-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wv3J5xCadJ38ipxJdqiOlPTBCkZvqWlPPjAcc1NSNrqmFfgeWJAkTRuDquRbZjDl jgaC81e4hUhlTazsw7RQGg== 0000318672-96-000006.txt : 19960814 0000318672-96-000006.hdr.sgml : 19960814 ACCESSION NUMBER: 0000318672-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEARCH CAPITAL GROUP INC CENTRAL INDEX KEY: 0000318672 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 411356819 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09539 FILM NUMBER: 96610587 BUSINESS ADDRESS: STREET 1: 700 N PEARL ST STE 400 STREET 2: PLZ OF THE AMERICAS NORTH TOWER CITY: DALLAS STATE: TX ZIP: 75201-7490 BUSINESS PHONE: 2149656000 MAIL ADDRESS: STREET 1: 700 N PEARL STE 400,NORH TOWER STREET 2: PLAZA OF THE AMERICAS CITY: DALLAS STATE: TX ZIP: 75201-7490 FORMER COMPANY: FORMER CONFORMED NAME: SEARCH NATURAL RESOURCES INC DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: Commission File Number: June 30, 1996 0-9539 ---------------------- ----------------------- S E A R C H C A P I T A L G R O U P, I N C . (Exact name of Registrant as specified in its charter) Delaware 41-1356819 -------------------------------- --------------------------------- (State or other jurisdiction of) (IRS Employer Identification No.) incorporation or organization) 700 North Pearl, Suite 400 Dallas, Texas 75201 ------------------- (Address of principal executive offices, including zip code) 214-965-6000 ------------ (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class at August 9, 1996 ---------------------------- ---------------------------- Common Stock, $.01 par value 28,634,870
SEARCH CAPITAL GROUP, INC. FORM 10-Q INDEX PART I FINANCIAL INFORMATION PAGE - ---------- ---- Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION 14 - ---------- Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15
The financial information for the interim periods presented herein is unaudited. In the opinion of management, all adjustments necessary (which are of a normal recurring nature) have been included for a fair presentation of the results of operations. The results of operations for an interim period are not necessarily indicative of the results that may be expected for a full year or any other interim period. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q for quarter ended June 30, 1996 contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which may be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "goal," " continue," or comparable terminology, that involve risks or uncertainties and that are qualified in their entirety by the cautions and risk factors contained in the Company's 10-K Transition Report for the six months ended March 31, 1996 and in other Company documents filed with the Securities and Exchange Commission. PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets June 30, 1996 March 31, 1996 --------------- ------------------------------------- ASSETS Unaudited Historical Pro forma (Note 3) - ------------------------------------------- --------------- ---------------- ------------------- Gross contracts receivable (Note 2) $ 30,344,000 $ 37,086,000 $ 37,086,000 Unearned interest (5,621,000) (6,435,000) (6,435,000) --------------- ---------------- ------------------- Net contracts receivable 24,723,000 30,651,000 30,651,000 Allowance for credit losses (10,506,000) (13,353,000) (13,353,000) Loan origination costs 3,927,000 3,984,000 3,984,000 Amortization of loan origination costs (3,653,000) (3,578,000) (3,578,000) Net contract receivables - after allowance for credit losses & other costs 14,491,000 17,704,000 17,704,000 --------------- ---------------- ------------------- Cash and cash equivalents 20,871,000 17,817,000 21,582,000 Vehicles held for resale 356,000 566,000 566,000 Property and equipment, net 988,000 1,062,000 1,062,000 Other assets, net 210,000 197,000 197,000 --------------- ---------------- ------------------- Total assets $ 36,916,000 $ 37,346,000 $ 41,111,000 =============== ================ =================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------- Lines of credit $ - $ 2,283,000 $ - Accrued settlements 500,000 688,000 688,000 Dividends payable 1,610,000 - - Accounts payable and other liabilities 2,477,000 7,356,000 7,356,000 Accrued interest - 15,000 - --------------- ---------------- ------------------- Total Liabilities 4,587,000 10,342,000 8,044,000 --------------- ---------------- ------------------- Stockholders' Equity - ------------------------------------------- Preferred stock 175,000 154,000 174,000 Common stock 302,000 259,000 300,000 Additional paid-in capital 86,532,000 81,784,000 87,786,000 Accumulated deficit (53,530,000) (54,043,000) (54,043,000) Treasury stock (1,150,000) (1,150,000) (1,150,000) --------------- ---------------- ------------------- Total stockholders' equity 32,329,000 27,004,000 33,067,000 --------------- ---------------- ------------------- Total liabilities and stockholders' equity $ 36,916,000 $ 37,346,000 $ 41,111,000 =============== ================ ===================
See accompanying notes to consolidated financial statements.
Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Three Months Ended June 30, 1996 June 30, 1995 -------------------- -------------------- Interest revenue $ 1,659,000 $ 4,169,000 Interest expense - 2,955,000 -------------------- -------------------- Net interest income 1,659,000 1,214,000 Recovery of (provision for) credit losses 1,382,000 (424,000) -------------------- -------------------- Net interest income after recoveries of (provisions for) credit losses 3,041,000 790,000 -------------------- -------------------- General and administrative expense 2,528,000 3,852,000 -------------------- -------------------- Net income (loss) before dividends 513,000 (3,062,000) Preferred stock dividends (1,404,000) (60,000) Net loss attributable to common stockholders $ (891,000) $ (3,122,000) ==================== ==================== Net loss per share attributable to common stockholders $ (.03) $ (.35) ==================== ==================== Weighted average number of common shares outstanding 26,628,000 8,858,000 ==================== ====================
Condensed Consolidated Statements of Cash Flows (Unaudited) THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 1996 JUNE 30, 1995 --------------- --------------- OPERATING ACTIVITIES: Net income (loss) $ 513,000 ($3,062,000) Adjustments to reconcile net income (loss) to cash used in operations: Provision for (recovery) of credit losses (496,000) 424,000 Amortization of deferred offering costs - 681,000 Amortization of loan origination costs 142,000 216,000 Depreciation 134,000 97,000 Changes in assets and liabilities: Decreases (increases) in other assets 336,000 (440,000) Increases (decreases) in accounts payable (5,149,000) 722,000 Write off of fixed assets - 141,000 Cash used in operations (4,520,000) (1,221,000) INVESTING ACTIVITIES: Purchase of contracts receivable (2,745,000) (6,652,000) Principal payments on contracts receivables 5,249,000 7,677,000 Proceeds from sales of vehicles 1,273,000 2,595,000 Purchase of property and equipment (61,000) (366,000) Decrease in restricted cash - 6,413,000 --------------- --------------- Cash provided by investing activities 3,716,000 9,667,000 --------------- --------------- FINANCING ACTIVITIES: Repayments under line of credit (173,000) (703,000) Notes payable repayments - (1,615,000) Capital lease principal payments (15,000) (14,000) Net proceeds from debt conversion and sale of stock 4,106,000 - Purchase of treasury stock - (1,125,000) Payment of dividends on preferred stock (60,000) (60,000) --------------- --------------- Cash provided by (used in) financing activities 3,858,000 (3,517,000) --------------- --------------- CHANGE IN CASH AND CASH EQUIVALENTS: Change in cash and cash equivalents 3,054,000 4,929,000 Cash and cash equivalents - beginning 17,817,000 1,633,000 --------------- --------------- Cash and cash equivalents - ending $ 20,871,000 $ 6,562,000 =============== =============== Supplemental Information: Cash Paid for Interest $ 16,000 $ 2,461,000 =============== ===============
SEARCH CAPITAL GROUP, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements of Search Capital Group, Inc. ("Search") and together with its subsidiaries ("Company") are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures present fairly the financial position of the Company for the periods presented. The financial statements should be read in conjunction with the audited consolidated financial statements and related notes and schedules included in the Company's Form 10-K Transition Report for the six months ended March 31, 1996. The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior periods balances to conform to current period presentation. 2. CONTRACT RECEIVABLES, ALLOWANCE FOR CREDIT LOSSES AND INTEREST INCOME The Company records contract purchases at cost. An initial reserve is recorded for the difference between the amount financed at the time of acquisition and the acquisition cost. Contractual finance charges are initially recorded to unearned interest and recorded to interest income using the interest method. The Company evaluates the impairment of loans based on contractual delinquency and other factors. Reserves are established for impaired loans to reduce the net receivable to the lower of cost or estimated net realizable value. Interest income is not recognized on loans where the contractual delinquency exceeds sixty days or concerns exist about the collectibility of the account. Reserve requirements in excess of the initial reserve are provided, as needed, through a charge to the provision for credit losses. Recorded reserves in excess of anticipated losses are recorded as recovery of prior credit losses. The Company measures its delinquency on a contractual basis. The following tables set forth certain information related to the delinquency of the Company's contract receivables as of June 30, 1996 and March 31, 1996.
AS OF JUNE 30, 1996 --------------------------------------------------------------- % OF NUMBER OF TOTAL TOTAL CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET DELINQUENCY CONTRACTS CONTRACTS INSTALLMENTS INTEREST RECEIVABLES - ----------------------------------------------------------- --------- ---------- ------------- ---------- ------------- Current to 60 days past due 6,524 96% $ 29,111,000 $5,392,000 $ 23,719,000 61-over days past due 258 4% 1,233,000 229,000 1,004,000 --------- ---------- ------------- ---------- ------------- Total 6,782 100% $ 30,344,000 $5,621,000 24,723,000 ========= ========== ============= ========== Allowance for credit losses (10,506,000) ------------- Receivables, net of allowance for credit losses $ 14,217,000 ============= Allowance for credit losses as a percent of net receivables 42.5% =============
AS OF MARCH 31 , 1996 --------------------------------------------------------------- % OF NUMBER OF TOTAL TOTAL CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET DELINQUENCY CONTRACTS CONTRACTS INSTALLMENTS INTEREST RECEIVABLES - ----------------------------------------------------------- --------- ---------- ------------- ---------- ------------- Current to 60 days past due 7,575 95% $ 34,995,000 $6,055,000 $ 28,940,000 61-over days past due 421 5% 2,091,000 380,000 1,711,000 --------- ---------- ------------- ---------- ------------- Total 7,996 100% $ 37,086,000 $6,435,000 30,651,000 ========= ========== ============= ========== Allowance for credit losses (13,353,000) ------------- Receivables, net of allowance for credit losses $ 17,298,000 ============= Allowance for credit losses as a percent of net receivables 43.6% =============
Excludes 237 and 333 accounts which were reclassified to vehicles held for resale as of June 30, 1996 and March 31, 1996, respectively. Most of the Company's contracts receivable are due from individuals in metropolitan areas of southern and western states. To some extent, realization of the receivables will be dependent on local economic conditions. In the opinion of management, a portion of the contracts receivables will be repaid or extended either before or past the contractual maturity date. Therefore, the tabulations below should not be regarded as a forecast of future cash collections. The following tables set forth certain information related to the contractual maturities of the Company's contract receivables as of June 30, 1996 and March 31, 1996.
AS OF JUNE 30, 1996 ------------------------------------------------- 12 MONTHS ENDING JUNE 30, 1999 AND 1997 1998 BEYOND TOTAL ----------- ---------- ---------- ------------ Future payments receivable $21,334,000 $7,362,000 $1,648,000 $30,344,000 Less unearned interest 4,421,000 1,112,000 88,000 5,621,000 ----------- ---------- ---------- ------------ Net contractual maturities $16,913,000 $6,250,000 $1,560,000 $24,723,000 =========== ========== ========== ============ Unearned as a percent of gross receivables 18.5% ============ Weighted Average APR 23.6% ============ Weighted Average Original Term in Months 33.8 ============ Weighted Average Remaining Term in Months 21.2 ============
AS OF MARCH 31, 1996 -------------------------------------------------- 12 MONTHS ENDING MARCH 31, 1999 AND 1997 1998 BEYOND TOTAL ----------- ----------- ---------- ------------ Future payments receivable $23,445,000 $11,507,000 $2,134,000 $37,086,000 Less unearned interest 4,886,000 1,450,000 99,000 6,435,000 ----------- ----------- ---------- ------------ Net contractual maturities $18,559,000 $10,057,000 $2,035,000 $30,651,000 =========== =========== ========== ============ Unearned as a percent of gross receivables 17.4% ============ Weighted Average APR 23.9% ============ Weighted Average Original Term in Months 32.4 ============ Weighted Average Remaining Term in Months 19.1 ============
The following table shows the changes in the Company's allowance for loan losses for the three months ending June 30, 1996 and June 30, 1995.
THREE MONTHS ENDING THREE MONTHS ENDING JUNE 30, 1996 JUNE 30, 1995 --------------------- --------------------- Balance at beginning of period $ 13,353,000 $ 33,543,000 Allowance recorded on acquisition of loans 307,000 2,624,000 Provision for loan losses - 742,000 Recovery of prior credit losses 886,000 - Reduction in allowance for credit losses (1,382,000) (318,000) Loans charged off against allowance (2,658,000) (10,052,000) --------------------- --------------------- Balance at end of period $ 10,506,000 $ 26,539,000 ===================== =====================
3. TRANSACTIONS WITH HALL AND AFFILIATES On November 30, 1995, Search entered into a Funding Agreement ("Funding Agreement") with Hall Financial Group, Inc. ("HFG"). Pursuant to the Funding Agreement, HFG made loans totaling $2,283,000 ("HFG Notes") to Search. The HFG Notes could, at the election of HFG or its assigns, be converted into a maximum 2,500,000 shares of Search common stock. Effective April 2, 1996, Hall/Phoenix Inwood, Ltd. ("HPIL"), as assignee from HFG of the HFG Notes, fully exercised the rights of the holder of the HFG Notes to convert the Notes into 2,500,000 shares of Search common stock. Because the conversion price specified in the HFG Notes for these shares was less than the full amount due HFG, Search paid to HPIL the remaining portion of the debt evidenced by the HFG Notes in cash. The Funding Agreement also provided to HFG the option to purchase common stock, 9%/7% convertible preferred stock, and warrants. Effective April 2, 1996, HPIL, as assignee of HFG, fully exercised this purchase option by paying $4,346,000 cash to Search for which Search issued 1,638,400 shares of common stock, 2,032,800 shares of 9%/7% preferred stock, and warrants to purchase 676,000 shares of common stock to HPIL. Pursuant to the Funding Agreement, HFG was entitled to elect one director to Search's Board if HFG converted the HFG Notes into common stock and to elect another director if HFG purchased at least $1,000,000 Present Value of securities from Search. As a result of satisfaction of these conditions, two HFG officers were appointed to Search's Board. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company specializes in the purchase and servicing of used motor vehicle receivables. These receivables are secured by medium-priced, used automobiles and light trucks which typically have been purchased by consumers with substandard credit histories at retail prices generally ranging from $5,000 to $15,000. The Company generally purchases these receivables from a network of unaffiliated new and used automobile dealers (the "Dealer Network"). The Company from time to time makes bulk acquisitions of these receivables. The members of the Dealer Network generate the receivables and offer them for sale on a non-exclusive basis to the Company. Members of the Dealer Network forego some future profit on each receivable sold to the Company in exchange for an immediate return of their invested capital. The Company administers its receivables purchasing, servicing and management activities utilizing its proprietary Auto Note Management System software. The Company commenced its used motor vehicle receivables purchasing and servicing business in 1991. The Company is also planning to expand into other areas of consumer finance in the near future. Prior to November 4, 1994, the Company primarily financed the purchase of used motor vehicle receivables through the private and public sale of interest-bearing rates (the "Notes) issued by wholly owned subsidiaries organized specifically for this purpose (the "Fund Subsidiaries") and through reinvestment of operating cash flow. Until March 1996, the purchasing of receivables for the Fund Subsidiaries was governed by trust indentures (the "Trust Indentures") which restricted management's ability to alter its receivables purchasing criteria. In March 1996, following confirmation of the Fund Subsidiaries' plan of reorganization, under bankruptcy proceedings the Notes and the indebtedness represented by the Notes, together with their related Trust Indentures, were canceled. At that time, the Company implemented its new purchasing program (the "Preferred Program"). The Preferred Program continues to focus on the purchasing of used motor vehicle receivables whose obligors have non-prime credit histories, but places more emphasis on job, income and residence stability and re-established positive credit of the obligor than the Company's earlier programs. The Company anticipates lower repossession rates and higher repossession sale proceeds as a result of the Preferred Program. The terms of loans under the Preferred Program generally range from 30 months to 60 months. RESULTS OF OPERATIONS Comparison of Three-Month Period Ended June 30, 1996 and 1995 The Company purchased 288 contracts during the three months ended June 30, 1996 compared to 1,491 during the same three months ended June 30, 1995. The cost of contracts purchases was $2,745,000 ($9,531 per contract) compared to $6,652,000 ($4,461 per contract) for the three-month periods in 1996 and 1995, respectively. The increase in cost is due to a higher purchase price per contract under the Preferred Program. The Company expects to continue to see an increase in its per contract cost under its Preferred Program when compared to purchases under its old program. The Company is also planning to expand into other areas of consumer finance. Interest revenue decreased from $4,169,000 for the three months ended June 30, 1995 to $1,659,000 for the three months ended June 30, 1996. The decrease of $2,510,000 or 60% is a result of lower average interest earning net receivables for the three month period ended June 30, 1996 of $25,073,000 compared to $52,126,000 average interest earning net receivables for the period ended June 30, 1995. Interest expense decreased from $2,955,000 to zero for the three months ended June 30, 1996 compared to the same three-month period ended June 30, 1995. The decrease in interest expense is a result of confirmation and effectiveness of the Fund Subsidiaries' plan of reorganization during the first calendar quarter of 1996. Additionally, as a result of the plan's effectiveness, the Company paid the balance owing on its outstanding lines of credit. The provision for credit losses decreased from a loss of $424,000 for the three months ended June 30, 1996 to a recovery of $1,382,000 for the three months ended June 30, 1996. The decrease in loss provision is due to sufficient provisions for losses being made in prior periods to cover current period losses and collections from previously charged-off accounts. The Company's remote collections facilities, which were opened during the second calendar quarter of 1995, have been successful in contacting and collecting some of the chronically delinquent and charged-off accounts and locating previously identified skips. In the future, management anticipates a lower amount of recovery of prior credit losses as these collections decrease. During the three months ended June 30, 1996, the Company received a one-time settlement of $115,000 from a car dealer for deficiencies on sales of repossessed cars purchased from that dealer. Additionally, during the three months ended June 30, 1996, the Company charged off, after sale of repossessed vehicles or upon determination that the account was not collectible, 962 accounts compared to 1,520 during the three months ended June 30, 1995. General and administrative expenses decreased from $3,852,000 to $2,528,000 for the three months ended June 30, 1995, compared to the same three-month period in June 30, 1996. The decrease in general and administrative expenses is primarily related to reduced expenses associated with processing repossessions, personnel cost, and professional fees. The Company closed all three of its retail lots, which were used to process repossessions, by December 31, 1995. The three-month period ended June 30, 1995 contains general and administrative expenses, related to these retail lots whereas the three months ended June 30, 1996 contain none of the same expenses. The Company's employee count averaged 122 persons for the three months ended June 30, 1995, compared to 100 persons for the three months ended June 30, 1996. Preferred stock dividends increased from $60,000 for the three months ended June 30, 1995 to $1,404,000 for the three months ended June 30, 1996. This increase in preferred stock dividend is related to the issuance of 17,064,000 shares of the Company's 9%/7% Convertible Preferred Stock upon confirmation of the Fund Subsidiaries' plan of reorganization. The Company had outstanding 400,000 shares of its 12% Convertible Preferred Stock outstanding and no 9%/7% Convertible Preferred Stock during the three months ended June 30, 1995, compared to 400,000 and 17,064,000 shares of 12% Convertible Preferred Stock and 9%/7% Convertible Preferred Stock, respectively, outstanding during the three months ended June 30, 1996. Net loss per share decreased from $(.35) per share for the three months ended June 1995 to $(.03) per share for the three months ended June 30, 1996. The decrease is due to lower net loss per share attributable to common stockholders of $2,231,000 and an increased number of weighted average shares outstanding from 8,858,000 to 26,628,000, for the three months ending June 30, 1995 and 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES General The Company's business will have an ongoing requirement to raise substantial amounts of cash to support its activities. Currently, the principal cash requirements include amounts to purchase receivables, cover operating expenses, and to pay preferred stock dividends. The Company has a significant amount of cash on hand as of June 30, 1996, which it considers adequate to meet its reasonably anticipated needs. The Company intends to invest a portion of this cash into receivables. In the future, additional liquidity will be necessary to support growth of the Company's loan portfolio and operations. Because the used motor vehicle and consumer finance industry require the purchase and carrying of receivables, a relatively high ratio of borrowings to net worth is customary and will be an important element in the Company's operations. The Company intends to leverage its net worth and any subordinated debt in the future to enhance its liquidity. Additionally, the Company will endeavor to maximize its liquidity by diversifying its sources of funds which will include (a) cash from operations, (b) the securitization of receivables, (c) lines of credit available from commercial banks, and (d) a subordinated debt-offering. The Company has obtained a commitment for a line of credit to purchase receivables which would then be assigned to special purpose entities for future securitization. The Company has also received a commitment for a line of credit to purchase receivables which would remain on its balance sheet. As of August 8, 1996, these commitments are subject to completion of definitive documentation. The Company is planning to issue up to $25,000,000 in senior subordinated notes with warrants to purchase common stock. These financings would be utilized for the purchase of receivables and operations. The Company believes the financings as contemplated would be adequate to fund anticipated operations. OPERATING ACTIVITIES Principal Sources and Uses of Cash in Operating Activities The principal source of cash from operating activities is provided by net interest income. The principal uses of cash in operations are required for general and administrative expenses, other non-recurring types of expenses and payments relating to previously accrued expenses. Comparison of Operating Cash Flows for the Three Months Ended June 30, 1996 to the Three Months Ended June 30, 1995 During the three months ended June 30, 1996, the Company utilized $4,520,000 of cash in its operations compared to $1,221,000 of cash being utilized in operations in the three months ended June 30, 1995. The increase of $3,299,000 is primarily a result of reduction in expense accruals of $5,150,000 during the three months ended June 30, 1996 compared to an increase in expense accruals of $708,000 in the same period ended June 30, 1995. The change in expense accrual of $5,858,000 was offset by an increase in net interest income of $445,000 and reduced general and administrative expenses of $1,324,000 during the three months ended June 30, 1996 compared to June 30, 1995, with the non-cash components of interest income and interest expenses accounted for to $1,761,000 during the three months ended June 30, 1996, compared to $142,000 during the three months ended June 30, 1996. The Company anticipates having negative operating cash flows in the foreseeable future as it continues to expand its Dealer Network, expand into consumer finance, and grow its receivable base. INVESTING ACTIVITIES Principal Sources and Uses of Cash Provided by Investing Activities The principal sources of cash from investing activities include cash from principal payments on receivables and proceeds from the sale of repossessed vehicles. The principal uses of cash in investing activities include cash used for purchasing receivables and property and equipment. Comparison of Investing Cash Flows for the Three Months Ended March 31, 1996 to the Three Months Ended March 31, 1995. Cash provided by investing activities decreased $5,951,000 or 62% from $9,667,000 for the three months ended June 30, 1995 to $3,716,000 for the three months ended June 30, 1996. The decrease is primarily due to a decrease of $2,428,000 in principal payments received and a decrease of $6,413,000 in unrestricted cash partially offset by a decrease of $3,907,000 in new contract purchases and a decrease in repo proceeds of $1,322,000. Principal payments and repossession proceeds on receivables were $10,272,000 compared to $6,522,000 for the three months ended June 30, 1995 and 1996, respectively. Purchases of property and equipment decreased from $366,000 to $61,000 for the three months ended June 30, 1995 and 1996, respectively. The Company anticipates encountering negative cash flows from investing activities in the foreseeable future as is continues to expand its non-prime automobile receivable base by expanding into more states and greater market penetration in existing states and expands into consumer finance. It is anticipated that the Company will begin consumer finance operations during its third fiscal quarter of 1996. FINANCING ACTIVITIES Principal Sources and Uses of Cash Provided by Financing Activities The principal sources of cash from financing activities are from borrowings under line of credit agreements, debt offerings proceeds, and sales of common and preferred stock. The principal uses of cash in financing activities include cash for the repayment of amounts borrowed under lines of credit, repayment of debt offerings, and payment of dividends on preferred stock. During the three months ended June 30, 1996, the Company's financing activities provided $3,858,000 of cash compared to utilizing cash of $3,517,000 during the same three-month period ended June 30, 1995. The change of $7,375,000 was caused primarily by proceeds from sale of stock during the three months ended June 30, 1996 and a lack of a purchase of treasury stock such as occurred in the three months ended June 30, 1995. The Company, on July 17, 1996, signed an Asset Purchase Agreement with U.S. Lending Corporation in Florida to acquire its assets and assume certain liabilities. The Company will give, in exchange for the assets, a combination of common stock, 9%/7% preferred stock, and, at U.S. Lending's option, warrants to purchase common stock. It is anticipated that this transaction will be accounted for under the purchase method of accounting. The Company also has completed a transaction with Dealers Alliance Credit Corporation in Atlanta, Georgia to acquire its assets and assume liabilities. The transaction requires the Company to assume approximately $17,500,000 in bank debt under a newly restructured line of credit and acquire assets of approximately $23,000,000. The Company gave, in exchange for the net assets, a combination of common stock, 9%/7% preferred stock, and warrants to purchase common stock. This transaction will be accounted for under the purchase method of accounting. The Company's annual dividend requirements on the outstanding shares of its 12% Preferred Stock and 9%/7% Preferred Convertible Stock, as of June 30, 1996, were $240,000 and $5,350,000, respectively. The annual dividend requirement on the Company's 9%/7% Convertible Preferred Stock will remain at the 9% level, or $5,350,000, until March 31, 1999 and then decrease to the 7% level, or $4,161,000, until March 2003. Any conversion to Common Stock would reduce these dividend requirements. Additionally, as a result of the acquisitions noted above, the Company's annual divided requirement for its 9%/7% Preferred Stock will increase to a maximum of $6,864,000 until March 31, 1999 and then decrease to $5,339,000 until March 2003. Any conversion of the 9%/7% Preferred Stock to common stock would reduce these dividend requirements. The Company anticipates an increase in cash flows from financing activities due to its anticipated subordinated debt offering, completion and utilization of warehouse lines, and other debt and stock offerings. The Company believes its contemplated debt offering and lines of credit will be sufficient to finance its current operating and investing needs necessary for the growth of its receivables portfolio and expansion into consumer finance for the foreseeable future. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 7, 1994, a class action civil lawsuit was filed against Search, certain of its officers and directors, one of its former accounting firms and the lead underwriter and one of its principals involved in the issuance of Search's common stock. This action was filed in the United States District Court for the Northern District of Texas, Dallas Division, and was styled Ellen O'Shea, et al v. Search Capital Group, Inc., et al, Civil Action No. 3:94-CV-1428-J. On July 11, 1994, and on July 13, 1994, similar actions in John R. Boyd, Jr., et al. v. Search Capital Group, Inc., et al., Civil Action No. 3:94-CV-1452-J, and Gary Odom v. Search Capital Group, Inc., et al., Civil Action No. 3:94-CV-1494-J, were also filed. The above cases were consolidated in September 1994 under Civil Action No. 3:94-CV-1428-J. On April 26, 1996, the court entered a Final Judgment and Order of Dismissal approving a settlement (the "Settlement") entered into between Search and counsel for the plaintiffs. This Settlement was initially filed with the court on August 4, 1995, and an amended version of the Settlement was filed on November 13, 1995. The Settlement provided for a cash payment by Search of $287,000 and the issuance by Search of its common stock with a value of $2,613,000. As a result of the settlement, Search issued 1,848,000 shares of its common stock. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed in response to Item 601 of Regulation S-K.
Exhibit Number Description --------------------------------------------------------------------------------- 10.1 Asset Purchase Agreement among U.S. Lending Corporation, as Debtor-In-Possession, and Search Capital Group, Inc. and Search Funding III, Inc., dated July 17, 1996 27.0 Financial Data Schedule
(b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated May 13, 1996, reporting the shareholder class action suit settlement described in the Company's Annual Report on Form 10-K for the six-month transition period ended March 31, 1996. The Company filed a Current Report on Form 8-K, dated April 17, 1996, reporting the confirmation and effectiveness of the joint plan of reorganization for eight of its subsidiaries operating under Chapter 11 bankruptcy proceeding since August 14, 1995. The Company filed a Current Report on Form 8-K, dated April 1, 1996, reporting the change in the date of the Company's fiscal year end from September 30 to March 31. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SEARCH CAPITAL GROUP, INC. SIGNATURE TITLE DATE - --------------------- --------------------------------------- -------------- /s/ George C. Evans August 9, 1996 - --------------------- -------------- George C. Evans Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director /s/ Robert D. Idzi August 9, 1996 - --------------------- -------------- Robert D. Idzi Executive Vice President, Chief Financial Officer and Treasurer /s/ Andrew D. Plagens August 9, 1996 - --------------------- -------------- Andrew D. Plagens Vice President, Controller and Chief Accounting Officer EX-10.1 2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ASSET PURCHASE AGREEMENT AMONG U.S. LENDING CORPORATION, AS DEBTOR-IN-POSSESSION AND SEARCH CAPITAL GROUP, INC. AND SEARCH FUNDING III, INC. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ July 17, 1996
TABLE OF CONTENTS PAGE SECTION 1. DEFINITIONS 2 SECTION 2. BASIC TRANSACTION 8 a. Purchase and Sale of Assets 8 b. The Closing 8 c. Purchase Price 8 d. Assumed Liabilities 9 e. Deliveries at the Closing 9 f. Deposit 9 g. Limited Reimbursement for Expenses 10 h. Post Closing Purchase Price Adjustments 10 i. Warrants 13 j. Right to the Name US Lending Corporation 13 k. Assignment 14 l. Anti-Dilution 14 SECTION 3. REPRESENTATIONS AND WARRANTIES OF US LENDING 14 a. Organization of US Lending 14 b. Authorization of Transaction; No Default 14 c. Consents and Approvals 15 d. Enforceability 15 e. Employees 15 f. Chapter 11 Proceedings 15 g. Disclaimer of Warranties 16 h. Disclosure 16 i. Title to Acquired Assets. 16 j. Receipt of Information and Answers to Questions. 16 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SEARCH ENTITIES 16 a. Organization 17 b. Authorization of Transaction 17 c. Noncontravention 17 d. Subsidiaries 18 e. Financial Statements 18 f. Events Subsequent to Most Recent Financial Statements 18 g. Undisclosed Liabilities 19 h. Tax Matters 19 i. Assets 19 j. Owned Real Property 19 k. Intellectual Property 19 l. Notes and Accounts Receivable 20 m. Contracts 20 n. Litigation 20 o. Employees 20 p. Legal Compliance 21 q. Certain Business Relationships Among Search Capital and its Affiliates 22 r. Disclosure 22 s. Search Entities' Investigation 22 t. Search Capital Securities and Capitalizations 22 u. Search Capital Joint Plan 23 v. Securities and Exchange Commission Filings 23 SECTION 5. SECURITIES ACT COMPLIANCE 23 SECTION 6. PRE-CLOSING COVENANTS 24 a. General 24 b. Corporate and Shareholder Approval 24 c. Plan and Disclosure Statement 24 d. Preservation of Business 24 e. Full Access 24 f. Notice of Developments 24 g. Further Assurances 25 h. Search Capital Public Information 25 i. Amendment to Certificate of Designation 25 j. Filing Approval and Confirmation of Plan and Disclosure Statement. 26 SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE 26 a. Conditions to Obligation of Search Entities 26 b. Conditions to Obligations of US Lending 27 SECTION 8. MISCELLANEOUS 29 a. Termination 29 b. Brokerage Commissions 29 c. Agreement to Support Plan 30 d. Survival 30 e. Press Releases and Announcements 31 f. Indemnification 31 g. Confidentiality 31 h. Access to Records 32 i. Succession and Assignment 32 j. Counterparts 32 k. Headings 32 l. Notices 32 m. Governing Law 33 n. Amendments and Waivers 34 o. Severability 34 p. Expenses 34 q. Construction 34 r. Incorporation of Exhibits and Schedules 34 s. Specific Performance 35 t. Entire Agreement 35
EXHIBITS AND SCHEDULES ---------------------- Schedule 1(a) - Contracts Schedule 1(b) - Autos Schedule 1(d) - Retained Claims Against Auto Dealers Exhibit 2 - Assumption Agreement Exhibit 2C - Certificate of Designations & Preferences and Amendments thereto Exhibit 2I - Warrant Agreement and First Amendment thereto Schedule 4 - Search Capital Disclosure Schedule Schedule 4A-1 - Search Capital's Certificate of Incorporation Schedule 4A-2 - Search Capital's By-Laws Exhibit 4E - Search Capital's Financial Statements Exhibit 7 - Opinion of Search's Legal Counsel ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "Agreement") is entered into this day of July, 1996, by and between U.S. Lending Corporation, a Florida corporation, as debtor-in-possession ("US Lending"), Search Capital Group, Inc., a Delaware corporation ("Search Capital"), and Search Funding III, Inc., a Texas corporation ("Search Funding", together with Search Capital referred to collectively, jointly and severally, as the "Search Entities"). US Lending, Search Capital and Search Funding are sometimes individually referred to herein as a "Party" and collectively referred to herein as the "Parties." R E C I T A L S - - - - - - - - A. US Lending is a debtor-in-possession in a case (the "Chapter 11 Case") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") pending in the United States District Court for the Southern District of Florida (the "Bankruptcy Court"), Case No. 95-24610-BKC-RBR; B. Search Funding is a wholly owned subsidiary of Search Capital; C. In the transaction contemplated by this Agreement, US Lending will sell to Search Funding, and Search Funding will purchase from US Lending, substantially all of US Lending's assets, in return for the consideration set forth herein, including the assumption by Search Funding of the Assumed Liabilities as provided herein, and the Search Entities will become "successors" to U.S. Lending, as such term is used in Section 1145 of the Bankruptcy Code; D. The sale of the Acquired Assets to Search Funding will be made pursuant to a Chapter 11 Plan of Reorganization of US Lending (the "Plan"); E. US Lending shall use all reasonable efforts to prepare and file as soon as practicable with the Bankruptcy Court the Plan and related Disclosure Statement, to obtain the approval of the Bankruptcy Court of the Disclosure Statement and to solicit and obtain from creditors, interest holders and other claimants of U.S. Lending in the Chapter 11 Case, the necessary votes for confirmation of the Plan. U.S. Lending shall propose that the Confirmation Order to be entered in the Chapter 11 Case (the "Confirmation Order") pursuant to the Plan have such provisions as are necessary to effectuate the transactions contemplated herein, including specific provisions assuring (i) that the Acquired Assets are acquired by Search Funding free and clear of any claim (as such term is defined in Section 101(5) of the Bankruptcy code, hereinafter "Claim"), interest or lien (as such term is defined in Section 101(37) of the Bankruptcy Code, hereinafter "Lien") of any kind or nature whatsoever to the full extent practicable under the Bankruptcy Code, except that the Acquired Assets shall continue to be subject to all of the Assumed Liabilities and (ii) that the Search Capital Securities are exempt from registration under Section 5 of the Securities Act of 1933 by reason of Section 1145 of the Bankruptcy Code; and F. US Lending contemplates that some or all of the consideration US Lending shall receive from the Search Entities in connection with the sale of the Acquired Assets to Search Funding will be transferred and assigned in escrow to the escrow agent ("Escrow Agent") pursuant to an Escrow Agreement to be executed and delivered at Closing (the "Escrow Agreement") and that the Extraneous Assets will be transferred and assigned to the Trustee, as trustee of the U.S. Lending Irrevocable Trust (the "Trust") created pursuant to the U.S. Lending Irrevocable Trust Agreement (the "Trust Agreement") to be executed and delivered at Closing. The "Escrow Agent" hereunder shall be separate and distinct from the "Escrow Agent" under a certain Deposit Agreement to be executed concurrently herewith. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties hereby agree as follows: SECTION 1. DEFINITIONS ----------- "Acquired Assets" means all of US Lending's right, title, and interest in and to the following operating assets of US Lending: (a) US Lending's Contracts set forth on Schedule 1(a) hereto, except for those Contracts (as defined below) paid in full prior to the Closing Date; (b) cash on hand at the Closing Date (except for the cash being retained as part of the Extraneous Assets, which shall not be acquired by Search Funding but will be retained, in part by US Lending, in part, transferred to the Trust.); (c) repossessed automobiles owned by US Lending on the Closing Date (including those automobiles listed on Schedule 1(b) hereto except for sales of such automobiles by US Lending in the ordinary course prior to Closing) ("Autos"); (d) automobile dealer relationships (except for Claims retained by US Lending against those automobile dealers listed on Schedule 1(c) hereto); (e) to the extent assignable under applicable law and without the consent of any third party, licenses, franchises, approvals, permits, orders, registrations, certificates, variances, and similar rights obtained from governments, governmental agencies and other third parties; (f) claims, causes, choses and rights relating to US Lending's Contracts; and (g) books, records, ledgers, files, documents, correspondence, lists, creative materials, advertising and promotional materials, studies, reports, and other printed or written materials relating to the Contracts, the Autos or used by US Lending in its automobile finance business. Acquired Assets shall not include any assets which are "Extraneous Assets." "Active Outstanding Amount" means the aggregate outstanding principal balances, and all finance charges due or to become due on or after the Closing, under all of the Contracts other than Inactive Contracts. "Affiliate" has the meaning set forth in the regulations promulgated under the Exchange Act. "Assumed Liabilities" means all obligations, liabilities and responsibilities of US Lending of every kind and nature (contractual, common law, statutory or otherwise), presently existing or arising in the future, relating to, arising from or in connection with (i) the Contracts and Autos, which are not otherwise discharged under the Chapter 11 Case, and (ii) such other executory contracts which Search Funding expressly agrees to assume, and perform in writing after the date hereof. "Autos" has the meaning set forth within the definition of "Acquired Assets" above. "Bankruptcy Code" has the meaning set forth in Recital A above. "Bankruptcy Court" means the United States Bankruptcy Court for the Southern District of Florida. "Base Purchase Price" means the sum of (a) fifty nine (59%) percent of the Active Outstanding Amount on the Closing Date (b) cash on hand on the Closing Date to the extent that it constitutes an Acquired Asset, and (c) the value of the Autos on the Closing Date, which shall be determined by reference to the "Rough Black Book" value per the Used Car Market Guide current on the Closing Date, published by the National Auto Research Division, Hearst Media Corporation. "Chapter 11 Case" means US Lending's Chapter 11 case referenced in Recital A above. "Claim" shall have the meaning provided therefor in Section 101(5) of the Bankruptcy Code. "Closing" has the meaning set forth in Section 2(b) below. "Closing Date" has the meaning set forth in Section 2(b) below. "Closing Documents" means collectively all of the documents referred to in Section 7 of this Agreement. "Common Stock" means Search Capital's common stock, $.01 par value. "Common Stock Price" means $1.057. If, however, (a) the Disclosure Statement is filed with the Bankruptcy Court after the Floating Price Date and (b) the Common Stock is traded on the Nasdaq Stock Exchange or SmallCap Market, then the Common Stock Price shall mean the mean average of the closing prices of the Common Stock on the Nasdaq Stock Exchange or SmallCap Market for the 30 trading days prior to the Closing Date or, if the Common Stock is otherwise traded on the over-the-counter-market, the average of the mean of the closing bid and ask prices of the Common Stock for the 30 trading days preceding the Closing Date on the over-the-counter market, in each case as reported in the Wall Street Journal ("WSJ") or a national quotation bureau if not reported in the WSJ. "Confirmation Order" has the meaning set forth in Section 3(c) below. "Contracts" means US Lending's automobile loan finance contracts as of the Closing Date. "Creditors Committee" means US Lending's Official Committee of Unsecured Creditors. "Deposit" and "Deposit Agreement" have the meanings set forth in Section 2(f) below. "Disclosure Statement" means the Disclosure Statement to be filed by US Lending pursuant to Section 1125 of the Bankruptcy Code relating to the Plan contemplated hereby. "Effective Date" shall have the meaning provided therefor in the Plan. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA 3(1). "Equity Committee" means US Lending's Official Equity Committee. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" and "Escrow Agreement" have the meanings set forth in Recital F above. "Extraneous Assets" means (a) all of US Lending's claims, causes of action, choses in action, rights of recovery, rights of set off, and rights of recoupment (including, without limitation, any such item relating to the payment of Taxes, tax refunds, and credits and other rights under insurance policies), but not including any such claims, causes, choses, or rights relating to the Contracts, (b) Claims against the automobile dealers listed on Schedule 1(d) hereto, (c) US Lending's corporate franchise, (d) US Lending's Articles of Incorporation, Bylaws, shareholder records, corporate books and records, Tax records and other books, records and materials not relating directly to the Acquired Assets, (e) US Lending's cash in an amount equal to the sum of (i) $150,000, plus (ii) the aggregate professional fees and expenses incurred (and estimated to be incurred after the Closing) by US Lending, the Creditors Committee and the Equity Committee approved (or to be considered for approval) by the Court but unpaid as of the Closing Date, plus (iii) amounts allowed by the Bankruptcy Court for payment for U.S. Lending's intangibles taxes and documentary stamp taxes and all interest and penalties thereon and (f) all rights, benefits and remedies of US Lending under this Agreement and the Closing Documents executed and delivered at the Closing. "Fiduciary" has the meaning set forth in ERISA 3(21). "First Benchmark" means an amount equal to 80% of Gross Receipts which are in excess of the First Fixed Amount but equal to or less than the Second Fixed Amount. "First Fixed Amount" means 59% of the Active Outstanding Amount. "Floating Price Date" means August 2, 1996. "GAAP" means United States generally accepted accounting principles as in effect from time to time applied, consistently applied. "Gross Receipts" means the sum of (a) all principal, interest and other payments collected, including prepayments, with respect to the Contracts; and (b) all other proceeds collected by the Search Entities, and their agents, subsidiaries and affiliates with respect to the Contracts including, without limitation, any refunds for extended service contracts, late fees, assumption fees, dealer reserves, recourse against dealers, forced-place insurance, any claims for physical damage or for repossession loss; and (c) all proceeds from any policies of insurance relating to the Contracts or the Autos; provided, however, that there shall be deducted from such sum all reasonable out-of-pocket expenses actually paid by the Search Entities to third parties relating to the collection of Inactive Contracts and which expenses were incurred by Search Funding in the ordinary course of business, consistent with Search Capital's past practice. "Inactive Contracts" means those Contracts which have not had any payment activity during the 60 calendar days immediately preceding the Closing. "Initial Month" and "Initial Payment" have the meanings set forth in Section 2(h)(ii) below. "Intellectual Property" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, logos, trade names, and corporate names and registrations and applications for registration thereof, (c) copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information, (g) other proprietary rights, and (h) copies and tangible embodiments thereof (in whatever form or medium). "Joint Plan" has the meaning set forth in Section 4(u) below. "Knowledge" means actual knowledge, without any requirement of investigation, and with respect to any entity, the actual knowledge of its officers, directors and employees who have responsibility for the applicable subject matter. "Laws" means any statute, regulation, rule, judgment, ordinance, order, decree, stipulation, injunction, charge, or other restrictions of any federal, state, or local government, governmental agency, or court including, without limitation, those relating to usury, consumer protection, "truth-in-lending" and credit collection. "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including, without limitation, any liability for Taxes. "Lien" has the meaning set forth in Recital E above. "Litigation" has the meaning set forth in Section 4(n) below. "Most Recent Financial Statements" means the audited consolidating balance sheets of Search Capital and subsidiaries as of March 31, 1996 and the related consolidating statement of operations, and consolidated statements of changes in stockholders equity (capital deficit) and cash flows for the 6 months then ended (including the Notes thereto). "Multiemployer Plan" has the meaning set forth in ERISA 3(37). "No Action Letter Request" has the meaning set forth in Section 5 below. "Party" and "Parties" have the meaning set forth in the preface above. "Plan" means the Chapter 11 Plan of Reorganization of US Lending, referenced in Recital D. "Preferred Stock" means shares of Convertible Preferred Stock that, upon issuance, will be a part of Search Capital's series of 9%/7% Convertible Preferred Stock described in the Preference Certificate, of which there are approximately 16,992,767 shares issued and outstanding as of the date of this Agreement. "Preferred Stock Price" means $2.538. If, however, (a) the Disclosure Statement is filed with the Bankruptcy Court after the Floating Price Date, and (b) the Preferred Stock is traded on the Nasdaq Stock Exchange or SmallCap Market, the Preferred Stock Price shall mean the average of the mean of the closing prices of the Preferred Stock on the Nasdaq Stock Exchange or SmallCap Market for the 30 trading days prior to the Closing Date or, if the Preferred Stock is otherwise traded in the over-the-counter-market, the average of the mean of the closing bid and ask prices of the Preferred Stock for the 30 trading days preceding the Closing Date on the over-the-counter market, in each case as reported in the Wall Street Journal ("WSJ") or a national quotation bureau if not reported in the WSJ. "Preference Certificate" has the meaning set forth in Section 2(c) below. "Purchase Price" has the meaning set forth in Section 2(c) below. "Post Closing Purchase Price Adjustments" has the meaning set forth in Section 2(h) below. "Schedule(s)" means the schedule(s) contained in the Search Capital Disclosure Schedule or attached hereto. "Search Capital" has the meaning set forth in the Preface above. "Search Capital Disclosure Schedule" has the meaning set forth in Section 4 below. "Search Capital Securities" means (a) the Common Stock and the Preferred Stock (including the Common Stock issuable upon conversion of the Preferred Stock) calculated as set forth in Section 2(c), and (b) either the Preferred Stock and the Common Stock (including the Common Stock issuable upon conversion of the Preferred Stock), if applicable, referred to in Section 2(h) of this Agreement or the Warrants (and the Common Stock issuable upon exercise of the Warrants) referred to in Section 2(i) below. "Second Benchmark" means an amount equal to 60% of Gross Receipts which are in excess of the Second Fixed Amount. "Second Fixed Amount" means 70% of the Active Outstanding Amount. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) construction, mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable, (c) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation, and (d) other liens arising in the ordinary course of business and not incurred in connection with the borrowing of money. "Subsequent Development" has the meaning set forth in Section 6(f) below. "Subsidiary" means any corporation with respect to which another specified corporation has the power to vote or direct the voting of a majority of its capital securities or to elect a majority of its directors. "Taxes" means any federal, state, local, or foreign income, gross receipts, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, stamp, excise, occupation, sales, use, transfer, value added, alternative minimum, estimated, or other tax, including any interest, penalty, or addition thereto, whether disputed or not. "Trust" means the trust created by the Trust Agreement, referred to in Recital F above. "Trust Agreement" means the U.S. Lending Irrevocable Trust Agreement, referred to in Recital F above. "Trustee" means the trustee of the Trust. "Warrants" has the meaning set forth in Section 2(i) below. "Warrant Agreement" means the Warrant Agreement, as amended by First Amendment to Warrant Agreement, referenced in Section 2(i) below and substantially in the form attached as Exhibit 2I hereto. SECTION 2. BASIC TRANSACTION ----------------- a. Purchase and Sale of Assets. On and subject to the terms ----------------------------- and conditions of this Agreement, Search Funding agrees to purchase from US Lending, and US Lending agrees to sell, transfer, convey, and deliver to Search Funding the Acquired Assets at the Closing for the consideration specified below. Search Capital shall cause Search Funding to perform all of its obligations under this Agreement and under the agreements to be executed and delivered in accordance with the terms of this Agreement. b. The Closing. The closing of the transactions contemplated ----------- by this Agreement (the "Closing") shall take place at the offices of Akerman, Senterfitt & Eidson, P.A., One Southeast Third Avenue, 28th Floor, Miami, Florida or such other location as the parties may agree, commencing at 10:00 a.m. local time 11 calendar days after the Confirmation Order shall have been entered or such other date as is agreed to among the Parties in writing (the "Closing Date"). Any Party may terminate this Agreement if the Closing has not occurred by December 31, 1996. c. Purchase Price. The purchase price for the Acquired --------------- Assets ("Purchase Price") shall be the aggregate of: (i) a number of shares of Preferred Stock equal to (A) the Base Purchase Price divided by (B) the Preferred Stock Price; (ii) a number of shares of Common Stock equal to (A) 25% of the Base Purchase Price divided by (B) the Common Stock Price, and (iii) as elected by US Lending, the Post Closing Purchase Price Adjustments or Warrants, as described below. The preferences and relative participating, optional and other special rights, and the qualifications, limitations and restrictions, of the Preferred Stock are set forth in the Certificate of Designation of the Rights, Preferences and Limitations of the Preferred Stock, which Certificate of Designation shall be amended prior to the Closing by a certain Amendments to be filed with the Delaware Secretary of State (as amended, the "Preference Certificate"), which is attached as Exhibit 2C hereto. US Lending shall elect to receive either (i) the Post Closing Purchase Price Adjustments, as described in Section 2(h) below, or (ii) the Warrants, as described in Section 2(i) below, on or before the date the Disclosure Statement is approved by the Bankruptcy Court. Such election shall be made by written notice from US Lending to Search Capital. If US Lending fails to timely notify Search Capital of its election, US Lending shall be deemed to have elected to receive the Warrants and not the Post Closing Purchase Price Adjustments. d. Assumed Liabilities. In addition to the payment of the -------------------- Purchase Price, Search Funding shall agree to assume, pay and perform the Assumed Liabilities. Search Funding shall execute and deliver at the Closing an Assumption Agreement, the form of which is attached hereto as Exhibit 2. e. Deliveries at the Closing. At the Closing, (i) US Lending --------------------------- will deliver to the Search Entities the various certificates, instruments, and documents referred to in Section 7(a) below; (ii) the Search Entities will deliver to US Lending the various certificates, instruments, and documents referred to in Section 7(b) below; (iii) US Lending will execute, acknowledge (if appropriate), and deliver to Search Funding such instruments of sale, transfer, conveyance, and assignment as Search Funding and its counsel reasonably may request; (iv) Search Funding will execute, acknowledge (if appropriate), and deliver to US Lending the Assumption Agreement and such other instruments of assumption as US Lending and its counsel reasonably may request; (v) Search Capital will deliver (A) the applicable Search Capital Securities to certain creditors and interest holders of US Lending as designated by US Lending in accordance with the Plan (Search Capital will not be required to deliver fractional shares); and (B) the balance of the Search Capital Securities to be delivered at Closing to the Escrow Agent to be held and disbursed pursuant to the Plan and the Escrow Agreement, and (vi) the Extraneous Assets to the Trust. f. Deposit. Upon the execution and delivery of this agreement ------- by all of the Parties and the approval of the Bankruptcy Court of the Deposit Agreement, and in reliance on US Lending's covenant and representation that it will use all reasonable efforts to cause the Bankruptcy Court to approve the transactions contemplated hereby in conjunction with the confirmation of the Plan at the earliest practicable date, Search Capital shall deliver to US Lending a $250,000 deposit (the "Deposit"). The Deposit is being held and shall be disbursed pursuant to a Deposit Agreement of even date herewith between US Lending's bankruptcy counsel, Coll Davidson Carter Smith Salter and Barkett, P.A., as escrow agent, US Lending and Search Capital. The Deposit shall not be considered property or funds of the bankruptcy estate of US Lending unless disbursed to US Lending in accordance with the terms of the Deposit Agreement. In the event of any conflict between the provisions of this Agreement and the provisions of the Deposit Agreement, the provisions of the Deposit Agreement shall control. g. Limited Reimbursement for Expenses. ------------------------------------- (i) The Parties agree that, except as provided in Section 2(g)(ii) below, if the transactions contemplated by this Agreement are not consummated for any reason whatsoever, then the Search Entities will not seek, and will not be entitled to, any damages, including without limitation, any break-up, topping or other fee of any nature. (ii) The Parties agree that if the transactions contemplated by this Agreement are not consummated for any reason other than due to a breach by either of the Search Entities' of their respective representations, warranties or obligations under this Agreement then the Search Entities may recover, as their sole remedy against US Lending, the Creditors Committee, the Equity Committee, the Trust, the Trustee, the Escrow Agent, the beneficiaries of the Trust and the Escrow Agreement and their respective officers, directors, employees, attorneys and agents, successors and assigns, from US Lending's bankruptcy estate the Search Entities' reasonable documented out-of-pocket expenses, including, without limitation, reasonable attorneys fees, incurred directly in connection with this Agreement and the transactions contemplated hereby, up to an aggregate recovery of $50,000 (notwithstanding that the Search Entities' expenses may, in the aggregate, exceed $50,000). US Lending, the Creditors Committee and the Equity Committee each agrees not to object or otherwise oppose the Search Entities' application for reimbursement of such expenses. h. Post Closing Purchase Price Adjustments. If, pursuant to ------------------------------------------- Section 2(c) above, there has been an election to receive the Post Closing Purchase Price Adjustments, then this Section 2(h) shall be deemed operative. If there has been an election to receive the Warrants (or there has been deemed to have been an election to receive the Warrants), then this Section 2(h) shall be inoperative and without force and effect. (i) From and after the Closing Date, Search Capital shall have a continuing obligation to issue Search Capital Securities to the Escrow Agent at the times specified below in subsection (ii), in accordance with the following (the "Post Closing Purchase Price Adjustments"): (a) On or after the date that Gross Receipts exceed the First Fixed Amount, Search Capital shall issue (i) a number of Shares of Preferred Stock equal to (A) the First Benchmark divided by (B) the Preferred Stock Price and (ii) a number of shares of Common Stock equal to (A) 25% of the First Benchmark divided by (B) the Common Stock Price; and (b) From and after the date that Gross Receipts exceed the Second Fixed Amount, Search Capital shall issue (i) a number of shares of Preferred Stock equal to (A) the Second Benchmark divided by (B) the Preferred Stock Price and (ii) a number of shares of Common Stock equal to (A) 25% of the Second Benchmark divided by (B) the Common Stock Price. (ii) The first Post Closing Purchase Price Adjustment (the "Initial Payment") shall be made no later than 30 days following the end of the month in which Gross Receipts first exceed the First Fixed Amount (the "Initial Month"). The Initial Payment shall consist of a number of shares of Search Capital Securities based upon the First Benchmark and, if applicable, the Second Benchmark achieved within the Initial Month. After the Initial Month, subsequent Post Closing Purchase Price Adjustments shall be calculated and paid on a calendar quarterly basis. Search Capital shall, no later than the end of the month immediately following the end of each calendar quarter, issue the Search Capital Securities referred to in Section 2(h)(i) hereof. No fractional shares of Search Capital Securities shall be issued for the Post Closing Purchase Price Adjustments. All fractional amounts will be rounded to the nearest whole number. EXAMPLE 1 - ---------- Presume for illustration purposes only that the Active Outstanding Amount of the Contracts is $1,000,000 as of the Closing Date, so that the First Fixed Amount is $590,000. Presume that at the end of the Initial Month (presume August, 1996), Gross Receipts have surpassed $590,000 for the first time since the Closing Date and are in the aggregate amount of $850,000. No later than September 30, 1996, Search Capital would issue to the Escrow Agent 70,134 additional shares of Preferred Stock and 42,100 additional shares of Common Stock, calculated as follows: 80% x [700,000 (70% of $1,000,000) minus $590,000 (59% of $1,000,000)] = $88,000 - First Benchmark ------- plus ---- 60% x [850,000 minus $700,000 = $90,000 - Second Benchmark ------- $88,000 plus $90,000 = $178,000. 100% of the $178,000 is divided by the Preferred Stock Price, and an additional 25% of $178,000 ($44,500) is divided by the Common Stock Price as follows: $178,000 = 70,134 additional shares of Preferred Stock -------- $ 2.538* $ 44,500 = 42,100 additional shares of Common Stock -------- $ 1.057* EXAMPLE 2 - ---------- Presume that in September, 1996, an additional $100,000 of Gross Receipts are received by Search Capital. No later than October 31, 1996 (i.e., the end of the month following the subject calendar quarter), Search Capital would issue to the Escrow Agent 23,641 additional shares of Preferred Stock and 14,191 additional shares of Common Stock, calculated as follows: 60% x $100,000 = $60,000 $ 60,000 = 23,641 additional shares of Preferred Stock -------- $ 2.538* 25% of $60,000 = 14,191 additional shares of Common Stock ---------------- $ 1.057* EXAMPLE 3 - ---------- Presume that in October 1996, an additional $60,000 of Gross Receipts are received by Search Capital in November, 1996, $20,000 of Gross Receipts are received by Search Capital, and that no Gross Receipts are collected in December, 1996. No later than January 30 1997 (i.e., the end of the month following subject calendar quarter), Search Capital would issue to the Escrow Agent 18,913 additional shares of Preferred Stock and 11,353 additional shares of Common Stock, calculated as follows: 60% x $80,000 = $48,000 $ 48,000 = 18,913 additional shares of Preferred Stock -------- $ 2.538* 25% of $48,000 = 11,353 additional shares of Common Stock ---------------- $ 1.057* - ------------------------------------------------------------------------------ * presumes, for purposes of these examples, that these denominator amounts were the Preferred Stock Price and Common Stock Price, respectively, on the Closing Date. (iii) Each of the Search Entities agrees to use its commercially reasonable best efforts to maximize collections of the Contracts and will take all diligent steps to collect all amounts due from account debtors under the Contracts, including repossession and disposition of repossessed Autos in accordance with Search Capital's regular collection practices for its other loan portfolios similar to the portfolio of the Contracts, consistent with past practice. All receipts received by the Search Entities from account debtors under the Contracts shall be applied to such account in a manner consistent with the historical application of the Contracts accounts' collections. The Search Entities shall provide the Trustee with a monthly written report, no later than 10 days following the end of each month, as to the collections received in the immediately prior month with respect to the Contracts, with detailed information for each Contract (whether or not there were collections under such Contract in such month), identifying which Contract debts have been written off, reduced or otherwise compromised and such other information regarding the Contracts collection efforts and results as the Trustee may reasonably request. Upon request by the Trustee, the Search Entities shall provide written verification, in reasonable detail, as to the methods, resources and efforts being used by the Search Entities to maximize such collections. If the Trustee is dissatisfied with the Search Entities' collection activities, the Trustee may submit written objections to the Search Entities, describing in reasonable detail the identified deficiencies in the Search Entities' collection activities. If such deficiencies are not promptly remedied by the Search Entities to the Trustee's satisfaction, then the Trustee and the Search Entities irrevocably agree to arbitrate such dispute in Dade County, Florida, pursuant to the rules of the American Arbitration Association and in accordance with the Florida Statutes governing arbitration. The arbitrator shall have the authority to award attorneys' fees and other costs to the prevailing party. (iv) The Search Entities shall maintain at their own expense full, complete and accurate books, records and accounts with respect to the Contracts and the Search Capital Securities issuable pursuant to Section 2(h) above. The Trustee shall have the right, at any time but not more frequently than once per fiscal quarter, to have an independent third party audit made of the books and records of the Search Entities relating to the Contracts. If the audit reflects that additional amounts are due pursuant to Section 2(h)(i), then Search Capital shall promptly make a Post Closing Purchase Price Adjustment pursuant to Section 2(h)(i). If the aggregate value of the Post Closing Purchase Price Adjustments paid as a result of audits under this Section 2(h)(iv) exceeds $50,000, then the Search Entities shall reimburse the Trustee for the entire cost of all of such audits. The foregoing remedies shall be in addition to any other remedies which the Trustee may have under this Agreement or under applicable law or in equity, all of which shall be cumulative. I. Warrants. If, pursuant to Section 2(c) above, there has -------- been an election (or there is deemed to have been an election) to receive the Warrants, then this Section 2(i) shall be deemed operative. If US Lending has elected to receive the Post Closing Purchase Price Adjustments, then this Section 2(i) shall be inoperative and without force and effect. At the Closing, the Escrow Agent shall receive warrants for shares of Common Stock (the "Warrants") pursuant to the terms of a Warrant Agreement substantially in the form set forth as Exhibit 2I attached hereto. The Warrants shall entitle the holders thereof to purchase, in the aggregate, a number of shares of Common Stock equal to 20% of the sum of (A) 200% of the number of shares of Preferred Stock to be delivered to US Lending at Closing, and (B) 100% of the number of shares of Common Stock to be delivered to US Lending at Closing. EXAMPLE - ------- Presume at Closing that Search Capital is obligated, pursuant to Section 2(c) above, to issue 1,000,000 shares of Preferred Stock and 500,000 of Common Stock to the Escrow Agent. Pursuant to this Section 2(I), Search Capital would also issue to the Escrow Agent, at Closing, Warrants for 500,000 shares of Common Stock, calculated as follows: 20% of [200% of 1,000,000, plus 100% of 500,000] = 20% of [2,500,000] = Warrants to purchase 500,000 shares of Common Stock j. Right to the Name US Lending Corporation . As part of the ---------------------------------------- Acquired Assets, Search Funding shall have acquired all rights to the name "U.S. Lending Corporation." On the Closing Date, US Lending shall change its name to a name not confusingly similar thereto, promptly thereafter filing all documents required therefor, including but not limited to amendments to US Lending's Articles of Incorporation. k. Assignment; . For valuable consideration, the receipt and ---------- sufficiency of which is hereby acknowledged by the Search Entities, the Search Entities each acknowledges and agrees that the Trustee, subject to approval by the Bankruptcy Court (which approval shall be evidenced by confirmation of the Plan by the Bankruptcy Court and the Creditors and Equity Committees), shall, upon Closing, be assigned all of the Extraneous Assets. l. Anti-Dilution. If Search Capital shall make a stock ------------- dividend, subdivide or otherwise split its Preferred Stock or Common Stock or combine or reclassify the outstanding shares of the Preferred Stock or Common Stock into a smaller or greater number of shares, then in each case (i) the number of Search Capital Securities, (ii) the Common Stock Price, (iii) the Preferred Stock Price, (iv) the number of Common Stock shares issuable upon conversion of the Preferred Stock, (v) the number of Common Stock shares issuable (and the price payable) upon the exercise of any Warrants and (vi) all other relevant matters shall be adjusted appropriately so as to take into account such event. SECTION 3. REPRESENTATIONS AND WARRANTIES OF US LENDING Subject to the terms set forth in Section 8(d) below, US Lending represents and warrants to the Search Entities, which US Lending agrees are entitled to rely on these representations and warranties, that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date. a. Organization of US Lending. US Lending is a corporation -------------------------- duly organized, validly existing and in good standing under the laws of the State of Florida. US Lending has full corporate power and authority to carry on the business in which it is engaged and to own and use the properties owned, leased and used by it. b. Authorization of Transaction; No Default. Subject to the ---------------------------------------- entry by the Bankruptcy Court of the Confirmation Order and an Order of the Bankruptcy Court approving the execution and delivery of this Agreement: (i) US Lending has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder; (ii) The execution, delivery, and performance of this Agreement, the performance of US Lending's obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by US Lending's Board of Directors, and no further corporate or stockholder action is required to authorize the execution and delivery of this Agreement, the performance by US Lending of its obligations hereunder or the consummation by US Lending of the transactions contemplated hereby; and (iii) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any Law to which US Lending is subject or any provision of the Articles of Incorporation or Bylaws of US Lending, or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument or indebtedness, Security Interest, or other arrangement to which US Lending is a party or by which it is bound or to which any of its assets are subject, or result in the imposition of any Security Interest upon any of its assets. c. Consents and Approvals. Except for: (i) the order of the ---------------------- Bankruptcy Court authorizing US Lending to enter into and perform this Agreement (the "Confirmation Order") , no approval or consent of, or notice to, filing with or exemption by any court or governmental entity or any person or entity is required to be obtained by or given, or waiting periods required to expire, in connection with US Lending's execution and delivery of this Agreement and the performance by US Lending of its obligations hereunder, that have not been obtained or will not be obtained on or prior to the Closing Date. d. Enforceability. This Agreement has been duly executed and -------------- delivered by US Lending and, assuming this Agreement constitutes a valid and binding agreement of the Search Entities if and when, the Confirmation Order is entered by the Bankruptcy Court and such Confirmation Order shall not have been reversed, stayed, modified or amended in any material respects prior to the Closing Date, this Agreement will constitute the legal, valid and binding obligation of US Lending, enforceable against US Lending in accordance with its terms. e. Employees. US Lending has no Employee Benefit Plans. --------- f. Chapter 11 Proceedings. US Lending has complied in all ---------------------- material respects with the Bankruptcy Code, and with all other laws, rules, regulations, decrees or orders applicable to or arising out of the Chapter 11 Case, except to the extent that any such non-compliance would not have a material adverse affect on the assets, liabilities, financial condition or results of operations of US Lending. To the best of US Lending's Knowledge, all lists of creditors and stockholders, schedules, statements of affairs, and financial reports filed by US Lending with the Bankruptcy Court and all representations, warranties or disclosures of US Lending made in connection with the Chapter 11 Case were, and the Disclosure Statement (excluding such information and/or materials included in the Disclosure Statement which were provided by the Search Entities) will be, complete and accurate in all material respects as of the date filed or made. Such notice of the Chapter 11 Case as is required by the Bankruptcy Code has been or will be given to all known holders of Claims (as such term is defined in the Bankruptcy Code), and US Lending shall serve notice of the transactions contemplated by this Agreement on parties entitled to such notice under the Bankruptcy Code, as modified by orders in respect of notice which may be issued at any time and from time to time by the Bankruptcy Court. g. Disclaimer of Warranties. EXCEPT AS EXPRESSLY CONTAINED ------------------------ IN THIS AGREEMENT, US LENDING MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACQUIRED ASSETS, US LENDING'S BUSINESS OR FINANCIAL PERFORMANCE OR OTHERWISE, INCLUDING WITHOUT LIMITATION REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, THAT MAY ARISE UNDER THE UNIFORM COMMERCIAL CODE WITH RESPECT TO THE TRANSFER OF THE ACQUIRED ASSETS, INCLUDING WITHOUT LIMITATION TRANSFER WARRANTIES UNDER SECTION 673.4161 OF THE FLORIDA STATUTES, AS AMENDED, OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. h. Disclosure . No representation or warranty by US Lending ---------- in this Agreement or in any certificate furnished or to be furnished to the Search Entities pursuant to this Agreement or in connection with the transactions contemplated by this Agreement, when taken together, contain any untrue statements of fact or will omit to state any fact necessary to be stated in order to make the statements and information contained in this Agreement not materially misleading. i. Title to Acquired Assets. At the Closing, Search Funding ------------------------ will receive good title to all of the Acquired Assets free and clear of any Claim, interest, Lien, encumbrance and tax of any kind or nature whatsoever to the fullest extent practicable under the Bankruptcy Code, except that the Acquired Assets shall continue to be subject to all of the Assumed Liabilities. j. Receipt of Information and Answers to Questions. U.S. ----------------------------------------------------- Lending has had the opportunity to ask questions of, and receive answers from, Search Capital through its authorized representatives and has received information regarding the business, assets, financial condition, results of operations and affairs of Search Capital. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SEARCH ENTITIES ----------------------------------------------------- Each of the Search Entities represents and warrants to US Lending and to the Trustee, which the Search Entities hereby agree are entitled to rely upon these representations and warranties, that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date, except as set forth in the Disclosure Schedule accompanying this Agreement as Schedule 4 (the "Search Capital Disclosure Schedule") and initialed by Search Capital. The Search Capital Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained herein. a. Organization. Each of the Search Entities is a corporation ------------ duly organized, validly existing and in good standing, under the laws of the State of Delaware with respect to Search Capital and under the laws of the State of Texas with respect to Search Funding, and is in good standing and qualified to do business under the laws of each jurisdiction in which the nature of its business or the ownership or leasing of its properties requires such qualification. Each of the Search Entities has full corporate power and authority to carry on the business in which it is engaged and to own and use the properties owned, leased and used by it. Exhibits 4A-1 and 4A-2 are true and complete copies of each of the Search Entities' current Certificate of Incorporation and ByLaws. b. Authorization of Transaction. Each of the Search Entities ---------------------------- has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and all other agreements referred to herein to which it is a party and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Board of Directors of each of the Search Entities has duly authorized the execution, delivery and performance of this Agreement and all other agreements referred to herein by the Search Entities and, except for the corporate and shareholder action referenced in Section 6(b) below, no further corporate or stockholder action is required to authorize the execution and delivery of this Agreement, the performance by the Search Entities of their obligations hereunder or the consummation by the Search Entities of the transaction contemplated hereby. This Agreement and all other agreements referred to herein to which the Search Entities are a party constitute the valid, legally binding obligations of the Search Entities, enforceable in accordance with their respective terms and conditions. Each of the Search Entities has all approvals, licenses, franchises, authorizations and permits necessary under the Laws which are material to the ownership, lease or use of each of the Search Entities' properties or the conduct of its business and each of the Search Entities has received no notice of any proceedings relating to the revocation or modification of any of the foregoing which, singularly or in the aggregate, would have a materially adverse effect on either of the Search Entities. Except for the corporate and shareholder action referenced in Section 6(b) below, no consent, approval, authorization, license or order of or from, or registration, qualification, declaration or filing with, federal, state, local, foreign or other governmental authority or any person or court, administrative agency, or other body is required for the consummation of the transactions contemplated by this Agreement and the other agreements referred to herein to which either of the Search Entities is a party. c. Noncontravention. Neither the execution and the delivery ---------------- of this Agreement by the Search Entities, nor the consummation of the transactions contemplated hereby, will (i) violate any Law to which the Search Entities are subject or any provision of the Search Entities' Certificates of Incorporation and Bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money instrument or indebtedness, Security Interest, or other arrangement to which the Search Entities are a party or by which either is bound or to which any of its assets is subject, or result in the imposition of any Security Interest upon any of its assets. The Search Entities need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any third party, whether public or private, for the Parties to consummate the transactions contemplated by this Agreement. d. Subsidiaries. All of Search Capital's subsidiaries are ------------ set forth in Section 4(d) of the Search Capital Disclosure Schedule. Those subsidiaries of Search Capital which (i) are not debtors in a bankruptcy proceeding and (ii) currently have active business operations are noted as "active" on Section 4(d) of the Search Capital Disclosure Schedule (the "Active Subsidiaries"), For purposes of this Section 4, all references to Search Capital or the Search Entities shall be deemed to include all of the Active Subsidiaries. Search Funding has no subsidiaries. Search Funding is a wholly-owned subsidiary of Search Capital. e. Financial Statements. Search Capital's Most Recent Financial -------------------- Statements are attached hereto as Exhibit 4E. The Most Recent Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, are correct and complete, are consistent with the books and records of Search Capital (which books and records are correct and complete), and fairly present the financial condition of Search Capital as of its date and the results of Search Capital's operations and cash flows for the periods indicated. f. Events Subsequent to Most Recent Financial Statements. ------------------------------------------------------------ Except as expressly contemplated under this Agreement, and except as set forth in Section 4(f) of the Search Capital Disclosure Schedule, since the date of the Most Recent Financial Statements: (i) there has been no material adverse change in the general affairs, business, prospects, properties, management, condition (financial or otherwise) or results of operations of Search Capital, whether or not arising from transactions in the ordinary course of business; (ii) Search Capital has not created, incurred, assumed, or guaranteed any indebtedness (including capitalized lease obligations) either involving more than $250,000 in a single transaction or outside the ordinary course of business; (iii) Search Capital has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) outside the ordinary course of business; (iv) Search Capital has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion or exercise) any of its capital stock other than for fair market value; (v) Search Capital has not declared, set aside, or paid any dividend or distribution with respect to its capital stock or redeemed, purchased, or otherwise acquired any of its capital stock except for dividends on its Preferred Stock; (vi) Search Capital has not experienced any material damage, destruction, or loss (whether or not covered by insurance) to its property; (vii) Search Capital has not entered into any collective bargaining agreement, written or oral, or modified the terms of any existing such agreement and has not adopted any bonus, profit-sharing, incentive compensation, pension, retirement, medical, hospitalization, life, or other insurance, severance or other plan, contract, or commitment for any of its shareholders, directors, officers, and employees, or modified or terminated any existing such plan, contract, or commitment which would have a material adverse effect upon Search Capital; (viii) Search Capital has no Knowledge of any contemplated adverse changes to its current contracts or any of its other business relationships which would have a material adverse effect upon Search Capital; (ix) Search Capital has not committed or consented to do or suffer any of the foregoing. g. Undisclosed Liabilities. Except as set forth on Schedule ----------------------- 4(g) of the Search Capital Disclosure Schedule, Search Capital has no Liability except for Liabilities described in Search Capital's Most Recent Financial Statements and those which have arisen after March 31, 1996 in the ordinary course of business (none of which relates to any breach of contract, breach of warranty, tort, infringement, or violation of Law ). h. Tax Matters. Search Capital has filed all tax reports and ----------- returns that it is required to file. All such reports and returns were correct and complete in all respects. All Taxes owed by Search Capital (whether or not shown on any report or return) have been paid. Search Capital currently is not the beneficiary of any extension of time within which to file any report or return. No director or officer (or employee responsible for tax matters) of Search Capital expects any authority to assess any additional Taxes for any period for which returns have been filed. The unpaid Taxes of Search Capital does not exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the most recent balance sheet (rather than in any notes thereto) contained in the Financial Statements as adjusted for the passage of time through the Closing Date in accordance with the past custom or practice of Search Capital in filing its Tax returns. i. Assets. Search Capital owns or leases all assets necessary for the conduct of its businesses as presently conducted and as presently proposed to be conducted. j. Owned Real Property. Search Capital does not own, and has ------------------- no beneficial interest in (except as tenant under written leases), any real property. k. Intellectual Property. Except as set forth on Section --------------------- 4(k) of the Search Capital Disclosure Schedule, Search Capital owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of the businesses of Search Capital as presently conducted and as presently proposed to be conducted, except for such matters which do not have a material adverse effect upon Search Capital. l. Notes and Accounts Receivable. All notes and accounts -------------------------------- receivable of Search Capital are reflected properly on Search Capital's books and records, are valid receivables subject to no setoffs or counterclaims and will be collected in accordance with their terms at their recorded amounts, subject only to the allowance for credit losses set forth in the Most Recent Financial Statements; m. Contracts. Section 4(m) of the Search Capital Disclosure --------- Schedule identifies all material contracts, agreements and other written arrangements to which Search Capital is a party and all arrangements which are filed with the SEC as part of its public filings, and true, correct and complete copies (with all amendments thereto) have been delivered to US Lending. "Material" contracts, agreements and arrangements are those which obligate the parties, in the aggregate, to in excess of $250,000 of obligations, and include all warehousing and securitization credit facilities. With respect to each written arrangement so listed: (A) the written arrangement is legal, valid, binding, enforceable, and in full force and effect, and has not been materially amended or altered since the later of execution or being filed with the SEC; (B) the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing; (C) no party is in breach or default, and no event has occurred which, with notice or lapse of time, or both, would constitute a breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) no party has repudiated any provision of the applicable written arrangement. n. Litigation. Section 4(n) of the Search Capital Disclosure ---------- Schedule sets forth each instance in which any of the Search Entities (I) is subject to any charge, complaint, action, suit, judgment, order, or other legal or governmental proceeding ("Litigation") or (ii) is a party or, to the Knowledge of either of the Search Entities or any of the directors and officers (and employees with responsibility for litigation matters) of any of the Search Entities, is threatened (or may be threatened) to be made a party, to any Litigation. None of the Litigation set forth in Section 4(n) of the Search Capital Disclosure Schedule except Janice and Warren Bowe et. al. v. Search Capital Group, Inc., Civil Action Number 1:95-CV-649-BR pending in the United States District Court for the Southern District of Mississippi, could result in any material adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of Search Capital taken as a whole or affect either of the Search Entities' ability to consummate the transaction contemplated under this Agreement. o. Employees. To the Knowledge of Search Capital or any of --------- the directors and officers (and employees with responsibility for employment matters) of Search Capital, no key employee or group of employees has any plans to terminate employment with Search Capital. Search Capital is not a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. Search Capital has not committed any unfair labor practice. Neither Search Capital nor any of the directors and officers (and employees with responsibility for employment matters) of Search Capital has any Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of Search Capital. p. Legal Compliance. (i) Except as set forth on Schedule ----------------- 4(p) of the Search Capital Disclosure Schedule, each of the Search Entities has complied with all Laws, and no Litigation has been filed or commenced against Search Capital alleging any failure to comply with any such Laws and neither of the Search Entities have not received a notice or charge asserting any violation of the Sherman Act, the Clayton Act, the Robinson-Patman Act, the Federal Trade Commission Act, as amended, or any other Law relating to truth-in-lending, credit extension or credit collections. (ii) Each of the Search Entities has not: (a) made or agreed to make any contribution, payment, or gift of funds or property to any governmental official, employee, or agent where either the contribution, payment, or gift, or the purpose thereof, was illegal under the Law; (b) established or maintained any unrecorded fund or asset for any purpose, or made any false entries on any books or records for any reason; or (c) made or agreed to make any contribution, or reimbursed any political gift or contribution made by any other person, to any candidate for federal, state, local, or foreign public office. (iii) With respect to the Search Entities' Employee Benefit Plans (A) each has been administered in all material respects in compliance with its terms and all applicable laws, including, without limitation, ERISA, (B) no material actions, suits, claims (other than claims for benefits in the ordinary course of business) or disputes are pending or, to the Search Entities' Knowledge, threatened, (C) no audits, inquiries, reviews, proceedings, claims or demands are pending with any governmental or regulatory agency, (D) there are no facts which could give rise to any material liability in the event of any investigation, claim suit, action, audit, review or other proceeding, (E) all material reports, returns and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed, and (F) no "prohibited transaction" has occurred within the meaning of ERISA or the Internal Revenue Code of 1986, as amended. (iv) The Search Entities have each filed all reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all respects) under all applicable Laws, for which the failure to file would have a material adverse effect on the Search Entities. (v) Each of the Search Entities has possession of all records and documents it is required to retain under all applicable Laws. q. Certain Business Relationships Among Search Capital and its ------------------------------------------------------------- Affiliates. Except as disclosed in reports filed with the SEC, none of - ---------- Search Capital's stockholders who beneficially own 5% or more of Search Capital's capital stock, officers and directors, and their respective Affiliates have been involved in any material business arrangement or relationship with Search Capital within the past 12 months. None of the officers or directors of Search Capital, and their respective Affiliates, own any property or right, tangible or intangible, which is used in the business of Search Capital. r. Disclosure. No representation or warranty by the Search ---------- Entities in this Agreement or in any certificate furnished or to be furnished to US Lending pursuant to this Agreement or in connection with the transactions contemplated by this Agreement, when taken together, contain any untrue statements of fact or will omit to state any fact necessary to be stated in order to make the statements and information contained in this Agreement not materially misleading. s. Search Entities' Investigation. Each of the Search Entities ------------------------------ hereby acknowledges that it and its representatives have been given access to the premises, properties, books, contracts and records of US Lending and have been furnished with all additional financial and operational data and other information concerning the Acquired Assets which the Search Entities and its representatives have requested in connection with their determination to enter into this Agreement and consummate the transactions contemplated hereby, and all of the foregoing have been examined to the full satisfaction of the Search Entities and their representatives. Each of the Search Entities acknowledges that Search Funding is acquiring the Acquired Assets without any representations and warranties other than those expressly set forth herein, which shall not survive the Closing. t. Search Capital Securities and Capitalizations. The Search ----------------------------------------------- Capital Securities, when issued and delivered as provided for herein, will be (a) duly authorized, validly issued, fully paid and non-assessable and (b) free and clear of all proxies, restrictions, voting trusts, liens or encumbrances. The holders of the Preferred Stock shall have all of the powers, preferences and rights as set forth in the Preference Certificate. The Search Capital Securities have been duly authorized and reserved for issuance upon such conversion or upon the issuance as applicable. Except as set forth on Schedule 4(t) of the Search Capital Disclosure Schedule, there are no preemptive or other rights to subscribe for or to purchase, nor any restriction (except as may be required under applicable securities laws) upon the voting or transfer of, any shares of the Common Stock issuable upon conversion of the Preferred Stock to Common Stock pursuant to the Search Capital's Certificate of Incorporation or By-Laws, the Preference Certificate or any other agreement or outstanding instrument to which Search Capital is a party or which is otherwise known to Search Capital. Other than as provided in this Agreement or as set forth on Section 4(t) of the Search Capital Disclosure Schedule, Search Capital has not granted any demand, piggyback or other registration rights to any holder of its outstanding securities. u. Search Capital Joint Plan. A confirmation order has been ------------------------- entered in the Joint Plan of Reorganization in each of Search Capital's bankrupt subsidiaries (the "Joint Plan") for the cases 395-34981-RCM-11 through 395-34988-SAF-11, jointly administered under case number 395-34981-RCM-11 in the United States Bankruptcy Court, Northern District of Texas. Without limitation to Section 4(c) above (regarding noncontravention), the transactions contemplated by this Agreement are not in contravention of the Joint Plan nor are any consents or approvals of said court or any third party required pursuant to said Joint Plan for the execution and performance of this Agreement. v. Securities and Exchange Commission Filings. Search Capital ------------------------------------------ has complied and is current with all reporting obligations to the SEC and Search Capital has provided US Lending with copies of all SEC filings made within three years of the date hereof. Such SEC filings contain all material information required to be stated therein, and do not omit material information required to be stated therein or necessary to make the statements, in light of the circumstances in which they were made, not misleading. SECTION 5. SECURITIES ACT COMPLIANCE ------------------------- Upon Closing, the Parties agree that they will each use their respective best efforts to cause the Search Entities to be the successors of US Lending for purposes of Section 1145 of the Bankruptcy Code. US Lending shall use its best efforts to have the Confirmation Order contain appropriate court findings of fact and law to the foregoing effect. Promptly following the execution hereof, Search Capital will request (the "No Action Letter Request") confirmation from the staff of the SEC that it will not recommend to the SEC that enforcement action be taken if (a) without registration under the Securities Act the Search Capital Securities are issued and distributed pursuant to the Plan to the holders of certain claims against or interests in U.S. Lending in reliance upon Section 1145 of the Code; and (b) the Search Capital Securities issued and distributed pursuant to the Plan are resold (i) without registration under the Securities Act, provided that the sellers are not "underwriters" as defined in Section 1145(b) of the Code, or (ii) free from the restriction of Rule 144 promulgated under the Securities Act, provided that the seller is not an "affiliate" of the issuer thereof. U.S. Lending and the Creditors and Equity Committees shall be provided with a reasonable time to review and comment upon any draft of the No Action Letter Request, such Request to be in form and substance reasonably satisfactory to U.S. Lending and the Committees. Search Capital agrees to keep U.S. Lending and the Committees fully informed as to the progress of the No Action Letter Request and to permit counsel to US Lending and to the Committees to participate in any discussions, whether by telephone or in person, with members of the staff of the SEC in respect of the No Action Letter Request. The Parties acknowledge that it is their intent that, as a condition to US Lending's obligation to close, the US Lending creditors and equity holders receive freely tradeable shares of Preferred Stock and Common Stock as permitted by Section 1145 of the Code. SECTION 6. PRE-CLOSING COVENANTS --------------------- The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: a. General. Each of the Parties will use its reasonable best ------- efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 7 below). Each of the Parties will take any additional action that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of government agencies, and third parties that it may be required to give, make, or obtain. b. Corporate and Shareholder Approval. Search Capital shall ---------------------------------- use its reasonable best efforts to cause all corporate and shareholder actions to be taken to adopt and otherwise effectuate the Amendments to the Preference Certificate (which Amendments shall be in the form attached hereto as part of Exhibit 2C). c. Plan and Disclosure Statement. US Lending shall propose ----------------------------- that the Confirmation Order pursuant to the Plan have such provisions as are necessary to effectuate the transactions contemplated hereunder. Search Capital shall have a reasonable period of time to review and comment upon the Plan and Disclosure Statement prior to their filing with the Court. d. Preservation of Business. US Lending will use its best ------------------------ efforts to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers and employees. US Lending shall pay (or make appropriate reserves for the payment of) all pre-closing administrative expenses, including, without limitation, pre-closing servicing costs of the Portfolio. e. Full Access. Subject to Section 8(g) below, within 24 ----------- hours following a request by the other Party, each of the Parties will permit representatives of the other Party to have full access during normal business hours, and in a manner so as not to interfere with normal business operations, to all premises, properties, books, records, contracts, Tax records, and documents pertaining to such Party. f. Notice of Developments. US Lending and the Search Entities ---------------------- shall give prompt written notice to the other of any material developments affecting their respective assets, Liabilities, business, financial condition, operations, results of operations, or circumstances which make any representation or warranty hereunder untrue, incomplete or misleading ("Subsequent Development"), provided that neither Party shall be required to give notices which contravene applicable securities laws. Prior to Closing, the other Party may elect by written notice to terminate this Agreement if it determines, in its sole discretion, that any Subsequent Development is unacceptable to it. If the Search Entities are the terminating Party in such circumstances, the Search Entities shall not be entitled to any damages arising from the occurrence of such Subsequent Development or the Search Entities' termination of this Agreement relating thereto. If, however, US Lending is the terminating Party, the Parties agree that US Lending shall suffer damages arising from the occurrence of such Subsequent Development and the termination of this Agreement, but that such damages may be difficult to determine. The Parties agree therefor that under such circumstances US Lending shall receive, as a reasonable estimate of US Lending's damages, and as US Lending's sole and exclusive remedy, liquidated damages of $150,000 to be paid out of the Deposit. Notwithstanding the foregoing, US Lending shall have all of its rights and remedies, without limitation, with respect to the breach of any representation or warranty by the Search Entities arising from or relating to the occurrence of any Subsequent Development of which US Lending is not notified pursuant to Section 6(f). g. Further Assurances. Subject to the terms of this Agreement ------------------- and to the approval of the Bankruptcy Court, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions necessary or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and to satisfy the various conditions herein to their respective obligations hereunder. In addition, each of the Parties will (subject, in the case of US Lending, to its applicable fiduciary duties as a debtor-in-possession) use all reasonable efforts to cause the conditions to the obligation of the Parties hereto to consummate the transactions contemplated hereby to be satisfied at the earliest practicable date and to cause the Closing to occur on or before the latest possible Closing Date permitted as set forth in Section 2(b). h. Search Capital Public Information. Search Capital will ------------------------------------ furnish to US Lending copies of such financial statements and other periodic and special reports as Search Capital from time to time makes available to holders of any class of its securities, and shall furnish to US Lending (i) a copy of each periodic report Search Capital files with the SEC within five (5) business days following filing, (ii) a copy of every press release and every news item and article with respect to Search Capital or its affairs which is released by Search Capital within five (5) business days following the date of such release, and (iii) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by Search Capital within five (5) business days of receipt or preparation . Search Capital acknowledges that any of the foregoing materials may, in US Lending's discretion, be included in US Lending's Disclosure Statement. i. Amendments to Certificate of Designation. Prior to Closing, ---------------------------------------- the Amendments to the Certificate of Designation referred to in Section 2(c) above shall be filed by Search Capital and shall be effective with the Delaware Secretary of State. j. Filing Approval and Confirmation of Plan and Disclosure ------------------------------------------------------------- Statement. U.S. Lending shall use all reasonable efforts to prepare and - --------- file as soon as practicable with the Bankruptcy Court the Plan and related Disclosure Statement, to obtain the approval of the Bankruptcy Court of the Disclosure Statement, and to solicit and obtain from creditors, interest holders and other claimants of U.S. Lending in the Chapter 11 Case, the necessary votes for confirmation of the Plan, and shall propose that the Confirmation Order have such provisions as are necessary to effect the transactions contemplated herein, including specific provisions assuring that the Acquired Assets are acquired by Search Funding free and clear of any Claim, interest, Lien, encumbrance or tax of any kind or nature whatsoever to the fullest extent practicable under the Bankruptcy Code, except that the Acquired Assets shall continue to be subject to all of the Assumed Liabilities. The Plan shall also contain a provision that requires the recipients of the Preferred Stock to be deemed to have waived their rights to any dividends that might otherwise have accrued prior to the date of issuance of the Preferred Stock. US Lending will defend and support the entry of the Confirmation Order in a form reasonably acceptable to Search Capital, and will oppose any application for an order reversing, modifying, staying, enjoining or restraining the terms or effectiveness of the Confirmation Order. SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE --------------------------------- a. Conditions to Obligation of Search Entities. Each of the ------------------------------------------- Search Entities' obligation to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) The representations and warranties set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date; (ii) US Lending shall have performed and complied with all of its covenants hereunder in all material respects through and including the Closing; (iii) no Litigation shall be pending or threatened wherein an unfavorable determination would (A) prevent consummation of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) materially adversely affect the right of Search Funding to own, operate, or control the Acquired Assets; (iv) US Lending shall have delivered to the Search Entities a certificate to the effect that each of the conditions specified above in Section 7(a)(i)-(iii) have been satisfied in all material respects; provided, however, with respect to Section 7(a)(i), if the Search Entities have elected to proceed with the Closing notwithstanding a disclosure to them of a Subsequent Development affecting a representation or warranty of U.S. Lending, such representation or warranty will be deemed amended or supplemented to the extent necessary by the Subsequent Development to enable U.S. Lending to execute and deliver the certificate required by this clause (iv); (v) the execution and delivery by US Lending to the Search Entities of the transfer documents described in Section 2(e); (vi) the entry of the Confirmation Order and no court of competent jurisdiction has entered a stay of the Confirmation Order; (vii) the SEC shall have issued a "No Action Letter" in form and substance satisfactory to Search Capital confirming the applicability of Section 1145 of the Bankruptcy Code as provided in the No Action Letter Request; (viii) US Lending's cash on hand at the Closing Date (except for the cash being retained by US Lending as part of the Extraneous Assets) shall not be less than Two Million Five Hundred Thousand Dollars ($2,500,000); (ix) the matters covered by US Lending's operations policies shall have been concluded in connection therewith; (x) all of the corporate and shareholder action referenced in Section 6(b) above shall have been taken no later than October 1, 1996; and (xi) all actions to be taken by US Lending in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Search Capital. Search Capital may waive any condition specified in this Section 7(a) if it executes a writing so stating at or prior to the Closing. b. Conditions to Obligations of US Lending. The obligation of --------------------------------------- US Lending to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date; (ii) each of the Search Entities shall have performed and complied with all of its covenants hereunder in all material respects through and including the Closing; (iii) no Litigation shall be pending or threatened wherein an unfavorable determination would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) materially adversely affect the right of Search Capital to own, operate, or control the Acquired Assets; (iv) each of the Search Entities shall have delivered to US Lending a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Section 7(b)(i)-(iii) have been satisfied in all material respects; provided, however, with respect to Section 7(b)(i), if U.S. Lending has elected to proceed with the Closing notwithstanding a disclosure to it of a Subsequent Development affecting a representation or warranty of the Search Entities, such representation or warranty will be deemed amended or supplemented to the extent necessary by the Subsequent Development to enable the Search Entities to execute and deliver the certificate required by this clause (iv); (v) no material adverse change shall have occurred in Search Capital's business, profitability or condition (financial or otherwise) or prospects; (vi) the execution and delivery by Search Capital to US Lending of the transfer documents described in Section 2(e); (vii) the entry of the Confirmation Order and no court of competent jurisdiction has entered a stay of the Confirmation Order; (viii) the SEC shall have issued a "No Action Letter" in form and substance satisfactory to US Lending, the Creditors Committee and the Equity Committee confirming the applicability of Section 1145 of the Bankruptcy Code as provided in the No Action Letter Request; (ix) US Lending shall have received the legal opinion from Search's legal counsel(s), dated as of the Closing Date in the form of Exhibit 7 hereto; (x) the Preference Certificate (as amended) and, if applicable, the Warrant Agreement, as amended, shall be true, accurate, effective and complete as of Closing Date. (xi) the issuance and delivery of the Search Capital Securities in the manner required by this Agreement and, if applicable, the execution and delivery by Search Capital of the Warrants; (xii) all of the corporate and shareholder action referenced in Section 6(b) above shall have been taken no later than October 1, 1996; and (xiii) all actions to be taken by the Search Entities in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to US Lending. Subject to approval from the Bankruptcy Court and the Equity and Creditors Committees, US Lending may waive any condition specified in this Section 7(b) if it executes a writing so stating at or prior to the Closing. SECTION 8. MISCELLANEOUS ------------- a. Termination. This Agreement shall terminate, and neither ----------- Party shall have any further obligations hereunder (except with respect to Sections 2(g)(ii), 8(b) and 8(g) herein) upon the happening of any of the following events: (i) The Chapter 11 Case shall be dismissed or converted to a case under Chapter 7 of the Bankruptcy Code, or a trustee shall be appointed in the Chapter 11 Case. (ii) The mutual written agreement of the parties to terminate this Agreement. (iii) Notwithstanding any other provision, recital, covenant, representation, warranty or obligation set forth in this Agreement, US Lending, the Equity Committee, the Creditors Committee, and their respective attorneys and agents, have the right to consider and negotiate any inquiries, proposals or offers regarding any acquisition, merger, take-over, sale of all or substantially all of the assets of, or sales of shares of capital stock in, US Lending, whether or not in writing, or similar transactions (referred to herein as an "Acquisition Proposal"). If US Lending, the Equity Committee, the Creditors Committee and/or their respective attorneys and agents determine in good faith that it would be consistent with their respective fiduciary responsibilities to approve or recommend (and, in connection therewith, withdraw their approval or recommendation of this Agreement and the transactions contemplated hereby) an Acquisition Proposal, then US Lending, the Equity Committee and the Creditors Committee may, subject to Bankruptcy Court approval, terminate this Agreement. In the event of a termination pursuant to this Section 8(a)(iii), the Search Entities' sole remedy shall be as set forth in Section 2(g)(ii) above. (iv) The election by the other Party to terminate this Agreement following the notification of a Subsequent Development, pursuant to Section 6(f) above. b. Brokerage Commissions. US Lending and the Search Entities --------------------- each represent and warrant to the other that they have not dealt or worked with any broker or sales agent or finder regarding the sale of the Acquired Assets to Search Funding. The parties each agree to indemnify, defend and hold harmless the other from and against any claim by third parties arising by, through or under the indemnifying party, for brokerage, commission, finders or other fees relative to this Agreement, and any court costs, attorney's fees or any other costs or expenses arising therefrom. c. Agreement to Support Plan. Subject to the terms set forth ------------------------- in Section 8(a)(iii) above, the Parties hereto and the Equity and Creditors Committees each severally covenant and agree, from the date hereof and until termination of this Agreement pursuant to Section 8(a), above: (1) to actively support, not oppose, and in the case of the Equity and Creditors Committees, to recommend in writing the acceptance of, the Plan; (2) not to file, sponsor or promote any plan of reorganization in the Chapter 11 Case, other than the Plan; (3) if the Bankruptcy Court requires (as a condition to approval of a Disclosure Statement or otherwise) that the Plan be amended to require an auction sale of the Acquired Assets, then each Party agrees to amend the Plan to provide for such an auction with the sale of the Acquired Assets as one (1) lot, and agrees that the covenants set forth in Section 8(a)above shall not be affected by such amendment. Search Capital agrees to enter a bid at such auction that is at least equal to the Purchase Price set forth in Section 2(c), including the Purchase Price Adjustments set forth in Section 2(h) or the Warrants set forth in Section 2(I), as applicable, and may, but shall not be obligated to, increase such bid in the auction sale. d. Survival. All of the representations, warranties, and -------- covenants of the Search Entities contained in this Agreement shall survive the Closing hereunder. The truth and accuracy of the representations and warranties made by U.S. Lending hereunder and the performance of the covenants required to be performed by US Lending hereunder are solely conditions to the obligations of the Search Entities to consummate the transactions hereunder, and except solely for purposes of raising a defense or right of set-off as expressly provided in this Section 8(d), such representations, warranties and covenants shall not survive the Closing. From and after the Closing Date neither US Lending, the Creditors Committee, the Equity Committee, the Trust, the Trustee, the Escrow Agent, the beneficiaries of the Trust and the Escrow Agreement nor any of their respective directors, officers, members, attorneys, employees and agents shall have any liability or obligation to the Search Entities by reason of any breach of a representation, warranty or covenant of U.S. Lending herein. Notwithstanding the foregoing, the Search Entities shall be entitled to (i) the reimbursement of the Search Entities' expenses pursuant to Section 2(g) above, if applicable and (ii) raise a breach by US Lending of its obligations, covenants, representations and warranties hereunder as a defense or right of set-off if any damages are adjudicated as being due from the Search Entities to US Lending (or its successors and assigns) in an action commenced by US Lending (or its successors and assigns). This provision is solely in the nature of a defense or right of set-off and under no circumstances shall the Search Entities be entitled to receive payment of any monetary damages from US Lending, the Creditors Committee, the Equity Committee, the Trust, the Trustee, the Escrow Agent, the beneficiaries of the Trust and the Escrow Agreement nor any of their respective directors, officers, members, attorneys, employees, agents, successors and assigns, even if the Search Entities'damages exceed US Lending's (or such other parties') damages in such action. e. Press Releases and Announcements. No Party shall issue -------------------------------- any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). f. Indemnification. Conditioned upon the occurrence of the --------------- Closing, the Search Entities will defend, indemnify and hold harmless U.S. Lending, the Trust, the Trustee , the beneficiaries of the Trust and the Escrow Agreement, the Escrow Agent and their respective officers, directors, shareholders, agents, employees, successors and assigns and their respective advisors and professionals (collectively, the "Indemnified Persons") from and against any and all liabilities, claims, suits, fines, penalties, damages, settlements, judgments and expenses (including reasonable attorneys' fees and disbursements) arising from the claims of third parties incurred by the Indemnified Parties as a result of a breach of any representation, warranty, covenant, obligation or other agreement herein contained or executed in connection herewith (without regard to whether such breach occurred prior to, on or after the Closing) including, without limitation, under the Assumption Agreement (a "Loss" or "Losses"). If any claim or demand shall be brought or asserted against an Indemnified Person in respect of which indemnity may be sought under this Agreement from Search Entities, the Indemnified Person shall give prompt written notice of such claim or demand to the Search Entities who shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of all expenses. The Indemnified Person shall have the right to employ separate counsel and to participate in the defense or response, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person. In the event that the Search Entities, within 10 days after its receipt of notice of any such claim or demand, fail to assume the defense thereof, the Indemnified Person shall have the right to undertake the defense of such claim or demand, subject to the right of the Search Entities to assume the defense of such claim or demand with counsel reasonably satisfactory to the Indemnified Person at any time prior to the settlement, compromise or final determination thereof. g. Confidentiality. During the course of performance of this --------------- Agreement or as part of the Parties' due diligence in connection with this Agreement, each Party shall furnish or make available to the other (or to the other's agents and representatives) and the Committees certain information. Each Party and the Committees agree to keep the other Party's information confidential and to not use such information other than to evaluate this transaction or to perform its obligations hereunder. If the transaction is not consummated, each Party and the Committees will return all information provided to it by the other Party (including all copies, abstracts and summaries thereof). This provision shall not apply to any information which was known by one Party prior to disclosure by the other Party, becomes available to one Party from a source other than the other Party, or becomes generally available or known in the industry other than a breach by a Party hereunder. h. Access to Records. US Lending (and its successors and ----------------- assigns) shall, after the Closing, have the right to review and make copies of any materials in the Search Entities'possession or control relating to the Acquired Assets for any reasonable business purpose, including, without limitation, upon a tax or other governmental audit, and regarding any claim or lawsuit. i. Succession and Assignment. This Agreement shall be --------------------------- binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. Except with respect to assignments or other transfers to the Trustee and the Escrow Agent as contemplated by the terms of this Agreement, including without limitation, as provided in Section 2(k), no Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party. j. Counterparts. This Agreement may be executed in one or ------------ more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. k. Headings. The section headings contained in this -------- Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. l. Notices. All notices, requests, demands, claims, and ------- other communications hereunder must be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then four business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Seller: U.S. Lending Corporation 700 West Hillsboro Blvd. Bldg. 2, Suite 202 Deerfield Beach, FL 33441 Attn: Robert Spielman Fax: (954) 421-0812 with a copy to: Philip B. Schwartz, Esq. (which shall not Akerman, Senterfitt & Eidson, P.A. constitute notice) One Southeast Third Ave., 28th Fl. SunTrust International Center Miami, Florida 33131 FAX: (305) 374-5095 and a copy to: Daniel Lampert, Esq. (which shall not Stroock & Stroock & Lavan constitute notice) 200 South Biscayne Boulevard 33rd Floor Miami, Florida 33131 FAX: (305) 789-9302 with a copy to: Jerry Markowitz, Esq. (which shall not Markowitz, Davis & Ringel, P.A. constitute notice) 9130 South Dadeland Blvd., Suite 1225 Miami, Florida 33156 FAX: (305) 670-5011 If to the Joe B. Dorman, Esq. Search Entities: Search Capital Group, Inc. 700 North Pearl, Suite 400 North Tower, Lock Box 401 Dallas, Texas 75201-7490 FAX: (214) 965-6908 with a copy to: Daryl B. Robertson, Esq. (which shall not Bracewell & Patterson, L.L.P. constitute notice) 500 North Akard Street 4000 Lincoln Plaza Dallas, Texas 75201 FAX: (214) 740-4010 with a copy to: Michael R. Rochelle, Esq. (which shall not Rochelle & Hutcheson, L.L.P. constitute notice) 2929 Carlisle, Suite 222 Dallas, Texas 75204 FAX: (214) 953-0185 Any Party may give any notice, request, demand, claim, or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, facsimile, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is delivered to the proper address for notice of the individual for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. m. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Florida excluding its conflict of laws principles. n. Amendments and Waivers. No amendment or waiver of any ---------------------- provision of this Agreement shall be valid unless the same shall be in writing and signed by Search Capital and US Lending and approved by the Bankruptcy Court and the Committees. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach or warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. o. Severability. Any term or provision of this Agreement ------------ that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that expresses to the fullest extent possible the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. p. Expenses. Except as otherwise specified, each of the -------- Parties will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, in the event of a dispute arising hereunder, or under any agreement executed in connection herewith, including without limitation, a dispute arising prior to closing, the prevailing party shall be entitled to an award of its costs arising from such dispute, including, without limitation, reasonable attorneys fees and expenses including those incurred in bankruptcy proceedings. q. Construction. The language used in this Agreement will be ------------ deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty or covenant. r. Incorporation of Exhibits and Schedules. The Exhibits and --------------------------------------- Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. s. Specific Performance. Each of the Parties acknowledges -------------------- and agrees that the other Party would be damaged irreparably if any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, subject to the limitation of remedies contained elsewhere in this Agreement (including without limitation, Section 2(g) above), each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter, in addition to any other remedy to which it may be entitled, at law or in equity. t. Entire Agreement. This Agreement (including the documents, ----------------- referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above written. U.S. LENDING CORPORATION, as debtor-in possession By: ------------------------------------ Name: Robert Spielman Title: Executive Vice President SEARCH CAPITAL GROUP, INC. By: ------------------------------------ Name: ----------------------------- Title: ---------------------------- SEARCH FUNDING III, INC. By: ------------------------------------ Name: ----------------------------- Title: ---------------------------- LIMITED JOINDER OF COMMITTEES ----------------------------- The Official Committee of Unsecured Creditors and the Official Equity Committee of U.S. Lending Corporation hereby (i) agree to support the sale of the Acquired Assets described in the Agreement; (ii) consent to U.S. Lending's execution and delivery of the Agreement and consummation of the transaction contemplated thereunder, (iii) agree to take all actions reasonably requested by U.S. Lending to enable the parties to the Agreement to consummate the contemplated transactions and (iv) agree to comply with their obligations arising under Section 8(g) of the Agreement. SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF: OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF U.S. LENDING CORPORATION - ---------------------------- By: ---------------------------- PRINT NAME OF WITNESS BELOW: Name: Joseph Fowler - ---------------------------- Title: Chairman - ---------------------------- PRINT NAME OF WITNESS BELOW: - ---------------------------- OFFICIAL EQUITY COMMITTEE OF U.S. LENDING CORPORATION - ---------------------------- By: ---------------------------- PRINT NAME OF WITNESS BELOW: Name: - ---------------------------- Title: - ---------------------------- PRINT NAME OF WITNESS BELOW: - ---------------------------- EX-27.0 3
5 This Schedule contains summary financial information extracted from the Balance Sheet and Statement of Operations for the Quarter ended June 30, 1996 and is qualified in its entirety by reference to such 10-Q. 1 U.S. DOLLARS 3-Mos MAR-31-1997 APR-01-1996 JUN-30-1996 1 20,871,000 0 24,723,000 10,506,000 356,000 21,227,000 2,164,000 1,176,000 36,916,000 4,587,000 0 175,000 0 302,000 0 32,329,000 0 1,659,000 0 0 0 (1,382,000) 0 (891,000) 0 (891,000) 0 0 0 (891,000) (.03) (.03)
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