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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 27, 1998
--------------------------
SEARCH FINANCIAL SERVICES INC.
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(Exact name of registrant as specified in charter)
DELAWARE 0-9539 41-1356819
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
600 N. PEARL STREET
SUITE 2500
DALLAS, TEXAS 75201-2899
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 965-6000
------------------------
NOT APPLICABLE
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(Former name or former address, if changed since last report)
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ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
On March 6, 1998, Registrant and its automobile finance subsidiaries,
MS Financial, Inc. ("MSF"), Search Funding Corp. and Search Financial Services
Acceptance Corp., filed petitions under Chapter 11 of the United States
Bankruptcy Code, as amended, in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division. The petitions are currently
pending as jointly administered Case No. 398-32129-RCM-11.
In connection with the filing of the Chapter 11 petitions, Registrant
announced that it is continuing discussions with Fleet Bank, N.A. and the other
banks party to the MSF loan agreement to reach agreement on an order that would
(1) provide for a transfer of the collateral securing the loan agreement to the
bank group, or a sale of the underlying receivables portfolio pledged to the
bank groups to a third party, in full satisfaction of the obligations owed to
the bank group, and (2) allow Search and MSF to use a portion of the
collections on the receivables portfolio pledged to the bank group to fund
collection and related operating expenses until such transfer to the banks or
sale to a third party takes place. On March 9, 1998, the Bankruptcy Court
entered an order permitting such use of a portion of those collections on an
interim basis.
Registrant also announced that any transfer or sale (1) would require
approval pursuant to Bankruptcy Court order in the Chapter 11 cases, (2) would
be subject to receipt of higher and better offers and (3) is currently
contemplated to provide for MSF to share in any proceeds from collections on
the portfolio in excess of amounts equal to the obligations owed under the loan
agreement and servicing costs. There can be no assurance that a transfer or
sale will be approved by the Bankruptcy Court or that, if a transfer or sale
does occur, collections on the portfolio will be sufficient to allow MSF to
share therein.
ITEM 5. OTHER EVENTS.
Registrant also announced on March 9, 1998 that it has restructured
the loan agreement between Hibernia National Bank ("Hibernia") and certain of
its subsidiaries to permit additional borrowings under the agreement by
Registrant's consumer finance subsidiaries. As part of the restructuring,
non-prime auto receivables with an outstanding principal balance of
approximately $19.7 million, pledged to secure borrowings under the loan
agreement, were conveyed to Hibernia in exchange for satisfaction of
outstanding indebtedness of approximately $15.9 million and the waiver by
Hibernia of all existing events of default under the loan agreement. As a
result of this restructuring, the maximum amount that can be borrowed under the
loan agreement is $14,000,000 and all borrowings will bear interest at the
prime rate +2%. As of March 6, 1998, the principal amount owing under the loan
agreement was approximately $9.4 million.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
2.1 Agreed Order Regarding Limited Use of Cash Collateral
(MS Financial, Inc.) and addenda thereto (a copy of
the Exhibits to the Order and addenda will be
furnished to the Commission supplementally upon
request)
10.1 Agreement to Transfer Collateral and Restructure Loan
effective February 27, 1998 by and among Hibernia
National Bank ("Hibernia"), Search Funding II, Inc.,
Registrant, 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. (the "Search
Parties") (a copy of the Exhibits to the Agreement to
Transfer Collateral and Restructure Loan will be
furnished to the Commission supplementally upon
request)
10.2 First Amendment to Loan Agreement and Related
Documents dated as of February 27, 1998 among the
Search Parties and Hibernia
10.3 Promissory Note dated February 27, 1998 payable to
the order of Hibernia in the principal amount of
$14,000,000
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEARCH FINANCIAL SERVICES INC.
By: /s/ Ellis A. Regenbogen
-----------------------------------
Ellis A. Regenbogen
Executive Vice President
Dated: March 11, 1998
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreed Order Regarding Limited Use of Cash Collateral
(MS Financial, Inc.) and addenda thereto (a copy of
the Exhibits to the Order and addenda will be
furnished to the Commission supplementally upon
request)
10.1 Agreement to Transfer Collateral and Restructure Loan
effective February 27, 1998 by and among Hibernia
National Bank ("Hibernia"), Search Funding II, Inc.,
Registrant, 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. (the "Search
Parties") (a copy of the Exhibits to the Agreement to
Transfer Collateral and Restructure Loan will be
furnished to the Commission supplementally upon
request)
10.2 First Amendment to Loan Agreement and Related
Documents dated as of February 27, 1998 among the
Search Parties and Hibernia
10.3 Promissory Note dated February 27, 1998 payable to
the order of Hibernia in the principal amount of
$14,000,000
</TABLE>
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EXHIBIT 2.1
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
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In re: ) CHAPTER 11
SEARCH FINANCIAL SERVICES ) CASE NO. 398-32129-RCM-11
ACCEPTANCE CORP. ) CASE NO. 398-32128-SAF-11
MS FINANCIAL, INC., ) CASE NO. 398-32130-SAF-11
SEARCH FUNDING CORP. ) CASE NO. 398-32131-SAF-11
SEARCH FINANCIAL ) (Requesting to be Jointly
SERVICES, INC. ) Administered Under Case No.
) 398-32129-RCM-11)
DEBTORS )
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AGREED ORDER REGARDING LIMITED USE OF CASH
COLLATERAL (MS FINANCIAL, INC.)
FILING AND JURISDICTION
A. These cases were commenced by the filing of voluntary
petitions for relief Under Chapter 11 of Title 11, United States Code (the
"Bankruptcy Code") on March 6, 1998 (the Petition Date") in the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division (the
"Court");
B. Since the Petition Date, MS Financial, Inc. (the "Debtor" or
"MSFI") has operated its business and managed its affairs as a
debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy
Code. Neither a trustee nor a creditors' committee has been appointed in this
case as of the filing of this Order;
C. The Court has jurisdiction of this matter pursuant to 28
U.S.C. Section 1334;
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D. This matter is a core proceeding pursuant to 28 U.S.C. Section
157(b)(2);
LOAN DOCUMENTS AND SECURITY INTERESTS
E. Fleet Bank, N.A., acting as agent for itself and for certain
other banks ("Fleet") and the Debtor, and the Debtor's parent corporation,
Search Financial Services, Inc. ("Search"), are parties to a certain Loan
Agreement dated as of July 31, 1997 (the "Loan Agreement" and more generally
with the other loan documents described below or otherwise executed in
conjunction with the Loan Agreement, the "Fleet Facility");
F. Incident thereto the Debtor executed promissory notes to Fleet
and to other banks in the lending group for which Fleet acts as agent under the
Loan Agreement, which notes reflected an original aggregate commitment of
$70,000,000 and under which, from time to time, indebtedness would exist
reflecting the obligations of the Debtor for borrowings and other fees,
expenses and costs under the Fleet Facility (the "Notes");
G. The Debtor's indebtedness and obligations to Fleet pursuant to
the Fleet Facility are secured upon the terms of (a) a certain Security
Agreement dated as of July 31, 1997 (the "Security Agreement") and (b) a
certain Pledge Agreement dated as of July 31, 1997 (the "Pledge");
H. The Security Agreement granted to Fleet a first priority
security interest in substantially all of the Debtor's existing and
after-acquired assets, as more fully described in Exhibit "A" attached hereto
(the "Assets"); Nothing in this Order shall be deemed to limit the right of any
party in interest in the Debtors' case to object to Fleet's debt or the
validity of its liens.
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I. The Pledge granted to Fleet a first priority security interest
in the Debtor's equity (the "Stock") in its wholly owned subsidiary, MS Auto
Receivables Company, a Delaware corporation ("MS Auto");
J. Together the Assets and the Stock constitute collateral to
secure repayment of the Notes and other indebtedness under the Fleet Facility
(the "Collateral");
K. Generally, the Debtor is a financial services company
specializing in the purchase and management of non-prime motor vehicle
receivables, essentially obligations of consumer obligors secured by
depreciating motor vehicles (the "Receivables");
L. Generally, MS Auto is in the same business as the Debtor,
except that (a) its ownership of similar non- prime motor vehicle receivables
(the "MS Auto Receivables") arose as a result of a certain securitization
transaction closed in 1995 and (b) since the securitization it has not
purchased new receivables;
M. The Debtor used loan proceeds from the Fleet Facility to
finance its non-prime motor vehicle financing business. In the ordinary course
of its business, the Debtor was permitted to draw down funds advanced by Fleet
based upon a formula (the "Borrowing Base Formula"). The Loan Agreement
contemplated that the Debtor was to pay Fleet all of the collections that the
Debtor received from its customers, whether (i) directly, where the Debtor
initially had access to the funds, or (ii) indirectly, through lockbox
arrangements where the Debtor lacked access to the funds, which funds were
forwarded by the deposit bank directly to Fleet. The Borrowing Base Formula
permitted the Debtor, so long as it was not in default, to draw down funds
against a percentage of its then existing qualified collateral, consisting in
the main of Receivables on eligible automobile loans;
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N. The Debtor has historically collected the Receivables directly
or indirectly through a subsidiary of Search, Search Financial Services
Acceptance Corp. ("Search Acceptance"), and employees thereof;
O. The lockbox arrangement referenced above is embodied in, among
other documents, a certain Lockbox and Controlled Account Agreement dated as of
July 31, 1997 by and among Fleet, the Debtor and Hibernia National Bank, the
depository bank located in New Orleans, Louisiana (the "Lockbox Agreement");
P. All of the Debtor's obligations under the Fleet Facility are
guaranteed by Search;
FLEET'S CLAIM
Q. As of the Petition Date, the unpaid balance of principal on
the Notes, exclusive of accrued but unpaid interest, fees and payments other
than interest due Fleet under the Fleet Facility, attorneys' fees, costs and
expenses, was $60,749,582.08. The Loan Agreement entitles Fleet to recover all
of its reasonable out-of-pocket costs and expenses, including reasonable
attorneys' fees, in enforcing its remedies pursuant to the Fleet Facility;
R. The proceeds from the collection of any Receivables, the
proceeds from the disposition of any repossessed or returned collateral
securing the Receivables, the proceeds from the sale of all or any portion of
the Assets or the Stock, and any and all dividends or other distributions from
the Stock, constitute and will constitute Fleet's "cash collateral" as that
term is defined in Section 363(a) of the Bankruptcy Code.
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S. In conjunction with the Lockbox Agreement, payments of
Receivables are required to be deposited into a blocked account at Hibernia
National Bank in New Orleans, Louisiana to be disbursed to Fleet in accordance
with the Lockbox Agreement;
T. Certain other payments of Receivables or dispositions of other
Assets prior to the Petition Date were being paid directly to, or collected
directly by, the Debtor or by Search or Search Acceptance for application to
the Fleet Facility as required by a Temporary Injunction Order (the "TIO")
issued by consent of the parties on February 24, 1998, by the District Court of
Dallas County, Texas, 193rd Judicial District in Fleet Bank, N.A. v. MS
Financial, Inc. and Search Financial Services Inc. (Case No. DV98-1006) (the
"Texas Action");
U. The Debtor wishes to use Fleet's cash collateral, and Fleet
has consented to the limited use of its cash collateral, in accordance with the
terms and conditions hereof.
SEGREGATION, ACCOUNTING AND USE OF CASH COLLATERAL
1. Subject to the terms and conditions hereof, the Debtor may use
Fleet's cash collateral as follows: for a period (the "Specified Period") of
two weeks commencing March 9 and ending March 21, 1998 the Debtor may use
Twenty Thousand ($20,000.00) Dollars per business day (including Saturdays and
excluding Sundays) to pay the costs associated with the management, sale,
collection and/or liquidation of the Collateral, which costs shall materially
comply with those expenditures identified in the budget attached hereto in the
form of Exhibit "B". The Specified Period may be extended for successive daily
or weekly periods by the filing in this proceeding of a joint written notice
executed by Fleet and the Debtor without need of further action by this Court,
provided, however, that authorization to use cash collateral pursuant to such a
notice shall be limited, absent further Court order, to no more than the daily
amount and for the budgetary purposes set forth or referenced in this
paragraph.
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2. As adequate protection to Fleet and to safeguard Fleet against
any diminution in the value of its Collateral arising from the Debtor's use of
cash collateral, pursuant to Sections 361 and 363(e) of the Bankruptcy Code,
Fleet is hereby granted a continuing post-petition replacement lien and
security interest in all property, assets and interests in property of the
Debtor, of every name, nature and description, and the proceeds thereof, not
subject to the application, if at all, of Section 551 of the Bankruptcy Code,
whether existing on the Petition Date or acquired or arising thereafter which
liens shall be junior to all valid, enforceable and perfected liens in
existence as of the Petition Date, all of which shall be equivalent to a lien
granted under Section 364(c)(2) and (3) of the Bankruptcy Code. The validity,
enforceability, and perfection of Fleet's post-petition lien shall not be
subject to the "equities of the case" exception to 552(b) of the Bankruptcy
Code and shall not depend upon filing, recordation, or any other act required
under applicable state or federal law, rule or regulation. If Fleet hereafter
requests the Debtor to execute and deliver to Fleet financing statements,
mortgages, deeds of trust, applications for lien notations, or other
instruments or documents considered by Fleet to be reasonably necessary or
desirable to further evidence the perfection of liens and security interests
herein granted, the Debtor is authorized and directed to execute and deliver
such instruments and documents to Fleet, and Fleet is granted relief from the
automatic stay of Section 362 of the Bankruptcy Code in order to perfect such
liens and security interests.
3. As further adequate protection to Fleet for the Debtor's use
of cash collateral, Fleet is hereby granted an administrative priority claim
pursuant to Section 507(b) of the Bankruptcy Code, superior to any and all
other costs and expenses of the kind specified in, and pursuant to, Sections
507(a)(1), 506(c), 507(b) and 726(b) of the Bankruptcy Code, to the extent the
liens granted pursuant to this Order prove inadequate to protect Fleet from any
post-petition diminution in the
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value of its interest in the pre-petition Collateral, and the proceeds thereof
arising from the Debtor's use of cash collateral.
4. The terms and provisions of this Order with respect to the
liens and security interests granted hereby, and the super-priority
administrative expense claim, shall continue for the duration of this Chapter
11 case and for the duration of this case under any other chapter of the
Bankruptcy Code to which it may be converted, and such liens and security
interests shall maintain the priorities established hereby until satisfied and
discharged, notwithstanding the appointment of a trustee or examiner in this or
any converted case or the dismissal of this or any converted case, and
notwithstanding the expiration or termination of this Order, as it may be
amended or extended from time to time.
5. In the event any or all of the provisions of this Order are
hereafter modified, amended, or vacated by a subsequent order of this Court or
any other court, such modification, amendment, or vacation shall not affect the
validity of any right or obligation arising under an order approving the Order
prior to the effective date of such modification, amendment or vacation, which
shall be governed in all respects by the provisions of this Order.
6. Nothing contained herein shall be deemed a finding by the
Court, or an acknowledgment by Fleet, that the liens and priority claims
granted Fleet by this Order adequately protect Fleet for the Debtor's use of
cash collateral.
7. As long as this Order is in effect, the Debtor, and where
necessary to comply herewith, Search and Search Acceptance shall:
a. insure the Assets in amounts and for the risks
established as the practice of the parties under the Fleet Facility;
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b. apply Fleet's cash collateral and other sources of
cash available to them to the expenses of operation of their
businesses substantially consistent with any budgets incorporated in
this or any successive order and in particular, as a first priority,
to the payment as and when due of payroll and payroll taxes concerning
all employees who service the Receivables;
c. Except as expressly permitted in Paragraph 1 hereof
and other than in respect to remittances made by obligors directly to
the Hibernia lockbox maintained at Hibernia National Bank for Fleet's
benefit, remit and cause any of their subsidiaries to remit as and
when received on a daily basis to the Hibernia lockbox all collections
and other proceeds from Receivables, or other Assets that are received
by or for the benefit of MSFI, to Fleet, in the identical form
received, whether cash, original checks, money order, Western Union,
ACE Cash Express or otherwise;
d. provide Fleet a daily report concerning any and all
collections of the Receivables, proceeds received arising from the
foreclosure sale of repossessed or returned motor vehicles, and
proceeds received from the disposition of any Assets;
e. In respect to MS Auto, and MSFI's control thereof as
sole stockholder, to the extent that Search, Search Acceptance or
subsidiaries of Search perform the role of servicing the MS Auto
Receivables, take whatever actions are required:
(i) to provide Fleet with a current list, in
detail reasonably requested by Fleet, of MS Auto's assets and
liabilities;
(ii) to provide Fleet with such financial
information concerning MS Auto as is of the type, and with the
same timeliness, as is required to be provided hereunder by
MSFI to Fleet;
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(iii) to prohibit the purchase by MS Auto of any
motor vehicle or consumer loans with the proceeds of
collections of the MS Auto Receivables; and
(iv) to prohibit MS Auto from using any of the
proceeds of collections of the MS Auto Receivables, proceeds
received arising from the foreclosure sale of repossessed or
returned motor vehicles and proceeds received from the
disposition of any other assets owned by MS Auto, for any
purpose other than the payment in the ordinary course of its
own debts to lenders or to those rendering goods and services
to it; and
f. In respect to the collection of Receivables, the
Debtor and, where necessary to comply herewith, Search and Search
Acceptance shall:
(i) promptly deliver to Fleet or its servicer,
currently CSC Logic/MSA d/b/a Loan Servicing Enterprise (the
"Servicer") true and correct copies of (a) the electronic file
for MSFI's loan portfolio, (b) thorough and complete monthly
reports of serving records for the loan portfolio for the past
six months, and (c) such information regarding the system
vendors, at risk account, bank reconciliations, system codes
and specifications and all other information regarding the
loan portfolio files and collection and reconciliation systems
as the Servicer shall reasonably require to perform servicing
of the loan portfolio;
(ii) without limiting the generality of
subparagraph (i) above, provide to the Servicer, as soon as
possible after the 15th day and the last day of each calendar
month (each such day a "Reference Date") copies of the items
described in clauses (a) and (c) of subparagraph (i), as well
as thorough and complete
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servicing records for the loan portfolio, in each case updated
through the applicable Reference Date; and
(iii) at any time requested by the Servicer, assist
the Servicer in all reasonable ways requested by the Servicer
to perform reconciliation of collections, efficiently and
accurately complete a data mapping of data from the collection
systems of the Debtor and Search and any of its subsidiaries
handling the Receivables to the Servicer's collection systems,
efficiently and accurately complete a conversion program to
effect a conversion of the collection systems of the Debtor
and Search and any of its subsidiaries handling the
Receivables to the Servicer's collection systems and to
validate and perfect the accuracy and completeness of the data
mapping and the conversion program.
8. During the Specified Period the Debtor shall permit Fleet, its
agents and professionals, upon a reasonable basis:
a. to review the pre-petition, as well as the
post-petition, books and records of the Debtor, or the books and
records of Search, Search Acceptance or any of their subsidiaries
maintained in connection with the servicing of the Collateral;
b. to review the books and records of MS Auto, or the
books and records of Search, Search Acceptance or any of their
subsidiaries maintained in connection with the servicing of the MS
Auto Receivables;
c. to have access to any of the Assets for the purpose
of appraising its or their value;
d. to use the services of Zolfo-Cooper, LLC, or other
financial consultants of Fleet's selection, to have access to the
business premises of the Debtor, MS Auto, Search,
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and Search Acceptance, the books and records of the Debtor and MS
Auto, and, where relevant to the servicing of the assets of the Debtor
or MS Auto, Search, Search Acceptance and any of their subsidiaries
and personnel of the Debtor, MS Auto, Search and Search Acceptance and
any of their subsidiaries who are knowledgeable concerning the same;
and
e. to use the services of a servicing company, including
without limitation, the Servicer to have access to the business
premises of the Debtor, Search and Search Acceptance (or any of their
subsidiaries), the Debtor's, Search's and Search Acceptance's (or any
of their subsidiary's) facilities for the management and liquidation
of the Receivables and the MS Auto Receivables and any repossessed or
returned motor vehicles or the like, and the personnel of the Debtor,
Search and Search Acceptance (or any of their subsidiaries), including
MIS specialists on site, who are knowledgeable concerning the same.
9. Except as shall have been modified or provided for herein,
Fleet shall be entitled during the Specified Period to receive and apply to the
Fleet Facility, including the Notes, all payments or proceeds made or
delivered and to be made or delivered to it pursuant to the Lockbox Agreement
and/or by or on behalf of the Debtor from and after the Petition Date, which
payments or proceeds may be applied to interest, principal, late charges, other
fees and payments due Fleet under the Fleet Facility, or the obligation of the
Debtor to reimburse attorneys' fees, costs and/or expenses at Fleet's
discretion, subject to Fleet's obligation to account for all such applications
at the written request of the Debtor and further subject to the right of the
Debtor or any party in interest to contest the application of such payments or
proceeds at a later point in the
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proceeding. No attorneys' fees may be paid pursuant to this paragraph absent
approval by the Court.
10. To the extent that any cash collateral existed as of, or may
accumulate after the Petition Date prior to the entry of this Order, subject to
the provisions of this Order the same shall immediately be turned over to
Fleet, provided, however, that it is the intention of the parties that the
Debtor shall have had and has the right to use such cash collateral as may have
existed as of the close of business on March 6, 1998 but not otherwise, as
authorized by the TIO entered in the Texas Action. Such turnover of payments
or proceeds shall be made as provided, where relevant, in paragraph 7(c) above.
11. Except as expressly provided for herein or by application of
the Bankruptcy Code, nothing contained in this Order shall:
a. constitute a waiver by Fleet of any rights which it
may have under the Bankruptcy Code, or under and with respect to the
Fleet Facility, including all loan documents referenced above, and the
Collateral, including, without limitation, (i) the right to exercise
with respect thereto all of the rights of a secured party under the
Security Agreement and Pledge, the Uniform Commercial Code and other
applicable law, or (ii) the right to seek relief from the automatic
stay, additional adequate protection or to challenge any impairment of
its respective claim or the Collateral, and incident thereto to
introduce such evidence of its claim and Collateral value as may be
appropriate in the circumstances;
b. constitute a waiver by the Debtor of any rights it
may have (i) to oppose a request by Fleet for relief from stay, or
(ii) to seek to use, sell or lease pursuant to the
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provisions of Section 363 of the Bankruptcy Code, the Collateral, or
proceeds thereof, and any other property in which Fleet is granted a
security interest hereunder;
c. affect in any way any rights and obligations among
the constituent banks for which Fleet acts as agent and for itself,
provided, however, that such banks shall be entitled to all of the
benefits of this Order;
d. constitute consent by Fleet to these Chapter 11 cases
or to the continuation thereof or constitute a waiver by Fleet of any
rights in respect thereto which it may have;
e. constitute consent by Fleet to the use of its cash
collateral other than as provided herein; and
f. obligate Fleet to permit the use of its cash
collateral other than as provided herein or to advance funds to the
Debtor for any reason, including, without limitation, for the payment
of expenses of administration under the Bankruptcy Code.
12. In consideration of the authorization granted by this order
for the use by the Debtor of cash collateral, and in view of the effect of such
use, no expense of administration of the Debtor's cases shall be charged
against any of Fleet's Collateral, or charged to Fleet, pursuant to Section
506(c) of the Bankruptcy Code with respect to the Specified Period (as it may
be extended by the parties), all of which rights, if any, are hereby waived
forever by the Debtor on behalf of its bankruptcy estate and its creditors and
shareholder. Notwithstanding the foregoing, the lien and the priority granted
to Fleet herein, the liens possessed by Fleet as of the Petition Date, and the
cash collateral generated therefrom, up to an aggregate amount equal to
$4,166.67 per day for each day of the Specified Period (as it may be extended
by the parties) shall be reserved for payment of the reasonable fees, costs and
expenses incurred during the Specified Period (as it may be extended by the
parties) of any professionals retained by the Debtor, and
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upon entry of an order approving payment of any of the Debtor's professionals'
fees, costs and expenses, Fleet is authorized to pay the same from Fleet's cash
collateral directly to such professionals; provided, however, that no cash
collateral shall be used to pay any fees, costs and expenses incurred with
investigating or asserting any claims or causes of action against Fleet or any
other bank for which Fleet acts as agent under the Fleet Facility, or Fleet's
liens or claims, or in connection with any motion filed by the Debtor seeking
entry of an order authorizing the Debtor to utilize cash collateral without
Fleet's consent. The entry of this Order is without prejudice to Fleet's
rights to examine or object to an application seeking an award of fees to any
professional retained by the Debtor.
13. Subject to the provisions of the Bankruptcy Code where not
otherwise expressly provided for herein, (i) the entry of this Order shall not
terminate, modify, waive, or provide a defense to Search on its guaranty, (ii)
the indebtedness under the Fleet Facility, including Search's guaranty, remains
fully enforceable against Search to the extent enforceable against the Debtor,
and (iii) Search and Search Acceptance shall be bound to all of the provisions
hereof as if either were a signatory thereto, to the extent that it has access
to, control over or performs services in respect to the Collateral, as more
particularly set forth in this Order. Nothing herein is intended to, or shall,
constitute relief to Fleet from the automatic stay in Search's proceeding or
have the effect of increasing Fleet's claim in Search's proceeding above that
which existed as of the filing date of that proceeding, except as may otherwise
be permissible under the Bankruptcy Code.
14. This Order and the cash collateral use arrangement approved
herein shall become effective immediately upon execution by both the Court and
by the parties as provided for below. The aforesaid arrangement and this Order
shall terminate as provided herein.
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15. All banks for which Fleet acts as agent under the Fleet
Facility shall be entitled to the benefits granted to Fleet under this Order.
16. Any notice or report required hereunder sent via personal
delivery, overnight delivery, or facsimile transmission shall be deemed given
when received, but if sent via postage prepaid first class United States mail,
it shall be deemed given three (3) business days after mailing. Items shall be
addressed to the parties as set forth below:
If to Fleet: Fleet Bank, N.A.
Mail Stop: CT MO H21B
777 Main Street
Hartford, CT 06115
(Attention: Mr. Edward J. Walsh)
Telephone: (860) 986-3784
Telecopier: (860) 986-2435
with a copy to: Edwin E. Smith, Esq.
(which is not Bingham Dana LLP
notice) 150 Federal Street
Boston, Massachusetts 02110
Telephone: (617) 951-8615
Telecopier: (617) 951-8736
and Neil W. Townsend, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Telephone: (617) 951-8866
Telecopier: (617) 951-8736
If to Debtor: MS Financial, Inc.
Search Financial Services Inc.
Attn: George C. Evans,
Chief Executive Officer
600 North Pearl Street
Suite 2500, L.B. 123
Dallas, TX 75201
Telephone: (214) 965-6000
Telecopier: (214) 965-6098
-15-
<PAGE> 16
with a copy to: Deborah Lynn Schrier-Rape, Esq.
(which is not Andrews & Kurth, L.L.P.
notice) 1717 Main Street, Suite 3700
Dallas, TX 75201
Telephone: (214) 659-4520
Telecopier: (214) 659-4401
and Ellis Regenbogen, Esq.
Search Financial Services Inc.
600 North Pearl Street
Suite 2500, L.B. 128
Dallas, TX 75201
Telephone: (214) 965-6000
Telecopier: (214) 965-6098
and James Donnell, Esq.
Andrews & Kurth, L.L.P.
600 Travis, Suite 4200
Houston, TX 77002
Telephone: (713) 220-4200
Telecopier: (713) 220-4285
H. DeWayne Hale
Hale, Aston, Seckel, Taubenfeld, P.C.
600 North Pearl Street
Dallas, TX 75201
Telephone: (214) 720-2600
Telecopier: (214) 720-2665
SIGNED this 9 day of March, 1998.
/s/ Robert McGuire
----------------------------------------
U.S. BANKRUPTCY JUDGE
-16-
<PAGE> 17
AGREED TO AND ACCEPTED:
<TABLE>
<S> <C>
/s/ James Donnell /s/ Sabin Willett
- ------------------------------------------- ---------------------------------------------------
Deborah Lynn Schrier-Rape, Esq. Guy B. Moss
State Bar No. 00785635 Sabin Willett
James Donnell, Esq. Bingham Dana LLP
State Bar No. 05981300 150 Federal Street
Andrews & Kurth, L.L.P. Boston, Massachusetts 02110
1717 Main Street, Suite 3700 (617) 951-8000
Dallas, Texas 75201
(214) 659-4100 (pro hac vice application pending)
ATTORNEYS FOR MS FINANCIAL, INC. and SEARCH Mark A. Goodman
FINANCIAL SERVICES ACCEPTANCE CORP. State Bar No. 08156920
David, Goodman & Madole
Two Lincoln Centre
5420 LBJ Freeway, Suite 1200
/s/ H. DeWayne Hale Dallas, Texas 75240
- -------------------------------------------
H. DeWayne Hale (972) 991-0889
State Bar No. 08725800
J. Mark Chevallier ATTORNEYS FOR FLEET BANK, N.A.
State Bar No. 04189170
Hale, Aston, Seckel & Taubenfeld, P.C.
600 North Pearl Street
Dallas, TX 75201
(214) 720-2600
ATTORNEYS FOR SEARCH
FINANCIAL SERVICES INC. AND
SEARCH FUNDING CORP.
</TABLE>
-17-
<PAGE> 18
ADDENDUM TO CASH COLLATERAL ORDER
New Paragraph 17
17. Nothing herein shall be construed as having the effect of
making the MS Auto Receivables "property of the estate" or "cash collateral" or
of granting to Fleet any lien, security interest, or other interest in the MS
Auto Receivables (for anything other than the payment of fees permitted
pursuant to existing, prepetition servicing agreements) or from altering in any
way the existing, prepetition procedures with regard to the collection,
remittance and reporting requirements regarding the MS Auto Receivables.
AGREED:
/s/ Stacy Jernigan Haynes and Boone, LLP, Counsel for
- ---------------------------------------- LaSalle National Bank and
Financial Security Assurance, Inc.
/s/ James Donnell Andrews & Kurth, LLP, Counsel for
- ---------------------------------------- MS Financial, Inc. and Search
Financial Services Acceptance Corp.
/s/ Mark Goodman David, Goodman & Madole, Counsel for
- ---------------------------------------- Fleet Bank, N.A.
/s/ H. DeWayne Hale H. DeWayne Hale, Hale, Aston, Seckel
- ---------------------------------------- & Taubenfeld, Counsel for Search
Financial Services Inc. and Search
Funding Corp.
<PAGE> 19
ADDENDUM TO AGREED ORDER
REGARDING LIMITED USE OF CASH COLLATERAL
On July 31, 1997, Hibernia National Bank ("Hibernia"), MS Financial, Inc. ("MS
Financial"), and Fleet Bank, N.A., as agent (the "Agent") entered into that
certain Lockbox and Controlled Account Agreement, a copy of which is attached
hereto (the "Lockbox Agreement").
AGREEMENT:
1. MS Financial and the Agent have agreed to the terms and provision of
that certain Agreed Order Regarding Limited Use of Cash Collateral to which
this Addendum is attached (the "Agreed Order"). Hibernia is not a party to the
Agreed Order except as regards continuation of the Lockbox Agreement provided
herein, and Hibernia reserves all rights and remedies in these proceedings.
2. MS Financial, the Agent and Hibernia wish to continue the Lockbox
Agreement as amended hereby. Defined terms, unless otherwise defined herein,
shall have the same meaning ascribed to them in the Lockbox Agreement.
3. Except to the extent otherwise provided herein, all terms and
provisions of the Lockbox Agreement including, but not limited to, payment of
all fees and charges to Hibernia under the Lockbox Agreement, are incorporated
herein for all purposes, shall continue in full force and effect as a
post-petition contract for the term of the Agreed Order.
4. In the event that the authority to use cash collateral of the Agent
under the Agreed Order shall terminate, the Agent shall immediately notify
Hibernia in writing of such termination. Such notice shall be delivered as
follows:
Hibernia National Bank
313 Carondelet Street
New Orleans, LA 70112
(Attention: Mr. Barry McMahan)
Via Telecopy: (504) 533-5817
Hibernia National Bank
313 Carondelet Street
New Orleans, LA 70112
(Attention: Pat Gaffney, Esq.)
Via Telecopy: (504) 533-5636
Mr. William L. Wallander
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, TX 75270
Via Telecopy (214) 745-5390
-1-
<PAGE> 20
On the date of receipt of such notice, Hibernia will cease to wire funds to the
Agent's Depositary Account and will hold funds deposited into the Depository
Account pending further Order of the Bankruptcy Court or an agreement in
writing by and among MS Financial, the Agent and Hibernia. All fees and
charges under the Lockbox Agreement shall continue notwithstanding the holding
of funds by Hibernia hereunder.
AGREED TO AND ACCEPTED:
/s/ James Donnell for DSR
- ---------------------------------------------
Deborah L. Schrier-Rape
State Bar No. 00785636
Andrews & Kurth L.L.P.
ATTORNEYS FOR SEARCH FINANCIAL
SERVICES ACCEPTANCE CORP. AND MS FINANCIAL, INC.
/s/ H. DeWayne Hale
- ---------------------------------------------
H. DeWayne Hale
State Bar No. 08725800
Hale, Aston, Seckel & Taubenfeld, P.C.
ATTORNEYS FOR SEARCH FUNDING CORP.
AND SEARCH FINANCIAL SERVICES INC.
/s/ Mark Goodman
- ---------------------------------------------
Mark A. Goodman
State Bar No. 08156920
David Goodman & Madole, P.C.
ATTORNEYS FOR FLEET BANK, N.A.
/s/ William Wallander
- ---------------------------------------------
William L. Wallander
State Bar No. 20780750
Winstead Sechrest & Minick P.C.
ATTORNEYS FOR HIBERNIA NATIONAL BANK
/s/ Stacy Jernigan
- ---------------------------------------------
Stacy Jernigan
State Bar No. 1065220
Haynes and Boone, LLP
ATTORNEYS FOR LASALLE NATIONAL BANK AND FINANCIAL SECURITY ASSURANCE, INC.
-2-
<PAGE> 1
EXHIBIT 10.1
AGREEMENT TO TRANSFER COLLATERAL AND RESTRUCTURE LOAN
This AGREEMENT TO TRANSFER COLLATERAL AND RESTRUCTURE LOAN
("Agreement") is made effective as of the 27th day of February, 1998, by and
among Hibernia National Bank, a national banking association ("Lender"), Search
Funding II, Inc., a Texas corporation ("Original Borrower"), Search Financial
Services Inc., a Delaware corporation ("Guarantor"), and each of the following
corporations (collectively, the "Additional Borrowers"):
Search Financial Services Holding Company, a Texas corporation;
Search Financial Services of Florida, Inc., a Texas corporation;
Search Financial Services of Georgia, Inc., a Texas corporation;
Search Financial Services of Louisiana, Inc., a Louisiana corporation;
Search Financial Services of Oklahoma, Inc., a Texas corporation;
Search Financial Services of Puerto Rico, Inc., a Puerto Rico
corporation;
Search Financial Services of Tennessee, Inc., a Texas corporation; and
Search Financial Services of Texas, Inc., a Texas corporation.
Lender, Original Borrower, Guarantor and Additional Borrowers are hereinafter
sometimes referred to collectively as the "Parties" and individually as a
"Party".
R E C I T A L S:
A. Pursuant to that certain Loan Agreement dated September 11,
1996 between Lender and Original Borrower (the "Original Loan Agreement"),
Lender established a $25,000,000 line of credit for Original Borrower secured
by chattel paper and certain other assets owned by Original Borrower. Original
Borrower's obligations under the Original Loan Agreement were guaranteed by
Guarantor.
B. Pursuant to the request of Original Borrower, Guarantor and
the Additional Borrowers, the Original Loan Agreement was replaced by a Loan
Agreement dated October 6, 1997 among Lender, Original Borrower and Additional
Borrowers (the "Loan Agreement") which provided for a $25,000,000 line of
credit in favor of Original Borrower and Additional Borrowers (collectively,
the "Borrowers"). All capitalized terms not otherwise defined herein shall
have the respective meanings ascribed to them in the Loan Agreement.
C. Borrowers' obligations under the Line of Credit are evidenced
by that certain Promissory Note dated October 6, 1997 executed by Borrowers and
payable to the order of Lender in the principal amount of $25,000,000 (the
"Note"). Payment and performance of Borrowers' obligations under the Line of
Credit have been unconditionally guaranteed by Guarantor pursuant to that
certain Commercial Guaranty dated October 6, 1997 executed by Guarantor (the
"Guaranty").
D. Borrowers' obligations under the Line of Credit are secured by
(i) the Non-Prime Auto Paper and other collateral in which Original Borrower
granted Lender a perfected first priority
<PAGE> 2
security interest pursuant to that certain Commercial Security Agreement dated
October 6, 1997 (the "Original Borrower's Security Agreement") and (ii) the
Consumer Paper and other collateral in which Additional Borrowers granted
Lender a perfected first priority security interest pursuant to those certain
Commercial Security Agreements dated October 6, 1997 (collectively the
"Additional Borrowers' Security Agreements"). The Loan Agreement, the Note,
the Guaranty, the Original Borrower's Security Agreement, the Additional
Borrowers' Security Agreements and the other documents executed by any of the
Borrowers or Guarantor pertaining to, evidencing or securing the Line of Credit
are herein collectively referred to as the "Loan Documents".
E. The Line of Credit is in default as a result of Borrowers'
failure to comply with covenants and agreements contained in the Loan
Agreement. In order to avoid Lender's pursuit of remedies for collection of
the Line of Credit and realization on the collateral securing the Line of
Credit, Borrowers and Guarantor have requested that Lender accept, in full
satisfaction of the obligations of Original Borrower under the Loan Documents,
the transfer of substantially all of the Non-Prime Auto Paper and other
collateral covered by the Original Borrower's Security Agreement (the
"Transfer"), which Lender is willing to do, subject to the terms and conditions
hereof, provided that Additional Borrowers and Guarantor reaffirm their
continuing obligations under the Loan Documents after application of the credit
granted by Lender resulting from the Transfer.
F. Additional Borrowers and Guarantor have further requested
Lender to waive the existing defaults under the Loan Documents and restructure
the Line of Credit so that Additional Borrowers may continue to obtain advances
thereunder. Lender is willing to grant such request pursuant to the terms and
conditions hereinafter provided.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1. The Line of Credit. The Parties agree, acknowledge and
stipulate that:
(a) Borrowers have defaulted under the terms and
conditions of the Loan Documents in certain respects;
(b) Lender has complied with all notice requirements and
provisions, if any, with respect to the defaults under the Loan
Documents, and all notice, grace and cure periods have either expired
or have been waived by Borrowers and Guarantor;
(c) Lender is entitled to accelerate all of the
Indebtedness, whether principal, accrued interest and/or other charges
allowed under the Loan Documents and applicable law, and to exercise
its other rights and remedies under the Loan Documents as a result of
such defaults; and
(d) The outstanding principal balance of the Line of
Credit as of the date hereof is $24,661,083.92, for which Borrowers
and Guarantor are jointly and severally liable and on a solidary basis
under the Loan Documents, and all of such Indebtedness is secured by
-2-
<PAGE> 3
the perfected first priority security interest granted to Lender in
the collateral covered by Original Borrower's Security Agreement and
Additional Borrowers' Security Agreements.
2. Transfer of Collateral.
(a) Contemporaneously with the execution and delivery of
this Agreement, Original Borrower shall execute, acknowledge and
deliver to Lender a Bill of Sale and Assignment in substantially the
form attached hereto as Exhibit "A" (the "Bill of Sale"), pursuant to
which Original Borrower sells, transfers, assigns, and conveys to
Lender, subject to the representations, warranties, terms, conditions
and covenants contained herein, the chattel paper covered by Original
Borrower's Security Agreement and constituting the portfolio of
Non-Prime Auto Paper which is listed on Exhibit "B" attached hereto
(the "Auto Paper Portfolio"), and all instruments, documents,
accounts, general intangibles and other collateral (including all
proceeds thereof) relating thereto or arising thereunder
(collectively, the "Purchased Collateral"), but expressly excluding
(i) inventory, (ii) the charged off loans and other assets listed on
Exhibit "C" attached hereto and (iii) all instruments, documents,
accounts, general intangibles and other collateral (including all
proceeds thereof) relating to or arising under such excluded assets
(collectively, the "Excluded Collateral"). To the extent there is on
deposit in the Dominion Account as of the close of business on the
date hereof, any collections with respect to the Auto Paper Portfolio,
such collections will be applied to the payment of accrued interest
and expenses owing to Lender and any excess thereof shall be retained
by Lender as part of the Purchased Collateral.
(b) Subject to the conditions subsequent specified in
Section 4 hereof, and without in any manner releasing Original
Borrower from any liability arising out of or in connection with this
Agreement and the Bill of Sale, Lender hereby conditionally releases
and discharges Original Borrower from all liability under the Note,
the Loan Agreement, Original Borrower's Security Agreement and any
other Loan Documents executed by Original Borrower. Lender further
releases the Excluded Collateral from any security interest in favor
of Lender. So long as none of the conditions subsequent specified in
Section 4 occurs, this Section 2(b) shall serve to release and
discharge Original Borrower from all liability which Original Borrower
may have in connection with the payment of any or all of the debt
evidenced by the Note and performance of the obligations evidenced by
the Loan Documents. If any of the conditions subsequent specified in
Section 4 occurs, the release provisions of this Section 2(b) shall,
at Lender's sole option, be void and of no further force and effect.
(c) Subject to the conditions subsequent specified in
Section 4 hereof, Lender hereby conditionally releases and discharges
Additional Borrowers and Guarantor from a portion of their respective
liability under the Note and the Guaranty in an amount equal to
$15,882,333.40 reflecting the total outstanding principal advances
with respect to the Auto Paper Portfolio, as a result of which partial
release the remaining principal balance of the Line of Credit as of
the date hereof is $8,778,750.52 for which Additional Borrowers and
Guarantor remain jointly and severally liable and on a solidary basis.
-3-
<PAGE> 4
(d) Borrowers and Guarantor acknowledge, agree and
stipulate that the Transfer is an absolute sale of the Purchased
Collateral to Lender and is not intended as a deed of trust, mortgage,
conditional title retention arrangement, trust conveyance or any other
security agreement of any nature whatsoever nor as a foreclosure under
any provision of the Uniform Commercial Code, and that none of
Borrowers nor Guarantor has any further interest or claim, including
specifically, but without implied limitation, any right or equity of
redemption, in and to the Purchased Collateral of any kind whatsoever.
Borrowers and Guarantor further acknowledge, agree and stipulate that
Lender is a good faith purchaser of the Purchased Collateral and that
this Agreement and the consummation of the Transfer are in the best
interests of all Borrowers and Guarantor in their present financial
situation. The business reasons for Original Borrower's sale of the
Purchased Collateral include, but are not limited to, the following
reasons: (i) the Purchased Collateral has been declining in value on
a going concern basis and eroding with the passage of time; (ii)
Original Borrower believes that liquidation of the Purchased
Collateral in a forced sale proceeding would result in a lower value;
(iii) Original Borrower has engaged in reasonable efforts to sell the
Purchased Collateral, and Lender's offer to purchase the Purchased
Collateral as reflected in this Agreement exceeds the best offer (both
as to price and terms) which Original Borrower has received from any
third party; and (iv) the consideration under this Agreement to be
given to Original Borrower for the Purchased Collateral is fair to and
in the best interest of Original Borrower under the circumstances.
(e) Contemporaneously with the execution and delivery of
this Agreement, Original Borrower shall deliver to Lender satisfactory
evidence that all necessary action on the part of Original Borrower,
including without limitation approval of the sole shareholder of
Original Borrower, has been taken with respect to the execution and
delivery of this Agreement, the Bill of Sale and all other documents
and instruments executed by Original Borrower in connection herewith
and the consummation of the transactions contemplated hereby, so that
all of such documents are validly executed and delivered by Original
Borrower and will be binding upon and enforceable against Original
Borrower.
3. Restructure of Loan.
(a) Contemporaneously with the execution and delivery of
this Agreement, Additional Borrowers and Guarantor shall execute and
deliver to Lender a First Amendment to Loan Agreement and Related
Documents in substantially the form attached hereto as Exhibit "D"
(the "First Amendment").
(b) In order to evidence the renewal, modification and
restructuring, but not extinguishment, of the indebtedness evidenced
by the Note, Additional Borrowers will execute and deliver to Lender
an amended and restated promissory note in substantially the form
attached hereto as Exhibit "E" (the "Amended Note"). Lender will
retain the original of the Note but cause it to be marked "Replaced by
Amended and Restated Promissory Note dated February 27, 1998."
(c) Additional Borrowers and Guarantor agree, acknowledge
and stipulate that (i) the Parties have negotiated in good faith and
have agreed in good faith to the terms and
-4-
<PAGE> 5
conditions of the First Amendment; (ii) the additional credit provided
under the First Amendment is necessary to prevent immediate and
irreparable harm to Additional Borrowers' business and to facilitate
the reorganization of Additional Borrowers' and Guarantor's
businesses; (iii) without the additional availability to obtain Loans
as provided in the First Amendment, Additional Borrowers will be
unable to retain or pay employees, to maintain their assets, to
provide financial information to attempt to reorganize their affairs,
or to perform tasks which Additional Borrowers believe are necessary
to maximize the value of their remaining assets; and (iv) as a result
of the partial release granted by Lender pursuant to Section 2(c)
above, Additional Borrowers and Guarantor are jointly and severally
liable and on a solidary basis to Lender in the current principal
amount of $8,778,750.52 plus all accrued interest and any other
charges allowed under the Loan Documents and applicable law, and
Additional Borrowers and Guarantor have no claims or offsets against,
or defenses or counterclaims to, the full and complete payment of any
and all such Indebtedness.
(d) Contemporaneously with the execution and delivery of
this Agreement, Additional Borrowers and Guarantor shall deliver to
Lender satisfactory evidence that all necessary action on the part of
such Parties has been taken with respect to the execution and delivery
of this Agreement, the First Amendment and such other documents
executed in connection herewith and the consummation of the
transactions contemplated hereby so that all of such documents are
validly executed and delivered and will be binding upon and
enforceable against such Parties.
4. Conditions Subsequent. Anything herein to the contrary
notwithstanding, in the event that any statement, warranty or representation
made by any of the Borrowers or Guarantor herein (other than with respect to
title to the Purchased Collateral and the absence of liens) is false,
misleading or erroneous in any material respect or, with respect to title to
the Purchased Collateral and the absence of liens is false, misleading or
erroneous in any respect, in the event any of the Borrowers or Guarantor
prevents, impedes, delays, stays, restrains, enjoins or sets aside, or seeks to
prevent, impede, delay, stay, restrain, enjoin or set aside, the Transfer or
the subsequent sale of the Purchased Collateral (provided that such subsequent
sale is challenged based on the validity of the Transfer), or any part thereof,
to any person or entity, without regard to whether any such attempt may be
successful, or in the event any person or entity, other than any of the
Borrowers or Guarantor, is successful in preventing, impeding, delaying,
staying, restraining, enjoining or setting aside the Transfer or the subsequent
sale of the Purchased Collateral (provided that such subsequent sale is
challenged based on the validity of the Transfer), or any part thereof, to any
person or entity for a period of more than thirty (30) days (which period of
thirty (30) days shall not apply to the setting aside of the Transfer or any
subsequent sale), Lender may, at its sole option, declare its agreements in
Section 2(b) and 2(c) of this Agreement to be null and void, ab initio, and of
no force or effect. In addition, in any such event, and subject to the
liability thereafter of Borrowers and Guarantor:
(a) The liens, rights, titles and interests evidenced by
Original Borrower's Security Agreement and the other Loan Documents
executed by the Original Borrower will be automatically revived and
reinstated with respect to the Purchased Collateral, or any part
-5-
<PAGE> 6
thereof affected, if the same shall have been previously released, in
whole or in part, by Lender;
(b) The Line of Credit shall be deemed in default;
(c) Lender shall have the right, at its option, to
foreclose the lien and security interest, and enforce the rights,
titles and interest of the Lender under, the Loan Documents, including
Original Borrower's Security Agreement, and the right to take such
other action permitted hereby or at law or in equity; and
(d) All costs of Lender incurred in connection with this
Agreement and any other costs of such foreclosure, enforcement or
other action shall be deemed a part of the indebtedness of the Line of
Credit and the full indebtedness of the Line of Credit shall be
payable by Original Borrower as well as by Additional Borrowers and
Guarantor; provided, however, that in calculating the amount of the
full indebtedness then owing to Lender, Lender shall give credit for
any cash proceeds it has received from its disposition or collection
of the Purchased Collateral less any amount Lender has been required
to disgorge or otherwise refund on account of such cash proceeds; and
PROVIDED FURTHER, THAT THE LIMITATION PERIOD FOR ANY SUCH FORECLOSURE,
ENFORCEMENT OR OTHER ACTION FOR PURPOSES OF THE STATUTE OF LIMITATIONS
SHALL NOT COMMENCE TO RUN UNTIL THE DATE UPON WHICH THE LENDER
DECLARES IN WRITING ITS AGREEMENTS IN SECTION 2(b) AND 2(c) OF THIS
AGREEMENT TO BE NULL AND VOID AND OF NO FORCE AND EFFECT.
5. Representations and Warranties of Borrowers and Guarantor.
Borrowers and Guarantor jointly and severally represent and warrant to Lender
as follows:
(a) Each of the Borrowers and Guarantor is a corporation
duly organized, validly existing and in good standing under the laws
of its state of incorporation and has the corporate power and
authority to execute and deliver, and to perform its obligations
under, this Agreement and all instruments and other documents executed
and delivered in connection herewith (collectively, the "Transfer
Documents"). The execution and delivery by Borrowers and Guarantor of
this Agreement and the other Transfer Documents, and consummation by
such Parties of the transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary corporate action on
the part of such Parties. This Agreement and the other Transfer
Documents to which any of the Borrowers or Guarantor is a party
constitute the legal, valid and binding obligations of such Parties,
enforceable against them in accordance with their respective terms.
(b) The execution and delivery by Borrowers and Guarantor
of this Agreement and the other Transfer Documents, and the
consummation of the transactions contemplated hereby and thereby, will
not conflict with or result in a breach of or default under any of the
terms, conditions or provisions of the articles of incorporation or
bylaws of such Parties or any agreement or other instrument to which
any of such Parties is a party or by which any of such Parties or the
Purchased Collateral may be bound.
-6-
<PAGE> 7
(c) The execution and delivery by Borrowers and the
Guarantor of this Agreement and the other Transfer Documents,
compliance by such Parties with the terms hereof and thereof, and the
consummation by such Parties of the transactions contemplated hereby
and thereby, do not require any of such Parties to obtain any consent,
approval or action of, or make any filing with or give any notice to,
any corporation, person or other entity or any governmental or
judicial authority.
(d) None of the transactions contemplated by this
Agreement are restrained or prohibited by any injunction, stay, order
or judgment rendered by any court or other governmental agency, no
proceeding has been instituted or is pending in which any creditor of
any of the Borrowers, Guarantor or any other person or entity seeks to
restrain such transactions, or any part thereof, or otherwise to
attach, sequester or enforce any other remedies against the Purchased
Collateral or any part thereof, nor is there any person or entity,
other than Lender, that has the right to seek any such attachment,
sequestration or other remedies.
(e) None of the Borrowers nor Guarantor have commenced a
voluntary proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law nor has any involuntary proceeding
been commenced against any of the Borrowers or Guarantor seeking
relief under the federal bankruptcy code.
(f) All of the Purchased Collateral, including without
limitation the Auto Paper Portfolio, is owned by Original Borrower
free and clear of any lien, security interest, charge or other
encumbrance, except for Lender's perfected security interest. All of
the Purchased Collateral that comprises Eligible Non-Prime Auto Paper
is enforceable in accordance with its terms, is genuine, and complies
with applicable federal, state and local laws, ordinances, rules and
regulations concerning form, content and manner of preparation and
execution and, to the best of Original Borrower's knowledge, all
persons appearing to be obligated on the Eligible Non-Prime Auto Paper
have authority and capacity to contract and are in fact obligated as
they appear to be on the Eligible Non-Prime Auto Paper, free of any
offset, compensation, deduction or counterclaim. To the extent the
Purchased Collateral consists of accounts, chattel paper, instruments
or general intangibles that are not Eligible Non-Prime Auto Paper,
such ineligible collateral is enforceable in accordance with its
terms, is genuine, and complies in all material respects with
applicable federal, state and local laws, ordinances, rules and
regulations concerning form, content and manner of preparation and
execution and, to the best of Original Borrower's knowledge, all
persons appearing to be obligated on such collateral have authority
and capacity to contract and are in fact obligated as they appear to
be on such collateral, free of any offset, compensation, deduction or
counterclaim. Except as disclosed on Exhibit "F" attached hereto, all
original instruments representing the Auto Paper Portfolio and all
certificates of title relating thereto have been delivered to Lender.
None of the security for the Auto Paper Portfolio has been foreclosed
upon or repossessed. None of the chattel paper listed on Exhibit "B"
is subject to a known claim or legal action asserted or filed by any
obligor thereunder.
-7-
<PAGE> 8
(g) Neither Original Borrower nor Search Financial
Services Acceptance Corp. has any forced placed insurance or vendor
single insurance coverage in effect with respect to the motor vehicles
securing the Purchased Collateral.
All representations and warranties contained in this Section 5 or elsewhere in
this Agreement shall survive the execution and delivery of this Agreement and
the other Transfer Documents and shall inure to the benefit of Lender and its
successors and assigns.
6. Representations and Warranties of Lender. Lender represents
and warrants to Borrowers and Guarantor that Lender is the present legal and
equitable owner and holder of the Loan Documents and is authorized to execute
and deliver this Agreement and the other Transfer Documents to which it is a
party and to perform its obligations thereunder.
7. Covenants of Borrowers and Guarantor.
(a) Except as otherwise provided in subsection (d) below,
Original Borrower shall deliver to Lender, on or within three (3)
Business Days after the date hereof, a loan history for each item of
chattel paper included as part of the Auto Paper Portfolio and all
documents, items and information, including without limitation books
and records, in Original Borrower's possession relating to the
Purchased Collateral. In the event any of the Borrowers or Guarantor
locates any of the missing instruments listed on Exhibit "F", such
instruments will be promptly delivered to Lender.
(b) Borrowers and Guarantor shall promptly forward to
Lender all written notices received by any of them after the date
hereof with respect to the Purchased Collateral. All funds and
documents received after the date hereof by Original Borrower in
connection with the Purchased Collateral shall immediately be turned
over to Lender without recourse or warranty and, pending such payment
or delivery, Original Borrower shall hold the same in trust for
Lender. Lender may endorse any checks payable to the order of
Original Borrower with respect to the Purchased Collateral. All funds
on deposit in the blocked branch accounts representing collections
with respect to the Purchased Collateral shall be promptly wire
transferred to the Dominion Account. Original Borrower acknowledges
and agrees that from and after the date hereof Original Borrower has
no interest in any funds in the Dominion Account or any blocked branch
accounts, all of which blocked branch accounts shall either be
transferred into the name of Lender or terminated.
(c) Upon request by Lender, Original Borrower shall
execute letters prepared by Lender and addressed to account debtors
giving them written notice of the transfer of the Auto Paper Portfolio
to Lender.
(d) To the extent requested by Lender and for such period
of time as may be designated by Lender (but in any event not to exceed
ninety (90) days), Original Borrower shall assist Lender in the
servicing of the Auto Paper Portfolio pursuant to the terms of a
servicing agreement executed contemporaneously herewith.
-8-
<PAGE> 9
8. Power of Attorney. Original Borrower hereby irrevocably
constitutes and appoints Lender and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
revocable power and authority in the name of Original Borrower or in its own
name, to take any and all action and to execute any and all documents or
instruments which Lender at any time and from time to time deems necessary or
desirable to accomplish the purposes of this Agreement and, without limiting
the generality of the foregoing, Original Borrower hereby gives Lender the
power and right on behalf of Original Borrower and in its own name to do any of
the following, without notice to or the consent of Original Borrower:
(a) To demand, sue for, collect or receive in the name of
Original Borrower or in its own name, any money or property at any
time payable or receivable on account of or in exchange for any of the
Purchased Collateral and, in connection therewith, endorse checks,
notes, drafts, acceptances, money orders, documents of title, or any
other instruments for the payment of money under the Purchased
Collateral or any policy of insurance;
(b) To notify post office authorities to change the
address for delivery of mail of Original Borrower to an address
designated by Lender and to receive, open and dispose of mail
addressed to Original Borrower; provided that Lender shall refrain
from so notifying postal authorities for a period not to exceed ninety
(90) days after the date hereof if during such period Original
Borrower opens all of its mail in the presence and with the
participation of a designated representative of Lender and turns over
to Lender all such mail relating to the Purchased Collateral.
(c) To direct account debtors and any other parties
liable for payment under any of the Purchased Collateral to make
payment of any and all monies due and to become due thereunder
directly to Lender or as Lender shall direct;
(d) To receive payment of and receipt for any and all
monies, claims and other amounts due and to become due at any time in
respect of or arising out of any Purchased Collateral;
(e) To sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, certificates of title and applications for certificates of
title, assignments, proxies, stock powers, verifications, and notices
in connection with chattel paper and other documents relating to the
Purchased Collateral;
(f) To commence and prosecute any suit, action or
proceeding at law or in equity in any court of competent jurisdiction
with respect to the Purchased Collateral;
(g) To collect the Purchased Collateral or any part
thereof and to enforce any other right in respect of any Purchased
Collateral;
(h) To defend any suit, action or proceeding brought
against Original Borrower with respect to any Purchased Collateral;
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<PAGE> 10
(i) To settle, compromise or adjust any suit, action or
proceeding described above and, in connection therewith, to give such
discharges or releases as the Lender may deem appropriate; and
(j) To insure, and to make, settle, compromise or adjust
claims under any insurance policy covering, any of the Purchased
Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Lender shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges and options expressly or
implicitly granted to Lender in this Agreement, and shall not be liable for any
failure to do so or any delay in doing so. Lender shall not be liable for any
act or omission for any error of judgment or any mistake of fact or law in its
individual capacity or in its capacity as attorney-in-fact, except acts or
omissions resulting from its willful misconduct.
9. Brokerage Commissions. Each Party represents to the other
Parties that no broker has been involved in this transaction. It is agreed
that if any claim for a brokerage commission, fee or other compensation is ever
made against any Party to this Agreement in connection with this transaction,
such claim shall be handled and paid by the Party whose actions or alleged
commitments form the basis of such claim, and the Party whose actions or
alleged commitments formed the basis of such claim shall indemnify and hold
harmless the other Party against whom the claim is made from and against any
and all such claim or demand with respect to any such brokerage commission, fee
or other compensation asserted by any person, firm or corporation in connection
with this Agreement or the transactions contemplated hereby.
10. Limited Assumption of Seller's Liabilities. Lender is not and
shall not to be construed or deemed to be a successor of Original Borrower, it
being understood and agreed that Lender is acquiring the Purchased Collateral
subject and subordinate only to the terms of this Agreement and the Loan
Documents, and it is further understood and agreed that Lender has not and does
not hereby assume or agree to assume any liability whatsoever of Original
Borrower nor does Lender assume or agree to assume any obligation of Original
Borrower under any contract, lease, agreement, indenture or any other document
to which Original Borrower is a party, by which Original Borrower is or may be
bound or which in any manner affects the Purchased Collateral, or any part
thereof, except as otherwise expressly agreed to by Lender in this Agreement or
the Transfer Documents.
11. No Partnership or Joint Venture. None of the Lender, the
Borrowers nor the Guarantor intends hereby to create a partnership, either
general or limited, or a joint venture, and neither this Agreement nor the
manner in which title to the Purchased Collateral, or any part thereof, is held
or conveyed shall cause Lender, to be partners, either general or limited, or
joint venturers with any of the Borrowers or Guarantor.
12. Survival of Terms. The terms and provisions hereof shall
survive the execution and delivery of this Agreement and the Transfer Documents
and shall remain in full force and effect thereafter unless otherwise specified
herein.
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<PAGE> 11
13. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the Parties and their respective successors and
assigns.
14. Entire Agreement. This Agreement and the Transfer Documents
embody the entire agreement between the Parties relative to the subject matter
hereof, and there are no oral or parol agreements existing between Borrowers,
Guarantor or Lender, or any combination thereof, relative to the subject matter
hereof which are not expressly set forth herein and in the Transfer Documents
and covered hereby and thereby.
15. Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation hereof.
16. Interpretation. Whenever the context hereof shall so require,
the singular shall include the plural, the male gender shall include the female
gender and the neuter, and vice versa.
17. Notices. All notices or other communications required or
permitted to be given pursuant to the Loan Documents or hereto shall be in
writing and shall be deemed served and given at the time of (i) deposit in a
depository receptacle under the care and custody of the United States Postal
Service, properly addressed to the designated address of the addressee as set
forth below, postage prepaid, registered or certified mail with return receipt
requested, (ii) delivery to the designated address of the addressee set forth
below by a third party commercial delivery service or (iii) receipt at the
facsimile receiving facility of the addressee if transmitted by facsimile.
Notice given in any other manner shall be effective only if and when received
by the addressee. For purposes of notices, the addresses and facsimile numbers
of the Parties shall be as follows:
If to Lender: Hibernia National Bank
313 Carondelet, 1th Floor
New Orleans, LA 70130
Attention: Mike Lacy
Facsimile: 504/533-5817
If to Original Borrower: Search Funding II, Inc.
600 North Pearl Street
Suite 2500, L.B. 123
Dallas, Texas 75201-2899
Attention: Robert D. Idzi
Facsimile: 214/965-6098
If to any of the c/o Search Financial Services Holding
Additional Borrowers: Company
600 North Pearl Street
Suite 2500, L.B. 123
Dallas, Texas 75201-2899
Attention: Robert D. Idzi
Facsimile: 214/965-6098
-11-
<PAGE> 12
If to Guarantor: Search Financial Services, Inc.
600 North Pearl Street
Suite 2500, L.B. 123
Dallas, Texas 75201-2899
Attention: Robert D. Idzi
Facsimile: 214/965-6098
Any Party shall have the right to change its address and facsimile numbers for
notice hereunder and under the other Loan Documents to any other location
within the continental United States by notice to the other Parties of such new
address at least thirty (30) days prior to the effective date of such new
address.
18. Expenses. Except as otherwise specifically provided herein,
each Party shall pay its own expenses in connection with this Agreement and the
transactions contemplated hereby.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
together shall constitute one and the same agreement. Any signature page to
any such counterpart may be detached from such counterpart without impairing
the legal effect of the signatures thereon and thereafter attached to another
counterpart identical thereto, except having attached to it such additional
signature pages. It shall not be necessary that the signature of, or on behalf
of, each Party, or that the signature of all Parties required to bind any
Party, appear on each counterpart. It also shall not be necessary in making
proof of this Agreement to produce or account for more than a single
counterpart containing the respective signatures of, or on behalf of, each of
the Parties hereto.
20. Additional Acts. Except as otherwise provided herein, in
addition to the acts and deeds recited herein and contemplated to be performed,
executed and/or delivered by Original Borrower, Additional Borrowers, Guarantor
or Lender, Original Borrower, Additional Borrowers and Guarantor hereby agree
to perform, execute and/or deliver, or cause to be performed, executed and/or
delivered, as of the date hereof, any and all such further acts, deeds and
assurances as Lender or other third party may reasonably require to (a)
evidence and vest in Lender the ownership of and indefeasible title to the
Purchased Collateral, and (b) consummate the transactions contemplated
hereunder.
21. Applicable Law. THIS AGREEMENT AND ALL THE EXHIBITS HERETO
SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
22. Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
23. Time of Essence. Time is of the essence of this Agreement.
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<PAGE> 13
24. Attorneys' Fees. Should any Party employ an attorney or
attorneys to enforce any of the provisions hereof, or to protect its interest
in any manner arising under this Agreement, or to recover damages for the
breach of this Agreement, the non-prevailing Party in any action pursued in
courts of competent jurisdiction (the finality of which is not legally
contested) agrees to pay to the prevailing Party all reasonable costs, damages
and expenses, including specifically, but without implied limitation,
attorneys' fees, expended or incurred by the prevailing Party in connection
therewith.
25. Advice of Counsel. As a part of the consideration for this
Agreement and prior to the execution and delivery hereof, each Party hereto has
fully informed itself of the terms, conditions and effects of this Agreement
and the Transfer, and, to the extent the Parties hereto desire to do so, each
Party has had this Agreement and the documents to be executed and delivered
pursuant to this Agreement reviewed by an attorney or attorneys of its choice
and fully understands the effect hereof, including specifically, but without
implied limitation, all federal income tax consequences of the consummation of
the transactions contemplated hereby. No promise or representation of any kind
has been made by Lender to any of the Borrowers or Guarantor, or anyone acting
on any of their behalf, except as expressly stated in this Agreement, and the
Borrowers and Guarantor jointly and severally agree and represent that they are
executing this Agreement of their own free will in reliance on their own
judgment and the advice of their counsel and without threat or duress.
26. RELEASE. THE BORROWERS AND THE GUARANTOR HEREBY ACKNOWLEDGE
THAT THEY HAVE NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR
DEMAND OF ANY KIND OF NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR
ELIMINATE ALL OR ANY PART OF THEIR RESPECTIVE LIABILITY TO REPAY THE
"INDEBTEDNESS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE
FROM THE LENDER. THE BORROWERS AND THE GUARANTOR HEREBY VOLUNTARILY AND
KNOWINGLY RELEASE AND FOREVER DISCHARGE THE LENDER, ITS PREDECESSORS, OFFICERS,
DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS, SUCCESSORS AND ASSIGNS, FROM ALL
POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES,
AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS
EXECUTED, WHICH THE BORROWERS OR THE GUARANTOR MAY NOW OR HEREAFTER HAVE
AGAINST THE LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
ATTORNEYS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING WITHOUT LIMITATION ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OF RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR RELATED DOCUMENTS, AND NEGOTIATION FOR AND
EXECUTION OF THIS AGREEMENT.
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<PAGE> 14
27. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWERS, THE GUARANTOR AND THE LENDER HEREBY IRREVOCABLY
AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF
OR RELATING TO THE LOAN AGREEMENT OR RELATED DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED THEREBY OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
[Remainder of page intentionally left blank]
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<PAGE> 15
EXECUTED as of the date first above written.
LENDER:
HIBERNIA NATIONAL BANK,
a national banking association
By: /s/ Gerald F. Pavlas
-----------------------------------
Gerald F. Pavlas
Executive Vice President
ORIGINAL BORROWER:
SEARCH FUNDING II, INC.,
a Texas corporation
By: /s/ Robert D. Idzi
-----------------------------------
Robert D. Idzi
President
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<PAGE> 16
ADDITIONAL BORROWERS :
SEARCH FINANCIAL SERVICES HOLDING
COMPANY, a Texas corporation
SEARCH FINANCIAL SERVICES OF FLORIDA,
INC., a Texas corporation
SEARCH FINANCIAL SERVICES OF GEORGIA,
INC., a Texas corporation
SEARCH FINANCIAL SERVICES OF
LOUISIANA, INC., a Louisiana corporation
SEARCH FINANCIAL SERVICES OF
OKLAHOMA, INC., a Texas corporation
SEARCH FINANCIAL SERVICES OF
PUERTO RICO, INC., a Puerto Rico corporation
SEARCH FINANCIAL SERVICES OF
TENNESSEE, INC., a Texas corporation
SEARCH FINANCIAL SERVICES OF TEXAS,
INC., a Texas corporation
By: /s/ Robert D. Idzi
----------------------------------------
Robert D. Idzi
President
GUARANTOR:
SEARCH FINANCIAL SERVICES INC.,
a Delaware corporation
By: /s/ Robert D. Idzi
----------------------------------------
Robert D. Idzi
Senior Executive Vice President and
Chief Financial Officer
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<PAGE> 17
SCHEDULE OF EXHIBITS:
<TABLE>
<S> <C>
Exhibit "A" Bill of Sale
Exhibit "B" Auto Paper Portfolio
Exhibit "C" Excluded Collateral
Exhibit "D" First Amendment
Exhibit "E" Amended Note
Exhibit "F" Undelivered Instruments
</TABLE>
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<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO LOAN AGREEMENT AND RELATED DOCUMENTS
THIS FIRST AMENDMENT TO LOAN AGREEMENT AND RELATED DOCUMENTS (the
"Amendment"), dated as of February 27, 1998, is among Search Funding II, Inc.,
a Texas corporation, Search Financial Services Holding Company, a Texas
corporation, Search Financial Services of Florida, Inc., a Texas corporation,
Search Financial Services of Georgia, Inc., a Texas corporation, Search
Financial Services of Louisiana, Inc., a Louisiana corporation, Search
Financial Services of Oklahoma, Inc., a Texas corporation, Search Financial
Services of Puerto Rico, Inc., a Puerto Rico corporation, Search Financial
Services of Tennessee, Inc., a Texas corporation, and Search Financial Services
of Texas, Inc., a Texas corporation (collectively, the "Existing Borrowers"),
Search Financial Services Inc., a Delaware corporation (the "Guarantor"), and
HIBERNIA NATIONAL BANK (the "Lender").
RECITALS:
A. The Existing Borrowers and the Lender have entered into that
certain Loan Agreement (the "Loan Agreement") dated October 6, 1997.
B. Pursuant to the Loan Agreement, the Guarantor executed that
certain Commercial Guaranty (the "Guaranty") dated October 6, 1997 which
guaranteed to Lender the payment and performance of the Indebtedness (as
defined in the Loan Agreement).
C. Pursuant to the Loan Agreement, the Existing Borrowers each
executed a certain Commercial Security Agreement dated October 6, 1997
(collectively, the "Security Agreement").
D. The Existing Borrowers are in default under the Loan
Agreement. In order to avoid the Lender's pursuit of remedies for collection
of the Line of Credit (as defined in the Loan Agreement) and realization on the
collateral securing the Line of Credit, the Existing Borrowers and the
Guarantor have requested that the Lender accept, in full satisfaction of the
obligations of Search Funding II, Inc. ("Search Funding") under the Loan
Agreement and the Related Documents (as defined in the Loan Agreement), the
transfer of substantially all of the Non-Prime Auto Paper and related
collateral covered by that certain Commercial Security Agreement dated October
6, 1997 executed by Search Funding (the "Transfer Transaction").
E. The Lender has agreed to the Transfer Transaction, provided
that, among other things, the Existing Borrowers and the Guarantor execute and
deliver that certain Agreement to Transfer Collateral and Restructure Loan of
even date herewith (the "Transfer Agreement") and the other documents
contemplated thereby.
F. The Existing Borrowers and the Guarantor have further
requested that the Lender waive the Existing Defaults under the Loan Agreement
and restructure the Line of Credit so that the Existing Borrowers (other than
Search Funding) may continue to obtain advances thereunder, which the Lender is
willing to do, subject to the terms and conditions hereof.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
1.1 Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Loan Agreement, as amended hereby.
ARTICLE II
Amendments
2.1 Amendment to References in the Loan Agreement and Related
Documents. Effective as of the date hereof, all references in the Loan
Agreement and in the Related Documents to (i) "Borrower" and "Borrowers" shall
be deemed to mean individually, collectively and interchangeably 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 (ii) "$25,000,000.00" shall be
deemed to be references to "$14,000,000.00."
2.2 Amendment to the Definition of "Borrowing Base" in the Loan
Agreement. Effective as of the date hereof, the definition of "Borrowing Base"
on page 1 of the Loan Agreement is hereby amended in its entirety to read as
follows:
BORROWING BASE. The words "BORROWING BASE" means the lesser of
$14,000,000.00 or the sum of (a) 65% of the aggregate amount of the
outstanding principal and interest owed under Eligible Consumer Paper,
and (b) the agreed borrowing base value of other Collateral granted to
Lender which is deemed eligible by Lender in its sole and absolute
discretion.
2.3 Deletion of Definition of "Eligible Non-Prime Auto Paper" in
the Loan Agreement. Effective as of the date hereof, the definition of
"Eligible Non-Prime Auto Paper" on pages 2 and 3 of the Loan Agreement and all
other references to "Eligible Non-Prime Auto Paper" in the Loan Agreement are
hereby deleted in their entirety.
2.4 Amendment to Monitoring Fee. Effective as of the date hereof,
the subsection entitled "Monitoring Fee" on page 5 of the Loan Agreement is
hereby amended in its entirety to read as follows:
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<PAGE> 3
Monitoring Fee. A monitoring fee of $1,500 per month 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.
2.5 Amendment to Annual Renewal Fee. Effective as of the date
hereof, the subsection entitled "Annual Renewal Fee" on page 5 of the Loan
Agreement is hereby amended in its entirety to read as follows:
Annual Renewal Fee. An annual renewal fee of 0.25% of the
maximum dollar amount of the Note payable, in full, on each annual
anniversary of this Agreement prior to the Expiration Date.
2.6 Amendment to Unused Facility Fee. Effective as of the date
hereof, the section entitled "Unused Facility Fee" on page 5 of the Loan
Agreement is hereby amended so that the reference to "0.070% per annum" is
changed to "0.250% per annum".
2.7 Amendment to Loan Proceeds. Effective as of the date hereof,
the section entitled "Loan Proceeds" on page 10 of the Loan Agreement is hereby
amended in its entirety to read as follows:
Loan Proceeds. Use all Loan proceeds solely for working
capital needs of Borrowers incurred in the ordinary course of business
of Borrowers. Notwithstanding the foregoing, Borrowers shall be
permitted to apply proceeds of the Loans in the maximum aggregate
amount of $500,000 (or such greater amount that may, in its sole
discretion, be approved by Lender in writing) to the repayment of
their valid and existing debts, including valid and existing
intercompany debts owing to Guarantor or any affiliate of Guarantor
other than Borrowers.
2.8 Amendment to Voluntary Readjustment of Indebtedness.
Effective as of the date hereof, the section entitled "Voluntary Readjustment
of Indebtedness" on page 13 of the Loan Agreement is hereby amended in its
entirety to read as follows:
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; provided however, that the filing of a
voluntary chapter 11 petition by Search Financial Services Inc. under
the Federal Bankruptcy Code ("Guarantor's Chapter 11 Case") shall not
constitute an Event of Default so long as none of the following shall
have occurred: (i) Guarantor's Chapter 11 Case is converted to a case
under chapter 7 of the Federal Bankruptcy Code; (ii) a trustee or
examiner is appointed in Guarantor's Chapter 11 Case; (iii) any
adversary proceeding or contested matter is commenced in Guarantor's
Chapter 11 Case requesting that the liens granted under any of the
Loan Documents be avoided or set aside or that the claims arising
under any of the Loan Documents be avoided or disallowed; (iv) any
adversary proceeding or contested matter is commenced in Guarantor's
Chapter 11 Case seeking to avoid or set aside any of the transactions
consummated under that certain Agreement to
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<PAGE> 4
Transfer Collateral and Restructure Loan dated February 27, 1998 among
the Borrowers, the Lender and certain other parties; or (v) a chapter
11 plan of reorganization is confirmed in Guarantor's Chapter 11 Case
under which the Lender's claim is impaired and such plan has not been
accepted by Lender.
2.9 Addition to Events of Default. Effective as of the date
hereof, the section entitled "Events of Default" commencing on page 13 of the
Loan Agreement is hereby amended by adding the following thereto as an
additional Event of Default:
Servicing Agreement. A Servicer Event of Default shall have
occurred under and as defined in that certain Servicing Agreement
dated February 27, 1998, between Search Funding II, Inc. and Lender.
ARTICLE III
Conditions Precedent
3.1 Conditions. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
(a) The Lender shall have received all of the following,
each dated (unless otherwise indicated) the date of this Amendment, in
form and substance satisfactory to the Lender:
(1) Resolutions. Resolutions of the
Board of Directors of each Existing Borrower and the executive
committee of Guarantor certified by its respective Secretary
or an Assistant Secretary which authorize the execution,
delivery, and performance by such Existing Borrower or
Guarantor of this Amendment and the other Related Documents to
which such Existing Borrower or Guarantor is or is to be a
party hereunder;
(2) Incumbency Certificate. A
certificate of incumbency certified by the Secretary or an
Assistant Secretary of each Existing Borrower and Guarantor
certifying the names of the officers of such Existing Borrower
or Guarantor authorized to sign this Amendment and each of the
other Related Documents to which such Existing Borrower or
Guarantor is or is to be a party hereunder (including the
certificates contemplated herein) together with specimen
signatures of such officers;
(3) Governmental Certificates.
Certificates of the appropriate government officials of the
state of incorporation of each Existing Borrower and Guarantor
as to the existence and good standing of such Existing
Borrower or Guarantor, each dated within ten (10) days prior
to the date of this Amendment;
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<PAGE> 5
(4) Opinion of Counsel. A favorable
opinion of Andrews & Kurth, L.L.P., legal counsel to Existing
Borrowers and Guarantor, as to such matters as the Lender may
reasonably request;
(5) Transaction Documents. The Existing
Borrowers and the Guarantor shall have executed and delivered
the Transfer Agreement and such additional documents and
instruments as are contemplated thereby;
(6) Note. The Existing Borrowers
(except for Search Funding) shall have executed and delivered
an Amended and Restated Promissory Note in the form attached
hereto as Exhibit A; and
(7) Additional Information. Lender
shall have received such additional documents, instruments and
information as Lender may request.
(b) The representations and warranties contained herein
and in all Related Documents, as amended hereby and after giving
effect to the waivers herein, shall be true and correct as of the date
hereof as if made on the date hereof, except as they are affected by
Search Funding's exiting from the Non-Prime Auto Paper origination
business and by the litigation filed by Hall/Phoenix Inwood, Ltd. and
Fleet Bank, N.A. against Guarantor and others;
(c) Except for the Existing Defaults (as defined below)
and the Potential Defaults (as defined below), no Event of Default
shall have occurred and be continuing and no event or condition shall
have occurred that with the giving of notice or lapse of time or both
would be an Event of Default.
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents,
instruments, and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel, Winstead Sechrest &
Minick P.C.
ARTICLE IV
Limited Waiver
4.1 Existing Defaults. The Existing Borrowers hereby acknowledge
that Lender has notified them that the following actions or inactions have
occurred which constitute Events of Defaults (the "Existing Defaults"):
(a) Default under Dominion Account Obligations. The
Existing Borrowers have failed to deposit into a Dominion Account
prior to the date hereof collections in the amount of approximately
$300,000.00, which were made with respect to amounts due under
Non-Prime Auto Paper or Consumer Paper or received from the sale of
any inventory of any Existing Borrower, within one (1) Business Day
after receipt;
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<PAGE> 6
(b) False Statements. The representations and warranties
of the Existing Borrowers made in that certain Borrowing Base
Certificate dated as of January 28, 1998, delivered to the Lender were
incorrect in a material respect due to the miscalculation of the
Borrowing Base; and
(c) Receivership. Proceedings for the appointment of a
receiver of all or any part of the property of the Guarantor have been
commenced by Hall/Phoenix Inwood, Ltd., and such proceedings have not
been dismissed within sixty (60) days after commencement.
4.2 Potential Defaults. The Existing Borrowers hereby acknowledge
that Lender has notified them that the following breaches or violations of the
Loan Agreement have occurred which, if not cured within the applicable grace
period provided in the Loan Agreement, will constitute additional Events of
Default (the "Potential Defaults"):
(a) Failure to Deliver Instruments. The Existing
Borrowers have failed to deliver prior to February 16, 1998 all
original instruments representing all eligible Non-Prime Auto Paper or
Consumer Paper to the Lender or a custodian approved by the Lender,
and such failure has resulted in an overadvance;
(b) Default in Favor of Third Parties. The Guarantor is
in default under a loan, extension of credit, security agreement or
other agreement in favor of Fleet Bank, N.A. and in favor of
Hall/Phoenix Inwood, Ltd., in each case involving in excess of
$1,000,000; and
(c) Failure to Provide Borrowing Base Certificate.
Search Funding has violated or failed to comply fully with the
affirmative covenant to provide a Borrowing Base Certificate to the
Lender by noon on Wednesday, February 11, 1998.
(d) Default Under the Loan Agreement. The Guarantor
has failed to maintain a minimum Adjusted Net Worth of no less than
$20,000,000.00.
4.3 Limited Waiver. By execution of this Amendment, the Lender
hereby waives the Existing Defaults and the Potential Defaults which would
arise under the Loan Agreement as described in Sections 4.1 and 4.2 of this
Amendment. Lender is not presently aware of any other Event of Default or any
other occurrence which, if not cured within the applicable grace period, would
constitute an Event of Default. Except as otherwise specifically provided for
in this Section 4.3 of this Amendment, nothing contained herein shall be
construed as a waiver by the Lender of any covenant or provision of the Loan
Agreement, the Related Documents, or of any other contract or instrument
between the Existing Borrowers and the Lender, and the failure of the Lender at
any time or times hereafter to require strict performance by the Existing
Borrowers of any provision thereof shall not waive, affect or diminish any
right of the Lender to thereafter demand strict compliance therewith.
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<PAGE> 7
ARTICLE V
Ratification by the Guarantor
5.1 Ratifications. The Guarantor hereby ratifies and reaffirms
all of its obligations under the Guaranty and acknowledges that the Guaranty is
not subject to any claims, defenses or offsets. The Guarantor also hereby
agrees that nothing contained in the Loan Agreement and the Related Documents,
as hereby amended, shall adversely affect any right or remedy of the Lender
under the Guaranty and that the execution and delivery of this Amendment and
the Related Documents shall in no way change or modify its obligations under
the Guaranty and shall not constitute a waiver by the Lender of any of its
rights against the Guarantor.
ARTICLE VI
Ratifications, Representations and Warranties
6.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the Related Documents, including without
limitation the Security Agreement, and except as expressly modified and
superseded by this Amendment or the Transfer Agreement, the terms and
provisions of the Loan Agreement and the Related Documents are ratified and
confirmed and shall continue in full force and effect. The Existing Borrowers
and the Lender agree that the Loan Agreement and the Related Documents as
amended hereby shall continue to be legal, valid, binding and enforceable in
accordance with its terms, except for the release of Search Funding from any
obligations thereunder. The Existing Borrowers hereby agree that the security
interests and the liens in the Collateral granted to the Lender by the Existing
Borrowers (other than Search Funding) are not extinguished hereby and the
making, perfection and priority of such security interests shall continue in
full force and effect.
6.2 Representations and Warranties. The Existing Borrowers hereby
represent and warrant to the Lender that (i) the execution, delivery and
performance of this Amendment, the Transfer Agreement and any and all documents
executed and/or delivered in connection herewith or therewith have been
authorized by all requisite corporate action on the part of each Existing
Borrower and will not violate the certificate or articles of incorporation or
bylaws of such Existing Borrower, (ii) the representations and warranties
contained in the Loan Agreement, as amended hereby and after giving effect to
the waivers herein, and any Related Document are true and correct on and as of
the date hereof as though made on and as of the date hereof, except as they are
affected by Search Funding's exiting from the Non-Prime Auto Paper origination
business and by the litigation filed by Hall/Phoenix Inwood, Ltd. and Fleet
Bank, N.A. against Guarantor and others, (iii) except for the Existing Defaults
and the Potential Defaults, no Event of Default has occurred and is continuing
and no event or condition has occurred that with the giving of notice or lapse
of time or both would be an Event of Default, and (iv) the Existing Borrowers
have valid and existing intercompany debts owing to the Guarantor or an
affiliate of the Guarantor (other than Existing Borrowers) in the aggregate
amount of $1,499,718 as of January 31, 1998.
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<PAGE> 8
ARTICLE VII
Miscellaneous
7.1 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any Related Document
including any Related Document furnished in connection with this Amendment
shall survive the execution and delivery of this Amendment and the other
Related Documents, and no investigation by the Lender or any closing shall
affect the representations and warranties or the right of the Lender to rely
upon them.
7.2 Reference to Loan Agreement. Each of the Related Documents,
including the Loan Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Loan Agreement as amended hereby, are
hereby amended so that any reference in such Related Documents to the Loan
Agreement shall mean a reference to the Loan Agreement as amended hereby.
7.3 Expenses of Lender. As provided in the Loan Agreement, the
Existing Borrowers (other than Search Funding) agree to pay on demand all costs
and expenses incurred by the Lender in connection with the preparation,
negotiation, and execution of this Amendment and the other Related Documents
executed pursuant hereto and any and all amendments, modifications, and
supplements thereto, including without limitation the costs and fees of the
Lender's legal counsel, and all costs and expenses incurred by the Lender in
connection with the enforcement or preservation of any rights under the Loan
Agreement, as amended hereby, or any other Related Document, including without
limitation the costs and fees of the Lender's legal counsel.
7.4 Severability. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
7.5 Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be deemed to have been made and to be
performable in the State of Louisiana, and shall be governed by and construed
in accordance with the laws of the State of Louisiana.
7.6 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Lender and the Existing Borrowers and their
respective successors and assigns, except no Existing Borrower may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Lender.
7.7 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
7.8 Effect of Waiver. No consent or waiver, express or implied,
by the Lender to or for any breach of or deviation from any covenant, condition
or duty by any Existing Borrower or
-8-
<PAGE> 9
Guarantor shall be deemed a consent or waiver to or of any other breach of the
same or any other covenant, condition or duty.
7.9 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
7.10 RELEASE. THE EXISTING BORROWERS AND THE GUARANTOR HEREBY
ACKNOWLEDGE THAT THEY HAVE NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT,
CLAIM OR DEMAND OF ANY KIND OF NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE
OR ELIMINATE ALL OR ANY PART OF THEIR RESPECTIVE LIABILITY TO REPAY THE
"INDEBTEDNESS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE
FROM THE LENDER. THE EXISTING BORROWERS AND THE GUARANTOR HEREBY VOLUNTARILY
AND KNOWINGLY RELEASE AND FOREVER DISCHARGE THE LENDER, ITS PREDECESSORS,
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS, SUCCESSORS AND ASSIGNS, FROM
ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS,
EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR
UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT
LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AMENDMENT IS EXECUTED, WHICH THE EXISTING BORROWERS OR THE GUARANTOR MAY NOW OR
HEREAFTER HAVE AGAINST THE LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, ATTORNEYS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE
OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR
REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING WITHOUT
LIMITATION ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OF
RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE
EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR RELATED
DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
7.11 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE EXISTING BORROWERS, THE GUARANTOR AND THE LENDER HEREBY
IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THE LOAN AGREEMENT OR RELATED DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE LENDER IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
7.12 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS
AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS,
-9-
<PAGE> 10
WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, 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
AMONG THE PARTIES HERETO.
[Remainder of Page Intentionally Left Blank]
-10-
<PAGE> 11
Executed as of the date first written above.
EXISTING 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.
By: /s/ Robert D. Idzi
-------------------------------------
Robert D. Idzi
President of each entity
LENDER:
HIBERNIA NATIONAL BANK
By: /s/ Gerald F. Pavlas
-------------------------------------
Gerald F. Pavlas
Executive Vice President
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<PAGE> 12
GUARANTOR:
SEARCH FINANCIAL SERVICES INC.
By: /s/ Robert D. Idzi
------------------------------------
Robert D. Idzi
Senior Executive Vice President and
Chief Financial Officer
-12-
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Principal Date Maturity Loan Call Collateral Account Officer Initials
No.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$14,000,000.00 02-27-1998 09-30-2000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrowers: 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.
Lender: Hibernia National Bank
(TIN: 72-0210640)
313 Carondelet Street
Post Office Box 61540
New Orleans, Louisiana 70161
Principal Amount: $14,000,000.00 Date of Note: February 27, 1998
PROMISE TO PAY. 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 Fourteen Million and No/100 Dollars ($14,000,000.00) 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 2.000 percentage points 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 February 27, 1998, and
continuing until this Note is paid in full.
<PAGE> 2
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,
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 among Borrowers, Search Funding II, Inc., and Lender dated October 6,
1997, as amended by a certain First Amendment to Loan Agreement and Related
Documents of even date herewith and as it may hereafter 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 March 1, 1998, 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 2.000 percentage points over the Index, resulting in an initial
rate of 10.500% per annum.
- 2 -
<PAGE> 3
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 RIGHT 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 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
- 3 -
<PAGE> 4
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 on 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 obligation 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 obligation 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
- 4 -
<PAGE> 5
indirectly securing repayment hereof, shall not have the effect of release 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.
- 5 -
<PAGE> 6
AMENDMENT. This Note is given in amendment, restatement, and modification, but
not in extinguishment or novation of, that certain Promissory Note dated
October 6, 1997 in the original principal amount of $25,000,000.00 executed by
the Borrowers and Search Funding II, Inc. and payable to the order of the
Lender.
BORROWERS:
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
President of each entity
- 6 -
