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:
June 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 August 9, 1996
---------------------------- ----------------------------
Common Stock, $.01 par value 28,634,870
<TABLE>
<CAPTION>
SEARCH CAPITAL GROUP, INC.
FORM 10-Q INDEX
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 9
PART II OTHER INFORMATION 14
- ----------
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</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 June 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.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Balance Sheets
June 30, 1996 March 31, 1996
--------------- -------------------------------------
ASSETS Unaudited Historical Pro forma (Note 3)
- ------------------------------------------- --------------- ---------------- -------------------
<S> <C> <C> <C>
Gross contracts receivable (Note 2) $ 30,344,000 $ 37,086,000 $ 37,086,000
Unearned interest (5,621,000) (6,435,000) (6,435,000)
--------------- ---------------- -------------------
Net contracts receivable 24,723,000 30,651,000 30,651,000
Allowance for credit losses (10,506,000) (13,353,000) (13,353,000)
Loan origination costs 3,927,000 3,984,000 3,984,000
Amortization of loan origination costs (3,653,000) (3,578,000) (3,578,000)
Net contract receivables - after allowance
for credit losses & other costs 14,491,000 17,704,000 17,704,000
--------------- ---------------- -------------------
Cash and cash equivalents 20,871,000 17,817,000 21,582,000
Vehicles held for resale 356,000 566,000 566,000
Property and equipment, net 988,000 1,062,000 1,062,000
Other assets, net 210,000 197,000 197,000
--------------- ---------------- -------------------
Total assets $ 36,916,000 $ 37,346,000 $ 41,111,000
=============== ================ ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------
Lines of credit $ - $ 2,283,000 $ -
Accrued settlements 500,000 688,000 688,000
Dividends payable 1,610,000 - -
Accounts payable and other liabilities 2,477,000 7,356,000 7,356,000
Accrued interest - 15,000 -
--------------- ---------------- -------------------
Total Liabilities 4,587,000 10,342,000 8,044,000
--------------- ---------------- -------------------
Stockholders' Equity
- -------------------------------------------
Preferred stock 175,000 154,000 174,000
Common stock 302,000 259,000 300,000
Additional paid-in capital 86,532,000 81,784,000 87,786,000
Accumulated deficit (53,530,000) (54,043,000) (54,043,000)
Treasury stock (1,150,000) (1,150,000) (1,150,000)
--------------- ---------------- -------------------
Total stockholders' equity 32,329,000 27,004,000 33,067,000
--------------- ---------------- -------------------
Total liabilities and stockholders' equity $ 36,916,000 $ 37,346,000 $ 41,111,000
=============== ================ ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
-------------------- --------------------
<S> <C> <C>
Interest revenue $ 1,659,000 $ 4,169,000
Interest expense - 2,955,000
-------------------- --------------------
Net interest income 1,659,000 1,214,000
Recovery of (provision for) credit losses 1,382,000 (424,000)
-------------------- --------------------
Net interest income after recoveries of
(provisions for) credit losses 3,041,000 790,000
-------------------- --------------------
General and administrative expense 2,528,000 3,852,000
-------------------- --------------------
Net income (loss) before dividends 513,000 (3,062,000)
Preferred stock dividends (1,404,000) (60,000)
Net loss attributable to common
stockholders $ (891,000) $ (3,122,000)
==================== ====================
Net loss per share attributable to common
stockholders $ (.03) $ (.35)
==================== ====================
Weighted average number of common
shares outstanding 26,628,000 8,858,000
==================== ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 513,000 ($3,062,000)
Adjustments to reconcile net income (loss) to
cash used in operations:
Provision for (recovery) of credit losses (496,000) 424,000
Amortization of deferred offering costs - 681,000
Amortization of loan origination costs 142,000 216,000
Depreciation 134,000 97,000
Changes in assets and liabilities:
Decreases (increases) in other assets 336,000 (440,000)
Increases (decreases) in accounts payable (5,149,000) 722,000
Write off of fixed assets - 141,000
Cash used in operations (4,520,000) (1,221,000)
INVESTING ACTIVITIES:
Purchase of contracts receivable (2,745,000) (6,652,000)
Principal payments on contracts receivables 5,249,000 7,677,000
Proceeds from sales of vehicles 1,273,000 2,595,000
Purchase of property and equipment (61,000) (366,000)
Decrease in restricted cash - 6,413,000
--------------- ---------------
Cash provided by investing activities 3,716,000 9,667,000
--------------- ---------------
FINANCING ACTIVITIES:
Repayments under line of credit (173,000) (703,000)
Notes payable repayments - (1,615,000)
Capital lease principal payments (15,000) (14,000)
Net proceeds from debt conversion and sale
of stock 4,106,000 -
Purchase of treasury stock - (1,125,000)
Payment of dividends on preferred stock (60,000) (60,000)
--------------- ---------------
Cash provided by (used in) financing activities 3,858,000 (3,517,000)
--------------- ---------------
CHANGE IN CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents 3,054,000 4,929,000
Cash and cash equivalents - beginning 17,817,000 1,633,000
--------------- ---------------
Cash and cash equivalents - ending $ 20,871,000 $ 6,562,000
=============== ===============
Supplemental Information:
Cash Paid for Interest $ 16,000 $ 2,461,000
=============== ===============
</TABLE>
SEARCH CAPITAL GROUP, INC.
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 the financial position
of the Company for the periods presented. The 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. An initial reserve is
recorded for 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 exist about 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
recovery of prior credit losses.
The Company measures its delinquency on a contractual basis. The
following tables set forth certain information related to the delinquency of
the Company's contract receivables as of June 30, 1996 and March 31, 1996.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------------------------------------------
% OF
NUMBER OF TOTAL TOTAL
CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET
DELINQUENCY CONTRACTS CONTRACTS INSTALLMENTS INTEREST RECEIVABLES
- ----------------------------------------------------------- --------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Current to 60 days past due 6,524 96% $ 29,111,000 $5,392,000 $ 23,719,000
61-over days past due 258 4% 1,233,000 229,000 1,004,000
--------- ---------- ------------- ---------- -------------
Total 6,782 100% $ 30,344,000 $5,621,000 24,723,000
========= ========== ============= ==========
Allowance for credit losses (10,506,000)
-------------
Receivables, net of allowance for credit losses $ 14,217,000
=============
Allowance for credit losses as a percent of net receivables 42.5%
=============
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31 , 1996
---------------------------------------------------------------
% OF
NUMBER OF TOTAL TOTAL
CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET
DELINQUENCY CONTRACTS 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
=============
Allowance for credit losses as a percent of net receivables 43.6%
=============
</TABLE>
Excludes 237 and 333 accounts which were reclassified to vehicles held
for resale as of June 30, 1996 and March 31, 1996, respectively.
Most of the Company's contracts receivable are due from individuals in
metropolitan areas of southern and western states. To some extent,
realization of the receivables will be dependent on local economic conditions.
In the opinion of management, a portion of the contracts 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. The following tables set forth certain information
related to the contractual maturities of the Company's contract receivables as
of June 30, 1996 and March 31, 1996.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------------------
12 MONTHS ENDING JUNE 30,
1999 AND
1997 1998 BEYOND TOTAL
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Future payments receivable $21,334,000 $7,362,000 $1,648,000 $30,344,000
Less unearned interest 4,421,000 1,112,000 88,000 5,621,000
----------- ---------- ---------- ------------
Net contractual maturities $16,913,000 $6,250,000 $1,560,000 $24,723,000
=========== ========== ========== ============
Unearned as a percent of gross receivables 18.5%
============
Weighted Average APR 23.6%
============
Weighted Average Original Term in Months 33.8
============
Weighted Average Remaining Term in Months 21.2
============
</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
=========== =========== ========== ============
Unearned as a percent of gross receivables 17.4%
============
Weighted Average APR 23.9%
============
Weighted Average Original Term in Months 32.4
============
Weighted Average Remaining Term in Months 19.1
============
</TABLE>
The following table shows the changes in the Company's allowance for loan
losses for the three months ending June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDING THREE MONTHS ENDING
JUNE 30, 1996 JUNE 30, 1995
--------------------- ---------------------
<S> <C> <C>
Balance at beginning of period $ 13,353,000 $ 33,543,000
Allowance recorded on acquisition of loans 307,000 2,624,000
Provision for loan losses - 742,000
Recovery of prior credit losses 886,000 -
Reduction in allowance for credit losses (1,382,000) (318,000)
Loans charged off against allowance (2,658,000) (10,052,000)
--------------------- ---------------------
Balance at end of period $ 10,506,000 $ 26,539,000
===================== =====================
</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.
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
activities utilizing its proprietary Auto Note Management System software.
The Company commenced its used motor vehicle receivables purchasing and
servicing business in 1991. The Company is also planning to expand into other
areas of consumer finance in the near future.
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 rates (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 bankruptcy proceedings 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. The terms of loans under
the Preferred Program generally range from 30 months to 60 months.
RESULTS OF OPERATIONS
Comparison of Three-Month Period Ended June 30, 1996 and 1995
The Company purchased 288 contracts during the three months ended June
30, 1996 compared to 1,491 during the same three months ended June 30, 1995.
The cost of contracts purchases was $2,745,000 ($9,531 per contract) compared
to $6,652,000 ($4,461 per contract) for the three-month periods in 1996 and
1995, respectively. The increase in cost is due to a higher purchase price
per contract under the Preferred 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 Company is also planning to
expand into other areas of consumer finance.
Interest revenue decreased from $4,169,000 for the three months ended
June 30, 1995 to $1,659,000 for the three months ended June 30, 1996. The
decrease of $2,510,000 or 60% is a result of lower average interest earning
net receivables for the three month period ended June 30, 1996 of $25,073,000
compared to $52,126,000 average interest earning net receivables for the
period ended June 30, 1995.
Interest expense decreased from $2,955,000 to zero for the three months
ended June 30, 1996 compared to the same three-month period ended June 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 decreased from a loss of $424,000 for the
three months ended June 30, 1996 to a recovery of $1,382,000 for the three
months ended June 30, 1996. The decrease in loss provision is due to
sufficient provisions for losses being made in prior periods to cover current
period losses and collections from previously charged-off accounts. 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.
During the three months ended June 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 three
months ended June 30, 1996, the Company charged off, after sale of repossessed
vehicles or upon determination that the account was not collectible, 962
accounts compared to 1,520 during the three months ended June 30, 1995.
General and administrative expenses decreased from $3,852,000 to
$2,528,000 for the three months ended June 30, 1995, compared to the same
three-month period in June 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 June 30,
1995 contains general and administrative expenses, related to these retail
lots whereas the three months ended June 30, 1996 contain none of the same
expenses. The Company's employee count averaged 122 persons for the three
months ended June 30, 1995, compared to 100 persons for the three months ended
June 30, 1996.
Preferred stock dividends increased from $60,000 for the three months
ended June 30, 1995 to $1,404,000 for the three months ended June 30, 1996.
This increase in preferred stock dividend 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. 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 June 30, 1995, compared to 400,000 and 17,064,000 shares of 12%
Convertible Preferred Stock and 9%/7% Convertible Preferred Stock,
respectively, outstanding during the three months ended June 30, 1996.
Net loss per share decreased from $(.35) per share for the three months
ended June 1995 to $(.03) per share for the three months ended June 30, 1996.
The decrease is due to lower net loss per share attributable to common
stockholders of $2,231,000 and an increased number of weighted average shares
outstanding from 8,858,000 to 26,628,000, for the three months ending June 30,
1995 and 1996, respectively.
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 to pay preferred stock dividends. The Company has a
significant amount of cash on hand as of June 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 industry require the
purchase 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 will include (a) cash from operations, (b) the securitization of
receivables, (c) lines of credit available from commercial banks, and (d) a
subordinated debt-offering.
The Company has obtained a commitment for a line of credit to purchase
receivables which would then be assigned to special purpose entities for
future securitization. The Company has also received a commitment for a line
of credit to purchase receivables which would remain on its balance sheet. As
of August 8, 1996, these commitments are subject to completion of definitive
documentation. The Company is planning to issue up to $25,000,000 in senior
subordinated notes with warrants to purchase common stock. These financings
would be utilized for the purchase of receivables and operations. The Company
believes the financings as contemplated would be adequate to fund anticipated
operations.
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 required 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 Three Months Ended June 30, 1996 to
the Three Months Ended June 30, 1995
During the three months ended June 30, 1996, the Company utilized
$4,520,000 of cash in its operations compared to $1,221,000 of cash being
utilized in operations in the three months ended June 30, 1995. The increase
of $3,299,000 is primarily a result of reduction in expense accruals of
$5,150,000 during the three months ended June 30, 1996 compared to an increase
in expense accruals of $708,000 in the same period ended June 30, 1995. The
change in expense accrual of $5,858,000 was offset by an increase in net
interest income of $445,000 and reduced general and administrative expenses of
$1,324,000 during the three months ended June 30, 1996 compared to June 30,
1995, with the non-cash components of interest income and interest expenses
accounted for to $1,761,000 during the three months ended June 30, 1996,
compared to $142,000 during the three months ended June 30, 1996.
The Company anticipates having negative operating cash flows in the
foreseeable future as it continues to expand its Dealer Network, expand into
consumer finance, and grow 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.
Comparison of Investing Cash Flows for the Three Months Ended March 31, 1996
to the Three Months Ended March 31, 1995.
Cash provided by investing activities decreased $5,951,000 or 62% from
$9,667,000 for the three months ended June 30, 1995 to $3,716,000 for the
three months ended June 30, 1996. The decrease is primarily due to a decrease
of $2,428,000 in principal payments received and a decrease of $6,413,000 in
unrestricted cash partially offset by a decrease of $3,907,000 in new contract
purchases and a decrease in repo proceeds of $1,322,000. Principal payments
and repossession proceeds on receivables were $10,272,000 compared to
$6,522,000 for the three months ended June 30, 1995 and 1996, respectively.
Purchases of property and equipment decreased from $366,000 to $61,000 for the
three months ended June 30, 1995 and 1996, respectively.
The Company anticipates encountering negative cash flows from investing
activities in the foreseeable future as is 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. It is
anticipated that the Company will begin consumer finance operations during its
third fiscal quarter of 1996.
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 common and preferred stock. 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.
During the three months ended June 30, 1996, the Company's financing
activities provided $3,858,000 of cash compared to utilizing cash of
$3,517,000 during the same three-month period ended June 30, 1995. The change
of $7,375,000 was caused primarily by proceeds from sale of stock during the
three months ended June 30, 1996 and a lack of a purchase of treasury stock
such as occurred in the three months ended June 30, 1995.
The Company, on July 17, 1996, signed an Asset Purchase Agreement with
U.S. Lending Corporation in Florida to acquire its assets and assume certain
liabilities. The Company will give, in exchange for the assets, a
combination of common stock, 9%/7% preferred stock, and, at U.S. Lending's
option, warrants to purchase common stock. It is anticipated that this
transaction will be accounted for under the purchase method of accounting.
The Company also has completed a transaction with Dealers Alliance Credit
Corporation in Atlanta, Georgia to acquire its assets and assume liabilities.
The transaction requires the Company to assume approximately $17,500,000 in
bank debt under a newly restructured line of credit and acquire assets of
approximately $23,000,000. The Company gave, in exchange for the net assets, a
combination of common stock, 9%/7% preferred stock, and warrants to purchase
common stock. This transaction will be accounted for under the purchase method
of accounting.
The Company's annual dividend requirements on the outstanding shares of
its 12% Preferred Stock and 9%/7% Preferred Convertible Stock, as of June 30,
1996, were $240,000 and $5,350,000, respectively. The annual dividend
requirement on the Company's 9%/7% Convertible Preferred Stock will remain at
the 9% level, or $5,350,000, until March 31, 1999 and then decrease to the 7%
level, or $4,161,000, until March 2003. Any conversion to Common Stock would
reduce these dividend requirements. Additionally, as a result of the
acquisitions noted above, the Company's annual divided requirement for its
9%/7% Preferred Stock will increase to a maximum of $6,864,000 until March
31, 1999 and then decrease to $5,339,000 until March 2003. Any conversion of
the 9%/7% Preferred Stock to common stock would reduce these dividend
requirements.
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 believes its contemplated debt offering and lines of credit will be
sufficient to finance its current operating and investing needs necessary for
the growth of its receivables portfolio and expansion into consumer finance
for the foreseeable future.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 7, 1994, a class action civil lawsuit was filed against Search,
certain of its officers and directors, one of its former accounting firms and
the lead underwriter and one of its principals involved in the issuance of
Search's common stock. This action was filed in the United States District
Court for the Northern District of Texas, Dallas Division, and was styled
Ellen O'Shea, et al v. Search Capital Group, Inc., et al, Civil Action No.
3:94-CV-1428-J. On July 11, 1994, and on July 13, 1994, similar actions in
John R. Boyd, Jr., et al. v. Search Capital Group, Inc., et al., Civil Action
No. 3:94-CV-1452-J, and Gary Odom v. Search Capital Group, Inc., et al.,
Civil Action No. 3:94-CV-1494-J, were also filed. The above cases were
consolidated in September 1994 under Civil Action No. 3:94-CV-1428-J.
On April 26, 1996, the court entered a Final Judgment and Order of
Dismissal approving a settlement (the "Settlement") entered into between
Search and counsel for the plaintiffs. This Settlement was initially filed
with the court on August 4, 1995, and an amended version of the Settlement was
filed on November 13, 1995. The Settlement provided for a cash payment by
Search of $287,000 and the issuance by Search of its common stock with a value
of $2,613,000. As a result of the settlement, Search issued 1,848,000 shares
of its common stock.
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
---------------------------------------------------------------------------------
<C> <S>
10.1 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 May 13, 1996,
reporting the shareholder class action suit settlement described in the
Company's Annual Report on Form 10-K for the six-month transition period ended
March 31, 1996.
The Company filed a Current Report on Form 8-K, dated April 17, 1996,
reporting the confirmation and effectiveness of the joint plan of
reorganization for eight of its subsidiaries operating under Chapter 11
bankruptcy proceeding since August 14, 1995.
The Company filed a Current Report on Form 8-K, dated April 1, 1996,
reporting the change in the date of the Company's fiscal year end from
September 30 to March 31.
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.
SIGNATURE TITLE DATE
- --------------------- --------------------------------------- --------------
/s/ George C. Evans August 9, 1996
- --------------------- --------------
George C. Evans Chairman of the Board, President, Chief
Executive Officer, Chief Operating
Officer and Director
/s/ Robert D. Idzi August 9, 1996
- --------------------- --------------
Robert D. Idzi Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Andrew D. Plagens August 9, 1996
- --------------------- --------------
Andrew D. Plagens Vice President, Controller and Chief
Accounting Officer
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
ASSET PURCHASE AGREEMENT
AMONG
U.S. LENDING CORPORATION,
AS DEBTOR-IN-POSSESSION
AND
SEARCH CAPITAL GROUP, INC.
AND
SEARCH FUNDING III, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
July 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
SECTION 1. DEFINITIONS 2
SECTION 2. BASIC TRANSACTION 8
a. Purchase and Sale of Assets 8
b. The Closing 8
c. Purchase Price 8
d. Assumed Liabilities 9
e. Deliveries at the Closing 9
f. Deposit 9
g. Limited Reimbursement for Expenses 10
h. Post Closing Purchase Price Adjustments 10
i. Warrants 13
j. Right to the Name US Lending Corporation 13
k. Assignment 14
l. Anti-Dilution 14
SECTION 3. REPRESENTATIONS AND WARRANTIES OF US LENDING 14
a. Organization of US Lending 14
b. Authorization of Transaction; No Default 14
c. Consents and Approvals 15
d. Enforceability 15
e. Employees 15
f. Chapter 11 Proceedings 15
g. Disclaimer of Warranties 16
h. Disclosure 16
i. Title to Acquired Assets. 16
j. Receipt of Information and Answers to Questions. 16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SEARCH ENTITIES 16
a. Organization 17
b. Authorization of Transaction 17
c. Noncontravention 17
d. Subsidiaries 18
e. Financial Statements 18
f. Events Subsequent to Most Recent Financial Statements 18
g. Undisclosed Liabilities 19
h. Tax Matters 19
i. Assets 19
j. Owned Real Property 19
k. Intellectual Property 19
l. Notes and Accounts Receivable 20
m. Contracts 20
n. Litigation 20
o. Employees 20
p. Legal Compliance 21
q. Certain Business Relationships Among Search Capital and its Affiliates 22
r. Disclosure 22
s. Search Entities' Investigation 22
t. Search Capital Securities and Capitalizations 22
u. Search Capital Joint Plan 23
v. Securities and Exchange Commission Filings 23
SECTION 5. SECURITIES ACT COMPLIANCE 23
SECTION 6. PRE-CLOSING COVENANTS 24
a. General 24
b. Corporate and Shareholder Approval 24
c. Plan and Disclosure Statement 24
d. Preservation of Business 24
e. Full Access 24
f. Notice of Developments 24
g. Further Assurances 25
h. Search Capital Public Information 25
i. Amendment to Certificate of Designation 25
j. Filing Approval and Confirmation of Plan and Disclosure Statement. 26
SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE 26
a. Conditions to Obligation of Search Entities 26
b. Conditions to Obligations of US Lending 27
SECTION 8. MISCELLANEOUS 29
a. Termination 29
b. Brokerage Commissions 29
c. Agreement to Support Plan 30
d. Survival 30
e. Press Releases and Announcements 31
f. Indemnification 31
g. Confidentiality 31
h. Access to Records 32
i. Succession and Assignment 32
j. Counterparts 32
k. Headings 32
l. Notices 32
m. Governing Law 33
n. Amendments and Waivers 34
o. Severability 34
p. Expenses 34
q. Construction 34
r. Incorporation of Exhibits and Schedules 34
s. Specific Performance 35
t. Entire Agreement 35
</TABLE>
EXHIBITS AND SCHEDULES
----------------------
Schedule 1(a) - Contracts
Schedule 1(b) - Autos
Schedule 1(d) - Retained Claims Against Auto Dealers
Exhibit 2 - Assumption Agreement
Exhibit 2C - Certificate of Designations & Preferences and Amendments thereto
Exhibit 2I - Warrant Agreement and First Amendment thereto
Schedule 4 - Search Capital Disclosure Schedule
Schedule 4A-1 - Search Capital's Certificate of Incorporation
Schedule 4A-2 - Search Capital's By-Laws
Exhibit 4E - Search Capital's Financial Statements
Exhibit 7 - Opinion of Search's Legal Counsel
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into this day
of July, 1996, by and between U.S. Lending Corporation, a Florida corporation,
as debtor-in-possession ("US Lending"), Search Capital Group, Inc., a Delaware
corporation ("Search Capital"), and Search Funding III, Inc., a Texas
corporation ("Search Funding", together with Search Capital referred to
collectively, jointly and severally, as the "Search Entities"). US Lending,
Search Capital and Search Funding are sometimes individually referred to
herein as a "Party" and collectively referred to herein as the "Parties."
R E C I T A L S
- - - - - - - -
A. US Lending is a debtor-in-possession in a case (the "Chapter 11
Case") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") pending in the United States District Court for the Southern District
of Florida (the "Bankruptcy Court"), Case No. 95-24610-BKC-RBR;
B. Search Funding is a wholly owned subsidiary of Search Capital;
C. In the transaction contemplated by this Agreement, US Lending will
sell to Search Funding, and Search Funding will purchase from US Lending,
substantially all of US Lending's assets, in return for the consideration set
forth herein, including the assumption by Search Funding of the Assumed
Liabilities as provided herein, and the Search Entities will become
"successors" to U.S. Lending, as such term is used in Section 1145 of the
Bankruptcy Code;
D. The sale of the Acquired Assets to Search Funding will be made
pursuant to a Chapter 11 Plan of Reorganization of US Lending (the "Plan");
E. US Lending shall use all reasonable efforts to prepare and file as
soon as practicable with the Bankruptcy Court the Plan and related Disclosure
Statement, to obtain the approval of the Bankruptcy Court of the Disclosure
Statement and to solicit and obtain from creditors, interest holders and other
claimants of U.S. Lending in the Chapter 11 Case, the necessary votes for
confirmation of the Plan. U.S. Lending shall propose that the Confirmation
Order to be entered in the Chapter 11 Case (the "Confirmation Order") pursuant
to the Plan have such provisions as are necessary to effectuate the
transactions contemplated herein, including specific provisions assuring (i)
that the Acquired Assets are acquired by Search Funding free and clear of any
claim (as such term is defined in Section 101(5) of the Bankruptcy code,
hereinafter "Claim"), interest or lien (as such term is defined in Section
101(37) of the Bankruptcy Code, hereinafter "Lien") of any kind or nature
whatsoever to the full extent practicable under the Bankruptcy Code, except
that the Acquired Assets shall continue to be subject to all of the Assumed
Liabilities and (ii) that the Search Capital Securities are exempt from
registration under Section 5 of the Securities Act of 1933 by reason of
Section 1145 of the Bankruptcy Code; and
F. US Lending contemplates that some or all of the consideration US
Lending shall receive from the Search Entities in connection with the sale of
the Acquired Assets to Search Funding will be transferred and assigned in
escrow to the escrow agent ("Escrow Agent") pursuant to an Escrow Agreement to
be executed and delivered at Closing (the "Escrow Agreement") and that the
Extraneous Assets will be transferred and assigned to the Trustee, as trustee
of the U.S. Lending Irrevocable Trust (the "Trust") created pursuant to the
U.S. Lending Irrevocable Trust Agreement (the "Trust Agreement") to be
executed and delivered at Closing. The "Escrow Agent" hereunder shall be
separate and distinct from the "Escrow Agent" under a certain Deposit
Agreement to be executed concurrently herewith.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties hereby agree as follows:
SECTION 1.
DEFINITIONS
-----------
"Acquired Assets" means all of US Lending's right, title, and interest in
and to the following operating assets of US Lending: (a) US Lending's
Contracts set forth on Schedule 1(a) hereto, except for those Contracts (as
defined below) paid in full prior to the Closing Date; (b) cash on hand at the
Closing Date (except for the cash being retained as part of the Extraneous
Assets, which shall not be acquired by Search Funding but will be retained, in
part by US Lending, in part, transferred to the Trust.); (c) repossessed
automobiles owned by US Lending on the Closing Date (including those
automobiles listed on Schedule 1(b) hereto except for sales of such
automobiles by US Lending in the ordinary course prior to Closing) ("Autos");
(d) automobile dealer relationships (except for Claims retained by US Lending
against those automobile dealers listed on Schedule 1(c) hereto); (e) to the
extent assignable under applicable law and without the consent of any third
party, licenses, franchises, approvals, permits, orders, registrations,
certificates, variances, and similar rights obtained from governments,
governmental agencies and other third parties; (f) claims, causes, choses and
rights relating to US Lending's Contracts; and (g) books, records, ledgers,
files, documents, correspondence, lists, creative materials, advertising and
promotional materials, studies, reports, and other printed or written
materials relating to the Contracts, the Autos or used by US Lending in its
automobile finance business. Acquired Assets shall not include any assets
which are "Extraneous Assets."
"Active Outstanding Amount" means the aggregate outstanding principal
balances, and all finance charges due or to become due on or after the
Closing, under all of the Contracts other than Inactive Contracts.
"Affiliate" has the meaning set forth in the regulations promulgated
under the Exchange Act.
"Assumed Liabilities" means all obligations, liabilities and
responsibilities of US Lending of every kind and nature (contractual, common
law, statutory or otherwise), presently existing or arising in the future,
relating to, arising from or in connection with (i) the Contracts and Autos,
which are not otherwise discharged under the Chapter 11 Case, and (ii) such
other executory contracts which Search Funding expressly agrees to assume, and
perform in writing after the date hereof.
"Autos" has the meaning set forth within the definition of "Acquired
Assets" above.
"Bankruptcy Code" has the meaning set forth in Recital A above.
"Bankruptcy Court" means the United States Bankruptcy Court for the
Southern District of Florida.
"Base Purchase Price" means the sum of (a) fifty nine (59%) percent of
the Active Outstanding Amount on the Closing Date (b) cash on hand on the
Closing Date to the extent that it constitutes an Acquired Asset, and (c) the
value of the Autos on the Closing Date, which shall be determined by reference
to the "Rough Black Book" value per the Used Car Market Guide current on the
Closing Date, published by the National Auto Research Division, Hearst Media
Corporation.
"Chapter 11 Case" means US Lending's Chapter 11 case referenced in
Recital A above.
"Claim" shall have the meaning provided therefor in Section 101(5) of the
Bankruptcy Code.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Closing Documents" means collectively all of the documents referred to
in Section 7 of this Agreement.
"Common Stock" means Search Capital's common stock, $.01 par value.
"Common Stock Price" means $1.057. If, however, (a) the Disclosure
Statement is filed with the Bankruptcy Court after the Floating Price Date and
(b) the Common Stock is traded on the Nasdaq Stock Exchange or SmallCap
Market, then the Common Stock Price shall mean the mean average of the closing
prices of the Common Stock on the Nasdaq Stock Exchange or SmallCap Market for
the 30 trading days prior to the Closing Date or, if the Common Stock is
otherwise traded on the over-the-counter-market, the average of the mean of
the closing bid and ask prices of the Common Stock for the 30 trading days
preceding the Closing Date on the over-the-counter market, in each case as
reported in the Wall Street Journal ("WSJ") or a national quotation bureau if
not reported in the WSJ.
"Confirmation Order" has the meaning set forth in Section 3(c) below.
"Contracts" means US Lending's automobile loan finance contracts as of
the Closing Date.
"Creditors Committee" means US Lending's Official Committee of Unsecured
Creditors.
"Deposit" and "Deposit Agreement" have the meanings set forth in Section
2(f) below.
"Disclosure Statement" means the Disclosure Statement to be filed by US
Lending pursuant to Section 1125 of the Bankruptcy Code relating to the Plan
contemplated hereby.
"Effective Date" shall have the meaning provided therefor in the Plan.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA 3(1).
"Equity Committee" means US Lending's Official Equity Committee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" and "Escrow Agreement" have the meanings set forth in
Recital F above.
"Extraneous Assets" means (a) all of US Lending's claims, causes of
action, choses in action, rights of recovery, rights of set off, and rights
of recoupment (including, without limitation, any such item relating to the
payment of Taxes, tax refunds, and credits and other rights under insurance
policies), but not including any such claims, causes, choses, or rights
relating to the Contracts, (b) Claims against the automobile dealers listed on
Schedule 1(d) hereto, (c) US Lending's corporate franchise, (d) US Lending's
Articles of Incorporation, Bylaws, shareholder records, corporate books and
records, Tax records and other books, records and materials not relating
directly to the Acquired Assets, (e) US Lending's cash in an amount equal to
the sum of (i) $150,000, plus (ii) the aggregate professional fees and
expenses incurred (and estimated to be incurred after the Closing) by US
Lending, the Creditors Committee and the Equity Committee approved (or to be
considered for approval) by the Court but unpaid as of the Closing Date,
plus (iii) amounts allowed by the Bankruptcy Court for payment for U.S.
Lending's intangibles taxes and documentary stamp taxes and all interest and
penalties thereon and (f) all rights, benefits and remedies of US Lending
under this Agreement and the Closing Documents executed and delivered at the
Closing.
"Fiduciary" has the meaning set forth in ERISA 3(21).
"First Benchmark" means an amount equal to 80% of Gross Receipts which
are in excess of the First Fixed Amount but equal to or less than the Second
Fixed Amount.
"First Fixed Amount" means 59% of the Active Outstanding Amount.
"Floating Price Date" means August 2, 1996.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time applied, consistently applied.
"Gross Receipts" means the sum of (a) all principal, interest and other
payments collected, including prepayments, with respect to the Contracts; and
(b) all other proceeds collected by the Search Entities, and their agents,
subsidiaries and affiliates with respect to the Contracts including, without
limitation, any refunds for extended service contracts, late fees, assumption
fees, dealer reserves, recourse against dealers, forced-place insurance, any
claims for physical damage or for repossession loss; and (c) all proceeds from
any policies of insurance relating to the Contracts or the Autos; provided,
however, that there shall be deducted from such sum all reasonable
out-of-pocket expenses actually paid by the Search Entities to third parties
relating to the collection of Inactive Contracts and which expenses were
incurred by Search Funding in the ordinary course of business, consistent with
Search Capital's past practice.
"Inactive Contracts" means those Contracts which have not had any payment
activity during the 60 calendar days immediately preceding the Closing.
"Initial Month" and "Initial Payment" have the meanings set forth in
Section 2(h)(ii) below.
"Intellectual Property" means all (a) patents, patent applications,
patent disclosures, and improvements thereto, (b) trademarks, service marks,
trade dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (c) copyrights and registrations and
applications for registration thereof, (d) mask works and registrations and
applications for registration thereof, (e) computer software, data, and
documentation, (f) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists
and information, (g) other proprietary rights, and (h) copies and tangible
embodiments thereof (in whatever form or medium).
"Joint Plan" has the meaning set forth in Section 4(u) below.
"Knowledge" means actual knowledge, without any requirement of
investigation, and with respect to any entity, the actual knowledge of its
officers, directors and employees who have responsibility for the applicable
subject matter.
"Laws" means any statute, regulation, rule, judgment, ordinance, order,
decree, stipulation, injunction, charge, or other restrictions of any federal,
state, or local government, governmental agency, or court including, without
limitation, those relating to usury, consumer protection, "truth-in-lending"
and credit collection.
"Liability" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including, without limitation, any liability for Taxes.
"Lien" has the meaning set forth in Recital E above.
"Litigation" has the meaning set forth in Section 4(n) below.
"Most Recent Financial Statements" means the audited consolidating
balance sheets of Search Capital and subsidiaries as of March 31, 1996 and the
related consolidating statement of operations, and consolidated statements of
changes in stockholders equity (capital deficit) and cash flows for the 6
months then ended (including the Notes thereto).
"Multiemployer Plan" has the meaning set forth in ERISA 3(37).
"No Action Letter Request" has the meaning set forth in Section 5 below.
"Party" and "Parties" have the meaning set forth in the preface above.
"Plan" means the Chapter 11 Plan of Reorganization of US Lending,
referenced in Recital D.
"Preferred Stock" means shares of Convertible Preferred Stock that, upon
issuance, will be a part of Search Capital's series of 9%/7% Convertible
Preferred Stock described in the Preference Certificate, of which there are
approximately 16,992,767 shares issued and outstanding as of the date of this
Agreement.
"Preferred Stock Price" means $2.538. If, however, (a) the Disclosure
Statement is filed with the Bankruptcy Court after the Floating Price Date,
and (b) the Preferred Stock is traded on the Nasdaq Stock Exchange or
SmallCap Market, the Preferred Stock Price shall mean the average of the mean
of the closing prices of the Preferred Stock on the Nasdaq Stock Exchange or
SmallCap Market for the 30 trading days prior to the Closing Date or, if the
Preferred Stock is otherwise traded in the over-the-counter-market, the
average of the mean of the closing bid and ask prices of the Preferred Stock
for the 30 trading days preceding the Closing Date on the over-the-counter
market, in each case as reported in the Wall Street Journal ("WSJ") or a
national quotation bureau if not reported in the WSJ.
"Preference Certificate" has the meaning set forth in Section 2(c)
below.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Post Closing Purchase Price Adjustments" has the meaning set forth in
Section 2(h) below.
"Schedule(s)" means the schedule(s) contained in the Search Capital
Disclosure Schedule or attached hereto.
"Search Capital" has the meaning set forth in the Preface above.
"Search Capital Disclosure Schedule" has the meaning set forth in
Section 4 below.
"Search Capital Securities" means (a) the Common Stock and the Preferred
Stock (including the Common Stock issuable upon conversion of the Preferred
Stock) calculated as set forth in Section 2(c), and (b) either the Preferred
Stock and the Common Stock (including the Common Stock issuable upon
conversion of the Preferred Stock), if applicable, referred to in Section
2(h) of this Agreement or the Warrants (and the Common Stock issuable upon
exercise of the Warrants) referred to in Section 2(i) below.
"Second Benchmark" means an amount equal to 60% of Gross Receipts which
are in excess of the Second Fixed Amount.
"Second Fixed Amount" means 70% of the Active Outstanding Amount.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) construction, mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable,
(c) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, and (d) other liens arising in
the ordinary course of business and not incurred in connection with the
borrowing of money.
"Subsequent Development" has the meaning set forth in Section 6(f)
below.
"Subsidiary" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of a majority
of its capital securities or to elect a majority of its directors.
"Taxes" means any federal, state, local, or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated,
or other tax, including any interest, penalty, or addition thereto, whether
disputed or not.
"Trust" means the trust created by the Trust Agreement, referred to in
Recital F above.
"Trust Agreement" means the U.S. Lending Irrevocable Trust Agreement,
referred to in Recital F above.
"Trustee" means the trustee of the Trust.
"Warrants" has the meaning set forth in Section 2(i) below.
"Warrant Agreement" means the Warrant Agreement, as amended by First
Amendment to Warrant Agreement, referenced in Section 2(i) below and
substantially in the form attached as Exhibit 2I hereto.
SECTION 2.
BASIC TRANSACTION
-----------------
a. Purchase and Sale of Assets. On and subject to the terms
-----------------------------
and conditions of this Agreement, Search Funding agrees to purchase from US
Lending, and US Lending agrees to sell, transfer, convey, and deliver to
Search Funding the Acquired Assets at the Closing for the consideration
specified below. Search Capital shall cause Search Funding to perform all of
its obligations under this Agreement and under the agreements to be executed
and delivered in accordance with the terms of this Agreement.
b. The Closing. The closing of the transactions contemplated
-----------
by this Agreement (the "Closing") shall take place at the offices of Akerman,
Senterfitt & Eidson, P.A., One Southeast Third Avenue, 28th Floor, Miami,
Florida or such other location as the parties may agree, commencing at 10:00
a.m. local time 11 calendar days after the Confirmation Order shall have been
entered or such other date as is agreed to among the Parties in writing (the
"Closing Date"). Any Party may terminate this Agreement if the Closing has
not occurred by December 31, 1996.
c. Purchase Price. The purchase price for the Acquired
---------------
Assets ("Purchase Price") shall be the aggregate of: (i) a number of shares of
Preferred Stock equal to (A) the Base Purchase Price divided by (B) the
Preferred Stock Price; (ii) a number of shares of Common Stock equal to (A)
25% of the Base Purchase Price divided by (B) the Common Stock Price, and
(iii) as elected by US Lending, the Post Closing Purchase Price Adjustments or
Warrants, as described below. The preferences and relative participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of the Preferred Stock are set forth in the Certificate of
Designation of the Rights, Preferences and Limitations of the Preferred Stock,
which Certificate of Designation shall be amended prior to the Closing by a
certain Amendments to be filed with the Delaware Secretary of State (as
amended, the "Preference Certificate"), which is attached as Exhibit 2C
hereto. US Lending shall elect to receive either (i) the Post Closing
Purchase Price Adjustments, as described in Section 2(h) below, or (ii) the
Warrants, as described in Section 2(i) below, on or before the date the
Disclosure Statement is approved by the Bankruptcy Court. Such election shall
be made by written notice from US Lending to Search Capital. If US Lending
fails to timely notify Search Capital of its election, US Lending shall be
deemed to have elected to receive the Warrants and not the Post Closing
Purchase Price Adjustments.
d. Assumed Liabilities. In addition to the payment of the
--------------------
Purchase Price, Search Funding shall agree to assume, pay and perform the
Assumed Liabilities. Search Funding shall execute and deliver at the Closing
an Assumption Agreement, the form of which is attached hereto as Exhibit 2.
e. Deliveries at the Closing. At the Closing, (i) US Lending
---------------------------
will deliver to the Search Entities the various certificates, instruments,
and documents referred to in Section 7(a) below; (ii) the Search Entities
will deliver to US Lending the various certificates, instruments, and
documents referred to in Section 7(b) below; (iii) US Lending will execute,
acknowledge (if appropriate), and deliver to Search Funding such instruments
of sale, transfer, conveyance, and assignment as Search Funding and its
counsel reasonably may request; (iv) Search Funding will execute, acknowledge
(if appropriate), and deliver to US Lending the Assumption Agreement and such
other instruments of assumption as US Lending and its counsel reasonably may
request; (v) Search Capital will deliver (A) the applicable Search Capital
Securities to certain creditors and interest holders of US Lending as
designated by US Lending in accordance with the Plan (Search Capital will not
be required to deliver fractional shares); and (B) the balance of the Search
Capital Securities to be delivered at Closing to the Escrow Agent to be held
and disbursed pursuant to the Plan and the Escrow Agreement, and (vi) the
Extraneous Assets to the Trust.
f. Deposit. Upon the execution and delivery of this agreement
-------
by all of the Parties and the approval of the Bankruptcy Court of the
Deposit Agreement, and in reliance on US Lending's covenant and
representation that it will use all reasonable efforts to cause the Bankruptcy
Court to approve the transactions contemplated hereby in conjunction with the
confirmation of the Plan at the earliest practicable date, Search Capital
shall deliver to US Lending a $250,000 deposit (the "Deposit"). The Deposit
is being held and shall be disbursed pursuant to a Deposit Agreement of even
date herewith between US Lending's bankruptcy counsel, Coll Davidson Carter
Smith Salter and Barkett, P.A., as escrow agent, US Lending and Search
Capital. The Deposit shall not be considered property or funds of the
bankruptcy estate of US Lending unless disbursed to US Lending in accordance
with the terms of the Deposit Agreement. In the event of any conflict between
the provisions of this Agreement and the provisions of the Deposit Agreement,
the provisions of the Deposit Agreement shall control.
g. Limited Reimbursement for Expenses.
-------------------------------------
(i) The Parties agree that, except as provided in Section
2(g)(ii) below, if the transactions contemplated by this Agreement are not
consummated for any reason whatsoever, then the Search Entities will not
seek, and will not be entitled to, any damages, including without limitation,
any break-up, topping or other fee of any nature.
(ii) The Parties agree that if the transactions
contemplated by this Agreement are not consummated for any reason other than
due to a breach by either of the Search Entities' of their respective
representations, warranties or obligations under this Agreement then the
Search Entities may recover, as their sole remedy against US Lending, the
Creditors Committee, the Equity Committee, the Trust, the Trustee, the Escrow
Agent, the beneficiaries of the Trust and the Escrow Agreement and their
respective officers, directors, employees, attorneys and agents, successors
and assigns, from US Lending's bankruptcy estate the Search Entities'
reasonable documented out-of-pocket expenses, including, without limitation,
reasonable attorneys fees, incurred directly in connection with this Agreement
and the transactions contemplated hereby, up to an aggregate recovery of
$50,000 (notwithstanding that the Search Entities' expenses may, in the
aggregate, exceed $50,000). US Lending, the Creditors Committee and the
Equity Committee each agrees not to object or otherwise oppose the Search
Entities' application for reimbursement of such expenses.
h. Post Closing Purchase Price Adjustments. If, pursuant to
-------------------------------------------
Section 2(c) above, there has been an election to receive the Post Closing
Purchase Price Adjustments, then this Section 2(h) shall be deemed
operative. If there has been an election to receive the Warrants (or there
has been deemed to have been an election to receive the Warrants), then this
Section 2(h) shall be inoperative and without force and effect.
(i) From and after the Closing Date, Search Capital shall
have a continuing obligation to issue Search Capital Securities to the Escrow
Agent at the times specified below in subsection (ii), in accordance with the
following (the "Post Closing Purchase Price Adjustments"):
(a) On or after the date that Gross Receipts exceed
the First Fixed Amount, Search Capital shall issue (i) a number of Shares of
Preferred Stock equal to (A) the First Benchmark divided by (B) the Preferred
Stock Price and (ii) a number of shares of Common Stock equal to (A) 25% of
the First Benchmark divided by (B) the Common Stock Price; and
(b) From and after the date that Gross Receipts
exceed the Second Fixed Amount, Search Capital shall issue (i) a number of
shares of Preferred Stock equal to (A) the Second Benchmark divided by (B) the
Preferred Stock Price and (ii) a number of shares of Common Stock equal to
(A) 25% of the Second Benchmark divided by (B) the Common Stock Price.
(ii) The first Post Closing Purchase Price Adjustment (the
"Initial Payment") shall be made no later than 30 days following the end of
the month in which Gross Receipts first exceed the First Fixed Amount (the
"Initial Month"). The Initial Payment shall consist of a number of shares of
Search Capital Securities based upon the First Benchmark and, if applicable,
the Second Benchmark achieved within the Initial Month. After the Initial
Month, subsequent Post Closing Purchase Price Adjustments shall be calculated
and paid on a calendar quarterly basis. Search Capital shall, no later than
the end of the month immediately following the end of each calendar quarter,
issue the Search Capital Securities referred to in Section 2(h)(i) hereof.
No fractional shares of Search Capital Securities shall be issued for the Post
Closing Purchase Price Adjustments. All fractional amounts will be rounded to
the nearest whole number.
EXAMPLE 1
- ----------
Presume for illustration purposes only that the Active Outstanding Amount of
the Contracts is $1,000,000 as of the Closing Date, so that the First Fixed
Amount is $590,000. Presume that at the end of the Initial Month (presume
August, 1996), Gross Receipts have surpassed $590,000 for the first time
since the Closing Date and are in the aggregate amount of $850,000. No later
than September 30, 1996, Search Capital would issue to the Escrow Agent 70,134
additional shares of Preferred Stock and 42,100 additional shares of Common
Stock, calculated as follows:
80% x [700,000 (70% of $1,000,000) minus $590,000 (59% of $1,000,000)]
= $88,000 - First Benchmark
-------
plus
----
60% x [850,000 minus $700,000
= $90,000 - Second Benchmark
-------
$88,000 plus $90,000 = $178,000. 100% of the $178,000 is divided by the
Preferred Stock Price, and an additional 25% of $178,000 ($44,500) is divided
by the Common Stock Price as follows:
$178,000 = 70,134 additional shares of Preferred Stock
--------
$ 2.538*
$ 44,500 = 42,100 additional shares of Common Stock
--------
$ 1.057*
EXAMPLE 2
- ----------
Presume that in September, 1996, an additional $100,000 of Gross Receipts are
received by Search Capital. No later than October 31, 1996 (i.e., the end of
the month following the subject calendar quarter), Search Capital would issue
to the Escrow Agent 23,641 additional shares of Preferred Stock and 14,191
additional shares of Common Stock, calculated as follows:
60% x $100,000 = $60,000
$ 60,000 = 23,641 additional shares of Preferred Stock
--------
$ 2.538*
25% of $60,000 = 14,191 additional shares of Common Stock
----------------
$ 1.057*
EXAMPLE 3
- ----------
Presume that in October 1996, an additional $60,000 of Gross Receipts are
received by Search Capital in November, 1996, $20,000 of Gross Receipts are
received by Search Capital, and that no Gross Receipts are collected in
December, 1996. No later than January 30 1997 (i.e., the end of the month
following subject calendar quarter), Search Capital would issue to the Escrow
Agent 18,913 additional shares of Preferred Stock and 11,353 additional shares
of Common Stock, calculated as follows:
60% x $80,000 = $48,000
$ 48,000 = 18,913 additional shares of Preferred Stock
--------
$ 2.538*
25% of $48,000 = 11,353 additional shares of Common Stock
----------------
$ 1.057*
- ------------------------------------------------------------------------------
* presumes, for purposes of these examples, that these
denominator amounts were the Preferred Stock Price
and Common Stock Price, respectively, on the Closing Date.
(iii) Each of the Search Entities agrees to use its
commercially reasonable best efforts to maximize collections of the Contracts
and will take all diligent steps to collect all amounts due from account
debtors under the Contracts, including repossession and disposition of
repossessed Autos in accordance with Search Capital's regular collection
practices for its other loan portfolios similar to the portfolio of the
Contracts, consistent with past practice. All receipts received by the Search
Entities from account debtors under the Contracts shall be applied to such
account in a manner consistent with the historical application of the
Contracts accounts' collections. The Search Entities shall provide the
Trustee with a monthly written report, no later than 10 days following the
end of each month, as to the collections received in the immediately prior
month with respect to the Contracts, with detailed information for each
Contract (whether or not there were collections under such Contract in such
month), identifying which Contract debts have been written off, reduced or
otherwise compromised and such other information regarding the Contracts
collection efforts and results as the Trustee may reasonably request. Upon
request by the Trustee, the Search Entities shall provide written
verification, in reasonable detail, as to the methods, resources and efforts
being used by the Search Entities to maximize such collections. If the
Trustee is dissatisfied with the Search Entities' collection activities, the
Trustee may submit written objections to the Search Entities, describing in
reasonable detail the identified deficiencies in the Search Entities'
collection activities. If such deficiencies are not promptly remedied by the
Search Entities to the Trustee's satisfaction, then the Trustee and the Search
Entities irrevocably agree to arbitrate such dispute in Dade County, Florida,
pursuant to the rules of the American Arbitration Association and in
accordance with the Florida Statutes governing arbitration. The arbitrator
shall have the authority to award attorneys' fees and other costs to the
prevailing party.
(iv) The Search Entities shall maintain at their own
expense full, complete and accurate books, records and accounts with respect
to the Contracts and the Search Capital Securities issuable pursuant to
Section 2(h) above. The Trustee shall have the right, at any time but not more
frequently than once per fiscal quarter, to have an independent third party
audit made of the books and records of the Search Entities relating to the
Contracts. If the audit reflects that additional amounts are due pursuant to
Section 2(h)(i), then Search Capital shall promptly make a Post Closing
Purchase Price Adjustment pursuant to Section 2(h)(i). If the aggregate
value of the Post Closing Purchase Price Adjustments paid as a result of
audits under this Section 2(h)(iv) exceeds $50,000, then the Search Entities
shall reimburse the Trustee for the entire cost of all of such audits. The
foregoing remedies shall be in addition to any other remedies which the
Trustee may have under this Agreement or under applicable law or in equity,
all of which shall be cumulative.
I. Warrants. If, pursuant to Section 2(c) above, there has
--------
been an election (or there is deemed to have been an election) to receive the
Warrants, then this Section 2(i) shall be deemed operative. If US Lending
has elected to receive the Post Closing Purchase Price Adjustments, then this
Section 2(i) shall be inoperative and without force and effect. At the
Closing, the Escrow Agent shall receive warrants for shares of Common Stock
(the "Warrants") pursuant to the terms of a Warrant Agreement substantially in
the form set forth as Exhibit 2I attached hereto. The Warrants shall
entitle the holders thereof to purchase, in the aggregate, a number of shares
of Common Stock equal to 20% of the sum of (A) 200% of the number of shares of
Preferred Stock to be delivered to US Lending at Closing, and (B) 100% of the
number of shares of Common Stock to be delivered to US Lending at Closing.
EXAMPLE
- -------
Presume at Closing that Search Capital is obligated, pursuant to Section 2(c)
above, to issue 1,000,000 shares of Preferred Stock and 500,000 of Common
Stock to the Escrow Agent. Pursuant to this Section 2(I), Search Capital
would also issue to the Escrow Agent, at Closing, Warrants for 500,000 shares
of Common Stock, calculated as follows:
20% of [200% of 1,000,000, plus 100% of 500,000] =
20% of [2,500,000] = Warrants to purchase 500,000 shares of Common Stock
j. Right to the Name US Lending Corporation . As part of the
----------------------------------------
Acquired Assets, Search Funding shall have acquired all rights to the name
"U.S. Lending Corporation." On the Closing Date, US Lending shall change its
name to a name not confusingly similar thereto, promptly thereafter filing all
documents required therefor, including but not limited to amendments to US
Lending's Articles of Incorporation.
k. Assignment; . For valuable consideration, the receipt and
----------
sufficiency of which is hereby acknowledged by the Search Entities, the Search
Entities each acknowledges and agrees that the Trustee, subject to approval by
the Bankruptcy Court (which approval shall be evidenced by confirmation of the
Plan by the Bankruptcy Court and the Creditors and Equity Committees), shall,
upon Closing, be assigned all of the Extraneous Assets.
l. Anti-Dilution. If Search Capital shall make a stock
-------------
dividend, subdivide or otherwise split its Preferred Stock or Common Stock or
combine or reclassify the outstanding shares of the Preferred Stock or Common
Stock into a smaller or greater number of shares, then in each case (i) the
number of Search Capital Securities, (ii) the Common Stock Price, (iii) the
Preferred Stock Price, (iv) the number of Common Stock shares issuable upon
conversion of the Preferred Stock, (v) the number of Common Stock shares
issuable (and the price payable) upon the exercise of any Warrants and (vi)
all other relevant matters shall be adjusted appropriately so as to take into
account such event.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF US LENDING
Subject to the terms set forth in Section 8(d) below, US Lending
represents and warrants to the Search Entities, which US Lending agrees are
entitled to rely on these representations and warranties, that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date.
a. Organization of US Lending. US Lending is a corporation
--------------------------
duly organized, validly existing and in good standing under the laws of the
State of Florida. US Lending has full corporate power and authority to carry
on the business in which it is engaged and to own and use the properties
owned, leased and used by it.
b. Authorization of Transaction; No Default. Subject to the
----------------------------------------
entry by the Bankruptcy Court of the Confirmation Order and an Order of the
Bankruptcy Court approving the execution and delivery of this Agreement:
(i) US Lending has full power and authority (including full
corporate power and authority) to execute and deliver this Agreement and to
perform its obligations hereunder;
(ii) The execution, delivery, and performance of this
Agreement, the performance of US Lending's obligations hereunder and the
consummation of the transactions contemplated hereby have been duly authorized
by US Lending's Board of Directors, and no further corporate or stockholder
action is required to authorize the execution and delivery of this Agreement,
the performance by US Lending of its obligations hereunder or the consummation
by US Lending of the transactions contemplated hereby; and
(iii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (A) violate
any Law to which US Lending is subject or any provision of the Articles of
Incorporation or Bylaws of US Lending, or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument or indebtedness, Security Interest, or other arrangement to which
US Lending is a party or by which it is bound or to which any of its assets
are subject, or result in the imposition of any Security Interest upon any of
its assets.
c. Consents and Approvals. Except for: (i) the order of the
----------------------
Bankruptcy Court authorizing US Lending to enter into and perform this
Agreement (the "Confirmation Order") , no approval or consent of, or notice
to, filing with or exemption by any court or governmental entity or any person
or entity is required to be obtained by or given, or waiting periods required
to expire, in connection with US Lending's execution and delivery of this
Agreement and the performance by US Lending of its obligations hereunder, that
have not been obtained or will not be obtained on or prior to the Closing
Date.
d. Enforceability. This Agreement has been duly executed and
--------------
delivered by US Lending and, assuming this Agreement constitutes a valid and
binding agreement of the Search Entities if and when, the Confirmation Order
is entered by the Bankruptcy Court and such Confirmation Order shall not have
been reversed, stayed, modified or amended in any material respects prior to
the Closing Date, this Agreement will constitute the legal, valid and binding
obligation of US Lending, enforceable against US Lending in accordance with
its terms.
e. Employees. US Lending has no Employee Benefit Plans.
---------
f. Chapter 11 Proceedings. US Lending has complied in all
----------------------
material respects with the Bankruptcy Code, and with all other laws, rules,
regulations, decrees or orders applicable to or arising out of the Chapter 11
Case, except to the extent that any such non-compliance would not have a
material adverse affect on the assets, liabilities, financial condition or
results of operations of US Lending. To the best of US Lending's Knowledge,
all lists of creditors and stockholders, schedules, statements of affairs, and
financial reports filed by US Lending with the Bankruptcy Court and all
representations, warranties or disclosures of US Lending made in connection
with the Chapter 11 Case were, and the Disclosure Statement (excluding such
information and/or materials included in the Disclosure Statement which were
provided by the Search Entities) will be, complete and accurate in all
material respects as of the date filed or made. Such notice of the Chapter 11
Case as is required by the Bankruptcy Code has been or will be given to all
known holders of Claims (as such term is defined in the Bankruptcy Code), and
US Lending shall serve notice of the transactions contemplated by this
Agreement on parties entitled to such notice under the Bankruptcy Code, as
modified by orders in respect of notice which may be issued at any time and
from time to time by the Bankruptcy Court.
g. Disclaimer of Warranties. EXCEPT AS EXPRESSLY CONTAINED
------------------------
IN THIS AGREEMENT, US LENDING MAKES NO REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THE ACQUIRED ASSETS, US LENDING'S BUSINESS OR FINANCIAL PERFORMANCE
OR OTHERWISE, INCLUDING WITHOUT LIMITATION REPRESENTATIONS AND WARRANTIES,
EXPRESS OR IMPLIED, THAT MAY ARISE UNDER THE UNIFORM COMMERCIAL CODE WITH
RESPECT TO THE TRANSFER OF THE ACQUIRED ASSETS, INCLUDING WITHOUT LIMITATION
TRANSFER WARRANTIES UNDER SECTION 673.4161 OF THE FLORIDA STATUTES, AS
AMENDED, OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
h. Disclosure . No representation or warranty by US Lending
----------
in this Agreement or in any certificate furnished or to be furnished to the
Search Entities pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken together, contain any
untrue statements of fact or will omit to state any fact necessary to be
stated in order to make the statements and information contained in this
Agreement not materially misleading.
i. Title to Acquired Assets. At the Closing, Search Funding
------------------------
will receive good title to all of the Acquired Assets free and clear of any
Claim, interest, Lien, encumbrance and tax of any kind or nature whatsoever to
the fullest extent practicable under the Bankruptcy Code, except that the
Acquired Assets shall continue to be subject to all of the Assumed
Liabilities.
j. Receipt of Information and Answers to Questions. U.S.
-----------------------------------------------------
Lending has had the opportunity to ask questions of, and receive answers from,
Search Capital through its authorized representatives and has received
information regarding the business, assets, financial condition, results of
operations and affairs of Search Capital.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF THE SEARCH ENTITIES
-----------------------------------------------------
Each of the Search Entities represents and warrants to US Lending and to
the Trustee, which the Search Entities hereby agree are entitled to rely upon
these representations and warranties, that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date, except as set forth in the
Disclosure Schedule accompanying this Agreement as Schedule 4 (the "Search
Capital Disclosure Schedule") and initialed by Search Capital. The Search
Capital Disclosure Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained herein.
a. Organization. Each of the Search Entities is a corporation
------------
duly organized, validly existing and in good standing, under the laws of the
State of Delaware with respect to Search Capital and under the laws of the
State of Texas with respect to Search Funding, and is in good standing and
qualified to do business under the laws of each jurisdiction in which the
nature of its business or the ownership or leasing of its properties requires
such qualification. Each of the Search Entities has full corporate power and
authority to carry on the business in which it is engaged and to own and use
the properties owned, leased and used by it. Exhibits 4A-1 and 4A-2 are true
and complete copies of each of the Search Entities' current Certificate
of Incorporation and ByLaws.
b. Authorization of Transaction. Each of the Search Entities
----------------------------
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and all other agreements referred to herein
to which it is a party and to perform its obligations hereunder and
thereunder. Without limiting the generality of the foregoing, the Board of
Directors of each of the Search Entities has duly authorized the execution,
delivery and performance of this Agreement and all other agreements referred
to herein by the Search Entities and, except for the corporate and shareholder
action referenced in Section 6(b) below, no further corporate or stockholder
action is required to authorize the execution and delivery of this Agreement,
the performance by the Search Entities of their obligations hereunder or the
consummation by the Search Entities of the transaction contemplated hereby.
This Agreement and all other agreements referred to herein to which the Search
Entities are a party constitute the valid, legally binding obligations of the
Search Entities, enforceable in accordance with their respective terms and
conditions. Each of the Search Entities has all approvals, licenses,
franchises, authorizations and permits necessary under the Laws which are
material to the ownership, lease or use of each of the Search Entities'
properties or the conduct of its business and each of the Search Entities has
received no notice of any proceedings relating to the revocation or
modification of any of the foregoing which, singularly or in the aggregate,
would have a materially adverse effect on either of the Search Entities.
Except for the corporate and shareholder action referenced in Section 6(b)
below, no consent, approval, authorization, license or order of or from, or
registration, qualification, declaration or filing with, federal, state,
local, foreign or other governmental authority or any person or court,
administrative agency, or other body is required for the consummation of the
transactions contemplated by this Agreement and the other agreements referred
to herein to which either of the Search Entities is a party.
c. Noncontravention. Neither the execution and the delivery
----------------
of this Agreement by the Search Entities, nor the consummation of the
transactions contemplated hereby, will (i) violate any Law to which the Search
Entities are subject or any provision of the Search Entities' Certificates of
Incorporation and Bylaws or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money instrument or
indebtedness, Security Interest, or other arrangement to which the Search
Entities are a party or by which either is bound or to which any of its assets
is subject, or result in the imposition of any Security Interest upon any of
its assets. The Search Entities need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any third party,
whether public or private, for the Parties to consummate the transactions
contemplated by this Agreement.
d. Subsidiaries. All of Search Capital's subsidiaries are
------------
set forth in Section 4(d) of the Search Capital Disclosure Schedule. Those
subsidiaries of Search Capital which (i) are not debtors in a bankruptcy
proceeding and (ii) currently have active business operations are noted as
"active" on Section 4(d) of the Search Capital Disclosure Schedule (the
"Active Subsidiaries"), For purposes of this Section 4, all references to
Search Capital or the Search Entities shall be deemed to include all of the
Active Subsidiaries. Search Funding has no subsidiaries. Search Funding is a
wholly-owned subsidiary of Search Capital.
e. Financial Statements. Search Capital's Most Recent Financial
--------------------
Statements are attached hereto as Exhibit 4E. The Most Recent Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, are correct and complete, are
consistent with the books and records of Search Capital (which books and
records are correct and complete), and fairly present the financial condition
of Search Capital as of its date and the results of Search Capital's
operations and cash flows for the periods indicated.
f. Events Subsequent to Most Recent Financial Statements.
------------------------------------------------------------
Except as expressly contemplated under this Agreement, and except as set forth
in Section 4(f) of the Search Capital Disclosure Schedule, since the date of
the Most Recent Financial Statements:
(i) there has been no material adverse change in the
general affairs, business, prospects, properties, management, condition
(financial or otherwise) or results of operations of Search Capital, whether
or not arising from transactions in the ordinary course of business;
(ii) Search Capital has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease obligations) either
involving more than $250,000 in a single transaction or outside the ordinary
course of business;
(iii) Search Capital has not canceled, compromised, waived,
or released any right or claim (or series of related rights and claims)
outside the ordinary course of business;
(iv) Search Capital has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion or exercise) any
of its capital stock other than for fair market value;
(v) Search Capital has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock or redeemed,
purchased, or otherwise acquired any of its capital stock except for dividends
on its Preferred Stock;
(vi) Search Capital has not experienced any material
damage, destruction, or loss (whether or not covered by insurance) to its
property;
(vii) Search Capital has not entered into any collective
bargaining agreement, written or oral, or modified the terms of any existing
such agreement and has not adopted any bonus, profit-sharing, incentive
compensation, pension, retirement, medical, hospitalization, life, or other
insurance, severance or other plan, contract, or commitment for any of its
shareholders, directors, officers, and employees, or modified or terminated
any existing such plan, contract, or commitment which would have a material
adverse effect upon Search Capital;
(viii) Search Capital has no Knowledge of any contemplated
adverse changes to its current contracts or any of its other business
relationships which would have a material adverse effect upon Search Capital;
(ix) Search Capital has not committed or consented to do or
suffer any of the foregoing.
g. Undisclosed Liabilities. Except as set forth on Schedule
-----------------------
4(g) of the Search Capital Disclosure Schedule, Search Capital has no
Liability except for Liabilities described in Search Capital's Most Recent
Financial Statements and those which have arisen after March 31, 1996 in the
ordinary course of business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of Law ).
h. Tax Matters. Search Capital has filed all tax reports and
-----------
returns that it is required to file. All such reports and returns were
correct and complete in all respects. All Taxes owed by Search Capital
(whether or not shown on any report or return) have been paid. Search Capital
currently is not the beneficiary of any extension of time within which to file
any report or return. No director or officer (or employee responsible for tax
matters) of Search Capital expects any authority to assess any additional
Taxes for any period for which returns have been filed. The unpaid Taxes of
Search Capital does not exceed the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent balance sheet
(rather than in any notes thereto) contained in the Financial Statements as
adjusted for the passage of time through the Closing Date in accordance with
the past custom or practice of Search Capital in filing its Tax returns.
i. Assets. Search Capital owns or leases all assets necessary
for the conduct of its businesses as presently conducted and as presently
proposed to be conducted.
j. Owned Real Property. Search Capital does not own, and has
-------------------
no beneficial interest in (except as tenant under written leases), any real
property.
k. Intellectual Property. Except as set forth on Section
---------------------
4(k) of the Search Capital Disclosure Schedule, Search Capital owns or has
the right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the businesses of Search
Capital as presently conducted and as presently proposed to be conducted,
except for such matters which do not have a material adverse effect upon
Search Capital.
l. Notes and Accounts Receivable. All notes and accounts
--------------------------------
receivable of Search Capital are reflected properly on Search Capital's books
and records, are valid receivables subject to no setoffs or counterclaims and
will be collected in accordance with their terms at their recorded amounts,
subject only to the allowance for credit losses set forth in the Most Recent
Financial Statements;
m. Contracts. Section 4(m) of the Search Capital Disclosure
---------
Schedule identifies all material contracts, agreements and other written
arrangements to which Search Capital is a party and all arrangements which
are filed with the SEC as part of its public filings, and true, correct and
complete copies (with all amendments thereto) have been delivered to US
Lending. "Material" contracts, agreements and arrangements are those which
obligate the parties, in the aggregate, to in excess of $250,000 of
obligations, and include all warehousing and securitization credit facilities.
With respect to each written arrangement so listed: (A) the written
arrangement is legal, valid, binding, enforceable, and in full force and
effect, and has not been materially amended or altered since the later of
execution or being filed with the SEC; (B) the written arrangement will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing; (C) no party is in breach or
default, and no event has occurred which, with notice or lapse of time, or
both, would constitute a breach or default or permit termination,
modification, or acceleration, under the written arrangement; and (D) no party
has repudiated any provision of the applicable written arrangement.
n. Litigation. Section 4(n) of the Search Capital Disclosure
----------
Schedule sets forth each instance in which any of the Search Entities (I)
is subject to any charge, complaint, action, suit, judgment, order, or other
legal or governmental proceeding ("Litigation") or (ii) is a party or, to the
Knowledge of either of the Search Entities or any of the directors and
officers (and employees with responsibility for litigation matters) of any of
the Search Entities, is threatened (or may be threatened) to be made a party,
to any Litigation. None of the Litigation set forth in Section 4(n) of the
Search Capital Disclosure Schedule except Janice and Warren Bowe et. al. v.
Search Capital Group, Inc., Civil Action Number 1:95-CV-649-BR pending in
the United States District Court for the Southern District of Mississippi,
could result in any material adverse change in the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of Search Capital taken as a whole or affect either of the Search
Entities' ability to consummate the transaction contemplated under this
Agreement.
o. Employees. To the Knowledge of Search Capital or any of
---------
the directors and officers (and employees with responsibility for employment
matters) of Search Capital, no key employee or group of employees has any
plans to terminate employment with Search Capital. Search Capital is not a
party to or bound by any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. Search Capital has not committed any
unfair labor practice. Neither Search Capital nor any of the directors and
officers (and employees with responsibility for employment matters) of Search
Capital has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Search Capital.
p. Legal Compliance. (i) Except as set forth on Schedule
-----------------
4(p) of the Search Capital Disclosure Schedule, each of the Search Entities
has complied with all Laws, and no Litigation has been filed or commenced
against Search Capital alleging any failure to comply with any such Laws and
neither of the Search Entities have not received a notice or charge asserting
any violation of the Sherman Act, the Clayton Act, the Robinson-Patman Act,
the Federal Trade Commission Act, as amended, or any other Law relating to
truth-in-lending, credit extension or credit collections.
(ii) Each of the Search Entities has not:
(a) made or agreed to make any contribution, payment,
or gift of funds or property to any governmental official, employee, or agent
where either the contribution, payment, or gift, or the purpose thereof, was
illegal under the Law;
(b) established or maintained any unrecorded fund or
asset for any purpose, or made any false entries on any books or records for
any reason; or
(c) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other person, to any
candidate for federal, state, local, or foreign public office.
(iii) With respect to the Search Entities' Employee Benefit
Plans (A) each has been administered in all material respects in compliance
with its terms and all applicable laws, including, without limitation, ERISA,
(B) no material actions, suits, claims (other than claims for benefits in the
ordinary course of business) or disputes are pending or, to the Search
Entities' Knowledge, threatened, (C) no audits, inquiries, reviews,
proceedings, claims or demands are pending with any governmental or regulatory
agency, (D) there are no facts which could give rise to any material liability
in the event of any investigation, claim suit, action, audit, review or other
proceeding, (E) all material reports, returns and similar documents required
to be filed with any governmental agency or distributed to any plan
participant have been duly or timely filed or distributed, and (F) no
"prohibited transaction" has occurred within the meaning of ERISA or the
Internal Revenue Code of 1986, as amended.
(iv) The Search Entities have each filed all reports,
documents, and other materials it was required to file (and the information
contained therein was correct and complete in all respects) under all
applicable Laws, for which the failure to file would have a material adverse
effect on the Search Entities.
(v) Each of the Search Entities has possession of all
records and documents it is required to retain under all applicable Laws.
q. Certain Business Relationships Among Search Capital and its
-------------------------------------------------------------
Affiliates. Except as disclosed in reports filed with the SEC, none of
- ----------
Search Capital's stockholders who beneficially own 5% or more of Search
Capital's capital stock, officers and directors, and their respective
Affiliates have been involved in any material business arrangement or
relationship with Search Capital within the past 12 months. None of the
officers or directors of Search Capital, and their respective Affiliates, own
any property or right, tangible or intangible, which is used in the business
of Search Capital.
r. Disclosure. No representation or warranty by the Search
----------
Entities in this Agreement or in any certificate furnished or to be furnished
to US Lending pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken together, contain any
untrue statements of fact or will omit to state any fact necessary to be
stated in order to make the statements and information contained in this
Agreement not materially misleading.
s. Search Entities' Investigation. Each of the Search Entities
------------------------------
hereby acknowledges that it and its representatives have been given access to
the premises, properties, books, contracts and records of US Lending and have
been furnished with all additional financial and operational data and other
information concerning the Acquired Assets which the Search Entities and its
representatives have requested in connection with their determination to enter
into this Agreement and consummate the transactions contemplated hereby, and
all of the foregoing have been examined to the full satisfaction of the Search
Entities and their representatives. Each of the Search Entities acknowledges
that Search Funding is acquiring the Acquired Assets without any
representations and warranties other than those expressly set forth herein,
which shall not survive the Closing.
t. Search Capital Securities and Capitalizations. The Search
-----------------------------------------------
Capital Securities, when issued and delivered as provided for herein, will be
(a) duly authorized, validly issued, fully paid and non-assessable and (b)
free and clear of all proxies, restrictions, voting trusts, liens or
encumbrances. The holders of the Preferred Stock shall have all of the
powers, preferences and rights as set forth in the Preference Certificate.
The Search Capital Securities have been duly authorized and reserved for
issuance upon such conversion or upon the issuance as applicable. Except as
set forth on Schedule 4(t) of the Search Capital Disclosure Schedule, there
are no preemptive or other rights to subscribe for or to purchase, nor any
restriction (except as may be required under applicable securities laws) upon
the voting or transfer of, any shares of the Common Stock issuable upon
conversion of the Preferred Stock to Common Stock pursuant to the Search
Capital's Certificate of Incorporation or By-Laws, the Preference Certificate
or any other agreement or outstanding instrument to which Search Capital is a
party or which is otherwise known to Search Capital. Other than as provided
in this Agreement or as set forth on Section 4(t) of the Search Capital
Disclosure Schedule, Search Capital has not granted any demand, piggyback
or other registration rights to any holder of its outstanding securities.
u. Search Capital Joint Plan. A confirmation order has been
-------------------------
entered in the Joint Plan of Reorganization in each of Search Capital's
bankrupt subsidiaries (the "Joint Plan") for the cases 395-34981-RCM-11
through 395-34988-SAF-11, jointly administered under case number
395-34981-RCM-11 in the United States Bankruptcy Court, Northern District of
Texas. Without limitation to Section 4(c) above (regarding
noncontravention), the transactions contemplated by this Agreement are not in
contravention of the Joint Plan nor are any consents or approvals of said
court or any third party required pursuant to said Joint Plan for the
execution and performance of this Agreement.
v. Securities and Exchange Commission Filings. Search Capital
------------------------------------------
has complied and is current with all reporting obligations to the SEC and
Search Capital has provided US Lending with copies of all SEC filings made
within three years of the date hereof. Such SEC filings contain all material
information required to be stated therein, and do not omit material
information required to be stated therein or necessary to make the statements,
in light of the circumstances in which they were made, not misleading.
SECTION 5.
SECURITIES ACT COMPLIANCE
-------------------------
Upon Closing, the Parties agree that they will each use their respective
best efforts to cause the Search Entities to be the successors of US Lending
for purposes of Section 1145 of the Bankruptcy Code. US Lending shall use its
best efforts to have the Confirmation Order contain appropriate court findings
of fact and law to the foregoing effect. Promptly following the execution
hereof, Search Capital will request (the "No Action Letter Request")
confirmation from the staff of the SEC that it will not recommend to the SEC
that enforcement action be taken if (a) without registration under the
Securities Act the Search Capital Securities are issued and distributed
pursuant to the Plan to the holders of certain claims against or interests in
U.S. Lending in reliance upon Section 1145 of the Code; and (b) the Search
Capital Securities issued and distributed pursuant to the Plan are resold (i)
without registration under the Securities Act, provided that the sellers are
not "underwriters" as defined in Section 1145(b) of the Code, or (ii) free
from the restriction of Rule 144 promulgated under the Securities Act,
provided that the seller is not an "affiliate" of the issuer thereof. U.S.
Lending and the Creditors and Equity Committees shall be provided with a
reasonable time to review and comment upon any draft of the No Action Letter
Request, such Request to be in form and substance reasonably satisfactory to
U.S. Lending and the Committees. Search Capital agrees to keep U.S. Lending
and the Committees fully informed as to the progress of the No Action Letter
Request and to permit counsel to US Lending and to the Committees to
participate in any discussions, whether by telephone or in person, with
members of the staff of the SEC in respect of the No Action Letter Request.
The Parties acknowledge that it is their intent that, as a condition to US
Lending's obligation to close, the US Lending creditors and equity holders
receive freely tradeable shares of Preferred Stock and Common Stock as
permitted by Section 1145 of the Code.
SECTION 6.
PRE-CLOSING COVENANTS
---------------------
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
a. General. Each of the Parties will use its reasonable best
-------
efforts to take all action and to do all things necessary, proper, or
advisable to consummate and make effective the transactions contemplated by
this Agreement (including satisfying the closing conditions set forth in
Section 7 below). Each of the Parties will take any additional action that
may be necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents, and approvals of government
agencies, and third parties that it may be required to give, make, or obtain.
b. Corporate and Shareholder Approval. Search Capital shall
----------------------------------
use its reasonable best efforts to cause all corporate and shareholder actions
to be taken to adopt and otherwise effectuate the Amendments to the Preference
Certificate (which Amendments shall be in the form attached hereto as part of
Exhibit 2C).
c. Plan and Disclosure Statement. US Lending shall propose
-----------------------------
that the Confirmation Order pursuant to the Plan have such provisions as are
necessary to effectuate the transactions contemplated hereunder. Search
Capital shall have a reasonable period of time to review and comment upon the
Plan and Disclosure Statement prior to their filing with the Court.
d. Preservation of Business. US Lending will use its best
------------------------
efforts to keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers and employees. US
Lending shall pay (or make appropriate reserves for the payment of) all
pre-closing administrative expenses, including, without limitation,
pre-closing servicing costs of the Portfolio.
e. Full Access. Subject to Section 8(g) below, within 24
-----------
hours following a request by the other Party, each of the Parties will permit
representatives of the other Party to have full access during normal business
hours, and in a manner so as not to interfere with normal business operations,
to all premises, properties, books, records, contracts, Tax records, and
documents pertaining to such Party.
f. Notice of Developments. US Lending and the Search Entities
----------------------
shall give prompt written notice to the other of any material developments
affecting their respective assets, Liabilities, business, financial condition,
operations, results of operations, or circumstances which make any
representation or warranty hereunder untrue, incomplete or misleading
("Subsequent Development"), provided that neither Party shall be required to
give notices which contravene applicable securities laws. Prior to Closing,
the other Party may elect by written notice to terminate this Agreement if it
determines, in its sole discretion, that any Subsequent Development is
unacceptable to it. If the Search Entities are the terminating Party in such
circumstances, the Search Entities shall not be entitled to any damages
arising from the occurrence of such Subsequent Development or the Search
Entities' termination of this Agreement relating thereto. If, however, US
Lending is the terminating Party, the Parties agree that US Lending shall
suffer damages arising from the occurrence of such Subsequent Development and
the termination of this Agreement, but that such damages may be difficult to
determine. The Parties agree therefor that under such circumstances US
Lending shall receive, as a reasonable estimate of US Lending's damages, and
as US Lending's sole and exclusive remedy, liquidated damages of $150,000 to
be paid out of the Deposit. Notwithstanding the foregoing, US Lending shall
have all of its rights and remedies, without limitation, with respect to the
breach of any representation or warranty by the Search Entities arising from
or relating to the occurrence of any Subsequent Development of which US
Lending is not notified pursuant to Section 6(f).
g. Further Assurances. Subject to the terms of this Agreement
-------------------
and to the approval of the Bankruptcy Court, each of the Parties hereto
agrees to use all reasonable efforts to take, or cause to be taken, all
actions necessary or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and to satisfy the various conditions herein to their respective obligations
hereunder. In addition, each of the Parties will (subject, in the case of US
Lending, to its applicable fiduciary duties as a debtor-in-possession) use all
reasonable efforts to cause the conditions to the obligation of the Parties
hereto to consummate the transactions contemplated hereby to be satisfied at
the earliest practicable date and to cause the Closing to occur on or before
the latest possible Closing Date permitted as set forth in Section 2(b).
h. Search Capital Public Information. Search Capital will
------------------------------------
furnish to US Lending copies of such financial statements and other periodic
and special reports as Search Capital from time to time makes available to
holders of any class of its securities, and shall furnish to US Lending (i) a
copy of each periodic report Search Capital files with the SEC within five (5)
business days following filing, (ii) a copy of every press release and every
news item and article with respect to Search Capital or its affairs which is
released by Search Capital within five (5) business days following the date of
such release, and (iii) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1
or 13E-4 received or prepared by Search Capital within five (5) business days
of receipt or preparation . Search Capital acknowledges that any of the
foregoing materials may, in US Lending's discretion, be included in US
Lending's Disclosure Statement.
i. Amendments to Certificate of Designation. Prior to Closing,
----------------------------------------
the Amendments to the Certificate of Designation referred to in Section
2(c) above shall be filed by Search Capital and shall be effective with the
Delaware Secretary of State.
j. Filing Approval and Confirmation of Plan and Disclosure
-------------------------------------------------------------
Statement. U.S. Lending shall use all reasonable efforts to prepare and
- ---------
file as soon as practicable with the Bankruptcy Court the Plan and related
Disclosure Statement, to obtain the approval of the Bankruptcy Court of the
Disclosure Statement, and to solicit and obtain from creditors, interest
holders and other claimants of U.S. Lending in the Chapter 11 Case, the
necessary votes for confirmation of the Plan, and shall propose that the
Confirmation Order have such provisions as are necessary to effect the
transactions contemplated herein, including specific provisions assuring that
the Acquired Assets are acquired by Search Funding free and clear of any
Claim, interest, Lien, encumbrance or tax of any kind or nature whatsoever to
the fullest extent practicable under the Bankruptcy Code, except that the
Acquired Assets shall continue to be subject to all of the Assumed
Liabilities. The Plan shall also contain a provision that requires the
recipients of the Preferred Stock to be deemed to have waived their rights to
any dividends that might otherwise have accrued prior to the date of issuance
of the Preferred Stock. US Lending will defend and support the entry of the
Confirmation Order in a form reasonably acceptable to Search Capital, and will
oppose any application for an order reversing, modifying, staying, enjoining
or restraining the terms or effectiveness of the Confirmation Order.
SECTION 7.
CONDITIONS TO OBLIGATION TO CLOSE
---------------------------------
a. Conditions to Obligation of Search Entities. Each of the
-------------------------------------------
Search Entities' obligation to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) The representations and warranties set forth in
Section 3 above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) US Lending shall have performed and complied with all
of its covenants hereunder in all material respects through and including the
Closing;
(iii) no Litigation shall be pending or threatened wherein
an unfavorable determination would (A) prevent consummation of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or (C)
materially adversely affect the right of Search Funding to own, operate, or
control the Acquired Assets;
(iv) US Lending shall have delivered to the Search Entities
a certificate to the effect that each of the conditions specified above in
Section 7(a)(i)-(iii) have been satisfied in all material respects;
provided, however, with respect to Section 7(a)(i), if the Search Entities
have elected to proceed with the Closing notwithstanding a disclosure to them
of a Subsequent Development affecting a representation or warranty of U.S.
Lending, such representation or warranty will be deemed amended or
supplemented to the extent necessary by the Subsequent Development to enable
U.S. Lending to execute and deliver the certificate required by this clause
(iv);
(v) the execution and delivery by US Lending to the Search
Entities of the transfer documents described in Section 2(e);
(vi) the entry of the Confirmation Order and no court of
competent jurisdiction has entered a stay of the Confirmation Order;
(vii) the SEC shall have issued a "No Action Letter" in form
and substance satisfactory to Search Capital confirming the applicability of
Section 1145 of the Bankruptcy Code as provided in the No Action Letter
Request;
(viii) US Lending's cash on hand at the Closing Date (except
for the cash being retained by US Lending as part of the Extraneous Assets)
shall not be less than Two Million Five Hundred Thousand Dollars ($2,500,000);
(ix) the matters covered by US Lending's operations policies
shall have been concluded in connection therewith;
(x) all of the corporate and shareholder action referenced
in Section 6(b) above shall have been taken no later than October 1, 1996;
and
(xi) all actions to be taken by US Lending in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to Search Capital. Search Capital may waive any condition
specified in this Section 7(a) if it executes a writing so stating at or prior
to the Closing.
b. Conditions to Obligations of US Lending. The obligation of
---------------------------------------
US Lending to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) each of the Search Entities shall have performed and
complied with all of its covenants hereunder in all material respects through
and including the Closing;
(iii) no Litigation shall be pending or threatened wherein
an unfavorable determination would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or (C)
materially adversely affect the right of Search Capital to own, operate, or
control the Acquired Assets;
(iv) each of the Search Entities shall have delivered to US
Lending a certificate (without qualification as to knowledge or materiality or
otherwise) to the effect that each of the conditions specified above in
Section 7(b)(i)-(iii) have been satisfied in all material respects;
provided, however, with respect to Section 7(b)(i), if U.S. Lending has
elected to proceed with the Closing notwithstanding a disclosure to it of a
Subsequent Development affecting a representation or warranty of the Search
Entities, such representation or warranty will be deemed amended or
supplemented to the extent necessary by the Subsequent Development to enable
the Search Entities to execute and deliver the certificate required by this
clause (iv);
(v) no material adverse change shall have occurred in
Search Capital's business, profitability or condition (financial or otherwise)
or prospects;
(vi) the execution and delivery by Search Capital to US
Lending of the transfer documents described in Section 2(e);
(vii) the entry of the Confirmation Order and no court of
competent jurisdiction has entered a stay of the Confirmation Order;
(viii) the SEC shall have issued a "No Action Letter" in
form and substance satisfactory to US Lending, the Creditors Committee and the
Equity Committee confirming the applicability of Section 1145 of the
Bankruptcy Code as provided in the No Action Letter Request;
(ix) US Lending shall have received the legal opinion from
Search's legal counsel(s), dated as of the Closing Date in the form of
Exhibit 7 hereto;
(x) the Preference Certificate (as amended) and, if
applicable, the Warrant Agreement, as amended, shall be true, accurate,
effective and complete as of Closing Date.
(xi) the issuance and delivery of the Search Capital
Securities in the manner required by this Agreement and, if applicable, the
execution and delivery by Search Capital of the Warrants;
(xii) all of the corporate and shareholder action referenced
in Section 6(b) above shall have been taken no later than October 1, 1996;
and
(xiii) all actions to be taken by the Search Entities in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to
effect the transactions contemplated hereby will be satisfactory in form and
substance to US Lending. Subject to approval from the Bankruptcy Court and
the Equity and Creditors Committees, US Lending may waive any condition
specified in this Section 7(b) if it executes a writing so stating at or
prior to the Closing.
SECTION 8.
MISCELLANEOUS
-------------
a. Termination. This Agreement shall terminate, and neither
-----------
Party shall have any further obligations hereunder (except with respect to
Sections 2(g)(ii), 8(b) and 8(g) herein) upon the happening of any of the
following events:
(i) The Chapter 11 Case shall be dismissed or converted to
a case under Chapter 7 of the Bankruptcy Code, or a trustee shall be appointed
in the Chapter 11 Case.
(ii) The mutual written agreement of the parties to
terminate this Agreement.
(iii) Notwithstanding any other provision, recital, covenant,
representation, warranty or obligation set forth in this Agreement, US
Lending, the Equity Committee, the Creditors Committee, and their respective
attorneys and agents, have the right to consider and negotiate any inquiries,
proposals or offers regarding any acquisition, merger, take-over, sale of all
or substantially all of the assets of, or sales of shares of capital stock in,
US Lending, whether or not in writing, or similar transactions (referred to
herein as an "Acquisition Proposal"). If US Lending, the Equity Committee,
the Creditors Committee and/or their respective attorneys and agents determine
in good faith that it would be consistent with their respective fiduciary
responsibilities to approve or recommend (and, in connection therewith,
withdraw their approval or recommendation of this Agreement and the
transactions contemplated hereby) an Acquisition Proposal, then US Lending,
the Equity Committee and the Creditors Committee may, subject to Bankruptcy
Court approval, terminate this Agreement. In the event of a termination
pursuant to this Section 8(a)(iii), the Search Entities' sole remedy shall
be as set forth in Section 2(g)(ii) above.
(iv) The election by the other Party to terminate this
Agreement following the notification of a Subsequent Development, pursuant to
Section 6(f) above.
b. Brokerage Commissions. US Lending and the Search Entities
---------------------
each represent and warrant to the other that they have not dealt or worked
with any broker or sales agent or finder regarding the sale of the Acquired
Assets to Search Funding. The parties each agree to indemnify, defend and
hold harmless the other from and against any claim by third parties arising
by, through or under the indemnifying party, for brokerage, commission,
finders or other fees relative to this Agreement, and any court costs,
attorney's fees or any other costs or expenses arising therefrom.
c. Agreement to Support Plan. Subject to the terms set forth
-------------------------
in Section 8(a)(iii) above, the Parties hereto and the Equity and Creditors
Committees each severally covenant and agree, from the date hereof and until
termination of this Agreement pursuant to Section 8(a), above:
(1) to actively support, not oppose, and in the case of the
Equity and Creditors Committees, to recommend in writing the acceptance of,
the Plan;
(2) not to file, sponsor or promote any plan of
reorganization in the Chapter 11 Case, other than the Plan;
(3) if the Bankruptcy Court requires (as a condition to
approval of a Disclosure Statement or otherwise) that the Plan be amended to
require an auction sale of the Acquired Assets, then each Party agrees to
amend the Plan to provide for such an auction with the sale of the Acquired
Assets as one (1) lot, and agrees that the covenants set forth in Section
8(a)above shall not be affected by such amendment. Search Capital agrees to
enter a bid at such auction that is at least equal to the Purchase Price set
forth in Section 2(c), including the Purchase Price Adjustments set forth in
Section 2(h) or the Warrants set forth in Section 2(I), as applicable,
and may, but shall not be obligated to, increase such bid in the auction sale.
d. Survival. All of the representations, warranties, and
--------
covenants of the Search Entities contained in this Agreement shall survive the
Closing hereunder. The truth and accuracy of the representations and
warranties made by U.S. Lending hereunder and the performance of the covenants
required to be performed by US Lending hereunder are solely conditions to the
obligations of the Search Entities to consummate the transactions hereunder,
and except solely for purposes of raising a defense or right of set-off as
expressly provided in this Section 8(d), such representations, warranties
and covenants shall not survive the Closing. From and after the Closing Date
neither US Lending, the Creditors Committee, the Equity Committee, the Trust,
the Trustee, the Escrow Agent, the beneficiaries of the Trust and the Escrow
Agreement nor any of their respective directors, officers, members, attorneys,
employees and agents shall have any liability or obligation to the Search
Entities by reason of any breach of a representation, warranty or covenant of
U.S. Lending herein. Notwithstanding the foregoing, the Search Entities shall
be entitled to (i) the reimbursement of the Search Entities' expenses pursuant
to Section 2(g) above, if applicable and (ii) raise a breach by US Lending
of its obligations, covenants, representations and warranties hereunder as a
defense or right of set-off if any damages are adjudicated as being due from
the Search Entities to US Lending (or its successors and assigns) in an action
commenced by US Lending (or its successors and assigns). This provision is
solely in the nature of a defense or right of set-off and under no
circumstances shall the Search Entities be entitled to receive payment of any
monetary damages from US Lending, the Creditors Committee, the Equity
Committee, the Trust, the Trustee, the Escrow Agent, the beneficiaries of the
Trust and the Escrow Agreement nor any of their respective directors,
officers, members, attorneys, employees, agents, successors and assigns, even
if the Search Entities'damages exceed US Lending's (or such other parties')
damages in such action.
e. Press Releases and Announcements. No Party shall issue
--------------------------------
any press release or announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the other
Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Party prior to making the disclosure).
f. Indemnification. Conditioned upon the occurrence of the
---------------
Closing, the Search Entities will defend, indemnify and hold harmless U.S.
Lending, the Trust, the Trustee , the beneficiaries of the Trust and the
Escrow Agreement, the Escrow Agent and their respective officers, directors,
shareholders, agents, employees, successors and assigns and their respective
advisors and professionals (collectively, the "Indemnified Persons") from and
against any and all liabilities, claims, suits, fines, penalties, damages,
settlements, judgments and expenses (including reasonable attorneys' fees and
disbursements) arising from the claims of third parties incurred by the
Indemnified Parties as a result of a breach of any representation, warranty,
covenant, obligation or other agreement herein contained or executed in
connection herewith (without regard to whether such breach occurred prior to,
on or after the Closing) including, without limitation, under the Assumption
Agreement (a "Loss" or "Losses"). If any claim or demand shall be brought or
asserted against an Indemnified Person in respect of which indemnity may be
sought under this Agreement from Search Entities, the Indemnified Person shall
give prompt written notice of such claim or demand to the Search Entities who
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Person and the payment of all
expenses. The Indemnified Person shall have the right to employ separate
counsel and to participate in the defense or response, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Person.
In the event that the Search Entities, within 10 days after its receipt of
notice of any such claim or demand, fail to assume the defense thereof, the
Indemnified Person shall have the right to undertake the defense of such claim
or demand, subject to the right of the Search Entities to assume the defense
of such claim or demand with counsel reasonably satisfactory to the
Indemnified Person at any time prior to the settlement, compromise or final
determination thereof.
g. Confidentiality. During the course of performance of this
---------------
Agreement or as part of the Parties' due diligence in connection with this
Agreement, each Party shall furnish or make available to the other (or to the
other's agents and representatives) and the Committees certain information.
Each Party and the Committees agree to keep the other Party's information
confidential and to not use such information other than to evaluate this
transaction or to perform its obligations hereunder. If the transaction is
not consummated, each Party and the Committees will return all information
provided to it by the other Party (including all copies, abstracts and
summaries thereof). This provision shall not apply to any information which
was known by one Party prior to disclosure by the other Party, becomes
available to one Party from a source other than the other Party, or becomes
generally available or known in the industry other than a breach by a Party
hereunder.
h. Access to Records. US Lending (and its successors and
-----------------
assigns) shall, after the Closing, have the right to review and make copies of
any materials in the Search Entities'possession or control relating to the
Acquired Assets for any reasonable business purpose, including, without
limitation, upon a tax or other governmental audit, and regarding any claim or
lawsuit.
i. Succession and Assignment. This Agreement shall be
---------------------------
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. Except with respect to
assignments or other transfers to the Trustee and the Escrow Agent as
contemplated by the terms of this Agreement, including without limitation, as
provided in Section 2(k), no Party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
j. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
k. Headings. The section headings contained in this
--------
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
l. Notices. All notices, requests, demands, claims, and
-------
other communications hereunder must be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given if
(and then four business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to Seller: U.S. Lending Corporation
700 West Hillsboro Blvd.
Bldg. 2, Suite 202
Deerfield Beach, FL 33441
Attn: Robert Spielman
Fax: (954) 421-0812
with a copy to: Philip B. Schwartz, Esq.
(which shall not Akerman, Senterfitt & Eidson, P.A.
constitute notice) One Southeast Third Ave., 28th Fl.
SunTrust International Center
Miami, Florida 33131
FAX: (305) 374-5095
and a copy to: Daniel Lampert, Esq.
(which shall not Stroock & Stroock & Lavan
constitute notice) 200 South Biscayne Boulevard
33rd Floor
Miami, Florida 33131
FAX: (305) 789-9302
with a copy to: Jerry Markowitz, Esq.
(which shall not Markowitz, Davis & Ringel, P.A.
constitute notice) 9130 South Dadeland Blvd., Suite 1225
Miami, Florida 33156
FAX: (305) 670-5011
If to the Joe B. Dorman, Esq.
Search Entities: Search Capital Group, Inc.
700 North Pearl, Suite 400
North Tower, Lock Box 401
Dallas, Texas 75201-7490
FAX: (214) 965-6908
with a copy to: Daryl B. Robertson, Esq.
(which shall not Bracewell & Patterson, L.L.P.
constitute notice) 500 North Akard Street
4000 Lincoln Plaza
Dallas, Texas 75201
FAX: (214) 740-4010
with a copy to: Michael R. Rochelle, Esq.
(which shall not Rochelle & Hutcheson, L.L.P.
constitute notice) 2929 Carlisle, Suite 222
Dallas, Texas 75204
FAX: (214) 953-0185
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, facsimile, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is
delivered to the proper address for notice of the individual for whom it is
intended. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
m. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Florida excluding its
conflict of laws principles.
n. Amendments and Waivers. No amendment or waiver of any
----------------------
provision of this Agreement shall be valid unless the same shall be in writing
and signed by Search Capital and US Lending and approved by the Bankruptcy
Court and the Committees. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach or warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
o. Severability. Any term or provision of this Agreement
------------
that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the Parties agree that the court
making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that expresses to the fullest extent possible the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified after the expiration of the time within which the judgment may be
appealed.
p. Expenses. Except as otherwise specified, each of the
--------
Parties will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, in the event of a dispute
arising hereunder, or under any agreement executed in connection herewith,
including without limitation, a dispute arising prior to closing, the
prevailing party shall be entitled to an award of its costs arising from such
dispute, including, without limitation, reasonable attorneys fees and expenses
including those incurred in bankruptcy proceedings.
q. Construction. The language used in this Agreement will be
------------
deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
Any reference to any federal, state, local, or foreign statute or law shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty or covenant.
r. Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
s. Specific Performance. Each of the Parties acknowledges
--------------------
and agrees that the other Party would be damaged irreparably if any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, subject to the
limitation of remedies contained elsewhere in this Agreement (including
without limitation, Section 2(g) above), each of the Parties agrees that the
other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which it may be
entitled, at law or in equity.
t. Entire Agreement. This Agreement (including the documents,
-----------------
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, that may have related in any way to the
subject matter hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
U.S. LENDING CORPORATION, as debtor-in possession
By: ------------------------------------
Name: Robert Spielman
Title: Executive Vice President
SEARCH CAPITAL GROUP, INC.
By: ------------------------------------
Name: -----------------------------
Title: ----------------------------
SEARCH FUNDING III, INC.
By: ------------------------------------
Name: -----------------------------
Title: ----------------------------
LIMITED JOINDER OF COMMITTEES
-----------------------------
The Official Committee of Unsecured Creditors and the Official Equity
Committee of U.S. Lending Corporation hereby (i) agree to support the sale of
the Acquired Assets described in the Agreement; (ii) consent to U.S. Lending's
execution and delivery of the Agreement and consummation of the transaction
contemplated thereunder, (iii) agree to take all actions reasonably requested
by U.S. Lending to enable the parties to the Agreement to consummate the
contemplated transactions and (iv) agree to comply with their obligations
arising under Section 8(g) of the Agreement.
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF: OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF U.S. LENDING
CORPORATION
- ---------------------------- By: ----------------------------
PRINT NAME OF WITNESS BELOW: Name: Joseph Fowler
- ---------------------------- Title: Chairman
- ----------------------------
PRINT NAME OF WITNESS BELOW:
- ----------------------------
OFFICIAL EQUITY COMMITTEE OF U.S.
LENDING CORPORATION
- ---------------------------- By: ----------------------------
PRINT NAME OF WITNESS BELOW: Name:
- ---------------------------- Title:
- ----------------------------
PRINT NAME OF WITNESS BELOW:
- ----------------------------
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the Balance
Sheet and Statement of Operations for
the Quarter ended June 30, 1996 and is
qualified in its entirety by reference
to such 10-Q.
</LEGEND>
<S> <C>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 20,871,000
<SECURITIES> 0
<RECEIVABLES> 24,723,000
<ALLOWANCES> 10,506,000
<INVENTORY> 356,000
<CURRENT-ASSETS> 21,227,000
<PP&E> 2,164,000
<DEPRECIATION> 1,176,000
<TOTAL-ASSETS> 36,916,000
<CURRENT-LIABILITIES> 4,587,000
<BONDS> 0
175,000
0
<COMMON> 302,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,329,000
<SALES> 0
<TOTAL-REVENUES> 1,659,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,382,000)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (891,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (891,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (891,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
