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SCHEDULE 13D - INFORMATION TO BE INCLUDED IN STATEMENTS
FILED PURSUANT TO RULE 13D-1(A) AND AMENDMENTS
THERETO FILED PURSUANT TO RULE 13D-2(A).*
- ----------
* As amended by Releases No. 34-15457, dated January 4, 1979, effective
February 14, 1979 (as corrected by Release No. 34-15457A, dated February 25,
1979) and No. 34-14384, dated November 29, 1979, effective January 5, 1980.
- Editor.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)*
SMART CHOICE AUTOMOTIVE GROUP, INC.
(Name of Issuer)
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of Class of Securities)
831686 20 9
-----------
(CUSIP Number)
EDWARD R. MCMURPHY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CROWN GROUP, INC.
4040 NORTH MACARTHUR BOULEVARD
SUITE 100
IRVING, TEXAS 75038
(972) 717-3423
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
DECEMBER 1, 1999
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), (f) or (g), check the following
box [ ].
Note: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7 for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes.)
(Continued on following pages)
Page 1 of 8 Pages
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CUSIP No. 831686 20 9 13D Page 2 of 8 Pages
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<TABLE>
<S> <C>
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1. NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
CROWN GROUP, INC.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
N/A
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
WC AND OO
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING [ ]
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
N/A
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
TEXAS
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NUMBER 7. SOLE VOTING POWER
OF SHARES
BENEFICIALLY 139,108,147
OWNED BY ------------------------------------------------------------------
EACH 8. SHARED VOTING POWER
REPORTING
PERSON 0
WITH ------------------------------------------------------------------
9. SOLE DISPOSITIVE POWER
139,108,147
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10. SHARED DISPOSITIVE POWER
0
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
139,108,147
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
N/A
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
74.2% (SEE ALSO ITEM 5(A))
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14. TYPE OF REPORTING PERSON*
CO
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</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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SCHEDULE 13D OF CROWN GROUP, INC.
RESPECTING THE SECURITIES OF SMART CHOICE AUTOMOTIVE GROUP, INC.
ITEM 1. SECURITY AND ISSUER.
This filing relates to the acquisition of shares of the $.01 par value
common stock (the "Common Stock") of Smart Choice Automotive Group, Inc., a
Florida corporation (the "Issuer" or "Smart Choice"), whose principal executive
offices are located at 5200 South Washington Avenue, Titusville, Florida 33780.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed by Crown Group, Inc., a Texas corporation
("Crown"), which is a diversified holding company which owns and operates,
among other businesses, vertically integrated used car sales and finance
companies in the Mid- and Southwestern and Southeastern regions of the United
States. Crown's principal business and office address is 4040 North MacArthur
Boulevard, Suite 100, Irving, Texas 75038. Crown has not been convicted of a
criminal proceeding during the last five years, nor has Crown during the last
five years been a party to any civil proceeding of a judicial or administrative
body of competent jurisdiction which resulted in a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activity
subject to, federal or state securities laws or finding any violation with
respect to such laws.
The executive officers and directors of Crown, and/or any person
controlling Crown, are identified below:
(1) Edward R. McMurphy, a citizen of the United States, is
Chairman of the Board, President and Chief Executive Officer
and a significant shareholder of Crown. His business address
is the same as that of the principal offices of Crown.
(2) Tilman J. Falgout, III, a citizen of the United States, is
Executive Vice President and General Counsel, a director and
a significant shareholder of Crown through a corporate
entity. His business address is the same as that of the
principal offices of Crown.
(3) Mark D. Slusser, a citizen of the United States, is Vice
President Finance, Chief Financial Officer and Secretary of
Crown. His business address is the same as that of the
principal offices of Crown.
(4) John David Simmons, a citizen of the United States, is
President of Simmons & Associates, Inc., a real estate
development company, and Management Resources Company, a
management consulting firm, and he is a director and a
shareholder
Page 3 of 8
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of Crown. His business and residence address is 2656
Foothills Drive, Birmingham, Alabama 35226.
(5) David J. Douglas, a citizen of the United States, is Managing
Director of Tuesday Afternoon, Inc. (an investment company),
and he is a director and a shareholder of Crown. His business
address is 1701 North Collins Boulevard, Suite 2000,
Richardson, Texas 75081.
(6) Gerald L. Adams, a citizen of the United States, is an
entrepreneur in the shipping, trucking and real estate
industries and he is a director and a significant shareholder
of Crown. His business address is 1225 East 9th Street,
Lockport, Illinois 60441.
(7) Gerard M. Jacobs, a citizen of the United States, is
President of Huntington AluTech, Inc., a holding company
engaged in the consolidation of the aluminum forging
industry, and he is a director and a shareholder of Crown.
His business address is 5302 Oceanus Drive, Huntington Beach,
California 92649.
(8) Robert J. Kehl, a citizen of the United States, is an
entrepreneur in the riverboat construction, gaming, riverboat
touring and restaurant industries. He is a director of Crown
and his family is a significant shareholder of Crown through
a corporate entity. His residence address is 8259 Turtle
Creek Circle, Las Vegas, Nevada 89113.
None of the foregoing persons has been convicted in a criminal
proceeding during the last five years nor has any such person during the last
five years been a party to any civil proceeding of a judicial or administrative
body of competent jurisdiction which resulted in a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS FOR OTHER CONSIDERATION.
On December 1, 1999, Crown acquired voting control of Smart Choice
via the merger of a wholly-owned Smart Choice subsidiary into Crown's 85%-owned
subsidiary, Paaco Automotive Group, Inc. ("PAACO"), and a $3 million cash
investment by Crown in Smart Choice. The cash portion of the transaction was
funded by Crown with working capital.
The consideration for the foregoing was the issuance by Smart Choice
of shares of a new class of Series E Convertible Preferred Stock ("Preferred
Stock") to Crown. The Preferred Stock is convertible into Common Stock of Smart
Choice at any time at the election of Crown on the basis of 100 shares of
Common Stock for each share of Preferred Stock owned by Crown. In addition,
each share of Preferred Stock votes with the holders of Common Stock on an "as
converted" basis; that is, each share of Preferred Stock carries 100 votes.
Page 4 of 8
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The Series E Convertible Preferred Stock owned by Crown represents
approximately 74.2% of Smart Choice's Common Stock (as computed pursuant to
Rule 13d-3(d)(1)), and represents voting power equal to 70.0% of the voting
securities of Smart Choice.
Contemporaneously with Crown's equity investment and the merger of
its Paaco subsidiary with the Smart Choice subsidiary, an additional $4.5
million of Smart Choice debt, acquired by Crown for approximately $2.3 million
in cash, was converted into shares of Series E Convertible Preferred Stock.
Approximately $15.0 million of Smart Choice outstanding debt and preferred
stock held by others was converted into shares of Smart Choice Common Stock.
Following this transaction, Smart Choice has approximately $2.6 million of
subordinated debt outstanding. In connection with the transaction, the combined
subsidiary company obtained a restructured and restated $160 million senior
finance receivables and inventory credit facility, which contains more
favorable terms than the facilities it replaced.
The minority shareholders of Paaco received shares of Series E
Convertible Preferred Stock representing 5% of Smart Choice's outstanding
voting securities. The holders of certain converted Smart Choice debt and
preferred stock received shares of Smart Choice Common Stock equivalent to
approximately 20.7% of the outstanding voting securities. Previously existing
Smart Choice shareholders now own approximately 4.3% of the outstanding Smart
Choice voting securities. The holders of the shares of Smart Choice Common
Stock issued in connection with the transaction and Crown and other holders of
Series E Convertible Preferred Stock have certain registration rights.
Effective December 1, 1999, James E. Ernst was appointed President
and Chief Executive Officer of Smart Choice. Mr. Ernst has had a long
association with Crown and has recently been responsible for the restructuring
of PAACO's operations. He is a Certified Public Accountant and was formerly
President and Chief Executive Officer of both Casino Magic Corp. and Casino
America, Inc.
Gary Smith will continue to manage the Florida-based operations of
Smart Choice, as President of First Choice, while Larry Lange will remain
responsible for the new combined company's Texas-based operations, as President
of PAACO. Joe Cavalier has joined Smart Choice as its new Chief Financial
Officer, and Ron Anderson will have principal responsibility for finance
receivable activities.
Smart Choice's board of directors includes Edward R. McMurphy, as
Chairman, and Tilman J. Falgout, III, both senior executives and directors of
Crown. Robert Abrahams, James E. Ernst, Gary Smith and Larry Lange comprise the
remainder of the board of directors of Smart Choice.
Page 5 of 8
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ITEM 4. PURPOSE OF TRANSACTION.
The purpose of the transactions effected by Crown and Smart Choice
described in Item 3 was to transfer voting and management control of the Issuer
to Crown. Crown, by virtue of its beneficial ownership of the equity securities
and voting securities of the Issuer, has the power in the future to cause the
occurrence of any of the acts listed in Item 4(a) through (g) of Schedule 13D.
With respect to subparagraph (h) of Item 4, the Issuer's securities are not
currently listed with any national securities exchange or interdealer quotation
system of a registered national securities association. Following the changes
to the board of directors and management of the Issuer which were effected in
connection with the transactions described in Item 3, Crown does not presently
have intentions to cause any acts or events described in Item 4 to occur;
however, Crown may in the future determine to proceed with one or more such
actions.
ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER.
(a) Crown beneficially owns in the aggregate 139,108,147 shares
of the Issuer's Common Stock, which includes a currently exercisable warrant to
purchase 1,950,000 shares of Common Stock and 1,371,581.47 shares of Series E
Convertible Preferred stock of Smart Choice (which is convertible into Common
Stock on the basis of 100 shares of Common Stock for each share of Preferred
Stock). Crown beneficially owns approximately 74.2% of the Common Stock of the
Issuer, as determined in accordance with Rule 13d-3(d)(1). Because the Series E
Convertible Preferred Stock votes on an "as converted" basis with the Common
Stock of Smart Choice, Crown has voting power equal to 70.0% of the outstanding
voting securities of Smart Choice.
(b) Crown possesses sole voting and dispositive powers with
respect to all of the securities of the Issuer beneficially owned by it.
(c) See Item 3.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
There are no contracts, arrangements, understandings or
relationships among the persons named in Item 2 and between such persons and
any person with respect to any securities of the Issuer.
Page 6 of 8
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ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are hereby filed:
(1) Stock Purchase Agreement dated December 1, 1999 by and
between Crown Group, Inc. and Smart Choice Automotive Group,
Inc.; and
(2) Warrant to purchase 1,950,000 shares of common stock of Smart
Choice Automotive Group, Inc. issued to Crown Group, Inc.
Page 7 of 8
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete
and correct.
Date: December 13, 1999 /s/ Edward R. McMurphy
-----------------------------------------
Edward R. McMurphy
President and Chief Executive Officer
Page 8 of 8
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EXHIBIT (1)
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CROWN GROUP, INC.
AND
SMART CHOICE AUTOMOTIVE GROUP, INC.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Sale and Purchase of the Shares......................................................................... 1
2. Purchase and Payment.................................................................................... 2
(a) Purchase Price. ............................................................................... 2
(b) Further Assurances. ........................................................................... 2
3. Representations and Warranties of the Company........................................................... 2
(a) Organization and Standing of the Company....................................................... 2
(b) Subsidiaries................................................................................... 2
(c) Capital Stock.................................................................................. 3
(d) Corporate Proceedings of the Company........................................................... 4
(e) Financial Statements........................................................................... 4
(f) Absence of Certain Changes or Events........................................................... 5
(g) Tax Matters.................................................................................... 8
(h) Title to Properties and Related Matters........................................................ 9
(i) Consents and Approvals......................................................................... 10
(j) Receivables.................................................................................... 10
(k) Litigation and Proceedings..................................................................... 10
(l) Insurance Coverage............................................................................. 11
(m) Employee Benefits.............................................................................. 12
(n) Employee Relations............................................................................. 14
(o) Patents, Trademarks and Licenses............................................................... 14
(p) Approvals, Authorizations and Regulations...................................................... 14
(q) Inventory...................................................................................... 15
(r) Guarantees, Etc................................................................................ 15
(s) OSHA........................................................................................... 16
(t) No Defaults.................................................................................... 16
(u) No Conflicts................................................................................... 16
(v) Brokers........................................................................................ 17
(w) Environmental Matters.......................................................................... 17
(x) Permits, Licenses, Etc......................................................................... 19
(y) Software....................................................................................... 20
(z) Disclosure..................................................................................... 20
4. Representations and Warranties of the Purchaser......................................................... 20
(a) Organization, Standing and Authority of the Purchaser.......................................... 20
(b) No Violation................................................................................... 21
(c) Corporate Proceedings of the Purchaser......................................................... 21
(d) Financial Statements........................................................................... 21
(e) Brokers........................................................................................ 22
(f) Accredited Investor/Investment................................................................. 22
(g) Due Diligence.................................................................................. 22
(h) No Knowledge of Breach......................................................................... 23
</TABLE>
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<TABLE>
<S> <C> <C>
5. Closing Actions......................................................................................... 23
(a) Resignations................................................................................... 23
(b) Opinion of the Company's Counsel............................................................... 24
(c) Opinion of Purchaser's Counsel................................................................. 25
(d) Ready Finance Debt............................................................................. 26
(e) Conversion of Other Company Debt............................................................... 26
(f) High Capital Funding, LLC...................................................................... 26
(g) Conversion of Company Preferred Stock.......................................................... 26
(h) Merger of Paaco Automotive Group, Inc.......................................................... 27
(i) Grant to the Purchaser of Options, Warrants, Etc............................................... 27
(j) Finova Capital Corporation..................................................................... 28
(k) No Material Adverse Changes.................................................................... 28
(l) Consents....................................................................................... 28
(m) Certified Resolutions of the Company........................................................... 28
(n) Certified Resolutions of the Purchaser......................................................... 29
(o) Hart-Scott-Rodino Filing and Approval.......................................................... 29
(p) Employment/Consulting Agreements............................................................... 29
(q) Settlement of Existing Litigation.............................................................. 30
(r) Bankers Insurance Company Investment........................................................... 30
6. The Closing............................................................................................. 30
7. Nature and Survival of Representations and Warranties................................................... 30
(a) Nature of Statements........................................................................... 30
(b) Survival of Representations and Warranties..................................................... 30
8. Indemnification by Company and Related Matters.......................................................... 31
9. Indemnification by the Purchaser and Related Matters.................................................... 32
10. Expenses................................................................................................ 33
11. Notices................................................................................................. 34
12. Miscellaneous........................................................................................... 35
(a) Assignment..................................................................................... 35
(b) Section and Paragraph Headings................................................................. 35
(c) Amendment...................................................................................... 35
(d) Entire Agreement............................................................................... 35
(e) Knowledge...................................................................................... 35
(f) Public Announcements........................................................................... 35
(g) Counterparts................................................................................... 36
(h) Governing Law.................................................................................. 36
(i) Material Adverse Effect........................................................................ 36
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated on or as of December 1, 1999, by
and between CROWN GROUP, INC., a Texas corporation (the "Purchaser" or "Crown
Group"), and SMART CHOICE AUTOMOTIVE GROUP, INC., a Florida corporation (the
"Company" or "Smart Choice").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase 150,000 shares of the
Series E Convertible Preferred Stock, $.01 par value per share, of the Company
(herein referred to as the "Shares"), and the Company desires to sell the
Shares to the Purchaser, all upon the terms and conditions set forth herein;
and
WHEREAS, this Agreement sets forth the terms and conditions to which
the parties have agreed and further contemplates the execution and delivery of
certain collateral agreements and the consummation of certain related
transactions hereinafter described;
NOW, THEREFORE, in consideration of the mutual promises and covenants
of the parties, the parties agree as follows:
1. Sale and Purchase of the Shares. The Company hereby sells,
assigns and conveys to the Purchaser on the Closing Date (as hereinafter
defined), free and clear of all security interests, pledges, liens, charges and
encumbrances, the Shares and transfers and delivers to the Purchaser the
certificates evidencing the Shares. The Purchaser hereby purchases and accepts
the Shares for the consideration set forth in Section 2(a) hereof.
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2. Purchase and Payment.
(a) Purchase Price. The total purchase price (the
"Purchase Price") for the Shares is Three Million ($3,000,000)
Dollars, payable by the Purchaser to the Company at Closing (as
hereinafter defined), by wire transfer funds.
(b) Further Assurances. The Company hereby agrees to
execute and deliver from time to time at the request of the Purchaser
and without further consideration, such additional instruments of
conveyance and transfer and to take such other action as the Purchaser
may reasonably require to more effectively convey, assign, transfer
and deliver the Shares to the Purchaser.
3. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Purchaser that:
(a) Organization and Standing of the Company. The Company
and each of the Company Subsidiaries (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation. The Company and the
Company Subsidiaries have all requisite corporate power and authority
to conduct their respective businesses as they are now being
conducted. The Company has delivered to the Purchaser complete and
correct copies of the Articles of Incorporation (duly certified by the
Secretary of State of the respective states of incorporation) and
By-Laws (certified by the Secretary of the Company or the Company
Subsidiaries, as the case may be) of the Company and the Company
Subsidiaries as in effect on the date hereof.
(b) Subsidiaries. All direct and indirect subsidiaries of
the Company (individually, a "Company Subsidiary," and collectively,
the "Company
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Subsidiaries") are listed on Schedule 3(b) attached hereto. Except for
the Company Subsidiaries, the Company does not own, directly or
indirectly, any of the outstanding capital stock or securities
convertible into capital stock of any other corporation, or own,
directly or indirectly, any participating interest in any partnership,
joint venture or other business enterprise.
(c) Capital Stock. The total authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock, $.01 par
value per share (the "Company Common Stock"), of which as of August
16, 1999, 7,782,277 shares have been issued and are outstanding, and
5,000,000 shares of Preferred Stock, $.01 par value per share, (the
"Company Preferred Stock"), of which (i) 440 shares of Series A
Convertible Preferred Stock (the "Company Series A Preferred Stock"),
have been issued and no shares are outstanding, (ii) 220 shares of
Series B Convertible Preferred Stock (the "Company Series B Preferred
Stock"), have been issued and are outstanding, (iii) 24.98 shares of
Series C Convertible Preferred Stock (the "Company Series C Preferred
Stock"), have been issued and are outstanding, (iv) 350 shares of
Series D Convertible Preferred Stock (the "Company Series D Preferred
Stock"), have been issued and are outstanding, and (v) no shares of
Series E Convertible Preferred Stock (the "Company Series E Preferred
Stock"), have been issued and are outstanding. A true and correct copy
of the Sixth Articles of Amendment to the Articles of Incorporation of
the Company authorizing the designation of the Company Series E
Preferred Stock is attached hereto as Exhibit "A." Except as set forth
in Schedule 3(c) attached hereto, there are no existing options,
warrants, calls, commitments or other rights of any character
(including
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conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of the Company
(collectively, the "Existing Options").
(d) Corporate Proceedings of the Company. The execution,
delivery and performance of this Agreement has been authorized by the
Board of Directors of the Company and this Agreement constitutes the
valid and legally binding obligation of the Company, enforceable in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(e) Financial Statements. The Company has delivered to the
Purchaser correct and complete copies of the Company's and the Company
Subsidiaries' consolidated unaudited monthly financial statements
consisting of consolidated balance sheets of the Company and the
Company Subsidiaries as of the end of each month from January 1999
through September 1999 and the related statements of income for the
periods then ended. The Company has also delivered to the Purchaser
correct and complete copies of financial statements consisting of the
consolidated balance sheets of the Company and the Company
Subsidiaries as of December 31, 1998 and the related consolidated
statements of income, stockholders' equity and cash flows for the
period then ended, all of which have been audited by the firm of BDO
Seidman, LLP (the "Audited Financial Statements"). All such unaudited
financial statements and the Audited Financial Statements are referred
to herein collectively as the "Financial Statements." The Financial
Statements are in
4
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accordance with the books and records of the Company and the Company
Subsidiaries in all material respects, and there have not been any
material transactions that have not been recorded in the accounting
records underlying such Financial Statements. In addition, The
Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied and
present accurately, in all material respects, the financial position
of the Company and the Company Subsidiaries as of the dates thereof,
and the results of their operations for the periods then ended,
provided, however, that the unaudited financial statements may be
subject to year-end adjustments and such unaudited financial
statements lack footnotes and other presentation items. The balance
sheet of the Company and the Company Subsidiaries as of September 30,
1999 is referred to herein as the "Company Balance Sheet," and the
date thereof is referred to as the "Company Balance Sheet Date."
(f) Absence of Certain Changes or Events. Except as set
forth in Schedule 3(f) or except as contemplated by this Agreement,
since the Company Balance Sheet Date, none of the Company and the
Company Subsidiaries has:
(i) issued, delivered or agreed to issue or
deliver any stock, bonds or other corporate securities
(whether authorized and unissued or held in the treasury) or
granted or agreed to grant any options, warrants or other
rights calling for the issuance thereof;
(ii) except as otherwise permitted herein,
borrowed or agreed to borrow any funds or incurred, or become
subject to, any obligation
5
<PAGE> 9
or liability (absolute or contingent) except in the ordinary
course of business in customary amounts;
(iii) paid any obligation or liability (absolute
or contingent) except in the ordinary course of business in
customary amounts;
(iv) paid any obligation or liability (absolute
or contingent) other than current liabilities reflected in or
shown on the Financial Statements (or the notes thereto) and
obligations or liabilities incurred since the date thereof
and permitted to be so incurred by the foregoing clause (ii)
of this Section 3(f);
(v) declared or made, or agreed to declare or
make, any payment of dividends or distribution of any assets
of any kind whatsoever to the Company or affiliates of the
Company, or purchased or redeemed any shares of its capital
stock;
(vi) sold or transferred, or agreed to sell or
transfer, any of its assets, properties or rights (except
sales in the ordinary course of business) or cancelled or
agreed to cancel, any debts or claims;
(vii) entered or agreed to enter into any
agreement or arrangement granting any preferential rights to
purchase substantially all of the assets, properties or
rights of the Company or the Company Subsidiaries (including
management and control thereof), or requiring the consent of
any party to the transfer and assignment of such assets,
properties or rights (or changes in management or control
thereof), or providing for the merger or consolidation of the
Company or the
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Company Subsidiaries with or into another corporation, other
than as described in this Agreement and the documents
contemplated hereby;
(viii) waived any rights of material value;
(ix) except in the ordinary course of business,
made or permitted any amendment or termination of any
material contract, agreement or license to which it is a
party;
(x) made any accrual or arrangement for the
payment of bonuses or special compensation of any kind or any
severance or termination pay to any present or former officer
or employee;
(xi) increased the rate of compensation payable
or to become payable by it to any of its officers or key
employees compensated at a rate in excess of $50,000 per
annum; or made any increase in any profit sharing, bonus,
incentive, deferred compensation, insurance, pension,
retirement or other employee benefit plan, payment or
arrangement made to, for or with any such officers or key
employees;
(xii) committed to purchase inventories, parts,
supplies or other items in excess of its normal, ordinary and
usual requirements or at excessive prices, all computed based
on historical practices of the Company and the Company
Subsidiaries;
(xiii) experienced any significant labor trouble;
or
(xiv) suffered any material losses or any damage,
destruction or loss, whether or not covered by insurance,
which materially and adversely affects its assets or
business, or had any material adverse
7
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change in the business, of the Company or the Company
Subsidiaries, in each case, which would reasonably be
expected to have a Material Adverse Effect on the Company or
the Company Subsidiaries.
(g) Tax Matters. All United States, state, county and
local and other taxes, including without limitation, income taxes,
payroll taxes, corporate franchise taxes, sales, excise and use taxes
and ad valorem taxes, due and payable by the Company and the Company
Subsidiaries for the periods ended prior to the date hereof, have been
paid or accrued and there is no further liability (whether or not
disclosed on their respective tax returns) for any taxes relating to
such periods, and no interest or penalties have accrued or are
accruing with respect thereto, except for taxes that are being
contested in good faith by appropriate proceedings and as to which
adequate reserves have been reflected on the Financial Statements and
established (and through and including the Closing Date will
establish) reserves that are adequate for the payment of all taxes not
yet due and payable with respect to the results of operations through
the Closing Date. The Company and the Company Subsidiaries have timely
filed in materially correct form all tax returns and reports required
to be filed by them on or before the date of this Agreement with all
such taxing authorities, except as otherwise set forth on Schedule
3(g). The liability for Federal, state and local taxes reflected on
the most recent Company's Financial Statements, if any, represents at
the date thereof, reasonable and adequate provision for the payment of
all accrued and unpaid Federal, state and local taxes of the Company
and the Company Subsidiaries. No assessments of deficiencies have been
made against the Company or the Company Subsidiaries, and no
extensions of time
8
<PAGE> 12
are in effect for the filing of any returns or the assessment of
deficiencies. To the Company's knowledge, no examinations by the
Internal Revenue Service of the Federal income tax returns of the
Company or the Company Subsidiaries for any taxable year are presently
pending. The Company has delivered to the Purchaser true and complete
copies of all of the Company's and the Company Subsidiaries' Federal
and state Income Tax Returns and payroll tax returns for each of their
fiscal years from 1995 through 1998.
(h) Title to Properties and Related Matters. The assets
reflected in the Financial Statements were at the date thereof, and,
except for assets consumed or disposed of in the ordinary course of
business since the date thereof, are now owned by the Company or the
Company Subsidiaries by good title, free and clear from all security
interests, mortgages, liens, claims, defects and encumbrances except
liens, charges or encumbrances discussed or referred to in the
Financial Statements, the related notes or schedules thereto or in
Schedule 3(h) delivered to the Purchaser pursuant to this Section 3.
Except as disclosed in Schedule 3(h), all such assets are in good
operating condition and repair, subject to ordinary wear and tear. All
of such assets have been properly maintained, with no extraordinary
maintenance planned or anticipated, and are adequate and sufficient
for the operation of the Company's and the Company Subsidiaries'
business as historically operated by the Company and the Company
Subsidiaries. There are no material capital expenditures currently
contemplated or necessary to maintain the current operation of the
Company's and the Company Subsidiaries' business. The Nissan and Volvo
new car dealerships owned by the Company have been sold and all
indebtedness related thereto or
9
<PAGE> 13
secured by the assets thereof, has been released, or will be released
promptly after Closing.
(i) Consents and Approvals. No notification,
authorization, permit, consent or approval of, or notice to, or filing
with, any governmental or regulatory authority or other third party is
required to be obtained, given or made, or waiting period required to
expire as a condition to the lawful execution and delivery of this
Agreement, the consummation by the Company of the transaction
contemplated herein, or the fulfillment of the terms and compliance
with the provisions hereof, except for such permits, consents,
licenses, approvals or authorizations or declarations, exemptions,
filings or registrations (a) disclosed in Schedule 3(i) or (b) the
failure of which to obtain or make do not and will not (A) affect the
validity and enforceability of this Agreement or (B) either
individually or in the aggregate reasonably be expected to have a
Material Adverse Effect.
(j) Receivables. All notes receivable, contracts
receivable and accounts receivable (collectively, the "Receivables")
are properly reflected on the Company's and the Company Subsidiaries'
books and records are valid and have arisen in the ordinary course of
business. None of such Receivables has been the subject of any
factoring by the Company or the Company Subsidiaries.
(k) Litigation and Proceedings. Except as described in
Schedule 3(k), there are no actions, suits or proceedings pending or,
to the knowledge of the Company or the Company Subsidiaries,
threatened against or affecting the Company or the Company
Subsidiaries, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality,
domestic or
10
<PAGE> 14
foreign, or before any arbitrator of any kind, which would be
reasonably expected to result in any judgment or liability not fully
covered by casualty or liability insurance (less applicable deductible
or retention, if any) and have a Material Adverse Effect. Neither the
Company nor the Company Subsidiaries are in default with respect to
any judgment, order, writ, injunction, decree, award, or, to the
Company's knowledge, in default with respect to any rule or regulation
of any court, arbitrator or governmental department, commission,
board, bureau, agency or instrumentality which default would
reasonably be expected to have a Material Adverse Effect.
(l) Insurance Coverage. With respect to each such
insurance policy owned by the Company and the Company Subsidiaries:
(A) the policy is legal, valid, binding, enforceable, except as the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally
and the availability of equitable remedies may be limited by equitable
principles of general applicability, and in full force and effect with
respect to the periods and risks which such policy purports to insure;
(B) the policy will continue to be legal, valid, binding, enforceable
and in full force and effect in accordance with its terms on the same
terms immediately following the consummation of the transactions
contemplated hereby; (C) neither the Company nor the Company
Subsidiaries are in breach or default (including with respect to the
payment of premiums or the giving of notices) of any material term
thereto, and to the Company's knowledge, no event has occurred which,
with notice or the lapse of time, would reasonably be expected to
constitute such a breach or default, or permit termination,
modification or acceleration under the policy; and (D) to the
Company's
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<PAGE> 15
knowledge, no party to the policy has repudiated any provision
thereof. To the knowledge of the Company, the Company and the Company
Subsidiaries have been covered during the past five years by insurance
in scope and amount customary and reasonable for the businesses in
which it has engaged during such period. The Company and the Company
Subsidiaries do not have any self-insurance arrangements affecting the
Company and the Company Subsidiaries. "Self insurance arrangements"
means any arrangement by which the Company and the Company
Subsidiaries have assumed risks in scope and amount customarily
insured by businesses in the Company's and the Company Subsidiaries'
industry and geographic region.
(m) Employee Benefits.
(i) The Company and the Company Subsidiaries
have complied and currently are in compliance, both as to
form and operation, in all material respects with the
applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal
Revenue Code of 1986, as amended (the "Code"), respectively,
with respect to each "employee benefit plan" as defined under
Section 3(3) of ERISA, except where the failure to comply
would not reasonably be expected to have a Material Adverse
Effect.
(ii) Neither the Company nor the Company
Subsidiaries have ever maintained, adopted or established,
contributed or been required to contribute to, or otherwise
participated or been required to
12
<PAGE> 16
participate in, a "multiemployer plan" (as defined in Section
3(37) of ERISA). No amount is due or owing from the Company
or any Company Subsidiary on account of any withdrawal
therefrom.
(iii) Neither the Company nor the Company
Subsidiaries have incurred any liability with respect to a
Plan, including, without limitation, under ERISA, (including,
without limitation, Title I or Title IV of ERISA, other than
liability for premiums due to the Pension Benefit Guaranty
Corporation ("PBGC")), the Code or other applicable law,
which has not been satisfied in full and, to the knowledge of
the Company, no event has occurred, and there exists no known
condition or set of circumstances, which would reasonably be
expected to result in the imposition of any liability with
respect to a Plan, including, without limitation, under ERISA
(including, without limitation, Title I or Title IV of
ERISA), the Code or other applicable law with respect to the
Plan, wherein any such liability, individually or in the
aggregate, would reasonably be expected to have a Material
Adverse Effect.
(iv) Except as set forth in Schedule 3(m)
attached hereto, neither the Company nor the Company
Subsidiaries have any outstanding commitments to provide or
to cause to be provided any severance or other
post-employment benefit, salary continuation, termination,
disability, death, retirement, health or medical benefit or
similar benefit to any person (including, without limitation,
any
13
<PAGE> 17
former or current employee) that has not been reflected in
the Company's Financial Statements.
(n) Employee Relations. The Company and the Company
Subsidiaries are in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours of employees, and
there is no labor strike, dispute, slowdown or representation campaign
or work-stoppage pending or, to the Company's knowledge, threatened
with respect to employees of the Company or the Company Subsidiaries.
Except as disclosed in Schedule 3(n), there is not, pending or, to the
Company's knowledge, threatened, any unfair labor practice complaint
against the Company or the Company Subsidiaries pending before any
relevant authority or union representation petition respecting the
employees of the Company or the Company Subsidiaries.
(o) Patents, Trademarks and Licenses. Neither the
Company nor the Company Subsidiaries have any patents or patent
applications pending. Schedule 3(o) contains an accurate and complete
list of all trademarks, trade names, service marks and copyrights of
the Company. None of the foregoing is registered nor have any
applications for such registration been made. Neither the Company nor
the Company Subsidiaries have received any notice of any claim of
infringement or other complaint that its operations conflict with or
infringe upon the patents, trade names, trademarks, trade secrets,
copyrights or product formulas of others.
(p) Approvals, Authorizations and Regulations. Except as
disclosed in Schedule 3(p), the Company's and the Company
Subsidiaries' business is being
14
<PAGE> 18
conducted in compliance with all applicable laws, ordinances, rules
and regulations of all governmental authorities, and neither the
Company, the Company Subsidiaries, nor any officer, director,
stockholder, agent or employee has violated any law, ordinance, rule
or regulation in connection with the Company's and the Company
Subsidiaries' business, except for such violations as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Further, other than as disclosed on Schedule
3(p), neither the Company nor the Company Subsidiaries have received
any notice (written or otherwise) from any governmental authority
asserting or investigating any alleged failure to comply with any
applicable law, ordinance or regulation, except for such failure as
would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
(q) Inventory. None of the used vehicle inventories of
the Company and the Company Subsidiaries are obsolete, defective or
otherwise not saleable or usable in the ordinary course of business in
any material respects, except to the extent of the inventory reserve
reflected in the unaudited financial statements for the month ended
September 30, 1999.
(r) Guarantees, Etc. Except as disclosed in Schedule
3(r), neither the Company nor the Company Subsidiaries have given any
guarantee, indemnity, warranty or bond, or incurred any other similar
obligation or created any security for or in respect of, liabilities,
actual or contingent, of any other person that remains outstanding.
All guaranties of the Company and the Company Subsidiaries on behalf
of any person other than another Company Subsidiary (excluding the
Company Subsidiaries that owned the Nissan and Volvo dealerships) have
been terminated.
15
<PAGE> 19
(s) OSHA. Neither the Company nor the Company
Subsidiaries have received notice of any violation by the Company or
the Company Subsidiaries, and to the Company's knowledge, neither the
Company nor any Company Subsidiary is in violation of and has not been
in violation of, the Occupational Safety and Health Act of 1970,
including rules and regulations thereunder, or any other federal,
state, local or foreign laws, including rules and regulations
thereunder, regulating or otherwise affecting employee health and
safety which would reasonably be expected to have a Material Adverse
Effect.
(t) No Defaults. Except as set forth on Schedule 3(t)
attached hereto, neither the Company nor the Company Subsidiaries are
in default under, nor has any event occurred which with notice or
lapse of time or both, would reasonably be expected to result in a
waiver (except caused by the statute of limitations) of any material
right or default under, any outstanding indenture, mortgage, lease,
contract or agreement to which the Company or any of the Company
Subsidiaries is a party or by which the Company, the Company
Subsidiaries or their assets may be bound, or under any provision of
the Company's or the Company Subsidiaries' Articles of Incorporation
or By-Laws, which would reasonably be expected to have a Material
Adverse Effect.
(u) No Conflicts. The execution and performance of this
Agreement by the Company and the Company Subsidiaries in accordance
with its terms and the transactions contemplated hereby will not
violate any provision of or result in a breach of or constitute a
default under the Articles of Incorporation or By-Laws of the Company
and the Company Subsidiaries, or under any order, writ, injunction or
16
<PAGE> 20
decree of any court, governmental agency or arbitration tribunal, or
under any contract, agreement or instrument to which the Company or
any Company Subsidiary is a party or by which its properties may be
bound, or under any law, statute or regulation, except where the
violation, conflict, breach or default would not reasonably be
expected to have a Material Adverse Effect.
(v) Brokers. The Company is not a party to nor in any
way obligated under a contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any
broker's or finder's fees in connection with the origin, negotiation,
execution or performance of this Agreement.
(w) Environmental Matters.
(i) For the purposes of this Agreement, the
following definitions shall apply:
Environment: Ambient air, surface water, groundwater, soil,
sediment and land.
Environmental Conditions: Any environmental contamination of
any kind or nature resulting from the presence of Hazardous
Materials in the surface soils, subsurface soils, surface
waters or groundwater.
Environmental Laws: All existing federal, state or local laws
or ordinances and any regulations, rules, or administrative
or judicial rulings issued or promulgated thereunder and
common law relating to (a) Releases or threatened Releases of
Hazardous Materials or materials containing Hazardous
Materials; the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Materials or
materials containing Hazardous Materials; or otherwise
relating to the protection of human health or the
Environment, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act, 42
U.S.C. ss. 9601 et seq., ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
("RCRA"), the Clean Water Act, 33-U.S.C. ss. 1251 et seq.,
the Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Toxic
17
<PAGE> 21
Substances Control Act, 15 U.S.C. ss. 2601 et seq., ("TSCA"),
and all state analogues and counterparts to any of the
foregoing.
Facilities: The real property and improvements located at the
locations owned or leased by the Company or the Company
Subsidiaries.
Hazardous Materials: Any substance defined as "Hazardous
Waste", "Hazardous Substance", "Hazardous Material",
pollutant or contaminant under any existing Environmental
Laws. Hazardous Materials include, without limitation,
asbestos, polychlorinated biphenyls and petroleum products.
Release: Any spilling, leaking, pumping, pouring, leaching,
emitting, emptying, discharging, injecting, escaping, dumping
or disposing of Hazardous Materials or materials containing
Hazardous Materials into the Environment.
(ii) Except as would not reasonably be expected
to have a Material Adverse Effect or as disclosed in Schedule
3(w), there are no Environmental Conditions on, at, under or
emanating from the Facilities.
(iii) Except as would not reasonably be expected
to have a Material Adverse Effect or as disclosed in Schedule
3(w), neither the Company nor any Company Subsidiary has
received any notice claiming or alleging that the Company or
any Company Subsidiary has violated any applicable
Environmental Laws; or is responsible or potentially
responsible for any remedial or removal action under any
applicable Environmental Laws, and to the Company's
knowledge, no such claim is threatened.
(iv) Except as would not reasonably be expected
to have a Material Adverse Effect or as disclosed in Schedule
3(w):
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<PAGE> 22
(1) the Company and the Company Subsidiaries have
all Permits required under applicable Environmental
Laws that are necessary to conduct the business of
the Company and the Company Subsidiaries as
presently conducted, the absence of which would have
a material adverse effect on the Company or the
Company Subsidiaries (the "Material Environmental
Permits"), and has provided copies of all the
Material Environmental Permits to the Purchaser;
(2) all the Material Environmental Permits are in
full force and effect and neither the Company nor
any Company Subsidiary is in material default of any
thereof;
(3) there is no threatened suspension, cancellation
or non-renewal of any of the Material Environmental
Permits or any basis for such suspension,
cancellation or non-renewal; and
(4) the Company and the Company Subsidiaries shall
renew all the Material Environmental Permits that
shall expire on or before Closing.
(v) PCB Items. Except as would not reasonably be
expected to have a Material Adverse Effect or as disclosed in
Schedule 3(w), none of the assets of the Company or the
Company Subsidiaries is a PCB Item (as defined in 40 C.F.R.
ss. 761.3).
(x) Permits, Licenses, Etc. The Company and the Company
Subsidiaries have all Permits (except for Environmental Permits, which
are the subject of specific representations and warranties in Section
3(x) hereof), that are required in order to carry on the Company's and
the Company Subsidiaries' business as presently conducted, the absence
of which would reasonably be expected to result in a Material Adverse
Effect on the Company or the Company Subsidiaries (the "Material
Permits"). All Material Permits are in full force and effect, and, to
the knowledge of
19
<PAGE> 23
the Company, no suspension, cancellation or non-renewal of any
Material Permit is threatened, nor, to the best of the Company's
knowledge, does there exist any basis for such suspension,
cancellation or non-renewal.
(y) Software. To the Company's knowledge, all operating
and applications computer programs and data bases (the "Software")
which the Company and the Company Subsidiaries use is owned outright
by the Company and the Company Subsidiaries or if any Software is not
owned by the Company or the Company Subsidiaries, the Company and the
Company Subsidiaries have the right to use the same pursuant to
existing leases or licenses therefor. To the knowledge of the Company,
none of the Software presently used by the Company and the Company
Subsidiaries, and no present use thereof, infringes upon or violates
any patent, copyright, trade secret or other proprietary right of
anyone else and no claim with respect to any such infringement or
violation is known to be threatened.
(z) Disclosure. No representation or warranty by the
Company or the Company Subsidiaries contained in this Agreement,
including the Schedules attached hereto, taken as a whole, contains
any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein and therein not
misleading.
4. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Company that:
(a) Organization, Standing and Authority of the
Purchaser. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas,
and has full corporate power and authority to
20
<PAGE> 24
conduct its business as it is now being conducted, to enter into and
carry out the provisions of this Agreement.
(b) No Violation. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will violate any provision of the Articles of Incorporation or
By-Laws of the Purchaser, violate any provision of any agreement or
other obligation to which the Purchaser is a party or by which the
Purchaser is bound or to which its assets are subject, or violate or
result in a breach of, constitute a default under, any judgment,
order, decree, rule or regulation of any court or governmental agency
to which the Purchaser is subject.
(c) Corporate Proceedings of the Purchaser. The
execution, delivery and performance of this Agreement has been
authorized by the Board of Directors of the Purchaser and this
Agreement constitutes the valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally
and the availability of equitable remedies may be limited by equitable
principles of general applicability.
(d) Financial Statements. The Purchaser has delivered to
the Company (i) the audited consolidated balance sheet of the
Purchaser at April 30, 1999 and the related consolidated statements of
operations, cash flows and changes in stockholder's equity for the
Purchaser, all for the year then ended, together with the related
notes thereto, as certified by PricewaterhouseCoopers, LLP, Certified
Public Accountants, and (ii) the unaudited consolidated balance sheet
of the Purchaser at July 31, 1999 (the "Crown Financial Statement
Date") and the related unaudited
21
<PAGE> 25
consolidated statements of operations and cash flows for the
Purchaser, all for the three (3) months then ended, as certified by
the Chief Financial Officer of the Purchaser (hereinafter collectively
called the "Crown Financial Statements"). The Crown Financial
Statements (x) are in accordance with the books of account and records
of the Purchaser and fairly present the consolidated financial
position of the Purchaser at the dates indicated, (y) contain and
reflect reserves for all material liabilities and (z) were prepared in
accordance with GAAP on a basis consistent with prior accounting
periods.
(e) Brokers. The Purchaser is not a party to or in any
way obligated under a contract or other agreement, and there are no
outstanding claims against it, for the payment of any broker's or
finder's fees in connection with the origin, negotiation, execution or
performance of this Agreement.
(f) Accredited Investor/Investment. The Purchaser is an
"accredited investor" as that term is defined under Regulation D
promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The Shares will be acquired for
investment and not with a view to distribution thereof, nor with any
intention of distributing or selling or otherwise disposing of the
Shares.
(g) Due Diligence. The Purchaser is an informed and
sophisticated person and is experienced in the evaluation and purchase
of companies such as the Company and the Company Subsidiaries. In
making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, and the documents related thereto,
the Purchaser has relied on its own independent investigation of the
Company and the Company Subsidiaries as of this date and upon
22
<PAGE> 26
the representations and warranties and covenants in this Agreement and
has relied on the investigations conducted by the Purchaser's agents.
The Purchaser acknowledges that the Company and the Company
Subsidiaries have made no representation or warranty as to the
prospects, financial or otherwise, of the Company and the Company
Subsidiaries. The Purchaser has conducted its own inspection and
examination of the Company and the Company Subsidiaries conducted by
the Purchaser's agents and is not relying on representations or
warranties of any nature made by or on behalf of or imputed to the
Company and the Company Subsidiaries except as expressly set forth in
this Agreement. Notwithstanding the foregoing, no investigation by the
Purchaser heretofore or hereafter made shall affect the
representations and warranties of the Company, and each such
representation and warranty shall survive any such investigation.
(h) No Knowledge of Breach. Neither the Purchaser nor
the Purchaser's agents know of any breach of warranty or any
misrepresentation by the Company or the Company Subsidiaries
hereunder.
5. Closing Actions. The following actions have taken place prior
to the Closing Date or are taking place on the Closing Date contemporaneously
with the Closing:
(a) Resignations. The Company hereby delivers to the
Purchaser the resignations of those officers and directors of the
Company and the Company Subsidiaries (effective on the Closing Date)
as may be requested by the Purchaser, and the remaining directors of
the Company have elected the persons designated by the Purchaser to
the Board of Directors of the Company. The By-Laws of the Company are
also being amended in a manner satisfactory to the Purchaser.
23
<PAGE> 27
(b) Opinion of the Company's Counsel. The Purchaser is
receiving the opinion of Robert J. Downing, Chief Legal Officer for
the Company and the Company Subsidiaries, dated the Closing Date, to
the effect that:
(i) each of the Company and the Company
Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Florida and has corporate power to carry on its business as
it is now being conducted;
(ii) to such counsel's knowledge, the authorized
capital stock and the outstanding shares of the Company and
the Company Subsidiaries are as set forth herein, and the
Shares are duly and validly issued, fully paid,
non-assessable and outstanding;
(iii) the consummation of the transactions
contemplated by this Agreement will not result in the breach
of or constitute a default under the Articles of
Incorporation or By-Laws of the Company and the Company
Subsidiaries, or, to such counsel's knowledge, any loan,
credit or similar agreement or any court decree to which the
Company or the Company Subsidiaries are a party or by which
the Company or the Company Subsidiaries, or their respective
properties may be bound; and
(iv) this Agreement has been duly executed and
delivered by the Company and constitutes the valid and
binding obligation of the Company enforceable in accordance
with its terms (except as otherwise limited by bankruptcy,
insolvency, reorganization,
24
<PAGE> 28
moratorium and similar laws affecting creditors' rights and
except that such counsel need not express an opinion as to
whether any covenant contained herein is specifically
enforceable).
(c) Opinion of Purchaser's Counsel. The Company is
receiving the opinion of T. J. Falgout, III, General Counsel for the
Purchaser, dated the Closing Date, to the effect that:
(i) the Purchaser is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Texas and has corporate power to carry
on its business as it is now being conducted.
(ii) this Agreement has been duly authorized,
executed and delivered by the Purchaser, and (assuming valid
execution and delivery by the other parties hereto) is, or
will be upon such execution, the valid and binding obligation
of the Purchaser in accordance with its terms (except as
otherwise limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights, and
except that such counsel need not express an opinion as to
whether any covenant contained herein or therein is
specifically enforceable); and
(iii) to such counsel's knowledge, the
consummation of the transactions contemplated by this
Agreement will not result in the breach of or constitute a
default under the Articles of Incorporation or By-Laws of the
Purchaser, or any loan, credit or similar agreement
25
<PAGE> 29
or any court decree to which the Purchaser is a party or by
which the Purchaser or its properties may be bound.
(d) Ready Finance Debt. The Purchaser has acquired from
Ready Finance, Inc. ("Ready Finance") two promissory notes issued by
the Company having a principal amount of approximately $4,300,000 plus
accrued and unpaid interest (the "Ready Finance Debt"). The Ready
Finance Debt is being converted into shares of Company Series E
Preferred Stock at a conversion price of $39.00 for each dollar of
such Ready Finance Debt.
(e) Conversion of Other Company Debt. The indebtedness
of the Company to the creditors listed on Schedule 5(e) attached
hereto is being converted into shares of Company Common Stock at the
conversion prices set forth on Schedule 5(e) for each dollar of such
debt, and there shall be no more than $2,601,760.31 of such
indebtedness outstanding at Closing.
(f) High Capital Funding, LLC. The indebtedness of the
Company to High Capital Funding, LLC ("High Capital") in the aggregate
principal amount of $2,000,000 plus accrued interest (the "High
Capital Debt") has been modified and amended such that $1,000,000 of
the High Capital Debt is being paid at Closing, with $275,000 of the
balance being due and payable six (6) months after the Closing Date
and $725,000 of the balance being due and payable two (2) years after
the Closing Date. The deferred amount shall bear interest at the rate
of ten (10%) percent per annum, payable monthly.
(g) Conversion of Company Preferred Stock. All of the
outstanding Preferred Stock of the Company and all accumulated
dividends with respect thereto
26
<PAGE> 30
is being converted into shares of Company Common Stock at the
conversion price set forth on Schedule 5(g) for each dollar of Company
Preferred Stock (including accumulated dividends) outstanding.
(h) Merger of Paaco Automotive Group, Inc. A subsidiary
of the Company is merging (the "Merger") with Paaco Automotive Group,
Inc., a Texas corporation ("Paaco") in exchange for the number of
shares of Company Series E Preferred Stock such that at Closing, as a
result of the Merger, the Purchaser shall own, in conjunction with the
shares of Company Series E Preferred Stock issued to the Purchaser
hereunder and pursuant to Section 5(d) hereof, not less than seventy
(70%) percent of the issued and outstanding capital stock of the
Company (the "Purchaser's Percentage Ownership"). The number of shares
of Company Series E Preferred Stock to be issued to the Purchaser as a
result of the Merger is 1,105,046.44, subject to adjustment at
Closing, as set forth in the immediately preceding sentence, so that
the Purchaser will own the Purchaser's Ownership Percentage. The
Merger is being consummated in accordance with the terms and
provisions of the Merger Agreement between Paaco and the Company (or a
subsidiary thereof), in substantially the form of the Merger Agreement
attached hereto as Exhibit "B."
(i) Grant to the Purchaser of Options, Warrants, Etc.
The Purchaser is being granted options or warrants (the "Purchaser's
Warrants") to purchase shares of Common Stock of the Company on the
same terms and conditions that any options or warrants are issued by
the Company on or prior to the Closing Date, such that the Purchaser
shall have the right to maintain the Purchaser's Percentage Ownership
by
27
<PAGE> 31
exercising the Purchaser's Warrants. The Purchaser's Warrants grant to
the Purchaser the right to purchase 1,950,000 shares of Common Stock
of the Company at the purchase price of $.20 per share.
(j) Finova Capital Corporation. The senior debt
facilities of the Company and Paaco with Finova Capital Corporation
have been modified in a manner acceptable to the Purchaser, and an
amendment to the respective loan agreements of the Company and Paaco
with Finova Capital Corporation evidencing such modifications has been
entered into on or before the Closing Date.
(k) No Material Adverse Changes. Prior to the Closing
Date, there has been no material adverse change in the business,
operations, financial condition or properties of the Company and the
Company Subsidiaries, taken in the aggregate, since the Company
Balance Sheet Date, and the Purchaser has received a certificate dated
the Closing Date, signed by the President or a Vice President of the
Company to the effect that such is the case.
(l) Consents. The Company has obtained all approvals and
consents which must be obtained in order to effectuate the transaction
contemplated hereby and to satisfy the terms and conditions of this
Agreement, other than those approvals and consents, the failure of
which to obtain would not reasonably be expected to have a Material
Adverse Effect.
(m) Certified Resolutions of the Company. The Purchaser
has received resolutions of the Board of Directors of the Company,
certified by the Secretary or an Assistant Secretary of the Company,
authorizing the execution, delivery and
28
<PAGE> 32
performance of this Agreement and the issuance to the Purchaser of
shares of Company Series E Preferred Stock as set forth herein.
(n) Certified Resolutions of the Purchaser. The Company
has received resolutions of the Board of Directors of the Purchaser,
certified by the Secretary or an Assistant Secretary of the Purchaser,
authorizing the execution, delivery and performance of this Agreement.
(o) Hart-Scott-Rodino Filing and Approval. The Purchaser
and the Company (and any other required parties) have made all
necessary filings with the Federal Trade Commission required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the required
waiting periods thereunder have expired or early termination thereof
has been granted, and the parties have not received any objection to
the consummation of the transactions contemplated by this Agreement.
(p) Employment/Consulting Agreements. Each of the
employment or consulting agreements listed on Schedule 5(p) attached
hereto (which Schedule shall include all agreements requiring the
payment by the Company of more than $50,000) have been terminated
(except as stated in Schedule 5(p)) without liability to the Company,
and the Company has entered into (i) new employment agreements with
Gary R. Smith and Ronald W. Anderson, (ii) an agreement for the
continuation of employment with Robert J. Downing, and (iii) an
agreement for the continuation of consulting with Robert Abrahams, all
of which shall be on terms acceptable to the Purchaser.
29
<PAGE> 33
(q) Settlement of Existing Litigation. The Company has
settled, or reached agreements to settle, the lawsuits listed on
Schedule 5(q) attached hereto for the respective amounts set forth on
Schedule 5(q).
(r) Bankers Insurance Company Investment. Bankers
Insurance Company has purchased shares of Company Common Stock for the
aggregate purchase price of $1,000,000.
6. The Closing. The execution and delivery of this Agreement and
the instruments, certificates and other documents required hereunder (the
"Closing") is taking place at the offices of Crown Group, Inc., 4040 North
MacArthur Boulevard, Suite 100, Irving, Texas 75038, at 10:00 a.m. local time
on December 1, 1999. The date and time of such execution and delivery is herein
called the "Closing Date", and the effective date of the Closing shall be 12:01
a.m., Dallas, Texas time on the Closing Date. On the Closing Date, certificates
representing the Shares are being delivered by the Company against delivery of
the Purchase Price pursuant to Section 2 hereof, and Closing shall be deemed to
have occurred when such deliveries have been made by the Purchaser and the
Company in accordance with the terms hereof.
7. Nature and Survival of Representations and Warranties.
(a) Nature of Statements. All statements contained in
any schedule or any certificate or other instrument delivered by or on
behalf of the Company or the Purchaser pursuant to this Agreement or
in connection with the transactions contemplated hereby shall be
deemed representations and warranties made by the Company or the
Purchaser, as the case may be.
(b) Survival of Representations and Warranties. All
representations, warranties, covenants, agreements and undertakings
contained herein or in any
30
<PAGE> 34
Schedule, certificate or other document shall remain operative and in
full force and effect, and shall survive the Closing Date and the
delivery of all consideration and documents pursuant to this
Agreement, and shall continue in effect for a period of two (2) years
after the Closing Date and, as to representations made by the Company
concerning or affecting any tax liability of the Company or the
Company Subsidiaries, until a date which is six (6) months after the
statute of limitations has run against the Federal, state and local
government; provided, however, that any such representation, warranty,
covenant, agreement or undertaking as to which a bona fide claim shall
have been asserted during such survival period shall continue in
effect until such time as such claim shall have been resolved in
accordance with the terms of this Agreement.
8. Indemnification by Company and Related Matters.
(a) Indemnification by Company. The Company agrees to
defend, indemnify and hold harmless the Purchaser and its successors
and assigns, from, against and in respect of any and all loss or
damage resulting from:
(i) the breach by the Company of any of its
warranties, representations, covenants, agreements or
undertakings contained herein; and
(ii) any liability arising out of any and all
actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal and accounting
fees) incident to any of the foregoing (collectively, the
"Losses"), provided that the Purchaser makes a written claim
for indemnification against the Company
31
<PAGE> 35
within the applicable survival period and further provided
that neither the Company nor the Company Subsidiaries will
have any obligation to indemnify the Purchaser from and
against any Losses until the Purchaser has suffered Losses by
reason of all such breaches in excess of a $50,000 aggregate
deductible (the "Indemnification Threshold") (and after the
Indemnification Threshold is reached, the Company will be
obligated to only indemnify the Purchaser from and against
further such Losses, that is, for amounts greater than
$50,000) or thereafter to the extent of the Losses the
Purchaser has suffered by reason of all such breaches exceeds
a $5,000,000 aggregate ceiling (after which point neither the
Company nor the Company Subsidiaries will have any obligation
to indemnify the Purchaser from and against further such
Losses.
9. Indemnification by the Purchaser and Related Matters.
(a) Indemnification by the Purchaser. The Purchaser
agrees to defend, indemnify and hold harmless the Company, its
successors and assigns from, against and in respect of any and all
loss or damage resulting from:
(i) the breach by the Purchaser of any of its
warranties, representations, covenants, agreements or
undertakings contained herein; and
(ii) any liability arising out of any and all
actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal and accounting
fees) incident to any of the
32
<PAGE> 36
foregoing (collectively, the "Losses"), provided that the
Company or the Company Subsidiaries make(s) a written claim
for indemnification against the Purchaser within the
applicable survival period and further provided that the
Purchaser will not have to indemnify the Company and the
Company Subsidiaries from and against any Losses until the
Company and the Company Subsidiaries have suffered Losses by
reason of all such breaches in excess of a $50,000 aggregate
deductible (the "Indemnification Threshold") (and after the
Indemnification Threshold is reached, the Purchaser will be
obligated to only indemnify the Company and the Company
Subsidiaries from and against further such Losses, that is,
for amounts greater than $50,000) or thereafter to the extent
of the Losses the Company and the Company Subsidiaries have
suffered by reason of all such breaches exceeds a $500,000
aggregate ceiling (after which point the Purchaser will have
not any obligation to indemnify the Company and the Company
Subsidiaries against further such Losses.
10. Expenses. The Company and the Purchaser shall pay their or
its own expenses (including without limitation counsel and accounting fees and
expenses) incident to the preparation and carrying out of this Agreement and
the consummation of the transactions contemplated hereby. The Purchaser and the
Company shall each pay one half (1/2) of the filing fee related to the Hart-
Scott-Rodino notification and report.
33
<PAGE> 37
11. Notices. All notices, demands and requests which may be given
or which are required to be given by either party to the other, and any
exercise of a right of termination provided by this Agreement, shall be in
writing and shall be deemed effective when either: personally delivered to the
intended recipient; sent by certified or registered mail, return receipt
requested, addressed to the intended recipient at the address specified below;
delivered in person to the address set forth below for the party to which the
notice was given; deposited into the custody of a nationally recognized
overnight delivery service such as Federal Express Corporation, Emery or
Purolator, addressed to such party at the address specified below; or sent by
facsimile, telegram or telex, provided that receipt for such facsimile,
telegram or telex is verified by the sender and followed by a notice sent in
accordance with one of the other provisions set forth above. Notices shall be
effective on the date of delivery or receipt, of, if delivery is not accepted,
on the earlier of the date that delivery is refused or four (4) days after the
date the notice is mailed. For purposes of this Section, the addresses of the
parties for all notices are as follows (unless changes by similar notice in
writing are given by the particular person whose address is to be changed):
(a) if to the Company, to Smart Choice Automotive Group,
Inc., 5200 South Washington Avenue, Titusville, Florida 32780;
Attention: Gary R. Smith, President and Chief Executive Officer; Fax
407-269-1880;
With a copy to Robert J. Downing, Chief Legal Officer, Smart
Choice Automotive Group, Inc., 5200 South Washington Avenue,
Titusville, Florida 32780; Fax 407-264-0376;
(b) or if to the Purchaser, to Crown Croup, Inc., 4040
North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention:
Edward R. McMurphy, President; Fax 972-717-0973;
34
<PAGE> 38
With a copy to T. J. Falgout, III, Executive Vice President
and General Counsel, Crown Croup, Inc., 4040 North MacArthur
Boulevard, Suite 100, Irving, Texas 75038; Fax 972-717-0973.
Any party hereto may designate a different address by written notice given to
the other parties.
12. Miscellaneous.
(a) Assignment. This Agreement may not be assigned by
any party hereto without the prior written consent of the other
parties.
(b) Section and Paragraph Headings. The Section and
Paragraph headings of this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
(c) Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
(d) Entire Agreement. This Agreement and the Exhibits,
Schedules, certificates and documents referred to herein constitute
the entire agreement of the parties, and supersede all understandings
with respect to the subject matter hereof.
(e) Knowledge. "Knowledge" of a natural person means
actual knowledge of such natural person, and "knowledge" of a
corporate person means actual knowledge of the directors and executive
officers of such corporate person, in each case (unless otherwise
specifically set forth to the contrary) after reasonable inquiry and
investigation.
(f) Public Announcements. No publication and/or press
release of any nature shall be issued pertaining to this Agreement or
the transaction contemplated
35
<PAGE> 39
hereby without the prior written approval of the Purchaser and the
Company, except as may be required by law.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
(h) Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, AND
VENUE FOR ANY DISPUTE ARISING HEREUNDER SHALL BE IN DALLAS COUNTY,
TEXAS, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION
OF THE COURTS OF THE STATE OF TEXAS.
(i) Material Adverse Effect. "Material Adverse Effect"
means a material adverse effect on the business of the Company and the
Company Subsidiaries, taken as a whole.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties on or as of the date and year first above written.
PURCHASER:
CROWN GROUP, INC.
By: /s/ Edward R. McMurphy
-----------------------------------------
Edward R. McMurphy, President
COMPANY:
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ Gary R. Smith
-----------------------------------------
Gary R. Smith, President
36
<PAGE> 40
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
3(b) Subsidiaries
3(c) Warrants, Options, Etc.
3(f) Certain Changes or Events
3(g) Tax Matters
3(h) Title to Properties and Related Matters
3(i) Consents and Approvals
3(k) Litigation and Proceedings
3(m) Certain Employee Benefits in Case of Termination, Death, Disability,
Severance, Etc.
3(n) Employee Relations
3(o) Patents, Trademarks and Licenses
3(p) Approvals, Authorizations and Regulations
3(r) Guaranties
3(t) Company Defaults
3(w) Environmental Matters
5(e) Other Company Creditors
5(g) Conversion of Company Preferred Stock
5(p) Employment/Consulting Agreements to be Terminated
5(q) Existing Litigation to be Settled
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
"A" Sixth Articles of Amendment to the Articles of Incorporation of the Company
"B" Merger Agreement
</TABLE>
37
<PAGE> 1
EXHIBIT (2)
WARRANT TO PURCHASE
1,950,000 SHARES OF
COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK OF
SMART CHOICE, AUTOMOTIVE GROUP, INC., A FLORIDA CORPORATION
This certifies that, for value received, CROWN GROUP, INC. or its
transferees or assigns, is entitled upon exercise of this Warrant, subject to
the terms set forth below, to purchase from SMART CHOICE AUTOMOTIVE GROUP, INC.
(hereinafter defined as the "Association") up to One Million Nine Hundred Fifty
Thousand (1,950,000) shares of fully paid and nonassessable shares of common
stock, $.01 par value, of the Association ("Common Stock") at the purchase
price per share (the "Exercise Price") of Twenty Hundredths Dollars ($0.20).
The price and number of shares to which the Warrant holder is entitled are
subject to adjustment as provided in this Warrant at any time or from time to
time from the date of this Warrant until the Expiration Date indicated below.
THE WARRANT AND RIGHTS TO PURCHASE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
Expiration Date:
The Warrant represented by this Warrant Certificate may be
exercised on or after date of issuance, and shall expire, and
become wholly void and of no value, at 5:00 p.m., Dallas,
Texas time, on November 30, 2004, unless sooner terminated as
provided in this Warrant.
1. Definitions.
As used in this Warrant Certificate, the following terms, unless the
context otherwise requires, have the following meanings:
(a) "Association" shall mean Smart Choice Automotive Group, Inc.,
formerly known as Eckler Industries, Inc., a Florida corporation, and any
association or corporation which shall succeed to or assume the obligations of
the Association under this Warrant.
<PAGE> 2
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(c) "Common Stock" when used with reference to stock of the
Association, means all shares, now or hereafter authorized, of the class of the
common stock of the Association, $0.01 par value.
(d) "Exercise Price" shall mean Twenty Hundredths Dollars ($0.20)
per share, as adjusted from time to time pursuant to the provisions of Section
4 hereof.
(e) "Maximum Exercise Payment" shall mean the number of shares
for which the Warrant is from time to time exercisable (originally multiplied
by the Exercise Price then in effect).
(f) "Restricted Securities" shall mean the securities of the
Association required to bear the legend set forth in Section 5.2 hereof.
(g) "Securities Act" shall mean the Securities Act Of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(h) "Shares" shall mean shares of Common Stock.
(i) "Warrant Certificate" or "Certificate" shall mean this
certificate.
(j) "Warrantholder", "holder of Warrant", "holder", or similar
terms when the context refers to a holder of this Warrant shall mean any person
who shall at the time be the holder of this Warrant Certificate.
(k) "Warrant" means all of those securities, representing rights
to purchase shares of Common Stock, which are evidenced by this Warrant
Certificate.
(l) "Warrant Shares" means the Shares of Common Stock which are
purchasable by the Warrant holder upon surrender of this Warrant Certificate
and exercise of the Warrant.
2. Exercise Provisions.
(a) The holder of this Warrant Certificate may exercise the
Warrant represented hereby in whole or in part at any time by surrendering the
Certificate, with the purchase form attached hereto duly executed by the
holder, to the Association at its principal office, accompanied by payment in
the amount obtained by multiplying (i) the number of Shares designated in the
purchase form by (ii) the Exercise Price.
(b) Payment may be in cash or by certified or official bank check
or wire funds payable to the order of the Association.
2
<PAGE> 3
(c) On partial exercise hereof, the Association shall promptly
issue and deliver to the holder of this Certificate a new Certificate or
Certificates of like tenor in the name of that holder providing for the right
to purchase that number of Warrant Shares as to which this Certificate has not
been exercised.
(d) The rights represented hereby may be exercised any time prior
to the expiration date, and shall expire at 5:00 p.m., Dallas, Texas time, on
November 30, 2004, unless sooner terminated pursuant to paragraph 6 hereof.
3. Delivery of Stock Certificate
As soon as possible after full or partial exercise of this Warrant,
the Association at its expense will cause to be issued in the name of and
delivered to the holder hereof, a certificate or certificates for the number of
fully paid and non-assessable Shares to which that holder shall be entitled
upon such exercise (each a "Warrant Share"), together with any other securities
and property to which that holder is entitled upon such exercise under the
terms hereof. No fractional Shares will be issued upon exercise of rights to
purchase; if upon any such exercise a fraction of a Share results, the
Association will pay the cash value of that fractional Share, calculated on the
basis of the fair market value as of the date of exercise.
4. Anti-dilution Provisions.
The Exercise Price and number of Warrant Shares purchasable upon
exercise shall be subject to adjustment from time to time as follows:
(a) Stock Dividends and Splits. In the event the Association
shall at any time or from time to time after the date hereof fix a record date
for the effectuation of a split or subdivision of the outstanding Shares or the
determination of holders of Shares entitled to receive a dividend or other
distribution payable in additional Shares, then, as of such record date (or the
date of such dividend distribution, split or subdivision if no record date is
fixed), the number of Warrant Shares issuable on exercise of this Warrant shall
be increased in proportion to such increase of outstanding Shares, and
concurrently therewith the Exercise Price shall be proportionately decreased
(i.e., by adjusting such Price downward by multiplying it by the inverse of the
proportion or multiple by which the number of Warrant Shares issuable upon
exercise was increased).
(b) Decreases in Shares. If the number of Shares outstanding at
any time after the date of this Agreement is decreased by a combination or
reverse split of the outstanding Shares, then, as of the record date of such
combination, the number of Shares for which the Warrant represented by this
Certificate may be exercised shall be decreased in proportion to such decrease
in outstanding Shares, and the Exercise Price shall be proportionately
increased.
(c) Other Distributions. In the event the Association shall
declare a distribution to all holders of its Common Stock payable in securities
of other persons, evidences of indebtedness
3
<PAGE> 4
issued by the Association or other persons, or assets (excluding cash
dividends), then, in each such case for the purpose of this paragraph 4(c), the
Warrantholders shall, upon the exercise of its right to purchase Warrant Shares
hereunder after the record date for such distribution or, in the absence of a
record date, after the date of such distribution, receive, in addition to the
Warrant Shares subscribed for, the amount of such securities, evidences of
indebtedness or assets (or, at the option of the Association, a sum equal to
the value thereof at the time of distributions as determined by the Board of
Directors of the Association) which would have been distributed to such
Warrantholder if he had exercised his right to purchase Warrant Shares
hereunder immediately prior to the record date for such distribution or, in the
absence of a record date, immediately prior to the date of such distribution.
(d) Reorganizations, Mergers, Consolidations or Sale of Assets.
If at any time there shall be (i) a recapitalization or reorganization of the
Association's capital structure involving, or affecting the book value or
voting rights of, the Shares or (ii) a merger or consolidation of the
Association with or into another corporation, or (iii) the sale of the
Association's properties and assets as, or substantially as, an entirety to any
other person (each of the occurrences in (i), (ii) and (iii) referred to herein
as an "Event"), then, as a part of such Event, lawful provision shall be made
so that the Warrantholder shall thereafter be entitled to receive, upon
exercise of the Warrant evidenced by this Certificate prior to the Expiration
Date and upon payment of the Exercise Price, the number of Warrant Shares or
other securities or property of the Association, or of the successor
corporation resulting from such Event, to which such Warrantholder would have
been entitled in such Event if the Warrant evidenced hereby had been exercised
and the corresponding Warrant Shares issued immediately before such Event. In
any such case, appropriate adjustment (as determined by the Association's Board
of Directors) shall be made in the application of the provisions of this
Warrant Certificate with respect to the rights and interests of the
Warrantholder after any such Event, such that the provisions of this Section 4
(including adjustment of the Exercise Price then in effect and the number of
Warrant Shares purchasable upon exercise of the Warrant) shall be applicable
after such Event, as near as reasonably may be, in relation to any Warrant
Shares, other securities or property deliverable after that Event upon exercise
of the Warrant. The Association shall, within thirty (30) days after making
such adjustment, give written notice (by certified mail, postage prepaid) to
the registered holder of this Certificate at the address of that holder shown
on the Association's books. That notice shall set forth, in reasonable detail,
the Event requiring the adjustment and the method by which the adjustment was
calculated, and specify the Exercise Price then in effect after the adjustment
and the increased or decreased number of Warrant Shares purchasable upon
exercise of the Warrant evidenced hereby. When appropriate, that notice may be
given in advance and be included as part of the notice required under other
provisions hereof.
(e) No Impairment. The Association will not, by amendment of its
Certificate of Incorporation nor through any reorganization, recapitalization.
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Association, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary appropriate in order to protect the respective rights of the
holders of the Warrant against impairment.
4
<PAGE> 5
(f) No Fractional Shares. No fractional Shares shall be issued
upon exercise of the Warrant. In lieu of fractional Shares, the Association
shall pay cash equal to such fraction multiplied by the then fair market value
of a share of Common Stock, as determined by the Board of Directors. Whether or
not fractional shares would be issuable upon such exercise shall be determined
on the basis of the total number of Warrant Shares issuable at the time of
exercise of the Warrant.
(g) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Section 4,
the Association, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Warrant holder a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Association shall, within a reasonable time following the written
request at any time of the Warrant holder, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustment and
readjustment, (ii) the Exercise Price at the time in effect, and (iii) the
number of Warrant Shares and the amount, if any, of other securities or
property that at the time would be received upon the exercise of Warrant.
(h) Notice of Record Date. In the event of any taking by the
Association of a record of its Stockholders for the purpose of determining
stockholders who are entitled to receive payment of any dividend on its Shares
(other than a cash dividend) or other distribution, or in respect of its Shares
in connection with the dissolution, liquidation or winding up of the
Association, any right to subscribe for, purchase or otherwise acquire any
shares of any class or any other securities or property, or to receive any
other right, the Association shall mail to each Warrant holder, at least twenty
(20) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(i) Reservation of Shares Issuable Upon Exercise. The Association
shall at all times reserve, keep available out of its authorized but unissued
Shares, solely for the purpose of effecting the exercise of the Warrant such
number of its Shares as shall from time to time be sufficient to effect the
exercise of the Warrant; and if at any time the number of authorized but
unissued Shares shall not be sufficient to effect the exercise or the Warrant
then outstanding, the Association will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued Shares to such number of Shares as shall be sufficient for such
purposes. Warrant holder acknowledges, that as of the date of issuance of this
Warrant, that the Association does not have sufficient unissued Shares
available, but will take all necessary actions to increase its authorized but
unissued Shares immediately available.
(j) Notices. Any notice required by the provisions of this
Section to be given to the Warrant holder, shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, registered or certified,
and addressed to each holder of record at its address appearing on the stock
transfer books of the Association.
5
<PAGE> 6
5. Restrictions on Transferability of Securities: Compliance
with Securities Act.
5.1 Restriction on Transferability. The Warrant and the Warrant
Shares shall not be sold, assigned, transferred, or pledged except upon the
conditions specified in this Section 5, which conditions are intended to insure
compliance with the provisions of the Securities Act and all applicable state
and federal regulatory agencies. Each Warrant holder will cause any proposed
purchaser, assignee, transferee, or pledgee of the Warrant held by such Warrant
holder to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 5.
5.2 Restrictive Legend. Each certificate representing (i) the
Warrant, (ii) the Warrant Shares, or (iii) any other securities issued in
respect to the Warrant or Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation, or similar event, shall (unless
otherwise permitted by the provisions of Section 5.3 below) he stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws);
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES ACT. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS THE ASSOCIATION RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACTS. COPIES OF THE
APPLICABLE PORTION OF THE AGREEMENT RESTRICTING THE TRANSFER
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ASSOCIATION AT THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE OF THE ASSOCIATION.
The Warrant holder consents to the Association making a notation on
its records and giving instructions to any transfer agent of the Warrant or the
Common Stock in order to implement the restrictions on transfer established in
this Section 5.
5.3 Notice of Proposed Transfers. Each holder of Restricted
Securities, by acceptance thereof, agrees to comply in all respects with the
provisions of this Section 5.3. Prior to any proposed sale, assignment,
transfer, or pledge of any Restricted Securities (other than a transfer not
involving a change in beneficial ownership), unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Association of such
holder's intention to effect such transfer, sale, assignment, or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment, or pledge in sufficient detail, and shall be
accompanied, at such holder's expense, by either (i) an unqualified written
opinion of legal counsel who shall be, and whose
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legal opinion shall be, reasonably satisfactory to the Association, addressed
to the Association, to the effect that the proposed transfer of the Restricted
Securities may be effected without registration under the Securities Act or any
applicable state securities laws, or (ii) a "no action" letter from the
Commission, and the securities administrator of any state whose securities acts
may be applicable, to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the
Commission, and the securities administrator of any state whose securities acts
might be applicable, that action be taken with respect thereto. Thereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Association. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made to a non-affiliate of the Association pursuant to Commission Rule 144, the
appropriate restrictive legend set forth in Section 5.2 above, except that,
such certificate shall not bear such restrictive legend if in the opinion of
counsel for such holder and of counsel for the Association such legend is not
required in order to establish compliance with the provisions of the Securities
Act or any applicable state securities laws.
6. Registration Rights.
(a) Association Registration. Whenever the Association proposes
to register any of its Common Stock under the Securities Act for a public
offering for cash, whether as a primary or secondary offering (or pursuant to
registration rights granted to holders of other securities of the Association),
but excluding a registration on form S-4, S-8 or other comparable registration
in respect of mergers or acquisitions or employee benefit plans, the
Association shall, each such time, give the holder written notice of its intent
to do so. Upon the written request of the holder given within thirty (30) days
after receipt of any such notice, the Association shall use its best efforts to
cause to be included in such registration all of the Warrant Shares (the
"Registration Shares") which the holder requested to be registered; provided
(i) the Holder agrees to sell Warrant Shares in the same manner and on the same
terms and conditions as the other Common Stock which the Association proposes
to register, including any "lock-up" agreements required of other selling
stockholders of the Association, and (ii) if the registration is to include
Common Stock to be sold for the account of the Association, the proposed
managing underwriter does not advise the Association that in its opinion the
inclusion of the holder's Shares is likely to affect adversely the success of
the offering by the Association or the price it would receive.
(b) Obligations of the Association. Whenever required under
subsections 7(a) or 7(b) to use its best efforts to effect the registration of
any of the Warrant Shares, the Association shall, as expeditiously as
reasonably possible, but subject to the holder providing such information and
customary indemnities as reasonably requested by the Association or its
underwriters:
(i) Prepare and file with the Commission a Registration
Statement with respect to such Shares and use its best efforts to
cause such Registration Statement to become and remain effective;
provided, however, that in connection with any proposed registration
intended to permit an offering of any securities from time to time
(i.e., a so called "shelf registration"), the Association shall in no
event be obligated to cause any such registration to remain effective
for more than one hundred and eighty (180) days.
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(ii) Prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used
in connection therewith as may be necessary to permit the disposition
of all securities covered by such Registration Statement.
(iii) Furnish to the holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Shares
owned by it.
(iv) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered
by the Registration Statement, provided that the Association shall not
be required in connection therewith or as a condition thereto to
qualify to do business in any such states or jurisdictions, to subject
itself to taxation therein or to submit to the general jurisdiction
thereof.
(c) Expenses of Registration. All expenses incurred in connection
with any registration pursuant to this section 6, including without limitation
all registration and qualification fees, printing and accounting fees, fees and
disbursements of counsel for the Association, but excluding underwriting
discounts and commissions (the "Registration Expenses"), shall be borne by the
Association. Each selling shareholder shall bear the fees and costs of its own
counsel, if different from counsel for the Association.
7. Miscellaneous Provisions
(a) Lost Certificate. On receipt of evidence reasonably
satisfactory to the Association of the loss, theft, destruction, or mutilation
of this Certificate and, in the case of loss, theft or destruction, on delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Association or, in the case of mutilation, on surrender and cancellation of
this Certificate, the Association at its expense will execute and deliver, in
lieu of this Certificate, a new Certificate of like tenor.
(b) Exchange and Transfer. On surrender of this Warrant
Certificate for exchange, properly endorsed on the form of assignment attached
hereto, and subject to the provisions herein regarding compliance with the
Securities Act, the Association at its expense will issue to or on the order of
the holder of this Certificate a new Certificate or Certificates of like tenor,
in the name of that holder or as that holder (on payment by that holder of any
applicable transfer taxes), may direct, evidencing in the aggregate on the face
or faces of such Certificate or Certificates for the number of Warrant Shares
called for on the face hereof.
(c) No Rights as Stockholder. No holder of this Certificate, as
such, shall be entitled to vote or receive dividends or be considered a
stockholder of the Association far any purpose, nor shall anything in this
Certificate be construed to confer on any holder of this Certificate as
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such, any rights of a stockholder of the Association or any right to vote, give
or withhold consent to any corporate action, or except as otherwise specified
herein, to receive notice of meeting of stockholders, to receive dividends, or
to receive subscription rights except as otherwise specified herein, or
otherwise.
(d) Holder Deemed Owner. The holder hereof may be treated by the
Association, any warrant agent, and all other persons dealing with the Warrant
as the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented hereby.
(e) Negotiability. Title to this Certificate may be transferred
by endorsement (by the holder of this Certificate executing the form of
assignment attached hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.
(f) Modification. This Warrant Certificate and any of its terms
may be changed, waived, or terminated only by a written instrument signed by
the party against whom enforcement of that change, waiver, or termination is
sought.
(g) Governing Law. This Warrant Certificate shall be governed by
and construed and enforced in accordance with the laws of the State of Arizona.
Dated: December 1, 1999
ASSOCIATION:
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ Ed Ernst
---------------------------------------------------
Ed Ernst, President and Chief Executive Officer
HOLDER:
CROWN GROUP, INC.
By: /s/ Edward R. McMurphy
---------------------------------------------------
Edward R. McMurphy, President
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ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
Shares of Common Stock set forth below:
Name and Address of Assignee Number of Shares of Common Stock
- -------------------------------------------------------------------------------
and does hereby irrevocably constitute and appoint___________________________
attorney to register such transfer on the books of Association maintained for
the purpose, with full power of substitution in the premises.
Dated:
-----------------------------
---------------------------------
- -----------------------------------
Witness
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
The signature to this assignment must be guaranteed by a bank or trust company
having an office or correspondent in ________________________________________,
________________________________or by a firm having membership on the New York
Stock Exchange.
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