<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JULY 31, 1997
-----------------------------
SEARCH FINANCIAL SERVICES INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-9539 41-1356819
- --------------------------- ---------------- -----------------------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
600 N. PEARL STREET
SUITE 2500
DALLAS, TEXAS 75201
- --------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 965-6000
--------------------
NOT APPLICABLE
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(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 7, 1997, Registrant entered into an Agreement and Plan of
Merger (the "Merger Agreement") with MS Financial, Inc. ("MSF"). Effective
July 31, 1997, pursuant to the Merger Agreement, as amended, Search Capital
Acquisition Corp., a wholly-owned subsidiary of Registrant, merged into MSF
(the "Merger"), resulting in MSF becoming a wholly-owned subsidiary of
Registrant. Pursuant to the Merger, each outstanding share of common stock of
MSF was converted into the right to receive 0.3515 (the "Exchange Ratio") of a
share of Common Stock of Registrant. The Exchange Ratio was determined by
dividing $1.63 by $4.6375, which was the average price per share of the Common
Stock of Registrant for the 10 day trading period ending on the fifth business
day prior to the special meeting of stockholders of MSF at which the Merger
Agreement was considered for adoption.
The Merger was approved by the stockholders of MSF and the Registrant
at their respective special meetings of stockholders held on July 31, 1997 and
became effective that day. As a result of the Merger, Search issued 3,666,500
shares of its Common Stock.
MSF, based in Jackson, Mississippi, is a specialized consumer finance
company that purchases and services retail installment contracts relating to
new and used cars and light duty trucks. MSF serves dealerships in 13 states,
primarily in the southeast and south central United States. As of March 31,
1997, MSF had total assets of approximately $91,000,000, including net
installment contracts and amounts due under securitizations of approximately
$74,000,000. It also had total liabilities of approximately $74,000,000,
including a bank line of credit having an outstanding balance of approximately
$71,000,000. MSF managed and owned a total of approximately $105,000,000 of
net installment contracts as of March 31, 1997.
The Registrant intends to maintain MSF's Mobile, Alabama collection
center. The bulk of MSF's loan servicing and collection activities will be
transferred to the Registrant's Dallas collection center. Registrant will also
maintain a regional office in Jackson, Mississippi, other branch locations and
key personnel of MSF to continue marketing efforts to MSF's existing auto
dealer network.
In connection with the Merger, MSF and the Registrant reached
agreement with MSF's bank group, led by Fleet Bank, N.A., for an extension of
MSF's $70,000,000 line of credit until July 31, 1998. The line of credit must
be reduced to $50,000,000 by December 31, 1997. As of July 31, 1997, the
outstanding principal balance under the line of credit was approximately
$63,000,000.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements for the acquired business are incorporated by
reference to Annex D to the Joint Proxy Statement/Prospectus constituting part
of the Registrant's Registration Statement on Form S-4 (File No. 333-30275).
(B) PRO FORMA FINANCIAL INFORMATION.
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The Merger has been accounted for under the "purchase" method of
accounting which requires the purchase price to be allocated to the acquired
assets and liabilities of MSF on the basis of their estimated fair values as of
the date of acquisition. Consequently, a new accounting and reporting basis for
the acquired assets and liabilities will be reflected in the future
consolidated financial statements of the Registrant. The following pro forma
combined condensed balance sheet and statements of income (collectively, the
"Pro Forma Financial Information") present the combined historical financial
statements of the Registrant and MSF adjusted to give effect to the Merger on a
pro-forma purchase accounting basis. The unaudited Pro Forma Combined
Condensed Balance Sheet at March 31, 1997 was prepared based upon the
respective consolidated balance sheets of MSF and the Registrant at March 31,
1997, as if the acquisition of MSF had occurred on March 31, 1997. The
unaudited Pro Forma Combined Condensed Statements of Income give effect to the
acquisition as if it occurred on April 1, 1996 and includes adjustments
directly attributable to the acquisition and expected to have a continuing
impact on the combined company. The unaudited Pro Forma Combined Condensed
Statements of Income were prepared based upon the audited consolidated
statements of income of MSF for the fiscal year ended December 31, 1996 and of
the Registrant for the fiscal year ended March 31, 1997. Because the Pro Forma
Financial Information has been prepared based on estimated fair values, amounts
actually recorded may change upon determination of the total purchase price and
additional analysis of individual assets and liabilities assumed.
The Pro Forma Financial Information and related notes are provided for
informational purposes only. The Pro Forma Financial Information presented is
not necessarily indicative of the consolidated financial position or results of
operations of the Registrant as they may be in the future or as they might have
been had the Merger been effected on the assumed dates.
The unaudited Pro Forma Condensed Financial Information reflects
preliminary purchase accounting adjustments. Estimates relating to the fair
value of certain assets, liabilities and other items have been made as more
fully described in the Notes to the unaudited Pro Forma Condensed Financial
Information. While Search's management has made initial appraisals and
evaluations of MSF's financial condition as of the date of the Merger, final
purchase adjustments, which may include adjustments to additional assets,
liabilities and other items, will be made on the basis of the final appraisals
and evaluations of MSF's financial condition as of that time and, therefore,
will differ from those reflected in the unaudited Pro Forma Condensed Financial
Information.
The unaudited Pro Forma Condensed Consolidated Statements of Income
and explanatory notes presented also show the impact on the historical results
of operation of the Registrant of the acquisition of the assets and business of
Dealers Alliance Credit Corp. ("DACC") completed as of August 2, 1996 (the
"DACC Acquisition"). The DACC Acquisition is reflected net of pro forma
adjustments in the unaudited Pro Forma Condensed Consolidated Statements of
Income as if it had occurred on April 1, 1996. Because the DACC Acquisition
was closed prior to March 31, 1997, it is reflected in the Registrant's
historical balance sheet at March 31, 1997.
The combined company expects to achieve certain benefits from the
Merger, including operating cost savings and revenue enhancements. The pro
forma earnings, which do not reflect any direct costs, potential savings or
revenue enhancements which are expected to result from the consolidation of
operations of the Registrant and MSF, are not indicative of the results of
future operations. No assurances can be given with respect to the ultimate
level of expense savings and revenue enhancements to be realized.
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<PAGE> 4
SEARCH AND MSF
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
At March 31, 1997 At March 31, 1997
Historical Pro Forma
------------------------ --------------------------
Search MSF Adjustments Combined
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Gross contracts receivable $62,325 $97,972 (c) $160,297
Unearned interest (10,636) (25,169) (c) (35,805)
Amounts due under securitizations -- 7,580 (c) 7,580
------- ------- ---------
Net contracts receivables 51,689 80,383 132,072
Allowance for losses (5,854) (6,364) (12,218)
Net loan origination costs 1,473 -- 1,473
------- ------- ---------
Net contracts receivable - after allowance
for credit losses & other costs 47,308 74,019 121,327
Cash and cash equivalents 12,249 4,296 16,545
Vehicles held for resale 1,196 3,048 4,244
Property and equipment, net 1,608 1,497 3,105
Intangibles, net 6,252 -- $1,451 (a) 7,703
Other assets, net 910 8,155 -- 9,065
------- ------- ------- --------
$69,523 $91,015 $ 1,451 $161,989
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS EQUITY:
Lines of credit $23,715 $ -- $23,715
Note payable 9,596 71,442 81,038
Accrued settlements 540 -- 540
Accounts payable and other liabilities 2,760 2,410 $750 (b) 5,919
Subordinated note payable 5,000 -- -- 5,000
Accrued interest 271 -- -- 271
Redeemable warrants 1,035 -- -- 1,035
-------- ------- ------- -------
Total liabilities 42,916 73,852 750 117,518
Stock repurchase commitment 2,078 -- 2,078
-------- ------- --------
Convertible preferred stock 201 -- 201
Common stock 252 11 (11) (b) 290
37 (b)
Additional paid in capital 78,047 27,660 (27,660) (b) 95,875
17,827 (b)
Unrealized gain on securities
available for sale -- 450 (450) (b) --
Accumulated deficit (52,760) (8,684) 8,684 (b) (52,761)
Treasury stock -- (2,274) 2,274 (b) --
-------- ------- ------- -------
Total stockholders' equity 25,740 17,163 701 43,605
Notes receivable - stockholders (1,212) -- -- (1,212)
-------- ------- ------- ---------
Net stockholders' equity 24,528 17,163 701 42,393
-------- ------- ------- ---------
Total $ 69,523 $91,015 $ 1,451 $161,989
======== ======= ======= ========
</TABLE>
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<PAGE> 5
- ---------------
(a) The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price is being allocated to
the assets purchased and the liabilities assumed based upon the fair
values at the date of acquisition. The following table sets forth a
preliminary determination and allocation of the purchase price.
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Merger exchange of shares and options ($4.6875 times 3,666,500
shares of Common Stock plus the estimated value associated
with assumed options of $677,000) $17,864
Assumption of MSF debt 73,852
Transaction costs and expenses 750
-------
Pro forma purchase price $92,466
=======
</TABLE>
The preliminary allocation of the pro forma purchase price is as
follows:
<TABLE>
<S> <C>
Net receivables after allowance and amounts due under securitizations $74,019
Cash and cash equivalents 4,296
Inventory 3,048
Property, plant and equipment, net 1,497
Other assets 8,155
---------
Identifiable assets $ 91,015
=========
Cost in excess of fair value of net assets acquired $ 1,451
=========
</TABLE>
The allocation of the purchase price noted above is preliminary based
on information as of March 31, 1997 for assets and liabilities but as
of July 31, 1997 for the Exchange Ratio. Any potential claims which
may arise from the Merger will be included in the final purchase price
allocation.
The excess of cost over the fair value of net assets acquired of
$1,451,000 includes both identifiable and unidentifiable intangible
assets. As of August 11, 1997, the final valuation of intangible
assets had not been completed. Search will assign the final values
upon completion of its evaluations and due diligence process. The
identifiable intangible assets will be capitalized and amortized over
a period not to exceed the estimated useful lives of the assets.
Generally, Search believes that the assigned values will be allocated
to the existing dealer network and the customer list of MSF which
Search will acquire in the Merger. Search estimates that the average
term for amortizing these assets will not exceed 15 years. The
unidentifiable intangible assets acquired in the acquisition will be
capitalized and amortized over a period not to exceed 10 years.
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<PAGE> 6
The following table describes the adjustments to the pro forma balance
sheet:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Estimated accrued transaction costs and expenses $750
Elimination of MSF Common Stock (11)
Search Common Stock issued (3,666,500 x $0.01) 37
Elimination of MSF paid in capital (27,660)
Search paid in capital ($17,186,000 - $37,000 + $678,000) 17,827
Elimination of MSF unrealized gain on sale of securities (450)
Elimination of MSF accumulated deficit 8,684
Elimination of MSF treasury stock 2,274
-------
Cost in excess of fair value of net assets acquired $1,451
======
</TABLE>
(b) Gross contracts receivables include only installment contracts
receivable owned by MSF. All installment contracts receivable held
under MSF's Securitization Trusts are shown as net amounts due under
securitizations.
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<PAGE> 7
SEARCH AND MSF
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Year
Search Fiscal MSF Fiscal Ended
Year Ended Year Ended March 31, 1997
March 31, 1997 Dec. 31, 1996 Pro Forma
Historical Historical Adjustments Combined
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Interest revenue $10,004 $14,909 $24,913
Other interest income -- 70 70
Interest expense (2,306) (5,371) (7,677)
---------- --------- ----------
Net interest income 7,698 9,608 17,306
Reduction of (provision for)
credit losses 7,017 (25,903) (18,886)
--------- ---------- ---------
Net interest income (loss)
after provision 14,715 (16,295) (1,580)
Other income -- 4,750 4,750
General and administrative expense (13,392) (15,104) $ (145) (d) (28,641)
Settlement expense (40) -- -- (40)
-------- -------- ------ ---------
Net income (loss) before dividends
and taxes 1,283 (26,649) (145) (25,511)
Income tax benefit -- 4,635 -- 4,635
Preferred stock dividends (6,154) -- -- (6,154)
--------- --------- -------- -----------
Net income (loss) to common
stockholders $(4,871) $(22,014) $ (145) $(27,030)
======== ========= ======= =========
Net income (loss) per share of
common stock $ (1.45) $ (3.84)
======== ========
Weighted average common and
common equivalent shares
outstanding 3,366 (a) 3,667 (b) 7,033
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DACC Fiscal Year
Operations for Ended
Period Between March 31, 1997
April 1, 1996 and Pro Forma
August 2, 1996 Combined
----------------- ---------------
<S> <C> <C>
Interest revenue $2,240 $27,153
Other interest income -- 70
Interest expense (984) (8,661)
-------- ----------
Net interest income 1,256 18,562
Reduction of (provision for)
credit losses (6,800) (25,686)
--------- --------
Net interest income (loss)
after provision (5,544) (7,124)
Other income -- 4,750
General and administrative expense (1,946) (30,587)
Settlement expense -- (40)
-------- ----------
Net income (loss) before dividends
and taxes (7,490) (33,001)
Income tax benefit -- 4,635
Preferred stock dividends -- (6,154)
------- -----------
Net income (loss) to common
stockholders $(7,490) $(34,520)
======== =========
Net income (loss) per share of
common stock $ (4.87)
===========
Weighted average common and
common equivalent shares
outstanding 59 (c) 7,092
======== =======
</TABLE>
________________________
(a) Restated to reflect the 1-for-8 reverse stock split.
(b) Represents the estimated number of shares of Search Common Stock to be
issued in the Merger based on an assumed Exchange Ratio of 0.3515.
(c) Represents adjustment to calculation of weighted average common and
common equivalent shares outstanding assuming shares issued in the DACC
acquisition were outstanding from April 1, 1996.
(d) Represents amortization of net intangible assets ($1,451,000) over a
10-year period.
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<PAGE> 8
(C) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of February 7, 1997 by and among Registrant, Search Capital
Acquisition Corp. and MS Financial, Inc. (a copy of the Schedules to the Agreement and Plan of Merger
will be furnished to the Commission supplementally upon request) (incorporated by reference to Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated February 7, 1997)
2.2 Stockholders Agreement dated as of February 7, 1997 by and among Registrant, MS Diversified
Corporation, MS Financial Services, Inc. and Golder Thoma Cressy Rauner Fund IV, L.P. (a copy of the
Exhibits and Schedule to the Stockholders Agreement will be furnished to the Commission supplementally
upon request) (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K
dated February 7, 1997)
2.3 Escrow Agreement dated July 31, 1997 by and among Registrant, MS Diversified Corporation, MS Financial
Services, Inc. and Golder Thoma Cressy Rauner Fund IV, L.P.
2.4 Letter Agreement dated as of June 25, 1997 among the Registrant, Search Capital Acquisition Corp. and
MS Financial, Inc. (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed
with the Registrant's Registration Statement on form S-4 (File No. 333-30275)).
99.1 Press Release dated July 31, 1997
</TABLE>
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<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEARCH FINANCIAL SERVICES INC.
By: /s/ Robert D. Idzi
---------------------------------------
Robert D. Idzi, Senior Executive
Vice President
Dated: August 11, 1997
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<PAGE> 10
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.3 Escrow Agreement dated July 31, 1997 by and among Registrant, MS Diversified Corporation, MS
Financial Services, Inc. and Golder Thoma Cressy Rauner Fund IV, L.P.
99.1 Press Release dated July 31, 1997
</TABLE>
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<PAGE> 1
EXHIBIT 2.3
SEARCH-MS FINANCIAL
ESCROW AGREEMENT
This Escrow Agreement, dated as of July 31, 1997 (the "Escrow
Agreement"), is entered into by and among Search Financial Services, Inc., a
Delaware corporation ("Search"); and the undersigned holders of shares of the
common stock, $.001 par value, of MS Financial, Inc., MS Diversified
Corporation, a Mississippi corporation ("MSD"), MS Financial Services, Inc., a
Mississippi corporation and a wholly-owned subsidiary of MSD ("MSDSub") and
Golder Thoma Cressy Rauner Fund IV, L.P. (sometimes referred to as "GTCR IV"),
and U.S. Trust Company of Texas, N.A., a national bank ("Escrow Agent"). MSD,
MSDSub and GTCR IV are sometimes collectively referred to as the
"Stockholders".
W I T N E S S E T H:
WHEREAS, MS Financial, Inc. ("MS Financial"), Search and Search's
wholly owned subsidiary, Search Capital Acquisition Corp. ("Newco"), have
entered into an Agreement and Plan of Merger dated February 7, 1997 (as
amended, the "Merger Agreement"), to effect the Merger (as defined in the
Merger Agreement; capitalized terms used herein shall have the same definition
as in the Merger Agreement unless otherwise specifically indicated) of Newco
into MS Financial, which will result in MS Financial being controlled by Search
instead of by the Stockholders, and each outstanding share of MS Financial
Stock will be converted into the right to receive that number of shares of
Search Common Stock, $.01 par value per share ("Search Common Stock"),
specified in the Merger Agreement; and
WHEREAS, Stockholders and Search have entered into a Stockholders
Agreement dated February 7, 1997 (as amended, the "Stockholders Agreement"),
pursuant to which Stockholders and Search agreed to enter into this Escrow
Agreement; and
WHEREAS, Search has agreed to issue the Search Common Stock as an
integral part of the Merger to all of the stockholders of MS Financial,
including but not limited to, the Stockholders; and
WHEREAS, the Stockholders Agreement provides that portions of the
Search Common Stock to be issued as Merger Consideration to the Stockholders
are to be held in escrow pursuant to this Escrow Agreement in order to (i)
guaranty payment of indemnification obligations under the Stockholders
Agreement and (ii) reserve against the possibility that certain anticipated tax
refunds are not received by MS Financial or the Surviving Corporation; and
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<PAGE> 2
WHEREAS, Stockholders and Search desire that Escrow Agent hold the
Search Common Stock in escrow, and Escrow Agent has agreed to do so, on the
terms and conditions set forth in this Escrow Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated into this Escrow Agreement as if fully set forth, and for other
good and valuable consideration, the receipt and sufficiency of all of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Establishment of Escrow.
(a) Indemnification Escrow Fund. Search hereby delivers to Escrow
Agent the number of shares (the "Escrow Shares") of Merger Consideration equal
to Two Million, Five Hundred Thousand Dollars ($2,500,000) worth of Search
Common Stock at the Valuation Period Market Value (the "Escrow Fund") to Escrow
Agent to hold in escrow on the terms and conditions set forth herein.
(b) Tax Holdback Escrow. Search hereby delivers to Escrow Agent
the number of shares (the "Tax Holdback Shares") of Merger Consideration equal
to Two Million, Three Hundred Thousand Dollars ($2,300,000) worth of Search
Common Stock at the Valuation Period Market Value (the "Tax Holdback Fund") to
hold in escrow on the terms and conditions set forth herein.
2. Receipt. Escrow Agent hereby acknowledges receipt of the Escrow Fund
and the Tax Holdback Fund and agrees to hold them in escrow in accordance with
the terms of this Escrow Agreement.
3. Charges Against Escrow Fund. The Escrow Fund has been created
pursuant to Section 12.1 of the Stockholders Agreement for the purpose of
securing and providing a source for satisfying any amount to be paid in Escrow
Shares by the Stockholders to Search pursuant to Section 10 of the Stockholders
Agreement. In the event that, and from time to time as, Search determines that
it is entitled to any of the Escrow Shares as indemnification pursuant to the
aforesaid Section 10 of the Stockholders Agreement, Search shall provide a
notice to the Escrow Agent, in substantially the form attached hereto as
Exhibit 1, of such claim (a "Claim") against the Escrow Fund, stating the
method of computation of such Claim, the number of Escrow Shares to satisfy the
amount of such claim, a brief description of the facts upon which such Claim is
based and a reference to the provisions of the Stockholders Agreement in
respect of which such Claim shall have occurred. The Escrow Agent shall mail a
copy of such
2
<PAGE> 3
Claim notice via registered or certified mail, return receipt requested, to the
Stockholders. Unless it receives a timely Objection Notice from the
Stockholders pursuant to Section 4 below, the Escrow Agent shall disburse to
Search out of the Escrow Fund the number of Escrow Shares specified in the
notice of the Claim.
4. Dispute of Claim Against Escrow Fund.
(a) The Stockholders (or either of them) shall have the right to
dispute any Claim against the Escrow Fund within the thirty (30) business day
period following delivery of a copy of a Claim notice by delivering to the
Escrow Agent and Search written notice in substantially the form attached
hereto as Exhibit 2 (an "Objection Notice") that the Stockholders dispute the
matter(s) set forth in such Claim notice either with respect to the validity,
the amount, or the number of Escrow Shares of the Claim (or each). Such notice
shall include the basis, with reasonable specificity, of the objection.
(b) Upon timely receipt of an Objection Notice, the Escrow Agent
shall reserve against the Escrow Fund 1.5 times the number of Escrow Shares
stated in the Claim and place such Escrow Shares so reserved in a separate
account (in effect putting a hold on any disbursement of such Escrow Shares)
(such shares so reserved and placed in a separate account being called a
"Dispute Fund"). The Escrow Agent shall take no action with respect to the
Dispute Fund, except upon receipt of joint written instructions from Search and
the Stockholders in substantially the form attached hereto as Exhibit 3 or by a
final judgment or decree of any court of competent jurisdiction in accordance
with Section 16.7 of the Stockholders Agreement. Upon such instructions or
judgment, decree or award, the Escrow Agent shall promptly follow the
instruction therein.
5. Release of Escrow Fund. The Escrow Agent shall release to the
Stockholders, pro rata, a number of Escrow Shares not in excess of the
Distributable Escrow Fund (for purposes of this Section 5, Distributable Escrow
Fund means the Escrow Shares less that number of shares which correspond to 1.5
times the value of each unresolved Claim made less than thirty (30) days prior
to a Distribution Date (as defined below) and excluding therefrom the Dispute
Fund), as follows: 25% of the Distributable Escrow Fund on the first
anniversary after the Effective Time; 25% eighteen months after the Effective
Time; 25% twenty-four months after the Effective Time; and the remainder thirty
months after the Effective Time (each such date a "Distribution Date");
provided, that if the value of the Search Common Stock held in the Dispute Fund
on a Distribution Date exceeds on such Distribution Date 1.5 times the amount
of the Claim(s) (the "Excess Dispute Fund Amount" refers to the excess value),
then that number of shares of Search Common Stock that corresponds to the value
on such Distribution Date of the Excess Dispute Fund Amount shall be
transferred to the Escrow Fund, considered part of the Distributable Escrow
Fund and subject to distribution as provided above.
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<PAGE> 4
6. Tax Holdback Fund.
(a) Charges Against the Tax Holdback Fund. The Tax Holdback Fund
has been created pursuant to Section 12.4 of the Stockholders Agreement for the
purpose of reserving against the possibility that MS Financial or the Surviving
Corporation do not receive certain anticipated tax refunds from federal and
state taxing authorities. On December 31, 1998 (unless such date is
accelerated or extended by mutual agreement of the parties based on the status
of such refunds), any shares of Search Common Stock remaining in the Tax
Holdback Fund (i.e., after releases of any of such shares pursuant to paragraph
(b) below) shall be released to Search pursuant to joint instructions signed by
Search and the Stockholders.
(b) Release of Tax Holdback Fund. As tax refunds in excess of
$4,000,000 are received by MS Financial or the Surviving Corporation, shares of
Search Common Stock held in the Tax Holdback Fund shall be released to the
Stockholders from escrow on no less than a quarterly basis in proportion to
such income tax refunds received, pursuant to joint instructions signed by
Search and the Stockholders.
7. Certificate Legend. The certificates representing the Escrow Fund and
the Tax Holdback Fund shall bear the legend required by the Stockholders
Agreement until said legend is removed pursuant to the terms and conditions of
the Stockholders Agreement. Thereafter, all certificates representing the
Search Common Stock still constituting a part of the Escrow Fund or the Tax
Holdback Fund shall bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISTRIBUTED OR DISPOSED
OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF
1933 AND THE CONDITIONS SPECIFIED IN THAT CERTAIN ESCROW AGREEMENT
DATED JULY 31, 1997, TO WHICH AGREEMENT SEARCH FINANCIAL SERVICES,
INC ("SEARCH"), MS DIVERSIFIED CORPORATION, MS FINANCIAL SERVICES,
INC. AND GOLDER, THOMA, CRESSY, RAUNER FUND IV, L.P. ARE PARTIES.
A COPY OF SUCH AGREEMENT WILL BE MAILED TO THE HOLDER HEREOF WITHOUT
CHARGE WITHIN FIVE DAYS AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR
DIRECTED TO SEARCH AT ITS HEADQUARTERS IN DALLAS, TEXAS."
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<PAGE> 5
8. Fees. The Escrow Agent is charging for its services hereunder the
fees set forth on Schedule A, attached hereto and incorporated herein. Search
shall be solely responsible for the payment of such fees.
9. Duties. The duties of the Escrow Agent hereunder are only such as are
herein specifically provided, being purely administrative in nature, and the
Escrow Agent shall incur no liability whatsoever except for fraudulent conduct.
Other than the obligations of the Escrow Agent set forth in this Escrow
Agreement, the Escrow Agent shall have no other obligations, rights, or duties
with reference to this Escrow Agreement. The Escrow Agent shall not be bound
by any modification of this Escrow Agreement unless in writing and signed by
all of the parties hereto.
10. Uncertainty or Conflict: In the event that the Escrow Agent shall be
uncertain as to its duties or obligations hereunder or shall receive
instructions from any party hereto with respect to any part or all of the
Escrow Fund or the Tax Holdback Fund, which are in conflict with any of the
provisions of this Escrow Agreement, the Escrow Agent shall be entitled to
refrain from taking any action other than to keep safely the Escrow Fund and
the Tax Holdback Fund and any other property so received by it until it shall
be directed by a court as provided in the following Section.
11. Litigation: If (i) the Escrow Agent becomes involved in or is
threatened with litigation for any reason resulting from its capacity as Escrow
Agent, and/or (ii) the Escrow Agent is uncertain as to its duties or
obligations hereunder, the Escrow Agent is hereby authorized to deposit with
the U.S. district court in St. Louis, Missouri the Escrow Fund and/or the Tax
Holdback Fund and notify Stockholders and Search of the same. Thereupon, the
Escrow Agent shall stand fully relieved and discharged of any further duties
hereunder in respect of such action and the matters giving rise thereto except
as may be instructed by said court. In the event Escrow Agent is a party to
any litigation, Stockholders and Search severally agree to reimburse Escrow
Agent on demand for any reasonable out-of-pocket expenses incurred by Escrow
Agent in connection with such litigation.
12. Escrow Agent Replacement. If Escrow Agent resigns as Escrow Agent,
the parties shall have thirty (30) days to select a new Escrow Agent. If the
parties fail to select a new Escrow Agent within said thirty (30) day period,
Escrow Agent shall appoint a successor Escrow Agent. Any successor Escrow
Agent shall agree to be bound by all of the terms and conditions of this Escrow
Agreement.
5
<PAGE> 6
13. Voting Rights. The respective Stockholders will, subject to the
restrictions set forth in the Stockholders Agreement, retain the right to vote
the Escrow Shares and the Tax Holdback Shares.
14. Termination. Upon disbursement of the entire Escrow Fund and the Tax
Holdback Fund, this Escrow Agreement shall terminate.
15. Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail,
postage prepaid, or by recognized courier service, as follows:
If to Search
or Newco to: Search Financial Services, Inc.
600 N. Pearl Street
Suite 2500, L.B. 123
Dallas, Texas 75201-2809
Attention: George C. Evans, Pres. & CEO
and Ellis Regenbogen, Executive Vice
President and General Counsel
Facsimile No.: 214-965-6098
Telephone No.: 214-965-6000
With a copy to: Riezman & Blitz, P.C.
7700 Bonhomme, 7th Floor
St. Louis, Missouri 63105
Attention: Richard M. Riezman, Esq.
Facsimile No.: 314-727-6458
Telephone No.: 314-727-0101
If to
MSD, or MSDSub: MS Diversified Corporation
715 South Pear Orchard Road, Suite 400
Ridgeland, Mississippi 39157
Attention: Tom Ostenson
Facsimile No.: 601-978-6756
With a copy to: Phelps Dunbar, L.L.P.
Suite 500, Mtel Centre
South Lamar Street
Post Office Box 23066
Jackson, Mississippi 39225-3066
Attention: Charles D. Porter
Facsimile No.: 601-360-9777
If to GTCR IV: Golder Thoma Cressy Rauner Fund IV, L.P.
c/o Golder, Thoma, Cressy, Rauner, Inc.
6
<PAGE> 7
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Phil Canfield
Facsimile No.: 312-382-2201
If to Escrow
Agent to: U.S. Trust Company of Texas, N.A.
Ross Avenue, Suite 2700
Dallas, TX 75201
Attention: William Barber
Facsimile No.: 214-754-1303
or to such other address as the Person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such
notice, request, claim, demand, waiver, consent, approval or other
communication shall be deemed to have been given as of the date so delivered,
telefaxed, mailed or dispatched and, if given by any other means, shall be
deemed given only when actually received by the addressees.
16. Miscellaneous.
a. This Escrow Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns.
b. This Escrow Agreement may be executed in one or more
counterparts, and each such counterpart shall, for all purposes, be
deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
c. If any provision(s) of this Escrow Agreement are held to be
invalid, illegal or unenforceable by a court of competent
jurisdiction, the validity, legality and enforceability of the
remaining provisions of this Escrow Agreement shall not in any way be
affected or impaired thereby.
d. The obligations and duties of Escrow Agent herein are personal
to Escrow Agent and Escrow Agent may not assign any and/or all of its
obligations or duties hereunder except as set forth herein.
e. Indemnity. Escrow Agent is hereby severally indemnified by
Search and Stockholders against any liability resulting from the
exercise of its duties under this Escrow Agreement which are not
performed fraudulently or with gross negligence.
* * * * *
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.
SEARCH FINANCIAL SERVICES, INC. ("SEARCH")
By: /s/ Robert D. Idzi
Name: Robert D. Idzi
Title: Senior Executive Vice President & Chief Financial Officer
MS DIVERSIFIED CORPORATION ("MSD")
By: /s/ James B. Stuart
Name: James B. Stuart
Title: President; CEO
MS FINANCIAL SERVICES, INC. ("MSDSub")
By: /s/ Harold Hogue
Name: Harold Hogue
Title: Treasurer
GOLDER THOMA CRESSY RAUNER FUND IV,
L.P. ("GTCR IV")
By: GTCR IV, L.P., its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.,
its General Partner
By: /s/ Carl D. Thoma
Its Authorized Officer
U.S. TRUST COMPANY OF TEXAS, N.A. ("Escrow Agent")
By: /s/ BILL BARBER
Name: BILL BARBER
Title: VICE PRESIDENT
8
<PAGE> 9
SCHEDULE A
ESCROW AGENT FEES
Search shall pay to the Escrow Agent a fee of $2,500 per year, or part thereof,
payable semi-annually in advance.
9
<PAGE> 10
Exhibit 1
[date]
NOTICE OF CLAIM FOR INDEMNITY
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
RE: Escrow Agreement, dated July 31, 1997 (the "Escrow
Agreement"), among Search Financial Services, Inc., a Delaware
corporation ("Search"), Golder Thoma Cressey Rauner Fund IV,
L.P., MS Diversified Corporation, MS Financial Services, Inc.
(collectively, the "Stockholders") and U.S. Trust Company of
Texas, N.A.
Subject to Section 5 of the Escrow Agreement, you are hereby
authorized and instructed to disburse ___________ Escrow Shares (as defined in
the Escrow Agreement) from the Escrow Fund (as defined in the Escrow
Agreement), representing a total amount of $_______________, to Search by
reason of the following claim:
This claim is based on the following facts:
[brief description of the method of computation of the Claim,
the facts upon which the Claim is based and a reference to the
provisions of the Stockholders Agreement in respect of which
such Claim shall have occurred]
SEARCH FINANCIAL SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
10
<PAGE> 11
Exhibit 2
[date]
OBJECTION NOTICE
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
RE: Escrow Agreement, dated July 31, 1997 (the "Escrow
Agreement"), among Search Financial Services, Inc., a Delaware
corporation ("Search"), Golder Thoma Cressey Rauner Fund IV,
L.P., MS Diversified Corporation, MS Financial Services, Inc.
(collectively, the "Stockholders") and U.S. Trust Company of
Texas, N.A.
You hereby are notified that the Stockholders dispute the Claim for
Indemnity set out in the Notice for Claim for Indemnity of Search dated
_________________ ("Claim"). The basis for disputing such Claim is:
[insert a paragraph stating with reasonable specificity the
basis of the objection]
GOLDER THOMA CRESSY RAUNER
FUND, IV., L.P.
By: GTCR IV, L.P., its General Partner
By: Golder, Thoma, Cressey, Rauner,
Inc., its General Partner
By:
-----------------------------
Its Authorized Officer
MS DIVERSIFIED CORPORATION
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
MS FINANCIAL SERVICES, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
11
<PAGE> 12
Exhibit 3
[date]
JOINT INSTRUCTIONS FOR DISPUTE RESOLUTION
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
RE: Escrow Agreement, dated July 31, 1997 (the "Escrow
Agreement"), among Search Financial Services, Inc., a Delaware
corporation ("Search"), Golder Thoma Cressey Rauner Fund IV,
L.P., MS Diversified Corporation, MS Financial Services, Inc.
(collectively, the "Stockholders") and U.S. Trust Company of
Texas, N.A.
You hereby are authorized and instructed to take the following action
with respect to the Dispute Fund (as defined in the Escrow Agreement) that was
created by reason of Search's Notice of Claim for Indemnity dated _____________
_____ and the Stockholders' Objection Notice dated __________________:
[Instructions for treatment of the Dispute Fund]
SEARCH FINANCIAL SERVICES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
GOLDER THOMA CRESSY RAUNER FUND, IV.,
L.P.
By: GTCR IV, L.P., its General
Partner
By: Golder, Thoma, Cressey,
Rauner, Inc., its General
Partner
By:
------------------------
Its Authorized Officer
MS DIVERSIFIED CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MS FINANCIAL SERVICES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
12
<PAGE> 1
EXHIBIT 99.1
[SEARCH FINANCIAL SERVICES INC. LOGO]
Contact: James F. Leary
Vice Chairman, Finance
Search Financial Services Inc.
214/965-6000
or
James B. Stuart, Jr.
MS Diversified, Inc.
601/978-6701
FOR IMMEDIATE RELEASE: July 31, 1997
SEARCH AND MS FINANCIAL COMPLETE MERGER
DALLAS, Texas -- Search Financial Services Inc. ("Search") today announced
completion of its acquisition of MS Financial, Inc. ("MSF") in a stock swap
valued at approximately $17 million.
Stockholders of both MSF and Search approved the merger at special
meetings held on July 31, 1997. MSF stockholders will exchange each MSF common
share for 0.3515 of a share of Search common stock that will result in Search
issuing 3,666,500 common shares.
George C. Evans, Search's chairman and chief executive officer, said,
"This acquisition/merger is Search's largest transaction since our
reorganization in early 1996 when we initiated our strategic plan of achieving
growth through acquisitions and bulk purchases of portfolios. With this deal
now finalized, we can concentrate on marketing to MSF's auto dealer network and
increasing loan originations. I would also like to acknowledge the tremendous
support we received form our stockholders and welcome our new stockholders from
MSF."
The merger substantially increases Search's nonprime auto receivables
under management from approximately $56 million to approximately $170 million.
Search intends to maintain MSF's Mobile, Alabama collection center; however,
the bulk of MSF's loan servicing and collection activities will be transferred
to Search's Dallas collection center. Search will also maintain a regional
office in Jackson, other branch locations, and key personnel to continue
marketing efforts to their existing auto dealer network.
-more-
<PAGE> 2
In connection with the merger, MSF's $70 million line of credit from a
bank group led by Fleet Bank, N.A. will remain in place. The line will be
available until July 31, 1998, but must be reduced to $50 million by December
31, 1997. The outstanding principal balance under the line is approximately
$63 million.
MSF, based in Jackson, Mississippi, is a specialized consumer finance
company that purchases and services retail installment contracts on new and
used cars and light duty trucks. The company serves more than 800 dealerships
in 13 states.
Search is a specialized financial services company engaged in the
purchasing, financing and servicing of nonprime automobile installment loans
originated by franchised and independent automobile dealers. Search also
engages in non-auto consumer finance operations. Search common shares and its
9%/7% convertible preferred shares trade publicly and are listed on the NASDAQ
National Market under the symbols "SFSI" and "SFSIP", respectively.
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