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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 1-14082
SMART CHOICE AUTOMOTIVE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-146957
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5200 S. WASHINGTON AVENUE, TITUSVILLE, FLORIDA 32780 (407) 269-9680
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (ISSUER'S
TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK BOSTON STOCK EXCHANGE
REDEEMABLE COMMON STOCK BOSTON STOCK EXCHANGE
PURCHASE WARRANTS
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(TITLE OF CLASS)
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<PAGE>
The Registrant amends its Annual Report on Form 10-K for its fiscal year
ended December 31, 1997, previously filed with the Commission, to include the
following as Part III thereof.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages, and positions with the
Company of all of the executive officers and directors of the Company. Also set
forth below is information as to the principal occupation and business
experience for each person in the table.
NAME AGE POSITION AND OFFICE
Robert J. Abrahams 71 Chairman of the Board and Director
Gary R. Smith 46 President, Chief Executive Officer, and
Director
Ronald W. Anderson 50 Executive Vice President and Chief
Operating Officer
Joseph E. Mohr 31 Executive Vice President and Chief
Financial Officer
Joseph A. Alvarez 42 Executive Vice President
Robert J. Downing 40 Senior Vice President and Chief Legal
Officer
David E. Bumgardner 60 Director
Jeffrey D. Congdon 54 Director
Craig Macnab 41 Director
Gerald C. Parker 55 Director
Donald A. Wojnowski, Jr. 37 Director
Joseph Yossifon 50 Director
Gary R. Smith has been the President, Chief Executive Officer, and a
Director of the Company since 1997. For the past six years, since 1990, Mr.
Smith has been the President, Chief Executive Officer and through 1997 owner of
Florida Finance Group, Inc. ("FFG"), an automobile finance company. Mr. Smith
has also served as the President, Chief Executive Officer and through 1997 owner
of Suncoast Auto Brokers, Inc. ("SAB"), an automobile dealership since 1981 and
Suncoast Auto Brokers Enterprises, Inc., a used car dealership ("SABE"). On
January 28, 1997, the Company acquired FFG, SAB and SABE. Mr. Smith served as
President of the Florida Independent Automobile Dealers Association in 1993 and
currently serves as a member of the association's board of directors. Mr. Smith
also serves as a member of the board of directors of the National Independent
Automobile Dealers Association. Mr. Smith is a member of the Executive Committee
of the Board of Directors of the Company.
Robert J. Abrahams has been Chairman of the Board and a Director of the
Company since 1997. For the past ten years, Mr. Abrahams has been self employed
as an independent consultant in the financial services industry. Mr. Abrahams
also serves on the Boards of Directors of two public companies, HMI Industries,
Inc. and Ugly Duckling Corp., and six private companies, which are independent
consumer finance companies. Prior to that time, Mr. Abrahams spent 28 years with
Heller Financial Corporation ("Heller"), an international financial services
company, in charge of its consumer finance activities. Mr. Abrahams held various
titles at Heller, including Executive Vice President from 1985 to 1988. Mr.
Abrahams serves as a member of the Executive Committee and Compensation
Committee of the Board of Directors of the Company.
Ronald W. Anderson joined the Company as Executive Vice President and Chief
Operating Officer in 1997. From June 1996 to March 1997 he was Vice President of
Marketing for North American Mortgage Insurance Group. From 1989 through June
1996, he was Executive Vice President for operations of the Riverside Group, a
diversified holding company, the business of which included real estate,
insurance, and retail building supplies.
Joseph E. Mohr joined the Company as its Executive Vice President and Chief
Financial Officer in 1997. From 1994 through 1997, Mr. Mohr was a management
consultant with Gemini Consulting, and from 1991 through 1994 he was a Senior
Business Operations Specialist with Heller Financial Corporation. Mr. Mohr has
practiced accounting with Arthur Anderson & Co. and has a MBA degree from the
University of Chicago.
Joseph A. Alvarez has served as Executive Vice President of the Company
since 1997, in which capacity, he is in charge of the automobile sales
activities of the Company. Prior to joining the Company, Mr. Alvarez was general
manger of the following factory franchised new car dealerships: Lokey Automobile
Group (1996-1997); Carlisle Motors (1994-1996); and Dimmitt Cadillac
(1988-1994).
Robert J. Downing joined the Company as Senior Vice President and Chief
Legal Officer in 1998. From 1990 to present, he has been the principal
shareholder in Downing & Associates, a law firm in Miami, Florida and New
Mexico. During that time, Mr. Downing also acted as of counsel to Cohen & Cohen,
P.A. a Santa Fe, New Mexico law firm (1994 through 1997) and as of counsel to
Montgomery & Andrews, an Albuquerque, New Mexico law firm (1991 through 1992).
David E. Bumgardner has been a Director of the Company since 1997. For the
past fifteen years, Mr. Bumgardner has been the President and through 1997 owner
of Miracle Mile Motors, a used car dealership, and Palm Beach Finance and
Mortgage Company, an automobile finance company, both of which were purchased by
the Company in 1997. Mr. Bumgardner is presently a private investor. He serves
as a member of the Audit Committee of the Board of Directors.
Jeffrey Congdon was appointed as a director of the Company in 1998. Mr.
Congdon became Vice Chairman of Budget Group, Inc. and President of Budget Car
Sales, Inc. in 1997. From 1982 until 1996, Mr. Congdon owned and operated retail
new and used car sales operations in Indianapolis, Indiana. In 1994, Mr. Congdon
was named Chief Financial Officer and Director of Team Rental Group (now Budget
Group).
Craig Macnab was appointed as a director of the Company in 1997. Mr. Macnab
has been President of Tandem Capital, which provides growth capital to small,
rapidly growing public companies with market capitalization up to $100 million,
since 1997. Mr. Macnab also serves on the Board of Directors of five public
companies, Clinicor, Inc., Teltronics, Inc., Environmental Tectonics
Corporation, JDN Realty Corp., Digital Transmission Systems, Inc. and
Teltronics, Inc. From 1993 until 1996 he was a partner in J.C. Bradford, a
securities firm. Mr. Macnab also serves on the Compensation Committee and Audit
Committee of the Board. Tandem Capital is an affiliate of Sirrom Capital
Corporation which holds a $7.5 million convertible note of the Company and other
securities exercisable for the Company's Common Stock.
Gerald C. Parker has been a Director of the Company since 1997. For the
past ten years, Mr. Parker has been involved in the structuring and funding of
start-up companies. At present, Mr. Parker serves as President of Investment
Management of America, Inc., a merger and acquisition firm. Mr. Parker also
serves as a director of LRG Restaurant Group, Inc. a publicly traded company.
Donald J. Wojnowski, Jr. has been a Director of the Company since 1996.
Since 1992 he has been a stockbroker and registered principal of Empire
Financial Group, Inc., an NASD registered broker-dealer. Mr. Wojnowski serves as
a member of the Executive Committee of the Board of Directors of the Company.
Joseph Yossifon has been a Director of the Company since 1996 and since
1985 has been a private investor. From 1976 to 1985 he was the president of
A-1-A Discounts, an appliance retailer located in Orlando, Florida. Mr. Yossifon
serves as a member of the Compensation Committee of the Board of Directors of
the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock, to file with the SEC and NASDAQ initial reports of
beneficial ownership and reports of changes of beneficial ownership of Common
Stock of the Company. Such persons are also required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. The
Company believes, based solely on a review of the copies of such forms furnished
to the Company that during 1997 such individuals complied with all Section 16(a)
filing requirements applicable to them, (i) except that Ronald W. Anderson and
Joseph E. Mohr did not report on a timely basis the granting to each of them of
options to purchase Common Stock in December 1997; and (ii) and Gerald C. Parker
did not report on a timely basis dispositions of Common Stock in March, April,
May and June of 1997. To the knowledge of the Company appropriate reports of
such transactions have been filed with the SEC or are being transmitted to the
SEC on the date hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during the
1997, 1996, and 1995 fiscal years of those persons who were, at December 31,
1997: (i) the Chief Executive Officer of the Company; (ii) the Company's four
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at December 31, 1997; and (iii)
those former executive officers of the Company who would have been included
under (ii) but for the fact that they were not executive officers of the Company
at December 31, 1997 (the "Named Executive Officers"). None of the Named
Executive Officers were employed by the Company for the entire 1997 fiscal year.
LONG TERM
COMPENSATION
SECURITIES
NAME AND ANNUAL COMPENSATION UNDERLYING
PRINCIPAL POSITION SALARY($) BONUS ($) OPTIONS (1)
- ------------------ --------------------- ------------
Robert J. Abrahams $110,819 -- 222,500
Chairman of the Board
Gary R. Smith $165,977 -- 302,500
President and Chief Executive Officer
Ronald W. Anderson $115,328 -- 87,025
Executive Vice President and Chief
Operating Officer
Joseph E. Mohr $37,073 -- 77,025
Executive Vice President and Chief
Financial Officer
Joseph A. Alvarez $113,010 -- 105,000
Executive Vice President
Ralph H. Eckler (2) 1997 - $101,657 -- 310,000
Former President and Chief 1996 - $100,000
Executive Officer 1995 - $105,776
Fred E. Whaley (3) $153,263 -- 500,000
Former Executive Vice President and
Chief Financial Officer
- ---------------------
(1) The amounts shown in this column represent outstanding stock options
granted as compensation. See "Stock Option Plans."
(2) Mr. Eckler was also paid $100,000 in 1998 in connection with the
termination of his employment.
(3) The Company has asserted in litigation with Mr. Whaley that these grants
have been rescinded.
OPTION GRANTS TO EXECUTIVE OFFICERS IN LAST FISCAL YEAR
Various stock option plans and arrangements are in effect that provide
options to purchase Common Stock as compensation to executive officers,
directors, and employees of the Company. See "Stock Option Plans." The following
table sets forth information regarding stock options granted during 1997 to the
Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE MARKET APPRECIATION FOR
UNDERLYING GRANTED TO PRICE PER PRICE AT OPTION TERM (1)
OPTIONS EMPLOYEES IN SHARE DATE OF EXPIRATION ---------------------
GRANTED (#) FISCAL YEAR ($/SH) GRANT(2) DATE 5%($) 10%($)
----------- ----------- ------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Abrahams 210,000 10.8% $1.00 $4.94 12/01/2002 $862,077 $1,142,828
12,500 .6% $2.00 $4.94 3/05/2002 38,814 55,526
Gary R. Smith 100,000 5.2% $4.50 7/29/2002 60,513 194,204
Ronald W. Anderson 30,000 1.5% $4.88 3/24/2002 6,754 46,861
25,000 1.3% $4.50 7/29/2002 15,128 48,551
12,025 .6% $2.00 $4.00 12/31/2002 37,339 53,416
Joseph E. Mohr 35,000 1.8% $2.00 $6.25 9/19/2002 108,679 155,471
30,000 1.5% $6.25 9/19/2002 -- --
12,025 .6% $2.00 $4.00 12/31/2002 37,339 53,416
Joseph A. Alvarez 80,000 4.1% $2.00 $6.00 4/11/2002 248,410 355,363
25,000 1.3% $4.50 7/29/2002 15,128 48,551
Ralph H. Eckler 100,000 5.1% $6.50 9/30/2002 -- --
Fred E. Whaley (5) 200,000 10.3% $2.00 $4.88 3/24/2002 621,025 888,408
200,000 10.3% $4.88 3/24/2002 45,025 312,408
50,000 2.6% (3) 3/24/2002 (4) (4)
50,000 2.6% (3) 3/24/2002 (4) (4)
</TABLE>
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(1) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions. The amounts reflected in this table will not necessarily be
achieved.
(2) If greater than exercise price.
(3) At public offering price if a public offering is completed.
(4) Not capable of determination.
(5) The Company has asserted in litigation with Mr. Whaley that these grants
have been rescinded.
<PAGE>
AGGREGATE OPTION EXERCISES AND DECEMBER 31, 1997 OPTION VALUES
The following table sets forth information concerning stock options
exercised by the Named Executive Officers in 1997 and the value of unexercised
stock options at December 31, 1997 for the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT DEC. 31,1997 AT DECEMBER 31, 1997
NAME EXERCISE (#) REALIZED (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert J. Abrahams -- -- 210,000 / O 420,000 / O
12,500 / O 25,000 / O
Gary R. Smith 200,000 $800,000 100,000 / O 0 / O
Ronald W. Anderson 20,000 $ 80,000 30,000 / O 0 / O
25,000 / O 0 / O
12,025 / O 24,050 / O
Joseph E. Mohr -- -- 35,000 / O 70,000 / O
30,000 / O 0 / O
12,025 / O 0 / O
Joseph A. Alvarez -- -- 80,000 / O 160,000 / O
25,000 / O 0 / O
Ralph H. Eckler -- -- --
Fred E. Whaley (1) -- -- 200,000 / O 400,000 / O
200,000 / O 0 / O
O / 50,000 O / 200,000
O / 50,000 O / 200,000
</TABLE>
- ------------------------
(1) The Company has asserted in litigation with Mr. Whaley that these grants
have been rescinded.
STOCK OPTION PLANS
OPTIONS GRANTED IN 1997. The Company, then known as Eckler Industries, Inc.
(for the time period prior to the Merger, "Eckler") and engaged in the
manufacture and sale of Corvette parts and accessories, was established in its
current form in January of 1997 by a merger (the "Merger") of Eckler with Smart
Choice Holdings, Inc. ("SCHI") and various companies involved in the sale and
financing of new and used cars. In 1997, stock options were granted by the
Company to executive officers, directors and employees of the Company that have
generally had five year terms, vested from immediately to over three years, and
were exercisable at the market price of the Common Stock on the date of grant.
In addition, four trusts (the "Trusts") were established in January 1997 in
connection with the Merger by Gerald C. Parker and Thomas E. Conlan with an
aggregate of 1,420,000 shares of Common Stock for the purpose of granting stock
options as compensation to executive officers and employees of the Company. Mr.
Parker is a Director and principal shareholder of the Company; Mr. Conlan is a
principal shareholder of and consultant to the Company; and both of them were
founders of SCHI. Gary R. Smith, President and Chief Executive Officer of the
Company, and Gerald C. Parker are the trustees of the Trusts and determine the
recipients of and the terms of options granted by the Trusts. Options granted by
the Trusts have generally had five year terms, vested from immediately to over
three years, and were exercisable at below the market price of the Common Stock
on the date of grant. At December 31, 1997 options granted by the Trusts were
outstanding to purchase a total of 1,100,000 shares of Common Stock.
ECKLER PLANS. In 1995, Eckler established a Combined Qualified and
Non-Qualified Employee Stock Option Plan (the "Combined Plan") and a
Non-Qualified Stock Option Plan (the "Non-Qualified Plan") (collectively the
"Eckler Plans"). Under the Combined Plan, "incentive options" under Section 422
of the Internal Revenue Code may be granted. The Board of Directors of the
Company has the power to grant options under the Eckler Plans. Since the Merger,
the Company has not granted any options under either Eckler Plan, and no current
executive officer of the Company holds options from either Eckler Plan.
At December 31, 1997 options to purchase 140,000 shares and 35,000 shares
of Common Stock, respectively, were outstanding under the Combined Plan and the
Non-Qualified Plan. A total of 475,000 shares and 35,000 shares of Common Stock,
respectively, may be granted under the Combined Plan and the Non-Qualified Plan.
RETIREMENT AND SAVINGS PLAN
The Company has a Retirement and Savings Plan (the "401(k) Plan") for the
benefit of eligible employees. Pursuant to the 401(k) Plan, employees may elect
to contribute a portion of their salaries to the 401(k) Plan subject to certain
limits. The 401(k) Plan permits, but does not require, additional matching
contributions and profit sharing contributions to the 401(k) Plan by the Company
on behalf of all eligible participants of the Plan. The Company's contributions
vest over seven years. During 1997 the Company did not make any contribution to
the 401(k) Plan for its employees.
EMPLOYMENT AGREEMENTS; CONSULTING AGREEMENT
In 1997, the Company entered into employment agreements with Messrs.
Abrahams, Smith, Alvarez, Anderson and Mohr providing for initial base salaries
of $120,000, $250,000, $150,000, $150,000 and $150,000, respectively. The
initial term of Mr. Smith's contract is five years and the others are for three.
Each of the employment contracts is renewable, unless notice of termination is
given prior to the renewal period. The salary for each executive is subject to
annual review, and each executive is to be provided an automobile allowance
ranging from $500 to $700, monthly. In addition, the employment contracts
provide for continuation of the executive's base salary and benefits for the
remainder of the contract period if the employee is terminated without cause
prior to the expiration of the contract. The contracts also contain
confidentiality and non-compete covenants.
Under an agreement between the Company and Ralph Eckler dated September 30,
1997, Mr. Eckler's employment agreement was terminated, and he was retained as a
consultant for five years for $20,000 per year, all of which was paid in advance
in October 1997. Under the agreement, Mr. Eckler was granted a five year option
to purchase 100,000 shares of Common Stock exercisable at $6.50 per share.
Further, the exercise price of a previously granted option for 50,000 shares was
changed to $6.50 per share from $10.00 per share. The agreement also provides
Mr. Eckler with certain registration rights for the above-referenced options in
addition to 200,000 shares he beneficially owns. The agreement also provides Mr.
Eckler with health insurance, the transfer of his Company vehicle to him and a
right of first refusal on the sale of the Company's Corvette parts business.
DIRECTOR COMPENSATION
The Company compensates its directors who are not employees by granting
them options to purchase shares of the Company's Common Stock. In 1997, the
non-employee directors were each granted five-year options for 12,500 shares of
Common Stock exercisable at $5.50 per share. The non-employee directors are
reimbursed their travel expenses to attend meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors during 1997 determined compensation
matters during 1997. No executive officer of the Company served as a member of
the compensation committee or Board of Directors of another entity which had an
executive officer who served on the Company's Board of Directors or compensation
committee during the fiscal year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the number of
shares of Common Stock beneficially owned by (i) each director of the Company,
(ii) the Named Executive Officers, (iii) all directors and executive officers of
the Company as a group, and (iv) each shareholder known by the Company to be a
beneficial owner of more than 5% of the Company's voting securities as of April
27, 1998. The Company believes that except as otherwise noted, each person named
has sole investment and voting power with respect to the shares of Common Stock
indicated as beneficially owned by such person.
<PAGE>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) PERCENTAGE OF CLASS(2)
- -------------------------------- ------------ ----------------------
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------
Robert J. Abrahams (3) 242,500 1.9%
Gary R. Smith (4) 1,769,647 12.6%
Ronald W. Anderson (5) 87,025 *
Joseph E. Mohr (6) 77,025 *
Joseph A. Alvarez (7) 105,000 *
Robert J. Downing (8) 70,000 *
David E. Bumgardner (9) 314,214 2.5%
Jeffrey Congdon (10) 12,500 *
Craig Macnab (11) 42,000 *
Gerald C. Parker (12) 2,256,566 15.9%
Donald A. Wojnowski, Jr. (13) 72,500 *
Joseph Yossifon (14) 65,000 *
All executive officers and directors 6,673,533 52.37%
as a group (12 persons)
FORMER EXECUTIVE OFFICERS
- -------------------------
Ralph H. Eckler (15) 1,693,000 12.8%
Fred E. Whaley (16) 415,000 3.2%
CERTAIN SHAREHOLDERS (17)
- -------------------------
Thomas E. Conlan (18) 1,457,389 11.2%
Sirrom Capital Corporation (19) 1,787,012 12.3%
- ---------------------------
*Less than 1%.
(1) For purposes of caLculating beneficial ownership percentages, 12,743,581
shares of Common Stock were deemed outstanding.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant, or right. Shares of Common Stock subject to
options, warrants, or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage of the
person holding such options, warrants, or rights but are not deemed
outstanding for computing the percentage of any other person.
(3) The shares shown represent (i) 20,000 shares owned directly; and (ii)
222,500 shares underlying presently exercisable rights to acquire Common
Stock.
(4) The shares shown represent (i) 488,814 shares owned directly; (ii)
1,180,833 shares held by the Conlan Smart Choice Finance Trust, the Conlan
Smart Choice Management Trust, the Parker Smart Choice Finance Trust, and
the Parker Smart Choice Management Trust (the "Trusts"), of which Mr. Smith
and Gerald C. Parker are co-trustees and as to the assets of which they
share voting and investment power; and (iii) 100,000 shares underlying
presently exercisable rights to acquire Common Stock.
(5) The shares shown represent (i) 20,000 shares owned directly; and (ii)
67,025 shares underlying presently exercisable rights to acquire Common
Stock.
(6) The shares shown underlie presently exercisable rights to acquire Common
Stock.
(7) The shares shown underlie presently exercisable rights to acquire Common
Stock.
(8) Represents shares that underlie presently exercisable rights to acquire
Common Stock.
(9) The shares shown represent (i) 289,214 shares owned directly; and (ii)
25,000 shares underlying presently exercisable rights to acquire Common
Stock.
(10) The shares shown underlie presently exercisable rights to acquire Common
Stock.
(11) The shares shown represent (i) 17,000 shares owned directly; and (ii)
25,000 shares underlying presently exercisable rights to acquire Common
Stock. Mr. Macnab is an affiliate of Sirrom Capital Corporation, which is a
creditor and principal shareholder of the Company.
(12) The shares shown represent (i) 770,733 shares owned directly; (ii) 100,000
shares underlying presently exercisable rights to acquire Common Stock;
(iii) 1,180,833 shares held by the Trusts, of which Gary R. Smith and Mr.
Parker are co-trustees and as to the assets of which they share voting and
investment power; (iv) 200,000 shares underlying a presently exercisable
option which Mr. Parker holds jointly with Thomas E. Conlan and Ralph H.
Eckler; and (v) 5,000 shares held in a trust of which Mr. Parker is a
co-trustee with Thomas E. Conlan.
(13) The shares shown represent (i) 27,500 shares owned directly; and (ii)
45,000 shares underlying presently exercisable rights to acquire Common
Stock.
(14) The shares shown represent (i) 20,000 shares owned directly; and (ii)
45,000 shares underlying presently exercisable rights to acquire Common
Stock.
(15) The shares shown represent (i) 1,183,000 shares owned directly, (ii)
310,000 shares underlying presently exercisable rights to acquire Common
Stock; and (iii) 200,000 shares underlying a presently exercisable option
which Mr. Eckler holds jointly with Thomas E. Conlan and Gerald C. Parker.
(16) The shares shown represent (i) 15,000 shares owned directly; and (ii)
400,000 shares underlying presently exercisable rights to acquire Common
Stock.
(17) These shareholders, together with Gary R. Smith and Gerald C. Parker
beneficially own 5% or more of the outstanding Common Stock.
(18) The shares shown represent (i) 1,177,389 shares owned directly; (ii)
200,000 shares underlying a presently exercisable option which Mr. Conlan
holds jointly with Gerald C. Parker and Ralph H. Eckler; (iii) 75,000
shares underlying presently exercisable rights to acquire Common Stock; and
(iv) 5,000 shares held in a trust of which Mr. Conlan is a co-trustee with
Gerald C. Parker. Thomas E. Conlan's address is 303 E. 7th Avenue,
Windemere, Florida 34786.
(19) These shares shown represent shares underlying presently exercisable rights
to acquire Common Stock. The address of Sirrom Capital Corporation is 500
Church Street, Suite 200, Nashville, Tennessee 37219.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
With respect to the information in this Item, Gary R. Smith is the
President, Chief Executive Officer and director of the Company. Gerald C. Parker
is a director of the Company. In 1997, Ralph H. Eckler was President, Chief
Executive Officer, and a director of the Company. Thomas E. Conlan and Messrs.
Smith, Parker and Eckler are each a beneficial owner of more than 5% of the
Company's outstanding Common Stock.
On January 28, 1997, the Company acquired all the issued and outstanding
common stock of SCHI through a merger of SCHI into an acquisition subsidiary
(the "Merger"), in which 6.5 million shares of the Common Stock were issued to
shareholders of SCHI, on a one share for one share exchange ratio. SCHI was, at
the time of the Merger, a holding company that had as its primary assets, a used
car dealership with two locations, an automobile finance company, two dealership
consulting businesses, and the rights to acquire other new and used car
dealerships and their related finance companies. Thomas E. Conlan, Gerald C.
Parker, Ralph H. Eckler and Gary R. Smith were stockholders, officers and/or
directors of SCHI prior to the Merger. In the Merger, each of them received the
following:
Thomas E. Conlan was a founder, officer and director of SCHI. In the
Merger, Mr. Conlan received 1,177,389 shares of Company Common Stock in
exchange for his shares of SCHI stock. In addition, Mr. Conlan is the
beneficiary of two trusts, the Conlan Smart Choice Management Trust and the
Conlan Smart Choice Finance Trust (the "Conlan Trusts"). In the Merger,
these trusts received an additional 445,000 and 265,000 shares of Company
Common Stock, respectively, in exchange for the SCHI stock held thereby.
Messrs. Smith and Parker are the trustees of the Conlan Trusts; however,
Mr. Conlan has the sole right to receive any proceeds of the sale of the
Company Common Stock held by the Conlan Trusts. The Conlan Trusts may, at
the option of the trustees and based upon the first to occur of the
satisfaction of the purposes of the trusts or February 15, 2007, cause
shares of Company Common Stock held by the trusts to be purchased by the
Company. In the case of the Finance Trust, the purchase price per share is
generally $2.00. In the case of the Management Trust, the purchase price
will be an average of the market price for the Common Stock for the 20 days
immediately preceding the date of the trustees' notice regarding such
purchase by the Company.
Gerald C. Parker was a founder and director of SCHI. In the Merger,
Mr. Parker received 1,177,390 shares of Company Common Stock in exchange
for his shares of SCHI stock. In addition, Mr. Parker is the beneficiary of
two trusts, the Parker Smart Choice Management Trust and the Parker Smart
Choice Finance Trust (the "Parker Trusts"). In the Merger, these trusts
received 445,000 and 265,000 shares of Company Common Stock, respectively,
in exchange for the SCHI stock held thereby. Messrs. Smith and Parker are
the trustees of the Parker Trusts; however, Mr. Parker has the sole right
to receive any proceeds of the sale of the Company Common Stock held by the
Parker Trusts. The Parker Trusts may, at the option of the trustees and
based upon whether the first to occur of the satisfaction of the purposes
of the trusts or February 15, 2007, cause shares of Company Common Stock
held by such trusts to be purchased by the Company. In the case of the
Finance Trust, the purchase price per share is generally $2.00. In the case
of the Management Trust, the purchase price will be an average of the
market price for the Common Stock for the 20 days immediately preceding the
date of the trustees' notice regarding such purchase by the Company.
Ralph H. Eckler was a director and the President and Chief Executive
Officer of the Company prior to the Merger. At the time of the Merger Mr.
Eckler owned 160,000 shares of SCHI stock, in exchange for which he
received 160,000 shares of Company Common Stock. Additionally, and as part
of the terms and conditions of the Merger agreement, Mr. Eckler agreed to
surrender his rights under his then current employment agreement and the
right to receive up to 670,000 options to purchase Company Common Stock in
exchange for a new employment agreement, options to purchase 150,000 shares
of Company Common Stock and certain registration rights with respect to
200,000 shares of Company Common Stock. The options are exercisable at
$8.75 per share for 100,000 shares and $6.50 per share for 50,000 shares.
Gary R. Smith was the former president, a director and the sole
shareholder of Florida Finance Group, Inc. ("FFG"), Suncoast Auto Brokers,
Inc. ("SAB") and Suncoast Auto Brokers Enterprises, Inc. ("SABE")
(collectively the "Smith Companies"). Mr. Smith sold substantially all the
assets of SAB and SABE and all the issued and outstanding stock of FFG to
SCHI prior to the Merger in exchange for a promissory note in the principal
amount of $1,031,008.36 and 285,714 shares of SCHI common stock. At the
time of the Merger, Mr. Smith's shares of SCHI common stock were exchanged
for an equal number of shares of Company Common Stock. As a result of the
Merger, Mr. Smith also became the President and Chief Executive Officer of
the Company and a member of the Company's Board of Directors. SCHI, after
the Merger a wholly-owned subsidiary of the Company, continues to be the
obligor on such note. Mr. Smith may convert the promissory note into
Company Common Stock at the rate of one share for each $8.75 of principal
plus accrued interest outstanding.
Gary R. Smith leases the Company real property in Pinellas Park, Florida on
which the Company operates a used car dealership. The lease term expires in 1999
and has three one-year renewals. The monthly rental for the property is $3,500
plus taxes.
David Bumgardner, a director of the Company, owned all the stock of Two Two
Five North Military Corp. ("225") and Palm Beach Finance and Mortgage Company
("PBF") (the "Bumgardner Companies"). The Bumgardner Companies consisted of an
automobile dealership and a related finance company. Prior to the Merger, Mr.
Bumgardner had agreed to sell the Bumgardner Companies to SCHI. On February 14,
1997 the Company acquired substantially all the assets of the Bumgardner
Companies in exchange for (i) a 9% convertible debenture in the principal amount
of $467,601 (ii) a 9% convertible debenture in the principal amount of $800,000
secured by inventory; and (iii) 285,714 shares of Company Common Stock. Mr.
Bumgardner's debentures are convertible into Company Common Stock at $8.75 per
share, on the closing of a public offering of Common Stock by the Company. In
connection with the acquisition of the Bumgardner Companies, Mr. Bumgardner was
appointed to the Board of Directors of the Company. In addition, Mr. Bumgardner
leases the Company real property in West Palm Beach, Florida on which the
Company operates a used car dealership. The lease term expires in 2002 and has
two five-year renewals. The monthly rental for the property is $12,000 plus
taxes.
Sirrom Capital Corporation ("Sirrom") is the beneficial owner of in excess
of 5% of the Company's outstanding Common Stock. In 1997, Sirrom loaned the
Company $7.5 million pursuant to two convertible promissory notes (the "Sirrom
Notes") that bear interest at 12% per annum. One of the Sirrom Notes has a
principal amount of $3.5 million, matures on March 12, 1999, and is convertible
into Common Stock at $3.67 per share, subject to adjustment. The other Sirrom
Note has a principal amount of $4.0 million, matures on May 12, 2002, and is
convertible into Common Stock at $7.50 per share, subject to adjustment. In
connection with these financings, Sirrom was also granted options (the "Sirrom
Options") to purchase Common Stock from the Conlan Smart Choice Finance Trust
and the Parker Smart Choice Finance Trust at $3.00 per share and received
registration rights for shares of Common Stock issued on conversion of the
Sirrom Notes and exercise of the Sirrom Options. Craig Macnab, a Vice President
of Sirrom became a member of the Board of Directors of the Company on March 21,
1997.
On September 30, 1997, the Company entered into a Settlement Agreement and
Release (the "Release Agreement") with Ralph H. Eckler. The Release Agreement
terminated, by mutual consent, Mr. Eckler's employment agreement and also
effected Mr. Eckler's resignation from the Company's Board of Directors. The
Release Agreement retains Mr. Eckler as a consultant to the Company for a period
of five years for an aggregate payment of $100,000 which was paid in advance. In
addition, Mr. Eckler has been granted a right of first refusal with respect to
the purchase of Eckler Industries, Inc. (the wholly owned subsidiary of the
Company consisting of the Company's Corvette parts manufacturing and retail
business) for a period of five years. The Company also (i) conveyed to Mr.
Eckler an automobile (having a book value of $14,069) that was currently being
supplied for his use, (ii) granted him options to purchase 100,000 shares of
Company Common Stock at the price of $6.50 per share, (iii) reset the conversion
price of options to purchase 50,000 shares of Company Common Stock held by Mr.
Eckler from $10 per share to $6.50 per share, and (iv) granted to Mr. Eckler
certain registration rights.
Pursuant to Ralph H. Eckler's former employment agreement, the Company was
obligated to pay Mr. Eckler an annual fee equal to two percent of the
outstanding balance of all Company loans guaranteed by Mr. Eckler. During 1997,
Mr. Eckler was paid $38,459 in such fees. On November 4, 1997, the loan was
refinanced, and Mr. Eckler was released as a guarantor on November 4, 1997.
During 1997, the Company paid $103,750 to Greyhouse Services Corporation
("Greyhouse") pursuant to a consulting agreement which was terminated in 1997.
Gerald C. Parker and Thomas E. Conlan own 100% of Greyhouse. In March 1997, the
Company issued to each of Messrs. Conlan and Parker an option to purchase 75,000
shares of Common Stock exercisable at the then market price of $4.81 per share
in satisfaction of outstanding consulting fees owed Greyhouse of approximately
$105,000.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Amendment to Annual Report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized on April 30, 1998.
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ Joseph E. Mohr
-----------------------
Joseph E. Mohr
Chief Financial Officer
