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EXHIBIT 10.4
SUBORDINATED NOTE
$5,000,000.00 November 21, 1996
1. Agreement to Pay. FOR VALUE RECEIVED, SEARCH CAPITAL GROUP,
INC., a Delaware corporation, (herein called the "Borrower"), promises to pay
to the order of HALL PHOENIX/INWOOD, LTD. (herein called "Phoenix"), in the
manner provided herein, the principal sum of FIVE MILLION DOLLARS
($5,000,000.00), together with interest remaining from time to time unpaid at
the rate provided for in Section 2 hereof. This Promissory Note (hereinafter
the "Note") is given at closing under and in compliance with that certain
Compromise and Settlement Agreement dated November 21, 1996, by and between
Borrower, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ Financial Group, Inc., Phoenix/Inwood
Corp. and Phoenix ("Settlement Agreement"). All terms used in this Note shall
have the meanings given to them in the Settlement Agreement if they are defined
in the Settlement Agreement and not in this Note.
2. Interest Rate. Outstanding principal balance hereof prior to
maturity shall bear interest from the date hereof until paid at the rate of 14%
per annum for the first six months after the date of this Note, at the rate of
15% per annum for the next six months, at the rate of 16% per annum for the
next six months, and at the rate of 17% per annum thereafter (herein called the
"Interest Rate"), in each case calculated daily on the basis of a 360-day year
for each day all or any part of the principal balance hereof shall remain
outstanding. All past due principal and/or interest or installment thereof
shall bear interest at the highest rate for which the undersigned may legally
contract under applicable law or, if no such rate is designated under
applicable law, at the rate of 18% per annum calculated on the basis of a 365
day year (herein called the "Default Interest Rate").
3. Payments. This Note shall be payable in monthly installments
of interest only commencing on the 1st day of December, 1996 and continuing
thereafter on the 1st day of each month until the Maturity Date (as hereinafter
defined). The Maturity Date shall be the earlier of (i) four years after the
execution of this Note or (ii) the date of closing by Borrower and/or
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Borrower's Affiliates on the sale or sales of any equity securities for cash or
issue subordinated debt whether on a pari passu basis or not with this Note for
cash or any combination thereof for cash, any or all of which must aggregate
$20,000,000.00 or more ("Maturity Date"). On the Maturity Date, the unpaid
principal balance hereof and all accrued but unpaid interest hereon shall
become due and payable. In the event Borrower and/or Borrower's Affiliates
shall sell equity securities for cash or issue subordinated debt which is on a
pari passu basis with this Note for cash or any combination thereof for cash
which aggregates less than $20,000,000.00, Borrower shall make a principal
payment on this Note at the time of closing on such sale in an amount equal to
the percentage that the amount of the sale is to $20,000,000.00 multiplied by
the then principal amount amount of this Note (i.e. a $10,000,000.00 sale would
require a principal payment equal to 50% of the then principal amount of the
Note). The sale of any equity securities or issuance of any subordinated debt
that is junior to this Note in a transaction to acquire (1) assets of another
entity or (2) stocks or securities of another entity and which equity
securities or subordinated debt is issued to the acquired company, its owners
and/or its creditors shall not be an event that accelerates the maturity of all
or any part of this Note to a date on or before four (4) years after the
execution of said Note. For example, the U.S. Lending transaction, of which
holder has knowledge, is a transaction the consummation of which shall not
accelerate the maturity of this Note provided any subordinated debt issued is
junior to this Note.
4. Method and Place of Payment. Payments upon this Note shall be
made in lawful money of the United States of America which shall be legal
tender for public and private debt at the time of payment, and shall be made at
▇▇▇ ▇. ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ or such other place
as the holder of this Note may from time to time in writing appoint.
5. Subordination. The payment of principal and interest on this
Note is subordinated in right of payment to the prior payment of all "Senior
Indebtedness" of the Borrower, whether outstanding on this date or thereafter.
"Senior Indebtedness" is defined as the principal of, and premium and interest
on, indebtedness of the Borrower for money borrowed on a secured basis from
persons, firms, or corporations that regularly engage in the business of
lending money. In
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the event of any insolvency, bankruptcy, receivership, liquidation, any other
marshalling of the assets and liabilities of the Borrower, or any other event
of default under the documents governing the Senior Indebtedness, the holders
of the Senior Indebtedness will be entitled to receive payment in full of all
principal and interest on all Senior Indebtedness before the holder of the Note
is entitled to receive any payment on account of principal or interest.
6. Default and Acceleration. The outstanding principal balance
of this Note together with accrued and unpaid interest thereon, shall, at the
option of the holder of this Note and without demand, notice or legal process
of any kind become at once due and payable at the place last designated by
holder as the place for payment hereof, upon the occurrence of an Event of
Default. An "Event of Default" shall occur under this agreement if:
A. Borrower fails timely to pay an amount payable to
holder under this Note and fails to pay within five (5) days
of holder's giving written notice of such default to Borrower;
provided, however, that holder shall not be required to give
notice more than three (3) times during the term of this Note
and interest shall accrue at the Default Interest Rate until
such payment is made; or
B. Borrower breaches any other obligation under this
agreement or under any of the Settlement Documents, and fails
to cure the breach within 30 days of holder's giving a written
notice of such default toBorrower.
C. Any judgment or judgments aggregating in excess of
$1,000,000.00 in excess of applicable insurance coverage which
remains unpaid for more than thirty (30) days or for which no
bond is posted within the applicable time, or any injunction
or attachment is obtained against Borrower which remains
unstayed for a period of thirty (30) days or is enforced;
D. Borrower is dissolved, or fails to maintain its
corporate existence in good standing, or the usual business of
Borrower ceases or is suspended;
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E. Borrower becomes insolvent, makes an assignment for
the benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or
principal creditors;
F. Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in
effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against Borrower
and Borrower fails to dismiss said petition or application
within sixty (60) days of the filing thereof;
G. The indictment of Borrower under any criminal
statute, or the commencement of criminal proceedings against
Borrower, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture
of any of the property having an aggregate value in excess of
$100,000 of Borrower;
H. Any event of default under any financing, security or
other agreement, document or instrument to which Borrower is a
party which Borrower does not timely cure;
I. Borrower's tangible net worth not including
subordinated debt falls below $12,000,000.00 if the U.S.
Lending transaction has not been consummated but
$15,000,000.00 if the U.S. Lending transaction has been
consummated;
J. Borrower fails to make a dividend payment on the
preferred stock of Borrower.
K. Borrower merges with another entity or transfers
substantially all of its assets to another entity and (i)
Borrower is not the surviving entity, (ii) the management of
Borrower is not the management for the surviving entity, or
(iii) Borrower's appointees and/or designees do not constitute
a majority of the Board of Directors of the surviving entity.
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L. Except as set forth in Section 3 of this Note,
Borrower and/or Borrower's Affiliates sells or issues
subordinated debt to any person or entity unless such
subordinated debt is subordinate to this Note.
7. Prepayment. This Note may be prepaid in part or in full at
any time without penalty upon 5 days notice. Partial prepayments shall be
applied first to accrued but unpaid interest and then to principal.
8. No Usury. It is the intent of Borrower and holder to comply
with the laws of the State of Texas with regard to the rate of interest charged
hereunder and, accordingly, notwithstanding any provision to the contrary in
the Note no such provision including without limitation any provision of this
Note providing for payment of interest or other charges shall require the
payment or permit the collection of any amount (herein called the "Excess
Interest") in excess of the maximum amount of interest permitted by law to be
contracted for, charged or collected for the use, detention, or forbearance in
the collection, of all or any portion of the indebtedness evidenced by this
Note; provided that if Excess Interest is provided for, or is adjudicated as
being provided for, in this Note or if Excess Interest is otherwise charged or
collected, then in such event:
(a) The provisions of this Section shall control and
govern;
(b) Borrower shall not be obligated to pay any Excess
Interest;
(c) Any Excess Interest that holder may have received
hereunder shall, at the option of holder, be (i) applied as a credit
against the then outstanding principal balance due under this Note, or
accrued and unpaid interest thereof, not to exceed the maximum amount
permitted by law, or both, (ii) refunded to the payor thereof, or
(iii) any combination of the foregoing;
(d) The applicable interest rate or rates shall be
automatically subject to reduction to the maximum lawful rate allowed
to be contracted for in writing under the applicable usury laws of the
State of Texas as of the date of disbursement of the indebtedness
evidenced hereby; and this Note and any writing otherwise constituting
a
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charge of Excess Interest shall be deemed to have been, and shall be,
reformed and modified to reflect such reduction in such interest rate
or rates; and
(e) Neither Borrower nor any other person shall have any
action or remedy against holder for any damages whatsoever or any
defense to enforcement of the Note arising out of the payment or
collection of any Excess Interest.
9. Costs of Enforcement. In the event that this Note is placed
in the hands of an attorney-at-law for collection after maturity, or upon
default specified in Section 6 hereof, or to enforce any of the rights,
requirements or remedies contained herein or in the other loan documents, then
and in any such event the Borrower hereby agreeS to pay within ten (10) days
after demand all reasonable costs of collecting or attempting to collect this
Note, or protecting or enforcing such rights, or evaluating, prosecuting or
defending any such proceedings, including, without limitation, reasonable
attorneys' fees (whether or not suit is brought), in addition to all principal,
interest and other amounts payable hereunder.
10. Time. Time is of the essence in the performance of this Note.
11. Notices. All notices must be in writing. Notices may be
given by U.S. Certified Mail, postage prepaid, addressed to the intended
recipient at the address set forth herein, or to such other notice address as
that party designates by notice to the other party, and any notice so given
shall be deemed given one business day after its deposit with the U.S. Postal
Service. A business day is any day other than a Saturday, Sunday, or legal
holiday in Texas. A notice given by other means shall be effective only when
actually received by the addressee.
If to Phoenix:
Hall Phoenix/Inwood, Ltd.
Attn: ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇. ▇▇. ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
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If to Borrower:
Search Capital Group, Inc. ("Search")
Attn: ▇▇▇▇▇ Regebogen
▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇.▇. ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
12. Waiver. Borrower and any and all others who may become liable
for all or part of the obligations of Borrower under this Note (all of the
foregoing being collectively "Obligor") agree to be jointly and severally bound
hereby and jointly and severally, and to the fullest extent permitted by law,
waive any and all demand, presentment for payment, notice of non-payment,
protest and notice of protest, notice of dishonor, and all lack of diligence
and delays in the enforcement of the payment hereof.
13. Holder's Actions. The remedies of the holder of this Note as
provided herein shall be cumulative and concurrent, and may be pursued
singularly, successively or together, at the sole discretion of the holder, and
may be exercised as often as occasion therefor shall arise and in connection
therewith:
(a) Failure of the holder, for any period of time or on
more than one occasion, to exercise its option to accelerate the
Maturity Date of this Note shall not constitute a waiver of the right
to exercise the same at any time thereafter or in the event of any
subsequent default;
(b) No act or omission or commission of the holder,
including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver of or release of the same and
any such waiver or release may be effected only through a written
document executed by the holder and then only to the extent
specifically recited therein;
(c) A waiver or release with reference to any event shall
not be construed as a waiver of release of any subsequent event,
similar or dissimilar, or as a bar to any subsequent exercise of the
holder's rights or remedies hereunder; and
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(d) Except as otherwise specifically required herein, no
notice to Borrower or any other person of the exercise of any right or
remedy granted to the holder by this Note shall be required.
14. Reports and Notices. Borrower shall give prompt notice to
holder of any default or claim of default by any party whether oral or in
writing under any financing agreement to which Borrower is a party. Borrower
shall give holder notice of any sale of securities or sale of subordinated debt
within five (5) days of such sale or issuance. Such notice shall include all
the information necessary to enable holder to determine whether the sale or
issuance is governed by the provisions of Paragraph 3. Borrower shall deliver
to holder copies of 10Qs and 10Ks within 10 days of their filing with the
Securities and Exchange Commission. On the first day of each month until the
maturity of this Note, Borrower shall provide to holder a certificate that
Borrower is in compliance with Paragraph 6. I of this Note.
15. Severability. The unenforceability or invalidity of any
provision or provisions hereof shall not render any other provision or
provisions hereof unenforceable or invalid.
16. Captions. The captions to the Sections of this Note are for
convenience only and shall not be deemed part of the text of the respective
Sections and shall not vary, by implication or otherwise, any of the provisions
of this Note.
17. Date of Performance: If this Note provides that any time
period expires or date for performance specified in this Note falls on a
nonbusiness day (i.e., a Saturday, Sunday, federal legal holiday or state legal
holiday in the State of Texas), such time period or performance deadline will
be extended to the next business day. Except as may be otherwise set forth
herein, any performance will be timely made if completed no later than 12:00
midnight, (Dallas, Texas, time) on the date the performance is due.
18. Governing Law. This Note shall be governed by the laws of the
State of Texas and venue shall be in Dallas County, Texas.
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IN WITNESS WHEREOF, the undersigned has executed this Note effective
as of the day, month and year set forth above.
SEARCH CAPITAL GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------
Printed Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Its: Senior EVP & CFO