-----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, VjmZlM2QDRxNFdsmi3FPkBmxxzK3BPtV/w8Jwp0z8++Rng+BilnbrG4aA2mrlCdA H2N5Xrq2Q4715TsIvThFUQ== 0000950134-96-006183.txt : 19961118 0000950134-96-006183.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950134-96-006183 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE 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: 96663132 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 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: Commission File Number: September 30, 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 November 11, 1996 - ---------------------------- ---------------------------- Common Stock, $.01 par value 28,634,870 1 2 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 . . . . . . . . . . . . . . . . . . . . . 10 PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 - ------- Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 3. Default Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . 18 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . 18 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 20 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The financial information for the interim periods presented herein is unaudited. In the opinion of management, all adjustments necessary (which are of a normal recurring nature) have been included for a fair presentation of the results of operations. The results of operations for an interim period are not necessarily indicative of the results that may be expected for a full year or any other interim period. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q for quarter ended September 30, 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. 2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets
September 30, March 31, 1996 1996 ---------------------------------- --------------- Pro forma ASSETS Unaudited Historical (Note 3) - ------ --------------- --------------- ---------------- Gross contract receivables (Note 2) $ 61,945,000 $ 37,086,000 $ 37,086,000 Unearned interest (12,877,000) (6,435,000) (6,435,000) --------------- --------------- --------------- Net contracts receivable 49,068,000 30,651,000 30,651,000 Allowance for credit losses (13,431,000) (13,353,000) (13,353,000) Net, loan origination costs 366,000 406,000 406,000 --------------- --------------- --------------- Net contract receivables - after allowance for credit losses & other costs 36,003,000 17,704,000 17,704,000 --------------- --------------- --------------- Cash and cash equivalents 13,194,000 17,817,000 21,582,000 Vehicles held for resale 362,000 566,000 566,000 Property and equipment, net 1,168,000 1,062,000 1,062,000 Goodwill, net 11,153,000 -- -- Notes receivable and other assets, net 1,640,000 197,000 197,000 --------------- --------------- --------------- Total assets $ 63,520,000 $ 37,346,000 $ 41,111,000 =============== =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Lines of credit $ 20,189,000 $ 2,283,000 $ -- Accrued settlements 500,000 688,000 688,000 Dividends payable 1,532,000 -- -- Accounts payable and other liabilities 1,532,000 7,356,000 7,356,000 Accrued interest 13,000 15,000 -- --------------- --------------- --------------- Total liabilities 23,766,000 10,342,000 8,044,000 --------------- --------------- --------------- Stockholders' Equity - -------------------- Preferred stock 199,000 154,000 174,000 Common stock 317,000 259,000 300,000 Additional paid-in capital 93,308,000 81,784,000 87,786,000 Accumulated deficit (52,920,000) (54,043,000) (54,043,000) Treasury stock (1,150,000) (1,150,000) (1,150,000) --------------- --------------- --------------- Total stockholders' equity 39,754,000 27,004,000 33,067,000 --------------- --------------- --------------- Total liabilities and stockholders' equity $ 63,520,000 $ 37,346,000 $ 41,111,000 =============== =============== ===============
See accompanying notes to consolidated financial statements. 3 4 SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
Six Months Ended Six Months Ended September 30, 1996 September 30, 1995 ------------------ ------------------ Interest revenue $ 3,898,000 $ 4,778,000 Interest expense 290,000 4,768,000 ------------------ ------------------ Net interest income 3,608,000 10,000 Recovery of prior credit losses 3,438,000 2,209,000 ------------------ ------------------ Net interest income after recoveries of prior credit losses 7,046,000 2,219,000 ------------------ ------------------ General and administrative expense 5,922,000 8,660,000 Settlement -- 2,837,000 Reorganization -- 315,000 ------------------ ------------------ Operating and other expense 5,922,000 11,812,000 ------------------ ------------------ Net income (loss) before dividends 1,124,000 (9,593,000) Preferred stock dividends 2,946,000 120,000 ------------------ ------------------ Net loss to common stockholders $ (1,822,000) $ (9,713,000) ------------------ ------------------ Primary net loss per share attributable to common stockholders $ (.07) $ (1.11) ================== ================== Weighted average common shares outstanding 27,214,000 8,764,000 ================== ==================
Three Months Ended Three Months Ended September 30, 1996 September 30, 1995 ------------------ ------------------ Interest revenue $ 2,239,000 $ 609,000 Interest expense 290,000 1,813,000 ------------------ ------------------ Net interest income 1,949,000 (1,204,000) Recovery of (provision for) credit losses 2,056,000 2,633,000 ------------------ ------------------ Net interest income after recoveries of (provisions for) credit losses 4,005,000 1,429,000 ------------------ ------------------ General and administrative expense 3,394,000 4,808,000 Settlement -- 2,837,000 Reorganization -- 315,000 ------------------ ------------------ Operating and other expense 3,394,000 7,960,000 ------------------ ------------------ Net income (loss) before dividends 611,000 (6,531,000) Preferred stock dividends 1,542,000 60,000 ------------------ ------------------ Net loss to common stockholders $ (931,000) $ (6,591,000) ------------------ ------------------ Primary loss per share attributable to common stockholders $ (.03) $ (.76) ================== ================== Weighted average number of common shares outstanding 26,628,000 8,671,000 ================== ==================
See accompanying notes to consolidated financial statements. 4 5 SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 ------------------ ------------------ OPERATING ACTIVITIES: Net income (loss) $ 1,124,000 $ (9,593,000) Adjustments to reconcile net income (loss) to cash used in operations: Provision for recovery of credit losses (1,691,000) (2,209,000) Amortization of deferred offering costs 6,000 1,391,000 Amortization of loan origination costs 242,000 615,000 Depreciation 281,000 253,000 Changes in assets and liabilities: Decreases (increases) in other assets (256,000) (63,000) Increases (decreases) in accounts payable (4,466,000) 3,739,000 ------------------ ------------------ Cash used in operations (4,760,000) (5,867,000) ------------------ ------------------ INVESTING ACTIVITIES: Purchase of contracts receivable (14,793,000) (14,160,000) Principal payments on contracts receivables including proceeds from sales of vehicles 11,524,000 25,092,000 Purchase of property and equipment (388,000) (354,000) Decrease in restricted cash -- (1,692,000) ------------------ ------------------ Cash provided by investing activities (3,657,000) 10,578,000 ------------------ ------------------ FINANCING ACTIVITIES: Borrowings under line of credit 4,400,000 Repayments under lines of credit (2,283,000) (1,217,000) Notes payable repayments -- (1,690,000) Deferred offering costs (82,000) Capital lease principal payments (30,000) (58,000) Net proceeds from debt conversion and sale of stock 4,346,000 -- Loans for stock purchases (1,099,000) -- Purchase of treasury stock -- (1,125,000) Payment of dividends on preferred stock (1,680,000) (120,000) ------------------ ------------------ Cash provided by (used in) financing activities 3,572,000 (4,210,000) ------------------ ------------------ CHANGE IN CASH AND CASH EQUIVALENTS: Change in cash and cash equivalents (4,845,000) 501,000 Cash and cash equivalents - beginning 17,817,000 1,633,000 Net cash acquired 222,000 -- ------------------ ------------------ Cash and cash equivalents - ending $ 13,194,000 $ 2,134,000 ================== ================== - ------------------------------------------------------------------------------------------------------ Supplemental Information: Cash Paid for Interest $ 292,000 $ 3,725,000 ================== ==================
5 6 SEARCH CAPITAL GROUP, INC. AND SUBSIDIARIES 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, in all material respects, the financial position of the Company for the periods presented. During the quarter ended September 30, 1996, the Company recorded adjustments which it considers not of a normal recurring nature. These adjustments include a gain related to the closure of the Company's retail lots and related make ready facility of $124,000, the reduction of an amount previously reported as a liability under a terminated warranty program for the Company's previously purchased contracts in the amount of $136,000, and reversal of previously recorded expenses associated with a self-funded insurance program in the amount of $36,000. These 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 with any premium paid recorded as an acquisition cost and amortized over the remaining life of the related loans. Generally, an initial reserve is recorded for any acquisition discount, which is 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 otherwise exist regarding 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 reductions in the allowance for loan losses. 6 7 Most of the Company's contracts receivable are due from individuals in metropolitan areas of southern and western states. To some extent, collection of the receivables will be dependent on local economic conditions. In the opinion of management, a portion of the 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 nor indicators of future performance. CONTRACTUAL DELINQUENCIES The following tables set forth certain information related to the contractual delinquency of the Company's receivables as of September 30, 1996 and March 31, 1996.
AS OF SEPTEMBER 30, 1996 -------------------------------------------------------------------------------- % OF NUMBER OF TOTAL TOTAL CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET DELINQUENCY CONTRACTS (1) CONTRACTS INSTALLMENTS INTEREST RECEIVABLES ----------- ------------- --------- ------------ ----------- ----------- Current to 60 days past due 9,873 93% $57,487,000 $12,144,000 $ 45,343,000 61-over days past due 769 7% 4,458,000 733,000 3,725,000 ------ ---- ----------- ----------- ------------ Total 10,642 100% $61,945,000 $12,877,000 49,068,000 ====== ==== =========== =========== Allowance for credit losses (13,431,000) ------------ Receivables, net of allowance for credit losses $ 35,637,000 ============
AS OF MARCH 31, 1996 ----------------------------------------------------------------------------------- % OF NUMBER OF TOTAL TOTAL CONTRACTUAL ACTIVE ACTIVE UNPAID UNEARNED NET DELINQUENCY CONTRACTS (1) 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 ============
(1) Excludes 245 and 333 accounts which were reclassified to vehicles held for resale as of September 30, 1996 and March 31, 1996, respectively. 7 8 ALLOWANCE FOR CREDIT LOSSES The following table shows the changes in the Company's allowance for loan losses for the six months ending September 30, 1996.
SIX MONTHS ENDING SEPTEMBER 30, 1996 ------------------ Balance at beginning of period $13,353,000 Allowance recorded on acquisition of loans 5,869,000 Provision for loan losses - Recovery of prior credit losses 1,747,000 Reduction in allowance for credit losses (3,438,000) Loans charged off against allowance (4,100,000) ----------- Balance at end of period $13,431,000 ===========
CONTRACTUAL MATURITIES The following tables set forth certain information related to the contractual maturities of the Company's contract receivables as of September 30, 1996 and March 31, 1996.
AS OF SEPTEMBER 30, 1996 --------------------------------------------------------------------- 12 MONTHS ENDING SEPTEMBER 30, 1999 AND 1997 1998 BEYOND TOTAL ----------- ----------- ----------- ----------- Future payments receivable $32,621,000 $18,947,000 $10,377,000 $61,945,000 Less unearned interest 8,450,000 3,876,000 551,000 12,877,000 ----------- ----------- ----------- ----------- Net contractual maturities $24,171,000 $15,071,000 $9,826,000 $49,068,000 =========== =========== ========== ===========
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 =========== =========== ========== ===========
8 9 GENERAL CONTRACT CHARACTERISTICS The following sets forth certain general information related to the contract receivables of the Company as of September 30, 1996 and March 31, 1996.
AS OF AS OF SEPTEMBER 30, 1996 MARCH 31, 1996 Unearned as a percent of gross receivables 20.79% 17.35% ====== ====== Allowance for loan losses as percent of net receivables 27.37% 43.56% ====== ====== Average Original Loan Amount $7,433 $6,997 ====== ====== Average Net Receivable Remaining Balance $4,610 $3,833 ====== ====== Weighted Average APR 20.71% 23.81% ====== ====== Weighted Average Original Term in Months 36.94 32.42 ====== ====== Weighted Average Remaining Term in Months 26.68 19.09 ====== ======
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. 9 10 4. ACQUISITION OF DEALERS ALLIANCE CREDIT CORPORATION Effective August 2, 1996, Search Funding IV, Inc. ("SFIV"), a wholly-owned subsidiary of Search, acquired all of the assets and assumed certain liabilities of Dealers Alliance Credit Corporation ("DACC"). DACC conducted purchasing and servicing of used motor vehicle receivables in Atlanta, Georgia. DACC had purchased loans from over 1,000 new and used car dealers primarily in Georgia, Texas, Tennessee, and Florida. The acquisition was accounted for under the purchase method of accounting. Accordingly, their results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired based upon their estimated fair value. This allocation was based on preliminary estimates and may be revised at a later date. The excess of cost over fair value of the net assets, of approximately $11,300,000, acquired relating to the purchase is being amortized over fifteen years on the straight line method. Under the terms of the transaction, SFIV assumed approximately $17,500,000 in bank debt under a restructured line of credit and acquired assets of approximately $23,000,000. The Company gave in exchange for the net assets, a combination of common stock, Series B 9%/7% Preferred Stock, and warrants to purchase common stock. The Company plans to use the office as a regional marketing branch for southeastern states and a collection center. 5. LINE OF CREDIT On September 11, 1996, Search Funding II, Inc. ("SFII"), a wholly-owned subsidiary of Search, entered into a revolving line of credit agreement (the "line") with Hibernia National Bank (HNB). The line bears interest at the prime rate plus one percentage point, currently 9.25% as of October 31, 1996. The line has a maximum borrowing commitment of $25,000,000 and is limited to a percentage of eligible contracts held by SFII. The line is secured by all SFII assets and expires on September 11, 1999. Search has guaranteed the line. Search and SFII must comply with various covenants that require the maintenance of certain financial ratios and other financial conditions. 6. RELATED PARTY INFORMATION A director of the Company is a principal in a securities firm which will receive fees for its services to be rendered in connection with obtaining potential subordinate debt and senior debt financing for the Company. The Company will pay a marketing fee of $60,000 and a placement fee of 3.0% related to the subordinated debt offering and a .375% agency fee for the senior debt. A director of the Company is a managing director of an investment banking firm retained by the Company to act as its financial advisor. The Company is obligated to pay $50,000 per year under this agreement to the firm. Additionally, the Company has retained this director's firm to provide a fairness opinion with respect to the Company's acquisition of certain assets and liabilities of DACC and U.S. Lending Corporation. In connection with these opinions, the Company will pay $100,000 and $125,000, respectively. 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 10 11 activities utilizing a receivables management system developed by Norwest Financial Information Systems Group, Inc. in conjunction with the Company's proprietary Auto Note Management System software. The Company commenced its used motor vehicle receivables purchasing and servicing business in 1991. The Company opened its first consumer finance office on November 1, 1996 in Baton Rouge, Louisiana. The Company intends to open more branch offices in the near future. These offices will make and collect retail sales finance loans, second mortgage real estate loans, and other consumer loans. 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 notes (the "Notes) issued by wholly owned subsidiaries organized specifically for this purpose (the "Fund Subsidiaries") and through reinvestment of operating cash flow. Until March 1996, the purchasing of receivables for the Fund Subsidiaries was governed by trust indentures (the "Trust Indentures") which restricted management's ability to alter its receivables purchasing criteria. In March 1996, following confirmation of the Fund Subsidiaries' plan of reorganization under Chapter 11 of the bankruptcy code, 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. If the Company is unable to select the proper dealers, purchase contracts with obligors which meet its credit criteria, and realize collection proceeds in adequate amounts, the repossession rate and sale proceeds could be higher and lower, respectively. The terms of loans under the Preferred Program generally range from 30 months to 60 months. RESULTS OF OPERATIONS Comparison of Six Month Periods Ended September 30, 1996 and 1995 The Company purchased 509 non-bulk contracts during the six months ended September 30, 1996 compared to 2,659 non-bulk contracts during the six months ended September 30, 1995. The cost of non-bulk contracts purchases was $5,076,000 ($9,972 per contract) compared to $14,160,000 ($5,325 per contract) for the six month periods in 1996 and 1995, respectively. The Company purchased 1,098 bulk contracts at a cost of $9,717,000 ($8,849 per contract) during the six months ended September 30, 1996 compared to 112 bulk contracts at a cost of $513,000 ($4,580 per contract) for the six months ended September 30, 1995. The increase in cost of non-bulk contracts is due to a higher purchase price per contract under the Preferred Program generally due to a lower mileage vehicle, higher credit quality customers and higher wholesale and retail value per vehicle. The increase in cost of bulk contracts is due to the 11 12 Company purchasing contracts that involve a higher credit quality obligors or higher value vehicle collateral than the contracts previously purchased by the Company, or both. 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. Additionally, during the three months ended September 30, 1996, the Company purchased 725 non-auto consumer finance contracts which were not secured by automobiles at a cost of $278,000. The Company is also planning to expand into other areas of consumer finance. Interest revenue decreased from $4,778,000 for the six months ended September 30, 1995 to $3,898,000 for the six months ended September 30, 1996. The decrease of $880,000, or 18%, is primarily a result of higher average interest earning net receivables for the six month period ended September 30, 1995 of $48,894,000 compared to $27,251,000 average interest earning net receivables for the period ended September 30, 1996. Interest expense decreased from $4,768,000 to $290,000 for the six months ended September 30, 1996 compared to the same six month period ended September 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 increased from a recovery of $2,209,000 for the six months ended September 30, 1995 to a recovery of $3,438,000 for the six months ended September 30, 1996. The increase in the recovery of prior credit losses is due to increased recoveries of prior credit losses from previously charged off accounts. During the six month period ended September 30, 1996, the Company recovered $1,747,000 of proceeds from accounts previously charged off. During the same three month period in the six months ended September 1995, the Company did not recover any proceeds. 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. Additionally, the acquisition of DACC provided the Company with a new pool of deficiency balances to collect of which the Company collected approximately $300,000 in the quarter ended September 30, 1996. In the future, management anticipates a lower amount of recovery of prior credit losses as these collections decrease. During the six months ended September 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 six months ended September 30, 1996, the Company reduced its loan loss provision by an additional $1,691,000 to reflect a reduction in anticipated loan losses. General and administrative expenses decreased from $8,660,000 to $5,922,000, or $2,738,000 for the six months ended September 30, 1995, compared to the same six month period in September 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 six month period ended September 30, 1995 contains 12 13 general and administrative expenses, related to these retail lots whereas the six months ended September 30, 1996 contain none of the same expenses. The Company's employee count averaged 115 persons for the six months ended September 30, 1996 compared to 127 persons for the six months ended September 30, 1995. Preferred stock dividends increased $2,826,000 from $120,000 for the six months ended September 30, 1995 to $2,946,000 for the six months ended September 30, 1996. The increase in preferred stock dividends 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 and 2,554,000 shares of Series B 9%/7% Convertible Preferred Stock in the acquisition of DACC. The Company had 400,000 shares of its 12% Convertible Preferred Stock outstanding and no 9%/7% Convertible Preferred Stock during the six months ended September 30, 1995, compared to 400,000 and an average of 17,915,000 shares of 12% Convertible Preferred Stock, 9%/7% Convertible Preferred Stock and Series B 9%/7% Convertible Preferred Stock, respectively, outstanding during the six months ended September 30, 1996. Net loss per share decreased from $(1.11) per share for the six months ended September 30, 1995 to $(.07) per share for the six months ended September 30, 1996. The decrease is due to lower net loss per share attributable to common stockholders of $7,891,000 and an increased number of weighted average shares outstanding from 8,764,000 to 27,214,000, for the six months ending September 30, 1995 and 1996, respectively. In addition to the above, the Company experienced significant costs related to the Fund Subsidiaries plan of reorganization and settlement of claims of a non-reoccurring nature of $3,152,000 during 1995. Comparison of Three Month Periods Ended September 30, 1996 and 1995 The Company purchased 236 non-bulk contracts during the three months ended September 30, 1996 compared to 1,254 non-bulk contracts during the same three months ended September 30, 1995. The cost of non-bulk contract purchases was $2,645,000 ($11,207 per contract) compared to $7,508,000 ($5,987 per contract) for the three month periods in 1996 and 1995, respectively. The Company purchased 1,098 bulk contracts at a cost of $10,514,000 ($9,576 per contract) during the three months ended September 30, 1996 compared to 112 bulk contracts at a cost of $513,000 ($4,580 per contract) during the three month period ended September 30, 1995. The increase in cost in non-bulk contracts of $5,220 per contract is due to a higher purchase price per contract under the Preferred Program compared to its old 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 increase in cost per bulk contract of $4,996 per contract is due to a generally higher credit quality customer and or collateral than what was previously purchased by the Company. The Company expects to continue to see an increase in its non-bulk and bulk contract cost when compared to previous non-bulk and bulk purchases. 13 14 Interest revenue increased from $609,000 for the three months ended September 30, 1995 to $2,239,000 for the three months ended September 30, 1996. The difference arises primarily from a reclassification of interest revenue and provision for credit losses which was made during third calendar quarter of 1995 and had no effect on earnings per share. Average interest earning contracts were $29,429,000 for the three months ended September 30, 1996 compared to $45,662,000 for the three month period ended September 30, 1995. Interest expense decreased from $1,813,000 to $290,000 for the three months ended September 30, 1995 compared to the same three month period ended September 30, 1996. 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 Company anticipates an increase in the amount of interest expense in the foreseeable future as it will access its credit line to fund contract purchases. The provision for credit losses decreased from a recovery of $2,633,000 for the three months ended September 30, 1995 to a recovery of $2,056,000 for the three months ended September 30, 1996. The decrease in the recovery of prior credit losses is due to lower anticipated loan losses in this three month period compared to the same three month period in 1995. Additionally, the difference arises primarily from a reclassification of interest revenue and provision for credit losses which were made during third calendar quarter of 1995 and had no effect on earnings per share. 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. General and administrative expenses decreased from $4,808,000 to $3,394,000 for the three months ended September 30, 1995, compared to the same three month period ended in September 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 September 30, 1995 contains general and administrative expenses, related to these retail lots whereas the three months ended September 30, 1996 contain none of the same expenses. The Company's employee count averaged 127 persons for the three months ended September 30, 1995, compared to 130 persons for the three months ended September 30, 1996. Preferred stock dividends increased from $60,000 for the three months ended September 30, 1995 to $1,542,000 for the three months ended September 30, 1996. This increase in preferred stock dividends 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 and 2,554,000 shares of Series B 9%/7% Convertible Preferred Stock in the acquisition of DACC. 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 September 30, 1995, compared to 400,000 and an average of 18,767,000 shares of 12% 14 15 Convertible Preferred Stock, 9%/7% Convertible Preferred Stock and Series B 9%/7% Convertible Preferred Stock , respectively, outstanding during the three months ended September 30, 1996. Net loss per share decreased from $(.76) per share for the three months ended September 30, 1995 to $(.03) per share for the three months ended September 30, 1996. The decrease is due to lower net loss per share attributable to common stockholders of $5,720,000 and an increased number of weighted average shares outstanding from 8,671,000 to 26,628,000, for the three months ending September 30, 1995 and 1996, respectively. In addition to the above, the Company experienced significant costs related to the Fund Subsidiaries' plan of reorganization and settlement of claims which are of a non-recurring nature of $3,152,000 during 1995. 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 pay preferred stock dividends. The Company has a significant amount of cash on hand as of September 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 industries require the purchase, origination 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 it is anticipated will include (a) cash from operations, (b) the securitization of receivables, (c) lines of credit available from commercial banks and other financing sources, and (d) a possible subordinated debt offering. The Company has obtained a commitment for a warehouse line of credit to purchase receivables which would then be assigned to special purpose entities for future securitization. As of November 11, 1996, this commitment is subject to completion of definitive documentation. The Company is continuing preparation of a private placement memorandum to issue $25,000,000 to $30,000,000 of senior subordinated notes with warrants to purchase common stock. Additionally, the Company is discussing with several other commercial lenders which include investment banking firms and brokerage firms to provide additional financing, which would be utilized for the purchases of receivables and/or the purchases of other operating entities. The Company is also seeking several additional participants to expand its $25,000,000 15 16 line of credit with Hibernia Bank. As of November 11, 1996, the Company had approximately $23,700,000 outstanding under its line with Hibernia Bank. The Company intends to evaluate and pursue acquisition opportunities that the Company anticipates will enable it to grow its receivable base. The Company will consider all forms of financing available to it with respect to any particular acquisition, including additional borrowings and sales or exchanges of equity or debt securities. 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 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 Six Months Ended September 30, 1996 to the Six Months Ended September 30, 1995 During the six months ended September 30, 1996, the Company utilized $4,760,000 of cash in its operations compared to $5,867,000 of cash being utilized in operations in the six months ended September 30, 1995. The decrease of $1,107,000 is primarily a result of reduction in expense accruals of $4,466,000 related to the Fund Subsidiaries' plan of reorganization during the six months ended September 30, 1996 compared to an increase in accruals of $3,739,000 in the same period ended September 30, 1995. The change in offering cost authorization of $1,385,000 was due primarily to the confirmation of the Fund Subsidiaries' plan of reorganization. The Company anticipates having negative cash flows in the foreseeable future as it continues to expand its Dealer Network, expands into consumer finance, and grows 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. 16 17 Comparison of Investing Cash Flows for the Six Months Ended September 30, 1996 to the Six Months Ended September 30, 1995. Cash provided by investing activities decreased $14,235,000 from $10,578,000 for the six months ended September 30, 1995 to a use of $3,657,000 for the six months ended September 30, 1996. The decrease is primarily due to a decrease of $13,568,000 in principal payments and sale proceeds. The Company anticipates encountering negative cash flows from investing activities in the foreseeable future as it 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. 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 equity securities. 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. Comparison of Financing Cash Flows for the Six Months Ended September 30, 1996 to the Six Months Ended September 30, 1995. During the six months ended September 30, 1996, the Company's financing activities provided $3,572,000 of cash compared to utilizing cash of $4,210,000 during the same six month period ended September 30, 1995. The change of $7,782,000 was caused primarily by borrowings exceeding payments under its line of credit, proceeds from sale of stock during the six months ended September 30, 1996 and a lack of a purchase of treasury stock such as occurred in the six months ended September 30, 1995. The Company's annual dividend requirements on the outstanding shares of its 12% Preferred Stock and 9%/7% Preferred Convertible Stock, as of September 30, 1996, were $240,000 and $6,155,000, respectively. The annual dividend requirement on the Company's 9%/7% Convertible Preferred Stock will remain at the 9% level until March 31, 1999 and then decrease to the 7% level, or $4,787,000, until March 2003. Any conversion to Common Stock would reduce these dividend requirements. During the quarter ended September 30, 1996, the Company implemented a loan program for its directors and certain officers to finance the purchase of the Company's common and preferred stock in open market transactions. The loans bear interest at the prime rate and require quarterly interest payments and mature at the end of three years. As of September 30, 1996, the Company had advanced $1,099,000 to ten of the eligible participants to fund stock purchases. 17 18 Currently, the maximum allowed to be funded for any participant is $150,000. During the quarter ended September 30, 1996, the Company recorded $16,000 of interest revenue from participants under this program. The loans are evidenced by notes from participants and the Company holds the stock as collateral under security agreements. The Company has potential obligation to purchase 812,127 shares from a trust formed by a former director of the Company under a stock purchase agreement dated May 5, 1995. The trust, at its option, can elect to have the Company purchase 812,127 shares of stock at $2.25 per share. This purchase would require cash on hand or borrowings under its existing line of credit unless an additional source is available. 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 will require additional cash flow to grow its receivable base and expand into consumer finance. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 24, 1996, Search initiated legal action in state District Court, Dallas County, Texas against two of its directors, Craig Hall and Larry E. Levey, and Hall Phoenix/Inwood Ltd., a company controlled by Mr. Hall that is Search's largest stockholder. The defendants have filed an answer seeking dismissal of the action. Additionally, Messrs. Hall and Levey seek recovery from Search of all legal fees, disbursements and other reasonable expenses incurred by them in defending the action. The suit alleges fraud, misrepresentation and breach of fiduciary duty by the defendants. No opinion can be given as to the final outcome. Messrs. Hall and Levy filed suit against Search in the Court of Chancery, New Castle County, Delaware on October 16, 1996 seeking access as directors to certain of Search's books and records. On October 25, 1996, Search's subsidiary, Automobile Credit Acceptance Corp. ("ACAC"), was served with an Original Class Action Petition lawsuit commenced in the County Court at Law of Nueces County, Texas. The lawsuit, styled William Bourland and Rolando H. Trevino v. Automobile Credit Acceptance Corp., alleges that ACAC contracted for delinquency charges greater than those authorized by the Texas Consumer Credit Code and seeks certification of a class of all persons who purchased a motor vehicle in Texas with financing from ACAC within the last four years. The suit seeks statutory penalties, attorneys' fees and interest. ACAC has not yet filed its answer in the lawsuit and no opinion can be given as to its final outcome. ACAC believes the lawsuit is without merit and intends to vigorously defend itself. ITEM 2. CHANGES IN SECURITIES-NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES-NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS-NONE 18 19 ITEM 5. OTHER INFORMATION On November 1, 1996, Susan A. Brown resigned as a director of the Company. On November 5, 1996, the Company entered into an amendment to the Asset Purchase Agreement between the Company and U.S. Lending Corporation ("USLC"), a company subject to Chapter 11 bankruptcy proceedings, providing for the Company to purchase all of USLC's used motor vehicle retail installment sales contracts and repossessed motor vehicles, and a portion of USLC's cash, on the closing date. In consideration for the transfer of assets, the Company will issue shares of its Common Stock, Series B 9%/7% Convertible Preferred Stock ("Series B Stock") and warrants based on a purchase price to be determined at the closing equal to the cash received from USLC, 59% of the total unpaid installments of USLC's active contracts, plus the wholesale value of USLC's repossessed vehicles. The number of shares of Common Stock and Series B Stock will equal 25% and 100%, respectively, of the purchase price divided by the weighted average of the high bid and low asked trading prices for those securities for the 20 trading days preceding the closing. The Company will also issue at the closing five-year warrants to purchase Common Stock at $2.00 per share (increasing by $0.25 per year). The number of shares of Common Stock purchasable under the warrants will equal 20% of the total Common Stock equivalents represented by the Series B Stock and Common Stock issued at the closing. If certain proposed clarifying amendments to the terms of the Company's 9%/7% Convertible Preferred Stock are approved by the Company's stockholders, the shares of Series B Stock issued by the Company in the acquisition will be automatically converted, on a one-for-one basis, into newly issued shares of the Company's 9%/7% Convertible Preferred Stock. If that conversion does not occur by April 1, 1997, the Company will be required to pay USLC $.08 for each share of Series B Stock issued at the closing. As of November 1, 1996, USLC had cash of approximately $3,400,000, active contracts with total unpaid installments of approximately $2,222,000 and repossessed vehicles with a wholesale value of approximately $53,000. 19 20 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 - --------- -------------------------------------------------------------------- 2.1 Motor Vehicle Installment Sales Contract Assignment and Purchase Agreement dated as of November 1, 1996 between MS Financial, Inc. and Search Funding Corp. (excluding the schedule of contracts that is Exhibit A, a copy of which will be furnished to the Commission supplementally upon request. 2.2 Letter agreement between the Registrant and MS Financial, Inc. dated November 4, 1996. 3.1 Certificate of Amendment of Certificate of Designation of 9%/7% Convertible Preferred Stock. 3.2 Certificate of Designation Series B 9%/7% Convertible Preferred Stock. 3.3 Certificate of Corrections to the Restated Certificate of Incorporation of Search. 3.4 Certificate of Amendment of Certificate of Designation of 9%/7% Convertible Preferred Stock. 3.5 Certificate of Amendment of Certificate of Designation of Series B 9%/7% Convertible Preferred Stock. 10.1 Second Amendment dated November 5, 1996 to 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 September 27, 1996 reporting the acquisition of a portfolio of non-prime automobile retail installment sales contracts from Eagle Finance Corp. The Company filed a Current Report on Form 8-K, dated August 6, 1996 reporting the acquisition of substantially all of the assets, and assumption of certain liabilities, of Dealers Alliance Credit Corp. 20 21 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 November 11, 1996 - --------------------- ----------------- George C. Evans Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director /s/ Robert D. Idzi November 11, 1996 - --------------------- ----------------- Robert D. Idzi Senior Executive Vice President, Chief Financial Officer and Treasurer /s/ Andrew D. Plagens November 11, 1996 - --------------------- ----------------- Andrew D. Plagens Vice President, Controller and Chief Accounting Officer
21 22 INDEX TO EXHIBITS
Exhibit Number Description - ---------- -------------------------------------------------------------------- 2.1 Motor Vehicle Installment Sales Contract Assignment and Purchase Agreement dated as of November 1, 1996 between MS Financial, Inc. and Search Funding Corp. (excluding the schedule of contracts that is Exhibit A, a copy of which will be furnished to the Commission supplementally upon request. 2.2 Letter agreement between the Registrant and MS Financial, Inc. dated November 4, 1996. 3.1 Certificate of Amendment of Certificate of Designation of 9%/7% Convertible Preferred Stock. 3.2 Certificate of Designation Series B 9%/7% Convertible Preferred Stock. 3.3 Certificate of Corrections to the Restated Certificate of Incorporation of Search. 3.4 Certificate of Amendment of Certificate of Designation of 9%/7% Convertible Preferred Stock. 3.5 Certificate of Amendment of Certificate of Designation of Series B 9%/7% Convertible Preferred Stock. 10.1 Second Amendment dated November 5, 1996 to 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
EX-2.1 2 MOTOR VEHICLE INSTALLMENT SALES CONTRACT 1 EXHIBIT 2.1 MOTOR VEHICLE INSTALLMENT SALES CONTRACT ASSIGNMENT AND PURCHASE AGREEMENT This MOTOR VEHICLE INSTALLMENT SALES CONTRACT ASSIGNMENT AND PURCHASE AGREEMENT (this "Agreement") dated as of the 4th day of November, 1996, is entered into by and between MS FINANCIAL, INC., a Delaware corporation (the "Seller"), and SEARCH FUNDING CORP., a Texas corporation (the "Buyer"). R E C I T A L S : A. The Seller desires to sell to the Buyer and the Buyer desires to buy from the Seller certain motor vehicle retail installment sales contracts and certain related rights and documents described below as the Assets. B. The Seller and the Buyer desire to set forth in this Agreement the terms and conditions pursuant to which the Seller will sell and the Buyer will buy such Assets. A G R E E M E N T S : NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration the sufficiency of which is hereby acknowledged by the parties hereto, each of the Seller and the Buyer agrees as follows: 1. SALE OF CONTRACTS. The Seller hereby sells, assigns, transfers and sets over to the Buyer free and clear of all liens, claims and encumbrances, and the Buyer does hereby purchase, all of the following: (i) all of the accounts and notes receivable and amendments thereto listed on Schedule A hereto (collectively, the "Contracts"), and all monies owing thereon; (ii) all right, title and interest of the Seller in all security agreements, certificates of title and other documents and agreements constituting, or otherwise evidencing or relating to, security for payment of any of the Contracts and the liens created thereunder; (iii) all right, title and interest of the Seller in, to and under all endorsements and guaranties by others of any of the Contracts; (iv) all right, title and interest of the Seller in, to and under all credit applications, credit bureau reports, credit investigation documentation, credit scoring sheets and disbursement documentation relating to the Contracts; (v) all of the Seller's interest under each and every existing policy or certificate of insurance, if any, that relates to any Contract and the obligations thereunder, any property securing any Contract or the life or health of any Obligors (defined below) under the Contracts; (vi) rights of the Seller under dealer agreements pursuant to which the Contracts were acquired by the Seller, including without limitation rights of recourse against dealers, with respect to the Contracts; and (vii) all other correspondence, documents and records in the Seller's files, or otherwise under its control, related solely to the Contracts, the obligors under the Contracts (the "Obligors") or the motor vehicles which are financed under the Contracts (the "Financed Vehicles"). The property referred to in clauses (i) through (vii) of this subsection (a) are collectively referred to herein as the "Assets." 2 2. SALES PRICE AND CLOSING. (a) The Buyer and the Seller agree to an aggregate purchase price for the Assets sold to the Buyer hereunder of $14,427,044.56. Such purchase price will be paid on the Closing Date by wire transfer to an account or accounts designated by the Seller. (b) Contemporaneously with the execution and delivery of this Agreement, the Seller is delivering to the Buyer the following: (i) the original signed Contracts; (ii) original certificates of title related thereto; (iii) all other Assets (to the extent reasonably deliverable), together with all filing receipts evidencing the recordation or filing of any financing statements, chattel mortgages, certificates of title and other filing instruments related to the Contracts and the Financed Vehicles; (iv) a Bill of Sale in the form attached as Exhibit B hereto; (v) an Assignment of Insurance Interests in the form attached as Exhibit C hereto; and (vi) a Power of Attorney in the form attached as Exhibit D hereto. 3. ENDORSEMENTS. (a) The Seller hereby authorizes the Buyer, in the name of the Seller, to endorse and assign each Contract and other Asset to the Buyer, and otherwise to take such action as the Buyer deems advisable, in order to evidence the Buyer's ownership of each Asset or to secure any obligation sold to the Buyer in such manner as the Buyer shall reasonably deem necessary and appropriate. (b) The Seller irrevocably authorizes the Buyer to effect the endorsement and assignments as provided in this Section 3 by the impression of a rubber stamp or stamps, facsimile signature or sticker, or by any other method the Buyer may reasonably choose, and to endorse the Seller's name upon any notes, acceptances, checks, drafts, money orders or other instruments of payment that may come into the possession of the Buyer as payment of or upon the Contracts and, also, to execute releases, statements or termination, satisfactions and any and all other documents reasonably required to be executed in the normal course of business in connection with the Contracts. 4. THE SELLER'S WARRANTIES, REPRESENTATIONS AND COVENANTS CONCERNING THE CONTRACTS. (a) The Seller hereby covenants, warrants and represents as to each and every Contract and other Assets sold to the Buyer hereunder, as of the date on which the transactions contemplated in this Agreement are consummated (the "Closing Date"), which covenants, warranties and representations shall survive the execution of this Agreement and the Closing Date: (i) The printouts delivered to the Buyer related to each Contract fully and accurately reflects the true outstanding unpaid balance of such Contract. That balance accurately reflects all receipts on such Contract from the Obligors thereof and all credits to which said Obligors are entitled and does not include any illegal charges or -2- 3 amounts. No Contract is more than 59 days past due and no Financed Vehicle securing any Contract has been repossessed or is currently designated for repossession. (ii) The Seller is the sole owner of such Contract free and clear of any pledge, lien or encumbrance of any kind or character, legal or equitable. The Seller has made no promise to convey any of the Assets, or any interest therein, except pursuant to this Agreement. To the knowledge of Seller, no event has occurred that will materially adversely affect any of the Assets. (iii) The Seller has paid or caused to be paid any and all license, franchise, intangible, stamp or other taxes or fees due and owing to the State where any Contract was originated, or any political subdivision thereof, arising from or growing out of the acquisition, collection or holding of such Contract. (iv) Such Contract does not represent a loan of money or an installment sales agreement by the Seller or any other person, firm or corporation to the Obligor of said Contract in violation of any applicable federal or state laws and regulations. There are no facts known to the Seller that would render any Contract invalid or unenforceable, or reduce the amount payable by the Obligor thereunder, and there is no dispute regarding the enforceability of any Contract or any unfulfilled dealer commitments. None of the Contracts is the subject of any pending or threatened litigation, including without limitation the litigation disclosed by the Seller in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (the "Texas Litigation), and no Contract will be subject to the Texas Litigation should a class of plaintiffs be certified in connection therewith. No Contract has been referred to an attorney for collection, and the Seller and its subsidiaries have not been contacted by an attorney regarding any Contract. (v) Where the Seller's records reflect property as security for the Contract, the Seller has a valid, perfected first lien on the property described. (vi) Any Contract which has been modified by the Seller was modified in a manner which did not result in a violation of applicable state and federal truth-in-lending disclosure requirements. (vii) The information with respect to each Contract set forth in Exhibit A hereto is complete and correct in all material respects. No Contract has been satisfied, subordinated or rescinded, nor has any Financed Vehicle been released from the security interest granted -3- 4 by the Contract in whole or in part, and all of the Seller's obligations under the Contracts have been performed. No provision of a Contract has been waived, altered or modified in any respect except for routine extensions done in accordance with the Seller's customary extension practices that do not increase the number of installment payments or the amount financed. (viii) To the best of the Seller's knowledge, no Obligor is a party to any proceeding for readjustment of indebtedness, bankruptcy, appointment of a receiver or trustee of any property of the Obligor or composition or extension under any insolvency law. (ix) A Certificate of Title has been issued or applied for with respect to each Financed Vehicle. (x) All information and documents prepared by the Seller and provided to the Buyer at any time are true and accurate in all material respects. 5. COLLECTIBILITY. The Buyer agrees that the Seller does not warrant the payment of any Contract in the sense of guaranteeing the performance by the Obligors of their obligations (including their obligation to make timely payments), the creditworthiness of the Obligors or the value of the security given to secure the obligations under the Contracts. All Contracts are sold and transferred by the Seller to the Buyer "without recourse" to the Seller except for rights arising for the benefit of the Buyer under this Agreement. The Buyer is in the business of acquiring and servicing installment sales contracts such as the Contracts and has conducted such due diligence as the Buyer deemed appropriate. Notwithstanding the foregoing, the due diligence of the Seller does not limit the scope or effectiveness of the representations and warranties of the Seller made in this Agreement. The Buyer acknowledges that as of the date hereof, it is not aware that any representation or warranty of the Seller set forth in this Agreement is inaccurate or untrue. 6. ADDITIONAL COVENANTS AND AGREEMENTS OF THE SELLER. (a) The Seller will forward or pay over to the Buyer, as appropriate, any payments received on the Contracts from and after the Closing Date. Such payments from the Seller to the Buyer will be made in kind, if reasonably possible, and no later than two Business Days (as defined below) after receipt if the payment is made in kind or three Business Days after final payment is received by the Seller on any check, draft, money order or other instrument if the payment will be made with the general funds of the Seller. Business Day shall mean any day other than Saturday or Sunday on which national banks are open for business in Mississippi. (b) The Seller will use reasonable efforts to assist the Buyer in securing Loss Payable Clauses in favor of the Buyer with respect to all insurance covering any property, personal or real, described in Contracts and also an assignment of beneficial interest in any -4- 5 policy(ies) covering the Contracts and the obligations thereunder or the life or lives, sickness or disability of any Obligors. (c) The Seller agrees to mail as soon as reasonably practicable after the Closing Date, to each Obligor, at the most recent address reflected for such Obligor, a notice substantially in the form attached hereto as Exhibit E directing that all future payments to be made under the applicable Contract be directed to the Buyer. (d) Subject to the terms, conditions and limitations set forth in this Section 6(d), for a period of 30 days after the receipt by the Buyer of the items required to be delivered to it by the Seller pursuant to Sections 2(b)(i), 2(b)(ii) and 2(b)(vii) hereof (the "Review Period"), the Buyer shall be entitled to tender to the Seller for repurchase, and the Seller agrees to repurchase or, if the parties mutually agree, replace as provided below, one or more Contracts conveyed by the Seller to the Buyer hereunder by delivering written request therefor to the Seller (each a "Repurchase Notice") if and only if the representations and warranties made by the Seller in Section 4 of this Agreement with respect to such Contract tendered by the Buyer for repurchase by the Seller are alleged to be untrue or inaccurate in any material respect. Any Repurchase Notice delivered by the Buyer to the Seller with respect to a Contract tendered for repurchase shall set forth in reasonable detail the basis for the alleged untruth or inaccuracy (referred to herein as a "Defect") of the representations or warranties made by the Seller to the Buyer hereunder with respect to such Contract which the Buyer has tendered for repurchase by the Seller. The Seller will have no obligation whatsoever to repurchase any Contract pursuant to this Section 6(d) if: (i) the Seller cures the Defect with respect to any tendered Contract within 30 days of the receipt of the Repurchase Notice relating to the Contract; (ii) the Seller did not receive a proper Repurchase Notice with respect to the Contract tendered for repurchase on or prior to the expiration of the Review Period; or (iii) the Buyer is unable to provide the Seller reasonable assurances that the Buyer is capable of transferring to the Seller the Contract and all other Assets relating to the Contract. If the Seller elects to cure the Defect and the Defect may reasonably be expected to be cured within 30 days, the Seller will notify the Buyer in writing that the Seller has elected to cure the Defect, whereupon the Seller will have a period of 30 days from the date on which Seller receives the Repurchase Notice (the "Cure Period") to cure the identified Defect. If the Seller is unable to cure the Defect on or prior to the expiration of the Cure Period, the Seller will promptly repurchase the tendered Contract or, if the parties mutually agree, substitute other motor vehicle retail installment sales contracts for the Contracts that were the subject of the Repurchase Notice. The repurchase price will be 96% of the amount that would be received by the Buyer if the Obligor of the Contract being repurchased had voluntarily prepaid the contract in full on the date of repurchase. (e) If the Buyer is required to refund any prepaid, unearned insurance premiums to any Obligor, the Seller will pay to the Buyer, on demand, an amount equal to such refund. If an Obligor requests a refund of such premiums, the Buyer will request that the insurance company named in the Obligor's policy or certificate of insurance pay such refund, or reimburse the Buyer for any refund it makes, before seeking reimbursement from the Seller. (f) The Buyer is not assuming any liabilities or obligations of the Seller. -5- 6 7. CORPORATE AUTHORITY. (a) The Seller warrants that its Board of Directors has approved the Seller's execution and consummation of this Agreement and that the Seller has taken all other corporate action necessary, or advisable in the opinion of its attorneys, to authorize the execution and satisfactory evidence thereof. The Seller also warrants that this Agreement is a legal and binding obligation of the Seller, enforceable against it in accordance with its terms. (b) The Buyer warrants that its Board of Directors has approved the Buyer's execution and consummation of this Agreement and that the Buyer has taken all other corporate action necessary, or advisable in the opinion of its attorneys, to authorize the execution and consummation of this Agreement and will furnish the Seller satisfactory evidence thereof. The Buyer also warrants that this Agreement is a legal and binding obligation of the Buyer, enforceable against it in accordance with its terms. (c) The Seller is not making this sale with the intent to hinder, delay or defraud creditors and acknowledges that the purchase price was negotiated on an arms-length basis and that it has received adequate consideration of at least a reasonably equivalent value for the Assets. 8. DUE ORGANIZATION. (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to own its properties and to carry on its business in the places and in the manner as now conducted. (b) The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to own its properties and to carry on its business in the places and in the manner as now conducted. 9. NO CONFLICTS. (a) The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby, and the fulfillment of the terms hereof will not: (i) conflict with, or result in a breach or violation of, the Seller's certificate or articles of incorporation or bylaws; or (ii) conflict with, or result in a default (or would constitute a default but for any requirement of notice or lapse of time or both) under any document, agreement or other instrument to which the Seller is a party, or violate, or result in the creation or imposition of any lien, charge or encumbrance on any of the Seller's properties pursuant to, (1) any law or regulation to which either the Seller or any of its property is subject or (2) any judgment, order, decree or agreement to which the Seller or any of its property is subject. -6- 7 (b) The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby, and the fulfillment of the terms hereof will not: (i) conflict with, or result in a breach or violation of, the Buyer's certificate or articles of incorporation or bylaws; or (ii) conflict with, or result in a default (or would constitute a default but for any requirement of notice or lapse of time or both) under any document, agreement or other instrument to which the Buyer is a party, or violate, or result in the creation or imposition of any lien, charge or encumbrance on any of the Buyer's properties pursuant to, (1) any law or regulation to which either the Buyer or any of its property is subject or (2) any judgment, order, decree or agreement to which the Buyer or any of its property is subject. 10. NOTICE OF CLAIMS AND INDEMNIFICATION. The Buyer agrees to notify the Seller promptly of any claims, proceedings or litigation regarding any Contract and any alleged violations of applicable law or regulations and will, if requested by the Seller, allow the Seller to control and defend such proceeding or litigation or to effect settlement thereof, provided that such settlement does not impose upon the Buyer any obligation for which it is not fully indemnified by the Seller, and provided further, that the Buyer shall have the right in any such proceeding or litigation to have counsel of its own choice represent its interests at the Buyer's expense. The Seller will indemnify and hold the Buyer harmless from any and all losses, damages, costs, good faith settlements, expenses, taxes, reasonable attorneys' fees (except as set forth below) and other liabilities, including without limitation costs of investigation, fees and expenses at trial and on appeal, and costs in successfully asserting the right to indemnification hereunder (all of the foregoing are referred to in this Section as "Losses") incurred by the Buyer at any time as the result of a claim or defense asserted against the Buyer (by a person or entity other than the Seller) arising solely out of the Seller's actions or conduct in connection with its servicing or modification of any Contract, including without limitation any actions or conduct that are the subject of the Texas Litigation, if such action or conduct results in the creation of any defense, set-off or counterclaim against the Buyer's right to receive payments under the Contracts. Additionally, the Seller agrees to indemnify the Buyer for Losses incurred by the Buyer as a result of any claim of wrongdoing on the part of the Seller asserted against the Buyer (by any person or entity other than the Seller) arising out of the Seller's actions or conduct in connection with its purchase and ownership of any Contract, including without limitation any actions or conduct that are the subject of the Texas Litigation. If legal action is commenced against the Buyer regarding a matter for which the Buyer is entitled to indemnification under this Section, the Buyer will give notice to the Seller of the action within 30 days following the Buyer's knowledge thereof. The failure to notify will not relieve the Seller from any liability that it may have to the Buyer hereunder or otherwise except to the extent that the Seller is prejudiced by such failure. With respect to each such notice, the Seller will, at the Buyer's option, promptly take all action necessary to minimize any risk of loss to the Buyer, including retaining counsel reasonably satisfactory to the Buyer, and take such other actions as are necessary and appropriate to defend the Buyer or to discharge the indemnity obligations hereunder. The Buyer may, at its option, conduct such defense at its own expense. The Seller will pay on demand any indemnified Losses incurred by the Buyer. The Buyer and the Seller will fully cooperate with each other in fulfilling the intent of this Section of this Agreement. Neither the Buyer nor the Seller will settle any claim asserted against the other by a third party without the prior written consent of the other, which shall not be unreasonably withheld. -7- 8 11. POWER OF ATTORNEY. Without limiting the effect of the foregoing, the Seller hereby constitutes and appoints the Buyer, its permitted successors and assigns, the true and lawful attorney of the Seller, with full power of substitution, in the name and stead of the Seller, but on behalf and for the benefit of the Buyer, its permitted successors and assigns, by any proper means, to demand, collect and receive any and all the property and to enforce any of the rights with respect to the Contracts and to enforce any of the Contracts in the name of the Seller. The Buyer agrees, however, that it will not bring any action in the name of the Seller on any of the Contracts in the event suit is required. Any such suits shall be brought solely in the Buyer's name and at the Buyer's expense. 12. USE OF RECORDS BY THE SELLER. The Buyer agrees that all records, documents and information of the Seller hereby transferred will be made available for the use of the Seller in preparing tax returns or for any other appropriate purpose (determined by the Seller in its reasonable discretion) which does not injure the Buyer in its competition with other companies and will remain so available for a period of not less than three years after the payment in full of the accounts represented by such Contracts. Any and all information contained in such records as to events occurring subsequent to the Closing Date shall be held strictly confidential by the Seller. 13. TAXATION. Each party hereto expressly stipulates and agrees that the other party hereto and its respective servants, agents or employees has not made any representations to it relating to the probable tax consequences (whether federal, state or local) or as to the effect of any of the transactions embodied in this Agreement on any federal, state or local tax liability of the other party hereto. Each party hereby agrees to assume all of its own tax consequence and liabilities, whether now or hereafter determined, resulting by reason of any of the terms or conditions of this Agreement and by reason of any of the transactions provided for by this Agreement. 14. WAIVER. No failure or delay on the part of the Seller in exercising any right, power or remedy hereunder shall operate as a waiver thereof. No single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 15. ENTIRE AGREEMENT AND MODIFICATIONS OF AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements between the Seller and the Buyer with respect to the subject matter hereof. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by either party therefrom, shall in any event be effective unless the same shall be in writing and signed by the other party, and then such waiver or consent shall be effective only in the specific purpose for which given. No notice to or demand on either party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances. 16. NOTICES. All notices, requests, demands and other communications provided for hereunder shall be: (i) in writing, (ii) made in one of the following manners, and (iii) shall be -8- 9 deemed given (a) if and when personally delivered including if delivered by facsimile, (b) on the next business day if sent by nationally recognized overnight courier addressed to the appropriate party as set forth below, or (c) on the second business day after being deposited in United States certified or registered mail, and addressed as follows: If to the Seller: MS Financial, Inc. Suite 300 715 South Pear Orchard Road Ridgeland, MS 39157 or P.O. Box 746 Ridgeland, MS 39158 Attention: Chief Executive Officer Facsimile No. (601) 978-6601 If to the Buyer: Search Funding Corp. 700 N. Pearl Street Suite 400 Dallas, Texas 75201-2809 Attention: President and Chief Executive Officer Facsimile No. (214) 965-6098 or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. 17. LIMITATION OF DAMAGES. The parties agree that, except as provided in Section 10, the sole and exclusive remedy of the Buyer for any breach of any representation or warranty concerning the Assets is the right to require the Seller to repurchase the Assets during the Review Period in accordance with Section 6(d) hereof and that the representations and warranties concerning the Assets terminate as of the close of business on the last day of the Review Period. If there is any claim or dispute between the parties arising out of or related to this Agreement or the transactions contemplated herein, except to the extent the facts giving rise to the claim or dispute also constitute fraud and as provided in Section 10, the sole and exclusive remedy shall be a claim for breach of contract. To the extent the facts also constitute fraud, a claim can also be asserted for fraud. Regardless of whether the claim is for breach of contract or fraud or both, damages shall be limited to actual and direct damages, and both parties waive any claim for consequential, punitive or incidental damages and any claim for lost profits or loss of goodwill. 18. WAIVER OF JURY TRIAL. The Buyer and the Seller hereby WAIVE ANY RIGHT TO A TRIAL BY JURY in any action arising out of or related to this Agreement. The parties will attempt in good faith to resolve any claim, dispute or disagreement arising out of or relating to this Agreement promptly by negotiations between representatives of the parties who have authority to settle the controversy. -9- 10 19. NO THIRD-PARTY BENEFICIARIES. This Agreement is not intended to, and shall not, create any rights in or confer any benefits on any person or entity other than the parties hereto. 20. FINDERS FEES. The Seller and the Buyer will each be reasonable for, and indemnify the other against, any claim by a third party to a fee, commission or other remuneration by reason of any services alleged to have been rendered to it or at its instance with respect to this Agreement or the transactions contemplated by it. 21. PUBLICITY. Neither the Seller nor the Buyer will (i) issue any press release or make any public announcement regarding, or otherwise publicize, the consummation of this Agreement or (ii) make a public disclosure of any kind regarding the subject matter hereof without the express written consent of the other party which consent shall not be unreasonably withheld, conditioned or delayed, except that the Seller and the Buyer may publicly disclose information relating to this Agreement that is required, in the reasonable judgment of the Seller or the Buyer, by law or in connection with its registration of securities or the filing of a periodic report with the Securities and Exchange Commission or any state securities commission, or in connection with a filing pursuant to the Seller's or the Buyer's listing with a national securities exchange (including the NASDAQ National Market) or governmental entity if the Seller or the Buyer, as appropriate, gives the other party advance written notice prior to releasing or making any such disclosure. 22. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Signatures may be exchanged by facsimile transmission, with original signatures to follow. The Seller and the Buyer each agrees that it will be bound by its own telecopied signature and that it accepts the telecopied signature of the other. 23. SUCCESSORS AND ASSIGNS. This Agreement shall become effective when it shall have been executed by the Seller and the Buyer and thereafter shall be binding upon and inure to the benefit of the Seller and the Buyer and their respective successors and assigns, except that neither party shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the other party, provided, that the Buyer may assign its rights hereunder to its parent company or any other affiliate of the Buyer that is a wholly-owned subsidiary of the Buyer's parent company. 24. GOVERNING LAW. This Agreement and the other documents have been negotiated, executed and delivered at, and shall be deemed to have been made at, Ridgeland, Mississippi and this Agreement shall be interpreted, and the rights and liabilities of the parties hereto determined, in accordance with the internal laws of the State of Mississippi without reference to its judicially or statutorily pronounced rules regarding conflict of laws or choice of law or where any action or other proceeding is instituted or pending. 25. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Wherever possible, each -10- 11 provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. 26. EFFECT OF HEADINGS. The descriptive headings contained herein are for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed for it and on its behalf by its respective duly authorized officer to be effective as of the date first set forth above. MS FINANCIAL, INC. By: /s/ Phillip J. Hubbuch, Jr. ------------------------------------ Name: Phillip J. Hubbuch, Jr. Title: Vice Chairman and Chief Executive Officer SEARCH FUNDING CORP. By: /s/ GEORGE C. EVANS ------------------------------------ Name: George C. Evans Title: Chairman, President and Chief Executive Officer -11- 12 EXHIBIT A SCHEDULE OF CONTRACTS 13 EXHIBIT B BILL OF SALE WITNESSETH THAT, in consideration of the sum of Ten Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, MS FINANCIAL, INC., a Delaware corporation ("Seller"), hereby bargains, sells, conveys, assigns and transfers to SEARCH FUNDING CORP., a Texas corporation ("Purchaser"), its successors and assigns, all Seller's right, title and interest in and to each of the Contracts listed on the List of Contracts attached hereto as Exhibit 1 and in and to the Assets associated with the Contracts. This sale is made pursuant to the Motor Vehicle Installment Sales Contract Assignment Purchase Agreement ("Agreement") entered into by Seller and Purchaser as of November 4, 1996. All terms used in this Bill of Sale have the meanings defined in the Agreement. TO HAVE AND TO HOLD the same unto Purchaser, its successors and assigns, forever. AND SELLER, for itself and its successors and assigns, covenants with Purchaser and its successors and assigns that the Assets are free and clear from any liens or encumbrances whatsoever, except as otherwise provided in Exhibit A to the Agreement, that Seller is the true and lawful sole owner thereof and has full and unrestricted right and lawful authority to bargain and sell the same to Purchaser as herein provided. In accordance with and subject to the Agreement, Seller and its successors and assigns will forever warrant and defend all and singular every said Asset unto Purchaser and its successors and assigns against all claims and demands contrary to the foregoing covenant. This Bill of Sale shall be binding upon Seller and its successors and assigns and shall inure to the benefit of Purchaser and its successors and assigns. IN WITNESS WHEREOF, Seller has executed this Bill of Sale by its duly authorized officer on the date set forth below. Dated: November 4, 1996 MS FINANCIAL, INC. By: /s/ PHILLIP J. HUBBUCH, JR. ---------------------------------- Name: Phillip J. Hubbuch, Jr. -------------------------------- Title: Vice Chairman and Chief Executive Officer ------------------------------- SEARCH FUNDING CORP. By: /s/ GEORGE C. EVANS ---------------------------------- Name: George C. Evans -------------------------------- Title: Chairman, President and Chief Executive Officer ------------------------------ 14 EXHIBIT C ASSIGNMENT OF INSURANCE INTERESTS MS FINANCIAL, INC. ("Assignor") hereby absolutely and irrevocably assigns to SEARCH FUNDING CORP. ("Search") all of Assignors right, title and interest in, under, and with respect to all insurance and service contracts which provide any of the following coverages with respect to motor vehicle installment sales contracts which Assignor has sold to Search: 1. credit life, credit disability, or credit accident and health; 2. casualty, damage, theft, loss or liability; 3. involuntary unemployment; 4. mechanical breakdown, warranty, maintenance, or servicing; 5. lender protection, vendor/lender single interest skip, repossessed vehicle casualty (including damage, theft and loss), confiscation, non-filing, failure of lien perfection, contract default or residual value; or 6. any other coverage assigned in writing by Assignor to Search. Without limiting the rights included in this assignment, this assignment entitles Search to claim and collect all benefits, refunds, and other amounts with respect to all coverages that Assignor would be entitled to claim and collect, and to make such claim and collections in its name or Assignor's name. Assignor hereby authorizes Search to sign Assignor's name on all such clause and collections Search makes, and to endorse Assignor's name on all such payments it receives. Assignor hereby instructs and authorizes all providers of the foregoing coverages to rely on this Assignment and any statement or instruction in writing by Search with respect to the operation and effect of this Assignment and the installment contracts covered by it. Assignor hereby agrees that the providers of the coverages who so rely shall have no liability to Assignor for complying with this Assignment and such statements and instructions by Search. Dated: November 4, 1996 MS FINANCIAL, INC. By: /s/ Phillip J. Hubbuch, Jr. ------------------------------------- Its: Vice Chairman and Chief Executive Officer ------------------------------------ 15 EXHIBIT D POWER OF ATTORNEY KNOW ALL PEOPLE BY THESE PRESENTS: MS FINANCIAL, INC. ("Principal") hereby constitutes and appoints SEARCH FUNDING CORP. ("Search") as its true and lawful agent and attorney in fact to act in its name and stead or on its behalf with authority to do the following acts with respect to motor vehicle installment sales contracts and related right which Search purchased from Principal pursuant to that certain Motor Vehicle Installment Sales Contract Assignment Purchase Agreement entered into by Search and Principal (the installment sale contracts and related rights are referred to herein as the "Property"): 1. Search can receive, endorse and collect all payments made payable to or owed to Principal in connection with the Property. 2. Search can enforce, release, modify and transfer the rights and interests granted to Principal with respect to the Property, which on their face give Principal rights regarding the Property, including but not limited to rights with respect to insurance policies, motor vehicles and certificates of title. This Power of Attorney is coupled with an interest and cannot be terminated by Principal. This Power of Attorney is made on November 4, 1996. MS FINANCIAL, INC. By: /s/ Phillip J. Hubbuch, Jr. ------------------------------------- Its: Vice Chairman and Chief Executive Officer ------------------------------------ STATE OF MISSISSIPPI COUNTY OF MADISON Subscribed and sworn to before me this 4th day of November, 1996 /s/ Anglea B. Sykes "McDonald" - -------------------------------- Notary Public 16 EXHIBIT E - ------------------------- - ------------------------- - ------------------------- Dear ________: Please be advised that MS FINANCIAL, INC. ("MS") has sold to Search Funding Corp. the Motor Vehicle Installment Sales Contract relating to your automobile that was previously owned and serviced by MS. Please direct all future payments to Search Funding Corp. at: [Search Funding Corp.] 700 N. Pearl Street Suite 400 Dallas, Texas 75201-2809 If you have any questions, please contact Search Funding Corp. at 800-299-2886. MS FINANCIAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 17 BILL OF SALE WITNESSETH THAT, in consideration of the sum of Ten Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, MS FINANCIAL, INC., a Delaware corporation ("Seller"), hereby bargains, sells, conveys, assigns and transfers to SEARCH FUNDING CORP., a Texas corporation ("Purchaser"), its successors and assigns, all Seller's right, title and interest in and to each of the Contracts listed on the List of Contracts attached hereto as Exhibit 1 and in and to the Assets associated with the Contracts. This sale is made pursuant to the Motor Vehicle Installment Sales Contract Assignment Purchase Agreement ("Agreement") entered into by Seller and Purchaser as of November 4, 1996. All terms used in this Bill of Sale have the meanings defined in the Agreement. TO HAVE AND TO HOLD the same unto Purchaser, its successors and assigns, forever. AND SELLER, for itself and its successors and assigns, covenants with Purchaser and its successors and assigns that the Assets are free and clear from any liens or encumbrances whatsoever, except as otherwise provided in Exhibit A to the Agreement, that Seller is the true and lawful sole owner thereof and has full and unrestricted right and lawful authority to bargain and sell the same to Purchaser as herein provided. In accordance with and subject to the Agreement, Seller and its successors and assigns will forever warrant and defend all and singular every said Asset unto Purchaser and its successors and assigns against all claims and demands contrary to the foregoing covenant. This Bill of Sale shall be binding upon Seller and its successors and assigns and shall inure to the benefit of Purchaser and its successors and assigns. IN WITNESS WHEREOF, Seller has executed this Bill of Sale by its duly authorized officer on the date set forth below. Dated: November 4, 1996 MS FINANCIAL, INC. By: /s/ PHILLIP J. HUBBUCH, JR. ------------------------------------- Name: Phillip J. Hubbuch, Jr. ----------------------------------- Title: Vice Chairman and CEO ---------------------------------- SEARCH FUNDING CORP. By: /s/ GEORGE C. EVANS ------------------------------------- Name: George C. Evans ----------------------------------- Title: President and CEO ---------------------------------- 18 ASSIGNMENT OF INSURANCE INTERESTS MS FINANCIAL, INC. ("Assignor") hereby absolutely and irrevocably assigns to SEARCH FUNDING CORP. ("Search") all of Assignors right, title and interest in, under, and with respect to all insurance and service contracts which provide any of the following coverages with respect to motor vehicle installment sales contracts which Assignor has sold to Search: 1. credit life, credit disability, or credit accident and health; 2. casualty, damage, theft, loss or liability; 3. involuntary unemployment; 4. mechanical breakdown, warranty, maintenance, or servicing; 5. lender protection, vendor/lender single interest skip, repossessed vehicle casualty (including damage, theft and loss), confiscation, non-filing, failure of lien perfection, contract default or residual value; or 6. any other coverage assigned in writing by Assignor to Search. Without limiting the rights included in this assignment, this assignment entitles Search to claim and collect all benefits, refunds, and other amounts with respect to all coverages that Assignor would be entitled to claim and collect, and to make such claim and collections in its name or Assignor's name. Assignor hereby authorizes Search to sign Assignor's name on all such clause and collections Search makes, and to endorse Assignor's name on all such payments it receives. Assignor hereby instructs and authorizes all providers of the foregoing coverages to rely on this Assignment and any statement or instruction in writing by Search with respect to the operation and effect of this Assignment and the installment contracts covered by it. Assignor hereby agrees that the providers of the coverages who so rely shall have no liability to Assignor for complying with this Assignment and such statements and instructions by Search. Dated: November 4, 1996 MS FINANCIAL, INC. By: /s/ PHILLIP J. HUBBUCH, JR. ------------------------------------- Its: Vice Chairman and CEO ------------------------------------ EX-2.2 3 LETTER AGREEMENT 1 EXHIBIT 2.2 November 14, 1996 MS Financial, Inc. 715 South Pear Orchard Road Ridgeland, MS 39157 Attention: Mr. Phillip J. Hubbuch, Jr. Vice Chairman and Chief Executive Officer Re: Letter of Intent dated October 21, 1996 Gentlemen: This will confirm our agreement that all references in the letter agreement between us dated October 21, 1996 to "November 1, 1996" are changed to "November 4, 1996." Sincerely yours, SEARCH CAPITAL GROUP, INC. By: /s/ George C. Evans ------------------------------ George C. Evans Chairman, President and Chief Executive Officer ACKNOWLEDGED AND AGREED: MS FINANCIAL, INC. By: /s/ PHILLIP J. HUBBUCH, JR. ---------------------------- Phillip J. Hubbuch, Jr. Vice Chairman and Chief Executive Officer EX-3.1 4 CERTIFICATE OF AMENDMENT 1 EXHIBIT 3.1 SEARCH CAPITAL GROUP, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATION OF 9%/7% CONVERTIBLE PREFERRED STOCK Search Capital Group, Inc., a Delaware corporation (the "Corporation"), acting pursuant to Section 242 of the Delaware General Corporation Law (the "DGCL"), does hereby execute this Certificate of Amendment amending the Certificate of Incorporation of the Corporation and does hereby certify that: 1. The name of the Corporation is Search Capital Group, Inc. 2. (a) The Board of Directors of the Corporation, by unanimous written consent dated July 11, 1996, has duly adopted the following resolutions with respect to the Corporation's 9%/7% Convertible Preferred Stock: WHEREAS, there are currently 17,500,000 authorized shares of the series of the Corporation's preferred stock designated as the 9%/7% Convertible Preferred Stock, par value $0.01 per share (the "9%/7% Preferred Stock"), of which 16,992,767 are issued and outstanding; and WHEREAS, pursuant to the Certificate of Designation of the 9%/7% Preferred Stock, the Board of Directors of the Corporation may increase or decrease the number of authorized shares of the 9%/7% Preferred Stock, but may not decrease below the number of shares of the series then outstanding; and WHEREAS, the Corporation desires to increase the authorized number of shares of the 9%/7% Preferred Stock from 17,500,000 shares to 55,000,000 shares. NOW, THEREFORE, BE IT RESOLVED, that the authorized number of shares of the 9%/7% Preferred Stock be and hereby is increased from 17,500,000 shares to 55,000,000 shares. BE IT FURTHER RESOLVED, that the officers of the Corporation be and hereby are authorized, empowered and directed to cause to be prepared and filed a Certificate of Amendment setting forth these resolutions for the purpose of amending the Certificate of Designation of the 9%/7% Preferred Stock to reflect the increase in the number of authorized shares of the 9%/7% Preferred Stock from 17,500,000 shares to 55,000,000 shares. (b) The foregoing resolution, having authorized and directed an increase in the number of shares of 9%/7% Preferred Stock, effective upon filing of this Certificate in the office 2 of the Secretary of State, the authorized number of shares of 9%/7% Preferred Stock shall be increased from 17,500,000 shares to 55,000,000 shares. 3. Pursuant to Section 242 of the DGCL, this Certificate of Amendment shall be effective upon filing in the office of the Secretary of State and shall have the effect of amending the Certificate of Incorporation of the Corporation as set forth herein. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed and attested on its behalf this 11th day of July, 1996. SEARCH CAPITAL GROUP, INC. By: /s/ George C. Evans ------------------------------------- Name: George C. Evans Title: Chairman, President and Chief Executive Officer ATTEST: By: /s/ Joe B. Dorman -------------------------- Name: Joe B. Dorman Title: Secretary EX-3.2 5 CERTIFICATE OF DESIGNATION 1 EXHIBIT 3.2 SEARCH CAPITAL GROUP, INC. CERTIFICATE OF DESIGNATION SERIES B 9%/7% CONVERTIBLE PREFERRED STOCK Pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of Search Capital Group, Inc., a Delaware corporation (the "Corporation"), and the provisions of Section 151 of the Delaware General Corporation Law, the following resolution creating a series of 4,000,000 shares of preferred stock designated as Series B 9%/7% Convertible Preferred Stock was duly adopted as of July 29, 1996 by all necessary action on the part of the Corporation: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Certificate of Incorporation, a series of preferred stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of shares of such series, and the qualifications, limitations, or restrictions thereof are as follows: SECTION 1. Designation of Series. The series shall be designated as "Series B 9%/7% Convertible Preferred Stock" (hereinafter called "Series B Preferred Stock"). SECTION 2. Number of Shares. The number of shares of Series B Preferred Stock is 4,000,000 with the par value of $0.01 per share and a liquidation preference of $3.50 per share plus any declared but unpaid dividends, after payment of all debts of the Corporation, which number of shares the Board of Directors may increase or decrease but may not decrease below the number of shares of the series then outstanding. SECTION 3. Dividends. The holders of the Series B Preferred Stock shall be entitled to receive, out of any funds legally available, non-cumulative dividends at the annual rate of $0.315 per share (i.e., 9% of $3.50 liquidation preference) per annum until March 31, 1999 (the "End Date") and thereafter at the rate of $0.245 per share (i.e., 7% of $3.50 liquidation preference) per annum from the day following the End Date. In the event of any stock split, reverse stock split, stock combination or reclassification of the Series B Preferred Stock or any merger, consolidation or combination of the Corporation with any other entity or entities, the dividend rates shall be subject to adjustment by the Board of Directors upon, and in appropriate proportion to, any adjustment to the liquidation preference of the Series B Preferred Stock pursuant to Section 6 hereof. The Corporation may not pay dividends on the Series B Preferred Stock except in cash until all accrued dividends have been paid by the Corporation in cash on the Series B Preferred Stock through the calendar quarter ending March 31, 1997. After the accrued dividends have been paid in cash by the Corporation for such period, dividends will continue to be paid entirely in cash unless the Corporation is prohibited from paying the 2 dividends entirely in cash by Delaware law (the state of its incorporation) or by the terms of any loan agreement of $5,000,000 or more. If the Corporation is prevented from paying a dividend entirely in cash, it will pay a dividend in the form of a mixture of cash and common stock of the Corporation ("Common Stock") to the extent possible under Delaware law and any applicable loan agreement, or if necessary, entirely in Common Stock, provided the average market price per share of the Common Stock is $.50 or greater for the 20 trading day period ending five days prior to the date of payment of the Common Stock dividend. Such $.50 minimum market price shall be subject to adjustment by the Board of Directors upon and in appropriate proportion to, any adjustment to the conversion rate of the Series B Preferred Stock pursuant to subsection 10(c) hereof. The value of any shares of Common Stock paid out as a dividend on the Series B Preferred Stock shall be based on the average market price of the Common Stock for the 20 trading day period ending five days prior to the date of payment of the Common Stock dividend. For purposes of this Section, the market price of the Corporation's Common Stock shall be determined by using the closing sales price as reported by NASDAQ, if the Common Stock is quoted by NASDAQ, or any national stock exchange on which the Common Stock is listed for trading (or if such stock is only traded over-the-counter, the average of the closing bid and asked prices). If there is no established market for the Common Stock, the market price shall be the fair market value of the Common Stock as determined by the good-faith judgment of the Board of Directors. If a dividend upon any shares of the Series B Preferred Stock, or any other outstanding stock of the Corporation ranking on a parity with the Series B Preferred Stock, or any other outstanding stock of the Corporation ranking on a parity with the Series B Preferred Stock as to dividends, is in arrears, no stock of the Corporation standing on a parity with the Series B Preferred Stock as to dividends may be purchased or otherwise acquired for any consideration by the Corporation except pursuant to an acquisition made pursuant to the terms of one or more offers to purchase all of the outstanding shares of the Series B Preferred Stock and all stock of the Corporation ranking on a parity with the Series B Preferred Stock as to dividends (which offers shall describe such proposed acquisition of all such parity stock). Unless otherwise declared by the Board of Directors or required by this Certificate of Designation, no dividends shall accrue or cumulate for any calendar quarter (or portion thereof) during which a liquidation, dissolution or winding up of the Corporation occurs. SECTION 4. Dividend Payment Dates; Accrual Periods. Quarterly dividends on each share of Series B Preferred Stock shall (a) accrue from the date of issuance of such share through the last day of the calendar quarter in which the share was issued and thereafter from the first day of each calendar quarter through the last day of such calendar quarter, and (b) be paid on the 15th day of the month following the end of each calendar quarter to the holder of record of such share at the close of business on the last day of the calendar quarter. -2- 3 SECTION 5. Redemption. The Series B Preferred Stock shall not be subject to redemption by the Corporation or at the election of the holders thereof. SECTION 6. Liquidation Rights. If the Corporation is liquidated, the Series B Preferred Stock will have a preference as to liquidation proceeds (proceeds from the disposition of assets less payment of all debts) in the amount of $3.50 per share plus all accrued and unpaid dividends, if any, after payment of all debts of the Corporation. If upon any liquidation of the Corporation, the assets available for distribution to the holders of the Series B Preferred Stock and any other stock of the Corporation which shall then be outstanding and which shall be on a parity with the Series B Preferred Stock upon liquidation (hereinafter in this paragraph called the "Total Amount Available") shall be insufficient to pay the holders of all outstanding shares of the Series B Preferred Stock and all other such parity stock the full amounts (including all dividends accrued and unpaid) to which they shall be entitled by reason of such liquidation of the Corporation, then there shall be paid to the holders of the Series B Preferred Stock in connection with such liquidation of the Corporation, an amount equal to the product derived by multiplying the Total Amount Available times a fraction, the numerator of which shall equal the number of outstanding shares of the Series B Preferred Stock multiplied by $3.50 plus any accrued and unpaid dividends thereon and a denominator of which shall be the total amount which would have been distributed by reason of such liquidation of the Corporation with respect to the Series B Preferred Stock and all other stock ranking on a parity with the Series B Preferred Stock upon liquidation then outstanding had the Corporation possessed sufficient assets to pay the full amount which the holders of all such stock would be entitled to receive in connection with such liquidation of the Corporation. The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into the Corporation, or the sale, lease or conveyance of all or substantially all the property or business of the Corporation, shall not be deemed to be a dissolution or winding up, voluntary or involuntary, for the purposes of this Section 6. In the event of any stock split, reverse stock split, stock combination or reclassification of the Series B Preferred Stock or any merger, consolidation or combination of the Corporation with any other entity or entities, the liquidation preference per share shall be proportionally adjusted so that the holders of the Series B Preferred Stock after such event shall be entitled to receive upon liquidation of the Corporation the same total preference as to liquidation proceeds as such holders would have been entitled to receive with respect to their Series B Preferred Stock had the Corporation been liquidated immediately prior to such event. Such adjustment shall be made successively upon the occurrence of the events listed in this paragraph. Any adjustments shall be determined by the Board of Directors. SECTION 7. Ranking. The Series B Preferred Stock shall rank, in right of payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, senior and -3- 4 superior to the Corporation's currently authorized Common Stock (collectively, the "Junior Capital Stock"). The Series B Preferred Stock may be, at the Corporation's sole discretion, either superior or pari passu (i.e., the two classes of preferred stock will share proportionately as to their respective interest in any liquidation proceeds or dividends) in dividend rights and liquidation preferences to all other subsequently issued preferred stock. However, no other preferred stock, whether or not convertible, may be issued in the future that will be pari passu with the Series B Preferred Stock unless at the time of such issuance all dividends due the holders of the Series B Preferred Stock have been paid in full. In no event shall convertible preferred stock be issued which is senior in rights to that of the Series B Preferred Stock, other than that such pari passu convertible preferred stock may carry the then current market interest rate, which may be higher or lower than that of the Series B Preferred Stock. The Series B Preferred Stock will be pari passu with the existing 9%/7% Convertible Preferred Stock and the 12% Senior Convertible Preferred Stock, and pari passu or senior in rights to future issues of straight, convertible and all other forms of preferred stock with the exception of the rate of interest for such future issues of preferred stock, which shall be no greater than the prevailing market rate for similar such issues. Whenever reference is made to shares "ranking on a parity with the Series B Preferred Stock," such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation rank on an equality with the rights of the holders of the Series B Preferred Stock. Whenever reference is made to shares "ranking junior to the Series B Preferred Stock," such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation are junior and subordinate to the rights of the holders of the Series B Preferred Stock. The rights of the Series B Preferred Stock will be subordinate to the rights of all existing and future holders of the Corporation's debt. SECTION 8. Dividends on Junior Stock. In no event so long as any Series B Preferred Stock shall be outstanding shall any dividends, except a dividend payable in Common Stock or other shares ranking junior to the Series B Preferred Stock, be paid or declared or any distribution be made on any Junior Capital Stock, nor shall any Junior Capital Stock be purchased, retired or otherwise acquired by the Corporation (except out of the proceeds of the sale of Junior Capital Stock) unless all accrued and unpaid dividends on the Series B Preferred Stock shall have been declared and paid or a sum sufficient for payment thereof set apart. -4- 5 SECTION 9. Voting Rights. Each share of the Series B Preferred Stock shall be entitled to exercise the same voting rights as holders of the Corporation's Common Stock and shall have one vote per share. If the Corporation fails to pay a Series B Preferred Stock dividend in cash or Common Stock for any four consecutive quarters, the Series B Preferred Stock shall automatically be vested with an additional one vote per share, and the holders of the Series B Preferred Stock will be given the right to elect immediately at an emergency meeting of the shareholders which the Corporation shall hold within 30 days after any such failure, one additional member to the Corporation's Board of Directors. At any meeting at which the holders of the Series B Preferred Stock shall be entitled to elect a director, the holders of 50% of the then outstanding shares of the Series B Preferred Stock, present in person or by proxy, shall be sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the member of the Board of Directors which the holders of the Series B Preferred Stock is entitled to elect as hereinabove provided. On March 15, 2003, the number of persons constituting the Board of Directors shall be reduced by the one director then in office elected pursuant to this Section 9, the term of office of such director so elected shall end, and the holders of the Series B Preferred Stock shall be divested of their special class voting rights in respect of subsequent elections of directors. Prior to March 15, 2003, the Corporation will not, without the affirmative vote or consent of the holders of at least 66 2/3% of all outstanding shares of Series B Preferred Stock, voting as a single class, (i) amend, alter or repeal any provision of this Certificate of Designation to adversely affect the relative rights, preferences, qualifications, limitations or restrictions of the Series B Preferred Stock or (ii) effect any reclassification of the Series B Preferred Stock (other than by virtue of the mandatory conversion set forth herein or a stock split or reverse stock split of the Series B Preferred Stock which has no material adverse effect on the voting rights of the Series B Preferred Stock when compared to the voting rights of the other classes of capital stock after the consummation of such stock split or reverse stock split). Prior to March 15, 2003, the Corporation will not, without the affirmative vote or consent of holders of at least 50% of the outstanding shares of Series B Preferred Stock, voting as a single class (i) merge with another company when the members of the Board of Directors of the Corporation immediately prior to the merger do not constitute a majority (x) of the members of the Board of Directors of the Corporation if it survives the merger or (y) of the board of directors of the surviving company if the Corporation does not survive the merger, and (ii) sell more than 50% of the Corporation's assets. Other than those set forth in this Section 9, the holders of the Preferred Shares shall have no further voting rights. -5- 6 SECTION 10. Conversion Rights. 11. Optional Conversion. Shares of the Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time or from time to time at the office of the Corporation or of any transfer agent of the Series B Preferred Stock, into fully paid and nonassessable shares of Common Stock at the rate of two shares of Common Stock for each share of Series B Preferred Stock. 12. Mechanics of Conversion. Before any holder of the Series B Preferred Stock shall be entitled to convert the same into Common Stock pursuant to this Section 10, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of the transfer agent for the Series B Preferred Stock, and shall give written notice by mail, postage prepaid, to the Corporation, at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of the Series B Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid together with a check for any declared and unpaid dividends on such Series B Preferred Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Series B Preferred Stock to be converted, and the person or persons entitled to receive this Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of Common Stock on such date. Any holder of the Series B Preferred Stock who elects to convert his shares to Common Stock waives any and all rights to any accrued, but undeclared, dividends with respect to the Series B Preferred Stock, but shall retain the right to any dividends declared and accrued during the time such holder was a holder of record of the Series B Preferred Stock. 13. Adjustments to Conversion Ratio. In the event of any stock dividend (except a Common Stock dividend that may be paid pursuant to Section 3 of this Certificate of Designation) on the Common Stock, any stock split, reverse stock split, stock combination or reclassification of the Common Stock or any merger, consolidation or combination of the Corporation with any other entity or entities, the conversion rate shall be proportionately adjusted so that the holders of the Series B Preferred Stock after such event shall be entitled to receive upon conversion the number and kind of shares which such holders would have owned or been entitled to receive had such Series B Preferred Stock been converted immediately prior to such event. Such adjustment shall be made successively upon the occurrence of the events listed in this paragraph. Any adjustments shall be determined by the Board of Directors. 14. No Fractional Shares. No fractional shares shall be issuable upon conversion; and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share, and the Corporation shall, at its option, issue script representing such fractional share or pay cash in lieu of such fractional share based upon the market price (if traded over-the-counter, the average of the bid and asked prices) of the Common Stock as reported at the close of business on the day such conversion is effected or, if there is no established market for the Common Stock, the fair value of the Common Stock as determined by the good-faith judgment of the Board of Directors. 15. Reservation of Common Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as will be sufficient for such purpose. -6- 7 16. Status of Converted Stock. In case any shares of Series B Preferred Stock shall be converted into Common Stock, the shares so converted shall, after any filings required by law, assume the statues of authorized but unissued shares of Series B Preferred Stock. 17. Mandatory Conversion into Common Stock. The Corporation may, at its option, call for the mandatory conversion, in whole or in part, of up to 50% of the issued and outstanding shares of Series B Preferred Stock under the following conditions: (i) the Corporation's Common Stock trades at a market price of $4.25 per share or higher on each of any 20 trading days in a period of 30 consecutive trading days, beginning on March 16, 1998 and ending on March 15, 1999, or (ii) the Corporation's Common Stock trades at a market price of $3.50 per share or higher on each of any 20 trading days in a period of 30 consecutive trading days, beginning on March 16, 1999 and ending on the day immediately preceding the Final Conversion Date (as defined herein). The trigger prices per share of $4.25 and $3.50 shall be subject to adjustment by the Board of Directors upon, and in appropriate proportion to, any adjustment to the conversion rate of the Series B Preferred Stock pursuant to subsection 10(c) hereof. In the event the Corporation elects to call for the conversion of a portion of the Series B Preferred Stock issued and outstanding pursuant to clause (i) or (ii) above, then the Corporation shall select the shares to be converted to the effect that to the extent practicable each holder of shares of the Series B Preferred Stock shall have a pro rata portion of his or her shares converted. The Corporation shall cause a notice of the mandatory conversion pursuant to the immediately preceding paragraph to be mailed, postage prepaid, to the holders of the Series B Preferred Stock at their respective addresses appearing on the share transfer records of the Corporation. The Board of Directors may elect to specify an effective date for such conversion ("Effective Conversion Date"), which date may be no later than 60 days after the Board meeting or consent at which the Corporation's election to convert was duly adopted. If no Effective Conversion Date is specified by the Board of Directors, the Effective Conversion Date shall be the date of the initial mailing of the required notice. Such notice shall set forth the number of shares of the Series B Preferred Stock that are mandatorily converted as of the Effective Conversion Date with respect to each holder thereof, and the address of the place where such shares of the Series B Preferred Stock shall be exchanged, upon presentation and surrender of the certificates representing such shares, and the certificates representing the shares of Common Stock shall be delivered. The dividends on the shares of Series B Preferred Stock called for conversion shall cease to accrue on the Effective Conversion Date. Any notice which is mailed in the manner provided herein shall be conclusively presumed to have been duly given, whether or not the holder of the shares of the Series B Preferred Stock receives such notice, and failure to duly give such notice by mail, or any defect in such notice, to any holder of shares of the Series B Preferred Stock shall not affect the validity of the conversion thereof into Common Stock. Consequently, as of the close of business on the Effective Conversion Date, all shares of the Series B Preferred Stock called for conversion, regardless of whether notice of conversion is actually received by the holder, shall automatically be deemed to be the shares of Common Stock into which such shares could have been voluntarily converted by the holders thereof. As of the close of business on the Effective Conversion Date, the Series B Preferred Stock called for conversion shall be deemed to cease to be outstanding or to accrue dividends, the persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the registered holders of such Common Stock and all rights of any holders of the Series B Preferred Stock called for conversion shall thereupon be extinguished except the right to -7- 8 receive the Common Stock in exchange therefor and any accrued and unpaid dividends thereon. Holders of the Series B Preferred Stock called for conversion must surrender the certificates representing such stock in order to receive the Common Stock into which such Series B Preferred Stock has been converted. The Corporation shall be obligated to pay, within 30 days after the Effective Conversion Date, any accrued and unpaid dividends on the shares of Series B Preferred Stock called for conversion, to the holders who, on the Effective Conversion Date, held such shares of Series B Preferred Stock. Any previously unconverted Series B Preferred Stock shall be automatically and mandatorily converted on March 15, 2003 (the "Final Conversion Date"). For the purpose of the conversion on the Final Conversion Date, each share of Series B Preferred Stock shall be convertible into a number of shares of Common Stock which shall equal the lesser of (i) three (which number shall be subject to adjustment by the Board of Directors upon, and in the same proportion as, any adjustment in the conversion rate of the Series B Preferred Stock pursuant to subsection 10(c) hereof), or (ii) the result of dividing the liquidation preference per share for the Series B Preferred Stock by the market price per share of the Common Stock as reported at the close of business on the Final Conversion Date (or if such date is not a trading day, on the first trading day immediately preceding the Final Conversion Date). The Corporation shall cause a notice of such mandatory conversion on the Final Conversion Date to be mailed, postage prepaid, to the holders of record of the Series B Preferred Stock at their respective addresses appearing on the share transfer records of the Corporation. Such notice shall set forth a statement that all outstanding shares of the Series B Preferred Stock shall be automatically and mandatorily converted as of the Final Conversion Date and the address of the place where such shares of Series B Preferred Stock shall be exchanged, upon presentation and surrender of the certificates representing such shares, and the certificates representing the shares of Common Stock shall be delivered. The dividends on such shares shall cease to accrue on the Final Conversion Date. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder of the shares of the Series B Preferred Stock receives such notice, and failure to duly give such notice by mail, or any defect in such notice, to any holder of shares of the Series B Preferred Stock shall not affect the validity of the conversion thereof into Common Stock. Consequently, all issued shares of the Series B Preferred Stock, as of close of business on the Final Conversion Date, regardless of whether notice of conversion is actually received by the holder, shall automatically be deemed to be the shares of Common Stock into which such shares are converted. As of the close of business on the Final Conversion Date, the Series B Preferred Stock shall be deemed to cease to be outstanding or to accrue dividends, the persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the registered holders of such Common Stock and all rights of any holders of the Series B Preferred Stock shall thereupon be extinguished except the right to receive the Common Stock in exchange therefor and any accrued and -8- 9 unpaid dividends thereon. Holders of the Series B Preferred Stock must surrender the certificates representing such stock in order to receive the Common Stock into which such Series B Preferred Stock has been converted. The Corporation shall be required to declare and pay all cumulated unpaid dividends that accrue through the Final Conversion Date as soon as practicable following the Final Conversion Date. After the conversion of all issued shares of the Series B Preferred Stock, all shares of the Series B Preferred Stock shall be canceled, the Series B Preferred Stock shall not be reissued and shall be deemed canceled and shall revert to authorized but unissued Preferred Stock of the Corporation, undesignated as to series, and the number of shares of Preferred Stock which the Corporation shall have authority to issue shall not be decreased by such conversion. For purposes of this subsection (g), the market price of the Corporation's Common Stock shall be determined by using the closing sales price as reported by NASDAQ, if the Common Stock is quoted by NASDAQ, or any national stock exchange on which the Common Stock is listed for trading (or if such stock is only traded over-the-counter, the average of the closing bid and asked prices). If there is no established market for the Common Stock, the market price shall be the fair market value of the Common Stock as determined by the good-faith judgment of the Board of Directors. 18. Automatic Conversion into 9%/7% Convertible Preferred Stock. The Series B Preferred Stock shall be automatically and mandatorily converted, when and if the Corporation files with the Delaware Secretary of State a Certificate of Amendment containing certain clarifying amendments to the terms of the Certificate of Designation of 9%/7% Convertible Preferred Stock, as set forth in the Corporation's preliminary proxy statement filed with the Securities and Exchange Commission on July 19, 1996, into fully paid and nonassessable shares of 9%/7% Convertible Preferred Stock at a rate of one share of 9%/7% Convertible Preferred Stock for each share of Series B Preferred Stock. The effective date of such conversion shall be the first business day following the filing of such Certificate of Amendment with the Delaware Secretary of State ("Automatic Conversion Date"). In the event of any stock split, reverse stock split, stock combination or reclassification of the 9%/7% Convertible Preferred Stock or any merger, consolidation or combination of the Corporation with any other entity or entities, the conversion rate set forth in this subsection (h) shall be proportionately adjusted so that the holders of the Series B Preferred Stock after such event shall be entitled to receive upon conversion the number and kind of shares which such holders would have owned or been entitled to receive had such Series B Preferred Stock been converted immediately prior to such event. Such adjustment shall be made successively upon the occurrence of the events listed in this paragraph. Any adjustments shall be determined by the Board of Directors. The Corporation shall cause a notice of such mandatory conversion on the Automatic Conversion Date to be mailed, postage prepaid, to the holders of record of the Series B Preferred Stock at their respective addresses appearing on the share transfer records of the Corporation. Such notice shall set forth a statement that all outstanding shares of the Series B Preferred Stock shall be automatically and mandatorily converted as of the Automatic Conversion Date and the address of the place where such shares of Series B Preferred Stock shall be exchanged, upon presentation and surrender of the -9- 10 certificates representing such shares, and the certificates representing the shares of 9%/7% Convertible Preferred Stock shall be delivered. The dividends on such shares shall cease to accrue on the Automatic Conversion Date. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder of the shares of the Series B Preferred Stock receives such notice, and failure to duly give such notice by mail, or any defect in such notice, to any holder of shares of the Series B Preferred Stock shall not affect the validity of the conversion thereof into 9%/7% Convertible Preferred Stock. Consequently, all issued shares of the Series B Preferred Stock, as of close of business on the Automatic Conversion Date, regardless of whether notice of conversion is actually received by the holder, shall automatically be deemed to be the shares of 9%/7% Convertible Preferred Stock into which such shares are converted. As of the close of business on the Automatic Conversion Date, the Series B Preferred Stock shall be deemed to cease to be outstanding or to accrue dividends, the persons entitled to receive the 9%/7% Convertible Preferred Stock issuable upon conversion shall be treated for all purposes as the registered holders of such 9%/7% Convertible Preferred Stock and all rights of any holders of the Series B Preferred Stock shall thereupon be extinguished except the right to receive the 9%/7% Convertible Preferred Stock in exchange therefor and any accrued and unpaid dividends thereon. Holders of the Series B Preferred Stock must surrender the certificates representing such stock in order to receive the 9%/7% Convertible Preferred Stock into which such Series B Preferred Stock has been converted. The Corporation shall be required to declare and pay all cumulated unpaid dividends that accrue through the Automatic Conversion Date as soon as practicable following the Automatic Conversion Date. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of 9%/7% Convertible Preferred Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of shares of 9%/7% Convertible Preferred Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock, and if at any time the number of authorized but unissued shares of 9%/7% Convertible Preferred Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of 9%/7% Convertible Preferred Stock to such number of shares as will be sufficient for such purpose. After the conversion of all issued shares of the Series B Preferred Stock, all shares of the Series B Preferred Stock shall be canceled, the Series B Preferred Stock shall not be reissued and shall be deemed canceled and shall revert to authorized but unissued Preferred Stock of the Corporation, undesignated as to series, and the number of shares of Preferred Stock which the Corporation shall have authority to issue shall not be decreased by such conversion. -10- 11 SECTION 19. Other Rights. The Corporation will not be obligated to redeem the Series B Preferred Stock, and thus will not be required to establish a redemption or sinking fund. SECTION 20. Effects of Conversion on Capital and Surplus. Upon conversion of the Series B Preferred Stock the stated capital of the Common Stock issued upon such conversion shall be the aggregate par value thereof, and the stated capital and capital surplus (capital in excess of par of stated value) of the Corporation shall be correspondingly increased or reduced to reflect the difference between stated capital of the Series B Preferred Stock so converted and the par or stated value of the Common Stock issued upon conversion. SECTION 21. Anti-Dilution. The Corporation shall be prohibited from issuing preferred or Common Stock or warrants or any other form of security to an affiliate for consideration that does not equal or exceed the fair market value of such security (as determined by an independent third party); provided that, the Corporation may issue options or warrants to new or existing directors or management, so long as such warrants or options are approved by the Compensation Committee of the Board of Directors. The Corporation may also issue Common Stock upon the exercise of warrants or options presently outstanding; provided that, such warrants or options are not amended or modified without the approval of the Compensation Committee. In the event that the Corporation issues to an affiliate any security not excepted above for consideration that is less than the fair market value (as determined above) of such security, the number of shares Series B Preferred Stock shall be immediately and appropriately adjusted (and the conversion price of the Series B Preferred Stock adjusted downward on a full ratchet basis) to take into account the dilution in value of the securities holdings of the holders caused by such below-market issuance of the Corporation's securities. SECTION 22. Other Limits. In addition, the Corporation will not (a) declare any cash or other form of dividend on or with respect to any issue of Common Stock unless all dividends on the Series B Preferred Stock have been paid, nor (b) issue Common Stock that is convertible into convertible or other Preferred Stock. -11- 12 Dated as of July 29, 1996. SEARCH CAPITAL GROUP, INC. By: /s/ George C. Evans ------------------------------------- Name: George C. Evans ----------------------------------- Title: Chairman of the Board, President ---------------------------------- and Chief Executive Officer ATTESTED TO: /s/ Robert D. Idzi - ----------------------------- Robert D. Idzi -12- EX-3.3 6 CERTIFICATE OF CORRECTIONS 1 EXHIBIT 3.3 CERTIFICATE OF CORRECTION TO THE RESTATED CERTIFICATE OF INCORPORATION OF SEARCH CAPITAL GROUP, INC. The undersigned, Search Capital Group, Inc. (the "Corporation"), for the purpose of correcting its Restated Certificate of Incorporation, as presently in effect, does hereby make and execute this Certificate of Correction (the "Correction") and does hereby certify that: 1. The name of the Corporation is Search Capital Group, Inc. 2. This Correction shall correct the Restated Certificate of Incorporation of the Corporation, as filed with the Secretary of State of Delaware on July 29, 1996. 3. On Page 2 of the Restated Certificate of Incorporation, the last two lines of Article FOURTH, Section 2 of the Certificate of Designations for the 12% Senior Convertible Preferred Stock were missing and the section did not reflect a complete paragraph. This Correction will incorporate the completed paragraph. 4. Article FOURTH, Section 2 of the Certificate of Designations for the 12% Senior Convertible Preferred Stock should therefore be corrected to read in its entirety as follows: Article FOURTH: SECTION 2. Number of Shares. The number of shares of 12% Preferred Stock is 400,000 of the par value of $0.01 per share with a liquidation preference of $5.00 per share which number of shares the Board of Directors may increase or decrease but may not decrease below the number of shares of the series then outstanding. IN WITNESS WHEREOF, this Certificate of Correction to the Restated Certificate of Incorporation has been executed by the Corporation by its President and attested by its Secretary, and each of them does hereby affirm and acknowledge, under penalties of perjury, that this Certificate of Correction is the act and deed of the Corporation and that the facts stated herein are true. DATED: August 15, 1996 SEARCH CAPITAL GROUP, INC. [CORPORATE SEAL] By: /s/ George C. Evans ------------------------------ Name: George C. Evans Title: Chairman, President and Chief Executive Officer ATTEST: /s/ Ellis A. Regenbogen - ----------------------------- Ellis A. Regenbogen Secretary EX-3.4 7 CERTIFICATE OF AMENDMENT 1 EXHIBIT 3.4 SEARCH CAPITAL GROUP, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATION OF 9%/7% CONVERTIBLE PREFERRED STOCK Search Capital Group, Inc., a Delaware corporation (the "Corporation"), acting pursuant to Section 242 of the Delaware General Corporation Law (the "DGCL"), does hereby execute this Certificate of Amendment amending the Restated Certificate of Incorporation filed on July 29, 1996 of the Corporation and does hereby certify that: 1. THE NAME OF THE CORPORATION IS SEARCH CAPITAL GROUP, INC. 2. (A) THE BOARD OF DIRECTORS OF THE CORPORATION, AT A MEETING DULY HELD ON NOVEMBER 5, 1996, HAS DULY ADOPTED THE FOLLOWING RESOLUTIONS WITH RESPECT TO THE CORPORATION'S 9%/7% CONVERTIBLE PREFERRED STOCK: WHEREAS, there are currently 55,000,000 authorized shares of the series of the Corporation's preferred stock designated as the 9%/7% Convertible Preferred Stock, par value $0.01 per share (the "9%/7% Preferred Stock"), of which 16,952,594 are issued and outstanding; and WHEREAS, pursuant to the Certificate of Designation of the 9%/7% Preferred Stock, the Board of Directors of the Corporation may increase or decrease the number of authorized share of the 9%/7% Preferred Stock, but may not decrease below the number of shares of the series then outstanding; and WHEREAS, the Corporation desires to decrease the authorized number of shares of the 9%/7% Preferred Stock from 55,000,000 shares to 30,000,000 shares. NOW, THEREFORE, BE IT RESOLVED, that the authorized number of shares of the 9%/7% Preferred Stock be and hereby is decreased from 55,000,000 shares to 30,000,000 shares. BE IT FURTHER RESOLVED, that the officers of the Corporation be and hereby are authorized, empowered and directed to cause to be prepared and filed a Certificate of Amendment setting forth these resolutions for the purpose of amending the Certificate of Designation of the 9%/7% Preferred Stock to reflect the decrease in the number of authorized shares of the 9%/7% Preferred Stock from 55,000,000 shares to 30,000,000 shares. 2 (b) Effective upon filing of this Certificate in the office of the Secretary of State, the authorized number of shares of 9%/7% Preferred Stock shall be decreased from 55,000,000 shares to 30,000,000 shares. 3. Pursuant to Section 242 of the DGCL, this Certificate of Amendment shall be effective upon filing in the office of the Secretary of State and shall have the effect of amending the Restated Certificate of Incorporation of the Corporation as set forth herein. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed and attested on its behalf this 5th day of November, 1996. SEARCH CAPITAL GROUP, INC. By: SEARCH CAPITAL GROUP, INC. Name: /s/ George C. Evans Title: Chairman and CEO ATTEST: By: /s/ James F. Leary Name: James F. Leary Title: Vice Chairman - Finance -2- EX-3.5 8 CERTIFICATE OF AMENDMENT 1 EXHIBIT 3.5 SEARCH CAPITAL GROUP, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATION OF SERIES B 9%/7% CONVERTIBLE PREFERRED STOCK Search Capital Group, Inc., a Delaware corporation (the "Corporation"), acting pursuant to Section 242 of the Delaware General Corporation Law (the "DGCL"), does hereby execute this Certificate of Amendment amending the Certificate of Designation filed on August 2, 1996 of the Corporation and does hereby certify that: 1. The name of the Corporation is Search Capital Group, Inc. 2. (a) The Board of Directors of the Corporation, at a meeting duly held on November 5, 1996, has duly adopted the following resolutions with respect to the Corporation's 9%/7% Convertible Preferred Stock: WHEREAS, there are currently 4,000,000 authorized shares of the series of the Corporation's preferred stock designated as the Series B 9%/7% Convertible Preferred Stock, par value $0.01 per share (the "Series B 9%/7% Preferred Stock"), of which 2,554,060 are issued and outstanding; and WHEREAS, pursuant to the Certificate of Designation of the Series B 9%/7% Preferred Stock, the Board of Directors of the Corporation may increase or decrease the number of authorized share of the Series B 9%/7% Preferred Stock, but may not decrease below the number of shares of the series then outstanding; and WHEREAS, the Corporation desires to increase the authorized number of shares of the Series B 9%/7% Preferred Stock from 4,000,000 shares to 6,000,000 shares. NOW, THEREFORE, BE IT RESOLVED, that the authorized number of shares of the Series B 9%/7% Preferred Stock be and hereby is increased from 4,000,000 shares to 6,000,000 shares. BE IT FURTHER RESOLVED, that the officers of the Corporation be and hereby are authorized, empowered and directed to cause to be prepared and filed a Certificate of Amendment setting forth these resolutions for the purpose of amending the Certificate of Designation of the Series B 9%/7% Preferred Stock to reflect the increase in the number of authorized shares of the Series B 9%/7% Preferred Stock from 4,000,000 shares to 6,000,000 shares. 2 (b) Effective upon filing of this Certificate in the office of the Secretary of State, the authorized number of shares of Series B 9%/7% Preferred Stock shall be increased from 4,000,000 shares to 6,000,000 shares. 3. Pursuant to Section 242 of the DGCL, this Certificate of Amendment shall be effective upon filing in the office of the Secretary of State and shall have the effect of amending the Restated Certificate of Incorporation of the Corporation as set forth herein. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed and attested on its behalf this 5th day of November, 1996. SEARCH CAPITAL GROUP, INC. By: SEARCH CAPITAL GROUP, INC. Name: /s/ George C. Evans Title: Chairman & CEO ATTEST: By: /s/ James F. Leary Name: James F. Leary Title: Vice Chairman - Finance EX-10.1 9 2ND AMENDMENT TO ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.1 SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT This Second Amendment to Asset Purchase Agreement is executed as of November 5, 1996 by and among Search Capital Group, Inc. ("Search Capital"), Search Funding III, Inc. ("Search Funding") and U.S. Lending Corporation, as debtor-in-possession ("U.S. Lending"). R E C I T A L S: WHEREAS, Search Capital, Search Funding and U.S. Lending have entered into that certain Asset Purchase Agreement dated as of July 17, 1996 (the "Agreement"); WHEREAS, Search Capital has been unable to date to obtain the necessary stockholder approval for the clarifying amendments to the terms of its 9%/7% Convertible Preferred Stock, which is a condition to consummation of the transaction contemplated by the Agreement; WHEREAS, the total current market value for Search Capital's 9%/7% Convertible Preferred Stock and Common Stock to be issued under the Agreement to U. S. Lending has declined; WHEREAS, Search Capital and U.S. Lending are willing to amend the Agreement (i) to specify that the stock prices for determination of the number of shares of Common Stock and Preferred Stock to be issued to U.S. Lending will float based on the trading prices for such stock and (ii) to provide for the issuance to U.S. Lending of Search Capital's Series B 9%/7% Convertible Preferred Stock in lieu of its 9%/7% Convertible Preferred Stock; NOW, THEREFORE, for and in consideration of the premises and other valuable consideration, the parties hereto agree to amend the Agreement as follows: 1. THE DEFINITION OF "COMMON STOCK PRICE" IN SECTION 1 SHALL BE AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS: "Common Stock Price" means the average of the high bid and low asked prices, weighted on a daily basis by the number of shares traded, for the Common Stock for the 20 trading days preceding the Closing Date on the over-the-counter market, as reported by the National Quotation Bureau, Blomberg's or the National Association of Securities Dealers, Inc. 2. THE DEFINITION OF "PREFERRED STOCK PRICE" IN SECTION 1 SHALL BE AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS: EXHIBIT "A" 2 "Preferred Stock Price" means the average of the high bid and low asked prices, weighted on a daily basis by the number of shares traded, for Search Capital's 9%/7% Convertible Preferred Stock for the 20 trading days preceding the Closing Date on the over-the-counter market, as reported by the National Quotation Bureau, Blomberg's or the National Association of Securities Dealers, Inc. 3. THE DEFINITION OF "PREFERRED STOCK" IN SECTION 1 SHALL BE AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS: "Preferred Stock" means shares of Convertible Preferred Stock that, upon issuance, will be part of Search Capital's Series B 9%/7% Convertible Preferred Stock described in the Preference Certificate, of which there are approximately 2,554,060 shares issued and outstanding as of the date of this Agreement. 4. EXHIBIT 2C ATTACHED TO THE AGREEMENT SHALL BE REPLACED AND SUBSTITUTED WITH EXHIBIT 2C ATTACHED HERETO. 5. SECTION 2(C) OF THE AGREEMENT SHALL BE AMENDED TO DELETE FROM ITS SECOND SENTENCE THE PHRASE "WHICH CERTIFICATE OF DESIGNATION SHALL BE AMENDED PRIOR TO THE CLOSING BY CERTAIN AMENDMENTS TO BE FILED WITH THE DELAWARE SECRETARY OF STATE". 6. SECTION 6(B) OF THE AGREEMENT SHALL BE AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS: (b) Shareholder Approvals. Search Capital shall use its reasonable efforts to cause the approval by April 1, 1997 by its shareholders of certain clarifying amendments to the Certificate of Designation for its 9%/7% Convertible Preferred Stock, as described in Search Capital's Proxy Statement for a special meeting of shareholders originally scheduled for October 1, 1996. Search Capital makes no warranty or guaranty that such approvals will be obtained by April 1, 1997. 7. SUBSECTIONS 6(I), 7(A)(X) AND 7(B)(XII) OF THE AGREEMENT SHALL BE DELETED. 8. NEW SUBSECTIONS (U) AND (V) SHALL BE ADDED TO SECTION 8. SUBSECTIONS (U) AND (V) SHALL READ IN THEIR ENTIRETY AS FOLLOWS: u. Payment Upon Failure of Automatic Conversion of Preferred Stock. Search Capital shall pay to U.S. Lending $.08 per share of Preferred Stock issued at the Closing if the conditions for automatic conversion of such Preferred Stock into shares of Search Capital's 9%/7% Convertible Preferred Stock are not satisfied in accordance with Section 10(h) of the Preference Certificate on or before April 1, 1997. Such payment shall be made on or before April 15, 1997. -2- 3 v. Listing of Preferred Stock. Search Capital agrees to use reasonable efforts to list its Common Stock (including the shares issued to U.S. Lending) on NASDAQ or a national exchange and, in that connection, agrees to use reasonable efforts to list the Preferred Stock (including the shares issued to U.S. Lending) and its 9%/7% Convertible Preferred Stock at the same time. U.S. Lending acknowledges, however, that Search Capital does not currently qualify for a listing on NASDAQ or any other national exchange and will be unable to obtain such listing until it does qualify. 9. NEW SECTION 6(K) SHALL BE ADDED TO THE AGREEMENT AND SHALL READ IN ITS ENTIRETY AS FOLLOWS: k. Findings by Bankruptcy Court. As part of the confirmation of its Amended Plan of Reorganization, U.S. Lending shall seek and obtain appropriate findings from the bankruptcy court to the effect that the securities, and any cash compensation under Section 8(u), to be received by U.S. Lending under this Agreement, as amended by the Second Amendment to Asset Purchase Agreement dated November 5,1996, are reasonably equivalent in value to the securities that would have been received under this Agreement before its amendment by said Second Amendment, that the changes and modifications to this Agreement and the Amended Plan of Reorganization as a result of the Second Amendment are not material, and comply with the requirements of Sections 1125 and 1127 of the U.S. Bankruptcy Code and that no further voting on the Amended Plan is necessary. 10. U.S. LENDING AGREES AND CONFIRMS THAT IT IS NOT AWARE OF ANY BREACH BY SEARCH CAPITAL AND SEARCH FUNDING OF THEIR OBLIGATIONS UNDER THE AGREEMENT, AS AMENDED HEREBY. U.S. LENDING WAIVES ANY BREACH BY SEARCH CAPITAL AS A RESULT OF THE FAILURE TO DATE TO OBTAIN THE STOCKHOLDER APPROVALS REFERENCED IN FORMER SECTION 6(B). 11. THE PARTIES AGREE THAT THE AGREEMENT, AS AMENDED HEREBY, IS IN FULL FORCE AND EFFECT. EXECUTED as of the date first above written. U.S. LENDING CORPORATION By: /s/ ROBERT E. SPIELMAN ----------------------------------- Name: Robert E. Spielman --------------------------------- Title: Vice President -------------------------------- SEARCH CAPITAL GROUP, INC. By: /s/ ROBERT D. IDZI ----------------------------------- Name: Robert D. Idzi --------------------------------- Title: Senior Executive Vice President and Chief Financial Officer -------------------------------- SEARCH FUNDING III, INC. By: /s/ ROBERT D. IDZI ----------------------------------- Name: Robert D. Idzi --------------------------------- Title: Senior Executive Vice President and Chief Financial Officer -------------------------------- APPROVED OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF U.S. LENDING CORPORATION By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- OFFICIAL EQUITY COMMITTEE OF U.S. LENDING CORPORATION By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A BALANCE SHEET AND STATEMENT OF OPERATIONS FOR SIX MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1 6-MOS MAR-31-1997 SEP-30-1996 13,194,000 0 49,068,000 13,431,000 362,000 13,556,000 2,550,000 1,382,000 63,520,000 3,577,000 0 199,000 0 317,000 0 63,520,000 0 3,898,000 0 0 0 (3,438,000) 290,000 (1,822,000) 0 (1,822,000) 0 0 0 (1,822,000) (.07) (.07)
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