<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
September 30, 1996 0-9539
S E A R C H C A P I T A L G R O U P, I N C .
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 41-1356819
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
700 North Pearl, Suite 400
Dallas, Texas 75201
-------------------
(Address of principal executive offices, including zip code)
214-965-6000
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at November 11, 1996
- ---------------------------- ----------------------------
Common Stock, $.01 par value 28,634,870
1
<PAGE> 2
SEARCH CAPITAL GROUP, INC.
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------ ----
<S> <C> <C>
Item 1. Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
- -------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Default Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
The financial information for the interim periods presented herein is
unaudited. In the opinion of management, all adjustments necessary (which are
of a normal recurring nature) have been included for a fair presentation of the
results of operations. The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year or
any other interim period.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q for quarter ended September 30, 1996 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "goal,"
" continue," or comparable terminology, that involve risks or uncertainties and
that are qualified in their entirety by the cautions and risk factors contained
in the Company's 10-K Transition Report for the six months ended March 31, 1996
and in other Company documents filed with the Securities and Exchange
Commission.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, March 31, 1996
1996 ----------------------------------
--------------- Pro forma
ASSETS Unaudited Historical (Note 3)
- ------ --------------- --------------- ----------------
<S> <C> <C> <C>
Gross contract receivables (Note 2) $ 61,945,000 $ 37,086,000 $ 37,086,000
Unearned interest (12,877,000) (6,435,000) (6,435,000)
--------------- --------------- ---------------
Net contracts receivable 49,068,000 30,651,000 30,651,000
Allowance for credit losses (13,431,000) (13,353,000) (13,353,000)
Net, loan origination costs 366,000 406,000 406,000
--------------- --------------- ---------------
Net contract receivables - after allowance
for credit losses & other costs 36,003,000 17,704,000 17,704,000
--------------- --------------- ---------------
Cash and cash equivalents 13,194,000 17,817,000 21,582,000
Vehicles held for resale 362,000 566,000 566,000
Property and equipment, net 1,168,000 1,062,000 1,062,000
Goodwill, net 11,153,000 -- --
Notes receivable and other assets, net 1,640,000 197,000 197,000
--------------- --------------- ---------------
Total assets $ 63,520,000 $ 37,346,000 $ 41,111,000
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Lines of credit $ 20,189,000 $ 2,283,000 $ --
Accrued settlements 500,000 688,000 688,000
Dividends payable 1,532,000 -- --
Accounts payable and other liabilities 1,532,000 7,356,000 7,356,000
Accrued interest 13,000 15,000 --
--------------- --------------- ---------------
Total liabilities 23,766,000 10,342,000 8,044,000
--------------- --------------- ---------------
Stockholders' Equity
- --------------------
Preferred stock 199,000 154,000 174,000
Common stock 317,000 259,000 300,000
Additional paid-in capital 93,308,000 81,784,000 87,786,000
Accumulated deficit (52,920,000) (54,043,000) (54,043,000)
Treasury stock (1,150,000) (1,150,000) (1,150,000)
--------------- --------------- ---------------
Total stockholders' equity 39,754,000 27,004,000 33,067,000
--------------- --------------- ---------------
Total liabilities and stockholders' equity $ 63,520,000 $ 37,346,000 $ 41,111,000
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Interest revenue $ 3,898,000 $ 4,778,000
Interest expense 290,000 4,768,000
------------------ ------------------
Net interest income 3,608,000 10,000
Recovery of prior credit losses 3,438,000 2,209,000
------------------ ------------------
Net interest income after recoveries of prior credit losses 7,046,000 2,219,000
------------------ ------------------
General and administrative expense 5,922,000 8,660,000
Settlement -- 2,837,000
Reorganization -- 315,000
------------------ ------------------
Operating and other expense 5,922,000 11,812,000
------------------ ------------------
Net income (loss) before dividends 1,124,000 (9,593,000)
Preferred stock dividends 2,946,000 120,000
------------------ ------------------
Net loss to common stockholders $ (1,822,000) $ (9,713,000)
------------------ ------------------
Primary net loss per share attributable to common
stockholders $ (.07) $ (1.11)
================== ==================
Weighted average common shares outstanding 27,214,000 8,764,000
================== ==================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Interest revenue $ 2,239,000 $ 609,000
Interest expense 290,000 1,813,000
------------------ ------------------
Net interest income 1,949,000 (1,204,000)
Recovery of (provision for) credit losses 2,056,000 2,633,000
------------------ ------------------
Net interest income after recoveries of (provisions for)
credit losses 4,005,000 1,429,000
------------------ ------------------
General and administrative expense 3,394,000 4,808,000
Settlement -- 2,837,000
Reorganization -- 315,000
------------------ ------------------
Operating and other expense 3,394,000 7,960,000
------------------ ------------------
Net income (loss) before dividends 611,000 (6,531,000)
Preferred stock dividends 1,542,000 60,000
------------------ ------------------
Net loss to common stockholders $ (931,000) $ (6,591,000)
------------------ ------------------
Primary loss per share attributable to common stockholders $ (.03) $ (.76)
================== ==================
Weighted average number of common shares outstanding 26,628,000 8,671,000
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,124,000 $ (9,593,000)
Adjustments to reconcile net income (loss) to cash used
in operations:
Provision for recovery of credit losses (1,691,000) (2,209,000)
Amortization of deferred offering costs 6,000 1,391,000
Amortization of loan origination costs 242,000 615,000
Depreciation 281,000 253,000
Changes in assets and liabilities:
Decreases (increases) in other assets (256,000) (63,000)
Increases (decreases) in accounts payable (4,466,000) 3,739,000
------------------ ------------------
Cash used in operations (4,760,000) (5,867,000)
------------------ ------------------
INVESTING ACTIVITIES:
Purchase of contracts receivable (14,793,000) (14,160,000)
Principal payments on contracts receivables
including proceeds from sales of vehicles 11,524,000 25,092,000
Purchase of property and equipment (388,000) (354,000)
Decrease in restricted cash -- (1,692,000)
------------------ ------------------
Cash provided by investing activities (3,657,000) 10,578,000
------------------ ------------------
FINANCING ACTIVITIES:
Borrowings under line of credit 4,400,000
Repayments under lines of credit (2,283,000) (1,217,000)
Notes payable repayments -- (1,690,000)
Deferred offering costs (82,000)
Capital lease principal payments (30,000) (58,000)
Net proceeds from debt conversion and sale of stock 4,346,000 --
Loans for stock purchases (1,099,000) --
Purchase of treasury stock -- (1,125,000)
Payment of dividends on preferred stock (1,680,000) (120,000)
------------------ ------------------
Cash provided by (used in) financing activities 3,572,000 (4,210,000)
------------------ ------------------
CHANGE IN CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents (4,845,000) 501,000
Cash and cash equivalents - beginning 17,817,000 1,633,000
Net cash acquired 222,000 --
------------------ ------------------
Cash and cash equivalents - ending $ 13,194,000 $ 2,134,000
================== ==================
- ------------------------------------------------------------------------------------------------------
Supplemental Information:
Cash Paid for Interest $ 292,000 $ 3,725,000
================== ==================
</TABLE>
5
<PAGE> 6
SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Search Capital Group, Inc.
("Search") and together with its subsidiaries ("Company") are unaudited and
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures present fairly, in all material
respects, the financial position of the Company for the periods presented.
During the quarter ended September 30, 1996, the Company recorded
adjustments which it considers not of a normal recurring nature. These
adjustments include a gain related to the closure of the Company's retail lots
and related make ready facility of $124,000, the reduction of an amount
previously reported as a liability under a terminated warranty program for the
Company's previously purchased contracts in the amount of $136,000, and
reversal of previously recorded expenses associated with a self-funded
insurance program in the amount of $36,000.
These financial statements should be read in conjunction with the
audited consolidated financial statements and related notes and schedules
included in the Company's Form 10-K Transition Report for the six months ended
March 31, 1996. The consolidated financial statements include the accounts of
the Company. All significant intercompany accounts and transactions have been
eliminated. Certain reclassifications have been made to prior periods'
balances to conform to current period presentation.
2. CONTRACT RECEIVABLES, ALLOWANCE FOR CREDIT LOSSES AND INTEREST INCOME
The Company records contract purchases at cost with any premium paid
recorded as an acquisition cost and amortized over the remaining life of the
related loans. Generally, an initial reserve is recorded for any acquisition
discount, which is the difference between the amount financed at the time of
acquisition and the acquisition cost. Contractual finance charges are
initially recorded to unearned interest and recorded to interest income using
the interest method. The Company evaluates the impairment of loans based on
contractual delinquency and other factors. Reserves are established for
impaired loans to reduce the net receivable to the lower of cost or estimated
net realizable value. Interest income is not recognized on loans where the
contractual delinquency exceeds sixty days or concerns otherwise exist
regarding the collectibility of the account. Reserve requirements in excess of
the initial reserve are provided, as needed, through a charge to the provision
for credit losses. Recorded reserves in excess of anticipated losses are
recorded as reductions in the allowance for loan losses.
6
<PAGE> 7
Most of the Company's contracts receivable are due from individuals in
metropolitan areas of southern and western states. To some extent, collection
of the receivables will be dependent on local economic conditions. In the
opinion of management, a portion of the receivables will be repaid or extended
either before or past the contractual maturity date. Therefore, the tabulations
below should not be regarded as a forecast of future cash collections nor
indicators of future performance.
CONTRACTUAL DELINQUENCIES
The following tables set forth certain information related to the
contractual delinquency of the Company's receivables as of September 30, 1996
and March 31, 1996.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------------------------------------------------
% OF
NUMBER OF TOTAL TOTAL
CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET
DELINQUENCY CONTRACTS (1) CONTRACTS INSTALLMENTS INTEREST RECEIVABLES
----------- ------------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Current to 60 days past due 9,873 93% $57,487,000 $12,144,000 $ 45,343,000
61-over days past due 769 7% 4,458,000 733,000 3,725,000
------ ---- ----------- ----------- ------------
Total 10,642 100% $61,945,000 $12,877,000 49,068,000
====== ==== =========== ===========
Allowance for credit losses (13,431,000)
------------
Receivables, net of allowance for credit losses $ 35,637,000
============
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------------------------------------------------
% OF
NUMBER OF TOTAL TOTAL
CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET
DELINQUENCY CONTRACTS (1) CONTRACTS INSTALLMENTS INTEREST RECEIVABLES
----------- ------------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Current to 60 days past due 7,575 95% $34,995,000 $6,055,000 $ 28,940,000
61-over days past due 421 5% 2,091,000 380,000 1,711,000
----- ---- ----------- ---------- ------------
Total 7,996 100% $37,086,000 $6,435,000 30,651,000
===== ==== =========== ==========
Allowance for credit losses (13,353,000)
------------
Receivables, net of allowance for credit losses $ 17,298,000
============
</TABLE>
(1) Excludes 245 and 333 accounts which were reclassified to vehicles held
for resale as of September 30, 1996 and March 31, 1996, respectively.
7
<PAGE> 8
ALLOWANCE FOR CREDIT LOSSES
The following table shows the changes in the Company's allowance for
loan losses for the six months ending September 30, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDING
SEPTEMBER 30, 1996
------------------
<S> <C>
Balance at beginning of period $13,353,000
Allowance recorded on acquisition of loans 5,869,000
Provision for loan losses -
Recovery of prior credit losses 1,747,000
Reduction in allowance for credit losses (3,438,000)
Loans charged off against allowance (4,100,000)
-----------
Balance at end of period $13,431,000
===========
</TABLE>
CONTRACTUAL MATURITIES
The following tables set forth certain information related to the
contractual maturities of the Company's contract receivables as of September
30, 1996 and March 31, 1996.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------------------------
12 MONTHS ENDING SEPTEMBER 30,
1999 AND
1997 1998 BEYOND TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Future payments receivable $32,621,000 $18,947,000 $10,377,000 $61,945,000
Less unearned interest 8,450,000 3,876,000 551,000 12,877,000
----------- ----------- ----------- -----------
Net contractual maturities $24,171,000 $15,071,000 $9,826,000 $49,068,000
=========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------------------------------------------
12 MONTHS ENDING MARCH 31,
1999 AND
1997 1998 BEYOND TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Future payments receivable $23,445,000 $11,507,000 $2,134,000 $37,086,000
Less unearned interest 4,886,000 1,450,000 99,000 6,435,000
----------- ----------- ----------- -----------
Net contractual maturities $18,559,000 $10,057,000 $2,035,000 $30,651,000
=========== =========== ========== ===========
</TABLE>
8
<PAGE> 9
GENERAL CONTRACT CHARACTERISTICS
The following sets forth certain general information related to the
contract receivables of the Company as of September 30, 1996 and March 31,
1996.
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1996 MARCH 31, 1996
<S> <C> <C>
Unearned as a percent of gross receivables 20.79% 17.35%
====== ======
Allowance for loan losses as percent of net receivables 27.37% 43.56%
====== ======
Average Original Loan Amount $7,433 $6,997
====== ======
Average Net Receivable Remaining Balance $4,610 $3,833
====== ======
Weighted Average APR 20.71% 23.81%
====== ======
Weighted Average Original Term in Months 36.94 32.42
====== ======
Weighted Average Remaining Term in Months 26.68 19.09
====== ======
</TABLE>
3. TRANSACTIONS WITH HALL AND AFFILIATES
On November 30, 1995, Search entered into a Funding Agreement
("Funding Agreement") with Hall Financial Group, Inc. ("HFG"). Pursuant to the
Funding Agreement, HFG made loans totaling $2,283,000 ("HFG Notes") to Search.
The HFG Notes could, at the election of HFG or its assigns, be converted into a
maximum 2,500,000 shares of Search common stock. Effective April 2, 1996,
Hall/Phoenix Inwood, Ltd. ("HPIL"), as assignee from HFG of the HFG Notes,
fully exercised the rights of the holder of the HFG Notes to convert the Notes
into 2,500,000 shares of Search common stock. Because the conversion price
specified in the HFG Notes for these shares was less than the full amount due
HFG, Search paid to HPIL the remaining portion of the debt evidenced by the HFG
Notes in cash.
The Funding Agreement also provided to HFG the option to purchase
common stock, 9%/7% convertible preferred stock, and warrants. Effective April
2, 1996, HPIL, as assignee of HFG, fully exercised this purchase option by
paying $4,346,000 cash to Search for which Search issued 1,638,400 shares of
common stock, 2,032,800 shares of 9%/7% preferred stock, and warrants to
purchase 676,000 shares of common stock to HPIL.
Pursuant to the Funding Agreement, HFG was entitled to elect one
director to Search's Board if HFG converted the HFG Notes into common stock and
to elect another director if HFG purchased at least $1,000,000 Present Value
of securities from Search. As a result of satisfaction of these conditions,
two HFG officers were appointed to Search's Board.
9
<PAGE> 10
4. ACQUISITION OF DEALERS ALLIANCE CREDIT CORPORATION
Effective August 2, 1996, Search Funding IV, Inc. ("SFIV"), a
wholly-owned subsidiary of Search, acquired all of the assets and assumed
certain liabilities of Dealers Alliance Credit Corporation ("DACC"). DACC
conducted purchasing and servicing of used motor vehicle receivables in
Atlanta, Georgia. DACC had purchased loans from over 1,000 new and used car
dealers primarily in Georgia, Texas, Tennessee, and Florida. The acquisition
was accounted for under the purchase method of accounting. Accordingly, their
results of operations have been included in the consolidated financial
statements since the date of acquisition. The purchase price was allocated to
the net assets acquired based upon their estimated fair value. This allocation
was based on preliminary estimates and may be revised at a later date. The
excess of cost over fair value of the net assets, of approximately $11,300,000,
acquired relating to the purchase is being amortized over fifteen years on the
straight line method. Under the terms of the transaction, SFIV assumed
approximately $17,500,000 in bank debt under a restructured line of credit and
acquired assets of approximately $23,000,000. The Company gave in exchange for
the net assets, a combination of common stock, Series B 9%/7% Preferred Stock,
and warrants to purchase common stock. The Company plans to use the office as
a regional marketing branch for southeastern states and a collection center.
5. LINE OF CREDIT
On September 11, 1996, Search Funding II, Inc. ("SFII"), a
wholly-owned subsidiary of Search, entered into a revolving line of credit
agreement (the "line") with Hibernia National Bank (HNB). The line bears
interest at the prime rate plus one percentage point, currently 9.25% as of
October 31, 1996. The line has a maximum borrowing commitment of $25,000,000
and is limited to a percentage of eligible contracts held by SFII. The line is
secured by all SFII assets and expires on September 11, 1999. Search has
guaranteed the line. Search and SFII must comply with various covenants that
require the maintenance of certain financial ratios and other financial
conditions.
6. RELATED PARTY INFORMATION
A director of the Company is a principal in a securities firm which
will receive fees for its services to be rendered in connection with obtaining
potential subordinate debt and senior debt financing for the Company. The
Company will pay a marketing fee of $60,000 and a placement fee of 3.0% related
to the subordinated debt offering and a .375% agency fee for the senior debt.
A director of the Company is a managing director of an investment
banking firm retained by the Company to act as its financial advisor. The
Company is obligated to pay $50,000 per year under this agreement to the firm.
Additionally, the Company has retained this director's firm to provide a
fairness opinion with respect to the Company's acquisition of certain assets and
liabilities of DACC and U.S. Lending Corporation. In connection with these
opinions, the Company will pay $100,000 and $125,000, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company specializes in the purchase and servicing of used motor
vehicle receivables. These receivables are secured by medium-priced, used
automobiles and light trucks which typically have been purchased by consumers
with substandard credit histories at retail prices generally ranging from
$5,000 to $15,000. The Company generally purchases these receivables from a
network of unaffiliated new and used automobile dealers (the "Dealer Network").
The Company from time to time makes bulk acquisitions of these receivables.
The members of the Dealer Network generate the receivables and offer them for
sale on a non-exclusive basis to the Company. Members of the Dealer Network
forego some future profit on each receivable sold to the Company in exchange
for an immediate return of their invested capital. The Company administers its
receivables purchasing, servicing and management
10
<PAGE> 11
activities utilizing a receivables management system developed by Norwest
Financial Information Systems Group, Inc. in conjunction with the Company's
proprietary Auto Note Management System software. The Company commenced its
used motor vehicle receivables purchasing and servicing business in 1991.
The Company opened its first consumer finance office on November 1,
1996 in Baton Rouge, Louisiana. The Company intends to open more branch
offices in the near future. These offices will make and collect retail sales
finance loans, second mortgage real estate loans, and other consumer loans.
Prior to November 4, 1994, the Company primarily financed the purchase
of used motor vehicle receivables through the private and public sale of
interest-bearing notes (the "Notes) issued by wholly owned subsidiaries
organized specifically for this purpose (the "Fund Subsidiaries") and through
reinvestment of operating cash flow. Until March 1996, the purchasing of
receivables for the Fund Subsidiaries was governed by trust indentures (the
"Trust Indentures") which restricted management's ability to alter its
receivables purchasing criteria. In March 1996, following confirmation of the
Fund Subsidiaries' plan of reorganization under Chapter 11 of the bankruptcy
code, the Notes and the indebtedness represented by the Notes, together with
their related Trust Indentures, were canceled. At that time, the Company
implemented its new purchasing program (the "Preferred Program"). The
Preferred Program continues to focus on the purchasing of used motor vehicle
receivables whose obligors have non-prime credit histories, but places more
emphasis on job, income and residence stability and re-established positive
credit of the obligor than the Company's earlier programs.
The Company anticipates lower repossession rates and higher
repossession sale proceeds as a result of the Preferred Program. If the
Company is unable to select the proper dealers, purchase contracts with
obligors which meet its credit criteria, and realize collection proceeds in
adequate amounts, the repossession rate and sale proceeds could be higher and
lower, respectively. The terms of loans under the Preferred Program generally
range from 30 months to 60 months.
RESULTS OF OPERATIONS
Comparison of Six Month Periods Ended September 30, 1996 and 1995
The Company purchased 509 non-bulk contracts during the six months
ended September 30, 1996 compared to 2,659 non-bulk contracts during the six
months ended September 30, 1995. The cost of non-bulk contracts purchases was
$5,076,000 ($9,972 per contract) compared to $14,160,000 ($5,325 per contract)
for the six month periods in 1996 and 1995, respectively. The Company
purchased 1,098 bulk contracts at a cost of $9,717,000 ($8,849 per contract)
during the six months ended September 30, 1996 compared to 112 bulk contracts
at a cost of $513,000 ($4,580 per contract) for the six months ended September
30, 1995. The increase in cost of non-bulk contracts is due to a higher
purchase price per contract under the Preferred Program generally due to a
lower mileage vehicle, higher credit quality customers and higher wholesale and
retail value per vehicle. The increase in cost of bulk contracts is due to the
11
<PAGE> 12
Company purchasing contracts that involve a higher credit quality obligors or
higher value vehicle collateral than the contracts previously purchased by the
Company, or both. The Company expects to continue to see an increase in its per
contract cost under its Preferred Program when compared to purchases under its
old program. Additionally, during the three months ended September 30, 1996,
the Company purchased 725 non-auto consumer finance contracts which were not
secured by automobiles at a cost of $278,000. The Company is also planning to
expand into other areas of consumer finance.
Interest revenue decreased from $4,778,000 for the six months ended
September 30, 1995 to $3,898,000 for the six months ended September 30, 1996.
The decrease of $880,000, or 18%, is primarily a result of higher average
interest earning net receivables for the six month period ended September 30,
1995 of $48,894,000 compared to $27,251,000 average interest earning net
receivables for the period ended September 30, 1996.
Interest expense decreased from $4,768,000 to $290,000 for the six
months ended September 30, 1996 compared to the same six month period ended
September 30, 1995. The decrease in interest expense is a result of
confirmation and effectiveness of the Fund Subsidiaries' plan of reorganization
during the first calendar quarter of 1996. Additionally, as a result of the
plan's effectiveness, the Company paid the balance owing on its outstanding
lines of credit.
The provision for credit losses increased from a recovery of
$2,209,000 for the six months ended September 30, 1995 to a recovery of
$3,438,000 for the six months ended September 30, 1996. The increase in the
recovery of prior credit losses is due to increased recoveries of prior credit
losses from previously charged off accounts. During the six month period ended
September 30, 1996, the Company recovered $1,747,000 of proceeds from accounts
previously charged off. During the same three month period in the six months
ended September 1995, the Company did not recover any proceeds. The Company's
remote collections facilities, which were opened during the second calendar
quarter of 1995, have been successful in contacting and collecting some of the
chronically delinquent and charged-off accounts and locating previously
identified skips. Additionally, the acquisition of DACC provided the Company
with a new pool of deficiency balances to collect of which the Company
collected approximately $300,000 in the quarter ended September 30, 1996. In
the future, management anticipates a lower amount of recovery of prior credit
losses as these collections decrease. During the six months ended September
30, 1996, the Company received a one-time settlement of $115,000 from a car
dealer for deficiencies on sales of repossessed cars purchased from that
dealer. Additionally, during the six months ended September 30, 1996, the
Company reduced its loan loss provision by an additional $1,691,000 to reflect
a reduction in anticipated loan losses.
General and administrative expenses decreased from $8,660,000 to
$5,922,000, or $2,738,000 for the six months ended September 30, 1995, compared
to the same six month period in September 30, 1996. The decrease in general
and administrative expenses is primarily related to reduced expenses associated
with processing repossessions, personnel cost, and professional fees. The
Company closed all three of its retail lots, which were used to process
repossessions, by December 31, 1995. The six month period ended September 30,
1995 contains
12
<PAGE> 13
general and administrative expenses, related to these retail lots whereas the
six months ended September 30, 1996 contain none of the same expenses. The
Company's employee count averaged 115 persons for the six months ended
September 30, 1996 compared to 127 persons for the six months ended September
30, 1995.
Preferred stock dividends increased $2,826,000 from $120,000 for the
six months ended September 30, 1995 to $2,946,000 for the six months ended
September 30, 1996. The increase in preferred stock dividends is related to
the issuance of 17,064,000 shares of the Company's 9%/7% Convertible Preferred
Stock upon confirmation of the Fund Subsidiaries' plan of reorganization and
2,554,000 shares of Series B 9%/7% Convertible Preferred Stock in the
acquisition of DACC. The Company had 400,000 shares of its 12% Convertible
Preferred Stock outstanding and no 9%/7% Convertible Preferred Stock during the
six months ended September 30, 1995, compared to 400,000 and an average of
17,915,000 shares of 12% Convertible Preferred Stock, 9%/7% Convertible
Preferred Stock and Series B 9%/7% Convertible Preferred Stock, respectively,
outstanding during the six months ended September 30, 1996.
Net loss per share decreased from $(1.11) per share for the six months
ended September 30, 1995 to $(.07) per share for the six months ended September
30, 1996. The decrease is due to lower net loss per share attributable to
common stockholders of $7,891,000 and an increased number of weighted average
shares outstanding from 8,764,000 to 27,214,000, for the six months ending
September 30, 1995 and 1996, respectively. In addition to the above, the
Company experienced significant costs related to the Fund Subsidiaries plan of
reorganization and settlement of claims of a non-reoccurring nature of
$3,152,000 during 1995.
Comparison of Three Month Periods Ended September 30, 1996 and 1995
The Company purchased 236 non-bulk contracts during the three months
ended September 30, 1996 compared to 1,254 non-bulk contracts during the same
three months ended September 30, 1995. The cost of non-bulk contract purchases
was $2,645,000 ($11,207 per contract) compared to $7,508,000 ($5,987 per
contract) for the three month periods in 1996 and 1995, respectively. The
Company purchased 1,098 bulk contracts at a cost of $10,514,000 ($9,576 per
contract) during the three months ended September 30, 1996 compared to 112 bulk
contracts at a cost of $513,000 ($4,580 per contract) during the three month
period ended September 30, 1995. The increase in cost in non-bulk contracts of
$5,220 per contract is due to a higher purchase price per contract under the
Preferred Program compared to its old program. The Company expects to continue
to see an increase in its per contract cost under its Preferred Program when
compared to purchases under its old program. The increase in cost per bulk
contract of $4,996 per contract is due to a generally higher credit quality
customer and or collateral than what was previously purchased by the Company.
The Company expects to continue to see an increase in its non-bulk and bulk
contract cost when compared to previous non-bulk and bulk purchases.
13
<PAGE> 14
Interest revenue increased from $609,000 for the three months ended
September 30, 1995 to $2,239,000 for the three months ended September 30, 1996.
The difference arises primarily from a reclassification of interest revenue and
provision for credit losses which was made during third calendar quarter of
1995 and had no effect on earnings per share. Average interest earning
contracts were $29,429,000 for the three months ended September 30, 1996
compared to $45,662,000 for the three month period ended September 30, 1995.
Interest expense decreased from $1,813,000 to $290,000 for the three
months ended September 30, 1995 compared to the same three month period ended
September 30, 1996. The decrease in interest expense is a result of
confirmation and effectiveness of the Fund Subsidiaries' plan of reorganization
during the first calendar quarter of 1996. Additionally, as a result of the
plan's effectiveness, the Company paid the balance owing on its outstanding
lines of credit. The Company anticipates an increase in the amount of interest
expense in the foreseeable future as it will access its credit line to fund
contract purchases.
The provision for credit losses decreased from a recovery of
$2,633,000 for the three months ended September 30, 1995 to a recovery of
$2,056,000 for the three months ended September 30, 1996. The decrease in the
recovery of prior credit losses is due to lower anticipated loan losses in this
three month period compared to the same three month period in 1995.
Additionally, the difference arises primarily from a reclassification of
interest revenue and provision for credit losses which were made during third
calendar quarter of 1995 and had no effect on earnings per share. The
Company's remote collections facilities, which were opened during the second
calendar quarter of 1995, have been successful in contacting and collecting
some of the chronically delinquent and charged-off accounts and locating
previously identified skips. In the future, management anticipates a lower
amount of recovery of prior credit losses as these collections decrease.
General and administrative expenses decreased from $4,808,000 to
$3,394,000 for the three months ended September 30, 1995, compared to the same
three month period ended in September 30, 1996. The decrease in general and
administrative expenses is primarily related to reduced expenses associated
with processing repossessions, personnel cost, and professional fees. The
Company closed all three of its retail lots, which were used to process
repossessions, by December 31, 1995. The three-month period ended September
30, 1995 contains general and administrative expenses, related to these retail
lots whereas the three months ended September 30, 1996 contain none of the same
expenses. The Company's employee count averaged 127 persons for the three
months ended September 30, 1995, compared to 130 persons for the three months
ended September 30, 1996.
Preferred stock dividends increased from $60,000 for the three months
ended September 30, 1995 to $1,542,000 for the three months ended September 30,
1996. This increase in preferred stock dividends is related to the issuance of
17,064,000 shares of the Company's 9%/7% Convertible Preferred Stock upon
confirmation of the Fund Subsidiaries' plan of reorganization and 2,554,000
shares of Series B 9%/7% Convertible Preferred Stock in the acquisition of DACC.
The Company had outstanding 400,000 shares of its 12% Convertible Preferred
Stock outstanding and no 9%/7% Convertible Preferred Stock during the three
months ended September 30, 1995, compared to 400,000 and an average of
18,767,000 shares of 12%
14
<PAGE> 15
Convertible Preferred Stock, 9%/7% Convertible Preferred Stock and Series B
9%/7% Convertible Preferred Stock , respectively, outstanding during the three
months ended September 30, 1996.
Net loss per share decreased from $(.76) per share for the three
months ended September 30, 1995 to $(.03) per share for the three months ended
September 30, 1996. The decrease is due to lower net loss per share
attributable to common stockholders of $5,720,000 and an increased number of
weighted average shares outstanding from 8,671,000 to 26,628,000, for the three
months ending September 30, 1995 and 1996, respectively. In addition to the
above, the Company experienced significant costs related to the Fund
Subsidiaries' plan of reorganization and settlement of claims which are of a
non-recurring nature of $3,152,000 during 1995.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's business will have an ongoing requirement to raise
substantial amounts of cash to support its activities. Currently, the
principal cash requirements include amounts to purchase receivables, cover
operating expenses, and pay preferred stock dividends. The Company has a
significant amount of cash on hand as of September 30, 1996, which it considers
adequate to meet its reasonably anticipated needs. The Company intends to
invest a portion of this cash into receivables. In the future, additional
liquidity will be necessary to support growth of the Company's loan portfolio
and operations.
Because the used motor vehicle and consumer finance industries require
the purchase, origination and carrying of receivables, a relatively high ratio
of borrowings to net worth is customary and will be an important element in the
Company's operations. The Company intends to leverage its net worth and any
subordinated debt in the future to enhance its liquidity. Additionally, the
Company will endeavor to maximize its liquidity by diversifying its sources of
funds which it is anticipated will include (a) cash from operations, (b) the
securitization of receivables, (c) lines of credit available from commercial
banks and other financing sources, and (d) a possible subordinated
debt offering.
The Company has obtained a commitment for a warehouse line of credit
to purchase receivables which would then be assigned to special purpose
entities for future securitization. As of November 11, 1996, this commitment is
subject to completion of definitive documentation. The Company is continuing
preparation of a private placement memorandum to issue $25,000,000 to
$30,000,000 of senior subordinated notes with warrants to purchase common
stock. Additionally, the Company is discussing with several other commercial
lenders which include investment banking firms and brokerage firms to provide
additional financing, which would be utilized for the purchases of receivables
and/or the purchases of other operating entities. The Company is also seeking
several additional participants to expand its $25,000,000
15
<PAGE> 16
line of credit with Hibernia Bank. As of November 11, 1996, the Company had
approximately $23,700,000 outstanding under its line with Hibernia Bank.
The Company intends to evaluate and pursue acquisition opportunities
that the Company anticipates will enable it to grow its receivable base. The
Company will consider all forms of financing available to it with respect to
any particular acquisition, including additional borrowings and sales or
exchanges of equity or debt securities.
OPERATING ACTIVITIES
Principal Sources and Uses of Cash in Operating Activities
The principal source of cash from operating activities is provided by
net interest income. The principal uses of cash in operations are for general
and administrative expenses, other non-recurring types of expenses and payments
relating to previously accrued expenses.
Comparison of Operating Cash Flows for the Six Months Ended September 30, 1996
to the Six Months Ended September 30, 1995
During the six months ended September 30, 1996, the Company utilized
$4,760,000 of cash in its operations compared to $5,867,000 of cash being
utilized in operations in the six months ended September 30, 1995. The
decrease of $1,107,000 is primarily a result of reduction in expense accruals
of $4,466,000 related to the Fund Subsidiaries' plan of reorganization during
the six months ended September 30, 1996 compared to an increase in accruals of
$3,739,000 in the same period ended September 30, 1995. The change in offering
cost authorization of $1,385,000 was due primarily to the confirmation of the
Fund Subsidiaries' plan of reorganization.
The Company anticipates having negative cash flows in the foreseeable
future as it continues to expand its Dealer Network, expands into consumer
finance, and grows its receivable base.
INVESTING ACTIVITIES
Principal Sources and Uses of Cash Provided by Investing Activities
The principal sources of cash from investing activities include cash
from principal payments on receivables and proceeds from the sale of
repossessed vehicles. The principal uses of cash in investing activities
include cash used for purchasing receivables and property and equipment.
16
<PAGE> 17
Comparison of Investing Cash Flows for the Six Months Ended September 30, 1996
to the Six Months Ended September 30, 1995.
Cash provided by investing activities decreased $14,235,000 from
$10,578,000 for the six months ended September 30, 1995 to a use of $3,657,000
for the six months ended September 30, 1996. The decrease is primarily due to
a decrease of $13,568,000 in principal payments and sale proceeds.
The Company anticipates encountering negative cash flows from
investing activities in the foreseeable future as it continues to expand its
non-prime automobile receivable base by expanding into more states and greater
market penetration in existing states and expands into consumer finance.
FINANCING ACTIVITIES
Principal Sources and Uses of Cash Provided by Financing Activities
The principal sources of cash from financing activities are from
borrowings under line of credit agreements, debt offerings proceeds, and sales
of equity securities. The principal uses of cash in financing activities
include cash for the repayment of amounts borrowed under lines of credit,
repayment of debt offerings, and payment of dividends on preferred stock.
Comparison of Financing Cash Flows for the Six Months Ended September 30, 1996
to the Six Months Ended September 30, 1995.
During the six months ended September 30, 1996, the Company's
financing activities provided $3,572,000 of cash compared to utilizing cash of
$4,210,000 during the same six month period ended September 30, 1995. The
change of $7,782,000 was caused primarily by borrowings exceeding payments
under its line of credit, proceeds from sale of stock during the six months
ended September 30, 1996 and a lack of a purchase of treasury stock such as
occurred in the six months ended September 30, 1995.
The Company's annual dividend requirements on the outstanding shares
of its 12% Preferred Stock and 9%/7% Preferred Convertible Stock, as of
September 30, 1996, were $240,000 and $6,155,000, respectively. The annual
dividend requirement on the Company's 9%/7% Convertible Preferred Stock will
remain at the 9% level until March 31, 1999 and then decrease to the 7% level,
or $4,787,000, until March 2003. Any conversion to Common Stock would reduce
these dividend requirements.
During the quarter ended September 30, 1996, the Company implemented a
loan program for its directors and certain officers to finance the purchase of
the Company's common and preferred stock in open market transactions. The
loans bear interest at the prime rate and require quarterly interest payments
and mature at the end of three years. As of September 30, 1996, the Company
had advanced $1,099,000 to ten of the eligible participants to fund stock
purchases.
17
<PAGE> 18
Currently, the maximum allowed to be funded for any participant is $150,000.
During the quarter ended September 30, 1996, the Company recorded $16,000 of
interest revenue from participants under this program. The loans are
evidenced by notes from participants and the Company holds the stock as
collateral under security agreements.
The Company has potential obligation to purchase 812,127 shares from a
trust formed by a former director of the Company under a stock purchase
agreement dated May 5, 1995. The trust, at its option, can elect to have the
Company purchase 812,127 shares of stock at $2.25 per share. This purchase
would require cash on hand or borrowings under its existing line of credit
unless an additional source is available.
The Company anticipates an increase in cash flows from financing
activities due to its anticipated subordinated debt offering, completion and
utilization of warehouse lines, and other debt and stock offerings. The Company
will require additional cash flow to grow its receivable base and expand into
consumer finance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 24, 1996, Search initiated legal action in state District
Court, Dallas County, Texas against two of its directors, Craig Hall and Larry
E. Levey, and Hall Phoenix/Inwood Ltd., a company controlled by Mr. Hall that
is Search's largest stockholder. The defendants have filed an answer seeking
dismissal of the action. Additionally, Messrs. Hall and Levey seek recovery
from Search of all legal fees, disbursements and other reasonable expenses
incurred by them in defending the action. The suit alleges fraud,
misrepresentation and breach of fiduciary duty by the defendants. No opinion
can be given as to the final outcome. Messrs. Hall and Levy filed suit against
Search in the Court of Chancery, New Castle County, Delaware on October 16,
1996 seeking access as directors to certain of Search's books and records.
On October 25, 1996, Search's subsidiary, Automobile Credit Acceptance
Corp. ("ACAC"), was served with an Original Class Action Petition lawsuit
commenced in the County Court at Law of Nueces County, Texas. The lawsuit,
styled William Bourland and Rolando H. Trevino v. Automobile Credit Acceptance
Corp., alleges that ACAC contracted for delinquency charges greater than those
authorized by the Texas Consumer Credit Code and seeks certification of a class
of all persons who purchased a motor vehicle in Texas with financing from ACAC
within the last four years. The suit seeks statutory penalties, attorneys'
fees and interest. ACAC has not yet filed its answer in the lawsuit and no
opinion can be given as to its final outcome. ACAC believes the lawsuit is
without merit and intends to vigorously defend itself.
ITEM 2. CHANGES IN SECURITIES-NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES-NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS-NONE
18
<PAGE> 19
ITEM 5. OTHER INFORMATION
On November 1, 1996, Susan A. Brown resigned as a director of the
Company.
On November 5, 1996, the Company entered into an amendment to the
Asset Purchase Agreement between the Company and U.S. Lending Corporation
("USLC"), a company subject to Chapter 11 bankruptcy proceedings, providing for
the Company to purchase all of USLC's used motor vehicle retail installment
sales contracts and repossessed motor vehicles, and a portion of USLC's cash,
on the closing date. In consideration for the transfer of assets, the Company
will issue shares of its Common Stock, Series B 9%/7% Convertible Preferred
Stock ("Series B Stock") and warrants based on a purchase price to be
determined at the closing equal to the cash received from USLC, 59% of the total
unpaid installments of USLC's active contracts, plus the wholesale value of
USLC's repossessed vehicles. The number of shares of Common Stock and Series B
Stock will equal 25% and 100%, respectively, of the purchase price divided by
the weighted average of the high bid and low asked trading prices for those
securities for the 20 trading days preceding the closing. The Company will also
issue at the closing five-year warrants to purchase Common Stock at $2.00 per
share (increasing by $0.25 per year). The number of shares of Common Stock
purchasable under the warrants will equal 20% of the total Common Stock
equivalents represented by the Series B Stock and Common Stock issued at the
closing. If certain proposed clarifying amendments to the terms of the
Company's 9%/7% Convertible Preferred Stock are approved by the Company's
stockholders, the shares of Series B Stock issued by the Company in the
acquisition will be automatically converted, on a one-for-one basis, into newly
issued shares of the Company's 9%/7% Convertible Preferred Stock. If that
conversion does not occur by April 1, 1997, the Company will be required to pay
USLC $.08 for each share of Series B Stock issued at the closing.
As of November 1, 1996, USLC had cash of approximately $3,400,000,
active contracts with total unpaid installments of approximately $2,222,000 and
repossessed vehicles with a wholesale value of approximately $53,000.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed in response to Item 601 of
Regulation S-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- --------------------------------------------------------------------
<S> <C>
2.1 Motor Vehicle Installment Sales Contract Assignment and Purchase
Agreement dated as of November 1, 1996 between MS Financial, Inc. and
Search Funding Corp. (excluding the schedule of contracts that is
Exhibit A, a copy of which will be furnished to the Commission
supplementally upon request.
2.2 Letter agreement between the Registrant and MS Financial, Inc. dated
November 4, 1996.
3.1 Certificate of Amendment of Certificate of Designation of 9%/7%
Convertible Preferred Stock.
3.2 Certificate of Designation Series B 9%/7% Convertible Preferred Stock.
3.3 Certificate of Corrections to the Restated Certificate of Incorporation
of Search.
3.4 Certificate of Amendment of Certificate of Designation of 9%/7%
Convertible Preferred Stock.
3.5 Certificate of Amendment of Certificate of Designation of Series B 9%/7%
Convertible Preferred Stock.
10.1 Second Amendment dated November 5, 1996 to Asset Purchase Agreement
among U.S. Lending Corporation, as Debtor-In-Possession, and Search
Capital Group, Inc. and Search Funding III, Inc., dated July 17, 1996
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated
September 27, 1996 reporting the acquisition of a portfolio of
non-prime automobile retail installment sales contracts from Eagle
Finance Corp.
The Company filed a Current Report on Form 8-K, dated August
6, 1996 reporting the acquisition of substantially all of the assets,
and assumption of certain liabilities, of Dealers Alliance Credit
Corp.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SEARCH CAPITAL GROUP, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C>
/s/ George C. Evans November 11, 1996
- --------------------- -----------------
George C. Evans Chairman of the Board, President,
Chief Executive Officer, Chief
Operating Officer and Director
/s/ Robert D. Idzi November 11, 1996
- --------------------- -----------------
Robert D. Idzi Senior Executive Vice President,
Chief Financial Officer and
Treasurer
/s/ Andrew D. Plagens November 11, 1996
- --------------------- -----------------
Andrew D. Plagens Vice President, Controller and
Chief Accounting Officer
</TABLE>
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- --------------------------------------------------------------------
<S> <C>
2.1 Motor Vehicle Installment Sales Contract Assignment and Purchase
Agreement dated as of November 1, 1996 between MS Financial, Inc. and
Search Funding Corp. (excluding the schedule of contracts that is
Exhibit A, a copy of which will be furnished to the Commission
supplementally upon request.
2.2 Letter agreement between the Registrant and MS Financial, Inc. dated
November 4, 1996.
3.1 Certificate of Amendment of Certificate of Designation of 9%/7%
Convertible Preferred Stock.
3.2 Certificate of Designation Series B 9%/7% Convertible Preferred Stock.
3.3 Certificate of Corrections to the Restated Certificate of Incorporation
of Search.
3.4 Certificate of Amendment of Certificate of Designation of 9%/7%
Convertible Preferred Stock.
3.5 Certificate of Amendment of Certificate of Designation of Series B 9%/7%
Convertible Preferred Stock.
10.1 Second Amendment dated November 5, 1996 to Asset Purchase Agreement
among U.S. Lending Corporation, as Debtor-In-Possession, and Search
Capital Group, Inc. and Search Funding III, Inc., dated July 17, 1996
27.0 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.1
MOTOR VEHICLE INSTALLMENT SALES CONTRACT
ASSIGNMENT AND PURCHASE AGREEMENT
This MOTOR VEHICLE INSTALLMENT SALES CONTRACT ASSIGNMENT AND PURCHASE
AGREEMENT (this "Agreement") dated as of the 4th day of November, 1996, is
entered into by and between MS FINANCIAL, INC., a Delaware corporation (the
"Seller"), and SEARCH FUNDING CORP., a Texas corporation (the "Buyer").
R E C I T A L S :
A. The Seller desires to sell to the Buyer and the Buyer desires to buy
from the Seller certain motor vehicle retail installment sales contracts and
certain related rights and documents described below as the Assets.
B. The Seller and the Buyer desire to set forth in this Agreement the
terms and conditions pursuant to which the Seller will sell and the Buyer will
buy such Assets.
A G R E E M E N T S :
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration the sufficiency of which is hereby acknowledged by the
parties hereto, each of the Seller and the Buyer agrees as follows:
1. SALE OF CONTRACTS. The Seller hereby sells, assigns, transfers and sets
over to the Buyer free and clear of all liens, claims and encumbrances, and the
Buyer does hereby purchase, all of the following: (i) all of the accounts and
notes receivable and amendments thereto listed on Schedule A hereto
(collectively, the "Contracts"), and all monies owing thereon; (ii) all right,
title and interest of the Seller in all security agreements, certificates of
title and other documents and agreements constituting, or otherwise evidencing
or relating to, security for payment of any of the Contracts and the liens
created thereunder; (iii) all right, title and interest of the Seller in, to
and under all endorsements and guaranties by others of any of the Contracts;
(iv) all right, title and interest of the Seller in, to and under all credit
applications, credit bureau reports, credit investigation documentation, credit
scoring sheets and disbursement documentation relating to the Contracts; (v)
all of the Seller's interest under each and every existing policy or
certificate of insurance, if any, that relates to any Contract and the
obligations thereunder, any property securing any Contract or the life or
health of any Obligors (defined below) under the Contracts; (vi) rights of the
Seller under dealer agreements pursuant to which the Contracts were acquired by
the Seller, including without limitation rights of recourse against dealers,
with respect to the Contracts; and (vii) all other correspondence, documents
and records in the Seller's files, or otherwise under its control, related
solely to the Contracts, the obligors under the Contracts (the "Obligors") or
the motor vehicles which are financed under the Contracts (the "Financed
Vehicles"). The property referred to in clauses (i) through (vii) of this
subsection (a) are collectively referred to herein as the "Assets."
<PAGE> 2
2. SALES PRICE AND CLOSING.
(a) The Buyer and the Seller agree to an aggregate purchase price for
the Assets sold to the Buyer hereunder of $14,427,044.56. Such purchase price
will be paid on the Closing Date by wire transfer to an account or accounts
designated by the Seller.
(b) Contemporaneously with the execution and delivery of this
Agreement, the Seller is delivering to the Buyer the following: (i) the
original signed Contracts; (ii) original certificates of title related thereto;
(iii) all other Assets (to the extent reasonably deliverable), together with
all filing receipts evidencing the recordation or filing of any financing
statements, chattel mortgages, certificates of title and other filing
instruments related to the Contracts and the Financed Vehicles; (iv) a Bill of
Sale in the form attached as Exhibit B hereto; (v) an Assignment of Insurance
Interests in the form attached as Exhibit C hereto; and (vi) a Power of
Attorney in the form attached as Exhibit D hereto.
3. ENDORSEMENTS.
(a) The Seller hereby authorizes the Buyer, in the name of the
Seller, to endorse and assign each Contract and other Asset to the Buyer, and
otherwise to take such action as the Buyer deems advisable, in order to
evidence the Buyer's ownership of each Asset or to secure any obligation sold
to the Buyer in such manner as the Buyer shall reasonably deem necessary and
appropriate.
(b) The Seller irrevocably authorizes the Buyer to effect the
endorsement and assignments as provided in this Section 3 by the impression of
a rubber stamp or stamps, facsimile signature or sticker, or by any other
method the Buyer may reasonably choose, and to endorse the Seller's name upon
any notes, acceptances, checks, drafts, money orders or other instruments of
payment that may come into the possession of the Buyer as payment of or upon
the Contracts and, also, to execute releases, statements or termination,
satisfactions and any and all other documents reasonably required to be
executed in the normal course of business in connection with the Contracts.
4. THE SELLER'S WARRANTIES, REPRESENTATIONS AND COVENANTS CONCERNING THE
CONTRACTS.
(a) The Seller hereby covenants, warrants and represents as to each
and every Contract and other Assets sold to the Buyer hereunder, as of the date
on which the transactions contemplated in this Agreement are consummated (the
"Closing Date"), which covenants, warranties and representations shall survive
the execution of this Agreement and the Closing Date:
(i) The printouts delivered to the Buyer related to each
Contract fully and accurately reflects the true outstanding
unpaid balance of such Contract. That balance accurately
reflects all receipts on such Contract from the Obligors
thereof and all credits to which said Obligors are entitled
and does not include any illegal charges or
-2-
<PAGE> 3
amounts. No Contract is more than 59 days past due and no
Financed Vehicle securing any Contract has been repossessed
or is currently designated for repossession.
(ii) The Seller is the sole owner of such Contract free and
clear of any pledge, lien or encumbrance of any kind or
character, legal or equitable. The Seller has made no
promise to convey any of the Assets, or any interest
therein, except pursuant to this Agreement. To the
knowledge of Seller, no event has occurred that will
materially adversely affect any of the Assets.
(iii) The Seller has paid or caused to be paid any and all
license, franchise, intangible, stamp or other taxes or
fees due and owing to the State where any Contract was
originated, or any political subdivision thereof, arising
from or growing out of the acquisition, collection or
holding of such Contract.
(iv) Such Contract does not represent a loan of money or an
installment sales agreement by the Seller or any other
person, firm or corporation to the Obligor of said Contract
in violation of any applicable federal or state laws and
regulations. There are no facts known to the Seller that
would render any Contract invalid or unenforceable, or
reduce the amount payable by the Obligor thereunder, and
there is no dispute regarding the enforceability of any
Contract or any unfulfilled dealer commitments. None of the
Contracts is the subject of any pending or threatened
litigation, including without limitation the litigation
disclosed by the Seller in its Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 (the
"Texas Litigation), and no Contract will be subject to the
Texas Litigation should a class of plaintiffs be certified
in connection therewith. No Contract has been referred to
an attorney for collection, and the Seller and its
subsidiaries have not been contacted by an attorney
regarding any Contract.
(v) Where the Seller's records reflect property as security for
the Contract, the Seller has a valid, perfected first lien
on the property described.
(vi) Any Contract which has been modified by the Seller was
modified in a manner which did not result in a violation of
applicable state and federal truth-in-lending disclosure
requirements.
(vii) The information with respect to each Contract set forth in
Exhibit A hereto is complete and correct in all material
respects. No Contract has been satisfied, subordinated or
rescinded, nor has any Financed Vehicle been released from
the security interest granted
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<PAGE> 4
by the Contract in whole or in part, and all of the
Seller's obligations under the Contracts have been
performed. No provision of a Contract has been waived,
altered or modified in any respect except for routine
extensions done in accordance with the Seller's customary
extension practices that do not increase the number of
installment payments or the amount financed.
(viii) To the best of the Seller's knowledge, no Obligor is a
party to any proceeding for readjustment of indebtedness,
bankruptcy, appointment of a receiver or trustee of any
property of the Obligor or composition or extension under
any insolvency law.
(ix) A Certificate of Title has been issued or applied for with
respect to each Financed Vehicle.
(x) All information and documents prepared by the Seller and
provided to the Buyer at any time are true and accurate in
all material respects.
5. COLLECTIBILITY. The Buyer agrees that the Seller does not warrant the
payment of any Contract in the sense of guaranteeing the performance by the
Obligors of their obligations (including their obligation to make timely
payments), the creditworthiness of the Obligors or the value of the security
given to secure the obligations under the Contracts. All Contracts are sold and
transferred by the Seller to the Buyer "without recourse" to the Seller except
for rights arising for the benefit of the Buyer under this Agreement. The Buyer
is in the business of acquiring and servicing installment sales contracts such
as the Contracts and has conducted such due diligence as the Buyer deemed
appropriate. Notwithstanding the foregoing, the due diligence of the Seller
does not limit the scope or effectiveness of the representations and warranties
of the Seller made in this Agreement. The Buyer acknowledges that as of the
date hereof, it is not aware that any representation or warranty of the Seller
set forth in this Agreement is inaccurate or untrue.
6. ADDITIONAL COVENANTS AND AGREEMENTS OF THE SELLER.
(a) The Seller will forward or pay over to the Buyer, as appropriate,
any payments received on the Contracts from and after the Closing Date. Such
payments from the Seller to the Buyer will be made in kind, if reasonably
possible, and no later than two Business Days (as defined below) after receipt
if the payment is made in kind or three Business Days after final payment is
received by the Seller on any check, draft, money order or other instrument if
the payment will be made with the general funds of the Seller. Business Day
shall mean any day other than Saturday or Sunday on which national banks are
open for business in Mississippi.
(b) The Seller will use reasonable efforts to assist the Buyer in
securing Loss Payable Clauses in favor of the Buyer with respect to all
insurance covering any property, personal or real, described in Contracts and
also an assignment of beneficial interest in any
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<PAGE> 5
policy(ies) covering the Contracts and the obligations thereunder or the life
or lives, sickness or disability of any Obligors.
(c) The Seller agrees to mail as soon as reasonably practicable after
the Closing Date, to each Obligor, at the most recent address reflected for
such Obligor, a notice substantially in the form attached hereto as Exhibit E
directing that all future payments to be made under the applicable Contract be
directed to the Buyer.
(d) Subject to the terms, conditions and limitations set forth in
this Section 6(d), for a period of 30 days after the receipt by the Buyer of
the items required to be delivered to it by the Seller pursuant to Sections
2(b)(i), 2(b)(ii) and 2(b)(vii) hereof (the "Review Period"), the Buyer shall
be entitled to tender to the Seller for repurchase, and the Seller agrees to
repurchase or, if the parties mutually agree, replace as provided below, one or
more Contracts conveyed by the Seller to the Buyer hereunder by delivering
written request therefor to the Seller (each a "Repurchase Notice") if and only
if the representations and warranties made by the Seller in Section 4 of this
Agreement with respect to such Contract tendered by the Buyer for repurchase by
the Seller are alleged to be untrue or inaccurate in any material respect. Any
Repurchase Notice delivered by the Buyer to the Seller with respect to a
Contract tendered for repurchase shall set forth in reasonable detail the basis
for the alleged untruth or inaccuracy (referred to herein as a "Defect") of the
representations or warranties made by the Seller to the Buyer hereunder with
respect to such Contract which the Buyer has tendered for repurchase by the
Seller. The Seller will have no obligation whatsoever to repurchase any
Contract pursuant to this Section 6(d) if: (i) the Seller cures the Defect with
respect to any tendered Contract within 30 days of the receipt of the
Repurchase Notice relating to the Contract; (ii) the Seller did not receive a
proper Repurchase Notice with respect to the Contract tendered for repurchase
on or prior to the expiration of the Review Period; or (iii) the Buyer is
unable to provide the Seller reasonable assurances that the Buyer is capable of
transferring to the Seller the Contract and all other Assets relating to the
Contract. If the Seller elects to cure the Defect and the Defect may reasonably
be expected to be cured within 30 days, the Seller will notify the Buyer in
writing that the Seller has elected to cure the Defect, whereupon the Seller
will have a period of 30 days from the date on which Seller receives the
Repurchase Notice (the "Cure Period") to cure the identified Defect. If the
Seller is unable to cure the Defect on or prior to the expiration of the Cure
Period, the Seller will promptly repurchase the tendered Contract or, if the
parties mutually agree, substitute other motor vehicle retail installment sales
contracts for the Contracts that were the subject of the Repurchase Notice. The
repurchase price will be 96% of the amount that would be received by the Buyer
if the Obligor of the Contract being repurchased had voluntarily prepaid the
contract in full on the date of repurchase.
(e) If the Buyer is required to refund any prepaid, unearned
insurance premiums to any Obligor, the Seller will pay to the Buyer, on demand,
an amount equal to such refund. If an Obligor requests a refund of such
premiums, the Buyer will request that the insurance company named in the
Obligor's policy or certificate of insurance pay such refund, or reimburse the
Buyer for any refund it makes, before seeking reimbursement from the Seller.
(f) The Buyer is not assuming any liabilities or obligations of the
Seller.
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<PAGE> 6
7. CORPORATE AUTHORITY.
(a) The Seller warrants that its Board of Directors has approved the
Seller's execution and consummation of this Agreement and that the Seller has
taken all other corporate action necessary, or advisable in the opinion of its
attorneys, to authorize the execution and satisfactory evidence thereof. The
Seller also warrants that this Agreement is a legal and binding obligation of
the Seller, enforceable against it in accordance with its terms.
(b) The Buyer warrants that its Board of Directors has approved the
Buyer's execution and consummation of this Agreement and that the Buyer has
taken all other corporate action necessary, or advisable in the opinion of its
attorneys, to authorize the execution and consummation of this Agreement and
will furnish the Seller satisfactory evidence thereof. The Buyer also warrants
that this Agreement is a legal and binding obligation of the Buyer, enforceable
against it in accordance with its terms.
(c) The Seller is not making this sale with the intent to hinder,
delay or defraud creditors and acknowledges that the purchase price was
negotiated on an arms-length basis and that it has received adequate
consideration of at least a reasonably equivalent value for the Assets.
8. DUE ORGANIZATION.
(a) The Seller is a corporation duly organized, validly existing and
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.
(b) The Buyer is a corporation duly organized, validly existing and
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.
9. NO CONFLICTS.
(a) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby, and the fulfillment of
the terms hereof will not: (i) conflict with, or result in a breach or
violation of, the Seller's certificate or articles of incorporation or bylaws;
or (ii) 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 the Seller is a party, or violate, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Seller's properties pursuant to, (1) any law or regulation to which
either the Seller or any of its property is subject or (2) any judgment, order,
decree or agreement to which the Seller or any of its property is subject.
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<PAGE> 7
(b) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby, and the fulfillment of
the terms hereof will not: (i) conflict with, or result in a breach or
violation of, the Buyer's certificate or articles of incorporation or bylaws;
or (ii) 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 the Buyer is a party, or violate, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Buyer's properties pursuant to, (1) any law or regulation to which
either the Buyer or any of its property is subject or (2) any judgment, order,
decree or agreement to which the Buyer or any of its property is subject.
10. NOTICE OF CLAIMS AND INDEMNIFICATION. The Buyer agrees to notify the
Seller promptly of any claims, proceedings or litigation regarding any Contract
and any alleged violations of applicable law or regulations and will, if
requested by the Seller, allow the Seller to control and defend such proceeding
or litigation or to effect settlement thereof, provided that such settlement
does not impose upon the Buyer any obligation for which it is not fully
indemnified by the Seller, and provided further, that the Buyer shall have the
right in any such proceeding or litigation to have counsel of its own choice
represent its interests at the Buyer's expense. The Seller will indemnify and
hold the Buyer harmless from any and all losses, damages, costs, good faith
settlements, expenses, taxes, reasonable attorneys' fees (except as set forth
below) and other liabilities, including without limitation costs of
investigation, fees and expenses at trial and on appeal, and costs in
successfully asserting the right to indemnification hereunder (all of the
foregoing are referred to in this Section as "Losses") incurred by the Buyer at
any time as the result of a claim or defense asserted against the Buyer (by a
person or entity other than the Seller) arising solely out of the Seller's
actions or conduct in connection with its servicing or modification of any
Contract, including without limitation any actions or conduct that are the
subject of the Texas Litigation, if such action or conduct results in the
creation of any defense, set-off or counterclaim against the Buyer's right to
receive payments under the Contracts. Additionally, the Seller agrees to
indemnify the Buyer for Losses incurred by the Buyer as a result of any claim
of wrongdoing on the part of the Seller asserted against the Buyer (by any
person or entity other than the Seller) arising out of the Seller's actions or
conduct in connection with its purchase and ownership of any Contract,
including without limitation any actions or conduct that are the subject of the
Texas Litigation. If legal action is commenced against the Buyer regarding a
matter for which the Buyer is entitled to indemnification under this Section,
the Buyer will give notice to the Seller of the action within 30 days following
the Buyer's knowledge thereof. The failure to notify will not relieve the
Seller from any liability that it may have to the Buyer hereunder or otherwise
except to the extent that the Seller is prejudiced by such failure. With
respect to each such notice, the Seller will, at the Buyer's option, promptly
take all action necessary to minimize any risk of loss to the Buyer, including
retaining counsel reasonably satisfactory to the Buyer, and take such other
actions as are necessary and appropriate to defend the Buyer or to discharge
the indemnity obligations hereunder. The Buyer may, at its option, conduct such
defense at its own expense. The Seller will pay on demand any indemnified
Losses incurred by the Buyer. The Buyer and the Seller will fully cooperate
with each other in fulfilling the intent of this Section of this Agreement.
Neither the Buyer nor the Seller will settle any claim asserted against the
other by a third party without the prior written consent of the other, which
shall not be unreasonably withheld.
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<PAGE> 8
11. POWER OF ATTORNEY. Without limiting the effect of the foregoing, the
Seller hereby constitutes and appoints the Buyer, its permitted successors and
assigns, the true and lawful attorney of the Seller, with full power of
substitution, in the name and stead of the Seller, but on behalf and for the
benefit of the Buyer, its permitted successors and assigns, by any proper
means, to demand, collect and receive any and all the property and to enforce
any of the rights with respect to the Contracts and to enforce any of the
Contracts in the name of the Seller. The Buyer agrees, however, that it will
not bring any action in the name of the Seller on any of the Contracts in the
event suit is required. Any such suits shall be brought solely in the Buyer's
name and at the Buyer's expense.
12. USE OF RECORDS BY THE SELLER. The Buyer agrees that all records,
documents and information of the Seller hereby transferred will be made
available for the use of the Seller in preparing tax returns or for any other
appropriate purpose (determined by the Seller in its reasonable discretion)
which does not injure the Buyer in its competition with other companies and
will remain so available for a period of not less than three years after the
payment in full of the accounts represented by such Contracts. Any and all
information contained in such records as to events occurring subsequent to the
Closing Date shall be held strictly confidential by the Seller.
13. TAXATION. Each party hereto expressly stipulates and agrees that the
other party hereto and its respective servants, agents or employees has not
made any representations to it relating to the probable tax consequences
(whether federal, state or local) or as to the effect of any of the
transactions embodied in this Agreement on any federal, state or local tax
liability of the other party hereto. Each party hereby agrees to assume all of
its own tax consequence and liabilities, whether now or hereafter determined,
resulting by reason of any of the terms or conditions of this Agreement and by
reason of any of the transactions provided for by this Agreement.
14. WAIVER. No failure or delay on the part of the Seller in exercising
any right, power or remedy hereunder shall operate as a waiver thereof. No
single or partial exercise of any such right, power or remedy shall preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
15. ENTIRE AGREEMENT AND MODIFICATIONS OF AGREEMENT. This Agreement
constitutes the entire agreement between the parties and supersedes all prior
agreements between the Seller and the Buyer with respect to the subject matter
hereof. No amendment, modification, termination or waiver of any provision of
this Agreement, or consent to any departure by either party therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
other party, and then such waiver or consent shall be effective only in the
specific purpose for which given. No notice to or demand on either party in any
case shall entitle such party to any other or further notice or demand in
similar or other circumstances.
16. NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be: (i) in writing, (ii) made in one of the
following manners, and (iii) shall be
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<PAGE> 9
deemed given (a) if and when personally delivered including if delivered by
facsimile, (b) on the next business day if sent by nationally recognized
overnight courier addressed to the appropriate party as set forth below, or (c)
on the second business day after being deposited in United States certified or
registered mail, and addressed as follows:
If to the Seller: MS Financial, Inc.
Suite 300
715 South Pear Orchard Road
Ridgeland, MS 39157
or
P.O. Box 746
Ridgeland, MS 39158
Attention: Chief Executive Officer
Facsimile No. (601) 978-6601
If to the Buyer: Search Funding Corp.
700 N. Pearl Street
Suite 400
Dallas, Texas 75201-2809
Attention: President and Chief Executive Officer
Facsimile No. (214) 965-6098
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party complying as to delivery with the
terms of this Section.
17. LIMITATION OF DAMAGES. The parties agree that, except as provided in
Section 10, the sole and exclusive remedy of the Buyer for any breach of any
representation or warranty concerning the Assets is the right to require the
Seller to repurchase the Assets during the Review Period in accordance with
Section 6(d) hereof and that the representations and warranties concerning the
Assets terminate as of the close of business on the last day of the Review
Period. If there is any claim or dispute between the parties arising out of or
related to this Agreement or the transactions contemplated herein, except to
the extent the facts giving rise to the claim or dispute also constitute fraud
and as provided in Section 10, the sole and exclusive remedy shall be a claim
for breach of contract. To the extent the facts also constitute fraud, a claim
can also be asserted for fraud. Regardless of whether the claim is for breach
of contract or fraud or both, damages shall be limited to actual and direct
damages, and both parties waive any claim for consequential, punitive or
incidental damages and any claim for lost profits or loss of goodwill.
18. WAIVER OF JURY TRIAL. The Buyer and the Seller hereby WAIVE ANY RIGHT
TO A TRIAL BY JURY in any action arising out of or related to this Agreement.
The parties will attempt in good faith to resolve any claim, dispute or
disagreement arising out of or relating to this Agreement promptly by
negotiations between representatives of the parties who have authority to
settle the controversy.
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<PAGE> 10
19. NO THIRD-PARTY BENEFICIARIES. This Agreement is not intended to, and
shall not, create any rights in or confer any benefits on any person or entity
other than the parties hereto.
20. FINDERS FEES. The Seller and the Buyer will each be reasonable for,
and indemnify the other against, any claim by a third party to a fee,
commission or other remuneration by reason of any services alleged to have been
rendered to it or at its instance with respect to this Agreement or the
transactions contemplated by it.
21. PUBLICITY. Neither the Seller nor the Buyer will (i) issue any press
release or make any public announcement regarding, or otherwise publicize, the
consummation of this Agreement or (ii) make a public disclosure of any kind
regarding the subject matter hereof without the express written consent of the
other party which consent shall not be unreasonably withheld, conditioned or
delayed, except that the Seller and the Buyer may publicly disclose information
relating to this Agreement that is required, in the reasonable judgment of the
Seller or the Buyer, by law or in connection with its registration of
securities or the filing of a periodic report with the Securities and Exchange
Commission or any state securities commission, or in connection with a filing
pursuant to the Seller's or the Buyer's listing with a national securities
exchange (including the NASDAQ National Market) or governmental entity if the
Seller or the Buyer, as appropriate, gives the other party advance written
notice prior to releasing or making any such disclosure.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same instrument.
Signatures may be exchanged by facsimile transmission, with original signatures
to follow. The Seller and the Buyer each agrees that it will be bound by its
own telecopied signature and that it accepts the telecopied signature of the
other.
23. SUCCESSORS AND ASSIGNS. This Agreement shall become effective when it
shall have been executed by the Seller and the Buyer and thereafter shall be
binding upon and inure to the benefit of the Seller and the Buyer and their
respective successors and assigns, except that neither party shall have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the other party, provided, that the Buyer may assign its
rights hereunder to its parent company or any other affiliate of the Buyer that
is a wholly-owned subsidiary of the Buyer's parent company.
24. GOVERNING LAW. This Agreement and the other documents have been
negotiated, executed and delivered at, and shall be deemed to have been made
at, Ridgeland, Mississippi and this Agreement shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
internal laws of the State of Mississippi without reference to its judicially
or statutorily pronounced rules regarding conflict of laws or choice of law or
where any action or other proceeding is instituted or pending.
25. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. Wherever possible,
each
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<PAGE> 11
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law.
26. EFFECT OF HEADINGS. The descriptive headings contained herein are for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed for it and on its behalf by its respective duly authorized
officer to be effective as of the date first set forth above.
MS FINANCIAL, INC.
By: /s/ Phillip J. Hubbuch, Jr.
------------------------------------
Name: Phillip J. Hubbuch, Jr.
Title: Vice Chairman and
Chief Executive Officer
SEARCH FUNDING CORP.
By: /s/ GEORGE C. EVANS
------------------------------------
Name: George C. Evans
Title: Chairman, President and
Chief Executive Officer
-11-
<PAGE> 12
EXHIBIT A
SCHEDULE OF CONTRACTS
<PAGE> 13
EXHIBIT B
BILL OF SALE
WITNESSETH THAT, in consideration of the sum of Ten Dollars ($10.00) in
hand paid and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, MS FINANCIAL, INC., a Delaware
corporation ("Seller"), hereby bargains, sells, conveys, assigns and transfers
to SEARCH FUNDING CORP., a Texas corporation ("Purchaser"), its successors and
assigns, all Seller's right, title and interest in and to each of the Contracts
listed on the List of Contracts attached hereto as Exhibit 1 and in and to the
Assets associated with the Contracts. This sale is made pursuant to the Motor
Vehicle Installment Sales Contract Assignment Purchase Agreement ("Agreement")
entered into by Seller and Purchaser as of November 4, 1996. All terms used in
this Bill of Sale have the meanings defined in the Agreement.
TO HAVE AND TO HOLD the same unto Purchaser, its successors and assigns,
forever.
AND SELLER, for itself and its successors and assigns, covenants with
Purchaser and its successors and assigns that the Assets are free and clear
from any liens or encumbrances whatsoever, except as otherwise provided in
Exhibit A to the Agreement, that Seller is the true and lawful sole owner
thereof and has full and unrestricted right and lawful authority to bargain and
sell the same to Purchaser as herein provided. In accordance with and subject
to the Agreement, Seller and its successors and assigns will forever warrant
and defend all and singular every said Asset unto Purchaser and its successors
and assigns against all claims and demands contrary to the foregoing covenant.
This Bill of Sale shall be binding upon Seller and its successors and
assigns and shall inure to the benefit of Purchaser and its successors and
assigns.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale by its duly
authorized officer on the date set forth below.
Dated: November 4, 1996 MS FINANCIAL, INC.
By: /s/ PHILLIP J. HUBBUCH, JR.
----------------------------------
Name: Phillip J. Hubbuch, Jr.
--------------------------------
Title: Vice Chairman and
Chief Executive Officer
-------------------------------
SEARCH FUNDING CORP.
By: /s/ GEORGE C. EVANS
----------------------------------
Name: George C. Evans
--------------------------------
Title: Chairman, President and
Chief Executive Officer
------------------------------
<PAGE> 14
EXHIBIT C
ASSIGNMENT OF INSURANCE INTERESTS
MS FINANCIAL, INC. ("Assignor") hereby absolutely and irrevocably assigns
to SEARCH FUNDING CORP. ("Search") all of Assignors right, title and interest
in, under, and with respect to all insurance and service contracts which
provide any of the following coverages with respect to motor vehicle
installment sales contracts which Assignor has sold to Search:
1. credit life, credit disability, or credit accident and health;
2. casualty, damage, theft, loss or liability;
3. involuntary unemployment;
4. mechanical breakdown, warranty, maintenance, or servicing;
5. lender protection, vendor/lender single interest skip, repossessed
vehicle casualty (including damage, theft and loss), confiscation,
non-filing, failure of lien perfection, contract default or residual
value; or
6. any other coverage assigned in writing by Assignor to Search.
Without limiting the rights included in this assignment, this assignment
entitles Search to claim and collect all benefits, refunds, and other amounts
with respect to all coverages that Assignor would be entitled to claim and
collect, and to make such claim and collections in its name or Assignor's name.
Assignor hereby authorizes Search to sign Assignor's name on all such clause
and collections Search makes, and to endorse Assignor's name on all such
payments it receives. Assignor hereby instructs and authorizes all providers of
the foregoing coverages to rely on this Assignment and any statement or
instruction in writing by Search with respect to the operation and effect of
this Assignment and the installment contracts covered by it. Assignor hereby
agrees that the providers of the coverages who so rely shall have no liability
to Assignor for complying with this Assignment and such statements and
instructions by Search.
Dated: November 4, 1996 MS FINANCIAL, INC.
By: /s/ Phillip J. Hubbuch, Jr.
-------------------------------------
Its: Vice Chairman and Chief Executive
Officer
------------------------------------
<PAGE> 15
EXHIBIT D
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS:
MS FINANCIAL, INC. ("Principal") hereby constitutes and appoints SEARCH
FUNDING CORP. ("Search") as its true and lawful agent and attorney in fact to
act in its name and stead or on its behalf with authority to do the following
acts with respect to motor vehicle installment sales contracts and related
right which Search purchased from Principal pursuant to that certain Motor
Vehicle Installment Sales Contract Assignment Purchase Agreement entered into
by Search and Principal (the installment sale contracts and related rights are
referred to herein as the "Property"):
1. Search can receive, endorse and collect all payments made payable to
or owed to Principal in connection with the Property.
2. Search can enforce, release, modify and transfer the rights and
interests granted to Principal with respect to the Property, which on their
face give Principal rights regarding the Property, including but not limited to
rights with respect to insurance policies, motor vehicles and certificates of
title.
This Power of Attorney is coupled with an interest and cannot be
terminated by Principal.
This Power of Attorney is made on November 4, 1996.
MS FINANCIAL, INC.
By: /s/ Phillip J. Hubbuch, Jr.
-------------------------------------
Its: Vice Chairman and
Chief Executive Officer
------------------------------------
STATE OF MISSISSIPPI
COUNTY OF MADISON
Subscribed and sworn to
before me this 4th day of November, 1996
/s/ Anglea B. Sykes "McDonald"
- --------------------------------
Notary Public
<PAGE> 16
EXHIBIT E
- -------------------------
- -------------------------
- -------------------------
Dear ________:
Please be advised that MS FINANCIAL, INC. ("MS") has sold to Search
Funding Corp. the Motor Vehicle Installment Sales Contract relating to your
automobile that was previously owned and serviced by MS. Please direct all
future payments to Search Funding Corp. at:
[Search Funding Corp.]
700 N. Pearl Street
Suite 400
Dallas, Texas 75201-2809
If you have any questions, please contact Search Funding Corp. at
800-299-2886.
MS FINANCIAL, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 17
BILL OF SALE
WITNESSETH THAT, in consideration of the sum of Ten Dollars ($10.00) in
hand paid and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, MS FINANCIAL, INC., a Delaware
corporation ("Seller"), hereby bargains, sells, conveys, assigns and transfers
to SEARCH FUNDING CORP., a Texas corporation ("Purchaser"), its successors and
assigns, all Seller's right, title and interest in and to each of the Contracts
listed on the List of Contracts attached hereto as Exhibit 1 and in and to the
Assets associated with the Contracts. This sale is made pursuant to the Motor
Vehicle Installment Sales Contract Assignment Purchase Agreement ("Agreement")
entered into by Seller and Purchaser as of November 4, 1996. All terms used in
this Bill of Sale have the meanings defined in the Agreement.
TO HAVE AND TO HOLD the same unto Purchaser, its successors and assigns,
forever.
AND SELLER, for itself and its successors and assigns, covenants with
Purchaser and its successors and assigns that the Assets are free and clear
from any liens or encumbrances whatsoever, except as otherwise provided in
Exhibit A to the Agreement, that Seller is the true and lawful sole owner
thereof and has full and unrestricted right and lawful authority to bargain and
sell the same to Purchaser as herein provided. In accordance with and subject
to the Agreement, Seller and its successors and assigns will forever warrant
and defend all and singular every said Asset unto Purchaser and its successors
and assigns against all claims and demands contrary to the foregoing covenant.
This Bill of Sale shall be binding upon Seller and its successors and
assigns and shall inure to the benefit of Purchaser and its successors and
assigns.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale by its duly
authorized officer on the date set forth below.
Dated: November 4, 1996 MS FINANCIAL, INC.
By: /s/ PHILLIP J. HUBBUCH, JR.
-------------------------------------
Name: Phillip J. Hubbuch, Jr.
-----------------------------------
Title: Vice Chairman and CEO
----------------------------------
SEARCH FUNDING CORP.
By: /s/ GEORGE C. EVANS
-------------------------------------
Name: George C. Evans
-----------------------------------
Title: President and CEO
----------------------------------
<PAGE> 18
ASSIGNMENT OF INSURANCE INTERESTS
MS FINANCIAL, INC. ("Assignor") hereby absolutely and irrevocably
assigns to SEARCH FUNDING CORP. ("Search") all of Assignors right, title and
interest in, under, and with respect to all insurance and service contracts
which provide any of the following coverages with respect to motor vehicle
installment sales contracts which Assignor has sold to Search:
1. credit life, credit disability, or credit accident and health;
2. casualty, damage, theft, loss or liability;
3. involuntary unemployment;
4. mechanical breakdown, warranty, maintenance, or servicing;
5. lender protection, vendor/lender single interest skip, repossessed
vehicle casualty (including damage, theft and loss), confiscation,
non-filing, failure of lien perfection, contract default or residual
value; or
6. any other coverage assigned in writing by Assignor to Search.
Without limiting the rights included in this assignment, this assignment
entitles Search to claim and collect all benefits, refunds, and other amounts
with respect to all coverages that Assignor would be entitled to claim and
collect, and to make such claim and collections in its name or Assignor's name.
Assignor hereby authorizes Search to sign Assignor's name on all such clause
and collections Search makes, and to endorse Assignor's name on all such
payments it receives. Assignor hereby instructs and authorizes all providers of
the foregoing coverages to rely on this Assignment and any statement or
instruction in writing by Search with respect to the operation and effect of
this Assignment and the installment contracts covered by it. Assignor hereby
agrees that the providers of the coverages who so rely shall have no liability
to Assignor for complying with this Assignment and such statements and
instructions by Search.
Dated: November 4, 1996 MS FINANCIAL, INC.
By: /s/ PHILLIP J. HUBBUCH, JR.
-------------------------------------
Its: Vice Chairman and CEO
------------------------------------
<PAGE> 1
EXHIBIT 2.2
November 14, 1996
MS Financial, Inc.
715 South Pear Orchard Road
Ridgeland, MS 39157
Attention: Mr. Phillip J. Hubbuch, Jr.
Vice Chairman and Chief Executive Officer
Re: Letter of Intent dated October 21, 1996
Gentlemen:
This will confirm our agreement that all references in the letter
agreement between us dated October 21, 1996 to "November 1, 1996" are changed
to "November 4, 1996."
Sincerely yours,
SEARCH CAPITAL GROUP, INC.
By: /s/ George C. Evans
------------------------------
George C. Evans
Chairman, President and
Chief Executive Officer
ACKNOWLEDGED AND AGREED:
MS FINANCIAL, INC.
By: /s/ PHILLIP J. HUBBUCH, JR.
----------------------------
Phillip J. Hubbuch, Jr.
Vice Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.1
SEARCH CAPITAL GROUP, INC.
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
9%/7% CONVERTIBLE PREFERRED STOCK
Search Capital Group, Inc., a Delaware corporation (the "Corporation"),
acting pursuant to Section 242 of the Delaware General Corporation Law (the
"DGCL"), does hereby execute this Certificate of Amendment amending the
Certificate of Incorporation of the Corporation and does hereby certify that:
1. The name of the Corporation is Search Capital Group, Inc.
2. (a) The Board of Directors of the Corporation, by unanimous written
consent dated July 11, 1996, has duly adopted the following resolutions with
respect to the Corporation's 9%/7% Convertible Preferred Stock:
WHEREAS, there are currently 17,500,000 authorized shares of the
series of the Corporation's preferred stock designated as the 9%/7%
Convertible Preferred Stock, par value $0.01 per share (the "9%/7%
Preferred Stock"), of which 16,992,767 are issued and outstanding; and
WHEREAS, pursuant to the Certificate of Designation of the 9%/7%
Preferred Stock, the Board of Directors of the Corporation may increase or
decrease the number of authorized shares of the 9%/7% Preferred Stock, but
may not decrease below the number of shares of the series then
outstanding; and
WHEREAS, the Corporation desires to increase the authorized number of
shares of the 9%/7% Preferred Stock from 17,500,000 shares to 55,000,000
shares.
NOW, THEREFORE, BE IT RESOLVED, that the authorized number of shares
of the 9%/7% Preferred Stock be and hereby is increased from 17,500,000
shares to 55,000,000 shares.
BE IT FURTHER RESOLVED, that the officers of the Corporation be and
hereby are authorized, empowered and directed to cause to be prepared and
filed a Certificate of Amendment setting forth these resolutions for the
purpose of amending the Certificate of Designation of the 9%/7% Preferred
Stock to reflect the increase in the number of authorized shares of the
9%/7% Preferred Stock from 17,500,000 shares to 55,000,000 shares.
(b) The foregoing resolution, having authorized and directed an
increase in the number of shares of 9%/7% Preferred Stock, effective upon
filing of this Certificate in the office
<PAGE> 2
of the Secretary of State, the authorized number of shares of 9%/7% Preferred
Stock shall be increased from 17,500,000 shares to 55,000,000 shares.
3. Pursuant to Section 242 of the DGCL, this Certificate of Amendment
shall be effective upon filing in the office of the Secretary of State and
shall have the effect of amending the Certificate of Incorporation of the
Corporation as set forth herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested on its behalf this 11th day of July, 1996.
SEARCH CAPITAL GROUP, INC.
By: /s/ George C. Evans
-------------------------------------
Name: George C. Evans
Title: Chairman, President and Chief
Executive Officer
ATTEST:
By: /s/ Joe B. Dorman
--------------------------
Name: Joe B. Dorman
Title: Secretary
<PAGE> 1
EXHIBIT 3.2
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
<PAGE> 2
dividends entirely in cash by Delaware law (the state of its incorporation) or
by the terms of any loan 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.
-2-
<PAGE> 3
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 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
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
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 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.
-5-
<PAGE> 6
SECTION 10. Conversion Rights.
11. 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.
12. 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 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.
13. 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.
14. 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.
15. 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, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as will be sufficient
for such purpose.
-6-
<PAGE> 7
16. 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.
17. 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 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
-7-
<PAGE> 8
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 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
-8-
<PAGE> 9
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.
18. 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.
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
-9-
<PAGE> 10
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 Stock which
the Corporation shall have authority to issue shall not be decreased by such
conversion.
-10-
<PAGE> 11
SECTION 19. 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 20. 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 21. 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 22. 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-
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF CORRECTION
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
SEARCH CAPITAL GROUP, INC.
The undersigned, Search Capital Group, Inc. (the "Corporation"), for the
purpose of correcting its Restated Certificate of Incorporation, as presently
in effect, does hereby make and execute this Certificate of Correction (the
"Correction") and does hereby certify that:
1. The name of the Corporation is Search Capital Group, Inc.
2. This Correction shall correct the Restated Certificate of
Incorporation of the Corporation, as filed with the Secretary of State of
Delaware on July 29, 1996.
3. On Page 2 of the Restated Certificate of Incorporation, the last two
lines of Article FOURTH, Section 2 of the Certificate of Designations for the
12% Senior Convertible Preferred Stock were missing and the section did not
reflect a complete paragraph. This Correction will incorporate the completed
paragraph.
4. Article FOURTH, Section 2 of the Certificate of Designations for the
12% Senior Convertible Preferred Stock should therefore be corrected to read in
its entirety as follows:
Article FOURTH:
SECTION 2. Number of Shares. The number of shares of 12% Preferred
Stock is 400,000 of the par value of $0.01 per share with a liquidation
preference of $5.00 per share 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.
IN WITNESS WHEREOF, this Certificate of Correction to the Restated
Certificate of Incorporation has been executed by the Corporation by its
President and attested by its Secretary, and each of them does hereby affirm
and acknowledge, under penalties of perjury, that this Certificate of
Correction is the act and deed of the Corporation and that the facts stated
herein are true.
DATED: August 15, 1996
SEARCH CAPITAL GROUP, INC.
[CORPORATE SEAL]
By: /s/ George C. Evans
------------------------------
Name: George C. Evans
Title: Chairman, President and Chief
Executive Officer
ATTEST:
/s/ Ellis A. Regenbogen
- -----------------------------
Ellis A. Regenbogen
Secretary
<PAGE> 1
EXHIBIT 3.4
SEARCH CAPITAL GROUP, INC.
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
9%/7% CONVERTIBLE PREFERRED STOCK
Search Capital Group, Inc., a Delaware corporation (the "Corporation"),
acting pursuant to Section 242 of the Delaware General Corporation Law (the
"DGCL"), does hereby execute this Certificate of Amendment amending the
Restated Certificate of Incorporation filed on July 29, 1996 of the Corporation
and does hereby certify that:
1. THE NAME OF THE CORPORATION IS SEARCH CAPITAL GROUP, INC.
2. (A) THE BOARD OF DIRECTORS OF THE CORPORATION, AT A MEETING DULY HELD
ON NOVEMBER 5, 1996, HAS DULY ADOPTED THE FOLLOWING RESOLUTIONS WITH RESPECT TO
THE CORPORATION'S 9%/7% CONVERTIBLE PREFERRED STOCK:
WHEREAS, there are currently 55,000,000 authorized shares of the
series of the Corporation's preferred stock designated as the 9%/7%
Convertible Preferred Stock, par value $0.01 per share (the "9%/7%
Preferred Stock"), of which 16,952,594 are issued and outstanding; and
WHEREAS, pursuant to the Certificate of Designation of the 9%/7%
Preferred Stock, the Board of Directors of the Corporation may increase or
decrease the number of authorized share of the 9%/7% Preferred Stock, but
may not decrease below the number of shares of the series then
outstanding; and
WHEREAS, the Corporation desires to decrease the authorized number of
shares of the 9%/7% Preferred Stock from 55,000,000 shares to 30,000,000
shares.
NOW, THEREFORE, BE IT RESOLVED, that the authorized number of shares
of the 9%/7% Preferred Stock be and hereby is decreased from 55,000,000
shares to 30,000,000 shares.
BE IT FURTHER RESOLVED, that the officers of the Corporation be and
hereby are authorized, empowered and directed to cause to be prepared and
filed a Certificate of Amendment setting forth these resolutions for the
purpose of amending the Certificate of Designation of the 9%/7% Preferred
Stock to reflect the decrease in the number of authorized shares of the
9%/7% Preferred Stock from 55,000,000 shares to 30,000,000 shares.
<PAGE> 2
(b) Effective upon filing of this Certificate in the office of the
Secretary of State, the authorized number of shares of 9%/7% Preferred Stock
shall be decreased from 55,000,000 shares to 30,000,000 shares.
3. Pursuant to Section 242 of the DGCL, this Certificate of Amendment
shall be effective upon filing in the office of the Secretary of State and
shall have the effect of amending the Restated Certificate of Incorporation of
the Corporation as set forth herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested on its behalf this 5th day of November, 1996.
SEARCH CAPITAL GROUP, INC.
By: SEARCH CAPITAL GROUP, INC.
Name: /s/ George C. Evans
Title: Chairman and CEO
ATTEST:
By: /s/ James F. Leary
Name: James F. Leary
Title: Vice Chairman - Finance
-2-
<PAGE> 1
EXHIBIT 3.5
SEARCH CAPITAL GROUP, INC.
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
SERIES B 9%/7% CONVERTIBLE PREFERRED STOCK
Search Capital Group, Inc., a Delaware corporation (the "Corporation"),
acting pursuant to Section 242 of the Delaware General Corporation Law (the
"DGCL"), does hereby execute this Certificate of Amendment amending the
Certificate of Designation filed on August 2, 1996 of the Corporation and does
hereby certify that:
1. The name of the Corporation is Search Capital Group, Inc.
2. (a) The Board of Directors of the Corporation, at a meeting
duly held on November 5, 1996, has duly adopted the following resolutions with
respect to the Corporation's 9%/7% Convertible Preferred Stock:
WHEREAS, there are currently 4,000,000 authorized shares of the
series of the Corporation's preferred stock designated as the Series B
9%/7% Convertible Preferred Stock, par value $0.01 per share (the
"Series B 9%/7% Preferred Stock"), of which 2,554,060 are issued and
outstanding; and
WHEREAS, pursuant to the Certificate of Designation of the Series
B 9%/7% Preferred Stock, the Board of Directors of the Corporation may
increase or decrease the number of authorized share of the Series B
9%/7% Preferred Stock, but may not decrease below the number of shares
of the series then outstanding; and
WHEREAS, the Corporation desires to increase the authorized
number of shares of the Series B 9%/7% Preferred Stock from 4,000,000
shares to 6,000,000 shares.
NOW, THEREFORE, BE IT RESOLVED, that the authorized number of
shares of the Series B 9%/7% Preferred Stock be and hereby is increased
from 4,000,000 shares to 6,000,000 shares.
BE IT FURTHER RESOLVED, that the officers of the Corporation be
and hereby are authorized, empowered and directed to cause to be
prepared and filed a Certificate of Amendment setting forth these
resolutions for the purpose of amending the Certificate of Designation
of the Series B 9%/7% Preferred Stock to reflect the increase in the
number of authorized shares of the Series B 9%/7% Preferred Stock from
4,000,000 shares to 6,000,000 shares.
<PAGE> 2
(b) Effective upon filing of this Certificate in the office of
the Secretary of State, the authorized number of shares of Series B 9%/7%
Preferred Stock shall be increased from 4,000,000 shares to 6,000,000 shares.
3. Pursuant to Section 242 of the DGCL, this Certificate of
Amendment shall be effective upon filing in the office of the Secretary of
State and shall have the effect of amending the Restated Certificate of
Incorporation of the Corporation as set forth herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested on its behalf this 5th day of November, 1996.
SEARCH CAPITAL GROUP, INC.
By: SEARCH CAPITAL GROUP, INC.
Name: /s/ George C. Evans
Title: Chairman & CEO
ATTEST:
By: /s/ James F. Leary
Name: James F. Leary
Title: Vice Chairman - Finance
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT
This Second Amendment to Asset Purchase Agreement is executed as of
November 5, 1996 by and among Search Capital Group, Inc. ("Search Capital"),
Search Funding III, Inc. ("Search Funding") and U.S. Lending Corporation, as
debtor-in-possession ("U.S. Lending").
R E C I T A L S:
WHEREAS, Search Capital, Search Funding and U.S. Lending have entered into
that certain Asset Purchase Agreement dated as of July 17, 1996 (the
"Agreement");
WHEREAS, Search Capital has been unable to date to obtain the necessary
stockholder approval for the clarifying amendments to the terms of its 9%/7%
Convertible Preferred Stock, which is a condition to consummation of the
transaction contemplated by the Agreement;
WHEREAS, the total current market value for Search Capital's 9%/7%
Convertible Preferred Stock and Common Stock to be issued under the Agreement
to U. S. Lending has declined;
WHEREAS, Search Capital and U.S. Lending are willing to amend the
Agreement (i) to specify that the stock prices for determination of the number
of shares of Common Stock and Preferred Stock to be issued to U.S. Lending will
float based on the trading prices for such stock and (ii) to provide for the
issuance to U.S. Lending of Search Capital's Series B 9%/7% Convertible
Preferred Stock in lieu of its 9%/7% Convertible Preferred Stock;
NOW, THEREFORE, for and in consideration of the premises and other
valuable consideration, the parties hereto agree to amend the Agreement as
follows:
1. THE DEFINITION OF "COMMON STOCK PRICE" IN SECTION 1 SHALL BE
AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"Common Stock Price" means the average of the high bid and low
asked prices, weighted on a daily basis by the number of shares
traded, for the Common Stock for the 20 trading days preceding the
Closing Date on the over-the-counter market, as reported by the
National Quotation Bureau, Blomberg's or the National Association of
Securities Dealers, Inc.
2. THE DEFINITION OF "PREFERRED STOCK PRICE" IN SECTION 1 SHALL BE
AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
EXHIBIT "A"
<PAGE> 2
"Preferred Stock Price" means the average of the high bid and
low asked prices, weighted on a daily basis by the number of shares
traded, for Search Capital's 9%/7% Convertible Preferred Stock for
the 20 trading days preceding the Closing Date on the
over-the-counter market, as reported by the National Quotation
Bureau, Blomberg's or the National Association of Securities Dealers,
Inc.
3. THE DEFINITION OF "PREFERRED STOCK" IN SECTION 1 SHALL BE
AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"Preferred Stock" means shares of Convertible Preferred Stock
that, upon issuance, will be part of Search Capital's Series B 9%/7%
Convertible Preferred Stock described in the Preference Certificate,
of which there are approximately 2,554,060 shares issued and
outstanding as of the date of this Agreement.
4. EXHIBIT 2C ATTACHED TO THE AGREEMENT SHALL BE REPLACED AND
SUBSTITUTED WITH EXHIBIT 2C ATTACHED HERETO.
5. SECTION 2(C) OF THE AGREEMENT SHALL BE AMENDED TO DELETE FROM
ITS SECOND SENTENCE THE PHRASE "WHICH CERTIFICATE OF DESIGNATION SHALL BE
AMENDED PRIOR TO THE CLOSING BY CERTAIN AMENDMENTS TO BE FILED WITH THE
DELAWARE SECRETARY OF STATE".
6. SECTION 6(B) OF THE AGREEMENT SHALL BE AMENDED TO READ IN ITS
ENTIRETY AS FOLLOWS:
(b) Shareholder Approvals. Search Capital shall use its
reasonable efforts to cause the approval by April 1, 1997 by its
shareholders of certain clarifying amendments to the Certificate of
Designation for its 9%/7% Convertible Preferred Stock, as described
in Search Capital's Proxy Statement for a special meeting of
shareholders originally scheduled for October 1, 1996. Search Capital
makes no warranty or guaranty that such approvals will be obtained by
April 1, 1997.
7. SUBSECTIONS 6(I), 7(A)(X) AND 7(B)(XII) OF THE AGREEMENT SHALL
BE DELETED.
8. NEW SUBSECTIONS (U) AND (V) SHALL BE ADDED TO SECTION 8.
SUBSECTIONS (U) AND (V) SHALL READ IN THEIR ENTIRETY AS FOLLOWS:
u. Payment Upon Failure of Automatic Conversion of Preferred
Stock. Search Capital shall pay to U.S. Lending $.08 per share of
Preferred Stock issued at the Closing if the conditions for automatic
conversion of such Preferred Stock into shares of Search Capital's
9%/7% Convertible Preferred Stock are not satisfied in accordance
with Section 10(h) of the Preference Certificate on or before April
1, 1997. Such payment shall be made on or before April 15, 1997.
-2-
<PAGE> 3
v. Listing of Preferred Stock. Search Capital agrees to use
reasonable efforts to list its Common Stock (including the shares
issued to U.S. Lending) on NASDAQ or a national exchange and, in that
connection, agrees to use reasonable efforts to list the Preferred
Stock (including the shares issued to U.S. Lending) and its 9%/7%
Convertible Preferred Stock at the same time. U.S. Lending
acknowledges, however, that Search Capital does not currently qualify
for a listing on NASDAQ or any other national exchange and will be
unable to obtain such listing until it does qualify.
9. NEW SECTION 6(K) SHALL BE ADDED TO THE AGREEMENT AND SHALL READ IN
ITS ENTIRETY AS FOLLOWS:
k. Findings by Bankruptcy Court. As part of the confirmation
of its Amended Plan of Reorganization, U.S. Lending shall seek and
obtain appropriate findings from the bankruptcy court to the effect
that the securities, and any cash compensation under Section 8(u), to
be received by U.S. Lending under this Agreement, as amended by the
Second Amendment to Asset Purchase Agreement dated November 5,1996,
are reasonably equivalent in value to the securities that would
have been received under this Agreement before its amendment by said
Second Amendment, that the changes and modifications to this
Agreement and the Amended Plan of Reorganization as a result of the
Second Amendment are not material, and comply with the requirements
of Sections 1125 and 1127 of the U.S. Bankruptcy Code and that no
further voting on the Amended Plan is necessary.
10. U.S. LENDING AGREES AND CONFIRMS THAT IT IS NOT AWARE OF ANY BREACH
BY SEARCH CAPITAL AND SEARCH FUNDING OF THEIR OBLIGATIONS UNDER THE AGREEMENT,
AS AMENDED HEREBY. U.S. LENDING WAIVES ANY BREACH BY SEARCH CAPITAL AS A RESULT
OF THE FAILURE TO DATE TO OBTAIN THE STOCKHOLDER APPROVALS REFERENCED IN FORMER
SECTION 6(B).
11. THE PARTIES AGREE THAT THE AGREEMENT, AS AMENDED HEREBY, IS IN FULL
FORCE AND EFFECT.
EXECUTED as of the date first above written.
U.S. LENDING CORPORATION
By: /s/ ROBERT E. SPIELMAN
-----------------------------------
Name: Robert E. Spielman
---------------------------------
Title: Vice President
--------------------------------
SEARCH CAPITAL GROUP, INC.
By: /s/ ROBERT D. IDZI
-----------------------------------
Name: Robert D. Idzi
---------------------------------
Title: Senior Executive Vice President
and Chief Financial Officer
--------------------------------
SEARCH FUNDING III, INC.
By: /s/ ROBERT D. IDZI
-----------------------------------
Name: Robert D. Idzi
---------------------------------
Title: Senior Executive Vice President
and Chief Financial Officer
--------------------------------
APPROVED
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF
U.S. LENDING CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
OFFICIAL EQUITY COMMITTEE OF
U.S. LENDING CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR SIX MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 13,194,000
<SECURITIES> 0
<RECEIVABLES> 49,068,000
<ALLOWANCES> 13,431,000
<INVENTORY> 362,000
<CURRENT-ASSETS> 13,556,000
<PP&E> 2,550,000
<DEPRECIATION> 1,382,000
<TOTAL-ASSETS> 63,520,000
<CURRENT-LIABILITIES> 3,577,000
<BONDS> 0
199,000
0
<COMMON> 317,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 63,520,000
<SALES> 0
<TOTAL-REVENUES> 3,898,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (3,438,000)
<INTEREST-EXPENSE> 290,000
<INCOME-PRETAX> (1,822,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,822,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,822,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
