-----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, Na1eh9QeXpXkq3k7tvHizYmN5brZQmYGmymLkNkFFCTNgruhzADbgdkFE67UbcnV wLXDvt1QQxFIovCz6RhB2Q== 0000950134-97-005982.txt : 19970813 0000950134-97-005982.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950134-97-005982 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970731 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEARCH FINANCIAL SERVICES 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09539 FILM NUMBER: 97657523 BUSINESS ADDRESS: STREET 1: 600 N PEARL STREET STREET 2: SUITE 2500 CITY: DALLAS STATE: TX ZIP: 75201-2899 BUSINESS PHONE: 2149656000 MAIL ADDRESS: STREET 1: 600 N PEARL STREET STREET 2: SUITE 2500 CITY: DALLAS STATE: TX ZIP: 75201-2899 FORMER COMPANY: FORMER CONFORMED NAME: SEARCH CAPITAL GROUP INC DATE OF NAME CHANGE: 19930910 FORMER COMPANY: FORMER CONFORMED NAME: SEARCH NATURAL RESOURCES INC DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) JULY 31, 1997 ----------------------------- SEARCH FINANCIAL SERVICES INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 0-9539 41-1356819 - --------------------------- ---------------- ----------------------- (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 600 N. PEARL STREET SUITE 2500 DALLAS, TEXAS 75201 - --------------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (214) 965-6000 -------------------- NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On February 7, 1997, Registrant entered into an Agreement and Plan of Merger (the "Merger Agreement") with MS Financial, Inc. ("MSF"). Effective July 31, 1997, pursuant to the Merger Agreement, as amended, Search Capital Acquisition Corp., a wholly-owned subsidiary of Registrant, merged into MSF (the "Merger"), resulting in MSF becoming a wholly-owned subsidiary of Registrant. Pursuant to the Merger, each outstanding share of common stock of MSF was converted into the right to receive 0.3515 (the "Exchange Ratio") of a share of Common Stock of Registrant. The Exchange Ratio was determined by dividing $1.63 by $4.6375, which was the average price per share of the Common Stock of Registrant for the 10 day trading period ending on the fifth business day prior to the special meeting of stockholders of MSF at which the Merger Agreement was considered for adoption. The Merger was approved by the stockholders of MSF and the Registrant at their respective special meetings of stockholders held on July 31, 1997 and became effective that day. As a result of the Merger, Search issued 3,666,500 shares of its Common Stock. MSF, based in Jackson, Mississippi, is a specialized consumer finance company that purchases and services retail installment contracts relating to new and used cars and light duty trucks. MSF serves dealerships in 13 states, primarily in the southeast and south central United States. As of March 31, 1997, MSF had total assets of approximately $91,000,000, including net installment contracts and amounts due under securitizations of approximately $74,000,000. It also had total liabilities of approximately $74,000,000, including a bank line of credit having an outstanding balance of approximately $71,000,000. MSF managed and owned a total of approximately $105,000,000 of net installment contracts as of March 31, 1997. The Registrant intends to maintain MSF's Mobile, Alabama collection center. The bulk of MSF's loan servicing and collection activities will be transferred to the Registrant's Dallas collection center. Registrant will also maintain a regional office in Jackson, Mississippi, other branch locations and key personnel of MSF to continue marketing efforts to MSF's existing auto dealer network. In connection with the Merger, MSF and the Registrant reached agreement with MSF's bank group, led by Fleet Bank, N.A., for an extension of MSF's $70,000,000 line of credit until July 31, 1998. The line of credit must be reduced to $50,000,000 by December 31, 1997. As of July 31, 1997, the outstanding principal balance under the line of credit was approximately $63,000,000. -1- 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The financial statements for the acquired business are incorporated by reference to Annex D to the Joint Proxy Statement/Prospectus constituting part of the Registrant's Registration Statement on Form S-4 (File No. 333-30275). (B) PRO FORMA FINANCIAL INFORMATION. PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (UNAUDITED) The Merger has been accounted for under the "purchase" method of accounting which requires the purchase price to be allocated to the acquired assets and liabilities of MSF on the basis of their estimated fair values as of the date of acquisition. Consequently, a new accounting and reporting basis for the acquired assets and liabilities will be reflected in the future consolidated financial statements of the Registrant. The following pro forma combined condensed balance sheet and statements of income (collectively, the "Pro Forma Financial Information") present the combined historical financial statements of the Registrant and MSF adjusted to give effect to the Merger on a pro-forma purchase accounting basis. The unaudited Pro Forma Combined Condensed Balance Sheet at March 31, 1997 was prepared based upon the respective consolidated balance sheets of MSF and the Registrant at March 31, 1997, as if the acquisition of MSF had occurred on March 31, 1997. The unaudited Pro Forma Combined Condensed Statements of Income give effect to the acquisition as if it occurred on April 1, 1996 and includes adjustments directly attributable to the acquisition and expected to have a continuing impact on the combined company. The unaudited Pro Forma Combined Condensed Statements of Income were prepared based upon the audited consolidated statements of income of MSF for the fiscal year ended December 31, 1996 and of the Registrant for the fiscal year ended March 31, 1997. Because the Pro Forma Financial Information has been prepared based on estimated fair values, amounts actually recorded may change upon determination of the total purchase price and additional analysis of individual assets and liabilities assumed. The Pro Forma Financial Information and related notes are provided for informational purposes only. The Pro Forma Financial Information presented is not necessarily indicative of the consolidated financial position or results of operations of the Registrant as they may be in the future or as they might have been had the Merger been effected on the assumed dates. The unaudited Pro Forma Condensed Financial Information reflects preliminary purchase accounting adjustments. Estimates relating to the fair value of certain assets, liabilities and other items have been made as more fully described in the Notes to the unaudited Pro Forma Condensed Financial Information. While Search's management has made initial appraisals and evaluations of MSF's financial condition as of the date of the Merger, final purchase adjustments, which may include adjustments to additional assets, liabilities and other items, will be made on the basis of the final appraisals and evaluations of MSF's financial condition as of that time and, therefore, will differ from those reflected in the unaudited Pro Forma Condensed Financial Information. The unaudited Pro Forma Condensed Consolidated Statements of Income and explanatory notes presented also show the impact on the historical results of operation of the Registrant of the acquisition of the assets and business of Dealers Alliance Credit Corp. ("DACC") completed as of August 2, 1996 (the "DACC Acquisition"). The DACC Acquisition is reflected net of pro forma adjustments in the unaudited Pro Forma Condensed Consolidated Statements of Income as if it had occurred on April 1, 1996. Because the DACC Acquisition was closed prior to March 31, 1997, it is reflected in the Registrant's historical balance sheet at March 31, 1997. The combined company expects to achieve certain benefits from the Merger, including operating cost savings and revenue enhancements. The pro forma earnings, which do not reflect any direct costs, potential savings or revenue enhancements which are expected to result from the consolidation of operations of the Registrant and MSF, are not indicative of the results of future operations. No assurances can be given with respect to the ultimate level of expense savings and revenue enhancements to be realized. -2- 4 SEARCH AND MSF PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
At March 31, 1997 At March 31, 1997 Historical Pro Forma ------------------------ -------------------------- Search MSF Adjustments Combined --------- ------- ----------- --------- ASSETS Gross contracts receivable $62,325 $97,972 (c) $160,297 Unearned interest (10,636) (25,169) (c) (35,805) Amounts due under securitizations -- 7,580 (c) 7,580 ------- ------- --------- Net contracts receivables 51,689 80,383 132,072 Allowance for losses (5,854) (6,364) (12,218) Net loan origination costs 1,473 -- 1,473 ------- ------- --------- Net contracts receivable - after allowance for credit losses & other costs 47,308 74,019 121,327 Cash and cash equivalents 12,249 4,296 16,545 Vehicles held for resale 1,196 3,048 4,244 Property and equipment, net 1,608 1,497 3,105 Intangibles, net 6,252 -- $1,451 (a) 7,703 Other assets, net 910 8,155 -- 9,065 ------- ------- ------- -------- $69,523 $91,015 $ 1,451 $161,989 ======= ======= ======= ======== LIABILITIES AND STOCKHOLDERS EQUITY: Lines of credit $23,715 $ -- $23,715 Note payable 9,596 71,442 81,038 Accrued settlements 540 -- 540 Accounts payable and other liabilities 2,760 2,410 $750 (b) 5,919 Subordinated note payable 5,000 -- -- 5,000 Accrued interest 271 -- -- 271 Redeemable warrants 1,035 -- -- 1,035 -------- ------- ------- ------- Total liabilities 42,916 73,852 750 117,518 Stock repurchase commitment 2,078 -- 2,078 -------- ------- -------- Convertible preferred stock 201 -- 201 Common stock 252 11 (11) (b) 290 37 (b) Additional paid in capital 78,047 27,660 (27,660) (b) 95,875 17,827 (b) Unrealized gain on securities available for sale -- 450 (450) (b) -- Accumulated deficit (52,760) (8,684) 8,684 (b) (52,761) Treasury stock -- (2,274) 2,274 (b) -- -------- ------- ------- ------- Total stockholders' equity 25,740 17,163 701 43,605 Notes receivable - stockholders (1,212) -- -- (1,212) -------- ------- ------- --------- Net stockholders' equity 24,528 17,163 701 42,393 -------- ------- ------- --------- Total $ 69,523 $91,015 $ 1,451 $161,989 ======== ======= ======= ========
-3- 5 - --------------- (a) The acquisition has been accounted for using the purchase method of accounting, and, accordingly, the purchase price is being allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The following table sets forth a preliminary determination and allocation of the purchase price.
(in thousands) -------------- Merger exchange of shares and options ($4.6875 times 3,666,500 shares of Common Stock plus the estimated value associated with assumed options of $677,000) $17,864 Assumption of MSF debt 73,852 Transaction costs and expenses 750 ------- Pro forma purchase price $92,466 =======
The preliminary allocation of the pro forma purchase price is as follows: Net receivables after allowance and amounts due under securitizations $74,019 Cash and cash equivalents 4,296 Inventory 3,048 Property, plant and equipment, net 1,497 Other assets 8,155 --------- Identifiable assets $ 91,015 ========= Cost in excess of fair value of net assets acquired $ 1,451 =========
The allocation of the purchase price noted above is preliminary based on information as of March 31, 1997 for assets and liabilities but as of July 31, 1997 for the Exchange Ratio. Any potential claims which may arise from the Merger will be included in the final purchase price allocation. The excess of cost over the fair value of net assets acquired of $1,451,000 includes both identifiable and unidentifiable intangible assets. As of August 11, 1997, the final valuation of intangible assets had not been completed. Search will assign the final values upon completion of its evaluations and due diligence process. The identifiable intangible assets will be capitalized and amortized over a period not to exceed the estimated useful lives of the assets. Generally, Search believes that the assigned values will be allocated to the existing dealer network and the customer list of MSF which Search will acquire in the Merger. Search estimates that the average term for amortizing these assets will not exceed 15 years. The unidentifiable intangible assets acquired in the acquisition will be capitalized and amortized over a period not to exceed 10 years. -4- 6 The following table describes the adjustments to the pro forma balance sheet:
(in thousands) -------------- Estimated accrued transaction costs and expenses $750 Elimination of MSF Common Stock (11) Search Common Stock issued (3,666,500 x $0.01) 37 Elimination of MSF paid in capital (27,660) Search paid in capital ($17,186,000 - $37,000 + $678,000) 17,827 Elimination of MSF unrealized gain on sale of securities (450) Elimination of MSF accumulated deficit 8,684 Elimination of MSF treasury stock 2,274 ------- Cost in excess of fair value of net assets acquired $1,451 ======
(b) Gross contracts receivables include only installment contracts receivable owned by MSF. All installment contracts receivable held under MSF's Securitization Trusts are shown as net amounts due under securitizations. -5- 7 SEARCH AND MSF PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
Fiscal Year Search Fiscal MSF Fiscal Ended Year Ended Year Ended March 31, 1997 March 31, 1997 Dec. 31, 1996 Pro Forma Historical Historical Adjustments Combined ---------- --------- --------- ---------- Interest revenue $10,004 $14,909 $24,913 Other interest income -- 70 70 Interest expense (2,306) (5,371) (7,677) ---------- --------- ---------- Net interest income 7,698 9,608 17,306 Reduction of (provision for) credit losses 7,017 (25,903) (18,886) --------- ---------- --------- Net interest income (loss) after provision 14,715 (16,295) (1,580) Other income -- 4,750 4,750 General and administrative expense (13,392) (15,104) $ (145) (d) (28,641) Settlement expense (40) -- -- (40) -------- -------- ------ --------- Net income (loss) before dividends and taxes 1,283 (26,649) (145) (25,511) Income tax benefit -- 4,635 -- 4,635 Preferred stock dividends (6,154) -- -- (6,154) --------- --------- -------- ----------- Net income (loss) to common stockholders $(4,871) $(22,014) $ (145) $(27,030) ======== ========= ======= ========= Net income (loss) per share of common stock $ (1.45) $ (3.84) ======== ======== Weighted average common and common equivalent shares outstanding 3,366 (a) 3,667 (b) 7,033 ========= ======== ========
DACC Fiscal Year Operations for Ended Period Between March 31, 1997 April 1, 1996 and Pro Forma August 2, 1996 Combined ----------------- --------------- Interest revenue $2,240 $27,153 Other interest income -- 70 Interest expense (984) (8,661) -------- ---------- Net interest income 1,256 18,562 Reduction of (provision for) credit losses (6,800) (25,686) --------- -------- Net interest income (loss) after provision (5,544) (7,124) Other income -- 4,750 General and administrative expense (1,946) (30,587) Settlement expense -- (40) -------- ---------- Net income (loss) before dividends and taxes (7,490) (33,001) Income tax benefit -- 4,635 Preferred stock dividends -- (6,154) ------- ----------- Net income (loss) to common stockholders $(7,490) $(34,520) ======== ========= Net income (loss) per share of common stock $ (4.87) =========== Weighted average common and common equivalent shares outstanding 59 (c) 7,092 ======== =======
________________________ (a) Restated to reflect the 1-for-8 reverse stock split. (b) Represents the estimated number of shares of Search Common Stock to be issued in the Merger based on an assumed Exchange Ratio of 0.3515. (c) Represents adjustment to calculation of weighted average common and common equivalent shares outstanding assuming shares issued in the DACC acquisition were outstanding from April 1, 1996. (d) Represents amortization of net intangible assets ($1,451,000) over a 10-year period. -6- 8 (C) EXHIBITS.
Exhibit No. Description - ----------- ----------- 2.1 Agreement and Plan of Merger dated as of February 7, 1997 by and among Registrant, Search Capital Acquisition Corp. and MS Financial, Inc. (a copy of the Schedules to the Agreement and Plan of Merger will be furnished to the Commission supplementally upon request) (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated February 7, 1997) 2.2 Stockholders Agreement dated as of February 7, 1997 by and among Registrant, MS Diversified Corporation, MS Financial Services, Inc. and Golder Thoma Cressy Rauner Fund IV, L.P. (a copy of the Exhibits and Schedule to the Stockholders Agreement will be furnished to the Commission supplementally upon request) (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated February 7, 1997) 2.3 Escrow Agreement dated July 31, 1997 by and among Registrant, MS Diversified Corporation, MS Financial Services, Inc. and Golder Thoma Cressy Rauner Fund IV, L.P. 2.4 Letter Agreement dated as of June 25, 1997 among the Registrant, Search Capital Acquisition Corp. and MS Financial, Inc. (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed with the Registrant's Registration Statement on form S-4 (File No. 333-30275)). 99.1 Press Release dated July 31, 1997
-7- 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SEARCH FINANCIAL SERVICES INC. By: /s/ Robert D. Idzi --------------------------------------- Robert D. Idzi, Senior Executive Vice President Dated: August 11, 1997 -8- 10 EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.3 Escrow Agreement dated July 31, 1997 by and among Registrant, MS Diversified Corporation, MS Financial Services, Inc. and Golder Thoma Cressy Rauner Fund IV, L.P. 99.1 Press Release dated July 31, 1997
-9- EX-2.3 2 ESCROW AGREEMENT 1 EXHIBIT 2.3 SEARCH-MS FINANCIAL ESCROW AGREEMENT This Escrow Agreement, dated as of July 31, 1997 (the "Escrow Agreement"), is entered into by and among Search Financial Services, Inc., a Delaware corporation ("Search"); and the undersigned holders of shares of the common stock, $.001 par value, of MS Financial, Inc., MS Diversified Corporation, a Mississippi corporation ("MSD"), MS Financial Services, Inc., a Mississippi corporation and a wholly-owned subsidiary of MSD ("MSDSub") and Golder Thoma Cressy Rauner Fund IV, L.P. (sometimes referred to as "GTCR IV"), and U.S. Trust Company of Texas, N.A., a national bank ("Escrow Agent"). MSD, MSDSub and GTCR IV are sometimes collectively referred to as the "Stockholders". W I T N E S S E T H: WHEREAS, MS Financial, Inc. ("MS Financial"), Search and Search's wholly owned subsidiary, Search Capital Acquisition Corp. ("Newco"), have entered into an Agreement and Plan of Merger dated February 7, 1997 (as amended, the "Merger Agreement"), to effect the Merger (as defined in the Merger Agreement; capitalized terms used herein shall have the same definition as in the Merger Agreement unless otherwise specifically indicated) of Newco into MS Financial, which will result in MS Financial being controlled by Search instead of by the Stockholders, and each outstanding share of MS Financial Stock will be converted into the right to receive that number of shares of Search Common Stock, $.01 par value per share ("Search Common Stock"), specified in the Merger Agreement; and WHEREAS, Stockholders and Search have entered into a Stockholders Agreement dated February 7, 1997 (as amended, the "Stockholders Agreement"), pursuant to which Stockholders and Search agreed to enter into this Escrow Agreement; and WHEREAS, Search has agreed to issue the Search Common Stock as an integral part of the Merger to all of the stockholders of MS Financial, including but not limited to, the Stockholders; and WHEREAS, the Stockholders Agreement provides that portions of the Search Common Stock to be issued as Merger Consideration to the Stockholders are to be held in escrow pursuant to this Escrow Agreement in order to (i) guaranty payment of indemnification obligations under the Stockholders Agreement and (ii) reserve against the possibility that certain anticipated tax refunds are not received by MS Financial or the Surviving Corporation; and 1 2 WHEREAS, Stockholders and Search desire that Escrow Agent hold the Search Common Stock in escrow, and Escrow Agent has agreed to do so, on the terms and conditions set forth in this Escrow Agreement. NOW, THEREFORE, in consideration of the foregoing recitals, which are incorporated into this Escrow Agreement as if fully set forth, and for other good and valuable consideration, the receipt and sufficiency of all of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Establishment of Escrow. (a) Indemnification Escrow Fund. Search hereby delivers to Escrow Agent the number of shares (the "Escrow Shares") of Merger Consideration equal to Two Million, Five Hundred Thousand Dollars ($2,500,000) worth of Search Common Stock at the Valuation Period Market Value (the "Escrow Fund") to Escrow Agent to hold in escrow on the terms and conditions set forth herein. (b) Tax Holdback Escrow. Search hereby delivers to Escrow Agent the number of shares (the "Tax Holdback Shares") of Merger Consideration equal to Two Million, Three Hundred Thousand Dollars ($2,300,000) worth of Search Common Stock at the Valuation Period Market Value (the "Tax Holdback Fund") to hold in escrow on the terms and conditions set forth herein. 2. Receipt. Escrow Agent hereby acknowledges receipt of the Escrow Fund and the Tax Holdback Fund and agrees to hold them in escrow in accordance with the terms of this Escrow Agreement. 3. Charges Against Escrow Fund. The Escrow Fund has been created pursuant to Section 12.1 of the Stockholders Agreement for the purpose of securing and providing a source for satisfying any amount to be paid in Escrow Shares by the Stockholders to Search pursuant to Section 10 of the Stockholders Agreement. In the event that, and from time to time as, Search determines that it is entitled to any of the Escrow Shares as indemnification pursuant to the aforesaid Section 10 of the Stockholders Agreement, Search shall provide a notice to the Escrow Agent, in substantially the form attached hereto as Exhibit 1, of such claim (a "Claim") against the Escrow Fund, stating the method of computation of such Claim, the number of Escrow Shares to satisfy the amount of such claim, a brief description of the facts upon which such Claim is based and a reference to the provisions of the Stockholders Agreement in respect of which such Claim shall have occurred. The Escrow Agent shall mail a copy of such 2 3 Claim notice via registered or certified mail, return receipt requested, to the Stockholders. Unless it receives a timely Objection Notice from the Stockholders pursuant to Section 4 below, the Escrow Agent shall disburse to Search out of the Escrow Fund the number of Escrow Shares specified in the notice of the Claim. 4. Dispute of Claim Against Escrow Fund. (a) The Stockholders (or either of them) shall have the right to dispute any Claim against the Escrow Fund within the thirty (30) business day period following delivery of a copy of a Claim notice by delivering to the Escrow Agent and Search written notice in substantially the form attached hereto as Exhibit 2 (an "Objection Notice") that the Stockholders dispute the matter(s) set forth in such Claim notice either with respect to the validity, the amount, or the number of Escrow Shares of the Claim (or each). Such notice shall include the basis, with reasonable specificity, of the objection. (b) Upon timely receipt of an Objection Notice, the Escrow Agent shall reserve against the Escrow Fund 1.5 times the number of Escrow Shares stated in the Claim and place such Escrow Shares so reserved in a separate account (in effect putting a hold on any disbursement of such Escrow Shares) (such shares so reserved and placed in a separate account being called a "Dispute Fund"). The Escrow Agent shall take no action with respect to the Dispute Fund, except upon receipt of joint written instructions from Search and the Stockholders in substantially the form attached hereto as Exhibit 3 or by a final judgment or decree of any court of competent jurisdiction in accordance with Section 16.7 of the Stockholders Agreement. Upon such instructions or judgment, decree or award, the Escrow Agent shall promptly follow the instruction therein. 5. Release of Escrow Fund. The Escrow Agent shall release to the Stockholders, pro rata, a number of Escrow Shares not in excess of the Distributable Escrow Fund (for purposes of this Section 5, Distributable Escrow Fund means the Escrow Shares less that number of shares which correspond to 1.5 times the value of each unresolved Claim made less than thirty (30) days prior to a Distribution Date (as defined below) and excluding therefrom the Dispute Fund), as follows: 25% of the Distributable Escrow Fund on the first anniversary after the Effective Time; 25% eighteen months after the Effective Time; 25% twenty-four months after the Effective Time; and the remainder thirty months after the Effective Time (each such date a "Distribution Date"); provided, that if the value of the Search Common Stock held in the Dispute Fund on a Distribution Date exceeds on such Distribution Date 1.5 times the amount of the Claim(s) (the "Excess Dispute Fund Amount" refers to the excess value), then that number of shares of Search Common Stock that corresponds to the value on such Distribution Date of the Excess Dispute Fund Amount shall be transferred to the Escrow Fund, considered part of the Distributable Escrow Fund and subject to distribution as provided above. 3 4 6. Tax Holdback Fund. (a) Charges Against the Tax Holdback Fund. The Tax Holdback Fund has been created pursuant to Section 12.4 of the Stockholders Agreement for the purpose of reserving against the possibility that MS Financial or the Surviving Corporation do not receive certain anticipated tax refunds from federal and state taxing authorities. On December 31, 1998 (unless such date is accelerated or extended by mutual agreement of the parties based on the status of such refunds), any shares of Search Common Stock remaining in the Tax Holdback Fund (i.e., after releases of any of such shares pursuant to paragraph (b) below) shall be released to Search pursuant to joint instructions signed by Search and the Stockholders. (b) Release of Tax Holdback Fund. As tax refunds in excess of $4,000,000 are received by MS Financial or the Surviving Corporation, shares of Search Common Stock held in the Tax Holdback Fund shall be released to the Stockholders from escrow on no less than a quarterly basis in proportion to such income tax refunds received, pursuant to joint instructions signed by Search and the Stockholders. 7. Certificate Legend. The certificates representing the Escrow Fund and the Tax Holdback Fund shall bear the legend required by the Stockholders Agreement until said legend is removed pursuant to the terms and conditions of the Stockholders Agreement. Thereafter, all certificates representing the Search Common Stock still constituting a part of the Escrow Fund or the Tax Holdback Fund shall bear a legend substantially as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISTRIBUTED OR DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE CONDITIONS SPECIFIED IN THAT CERTAIN ESCROW AGREEMENT DATED JULY 31, 1997, TO WHICH AGREEMENT SEARCH FINANCIAL SERVICES, INC ("SEARCH"), MS DIVERSIFIED CORPORATION, MS FINANCIAL SERVICES, INC. AND GOLDER, THOMA, CRESSY, RAUNER FUND IV, L.P. ARE PARTIES. A COPY OF SUCH AGREEMENT WILL BE MAILED TO THE HOLDER HEREOF WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR DIRECTED TO SEARCH AT ITS HEADQUARTERS IN DALLAS, TEXAS." 4 5 8. Fees. The Escrow Agent is charging for its services hereunder the fees set forth on Schedule A, attached hereto and incorporated herein. Search shall be solely responsible for the payment of such fees. 9. Duties. The duties of the Escrow Agent hereunder are only such as are herein specifically provided, being purely administrative in nature, and the Escrow Agent shall incur no liability whatsoever except for fraudulent conduct. Other than the obligations of the Escrow Agent set forth in this Escrow Agreement, the Escrow Agent shall have no other obligations, rights, or duties with reference to this Escrow Agreement. The Escrow Agent shall not be bound by any modification of this Escrow Agreement unless in writing and signed by all of the parties hereto. 10. Uncertainty or Conflict: In the event that the Escrow Agent shall be uncertain as to its duties or obligations hereunder or shall receive instructions from any party hereto with respect to any part or all of the Escrow Fund or the Tax Holdback Fund, which are in conflict with any of the provisions of this Escrow Agreement, the Escrow Agent shall be entitled to refrain from taking any action other than to keep safely the Escrow Fund and the Tax Holdback Fund and any other property so received by it until it shall be directed by a court as provided in the following Section. 11. Litigation: If (i) the Escrow Agent becomes involved in or is threatened with litigation for any reason resulting from its capacity as Escrow Agent, and/or (ii) the Escrow Agent is uncertain as to its duties or obligations hereunder, the Escrow Agent is hereby authorized to deposit with the U.S. district court in St. Louis, Missouri the Escrow Fund and/or the Tax Holdback Fund and notify Stockholders and Search of the same. Thereupon, the Escrow Agent shall stand fully relieved and discharged of any further duties hereunder in respect of such action and the matters giving rise thereto except as may be instructed by said court. In the event Escrow Agent is a party to any litigation, Stockholders and Search severally agree to reimburse Escrow Agent on demand for any reasonable out-of-pocket expenses incurred by Escrow Agent in connection with such litigation. 12. Escrow Agent Replacement. If Escrow Agent resigns as Escrow Agent, the parties shall have thirty (30) days to select a new Escrow Agent. If the parties fail to select a new Escrow Agent within said thirty (30) day period, Escrow Agent shall appoint a successor Escrow Agent. Any successor Escrow Agent shall agree to be bound by all of the terms and conditions of this Escrow Agreement. 5 6 13. Voting Rights. The respective Stockholders will, subject to the restrictions set forth in the Stockholders Agreement, retain the right to vote the Escrow Shares and the Tax Holdback Shares. 14. Termination. Upon disbursement of the entire Escrow Fund and the Tax Holdback Fund, this Escrow Agreement shall terminate. 15. Notices. Any notice, request, claim, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given if delivered personally or sent by telefax (with confirmation of receipt), by registered or certified mail, postage prepaid, or by recognized courier service, as follows: If to Search or Newco to: Search Financial Services, Inc. 600 N. Pearl Street Suite 2500, L.B. 123 Dallas, Texas 75201-2809 Attention: George C. Evans, Pres. & CEO and Ellis Regenbogen, Executive Vice President and General Counsel Facsimile No.: 214-965-6098 Telephone No.: 214-965-6000 With a copy to: Riezman & Blitz, P.C. 7700 Bonhomme, 7th Floor St. Louis, Missouri 63105 Attention: Richard M. Riezman, Esq. Facsimile No.: 314-727-6458 Telephone No.: 314-727-0101 If to MSD, or MSDSub: MS Diversified Corporation 715 South Pear Orchard Road, Suite 400 Ridgeland, Mississippi 39157 Attention: Tom Ostenson Facsimile No.: 601-978-6756 With a copy to: Phelps Dunbar, L.L.P. Suite 500, Mtel Centre South Lamar Street Post Office Box 23066 Jackson, Mississippi 39225-3066 Attention: Charles D. Porter Facsimile No.: 601-360-9777 If to GTCR IV: Golder Thoma Cressy Rauner Fund IV, L.P. c/o Golder, Thoma, Cressy, Rauner, Inc. 6 7 6100 Sears Tower Chicago, Illinois 60606-6402 Attention: Phil Canfield Facsimile No.: 312-382-2201 If to Escrow Agent to: U.S. Trust Company of Texas, N.A. Ross Avenue, Suite 2700 Dallas, TX 75201 Attention: William Barber Facsimile No.: 214-754-1303 or to such other address as the Person to whom notice is to be given may have specified in a notice duly given to the sender as provided herein. Such notice, request, claim, demand, waiver, consent, approval or other communication shall be deemed to have been given as of the date so delivered, telefaxed, mailed or dispatched and, if given by any other means, shall be deemed given only when actually received by the addressees. 16. Miscellaneous. a. This Escrow Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. b. This Escrow Agreement may be executed in one or more counterparts, and each such counterpart shall, for all purposes, be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. c. If any provision(s) of this Escrow Agreement are held to be invalid, illegal or unenforceable by a court of competent jurisdiction, the validity, legality and enforceability of the remaining provisions of this Escrow Agreement shall not in any way be affected or impaired thereby. d. The obligations and duties of Escrow Agent herein are personal to Escrow Agent and Escrow Agent may not assign any and/or all of its obligations or duties hereunder except as set forth herein. e. Indemnity. Escrow Agent is hereby severally indemnified by Search and Stockholders against any liability resulting from the exercise of its duties under this Escrow Agreement which are not performed fraudulently or with gross negligence. * * * * * 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the day and year first above written. SEARCH FINANCIAL SERVICES, INC. ("SEARCH") By: /s/ Robert D. Idzi Name: Robert D. Idzi Title: Senior Executive Vice President & Chief Financial Officer MS DIVERSIFIED CORPORATION ("MSD") By: /s/ James B. Stuart Name: James B. Stuart Title: President; CEO MS FINANCIAL SERVICES, INC. ("MSDSub") By: /s/ Harold Hogue Name: Harold Hogue Title: Treasurer GOLDER THOMA CRESSY RAUNER FUND IV, L.P. ("GTCR IV") By: GTCR IV, L.P., its General Partner By: Golder, Thoma, Cressey, Rauner, Inc., its General Partner By: /s/ Carl D. Thoma Its Authorized Officer U.S. TRUST COMPANY OF TEXAS, N.A. ("Escrow Agent") By: /s/ BILL BARBER Name: BILL BARBER Title: VICE PRESIDENT 8 9 SCHEDULE A ESCROW AGENT FEES Search shall pay to the Escrow Agent a fee of $2,500 per year, or part thereof, payable semi-annually in advance. 9 10 Exhibit 1 [date] NOTICE OF CLAIM FOR INDEMNITY U.S. Trust Company of Texas, N.A. 2001 Ross Avenue, Suite 2700 Dallas, Texas 75201 RE: Escrow Agreement, dated July 31, 1997 (the "Escrow Agreement"), among Search Financial Services, Inc., a Delaware corporation ("Search"), Golder Thoma Cressey Rauner Fund IV, L.P., MS Diversified Corporation, MS Financial Services, Inc. (collectively, the "Stockholders") and U.S. Trust Company of Texas, N.A. Subject to Section 5 of the Escrow Agreement, you are hereby authorized and instructed to disburse ___________ Escrow Shares (as defined in the Escrow Agreement) from the Escrow Fund (as defined in the Escrow Agreement), representing a total amount of $_______________, to Search by reason of the following claim: This claim is based on the following facts: [brief description of the method of computation of the Claim, the facts upon which the Claim is based and a reference to the provisions of the Stockholders Agreement in respect of which such Claim shall have occurred] SEARCH FINANCIAL SERVICES, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 10 11 Exhibit 2 [date] OBJECTION NOTICE U.S. Trust Company of Texas, N.A. 2001 Ross Avenue, Suite 2700 Dallas, Texas 75201 RE: Escrow Agreement, dated July 31, 1997 (the "Escrow Agreement"), among Search Financial Services, Inc., a Delaware corporation ("Search"), Golder Thoma Cressey Rauner Fund IV, L.P., MS Diversified Corporation, MS Financial Services, Inc. (collectively, the "Stockholders") and U.S. Trust Company of Texas, N.A. You hereby are notified that the Stockholders dispute the Claim for Indemnity set out in the Notice for Claim for Indemnity of Search dated _________________ ("Claim"). The basis for disputing such Claim is: [insert a paragraph stating with reasonable specificity the basis of the objection] GOLDER THOMA CRESSY RAUNER FUND, IV., L.P. By: GTCR IV, L.P., its General Partner By: Golder, Thoma, Cressey, Rauner, Inc., its General Partner By: ----------------------------- Its Authorized Officer MS DIVERSIFIED CORPORATION By: --------------------------------------------- Name: ------------------------------------------- Title: ------------------------------------------ MS FINANCIAL SERVICES, INC. By: --------------------------------------------- Name: ------------------------------------------- Title: ------------------------------------------ 11 12 Exhibit 3 [date] JOINT INSTRUCTIONS FOR DISPUTE RESOLUTION U.S. Trust Company of Texas, N.A. 2001 Ross Avenue, Suite 2700 Dallas, Texas 75201 RE: Escrow Agreement, dated July 31, 1997 (the "Escrow Agreement"), among Search Financial Services, Inc., a Delaware corporation ("Search"), Golder Thoma Cressey Rauner Fund IV, L.P., MS Diversified Corporation, MS Financial Services, Inc. (collectively, the "Stockholders") and U.S. Trust Company of Texas, N.A. You hereby are authorized and instructed to take the following action with respect to the Dispute Fund (as defined in the Escrow Agreement) that was created by reason of Search's Notice of Claim for Indemnity dated _____________ _____ and the Stockholders' Objection Notice dated __________________: [Instructions for treatment of the Dispute Fund] SEARCH FINANCIAL SERVICES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- GOLDER THOMA CRESSY RAUNER FUND, IV., L.P. By: GTCR IV, L.P., its General Partner By: Golder, Thoma, Cressey, Rauner, Inc., its General Partner By: ------------------------ Its Authorized Officer MS DIVERSIFIED CORPORATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MS FINANCIAL SERVICES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 12 EX-99.1 3 PRESS RELEASE 1 EXHIBIT 99.1 [SEARCH FINANCIAL SERVICES INC. LOGO] Contact: James F. Leary Vice Chairman, Finance Search Financial Services Inc. 214/965-6000 or James B. Stuart, Jr. MS Diversified, Inc. 601/978-6701 FOR IMMEDIATE RELEASE: July 31, 1997 SEARCH AND MS FINANCIAL COMPLETE MERGER DALLAS, Texas -- Search Financial Services Inc. ("Search") today announced completion of its acquisition of MS Financial, Inc. ("MSF") in a stock swap valued at approximately $17 million. Stockholders of both MSF and Search approved the merger at special meetings held on July 31, 1997. MSF stockholders will exchange each MSF common share for 0.3515 of a share of Search common stock that will result in Search issuing 3,666,500 common shares. George C. Evans, Search's chairman and chief executive officer, said, "This acquisition/merger is Search's largest transaction since our reorganization in early 1996 when we initiated our strategic plan of achieving growth through acquisitions and bulk purchases of portfolios. With this deal now finalized, we can concentrate on marketing to MSF's auto dealer network and increasing loan originations. I would also like to acknowledge the tremendous support we received form our stockholders and welcome our new stockholders from MSF." The merger substantially increases Search's nonprime auto receivables under management from approximately $56 million to approximately $170 million. Search intends to maintain MSF's Mobile, Alabama collection center; however, the bulk of MSF's loan servicing and collection activities will be transferred to Search's Dallas collection center. Search will also maintain a regional office in Jackson, other branch locations, and key personnel to continue marketing efforts to their existing auto dealer network. -more- 2 In connection with the merger, MSF's $70 million line of credit from a bank group led by Fleet Bank, N.A. will remain in place. The line will be available until July 31, 1998, but must be reduced to $50 million by December 31, 1997. The outstanding principal balance under the line is approximately $63 million. MSF, based in Jackson, Mississippi, is a specialized consumer finance company that purchases and services retail installment contracts on new and used cars and light duty trucks. The company serves more than 800 dealerships in 13 states. Search is a specialized financial services company engaged in the purchasing, financing and servicing of nonprime automobile installment loans originated by franchised and independent automobile dealers. Search also engages in non-auto consumer finance operations. Search common shares and its 9%/7% convertible preferred shares trade publicly and are listed on the NASDAQ National Market under the symbols "SFSI" and "SFSIP", respectively. # # # -----END PRIVACY-ENHANCED MESSAGE-----