligors' Duties to Make Payments . . . . . . . . -19-
(m) Accuracy of Information . . . . . . . . . . . . . -19-
(n) Chief Executive Office . . . . . . . . . . . . . -19-
(o) Solvency . . . . . . . . . . . . . . . . . . . . -20-
(p) Offices, FTC; Warranties . . . . . . . . . . . . -20-
(q) No Material Adverse Change . . . . . . . . . . . -20-
Section 15. Affirmative Covenants . . . . . . . . . . . . . . . . . . -20-
(a) Financial Information . . . . . . . . . . . . . . -20-
(b) Taxes . . . . . . . . . . . . . . . . . . . . . . -22-
(c) Insurance . . . . . . . . . . . . . . . . . . . . -22-
(d) Notice of Default, Litigation and ERISA . . . . . -23-
(e) Performance of Obligations. . . . . . . . . . . . -23-
(f) Books and Records, Audits . . . . . . . . . . . . -23-
(g) Plans . . . . . . . . . . . . . . . . . . . . . . -23-
(h) Performance of Contract Duties, Defense of
Collateral . . . . . . . . . . . . . . . . . . . -23-
(i) Possessory Perfection in Contract Collateral . . -24-
(j) Compliance with Laws . . . . . . . . . . . . . . -24-
(k) Collateral Agent . . . . . . . . . . . . . . . . -24-
Section 16. Negative Covenants . . . . . . . . . . . . . . . . . . . . -24-
(a) Business Activities . . . . . . . . . . . . . . . -24-
(b) Liabilities . . . . . . . . . . . . . . . . . . . -24-
(c) Security Interests . . . . . . . . . . . . . . . -24-
(d) Investment . . . . . . . . . . . . . . . . . . . -25-
(e) Sale, Transfer or Encumbrance of Assets . . . . . -25-
(f) Restricted Payments . . . . . . . . . . . . . . . -25-
(h) Transactions with Affiliates . . . . . . . . . . -25-
(i) Loan and Advances . . . . . . . . . . . . . . . . -25-
(j) Consolidation, Merger, Sale or Pledge of Assets . -26-
(k) Inconsistent Financing Statements . . . . . . . . -26-
(l) Modification of Contract Terms . . . . . . . . . -26-
(m) Capital Expenditures . . . . . . . . . . . . . . -26-
(n) Leverage Ratio . . . . . . . . . . . . . . . . . -26-
(o) Subordinated Indebtedness Ratio . . . . . . . . . -26-
(p) Tangible Net Worth . . . . . . . . . . . . . . . -26-
(q) Unrestricted Cash. . . . . . . . . . . . . . . -26-
(r) Modification of Certain Agreements. . . . . . . -26-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 17. Events of Default . . . . . . . . . . . . . . . . . . . . -27-
Section 18. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Section 21. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . -32-
Section 22. Participations. . . . . . . . . . . . . . . . . . . . . . -32-
Section 23. Waiver and Amendment. . . . . . . . . . . . . . . . . . . -32-
Section 24. Accounting and Financial Determinations . . . . . . . . . -33-
Section 25. Right of Offset . . . . . . . . . . . . . . . . . . . . . -33-
Section 26. Computation and Payment of Liabilities . . . . . . . . . . -34-
Section 27. Notices . . . . . . . . . . . . . . . . . . . . . . . . . -34-
Section 28. Costs and Expenses . . . . . . . . . . . . . . . . . . . . -34-
Section 29. Severability, Choice of Law. . . . . . . . . . . . . . . . -34-
Section 30. Successors and Assigns . . . . . . . . . . . . . . . . . . -35-
Section 31. Taxes and Expenses Regarding the Collateral . . . . . . . -35-
Section 32. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . -35-
Section 33. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . -35-
Section 34. Section Headings . . . . . . . . . . . . . . . . . . . . . -37-
Section 35. Construction . . . . . . . . . . . . . . . . . . . . . . . -37-
Section 36. Restatement of Prior Agreements . . . . . . . . . . . . . -37-
Section 36. Release of Liens . . . . . . . . . . . . . . . . . . . . . -37-
</TABLE>
-iii-
<PAGE> 5
DEBT ASSUMPTION AGREEMENT
This Debt Assumption Agreement dated as of August 2, 1996, is
by and among Search Funding IV, Inc., a Texas corporation (hereinafter referred
to as the "Company"), Search Capital Group, Inc., a Delaware corporation
(hereinafter referred to as "SCGI"; the Company and SCCI are hereinafter
individually referred to as a "Borrower" and collectively as the "Borrowers"),
LaSalle National Bank, Bank One, Chicago, N.A. and Fleet Capital Corporation
(individually, a "Lender" and collectively "Lenders") and LaSalle National
Bank, as agent for Lenders (in such capacity hereinafter referred to as
"Agent").
W I T N E S S E T H:
WHEREAS, Dealers Alliance Credit Corp. ("DACC"), Lenders and
Agent are parties to an Amended and Restated Loan and Security Agreement dated
as of October 30, 1995, as amended and supplemented from time to time, and
various instruments, documents and agreements related thereto (collectively,
the "Prior Agreements"), pursuant to which Lenders made loans and advances to
DACC;
WHEREAS, SCGI and the Company are parties to an Asset
Acquisition Agreement dated August 2, 1996 (the "Purchase Agreement") with
Dealers Alliance Credit Corp. ("DACC"), pursuant to which the Company is
acquiring substantially all of the assets and business of DACC subject to the
first and senior lien of Agent, and assuming all of the obligations of DACC to
Lenders under the Prior Agreements (collectively, the "Assumption").
WHEREAS, DACC, SCGI and the Company have requested that
Lenders consent to the Assumption and amend and restate the Prior Agreements in
their entirety.
WHEREAS, Lenders are willing to consent to the Assumption
requested by the Borrowers pursuant to this Agreement and to amend and restate
the Prior Agreements in their entirety, effective on the date hereof, upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the parties' mutual
agreements contained herein, the parties hereto agree as follows:
Section 1. Definitions.
The following words and phrases, not otherwise defined herein,
when used as capitalized terms in this Agreement shall have the following
respective meanings (all words and phrases which have been defined elsewhere
herein having the meanings there ascribed to them):
"Affiliates" of any Person means any other Person which controls or is
controlled by, or which is under common control with, that Person.
-1-
<PAGE> 6
"Agreement" means this Debt Assumption Agreement, any exhibits or schedules
hereto, any concurrent or subsequent rider to this Debt Assumption Agreement
and any extensions, supplements, modifications or amendments to this Debt
Assumption Agreement.
"Applicable Lending Office" shall mean for Agent and each Lender the lending
office of the Agent or Lender designated on the signature pages hereof or such
other office of such Lender as such Lender may from time to time specify to the
Agent and Borrowers in writing.
"Assets" shall have the meaning provided in the Purchase Agreement.
"Assumed Debt" shall mean all obligations and liabilities of DACC to Agent and
Lenders under the Prior Agreements, however evidenced.
"Authorized Representative" means those officers or employees of Borrower
authorized by the Borrower to act with respect to this Agreement, the
Instruments, and for all other necessary or appropriate purposes required to
carry out the purpose of this Agreement.
"Borrowing Base" means at any time the lesser of (a) the Outstanding Balance,
or (b) the sum of 75% of the aggregate amount of all remaining unpaid Eligible
Receivables related to Eligible Contracts, plus a dollar amount equal to the
difference between the Outstanding Balance as of July 31, 1996 and 75% of the
aggregate amount of all remaining unpaid Eligible Receivables related to
Eligible Contracts as of July 31, 1996. Notwithstanding the foregoing, in the
event the Company modifies the current Operation Policies in a manner which
would have a material adverse effect on the Collateral or Borrowers' ability to
pay or perform the Obligations, the Lenders may, in their sole, but reasonable
discretion, in accordance with Section 23 of this Agreement, upon written
notice to Borrowers, reduce the maximum percentage rate of advance set forth in
(b) above against any Eligible Receivables arising out of Eligible Contracts.
"Borrowing Base Certificate" shall mean a Borrowing Base Certificate, duly
executed by an Authorized Representative of Borrowers, substantially in the
form of Exhibit A hereto.
"Business Day" means a day other than a Saturday, Sunday or other day on which
commercial banks are authorized or required to close in the state in which the
office of any Lender is located.
"Capital Expenditures" means, for any period, the aggregate of all expenditures
(whether paid in cash or accrued as liabilities and including capitalized lease
obligations but exclusive of operating leases) during such period that are
required by generally accepted accounting principles to be included in or
reflected by the property, plant or equipment or similar fixed asset accounts
in the balance sheet of a Person.
-2-
<PAGE> 7
"Cash Equivalent Investments" shall mean investments having a stated maturity
no greater than one year from the date of such investment in (i) obligations of
the United States government or any agency thereof or obligations guaranteed by
the United States government, (ii) certificates of deposit of LaSalle National
Bank or such commercial banks having combined capital and surplus of at least
$200,000,000, or (iii) commercial paper or similar short term instruments with
a rating of at least "A-1" by Standard & Poors Corporation and "Prime-1" by
Moody's Investors Service, Inc.
"Change in Control" means:
(a) all or substantially all of the Company's or SCGI's
assets are sold, leased, transferred or otherwise disposed of as an entirety or
substantially as an entirety (in one transaction or a series of transactions) to
any Person or Persons;
(b) the stockholders or directors of the Company or SCGI
consummate or approve a definitive agreement or plan for
(i) any merger, consolidation, exchange of shares,
recapitalization, restructuring or other business combination with or into
another corporation pursuant to which the board of directors of Company or SCGI
do not constitute a majority (x) of the members of the Board of Directors of the
Corporation if it survives the merger or (y) of the board of directors of the
surviving company if it does not survive the merger, or
(ii) the liquidation or dissolution of the Company or
SCGI; or
(c) SCGI ceases to (x) beneficially own shares, representing
80% of the common stock of the Company.
"Collateral" shall have the meaning provided in Section 12.
"Collateral Agent" shall have the meaning provided in Section 12.
"Collecting Banks" shall have the meaning provided in Section 8.
"Commitment" shall mean, as to each Lender, the amount set forth opposite its
name on the signature pages hereto under the heading "Commitment" as its share
of the outstanding principal amount of the Assumed Debt due to Lenders as of
the date of this Agreement.
"Commitment Percentage" shall mean, with respect to any Lender a fraction
(expressed as a percentage), the numerator of which shall be the aggregate
amount of such Lender's Commitment and the denominator of which shall be the
aggregate Commitments.
"Contract" means any and all installment sale agreements, chattel paper or
other deferred payment obligations and all documents, instruments and
agreements related thereto (hereinafter referred to as a "Contract", and in the
case of any such agreement consisting of more than one document, instrument or
other writing, every such document, instrument or other writing comprising any
such agreement shall be deemed, collectively, to be the re-
-3-
<PAGE> 8
spective "Contract"), now existing or owned or hereafter arising or acquired
by Borrower, together with all Related Security and all payments and other
proceeds arising therefrom.
"Credit Termination Date" shall mean August 2, 1997.
"Dealer" means a dealer that has sold a motor vehicle to an Obligor pursuant to
a Contract.
"Dealer Agreement" means an agreement between DACC or a Borrower and a Dealer
that governs the sale or assignment of Contracts from such Dealer to DACC or a
Borrower, including any provisions for assignment (whether without recourse,
with recourse, with a repurchase obligation by the Dealer or with a guaranty by
such Dealer) contained in such Contracts and Related Security with respect
thereto.
"Dealer Assignment" means a written assignment of a Contract by a Dealer to
DACC or a Borrower.
"Default" means any event of a nature described in Section 17 which, with the
lapse of time (or with notice given to Borrower by Agent or Lenders and the
lapse of time) specified in the description of such event, would constitute an
Event of Default.
"Default Rate" shall have the meaning provided in Section 7.
"Depository Account" shall have the meaning provided in Section 8.
"Dollar(s)" and the sign "$" shall mean lawful money of the United States of
America.
"Eligible Contract" at any time means each Contract originated by a Dealer and
acquired by the Company from DACC or SCGI, including all Related Security under
such Contract, which complies with the representations and warranties contained
in this Agreement and with respect to which each of the following requirements
is then met:
(a) not more than 3.75 of the originally scheduled monthly
payments under the Contract have been deferred or not paid when due;
(c) the Contract is an installment sale agreement or other
deferred payment obligation providing for the retention of a first lien or
security interest in the underlying personal property to secure payment of the
obligation evidenced thereby and such lien has been duly perfected in accordance
with applicable law;
(d) the Company is the lawful owner of the Contract and all
amounts payable thereunder, and the Company has a first and valid lien and
security interest, free and clear of all Security Interests, in the related
personal property;
-4-
<PAGE> 9
(e) the Contract is in substantial compliance with all
applicable statutes, rules and regulations, except where such non-compliance is
immaterial and would not invalidate the Contract or Agent's or Lenders' rights
to enforce full performance of same by the related Obligor, and is assignable to
Agent and Lenders;
(f) neither the Contract nor any agreement in connection
therewith, imposes any obligation upon the Company or any other Person, which,
if not performed, would give rise to any right of offset, counterclaim or other
defense on the part of the related Obligor to any amount payable by it under the
Contract;
(g) as of the time of inception of the Contract, and as of
the time of determination of eligibility, all of the following shall be true:
(1) the related Obligor has full power and capacity
to enter into the Contract and perform his obligations thereunder, and
(2) the Contract has been duly executed and delivered
by the related Obligor and is a legal, valid, binding and enforceable obligation
of that Obligor; and
(3) the Contract has not been amended or rewritten
(except for deferrals of payments thereunder);
(h) no sum due or to become due under the Contract from the
related Obligor is subject to any then-existing offset, counterclaim or other
defense on the part of that Obligor;
(i) the related item of personal property sold under the
Contract is, by the terms of the Contract, made available to the related Obligor
for use solely within the continental United States of America;
(j) except as set forth in (a) above as to missed payments,
the related Obligor or any co-obligor thereof shall not have failed to perform
fully any obligation to be performed by it, under the Contract or under any
other agreement in connection therewith;
(k) the motor vehicle sold under the Contract has not been
repossessed from the Obligor;
(l) the related Obligor is not the subject of a proceeding
under any provision of any federal or state bankruptcy or insolvency law or
proceeding, unless the related Obligor has reaffirmed such Contract in
accordance with applicable law; and
(m) the Contract involves the sale of an automobile or light
truck;
-5-
<PAGE> 10
"Eligible Receivable" means with respect to any Eligible Contract at any time,
Gross Receivables (less unearned finance charges, attributable to such Eligible
Contract) unconditionally required by the terms of the respective Eligible
Contract to be paid by the related Obligor without any claim of any right of
setoff, defense, or right of counterclaim against the Borrower, Agent or
Lenders.
"ERISA" shall have the meaning provided in Section 14(g) of this Agreement.
"Event of Default" shall have the meaning provided in Section 17.
"Expenses" means, for any calendar month, the sum of all actual operating
expenses incurred by the Company of the type set forth on Exhibit "C" to this
Agreement, but in no event more than $475,000 for any calendar month.
"Fiscal Year" means the twelve month accounting period of Borrowers commencing
April 1 and ending March 31 of each calendar year.
"Gross Receivables" means with respect to any Contract at any time, all of the
contractual payments unconditionally required by the terms of the respective
Contract to be paid by the related Obligor without any claims of any right of
setoff, defense, or right of counterclaim against DACC, the Borrowers, Agent or
Lenders.
"Instrument" means any document or writing under which any obligation is
evidenced, assumed or undertaken, or any right to any Security Interest is
granted or perfected in favor of Agent or Lenders; "Instrument executed
pursuant hereto" and similar terms means all notes and each other instrument
executed and delivered to Agent or Lenders by Borrowers pursuant hereto.
"Intangible Assets" means, without limitation, all organization costs,
goodwill, franchises, licenses, covenants not to compete, patents, trademarks,
servicemarks, and any other assets classified as intangibles in accordance with
generally accepted accounting principles.
"Investment" means, when used with respect to any Borrower, any loan or advance
made by it to any other Person (including, without limitation, any contingent
obligation) in respect of any capital stock, Liabilities, obligation or
liability of any other Person and any other investment made by a Borrower
(however acquired) in stock or other ownership interests in any other Person,
including, without limitation, any investment made in exchange for the issuance
of shares of stock of a Borrower. The outstanding amount of any Investment
shall be considered to be the original amount thereof less returns of principal
or capital thereof (and without adjustment by reason of the financial condition
of such Person), or, in the case of Liabilities of a Borrower in respect of any
Liabilities, obligation or liability of any other Person, the amount (subject
to any limitation contained in the Instrument creating such Liabilities of a
Borrower) of such other Liabilities, obligation or liability.
"Lender" shall have the meaning provided in the Preamble.
-6-
<PAGE> 11
"Leverage Ratio" shall mean the ratio of SCGI's consolidated Liabilities
(exclusive of Subordinated Indebtedness) to SCGI's consolidated Tangible Net
Worth, plus Subordinated Debt.
"Liabilities" of any Person means at any time all amounts which, in accordance
with generally accepted accounting principles, would be included in determining
liabilities as shown on the liability side of a balance sheet of that Person as
of the date in question.
"Loss Reserves" means all dealer and loan loss reserves maintained by the
Company.
"Mandatory Reduction" means the positive difference between all cash proceeds
of the Collateral received by the Company during any calendar month including,
but not limited to, cash received from DACC under the Purchase Agreement,
payments of principal and interest under Contracts, insurance proceeds, sales
of repossessed Collateral, garnishments of Obligor's assets and collections on
previously charged-off obligations due from Obligors, and the sum of all
Expenses during such month.
"Majority Lenders" shall mean, at any time while there is more than one Lender,
two (2) or more Lenders.
"Monthly Compliance Certificate" means a compliance certificate duly executed
by the Authorized Representative of Borrower, substantially in the form of
Exhibit B attached hereto.
"Purchase Agreement" shall have the meaning provided in the Preambles to this
Agreement.
"Obligations" shall mean the Assumed Debt and all interest payable with respect
thereto, together with all other amounts which Borrowers may from time to time
be obligated to pay to Agent or Lenders, howsoever evidenced, pursuant to this
Agreement or any other agreement, understanding, or relationship by and between
Agent or Lenders, by themselves or in connection with any other party, with the
Borrowers, or arising out of any other cause whatsoever, whether liquidated,
contingent, stated, unstated, direct or indirect, primary or secondary,
voluntary or involuntary, determinable or indeterminable, due or not due, or
otherwise, whether heretofore, now, or hereafter created, owing, incurred,
made, due or payable, between the Agent or Lenders and the Borrowers.
"Obligor" shall mean the Person obligated for the payment of principal or other
money under any Contract; and "Related Obligor" shall, when used with respect
to any Contract, mean the Person so obligated thereunder.
"Operating Policies" shall mean Borrowers' written policies and procedures
regarding charge offs, repossessions and collections attached hereto as Exhibit
D.
-7-
<PAGE> 12
"Organizational Documents" means, as to any Person the articles of
incorporation, or any other organizational agreement or document which forms
the basis for the legal existence of the Person and provides for the rules or
its operation and the rights and obligations of its members, partners,
shareholders, or directors.
"Outstanding Balance" means the outstanding balance of the Assumed Debt, less
the sum of all Mandatory Reductions paid by Borrowers to Agent.
"Permitted Liens" shall have the meaning provided in Section 16.
"Person" shall mean any natural person, partnership, corporation, firm,
association, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Prime Rate" means the variable rate of interest, per annum, from time to time
announced by LaSalle National Bank as its prime (or equivalent) rate and
changing as and when changes therein are announced. Such rate is one of
LaSalle National Bank's index rates and merely serves as a basis upon which
effective rates of interest are calculated for loans making reference thereto
and may not be the lowest or best rate at which LaSalle National Bank
calculates interest or extends credit.
"Prior Agreements" shall have the meaning provided in the Preamble to this
Agreement.
"Redeemable Stock" shall mean any capital stock that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable or any other agreement) or upon the happening of any event matures
or is or will become mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, or is exchangeable for or convertible into a security of a
Person other than the issuer of such capital stock or into a Liability.
"Related Security" shall mean, with respect to a Contract:
(a) all of the Borrower's interest with respect to such
Contract under the (i) Dealer Agreement pursuant to which such Contract was
acquired, and/or (ii) the Dealer Assignment from the Dealer from whom the
Contract was acquired;
(b) all motor vehicles underlying such Contract; and
(c) all collateral and security agreements and property
purported to be subject thereto held as security for such Contract, including
all guaranties, indemnities, warranties, insurance proceeds and premium refunds
and underwritings and property of whatever character at any time held as
security for such Contract.
"Reportable Event" shall have the meaning provided in Section 14(g) of this
Agreement.
-8-
<PAGE> 13
"Restricted Payment" shall mean (i) dividends (in cash, property or
obligations, but excluding (x) dividends payable solely in shares of capital
stock other than Redeemable Stock) on, or other payments or distributions on
account of or with respect to, or the setting apart of money for a sinking or
other analogous fund for, or the purchase, redemption, retirement or other
acquisition of, any shares (including without limitation the purchase,
redemption, retirement or other acquisition of any right or option to acquire
any such shares) of any class of capital stock of the Company or any warrants
or options, (ii) any prepayment by the Company or SCGI of principal, optional
redemption, purchase, retirement prior to stated maturity, defeasance, or
similar optional prepayment with respect to any Liabilities which are
subordinate to or otherwise junior in right of payment to the Obligations if an
Event of Default exists and is continuing or would be created thereby, or (iii)
any loans, advances or any other payments by the Company to, or transactions by
the Company with, any Affiliate of the Company.
"R-H" shall mean R-H Capital Partners, L.P.
"Security Instrument" means any security agreement, amendment or supplement
thereto, financing statement, continuation statement, chattel mortgage, chattel
mortgage note, assignment or collateral assignment, pledge agreement or other
agreement providing for, evidencing or perfecting any Security Interest.
"Security Interest" means any lien, encumbrance or security interest of any
kind whatsoever, whether arising under a Security Instrument or as a matter of
law, judicial process, or otherwise.
"Stockholders' Equity" means, without duplication, the consolidated
stockholders' equity of SCGI, as included in and calculated in a manner
consistent with, "stockholder's equity" as set forth in the audited
consolidated balance sheet of SCGI and its subsidiaries dated as of March 31,
1996.
"Subordinated Indebtedness" means any obligations of SCGI to any Person
subordinated to the repayment of the Obligations by written agreement, which
agreement may provide for periodic principal and interest payments prior to an
Event of Default and shall provide, among other customary subordination terms,
for (i) the final maturity of such obligations to exceed the Credit Termination
Date by not less than one (1) year, (ii) a prohibition on prepayments if an
Event of Default exists or would be created thereby, and (iii) a restriction on
acceptance of payments or actions to enforce SCGI's obligations subsequent to
an Event of Default which is not waived, until the earlier of (i) the payment
in full of the Obligations or (ii) 179 days after the occurrence of such Event
of Default.
"Tangible Net Worth" shall mean the sum of Stockholder's Equity, plus
Subordinated Indebtedness, minus Intangible Assets.
Unless otherwise defined herein, terms or phrases defined in
the Uniform Commercial Code as in effect on the date hereof in the State of
Illinois are used herein as therein defined.
-9-
<PAGE> 14
Unless otherwise specified, all accounting terms used herein
or in any other Instrument or loan document related hereto shall be
interpreted, all accounting determinations and computations hereunder or
thereunder shall be made, and all financial statements required to be delivered
hereunder or thereunder shall be prepared in accordance with, generally
accepted accounting principles applied on a consistent basis.
Section 2. Assumption.
Subject to the terms and conditions of this Agreement
including, without limitation, Section 11 of this Agreement, Borrowers, jointly
and severally assume as of the date hereof and agree to pay the Assumed Debt
and Lenders consent to the Assumption. Borrowers acknowledge and agree that
the Assets acquired by the Company are subject to a first and senior lien in
favor of Agent to secure the Obligations hereunder.
Section 3. Payments and Prepayments.
(a) Borrowers shall make each payment in respect of the
principal of and interest on the Obligations and any other payments due under
this Agreement not later than 12:00 p.m. Chicago time on the day when due, in
Dollars, to the Agent for the account of each Lender at the Agent's Applicable
Lending Office in Chicago, Illinois in immediately available funds. If any
payment is received subsequent to 12:00 p.m. Chicago time on the day when due,
that payment shall be deemed to be received on the next Business Day, and the
additional time shall be included in computing interest in connection with such
payment.
(b) Upon the occurrence of an Event of Default, any Lender
for whose account any such payment is to be made may (but shall not be obligated
to) debit the amount of any such payment which is not made when due and payable
or declared due and payable, to any ordinary deposit account of either Borrower
with such Lender and shall give notice thereof to such Borrower, provided the
failure to give such notice shall not affect the validity of such debit. Agent
may, on behalf of Lenders, debit any deposit account of either Borrower with
Agent, for payments due Lenders hereunder.
(c) Each payment received by the Agent under this Agreement
for the account of a Lender shall be paid promptly to such Lender on the same
Business Day of receipt by Agent if received by 12:00 p.m. Chicago time, or
otherwise on the next successive Business Day, in the type of funds received,
for account of Lender at such Lender's Applicable Lending Office for the
Obligation in respect of which such payment is made, net of any amounts which
are due and owing to Agent by such Lender at the time of such distribution by
Agent.
(d) Any prepayment of the Obligations by Borrowers shall be
without premium or penalty at any time.
Section 4. Pro Rata Treatment.
-10-
<PAGE> 15
Except to the extent otherwise provided herein, (i) each
payment of principal of the Obligations by Borrowers shall be made for the
account of the Lenders pro rata in accordance with the respective unpaid
principal amounts of the Obligations according to their respective Commitment
Percentage held by the Lenders; and (ii) each payment of interest on the
Obligations by Borrowers shall be made for the account of the Lenders pro rata
in accordance with the amounts of interest due and payable to the respective
Lenders.
Section 5. Sharing of Payments, Etc.
(a) Upon the occurrence of an Event of Default, Borrowers
agree that, in addition to (and without limitation of) any right of set-off,
bankers' lien or counterclaim a Lender might otherwise have, each Lender shall
be entitled, at its option, to offset balances held by it for the account of
either Borrower at any of its offices, against any principal of or interest on
any of the Obligations or any other amount payable to such Lender hereunder, in
which case it shall promptly notify Borrowers and the Agent thereof, provided
that such Lender's failure to notify Borrowers and the Agent shall not affect
the validity thereof.
(b) If any Lender (i) shall obtain payment of any principal
of or interest on any Obligations due to it from Borrowers under this Agreement
through the exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise, and, as a result of such payment, such Lender shall
have received a greater percentage of the Obligations then due hereunder by
Borrowers to such Lender than the percentage of the Obligations received by any
other Lenders, or (ii) such Lender's percentage of the outstanding Obligations
is less than the Lender's pro rata share of such Obligations, it shall promptly
purchase from such other Lenders participations in (or, if and to the extent
specified by such Lender, direct interests in) the Obligations due such other
Lenders in such amounts, and make such other adjustments from time to time as
shall be equitable, to the end that (x) each Lender shall hold Obligations
according to its pro rata share of its Commitment of such Obligations, and (y)
all the Lenders shall share the benefit of such excess payment (net of any
expenses which may be incurred by such Lender in obtaining or preserving such
excess payment) pro rata in accordance with the unpaid Obligations due to each
of the Lenders. To such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
(c) Borrowers agree that any Lender so purchasing a
participation (or direct interest) in the Obligations due to other Lenders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Obligations in the amount of such participation.
(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of Borrowers. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a payment or set-off to which this Section 7 applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner
-11-
<PAGE> 16
consistent with the rights of the Lenders entitled under this Section 7 to
share in the benefits of any recovery on such secured claim.
Section 6. Repayment of Obligations.
Subject to the provisions of this Agreement, Borrowers agree
to repay the Obligations in whole upon the Credit Termination Date, in part to
the extent that the unpaid amount of the Obligations outstanding exceeds the
Borrowing Base, in part, to the extent of Mandatory Reductions required
hereunder, and shall be repaid in whole, upon demand of the Agent or the
Majority Lenders, in accordance with Section 17 upon the occurrence of an Event
of Default.
Section 7. Interest.
Borrowers' Obligations shall bear interest on the unpaid
principal balance thereof outstanding from time to time, with interest on the
Assumed Debt beginning upon the date of this Agreement continuing until Agent
receives collected funds with respect to any payments, at a per-annum rate of
interest equal to one percent (1.00%) in excess of the Prime Rate, which shall
be calculated on the basis of the actual number of days elapsed over a year of
360 days, and shall be payable monthly, in arrears, commencing on the 1st day
of the first month following the date of this Agreement and on the same date of
each month thereafter.
Upon the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest, calculated on the
basis of the actual number of days elapsed over a year of 360 days, at a
per-annum rate of interest equal to four percent (4.00%) in excess of the Prime
Rate ("Default Rate").
Section 8. Deposit Accounts, Use of Funds
(a) The Company shall maintain with Agent, all of its primary
operating, deposit and disbursement accounts. The Company may, as required by
its business needs, maintain deposit and disbursement accounts in other
financial institutions in locations not conveniently serviced by Agent; provided
however the Company shall cause all deposits in such accounts to be concentrated
in its accounts with Agent as hereinafter provided. The Company shall maintain
sufficient demand deposit balances in its deposit accounts with Agent to cover
the costs of all services provided by Agent to the Company in connection with
the Company's accounts with Agent as advised to the Company from time to time by
Agent. In the event the Company fails to maintain demand deposit balances
sufficient to generate earnings credits to cover the cost of all services
provided by Agent to the Company in connection with the accounts, Agent shall be
permitted to debit the Company's deposit accounts for customary costs associated
with such services. All such fees and costs shall accrue solely to the benefit
of Agent and no Lender shall have an interest therein. Borrowers shall on a
daily basis transfer all cash proceeds of the Collateral to its depository
account at Agent. Absent the occurrence of an Event of Default, Borrowers shall
be
-12-
<PAGE> 17
permitted to use such collections to pay the Expenses (including, interest on
the Obligations) up to the monthly limit of $475,000.
Section 9. Books and Records.
The books and records of Agent shall be prima facie evidence
of the amount of Borrowers' Obligations from time to time outstanding and the
dates and amounts of disbursements and payments with respect to the
Obligations.
Section 10. Mandatory Prepayment; Mandatory Reduction.
If at any time, the aggregate outstanding principal amount of
all Obligations exceeds the Borrowing Base, Borrowers shall either (i) make a
principal prepayment, in whole, or in part at least equal to the amount of the
excess of the Obligations outstanding over the Borrowing Base, or (ii) SCGI
will transfer additional Eligible Contracts to the Company under which there
are sufficient Eligible Receivables to eliminate such deficiency. Commencing
September 15, 1996, and on the same date each month thereafter, Borrowers shall
make a principal prepayment to Agent for the benefit of Lenders in an amount
equal to the Mandatory Reduction for the immediately preceding month.
Section 11. Conditions to Closing.
11.1 The closing of this Agreement and Lenders' consent to
the Assumption shall be subject, in addition to all other terms and conditions
of this Agreement, to the satisfaction of the following conditions precedent at
the times specified:
(a) Consents. All consents, approvals and authorizations
required in connection with the execution, delivery or performance of this
Agreement, shall have been obtained by the Borrowers, and Borrowers shall not
have incurred or become subject to any liability as a result thereof.
(b) Fees, Costs and Expenses. Agent and Lenders shall have
received all fees, costs and expenses due and payable pursuant to Section 13 of
this Agreement.
(c) Required Documents. There shall have been delivered to
Lenders the following documents in form and substance satisfactory to Lenders,
and there shall have been consummated or satisfied all of the transactions or
conditions contemplated by each such document:
(i) Agreement. Multiple copies of this Agreement as
requested all duly executed by the Borrowers.
(ii) Legal Opinion. The legal opinion of Borrowers'
counsel addressed to Agent and Lenders, in form and substance satisfactory to
Agent, Lenders and their counsel.
-13-
<PAGE> 18
(iii) UCC Financing Statements. Evidence of the proper
filing of UCC-1 financing statements perfecting first liens (except as otherwise
provided herein) and security interests in favor of Lenders in the Collateral.
(iv) Officer's Certificate. A certificate executed by
the Chief Executive Officer of each Borrower, stating that (A) no Default or
Event of Default has occurred and is continuing, (B) no litigation,
investigation or proceeding, or injunction, writ or restraining order of the
type described in Section 14(e) hereof is pending or threatened, and (C) each of
the conditions precedent to the consummation of the Assumption contemplated
hereby has been met or satisfied.
(v) Insurance Policies and Endorsements. Copies of
policies of insurance required hereby together with lender's loss payable
endorsements on Agent's required form, duly executed.
(vi) Articles and Bylaws. A copy of (A) each
Borrower's Certificate of Incorporation, certified by the Secretary of State of
the State of its incorporation as of a date not more than 20 days prior to the
date hereof, and (B) copies of the bylaws, and any amendments thereto, of each
Borrower certified by the corporate secretary of each Borrower.
(vii) Good Standing Certificates. Good Standing
Certificates for each Borrower in the State of its incorporation and in each
other state in which each Borrower has an office, keeps Collateral, or otherwise
where the failure of such Borrower to be qualified to transact business as a
foreign corporation would have a material adverse impact on such Borrower.
(viii) Board Resolutions. Certified copies of
resolutions of the board of directors of each Borrower authorizing the execution
and delivery of and the consummation of the transactions contemplated by this
Agreement, and all other Instruments.
(ix) Incumbency Certificates. Incumbency certificates
with respect to the officers of each Borrower executing this Agreement and the
Instruments.
(x) Borrowing Base Certificate. A Borrowing Base
Certificate reflecting information regarding the Collateral as of July 31, 1996
accompanied by such copies or such documents, schedules, computations and
certificates as reasonably requested by Lenders.
(xi) Release. A mutual release in the form of Exhibit
E hereto executed by DACC.
(xii) Closing of Purchase. Evidence of the closing of
the transactions contemplated by the Purchase Agreement, and the related
transactions between DACC and R-H contemplated thereby.
-14-
<PAGE> 19
Section 12. Security for Obligations.
To secure payment when due (at maturity, by acceleration, or
otherwise) of Borrowers' Obligations, the Company hereby grants to Agent, as
agent for the Lenders, a continuing first priority lien and security interest
in and to all assets of the Company now existing or owned or hereafter arising
or acquired, including (a) all of the Company's right, title and interest in
and to any and all Contracts, all Related Security and all monies or rights to
monies due and payable thereunder or with respect thereto; (b) all personal
property or the Company's interest therein which from time to time is subject
to any Contract or is otherwise now owned or hereafter acquired by the Company
(or a security interest therein held by the Company), together with all
attachments, accessories, replacements, substitutions, accessions, products and
proceeds thereto, therefor, or thereof; (c) all of the Company's now owned or
existing or hereafter arising or acquired accounts, accounts receivable,
contract rights, general intangibles (including without limitation, license
rights, insurance proceeds, royalties, choses in action, patents, trademarks
and trade names), chattel paper, deposit accounts, records, customer lists,
instruments, documents, notes, computer software, firmware, disks and tapes
representing any of the foregoing, inventory, machinery, equipment or fixtures
and all proceeds and products of any of the foregoing; (d) all property and
assets acquired from DACC pursuant to the Purchase Agreement; and (e) all
policies of insurance with respect to any of the foregoing and all rights to
receive payments or proceeds under any such policies of insurance or otherwise
with respect to any damage, destruction or loss of any of the foregoing (all of
which property above described in this Section is herein referred to
collectively as "Collateral").
Borrowers will pay all filing, recording, search and other
expenses incurred by Agent with respect to perfection of Agent's security
interest under this Agreement and the confirmation of the priority of Agent's
security interest in the Collateral. Borrowers will execute and deliver such
financing statements and further documents and instruments, and do such further
acts and things as Agent may reasonably request in order to fully effect the
purposes of this Agreement and Agent's rights and Security Interest in the
Collateral. Notwithstanding anything to the contrary contained herein, absent
the occurrence of an Event of Default by Borrowers, Borrowers shall not be
required to deliver to Agent physical possession of the Contracts or record
assignments of underlying liens, title documents or mortgages securing the
obligations of a related Obligor under a Contract; provided, however, Borrowers
shall affix a legend to all Contracts as follows: "Search Funding IV, Inc. has
collaterally assigned its rights in this Retail Installment Contract to LaSalle
National Bank ("LaSalle") as Agent for itself and certain other senior lenders.
The interest of LaSalle shall terminate upon Buyer's full payment of all
amounts due hereunder." Agent shall appoint an Authorized Representative
acceptable to Agent for each business location of Borrower to act as Agent's
agent for purposes of perfecting Agent's lien on the Collateral in Borrower's
possession ("Collateral Agent") and Borrower agrees to fully cooperate with
such Collateral Agent. Upon payment in full under any Contract, Agent agrees
to release its lien on such Contract.
The Company hereby expressly agrees that, anything herein to
the contrary notwithstanding, it shall observe and perform all of the
conditions and obligations to be
-15-
<PAGE> 20
observed and performed by the Company as assignee of DACC under each Contract,
agreement, instrument or obligation constituting Collateral hereunder, all in
accordance with and pursuant to the terms and provisions thereof. The exercise
by Agent of any of the rights assigned hereunder shall not release the Company
from any of its duties or obligations under any such Contract, agreement,
instrument or obligation. Agent shall not have any duty, responsibility,
obligation or liability under any such Contract, agreement, instrument or
obligation by reason of or arising out of the assignment thereof to Agent or
the granting to Agent of a Security Interest therein or the receipt by Agent of
any payment relating to any such Contract, agreement, instrument or obligation
pursuant hereto, nor shall Agent be required or obligated by virtue of the
grant of the Security Interest to the Agent in any manner to perform or fulfill
any of the obligations of the Borrower thereunder or pursuant thereto, or to
make any payment, or to make any inquiry as to the nature or sufficiency of any
payment received by it or the sufficiency of any performance of any party under
any such Contract, agreement, instrument or obligation, or to present or file
any claim, or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it, in which it may have
been granted a Security Interest or to which it may be entitled at any time or
times.
Section 13. Agent's and Lenders' Closing and Administrative Costs
and Expenses.
(a) The Company shall pay Agent for all reasonable expenses
and fees paid or incurred by Agent in connection with the documentation,
negotiation, closing and administration of this Agreement and Borrowers'
Obligations, and for all reasonable expenses and fees paid or incurred by Agent
and Lenders in connection with the enforcement of this Agreement and Borrowers'
Obligations. Such fees and expenses shall include, without limitation, search
fees and expenses, certification costs, expedited mail charges, filing and
recording fees and the reasonable fees and expenses of Agent's and Lenders'
attorneys and paralegals, whether such fees and expenses are incurred prior to
or after the date hereof.
(b) The Company shall further reimburse the Agent on written
demand, for all reasonable costs, fees and expenses incurred by Agent and
Lenders, or their agents or employees with respect to any collateral or other
audits performed in the administration of this Agreement; provided, however,
absent the occurrence of an Event of Default, such audits shall not occur more
often than once each calendar quarter.
Section 14. Representations and Warranties.
To induce Lenders to enter into this Agreement and to consent
to the Assumption hereunder, Borrowers represent and warrant to Lenders as
follows which representations and warranties shall be true from the time of
Borrowers' execution of this Agreement until all Obligations have been repaid
in full:
(a) Organization of Borrowers. SCGI is a corporation validly
organized and existing and in good standing under the laws of the State of
Delaware and the Company is a corporation validly organized and existing and in
good standing under the laws of the
-16-
<PAGE> 21
State of Texas. Each Borrower is qualified to do business and in good standing
as a foreign corporation in each jurisdiction where the nature of its business
or property require it to be qualified, except where the absence of such
qualification would not materially adversely affect the financial condition,
operations or business of such Borrower or materially impair the ability of
such Borrower to perform any of its obligations under this Agreement or any
Instrument executed pursuant hereto and will maintain such qualifications and
good standing. Each Borrower has full corporate power and authority to own its
property and conduct its business substantially as presently conducted by it.
Each Borrower has full corporate power and authority to enter into and to
perform its obligations under this Agreement and each Instrument executed
pursuant hereto and to obtain loans and advances hereunder.
(b) Due Authorization. The execution and delivery by
Borrowers of this Agreement and each Instrument executed pursuant hereto and the
performance by Borrowers of their obligations hereunder and thereunder have been
duly authorized by all necessary corporate action, do not require Borrowers to
obtain any approval or consent of any governmental agency or authority, do not
and will not conflict with, result in any violation of, or constitute any
default under, any provision of the Organizational Documents of either Borrower
or any agreement or other Instrument binding upon or applicable to either
Borrower (other than any agreement or other Instrument with respect to which a
waiver has been obtained), or any present law or governmental regulation or
court decree or order applicable to it and will not result in or require the
creation or imposition of any Security Interest in any of their properties
pursuant to the provisions of any present agreement or other Instrument binding
upon or applicable to either Borrower other than under this Agreement.
(c) Validity of This Agreement. This Agreement is, and each
Instrument executed pursuant hereto will, on the due execution and delivery
thereof, be the legal, valid and binding obligation of each Borrower enforceable
in accordance with its terms, except as may be limited by bankruptcy and
moratorium laws and all other similar laws affecting the rights of creditors
generally and the application of general principles of equity and to the extent
that specific performance and other equitable remedies may be granted or denied
in a court's discretion.
(d) Absence of Default. Neither Borrower is in default in
the payment of any Liabilities in excess of the sum of $500,000 in the
aggregate, or under any law or governmental regulation or court decrees or
order.
(e) Litigation. Except as set forth on Schedule 14(e) of
this Agreement, no litigation, arbitration or governmental investigation or
proceeding is pending or, to the knowledge of either Borrower, threatened
against Borrower or any of its properties which, if adversely determined, would
materially adversely affect the financial condition, operations or business of
such Borrower or impair the ability of such Borrower to perform any of its
obligations under this Agreement or any Instrument executed pursuant hereto.
-17-
<PAGE> 22
(f) Regulation U. Neither Borrower is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock, and none of the assets of
either Borrower consist of margin stock. Terms to which meanings are ascribed in
Regulation U of the Board of Governors of the Federal Reserve System or any
regulations substituted therefor, as from time to time in effect, are used in
this subsection with such meanings.
(g) Employee Benefit Plans. Each employee benefit plan
("Plan") now or hereafter maintained by either Borrower will comply in all
material respects with all applicable requirements of law and regulations; no
"Reportable Event", such term being used herein with the meaning ascribed to it
in the Employee Retirement Income Security Act of 1974, as amended (herein
called "ERISA"), will have occurred with respect to any Plan; and neither
Borrower will have withdrawn from any Plan or initiated steps to do so, and no
steps will have been taken to terminate any Plan.
(h) Good Title and Absence of Liens. The Company is, and
covenants to remain, the owner of its assets, free and clear of all liens,
encumbrances and security interests, except for Permitted Liens.
(i) Licenses, Compliance with Laws. Each Borrower has been
issued all required material federal, state and local licenses, certificates or
permits relating to it and its facilities, businesses, assets, property,
leaseholds and equipment and is in substantial compliance with all applicable
federal, state and local laws, rules and regulations the failure to comply with
which would be reasonably likely to have a material adverse effect on the
financial condition, operations, assets, business, properties or prospects of
such Borrower.
(j) Impairment of Contract Collateral. Neither Borrower has
knowledge of any default as to any Eligible Contract by any party, except for
missed or deferred payments which would not render such Eligible Contract
ineligible hereunder, nor of anything which would impair the value of any
Eligible Contract.
(k) Validity of Contracts. To the knowledge of either
Borrower, each Eligible Contract (i) is free of any dispute, counterclaim,
offset or defense (including, without limitation, the material breach of (w) any
warranty by the Dealer of the goods covered by such Contract or (x) any service
contract, extended service warranty or like agreement by such Dealer) of the
Obligor or such other person or entity as may have guaranteed or secured the
obligations of the Obligor (except for (y) the insolvency of such Obligor or
such other person or entity as may have guaranteed or secured the obligations of
the Obligor and (z) the right of an Obligor to receive a rebate of unearned
finance charge in the event of payment in full prior to maturity); (ii) does not
contravene any laws, rules or regulations applicable thereto and no party
thereto has at any time violated any such laws, rules or regulations with
respect thereto; (iii) is free and clear of all adverse claims, except for (x)
the interest of the Obligor in the goods sold pursuant to such Contract, (y) the
security interests created in favor of such Dealer and the Company, and (z)
mechanics' or similar statutory liens subordinate to such security interests
resulting from actions of the Obligor; (iv) grants to the respective Dealer and
assigns to the Company a valid,
-18-
<PAGE> 23
enforceable and perfected first priority security interest in and to such
Contract and such Related Security which is free and clear of any adverse
claims subject to the exceptions stated in clause (iii) above; (v) no effective
financing statement, lien notation on any certificate of title or other
instrument similar in effect covering all or any part of such Contract or
Related Security, which would give the Person filing, named on or entitled to
the benefit of such statement or instrument priority senior to or pari passu
with the Company, is on file in any recording office or is otherwise effective
except such as may be filed in favor of the Dealer or the Company and
collaterally assigned to Lender in accordance with this Agreement; (vi)
requires either DACC or the Company to be named as loss payee or beneficiary
(as may be applicable) under any insurance policy with respect to such
Contract, and entitles the Company to the benefits of such insurance policy;
(vii) the motor vehicle, including any equipment sold and financed in
connection with the Contract is, to the extent required under applicable law,
duly registered and licensed and is the subject of a certificate of title
issued in the name of the Obligor which indicates a security interest therein
held by the Company or DACC, in the appropriate form and in compliance with all
appropriate procedures as may be necessary under applicable law to cause a
perfected and first priority security interest to exist in favor of DACC or the
Company to secure the obligations of such Obligor under such Contract; and
(xiii) each of the representations and warranties from the Dealer to the
Company with respect to such Contract under the Dealer Assignment related
thereto are true and correct.
(l) Obligors' Duties to Make Payments. Each Eligible
Contract shall impose upon the related Obligor thereunder a duty to make all
periodic payments set forth therein, which duty shall be absolute and
unconditional, and to the best knowledge of Borrowers shall not be, nor be
claimed to be, subject to any setoffs, claims, defenses or rights of
counterclaim against Agent or Lenders.
(m) Accuracy of Information. All written information
heretofore or contemporaneously furnished by or on behalf of Borrowers to Agent
or Lenders for purposes of or in connection with this Agreement and such other
written information hereafter furnished by or on behalf of Borrowers to Agent or
Lenders will be, true and accurate in every material respect on the date as of
which such information is dated or certified and when taken in its entirety is
not incomplete by omitting to state any material fact necessary to make such
information not misleading.
(n) Chief Executive Office. The chief executive office and
principal place of business of the Company is located at 700 N. Pearl Street,
Suite 400, L.B. 401, Dallas, Texas, and the Chief Executive Office and principal
place of business of SCGI is located at 700 N. Pearl Street, Suite 400, L.B.
401, Dallas, Texas 75201. Except as set forth on Exhibit E hereto, Borrowers
have no other places of business. The Borrowers will not change their chief
executive office and principal place of business or open any additional places
of business without fifteen (15) days prior written notice to Agent and will
take all steps required to perfect and maintain perfected a first and senior
lien and security interest in favor of Agent on the Collateral.
-19-
<PAGE> 24
(o) Solvency. After giving effect to the transactions
contemplated by the Purchase Agreement, the value of each Borrower's assets
including equity is greater than the amount required to pay its total
Liabilities, and each Borrower is able to pay its debts as they mature. Each
Borrower has sufficient capital to carry on its business and transactions as now
conducted.
(p) Offices, FTC; Warranties. Each Borrower agrees that it
will operate each of its offices as a licensed location in any jurisdiction
requiring such license in conformity with all such licensing and other laws
applicable to the purchase of Contracts, including Motor Vehicle Retail
Installment Sales Acts, Sales Finance Agency Acts, or any other law regulating
the business of acquiring Contracts from Dealers. To the extent either Borrower
does not have a license for each location, it will immediately procure a license
or advise Lenders of the reason that it is exempt from such licensing
requirement or that no such licensing requirement exists in the jurisdiction of
such location.
(q) No Material Adverse Change. Since March 31, 1996, there
has been no material adverse change in the financial condition, operations,
assets, business, properties or prospects of SCGI.
Section 15. Affirmative Covenants.
Borrowers covenant and agree with Agent and Lenders that,
until all of the Obligations shall have been paid and performed in full:
(a) Financial Information. Borrowers will furnish, or will
cause to be furnished, to Agent and Lenders copies of the following financial
statements, reports and information, all of which shall be prepared on a basis
consistent with generally accepted accounting principles consistently applied
throughout the periods involved and shall present fairly the financial condition
of Borrowers as at the dates thereof and the results of their operations for the
periods then ended:
(i) promptly when available and in any event within
thirty (30) days after the close of each calendar month of each Fiscal Year, a
Monthly Compliance Certificate from SCGI substantially in the form of Exhibit B;
(ii) promptly when available and in any event within
thirty (30) days after the close of each calendar month, an unconsolidated and a
consolidated balance sheet of SCGI as of the close of such month, unconsolidated
and consolidated statements of income and cash flows for such month and for the
period commencing at the end of the previous Fiscal Year and ending with the
close of such month, and comparisons of such balance sheet and statements of
income against the like period of the immediate prior Fiscal Year, all in such
form as will be acceptable to Lenders, certified by the Authorized
Representative as having been prepared as specified in (a) above, subject to the
absence of footnotes and quarter-end and year-end adjustments;
-20-
<PAGE> 25
(iii) promptly when available and in any event within
120 days after the close of each Fiscal Year, audited financial statements
consisting of at least consolidated and consolidating balance sheets of SCGI and
its subsidiaries at the close of that Fiscal Year and consolidated and
consolidating statements of income and cash flow for that Fiscal Year, together
with an unqualified opinion and report of BDO Seidman, LLC or such other
independent public accountants of recognized standing selected by Borrowers and
acceptable to Lenders (which acceptance shall not be unreasonably withheld); and
a written statement of those accountants that they have examined such provisions
of this Agreement as are appropriate to the normal scope of their audit and have
not become aware, in the normal scope of their audit, of any default in the
performance by Borrowers of any obligation to be performed by them pursuant to
Sections 15 and 16 hereof except such, if any, as may be disclosed in such
statement;
(iv) promptly upon receipt and after review by the
Borrowers' audit committees, copies of management letters submitted to Borrowers
by independent public accountants in connection with any audit or review by such
accountants of the books and records of Borrowers (including, without
limitation, in the normal scope of any audit or review for purposes of
certifying any annual or interim financial statements of Borrowers);
(v) monthly a summary report of Contract portfolio
activity based upon end of month balances, together with a charge-off and
recovery summary report as of the last day of each month, within thirty (30)
days of the end of each calendar month;
(vi) monthly, a summary of all Expenses incurred during
such month which shall be delivered to Agent and Lenders within fifteen (15)
days of the end of each calendar month;
(vii) monthly, a summary aging of all Contracts as of
the end of such calendar month, together with a Borrowing Base Certificate and
required supporting reconciliations and schedules (made as of the last day of
each respective month), both of which shall be delivered to Agent and Lenders
not later than the 15th day of the next succeeding month;
(viii) promptly after the sending or filing thereof,
copies of all reports which SCGI is required to send to any of its
securityholders, and all reports and registration statements which SCGI files
with the U.S. Securities and Exchange Commission or any national securities
exchange;
(ix) promptly after the effectiveness thereof, any
amendment, supplement or other modification of (i) the Operating Policies of the
Borrowers from the form thereof previously distributed to Agent and Lenders, or
(ii) the Borrowers' accounting policies regarding its Contracts;
(x) on a daily basis, a report of cash collections on
the Collateral received by the Company from any source and all bank account
balances in all accounts maintained by the Company; and
-21-
<PAGE> 26
(xi) such other information with respect to the
financial condition and operations of either Borrower as Agent or Lenders may
from time to time reasonably request.
(b) Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against,
Borrowers or any of their property, have been paid, and shall hereafter be paid
in full, before delinquency, and to the best of Borrowers' knowledge, all
assessments and taxes due or payable by, or imposed, levied or assessed against
any real property leased by Borrowers have been paid, and shall hereafter be
paid in full, before delinquency. Borrowers shall make due and timely payment
or deposit of all federal, state and local taxes, assessments or contributions
required of them by law. Nothing herein contained shall preclude either
Borrower from contesting, in good faith and by appropriate proceedings, the
imposition of any assessments or taxes and to withhold payment of such contested
amounts pending the resolution of such proceedings provided that such Borrower
maintains adequate reserves therefore and the failure to pay such taxes or
assessments will not result in the imposition of a lien not permitted hereunder.
(c) Insurance. The Company will maintain or cause to be
maintained with responsible insurance companies insurance with respect to the
Collateral (other than Collateral which secures the obligations of related
Obligors under the Contracts), its properties and business, against such
casualties and contingencies and of such types and in such amounts as is
customary in the case of similar businesses, and will furnish to Agent and
Lenders prior to the closing of this Agreement and upon request by Agent or
Lenders, at reasonable intervals thereafter, a certificate of an Authorized
Representative, as well as independent evidence of such coverage, setting forth
the nature and extent of all insurance policies maintained by the Company or
Obligors in accordance with this subsection; which insurance policies (other
than policies maintained by Obligors as required by the Contracts) shall, by
endorsement, name Agent as lender's loss payee to the extent of Agent's interest
therein; provided, that the policies will not be invalidated as against Agent or
Lenders because of any violation of a condition or warranty of the policy or
application therefor by the Company; and provided that the policies may be
materially altered or cancelled by the insurer only after 30 days' prior written
notice to Agent. After the occurrence of an Event of Default, Borrowers hereby
appoint Agent as attorney-in-fact for Borrowers to prove and adjust any losses
and to endorse any loss drafts in connection with such policies. Borrowers
hereby assign to Agent all sums which may become payable under such insurance,
including returned premiums and dividends as additional security hereunder; and
Borrowers shall give immediate written notice to Agent and to the insurers of
any significant loss or damage to the Collateral and shall promptly file proofs
of loss with such insurers.
(d) Notice of Default, Litigation and ERISA. Borrowers will
immediately give written notice to Agent of:
(i) the occurrence of any Default or Event of Default;
-22-
<PAGE> 27
(ii) any litigation, arbitration or governmental
investigation or proceeding not previously disclosed in writing by Borrowers to
Agent which has been instituted or, to the knowledge of Borrowers, is threatened
against either Borrower or any of its properties which, if adversely determined,
would materially adversely affect the financial condition, operation or business
of a Borrower or impair the ability of a Borrower to perform any of its
obligations under this Agreement or any Instrument executed pursuant hereto;
(iii) the occurrence of any Reportable Event under, or
the institution of steps by either Borrower to withdraw from, or the institution
of any steps to terminate, any Plan; and
(iv) the occurrence of any default or event of default
under the Purchase Agreement.
(e) Performance of Obligations. Borrowers will perform
promptly and faithfully all of their obligations under this Agreement and each
other Instrument executed pursuant hereto.
(f) Books and Records, Audits. Borrowers will in all material
respects keep books and records reflecting all of their business affairs and
transactions in accordance with generally accepted accounting principles and
permit Agent and Lenders (or any of their employees or agents) at reasonable
times and intervals, to visit all of its offices, conduct examinations and
audits of the Company's books and records and the Collateral, discuss Borrowers'
financial matters with Borrowers' officers and independent accountants (and
hereby authorizes such independent accountants to discuss Borrowers' financial
matters with Agent and Lenders and their representatives) and examine any of its
other corporate records. Such books and records shall be maintained at
Borrowers' principal places of business set forth herein.
(g) Plans. Each Borrower will maintain each of its employee
benefit Plans, if any, in compliance in all material respects with all
requirements of the Plan and any applicable laws and regulations.
(h) Performance of Contract Duties, Defense of Collateral.
Borrowers covenant and agree that they will perform in all material respects
their duties and obligations under each Contract. Borrowers covenant to defend
the Collateral from any liens, claims, encumbrances and security interests other
than Permitted Liens.
(i) Possessory Perfection in Contract Collateral. Upon
request by Agent or Majority Lenders after the occurrence of an Event of
Default, the Company will deliver to Agent with respect to each item of
Collateral which constitutes a Contract, the single, signed counterpart which
constitutes the original thereof of each document of which each such Contract is
comprised, together with all related instruments, including, without limitation,
vehicle titles, duly assigned to Agent. Borrower covenants that Borrower will
-23-
<PAGE> 28
prominently stamp or mark each original Contract with the legend set forth in
Section 12 above.
(j) Compliance with Laws. Borrowers shall comply in all
material respects with all statutes, rules and regulations applicable to
Borrowers and their respective business, including without limitation, all
applicable statutes, rules and regulations relating to Borrowers' businesses as
consumer finance companies.
(k) Collateral Agent. The Company shall make available an
Authorized Representative at all times to serve as Collateral Agent in
accordance with Section 12 of this Agreement.
Section 16. Negative Covenants.
Borrowers covenant and agree with Lenders that until all of
the Obligations shall have been paid and performed in full:
(a) Business Activities. Borrowers will not engage in any
business which would represent any substantial change from Borrowers' existing
businesses as described in the most recent Form 10-K filed by SCGI with the
United States Securities and Exchange Commission.
(b) Liabilities. The Company will not create, incur, assume
or suffer to exist or otherwise become or be liable in respect of any
Liabilities without the prior written consent of Lenders other than:
(i) Liabilities in respect of the Obligations;
(ii) Liabilities in respect of taxes, assessments,
governmental charges or levies and claims of any kind to the extent that payment
thereof shall not at the time be required to be made in accordance with the
provisions of Section 15;
(iii) Liabilities to trade creditors, employees or other
Persons in the ordinary course of the Company's business; or
(iv) as otherwise expressly permitted by this
Agreement.
(c) Security Interests. The Company will not create, incur,
assume, or suffer to exist any Security Interest upon any of its property or
assets, whether now owned or hereafter acquired, except:
(i) the Security Interest granted by this Agreement;
(ii) inchoate liens for taxes, assessments or other
governmental charges or levies not at the time delinquent; and
-24-
<PAGE> 29
(iii) judgment liens junior and subordinate to the
Security Interest of this Agreement, which have been in existence less than 30
days after the entry thereof or with respect to which execution has been stayed.
(c)(i)-(iii) above are hereinafter referred to as "Permitted Liens".
(d) Investment. The Company will not, without the prior
written consent of Lenders make, incur, assume or suffer to exist any Investment
in any other Person, except Cash Equivalent Investments.
(e) Sale, Transfer or Encumbrance of Assets. The Company
will not without the prior written consent of Lenders, sell, lease, pledge,
encumber, grant a security interest in (other than (i) to Lenders, or (ii)
Permitted Liens), or otherwise dispose of, move, relocate, or transfer, whether
by sale or otherwise, any of the Company's assets, except for the movement of
assets in the ordinary course of business to locations disclosed in advance to
Agent and where the Company has executed and tendered to Agent appropriate UCC-1
financing statements for filing or taken other steps required to enable Agent to
perfect its lien.
(f) Restricted Payments. The Company will not make any
Restricted Payment other than payments to SCGI for direct assistance in the
areas of accounting, tax, financial planning, MIS, legal and treasury services,
based upon actual time incurred, at a reasonable per hourly rate, plus
out-of-pocket expenses provided; however, that such payments shall cease upon
the occurrence and during the continuance of an Event of Default hereunder.
(g) Execution and Modifications of Certain Documents. The
Company will not amend its articles (or certificate, as the case may be) of
incorporation or bylaws, except for amendments which are not material to the
Company and do not adversely affect the interests of the Lenders, and the
Borrowers will not enter into any new agreement which causes or constitutes a
Default or Event of Default under this Agreement.
(h) Transactions with Affiliates. The Company shall not
enter into any transaction with, any Affiliate, except in the ordinary course of
business and upon fair and reasonable terms which are no less favorable to the
Company than would obtain in a comparable arm's length transaction with a Person
not an Affiliate.
(i) Loan and Advances. The Company will not make any loans
to any Person; guarantee any debt or other obligation of any other Person.
(j) Consolidation, Merger, Sale or Pledge of Assets. The
Company will not, without the prior written consent of Lenders, (i) consolidate
with, combine with, acquire or merge into or with any other Person, (ii)
purchase or otherwise acquire any other Person or all or substantially all of
the assets of any Person (or any division thereof), or (iii) issue or cause to
be registered for issuance any class of capital stock of the Company; provided,
however, Lenders shall not unreasonably withhold their consent to issuances of
-25-
<PAGE> 30
capital stock hereafter approved by the Company's board of directors under
terms which provide no features for redemption or "put" of the stock, and
neither Borrower will, without the prior written consent of Lenders, (i) sell,
transfer or dispose of all or any substantial part of its assets to any Person,
or (ii) suffer or permit a Change in Control.
(k) Inconsistent Financing Statements. The Company will not
file, nor allow to remain on file, and unreleased, any financing statement or
other document which perfects or purports to perfect any Security Interest in
favor of any other Person which is inconsistent with subsection (c) of this
Section.
(l) Modification of Contract Terms. Neither Borrower will
modify the terms of any Contract which is at that time reflected in the
Borrowing Base so as to render a Contract not otherwise eligible into an
Eligible Contract, without the prior written consent of Lenders.
(m) Capital Expenditures. The Company shall not make any
Capital Expenditures in excess of the aggregate sum of $50,000 without prior
written consent of the Lenders.
(n) Leverage Ratio. SCGI shall not permit its Leverage Ratio
to exceed 5.0 to 1.0 at any time.
(o) Subordinated Indebtedness Ratio. SCGI shall not permit
the ratio of its Subordinated Indebtedness to its consolidated Tangible Net
Worth to exceed 1.50 to 1.0 at any time.
(p) Tangible Net Worth. SCGI shall not permit its
unconsolidated Tangible Net Worth to be less than $22,500,000 or its
consolidated Tangible Net Worth to be less than $22,500,000.
(q) Unrestricted Cash. SCGI shall maintain at all times cash
balances unrestricted as to use of not less than $5,000,000.
(r) Modification of Certain Agreements. The Company shall
not consent to or enter into any amendment, supplement or other material
modification of (a) any agreement governing or relating to any other material
Liabilities, if such amendment, supplement or other modification would be
materially adverse to Lenders, in their sole, but reasonable judgment; or (b)
any material term or provision (i) contained in the Operating Policies from the
form previously distributed to the Lenders, or (ii) of the Company's accounting
policies regarding the Contracts, if such amendment, supplement or other
modification would be materially adverse to Lenders, in their sole, but
reasonable judgment or materially adversely effect the Borrowing Base.
-26-
<PAGE> 31
Section 17. Events of Default.
The occurrence of any of the following shall constitute an
Event of Default hereunder:
(a) Either Borrower defaults in the payment when due or
declared due of any of the Obligations and such default is not cured within
three (3) Business Days of notice of such breach by Agent to Borrowers;
(b) Either Borrower defaults in the due performance and
observance of any covenant or agreement contained in Section 17 or 18 of this
Agreement and such default is not cured within ten (10) days of notice of such
breach by Agent to Borrowers;
(c) Either Borrower defaults in the due performance and
observance of any warranty, representation, covenant or agreement contained
herein, other than as specified in (a) or (b) above, or in any Instrument,
document or agreement executed pursuant hereto, and fails to cure same within
thirty (30) days of notice by Agent to Borrowers; provided, however, the breach
of a warranty or representation contained in Section 14(j) or (k) of this
Agreement, shall not constitute an Event of Default hereunder, absent the
occurrence of some other Event of Default hereunder, whether as a result thereof
or otherwise.
(d) any default shall occur under the terms applicable to (i)
any Liabilities of either Borrower representing any borrowing or financing in
excess of the aggregate sum of $5,000,000 (other than the Obligations), and all
applicable cure periods shall have expired, or (ii) any Liabilities of either
Borrower under any other material agreement (which is not being contested by
such Borrower in good faith by appropriate proceedings) with respect to any
purchase or lease by such Borrower of goods or services, and the holder or
holders, or an agent for such holder or holders thereof, shall then have
accelerated any payment or the performance of any obligations due under, such
Liabilities;
(e) SCGI shall become insolvent or either Borrower shall
generally fail to pay, or admit in writing its inability to pay debts as they
become due; or either Borrower shall apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, or other custodian for itself or any of its
property, or make a general assignment for the benefit of creditors; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian shall be appointed for either Borrower or for a substantial part
of its property and not be discharged within 30 days; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding shall
be commenced against or in respect of either Borrower as a debtor and, if not
commenced by a Borrower, be consented to or acquiesced in by a Borrower or
remain for 30 days undismissed; or either Borrower shall take any action to
authorize, or in furtherance of, any of the foregoing;
(f) Any representation or warranty made by either Borrower
herein, in any Instrument, or in any certificate or financial or other statement
heretofore, or hereafter
-27-
<PAGE> 32
furnished by or on behalf of either Borrower, shall prove to be in any material
respect false or misleading;
(g) Either Borrower shall suspend the transaction of business
or is enjoined, restrained or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs;
Section 18. Remedies.
Upon the occurrence of an Event of Default described in
Section 17(e) hereunder, the Obligations shall automatically be and become
immediately due and payable, without notice or demand. Upon the occurrence of
any Event of Default hereunder, Agent may and shall, at the direction of the
Majority Lenders, exercise any or all of the following remedies, in addition to
those granted to Agent and Lenders under applicable law or the Uniform
Commercial Code of Illinois and all other applicable jurisdictions where
Collateral is located, which rights and remedies will be cumulative and not
exclusive:
(a) In the case of an Event of Default other than an Event of
Default described in Section 17(e) of this Agreement, immediately without notice
to the Borrowers, declare all or any part of the outstanding amount of the
Obligations to be due and payable, whereupon the full unpaid amount of the
Obligations shall be and become immediately due and payable.
(b) Terminate this Agreement as to any future liabilities or
obligations of Lenders, but without affecting Agent's or Lenders' rights or
Borrower's Obligations.
(c) Exercise all rights and remedies under each Contract,
lease, security agreement and other contract included among the Collateral as
are afforded to the secured party thereunder or which are otherwise afforded to
the Company thereunder; Agent may, subject to the rights of Obligors, recover
possession of any tangible personal property under any Contract, and require
that same be assembled and delivered to a specific location; and Agent shall be
entitled to a decree of specific performance to enforce the rights set forth in
this subsection (c).
(d) Notify each Obligor party to a Contract that the Contract
has been assigned to Agent, that all payments are to be forwarded to Agent
without set off or diminution of any kind, and that all correspondence is
thereafter to be sent directly to the Agent. Furthermore Agent is authorized
and directed by Borrowers to collect and receive any and all revenues and other
cash and non-cash proceeds which constitute part of, or are derived from, the
Collateral.
(e) Sell all or any part of the Collateral, free from any and
all claims of either Borrower, in one lot and as an entirety, or in separate
lots, at public or private sale, for cash or credit, in its discretion. Upon
any such public sale, Agent may bid for the property offered for sale or any
part thereof and the proceeds of such sale, net of costs, shall be applied to
any Obligations secured hereby as provided hereinafter. Any such sale
-28-
<PAGE> 33
shall be held or conducted in a commercially reasonable manner and at such
place and at such time as Agent may specify, or as may be required by law.
Without limiting the generality of the foregoing, Borrowers expressly agree in
any such event that Agent, without demand of performance or other demand or
notice of any kind (except the notice specified herein of time and place of
public or private sale) to or upon Borrowers or any other person (all and each
of which demands and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Collateral or any part
thereof. If any notification of intended disposition of any of the Collateral
is required by law, such notification shall be deemed reasonable and properly
given in accordance with Section 18(e) hereof five (5) Business Days before
such disposition.
At the request of Agent, Borrowers shall promptly execute and
deliver to Agent such instruments of title and other documents as Agent shall
deem necessary or advisable to enable Agent to obtain possession of any portion
or all of the Collateral, or to transfer the title to any portion or all of the
Collateral, to any purchaser (including, without limitation, Agent or Lenders)
in connection with any sale.
Agent shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization and sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any or all of the Collateral or in any
way relating to the rights of Agent hereunder, including reasonable attorney's
fees and legal expenses, to the payment in whole or in part of the Obligations
hereunder, in such order as Agent may elect, and only after so applying such
net proceeds, after payment in full of the Obligations hereunder, shall apply
the surplus, if any, to Borrowers or whomsoever may be lawfully entitled to
receive the same. Borrowers hereby waive presentment, demand and protest (to
the extent permitted by applicable law) of any kind in connection with this
Agreement or any Collateral.
Section 19. Agent.
(a) Appointment. Each Lender hereby designates and appoints
LaSalle as Agent of such Lender under this Agreement, and each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and to exercise such powers as are set forth
herein, together with such other powers as are incidental thereto. Agent agrees
to act as such on the express conditions contained in this Section 19.
The provisions of this Section 19 are solely for the benefit
of Agent and Lenders, and Borrowers shall not have the right to rely on or
enforce any of the provisions hereof. In performing its functions and duties
under this Agreement, Agent shall act solely as agent of the Lenders and does
not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Borrowers.
(b) Nature of Duties. Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement. The duties
of Agent shall be mechanical and administrative in nature. Agent shall not have
by reason of this Agreement a fiduciary
-29-
<PAGE> 34
relationship in respect of any Lender. Nothing in this Agreement, expressed or
implied, is intended to or shall be construed to impose upon Agent any
obligation in respect of this Agreement except as expressly set forth herein.
Each Lender shall make its own independent investigation of the financial
condition and affairs of the Borrowers in connection with the Assumption
hereunder and shall make its own appraisal of the creditworthiness of
Borrowers, and Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the date of this Agreement or at any time or times thereafter, except
for documents delivered to Agent pursuant to this Agreement by or on behalf of
the Borrowers. If Agent seeks the consent or approval of the Majority Lenders
to the taking or refraining from taking any action hereunder, Agent shall send
notice thereof to each Lender. Agent shall promptly notify each Lender at any
time that the Majority Lenders have instructed Agent to act or refrain from
acting pursuant hereto.
(c) Rights, Exculpation, Etc. Neither Agent, any Affiliate of
Agent, nor any of their respective officers, directors, employees, agents,
attorneys or consultants, shall be liable to any Lender for any action taken or
omitted by them hereunder, or in connection herewith, except that Agent shall be
obligated for its gross negligence or willful misconduct in the performance of
its express obligations hereunder; provided, however Agent shall be liable for
any error in the apportionment or distribution of payments made by it pursuant
to this Agreement. If any such apportionment or distribution is subsequently
determined to have been made in error the recipient of such payment shall return
to Agent any payment in excess of the amount to which they are determined to
have been entitled. Agent shall not be responsible to any Lender for any
recitals, statements, representations or warranties herein or for the
enforceability, collectibility, or sufficiency of this Agreement, or any of the
transactions contemplated hereby and thereby; or for the financial condition of
Borrowers. Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement or the financial condition of Borrowers, or the existence or
possible existence of any Event of Default or Default, provided, however, that
the foregoing shall not release Agent from its express obligations under this
Agreement. Agent may at any time request instructions or indemnification from
Lenders with respect to any actions or approvals which by the terms of this
Agreement Agent is permitted or required to take or to grant, and if such
instructions or indemnification are promptly requested, Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under this Agreement
until it shall have received such instructions or indemnification (to Agent's
satisfaction) from the Lenders. Without limiting the foregoing, no Lender shall
have any right of action whatsoever against Agent as a result of Agent acting or
refraining from acting under this Agreement in accordance with the instructions
of the Majority Lenders.
(d) Reliance. Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper
-30-
<PAGE> 35
Person, and with respect to all matters pertaining to this Agreement and its
duties hereunder or thereunder, upon advice of legal counsel (including counsel
for Borrowers), independent public accountants and other experts selected by
it.
(e) Indemnification. To the extent that Agent is not
reimbursed and indemnified by Borrowers, Lenders will reimburse and indemnify
Agent, upon demand, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against it in any way relating to or arising out of this
Agreement or any action taken or omitted by Agent under this Agreement, in
proportion to each Lender's ratable share of the Commitments; provided that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent's gross negligence or willful misconduct. The obligations
of Lenders under this Section 19(e) shall survive the payment in full of all
Obligations and the termination of this Agreement.
(f) The Agent Individually. With respect to its pro rata
share of the Commitments hereunder, Agent shall have and may exercise the same
rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender. The
terms "Lender" or "Lenders" or any similar terms shall include Agent in its
individual capacity and Agent may accept deposits from and generally engage in
any kind of banking, trust or other business with Borrower as if it were not
acting as Agent pursuant hereto.
(g) Successor Agent: Resignation of Agent.
(i) Agent may resign from the performance of all of
its functions and duties hereunder at any time by giving at least thirty (30)
Business Days' prior written notice to Lenders and Borrowers. Such resignation
shall take effect upon the acceptance by a successor Agent of appointment
pursuant to clauses (ii) and (iii) below or as otherwise provided below.
(ii) Upon any such notice of resignation by Agent, the
Majority Lenders shall appoint a successor Agent.
(iii) If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring Agent, shall
then appoint a successor Agent who shall serve as Agent until such time, if any,
as the Majority Lenders, appoint a successor Agent as provided above.
(iv) Upon the appointment of a successor Agent, the
term "Agent" shall, for all purposes of this Agreement, thereafter mean such
successor.
(h) Collateral Matters. Agent is hereby authorized on behalf
of all Lenders, without the necessity of any notice to or further consent from
any Lender, from time to time prior to a Default, to take any action with
respect to any Collateral which may be necessary
-31-
<PAGE> 36
to perfect and maintain perfected the security interest in and liens upon the
Collateral granted pursuant to this Agreement. Agent shall provide the Lenders
with prompt notice of any Default or Event of Default of which Agent has actual
knowledge.
Section 20. Relations Among Lenders.
(a) Except as contemplated under this Agreement, no Lender
shall make any loan, advance or other financial accommodation to either Borrower
without the prior written consent of the Majority Lenders.
(b) Each Lender agrees that it will not take any action, nor
institute any actions or proceedings, against either Borrower or any other
obligor hereunder or with respect to any Collateral, without the prior written
consent of the Majority Lenders.
Section 21. Miscellaneous.
Concerning the Collateral and the Collateral Documents. Each
Lender agrees that any action taken by Agent or the Majority Lenders in
accordance with the provisions of this Agreement, and the exercise by Agent or
the Lenders of the powers set forth herein or therein, together with such other
powers as are reasonably incidental thereto, shall be authorized and binding
upon all of the Lenders.
Section 22. Participations.
Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement; provided, however, that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligation
and (iii) Borrowers, Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and with regard to any and all payments to be
made under this Agreement. No Lender may, without the consent of all Lenders,
make an assignment of its rights or obligations under this Agreement.
Section 23. Waiver and Amendment.
(a) Agent's or Lenders' failure, at any time or times
hereafter, to require strict performance by Borrowers of any provision of this
Agreement shall not waive, affect or diminish any right of Agent or Lenders
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Agent or Lenders of a Default or Event of Default by
Borrowers under this Agreement shall not suspend, waive or affect any other
Default or Event of Default by Borrower under this Agreement whether the same
is prior or subsequent thereto and whether of the same or of a different kind
or character.
-32-
<PAGE> 37
(b) Subject to subsection 23(c) below and except as
otherwise specifically provided in this Agreement, no amendment or modification
of any provision of this Agreement shall be effective without the written
agreement of the Majority Lenders and Borrower, and no termination or waiver of
any provision of this Agreement, or consent to any departure by Borrowers
therefrom, shall in any event be effective without the written concurrence of
the Majority Lenders, which the Majority Lenders shall have the right to grant
or withhold at their sole, but reasonable, discretion.
(c) Notwithstanding the provisions of Section 23(b), any
amendment relating (i) to any change in the Commitments of any Lender, of the
total of the Commitments, (ii) to any change in the final maturity of the
Obligations, (iii) to the reduction of interest rates applicable to the
Obligations or fees payable under this Agreement, (iv) to the definition of
"Borrowing Base" or "Majority Lenders", (v) to the provisions contained in this
Section (c), (vi) to the release of Collateral, (vii) to the amount or
computation of Mandatory Reductions, (viii) to the Borrowing Base, or (ix) to
any Event of Default involving the payment of money or the performance of any
material obligation by Borrower under this Agreement, shall be effective only if
evidenced by an agreement in writing signed by or on behalf of all Lenders. No
amendment, modification termination or waiver of any provision of Section 19 or
any other provision referring to Agent shall be effective without the written
concurrence of Agent. Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender.
Section 24. Accounting and Financial Determinations.
Where the character or amount of any asset or liability or
item of income or expense is required to be determined under this Agreement,
each such determination or calculation shall, to the extent applicable and
except as otherwise specified in this Agreement, be made in accordance with
generally accepted accounting principles applied on a basis consistent with the
audited financial statements of SCGI referred to in Section 15 hereof.
Section 25. Right of Offset.
Subject to the terms of this Agreement, in addition to, and
without limitation of, any rights of Agent and Lenders under applicable law or
otherwise. Agent and Lenders may, when any Event of Default shall have
occurred and be continuing and without notice or demand of any kind,
appropriate and apply toward payment of any Obligations (whether or not then
due), any amounts, properties, balances, credits, deposit accounts or other
monies of either Borrower in the possession or control of Agent or Lenders for
any purpose.
-33-
<PAGE> 38
Section 26. Computation and Payment of Liabilities.
Whenever any payment to be made shall otherwise be due on a
day which is not a Business Day, that payment shall be made on the next
succeeding Business Day, and that extension of time shall be included in
computing interest, if any, in connection with such payment.
Section 27. Notices.
Except as otherwise expressly provided, all notices and other
communications to any party pursuant to this Agreement or any Instrument
executed pursuant hereto shall be in writing addressed, delivered or
transmitted to it at its address or number set forth below its signature hereto
or to such other address or number as it shall designate in a notice to the
other party. Any notice if mailed properly addressed shall be deemed given on
the third Business Day after mailing postage prepaid by certified or registered
mail, or on the second Business Day when sent by overnight delivery service
which provides at least upon request a receipt for delivery; provided, however,
if such delivery is made on a day other than a Business Day, such notice shall
be effective on the next Business Day.
Section 28. Costs and Expenses.
Borrowers agree to reimburse Agent and Lenders upon demand for
all reasonable costs, fees and expenses (including reasonable attorneys' fees
and legal expenses) incurred by Agent and Lenders hereunder or in connection
herewith in enforcing the Obligations of Borrowers hereunder or any other
Instrument executed pursuant hereto. The obligations of Borrowers under this
Section shall survive any termination of this Agreement.
Section 29. Severability, Choice of Law.
Any provision of this Agreement or any instrument executed
pursuant hereto which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of any such prohibition
or unenforceability without invalidating the remaining provisions of this
Agreement or any such Instrument or affecting the validity or enforceability of
that provision in any other jurisdiction. This Agreement and all terms and
provisions hereof shall be construed and interpreted in accordance with and
governed by the laws of the State of Illinois without regard to the choice of
law rules thereof except as to perfection of any Security Interest which shall
be controlled by the laws of the relevant jurisdiction. Borrowers, to further
induce the Agent and Lenders to enter into this Agreement agrees that, subject
to the Agent or Lenders' election, all actions, suits or proceedings regarding
the interpretation or enforcement of this Agreement or any Instrument shall be
litigated only in courts having situs in Cook County, Illinois, and consents to
jurisdiction of any such court having subject matter jurisdiction over the
matter
-34-
<PAGE> 39
of such litigation, action, or proceeding and hereby irrevocably appoints CT
Corporation, whose address is 208 S. LaSalle Street, Chicago, IL 60603, or
such other person whom Lenders may designate in writing to Borrowers as agent
for the personal service of process. Borrowers agree that service of such
process shall constitute personal service upon Borrowers, upon forwarding of
notice to Borrowers of such service in accordance with the provisions of
Section 27 hereof.
Section 30. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns,
except that Borrowers may not assign or transfer their rights hereunder without
the prior written consent of Lenders. Lenders reserve the right, subject to
the terms of Section 22 of this Agreement, to assign or grant participations in
all or any part of, or any interest in, their rights and benefits hereunder or
under any other Instrument executed pursuant hereto and may, in connection
therewith, disclose all documents and information which it may have relating to
Borrowers or its business, this Agreement, and any other such Instrument.
Section 31. Taxes and Expenses Regarding the Collateral.
If Borrowers fail to pay promptly when due to any other person
or entity, monies which Borrowers are required to pay by reason of any
provision in this Agreement, Agent or Lenders may, upon notice to Borrowers,
but need not, pay the same and charge such Borrowers' account therefor if
necessary to preserve or protect the Collateral, or if there is no immediate
harm to the Collateral, Lenders, may, after the occurrence of any Event of
Default, but need not, pay the same and charge Borrower's account therefor.
Borrowers shall promptly reimburse Agent and Lenders for all such payments.
All such sums shall become additional Obligations owing to Agent and Lenders,
shall bear interest at the interest rate then applicable under this Agreement,
and shall be secured by the Collateral. Any payments made by Agent or Lenders
shall not constitute an agreement by Agent or Lenders to make similar payments
in the future, or a waiver by Agent or Lenders of any default under this
Agreement. Agent or Lenders need not inquire as to, or contest the validity
of, any such expense, tax, security interest, encumbrance or lien. The receipt
of the usual official governmental or court notice for the payment of the
foregoing shall be conclusive evidence that the same was validly due and owing,
and the receipt of any other notice with respect to all other such monies due
hereunder shall be prima facie evidence that the same was validly due and
owing.
Section 32. Waiver of Jury Trial.
BORROWERS, AGENT AND LENDERS EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION
HEREUNDER.
Section 33. Indemnity.
-35-
<PAGE> 40
(a) Borrowers shall indemnify and hold harmless Agent,
Lenders and their directors, officers, agents, counsel and employees
("Indemnified Persons") from and against all losses, claims, damages, costs,
expenses and liabilities ("Losses") incurred by any of them arising out of or
relating to a breach by Borrowers' of their representations, warranties,
covenants or agreements contained in this Agreement, any Contract, or any other
transaction contemplated hereby or thereby other than arising out of any
intercreditor relationship between Lenders and any Participant and except for
any such losses caused by the gross negligence or willful misconduct of such
Indemnified Persons, and shall reimburse Agent and Lenders and each other
Indemnified Person for any expenses (including the fees and disbursements of
legal counsel) incurred in connection with the investigation of, preparation
for or defense of any actual or threatened claim, action or proceeding arising
therefrom (including any such costs of responding to discovery requests or
subpoenas), regardless of whether Agent or Lenders or other Indemnified Person
is a party thereto.
(b) Indemnification Procedures. All claims for
indemnification under this Section 33 shall be asserted and resolved as
follows:
(i) In the event that any Claim for which the Borrowers
would be liable to an Indemnified Person hereunder is asserted against
an Indemnified Person by a third party, the Indemnified Person shall
with reasonable promptness send a Claim Notice (the "Claim Notice")
with respect to such Claim to the President of SCGI (the
"Representative") specifying the nature of such claim and the amount
or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such Claim).
The actions and decisions of the Representative shall be binding upon
the Borrowers. The Representative shall have 15 days from the receipt
of the Claim Notice (the "Notice Period") to notify the Indemnified
Person (a) whether or not the Borrowers dispute the Borrowers'
liability to the Indemnified Person hereunder with respect to such
Claim, and (b) if the Borrowers do not dispute such liability, whether
or not the Borrowers desire, at the sole cost and expense of the
Borrowers, to defend against such Claim, provided that the Borrowers
are hereby authorized (but not obligated) prior to and during the
Notice Period to file any motion, answer or other pleading and to take
any other action which the Borrowers shall deem necessary or
appropriate to protect the Borrowers' interests. If the
Representative notifies the Indemnified Person within the Notice
Period that the Borrowers do not dispute the Borrowers' obligation to
indemnify hereunder and desire to defend the Indemnified Person
against such Claim, except as hereinafter provided, the Borrowers
shall have the right to defend by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted by the Borrowers
to a final conclusion; provided that, unless the Indemnified Person
otherwise agrees in writing, the Borrowers may not settle any matter
(in whole or in part) unless such settlement includes a complete and
unconditional release of the Indemnified Person. If the Indemnified
Person desires to participate in, but not control, any such defense or
settlement the Indemnified Person may do so at the Indemnified
Person's sole cost and expense. If the Borrowers elect not to defend
the Indemnified Person against such Claim, whether by failure of the
Representative to give the Indemnified Person timely notice as
provided above or otherwise, then the Indemnified Person, without
waiving any rights against the
-36-
<PAGE> 41
Borrowers, may settle or defend against any such Claim in the
Indemnified Person's commercially reasonable discretion and the
Indemnified Person shall be entitled to recover form the Borrowers to
the extent the Claim is covered by Borrowers' indemnification
obligations under this section, the amount of any settlement or
judgment and, all indemnifiable costs and expenses of the Indemnified
Person with respect thereto, including interest from the date such
costs and expenses were incurred.
Section 34. Section Headings.
Section headings and numbers have been set forth herein for
convenience only and shall be without substantive meaning or content of any
kind whatsoever. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
Section 35. Construction.
Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Agent, Lenders or Borrowers, whether
under any rule of construction or otherwise. On the contrary, this Agreement
has been reviewed by all parties and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly accomplish
the purposes and intentions of the parties hereto.
Section 36. Restatement of Prior Agreements.
This Agreement constitutes an amendment and restatement of and
a replacement and substitute for the Prior Agreements. The Obligations under
the Prior Agreements are continuing indebtedness and nothing in this Agreement
shall be deemed to constitute payment, settlement, or novation of the
corresponding Obligations of DACC, or any guarantor, surety, or other party
primarily or secondarily liable for such Obligations. Upon execution of this
Agreement by the parties, this Agreement shall amend and supersede and is
substituted for the Prior Agreements in their entirety and upon satisfaction of
all of the conditions precedent set forth in Section 11 of this Agreement, DACC
shall be released of its obligations under the Prior Agreements under a Mutual
Release in the form of Exhibit E hereto.
Section 36. Release of Liens.
Upon payment in full of the Obligations, Agent shall release
all liens on the Collateral.
-37-
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
SEARCH FUNDING IV, INC.
By: /s/ ROBERT D. IDZI
-------------------------------
Title: E.V.P. & CFO
-------------------------------
Address: 700 N. Pearl St., Suite L.B. 401
Dallas, Texas 75201-2809
Attn: ROBERT D. IDZI
------------------------
Fax: 214-965-6098
------------------------
SEARCH CAPITAL GROUP, INC.
By: /s/ ROBERT D. IDZI
-------------------------------
Title: E.V.P. & CFO
-------------------------------
Address: 700 N. Pearl St., Suite L.B. 401
Dallas, Texas 75201-2809
Attn: Robert D. Idzi
------------------------
Fax: 214-965-6098
------------------------
COMMITMENT: $7,478,571.42 LASALLE NATIONAL BANK
By: [ILLEGIBLE]
-------------------------------
Title: Sr. V.P.
-------------------------------
Address: 120 South LaSalle Street
Chicago, Illinois 60601
Attn: James Thompson
Fax: 312/750-6382
COMMITMENT: $4,985,714.29 FLEET CAPITAL CORPORATION
By: [ILLEGIBLE]
-------------------------------
Title: V.P.
-------------------------------
Address: 20800 Swenson Drive, #350
Waukesha, WI 53186
Attn: Dennis Rebman
Fax: 414/798-4882
COMMITMENT: $4,985,714.29 BANK ONE, CHICAGO, N.A.
By: [ILLEGIBLE]
-------------------------------
Title: V.P.
-------------------------------
Address: 111 N. Canal Street
Chicago, Illinois 60606
Attn: Farhaan Hassan
Fax: 312/627-5833
-38-
<PAGE> 43
EXHIBIT A
DEALERS ALLIANCE CREDIT CORP.
BORROWING BASE CERTIFICATE
Dated as of _____________________
The undersigned Authorized Representative of Search Funding
IV, Inc. ("Borrower"), in connection with that certain Debt Assumption
Agreement, dated as of August __, 1996 (as amended from time to time, the
"Agreement"), among the Borrower, LaSalle National Bank as Agent and the
financial institutions from time to time parties thereto, does hereby certify,
represent and warrant that:
1. The undersigned is an officer of Borrower holding the
office set forth beneath the signature below;
2. The undersigned has made such examination or
investigation of the books, records, business and affairs of Borrower as
necessary to express an informed opinion as to the matters set forth herein;
3. No Default or event of Default has occurred and is
continuing;
4. The information contained in the attachment to this
Certificate is accurate and complete; and
5. The representations and warranties contained in the
Agreement are true and correct in all material respects as of the date hereof
as if made on the date hereof.
By:
-------------------------------
Title:
-------------------------------
<PAGE> 44
Computation of Borrowing Base
<TABLE>
<S> <C> <C> <C> <C>
1. Total Gross Receivables from prior month (line 5) $___________
2. Gross Receivables written during current month $___________
3. Aggregate Gross Receivables (item 1 and item 2) $___________
4. Less collections and charge offs
A. collections during current month $___________
B. gross charge offs during current month $___________
C. other reductions $___________
5. Total Gross Receivables (item 3 less item 4) $___________
6. Less Ineligible Receivables
A. accounts past due more than 60 days $__________
B. repossession accounts $__________
C. bankruptcy accounts (unless reaffirmed) $__________
D. rewritten accounts $__________
E. Deferred payment accounts $__________
Total Ineligible Receivables $___________
7. Eligible Receivables (item 5 less item 6) $___________
8. Less Unearned Charges
A. Unearned Finance Charges (UFC) $__________
B. Unamortized Discount (UD) $__________
C. Unearned Ancillary Income (UAI) $__________
D. less UFC, UD and UAI for ineligible accounts $__________
Net Unearned Charges $___________
9. Less Loss Reserves
A. allowance for credit losses, less $___________
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
B. amortized portion of allowance for
credit losses, and $___________
C. Reserves for ineligible accounts $___________
Net Loss Reserves $__________*
10. Net Eligible Receivables (item 7 less items 8 and 9) $__________
11. Applicable Advance Rate $__________
12. Borrowing Base (item 10 times item 11) $__________
13. Lesser of Borrowing Base or $35,000,000 $__________
14. Outstanding balance of Revolving Credit Loans $__________
15. Availability (item 13 minus item 14) $__________
</TABLE>
If positive, the amount is available Revolving Credit. If
negative, the amount is the minimum Mandatory Prepayment due.
* or $____________, if greater, which sum is equal to 14% of Net Finance
Receivables.
<PAGE> 46
EXHIBIT B
MONTHLY COMPLIANCE CERTIFICATE
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
Re: Debt Assumption Agreement, dated as of August __,
1996 (together with all Amendments from time to time,
if any, hereinafter referred to as the "Agreement")
among _______________________ ("Borrowers") and
LaSalle National Bank as Agent ("Agent") and the
financial institutions from time to time parties
thereto.
Gentlemen:
In accordance with Section 15(a)(i) of the Agreement, SCGI
hereby certifies to the Lender that:
A. On __________, 19__ (the "Monthly Computation Date"), the Leverage
Ratio did not exceed 5.0 to 1.0, all as computed on Attachment 1
hereto.
B. On the Monthly Computation Date, the unconsolidated Tangible Net Worth
of SCGI was $______________, as computed on Attachment 2 hereto and
the consolidated Tangible Net Worth of SCGI was $______________, as
computed on Attachment 3 hereto.
C. On the Monthly Computation Date the ratio of SCGI's Subordinated
Indebtedness to its Consolidated Tangible Net Worth did not exceed
1.50 to 1.0, all as computed on Attachment 3 hereto.
D. All of the information set forth in this Certificate (and in the
Attachments hereto) is true and correct; and
E. Except as stated on Attachment __ hereto (if applicable), no Event of
Default had occurred and was continuing at the Monthly Computation
Date or as of the date of this certificate.
IN WITNESS WHEREOF, Borrower has caused this Certificate to be
executed and delivered by it Authorized Representative this _____ day of
____________, 19__.
SEARCH CAPITAL GROUP, INC.
By:
-------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 4.1
SEARCH CAPITAL GROUP, INC.
CERTIFICATE OF DESIGNATION
SERIES B 9%/7% CONVERTIBLE PREFERRED STOCK
Pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of Search Capital Group, Inc., a Delaware
corporation (the "Corporation"), and the provisions of Section 151 of the
Delaware General Corporation Law, the following resolution creating a series of
4,000,000 shares of preferred stock designated as Series B 9%/7% Convertible
Preferred Stock was duly adopted as of July 29, 1996 by all necessary action on
the part of the Corporation:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of preferred stock of the Corporation
be, and it hereby is, created, and that the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of shares of such series, and the qualifications, limitations,
or restrictions thereof are as follows:
SECTION 1. Designation of Series. The series shall be
designated as "Series B 9%/7% Convertible Preferred Stock" (hereinafter called
"Series B Preferred Stock").
SECTION 2. Number of Shares. The number of shares of Series B
Preferred Stock is 4,000,000 with the par value of $0.01 per share and a
liquidation preference of $3.50 per share plus any declared but unpaid
dividends, after payment of all debts of the Corporation, which number of
shares the Board of Directors may increase or decrease but may not decrease
below the number of shares of the series then outstanding.
SECTION 3. Dividends. The holders of the Series B Preferred
Stock shall be entitled to receive, out of any funds legally available,
non-cumulative dividends at the annual rate of $0.315 per share (i.e., 9% of
$3.50 liquidation preference) per annum until March 31, 1999 (the "End Date")
and thereafter at the rate of $0.245 per share (i.e., 7% of $3.50 liquidation
preference) per annum from the day following the End Date. In the event of any
stock split, reverse stock split, stock combination or reclassification of the
Series B Preferred Stock or any merger, consolidation or combination of the
Corporation with any other entity or entities, the dividend rates shall be
subject to adjustment by the Board of Directors upon, and in appropriate
proportion to, any adjustment to the liquidation preference of the Series B
Preferred Stock pursuant to Section 6 hereof.
The Corporation may not pay dividends on the Series B Preferred Stock
except in cash until all accrued dividends have been paid by the Corporation in
cash on the Series B Preferred Stock through the calendar quarter ending March
31, 1997. After the accrued dividends have been paid in cash by the
Corporation for such period, dividends will continue to be paid entirely in
cash unless the Corporation is prohibited from paying the dividends entirely in
cash by Delaware law (the state of its incorporation) or by the terms of any
loan
<PAGE> 2
agreement of $5,000,000 or more. If the Corporation is prevented from paying a
dividend entirely in cash, it will pay a dividend in the form of a mixture of
cash and common stock of the Corporation ("Common Stock") to the extent
possible under Delaware law and any applicable loan agreement, or if necessary,
entirely in Common Stock, provided the average market price per share of the
Common Stock is $.50 or greater for the 20 trading day period ending five days
prior to the date of payment of the Common Stock dividend. Such $.50 minimum
market price shall be subject to adjustment by the Board of Directors upon and
in appropriate proportion to, any adjustment to the conversion rate of the
Series B Preferred Stock pursuant to subsection 10(c) hereof. The value of any
shares of Common Stock paid out as a dividend on the Series B Preferred Stock
shall be based on the average market price of the Common Stock for the 20
trading day period ending five days prior to the date of payment of the Common
Stock dividend. For purposes of this Section, the market price of the
Corporation's Common Stock shall be determined by using the closing sales price
as reported by NASDAQ, if the Common Stock is quoted by NASDAQ, or any national
stock exchange on which the Common Stock is listed for trading (or if such
stock is only traded over-the-counter, the average of the closing bid and asked
prices). If there is no established market for the Common Stock, the market
price shall be the fair market value of the Common Stock as determined by the
good-faith judgment of the Board of Directors.
If a dividend upon any shares of the Series B Preferred Stock, or any
other outstanding stock of the Corporation ranking on a parity with the Series
B Preferred Stock, or any other outstanding stock of the Corporation ranking on
a parity with the Series B Preferred Stock as to dividends, is in arrears, no
stock of the Corporation standing on a parity with the Series B Preferred Stock
as to dividends may be purchased or otherwise acquired for any consideration by
the Corporation except pursuant to an acquisition made pursuant to the terms of
one or more offers to purchase all of the outstanding shares of the Series B
Preferred Stock and all stock of the Corporation ranking on a parity with the
Series B Preferred Stock as to dividends (which offers shall describe such
proposed acquisition of all such parity stock). Unless otherwise declared by
the Board of Directors or required by this Certificate of Designation, no
dividends shall accrue or cumulate for any calendar quarter (or portion
thereof) during which a liquidation, dissolution or winding up of the
Corporation occurs.
SECTION 4. Dividend Payment Dates; Accrual Periods. Quarterly
dividends on each share of Series B Preferred Stock shall (a) accrue from the
date of issuance of such share through the last day of the calendar quarter in
which the share was issued and thereafter from the first day of each calendar
quarter through the last day of such calendar quarter, and (b) be paid on the
15th day of the month following the end of each calendar quarter to the holder
of record of such share at the close of business on the last day of the
calendar quarter.
SECTION 5. Redemption. The Series B Preferred Stock shall not
be subject to redemption by the Corporation or at the election of the holders
thereof.
SECTION 6. Liquidation Rights. If the Corporation is
liquidated, the Series B Preferred Stock will have a preference as to
liquidation proceeds (proceeds from the disposition of assets less payment of
all debts) in the amount of $3.50 per share plus all
-2-
<PAGE> 3
accrued and unpaid dividends, if any, after payment of all debts of the
Corporation. If upon any liquidation of the Corporation, the assets available
for distribution to the holders of the Series B Preferred Stock and any other
stock of the Corporation which shall then be outstanding and which shall be on
a parity with the Series B Preferred Stock upon liquidation (hereinafter in
this paragraph called the "Total Amount Available") shall be insufficient to
pay the holders of all outstanding shares of the Series B Preferred Stock and
all other such parity stock the full amounts (including all dividends accrued
and unpaid) to which they shall be entitled by reason of such liquidation of
the Corporation, then there shall be paid to the holders of the Series B
Preferred Stock in connection with such liquidation of the Corporation, an
amount equal to the product derived by multiplying the Total Amount Available
times a fraction, the numerator of which shall equal the number of outstanding
shares of the Series B Preferred Stock multiplied by $3.50 plus any accrued and
unpaid dividends thereon and a denominator of which shall be the total amount
which would have been distributed by reason of such liquidation of the
Corporation with respect to the Series B Preferred Stock and all other stock
ranking on a parity with the Series B Preferred Stock upon liquidation then
outstanding had the Corporation possessed sufficient assets to pay the full
amount which the holders of all such stock would be entitled to receive in
connection with such liquidation of the Corporation.
The merger or consolidation of the Corporation into or with any other
corporation, or the merger of any other corporation into the Corporation, or
the sale, lease or conveyance of all or substantially all the property or
business of the Corporation, shall not be deemed to be a dissolution or winding
up, voluntary or involuntary, for the purposes of this Section 6.
In the event of any stock split, reverse stock split, stock
combination or reclassification of the Series B Preferred Stock or any merger,
consolidation or combination of the Corporation with any other entity or
entities, the liquidation preference per share shall be proportionally adjusted
so that the holders of the Series B Preferred Stock after such event shall be
entitled to receive upon liquidation of the Corporation the same total
preference as to liquidation proceeds as such holders would have been entitled
to receive with respect to their Series B Preferred Stock had the Corporation
been liquidated immediately prior to such event. Such adjustment shall be made
successively upon the occurrence of the events listed in this paragraph. Any
adjustments shall be determined by the Board of Directors.
SECTION 7. Ranking. The Series B Preferred Stock shall rank,
in right of payment of dividends and as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, senior and superior to the Corporation's currently
authorized Common Stock (collectively, the "Junior Capital Stock").
The Series B Preferred Stock may be, at the Corporation's sole
discretion, either superior or pari passu (i.e., the two classes of preferred
stock will share proportionately as to their respective interest in any
liquidation proceeds or dividends) in dividend rights and liquidation
preferences to all other subsequently issued preferred stock. However, no
other preferred stock, whether or not convertible, may be issued in the future
that will be pari passu with the Series B Preferred Stock unless at the time of
such issuance all dividends due the
-3-
<PAGE> 4
holders of the Series B Preferred Stock have been paid in full. In no event
shall convertible preferred stock be issued which is senior in rights to that
of the Series B Preferred Stock, other than that such pari passu convertible
preferred stock may carry the then current market interest rate, which may be
higher or lower than that of the Series B Preferred Stock.
The Series B Preferred Stock will be pari passu with the existing
9%/7% Convertible Preferred Stock and the 12% Senior Convertible Preferred
Stock, and pari passu or senior in rights to future issues of straight,
convertible and all other forms of preferred stock with the exception of the
rate of interest for such future issues of preferred stock, which shall be no
greater than the prevailing market rate for similar such issues.
Whenever reference is made to shares "ranking on a parity with the
Series B Preferred Stock," such reference shall mean and include all shares of
the Corporation in respect of which the rights of the holders thereof as to the
payment of dividends or as to distributions in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation rank on an equality with the rights of the holders of the Series B
Preferred Stock. Whenever reference is made to shares "ranking junior to the
Series B Preferred Stock," such reference shall mean and include all shares of
the Corporation in respect of which the rights of the holders thereof as to the
payment of dividends and as to distributions in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation are junior and subordinate to the rights of the holders of the
Series B Preferred Stock.
The rights of the Series B Preferred Stock will be subordinate to the
rights of all existing and future holders of the Corporation's debt.
SECTION 8. Dividends on Junior Stock. In no event so long as
any Series B Preferred Stock shall be outstanding shall any dividends, except a
dividend payable in Common Stock or other shares ranking junior to the Series B
Preferred Stock, be paid or declared or any distribution be made on any Junior
Capital Stock, nor shall any Junior Capital Stock be purchased, retired or
otherwise acquired by the Corporation (except out of the proceeds of the sale
of Junior Capital Stock) unless all accrued and unpaid dividends on the Series
B Preferred Stock shall have been declared and paid or a sum sufficient for
payment thereof set apart.
SECTION 9. Voting Rights. Each share of the Series B
Preferred Stock shall be entitled to exercise the same voting rights as holders
of the Corporation's Common Stock and shall have one vote per share. If the
Corporation fails to pay a Series B Preferred Stock dividend in cash or Common
Stock for any four consecutive quarters, the Series B Preferred Stock shall
automatically be vested with an additional one vote per share, and the holders
of the Series B Preferred Stock will be given the right to elect immediately at
an emergency meeting of the shareholders which the Corporation shall hold
within 30 days after any such failure, one additional member to the
Corporation's Board of Directors.
At any meeting at which the holders of the Series B Preferred Stock
shall be entitled to elect a director, the holders of 50% of the then
outstanding shares of the Series B Preferred
-4-
<PAGE> 5
Stock, present in person or by proxy, shall be sufficient to constitute a
quorum, and the vote of the holders of a majority of such shares so present at
any such meeting at which there shall be such a quorum shall be sufficient to
elect the member of the Board of Directors which the holders of the Series B
Preferred Stock is entitled to elect as hereinabove provided.
On March 15, 2003, the number of persons constituting the Board of
Directors shall be reduced by the one director then in office elected pursuant
to this Section 9, the term of office of such director so elected shall end,
and the holders of the Series B Preferred Stock shall be divested of their
special class voting rights in respect of subsequent elections of directors.
Prior to March 15, 2003, the Corporation will not, without the
affirmative vote or consent of the holders of at least 66 2/3% of all
outstanding shares of Series B Preferred Stock, voting as a single class, (i)
amend, alter or repeal any provision of this Certificate of Designation to
adversely affect the relative rights, preferences, qualifications, limitations
or restrictions of the Series B Preferred Stock or (ii) effect any
reclassification of the Series B Preferred Stock (other than by virtue of the
mandatory conversion set forth herein or a stock split or reverse stock split
of the Series B Preferred Stock which has no material adverse effect on the
voting rights of the Series B Preferred Stock when compared to the voting
rights of the other classes of capital stock after the consummation of such
stock split or reverse stock split).
Prior to March 15, 2003, the Corporation will not, without the
affirmative vote or consent of holders of at least 50% of the outstanding
shares of Series B Preferred Stock, voting as a single class (i) merge with
another company when the members of the Board of Directors of the Corporation
immediately prior to the merger do not constitute a majority (x) of the members
of the Board of Directors of the Corporation if it survives the merger or (y)
of the board of directors of the surviving company if the Corporation does not
survive the merger, and (ii) sell more than 50% of the Corporation's assets.
Other than those set forth in this Section 9, the holders of the
Preferred Shares shall have no further voting rights.
SECTION 10. Conversion Rights.
(a) Optional Conversion. Shares of the Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time or from
time to time at the office of the Corporation or of any transfer agent of the
Series B Preferred Stock, into fully paid and nonassessable shares of Common
Stock at the rate of two shares of Common Stock for each share of Series B
Preferred Stock.
(b) Mechanics of Conversion. Before any holder of the Series B
Preferred Stock shall be entitled to convert the same into Common Stock
pursuant to this Section 10, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of the transfer
agent for the Series B Preferred Stock, and shall give written notice by mail,
postage prepaid, to the Corporation, at its principal corporate office, of the
-5-
<PAGE> 6
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of the Series B Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid
together with a check for any declared and unpaid dividends on such Series B
Preferred Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the Series B
Preferred Stock to be converted, and the person or persons entitled to receive
this Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of Common Stock on such date. Any
holder of the Series B Preferred Stock who elects to convert his shares to
Common Stock waives any and all rights to any accrued, but undeclared,
dividends with respect to the Series B Preferred Stock, but shall retain the
right to any dividends declared and accrued during the time such holder was a
holder of record of the Series B Preferred Stock.
(c) Adjustments to Conversion Ratio. In the event of any stock
dividend (except a Common Stock dividend that may be paid pursuant to Section 3
of this Certificate of Designation) on the Common Stock, any stock split,
reverse stock split, stock combination or reclassification of the Common Stock
or any merger, consolidation or combination of the Corporation with any other
entity or entities, the conversion rate shall be proportionately adjusted so
that the holders of the Series B Preferred Stock after such event shall be
entitled to receive upon conversion the number and kind of shares which such
holders would have owned or been entitled to receive had such Series B
Preferred Stock been converted immediately prior to such event. Such
adjustment shall be made successively upon the occurrence of the events listed
in this paragraph. Any adjustments shall be determined by the Board of
Directors.
(d) No Fractional Shares. No fractional shares shall be issuable
upon conversion; and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the Corporation shall, at its
option, issue script representing such fractional share or pay cash in lieu of
such fractional share based upon the market price (if traded over-the-counter,
the average of the bid and asked prices) of the Common Stock as reported at the
close of business on the day such conversion is effected or, if there is no
established market for the Common Stock, the fair value of the Common Stock as
determined by the good-faith judgment of the Board of Directors.
(e) Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel,
-6-
<PAGE> 7
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as will be sufficient for such purpose.
(f) Status of Converted Stock. In case any shares of Series B
Preferred Stock shall be converted into Common Stock, the shares so converted
shall, after any filings required by law, assume the statues of authorized but
unissued shares of Series B Preferred Stock.
(g) Mandatory Conversion into Common Stock. The Corporation may,
at its option, call for the mandatory conversion, in whole or in part, of up to
50% of the issued and outstanding shares of Series B Preferred Stock under the
following conditions: (i) the Corporation's Common Stock trades at a market
price of $4.25 per share or higher on each of any 20 trading days in a period
of 30 consecutive trading days, beginning on March 16, 1998 and ending on March
15, 1999, or (ii) the Corporation's Common Stock trades at a market price of
$3.50 per share or higher on each of any 20 trading days in a period of 30
consecutive trading days, beginning on March 16, 1999 and ending on the day
immediately preceding the Final Conversion Date (as defined herein). The
trigger prices per share of $4.25 and $3.50 shall be subject to adjustment by
the Board of Directors upon, and in appropriate proportion to, any adjustment
to the conversion rate of the Series B Preferred Stock pursuant to subsection
10(c) hereof. In the event the Corporation elects to call for the conversion
of a portion of the Series B Preferred Stock issued and outstanding pursuant to
clause (i) or (ii) above, then the Corporation shall select the shares to be
converted to the effect that to the extent practicable each holder of shares of
the Series B Preferred Stock shall have a pro rata portion of his or her shares
converted.
The Corporation shall cause a notice of the mandatory conversion
pursuant to the immediately preceding paragraph to be mailed, postage prepaid,
to the holders of the Series B Preferred Stock at their respective addresses
appearing on the share transfer records of the Corporation. The Board of
Directors may elect to specify an effective date for such conversion
("Effective Conversion Date"), which date may be no later than 60 days after
the Board meeting or consent at which the Corporation's election to convert was
duly adopted. If no Effective Conversion Date is specified by the Board of
Directors, the Effective Conversion Date shall be the date of the initial
mailing of the required notice. Such notice shall set forth the number of
shares of the Series B Preferred Stock that are mandatorily converted as of the
Effective Conversion Date with respect to each holder thereof, and the address
of the place where such shares of the Series B Preferred Stock shall be
exchanged, upon presentation and surrender of the certificates representing
such shares, and the certificates representing the shares of Common Stock shall
be delivered. The dividends on the shares of Series B Preferred Stock called
for conversion shall cease to accrue on the Effective Conversion Date. Any
notice which is mailed in the manner provided herein shall be conclusively
presumed to have been duly given, whether or not the holder of the shares of
the Series B Preferred Stock receives such notice, and failure to duly give
such notice by mail, or any defect in such notice, to any holder of shares of
the Series B Preferred Stock shall not affect the validity of the conversion
thereof into Common Stock. Consequently, as of the close of business on the
Effective Conversion Date, all shares of the Series B Preferred Stock called
for conversion, regardless of whether notice of conversion is actually received
by the
-7-
<PAGE> 8
holder, shall automatically be deemed to be the shares of Common Stock into
which such shares could have been voluntarily converted by the holders thereof.
As of the close of business on the Effective Conversion Date, the Series B
Preferred Stock called for conversion shall be deemed to cease to be
outstanding or to accrue dividends, the persons entitled to receive the Common
Stock issuable upon conversion shall be treated for all purposes as the
registered holders of such Common Stock and all rights of any holders of the
Series B Preferred Stock called for conversion shall thereupon be extinguished
except the right to receive the Common Stock in exchange therefor and any
accrued and unpaid dividends thereon. Holders of the Series B Preferred Stock
called for conversion must surrender the certificates representing such stock
in order to receive the Common Stock into which such Series B Preferred Stock
has been converted.
The Corporation shall be obligated to pay, within 30 days after the
Effective Conversion Date, any accrued and unpaid dividends on the shares of
Series B Preferred Stock called for conversion, to the holders who, on the
Effective Conversion Date, held such shares of Series B Preferred Stock.
Any previously unconverted Series B Preferred Stock shall be
automatically and mandatorily converted on March 15, 2003 (the "Final
Conversion Date"). For the purpose of the conversion on the Final Conversion
Date, each share of Series B Preferred Stock shall be convertible into a number
of shares of Common Stock which shall equal the lesser of (i) three (which
number shall be subject to adjustment by the Board of Directors upon, and in
the same proportion as, any adjustment in the conversion rate of the Series B
Preferred Stock pursuant to subsection 10(c) hereof), or (ii) the result of
dividing the liquidation preference per share for the Series B Preferred Stock
by the market price per share of the Common Stock as reported at the close of
business on the Final Conversion Date (or if such date is not a trading day, on
the first trading day immediately preceding the Final Conversion Date).
The Corporation shall cause a notice of such mandatory conversion on
the Final Conversion Date to be mailed, postage prepaid, to the holders of
record of the Series B Preferred Stock at their respective addresses appearing
on the share transfer records of the Corporation. Such notice shall set forth
a statement that all outstanding shares of the Series B Preferred Stock shall
be automatically and mandatorily converted as of the Final Conversion Date and
the address of the place where such shares of Series B Preferred Stock shall be
exchanged, upon presentation and surrender of the certificates representing
such shares, and the certificates representing the shares of Common Stock shall
be delivered. The dividends on such shares shall cease to accrue on the Final
Conversion Date. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder of the shares of the Series B Preferred Stock receives such notice, and
failure to duly give such notice by mail, or any defect in such notice, to any
holder of shares of the Series B Preferred Stock shall not affect the validity
of the conversion thereof into Common Stock. Consequently, all issued shares
of the Series B Preferred Stock, as of close of business on the Final
Conversion Date, regardless of whether notice of conversion is actually
received by the holder, shall automatically be deemed to be the shares of
Common Stock into which such shares are converted. As of the close of business
on the
-8-
<PAGE> 9
Final Conversion Date, the Series B Preferred Stock shall be deemed to cease to
be outstanding or to accrue dividends, the persons entitled to receive the
Common Stock issuable upon conversion shall be treated for all purposes as the
registered holders of such Common Stock and all rights of any holders of the
Series B Preferred Stock shall thereupon be extinguished except the right to
receive the Common Stock in exchange therefor and any accrued and unpaid
dividends thereon. Holders of the Series B Preferred Stock must surrender the
certificates representing such stock in order to receive the Common Stock into
which such Series B Preferred Stock has been converted. The Corporation shall
be required to declare and pay all cumulated unpaid dividends that accrue
through the Final Conversion Date as soon as practicable following the Final
Conversion Date.
After the conversion of all issued shares of the Series B Preferred
Stock, all shares of the Series B Preferred Stock shall be canceled, the Series
B Preferred Stock shall not be reissued and shall be deemed canceled and shall
revert to authorized but unissued Preferred Stock of the Corporation,
undesignated as to series, and the number of shares of Preferred Stock which
the Corporation shall have authority to issue shall not be decreased by such
conversion.
For purposes of this subsection (g), the market price of the
Corporation's Common Stock shall be determined by using the closing sales price
as reported by NASDAQ, if the Common Stock is quoted by NASDAQ, or any national
stock exchange on which the Common Stock is listed for trading (or if such
stock is only traded over-the-counter, the average of the closing bid and asked
prices). If there is no established market for the Common Stock, the market
price shall be the fair market value of the Common Stock as determined by the
good-faith judgment of the Board of Directors.
(h) Automatic Conversion into 9%/7% Convertible Preferred Stock.
The Series B Preferred Stock shall be automatically and mandatorily converted,
when and if the Corporation files with the Delaware Secretary of State a
Certificate of Amendment containing certain clarifying amendments to the terms
of the Certificate of Designation of 9%/7% Convertible Preferred Stock, as set
forth in the Corporation's preliminary proxy statement filed with the
Securities and Exchange Commission on July 19, 1996, into fully paid and
nonassessable shares of 9%/7% Convertible Preferred Stock at a rate of one
share of 9%/7% Convertible Preferred Stock for each share of Series B Preferred
Stock. The effective date of such conversion shall be the first business day
following the filing of such Certificate of Amendment with the Delaware
Secretary of State ("Automatic Conversion Date").
In the event of any stock split, reverse stock split, stock
combination or reclassification of the 9%/7% Convertible Preferred Stock or any
merger, consolidation or combination of the Corporation with any other entity
or entities, the conversion rate set forth in this subsection (h) shall be
proportionately adjusted so that the holders of the Series B Preferred Stock
after such event shall be entitled to receive upon conversion the number and
kind of shares which such holders would have owned or been entitled to receive
had such Series B Preferred Stock been converted immediately prior to such
event. Such adjustment shall be made successively upon the occurrence of the
events listed in this paragraph. Any adjustments shall be determined by the
Board of Directors.
-9-
<PAGE> 10
The Corporation shall cause a notice of such mandatory conversion on
the Automatic Conversion Date to be mailed, postage prepaid, to the holders of
record of the Series B Preferred Stock at their respective addresses appearing
on the share transfer records of the Corporation. Such notice shall set forth
a statement that all outstanding shares of the Series B Preferred Stock shall
be automatically and mandatorily converted as of the Automatic Conversion Date
and the address of the place where such shares of Series B Preferred Stock
shall be exchanged, upon presentation and surrender of the certificates
representing such shares, and the certificates representing the shares of 9%/7%
Convertible Preferred Stock shall be delivered. The dividends on such shares
shall cease to accrue on the Automatic Conversion Date. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder of the shares of the Series B
Preferred Stock receives such notice, and failure to duly give such notice by
mail, or any defect in such notice, to any holder of shares of the Series B
Preferred Stock shall not affect the validity of the conversion thereof into
9%/7% Convertible Preferred Stock. Consequently, all issued shares of the
Series B Preferred Stock, as of close of business on the Automatic Conversion
Date, regardless of whether notice of conversion is actually received by the
holder, shall automatically be deemed to be the shares of 9%/7% Convertible
Preferred Stock into which such shares are converted. As of the close of
business on the Automatic Conversion Date, the Series B Preferred Stock shall
be deemed to cease to be outstanding or to accrue dividends, the persons
entitled to receive the 9%/7% Convertible Preferred Stock issuable upon
conversion shall be treated for all purposes as the registered holders of such
9%/7% Convertible Preferred Stock and all rights of any holders of the Series B
Preferred Stock shall thereupon be extinguished except the right to receive the
9%/7% Convertible Preferred Stock in exchange therefor and any accrued and
unpaid dividends thereon. Holders of the Series B Preferred Stock must
surrender the certificates representing such stock in order to receive the
9%/7% Convertible Preferred Stock into which such Series B Preferred Stock has
been converted. The Corporation shall be required to declare and pay all
cumulated unpaid dividends that accrue through the Automatic Conversion Date as
soon as practicable following the Automatic Conversion Date.
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of 9%/7% Convertible Preferred Stock, solely
for the purpose of effecting the conversion of the shares of the Series B
Preferred Stock, such number of shares of 9%/7% Convertible Preferred Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock, and if at any time the
number of authorized but unissued shares of 9%/7% Convertible Preferred Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series B Preferred Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of 9%/7% Convertible Preferred Stock to such
number of shares as will be sufficient for such purpose.
After the conversion of all issued shares of the Series B Preferred
Stock, all shares of the Series B Preferred Stock shall be canceled, the Series
B Preferred Stock shall not be reissued and shall be deemed canceled and shall
revert to authorized but unissued Preferred Stock of the Corporation,
undesignated as to series, and the number of shares of Preferred
-10-
<PAGE> 11
Stock which the Corporation shall have authority to issue shall not be
decreased by such conversion.
SECTION 11. Other Rights. The Corporation will not be
obligated to redeem the Series B Preferred Stock, and thus will not be required
to establish a redemption or sinking fund.
SECTION 12. Effects of Conversion on Capital and Surplus. Upon
conversion of the Series B Preferred Stock the stated capital of the Common
Stock issued upon such conversion shall be the aggregate par value thereof, and
the stated capital and capital surplus (capital in excess of par of stated
value) of the Corporation shall be correspondingly increased or reduced to
reflect the difference between stated capital of the Series B Preferred Stock
so converted and the par or stated value of the Common Stock issued upon
conversion.
SECTION 13. Anti-Dilution. The Corporation shall be prohibited
from issuing preferred or Common Stock or warrants or any other form of
security to an affiliate for consideration that does not equal or exceed the
fair market value of such security (as determined by an independent third
party); provided that, the Corporation may issue options or warrants to new or
existing directors or management, so long as such warrants or options are
approved by the Compensation Committee of the Board of Directors. The
Corporation may also issue Common Stock upon the exercise of warrants or
options presently outstanding; provided that, such warrants or options are not
amended or modified without the approval of the Compensation Committee. In the
event that the Corporation issues to an affiliate any security not excepted
above for consideration that is less than the fair market value (as determined
above) of such security, the number of shares Series B Preferred Stock shall be
immediately and appropriately adjusted (and the conversion price of the Series
B Preferred Stock adjusted downward on a full ratchet basis) to take into
account the dilution in value of the securities holdings of the holders caused
by such below-market issuance of the Corporation's securities.
SECTION 14. Other Limits. In addition, the Corporation will
not (a) declare any cash or other form of dividend on or with respect to any
issue of Common Stock unless all dividends on the Series B Preferred Stock have
been paid, nor (b) issue Common Stock that is convertible into convertible or
other Preferred Stock.
-11-
<PAGE> 12
Dated as of July 29, 1996.
SEARCH CAPITAL GROUP, INC.
By: /s/ George C. Evans
------------------------------------------
Name: George C. Evans
----------------------------------------
Title: Chairman of the Board, President
---------------------------------------
and Chief Executive Officer
ATTESTED TO:
/s/ Robert D. Idzi
- -------------------------------------------
Robert D. Idzi
-12-
