<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997
REGISTRATION NO. 333-20551
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SEARCH FINANCIAL SERVICES INC.
(FORMERLY SEARCH CAPITAL GROUP, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 41-1356819
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<TABLE>
<S> <C> <C>
ELLIS A. REGENBOGEN, ESQ.
EXECUTIVE VICE PRESIDENT AND Copy to:
GENERAL COUNSEL DARYL B. ROBERTSON, ESQ.
600 NORTH PEARL STREET SEARCH FINANCIAL SERVICES INC. BRACEWELL & PATTERSON, L.L.P.
SUITE 2500 600 NORTH PEARL STREET, SUITE 2500 500 NORTH AKARD ST., SUITE 4000
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 965-6000 (214) 965-6000 (214) 740-4000
(Address, including zip code and telephone (Name, address, including zip code and
number, including area code, of telephone number, including area code,
registrant's principal executive offices) of agent for service)
</TABLE>
Approximate date of commencement of proposed sale to the public:
FROM TIME TO TIME FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SEARCH FINANCIAL SERVICES INC.
1,277,024 SHARES OF COMMON STOCK
319,256 SHARES OF 9%/7% CONVERTIBLE PREFERRED STOCK
1,277,030 WARRANTS EXPIRING MARCH 14, 2001
This Prospectus relates to the offer and sale by certain selling
securityholders ("Selling Securityholders") named herein under "Selling
Securityholders" of up to (i) 159,628 shares of common stock, $.01 par value
per share ("Common Stock"), 319,256 shares of 9%/7% Convertible Preferred
Stock, $.01 par value per share ("Preferred Stock"), and 1,277,030 Warrants to
purchase shares of Common Stock expiring March 14, 2001 ("Warrants") of Search
Financial Services Inc. ("Search"), and (ii) a maximum of 957,768 shares of
Common Stock that may be issued upon conversion of such shares of Preferred
Stock and 159,628 shares of Common Stock that may be issued upon exercise of
such Warrants. Furthermore, this Prospectus relates to the continuing offer by
Search of up to 159,628 shares of Common Stock issuable upon exercise of the
Warrants. All Warrants and shares of Common Stock and Preferred Stock offered
by this Prospectus are referred to herein as the "Securities."
Search will receive no part of the proceeds of any sales by the
Selling Securityholders. All expenses of registration incurred in connection
with this offering are being borne by Search, but all selling and other
expenses incurred by Selling Securityholders will be borne by the Selling
Securityholders. None of the Securities have been registered prior to the
filing of the Registration Statement of which this Prospectus is a part. The
outstanding Securities were originally issued by Search in private
transactions. See "Selling Securityholders."
The Selling Securityholders may from time to time sell all or a
portion of their Securities in the over-the- counter market or on any national
securities exchange or automated interdealer quotation system on which the
Common Stock, Preferred Stock or Warrants may hereafter be listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Securities may be
sold directly or through brokers or dealers or in a distribution by one or more
underwriters on a firm commitment or best efforts basis. See "Plan of
Distribution." Each Selling Securityholder and any agent or broker-dealer
participating in the distribution of the Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Any commissions received by and any profit on the resale of
the Securities may be deemed to be underwriting commissions or discounts under
the Securities Act.
The Securities have not been registered for sale by the Selling
Securityholders under the securities laws of any state as of the date of this
Prospectus. Brokers or dealers effecting transactions in the Securities on
behalf of the Selling Securityholders should confirm the registration thereof
under the securities laws of the states in which such transactions occur or the
existence of an exemption from registration.
Search's Common Stock and Preferred Stock are traded on The Nasdaq
National Market ("NASDAQ") under the symbols "SFSI" and "SFSIP," respectively.
The last reported sales prices of the Common Stock and Preferred Stock on
NASDAQ on July 16, 1997 were $4 3/4 per share of Common Stock and $10 1/8 per
share of Preferred Stock, respectively. The Warrants have been approved for
trading on NASDAQ, but are not actively trading.
SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July ______, 1997.
<PAGE> 3
AVAILABLE INFORMATION
Search is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by Search with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549-1004, and at the following Regional Offices of the Commission:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004. In addition, the Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including Search (as of November 1995). The address of such Web site is
http://www.sec.gov.
Search has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus, which
constitutes a part of the Registration Statement, omits certain of the
information set forth in the Registration Statement. Reference is hereby made
to the Registration Statement and to the exhibits thereto for further
information with respect to Search and the Securities. Statements contained
herein concerning the provisions of any documents are necessarily summaries of
such documents, and each such statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
Copies of the Registration Statement and the exhibits thereto are on file at
the offices of the Commission and may be obtained upon payment of the fee
prescribed by the Commission, or may be examined without charge at the public
reference facilities of the Commission described above.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY STATE OR
OTHER JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Search with the Commission are
incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K
for the fiscal year ended March 31, 1997, (ii) Current Reports on Form 8-K
dated April 14, 1997, May 1, 1997, May 16, 1997 and June 25, 1997, and (iii)
the description of the Common Stock, Preferred Stock and Warrants contained in
Search's registration statements on Form 8-A, including any amendments or
reports filed for the purpose of updating such information.
All documents subsequently filed by Search pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of this offering will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated
by reference will be deemed to be modified or superseded for the purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed incorporated document or in any accompanying prospectus
supplement modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Search will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents incorporated by reference in this
Prospectus, other than exhibits to such documents. Requests should be directed
to Search Financial Services Inc., 600 North Pearl Street, Suite 2500, Dallas,
Texas 75201, Attention: Ellis A. Regenbogen, Secretary (telephone: (214)
965-6000).
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<PAGE> 4
THE COMPANY
Search Financial Services Inc. (together with its subsidiaries, when
applicable, the "Company") is a financial services company specializing in the
purchase and management of used motor vehicle receivables, typically those owed
by consumer obligors who do not qualify for traditional financing. The Company
purchases its receivables either through the purchase of individual receivables
from franchise and independent automobile and light truck dealers ("Dealers")
who originate them in the sale of their vehicles or through bulk purchases of
receivables from Dealers and other finance companies. The Company has also
commenced consumer lending activities.
The automobile finance industry is the second largest consumer finance
market in the United States totaling $377 billion as of December 1996,
according to the Federal Reserve Board. Automobile financing is usually
provided by finance companies affiliated with manufacturers and banks, credit
unions and independent finance companies. The financings are generally
segmented according to the type of car sold (new or used) and the credit
characteristics of the consumer obligor (generally, prime or non-prime).
Non-prime obligors are individuals who, due to either incomplete or imperfect
credit histories, are unable to obtain traditional financing through a bank or
one of the finance companies affiliated with manufacturers. It is generally
believed that non-prime financing currently accounts for approximately 20% of
the automobile finance market. Through its wholly-owned operating subsidiary,
Automobile Credit Acceptance Corp., the Company specializes in purchasing
receivables secured by used cars and light trucks and owed by non-prime
obligors.
The Company commenced purchasing used motor vehicle receivables in
1991. Until 1994, it financed its purchases through (i) a series of public and
private offerings of asset-backed securities issued by its wholly-owned
subsidiaries (the "Fund Subsidiaries") and of the Company's stock and (ii) a
line of credit. In its receivables purchasing activities, the Company
originally placed particular emphasis on the characteristics of the receivables
and the underlying vehicle collateral. The Company's purchase discounts were
based on its assumptions regarding the average collection rates for the
receivables.
In 1994, the Company commenced to experience financial difficulties
primarily due to lower than expected collection rates on its receivables and
lower than expected recoveries on the sale of repossessed vehicles. The
Company caused its Fund Subsidiaries to reorganize their affairs under Chapter
11 bankruptcy proceedings commencing in August 1995. The Company's plan of
reorganization for the Fund Subsidiaries was confirmed in March 1996. Under
the plan of reorganization, approximately $69 million of indebtedness of the
Fund Subsidiaries was converted into approximately 1.5 million shares of Common
Stock, approximately 1.9 million shares of Preferred Stock and Warrants to
purchase 625,000 shares of Common Stock.
Since the beginning of 1996, the Company's management has implemented
a new receivables purchasing program. The program places more emphasis on
obligors with job and residence stability, higher income and re-established
positive credit histories. The Company expects that the program will result in
lower repossession rates, higher average collections and less administrative
expenses for its receivables. To date, the Company has experienced lower first
payment defaults (less than 5% for receivables purchased during the quarter
ended March 31, 1997) and delinquency rates (as of March 31, 1997, the
delinquency rate (i.e., receivables 60 days or more past due) was less than 4%
of total receivables outstanding). The Company expects to be able to judge the
results of the program adequately when the receivables purchased under the
program during the fiscal year ended March 31, 1997 have a weighted average
life of approximately 12 months.
The Company's growth strategy also includes acquiring portfolios of
non-prime used motor vehicle receivables and other non-prime used motor vehicle
finance companies. The Company is expanding into other consumer finance areas,
including personal property loans and home equity loans. The Company intends
to expand its operations geographically across the U.S. and Puerto Rico and to
finance its operations through lines of credit from banks and finance
companies, public and private offerings of equity and debt securities and
securitization of its receivables.
On November 22, 1996, the Company effected a one-for-eight reverse
stock split of its Common Stock and Preferred Stock. Retroactive adjustments
to numbers of shares of Common Stock and Preferred Stock and stock prices
throughout this Prospectus have been made to reflect the reverse stock split.
On February 7, 1997, the Company entered into an agreement to acquire
MS Financial, Inc. ("MSF"). The acquisition is subject to customary
conditions, including approvals of the stockholders of both the Company and
MSF. MSF's principal stockholders, which together own approximately 77% of
MSF's outstanding common stock, have agreed to vote their shares in favor of
the acquisition. The affirmative vote of a majority of the outstanding shares
of MSF's common stock is required for approval of the acquisition by MSF's
stockholders. As consideration for the acquisition, the Company will issue to
the stockholders of MSF between 2,920,682 and 3,859,473 shares of Common Stock,
depending on the average trading price of the Common Stock over the 10 trading
days ending on the fifth business day prior to MSF's stockholder meeting. As of
March 31, 1997, MSF had total assets of $91,015,000, total liabilities of
$73,852,000 and stockholders' equity of $17,162,000.
The Company's principal office is located at 600 North Pearl Street,
Suite 2500, Dallas, Texas 75201. The Company's telephone number is (214)
965-6000.
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<PAGE> 5
RISK FACTORS
An investment in the Securities involves a high degree of risk. A
prospective investor should carefully consider all of the information contained
or incorporated by reference in this Prospectus in determining whether to
acquire any of the Securities and, in particular, the following elements of
risk:
Results of Operations. The Company does not have a history of
profitable operations. Although the Company had net income before dividends of
$1,283,000 for the fiscal year ended March 31, 1997, it had a net loss before
dividends of $2,671,000 for the six months ended March 31, 1996 and a net loss
after dividends of $4,871,000 for the fiscal year ended March 31, 1997. In
addition, the Company had net losses before dividends of $19,894,000 and
$25,950,000 for the fiscal years ended September 30, 1995 and 1994,
respectively. The Company's lower net losses for the six months ended March
31, 1996, as compared to prior periods, resulted primarily from an
extraordinary gain of $8,709,000 realized on the exchange of its equity
securities for debt cancellation in connection with the reorganization of the
Fund Subsidiaries. The lower net loss for the fiscal year ended March 31,
1997, as compared to prior periods, was due primarily to a net reduction of
prior credit losses of approximately $7,000,000 and significant general and
administrative expenses incurred during the prior periods related to the
reorganization of the Fund Subsidiaries. The Company's future profitability
will be dependent upon the results of operations from its receivables
purchasing and management business and other businesses. There can be no
assurance that the Company's businesses will be profitable in the future.
Availability of Funding. The purchase of receivables and the making
of consumer loans requires the Company to raise significant amounts of funds
from various sources, including banks, finance companies and other lenders.
There can be no assurance that lenders will provide sufficient credit on terms
the Company will find acceptable. The Company has, however, signed a letter of
intent with an affiliate of a large Wall Street investment firm with respect to
a $100 million, two-year revolving warehouse line of credit facility. The
letter of intent is subject to certain conditions, including negotiation and
execution of mutually acceptable definitive facility documents and completion
of due diligence. The Company's planned financing sources also include (i) the
private placement of $30,000,000 of senior subordinated notes with warrants to
purchase Common Stock or indebtedness convertible into Common Stock and (ii)
securitization of its receivables. The Company will be required to provide
adequate collateral in order to securitize its receivables. This collateral may
be in one or more of several forms, including third party insurance, cash
collateral accounts, over-collateralization and subordinated investment funds.
The costs of providing collateral for a securitization may outweigh the
benefits that can be obtained from the securitization. The Company's prior
securitizations through the Fund Subsidiaries were not successful due to lower
than expected collection rates on receivables and lower than expected
recoveries on the sale of repossessed vehicles. The Company caused its Fund
Subsidiaries to reorganize their affairs under Chapter 11 bankruptcy
proceedings commencing in August 1995. The Company's plan of reorganization for
the Fund Subsidiaries was confirmed in March 1996. Under the plan of
reorganization, approximately $69 million of indebtedness of the Fund
Subsidiaries was converted into equity securities issued by the Company. There
can be no assurance that funding will be available to the Company through
borrowings, subordinated note or convertible debt offerings or securitizations
or, if available, that such funding will be on terms acceptable to the Company.
Even if available, there can be no assurance that the future borrowing or
securitization activities of the Company will be profitable.
Risks in Motor Vehicle Receivables Purchasing and Consumer Finance
Businesses. The Company faces all of the risks inherent in the motor vehicle
receivables purchasing business and in the consumer finance business. There
can be no assurance that the Company will properly evaluate the receivables
that it purchases or the borrowers to whom it makes consumer loans. There can
be no assurance that the Company will be able to purchase sufficient
receivables and make a sufficient number of consumer loans to profitably employ
its capital and borrowed funds. The Company purchases receivables whose
obligors, and makes loans to consumers who, do not typically qualify for
traditional financing as a result, among other things, of poor credit history,
lack of steady employment and/or low income. These individuals generally have
higher percentage default rates than individuals with better credit histories.
In addition, the vehicles securing the Company's receivables are subject to
deterioration in value due to the passage of time or usage by the obligor, and
the Company's loans to consumers may be unsecured. The Company has limited
historical information related to the quality of receivables it is purchasing
under its new receivables purchasing program. There can be no assurance that
the Company's efforts to purchase higher credit quality receivables will be
successful or profitable. In addition, the Company has little history in the
consumer loan business. A general economic downturn could adversely affect the
ability of obligors and borrowers to make payments to the Company on its
receivables and loans. Substantial unexpected delinquencies or charge-offs on
its receivables or loans could have a material adverse effect on the Company's
results of operations. The Company's provisions for credit losses were 144%,
23%, 141% and 18% of the Company's interest revenues for the year ended
September 30, 1994, the year ended September 30, 1995, the transition period
ended March 31, 1996 and the fiscal year ended March 31, 1997, respectively.
As of March 31, 1997, the Company had an allowance for credit losses of
$5,854,000, which was approximately 11% of its net receivables as compared to
$13,353,000, or 44% of net receivables, as of March 31, 1996. The allowance
for credit losses as a percent of net outstanding receivables has decreased
from 44% as of March 31, 1996 to 11% as of March 31, 1997. The decrease is
primarily attributable to the significant change in the Company's receivables
portfolio from March 31, 1996 to March 31, 1997. All the Company's receivables
as of March 31, 1996 were purchased under its prior purchasing program for
lower credit quality receivables. As of March 31, 1997, only approximately 15%
of the Company's portfolio was represented by those receivables. The remainder
of the portfolio was compiled of new originations under the Company's
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<PAGE> 6
new receivables purchasing program and receivables acquired in bulk purchases
and other acquisitions. There can be no assurance that the provision for
credit losses is sufficient to cover all losses that the Company may incur.
Acquisition Strategy. The Company intends to continue to pursue its
current growth strategy, which includes acquiring portfolios of non-prime used
motor vehicle receivables and other non-prime used motor vehicle finance
companies. There can be no assurance that the Company will be able to make
profitable acquisitions or successfully integrate any businesses that it
acquires into its operations without substantial costs, delays or other
problems. In addition, there can be no assurance that any acquired businesses
will be profitable at the time of their acquisition or will achieve
profitability that justifies the investment therein or that the Company will be
able to realize expected operating and economic efficiencies following such
acquisitions. Acquisitions may involve a number of special risks, including
adverse effects on the Company's reported operating results, devotion of
management's attention, increased burdens on the Company's management resources
and financial controls, dependence on retention and hiring of key personnel,
unanticipated problems or legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's results of operations.
Leverage. The Company intends to borrow substantial funds to finance
its operations. As the Company's debt leverage increases, its vulnerability to
adverse general economic conditions and to increased competitive pressures will
also increase.
Increases in Interest Rates. While the automobile receivables
purchased by the Company in most cases bear interest at a fixed rate, often
near the maximum rates permitted by law, the Company will finance its purchases
of a substantial portion of such receivables by incurring indebtedness with
floating interest rates. The Company's interest costs will increase during
periods of rising interest rates. Such increases may decrease the Company's
net interest margins and thereby adversely affect the Company's profitability.
Dealers. The Company plans to expand its receivables purchasing
activities by re-establishing relationships and establishing new relationships
with Dealers. Dealers often already have favorable secondary financing
sources, which may restrict the Company's ability to develop Dealer
relationships and delay the Company's growth. Competitive conditions in the
Company's markets may result in a reduction in the price discounts available
from or fees paid by Dealers and a lack of available receivables, which could
adversely affect the Company's profitability and its growth plans.
Reliance on Information Processing Systems. The Company's business
depends upon its ability to store, retrieve, process and manage significant
amounts of information. Interruption, impairment of data integrity, loss of
stored data, breakdown or malfunction of the Company's information processing
systems caused by telecommunications failure, conversion difficulties,
undetected data input and transfer errors, unauthorized access, viruses,
natural disasters, electrical power outage or disruption or other events could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Geographic Concentration. Currently, the Company is purchasing
receivables whose obligors are located primarily in Texas and certain
southeastern states. Although the Company expects to expand its operations to
other geographic areas, the Company's performance may be adversely affected by
regional or local economic conditions. The Company may from time to time make
acquisitions in regions outside of its current operating areas. There can be
no assurance that the Company's expansion into new geographic areas will
generate operating profits.
Key Officer. The Company's future success depends in some measure
upon its Chief Executive Officer who has significant experience in the consumer
finance business. An unexpected loss of services of this officer could have a
material adverse effect upon the Company. The Company does not currently
maintain key person life insurance on the Chief Executive Officer but intends
to seek such coverage.
Competition. The Company has numerous competitors engaged in the
business of buying non-prime motor vehicle receivables and in making consumer
loans. Many of these competitors have significantly greater financial
resources and staff than the Company. Some of these competitors may generally
be able or willing to accept more risk in their activities than the Company.
Competition may reduce the number of suitable receivables offered for sale to
the Company and increase the bargaining power of Dealers with which the Company
seeks to do business. These competitive factors could have a material adverse
effect upon the operations of the Company.
Regulation. Numerous federal and state consumer protection laws
impose requirements upon the origination and collection of consumer
receivables. These federal laws and regulations include, among others, the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Indebtedness Collection
Practices Act, the Magnuson-Moss Warranty Act and the Federal Reserve Board's
Regulation Z. The Company believes that it maintains all licenses and permits
required for its current operations and is in substantial compliance with all
applicable federal, state and local laws. There can be no assurance, however,
that the Company will be able to maintain all requisite licenses and permits.
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<PAGE> 7
State laws regulate, among other things, the interest rate chargeable
on, and terms and conditions of, motor vehicle retail installment loans. These
laws also impose restrictions on consumer transactions and require loan
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions. As a consumer finance company, the Company is subject to
various consumer claims and litigation seeking damages and statutory penalties
based upon, among other theories of liability, usury, wrongful repossession,
fraud and discriminatory treatment of credit applicants.
The Federal Trade Commission ("FTC") has adopted a
holder-in-due-course rule which has the effect of subjecting persons who
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. Another FTC rule requires that all
sellers of used vehicles prepare, complete and display a "Buyer's Guide" which
explains the warranty coverage (if any) for such vehicles. Failure of the
Dealers to comply with state and federal credit and trade practice laws and
regulations could result in consumers having rights of rescission and other
remedies that could have an adverse effect on the Company.
The failure to comply with legal requirements applicable to its
business could have a material adverse effect on the Company's results of
operations. Further, the adoption of additional, or the revision of existing,
laws and regulations could have a material adverse effect on the Company's
business.
Potential Adverse Effects of Litigation. The Company and certain of
its former officers and directors are defendants in a case styled Janice and
Warren Bowe, et. al. vs. Search Capital Group, Inc., et. al., Cause No.
1:95CSV649BR, filed in the Federal District Court for the Southern District of
Mississippi (the "Bowe Action"). The plaintiffs, who are former holders of
notes issued by three of the Company's subsidiaries, allege that the
registration statements pursuant to which the notes were sold contained
material misrepresentations and omissions of fact with respect to collection
rates on contracts, repossession rates, the Company's accounting controls and
computer systems, the operating results and financial condition of the Company
and its subsidiaries and the ability of the subsidiaries to pay the notes at
the projected rates of return, and were, therefore, materially false and
misleading in violation of the securities laws. The plaintiffs seek unspecified
damages, rescission, punitive damages and other relief. The plaintiffs also
seek establishment of a class of plaintiffs consisting of all persons who have
purchased notes issued by the three subsidiaries. While the Company believes
the suit is without merit and has been vigorously defending itself, it has also
sought to reach a negotiated settlement of all claims of all potential class
members in the Bowe Action that would also include a settlement of all claims
of the litigation trust (the "Litigation Trust") established under the plan of
reorganization of eight of the Company's subsidiaries for the purpose, among
other things, of pursuing causes of action of the former holders of notes
issued by those subsidiaries who assigned their claims related to the Bowe
Action to the Litigation Trust.
While a settlement agreement in principle subject to a number of
conditions was reached in March 1997 that would have required the Company to
pay $350,000 in cash and issue shares of Common Stock having a value of
$1,375,000, the Company suspended further negotiations because of the decline
in the market price of the Common Stock during the first half of May. The
Company intends to seek resumption of negotiations when the market price of the
Common Stock recovers to its pre-May trading range, but there can be no
assurance that the other parties would be willing to resume negotiations or
that a settlement on terms acceptable to the Company will be concluded. The
court had dismissed the plaintiffs' motion for class certification, without
prejudice and subject to renewal and final disposition pending the outcome of
settlement discussions. The Company has a reserve of $500,000 related to the
Bowe Action. A settlement or judgment in excess of this reserve could
adversely affect the Company.
The Company and its wholly-owned subsidiary, Automobile Credit
Acceptance Corp. ("ACAC"), are defendants in a pending civil action filed in
the 153rd Judicial District Court, Tarrant County, Texas, styled Auto Star
Solutions, Inc. v. Tim Clothier and Automobile Credit Acceptance Corp., Cause
No. 153-144940. The plaintiff alleges the existence of a partnership between
the plaintiff and another defendant and seeks damages, actual and exemplary,
and an injunction for alleged conversion and misappropriation of certain
property, including computer programs, allegedly owned by the plaintiff. In
this action, the plaintiff alleges that ACAC wrongfully assisted its
co-defendant and tortiously interfered with the plaintiff's contracts and
business and has claimed, as actual damages, $680,000. The Company believes
that these allegations are without merit. The trial of this action commenced on
July 14, 1997. The Company is vigorously defending itself at the trial. There
can be no assurance that a judgment or settlement in excess of the
approximately $30,000 reserved for this matter would not adversely affect the
Company.
Dividends on Preferred Stock. The terms of the Preferred Stock
specify that after March 15, 1997, the Company will continue to pay accrued
dividends entirely in cash unless it is prohibited from paying the dividends in
cash by Delaware law or the terms of any loan agreement of $5,000,000 or more.
If the Company is prevented from paying any dividend entirely in cash, the
terms of the Preferred Stock require the Company to pay the dividend in the
form of a mixture of cash and Common Stock to the extent possible under
Delaware law and any applicable loan agreement or, if necessary, entirely in
Common Stock, provided the average market price per share of the Common Stock
is $4.00 or greater for the 20 trading
-6-
<PAGE> 8
day period ending five days prior to the date of payment of the dividend in
Common Stock. The Company has entered into a loan agreement with Hibernia
National Bank that prohibits any payment of dividends by the Company if as a
result the sum of the Company's tangible net worth and subordinated debt, less
any loans to insiders, would be less than $15,000,000 prior to September 30,
1997 and $22,500,000 thereafter. This covenant, and covenants in other loan
agreements into which the Company may enter, may in the future prohibit,
directly or indirectly, the payment of cash dividends on Preferred Stock. In
addition, the minimum market price for the issuance of shares of Common Stock
in lieu of cash may not be satisfied. Although, under existing conditions, the
Company believes that it would be able to continue to pay cash dividends on the
Preferred Stock in the near future, the Company has commenced a private
offering of senior subordinated notes the proposed terms of which may limit
payment of cash dividends on the Preferred Stock, and the proposed terms of the
Company's $100 million warehouse line of credit may also limit payment of cash
dividends. There can be no assurance that the Company will be able to continue
to pay dividends on Preferred Stock in cash or that it will be able to satisfy
the minimum price condition for issuance of shares of Common Stock as a
dividend on Preferred Stock. Issuance of shares of Common Stock as a dividend
on Preferred Stock will adversely affect the relative voting power and
ownership percentages of the holders of Common Stock.
Absence of Developed Public Market for Securities. The Company's
Common Stock and Preferred Stock are traded on NASDAQ. Trading volumes in
these securities are volatile. No trading market has developed for the
Warrants. No assurance can be given that a trading market will develop for the
Warrants or that a more active and widespread trading market will develop for
the Common Stock and Preferred Stock. There can be no assurance that
purchasers will be able to resell their Securities at or above the price at
which they purchased them or without considerable delay, if at all. If a more
active and widespread market does develop, the prices may be highly volatile.
Further, the Commission's rules may apply to impose certain risk disclosure
requirements and suitability standards on broker-dealers who effect
transactions in low price stocks. These rules may have a negative impact on
trading markets for low price stocks. Consequently, if the Securities should
be traded at low prices, no assurances can be given that there will develop or
continue to be any market for the Securities. Factors such as those discussed
herein may have a significant effect on the market prices of the Securities.
Lack of Dividends on Common Stock. The Company has not paid dividends
on the Common Stock and does not expect to pay dividends on the Common Stock
for the foreseeable future. Furthermore, the Company may not pay dividends on
the Common Stock while any accrued dividends on the Preferred Stock and other
shares of preferred stock remain unpaid. As of March 31, 1997, the Company had
accrued approximately $1.7 million of dividends on its preferred stock for the
quarter ended on that date. To date, the Company has paid all required
dividends on its preferred stock. The Company's preferred stock dividends
constitute a substantial cash outflow that may have a material adverse effect
on the Company's future financial condition and the future market value of the
Common Stock. See "Risk Factors--Dividends on Preferred Stock."
Senior Rights of Preferred Stock. Search's Restated Certificate of
Incorporation, as amended (the "Certificate"), authorizes the issuance of
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue shares of
preferred stock that have preferences over the Common Stock with respect to the
payment of dividends, liquidation, conversion, voting or other rights which
could adversely affect the voting power and ownership interests of holders of
Common Stock. The issuance of shares of preferred stock or the issuance of
rights to purchase such shares could have the effect of discouraging, delaying
or preventing a change in control of the Company. There are currently issued
and outstanding 2,456,098 shares of Preferred Stock and 49,994 shares of
Search's 12% Senior Convertible Preferred Stock. These shares have rights that
are superior to the rights of holders of Common Stock with respect to
dividends, liquidation, conversion and voting which could adversely affect the
rights of holders of Common Stock.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus 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," "project," "goal," "continue," or
comparable terminology. Such statements involve risks or uncertainties and are
qualified in their entirety by the cautions and risk factors set forth above
under "Risk Factors" and contained in other Company documents filed with the
Securities and Exchange Commission and incorporated herein by reference.
USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of any of
the Securities by the Selling Securityholders. Because of the unpredictable
timing of receipt, the Company has no current plans for use of any proceeds
that it may receive from the exercise of any of the Warrants. The Company,
however, presently expects that any such proceeds will be employed for working
capital purposes.
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<PAGE> 9
DESCRIPTION OF SECURITIES
The following description of the Securities is a summary which does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Certificate.
GENERAL
The Certificate authorizes the issuance of two classes of capital
stock, consisting of 130,000,000 shares of Common Stock, and 60,000,000 shares
of preferred stock, par value $0.01 per share (the "Authorized Preferred
Stock"). The Certificate reserves to Search's Board of Directors the power to
establish the rights and preferences and to designate series of the Authorized
Preferred Stock. In accordance with this power, the Company's Board of
Directors has designated and established (i) a series consisting of 400,000
shares designated as the "12% Senior Convertible Preferred Stock" and (ii) a
series consisting of 30,000,000 shares designated as the "9%/7% Convertible
Preferred Stock."
As of June 10, 1997, there were outstanding 3,016,444 shares of Common
Stock, 2,456,098 shares of Preferred Stock and 49,994 shares of 12% Senior
Convertible Preferred Stock. As of the same date, there were outstanding
various warrants and options to purchase a total of 1,175,774 shares of Common
Stock. In addition, the Company is obligated to issue 146,381 shares of Common
Stock pursuant to the settlement of certain litigation in April 1996. The
Company has committed to issue warrants and options to purchase an additional
750,000 shares of Common Stock.
American Securities Transfer and Trust, Inc., Denver, Colorado, serves
as the transfer agent and registrar for the Common Stock, Preferred Stock and
Warrants.
COMMON STOCK
The shares of Common Stock are equal in all respects. There are no
preemptive rights, conversion rights, redemption privileges or sinking funds
with respect to Common Stock. Dividends on Common Stock may be paid if, as and
when declared by the Board of Directors out of funds legally available for
distributions and subject to the prior rights of holders of the outstanding
Authorized Preferred Stock.
Holders of Common Stock are entitled to one vote for each issued and
outstanding share held of record at each meeting of shareholders. There is no
cumulative voting for the election of directors.
In any liquidation or distribution of assets of the Company, whether
voluntary or involuntary, holders of Common Stock are entitled to receive pro
rata the assets remaining after creditors have been paid in full and holders of
the Company's outstanding Authorized Preferred Stock have received their full
liquidation preferences. All outstanding shares of Common Stock of the Company
are, and the shares of Common Stock into which Preferred Stock may be converted
and for which Warrants may be exercised will be, fully paid and nonassessable.
PREFERRED STOCK
Dividends. Holders of Preferred Stock are entitled to receive, out of
funds legally available therefor, non- cumulative dividends at a per annum rate
of (i) $2.52 per share until March 31, 1999 ("End Date"), and (ii) $1.96 per
share after the End Date. The Company is required to pay in cash the dividends
accruing prior to March 15, 1997 and thereafter to the extent Delaware law or
the terms and conditions of any loan agreement for a loan of $5,000,000 or more
do not limit or prevent the payment by the Company of cash dividends on
Preferred Stock. To the extent that the Company's right to pay cash dividends
is limited or prevented, the Company may pay the dividends in the form of
Common Stock so long as the average closing trading price for a share of
Common Stock is $4.00 or greater during the 20 trading day period ending five
days prior to the payment of such dividend. If the Company is prevented from
paying cash dividends by a loan agreement and the average closing trading price
of the Common Stock is less than $4.00, the Company expects not to pay any
dividends in any form on the Preferred Stock. The dividends are payable on or
about the 15th day of the month following the end of each quarter to holders of
record as of the last day of the calendar quarter. The Company may not make
any dividend or distribution (other than a dividend payable in Common Stock or
other junior capital stock) on, or purchase or redeem, any of its Common Stock
or other capital stock that ranks junior to Preferred Stock unless all accrued
and unpaid dividends on Preferred Stock have been paid or declared and set
aside for payment.
The Company has entered into a loan agreement with Hibernia National
Bank that has a minimum net worth covenant. The covenant prohibits any payment
of dividends by the Company if as a result the sum of the Company's tangible
net worth and subordinated debt, less any loans to insiders, would be less than
$15,000,000 prior to September 30, 1997 and $22,500,000 thereafter. This
covenant, and covenants in other loan agreements into which the Company may
enter, may in the future prohibit, directly or indirectly, the payment of cash
dividends on Preferred Stock. In addition, the minimum market price for the
issuance of shares of Common Stock in lieu of cash may not be satisfied. The
Company has commenced a private offering of senior subordinated notes the
proposed terms of which would prohibit payment of cash dividends on the
Preferred Stock until certain financial conditions are satisfied by the
Company, and the proposed terms of the Company's $100 warehouse line of credit
would prohibit payment of cash dividends after fiscal 1998 unless certain
financial conditions are satisfied by the Company. There can be no assurance
that the Company will be able to continue to pay
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<PAGE> 10
dividends on Preferred Stock in cash or that it will be able to satisfy the
minimum price condition for issuance of shares of Common Stock as a dividend on
Preferred Stock.
Conversions. Holders of outstanding shares of Preferred Stock may
elect at any time to convert their shares into shares of Common Stock. The
conversion ratio is two shares of Common Stock for each share of Preferred
Stock. The conversion ratio will be proportionately adjusted upon any stock
dividend on Common Stock, any stock split, reverse stock split, stock
combination or reclassification of Common Stock or any merger, consolidation or
combination of the Company with any other entity.
Up to 50% of the outstanding shares of Preferred Stock could be
mandatorily converted into shares of Common Stock at the option of the Company,
at a rate of two shares of Common Stock for one share of Preferred Stock, if
shares of Common Stock trade (i) at a price of $34.00 per share or higher on
any 20 trading days in a period of 30 consecutive trading days between March
16, 1998 and March 15, 1999 or (ii) at a price of $28.00 per share or higher on
any 20 trading days in a period of 30 consecutive trading days after March 15,
1999. Finally, on March 15, 2003, all of the outstanding shares of Preferred
Stock will be mandatorily converted into shares of Common Stock. For the
latter mandatory conversion, each share of Preferred Stock will be convertible
into a number of shares of Common Stock equal to the lesser of (y) three or (z)
the result of dividing the liquidation preference per share for Preferred Stock
by the market price of Common Stock as reported at the close of business on
March 15, 2003. For any mandatory conversion, holders of the converted
Preferred Stock would also be entitled to receive any accrued and unpaid
dividends on their converted shares.
Liquidation Rights. If the Company is liquidated, the holders of
Preferred Stock are entitled to be paid $28.00 per share plus all accrued and
unpaid dividends thereon before any distribution or payment is made to the
holders of Common Stock or any other capital stock of the Company ranking
junior to Preferred Stock. If, upon any liquidation of the Company, the
amounts payable with respect to Preferred Stock and any other stock of the
Company ranking on a parity with Preferred Stock cannot be paid in full, the
holders of such stock share ratably in any such distribution of assets in
proportion to the respective full preferential amounts to which they would
otherwise be entitled. After payment of the full preferential amount to which
the holders of Preferred Stock would be entitled upon any liquidation,
dissolution or winding up, they would have no right or claim to any of the
remaining assets of the Company.
Voting Rights. Each share of Preferred Stock has the same voting
attributes and characteristics as do the shares of Common Stock, which is one
vote per share. If the Company defaults in the payment of any four consecutive
quarterly dividends on outstanding Preferred Stock, the holders of outstanding
Preferred Stock would be automatically entitled to an additional vote per share
and given the right to elect immediately at an emergency meeting of
shareholders, which the Company must hold within thirty days after any such
failure, such additional directors as equals two-thirds of the Company's Board
of Directors determined after such election.
The affirmative vote or consent of the holders of at least 66-2/3% of
all outstanding shares of Preferred Stock, voting as a separate class, is
required (i) to amend, alter or repeal any provision of the Certificate of
Designations establishing the Preferred Stock to adversely affect the relative
rights, preferences, qualifications, limitations or restrictions of the
Preferred Stock or (ii) to effect any reclassification of the Preferred Stock.
The affirmative vote or consent of the holders of at least 50% of all
outstanding shares of Preferred Stock, voting as a separate class, is required
to approve (x) any merger of the Company with another company when the
Company's Board members do not constitute a majority of the board of directors
of the surviving company or (y) any sale of more than 50% of the Company's
assets. In addition, Delaware corporation law provides that the vote of the
holders of a majority of the outstanding shares of any series of Authorized
Preferred Stock, voting separately as a class, is required in order to (i)
increase or decrease the par value of such series of shares or (ii) change the
powers, preferences, or special rights of such series of shares so as to affect
them adversely.
Ranking. Preferred Stock ranks on a parity with the 12% Senior
Convertible Preferred Stock and senior to Common Stock as to rights to
dividends and liquidation preferences.
Subsequent Issuances of Preferred Stock. The Company is prohibited
from issuing Authorized Preferred Stock in the future that is pari passu with
Preferred Stock unless at the time of such issuance all dividends due on
Preferred Stock have been paid in full. The Company is also prohibited from
issuing convertible Authorized Preferred Stock which is senior in rights to
Preferred Stock except that such convertible Authorized Preferred Stock may
carry a then-current market interest rate, which may be higher or lower than
that of Preferred Stock. The Company is also prohibited from issuing preferred
or common stock or warrants or any other form of security to any of its
affiliates for consideration that does not equal or exceed the fair market
value of such security, as determined by an independent third party. The
Company may, nevertheless, issue options or warrants to new or existing
directors or management if such options or warrants are approved by the
Compensation Committee. The Company may also issue shares of Common Stock upon
the exercise of outstanding warrants or options but may not amend or modify
such warrants or options without the approval of the Compensation Committee.
If the Company issues any security for consideration less than its fair market
value, the number of shares of Preferred Stock will be immediately and
appropriately adjusted, and the conversion price of Preferred Stock will be
adjusted downward, to take into account the dilution in value of the security
holdings of former creditors of the Fund Subsidiaries caused by such below fair
market issuance of the Company's securities.
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<PAGE> 11
Other Rights. Preferred Stock is not subject to redemption by the
Company or at the election of the holders thereof. Preferred Stock does not
have any preemptive or sinking fund rights.
WARRANTS
The Board of Directors of Search has authorized the issuance of
Warrants to purchase up to 10,000,000 shares of Common Stock. The Warrants are
governed by a Warrant Agreement dated as of March 22, 1996, as amended by First
Amendment dated July 18, 1996 and Second Amendment dated as of November 22,
1996 (collectively, the "Warrant Agreement"), between the Company and American
Securities Transfer, Inc., acting as the Warrant Agent (the "Warrant Agent").
As of June 9, 1997, there were outstanding 2,516,710 Warrants to purchase an
aggregate of 314,588 shares of Common Stock. In addition, Search is obligated
to issue an additional 5,000,000 Warrants to purchase 625,000 shares of Common
Stock pursuant to the reorganization plan of its Fund Subsidiaries.
The following is a summary of the material provisions of the Warrants,
but does not purport to be a complete description of all provisions of the
Warrants. This summary is qualified in its entirety by reference to the
Warrant Agreement and form of Warrant attached thereto.
Exercise. The holder of a Warrant must pay the exercise price per
Warrant in cash upon any exercise of the Warrant. The exercise price per
Warrant of the Warrants (the "Exercise Price") is $2.25 and increases by $0.25
on March 15 of each successive year as follows: $2.25 from March 15, 1997 to
March 14, 1998, $2.50 from March 15, 1998 to March 14, 1999, $2.75 from March
15, 1999 to March 14, 2000, and $3.00 from March 15, 2000 to the Expiration
Time (as herein defined). A total of eight Warrants is required to purchase
one share of Common Stock. Accordingly, the exercise price per share of Common
Stock purchasable under the Warrants currently is $18.00 and increases by $2.00
on March 15 of each successive year through 2000.
To exercise the Warrants, the Warrant certificate, properly completed
and accompanied by full payment (by check or money order) for all shares of
Common Stock to be purchased, must be surrendered to the Warrant Agent. At
that time (or upon later clearance of funds if an uncertified check is issued
for payment), the exercising holder will be deemed to be the record holder of
the shares of Common Stock issuable upon such exercise. Upon receipt of the
surrendered Warrant certificate and payment in full, the Warrant Agent will
mail or cause to be mailed, to or upon the written instructions of the
exercising holder, certificates representing the number of shares of Common
Stock so purchased. Fractional shares of Common Stock may not be purchased
under the terms of the Warrants.
Termination; Redemption. The Warrants will expire at 5:00 p.m. New
York time on March 14, 2001 (the "Expiration Time"). Within 90 days following
the Expiration Time, the Company must redeem all Warrants remaining unexercised
at the Expiration Time at a redemption price of $0.25 per Warrant (the
"Redemption Price"). Notice of the redemption must be mailed by the Company
not later than 10 days nor more than 60 days prior to the date of redemption to
each record holder of the Warrants. The notice must specify the place for
surrender of the Warrant certificates. Upon surrender of a Warrant
certificate, the holder will be paid the Redemption Price for the Warrant.
Except for the right to receive the Redemption Price, all rights under the
Warrants expire at the Expiration Time.
Anti-Dilution Provisions. In the event of any Common Stock dividend
on the Common Stock, any stock split or any stock combination, then the number
of shares of Common Stock subject to purchase under each Warrant will be
proportionately adjusted so that the holders of the Warrants after such event
shall be entitled to receive upon exercise the number and kind of shares which
they would have owned or been entitled to receive had such Warrants been
exercised immediately prior to such event. In the event of (i) a
recapitalization or reclassification of Common Stock (other than a change of
par value), (ii) any consolidation or merger of the Company with or into
another person or any merger of another person into the Company (other than a
merger that does not result in a reclassification, conversion, exchange or
cancellation of Common Stock), (iii) a sale or transfer of all or substantially
all of the assets of the Company, or (iv) a compulsory share exchange where the
holders of Common Stock receive other securities, cash or property, no
adjustment in the Exercise Price will be made but appropriate provision will be
made so that each holder of Warrants shall have the right to purchase upon
exercise of each Warrant the cash, securities or property to which such holder
would have been entitled had the Warrants been exercised prior to such
transaction. If the Company issues or sells any shares of Common Stock (other
than pursuant to employee stock options granted in good faith by the Board of
Directors or the exercise of any conversion or purchase rights under any
options, warrants, rights to purchase or convertible securities when the
conversion or exercise price at the time of issuance of the security is at
least equal to the fair market value of the Common Stock) for consideration
that is less than the then current market price of Common Stock, the number of
shares of Common Stock for which the Warrants are exercisable will be adjusted
to equal the product of the number of shares for which the Warrants are
exercisable immediately prior to the issuance or sale times the ratio of the
then current market price of the Common Stock to the per share consideration at
which such additional shares of Common Stock are issued or sold. The foregoing
adjustments will be made successively whenever any event listed above shall
occur. If the Company takes any action with respect to its Common Stock that
has an adverse effect on the rights of the Warrantholders, upon the request of
the holders of more than 50% of the Warrants, the Exercise Price and the number
of shares of Common Stock for which the Warrants are exercisable will be
adjusted in such manner as may be equitable in the circumstances.
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<PAGE> 12
Amendments. The Warrant Agent and the Company may amend the Warrant
Agreement to cure ambiguities or correct defects or mistakes or to make changes
that they deem necessary which do not adversely affect the interests of the
Warrantholders. The written consent of holders of not less than 50% of the
outstanding Warrants are required for any other amendments.
Miscellaneous. The Warrants are not subject to conversion. A
registered owner of a Warrant will not have any rights of a stockholder of the
Company by virtue of holding the Warrants, including, without limitation, any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings of stockholders or receive dividends or subscription rights, prior
to the issuance of Common Stock upon exercise thereof.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's ratio of earnings to
combined fixed charges and preferred stock dividends for the last five fiscal
years or transition periods.
<TABLE>
<CAPTION>
Fiscal Year Ended(3)
------------------------------------------------------------------------------------
Mar. 31, 1997 Mar. 31, 1996(1) Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1993(2)
------------- ---------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to 0.42 (0.84) (0.76) (1.57) 0.91
Combined Fixed
Charges and Preferred
Stock Dividends
</TABLE>
- --------------------
(1) Six month transition period.
(2) Nine month transition period.
(3) In each period, the Company's earnings were inadequate to cover fixed
charges and preferred stock dividends. The dollar amounts of the
coverage deficiencies were $4,871,000, $2,998,000, $20,134,000,
$26,190,000, and $391,000 in the periods ended March 31, 1997, March
31, 1996, September 30, 1995, September 30, 1994, and September 30,
1993.
SELLING SECURITYHOLDERS
This Prospectus relates to the offer and sale from time to time (1) by
DACC Liquidation Corp., formerly known as Dealers Alliance Credit Corp.
("DACC"), of up to 159,628 shares of Common Stock, 95,777 shares of Preferred
Stock and 1,277,030 Warrants, as well as a maximum of 287,331 shares of Common
Stock that may be issued upon conversion of the shares of Preferred Stock owned
by DACC and 159,628 shares of Common Stock that may be issued upon the exercise
of the Warrants owned by DACC, (2) by R-H Capital Partners, L.P. ("R-H") of up
to 153,642 shares of Preferred Stock, as well as a maximum of 460,926 shares of
Common Stock that may be issued upon conversion of the shares of Preferred
Stock owned by R-H, and (3) by Kellett Investment Corporation ("Kellett") of up
to 69,837 shares of Preferred Stock, as well as a maximum of 209,511 shares of
Common Stock that may be issued upon conversion of the shares of Preferred
Stock owned by Kellett. Each of these Selling Securityholders acquired its
securities in transactions pursuant to which it obtained the right to have the
offer and sale of its Securities registered under the Securities Act.
The following table provides certain information with respect to the
Selling Securityholders, and the number of shares of Common Stock and Preferred
Stock, and the number of Warrants, owned, offered and to be owned after the
offering by each Selling Securityholder.
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<PAGE> 13
<TABLE>
<CAPTION>
SELLING MAXIMUM NUMBER OF SECURITIES SECURITIES TO BE OWNED
SECURITYHOLDERS SECURITIES OWNED BEFORE OFFERING TO BE SOLD IN THE OFFERING AFTER OFFERING
--------------- ------------------------------------- --------------------------------- -----------------------------
Common Preferred Common Preferred Common Preferred
Stock Stock Warrants Stock Stock Warrants Stock Stock Warrants
---------- --------- -------- --------- --------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DACC Liquidation 606,587 (1) 95,777 1,277,030 606,587(1) 95,777 1,277,030 0 0 0
Corp.
Kellett Investment 209,511(2) 69,837 -- 209,511(2) 69,837 -- 0 0 --
Corporation
R-H Capital 460,926(3) 153,642 -- 460,926(3) 153,642 -- 0 0 --
Partners, L.P.
</TABLE>
- -------------------------
(1) Includes 159,628 shares that may be purchased under the Warrants owned
by DACC and 287,331 shares into which the shares of Preferred Stock
owned by DACC may be converted.
(2) Represents number of shares into which the shares of Preferred Stock
owned by Kellett may be converted.
(3) Represents number of shares into which the shares of Preferred Stock
owned by R-H may be converted.
TRANSACTIONS WITH DACC, R-H AND KELLETT
As of August 2, 1996, the Company acquired substantially all of the
assets of DACC. DACC's assets consisted primarily of used motor vehicle
receivables, repossessed motor vehicles, cash and certain furniture and
equipment.
The Company assumed all balance sheet liabilities of DACC, other than
approximately $4.1 million of subordinated debt held by R-H and Kellett and
certain other claims. These assumed liabilities consisted primarily of
indebtedness owing to senior lenders, accounts payable, accrued expenses, an
office lease expiring in 2002, service and equipment maintenance agreements and
an employment agreement for a DACC employee. As of June 30, 1996, DACC owed
approximately $18 million to its senior lenders and had accounts payable and
accrued expenses of approximately $0.7 million. In addition to assuming the
foregoing liabilities, the Company issued to DACC 159,628 shares of Common
Stock, 1,277,030 Warrants and 95,777 shares of a series of Authorized Preferred
Stock that were automatically converted into 95,777 shares of Preferred Stock
on November 22, 1996. One-half of the securities issued to DACC at closing are
being held in escrow until August 3, 1997 to secure certain indemnification
obligations of DACC in favor of the Company.
The Company also purchased from R-H and Kellett the subordinated
indebtedness owing to them by DACC and certain related warrants to purchase
DACC stock. All of the debt and warrants were canceled by the Company as part
of the consideration for the transfer of DACC's assets. The Company issued to
R-H and Kellett 223,479 shares of a series of Authorized Preferred Stock that
were automatically converted into a total of 223,479 shares of Preferred Stock
on November 22,1996. One-fourth of these shares are being held in escrow until
August 3, 1997 to secure certain indemnification obligations of the holders in
favor of the Company.
The foregoing transactions with DACC, R-H and Kellett were privately
negotiated, arms-length transactions. Pursuant to shareholders' agreements
entered into by the Company, DACC, R-H and Kellett, the Company was required to
file the registration statement of which this Prospectus is a part with the
Commission for the offer and sale of the securities issued to them in the DACC
acquisition.
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<PAGE> 14
PLAN OF DISTRIBUTION
The Selling Securityholders may from time to time sell all or a
portion of their Securities in the over-the-counter market or on any national
securities exchange or automated interdealer quotation system on which the
Common Stock, Preferred Stock or Warrants may hereafter be listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Securities may be
sold directly or through brokers or dealers or in a distribution by one or more
underwriters on a firm commitment or best efforts basis. The methods by which
the Securities may be sold include (i) a block trade (which may involve
crosses) in which the broker or dealer engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (ii) purchases by a broker or dealer
as principal and resales by such broker or dealer for its account pursuant to
this Prospectus, (iii) ordinary brokerage transactions and transactions in
which the broker solicits purchasers or to or through marketmakers, (iv)
transactions in put or call options or other rights (whether exchange-listed or
otherwise) established after the effectiveness of the Registration Statement of
which this Prospectus is a part and (v) privately negotiated transactions. In
addition, any of the Securities that qualify for sale pursuant to Rule 144 may
be sold in transactions complying with such Rule, rather than pursuant to this
Prospectus.
In the case of sales of the Securities effected to or through
broker-dealers, such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders or the
purchasers of the Securities sold by or through such broker-dealers, or both.
The Company has advised the Selling Securityholders that the anti-manipulative
Rules 10b-6 and 10b-7 under the Exchange Act may apply to their sales in the
market and has informed them of the need for delivery of copies of this
Prospectus. The Company is not aware as of the date of this Prospectus of any
agreements between any of the Selling Stockholders and any broker-dealers with
respect to the sale of the Securities. The Selling Securityholders and any
broker-dealers or agents participating in the distribution of the Securities
may be deemed to be "underwriters" within the meaning of the Securities Act and
any commissions received by any such broker-dealers or agents and profit on any
resale of Securities may be deemed to be underwriting commissions under the
Securities Act. The commissions received by a broker-dealer or agent may be in
excess of customary compensation. The Company will receive no part of the
proceeds from the sale of any of the Securities by the Selling Securityholders.
The Company will pay all costs and expenses incurred in connection
with the registration under the Securities Act of the Securities offered by the
Selling Securityholders, including without limitation all registration and
filing fees, listing fees, printing expenses, fees and disbursements of counsel
and accountants for the Company, up to $30,000 for the reasonable fees and
expenses of DACC and up to $10,000 for the reasonable fees and expenses of
counsel for R-H and Kellett. Each Selling Securityholder will pay all
brokerage fees and commissions, if any, incurred in connection with the sale of
the Securities owned by it. In addition, the Company has agreed to indemnify
the Selling Securityholders, other than the Trust, against certain liabilities,
including liabilities under the Securities Act.
There is no assurance that any of the Selling Securityholders will
sell any or all of the Securities offered by them.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby has been
passed upon for the Company by Bracewell & Patterson, L.L.P., 500 North Akard
Street, Suite 4000, Dallas, Texas 75201.
EXPERTS
The consolidated financial statements of the Company, as of and for
the six months ended March 31, 1996, and as of and for the fiscal years ended
September 30, 1995 and March 31, 1997, incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
March 31, 1997 have been audited by BDO Seidman, LLP, independent public
accountants, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon such reports given
upon the authority of that firm as experts in accounting and auditing.
-13-
<PAGE> 15
================================================================================
No dealer, sales representative or other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in or incorporated by reference in this
Prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of
these securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus nor any sale made hereunder shall at any time imply that the
information contained or incorporated by reference herein is correct as of any
time subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
------------------------------
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995 . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Selling Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
================================================================================
================================================================================
SEARCH FINANCIAL
SERVICES INC.
COMMON STOCK
9%/7% CONVERTIBLE PREFERRED STOCK
WARRANTS EXPIRING MARCH 14, 2001
-----------------------------------
P R O S P E C T U S
_____________, 1997
-----------------------------------
================================================================================
<PAGE> 16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with this
offering are estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . $ 3,065.59
Printing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000.00 (1)
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . 20,000.00 (1)
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . 25,000.00 (1)
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,934.41 (1)
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,000.00 (1)(2)
</TABLE>
------------------
(1) Estimated amounts
(2) None of the listed total costs and expenses to be paid in
connection with this offering are to be paid by the Selling
Securityholders. Each Selling Securityholder, however, will
pay all brokerage fees and commissions, if any, in connection
with the sale of the Securities offered by such Selling
Securityholder.
ITEM 16. EXHIBITS
The following documents are included as exhibits to this Registration
Statement and are filed herewith unless otherwise indicated. Exhibits
incorporated by reference are so indicated by parenthetical information.
Exhibit Description
4.1 -- Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 to Registrant's
Transition Report on Form 10-K for the transition period ended
March 31, 1996)
4.2 -- Certificate of Amendment of Certificate of Designation of
9%/7% Convertible Preferred Stock (incorporated by reference
to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (the "9/30/96 Form
10-Q"))
4.3 -- Certificate of Designation Series B 9%/7% Convertible
Preferred Stock (incorporated by reference to Exhibit 3.2 to
the 9/30/96 Form 10-Q)
4.4 -- Certificate of Correction to the Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.3 to the
9/30/96 Form 10-Q)
4.5 -- Certificate of Amendment of Certificate of Designation of
9%/7% Convertible Preferred Stock (incorporated by reference
to Exhibit 3.4 to the 9/30/96 Form 10-Q)
4.6 -- Certificate of Amendment to Certificate of Designation of
Series B 9%/7% Convertible Preferred Stock (incorporated by
reference to Exhibit 3.5 to the 9/30/96 Form 10-Q)
*4.7 -- Certificate of Amendment of Restated Certificate of
Incorporation
*4.8 -- Certificate of Elimination of Series B 9%/7% Convertible
Preferred Stock
4.9 -- Warrant Agreement dated as of March 27, 1996 between
Registrant and American Securities Transfer, Inc., as Warrant
Agent (incorporated by reference to Exhibit 4.2 to
Registrant's Current Report on Form 8-K dated March 15, 1996)
*4.10 -- First Amendment to Warrant Agreement dated as of July 18,
1996 between Registrant, American Securities Transfer, Inc.
and Hall Phoenix/Inwood, Ltd.
*4.11 -- Second Amendment to Warrant Agreement dated as of November
22, 1996 between Registrant and American Securities Transfer,
Inc.
II 1
<PAGE> 17
*5 -- Opinion of Bracewell & Patterson, L.L.P. as to the legality
of the securities being registered
*12 -- Statement Regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
23.1 -- Consent of BDO Seidman, LLP
*23.2 -- Consent of Bracewell & Patterson, L.L.P. (included in
Exhibit 5)
- ------------------
* Previously filed.
II 2
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 3 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 18th day of July, 1997.
SEARCH FINANCIAL SERVICES INC.
By: /s/ Robert D. Idzi
-------------------------------------------
Robert D. Idzi, Senior Executive Vice
President, Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert D. Idzi Senior Executive Vice President, July 18, 1997
- ------------------------------------------- Chief Financial Officer and
Robert D. Idzi Treasurer
/s/ Andrew D. Plagens Senior Vice President, Controller July 18, 1997
- ------------------------------------------- and Chief Accounting Officer
Andrew D. Plagens
Director
/s/ James F. Leary July 18, 1997
- -------------------------------------------
James F. Leary
George C. Evans* Chairman of the Board, Chief
Executive Officer and Director
Richard F. Bonini* Director
William H. T. Bush* Director
Frederick S. Hammer* Director
A. Brean Murray* Director
Douglas W. Powell* Director
Barry W. Ridings* Director
*By: /s/ Robert D. Idzi July 18, 1997
---------------------------------------
Robert D. Idzi, Attorney-in-Fact
</TABLE>
II 3
<PAGE> 19
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
23.1 -- Consent of BDO Seidman, LLP
</TABLE>
II 4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Search Financial Services, Inc.
(F/K/A Search Capital Group, Inc.)
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement (Form S-3) of our report
dated May 23, 1997, relating to the consolidated financial statements of Search
Financial Services, Inc. (F/K/A Search Capital Group, Inc.) for the year ended
March 31, 1997, appearing in the Company's Form 10-K filed June 30, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Dallas, Texas
July 21, 1997
