SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
--------------------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 30, 1997
(Date of earliest event reported)
--------------------------------
SMART CHOICE AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
--------------------------------
Florida 1-14082 59-1469577
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
5200 South Washington Avenue, Titusville, Florida 32780
(Address of principal executive offices, zip code)
(407) 269-9680
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
(a) Following is pro forma consolidated financial information for the
six months ended June 30, 1997 together with accompanying discussion
pertaining to various acquisitions.
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Financial Information
Explanatory Headnote (Unaudited)
Introduction
On October 28, 1996, Eckler Industries, Inc. (Eckler) entered into an Agreement
and Plan of Reorganization (the "Agreement") with Smart Choice Holdings, Inc.,
(SCHI). SCHI had previously entered into agreements to acquire the
outstanding capital stock or net assets of other companies. The closing of the
transaction between Eckler and SCHI occurred on January 28, 1997. The
transactions between SCHI and the other companies closed on January 28, 1997
(prior to the Eckler and SCHI closing), February 12, 1997 and February 14, 1997.
Based on the controlling interest in Eckler obtained by SCHI as a result of this
transaction, the transaction will be accounted for as an acquisition of Eckler
by SCHI (a reverse acquisition in which SCHI is considered the acquirer for
accounting purposes).
SCHI was incorporated on June 21, 1996 and had no significant operations or
assets until it acquired Eckler and the other companies. The acquisition of
Eckler and the other companies will be accounted for as a purchase, with the
assets acquired and liabilities assumed recorded at their estimated fair values.
The pro forma condensed consolidated statement of operations for the six months
ended June 30, 1997 assumes the transactions were consummated as of January 1,
1997.
The pro forma condensed consolidated financial statement may not be indicative
of the actual results of the transactions. In particular, the pro forma
condensed consolidated financial statement is based on management's current
estimate of the allocations of purchase price, the actual allocation of which
may differ.
In the opinion of management, all adjustments have been made that are necessary
to present fairly the pro forma data.
Acquisition of Liberty Finance Company, Inc. and Affiliates
The outstanding capital stock of Liberty was acquired for $1,500,000 in notes
due to the seller, 352,156 shares of restricted common stock valued at $3.375
per share ($1,188,527) and $54,026 in acquisition costs. Prior to the
acquisition, the selling stockholder converted debt amounting to $628,941 to
the capital of Liberty.
<PAGE>
The purchase price for Liberty is anticipated to be allocated as follows:
Fair value of assets acquired $ 15,818,914
Excess of cost over net assets acquired 1,633,463
--------------
17,452,377
Fair value of liabilities assumed 14,709,824
--------------
Total purchase price of
net assets acquired $ 2,742,553
==============
Acquisition of Florida Finance Group, Inc. and Affiliates
The outstanding capital stock of Florida Finance and the net assets of its
affiliated companies were acquired for $892,722 in notes due to the seller, the
issuance of 285,714 shares of restricted common stock valued at $3.375 per share
($964,285) and $40,643 in acquisition costs.
The purchase price for Florida Finance is anticipated to be allocated as
follows:
Fair value of assets acquired $ 5,015,224
Excess of cost over net assets acquired 3,238,721
--------------
8,253,945
Fair value of liabilities assumed 6,356,295
--------------
Total purchase price of
net assets acquired $ 1,897,650
==============
Acquisition of 225 North Military Trail Corporation and Affiliate
The net assets of 225 North Military Trail and Affiliate were acquired for
$3,000,000 cash, $1,250,000 in notes due to the seller, 285,714 shares of
restricted common stock valued at $3.375 per share ($964,286) and $53,299 in
acquisition costs.
The purchase price for 225 North Military Trail is anticipated to be allocated
as follows:
Fair value of assets acquired $ 5,108,400
Excess of cost over net assets acquired 808,278
--------------
5,916,678
Fair value of liabilities assumed 649,093
--------------
Total purchase price of
net assets acquired $ 5,267,585
==============
<PAGE>
Acquisition of Dealer Development Services, Inc.
The outstanding capital stock of Dealer Development Services, Inc. was acquired
for $384,615 in notes due to the seller and $3,934 in acquisition costs.
The purchase price for Dealer Development Services is anticipated to be
allocated as follows:
Fair value of assets acquired $ 101,116
Excess of cost over net assets acquired 892,426
--------------
993,542
Fair value of liabilities assumed 604,993
--------------
Total purchase price of
net assets acquired $ 388,549
==============
Acquisition of Dealer Insurance Services, Inc.
The outstanding capital stock of Dealer Insurance Services, Inc. was acquired
for $365,385 in notes due to the seller and $20,627 in acquisition costs.
The purchase price for Dealer Insurance Services is anticipated to be allocated
as follows:
Fair value of assets acquired $ 132,461
Excess of cost over net assets acquired 421,485
--------------
553,946
Fair value of liabilities assumed 167,934
--------------
Total purchase price of
net assets acquired $ 386,012
==============
Acquisition of Eckler Industries, Inc.
The acquisition of Smart Choice Holdings, Inc. by Eckler will be accounted for
as an acquisition of Eckler by SCHI (a reverse acquisition in which SCHI is
considered the acquirer for accounting purposes). The purchase price for Eckler
is computed by valuing the outstanding shares of common stock of Eckler (the
equivalent of 2,757,500 shares) at $3.375 or $9,306,563 and acquisition costs of
$100,119.
The purchase price for Eckler is anticipated to be allocated as follows:
Fair value of assets acquired $ 6,366,508
Excess of cost over net assets acquired 7,004,572
--------------
13,371,080
Fair value of liabilities assumed 3,964,398
______________
Total purchase price of
net assets acquired $ 9,406,682
==============
<PAGE>
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Pro Forma Consolidated Statement of Operations (Unaudited)
Six Months Ended June 30, 1997
<TABLE>
225 North Dealer
Florida Military Develop- Dealers Pro Forma Consolidated
SCHI(1) Liberty(2) Finance(2) Trail(2) ment(2) Insurance(2) Eckler(2) Adjustments Pro Forma
---------- ---------- ---------- --------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $22,904,591 $1,813,590 $ 389,037 $1,512,570 $ 104,630 $57,640 $853,881 $ $27,635,939
----------- ---------- ---------- ---------- --------- ------- -------- --------- -----------
Costs and expenses:
Cost of sales 15,206,441 1,511,731 289,820 1,060,814 582,117 18,650,923
Operating expenses 12,172,252 434,243 152,053 207,336 47,940 60,924 432,006 75,798(2) 13,582,552
---------- ---------- ---------- --------- -------- ------- ------- -------- -----------
27,378,693 1,945,974 441,873 1,268,150 47,940 60,924 1,014,123 75,798 32,233,475
---------- ---------- ---------- --------- -------- ------- --------- -------- -----------
Income(loss)from
operations (4,474,102) (132,384) (52,836) 244,420 56,690 (3,284) (160,242) (75,798) (4,597,536)
Other income (expense):
Interest expense (1,623,500) (176,585) (64,061) (3,694) (122) (171) (23,728) (73,723)(3) (1,965,584)
Other 43,531 1,002 6,412 50,945
---------- ---------- ---------- -------- -------- ------- ------- --------- -----------
1,579,969) (176,585) (64,061) (3,694) 880 (171) $ (17,316) (73,723) (1,914,639)
---------- ---------- ---------- -------- -------- ------- --------- ---------- -----------
Net income (loss) $(6,054,071) $ (308,969) $(116,897) $ 240,726 $57,570 $(3,455) $(177,558) $(149,521) $(6,512,175)
=========== ========== ========== ========= ======== ======= ========= ========== ===========
Loss per share $ (.73)
=========
Weighted average number of common shares outstanding 8,937,193
=========
</TABLE>
(1) The financial data includes the results of operations
of the four predecessors from the date of acquisition
to June 30, 1997.
(2) The financial data is the results of operations from
January 1, 1997 to the date of acquisition.
See accompanying headnote and notes to pro forma
consolidated financial statement (unaudited).
<PAGE>
Smart Choice Automotive Group, Inc.
(Formerly Eckler Industries, Inc.)
Notes to Pro Forma Consolidated Financial Information
(Unaudited)
1. Pro Forma Adjustments
The pro forma condensed consolidated statement of operations for the six months
ended June 30, 1997 assumes the transactions were consummated as of January 1,
1997. The results of operations of the acquired companies after the dates of
acquisition are included in the results of operations of SCHI.
2. Amortization of Excess Cost over Fair Value of Assets Acquired
This adjustment reflects the amortization of excess cost over fair value of
assets acquired over 20 years.
3. Interest Expense
This adjustment reflects the net additional interest expense on the indebtedness
incurred as partial payment of the purchase price of the acquired companies,
reduced by the interest expense incurred on debt converted to capital by the
sellers of one of the acquired companies.
___________________
(b) On May 13, 1997, the Company closed on an additional $4,000,000 loan (the
"May Loan") from Sirrom Capital Corporation ("Sirrom"). The Company executed a
convertible promissory note in the principal amount of $4,000,000 which bears
interest at 12% per annum, with interest only, payable quarterly, and which
matures on May 12, 2002. The note is convertible at any time into Common Stock
at the conversion rate of $7.50, subject to adjustments. Further, Sirrom has
certain registration rights for the shares issuable upon conversion of the
Company's obligations to Sirrrom. The May Loan brings the aggregate borrowings
from Sirrom to $7,500,000, all of which is secured by the Company's real and
personal property.
<TABLE>
Item 7. Exhibits.
<S> <C> <C>
10.55 Loan Agreement dated May 13, 1997 Filed herewith
between the Company and Sirrom
Capital Corporation ("Sirrom")
10.56 $4,000,000 Convertible Senior Exhibit 10.19 to Form 10-Q,
Promissory Note dated May 13, 1997, filed May 20, 1997, File No.
the Company, maker, Sirrom, payee 1-14082
10.57 Amended and Restated Registration Exhibit 10.20 to Form 10-Q,
Rights Agreement between the Company filed May 20, 1997, File No.
and Sirrom, dated May 13, 1997 1-14082
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Smart Choice Automotive Group, Inc.
By:/s/ Gary R. Smith
August 28, 1997 Gary R. Smith, President
LOAN AGREEMENT
THIS LOAN AGREEMENT (Agreement), dated the 13th day of May, 1997, is
made and entered into on the terms and conditions hereinafter set forth, by and
between SMART CHOICE AUTOMOTIVE GROUP, INC., a Florida corporation ("Borrower"),
and SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender").
W I T N E S S E T H:
WHEREAS, on March 13, 1997, Lender lent Borrower $3,500,000 pursuant to
the terms of a Loan Agreement dated as of March 13, 1997, between Borrower and
Lender (the "Initial Loan"), which Initial Loan was evidenced by Borrower's
Convertible Senior Promissory Note dated March 13, 1997, in the initial
principal amount of $3,500,000, with a stated maturity of March 12, 1999 (the
"Initial Note"),
WHEREAS, Borrower has requested that Lender make available to Borrower
a further term loan in the original principal amount of Four Million and
No/100ths Dollars ($4,000,000.00) (the "Loan") on the terms and conditions
hereinafter set forth, and for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrower, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE I
THE LOAN
Section 1.1 Commitment; Evidence of Loan Indebtedness and Repayment.
Subject to the terms and conditions hereof, Lender agrees to make the Loan to
Borrower by wire transfer in immediately available funds. The Loan shall be
evidenced by a Convertible Senior Promissory Note in the original principal
amount of Four Million and No/100ths Dollars ($4,000,000.00), substantially in
the form of Exhibit A attached hereto and incorporated herein by this reference
(the "Note"), dated the Closing Date (as defined in Section 1.3 hereof),
executed by Borrower, in favor of Lender. The Loan shall be payable and the
outstanding principal amount thereof shall be convertible into shares of capital
stock of Borrower in accordance with the terms of the Note.
Section 1.2 Operative Documents. (a) As further inducement for Lender
to extend the Loan, Borrower and Lender shall enter into an Amended and Restated
Registration Rights Agreement, substantially in the form of Exhibit B attached
hereto and incorporated herein by this reference (the "Restated Registration
Rights Agreement").
(b) This Agreement, the Note, the Restated Registration Rights
Agreement, and any other instruments and documents executed by Borrower, any
subsidiary of Borrower or any shareholder or Affiliate of Borrower, including
any schedules and attachments thereto, now or hereafter evidencing, securing or
in any way related to the indebtedness evidenced by the Note are herein
individually referred to as an "Operative Document" and collectively referred to
as the "Operative Documents."
Section 1.3 Closing Date. The closing (the "Closing") with respect to
the borrowings under this Agreement will take place at the offices of Sherrard &
Roe, PLC, 424 Church Street, Suite 2000, Nashville, Tennessee 37219, at 10:00
A.M., Nashville, Tennessee time, on May 13, 1997, or such later date as Borrower
and Lender shall agree (the "Closing Date"). Upon the Closing, Lender shall
disburse the loan proceeds by federal funds wire transfer in immediately
available funds and to the accounts and in the amounts in accordance with
Borrower's written instructions, received twenty-four (24) hours previously.
Section 1.4 Processing Fee. Borrower shall pay Lender on or before the
Closing Date (as hereinafter defined) a processing fee of Eighty Thousand
and no/100 Dollars ($80,000.00).
Section 1.5 Prepayment. Borrower may not repay, at the option of the
Borrower, the indebtedness evidenced by the Note at any time prior to the second
anniversary of the Closing Date. On and after the second anniversary of the
Closing Date, Borrower may prepay the indebtedness evidenced by the Note in
whole or in part at any time and from time to time, without penalty or premium,
provided, however, that in case of each prepayment of indebtedness hereunder,
Borrower will give written notice thereof to Lender not less than forty-five
(45) nor more than seventy-five (75) days prior to the date fixed for such
prepayment, in each case specifying the date of such prepayment, the aggregate
principal amount of such prepayment and the principal amount of the Note
outstanding immediately prior to such prepayment, and further provided that the
average of the closing bid price for shares of the Borrower's Common Stock for
the twenty (20) trading days immediately preceding the date of such notice (the
"Notice Date") shall exceed $9.50 per share of Common Stock (the "Threshold
Price"), and that as of the date set for such prepayment, the average of the
closing bid price for shares of the Borrower's Common Stock for all the trading
days since the Notice Date shall exceed the Threshold Price.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower hereby represents and warrants to Lender as follows:
Section 2.1 Corporate Status. (a) The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the corporate power to own and operate its properties, to carry
on its business as now conducted and to enter into and to perform its
obligations under this Agreement, the Note and the other Operative Documents.
The Borrower is qualified to do business and is in good standing in each state
or other jurisdiction in which such qualification is necessary under applicable
provisions of law. The states or other jurisdictions in which Borrower is so
qualified are set forth in Schedule 2.1(a).
(b) Schedule 2.1(b) sets forth a complete list of each corporation,
partnership, joint venture, limited liability company or other business
organization in which Borrower owns, directly or indirectly, any capital stock
or other equity interest (the "Subsidiary" or, collectively, the
"Subsidiaries"), or with respect to which Borrower or any Subsidiary, alone or
in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization and the percentage of stock
or other equity interest of each Subsidiary owned by Borrower. Each Subsidiary
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation or other organization as indicated in Schedule
2.1(b), each has all requisite power and authority and holds all material
licenses, permits and other required authorizations from government authorities
necessary to own its properties and assets and to conduct its business as it is
now being conducted, and is qualified to do business as a foreign corporation
(or business organization) and is in good standing in every jurisdiction in
which such qualification is necessary under applicable provisions of law. Except
as set forth in Schedule 2.1(b), all of the outstanding shares of capital stock,
or other equity interest, of each Subsidiary owned, directly or indirectly, by
Borrower have been validly issued, are fully paid and nonassessable, and are
owned by Borrower free and clear of all liens, charges, security interests or
encumbrances. None of the Constituent Documents of the Subsidiaries of the
Borrower at March 13, 1997, have been amended or modified since that date and no
such amendment is proposed or contemplated.
Section 2.2 Capitalization. (a) The authorized capital stock of
Borrower consists of (i) 100,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"), of which 8,936,088 shares are issued and
outstanding, and (ii) 5,000,000 shares of Preferred Stock, par value $.01 per
share, with rights and preferences to be established by resolution of the Board
of Directors pursuant to the provisions of applicable law and the Borrower's
Amended and Restated Articles of Incorporation (the "Restated Certificate") of
which no shares are issued or outstanding. All shares of outstanding capital
stock of Borrower have been validly issued and are fully paid and nonassessable.
There are 533,333.33 shares of Common Stock reserved for issuance upon the
conversion of the Note as described therein; provided, that the number of shares
so reserved shall be increased in accordance with the terms of the Note. Such
shares of Common Stock issuable upon conversion of the Note have been duly and
validly authorized and, upon conversion of the Note, will be validly issued,
fully paid, nonassessable and free of any liens or encumbrances created by
Borrower. There are no statutory or contractual preemptive rights, rights of
first refusal, antidilution rights or any similar rights held by any party with
respect to the issuance of the Note or the issuance of the Common Stock upon
conversion of the Note as described therein. Schedule 2.2(a) sets forth a
summary of (i) the outstanding shares of capital stock of Borrower as of March
13, 1997, (ii) the shares of capital stock of Borrower issued since March 13,
1997, and (iii) the shares of capital stock of Borrower which Borrower has
committed to issue or granted rights to acquire since March 13, 1997,
identifying the current holder of such shares and the number of all such shares
issued or with respect to which Borrower has committed to issue or granted
rights to acquire since March 13, 1997.
(b) The Borrower has not granted, or agreed to grant or issue, any
options, warrants or rights to purchase or acquire from Borrower any shares of
capital stock of Borrower, there are no securities outstanding or committed to
be issued by Borrower or any Subsidiary convertible into or exchangeable for any
shares of Borrower's capital stock or other securities of Borrower, and there
are no contracts, commitments, agreements, understandings, arrangements or
restrictions as to which Borrower or any Subsidiary is a party, or by which it
is bound or entered into for the benefit of Borrower, its Subsidiaries and/or
employees, relating to any shares of capital stock or other securities of
Borrower, whether or not outstanding, except for (i) the Note to be issued
pursuant to this Agreement; (ii) 583,333.33 shares of Common Stock reserved for
issuance upon the conversion of the Initial Note; (iii) 7,632,187 shares of
Common Stock reserved for issuance pursuant to Borrower's stock option plans,
options granted outside such plans, stock option warrants, conversion rights and
other rights to acquire such capital stock; and (iv) 1,034,040 shares of Common
Stock which Borrower has committed or otherwise granted rights to acquire
pursuant to options, upon conversion or otherwise but which shares have not been
reserved for issuance. Schedule 2.2 (b) sets forth a summary of each such
option, warrant, security, arrangement or other right to acquire capital stock
of Borrower. Except as set forth on Schedule 2.2(b), all such shares have been
duly reserved for issuance, have been duly and validly authorized and upon
issuance in accordance with the terms of the respective instruments, will be
validly issued, fully paid and non-assessable.
Section 2.3 Authorization. The Borrower has full legal right, power and
authority to enter into and perform its obligations under this Agreement, the
Note and the other Operative Documents, without the consent or approval of any
other person, firm, governmental agency or other legal entity. The execution and
delivery of this Agreement, the execution and delivery of the Note, the
execution and delivery of each other document in connection herewith or
therewith to which Borrower is a party, and the performance by Borrower of its
obligations hereunder and/or thereunder are within the corporate powers of
Borrower and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental approvals, if any were
required. The consummation of the transactions contemplated by this Agreement
and the fulfillment of the terms hereof do not and will not contravene or
conflict with the articles of incorporation or bylaws of Borrower or any
material agreement to which Borrower or any of its Subsidiaries is now a party
or by which any of them or their properties is bound, or constitute a default
thereunder, or results in the creation or imposition of any lien, charge,
security interest, or encumbrance of any nature upon any of the property or
assets of Borrower or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument, or violate any provision of law or any applicable
judgment, ordinance, regulation or order of any court or governmental agency.
The officer(s) executing this Agreement, the Note and the other Operative
Documents is duly authorized to act on behalf of Borrower.
Section 2.4 Validity and Binding Effect. Each of the Operative
Documents is the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms.
Section 2.5 No Conflicts; Other Transactions. Except as disclosed on
Schedule 2.5, there are no outstanding loans, liens, pledges, security
interests, agreements or other financings upon which Borrower or any Subsidiary
is obligated or by which Borrower is bound. Consummation of the transactions
hereby contemplated and the performance of the obligations of Borrower under and
by virtue of the Operative Documents will not result in any breach of, or
constitute a default under, any material mortgage, security deed or agreement,
deed of trust, lease, bank loan or credit agreement, or any corporate articles,
certificate or bylaws, agreement or certificate of limited partnership,
partnership agreement, limited liability company agreement, license, franchise
or any other material instrument or agreement to which Borrower is a party or by
which Borrower or its properties may be bound or, to the knowledge or Borrower,
affected or to which Borrower has not obtained a consent or an effective waiver.
Section 2.6 Litigation. Except as set forth on Schedule 2.6, there are
no actions, suits or proceedings pending, or, to the knowledge of Borrower,
threatened, against or affecting Borrower or any of its Subsidiaries involving
the validity or enforceability of any of the Operative Documents or the priority
of any liens, at law or in equity, or before any governmental or administrative
agency, except actions, suits and proceedings that are fully covered by
insurance and that, if adversely determined, would not impair materially the
ability of Borrower to perform each and every one of its obligations under and
by virtue of the Operative Documents; and to Borrower's knowledge, Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or any governmental authority.
Section 2.7 Financial Statements. (a) The consolidated financial
statements of Borrower and its Subsidiaries for the fiscal years ended September
30, 1994, 1995 and 1996 and the unaudited consolidated financial statements as
of and for the six and three-month period ended March 31, 1997, which Borrower
previously has heretofore delivered to Lender, are true and correct and have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently followed throughout the periods involved. The consolidated
balance sheets and the related notes fairly present the financial condition of
Borrower and its consolidated Subsidiaries as of the respective dates thereof,
and the consolidated statements of income, cash flows and changes in
stockholders' equity and the related notes fairly present the results of
operations of Borrower and its consolidated Subsidiaries for the respective
periods indicated. There has been no material adverse change in the condition,
financial or otherwise, of Borrower and its Subsidiaries taken as a whole since
September 30, 1996.
(b) The financial statements of Subsidiaries acquired since March 13,
1997 by Borrower or any Subsidiary thereof for the fiscal years presented and
the unaudited financial statements as of and for the periods presented, each of
which is described in Schedule 2.7(b), which Borrower previously has heretofore
delivered to Lender, are true and correct and have been prepared in accordance
with GAAP consistently followed throughout the periods involved. The balance
sheets and the related notes fairly present the financial condition of each such
Subsidiary as of the respective dates thereof, and the accompanying statements
of income, cash flows and changes in stockholders' equity and the related notes
fairly present the results of operations of each such Subsidiary for the
respective periods indicated.
Section 2.8 SEC Reports. The Borrower's Common Stock is listed on the
NASDAQ Small Cap Market and has been duly registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Since January 1, 1994, Borrower has timely filed all reports,
registrations, proxy or information statements and all other documents, together
with any amendments required to be made thereto, required to be filed with the
SEC under the Securities Act and the Exchange Act (collectively, the "SEC
Reports"). The Borrower previously has furnished to Lender true copies of all
the SEC Reports, together with all exhibits thereto that Lender has requested.
The financial statements contained in the SEC Reports fairly presented (or will
fairly present, as the case may be) the financial position of Borrower as of the
dates mentioned and the results of operations, changes in stockholders' equity
and changes in financial position or cash flows for the periods then ended in
conformity with GAAP applied on a consistent basis throughout the periods
involved. As of their respective dates, the SEC Reports complied (or will
comply, as the case may be) in all material respects with all rules and
regulations promulgated by the SEC and did not (or will not, as the case may be)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 2.9 Absence of Changes. Except as set forth on Schedule 2.9,
since September 30, 1996, (i) neither Borrower nor any of its Subsidiaries have
incurred any liabilities or obligations, direct or contingent, or entered into
any transactions, not in the ordinary course business, that are material to
Borrower, (ii) neither Borrower nor any of its Subsidiaries have purchased any
of its outstanding capital stock or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock, (iii) there has not
been any change in the capital stock, long-term debt or short-term debt of
Borrower, and (iv) there has not been any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
condition (financial or otherwise), results of operations, business or prospects
of Borrower or any Subsidiary.
Section 2.10 No Defaults; Other Agreements. Except as set forth on
Schedule 2.10 and except where a default or event of default does not and would
not constitute a Material Adverse Event, no default or event of default by
Borrower or any Subsidiary exists under this Agreement or any of the other
Operative Documents, or under any other instrument or agreement to which
Borrower or any Subsidiary is a party or by which Borrower or any Subsidiary or
its respective properties may be bound or, to the knowledge of Borrower,
affected, and no event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
thereunder.
Section 2.11 Compliance With Law. Except where failure to do so does
not and would not constitute a Material Adverse Event, Borrower has obtained all
licenses, permits and governmental approvals and authorizations necessary or
proper in order to conduct its business and affairs as heretofore conducted and
as hereafter intended to be conducted. To Borrower's knowledge, Borrower is in
compliance with all laws, regulations, decrees and orders applicable to it
(including but not limited to laws, regulations, decrees and orders relating to
environmental, occupational and health standards and controls, antitrust,
monopoly, restraint of trade or unfair competition) to the extent that
noncompliance, in the aggregate, cannot reasonably be expected to have a
material adverse effect on its business, operations, property or financial
condition and will not materially adversely affect its ability to perform its
obligations under the Operative Documents.
Section 2.12 Taxes. Except as set forth on Schedule 2.12, Borrower and
its Subsidiaries have filed or caused to be filed all federal, state and local
income, excise and franchise tax returns required to be filed (except for
returns that have been appropriately extended), and has paid, or provided for
the payment of, all taxes shown to be due and payable on said returns and all
other taxes, impositions, assessments, fees or other charges imposed on it by
any governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings, for
which appropriate amounts have been reserved), and Borrower does not know of any
proposed assessment for additional taxes or any basis therefor. No tax liens
have been filed against Borrower or any of its properties. The Borrower's
federal income tax liability has been filed with the Internal Revenue Service
and satisfied for all taxable years up to and including the taxable year ended
September 30, 1995, or closed by applicable statutes of limitation.
Section 2.13 Certain Transactions. Except as set forth on Schedule
2.13, Borrower is not indebted, directly or indirectly, to any of its officers
or directors, or to their respective spouses or children, in excess of an
aggregate amount of $60,000, and none of its officers or directors or any
members of their immediate families are indebted to Borrower in excess of an
aggregate amount of $60,000 or have any direct or indirect ownership interest in
any firm or corporation with which Borrower is affiliated or with which Borrower
has a business relationship of a nature which would require disclosure pursuant
to Item 404(b) of Regulation S-K under the Securities Act, or any firm or
corporation which competes with Borrower, except that an officer and/or director
of Borrower may own no more than 1% of the outstanding stock of any publicly
traded company which competes directly with Borrower. Except as set forth on
Schedule 2.13, no officer or director or any member of their immediate families
is, directly or indirectly, interested in any material contract with Borrower.
Except as set forth on Schedule 2.13, Borrower is not a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.
Section 2.14 Title to Property. The Borrower and each Subsidiary has
good and marketable title to all real and personal property owned by it, free
and clear of all liens, security interests, pledges, encumbrances, equities,
claims and restrictions of every kind and nature whatsoever, except as set forth
on Schedule 2.14 and except for such liens, security interests, pledges,
encumbrances, equities, claims and restrictions which are not in the aggregate
material to the business, operations or financial condition of Borrower and its
Subsidiaries taken as a whole. Any real property and buildings held under lease
by Borrower or any Subsidiary are held under valid existing and enforceable
leases, except as disclosed on Schedule 2.14 or which are not material and do
not interfere with the use to be made of such buildings or property by Borrower.
Section 2.15 Intellectual Property. Except as set forth on Schedule
2.15, Borrower is the lawful owner of its proprietary information free and clear
of any claim, right, trademark, patent or copyright protection of any third
party. As used herein, "proprietary information" includes without limitation (i)
any computer software and related documentation, inventions, technical and
nontechnical data related thereto, and (ii) other documentation, inventions and
data related to patterns, plans, methods, techniques, drawings, finances,
customer lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used by
Borrower or any Subsidiary or marketing studies conducted by Borrower, all of
which Borrower considers to be commercially important and competitively
sensitive and which generally has not been disclosed to third parties other than
customers in the ordinary course of business. Except as set forth on Schedule
2.15, Borrower has good and marketable title to all patents, trademarks, trade
names, service marks, copyrights or other intangible property rights, and
registrations or applications for registration thereof, owned by Borrower or any
Subsidiary or used or required by Borrower or any Subsidiary in the operation of
its business as presently being conducted. Borrower has no knowledge of any
infringements or conflict with asserted rights of others with respect to
copyrights, patents, trademarks, service marks, trade names, trade secrets or
other intangible property rights or know-how which could result in any material
adverse effect upon Borrower. To Borrower's knowledge, no products or processes
of Borrower infringe or conflict with any rights of patent or copyright, or any
discovery, invention product or process, that is the subject of a patent or
copyright application or registration known to Borrower. The Borrower follows
such procedures as the Board of Directors of Borrower deem necessary or
appropriate to provide reasonable protection of Borrower's trade secrets and
proprietary rights in intellectual property of all kinds. To the knowledge of
Borrower, no person employed by or affiliated with Borrower has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and to the knowledge of Borrower, no person
employed by or affiliated with Borrower has violated any confidential
relationship that such person may have had with any third person, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of Borrower.
Section 2.16 Debt. Schedule 2.16 sets forth a complete and correct list
of all credit agreements, indentures, purchase agreements, promissory notes and
other evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for or
relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing) in respect of which
Borrower or any of the properties thereof is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the credit
in question that are outstanding and that can be outstanding are correctly
stated, and all liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
Section 2.17 Significant Contracts. Schedule 2.17 sets forth a complete
and correct list of all contracts, agreements and other documents pursuant to
which Borrower receives revenues in excess of $25,000 per fiscal year. Each such
contract, agreement and other document is in full force and effect as of the
date hereof and Borrower knows of no reason why such contracts, agreements and
other documents would not remain in full force and effect pursuant to the terms
thereof.
Section 2.18 Environment. The Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state and
local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder. The Borrower has been issued and
will maintain all required federal, state and local permits, licenses,
certificates and approvals relating to (1) air emissions; (2) discharges to
surface water or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (which shall include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or potentially
hazardous); or (6) other environmental, health or safety matters. The Borrower
has not received notice of, or knows of, or suspects facts which might
constitute any violations of any federal, state or local environmental, health
or safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder with respect to its businesses, operations, assets, equipment,
property, leaseholds, or other facilities. Except in accordance with a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (1) the air; (2) soils, or
any improvements located thereon; (3) surface water or groundwater; or (4) the
sewer, septic system or waste treatment, storage or disposal system servicing
the premises, of any toxic or hazardous substances or wastes at or from the
premises; and accordingly the premises of Borrower are free of all such toxic or
hazardous substances or wastes. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any person or entity
with respect to (1) air emissions; (2) spills, releases or discharges to soils
or improvements located thereon, surface water, groundwater or the sewer, septic
system or waste treatment, storage or disposal systems servicing the premises;
(3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous substances
or waste; or (6) other environmental, health or safety matters affecting
Borrower or its business, operations, assets, equipment, property, leaseholds or
other facilities. Borrower does not have any indebtedness, obligation or
liability (absolute or contingent, matured or not matured), with respect to the
storage, treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup or disposal).
Section 2.19 ERISA. The Borrower is in compliance in all material
respects with all applicable provisions of Title IV of the Employee Retirement
Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat.
829, 29 U.S.C.A. ss. 1001 et seq. (1975), as amended from time to time
("ERISA"). Neither a reportable event nor a prohibited transaction (as defined
in ERISA) has occurred and is continuing with respect to any "pension plan" (as
such term is defined in ERISA, a "Plan"); no notice of intent to terminate a
Plan has been filed nor has any Plan been terminated; no circumstances exist
which constitute grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions, the "PBGC") to
institute proceedings to terminate, or appoint a trustee to administer, a Plan,
nor has the PBGC instituted any such proceedings; neither Borrower nor any
commonly controlled entity (as defined in ERISA) has completely or partially
withdrawn from a multiemployer plan (as defined in ERISA); Borrower and each
commonly controlled entity has met its minimum funding requirements under ERISA
with respect to all of its Plans and the present fair market value of all Plan
property exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of Borrower or any commonly controlled entity to the PBGC or
the Plan under Title IV or ERISA; and neither Borrower nor any commonly
controlled entity has incurred any liability to the PBGC under ERISA.
Section 2.20 Employees. Schedule 2.20 sets forth the number of
full-time employees and full-time equivalent employees of Borrower as of the
most recent payroll date, which date is set forth therein. The Borrower has no
current labor problems or disputes which have resulted or Borrower reasonably
believes could be expected to have a material adverse effect.
Section 2.21 Accounting Matters. The Borrower and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain assets
accountability for the assets of Borrower and each of its subsidiaries; (iii)
access to the assets of Borrower and each of its subsidiaries are permitted only
in accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets of Borrower and each of its subsidiaries are
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Section 2.22 Regulatory Compliance. Except as set forth on Schedule
2.22, the conduct of the business of Borrower is not dependent on any license,
permit or other authorization of any federal, state or local regulatory body,
and except as set forth on Schedule 2.22, such business is not subject to the
regulation of any federal, state or local government regulatory body by reason
of the nature of the business being conducted. All licenses, permits and
authorizations set forth on Schedule 2.22 are in full force and effect.
Section 2.23 Distributions to Borrower. No subsidiary of Borrower is
currently prohibited, directly or indirectly, from paying any dividends to
Borrower, from making any other distributions on such subsidiary's capital
stock, from repaying to Borrower any loans or advances to such subsidiary or
from transferring any of such subsidiary's property or assets to Borrower or any
other subsidiary of Borrower.
Section 2.24 Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to purchase
or carry any equity security of a class which is registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended.
Section 2.25 Prior Sales. All offers and sales of Borrower's capital
stock prior to the date hereof were at all relevant times exempt from the
registration requirements of the Securities Act or were duly registered under
the Securities Act, and were duly registered or were the subject of an available
exemption from the requirements of all applicable state securities or Blue Sky
laws.
Section 2.26 Limited Offering of Note. Neither Borrower nor anyone
acting on its behalf has offered the Note or any similar securities for sale to,
or solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof, with, any person other than Lender and not more
than 35 other institutional investors. Neither Borrower nor anyone acting on its
behalf has taken, or will take, any action which would subject the issuance or
sale of the Note to Section 5 of the Securities Act or the registration or
qualification provisions of the blue sky laws of any state.
Section 2.27 Registration Rights. Except as described in Schedule 2.27,
Borrower is not under any obligation to register under the Securities Act or the
Trust Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that may subsequently be issued.
Section 2.28 Fees/Commissions. The Borrower has not agreed to pay any
finder's fee, commission, origination fee (except for the processing fee due to
Lender pursuant to Section 1.4 hereof and the commission to Raymond James &
Associates, Inc. in the amount of $120,000) or other fee or charge to any person
or entity with respect to the loan and investment transactions contemplated
hereunder.
Section 2.29 1940 Act Compliance. The Borrower is an "eligible
portfolio company" as such term is defined in Section 2(a)(46) of the Investment
Borrower Act of 1940, as amended, and the execution and delivery of the Note by
Borrower does not constitute a "public offering" as such term is used in Section
55(a)(1) thereof.
Section 2.30 Disclosure. No representation or warranty given as of the
date hereof by Borrower contained in this Agreement or any schedule attached
hereto or any statement in any document, certificate or other instrument
furnished or to be furnished to Lender pursuant hereto, or in any of the
Operative Documents, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or omits or will (as
of the time so furnished) omit to state any material fact which is necessary in
order to make the statements contained herein or therein not misleading. The
information, documents and schedules contained or referenced in the schedules
hereto are true, accurate and complete in all material respects.
Section 2.31 Survival. The representations and warranties of Borrower
contained in this Agreement shall survive until this Agreement terminates in
accordance with Section 7.12 hereof.
ARTICLE III
COVENANTS AND AGREEMENTS
From and after the Closing Date and continuing during the term of this
Agreement:
Section 3.1 Use of Proceeds. The Borrower shall use the proceeds of
the Note only for the purposes set forth on Schedule 3.1 attached hereto.
Section 3.2 Payment of Obligations. The Borrower shall pay the
indebtedness evidenced by the Note according to the terms thereof, and shall
timely pay or perform, as the case may be, all of the other obligations of
Borrower to Lender, direct or contingent, however evidenced or denominated, and
however and whenever incurred, including but not limited to indebtedness
incurred pursuant to any present or future commitment of Lender to Borrower,
together with interest thereon, and any extensions, modifications,
consolidations and/or renewals thereof and any notes given in payment thereof.
Section 3.3 Corporate Existence, Etc. The Borrower will preserve and
keep in force and effect, and will cause each Subsidiary to preserve and keep in
force and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law and all licenses and permits necessary to the proper conduct of
its business.
Section 3.4 Distributions to Borrower. No subsidiary of Borrower shall
become prohibited, directly or indirectly, from paying any dividends to
Borrower, from making any other distributions on such subsidiary's capital
stock, from repaying to Borrower any loans or advances to such subsidiary or
from transferring any of such subsidiary's property or assets to Borrower or any
other subsidiary of Borrower.
Section 3.5 Maintenance, Etc. The Borrower will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties and assets which are used or useful in the conduct of its business
(whether owned in fee or pursuant to a leasehold interest) in good repair and
working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency thereof
shall be maintained.
Section 3.6 Nature of Business. Neither Borrower nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by Borrower and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by Borrower and its Subsidiaries on the date of this
Agreement.
Section 3.7 Insurance. The Borrower will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such forms
and amounts and against such risks, casualties and contingencies as are
customary for corporations of established reputation engaged in the same or a
similar business and owning and operating similar properties.
Section 3.8 Taxes, Claims for Labor and Materials. The Borrower will
promptly pay and discharge, and will cause each Subsidiary promptly to pay and
discharge, (i) all lawful taxes, assessments and governmental charges or levies
imposed upon the property or business of the Borrower or such Subsidiary,
respectively, (ii) all trade accounts payable in accordance with usual and
customary business terms, and (iii) all claims for work, labor or materials,
which if unpaid might become a lien or charge upon any property of Borrower or
such Subsidiary; provided Borrower or such Subsidiary shall not be required to
pay any such tax, assessment, charge, levy, account payable or claim if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale of
any property of Borrower or such Subsidiary or any material interference with
the use thereof by Borrower or such Subsidiary, and (ii) Borrower or such
Subsidiary shall set aside on its books, reserves deemed by it to be adequate
with respect thereto.
Section 3.9 Compliance with Laws and Other Agreements. Except where
failure to do so does not and would not constitute a Material Adverse Event,
Borrower shall maintain its business operations and property owned or used in
connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing such business operations and the
use and ownership of such property, and (ii) all agreements, licenses,
franchises, indentures and mortgages to which Borrower is a party or by which
Borrower or any of its properties is bound. Without limiting the foregoing,
Borrower shall pay all of its indebtedness promptly and substantially in
accordance with the terms thereof.
Section 3.10 ERISA Matters. If Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of ERISA, then
the following warranty and covenants shall be applicable during such period as
any Plan shall be in effect: (i) Borrower hereby covenants that throughout the
existence of the Plan, Borrower's contributions under the Plan will meet the
minimum funding standards required by ERISA and Borrower will not institute a
distress termination of the Plan; and (ii) Borrower covenants that it will send
to Lender a copy of any notice of any "reportable event" (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the Pension Benefit
Guaranty Corporation, at the time that such notice is so filed.
Section 3.11 Environment. The Borrower shall be and remain in
compliance with the provisions of all federal, state and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
issued thereunder; notify Lender immediately of any notice of a hazardous
discharge or environmental complaint received from any governmental agency or
any other party; notify Lender immediately of any hazardous discharge from or
affecting its premises; immediately contain and remove the same, in compliance
with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith; permit Lender to inspect the premises, to conduct tests
thereon, and to inspect all books, correspondence, and records pertaining
thereto; and at Lender's request, and at Borrower's expense, provide a report of
a qualified environmental engineer, satisfactory in scope, form, and content to
Lender, and such other and further assurances reasonably satisfactory to Lender
that the condition has been corrected.
Section 3.12 Books and Records; Rights of Inspection. The Borrower will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full and correct entries will be made of all dealings or transactions
of or in relation to the business and affairs of Borrower or such Subsidiary, in
accordance with generally accepted accounting principles consistently
maintained. The Borrower shall permit a representative of Lender to visit any of
its properties and inspect its corporate books and financial records, and will
discuss its accounts, affairs and finances with a representative of Lender,
during reasonable business hours, at all such times as Lender may reasonably
request.
Section 3.13 Reports. During the term of this Agreement, Borrower will
furnish to Lender the following:
(a) Monthly Statements. Within twenty (20) days of the end of
each month, monthly internal financial reports which at a minimum shall
consist of a balance sheet of Borrower as of the close of such month
and related statements of income and cash flows for the one-month
period then ended, as well as any additional financial reports for such
period routinely prepared with respect to Borrower and the
Subsidiaries;
(b) Quarterly Statements. Except as set forth on Schedule
3.13(b), as soon as available and in any event within forty-five
(45) days after the end of each quarterly fiscal period
(except the last) of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets of
Borrower and Subsidiaries as of the close of the
three-month period then ended, setting forth in
comparative form the consolidated figures for the
corresponding period of the preceding fiscal year,
(ii) consolidated and consolidating statements of income
and retained earnings of Borrower and Subsidiaries
for the three-month period then ended, setting forth
in comparative form the consolidated figures for the
corresponding period of the preceding fiscal year,
and
(iii) consolidated and consolidating statements of cash
flows of Borrower and Subsidiaries for the portion of
the fiscal year ending with such three-month period,
setting forth in comparative form the consolidated
figures for the corresponding period of the preceding
fiscal year,
all in reasonable detail and certified as complete and correct, by an authorized
financial officer of Borrower;
(c) Annual Statements. As soon as available and in any event
within ninety (90) days after the close of each fiscal year of
Borrower, copies of:
(i) consolidated and consolidating balance sheets of Borrower and
Subsidiaries as of the close of such fiscal year,
(ii) consolidated and consolidating statements of income and
retained earnings and cash flows of Borrower and Subsidiaries for such
fiscal year, and
(i) consolidated statements of shareholders' equity for such
fiscal year,
in each case setting forth in comparative form the consolidated figures
for the preceding fiscal year, all in reasonable detail and accompanied
by an unqualified report thereon of a firm of independent public
accountants of recognized national standing;
(d) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the
books of Borrower or any Subsidiary;
(e) SEC and Other Reports. (i) One copy of each financial
statement, report, notice or proxy statement sent by Borrower to
stockholders generally, simultaneously with the mailing of such to
Borrower's stockholders; (ii) each periodic or current report, and any
registration statement or prospectus filed by Borrower or any
Subsidiary with any securities exchange or the SEC or any successor
agency, promptly upon filing with the SEC; and (iii) promptly upon
their becoming available, any orders in any proceedings to which
Borrower or any of its Subsidiaries is a party, issued by any
governmental agency, federal or state, having jurisdiction over
Borrower or any of its Subsidiaries. The Borrower specifically
covenants to timely file each such item required to be filed with the
SEC and each state requiring securities laws filings; and
(f) Requested Information. With reasonable promptness, such other
data and information as Lender or any such institutional holder may
reasonably request.
Section 3.14 Limitations on Debt and Obligations. Neither Borrower nor
any Subsidiary shall issue, assume, guarantee or otherwise become liable or
permit to exist any Indebtedness except: (i) Indebtedness existing on the date
hereof and reflected on (a) Borrower's or Subsidiaries' unaudited balance sheets
as of March 31, 1997, or (b) Schedule 3.14, as the same Indebtedness may be
extended, renewed, refunded, amended or modified (but the principal amount
thereof not increased); (ii) the indebtedness incurred pursuant to the Note;
(iii) accounts payable and other trade payables incurred in the ordinary course
of business; (iv) obligations of Borrower and Subsidiaries pursuant to
capitalized leases, floor plan financing and/or purchase money financing of
equipment; (v) Indebtedness that refinances secured Indebtedness under clause
(i) above, provided that the collateral for such new Indebtedness is the
collateral from the refinanced secured Indebtedness and the aggregate principal
amount of such Indebtedness does not exceed the principal amount outstanding
under the refinanced Indebtedness; (vi) Indebtedness incurred in connection with
the acquisition of a business (including the assets of a business) provided such
Indebtedness is secured solely by the assets of the business so acquired; (vii)
unsecured Indebtedness not to exceed at any time an aggregate principal amount
outstanding of $1,000,000, and additional amounts in excess thereof with the
prior approval of Lender, which approval shall not be unreasonably withheld, and
if the incurrence of such excess unsecured Indebtedness would not have a
Material Adverse Effect; or (viii) Indebtedness incurred after the date hereof
which by its terms is junior and subordinated in right of payment to the
Indebtedness evidenced by the Note, provided that the maturity of such
subordinated indebtedness does not occur prior to the payment in full of all
obligations under this Agreement and the Note. Notwithstanding the foregoing,
the aggregate principal amount of any Indebtedness secured by the accounts
receivable and/or inventory of Borrower and its Subsidiaries (whether such
Indebtedness is permitted under clause (i) or in clause (v)), may be increased
based upon the amount of the accounts receivable and/or inventory eligible as
collateral, so long as the ratio of outstanding principal amount of such
Indebtedness to "eligible receivables" (howsoever defined) and/or "inventory"
remains the same.
Section 3.15 Guaranties. The Borrower will not, and will not permit any
Subsidiary to, become or be liable in respect of any Guaranty except Guaranties
by Borrower which are limited in amount to a stated maximum dollar exposure and
are incurred in compliance with the provisions of this Agreement.
Section 3.16 Limitation on Liens. Without the prior written consent of
Lender, Borrower will not, and will not permit any Subsidiary to, create or
incur, or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (collectively, "Liens") on its
or their property or assets, whether now owned or hereafter acquired, or upon
any income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment of
its or their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon conditional sales agreement
or other title retention devices, except (i) those Liens which exist as of the
date hereof; (ii) Liens hereafter created on Indebtedness which is permitted
under Section 3.14(v) or (vi); or (iii) purchase money security interests on
property acquired by Borrower or any Subsidiary in an amount not to exceed in
the aggregate 10% more than the amount approved by the Board of Directors for
such expenditures in Borrower's Annual Plan, as hereinafter defined.
Section 3.17 Restricted Payments. Without the prior written
consent of Lender, Borrower will not, except as hereinafter provided:
(i) declare or pay any dividends, either in cash or property, on
any shares of its capital stock of any class (except dividends
or other distributions payable solely in shares of capital
stock of Borrower);
(ii) directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class
or any warrants, rights or options to purchase or acquire any
shares of its capital stock (other than in exchange for or out
of the net proceeds to Borrower from the substantially
concurrent issue or sale of other shares of capital stock of
Borrower or warrants, rights or options to purchase or acquire
any shares of its capital stock); or
(iii) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its
capital stock.
Section 3.18 [Reserved.]
Section 3.19 Mergers, Consolidations and Sales of Assets. (a) The
Borrower will not, and will not permit any Subsidiary to (1) consolidate with or
be a party to a merger or share exchange with any other corporation or (2) sell,
lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 3.19) of the assets of Borrower and its
Subsidiaries; provided, however, that:
(i) any Subsidiary may merge or consolidate with or into
Borrower or any Wholly-owned Subsidiary so long as, as a result of any
such merger or consolidation involving Borrower and giving effect
thereto, Borrower shall be the surviving or continuing corporation;
(ii) Borrower may consolidate or merge with any other
corporation if (A) Borrower shall be the surviving or continuing
corporation, (B) at the time of such consolidation or merger and after
giving effect thereto, no Default or Event of Default shall have
occurred and be continuing, and (C) in connection with such
consolidation or merger Borrower does not incur or assume Indebtedness
except in compliance with the provisions of Section 3.14;
(iii) any Subsidiary may merge with or into, or engage in a
share exchange with, any other entity so long as, as a result of such
merger or share exchange and giving effect thereto, (A) the resulting
entity shall be a Subsidiary of Borrower, (B) Borrower's ownership
interest in the resulting Subsidiary shall be no less than Borrower's
ownership interest in the constituent Subsidiary engaging therein prior
to such transaction, (C) at the time of such merger or share exchange
and after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing, and (D) in connection with such merger
or share exchange neither Borrower nor any Subsidiary incurs or assumes
Indebtedness except in compliance with the provisions of Section 3.14;
and
(iv) any Subsidiary may sell, lease or otherwise dispose of all
or any substantial part of its assets to Borrower or any Wholly-owned
Subsidiary.
(b) The Borrower will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the purposes of this
Section 3.19, any warrants, rights or options to purchase or otherwise acquire
stock or other Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than Borrower or a Wholly-owned Subsidiary,
except for the purpose of qualifying directors, or except in satisfaction of the
validly pre-existing preemptive rights of minority shareholders in connection
with the simultaneous issuance of stock to Borrower and/or a Subsidiary whereby
Borrower and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary.
(c) The Borrower will not sell, transfer or otherwise dispose of any
shares of stock in any Subsidiary (except to qualify directors) or any
indebtedness of any Subsidiary, and will not permit any Subsidiary to sell,
transfer or otherwise dispose of (except to Borrower or a Wholly-owned
Subsidiary) any shares of stock or any indebtedness of any other Subsidiary,
unless:
(1) simultaneously with such sale, transfer or disposition,
all shares of stock and all indebtedness of such Subsidiary at the time
owned by Borrower and by every other Subsidiary shall be sold,
transferred or disposed of as an entirety;
(2) the Board of Directors of Borrower shall have determined,
as evidenced by a resolution thereof, that the retention of such stock
and indebtedness is no longer in the best interests of Borrower;
(3) such stock and Indebtedness is sold, transferred or
otherwise disposed of to a Person, for a cash consideration and on
terms reasonably deemed by the Board of Directors to be adequate and
satisfactory;
(4) the Subsidiary being disposed of shall not have any
continuing investment in Borrower or any other Subsidiary not being
simultaneously disposed of; and
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of Borrower and
its Subsidiaries.
(d) As used in this Section 3.19, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of Borrower and
its Subsidiaries only if the book value of such assets, when added to the book
value of all other assets sold, leased or otherwise disposed of by Borrower and
its Subsidiaries (other than in the ordinary course of business) during the same
twelve month period ending on the date of such sale, lease or other disposition,
exceeds 20% of the consolidated net tangible assets of Borrower and its
Subsidiaries determined as of the end of the immediately preceding fiscal year.
Section 3.20 Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, enter into or be a party to any transaction
or arrangement with any officer, director or Affiliate (including, without
limitation, the purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
Borrower or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person other than an Affiliate, in each case as determined in
good faith by a majority of the directors of Borrower with no conflict of
interest (as the term "conflict of interest" is used in Section 607.0832 of the
Florida Business Corporation Act).
Section 3.21 Notice. The Borrower shall promptly upon the discovery
thereof give written notice to Lender of (i) the occurrence of any default or
Event of Default or event which, with the passage of time, would constitute an
Event of Default, under this Agreement, (ii) the occurrence of any default or
event of default under any other agreement providing for indebtedness of
Borrower or any Subsidiary or under a capitalized lease obligation, (iii) any
actions, suits or proceedings instituted by any Person against Borrower or a
Subsidiary or materially affecting any of the assets of Borrower or any
Subsidiary, and (iv) any dispute between Borrower or any Subsidiary, on the one
hand, and any governmental regulatory body, on the other hand, which dispute
might interfere with the normal operations of Borrower or any Subsidiary;
provided, however, that Lender shall not disclose any such information provided
in (iii) or (iv) above to any third party other than Lender's counsel and except
to the extent compelled by law or otherwise authorized by Borrower.
Section 3.22 Board of Directors; Observer Rights. (a) During the term
of this Agreement, Borrower agrees to include one (1) nominee of Lender or other
holder of the Note in management's slate of nominees to be elected to the Board
of Directors and to recommend to the stockholders the election of such nominee.
The foregoing provisions of this Section 3.22(a) shall apply during the term of
this Agreement unless and until Sirrom Capital Corporation or any Wholly-owned
Subsidiary thereof shall cease to be the holder of the Note, in which case such
provisions shall terminate. Borrower shall reimburse the director nominated by
Lender for all out-of-pocket expenses incurred in performance of his duties as
director.
(b) During the term of this Agreement, provided that no nominee of the
Lender is a director, Borrower shall permit one representative of Lender or one
representative of any Affiliate of Lender, to attend, at Borrower's expense, all
meetings of Borrower's Board of Directors and all committees of Borrower's Board
of Directors in a nonvoting capacity and, in this respect, shall give such
representative copies of all notices and meeting agenda in advance of such
meetings and shall permit such representative to review all documents and other
materials provided to directors at such meetings. The Borrower shall also
provide Lender, or any designated Affiliate of Lender, in advance, with copies
of all actions proposed to be taken by the Board of Directors in lieu of
meeting.
Section 3.23 Issuance Taxes. All taxes imposed on Borrower in
connection with the issuance, sale and delivery of the Note, and the capital
stock issuable or transferable upon conversion of the Note have been or will be
fully paid, and all laws imposing such taxes have been or will be fully
satisfied by Borrower.
Section 3.24 Information. The Borrower will furnish to Lender such
financial data and other information relating to the business of Borrower as
Lender may from time to time reasonably request. In addition to the foregoing,
no later than ninety (90) days after the execution and delivery of the Note,
Borrower shall furnish Lender a certificate, executed by the President of
Borrower, itemizing the use of proceeds from the Note, and Borrower shall
cooperate with Lender in connection with post-closing review.
Section 3.25 Further Assurances. The Borrower will take all actions
reasonably requested by Lender to effect the transactions contemplated by this
Agreement and the other Operative Documents.
Section 3.26 Annual Plan. The Board of Directors shall adopt, no later
than the first day of each fiscal year, a financial plan for Borrower, in such
manner and form as approved by the Board of Directors of Borrower, which
financial plan shall include at least a projection of income and expenses
(including capital expenditures) and a projected cash flow statement for each
month in such fiscal year, and a projected balance sheet as of the end of each
month in such fiscal year (the "Annual Plan").
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF LENDER
The obligation of Lender to fund the Loan on Closing Date is subject to
the fulfillment, on or prior to the Closing Date, of each of the following
conditions:
Section 4.1 Representations and Warranties. The representations and
warranties of Borrower contained in this Agreement and in any Schedule hereto or
any document or instrument delivered to Lender or its representatives hereunder,
shall have been true and correct when made and shall be true and correct as of
the Closing Date as if made on such date, except to the extent such
representations and warranties expressly relate to a specific date. The Borrower
shall have duly performed all of the covenants and agreements to be performed by
it hereunder on or prior to the Closing Date.
Section 4.2 Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents necessary to the consummation thereof, shall be satisfactory in form
and substance to Lender and Lender's counsel.
Section 4.3 Required Consents. Any consents or approvals required to be
obtained from any third party, including any holder of indebtedness or any
outstanding security of Borrower, and any amendments of agreements which shall
be necessary to permit the consummation of the transactions contemplated hereby
on the Closing Date, shall have been obtained and all such consents or
amendments shall be satisfactory in form and substance to Lender and Lender's
counsel.
Section 4.4 Deliveries by/on behalf of Borrower. The following executed
documents shall have been delivered and received:
(a) Note. The Borrower shall have delivered to Lender a Note
executed by Borrower, in the form of Exhibit A attached hereto and
incorporated herein by this reference.
(b) Restated Registration Rights Agreement. The Borrower shall
have delivered to Lender the Amended and Restated Registration Rights
Agreement executed by Borrower, substantially in the form of Exhibit B
attached hereto and incorporated herein by this reference.
(c) Authorization Agreement. The Borrower shall have delivered to
Lender an Authorization Agreement for Pre-Authorized Payments (Debit)
executed by Borrower, substantially in the form of Exhibit C attached
hereto and incorporated herein by this reference.
(d) Officer's Certificate. The Borrower shall have delivered to
Lender a certificate, dated the Closing Date, signed by the President
of Borrower, substantially in the form of Exhibit D attached hereto
and incorporated herein by this reference, regarding the accuracy of
the representations and warranties and the performance of the
obligations of Borrower.
(e) Secretary's Certificate. The Borrower shall have delivered to
Lender a certificate, dated the Closing Date, signed by the Secretary
of Borrower, substantially in the form of Exhibit E attached hereto
and incorporated herein by this reference, regarding the satisfaction
of the conditions in Section 4.2 hereof and certain other matters.
(f) Existence and Authority. The Borrower shall have delivered to
Lender the following certificates of public officials, in each case as
of a recent date:
(i) the certificate of incorporation of Borrower, certified by
the Secretary of State or other appropriate official in the
jurisdiction each such entity is incorporated;
(ii) a certificate as to the legal existence and good standing of
Borrower and each of the Subsidiaries issued by the Secretary of State
or other appropriate official in the jurisdiction each such entity is
incorporated;
(iii) a certificate as to the qualification to do business as a
foreign corporation and good standing of Borrower and each of the
Subsidiaries, as appropriate, issued by the Secretary of State or
other appropriate official in each jurisdiction listed in Schedule
2.1.
(i) Legal Opinion of Borrower's Counsel. The Lender shall have
received the opinion of James Neal Hutchinson, counsel for Borrower,
dated the Closing Date, addressed to Lender, in form and substance
satisfactory to Lender, and covering the matters set forth in Exhibit
F attached hereto and incorporated herein by this reference.
Section 4.5 Increase of Finova Facility. The closing of the amendment
to the credit facility (the "Finova Facility") provided to Borrower by Finova
Capital Corporation to provide for borrowings in a maximum amount of at least
$30 million pursuant to the terms of the Finova Facility shall have occurred
prior to or simultaneously with the closing hereunder.
Section 4.6 Waiver of Conditions. If on the Closing Date Borrower fails
to execute and deliver to Lender the Note or if the conditions specified in this
Article IV have not been fulfilled, Lender may thereupon elect to be relieved of
all further obligations under this Agreement. Without limiting the foregoing, if
the conditions specified in this Article IV have not been fulfilled, Lender may
waive compliance by Borrower with any such condition to such extent as Lender,
in Lender's sole discretion, may determine. Nothing in this Section 4.6 shall
operate to relieve Borrower of any of its obligations hereunder or to waive any
of Lender's rights against Borrower.
ARTICLE V
DEFAULT AND REMEDIES
Section 5.1 Events of Default. The occurrence of any of the
following shall constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest
on the indebtedness evidenced by the Note in accordance with the
terms of the Note;
(b) Any misrepresentation by Borrower, any guarantor of
Borrower, or any shareholder or Affiliate of Borrower, including the
Trust or any of the Pledgors, as to any material matter under this
Agreement or under any of the other Operative Documents, or delivery by
Borrower of any schedule, statement, resolution, report, certificate,
notice or writing to Lender that is untrue in any material respect on
the date as of which the facts set forth therein are stated or
certified;
(c) Failure of Borrower to perform any of its obligations,
covenants or agreements under this Agreement, the Note or any of
the other Operative Documents;
(d) Borrower (i) shall generally not pay or shall be unable to
pay its debts as such debts become due; or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for it
or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or
a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
(e) Borrower shall be liquidated, dissolved, partitioned or
terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under this
Agreement or any of the other Operative Documents and, if subject to a
cure right, such default or event of default shall not be cured within
the applicable cure period;
(g) Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower now or hereafter
owed to Lender, including, without limitation, the Initial Loan;
(h) Borrower shall have defaulted and continue to be in
default in the timely payment or performance of any other indebtedness
or obligation, which in the aggregate exceeds Seventy-Five Thousand and
No/100ths Dollars ($75,000.00) or materially adversely affects
Borrower's financial condition; or
(i) While Sirrom Capital Corporation or any Wholly-owned
Subsidiary thereof shall be the holder of the Note, a significant
change in the executive staff or management of Borrower shall occur.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (or within ten (10) days if such Curable Default may be
cured by payment of a sum of money) of notice thereof to Borrower given in
accordance with the provisions hereof; provided, however, that this provision
shall not require notice to Borrower and an opportunity to cure any Curable
Default of which Borrower has had actual knowledge for the requisite number of
days set forth.
Section 5.2 Acceleration of Maturity; Remedies. Upon the occurrence of
any Event of Default described in subsection 5.1(d), the indebtedness evidenced
by the Note as well as any and all other indebtedness of Borrower to Lender
shall be immediately due and payable in full; and upon the occurrence of any
other Event of Default described above, Lender at any time thereafter may at its
option accelerate the maturity of the indebtedness evidenced by the Note as well
as any and all other indebtedness of Borrower to Lender; all without notice of
any kind. Upon the occurrence of any such Event of Default and the acceleration
of the maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and
all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Operative Documents; and
(b) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
Section 5.3 Remedies Cumulative; No Waiver. No right, power or remedy
conferred upon or reserved to Lender by this Agreement or any of the other
Operative Documents is intended to be exclusive of any other right, power or
remedy, but each and every such right, power and remedy shall be cumulative and
concurrent and shall be in addition to any other right, power and remedy given
hereunder, under any of the other Operative Documents or now or hereafter
existing at law, in equity or by statute. No delay or omission by Lender to
exercise any right, power or remedy accruing upon the occurrence of any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein, and every right, power and remedy given by this Agreement and the other
Operative Documents to Lender may be exercised from time to time and as often as
may be deemed expedient by Lender.
Section 5.4 Proceeds of Remedies. Any or all proceeds resulting from
the exercise of any or all of the foregoing remedies shall be applied as set
forth in the Operative Document(s) providing the remedy or remedies exercised;
if none is specified, or if the remedy is provided by this Agreement, then as
follows:
First, to the costs and expenses, including without limitation
reasonable attorney's fees, incurred by Lender in connection with the
exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole discretion, to
cure the default that has occurred;
Third, to the payment of the obligations of Borrower under the
Operative Documents (the "Obligations"), including but not limited to
the payment of the principal of and interest on the indebtedness
evidenced by the Note, in such order of priority as Lender shall
determine in its sole discretion; and
Fourth, the remainder, if any, to Borrower or to any other
person lawfully thereunto entitled.
ARTICLE VI
TERMINATION
Section 6.1 Termination of this Agreement. This Agreement shall remain
in full force and effect until the later of (i) the Maturity Date (as defined in
the Note), or (ii) the payment by Borrower of all amounts owed to Lender, at
which time Lender shall cancel the Note and deliver it to Borrower; provided,
however, that if at any time Borrower has satisfied all obligations to Lender,
Borrower may terminate this Agreement by providing written notice to Lender.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Performance By Lender. If Borrower shall default in the
payment, performance or observance of any covenant, term or condition of this
Agreement, which default is not cured within the applicable cure period, then
Lender may, at its option, pay, perform or observe the same, and all payments
made or costs or expenses incurred by Lender in connection therewith (including
but not limited to reasonable attorney's fees), with interest thereon at the
highest default rate provided in the Note (if none, then at the maximum rate
from time to time allowed by applicable law), shall be immediately repaid to
Lender by Borrower and shall constitute a part of the Obligations. Lender shall
be the sole judge of the necessity for any such actions and of the amounts to be
paid.
Section 7.2 Successors and Assigns Included in Parties. Whenever in
this Agreement one of the parties hereto is named or referred to, the heirs,
legal representatives, successors, successors-in-title and assigns of such
parties shall be included, and all covenants and agreements contained in this
Agreement by or on behalf of Borrower or by or on behalf of Lender shall bind
and inure to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
Section 7.3 Costs and Expenses. Borrower agrees to pay all reasonable
costs and expenses incurred by Lender in connection with the making of the Loan,
including but not limited to filing fees, recording taxes and reasonable
attorneys' fees, promptly upon demand of Lender. Borrower further agrees to pay
all premiums for insurance required to be maintained by Borrower pursuant to the
terms of the Operative Documents and all of the out-of-pocket costs and expenses
incurred by Lender in connection with the collection of the Loan, amendment to
the Operative Documents, or prepayment of the Loan, including but not limited to
reasonable attorneys' fees, promptly upon demand of Lender.
Section 7.4 Assignment. The Note, this Agreement and the other
Operative Documents may be endorsed, assigned and/or transferred in whole or in
part by Lender, and any such holder and/or assignee of the same shall succeed to
and be possessed of the rights and powers of Lender under all of the same to the
extent transferred and assigned. Lender may grant participations in all or any
portion of its interest in the indebtedness evidenced by the Note, and in such
event Borrower shall continue to make payments due under the Operative Documents
to Lender and Lender shall have the sole responsibility of allocating and
forwarding such payments in the appropriate manner and amounts. Borrower shall
not assign any of its rights nor delegate any of its duties hereunder or under
any of the other Operative Documents without the prior express written consent
of Lender.
Section 7.5 Time of the Essence. Time is of the essence with respect to
each and every covenant, agreement and obligation of Borrower hereunder and
under all of the other Operative Documents.
Section 7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by
Law. Anything in this Agreement, the Note or any of the other Operative
Documents to the contrary notwithstanding, in no event whatsoever, whether by
reason of advancement of proceeds of the Loan, acceleration of the maturity of
the unpaid balance of the Loan or otherwise, shall the interest and loan charges
agreed to be paid to Lender for the use of the money advanced or to be advanced
hereunder exceed the maximum amounts collectible under applicable laws in effect
from time to time. It is understood and agreed by the parties that, if for any
reason whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
Section 7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
Section 7.9 Notices. Any and all notices, elections or demands
permitted or required to be made under this Agreement shall be in writing,
signed by the party giving such notice, election or demand and shall be
delivered personally, telecopied, telexed, or sent by certified mail or
overnight via nationally recognized courier service (such as Federal Express),
to the other party at the address set forth below, or at such other address as
may be supplied in writing and of which receipt has been acknowledged in
writing. The date of personal delivery or telecopy or two (2) business days
after the date of mailing (or the next business day after delivery to such
courier service), as the case may be, shall be the date of such notice, election
or demand. For the purposes of this Agreement:
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Craig Macnab
Telecopy No.: (615) 726-1208
with a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, TN 37219
Attention: Donald I.N. McKenzie, Esq.
Telecopy No.: (615) 742-4539
The Address of Borrower is: Smart Choice Automotive Group, Inc.
P. O. Box 5637
Titusville, FL 32783
Attention: President
Telecopy No.: (407) 383-8822
with a copy to: Greenberg Traurig
111 North Orange Avenue, Suite 2050
Orlando, FL 32801
Attention: Randolph H. Fields
Telecopy No.: (407) 420-5909
Section 7.10 Entire Agreement. This Agreement and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein; provided, if there is a conflict between
this Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Operative Documents by
Borrower were not based upon any fact or material provided by Lender, nor was
Borrower induced or influenced to enter into this Agreement or the other
Operative Documents by any representation, statement, analysis or promise by
Lender.
Section 7.11 Governing Law and Amendments. This Agreement and all of
the other Operative Documents shall be construed and enforced under the laws of
the State of Tennessee applicable to contracts to be wholly performed in such
State. No amendment or modification hereof shall be effective except in a
writing executed by each of the parties hereto.
Section 7.12 Survival of Representations and Warranties. All
representations and warranties contained herein or in any of the Loan documents
or made by or furnished on behalf of Borrower in connection herewith or in any
of the other Operative Documents shall survive the execution and delivery of
this Agreement and all other Operative Documents.
Section 7.13 Jurisdiction and Venue. Borrower hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or any other Operative Documents or
with respect to the transactions contemplated hereby, and expressly waives any
and all objections it may have as to venue in any of such courts.
Section 7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE
TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
Section 7.15 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
Section 7.16 Construction and Interpretation. Should any provision of
this Agreement require judicial interpretation, the parties hereto agree that
the court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason of
the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that Borrower, Lender and their respective agents have participated in
the preparation hereof.
ARTICLE VIII
DEFINITIONS
Section 8.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (a) which directly or indirectly
through one or more intermediaries controls, or is controlled by , or is under
common control with, Borrower, (b) which beneficially owns or holds 5% or more
of any class of the Voting Stock of Borrower or (c) 5% or more of the Voting
Stock (or in the case of a Person which is not a corporation, 5% or more of the
equity interest) of which is beneficially owned or held by Borrower or a
Subsidiary. The term "control" means take possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or otherwise.
"Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which banks in Tennessee are authorized to close.
"Constituent Documents" shall mean the articles or certificate of
incorporation, bylaws, partnership documentation or similar organization
documents of the relevant business organization.
"Default" shall mean any event or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default as defined in Section 5.1.
"Event of Default" shall have the meaning set forth in
Section 5.1 hereof.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (a) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or obligation, (ii)
to maintain working capital or other balance sheet condition or (iii) otherwise
to advance or make available funds for the purchase or payment of such
Indebtedness or obligation, or (c) to lease property or to purchase Securities
or other property or services primarily for the purpose of assuring the owner of
such Indebtedness or obligation of the ability of the primary obligor to make
payment of the Indebtedness or obligation, or (d) otherwise to assure the owner
of the Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with generally accepted accounting principles
shall be classified upon a balance sheet of such Person as liabilities of such
Person, and in any event shall include all (a) obligations of such Person for
borrowed money or which have been incurred in connection with the acquisition of
property or assets, (b) obligations secured by any lien or other charge upon
property or assets owned by such Person, even though such Person has not assumed
or become liable for the payment of such obligations, (c) obligations created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person, notwithstanding the fact that the
rights and remedies of the seller, lender or lessor under such agreement in the
Event of Default are limited to repossession or sale or property, (d)
capitalized leases, and (e) Guaranties of obligations of others of the character
referred to in this definition.
"Lender" shall mean Sirrom Capital Corporation, a Tennessee
corporation, and each holder of the Note who is entitled to the benefits and
subject to the obligations of this Agreement.
"Material Adverse Event" shall mean any event or circumstance, or set
of events or circumstances, individually or collectively, that reasonably could
be expected to result in any (i) adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material and adverse
effect on the financial condition of Borrower as represented to Lender herein or
in any document delivered to Lender in connection herewith, or (iii) default or
potential default under any of the Operative Documents.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
The term "Subsidiary" shall mean, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves Subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a Subsidiary of Borrower and any Subsidiary
thereof.
"Voting Stock" shall mean Securities of any class or classes the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: /s/ Craig Macnab
Craig Macnab
Vice President
BORROWER:
SMART CHOICE AUTOMOTIVE GROUP, INC.,
a Florida corporation
By: /s/ James Neal Hutchinson, Jr.
James Neal Hutchinson, Jr.
Assistant Vice President
