<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
September 30, 1997 0-9539
- --------------------- -----------------------
SEARCH FINANCIAL SERVICES INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 41-1356819
- ----------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 North Pearl, Suite 2500
Dallas, Texas 75201
-------------------
(Address of principal executive offices, including zip code)
214-965-6000
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes x No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at November 14, 1997
- ----------------------------------- ----------------------------------
Common Stock, $.01 par value 6,682,886
1
<PAGE> 2
SEARCH FINANCIAL SERVICES INC.
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Consolidated Financial Statements.................................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................15
PART II OTHER INFORMATION................................................................20
Item 1. Legal Proceedings................................................................20
Item 3. Defaults Upon Senior Securities..................................................21
Item 4. Submission of Matters to a Vote of Security Holders .............................21
Item 6. Exhibits and Reports on Form 8-K.................................................23
SIGNATURES .................................................................................24
</TABLE>
The financial information for the interim periods presented herein is
unaudited. In the opinion of management, all adjustments necessary (which are of
a normal recurring nature) have been included for a fair presentation of the
results of operations. The results of operations for an interim period are not
necessarily indicative of the results that may be expected for a full year or
any other interim period.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q for quarter ended September 30, 1997 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "goal,"
"continue," or comparable terminology, that involve risks or uncertainties and
that are qualified in their entirety by the cautions and risk factors contained
herein and in the Company's 10-K Annual Report for the fiscal year ended March
31, 1997 and in other Company documents filed with the Securities and Exchange
Commission.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SEARCH FINANCIAL SERVICES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
UNAUDITED AUDITED
ASSETS SEPTEMBER 30, 1997 MARCH 31, 1997
- ------ ------------------ --------------
<S> <C> <C>
Gross contracts receivable (Note 2) $ 162,061,000 $ 62,325,000
Unearned interest (34,691,000) (10,636,000)
------------- -------------
Net contracts receivable 127,370,000 51,689,000
Installment contracts sold (15,735,000) --
Amounts due under securitization (Note 4) 3,674,000 --
Other amounts due 1,605,000 --
------------- -------------
Net owned contracts receivable and due from securitizations 116,914,000 51,689,000
Allowance for loan losses (10,768,000) (5,854,000)
Loan origination costs 6,582,000 5,852,000
Amortization of loan origination costs (4,927,000) (4,379,000)
------------- -------------
Net contract receivables - after allowance for credit losses
& other costs 107,801,000 47,308,000
------------- -------------
Cash and cash equivalents 2,491,000 12,249,000
Vehicles held for resale 1,199,000 1,196,000
Deferred note offering costs, net 104,000 155,000
Property and equipment, net 2,577,000 1,608,000
Intangibles, net 11,475,000 6,252,000
Other assets 986,000 755,000
------------- -------------
Total assets $ 126,633,000 $ 69,523,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Lines of credit $ 17,248,000 $ 23,715,000
Notes Payable 68,926,000 9,596,000
Accrued settlements 500,000 540,000
Accounts payable and other liabilities 2,947,000 2,760,000
Subordinated note payable 5,000,000 5,000,000
Accrued interest 688,000 271,000
Redeemable warrants 1,115,000 1,035,000
------------- -------------
Total Liabilities 96,424,000 42,917,000
------------- -------------
Stock repurchase commitment -- 2,078,000
------------- -------------
Stockholders' Equity
Convertible preferred stock 201,000 201,000
Common stock 289,000 252,000
Additional paid-in capital 88,252,000 78,047,000
Accumulated deficit (57,321,000) (52,760,000)
------------- -------------
Total stockholders' equity 31,421,000 25,740,000
------------- -------------
Receivable from officers and directors (1,212,000) (1,212,000)
------------- -------------
Total stockholders' equity 30,209,000 24,528,000
============= =============
Total liabilities and stockholders' equity $ 126,933,000 $ 69,523,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
SEARCH FINANCIAL SERVICES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Interest revenue $ 6,412,000 $ 3,898,000
Interest expense 2,979,000 338,000
----------- -----------
Net interest income 3,433,000 3,560,000
Reduction of credit losses 998,000 3,438,000
----------- -----------
Net interest income after reduction of credit losses 4,431,000 6,998,000
----------- -----------
General and administrative expense 8,992,000 6,043,000
----------- -----------
Net income (loss) before dividends (4,561,000) 955,000
Preferred stock dividends (1,670,000) (2,946,000)
----------- -----------
Net loss attributable to common stockholders $(6,231,000) $(1,991,000)
=========== ===========
Net loss per share attributable to common stockholders $ (1.42) $ (0.59)
=========== ===========
Weighted average number of common shares outstanding 4,385,000 3,402,000
=========== ===========
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Interest revenue $ 3,965,000 $ 2,239,000
Interest expense 1,944,000 316,000
----------- -----------
Net interest income 2,021,000 1,923,000
Reduction of credit losses (provisions for) (1,507,000) 2,056,000
----------- -----------
Net interest income after reduction of credit losses 514,000 3,979,000
----------- -----------
General and administrative expense 5,223,000 3,515,000
----------- -----------
Net income (loss) before dividends (4,709,000) 464,000
Preferred stock dividends (60,000) (1,542,000)
----------- -----------
Net loss attributable to common stockholders $(4,769,000) $(1,078,000)
=========== ===========
Net loss per share attributable to common stockholders $ (0.85) $ (0.32)
=========== ===========
Weighted average number of common shares outstanding 5,594,000 3,329,000
=========== ===========
</TABLE>
4
<PAGE> 5
SEARCH FINANCIAL SERVICES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (4,561,000) $ 955,000
Adjustments to reconcile net income (loss) to cash
used in operations:
(Reduction) of credit losses (Note 2) (998,000) (1,691,000)
Accretion of warrant debt 80,000 50,000
Amortization of deferred offering costs 51,000 6,000
Amortization of loan origination costs 547,000 251,000
Amortization of goodwill 358,000 --
Depreciation 387,000 281,000
Changes in assets and liabilities:
Decreases (increases) in other assets 585,000 (36,000)
Increases (decreases) in interest payable (180,000) --
Increases (decreases) in accounts payable 675,000 (5,377,000)
Increases (decreases) in accrued expenses (223,000) --
------------ ------------
Cash used in operations (3,279,000) (5,561,000)
------------ ------------
INVESTING ACTIVITIES:
Purchase of contracts receivable (14,337,000) (14,488,000)
Increase in loan origination fee (180,000) (975,000)
Principal payments on contracts receivables 17,522,000 13,173,000
Proceeds from sales of vehicles 3,412,000 --
Purchase of property and equipment (856,000) (261,000)
------------ ------------
Cash provided by investing activities 5,561,000 (2,551,000)
------------ ------------
FINANCING ACTIVITIES:
Borrowings under line of credit 9,433,000 3,952,000
Repayments under line of credit (15,900,000) (2,228,000)
Notes payable proceeds 10,653,000 --
Notes payable repayments (14,160,000) --
Capital lease principal payments (22,000) (30,000)
Deferred offering costs -- (82,000)
Stock repurchase (2,078,000) --
Net proceeds from debt conversion and sale of stock -- 4,490,000
Loans for stock purchases -- (1,099,000)
Payment of dividends on preferred stock (3,213,000) (1,680,000)
------------ ------------
Cash provided by (used in) financing activities (15,287,000) 3,323,000
------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents (12,751,000) (4,789,000)
Cash and cash equivalents - beginning 12,249,000 17,817,000
Net cash acquired 2,993,000 --
------------ ------------
Cash and cash equivalents - ending $ 2,491,000 $ 13,028,000
============ ============
- -----------------------------------------------------------------------------------------------
Supplemental Information:
Cash Paid for Interest $ 2,562,000 $ 60,000
============ ============
</TABLE>
5
<PAGE> 6
SEARCH FINANCIAL SERVICES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Search Financial Services Inc.
("Search") and together with its subsidiaries (together the "Company") are
unaudited and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission applicable to quarterly reports on Form 10-Q.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures present fairly the financial position
of the Company at the dates, and its financial position for the periods
presented. The financial statements should be read in conjunction with the
audited consolidated financial statements and related notes and schedules
included in the Company's Form 10-K Annual Report for the fiscal year ended
March 31, 1997.
During the six months ended September 30, 1997, the Company recorded
adjustments which it considers not of a normal recurring nature. These
adjustments include a $998,000 reduction in loan loss reserves due to changed
estimates relating to the timing of expected future cash flows due to the
Company selling a portion of its deficiency balance accounts for approximately
$1,450,000 and $44,000 related to the Autostar Solutions lawsuit in which the
Company reversed an accrual after the jury ruled in the Company's favor.
The consolidated financial statements include the accounts of the
Company. All significant intercompany accounts and transactions have been
eliminated. Certain reclassifications have been made to prior periods balances
to conform to current period presentation.
In November 1996, the Company effected a 1-for-8 reverse stock split.
All references in the financial statements and notes to the number of shares
outstanding, the number of shares subject to warrants and options and per share
amounts have been retroactively restated to reflect the reverse split.
2. CONTRACT RECEIVABLES, ALLOWANCE FOR CREDIT LOSSES AND INTEREST INCOME
The Company records receivable purchases at cost. Contractual finance
charges are recorded as unearned interest and amortized to interest income using
the interest method. Amortization of interest income ceases upon impairment. An
initial allowance for credit losses is recorded at the acquisition of a
receivable equal to the difference between the amount financed and the
acquisition cost, which is what the Company estimates to be fair value. An
additional allowance may be recorded at acquisition if it is determined that the
discount recorded as allowance is not adequate to cover expected losses.
6
<PAGE> 7
In accordance with SFAS No. 114, receivables are analyzed on a
loan-by-loan basis. The Company evaluates the impairment of receivables
generally based on the receivables' contractual delinquency. Generally, the
Company considers receivables that are contractually delinquent greater than 60
days or with respect to which the underlying collateral has been repossessed to
be impaired at which time interest income ceases to be recognized. Once
impaired, the Company looks to the underlying collateral for repayment of the
receivable.
At impairment, the Company writes down the receivable to its estimated
net realizable value, which is the fair value of the underlying collateral if it
has been repossessed or the estimated recoverable cash flow if no repossession
has occurred. If the measured amount of the impaired receivable is less than the
Company's net recorded investment in the receivable, the Company recognizes a
charge to provision for credit losses in the amount of the deficiency and
increases the allowance for credit losses by a corresponding amount. The
provision for credit losses is adjusted for any differences between the final
net proceeds from resale of the underlying collateral and the estimated net
realizable value. Generally, the Company charges off a receivable against the
allowance for credit losses at 180 days contractual delinquency, if no
significant payments have been received in the last six months, or, if earlier,
after receipt of the sale proceeds from liquidation of the collateral securing
the receivable. Subsequent proceeds received on a previously charged-off
receivable are recorded as a recovery to the allowance for credit losses. Any
excess of cost paid ("premium") for net receivables acquired is recorded as an
asset and amortized over the life of the related loans acquired as an adjustment
to yield using the interest method.
AVERAGE RECEIVABLE CHARACTERISTICS
At September 30, 1997, the Company had 20,428 owned and securitized
receivables in its portfolio with an aggregate total unpaid balance of
$162,061,000, including $34,691,000 in unearned interest and $10,768,000 in
loan loss allowance, compared to an aggregate of 9,421 receivables in its
portfolio with an aggregate total unpaid balance of $62,325,000, including
$10,636,000 in unearned interest and $5,854,000 in loan loss allowance, as of
March 31, 1997. Additionally, the Company had a total of 461 vehicles held for
resale having an estimated value of approximately $1,199,000 as of September
30, 1997, compared to 458 vehicles held for resale as of March 31, 1997 with a
value of approximately $1,196,000. Set forth below is a summary of pertinent
statistics regarding the average active receivable in the Company's non-prime
(owned and securitized) and consumer portfolios of receivables as of September
30, 1997 and March 31, 1997.
7
<PAGE> 8
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1997 MARCH 31, 1997
------------------------------- ------------------------------
NON-PRIME NON-PRIME
CONSUMER AUTO TOTAL CONSUMER AUTO TOTAL
-------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Average Original Term - Months 24.2 45.7 42.7 20.0 39.7 38.6
Average Remaining Term - Months 22.4 25.2 24.8 9.1 22.8 22.1
Average APR 24.0 21.0 21.42 34.6 23.5 24.1
Average Payment Amount $111 $331 $330 $92 $317 $305
Average Original Gross Balance $3,005 $15,298 $13,577 $2,284 $12,788 $12,202
Average Current Gross Balance $2,729 $ 8,781 $ 7,933 $1,515 $ 6,902 $ 6,616
Average Net Receivable $2,139 $ 6,902 $ 6,235 $1,160 $ 5,728 $ 5,487
Weighted Average APR 22.4 20.4 20.5 30.0 22.8 22.9
</TABLE>
DISTRIBUTION OF RECEIVABLES BY STATE
The following tables set forth information regarding the distribution
of the Company's owned and securitized contract receivables by state. (Dollar
amounts shown in thousands.)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------------------
NUMBER OF TOTAL UNPAID
STATE RECEIVABLES INSTALLMENTS % OF TOTAL
- ------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Texas 7,445 $ 60,803 37%
Mississippi 2,853 23,620 15%
North Carolina 2,348 22,089 14%
Tennessee 1,961 12,973 8%
Georgia 1,345 11,117 7%
Oklahoma 933 7,154 4%
Louisiana 800 5,051 3%
Other 2,743 19,254 12%
------ -------- ---
20,428 $162,061 100%
====== ======== ===
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,1997
----------------------------------------------
NUMBER OF TOTAL UNPAID
STATE RECEIVABLES INSTALLMENTS % OF TOTAL
- ------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Texas 3,831 $ 25,405 41%
Tennessee 1,447 8,370 13%
Mississippi 647 6,652 11%
Georgia 834 5,750 9%
North Carolina 419 4,461 7%
Florida 627 2,511 4%
Louisiana 590 1,753 3%
Other 1,026 7,423 12%
----- -------- ---
9,421 $ 62,325 100%
===== ======== ===
</TABLE>
8
<PAGE> 9
CONTRACTUAL MATURITIES
The following tables set forth certain information related to the
contractual maturities of the Company's owned and securitized contract
receivables as of September 30, 1997 and March 31, 1997. (In thousands.)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------------------------
12 MONTHS ENDING SEPTEMBER 30,
2001 and
1998 1999 2000 Thereafter Total
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Future payments receivable $73,357 $45,680 $27,830 $15,194 $162,061
Less unearned interest 15,316 11,451 6,675 1,249 34,691
Net contractual maturities $58,041 $34,229 $21,155 $13,945 $127,370
====================================================
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------------------------
12 MONTHS ENDING MARCH 31, 1997
2001 and
1998 1999 2000 Thereafter Total
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Future payments receivable $28,541 $18,710 $11,359 $ 3,715 $ 62,325
Less unearned interest 5,424 3,404 1,276 532 10,636
Net contractual maturities $23,117 $15,306 $10,083 $ 3,183 $ 51,689
====================================================
</TABLE>
In the opinion of management, a portion of the receivables shown above
will be repaid or extended either before or past the contractual maturity date.
In addition, some of those receivables will be charged off before maturity. The
above tabulation, therefore, is not to be regarded as a forecast of future cash
collections or interest income.
RECEIVABLES DELINQUENCY AND ALLOWANCE FOR CREDIT LOSSES
Delinquency. Generally, the Company considers a receivable to be
impaired if the contractual delinquency is greater than 60 days or the
collateral has been repossessed. Once impaired, the Company places the
receivable on nonaccrual status, which stops the recognition of interest income.
The following tables break out the owned and securitized receivables that the
Company considers unimpaired or accrual status and impaired or nonaccrual
status as of September 30, 1997 and March 31, 1997.
TOTAL COMPANY:
<TABLE>
<CAPTION>
(Dollars in thousands)
AS OF SEPTEMBER 30, 1997 AS OF MARCH 31, 1997
------------------------------------------ -----------------------------------------
Total (1) % of Total Total(1) % of Total
Contractual Number of Unpaid Unpaid Number of Unpaid Unpaid
Delinquency Receivables Installments Installments Receivables Installments Installments
- ----------------------- ----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accrual Receivables
0 to 30 days past due 17,429 $138,945 86% 8,254 $56,074 90%
31-60 days past due 1,788 14,320 9% 702 3,982 6%
----------------------------------------- -----------------------------------------
Subtotal 19,217 $153,265 95% 8,956 $60,056 96%
----------------------------------------- -----------------------------------------
Nonaccrual Receivables
61-180 days past due 1,113 8,240 5% 461 2,255 4%
181+ days past due 98 556 0% 4 14 0%
----------------------------------------- -----------------------------------------
Subtotal 1,211 8,796 5% 465 2,269 4%
----------------------------------------- -----------------------------------------
All Receivables (2) 20,428 $162,061 100% 9,421 $62,325 100%
========================================= =========================================
Vehicles held for resale
@ collateral value 461 $ 1,199 458 $ 1,196
======================== ========================
</TABLE>
9
<PAGE> 10
NON-PRIME AUTO:
<TABLE>
<CAPTION>
(Dollars in thousands)
AS OF SEPTEMBER 30, 1997 AS OF MARCH 31, 1997
------------------------------------------ -----------------------------------------
Total (1) % of Total Total(1) % of Total
Contractual Number of Unpaid Unpaid Number of Unpaid Unpaid
Delinquency Receivables Installments Installments Receivables Installments Installments
- ----------------------- ----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accrual Receivables
0 to 30 days past due 14,707 $131,350 85% 7,863 $55,347 90%
31-60 days past due 1,722 14,190 9% 642 3,949 6%
---------------------------------------- ------------------------------------------
Subtotal 16,429 $145,540 94% 8,505 $59,296 96%
---------------------------------------- ------------------------------------------
Nonaccrual Receivables
61-180 days past due 1,040 8,158 5% 387 2,220 4%
181+ days past due 98 556 1% 4 14 0%
---------------------------------------- ------------------------------------------
Subtotal 1,138 8,714 6% 391 2,234 4%
---------------------------------------- ------------------------------------------
All Receivables(2) 17,567 $154,254 100% 8,896 $61,530 100%
======================================== ==========================================
Vehicles held for resale
@ collateral value 461 $ 1,199 458 $ 1,196
======================== ==========================
</TABLE>
CONSUMER:
<TABLE>
<CAPTION>
(Dollars in thousands)
AS OF SEPTEMBER 30, 1997 AS OF MARCH 31, 1997
------------------------------------------ -----------------------------------------
Total (1) % of Total Total(1) % of Total
Contractual Number of Unpaid Unpaid Number of Unpaid Unpaid
Delinquency Receivables Installments Installments Receivables Installments Installments
- ----------------------- ----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accrual Receivables
0 to 30 days past due 2,722 $ 7,595 97% 391 $ 727 91%
31-60 days past due 66 130 2% 60 33 4%
---------------------------------------- ------------------------------------------
Subtotal 2,788 $ 7,725 99% 451 $ 760 95%
---------------------------------------- ------------------------------------------
Nonaccrual Receivables
61-180 days past due 73 82 1% 74 35 5%
181+ days past due 0 0 0% 0 0 0%
---------------------------------------- ------------------------------------------
Subtotal 73 82 1% 74 35 5%
---------------------------------------- ------------------------------------------
All Receivables 2,861 $ 7,807 100% 525 $ 795 100%
======================================== ==========================================
</TABLE>
(1) Includes unearned income.
(2) Active receivables shown on the face of the Company's balance sheet
exclude 461 and 458 accounts that have been reclassified to vehicles
held for resale at September 30, 1997 and March 31, 1997, respectively.
The following tables set forth certain information related to the
delinquency of the Company's contract receivables as of September 30, 1997 and
March 31, 1997.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------------------------------------------------------
TOTAL ALLOWANCE NET RECEIVABLES
NUMBER OF UNPAID UNEARNED FOR CREDIT AFTER ALLOWANCE
CONTRACTUAL DELINQUENCY RECEIVABLES(1) INSTALLMENTS INTEREST LOSSESS FOR CREDIT LOSSES
- ----------------------- -------------- ------------ -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Unimpaired receivables 19,217 $153,265 $ 33,270 $ 4,162 $115,883
Impaired receivables 1,211 8,796 1,421 6,606 769
------ -------- -------- ------- --------
Total 20,428 $162,061 $ 34,691 $10,768 $116,602
====== ======== ======== ======= ========
Reserve for credit losses as a percent of net receivables 8.5%
========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------------------------------------------------------
TOTAL ALLOWANCE NET RECEIVABLES
CONTRACTUAL NUMBER OF UNPAID UNEARNED FOR CREDIT AFTER ALLOWANCE
DELINQUENCY RECEIVABLES(1) INSTALLMENTS INTEREST LOSSES FOR CREDIT LOSSES
- ----------------------- -------------- ------------ -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Unimpaired receivables 8,956 $60,056 $10,302 $4,861 $44,893
Impaired receivables 465 2,269 334 993 942
----- ------- ------- ------ -------
Total 9,421 $62,325 $10,636 $5,854 $45,835
===== ======= ======= ====== =======
Reserve for credit losses as a percent of net receivables 11.3%
=======
</TABLE>
(1) Excludes 461 and 458 accounts that have been reclassified to vehicles
held for resale as of September 30, 1997 and March 31, 1997,
respectively.
The following table shows the changes in the Company's allowance for
loan losses for the six months ended September 30, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDING
SEPTEMBER 30, 1997
------------------
<S> <C>
Balance at beginning of period $ 5,854,000
Allowance recorded on acquisition of receivables 11,737,000
Increase in allowance for loan losses 3,434,000
Proceeds received on previously charged-off accounts 3,957,000
Reduction in allowance for credit losses (4,432,000)
Receivables charged off against allowance (9,782,000)
-----------
Balance at end of period $10,768,000
-----------
Net credit losses as a percent of average net receivables 14%
===========
</TABLE>
The allowance for credit losses contained both a provision for
anticipated loan losses and a reduction of the provision for loan losses from
prior estimates for the six months ended September 30, 1997, as follows.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Provision for loan losses $ 3,436,000
Reduction in allowance (4,432,000)
-----------
Net effect on statement of operations $ (998,000)
===========
</TABLE>
The Company's receivables are generally installment receivables having
a fixed annual percentage rate ("APR"). These receivables are predominantly
secured by motor vehicles as of September 30, 1997. The obligors of the
Company's receivables are domestically-based at the time the receivables are
originated or purchased by the Company from a dealer. The Company has no
material amount of foreign receivables.
Receivables become nonaccrual status due to their contractual
delinquency greater than 60 days or due to repossession of underlying
collateral. The Company also considers certain delinquent receivables that are
in the contractual status of less than 60 days past due to be potential problem
receivables. Uncertainty as to overall economic conditions, regional
11
<PAGE> 12
considerations, and current trends in portfolio growth cause the Company to
review these receivables for impairment.
The Company considers Texas, Mississippi and North Carolina to be
states with receivable concentrations, because receivables with obligors in each
of these states exceed 10% of the total outstanding receivables. Most of the
Company's receivables are due from individuals located in large metropolitan
areas of Texas, Mississippi and North Carolina and other southern and western
states. To some extent, realization of the receivables will be dependent on
local economic conditions. Generally, the Company holds titles as collateral for
all receivables until such receivables are paid in full.
3. ACQUISITION
Effective July 31, 1997, Search completed its acquisition of MS
Financial, Inc. ("MSF"). Search issued 3,666,500 shares of its common stock in
the acquisition. MSF conducted purchasing and servicing of non-prime motor
vehicle receivables in Jackson, Mississippi. The acquisition was accounted for
under the purchase method of accounting. Accordingly, MSF's results of
operations have been included in the consolidated financial statements since the
date of acquisition. The purchase price was allocated to the assets acquired
based upon their estimated fair value as of July 31, 1997. MSF's net assets were
valued at $12,910,000.
The allocation of the purchase price to the acquired assets and
liabilities of MSF is as follows (in thousands):
<TABLE>
<S> <C>
Cash $ 1,937
Receivables, net (1) 60,172
Inventory 703
Bad debt accounts 1,500
Other assets, primarily income tax 7,125
Property & equipment, net 500
Dealer network 5,643
-------
Fair value of assets acquired $77,580
-------
Payables and accrueds 1,837
Term note 62,823
-------
Fair value of liabilities assumed 64,660
-------
Net assets acquired $12,920
=======
Total value paid by Search $12,920
=======
</TABLE>
(1) Includes the receivable for securitizations.
The cost in excess of fair value of net tangible assets acquired of
$5,643,000 is being amortized over a term of approximately 15 years on a
straight-line basis. The
12
<PAGE> 13
Company periodically evaluates the recoverability and remaining life of the
goodwill and determines whether it should be completely or partially written-off
or the amortization period accelerated. The Company will recognize an impairment
of excess value to the extent that the undiscounted estimated future operating
cash flows of the acquired assets are determined to be less than the carrying
amount of the excess value. If an impairment of excess value were to occur, the
Company would reflect the impairment through a reduction in the carrying value
of such excess value.
4. INSTALLMENT CONTRACTS SOLD AND SECURITIZATIONS
During calendar 1994 and 1995, $35 million and $90 million,
respectively, of installment contracts were sold by MSF in transactions whereby
the installment contracts were transferred to trusts in which beneficial
ownership interests were purchased by investors in the form of trust
certificates. MSF retained a subordinated portion of the trust certificates in
the 1994 transaction. MSF remains contingently liable on the installment
contracts sold, principally for losses attributable to default and prepayment
risks. Under SFAS No. 77, the installment contracts purchased by outside
investors are accounted for as sales and the corresponding net gains were
recognized in MSF's consolidated financial statements. The Company's risk of
accounting loss does not exceed amounts recorded as amounts due from
securitizations in the consolidated balance sheets as a result of MSF's
securitization transactions.
Since delinquencies on installment contracts sold in securitizations
serviced by MSF exceeded certain predefined levels prior to MSF's acquisition
and have continued to exceed those levels, the funding of cash collateral
accounts that are held in trust for the benefit of the senior certificate
holders has been increased. The increase in the cash collateral accounts is
required to be funded with cash flows from the securitized installment contracts
that otherwise would be forwarded to the Company. Further, MSF can be replaced
as servicer by the issuer of the financial guaranty insurance policy (see
below). As of September 30, 1997, the cash collateral account for the 1995
securitization remained underfunded by approximately $3,000,000. On July 31,
1997, the date of acquisition of MSF, the amount of underfunding was
approximately $4,000,000. This underfunding, which decreases as the principal
balance of the installment contracts securitized decreases, will continue to
defer cash available to the Company from the securitization until certain
reduced levels of delinquencies are achieved for specified time periods or
required cash has been provided to fully fund the cash collateral accounts.
Additionally, MSF has not been notified, nor does management expect for MSF to
be notified, of any request for replacement as servicer on the installment
contracts sold.
MSF obtained a financial guaranty insurance policy for the benefit of
the senior certificate holders from an unrelated party. Distributions under the
subordinated certificates held by MSF are pledged to the issuer of the financial
guaranty insurance policy.
At September 30, 1997, the Company was servicing for third parties net
installment contracts totaling approximately $17,000,000. Of this amount,
$16,000,000 represented the aggregate uncollected principal balance of
installment contracts sold in MSF securitizations. The Company services these
installment contracts and receives a service fee based on a percent of the
outstanding principal balance.
13
<PAGE> 14
5. STOCK CANCELLATION AND STOCK REPURCHASE AGREEMENT
In May 1995, Search purchased from one of its directors 62,500 shares
of Search's common stock for $18.00 per share, market value on that date.
Simultaneously with the purchase, the director resigned from the Board. Search
was also given an irrevocable proxy expiring in May 1997 to vote 101,515 shares
of common stock held by a trust formed by the former director. These shares held
by the trust and an additional 13,902 shares held in an individual retirement
account of the former director were subject to a "put" to the Company in May
1997 for $18.00 per share, the market value at the date of the agreement. On May
8, 1997, all 115,417 shares were put to the Company, at which time the Company
paid $2,078,000 in cash to acquire those shares. The shares were subsequently
retired.
6. WARRANTS
Search is authorized to issue Warrants to purchase up to 10,000,000
shares of common stock pursuant to a warrant agreement dated as of March 22,
1996, as amended. Warrants to purchase 625,000 shares are to be issued to
noteholders and other unsecured claim holders under the plan of reorganization,
and Warrants to purchase 314,589 shares of common stock issued in connection
with the acquisition of the assets of DACC and USLC are outstanding. Warrants to
purchase 84,522 shares of common stock and other Warrants to purchase 375,000
shares of common stock were repurchased from Hall Phoenix Inwood, Ltd. in
November 1996.
The exercise price per share of the Warrants is currently $18.00. The
exercise price per share increases by $2.00 on March 15 of each successive year
through 2000. The Warrants will expire on March 14, 2001, at which time Search
must redeem all unexercised Warrants at a redemption price of $2.00 per share.
Because the Warrants must be redeemed if not exercised, they have been
classified outside of permanent equity as debt at fair value. An accretion to
the redemption amount of $1,879,000 will be made over the term of five years
from March 15, 1996 using the interest method.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Search Financial Services Inc. ("Search", and together with its
consolidated subsidiaries the "Company") is a financial services company
specializing in the purchase and management of non-prime motor vehicle
receivables, typically those owed by consumer obligors who do not qualify for
traditional financing. The Company purchases its contracts individually from
franchise and independent automobile and light truck dealers ("Dealers"),
through bulk purchases of receivables from other finance companies, and Dealers
who originate them in the sale of vehicles and through the acquisition of
companies engaged in the same business. During the fiscal year ended March 31,
1996, the Company commenced operations in other consumer lending areas by
opening several consumer lending branches. As of September 30, 1997, 21
consumer lending branches were operational.
Prior to November 4, 1994, the Company primarily financed the purchase
of non-prime motor vehicle receivables through the private and public sale of
interest-bearing notes (the "Notes") issued by wholly owned subsidiaries
organized specifically for this purpose (the "Fund Subsidiaries") and through
reinvestment of operating cash flow. Until March 1996, the purchasing of
receivables for the Fund Subsidiaries was governed by trust indentures (the
"Trust Indentures") which restricted management's ability to alter its
receivables purchasing criteria. In March 1996, following confirmation of the
Fund Subsidiaries' plan of reorganization under bankruptcy proceedings, the
Notes and the indebtedness represented by the Notes, together with their related
Trust Indentures, were canceled. At that time, the Company implemented its new
purchasing program (the "Preferred Program"). The Preferred Program continues to
focus on the purchasing of non-prime motor vehicle receivables whose obligors
have non-prim credit histories, but places more emphasis on job, income and
residence stability and re-established positive credit of the obligor than the
Company's earlier programs.
The Company anticipates lower repossession rates and higher
repossession sale proceeds as a result of the Preferred Program. The terms of
loans under the Preferred Program generally range from 30 months to 60 months.
RESULTS OF OPERATIONS
Comparison of Six-Month and Three-Month Periods Ended September 30, 1997 and
1996
The Company purchased 866 non-prime motor vehicle contracts during the
six months ended September 30, 1997 compared to 509 non-prime motor vehicle
contracts during the six months ended September 30, 1996. The cost of contract
purchases was $9,009,000 ($10,403 per contract) compared to $4,798,000 ($9,426
per contract) for the six-month periods in 1997 and 1996, respectively. The
Company purchased 1,098 bulk non-prime contracts at a cost of $9,717,000 ($8,849
per contract) during the six months ended September 30, 1996. No bulk purchases
were made in the same period in 1997. The Company has also expanded into other
areas of consumer finance. During the six months ended September 30, 1997, the
Company
15
<PAGE> 16
purchased or originated 3,773 non-auto consumer loan contracts at a cost of
$5,328,000 ($1,412 per contract). The Company purchased 725 non-auto consumer
loan contracts during the six months ended September 30, 1996 at a cost of
$278,000 in a bulk purchase transaction.
Interest revenue increased from $3,898,000 for the six months ended
September 30, 1996 to $6,412,000 for the six months ended September 30, 1997.
The increase of $2,514,000, or 64%, is a result of higher average interest
earning net receivables for the six-month period ended September 30, 1997. The
increase in average interest earning receivables is primarily a result of the
MSF acquisition in July 1997. Interest revenue increased 77% in the three
month period primarily as a result of the MSF transaction.
Interest expense increased to $2,979,000 for the six months ended September
30, 1997 compared to $338,000 for the six-month period ended September 30,
1996. Interest expense increased during the three month period approximately
400%. The increase in interest expense is due to increased borrowings
associated with the Company's outstanding lines of credit, notes payable and
increased warrant accretion.
The provision for credit losses was favorably impacted during the six
months ended September 30, 1997 by the sale of $1,400,000 of previously
charged-off loans, i.e., loans on which generally no payments had been received
for at least one year. Reflecting the benefit of this sale, the reduction of
credit losses was $998,000 for the six months ended September 30, 1997,
compared to $3,438,000 for the six months ended September 30, 1996. In the
future, management anticipates a lower reduction of credit losses as the number
of remaining charged-off accounts continues to decrease, and any provisions are
not offset by recoveries of prior credit losses. During the three month
period, the company recorded a new $1,507,000 provision for credit losses
primarily due to losses in the DACC portfolio.
General and administrative expenses increased to $9,025,000 for the six months
ended September 30, 1997 compared to $5,922,000 for the six-month period ended
September 30, 1996. During the three month period,the Company's general and
administrative expense increased $1,708,000. The increase in general and
administrative expenses is primarily related to increased expenses associated
with the opening of consumer lending branches, expansion of the Company's
servicing capacity, and increases in professional fees. During the six months
ended September 30, 1997, the Company incurred significant costs associated
with the acquisition of MSF and other potential acquisitions.
Preferred stock dividends decreased from $2,946,000 for the six months
ended September 30, 1996 to $1,670,000 for the six months ended September 30,
1997. The Company did not accrue preferred stock dividends for the quarter ended
September 30, 1997 because of a prohibition in one of its credit agreements.
LIQUIDITY AND CAPITAL RESOURCES
General
During the next 12 months the Company will require substantial amounts
of cash to support its operations and other activities. Currently, the primary
cash requirements include amounts to purchase and originate new receivables,
retire maturing debt and cover operating expenses. In addition, to the extent it
is not prohibited from doing so, the Company will require cash to pay preferred
stock dividends. The Company had approximately $2,490,000 of cash on
16
<PAGE> 17
hand as of September 30, 1997, which it does not consider adequate to meet its
cash needs during the next 12 months. Because the consumer finance industry
requires the purchase and carrying of receivables, a relatively high ratio of
borrowings to net worth is customary and will be an important element in the
Company's liquidity. The Company will seek to leverage its net worth and any
subordinated debt in the future to enhance its liquidity. Additionally, the
Company will endeavor to maximize its liquidity by diversifying its sources of
cash to include cash from operations, the securitization of receivables, lines
of credit available from commercial banks and other lenders, and convertible or
other subordinated debt.
The Company's cash needs and uses relate to activities of the Company
in three areas. First, operating activities produce cash from the receipt of net
interest income (interest income less interest expense) and use cash to pay
operating expenses. Second, the Company's investing activities use cash for the
purchase or origination of receivables and produce cash from the collection of
principal payments and repossession proceeds. Finally, financing activities
produce or use cash from lines of credit, securitizations and debt or equity
offerings. Following is a discussion of each activity.
Operating Activities
For the six months ended September 30, 1997, the Company's loss before
preferred stock dividends was $4,561,000. The operating profit for the six
months ended September 30, 1996 did not produce operating cash flows due to
non-cash adjustments included in operating profit which do not produce cash
flows. The Company does not expect to generate operating cash flows in the
foreseeable future. In order to continue to cover its operating expenses in the
next 12 months, the Company will be required to do one or a combination of the
following: leverage any unencumbered receivables, raise additional equity or
debt through public or private sales, securitize receivables, sell receivables,
grow its receivable base large enough to generate operating cash flows or
curtail its operations significantly. Unless a significant acquisition occurs
during the next 12 months, the Company does not expect its receivable base to
become large enough to produce positive operating cash flows.
The Company has consolidated all of MSF's operations into its existing
servicing and origination operations. The significant reduction in MSF's
underwriting and servicing overhead is intended to generate net operating income
in the range of approximately $1,200,000 per quarter, assuming the Company is
successful in expanding MSF's marketing efforts to generate receivable growth to
offset liquidation in the existing MSF portfolio.
Investing Activities
For the six months ended September 30, 1997, the Company's investing
activities produced $5,688,000 positive cash flows compared to $3,657,000
negative cash flows, for the six months ended September 30, 1996. The primary
reason for the Company's investing activities providing cash flow for the six
months ended September 30, 1997 is that liquidation of the Company's receivables
exceeded the amount of receivables purchased and originated. The Company
anticipates encountering negative cash flows from its investing activities in
the next 12 months as its non-prime marketing activities are enhanced by the
acquisition of MSF and its
17
<PAGE> 18
consumer finance operations are expanded. Material bulk purchases would also
contribute to negative investing cash flows.
The Company's investing activities will be constrained to the extent it
does not have an adequate financing source or sources in place. If the Company
is able to obtain adequate financing and find acceptable receivables to purchase
or originate, the Company should be able to grow its receivable base and
help produce positive operating cash flows.
Financing Activities
For the six months ended September 30, 1997 and 1996, the Company's
financing activities produced $15,287,000 negative cash flows compared to
positive cash flows of $3,323,000 for the six months ended September 30, 1996.
The decrease in cash flows from financing activities is caused by repayments
under lines of credit and notes payable exceeding borrowings, the repurchase of
treasury stock of $2,078,000, the payment of preferred stock dividends of
$3,213,000 and repayment of $9,596,000 of the debt assumed in connection with
the acquisition of Dealers Alliance Credit Corp. The Company's ability to
generate positive cash flows from investing activities in the next 12 months
will be dependent on its ability to obtain additional or expanded lines of
credit, to complete a debt or equity offering, to securitize receivables and to
complete an exchange offer of common stock for preferred stock. The Company has
substantial cash flow commitments during the next 12 months that could cause
negative cash flows if anticipated financing activities do not materialize. The
most significant of these commitments requires the Company to reduce the
principal amount outstanding under MSF's line of credit to $50,000,000 by
December 31, 1997. The balance due under the MSF line of credit was
$65,000,000 as of November 14, 1997.
The Company is continuing its efforts to raise convertible or other
subordinated debt. Any subordinated debt or equity raised would require
repayment of the $5,000,000 subordinated note held by Hall Phoenix/Inwood, Ltd.
("HPIL") if the amount raised is greater than $20,000,000. If less than
$20,000,000 is raised, an amount equal to the percentage that the amount raised
bears to $20,000,000 would be the required repayment. Currently, the Company is
seeking to raise $20,000,000-$35,000,000 from this offering. Additionally, the
Company is preparing an exchange offer to convert its outstanding preferred
stock into Common Stock.
HPIL, the holder of a $5,000,000 subordinated note issued by Search,
has advised Search that an event of default under that note will occur if the
Company's failure to pay dividends on its preferred stock for the quarter ended
September 30, 1997 is not cured by December 3, 1997. This event of default
causes defaults under the terms of the Company's revolving lines of credit.
Neither HPIL nor any of the Company's lenders has sought to accelerate payment
of the indebtedness owed to it at this time. The Company continues to service
all of its debts and is attempting to obtain waivers of the defaults arising
from the non-payment of dividends. There can be no assurance that such waivers
will be obtained. So long as there is a default under the Company's senior debt.
HPIL is not entitled to receive any payments under its subordinated note until
the senior debt is paid in full. If the Company's lenders elect to accelerate
their debts, the Company will likely be unable to pay such debts and at this
time is uncertain what action it will take in this event.
The company is currently in discussions with respect to a number of
acquisition opportunities. The Company desires to expand its business through
the acquisition of similar businesses with which it currently competes or that
are complimentary to its existing business. No
18
<PAGE> 19
commitments or binding agreements have been entered into with respect to these
acquisitions. Accordingly, no assurance can be given that any of the
acquisitions currently being discussed will be consummated
Inflation
Statistics indicate that collateral value, vehicle sales prices, and
receivable interest rates are relatively stable within the Company's market
segment. Significant inflation in prices could adversely impact the Company's
ability to acquire receivables at favorable prices. General increases in
interest rates will result in increases in the Company's interest expense.
Seasonality
The Company's non-prime operations are seasonably impacted by higher
delinquency rates during certain periods, including November and December
holiday periods.
Year 2000 Compliance
The Company believes its year 2000 compliance program will not
materially impact its operations or financial condition. The Company's program
has two primary areas of focus. First, the Company's front-end non-prime
origination system is date sensitive. The Company plans to review this system
using existing resources by the end of the fourth quarter of fiscal 1998 and to
correct any deficiencies well ahead of the year 2000 deadline. Second, the
Company's receivables servicing system is maintained by Norwest Financial
Information Systems Group, Inc. (NFISG). NFISG has advised the Company that over
the last several years it has taken the necessary steps to prepare for the year
2000, most of its processing already supports dates past the year 2000 and that
it is continuing work on its plan to thoroughly review and test each function in
advance to ensure internal calculations and processes accurately support the
year 2000 and beyond.. NFISG has also advised the Company that its verification
of year 2000 compliance will be substantially complete by the end of calendar
1997 with additional changes identified during verification reviews scheduled
and completed well ahead of the year 2000 deadline. The Company's charges from
NFISG are based on fixed cost per transaction, which remain fixed until 2001.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its former and current officers
and directors are defendants in a case styled Janice and Warrant 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 the Fund
Subsidiaries (the "Plan") for the purpose, among other things, of pursuing
causes of action of the former holders of notes issued by the Fund Subsidiaries
who assigned their claims relating to the Bowe Action to the Litigation Trust.
On or about August 12, 1997, the trustee (the "Litigation Trustee") of
the Litigation Trust filed a complaint (the "Trustee's Action") in the United
States Bankruptcy Court for the Northern District of Texas, Dallas Division,
against the Company, its subsidiary, Search Financial Services Acceptance Corp.
(formerly known as Automobile Credit Acceptance Corp.) ("SFSAC"), certain of the
Company's former officers and directors, certain broker-dealers who sold Notes
of three of the Fund Subsidiaries and the Company's and the Fund Subsidiaries'
former independent accountants. The Litigation Trust was established to pursue
causes of action of the Fund Subsidiaries and of the former Holders of Notes
issued by the Fund Subsidiaries who assigned their claims to the Litigation
Trust. In the Trustee's Action, the Litigation Trust alleges (1) breach of
fiduciary duty owed by Search and the former directors and officers to three of
the Fund Subsidiaries through the use of fraudulent misrepresentations and
omissions in the raising of capital that was used for the benefit of the Company
and its affiliates rather than those Fund Subsidiaries, (2) violations by Search
and the former directors and officers of the Racketeer Influenced and Corrupt
Organizations Act as a result of the fraudulent offering of Notes by three of
the Fund Subsidiaries, (3) negligence by the broker-dealers and accountants in
connection with the offering of Notes by the three Fund Subsidiaries and (4)
payment of voidable preferential transfers to Search and SFSAC, which payments
were specified in the Plan, in the amount of $7,236,111. The plaintiff seeks
recovery of the alleged preferential transfers and unspecified actual, exemplary
and treble damages. Search and SFSAC believe the suit is without merit and are
vigorously defending themselves.
20
<PAGE> 21
While a settlement agreement in principle with respect to the Bowe
Action and the claims by the Litigation Trustee was reached in March 1997 that
would have required the Company to pay $350,000 in cash and issue shares of its
Common Stock having a value of $1,375,000, the Company suspended further
negotiations in May. Settlement discussions have resumed, but there can be no
assurance that a settlement on terms acceptable to the Company will be
concluded. The court had dismissed the plaintiffs' motion for class
certification in the Bowe Action without prejudice and subject to renewal and
final disposition, pending the outcome of settlement discussions. Because a
settlement has not yet been consummated, counsel for the plaintiffs in the Bowe
Action has indicated it will request that the Mississippi Federal District Court
take up and resolve the question of class certification.
The Company has a reserve of $500,000 related to the Bowe Action and
the Trustee's Action. A settlement or judgment in excess of this reserve could
adversely affect the Company.
In January 1997, MSF was named as a defendant in a lawsuit filed by
Telluride Funding Corp. ("Telluride") in the U.S. District Court for the
Southern District of New York. In its complaint, Telluride asserted claims for
unpaid fees due it in connection with a warehouse line of credit MSF entered
into in April 1995. Telluride sought damages in the amount of $437,500, plus
interest, costs and attorney's fees. That suit was removed to New York state
court in April 1997. In March 1997, MSF filed a declaratory judgment action
against Telluride in Mississippi state court requesting a determination of the
parties' rights and obligations relating to the warehouse line of credit. In
October 1997, Telluride's action in New York state court was dismissed. At this
time, MSF is unable to predict the outcome of this litigation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not pay dividends on its preferred stock for
the quarter ended September 30, 1997. The amount of preferred stock dividends
that would have been payable for that quarter was $1,610,000. See Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Financing Activities".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 28, 1997, the Company held its annual meeting of
stockholders to vote on the following items:
Item 1. To elect directors to serve until the 2000 annual meeting of
stockholders;
Item 2. To approve the Company's 1997 Stock Option Plan;
Item 3. To ratify the appointment of BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending March 31, 1998.
21
<PAGE> 22
The following table shows the voting with respect to these items.
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<S> <C> <C> <C> <C>
Item 1: 0
William H.T. Bush 3,835,312 19,222 0 0
Anthony J. Dellavechia 3,833,593 20,941 0 0
George C. Evans 3,831,997 22,537 0 0
James F. Leary 3,834,398 20,136 0 0
Item 2 1,856,880 871,738 59,269 1,066,647
Item 3 3,820,369 13,440 20,725 0
</TABLE>
On July 31, 1997, the Company held a special meeting of
stockholders to vote on the acquisition of MSF.
The following table shows the voting with respect to that acquisition.
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
<S> <C> <C> <C> <C>
Item 1 3,882,253 22,385 21,067 28,485
</TABLE>
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed in response to Item 601 of
Regulation S-K.
Exhibit
Number Description
- ---------- ------------------------------------------------------------
10.1 Loan Agreement dated October 6, 1997 between Search Funding
II, Inc., Search Financial Services Holding Company, Search
Financial Services of Florida, Inc., Search Financial Services
of Georgia, Inc., Search Financial Services of Louisiana,
Inc., Search Financial Services of Oklahoma, Inc., Search
Financial Services of Puerto Rico, Inc., Search Financial
Services of Tennessee, Inc., Search Financial Services of
Texas, Inc. and Hibernia National Bank
10.2 Commercial Guaranty dated October 6, 1997 between Registrant
and Hibernia National Bank
10.3 Promissory Note dated October 6, 1997 in the principal amount
of $25,000,000 payable to Hibernia National Bank
11.0 Statement re computation of per share earnings
27.0 Financial data schedule
(b) Report on Form 8-K
The Company filed a Current Report on Form 8-K, dated August
12, 1997, reporting the commencement of a lawsuit against the
Company and that it expected it would not be allowed to pay
dividends in cash on preferred stock.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEARCH FINANCIAL SERVICES INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ GEORGE C. EVANS Chairman of the Board, President, 11/14/97
- ------------------------ Chief Executive Officer, and Director
George C. Evans
/s/ ROBERT D. IDZI 11/14/97
- ------------------------ Senior Executive Vice President,
Robert D. Idzi Chief Financial Officer and Treasurer
/s/ ANDREW D. PLAGENS Senior Vice President, Controller and 11/14/97
- ------------------------ Chief Accounting Officer
Andrew D. Plagens
</TABLE>
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- ------------------------------------------------------------
<S> <C>
10.1 Loan Agreement dated October 6, 1997 between Search Funding
II, Inc., Search Financial Services Holding Company, Search
Financial Services of Florida, Inc., Search Financial Services
of Georgia, Inc., Search Financial Services of Louisiana,
Inc., Search Financial Services of Oklahoma, Inc., Search
Financial Services of Puerto Rico, Inc., Search Financial
Services of Tennessee, Inc., Search Financial Services of
Texas, Inc. and Hibernia National Bank
10.2 Commercial Guaranty dated October 6, 1997 between Registrant
and Hibernia National Bank
10.3 Promissory Note dated October 6, 1997 in the principal amount
of $25,000,000 payable to Hibernia National Bank
11.0 Statement re computation of per share earnings
27.0 Financial data schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
LOAN AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$25,000,000.00 10-06-1997
- ---------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
</TABLE>
<TABLE>
<S> <C> <C>
BORROWERS: SEARCH FUNDING II, INC. SEARCH FINANCIAL SERVICES HOLDING COMPANY
SEARCH FINANCIAL SERVICES OF FLORIDA, INC. SEARCH FINANCIAL SERVICES OF GEORGIA, INC.
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC. SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC.
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC. SEARCH FINANCIAL SERVICES OF TENNESSEE, INC.
SEARCH FINANCIAL SERVICES OF TEXAS, INC.
</TABLE>
LENDER: HIBERNIA NATIONAL BANK
(TIN: 72-0210640)
313 CARONDELET STREET
POST OFFICE BOX 61540
NEW ORLEANS, LOUISIANA 70161
================================================================================
THIS LOAN AGREEMENT between SEARCH FUNDING II, INC., SEARCH FINANCIAL SERVICES
HOLDING COMPANY, SEARCH FINANCIAL SERVICES OF FLORIDA, INC., SEARCH FINANCIAL
SERVICES OF GEORGIA, INC., SEARCH FINANCIAL SERVICES OF LOUISIANA, INC., SEARCH
FINANCIAL SERVICES OF OKLAHOMA, INC., SEARCH FINANCIAL SERVICES OF PUERTO RICO,
INC., SEARCH FINANCIAL SERVICES OF TENNESSEE, INC., and SEARCH FINANCIAL
SERVICES OF TEXAS, INC. (collectively "BORROWERS" and individually "BORROWER")
and HIBERNIA NATIONAL BANK ("LENDER") is made and executed on the following
terms and conditions. Borrowers have applied to Lender for a loan or loans and
other financial accommodations, including those which may be described on any
exhibit or schedule attached to this Agreement.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Louisiana Commercial Laws -
Secured Transactions (La.-R.S. 10:9-101, et seq.). All references to dollar
amounts shall mean amounts in lawful money of the United States of America.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached or to be attached to this Loan Agreement
from time to time.
BORROWER. The words "Borrower" and "Borrowers" mean individually,
collectively and interchangeably SEARCH FUNDING II, INC., SEARCH FINANCIAL
SERVICES HOLDING COMPANY, SEARCH FINANCIAL SERVICES OF FLORIDA, INC.,
SEARCH FINANCIAL SERVICES OF GEORGIA, INC., SEARCH FINANCIAL SERVICES OF
LOUISIANA, INC., SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC., SEARCH
FINANCIAL SERVICES OF PUERTO RICO, INC., SEARCH FINANCIAL SERVICES OF
TENNESSEE, INC., SEARCH FINANCIAL SERVICES OF TEXAS, INC., and all other
entities signing the Note.
BORROWING BASE. The words "Borrowing Base" mean the lesser of (a)
$25,000,000.00; or (b) the sum of (i) the lesser of (1) $17,000,000.00
("THE ELIGIBLE NON-PRIME AUTO PAPER SUBLIMIT"), or (2) 65% of the aggregate
amount of the outstanding principal and interest owed under Eligible
Non-Prime Auto Paper, and (ii) the lesser of (1) $8,000,000.00 ("THE
ELIGIBLE CONSUMER PAPER SUBLIMIT"), or (2) 65% of the aggregate amount of
the outstanding principal and interest owed under Eligible Consumer Paper.
Borrowers shall have the right to decrease the Eligible Non-Prime Auto
Paper Sublimit, no more than once during each calendar month, and increase
the Eligible Consumer Paper Sublimit by the amount of the Eligible
Non-Prime Auto Paper Sublimit decrease. Borrowers shall not have the right
to decrease the Eligible Consumer Paper Sublimit and increase the Eligible
Non-Prime Auto Paper Sublimit. Each Eligible Non-Prime Auto Paper Sublimit
decrease/Eligible Consumer Paper Sublimit increase must be $5,000,000.00,
or more, in increments of $500,000.00. At least five (5) Business Days
before the effective date of each Eligible Non-Prime Auto Paper Sublimit
decrease/Eligible Consumer Paper Sublimit increase, Borrowers shall provide
Lender with written notice containing (a) the amount of the sublimit
decrease/increase, and (b) the effective date of the sublimit
increase/decrease.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in New Orleans, Louisiana, excluding Saturdays
and Sundays.
CONSUMER PAPER. The words "Consumer Paper" mean a negotiable instrument
or other writing which evidences a monetary obligation of a natural person
incurred for personal, family, or household purposes. Consumer Paper does
not include (a) obligations of legal entities, or (b) obligations incurred
for commercial or agricultural purposes.
COLLATERAL. The word "Collateral" means and includes individually,
collectively, interchangeably and without limitation all property and
assets granted as collateral security for a Loan, whether real or personal
property, whether granted directly or indirectly, whether granted now or in
the future, and whether granted in the form of a security interest,
mortgage, collateral mortgage, deed of trust, assignment, pledge, crop
pledge, chattel mortgage, collateral chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise, including all accessions,
additions, replacements, and substitutions and all related accounts,
inventory, and general intangibles. The word "Collateral" includes without
limitation all collateral described below in the section titled
"COLLATERAL."
DEBTOR. The word "Debtor" means individually, collectively and
interchangeably each person or entity obligated upon any Non-Prime Auto
Paper or Consumer Paper and any grantor of a security interest as security
for any Non-Prime Auto Paper or Consumer Paper.
ELIGIBLE CONSUMER PAPER. The words "Eligible Consumer Paper" mean, at any
time, the Consumer Paper of SEARCH FINANCIAL SERVICES HOLDING COMPANY,
SEARCH FINANCIAL SERVICES OF FLORIDA, INC., SEARCH FINANCIAL SERVICES OF
GEORGIA, INC., SEARCH FINANCIAL SERVICES OF LOUISIANA, INC., SEARCH
FINANCIAL SERVICES OF OKLAHOMA, INC., SEARCH FINANCIAL SERVICES OF PUERTO
RICO, INC., SEARCH FINANCIAL SERVICES OF TENNESSEE, INC., and SEARCH
FINANCIAL SERVICES OF TEXAS, INC., which Lender, in the reasonable exercise
of its credit judgment, finds acceptable. Unless otherwise agreed to by
Lender in writing, Eligible Consumer Paper does not include:
(a) Consumer Paper that is not encumbered by a first lien priority
perfected Security Interest, granted in favor of Lender, where first
lien priority perfection is confirmed by evidence or opinions
reasonably acceptable to Lender.
(b) Consumer Paper that is not free and clear of all security
interests, liens, encumbrances, and claims of third parties, except
for Permitted Liens.
(c) Consumer Paper in which any person or entity (including any
subsidiary or affiliate of any Borrower) other than Borrowers owns any
interest.
<PAGE> 2
10-06-1997 LOAN AGREEMENT PAGE 2
LOAN NO. (CONTINUED)
================================================================================
(d) Consumer Paper that is not in the possession of Lender or a
custodian approved in writing by Lender.
(e) Consumer Paper with three (3) or more cumulative contractual
payments past due, where a contractual payment is considered past due
only if the Debtor has paid less than NINETY PERCENT (90%) of the
amount of the contractual payment due (i.e., if a Debtor pays 90% or
more of a contractual payment it is not considered past due).
(f) Consumer Paper with respect to which the Debtor has been granted
more than two (2) extensions during the most recent consecutive twelve
(12) month period.
(g) Consumer Paper of any Debtor who, after incurring the indebtedness
evidenced by the Consumer Paper, has filed or has had filed against it
a petition in bankruptcy, insolvency proceeding, or other proceeding
under any other debtor-in-relief acts; or who has had appointed a
trustee, custodian, or receiver for the assets of such Debtor; or who
has made an assignment for the benefit of creditors or has become
insolvent or fails generally to pay the debts of the Debtor as such
debts become due; or who is in a debt repayment, consolidation or
restructure plan under the auspices, direction or control of any
entity or agency involved in providing credit rehabilitation or
counseling service (including, without limitation, Consumer Credit
Counselors).
(h) Consumer Paper that has been referred to an attorney for
collection.
(i) Consumer Paper that evidences a security interest in any goods
that are in the possession of any Borrower or any agent of any
Borrower.
(j) Consumer Paper that represents a renewal or a restructure of a
monetary obligation, in whole or in part, in which the prior
delinquency of the Debtor was a consideration in the renewal or
restructure.
(k) Consumer Paper not payable in substantially equal monthly
installments until maturity or with a final installment equal to two
or more times the regular monthly installments.
(l) Consumer Paper with respect to which the Debtor is a shareholder,
director, officer, employee or agent of any Borrower.
(m) Consumer Paper with respect to which the Debtor is a subsidiary
of, or affiliated with or related to, any Borrower or any shareholder,
director or officer of any Borrower.
(n) Consumer Paper with respect to which the obligations of the Debtor
may be conditional.
(o) Consumer Paper with respect to which the Debtor is not a resident
of the United States or Puerto Rico, except to the extent such
Consumer Paper is supported by security interests, insurance, bonds,
or other assurances reasonably satisfactory to Lender.
(p) Consumer Paper with respect to which any Borrower is or may become
liable to the Debtor for goods sold or services rendered by the Debtor
to any Borrower.
(q) Consumer Paper which is subject to any discount (other than
discounts for unearned interest), credit, dispute, counterclaim or
setoff in favor of the Debtor.
(r) Consumer Paper with respect to which Lender, using its reasonable
credit judgment, deems ineligible.
(s) Consumer Paper not supported by appropriate documentation as
determined by Lender in its sole, but reasonable, discretion.
ELIGIBLE NON-PRIME AUTO PAPER. The words "Eligible Non-Prime Auto Paper" mean,
at any time, the Non-Prime Auto Paper of SEARCH FUNDING II, INC., which Lender,
in the reasonable exercise of its credit judgment, finds acceptable. Unless
otherwise agreed to by Lender in writing, Eligible Non-Prime Auto Paper does not
include:
(a) Non-Prime Auto Paper that is not encumbered by a first priority
perfected Security Interest, granted in favor of Lender, where first
priority perfection is confirmed by evidence or opinions reasonably
acceptable to Lender.
(b) Non-Prime Auto Paper that is not free and clear of all security
interests, liens, encumbrances, and claims of third parties, except
for Permitted Liens.
(c) Non-Prime Auto Paper in which any person or entity (including any
subsidiary or affiliate of any Borrower) other than SEARCH FUNDING II,
INC., owns any interest.
(d) Non-Prime Auto Paper that evidences a security interest in a motor
vehicle that has not been perfected within a reasonable time after
origination of the Non-Prime Auto Paper.
(e) Non-Prime Auto Paper that is not delivered to Lender or a
custodian approved by Lender within a reasonable period (as determined
by Lender in its sole discretion) after origination or acquisition.
(f) Non-Prime Auto Paper with three (3) or more cumulative contractual
payments past due, where a contractual payment is considered past due
only if the Debtor has paid less than NINETY PERCENT (90%) of the
amount of the contractual payment due (i.e., if a Debtor pays 90% or
more of a contractual payment it is not considered past due).
(g) Non-Prime Auto Paper with respect to which the Debtor has been
granted more than two (2) extensions during the most recent
consecutive twelve (12) month period.
(h) Non-Prime Auto Paper of any Debtor who, after incurring the
indebtedness evidenced by the Non-Prime Auto Paper, has filed or has
had filed against it a petition in bankruptcy, insolvency proceeding,
or other proceeding under any other debtor-in-relief acts; or who has
had appointed a trustee, custodian, or receiver for the assets of such
Debtor; or who has made an assignment for the benefit of creditors or
has become insolvent or fails generally to pay the debts of the Debtor
as such debts become due; or who is in a debt repayment, consolidation
or restructure plan under the auspices, direction or control of any
entity or agency involved in providing credit rehabilitation or
counseling service (including, without limitation, Consumer Credit
Counselors).
(i) Non-Prime Auto Paper that has been referred to an attorney for
collection.
<PAGE> 3
10-06-1997 LOAN AGREEMENT PAGE 3
LOAN NO. (CONTINUED)
================================================================================
(j) Non-Prime Auto Paper that evidences a security interest in any
goods that are in the possession of any Borrower or any agent of any
Borrower.
(k) Non-Prime Auto Paper that represents a renewal or a restructure of
a monetary obligation, in whole or in part, in which the prior
delinquency of the Debtor was a consideration in the renewal or
restructure.
(l) Non-Prime Auto Paper not payable in substantially equal monthly
installments until maturity or with a final installment equal to two
or more times the regular monthly installments.
(m) Non-Prime Auto Paper with respect to which the Debtor is a
shareholder, director, officer, employee or agent of any Borrower.
(n) Non-Prime Auto Paper with respect to which the Debtor is a
subsidiary of, or affiliated with or related to, any Borrower or any
shareholder, director or officer of any Borrower.
(o) Non-Prime Auto Paper with respect to which the obligations of the
Debtor may be conditional.
(p) Non-Prime Auto Paper with respect to which the Debtor is not a
resident of the United States, except to the extent such Non-Prime
Auto Paper is supported by security interests, insurance, bonds, or
other assurances reasonably satisfactory to Lender.
(q) Non-Prime Auto Paper with respect to which any Borrower is or may
become liable to the Debtor for goods sold or services rendered by the
Debtor to any Borrower.
(r) Non-Prime Auto Paper which is subject to any discount (other than
discounts for unearned interest), credit, dispute, counterclaim or
setoff in favor of the Debtor.
(s) Non-Prime Auto Paper with respect to which Lender, using its
reasonable credit judgment, deems ineligible.
(t) Non-Prime Auto Paper not supported by appropriate documentation as
determined by Lender in its sole, but reasonable, discretion.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean individually,
collectively, and interchangeably any of the Events of Default set forth
below in the section titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the earlier of (a) in
the event an Event of Default occurs, the date Lender demands repayment, in
full, of the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other
applicable fees, costs and charges, if any, not yet paid, (b) the date of
termination of Lender's commitment to lend under this Agreement, or (c) the
latest stated maturity date of the Note and any renewals and extensions of
the Note (PROVIDED, HOWEVER, THAT LENDER HAS MADE NO COMMITMENT TO, AND IS
NOT OBLIGATED TO, RENEW THE NOTE OR EXTEND THE MATURITY DATE OF THE NOTE).
GRADE D PAPER. The words "Grade D Paper" mean and include all Non-Prime
Auto Paper for which the Debtor is sent more than one statement per
calendar month and all other Non-Prime Auto Paper which otherwise conforms
to "D paper" grading standards for the non-prime automobile loan industry.
GRANTOR. The word "Grantor" means and includes individually, collectively,
interchangeably and without limitation each and all of the persons or
entities granting a Security Interest in any Collateral for the
Indebtedness, including without limitation each Borrower and each Guarantor
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes individually,
collectively, interchangeably and without limitation, SEARCH FINANCIAL
SERVICES INC., and each and all other guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes individually,
collectively, interchangeably and without limitation, any and all present
and future loans, extensions of credit, liabilities and/or obligations of
every nature and kind whatsoever that any Borrower may now and in the
future owe to or incur in favor of Lender and its successors or assigns,
including without limitation, the indebtedness of Borrowers in favor of
Lender under the Note, whether such loans, extensions of credit,
liabilities and/or obligations are direct or indirect, or by way of
assignment, and whether related or unrelated, or whether committed or
purely discretionary, and whether absolute or contingent, voluntary or
involuntary, determined or undetermined, liquidated or unliquidated, due or
to become due, together with interest, costs, expenses, attorneys' fees and
other fees and charges, whether or not any such Indebtedness may be barred
under any statute of limitations or may be otherwise unenforceable or
voidable for any reason.
LENDER. The word "Lender" means HIBERNIA NATIONAL BANK (TIN: 72-0210640),
its successors and assigns, and any subsequent holder or holders of the
Note, or any interest therein.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the section titled "LINE OF CREDIT."
LOAN. The words "Loan" and "Loans" mean and include any and all loans and
financial accommodations from Lender to Borrowers (or any Borrower)
hereunder whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time, and further including any and all subsequent
amendments, additions, substitutions, renewals and refinancings of any
Loan.
NOTE. The word "Note" means the promissory note or notes of Borrowers
evidencing the principal and interest repayment obligations of Borrowers
under the Line of Credit, as well as any substitute, replacement or
refinancing note or notes therefor. The Note initially evidencing the Line
of Credit repayment obligations in favor of Lender shall be drawn for the
maximum dollar amount of the Borrowing Base, shall provide for interest at
the rate established for the Line of Credit, shall provide for payment, in
full, of all principal interest and other charges by no later than the
Expiration Date, and shall contain such other provisions (including,
without limitation, provisions relating to calculation of interest,
acceleration, default interest, cross-defaults, rights upon default,
payment application, and attorneys' fees) as customarily incorporated by
Lender in its commercial loan notes. ALTHOUGH THE WORD "NOTE" INCLUDES
REFINANCINGS, LENDER IS UNDER NO OBLIGATION TO RENEW THE NOTE OR EXTEND THE
MATURITY DATE OF THE NOTE OR ANY SUBSTITUTE, REPLACEMENT OR REFINANCING
NOTE OR NOTES THEREFOR.
NON-PRIME AUTO PAPER. The words "Non-Prime Auto Paper" mean a writing or
writings which evidence BOTH a monetary obligation of a natural person
incurred for personal, family, or household purposes AND a security
interest in, or a lease of, a motor vehicle as security for payment of the
monetary obligation. Non-Prime Auto Paper does not include (a) written
evidences of unsecured monetary obligations, (b)
<PAGE> 4
10-06-1997 LOAN AGREEMENT PAGE 4
LOAN NO. (CONTINUED)
================================================================================
written evidences of monetary obligations secured by goods other than motor
vehicles, (c) obligations of legal entities, or (d) obligations incurred
for commercial or agricultural purposes.
PERMITTED LIENS. The words "Permitted Liens" mean (a) Security Interests
securing Indebtedness owed by Borrowers to Lender; (b) liens for taxes,
assessments, or similar charges either not yet due or being contested in
good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers,
or other like liens securing obligations which were incurred prior to the
acquisition by any Borrower of the property subject to such liens; (d)
liens of materialmen, mechanics, warehousemen, or carriers, or other like
liens arising in the ordinary course of business and securing obligations
which are not yet delinquent or are being contested in good faith; and (e)
liens and security interests which, as of the date of this Agreement, have
been disclosed to and approved by Lender in writing.
RELATED DOCUMENTS. The words "Related Documents" mean and include
individually, collectively, interchangeably and without limitation all
promissory notes, credit agreements, loan agreements, guaranties, security
agreements, mortgages, collateral mortgages, deeds of trust, and all other
instruments, agreements, and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
individually, collectively, interchangeably and without limitation any
agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
individually, collectively, interchangeably and without limitation any and
all present and future mortgages, pledges, crop pledges, assignments and
other security agreements directly or indirectly securing the repayment of
the Note, whether created by law, contract, or otherwise.
APPLICATION FOR AND PURPOSE OF THE LOAN. Borrowers have applied to Lender for
a Loan in the aggregate principal amount of $25,000,000.00 for working capital.
LINE OF CREDIT. Lender agrees to make Advances to Borrowers from time to
time from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrowers may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Advance and any subsequent Advance to or for the account of
Borrowers under this Agreement is subject to the following conditions
precedent, with all documents, instruments, opinions, reports, and other
items required under this Agreement to be in form and substance
satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
other Related Documents have been duly authorized, executed, and
delivered by Borrowers to Lender, including, without limitation (i)
the Note, (ii) Security Agreements granting to Lender Security
Interests in the Collateral, (iii) Financing Statements perfecting
Lender's Security Interests; (iv) Custodian Agreements designating the
Lender approved custodians to take and maintain possession for Lender
of the Non-Prime Auto Paper and Consumer Paper of each Borrower whose
Non-Prime Auto Paper and Consumer Paper is not all held at Lender's
offices, (v) evidence of Insurance as required below; and (vi) any
other documents required under this Agreement or by Lender or its
counsel.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may reasonably request.
(c) Lender shall have received such written opinions or agreements as
are reasonably acceptable to Lender and its counsel that the form of
note, security agreement, disclosure statement and other documents
used in connection with Non-Prime Auto Paper and Consumer Paper
originated by Borrowers complies and conforms with all applicable
laws, ordinances, rules, and regulations, which opinions or agreements
shall run in favor of Lender in the event Lender acquires ownership of
any of the Non-Prime Auto Paper and Consumer Paper originated by
Borrowers on the forms covered by the opinions or agreements.
(d) The Security Interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority, subject
to Permitted Liens, and shall be in full force and effect and Lender
shall have received evidence, acceptable to Lender, of the priority of
Lender's Security Interests in the Collateral as contemplated by this
Agreement.
(e) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and shall
be in full force and effect.
(f) Lender, at its option and for its sole benefit, shall have
conducted a review of the payment records, ledger sheets, and computer
tapes or disks kept to record payment information of Borrowers, and
other books, records, and operations of Borrowers, and Lender shall be
satisfied as to their condition.
(g) Borrowers shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the other Related Documents as are then
due and payable.
(h) The representations and warranties set forth in this Agreement, in
the other Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct in all
material respects.
(i) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrowers shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit, as well as
directions for payment from accounts of any Borrower, may be requested
orally or in writing by persons authorized, in writing, by any Borrower.
Lender may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made at
the request of and for the benefit of each Borrower (a) when credited to
any deposit account of any Borrower maintained with Lender or (b) when
advanced in accordance with the instructions of an authorized person.
Lender, at its option, may set a cutoff time, not earlier than noon, New
Orleans time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
INITIAL ADVANCE. The proceeds of the initial Advance under the Line Credit
shall be used to pay the full amounts due under all other lines of credit
extended by Lender to any Borrower and each Borrower agrees that once the
initial Advance is made under the Line of Credit provided for in this
Agreement, all other outstanding lines of credit from Lender to Borrowers
are terminated and Lender is not obligated to fund any advance requested
under any such other line of credit.
OVERLINES AND OVERADVANCES. In the event the unpaid principal amount of
the outstanding Advances under the Line of Credit ever exceeds the maximum
dollar amount of the Note ($25,000,000.00 ), Borrowers agree to pay the
excess amount (an "OVERLINE") within two (2) Business Days after notice
from Lender to Borrowers. In the event the unpaid principal amount of the
outstanding Advances under the Line
<PAGE> 5
10-06-1997 LOAN AGREEMENT PAGE 5
LOAN NO. (CONTINUED)
================================================================================
of Credit ever exceeds the Borrowing Base, Borrowers agree to pay the
excess amount (an "OVERADVANCE") within two (2) Business Days after notice
from Lender to Borrowers. Overlines and overadvances shall bear interest
at the rate stated in the Note. If not sooner paid, interest on overlines
and overadvances shall be paid on the last day of each month, until the
Expiration Date. Upon request of Lender, Borrowers shall execute a
promissory note, payable to the order of Lender, to represent the amount of
any overline and any overadvance; however, Borrowers acknowledge and agree
that the records of Lender and this Agreement shall constitute conclusive
evidence, absent manifest error, of any overline or overadvance and the
obligation of Borrowers to repay any overline or overadvance, with
interest. All overlines and overadvances for which Lender has not demanded
payment earlier, and all unpaid and accrued interest on overlines and
overadvances not due and payable earlier, shall be due and payable on the
Expiration Date. BORROWERS ACKNOWLEDGE AND AGREE THAT LENDER IS NOT
OBLIGATED TO BORROWERS TO FUND ANY ADVANCE THAT WOULD CREATE AN OVERLINE OR
AN OVERADVANCE.
ADVANCES FOR INTEREST AND FEES. Borrowers hereby authorize Lender to make
Advances under the Line of Credit in amounts necessary to pay any and all
fees and charges provided for under this Agreement and in order to pay any
accrued interest due under the Note. Any such Advance may, at the option
of Lender, be funded directly to Lender or deposited into a deposit account
of any Borrower maintained with Lender (including a Dominion Account) which
account may then be debited by Lender for the amount of such Advances. If
no Event of Default has occurred, Lender hereby agrees to make all Advances
necessary to pay any and all fees and charges provided for under this
Agreement and in order to pay any accrued interest due under the Note even
if the Advance creates an Overline or an Overadvance, and Borrowers agree
to pay the amount of any such Overline or Overadvance within two (2)
Business Days after notice from Lender to Borrowers.
INTEREST. The outstanding and unpaid principal balance under the Note and
any overline and any overadvance shall bear interest at the rate stated in
the Note. Borrowers shall make payments of unpaid interest accrued on the
outstanding and unpaid principal balance under the Note as provided for in
the Note. All unpaid and accrued interest not due and payable earlier,
shall be due and payable on the Expiration Date.
MANDATORY PRINCIPAL REPAYMENTS. On the Expiration Date, Borrowers shall
pay to Lender in full the aggregate unpaid principal amount of all Advances
then outstanding and all accrued unpaid interest, together with all other
applicable fees, costs and charges, if any, not yet paid.
FACILITY CHARGES. Borrowers recognize that Lender has incurred and will
continue to incur certain costs and expenses in connection with
establishing, maintaining, servicing, and administering the Line of Credit.
To ensure that Lender is able to recover such costs and expenses, Borrowers
agree that, notwithstanding any other provision of this Agreement, the
Note, or the other Related Documents, Lender shall be entitled to collect
the following facility charges, which Borrowers hereby promise and agree to
pay:
COMMITMENT FEE. A commitment fee of $25,000.00, payable at the time
of the making of the initial Advance.
MONITORING FEE. A monitoring fee of $3,000.00 per month [$1,500.00
for Non-Prime Auto Paper and $1,500.00 for Consumer Paper] for each
month or portion of a month during the term of this Agreement. The
monitoring fee for a month is due and payable on the first day of the
following month.
ANNUAL RENEWAL FEE. An annual renewal fee of $62,500.00 [0.250% of
the maximum dollar amount of the Note - $25,000,000.00], payable, in
full, on each annual anniversary of this Agreement prior to the
Expiration Date.
COLLATERAL STORAGE AND SERVICE FEE. A collateral storage and service
fee of $500.00 per month for each month or portion of a month during
the term of this Agreement, due and payable on the first day of the
following month.
UNUSED FACILITY FEE. An unused facility fee, in addition to interest,
on the daily average unused portion of the Line of Credit [the "unused
portion" being the amount by which the maximum dollar amount of the
Note ($25,000,000.00) exceeds the outstanding principal balance due
under the Note] from the date of this Agreement through the Expiration
Date, at the rate of 0.070% per annum, payable for each three (3)
calendar month period (each calendar quarter), in arrears, fifteen
(15) days after the last day of each calendar quarter.
DUE DILIGENCE EXPENSES. All reasonable expenses incurred by Lender,
including Lender's reasonable attorneys' fees, for Lender's due
diligence, payable by Borrowers upon demand by Lender.
EARLY TERMINATION. Lender agrees that Borrowers shall have the right to
terminate this Agreement prior to the Expiration Date upon Borrowers (a)
giving Lender ninety (90) days' written notice of termination and
designating a termination effective date, (b) paying Lender, on the
designated termination effective date, the aggregate unpaid principal
amount of all Advances then outstanding and all accrued unpaid interest,
together with all other applicable fees, costs and charges, if any, not yet
paid, AND (c) paying Lender, on the designated termination effective date,
a commitment cancellation charge equal to (i) 4.000% of the maximum dollar
amount of the Note [$25,000,000.00] if the early termination date occurs
during the first year after the date of the Note, (ii) 3.000% of the
maximum dollar amount of the Note if the early termination occurs during
the second year after the date of the Note, and (iii) 1.000% of the maximum
dollar amount of the Note if the early termination occurs during the third
year after the date of the Note. In the event, after the date of this
Agreement, a renewal or substitute Note is executed to represent the Line
of Credit indebtedness, these commitment cancellation charges shall apply
during the term of the renewal or substitute Note (i.e., the "date of the
Note" for purposes determining commitment cancellation charges shall be the
date of the renewal or substitute Note), unless the renewal or substitute
Note specifically provides otherwise.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the Line of Credit.
Lender shall provide Borrowers with periodic statements of the loan account
of Borrowers, which statements shall be considered to be correct and
conclusively binding on Borrowers, absent manifest error, unless Borrowers
notify Lender to the contrary within thirty (30) days after the receipt by
Borrowers of any such statement which Borrowers deem to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrowers to Lender, Borrowers
shall grant to Lender Security Interests in the present and future chattel
paper, instruments, accounts, inventory, documents and general intangibles of
Borrowers (the "COLLATERAL"). Lender's Security Interests in the Collateral
shall be continuing liens and shall include the proceeds and products of the
Collateral, including without limitation the proceeds of any insurance. With
respect to the Collateral, Borrowers agree and represent and warrant to Lender:
PERFECTION OF SECURITY INTERESTS. Borrowers agree to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral and agree
to deliver possession to Lender, or to a custodian approved in writing by
Lender, of all property included in the Collateral for which possession by
Lender is necessary to perfect and continue Lender's Security Interests.
Lender acknowledges and agrees that delivery of certificates of title to
motor vehicles in which a security interest has been granted as security for
the payment of Non-Prime Auto Paper are not necessary by law to perfect and
continue Lender's Security Interests in the Collateral. Contemporaneous
with the execution of this Agreement, each Borrower will execute one or more
UCC financing
<PAGE> 6
10-06-1997 LOAN AGREEMENT PAGE 6
LOAN NO. (CONTINUED)
================================================================================
statements and any similar statements as may be required by applicable law,
and will file such financing statements and all such similar statements in
the appropriate location or locations. Each Borrower hereby appoints
Lender as its irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue any Security Interest.
Lender may at any time, and without further authorization from any
Borrower, file a carbon, photograph, facsimile, or other reproduction of
any financing statement for use as a financing statement. Borrowers will
reimburse Lender for all expenses for the perfection, termination, and the
continuation of the perfection of Lender's Security Interest in the
Collateral. Borrowers promptly will notify Lender of any change in the name
of any Borrower including any change to the assumed business names of any
Borrower. Borrowers also promptly will notify Lender of any change in the
Employer Identification Number of any Borrower. Borrowers further agree to
notify Lender in writing prior to any change in address or location of the
chief executive office of any Borrower or should any Borrower merge or
consolidate with any other entity.
CROSS COLLATERALIZATION. Each Borrower acknowledges that all collateral of
each Borrower is collateral for all Loans made under this Agreement.
DELIVERY AND POSSESSION OF ELIGIBLE PAPER. Each Borrower shall deliver
to Lender, or to a custodian approved in writing by Lender, all original
instruments representing all Eligible Non-Prime Auto Paper and all Consumer
Paper. Upon request of Lender, each Borrower shall deliver to Lender, or
to a custodian approved in writing by Lender, all other Eligible Non-Prime
Auto Paper and Consumer Paper documentation, including, without limitation,
all original disclosure statements, security agreements, financing
statements (unless financing statements are filed in which event Lender
will be provided with a copy showing filing information), and all other
supporting documentation. Also, upon request of Lender, Borrowers shall
deliver the original certificates of title to all motor vehicles in which a
security interest has been granted as security for the payment of Non-Prime
Auto Paper. With respect to Borrowers, Lender and any custodian shall be
deemed to have exercised reasonable care in the custody and preservation of
all Non-Prime Auto Paper and Consumer Paper documents (including
instruments and certificates of title) in the possession of Lender or any
custodian if Lender or the custodian takes such action for that purpose as
any Borrower shall request or as Lender, in Lender's sole discretion, or
the custodian shall deem appropriate under the circumstances, but failure
to honor any request by any Borrower shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take
any steps necessary to preserve any rights in any Non-Prime Auto Paper or
any Consumer Paper against Debtors or other parties, nor to protect,
preserve or maintain any security interest evidenced by any Non-Prime Auto
Paper or securing any Consumer Paper. In the event any Eligible Non-Prime
Auto Paper or any Consumer Paper is held by a custodian, each Borrower
shall (a) execute a Custodian Agreement, in form and substance satisfactory
to Lender, by which the custodian is appointed to hold Non-Prime Auto
Paper and Consumer Paper for the benefit of Lender, and (b) affix and
maintain a conspicuous legend to all Non-Prime Auto Paper and Consumer
Paper delivered to the custodian clearly identifying the Non-Prime Auto
Paper and Consumer Paper as subject to a security interest in favor of
Lender.
INSPECTION AND EXAMINATION BY GOVERNMENTAL AGENCIES. Lender agrees to
allow, and agrees to direct any custodian acting for Lender to allow,
inspection and examination of all Non-Prime Auto Paper and Consumer Paper
and Non-Prime Auto Paper and Consumer Paper records by all governmental
agencies with regulatory powers over Borrowers, as and where required by
such agencies (including, if necessary, returning Non-Prime Auto Paper and
Consumer Paper and Non-Prime Auto Paper and Consumer Paper records to the
jurisdiction of origination). All costs incurred by Lender or any
custodian in connection with any such governmental agency inspection or
examination will be paid by Borrowers.
COLLATERAL SCHEDULES. Concurrently with the delivery of each Non-Prime
Auto Paper package and each Consumer Paper package under this Agreement,
Borrowers shall execute and deliver to Lender a statement for each package
identifying the current principal balance and next payment due, and such
other information as Lender may request, all in form and substance
satisfactory to Lender. Thereafter and at such frequency as Lender shall
require, Borrowers shall execute and deliver to Lender such supplemental
statements and such other matters and information relating to the Non-Prime
Auto Paper and Consumer Paper as Lender may request.
COLLATERAL RECORDS. Borrowers do now, and at all times hereafter shall,
keep correct and accurate records of the Collateral and all payment and
balance information, all of which records shall be available to Lender or
Lender's representative upon demand for inspection and copying at any
reasonable time. With respect to the Non-Prime Auto Paper and the Consumer
Paper, Borrowers agree to keep and maintain such balance and payment
history records as Lender may reasonably require, including, without
limitation, delinquency information.
REPRESENTATIONS AND WARRANTIES CONCERNING NON-PRIME AUTO PAPER. With
respect to the Non-Prime Auto Paper, Borrowers represent and warrant to
Lender: (a) all present Non-Prime Auto Paper represents, and all future
Non-Prime Auto Paper will represent, loans acquired by SEARCH FUNDING II,
INC., in the ordinary course of its business, and in compliance and
conformity with all applicable federal, state and local laws, ordinances,
rules, and regulations, (b) all Non-Prime Auto Paper represented by
Borrowers to be Eligible Non-Prime Auto Paper for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Non-Prime Auto Paper; (c) all Non-Prime Auto Paper information listed on
schedules delivered to Lender will be true and correct, subject to
immaterial variance; and (d) Lender, its assigns, or agents shall have the
right at any time to inspect, examine, and review the records of Borrowers
and to verify and confirm with Debtors the accuracy of such Non-Prime Auto
Paper information, and Borrowers agree to reimburse Lender for all of
Lender's reasonable out-of-pocket expenses incurred in connection with any
such inspection, examination, or review (excluding personnel costs of
Lender or personnel costs of any independent contractor retained by Lender
to conduct or assist in any such inspection, examination, or review).
REPRESENTATIONS AND WARRANTIES CONCERNING CONSUMER PAPER. With respect
to the Consumer Paper, Borrowers represent and warrant to Lender: (a) all
present Consumer Paper represents, and all future Consumer Paper will
represent, loans originated or acquired by Borrowers in the ordinary course
of the business of Borrowers and in compliance and conformity with all
applicable federal, state and local laws, ordinances, rules, and
regulations, (b) all Consumer Paper represented by Borrowers to be Eligible
Consumer Paper for purposes of this Agreement conforms to the requirements
of the definition of Eligible Consumer Paper; (c) all Consumer Paper
information listed on schedules delivered to Lender will be true and
correct, subject to immaterial variance; and (d) Lender, its assigns, or
agents shall have the right at any time to inspect, examine, and review the
records of Borrowers and to verify and confirm with Debtors the accuracy of
such Consumer Paper information, and Borrowers agree to reimburse Lender
for all of Lender's reasonable out-of-pocket expenses incurred in
connection with any such inspection, examination, or review (excluding
personnel costs of Lender or personnel costs of any independent contractor
retained by Lender to conduct or assist in any such inspection,
examination, or review).
RIGHT TO COLLECT. Borrowers may collect amounts due under any Non-Prime
Auto Paper and any Consumer Paper, subject to the obligation of Borrowers
to deposit all collections in a Dominion Account. At any time after any
Event of Default occurs, Lender may exercise its rights to collect the
Non-Prime Auto Paper and the Consumer Paper and to notify Debtors to make
payments directly to Lender for application to the Indebtedness.
RELEASE OF COLLATERAL. Borrowers may apply to Lender for a release of
Collateral from the Security Interests in connection with a sale of
Collateral outside of the ordinary course of business or in bulk. The
release application will identify the Collateral to be sold, the gross
sales price, an itemization of sales price attributed to the Collateral
sold if the sale includes property of persons or entities other than
Borrowers, the net sale proceeds to be deposited into the Dominion Account,
and such other information as Lender may reasonably request. Lender agrees
to approve a release request if (a) no Overline shall be created or
increased under the Line of Credit after the sale and the net sales
proceeds attributable to the Collateral sold are deposited into the
Dominion Account, (b) no Event of Default has occurred and the sale will
<PAGE> 7
10-06-1997 LOAN AGREEMENT PAGE 7
LOAN NO. (CONTINUED)
================================================================================
not result in the occurrence of an Event of Default, and (c) the effect of
the sale on the financial condition of Borrowers and Guarantors will not
result in a breach of any of the Financial Covenants contained in this
Agreement. Any approval by Lender of a requested release will be evidenced
by a separate writing and shall be effective upon the deposit of the net
sale proceeds attributable to the Collateral sold, in good funds, into the
Dominion Account. Lender agrees to execute all appropriate release
documents for an approved release request and agrees to deliver the
executed release documents to Borrowers, or the designee of Borrowers, upon
deposit of the net sale proceeds attributable to the Collateral sold into
the Dominion Account or, if requested by Borrowers or the Collateral
purchaser, to allow the executed release documents to be held by an escrow
agent pending deposit of the net sales proceeds attributable to the
Collateral sold into the Dominion Account.
DOMINION ACCOUNT. Borrowers shall establish and maintain one or more deposit
accounts with Lender or with a bank designated by Lender ("DOMINION ACCOUNT")
into which Borrowers shall deposit, daily, all amounts paid on any Non-Prime
Auto Paper and any Consumer Paper and from sales of any of the Collateral. All
deposits shall be made, in kind, no later than the first Business Day after
receipt by any Borrower. Borrowers shall have no right to draw upon any
Dominion Account. On the second Business Day after a deposit into a Dominion
Account, the amount of the deposit shall be drawn from the Dominion Account by
Lender and applied to repayment of the Loan.
LOCK BOX. Borrowers agree to instruct, in writing, all Debtors and others
responsible for making payments on Non-Prime Auto Paper or on Consumer Paper
and other amounts due to any Borrower to make all payments to an address
selected by Lender. Lender also has the independent right, but not a duty, to
notify Debtors and others responsible for making payments on Non-Prime Auto
Paper, on Consumer Paper, or on other amounts due to any Borrower to make all
payments to the address selected by Lender. All payments received by Lender
and all payments received by any Borrower will be deposited, daily, into a
Dominion Account. All deposits of payments received by Lender shall be made to
a Dominion Account no later than the first Business Day after receipt by
Lender.
REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants to
Lender as of the date of this Agreement and as of the date of each disbursement
of Loan proceeds:
ORGANIZATION. SEARCH FUNDING II, INC., is a corporation which is duly
organized, validly existing, and in good standing under the laws of the
State of Texas, and is duly qualified to do business in, and in good
standing under the laws of, Arizona, Colorado, Florida, Georgia, Indiana,
Kansas, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South
Carolina, Tennessee, Utah and Virginia. SEARCH FUNDING II, INC., is not
qualified to do and is not doing business in any other jurisdiction.
SEARCH FINANCIAL SERVICES HOLDING COMPANY, is a corporation which is duly
organized, validly existing, and in good standing under the laws of the
State of Texas. SEARCH FINANCIAL SERVICES HOLDING COMPANY, is not
qualified to do and is not doing business in any other jurisdiction.
SEARCH FINANCIAL SERVICES OF FLORIDA, INC., is a corporation which is duly
organized, validly existing, and in good standing under the laws of the
State of Texas, and is duly qualified to do business in, and in good
standing under the laws of Florida and Texas. SEARCH FINANCIAL SERVICES OF
FLORIDA, INC., is not qualified to do and is not doing business in any
other jurisdiction. SEARCH FINANCIAL SERVICES OF GEORGIA, INC., is a
corporation which is duly organized, validly existing, and in good standing
under the laws of the State of Texas, and is duly qualified to do business
in, and in good standing under the laws of Georgia and Texas. SEARCH
FINANCIAL SERVICES OF GEORGIA, INC., is not qualified to do and is not
doing business in any other jurisdiction. SEARCH FINANCIAL SERVICES OF
LOUISIANA, INC., is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Louisiana.
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC., is not qualified to do and is
not doing business in any other jurisdiction. SEARCH FINANCIAL SERVICES OF
OKLAHOMA, INC., is a corporation which is duly organized, validly existing,
and in good standing under the laws of the State of Texas, and is duly
qualified to do business in, and in good standing under the laws of
Oklahoma and Texas. SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC., is not
qualified to do and is not doing business in any other jurisdiction.
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC., is a corporation which is
duly organized, validly existing, and in good standing under the laws of
Puerto Rico, and is duly qualified to do business in, and in good standing
under the laws of Puerto Rico. SEARCH FINANCIAL SERVICES OF PUERTO RICO,
INC., is not qualified to do and is not doing business in any other
jurisdiction. SEARCH FINANCIAL SERVICES OF TENNESSEE, INC., is a
corporation which is duly organized, validly existing, and in good standing
under the laws of the State of Texas, and is duly qualified to do business
in, and in good standing under the laws of Tennessee and Texas. SEARCH
FINANCIAL SERVICES OF TENNESSEE, INC., is not qualified to do and is not
doing business in any other jurisdiction. SEARCH FINANCIAL SERVICES OF
TEXAS, INC., is a corporation which is duly organized, validly existing,
and in good standing under the laws of the State of Texas. SEARCH
FINANCIAL SERVICES OF TEXAS, INC., is not qualified to do and is not doing
business in any other jurisdiction.
AUTHORIZATION. The execution, delivery and performance of this Agreement
by each Borrower has been duly authorized, and does not conflict with, and
will not result in a violation of, or constitute or give rise to an event
of default under the Articles of Incorporation or Bylaws of any Borrower,
or any agreement or other instrument which may be binding upon any
Borrower, or under any law or governmental regulation or court decree or
order applicable to any Borrower and/or its properties. Each Borrower has
the power and authority to enter into the Loan, to execute the Note and to
grant collateral security therefor. Each Borrower has the further power
and authority to own and to hold all of its assets and properties, and to
carry on its business as presently conducted.
STOCK OWNERSHIP. SEARCH FUNDING II, INC., and SEARCH FINANCIAL SERVICES
HOLDING COMPANY is each a wholly owned subsidiary of SEARCH FINANCIAL
SERVICES INC., a Delaware corporation that is a Guarantor of the
Indebtedness. All other Borrowers are wholly owned subsidiaries of SEARCH
FINANCIAL SERVICES HOLDING COMPANY.
FIDUCIARY OBLIGATION OF BORROWERS. Each Borrower shall act in a fiduciary
capacity as to Lender with regard to receipt and collection by each
Borrower, in trust for and on behalf of Lender, of any and all amounts paid
on the Collateral. ALL AMOUNTS PAID ON THE COLLATERAL SHALL BE DEPOSITED
INTO A DOMINION ACCOUNT. Any diversion or use by any Borrower of any
portion of any amount paid on the Collateral shall constitute an Event of
Default.
FINANCIAL INFORMATION. The annual audited financial statements furnished
to Lender by Borrowers are and were prepared in accordance with generally
accepted accounting principles. The other financial statements furnished
to Lender by Borrowers are and were prepared in accordance with generally
accepted accounting principles (with the exception of year-end adjustments
and footnoting), and all fairly present, in all material respects, the
financial condition and solvency of the entity or consolidated group to
which they relate as of the date thereof. To the best of the knowledge of
Borrowers, no Borrower has any contingent obligations or liabilities that
were not disclosed or reserved against in the financial statements of
Borrowers or in the notes thereto. Since the dates of such financial
statements, there has been no material adverse change in the financial
condition or business of any Borrower.
DEBT OF BORROWERS. With the exception of indebtedness owed to others to be
paid with the first Advance under the Line of Credit, no Borrower has any
obligation for borrowed money, including capital leases, other than (a)
trade debt incurred in the normal course of business, (b) indebtedness of
any Borrower to others that is subordinated by written agreement to the
Indebtedness, and (c) indebtedness to Lender under this Agreement.
PROPERTIES. Except with respect to Permitted Liens, Borrowers own and have
good title to all of the properties of Borrowers free and clear of all
security interests, and no Borrower has executed any security documents or
financing statements relating to such properties. All of the properties of
Borrowers are titled in the legal name of Borrowers, and no Borrower has
used, or filed a financing statement under, any other name (other than the
former names of each Borrower disclosed in this Agreement) for at least the
last five (5) years. Lender
<PAGE> 8
10-06-1997 LOAN AGREEMENT PAGE 8
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recognizes, however, that Borrowers may elect not to apply for registration
of a certificate of title to any repossessed motor vehicle if, under
applicable law, Borrowers are allowed to resell the repossessed vehicle
without such registration.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section - 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub.L.No.99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section - 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ?6901, et seq., or other
applicable federal, state or local laws, regulations, rules or ordinances
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrowers agree, represent and warrant
that: (a) during the period of ownership by any Borrower of the properties
of any Borrower, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste or
substance by any person on, under, or about any of the properties; (b) no
Borrower has any knowledge of, or reason to believe that there has been (i)
any use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance by any prior owners
or occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters; and
(c) neither any Borrower nor any tenant, contractor, agent or other
authorized user of any of the properties shall use, generate, manufacture,
store, treat, dispose of, or release any hazardous waste or substance on,
under, or about any of the properties; and any such activity shall be
conducted in compliance with all applicable federal, state and local laws,
regulations, rules and ordinances, including without limitation those laws,
regulations, rules and ordinances described above. Borrowers authorize
Lender and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of this Agreement. Any inspections or tests
made by Lender shall be at the expense of Borrowers and for the purposes of
Lender only and shall not be construed to create any responsibility or
liability on the part of Lender to any Borrower or to any other person. The
representations and warranties contained herein are based on the due
diligence of Borrowers in investigating the properties for hazardous waste.
Each Borrower hereby (i) releases and waives any future claims against
Lender for indemnity or contribution in the event any Borrower becomes
liable for cleanup or other costs under any such laws, and (ii) agrees to
indemnify and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to the ownership by
any Borrower or interest of any Borrower in the properties, whether or not
the same was or should have been known to any Borrower. The provisions of
this section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
LITIGATION. There are no suits or proceedings pending, or to the knowledge
of Borrowers, threatened against or affecting any Borrower, any Guarantor,
or the assets of any Borrower or any Guarantor, before any court or by any
governmental agency, other than those previously disclosed in documents
filed by any Borrower or any Guarantor with the Securities and Exchange
Commission and delivered to Lender by any Borrower or any Guarantor, which,
if adversely determined, may have a material adverse effect on the
financial condition or business of any Borrower or any Guarantor.
TAXES. To the best of the knowledge of Borrowers, all tax returns and
reports of each Borrower that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have been
paid in full, except those presently being or to be contested by Borrowers
in good faith in the ordinary course of business and for which adequate
reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
no Borrower has entered into or granted any security agreements, or
permitted the filing or attachment of any security interests on or
adversely affecting any of the Collateral directly or indirectly securing
repayment of any of the Indebtedness, that would be prior or that may in
any way be superior to Lender's Security Interests and rights in and to
such Collateral, except with respect to Permitted Liens.
BINDING EFFECT. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of the Indebtedness are binding
upon each Borrower as well as upon the successors, representatives and
assigns of each Borrower, and are legally enforceable in accordance with
their respective terms.
COMMERCIAL PURPOSES. Borrowers intend to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which any
Borrower may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (a) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (b) no Borrower has withdrawn from any such plan or
initiated steps to do so, and (c) no steps have been taken to terminate any
such plan.
LOCATION OF REGISTERED OFFICES. The registered office of each Borrower is
as follows (or as Borrowers may otherwise notify Lender as required by this
Agreement):
<TABLE>
<S> <C>
SEARCH FUNDING II, INC., 600 North Pearl Street, Suite 2500, L.B.123, Dallas, Texas 75201-2899
SEARCH FINANCIAL SERVICES HOLDING COMPANY, 600 North Pearl Street, Suite 2500, L.B. 123, Dallas, Texas 75201-2899
SEARCH FINANCIAL SERVICES OF FLORIDA, INC., 600 North Pearl Street, Suite 2500, L.B. 123, Dallas, Texas 75201-2899
SEARCH FINANCIAL SERVICES OF GEORGIA, INC., 600 North Pearl Street, Suite 2500, L.B. 123, Dallas, Texas 75201-2899
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC., 320 Somerulos Street, Baton Rouge, Louisiana 70802
SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC., 600 North Pearl Street, Suite 2500, L.B. 123, Dallas, Texas 75201-2899
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC., 105 Ponce de Leon Avenue (Hato Rey), San Juan, Puerto Rico 00918
SEARCH FINANCIAL SERVICES OF TENNESSEE, INC., 600 North Pearl Street, Suite 2500, L.B. 123, Dallas, Texas 75201-2899
SEARCH FINANCIAL SERVICES OF TEXAS, INC., 600 North Pearl Street, Suite 2500, L.B. 123, Dallas, Texas 75201-2899
</TABLE>
LOCATION OF CHIEF EXECUTIVE OFFICES. The chief executive office of each
Borrower [as pertinent under La.-R.S. 10:9- 103(3)(d) and similar
applicable laws] is at 600 NORTH PEARL STREET, SUITE 2500, L.B. 123,
DALLAS, TEXAS 75201- 2899, or as Borrower may otherwise notify Lender as
required by this Agreement.
LOCATION OF RECORDS. Each Borrower keeps its records concerning any of the
Collateral at 600 NORTH PEARL STREET, SUITE 2500, L.B. 123, DALLAS, TEXAS
75201-2899, or as Borrower may otherwise notify Lender as required by this
Agreement. Each Borrower, other than SEARCH FUNDING II, INC., hereby
notifies Lender that it keeps records concerning Collateral at its branch
offices in the jurisdiction in which it does business.
TAX IDENTIFICATION NUMBER. The Tax Identification Numbers of Borrowers are
as follows (which are the only Tax Identification Numbers used by Borrowers
during the last ten (10) years):
<PAGE> 9
10-06-1997 LOAN AGREEMENT PAGE 9
LOAN NO. (CONTINUED)
================================================================================
SEARCH FUNDING II, INC. - 75-2554995
SEARCH FINANCIAL SERVICES HOLDING COMPANY - 75-2669329
SEARCH FINANCIAL SERVICES OF FLORIDA, INC. - 75-2678806
SEARCH FINANCIAL SERVICES OF GEORGIA, INC. - 75-2669332
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC. - 72-1332091
SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC. - 75-2669336
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC. - 66-0535659
SEARCH FINANCIAL SERVICES OF TENNESSEE, INC. - 75-2669335
SEARCH FINANCIAL SERVICES OF TEXAS, INC. - 75-2669330
TRADE NAMES. No Borrower operates any of its businesses under any trade
name, nor has any Borrower operated any of its businesses under any trade
name for a period of ten (10) years preceding the date of this Agreement,
other than as follows:
SEARCH FUNDING II, INC. former names: SEARCH AUTOMOBILE LEASING
CORPORATION, HASSLEFREE FINANCE CORP., and AUTOMOBILE CREDIT
FINANCE CORPORATION, SERIES 1994-I
SEARCH FINANCIAL SERVICES HOLDING COMPANY former name: SEARCH
FINANCIAL SERVICES COMPANY
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrowers to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrowers to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrowers understand and agree
that Lender is relying upon the above representations and warranties in
making the above referenced Loan and extending Advances to Borrowers.
Borrowers further agree that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as the Note shall be paid in full, or until the Expiration
Date, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Each Borrower covenants and agrees with Lender that,
so long as this Agreement remains in effect, each Borrower will:
BUSINESS IN OTHER JURISDICTIONS. Promptly inform Lender in writing of the
election of any Borrower to do business in any jurisdiction other than the
jurisdiction of its incorporation, any jurisdiction in which it is
qualified to do business as set forth under the REPRESENTATIONS AND
WARRANTIES - Organization section of this Agreement, or such other
jurisdiction in which Lender has a first priority perfected Security
Interest in the Collateral of that Borrower. Upon request of Lender, each
Borrower agrees to execute such financing statements and to take whatever
other actions are requested by Lender to perfect and continue the Security
Interests of Lender in the Collateral for any other jurisdiction.
CHANGES IN FINANCIAL CONDITION AND LITIGATION. Promptly inform Lender in
writing of (a) all material adverse changes in the financial condition of
any Borrower or any Guarantor, and (b) the threat of, the institution of,
or any adverse determination by final judgment in, any litigation,
arbitration proceeding or governmental proceeding which could reasonably be
expected to involve a claim against any Borrower or any Guarantor for more
than $100,000.00.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and review its books and records at all
reasonable times.
FINANCIAL REPORTS. Prepare all annual financial statements and reports
required to be provided under this Agreement in accordance with generally
accepted accounting principles, applied on a consistent basis and prepare
all other financial statements and reports required to be provided under
this Agreement in accordance with generally accepted accounting principles
(with the exception of year-end adjustments and footnoting), applied on a
consistent basis, and each statement and report shall be certified as being
true and correct, in all material respects, to the best knowledge and
belief, by the chief financial officer of the entity for which the report
was prepared or other person acceptable to Lender.
ANNUAL FINANCIAL STATEMENTS - SEARCH FINANCIAL SERVICES. Without demand
or request by Lender, furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) calendar days after the end of
each fiscal year, fiscal year-end financial statements for SEARCH FINANCIAL
SERVICES INC., the parent corporation of Borrowers. The fiscal year-end
statements shall be furnished in the form of consolidated statements for
SEARCH FINANCIAL SERVICES INC. and all of its subsidiaries, including
Borrowers, and shall include consolidated balance sheet, consolidated
income statement and consolidated statement of cash flows, with detailed
schedules for each consolidated company attached, and shall be audited by a
certified public accountant satisfactory to Lender and accompanied by the
unqualified opinion of the certified public accountant. The certified
public accounting firm of BDO Siedman shall be qualified as a certified
public accountant satisfactory to Lender.
MONTHLY FINANCIAL STATEMENTS - BORROWERS. Without demand or request by
Lender, furnish Lender with, as soon as available, but in no event later
than twenty (20) calendar days after the end of each calendar month,
month-end financial statements for each Borrower (including balance sheet
and income statement) for the prior month, prepared and certified as
correct, in all material respects, subject to year-end and quarter-end
adjustments, to the best knowledge and belief, by the chief financial
officer of each Borrower or other person acceptable to Lender.
MONTHLY FINANCIAL STATEMENTS - SEARCH FINANCIAL SERVICES. Without demand
or request by Lender, furnish Lender with, as soon as available, but in no
event later than twenty (20) calendar days after the end of each calendar
month, month-end financial statements (including balance sheet and income
statement) for the parent corporation of Borrowers, SEARCH FINANCIAL
SERVICES INC., prepared in the form of consolidated statements for the
parent corporation and all of its subsidiaries, including Borrowers, for
the prior month, prepared and certified as correct, in all material
respects, subject to year-end and quarter-end adjustments, to the best
knowledge and belief, by the chief financial officer of SEARCH FINANCIAL
SERVICES INC., or other person acceptable to Lender.
MONTHLY RECEIVABLES AGING SCHEDULES. Without demand or request by
Lender, furnish Lender with, as soon as available, but in no event later
than fifteen (15) calendar days after the end of each calendar month, a
schedule of the receivables of each Borrower (including chattel paper,
instruments and accounts) by account debtor, with aging. Each monthly
receivables schedule shall be prepared by each Borrower and certified as
correct, in all material respects, to the best knowledge and belief, by the
chief financial officer of each Borrower or other person acceptable to
Lender, and shall be in form and content acceptable to Lender. The
combined gross amount of receivables of Borrowers shown on monthly
receivables reports must be equal to the combined amount of receivables
shown on the monthly financial statements of Borrowers prepared for the
same month-end. THESE SCHEDULES SHALL BE PROVIDED IN WRITTEN AND
ELECTRONIC MEDIA FORM AND FORMAT ACCEPTABLE TO LENDER.
<PAGE> 10
10-06-1997 LOAN AGREEMENT PAGE 10
LOAN NO. (CONTINUED)
================================================================================
BORROWING BASE CERTIFICATES. Without demand or request by Lender, by noon
of each day Borrowers make a request for an Advance under the Line of
Credit, by noon on the Wednesday following a week during which no Advance
under the Line of Credit was requested, and at such other times as Lender
may request, furnish Lender with a Borrowing Base Certificate, in
reasonable detail and in form and content acceptable to Lender, prepared by
Borrowers and certified as correct, to the best knowledge and belief, by
the chief financial officer of Borrowers or other person acceptable to
Lender, identifying the calculation of the Borrowing Base utilizing balance
and eligibility information current as of the date the Borrowing Base
Certificate is furnished to Lender.
WEEKLY RECEIPTS SCHEDULES. Without demand or request by Lender, within
four (4) Business Days after the end of each week and at such other times
as Lender may request, furnish Lender with weekly receipts schedules
identifying, in detail, each payment included in each Dominion Account
deposit made by each Borrower during the prior week. Weekly receipt
schedules shall be prepared by Borrowers and certified as correct, to the
best knowledge and belief, by the chief financial officer of Borrowers or
other person acceptable to Lender, and shall be in form and content
acceptable to Lender.
TAX RETURNS. Upon request of Lender, furnish Lender with copies of the
most current federal tax returns filed by each Borrower and each Guarantor,
with all schedules and supporting documentation.
PUBLIC DOCUMENTS. Without demand or request by Lender, within thirty (30)
calendar days of the filing of each, furnish Lender with copies of the
10-K, 10-Q, and each other document filed by each Borrower and each
Guarantor with the Securities and Exchange Commission.
ADDITIONAL INFORMATION. Furnish such additional information, statements
and reports with respect to the financial condition and business operations
of Borrowers and Guarantors as Lender may reasonably request from time to
time.
VEHICLE TITLES. Secure original certificates of title to all motor
vehicles in which a security interest has been granted as security for the
payment of Non-Prime Auto Paper and, upon request of Lender, allow
inspection of all such original certificates of title or deliver possession
of such original certificates of title to Lender, as requested by Lender.
Lender acknowledges that an affiliate of Borrowers, rather than a Borrower,
may be reflected as the secured party or lienholder on a certificate of
title although the Non-Prime Auto Paper evidencing the security interest
referred to on such certificate has been assigned to any Borrower.
NOTICE TO DEBTORS. Notify, in writing, all present and future Debtors and
others responsible for payment on any Non-Prime Auto Paper or any Consumer
Paper, to send all payments on Non-Prime Auto Paper or Consumer Paper to
the Lock Box address selected by Lender.
INSURANCE. Maintain public liability insurance in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrowers,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be canceled or diminished
without at least thirty (30) days' prior written notice to Lender.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
and (d) the expiration date of the policy.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
GUARANTOR AMOUNTS
--------- ---------
SEARCH FINANCIAL SERVICES INC. UNLIMITED
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between each Borrower and
any other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for working capital needs of
Borrowers incurred in the ordinary course of business of Borrowers.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon any Borrower or properties, income, or profits of any
Borrower, prior to the date on which penalties would attach, and all lawful
claims that, if unpaid, might become a lien or charge upon any of the
properties, income, or profits of any Borrower. Provided, however,
Borrowers will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the same
shall be contested in good faith by appropriate proceedings, and (b)
Borrowers shall have established on the books of Borrowers adequate
reserves with respect to such contested assessment, tax, charge, levy,
lien, or claim in accordance with generally accepted accounting principles.
Borrowers, upon demand of Lender, will furnish to Lender evidence of
payment of the assessments, taxes, charges, levies, liens and claims and
will authorize the appropriate governmental official to deliver to Lender
at any time a written statement of any assessments, taxes, charges, levies,
liens and claims against properties, income or profits of Borrowers.
PERFORMANCE. Perform and comply with all terms, conditions and provisions
set forth in this Agreement and in all other instruments and agreements
between each Borrower and Lender in a timely manner, and promptly notify
Lender if any Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement.
OPERATIONS. Substantially maintain its present executive and management
personnel; conduct its business affairs in a reasonable and prudent manner
and in compliance in all material respects with all applicable federal,
state and local laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including, without
limitation, compliance with the Americans With Disabilities Act and with
all minimum funding standards and other requirements of ERISA and other
laws applicable to the employee benefit plans of such Borrower.
NON-PRIME AUTO PAPER FORMS. Acquire Non-Prime Auto Paper only on forms of
notes, security agreements, disclosure statements and other documents that
are all in compliance and conformity with all applicable laws, ordinances,
rules, and regulations.
CONSUMER PAPER FORMS. Originate and acquire Consumer Paper only on forms
of notes, security agreements, disclosure statements and other documents
that are all in compliance and conformity with all applicable laws,
ordinances, rules, and regulations.
BANKING RELATIONSHIP AND ACCOUNTS. Establish and maintain Lender as the
principal and primary banking establishment of each Borrower and all
significant operating accounts of each Borrower shall be maintained with
Lender.
<PAGE> 11
10-06-1997 LOAN AGREEMENT PAGE 11
LOAN NO. (CONTINUED)
================================================================================
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral and the other properties of such Borrower
and to examine or review the books, accounts, ledger sheets, and records of
such Borrower and to make copies and memoranda of the books, accounts,
ledger sheets, and records of such Borrower. If any Borrower now or at any
time hereafter maintains any records (including without limitation computer
generated records and computer programs for the generation of such records)
in the possession of a third party, such Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of any records it may
request, all at the expense of Borrowers.
CHANGE OF LOCATION. Immediately notify Lender in writing of any additions
to or changes in any business location of such Borrower or the chief
executive office of such Borrower.
TITLE TO ASSETS AND PROPERTY. Maintain good and indefeasible title to all
of the assets and properties of such Borrower.
NOTICE OF DEFAULT AND ERISA MATTERS. Forthwith upon learning of the
occurrence of any of the following, Borrowers shall provide Lender with
written notice thereof, describing the same and the steps being taken by
Borrowers with respect thereto: (a) the occurrence of any Event of Default,
(b) the occurrence or existence of matter or event which, with notice from
Lender and expiration of any applicable cure period, would be an Event of
Default, or (c) the occurrence of a Reportable Event or a Prohibited
Transaction (as defined in ERISA) under, or the institution of steps by any
Borrower to withdraw from, or the institution of any steps to terminate,
any employee benefit plan as to which Borrowers may have any liability.
OTHER INFORMATION. From time to time, Borrowers will provide Lender with
such other information as Lender may reasonably request.
EMPLOYEE BENEFIT PLANS. So long as this Agreement remains in effect, each
Borrower will maintain each employee benefit plan as to which it may have
any liability, in compliance with all applicable requirements of law and
regulations.
OTHER AGREEMENTS. No Borrower will enter into any agreement containing any
provision which would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered or to
be delivered by it hereunder or in connection herewith.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by the chief financial officer of each
Borrower, or other person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct, in all material respects, as of the date of the certificate and
further certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, security agreements, financing statements, instruments, documents
and other agreements as Lender or its attorneys may reasonably request to
evidence and secure the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Each Borrower covenants and agrees with Lender that, as
long as this Agreement remains in effect, no Borrower shall, without the prior
written consent of Lender:
GRADE D PAPER ACQUISITIONS. Acquire Grade D Paper other than as a part of
bulk acquisitions of seasoned Non-Prime Auto Paper pools from entities that
have been actively engaged in the automobile loan industry for at least one
(1) year prior to the acquisition. The value of Grade D Paper included in
any such bulk acquisition may not exceed 15% of the value of the Non-Prime
Auto Paper acquired.
BULK PURCHASES. Make any bulk purchase of Non-Prime Auto Paper or Consumer
Paper. Borrowers acknowledge and agree that Lender shall have the right to
examine and inspect all matters, details and components of bulk purchases
proposed by Borrowers and shall have the right to declare as ineligible any
and all Non-Prime Auto Paper or Consumer Paper that Lender deems ineligible
using its reasonable credit judgment.
COMMINGLING OF ELIGIBLE PAPER. Include as Eligible Non-Prime Auto Paper or
Eligible Consumer Paper, Non-Prime Auto Paper or Consumer Paper that is not
owned solely by Borrowers.
ISSUANCE OF SHARES. Issue, sell or otherwise dispose of, any shares of
its capital stock or other securities, or rights, warrants or options to
purchase or acquire any shares or securities of any Borrower other than
shares of its capital stock issued as stock dividends; provided, however,
that (a) each Borrower shall be allowed to issue its shares and securities
to, and acquire its shares and securities from, its parent corporation, and
(b) each Borrower may also issue its shares and securities to, and acquire
its shares and securities from, others if, after the transaction, SEARCH
FINANCIAL SERVICES INC., owns and controls, directly or indirectly, more
than 50% of the voting rights for the election of directors.
REDEMPTION OF SHARES. Redeem, retire or repurchase any shares of its
capital stock or other securities, except as permitted under "Issuance of
Shares," above.
INDEBTEDNESS AND LIENS. (a) Create, incur or assume obligations for
borrowed money, including capital leases, other than (i) trade debt
incurred in the normal course of business, or (ii) indebtedness to Lender
contemplated by this Agreement, (b) except as allowed as a Permitted Lien
grant a security interest in, or otherwise encumber, any of the Collateral,
(c) sell, transfer, or otherwise alienate any of the inventory of any
Borrower outside of the normal course of business, or (d) sell, transfer,
or otherwise alienate any chattel paper, instruments or accounts of any
Borrower other than as allowed under this Agreement.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which that Borrower is presently
engaged, (b) operate under any trade name other than trade names, if any,
identified in this Agreement, (c) cease operations, liquidate, merge,
transfer, acquire or consolidate with any other entity, change ownership,
dissolve or transfer or sell Collateral out of the ordinary course of
business, or (d) purchase or retire any of the outstanding shares or alter
or amend the capital structure of any Borrower, except in each case as
permitted under "Issuance of Shares," above.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets other than in the ordinary course of business, (b) purchase,
create or acquire any interest in any other enterprise or entity, or (c)
incur any obligation as surety or guarantor other than in the ordinary
course of business.
FINANCIAL COVENANTS - SEARCH FINANCIAL SERVICES HOLDING. Each Borrower
covenants and agrees with Lender that as long as this Agreement remains in
effect each Borrower and Guarantor shall comply with the following financial
covenants:
DEFINITIONS. For purposes of testing compliance with these Financial
Covenants the following terms shall have the following meanings. Except as
otherwise provided by these defined terms, all computations made to
determine compliance with these Financial Covenants shall
<PAGE> 12
10-06-1997 LOAN AGREEMENT PAGE 12
LOAN NO. (CONTINUED)
================================================================================
be made on a consolidated basis for SEARCH FINANCIAL SERVICES HOLDING
COMPANY, and all of its subsidiaries, in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified as true
and correct, in all material respects, to the best knowledge and belief, by
the chief financial officer of SEARCH FINANCIAL SERVICES HOLDING COMPANY, or
other person acceptable to Lender.
ADJUSTED NET WORTH. The term "Adjusted Net Worth" shall mean the
Stated Net Worth of SEARCH FINANCIAL SERVICES HOLDING COMPANY, and its
subsidiaries, on a consolidated basis, plus Subordinated Debt, less
Intangibles, and less amounts (a) due from any shareholder, director,
officer, employee or agent of SEARCH FINANCIAL SERVICES HOLDING
COMPANY, or of any subsidiary or affiliate of SEARCH FINANCIAL
SERVICES HOLDING COMPANY, or (b) due from any person or entity (other
than a subsidiary) which is affiliated with, or related to, SEARCH
FINANCIAL SERVICES HOLDING COMPANY, or any of its subsidiaries, or any
of the shareholders, officers, or directors of SEARCH FINANCIAL
SERVICES HOLDING COMPANY, or any of its subsidiaries.
DEBT. The term "Debt" shall mean all liabilities of SEARCH FINANCIAL
SERVICES HOLDING COMPANY, and its subsidiaries, on a consolidated
basis, INCLUDING SUBORDINATED DEBT.
INTANGIBLES. The term "Intangibles" shall mean all of the intangible
assets of SEARCH FINANCIAL SERVICES HOLDING COMPANY, and its
subsidiaries, on a consolidated basis, including goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
expenses, but excluding leaseholds and leasehold improvements.
SUBORDINATED DEBT. The term "Subordinated Debt" shall mean
indebtedness and liabilities of SEARCH FINANCIAL SERVICES HOLDING
COMPANY, and its subsidiaries, which have been subordinated by written
agreement to the Indebtedness, and to the indebtedness of any
Guarantor to Lender, in form and substance acceptable to Lender.
STATED NET WORTH. The term "Stated Net Worth" shall mean the total
assets of SEARCH FINANCIAL SERVICES HOLDING COMPANY, and its
subsidiaries, on a consolidated basis, less total Debt.
MINIMUM ADJUSTED NET WORTH. SEARCH FINANCIAL SERVICES HOLDING COMPANY,
shall maintain an Adjusted Net Worth of no less than $1,500,000.00.
MAXIMUM LEVERAGE POSITION. SEARCH FINANCIAL SERVICES HOLDING COMPANY,
shall maintain a leverage position of no more than 4.00 to 1.00, where
leverage position is the result of the following formula:
Debt - Subordinated Debt
------------------------------------
Stated Net Worth + Subordinated Debt
TESTING FREQUENCY. Compliance with Minimum Adjusted Net Worth and Maximum
Leverage Position requirements shall be tested quarterly (based on the
fiscal year of SEARCH FINANCIAL SERVICES HOLDING COMPANY) based on the then
most recent financial statements of SEARCH FINANCIAL SERVICES HOLDING
COMPANY, and its subsidiaries, on a consolidated basis.
FINANCIAL COVENANTS - GUARANTOR. Each Borrower covenants and agrees with
Lender that as long as this Agreement remains in effect each Borrower and
Guarantor shall comply with the following financial covenants:
DEFINITIONS. For purposes of testing compliance with these Financial
Covenants the following terms shall have the following meanings. Except as
otherwise provided by these defined terms, all computations made to
determine compliance with these Financial Covenants shall be made on a
consolidated basis for SEARCH FINANCIAL SERVICES INC., and all of its
subsidiaries, in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified as true and correct, in all
material respects, to the best knowledge and belief, by the chief financial
officer of SEARCH FINANCIAL SERVICES INC., or other person acceptable to
Lender.
ADJUSTED NET WORTH. The term "Adjusted Net Worth" shall mean the
Stated Net Worth of SEARCH FINANCIAL SERVICES INC., and its
subsidiaries, on a consolidated basis, plus Subordinated Debt, less
Intangibles, and less amounts (a) due from any shareholder, director,
officer, employee or agent of SEARCH FINANCIAL SERVICES INC, or of any
subsidiary or affiliate of SEARCH FINANCIAL SERVICES INC., or (b) due
from any person or entity (other than a subsidiary) which is
affiliated with, or related to,SEARCH FINANCIAL SERVICES INC., or any
of its subsidiaries, or any of the shareholders, officers, or
directors of SEARCH FINANCIAL SERVICES INC., or any of its
subsidiaries.
DEBT. The term "Debt" shall mean all liabilities of SEARCH FINANCIAL
SERVICES INC., and its subsidiaries, on a consolidated basis,
INCLUDING SUBORDINATED DEBT.
INTANGIBLES. The term "Intangibles" shall mean all of the intangible
assets of SEARCH FINANCIAL SERVICES INC., and its subsidiaries, on a
consolidated basis, including goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible expenses,
but excluding leaseholds and leasehold improvements.
SUBORDINATED DEBT. The term "Subordinated Debt" shall mean
indebtedness and liabilities of SEARCH FINANCIAL SERVICES INC., and its
subsidiaries, which have been subordinated by written agreement to the
Indebtedness, and to the indebtedness of any Guarantor to Lender, in
form and substance acceptable to Lender.
STATED NET WORTH. The term "Stated Net Worth" shall mean the total
assets of SEARCH FINANCIAL SERVICES INC., and its subsidiaries, on a
consolidated basis, less total Debt.
MINIMUM ADJUSTED NET WORTH. SEARCH FINANCIAL SERVICES INC., shall maintain
an Adjusted Net Worth of no less than $15,000,000.00 until October 1, 1997.
Beginning October 1, 1997, SEARCH FINANCIAL SERVICES INC., shall maintain
an Adjusted Net Worth of no less than $20,000,000.00.
MAXIMUM LEVERAGE POSITION. SEARCH FINANCIAL SERVICES INC., shall maintain
a leverage position of no more than 5.00 to 1.00, where leverage position
is the result of the following formula:
Debt - Subordinated Debt
------------------------------------
Stated Net Worth + Subordinated Debt
TESTING FREQUENCY. Compliance with Minimum Adjusted Net Worth and Maximum
Leverage Position requirements shall be tested quarterly (based on the
fiscal year of SEARCH FINANCIAL SERVICES INC.) based on the then most
recent financial statements of SEARCH FINANCIAL SERVICES INC., and its
subsidiaries, on a consolidated basis.
<PAGE> 13
10-06-97 LOAN AGREEMENT PAGE 13
LOAN NO. (CONTINUED)
================================================================================
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
any Borrower whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) any Borrower or any Guarantor is in default under the terms of this
Agreement or any of the other Related Documents or any other agreement that any
Borrower or any Guarantor has with Lender, (b) any Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt, (c) there occurs a material adverse change in the
financial condition of any Borrower or any Guarantor, or in the total value of
the Collateral securing any Loan, (d) any Borrower or any Grantor seeks, claims
or otherwise attempts to limit, modify or revoke any Security Interest granted
to Lender, or (e) any Guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such Guarantor's guaranty of the Loan or any other loan with
Lender.
INSECURITY. Each Borrower agrees that, even though no Event of Default shall
have occurred, Lender shall have the right to demand, by written notice to
Borrowers, full repayment, subject to the provisions of this paragraph, of the
aggregate unpaid principal amount of all Advances then outstanding and all
accrued unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid, if (a) Lender in good faith deems itself
insecure, or (b) the results of any annual review by Lender of books, records or
operations of Borrowers or the Collateral are not satisfactory to Lender. If
such a repayment demand is made by Lender, even though no Event of Default shall
have occurred, Borrowers and Lender agree that, unless and until an Event of
Default occurs, Borrowers shall continue to have the right to request and
receive Advances under the Line of Credit, subject to the other terms and
conditions of this Agreement; provided, however, that, sixty (60) days after
notice of Lender's repayment demand under this provision, the percentage of the
aggregate amount of the outstanding principal and interest owed to Borrowers
under the Eligible Non- Prime Auto Paper and Eligible Consumer Paper used to
determine the Borrowing Base under the Line of Credit shall be reduced by five
(5) percentage points and shall be further reduced by an additional five (5)
percentage points every thirty (30) days thereafter. Additionally, after notice
of Lender's repayment demand under this provision, Borrowers shall not be
obligated to pay any of the commitment cancellation charges, unused facility
fees, or annual renewal fees otherwise due and payable under this Agreement or
any of the Related Documents.
DEPOSIT ACCOUNTS. As collateral security for repayment of the Indebtedness,
each Borrower hereby grants Lender a continuing Security Interest in any and
all funds that each Borrower may now and in the future have on deposit with
Lender or in certificates of deposit or other deposit accounts as to which any
Borrower is an account holder (with the exception of IRA, pension, and other
tax-deferred deposits). Each Borrower further agrees that Lender may, after an
Event of Default has occurred, apply any funds that any Borrower may have on
deposit with Lender or in certificates of deposit or other deposit accounts as
to which any Borrower is an account holder (with the exception of IRA, pension,
and other tax-deferred deposits) against the unpaid balance of the
Indebtedness; provided, however, that the Event of Default prerequisite for
application authority shall not apply to any Dominion Account.
SPECIFIC DEPOSIT ACCOUNT DEBIT AUTHORIZATION. Without any demand or notice
whatsoever, each Borrower hereby authorizes Lender to debit any Dominion
Account in order to pay any facility fee or facility charge due under this
Agreement, in order to pay any overline or overadvance, and in order to pay any
accrued interest due under the Note. Without any demand or notice whatsoever,
each Borrower hereby authorizes Lender, after an Event of Default occurs, to
debit any one or more of the other deposit accounts of any Borrower with Lender
(with the exception of IRA, pension, and other tax- deferred deposits) in order
to pay any facility fee or facility charge due under this Agreement, in order
to pay any overline or overadvance, and in order to pay any accrued interest
due under the Note. Each Borrower hereby waives the right to notice of any
account debit effected in accordance with this authorization, including,
without limitation, the notice provided for under La.-R.S. 6:316, as amended.
EVENTS OF DEFAULT. The following actions or inactions or both shall constitute
Events of Default under this Agreement:
PAYMENT OF DIVIDENDS BY SEARCH FINANCIAL SERVICES - BEFORE SEPTEMBER 30,
1997. Should SEARCH FINANCIAL SERVICES INC., before September 30, 1997,
pay or declare any dividends on its stock (other than dividends payable in
its stock) unless (a) its Adjusted Net Worth (as defined in the FINANCIAL
COVENANTS - GUARANTOR section above) exceeds $15,000,000.00, and (b)
payment of the dividend will not reduce its Adjusted Net Worth to an amount
equal to or less than $15,000,000.00.
PAYMENT OF DIVIDENDS BY SEARCH FINANCIAL SERVICES - ON AND AFTER
SEPTEMBER 30, 1997. Should SEARCH FINANCIAL SERVICES INC., on or after
September 30, 1997, pay or declare any dividends on its stock (other than
dividends payable in its stock) unless (a) its Adjusted Net Worth (as
defined in the FINANCIAL COVENANTS - GUARANTOR section above) exceeds
$22,500,000.00, and (b) payment of the dividend will not reduce its
Adjusted Net Worth to an amount equal to or less than $22,500,000.00.
DEFAULT UNDER THE NOTE. Should Borrowers default in the payment of any
amounts due and payable under the Note.
DEFAULT UNDER DOMINION ACCOUNT OBLIGATIONS. Should any Borrower fail to
deposit, into a Dominion Account, any collection made of any amounts due
under any Non-Prime Auto Paper or any Consumer Paper, or any amount
received from the sale of any inventory of any Borrower, within one (1)
Business Day of receipt.
DEFAULT IN PAYMENT OF OVERLINES OR OVERADVANCES. Should any Borrower
default in the payment of any Overline or Overadvance within two (2)
Business Days after notice from Lender to Borrowers.
DEFAULT UNDER THIS AGREEMENT. Should any Borrower violate, or fail to
comply fully with, any of the other terms and conditions of, this
Agreement, and such violation or failure shall not have been remedied
within fifteen (15) days after notice of such violation or failure by
Lender to Borrowers.
DEFAULT UNDER RELATED DOCUMENTS. Should any Guarantor violate, or fail to
comply fully with, any of the other terms and conditions of, such
Guarantor's guaranty of the Loan, and such violation or failure shall not
have been remedied within fifteen (15) days after notice of such violation
or failure by Lender to Borrowers. Should, after expiration of any
applicable cure periods, any event of default occur or exist under any
other Related Document.
OTHER DEFAULTS IN FAVOR OF LENDER. Should any Borrower or any Guarantor
default under any other loan, extension of credit, security agreement, or
obligation in favor of Lender, and such default shall not have been
remedied within fifteen (15) days after notice of such default by Lender to
Borrowers.
DEFAULT IN FAVOR OF THIRD PARTIES. Should any Borrower or any Guarantor
default (after expiration of any applicable cure periods) under any loan,
extension of credit, security agreement, purchase or sales agreement, or
any other agreement in favor of any other creditor or person involving in
excess of $1,000,000.00, and such default shall not have been remedied
within fifteen (15) days after notice of such default by Lender to
Borrowers.
INSOLVENCY. Should the suspension of business, failure or insolvency,
however evidenced, of any Borrower or any Guarantor occur or exist.
VOLUNTARY READJUSTMENT OF INDEBTEDNESS. Should proceedings for
readjustment of indebtedness, reorganization, bankruptcy, composition or
extension under any insolvency law be brought by any Borrower or any
Guarantor.
<PAGE> 14
10-06-1997 LOAN AGREEMENT PAGE 14
LOAN NO. (CONTINUED)
================================================================================
INVOLUNTARY READJUSTMENT OF INDEBTEDNESS. Should proceedings for
readjustment of indebtedness, reorganization, bankruptcy, composition or
extension under any insolvency law be brought against any Borrower or any
Guarantor, and such proceedings are not dismissed within sixty (60) days
after commencement.
ASSIGNMENT FOR BENEFIT OF CREDITORS. Should any Borrower or any Guarantor
file proceedings for a respite or make a general assignment for the benefit
of creditors.
RECEIVERSHIP. Should proceedings for the appointment of a receiver of all
or any part of the property of any Borrower or any Guarantor, be commenced
and such proceedings are not dismissed within sixty (60) days after
commencement, or should a receiver be appointed for all or any part of the
property of any Borrower or any Guarantor.
DISSOLUTION PROCEEDINGS. Should proceedings for the dissolution or
appointment of a liquidator of any Borrower or any Guarantor be commenced
by any person or entity other than any Borrower and such proceedings are
not dismissed within sixty (60) days after commencement, or should any
Borrower or any Guarantor be dissolved or have a liquidator appointed.
FALSE STATEMENTS. Should any representation or warranty of any Borrower or
any Guarantor made in connection with the Loan prove to be incorrect or
misleading in any material respect.
DEFECTIVE COLLATERALIZATION - NON-PRIME AUTO PAPER. Should any Related
Document granting Lender a Security Interest in any of the Non-Prime Auto
Paper cease to be in full force and effect (including the failure of any
such Related Document to create a valid and perfected security interest or
lien in the Non-Prime Auto Paper) at any time for any reason.
DEFECTIVE COLLATERALIZATION - CONSUMER PAPER. Should any Related Document
granting Lender a Security Interest in any of the Consumer Paper cease to
be in full force and effect (including the failure of any such Related
Document to create a valid and perfected security interest or lien in the
Consumer Paper) at any time for any reason.
DEFECTIVE COLLATERALIZATION - OTHER COLLATERAL. Should any Related
Document granting Lender a Security Interest in any of the Collateral other
than Non-Prime Auto Paper or Consumer Paper cease to be in full force and
effect (including the failure of any such Related Document to create a
valid and perfected security interest or lien on such other Collateral) at
any time for any reason, and such condition or failure shall not have been
remedied within fifteen (15) days after notice thereof by Lender to
Borrowers.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all
commitments and obligations of Lender under this Agreement or the other Related
Documents or any other agreement immediately will terminate (including any
obligation to make further Loan Advances or disbursements), and, at Lender's
option, all Loans immediately will become due and payable, all without notice
of any kind to any Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise.
If any Event of Default shall occur, Lender shall have the right at its sole
option, to accelerate payment of the Note in full, in principal, interest,
costs, expenses, attorneys' fees, and other fees and charges, as well as to
accelerate the maturity of any and all other loans and/or obligations that any
Borrower may then owe to Lender, whether direct or indirect, or by way of
assignment or purchase of a participation interest, and whether absolute or
contingent, liquidated or unliquidated, voluntary or involuntary, determined or
undetermined, due or to become due, and whether now existing or hereafter
arising, and whether any Borrower is obligated alone or with others on a
"solidary" or "joint and several" basis, as a principal obligor or as a surety,
of every nature and kind whatsoever, whether any such indebtedness may be barred
under any statute of limitations or otherwise may be unenforceable or voidable
for any reason whatsoever.
If any Event of Default shall occur, Lender shall have the additional right,
again at its sole option, to file an appropriate collection action against any
Borrower and/or against any Guarantor, and/or to proceed, or exercise any
rights, against any Collateral then securing repayment of the Note. Borrowers
further agree that the remedies of Lender shall be cumulative in nature and
nothing under this Agreement or otherwise, shall be construed as to limit or
restrict the options and remedies available to Lender following any event of
default under this Agreement or otherwise.
If any Event of Default shall occur, Lender shall have the additional right,
again at its sole option, to notify Debtors to make payments directly to Lender
and Lender may remove from the business premises of any Borrower, all
documents, files, ledgers, computer tapes and disks, and all other records
relating to the Collateral to facilitate in making direct collections.
Borrowers shall be responsible for and pay all reasonable costs and expenses
incurred by Lender in making direct collections, including Lender's internal
costs and attorneys' fees. As soon as practical after receipt of payments
directly from Debtors, Lender shall deposit the collections into a Dominion
Account.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of any Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
ADDITIONAL DOCUMENTS. Borrowers shall provide Lender with the following
additional documents:
CORPORATE RESOLUTION - BORROWERS. Borrowers have provided or will provide
Lender with a certified copy of resolutions properly adopted by the Board
of Directors of each Borrower, and certified by the corporate secretary or
assistant secretary of each Borrower, under which the Board of Directors of
each Borrower authorized one or more designated officers or employees to
execute this Agreement on behalf of each Borrower and to execute the above
referenced Note and any and all Security Agreements directly or indirectly
securing repayment of the same, and to consummate the borrowings and other
transactions as contemplated hereunder, and to consent to the remedies
following an Event of Default as provided herein.
CORPORATE RESOLUTIONS - GUARANTORS. Borrowers have provided or will
provide Lender with certified copies of resolutions properly adopted by the
Board of Directors of each Guarantor (or by a duly organized and authorized
committee of the Board of Directors, if appropriate), and certified by the
corporate secretary or assistant secretary of each Guarantor, under which
the Board of Directors of each Guarantor (or a duly organized and
authorized committee of the Board of Directors, if appropriate) authorized
one or more designated officers or employees to execute the Related
Documents on behalf of each Guarantor, and to consummate the transactions
as contemplated hereunder, and to consent to the remedies provided for
under the Related Documents.
CERTIFICATION. Where required by Lender, each Borrower has provided or
will provide Lender with a certificate executed by the principal or
executive officer of each Borrower, certifying that the representations and
warranties set forth in this Agreement are true and correct, and further
certifying that no Event of Default presently exists under this Agreement,
or under the Note, or under any Security Agreement directly or indirectly
securing repayment of the same, as of the date hereof.
<PAGE> 15
10-06-97 LOAN AGREEMENT PAGE 15
LOAN NO. (CONTINUED)
================================================================================
OPINION OF COUNSEL. Where required by Lender, Borrowers have provided or
will provide Lender with an opinion of counsel for Borrowers certifying to
and that: (a) this Agreement and the Note and Security Agreements
constitute valid and binding obligations on the part of each Borrower that
are enforceable in accordance with their respective terms; (b) each
Borrower and each Guarantor is validly existing and in good standing; (c)
each Borrower has authority to enter into this Agreement and to consummate
the transactions contemplated hereunder; (d) each Guarantor has authority
to enter into the Related Documents and to consummate the transactions
contemplated hereunder; and (e) such other matters as may have been
requested by Lender or by counsel for Lender.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Louisiana and all Advances and payments to be
made hereunder shall be delivered in Louisiana. Lender and Borrowers
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or any Borrower against the other.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Louisiana.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Each Borrower agrees and consents to sale
or transfer by Lender, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about any Borrower or about any
other matter relating to the Loan, and each Borrower consents to the
disclosure of such information by Lender to any one or more purchasers, or
potential purchasers, and hereby waives any rights to privacy it may have
with respect to such disclosure by Lender, but each Borrower specifically
reserves its rights to privacy with respect to any further disclosure or
dissemination of such information by purchasers or potential purchasers.
Lender agrees to notify Borrowers of any sale or transfer of (a) the Loan
in its entirety, and (b) any assignment of the "lead lender" position if
participation interests in the Loan are sold or transferred. Each Borrower
additionally waives any and all other notices of sale of participation
interests, as well as all notices of any repurchase of participation
interests. Each Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under this
Agreement and under the participation agreement or agreements governing the
sale of such participation interests.
CONTROLLING TERMS. The Related Documents shall contain such terms and
provisions as the parties thereto shall agree (including provisions for
repayment, interest and security) and the terms and conditions of each of
the Related Documents shall be cumulative and in addition to the terms and
provisions of this Agreement, which shall apply to all other Related
Documents. This Agreement and all of the other Related Documents shall be
construed in such a manner as to give full force and effect to all
provisions of this Agreement and the other Related Documents; however, in
the event of any irreconcilable conflict between the terms and provisions
contained in this Agreement and in any of the other Related Documents, the
terms and provisions of this Agreement shall control.
COSTS AND EXPENSES. Borrowers agree to pay, upon demand, all of the
out-of-pocket expenses of Lender, including reasonable attorneys' fees,
incurred in connection with the preparation, execution, enforcement and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. If an Event of Default occurs, Lender may pay someone
else to help collect the Loans and to enforce this Agreement, and Borrowers
will pay that amount. This includes, subject to any limits under
applicable law, attorneys' fees and legal expenses, whether or not there is
a lawsuit, including attorneys' fees for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. Borrowers also will pay
any court costs, in addition to all other sums provided by law.
ENTIRE AGREEMENT. This Agreement, the Note, and the other Related
Documents, embody the final, entire agreement of the parties hereto and
supersede any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter
hereof (including, without limitation, the Loan Agreement dated SEPTEMBER
11, 1996, between SEARCH FUNDING II, INC., and Lender, as amended, which is
hereby terminated without any obligation of any party thereto to any other
party thereto) and may not be contradicted or varied by evidence of prior,
contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES TO THIS
AGREEMENT.
MAXIMUM INTEREST RATE. No provision of this Agreement, the Note, or any
other Related Document shall require the payment or permit the collection of
interest in excess of the maximum permitted by applicable law ("THE MAXIMUM
RATE"). If interest in excess of the Maximum Rate is provided for in this
Agreement, in any other Related Document, or otherwise in connection with
the Loan, or is adjudicated to be so provided, the provisions of this
section shall govern and prevail and no Borrower, Guarantor or Grantor,
shall be obligated to pay the excess amount of such interest or any other
excess sum paid for the use, forbearance, or detention of Advances made
under this Agreement. In the event Lender ever receives, collects or
applies, as interest due and payable under the Note, any sum in excess of
the Maximum Rate, the amount of the excess shall be applied as a payment and
reduction of the principal of the indebtedness represented by the Note; and
if the principal of the indebtedness represented by the Note has been fully
paid, any remaining excess shall forthwith be paid to Borrowers. In
determining whether or not interest paid or payable exceeds the Maximum
Rate, Borrowers and Lender shall, to the extent permitted by applicable law,
(a) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate and spread, in equal or unequal
parts, the total amount of interest throughout the entire contemplated term
of the indebtedness represented by the Note so that interest for the entire
term does not exceed the Maximum Rate.
NOTICES. To give Borrowers any notice required under this Agreement,
Lender may hand deliver or mail such notice to any Borrower at the chief
executive office address specified for any Borrower in this Agreement, or
at any other address that Borrowers may have given to Lender by written
notice as provided in this paragraph. Notice to a single Borrower shall be
considered as notice to all Borrowers. To give Lender any notice under
this Agreement, Borrowers may hand deliver or mail such notice to Lender at
the address specified in this Agreement, or at any other address that
Lender may have given to Borrowers (or any Borrower) by written notice as
provided in this paragraph. All notices required or permitted under this
Agreement must be in writing and will be considered as given on the day it
is delivered by hand or deposited in the U. S. Mail in the form and to the
address specified in this Agreement.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
<PAGE> 16
10-06-1997 LOAN AGREEMENT PAGE 16
LOAN NO. (CONTINUED)
================================================================================
SOLE DISCRETION OF LENDER. Whenever consent or approval of Lender is
required under this Agreement, the decision as to whether or not to consent
or approve shall be in the sole, but reasonable, discretion of Lender, and
the decision of Lender shall be final and conclusive, absent manifest
error.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of any Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. No Borrower
shall have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by each
Borrower in this Agreement or in any certificate or other instrument
delivered by any Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the making
of the Loan and delivery to Lender of the Related Documents, regardless of
any investigation made by Lender or on Lender's behalf.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and any Borrower, any Guarantor or any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of any Borrower, any Guarantor or any Grantor as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent in subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT, AND EACH BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS
OF OCTOBER 6, 1997.
BORROWERS:
SEARCH FUNDING II, INC.
By /s/ ROBERT D. IDZI
-----------------------------------------------------
Robert D. Idzi, Senior Executive Vice President
SEARCH FINANCIAL SERVICES HOLDING COMPANY
SEARCH FINANCIAL SERVICES OF FLORIDA, INC.
SEARCH FINANCIAL SERVICES OF GEORGIA, INC.
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC.
SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC.
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC.
SEARCH FINANCIAL SERVICES OF TENNESSEE, INC.
SEARCH FINANCIAL SERVICES OF TEXAS, INC.
By: /s/ ROBERT D. IDZI
----------------------------------------------------
Robert D. Idzi,
Senior Executive Vice President of each entity
LENDER:
HIBERNIA NATIONAL BANK
By: /s/ BARRY G. MCMAHON
----------------------------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.2
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$25,000,000.00 10-06-1997
- -----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for the use of Lender only and do not limit
the applicability of this document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWERS: SEARCH FUNDING II, INC. SEARCH FINANCIAL SERVICES HOLDING COMPANY
SEARCH FINANCIAL SERVICES OF FLORIDA, INC. SEARCH FINANCIAL SERVICES OF GEORGIA, INC.
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC. SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC.
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC. SEARCH FINANCIAL SERVICES OF TENNESSEE, INC.
SEARCH FINANCIAL SERVICES OF TEXAS, INC.
GUARANTOR: SEARCH FINANCIAL SERVICES INC. LENDER: HIBERNIA NATIONAL BANK
600 NORTH PEARL STREET (TIN: 72-0210640)
SUITE 2500 - L.B. 123 313 CARONDELET STREET
DALLAS, TEXAS 75201-2899 POST OFFICE BOX 61540
NEW ORLEANS, LOUISIANA 70161
===================================================================================================================================
</TABLE>
AMOUNT OF GUARANTY. THE AMOUNT OF THE GUARANTY PROVIDED FOR UNDER THIS AGREEMENT
IS UNLIMITED.
DEFINITIONS. The following terms shall have the following meanings when used in
this Agreement:
AGREEMENT. The word "Agreement" means this Guaranty Agreement as this
Agreement may be amended or modified from time to time.
BORROWER. The words "Borrower" and "Borrowers" mean individually,
collectively and interchangeably SEARCH FUNDING II, INC., SEARCH FINANCIAL
SERVICES HOLDING COMPANY, SEARCH FINANCIAL SERVICES OF FLORIDA, INC.,
SEARCH FINANCIAL SERVICES OF GEORGIA, INC., SEARCH FINANCIAL SERVICES OF
LOUISIANA, INC., SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC., SEARCH
FINANCIAL SERVICES OF PUERTO RICO, INC., SEARCH FINANCIAL SERVICES OF
TENNESSEE, INC., and SEARCH FINANCIAL SERVICES OF TEXAS, INC., and such
other entities as may become Borrowers under the Loan Agreement between
Borrowers and Lender dated OCTOBER 6, 1997, any amendments and supplements
to the Loan Agreement.
BUSINESS DAY. The words "Business Day" mean a day on which commercial banks
are open for business in New Orleans, Louisiana, excluding Saturdays and
Sundays.
EVENT OF DEFAULT. The words "Event of Default" mean and include each event
that qualifies as an event of default or default event under any of the
Indebtedness in favor of Lender or under any of the Related Documents
(after expiration of any applicable cure period).
GUARANTOR. The word "Guarantor" means individually, collectively and
interchangeably SEARCH FINANCIAL SERVICES INC., and all other persons
guaranteeing payment and satisfaction of the Indebtedness as hereinafter
defined.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness of Borrowers
evidenced by the Note, in principal, interest, costs, expenses and
attorneys' fees and all other fees and charges arising thereunder, together
with all other indebtedness and costs and expenses for which any Borrower
is responsible under any of the Related Documents.
LENDER. The word "Lender" means HIBERNIA NATIONAL BANK [TIN: 72-0210640],
its successors and assigns, and any subsequent holder or holders of the
Indebtedness.
NOTE. The word "Note" means the promissory note dated OCTOBER 6, 1997, in
the principal amount of $25,000,000.00 made by Borrowers, payable to the
order of Lender, together with all substitute or replacement notes
therefor, as well as all renewals, extensions, modifications, refinancings,
consolidations and substitutions of and for such promissory note.
RELATED DOCUMENTS. The words "Related Documents" mean and include
individually, collectively, interchangeably and without limitation, the
Loan Agreement between Borrowers and Lender dated OCTOBER 6, 1997, as
amended or modified from time to time ("THE LOAN AGREEMENT"), and all
promissory notes, credit agreements, other loan agreements, environmental
agreements, guaranties, security agreements, mortgages, collateral
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with
the Loan Agreement.
GUARANTEE OF THE INDEBTEDNESS. GUARANTOR HEREBY ABSOLUTELY AND UNCONDITIONALLY
AGREES TO, AND BY THESE PRESENTS DOES HEREBY, GUARANTEE THE PROMPT AND PUNCTUAL
PAYMENT, PERFORMANCE AND SATISFACTION OF ANY AND ALL OF THE INDEBTEDNESS IN
FAVOR OF LENDER.
CONTINUING GUARANTY. THIS IS A CONTINUING GUARANTY AGREEMENT UNDER WHICH
GUARANTOR AGREES TO GUARANTEE PAYMENT OF THE INDEBTEDNESS IN FAVOR OF LENDER ON
A CONTINUING BASIS. Guarantor's obligations and liability under this Agreement
shall be open and continuous in effect. Guarantor intends to and does hereby
guarantee at all times the prompt and punctual payment, performance and
satisfaction of all of the Indebtedness in favor of Lender. Accordingly, any
payments made on the Indebtedness will not discharge or diminish the obligations
and liability of Guarantor under this Agreement for any remaining and succeeding
Indebtedness of Borrowers (or any of them) in favor of Lender.
JOINT, SEVERAL AND SOLIDARY LIABILITY. Guarantor's obligations and liability
under this Agreement shall be on a "solidary" or "joint and several" basis along
with each Borrower to the same degree and extent as if Guarantor had been and/or
will be a co-borrower, co-principal obligor and/or co-maker of the Indebtedness.
In the event that there is more than one Guarantor under this Agreement, or in
the event that there are other guarantors, endorsers or sureties of all or any
portion of the Indebtedness, Guarantor's obligations and liability hereunder
shall further be on a "solidary" or "joint and several" basis along with such
other guarantors, endorsers and/or sureties.
DURATION OF GUARANTY. This Agreement and Guarantor's obligations and liability
hereunder shall remain in full force and effect until such time as this
Agreement may be canceled or otherwise terminated by Lender under a written
cancellation instrument in favor of Guarantor (subject to the automatic
reinstatement provisions hereinbelow). It is anticipated that fluctuations may
occur in the aggregate amount of the Indebtedness guaranteed under this
Agreement and it is specifically acknowledged and agreed to by Guarantor that
reductions in the amount of the Indebtedness, even to zero ($0.00) dollars,
prior to Lender's written cancellation of this Agreement, shall not constitute
or give rise to a termination of this Agreement. At the request of Guarantor,
Lender agrees to deliver a written cancellation instrument to Guarantor (which
shall be subject to the automatic reinstatement provisions hereinbelow) after
the Indebtedness has been fully repaid and all obligations of Lender to
Borrowers, and of Borrowers to Lender under the Related Documents, have been
fully performed or otherwise terminated.
CANCELLATION OF AGREEMENT; EFFECT. Unless otherwise indicated under such a
written cancellation instrument, Lender's agreement to terminate or otherwise
cancel this Agreement shall affect only, and shall be expressly limited to,
Guarantor's continuing obligations and liability
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to guarantee the Indebtedness incurred, originated and/or extended (without
prior commitment) after the date of such a written cancellation instrument; with
Guarantor remaining fully obligated and liable under this Agreement for any and
all of the Indebtedness incurred, originated, extended, or committed to prior to
the date of such a written cancellation instrument. Nothing under this Agreement
or under any other agreement or understanding by and between Guarantor and
Lender, shall in any way obligate, or be construed to obligate, Lender to agree
to the subsequent termination or cancellation of Guarantor's obligations and
liability hereunder; it being fully understood and agreed to by Guarantor that
Lender has and intends to continue to rely on Guarantor's assets, income and
financial resources in extending credit and other Indebtedness to and in favor
of any Borrower, and that to release Guarantor from Guarantor's continuing
obligations and liabilities under this Agreement would so prejudice Lender that
Lender may, within its sole and uncontrolled discretion and judgment, refuse to
release Guarantor from any of its continuing obligations and liability under
this Agreement for any reason whatsoever as long as any of the Indebtedness
remains unpaid and outstanding, or otherwise.
DEFAULT. Should any Event of Default occur, Guarantor unconditionally and
absolutely agrees to pay Lender the then unpaid amount of the Indebtedness, in
principal, interest, costs, expenses, attorneys' fees and other fees and
charges. Such payment or payments shall be made at Lender's offices indicated
above, immediately following demand by Lender.
GUARANTOR'S WAIVERS. Guarantor hereby waives:
(a) Notice of Lender's acceptance of this Agreement.
(b) Presentment for payment of the Indebtedness, notice of dishonor and of
nonpayment, notice of intention to accelerate, notice of acceleration,
protest and notice of protest, collection or institution of any suit or
other action by Lender in collection thereof, including any notice of
default in payment thereof, or other notice to, or demand for payment
thereof, on any party.
(c) Any right to require Lender to notify Guarantor of any nonpayment
relating to any collateral directly or indirectly securing the
Indebtedness, or notice of any action or nonaction on the part of any
Borrower, Lender, or any other guarantor, surety or endorser of the
Indebtedness, or notice of the creation of any new or additional
Indebtedness subject to this Agreement
(d) Any rights to demand or require collateral security from any Borrower
or any other person as provided under applicable Louisiana law or
otherwise.
(e) Any right to require Lender to notify Guarantor of the terms, time and
place of any public or private sale of any collateral directly or
indirectly securing the Indebtedness.
(f) Any "one action" or "anti-deficiency" law or any other law which may
prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lender's commencement or completion of
any foreclosure action, or any action in lieu of foreclosure.
(g) Any election of remedies by Lender that may destroy or impair
Guarantor's subrogation rights or Guarantor's right to proceed for
reimbursement against any Borrower or any other guarantor, surety or
endorser of the Indebtedness, including without limitation, any loss of
rights Guarantor may suffer by reason of any law limiting, qualifying, or
discharging the Indebtedness.
(h) Any disability or other defense of any Borrower, or any other
guarantor, surety or endorser, or any other person, or by reason of the
cessation from any cause whatsoever, other than payment in full of the
Indebtedness.
(i) Any statute of limitations or prescriptive period, if at the time an
action or suit brought by Lender against Guarantor is commenced, there is
any outstanding Indebtedness of any Borrower to Lender which is barred by
any applicable statute of limitations or prescriptive period.
Guarantor warrants and agrees that each of the waivers set forth above is made
with Guarantor's full knowledge of its significance and consequences, and that,
under the circumstances, such waivers are reasonable and not contrary to public
policy or law. If any such waiver is determined to be contrary to any applicable
law or public policy, such waiver shall be effective only to the extent
permitted by law.
GUARANTOR'S SUBORDINATION OF RIGHTS. In the event that Guarantor should for
any reason (a) advance or lend monies to any Borrower, whether or not such funds
are used by any Borrower to make payment(s) under the Indebtedness, and/or (b)
make any payment(s) to Lender or others for and on behalf of any Borrower under
the Indebtedness, and/or (c) make any payment to Lender in total or partial
satisfaction of Guarantor's obligations and liabilities under this Agreement,
and/or (d) if any of Guarantor's property is used to pay or satisfy any of the
Indebtedness, Guarantor hereby agrees that any and all rights that Guarantor may
have or acquire to collect from or to be reimbursed by any Borrower (or from or
by any other guarantor, endorser or surety of the Indebtedness), whether
Guarantor's rights of collection or reimbursement arise by way of subrogation to
the rights of Lender or otherwise, shall in all respects, whether or not any
Borrower is presently or subsequently becomes insolvent, be subordinate,
inferior and junior to the rights of Lender to collect and enforce payment,
performance and satisfaction of the then remaining Indebtedness, until such time
as the Indebtedness is fully paid and satisfied. In the event of the insolvency
or consequent liquidation of the assets of any Borrower, through bankruptcy, by
an assignment for the benefit of creditors, by voluntary liquidation, or
otherwise, the assets of any Borrower applicable to the payment of claims of
both Lender and Guarantor shall be paid to Lender and shall be first applied by
Lender to the then remaining Indebtedness. Guarantor hereby assigns to Lender
all claims which it may have or acquire against any Borrower or any assignee or
trustee of any Borrower in bankruptcy; provided that, such assignment shall be
effective only for the purpose of assuring to Lender full payment of the
Indebtedness guaranteed under this Agreement.
GUARANTOR'S RECEIPT OF PAYMENTS. If Guarantor should for any reason whatsoever
receive, after any Event of Default occurs, any payment(s) from any Borrower (or
any other guarantor, surety or endorser of the Indebtedness) that any Borrower
(or such a third party) may owe to Guarantor for any reason, Guarantor agrees to
accept such payment(s) in trust for and on behalf of Lender, advising Borrowers
(or the third party payee) of such fact. Guarantor further unconditionally
agrees to immediately deliver such funds to Lender, with such funds being held
by Guarantor over any interim period, in trust for Lender. In the event that
Guarantor should for any reason whatsoever receive any such funds from any
Borrower (or any third party), and Guarantor should deposit such funds in one or
more of Guarantor's deposit accounts, no matter where located, Lender shall have
the right to attach any and all of Guarantor's deposit accounts in which such
funds were deposited, whether or not such funds were commingled with other
monies of Guarantor, and whether or not such funds then remain on deposit in
such an account or accounts. To this end and to secure Guarantor's obligations
under this Agreement, Guarantor collaterally assigns and pledges to Lender, and
grants to Lender a continuing security interest in, any and all of Guarantor's
present and future rights, title and interest in and to all monies that
Guarantor may now and/or in the future maintain on deposit with banks, savings
and loan associations and other entities (other than tax deferred accounts), in
which Guarantor may at any time deposit any such funds that may be received from
any Borrower (or any other guarantor, endorser or surety of the Indebtedness) in
favor of Lender.
DEPOSIT ACCOUNTS. As collateral security for repayment of Guarantor's
obligations hereunder and under any additional guaranties previously granted or
to be granted by Guarantor in the future, and additionally as collateral
security for any present and future indebtedness of Guarantor in favor of
Lender, Guarantor hereby grants Lender a continuing security interest in any and
all funds that Guarantor may now and in the future have on deposit with Lender
or in certificates of deposit or other deposit accounts as to which Guarantor is
an account holder (with the exception of IRA, pension, and other tax-deferred
deposits). Guarantor further agrees that, after any Event of Default occurs,
Lender may at any time apply any funds that Guarantor may have on deposit with
Lender or in certificates of deposit or other deposit accounts as to which
Guarantor is an account holder (with the exception of IRA, pension, and other
tax-deferred deposits) against the unpaid balance of any and all other present
and future obligations and indebtedness of Guarantor to Lender, in principal,
interest, fees, costs, expenses, and attorneys' fees.
ADDITIONAL COVENANTS. Guarantor agrees that Lender may, at its sole option, at
any time, and from time to time, without the consent of or notice to Guarantor,
or any of them, or to any other party, and without incurring any responsibility
to Guarantor or to any other party, and without impairing or releasing any of
Guarantor's obligations or liabilities under this Agreement:
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(a) Make additional secured and/or unsecured loans to any Borrower.
(b) Discharge, release or agree not to sue any party (including, but not
limited to, any Borrower or any other guarantor, surety, or endorser of the
Indebtedness), who is or may be liable to Lender for any of the
Indebtedness.
(c) Release, surrender, or abandon, in any manner and in any order, any
collateral directly or indirectly securing repayment of any of the
Indebtedness.
(d) Sell, lease, transfer, or otherwise deal with, in any manner and in any
order, any collateral directly or indirectly securing repayment of any of
the Indebtedness, after an Event of Default occurs.
(e) Alter, renew, extend, accelerate, or otherwise change the manner,
place, terms and/or times of payment or other terms of the Indebtedness, or
any part thereof, including any increase or decrease in the rate or rates
of interest on any of the Indebtedness.
(f) Settle or compromise any of the Indebtedness.
(g) Subordinate and/or agree to subordinate the payment of all or any part
of the Indebtedness, or Lender's security rights in any collateral directly
or indirectly securing any such Indebtedness, to the payment and/or
security rights of any other present and/or future creditors of any
Borrower.
(h) Apply any payments and/or proceeds to any of the Indebtedness in such
priority or with such preferences as Lender may determine in its sole
discretion, regardless of which of the Indebtedness then remains unpaid.
(i) Take or accept any other collateral security or guaranty for any or all
of the Indebtedness.
(j) Enter into, deliver, modify, amend, or waive compliance with, any
instrument or arrangement evidencing, securing or otherwise affecting, all
or any part of the Indebtedness.
NO IMPAIRMENT OF GUARANTOR'S OBLIGATIONS. No course of dealing between Lender
and any Borrower (or any other guarantor, surety or endorser of the
Indebtedness), nor any failure or delay on the part of Lender to exercise any of
Lender's rights and remedies under this Agreement or any other agreement or
agreements by and between Lender and any Borrower (or any other guarantor,
surety or endorser), shall have the effect of impairing or releasing Guarantor's
obligations and liabilities to Lender, or of waiving any of Lender's rights and
remedies under this Agreement or otherwise. Any partial exercise of any rights
and remedies granted to Lender shall furthermore not constitute a waiver of any
of Lender's other rights and remedies; it being Guarantor's intent and agreement
that Lender's rights and remedies shall be cumulative in nature. Guarantor
further agrees that any waiver or forbearance on the part of Lender to pursue
Lender's available rights and remedies shall be binding upon Lender only to the
extent that Lender specifically agrees to such waiver or forbearance in writing.
A waiver or forbearance on the part of Lender as to one Event of Default shall
not constitute a waiver or forbearance as to any other Event of Default.
NO RELEASE OF GUARANTOR. Guarantor's obligations and liabilities under this
Agreement shall not be released, impaired, reduced, or otherwise affected by,
and shall continue in full force and effect notwithstanding the occurrence of
any event, including without limitation any one or more of the following events:
(a) The death, insolvency, bankruptcy, arrangement, adjustment,
composition, liquidation, disability, dissolution, or lack of authority
(whether corporate, partnership or trust) of any Borrower (or any person
acting on behalf of any Borrower), or of any other guarantor, surety or
endorser of the Indebtedness.
(b) Any payment by any Borrower, or any other party, to Lender that is held
to constitute a preferential transfer or a fraudulent conveyance under any
applicable law, or any such amounts or payment which, for any reason,
Lender is required to refund or repay to any Borrower or to any other
person.
(c) Any dissolution of any Borrower, or any sale, lease or transfer of all
or any part of the assets of any Borrower.
(d) Any failure of Lender to notify Guarantor of the making of additional
loans or other extensions of credit in reliance on this Agreement.
AUTOMATIC REINSTATEMENT. This Agreement and Guarantor's obligations and
liabilities hereunder shall continue to be effective, and/or shall automatically
and retroactively be reinstated, if a release or discharge has occurred, or if
at any time, any payment or part thereof to Lender with respect to any of the
Indebtedness, is rescinded or must otherwise be restored by Lender pursuant to
any insolvency, bankruptcy, reorganization, receivership, or any other debt
relief granted to any Borrower or to any other party to the Indebtedness or any
such security therefor. In the event that Lender must rescind or restore any
payment received in total or partial satisfaction of the Indebtedness, any prior
release or discharge from the terms of this Agreement given to Guarantor shall
be without effect, and this Agreement and Guarantor's obligations and
liabilities hereunder shall automatically and retroactively be renewed and/or
reinstated and shall remain in full force and effect to the same degree and
extent as if such a release or discharge had never been granted. It is the
intention of Lender and Guarantor that Guarantor's obligations and liabilities
hereunder shall not be discharged except by Guarantor's full and complete
performance and satisfaction of such obligations and liabilities; and then only
to the extent of such performance.
LEGAL EXISTENCE. Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Guarantor is duly
qualified and in good standing as a foreign corporation in each jurisdiction
where in the nature of the business transacted and the property owned by
Guarantor makes such qualification necessary, except where the failure to be so
qualified will not have a material adverse affect on Guarantor. Guarantor's
guaranty of the Indebtedness and this Agreement does not violate Guarantor's
Certificate of Incorporation or Bylaws. Guarantor has taken all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement.
REPRESENTATIONS AND WARRANTIES BY GUARANTOR. Guarantor represents and warrants
that:
(a) Guarantor is the parent corporation and owner of all of the authorized,
issued and outstanding stock of SEARCH FUNDING II, INC., and SEARCH
FINANCIAL SERVICES HOLDING COMPANY, and SEARCH FINANCIAL SERVICES HOLDING
COMPANY is the parent corporation and owner of all of the authorized,
issued and outstanding stock of each other Borrower.
(b) Guarantor has the lawful power to own its properties and to engage in
its business as presently conducted.
(c) Guarantor's guaranty of the Indebtedness and Guarantor's execution,
delivery and performance of this Agreement are not in violation of any laws
and will not result in a default under any contract, agreement, or
instrument to which Guarantor is a party, or by which Guarantor or its
property may be bound.
(d) Guarantor has agreed and consented to execute this Agreement and to
guarantee the Indebtedness in favor of Lender, at the request of Borrowers
and not at the request of Lender.
(e) Guarantor will receive and/or has received a direct or indirect
material benefit from the transactions contemplated herein and/or arising
out of the Indebtedness.
(f) This Agreement, when executed and delivered to Lender, will constitute
a valid, legal and binding obligation of Guarantor, enforceable in
accordance with its terms.
(g) Guarantor has established adequate means of obtaining information from
each Borrower on a continuing basis regarding the financial condition of
each Borrower.
(h) Lender has made no representations to Guarantor as to the
creditworthiness of any Borrower.
(i) There are no suits or proceedings pending, or to the knowledge of
Guarantor, threatened against or affecting any Borrower, Guarantor, or the
assets of any Borrower or Guarantor, before any court or by any
governmental agency, other than those previously disclosed to Lender in
documents filed by any Borrower or Guarantor with the Securities and
Exchange Commission and delivered to Lender by any Borrower or Guarantor,
which, if adversely determined, may have a material adverse effect on the
financial condition or business of any Borrower or Guarantor.
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AFFIRMATIVE COVENANTS. Guarantor covenants and agrees with Lender that, so
long as this Agreement remains in effect, Guarantor will:
CHANGES IN FINANCIAL CONDITION AND LITIGATION. Promptly inform Lender in
writing of (a) all material adverse changes in the financial condition of
any Borrower or Guarantor, and (b) the threat of, the institution of, or
any adverse determination by final judgment in, any litigation, arbitration
proceeding or governmental proceeding which could reasonably be expected to
involve a claim against any Borrower or Guarantor for more than
$100,000.00.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Guarantor's books and records at all
reasonable times.
FINANCIAL REPORTS. Prepare all annual financial statements and reports
required to be provided under this Agreement in accordance with generally
accepted accounting principles, applied on a consistent basis and prepare
all other financial statements and reports required to be provided under
this Agreement in accordance with generally accepted accounting principles
(with the exception of year-end adjustments and footnoting), applied on a
consistent basis, and each statement and report shall be certified as being
true and correct, in all material respects, to the best knowledge and
belief, by the chief financial officer of Guarantor or other officer or
person acceptable to Lender.
ANNUAL FINANCIAL STATEMENTS. Without demand or request by Lender, furnish
Lender with, as soon as available, but in no event later than one hundred
twenty (120) days after the end of each fiscal year, fiscal year-end
financial statements (including consolidated balance sheet, income
statement and statement of cash flows) for Guarantor, prepared in the form
of consolidated statements for Guarantor and all of its subsidiaries,
including Borrowers, audited by a certified public accountant satisfactory
to Lender and accompanied by the unqualified opinion of the certified
public accountant. The certified public accounting firm of BDO Siedman
shall be qualified as a certified public accountant satisfactory to Lender
unless and until Lender notifies Guarantor to the contrary.
MONTHLY FINANCIAL STATEMENTS. Without demand or request by Lender,
furnish Lender with, as soon as available, but in no event later than ten
(10) Business Days after the end of each calendar month, month-end
financial statements (including balance sheet and income statement) for
Guarantor, prepared in the form of consolidated statements for Guarantor
and all of its subsidiaries, including Borrowers, for the prior month,
prepared and certified as correct, in all material respects, to the best
knowledge and belief, by the chief financial officer of Guarantor or other
officer or person acceptable to Lender.
TAX RETURNS. Upon request of Lender, furnish Lender with copies of the most
current federal tax returns filed by Guarantor, with all schedules and
supporting documentation.
PUBLIC DOCUMENTS. Without demand or request by Lender, within thirty (30)
days of the filing of each, furnish Lender with copies of the 10-K, 10-Q,
and each other document filed by Guarantor with the Securities and Exchange
Commission.
ADDITIONAL INFORMATION. Furnish such additional information, statements and
reports with respect to the financial condition and business operations of
Guarantor as Lender may reasonably request from time to time.
GUARANTOR INFORMATION. Guarantor agrees to keep adequately informed of any
facts, events or circumstances which might in any way affect Guarantor's
risks under this Agreement. Guarantor further agrees that Lender shall have
no obligation to disclose to Guarantor any information or material relating
to any Borrower or the Indebtedness.
NEGATIVE COVENANTS. Guarantor covenants and agrees with Lender that as long as
this Agreement remains in effect Guarantor shall not, without the prior written
consent of Lender:
DIVIDENDS - BEFORE SEPTEMBER 30, 1997. Before September 30, 1997, pay or
declare any dividends on its stock (other than dividends payable in its
stock) unless (a) its Adjusted Net Worth (as defined in the FINANCIAL
COVENANTS section below) exceeds $15,000,000.00, and (b) payment of the
dividend will not reduce its Adjusted Net Worth to an amount equal to or
less than $15,000,000.00.
DIVIDENDS - ON AND AFTER SEPTEMBER 30, 1997. On or after September 30,
1997, pay or declare any dividends on its stock (other than dividends
payable in its stock) unless (a) its Adjusted Net Worth (as defined in the
FINANCIAL COVENANTS section below) exceeds $22,500,000.00, and (b) payment
of the dividend will not reduce its Adjusted Net Worth to an amount equal
to or less than $22,500,000.00.
REDEMPTION OF SHARES. Redeem, retire or repurchase any shares of its
capital stock or other securities if such redemption, retirement or
repurchase would cause Guarantor to be out of compliance with any of the
Financial Covenants provided for in this Agreement.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities other
than those related to financial services, (b) cease operations, liquidate,
or dissolve, (c) merge with any other entity if the members of the board of
directors of Guarantor immediately prior to the merger do not immediately
after the merger constitute a majority of (i) the members of the board of
directors of Guarantor if it survives the merger, or (ii) the board of
directors of the surviving company if Guarantor does not survive the
merger, or (d) sell all or substantially all of Guarantor's assets.
FINANCIAL COVENANTS. Guarantor covenants and agrees with Lender that as long as
this Agreement remains in effect Guarantor shall comply with the following
financial covenants:
DEFINITIONS. For purposes of testing compliance with these Financial
Covenants the following terms shall have the following meanings. Except as
otherwise provided by these defined terms, all computations made to
determine compliance with these Financial Covenants shall be made on a
consolidated basis for Guarantor and all of its subsidiaries, in accordance
with generally accepted accounting principles, applied on a consistent
basis, and certified as true and correct, in all material respects, to the
best knowledge and belief, by the chief financial officer of Guarantor or
other officer or person acceptable to Lender.
ADJUSTED NET WORTH. The term "Adjusted Net Worth" shall mean the
Stated Net Worth of Guarantor and its subsidiaries, on a consolidated
basis, plus Subordinated Debt, less Intangibles, and less amounts (a)
due from any shareholder, director, officer, employee or agent of
Guarantor or of any subsidiary or affiliate of Guarantor, or (b) due
from any person or entity (other than a subsidiary) which is affiliated
with, or related to, Guarantor or any of its subsidiaries, or any of
the shareholders, officers, or directors of Guarantor or any of its
subsidiaries.
DEBT. The term "Debt" shall mean all liabilities of Guarantor and its
subsidiaries, on a consolidated basis, INCLUDING SUBORDINATED DEBT.
INTANGIBLES. The term "Intangibles" shall mean all of the intangible
assets of Guarantor and its subsidiaries, on a consolidated basis,
including goodwill, trademarks, patents, copyrights, organizational
expenses, and similar intangible expenses, but excluding leaseholds and
leasehold improvements.
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SUBORDINATED DEBT. The term "Subordinated Debt" shall mean indebtedness
and liabilities of Guarantor and its subsidiaries which have been
subordinated by written agreement to the Indebtedness, and to the
indebtedness of any Guarantor to Lender, in form and substance
acceptable to Lender.
STATED NET WORTH. The term "Stated Net Worth" shall mean the total
assets of Guarantor and its subsidiaries, on a consolidated basis, less
total Debt.
MINIMUM ADJUSTED NET WORTH. Guarantor shall maintain an Adjusted Net Worth
of no less than $15,000,000.00 until October 1, 1997. Beginning October 1,
1997, Guarantor shall maintain an Adjusted Net Worth of no less than
$20,000,000.00.
MAXIMUM LEVERAGE POSITION. Guarantor shall maintain a leverage position of
no more than 5.00 to 1.00, where leverage position is the result of the
following formula:
Debt - Subordinated Debt
----------------------------
Stated Net Worth + Subordinated Debt
TESTING FREQUENCY. Compliance with Minimum Adjusted Net Worth and Maximum
Leverage Position requirements shall be tested quarterly (based on the
fiscal year of Guarantor) based on the then most recent financial
statements of Guarantor and its subsidiaries, on a consolidated basis.
TRANSFER OF INDEBTEDNESS. This Agreement is for the benefit of Lender and for
such other person or persons as may from time to time become or be the holders
of all or any part of the Indebtedness. This Agreement shall be transferrable
and negotiable with the same force and effect and to the same extent as the
Indebtedness may be transferrable; it being understood and agreed to by
Guarantor that, upon any transfer or assignment of all or any part of the
Indebtedness, the holder of such Indebtedness shall have all of the rights and
remedies granted to Lender under this Agreement. Guarantor further agrees that,
upon any transfer of all or any portion of the Indebtedness, Lender may transfer
and deliver any and all collateral securing repayment of such Indebtedness
(including, but not limited to, any collateral provided by Guarantor) to the
transferee of such Indebtedness, and such collateral shall secure any and all of
the Indebtedness in favor of such a transferee. Guarantor additionally agrees
that, after any such transfer or assignment has taken place, Lender shall be
fully discharged from any and all liability and responsibility to each Borrower
and Guarantor with respect to such collateral, and the transferee thereafter
shall be vested with all the powers and rights with respect to such collateral,
except for gross negligence or willful misconduct.
CONSENT TO PARTICIPATION. Guarantor recognizes and agrees that Lender may,
from time to time, one or more times, transfer all or any part of the
Indebtedness through sales of participation interests in such Indebtedness to
one or more third party lenders. Lender agrees to notify Guarantor of any sale
or transfer of (a) the Indebtedness in its entirety, and (b) any assignment of
the "lead lender" position if participation interests in the Indebtedness are
sold or transferred. Guarantor specifically agrees and consents to all such
transfers and assignments, and waives any and all other notices of sale of
participation interests, as well as all notices of any repurchase of
participation interests. Guarantor additionally agrees that the purchaser of a
participation interest in the Indebtedness will be considered as the absolute
owner of a percentage interest of such Indebtedness and that such a purchaser
will have all of the rights granted under any participation agreement governing
the sale of such a participation interest. Guarantor waives any rights of offset
that Guarantor may have against Lender and/or any purchaser of such a
participation interest, and Guarantor unconditionally agrees that either Lender
or such a purchaser may enforce Guarantor's obligations and liabilities under
this Agreement, irrespective of the failure or insolvency of Lender or any such
purchaser.
NOTICES. To give Guarantor any notice required under this Agreement, Lender may
hand deliver or mail such notice to Guarantor at the address specified for
Guarantor in this Agreement, or at any other address that Guarantor may have
given to Lender by written notice as provided in this paragraph. To give Lender
any notice under this Agreement, Guarantor may hand deliver or mail such notice
to Lender at the address specified in this Agreement, or at any other address
that Lender may have given to Guarantor by written notice as provided in this
paragraph. All notices required or permitted under this Agreement must be in
writing and will be considered as given on the day it is delivered by hand or
deposited in the U.S. Mail in the form and to the address specified in this
Agreement.
ADDITIONAL GUARANTIES. Guarantor recognizes and agrees that Guarantor may have
previously granted, and may in the future grant, one or more additional
guaranties of the Indebtedness in favor of Lender. Should this occur, the
execution of this Agreement and any additional guaranties on the part of
Guarantor will not be construed as a cancellation of this Agreement or any of
Guarantor's additional guaranties; it being Guarantor's full intent and
agreement that all such guaranties of the Indebtedness in favor of Lender shall
remain in full force and effect and shall be cumulative in nature and effect.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENT. No amendment, modification, consent or waiver of any provision
of this Agreement, and no consent to any departure by Guarantor therefrom,
shall be effective unless the same shall be in writing signed by a duly
authorized officer of Lender, and then shall be effective only as to the
specific instance and for the specific purpose for which given.
CAPTION HEADINGS. Caption headings of the sections of this Agreement are
for convenience purposes only and are not to be used to interpret or to
define their provisions. In this Agreement, whenever the context so
requires, the singular includes the plural and the plural also includes the
singular.
ENTIRE AGREEMENT. This Agreement embodies the final, entire agreement of
the parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to
the subject matter hereof and may not be contradicted or varied by evidence
of prior, contemporaneous, or subsequent oral agreements or discussions of
the parties hereto. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES TO
THIS AGREEMENT.
GOVERNING LAW. This Agreement shall be governed and construed in accordance
with the substantive laws of the State of Louisiana.
SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during the
term hereof, such provision shall be fully severable. This Agreement shall
be construed and enforceable as if the illegal, invalid or unenforceable
provision had never comprised a part of it, and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of
this Agreement, a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and legal, valid and
enforceable.
SUCCESSORS AND ASSIGNS BOUND. Guarantor's obligations and liabilities under
this Agreement shall be binding upon Guarantor's successors, heirs,
legatees, devisees, administrators, executors and assigns.
<PAGE> 6
10-06-1997 COMMERCIAL GUARANTY
LOAN NO. (CONTINUED) PAGE 6
================================================================================
WAIVE JURY. Guarantor and Lender hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either against the
other.
GUARANTOR AND LENDER ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
AGREEMENT AND AGREE TO ITS TERMS. IN ADDITION, GUARANTOR UNDERSTANDS THAT THIS
AGREEMENT IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS AGREEMENT
TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED. NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS AGREEMENT EFFECTIVE. THIS
AGREEMENT IS DATED OCTOBER 6, 1997.
GUARANTOR:
SEARCH FINANCIAL SERVICES INC.
By: /s/ ROBERT D. IDZI
----------------------------------------------------
Robert D. Idzi, Senior Executive Vice President
and Chief Financial Officer
LENDER:
HIBERNIA NATIONAL BANK
By: /s/ Barry G. McMahan
-----------------------------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.3
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$25,000,000.00 10-06-1997 09-30-2000
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
BORROWERS: SEARCH FUNDING II, INC. SEARCH FINANCIAL SERVICES HOLDING COMPANY
SEARCH FINANCIAL SERVICES OF FLORIDA, INC. SEARCH FINANCIAL SERVICES OF GEORGIA, INC.
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC. SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC.
SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC. SEARCH FINANCIAL SERVICES OF TENNESSEE, INC.
SEARCH FINANCIAL SERVICES OF TEXAS, INC.
</TABLE>
LENDER: HIBERNIA NATIONAL BANK
(TIN: 72-0210640)
313 CARONDELET STREET
POST OFFICE BOX 61540
NEW ORLEANS, LOUISIANA 70161
================================================================================
<TABLE>
<S> <C> <C>
PRINCIPAL AMOUNT: $25,000,000.00 INITIAL RATE: 9.500% DATE OF NOTE: OCTOBER 6, 1997
</TABLE>
PROMISE TO PAY. SEARCH FUNDING II, INC., SEARCH FINANCIAL SERVICES HOLDING
COMPANY, SEARCH FINANCIAL SERVICES OF FLORIDA, INC., SEARCH FINANCIAL SERVICES
OF GEORGIA, INC., SEARCH FINANCIAL SERVICES OF LOUISIANA, INC., SEARCH
FINANCIAL SERVICES OF OKLAHOMA, INC., SEARCH FINANCIAL SERVICES OF PUERTO RICO,
INC., SEARCH FINANCIAL SERVICES OF TENNESSEE, INC., and SEARCH FINANCIAL
SERVICES OF TEXAS, INC. (collectively, "BORROWERS" and individually,
"BORROWER") promise to pay to the order of HIBERNIA NATIONAL BANK ("LENDER"),
in lawful money of the United States of America the sum of TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($25,000,000.00) or such other or lesser amounts as may be
reflected from time to time on the books and records of Lender as evidencing
the aggregate unpaid principal balance of loan advances made to Borrowers on a
revolving line of credit basis as provided below, together with simple interest
assessed on a variable rate basis at the rate per annum equal to 1.000
percentage point over the Index provided below, as the Index under this Note
may be adjusted from time to time, one or more times, with interest being
assessed on the unpaid principal balance of this Note as outstanding from time
to time, commencing on OCTOBER 6, 1997, and continuing until this Note is paid
in full.
LINE OF CREDIT. This Note evidences a revolving line of credit "master note".
Advances under this Note may be requested orally by Borrowers or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrowers at Lender's address
shown above written notice of revocation of their authority: GEORGE C. EVANS,
JAMES F. LEARY, ANTHONY J. DELLAVECHIA, ROBERT D. IDZI, ELLIS A. REGENBOGEN, and
CAROLYN J. MALONE. REQUESTS FOR ADVANCES WILL BE MADE IN ACCORDANCE WITH THE
PROVISIONS CONTAINED IN THE LOAN AGREEMENT BETWEEN BORROWERS AND LENDER DATED
OCTOBER 6, 1997, AS IT MAY BE AMENDED OR MODIFIED FROM TIME TO TIME ("THE LOAN
AGREEMENT"). Borrowers agree to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
deposit account maintained by any Borrower with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (i) any
Borrower or any guarantor is in default under the terms of this Note or any
agreement that any Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note, (ii) any Borrower or
any guarantor becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt, (iii) there occurs a material adverse
change in the financial condition of any Borrower or any guarantor, or in the
total value of the collateral securing repayment of this Note, or (iv) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guaranty of this Note or any other loan with Lender.
PAYMENT. BORROWERS WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON SEPTEMBER 30, 2000. IN ADDITION,
BORROWERS WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST
BEGINNING NOVEMBER 1, 1997, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE
FIRST DAY OF EACH MONTH AFTER THAT UNTIL THIS NOTE IS PAID IN FULL. Interest
on this Note is computed on a 365/360 simple interest basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrowers will pay Lender
at Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is THE CHASE
MANHATTAN BANK PRIME COMMERCIAL LENDING RATE (the "INDEX"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrowers. Lender will tell Borrowers the
current Index rate upon Borrowers' request. Borrowers understand that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each day. THE INDEX CURRENTLY IS 8.500% PER ANNUM. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL
BE AT A RATE OF 1.000 PERCENTAGE POINT OVER THE INDEX, RESULTING IN AN INITIAL
RATE OF 9.500% PER ANNUM.
OTHER FEES AND CHARGES. In addition to the principal, interest and other fees
and charges provided for in this Note, Borrowers agree to also pay all other
amounts, fees and charges provided for in the Loan Agreement, including,
without limitation, all overlines, overadvances, interest on overlines and
overadvances, unused facility fees, facility charges and expenses, and
commitment cancellation charges provided for in the Loan Agreement.
PREPAYMENT. Borrowers may prepay this Note in full at any time by paying the
then unpaid principal balance of this Note, plus accrued simple interest and
any unpaid late charges through date of prepayment. Prepayment of the amounts
due under this Note shall not constitute termination of any agreement between
Borrowers and Lender, including, without limitation, the Loan Agreement.
Specifically, Borrowers acknowledge and agree that Lender may be entitled to a
commitment cancellation charge provided for in the Loan Agreement. If
Borrowers prepay this Note in full, or if Lender accelerates payment, Borrowers
understand that, unless otherwise required by law, any prepaid fees or charges
will not be subject to rebate and will be earned by Lender at the time this
Note is signed.
DEFAULT. The following actions and/or inactions shall constitute default
events under this Note:
DEFAULT UNDER THIS NOTE. Should Borrowers default in the payment of any
amounts due and payable under this Note.
DEFAULT UNDER LOAN AGREEMENT. Should any Event of Default occur under the
Loan Agreement (as the term "Event of Default" is defined in the Loan
Agreement).
LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or
exist under this Note as provided above, Lender shall have the right, at its
sole option, to declare formally this Note to be in default and to accelerate
the maturity and insist upon immediate payment in full of the unpaid principal
balance then outstanding under this Note, plus accrued interest, together with
reasonable attorneys' fees, costs, expenses and other fees and charges as
provided herein. Lender shall have the further right, again at its sole
option, to declare formal default and to accelerate the maturity and to insist
upon immediate payment in full of each and every other loan, extension of
credit, debt, liability and/or
<PAGE> 2
10-06-1997 PROMISSORY NOTE PAGE 2
LOAN NO. (CONTINUED)
================================================================================
obligation of every nature and kind that any Borrower may then owe to Lender,
whether direct or indirect or by way of assignment, and whether absolute or
contingent, liquidated or unliquidated, voluntary or involuntary, determined or
undetermined, secured or unsecured, whether any Borrower is obligated alone or
with others on a "solidary" or "joint and several" basis, as a principal obligor
or otherwise, all without further notice or demand, unless Lender shall
otherwise elect.
ATTORNEYS' FEES. If Lender refers this Note to an attorney for collection, or
files suit against Borrowers to collect this Note, or if any Borrower files for
bankruptcy or other relief from creditors, Borrowers agree to pay Lender's
reasonable attorneys' fees.
DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all
renewals and extensions, as well as to secure any and all other loans, notes,
indebtedness and obligations that any Borrower may now and in the future owe to
Lender or incur in Lender's favor, whether direct or indirect, absolute or
contingent, due or to become due, of any nature and kind whatsoever, each
Borrower hereby grants Lender a continuing security interest in any and all
funds that each Borrower may now and in the future have on deposit with Lender
or in certificates of deposit or other deposit accounts as to which each
Borrower is an account holder (with the exception of IRA, pension, and other
tax-deferred deposits). Borrowers further agree that Lender may, at any time
after a default event occurs, apply any funds that any Borrower may have on
deposit with Lender or in certificates of deposit or other deposit accounts as
to which any Borrower is an account holder (with the exception of IRA, pension,
and other tax-deferred deposits) against the unpaid balance of this Note and
any and all other present and future indebtedness and obligations that any
Borrower may then owe to Lender, in principal, interest, fees, costs, expenses,
and attorneys' fees.
GOVERNING LAW. Borrowers agree that this Note and the loan evidenced hereby
shall be governed under the laws of the State of Louisiana. Specifically, this
business or commercial Note is subject to La.-R.S. 9:3509, et seq.
INTEREST AFTER DEFAULT. If Lender declares this Note to be in default,
Lender has the right prospectively to adjust and fix the simple interest rate
under this Note, until this Note is paid in full, to 3.000 percentage points in
excess of the interest rate under this Note at the time of default.
MAXIMUM INTEREST RATE. Anything to the contrary contained herein
notwithstanding, no provision of this Note shall require the payment or permit
the collection of interest in excess of the maximum permitted by applicable law
("THE MAXIMUM RATE"). If interest in excess of the Maximum Rate is provided
for in this Note or otherwise in connection with the loan transaction
represented by this Note, or is adjudicated to be so provided, the provisions
of this paragraph shall govern and prevail, and no Borrower or any guarantor
shall be obligated to pay the excess amount of such interest or any other
excess sum paid for the use, forbearance, or detention of Advances made under
this Agreement. In the event Lender ever receives, collects or applies, as
interest due and payable under this Note, any sum in excess of the Maximum
Rate, the amount of the excess shall be applied as a payment and reduction of
the principal of the indebtedness represented by this Note; and if the
principal of the indebtedness represented by this Note has been fully paid, any
remaining excess shall forthwith be paid to Borrowers. In determining whether
or not interest paid or payable exceeds the Maximum Rate, Borrowers and Lender
shall, to the extent permitted by applicable law, (a) characterize any non-
principal payment as an expense, fee or premium rather than as interest, (b)
exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate and spread, in equal or unequal parts, the total amount of
interest throughout the entire contemplated term of the indebtedness
represented by this Note so that interest for the entire term does not exceed
the Maximum Rate.
WAIVERS. Each Borrower and each guarantor of this Note hereby waives demand,
presentment for payment, protest, notice of protest, notice of nonpayment,
notice of acceleration and notice of intent to accelerate, and all pleas of
division and discussion, and agrees that its obligations and liabilities to
Lender hereunder shall be on a "solidary" or "joint and several" basis. Each
Borrower and each guarantor further severally agrees that discharge or release
of any party who is or may be liable to Lender for the indebtedness represented
hereby, or the release of any collateral directly or indirectly securing
repayment hereof, shall not have the effect of releasing any other party or
parties, who shall remain liable to Lender, or of releasing any other
collateral that is not expressly released by Lender. Each Borrower and each
guarantor additionally agrees that Lender's acceptance of payment other than in
accordance with the terms of this Note, or Lender's subsequent agreement to
extend or modify such repayment terms, or Lender's failure or delay in
exercising any rights or remedies granted to Lender, shall likewise not have
the effect of releasing any Borrower or any other party or parties from their
respective obligations to Lender, or of releasing any collateral that directly
or indirectly secures repayment hereof. In addition, any failure or delay on
the part of Lender to exercise any of the rights and remedies granted to Lender
shall not have the effect of waiving any of Lender's rights and remedies. Any
partial exercise of any rights and/or remedies granted to Lender shall
furthermore not be construed as a waiver of any other rights and remedies; it
being each Borrower's intent and agreement that Lender's rights and remedies
shall be cumulative in nature. Each Borrower and each guarantor further agrees
that, should any default event occur or exist under this Note, any waiver or
forbearance on the part of Lender to pursue the rights and remedies available
to Lender, shall be binding upon Lender only to the extent that Lender
specifically agrees to any such waiver or forbearance in writing. A waiver or
forbearance on the part of Lender as to one default event shall not be
construed as a waiver or forbearance as to any other default.
SUCCESSORS AND ASSIGNS LIABLE. Each Borrower's and each guarantor's
obligations and agreements under this Note shall be binding upon each
Borrower's and each guarantor's respective successors, heirs, legatees,
devisees, administrators, executors and assigns. The rights and remedies
granted to Lender under this Note shall inure to the benefit of Lender's
successors and assigns, as well as to any subsequent holder or holders of this
Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to interpret or to define
their provisions. In this Note, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and
the balance of this Note shall be interpreted as if the deleted provision never
existed.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
LENDER AND BORROWERS HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR ANY BORROWER AGAINST
THE OTHER. BORROWERS:
<TABLE>
<S> <C>
SEARCH FUNDING II, INC. SEARCH FINANCIAL SERVICES HOLDING COMPANY
SEARCH FINANCIAL SERVICES OF FLORIDA, INC.
SEARCH FINANCIAL SERVICES OF GEORGIA, INC.
SEARCH FINANCIAL SERVICES OF LOUISIANA, INC.
SEARCH FINANCIAL SERVICES OF OKLAHOMA, INC.
By:/s/ROBERT D. IDZI SEARCH FINANCIAL SERVICES OF PUERTO RICO, INC.
--------------------------------------------------- SEARCH FINANCIAL SERVICES OF TENNESSEE, INC.
Robert D. Idzi, Senior Executive Vice President SEARCH FINANCIAL SERVICES OF TEXAS, INC.
By: /s/ROBERT D. IDZI
-------------------------------------------------
Robert D. Idzi,
Senior Executive Vice President of each entity
</TABLE>
<PAGE> 1
EXHIBIT 11.0
SEARCH FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Statement re: Computation of Per Share Earnings Loss
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Weighted Average Shares:
Common stock outstanding at end of period 6,829 3,958
Adjustment for weighting of shares (2,444) (557)
Common stock equivalents assumed outstanding -- --
------- -------
Weighted average shares outstanding $ 4,385 $ 3,401
======= =======
Net Income(Loss) $(6,231) $(1,991)
======= =======
Computation of net income(loss) per share:
Net income(loss) divided by weighted
average shares outstanding $ (1.42) $ (0.59)
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,491,000
<SECURITIES> 0
<RECEIVABLES> 127,370,000
<ALLOWANCES> 10,768,000
<INVENTORY> 1,199,000
<CURRENT-ASSETS> 120,292,000
<PP&E> 6,221,596
<DEPRECIATION> (3,994,596)
<TOTAL-ASSETS> 126,944,000
<CURRENT-LIABILITIES> 96,329,000
<BONDS> 0
0
201,000
<COMMON> 290,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 126,944,000
<SALES> 3,965,000
<TOTAL-REVENUES> 3,965,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,507,000)
<INTEREST-EXPENSE> 1,944,000
<INCOME-PRETAX> (4,769,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,769,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,769,000)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
