U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________________
Commission file number 1-14082
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SMART CHOICE AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1469577
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5200 S. Washington Avenue, Titusville, Florida 32780
(Address of principal executive offices)
(Zip Code)
(407) 269-9680
(Registrant's telephone number, including area code)
_____________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X__ No ______
Indicate number or shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 12, 1998, 12,743,580 shares of the Registrant's Common Stock were
issued and outstanding.
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Form 10-Q
TABLE OF CONTENTS
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PAGE
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PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements. 2
Condensed Consolidated Balance sheets - 3
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations - 5
Three Months Ended March 31, 1998 and March 31, 1997
Condensed Consolidated Statements of Cash Flow - 6
Three Months ended March 31, 1998 and March 31, 1997
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Part II OTHER INFORMATION 15
Item 2. Changes in Securities 15
Item 6. Exhibits and Reports on Form 8-K 16
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PART I
SMART CHOICE AUTOMOTIVE GROUP, INC.
FINANCIAL STATEMENTS
Item 1. Financial Statements.
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------------------------------------------------
As of March 31, 1998 As of December 31, 1997
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(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 2,394,391 $ 1,066,949
Accounts receivable 3,164,705 1,773,124
Finance receivables
Principal balances, net 51,146,019 39,109,368
Less: allowance for credit losses (8,493,306) (6,857,265)
- -------------------------------------------------------------------------------------------------------------------------
42,652,713 32,252,103
Inventories, at cost 17,429,409 15,516,084
Land held for resale 1,064,205 1,050,000
Property and equipment, net 9,126,667 9,214,207
Notes receivable 23,140 46,280
Deferred tax asset 1,000 --
Dferred debt costs 949,330 426,823
Goodwill 25,401,022 25,562,162
Prepaid expenses 1,530,471 1,008,229
Deposits 178,237 170,305
Other assets 977,477 43,681
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$ 104,892,766 $ 89,104,991
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See accompanying notes to condensed consolidated financial statements
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Condensed Consolidated Balance Sheets
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As of March 31, 1998 As of December 31, 1997
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(Unaudited) (Audited)
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 6,793,434 $ 5,259,903
Accrued expenses 4,152,209 4,633,841
Deferred income 92,861 --
Floorplan payable 9,413,944 8,287,092
Capital lease obligations 869,268 940,280
Notes payable 71,720,664 60,427,058
Deferred income taxes 2,042 --
Convertible debt 340,000 --
Other liabilities -- 94,913
- ----------------------------------------------------------------------------------------------------
Total liabilities 93,384,422 79,643,087
- ----------------------------------------------------------------------------------------------------
Redeemable convertible preferred
stock 1,491,834 4,941,834
Stockholders' equity:
Common stock 122,595 97,340
Additional paid in capital 27,913,049 24,108,456
Accumulated deficit (18,019,934) (19,685,726)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 10,016,510 4,520,070
- -----------------------------------------------------------------------------------------------------
$ 104,892,766 $ 89,104,991
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See accompanying notes to condensed consolidated financial statements
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
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Vehicle and Related Revenues:
Sales of new vehicles $8,123,424 --
Sales of used vehicles 21,845,559 4,785,077
Income on finance receivables 4,146,215 522,939
Income from insurance and training 180,222 262,280
Income from parts and accessories 4,364,037 2,498,753
- --------------------------------------------------------------------------------------------------------------
38,659,457 8,069,049
- --------------------------------------------------------------------------------------------------------------
Cost of Vehicle and Vehicle Related Revenues:
Cost of new vehicles sold 7,187,085 --
Cost of used vehicles sold 15,088,274 3,390,292
Provision for credit losses 2,904,128 1,049,680
Cost of insurance and training 30,757 13,565
Cost of parts and accessories sold 2,796,891 1,561,922
- --------------------------------------------------------------------------------------------------------------
28,007,135 6,015,459
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Net revenues from vehicle sales and vehicle
related activities 10,652,322 2,053,590
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Expenses:
Operating expenses 7,979,811 5,081,660
Compensation expense related to employee stock options -- 3,125,877
- --------------------------------------------------------------------------------------------------------------
7,979,811 8,207,537
- --------------------------------------------------------------------------------------------------------------
Income (loss) from operations 2,672,511 (6,153,947)
- ---------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense 1,909,671 692,617
Other income (919,413) (9,173)
Miscellaneous expense 15,661 64,944
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510,705 748,388
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,666,592 $ (6,902,335)
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Preferred Stock dividends $ 77,875 --
Net income available to common stock holders $ 1,588,717 $ (6,902,335)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per share
- --------------------------------------------------------------------------------------------------------------
- Primary $ 0 .15 $ (0.87)
- --------------------------------------------------------------------------------------------------------------
- Fully diluted 0.14
- --------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares
and Share Equivalents Outstanding:
- Primary 10,380,260 7,853,134
- Fully diluted 11,226,758
See accompanying notes to condensed consolidated financial statements
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
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Cash flows from operating activities:
Net income/ (loss) $ 1,666,592 $ (6,902,335)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Provision for credit losses 2,904,128 681,435
Common stock and options issued for consulting fees -- 150,000
Loss on disposal of fixed assets -- 1,151
Stock option compensation -- 3,125,877
Depreciation and amortization 634,995 245,530
Recoupment of expenses (165,967) --
Cash provided by (used for):
Accounts receivable (2,513,545) (70,894)
Inventory (1,913,325) (422,499)
Prepaid expenses (522,242) (18,974)
Other assets -- (1,453)
Accounts payable 1,537,063 964,984
Accrued expenses (481,632) 950,891
Deferred income (1,010) 20,772
Other liabilities -- 1,657,444
Customer deposits -- (116,099)
Floorplan payable 1,126,852 224,876
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Net cash provided by operating activities 2,271,909 470,706
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in finance receivables (12,329,624) (1,153,486)
Cash for acquisitions, net of cash acquired -- (2,797,310)
Issuance of notes receivable -- (565,896)
Increase in deposits (7,932) (477,300)
Increase in other assets (41,210) --
Increase in deferred acquisition costs -- (15,400)
Payment of notes receivable 23, 140 --
Purchase of property and equipment (181,034) (56,379)
Decrease in other assets -- 40,435
Purchase of land (14,205) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,550,935) (5,025,336)
- ---------------------------------------------------------------------------------------------------------------------------
Continued on next page
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Continued)
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
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Cash flows from financing activities:
Principal payments on notes payable $ (874,242) $ (1,835,310)
Proceeds from issuance of Sirrom debt -- 3,500,000
Proceeds from issuance of notes payable 3,000,000 3,996,722
Increase in deferred debt costs -- (256,494)
Increase (decrease) in senior secured debt payable 9,500,000 --
Proceeds from issuance of preferred stock -- 590,000
Proceeds from issuance of convertible debentures -- 300,000
Bank overdraft -- (82,884)
Payments on capital lease obligations (19,289) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,606,469 6,212,034
- ---------------------------------------------------------------------------------------------------------------------------
Net increase / (decrease) in cash and cash equivalents 1,327,438 1,657,404
Cash and cash equivalents at beginning of period 1,066,949 0
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,394,391 $ 1,657,404
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
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SMART CHOICE AUTOMOTIVE GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
===============================================================================
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Smart
Choice Automotive Group, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for a complete financial statement
presentation. In the opinion of management, such unaudited interim information
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present the Company's financial position and results of operations
for the periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full fiscal year. The
Condensed Consolidated Balance Sheet as of December 31, 1997 was derived from
audited consolidated financial statements as of that date but does not include
all the information and notes required by generally accepted accounting
principles. It is suggested that these condensed consolidated financial
statements be read in conjunction with the company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
Note 2 - Finance Receivables
The Company's finance receivables ("Finance Receivables" or "Finance
Contracts") are automobile retail installment sale contracts originated by the
Company on sales of used cars at its automobile dealerships. The following shows
the principal balances of the Company's Finance Receivables as of March 31,
1998:
March 31, 1998
--------------
Contractually scheduled payments $50,439,275
Less: allowance for credit losses (8,493,306)
----------
Principal balances, net $41,945,969
===========
Note 3 - Presentation of Dealership Revenues and Cost of Revenues
Revenues from Company dealership operations consist of Sales of New Cars, Sales
of Used Cars, Income on Finance Receiveables, Income from Insurance and
Training, and Income from Parts and Accessories. Cost of Revenues include cost
of New Cars Sold, Cost of Used Cars Sold, the Provision for Credit Losses, Costs
of Insurance and Training Income and Cost of Parts and Accessories Sold.
The prices at which the Company sells its cars and the interest rate that it
charges to finance these sales take into consideration that the Company's
primary customers are high-risk borrowers, some of whom ultimately default. The
Provision for Credit Losses reflects these factors and is treated by the Company
as a cost of both the future finance income derived on the finance receivables
originated at Company dealerships as well as a cost of the sales of the cars
themselves.
Note 4 - Common Stock Equivalents
Net earnings per common share amounts are based on the weighted average number
of common shares and common stock equivalents outstanding as reflected on
Exhibit 11 to this Quarterly Report on Form 10-Q.
Item No. 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis of the Company's consolidated
financial position and consolidated results of operations should be read in
conjunction with the Company's condensed consolidated financial statements and
related notes thereto included in Item 1.
Forward Looking Statements
This report contains forward looking statements. Additional written or oral
forward looking statements may be made by the Company from time to time in
filings with the Securities and Exchange Commission or otherwise. Such forward
looking statements are within the meaning of the term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements may include, but not be limited to,
projections of revenues, income, or loss, estimates of capital expenditures,
plans for future operations, products or services, and financing needs or plans,
as well as assumptions relating to the foregoing. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify forward
looking statements, which speak only as of the date the statement was made.
Forward looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward looking statements. The Company undertakes no obligation
to publicly update or revise any forward looking statements, whether as a result
of new information, future events, or otherwise. The following disclosures, as
well as other statements in this Report on Form 10-Q, and in the notes to the
Company's condensed consolidated financial statements, describe factors, among
others, that could contribute to or cause such differences, or that could affect
the Company's stock price.
Introduction
The Eckler Merger. In January 1997, the Company, then named Eckler
Industries, Inc., which had completed an initial public offering in 1995 and had
been exclusively in the Corvette parts and accessories business, merged (the
"Eckler Merger") with Smart Choice Holdings, Inc. ("SCHI"), which was acquiring
various automobile sales and finance companies. In the Eckler Merger, SCHI was
the surviving corporation of a merger with an acquisition subsidiary of Eckler
Industries, Inc., and SCHI is presently a wholly owned subsidiary of the
Company. After the Eckler Merger, the Company's name was changed to Smart Choice
Automotive Group, Inc.
In the Eckler Merger shareholders of SCHI were issued Common Stock having a
majority of the voting rights of the Company. Therefore, the Eckler Merger was
accounted for as a purchase of Eckler Industries, Inc. by SCHI (a reverse
acquisition in which SCHI is considered the acquirer for accounting purposes).
Accordingly, the financial statements of the Company for the periods prior to
January 28, 1997 are those of SCHI, which was incorporated on June 21, 1996, and
was a development stage company prior to the Eckler Merger.
Comparability. From the date of the Eckler Merger and thereafter, the
Company acquired various automobile sales and finance companies. The Company
recorded the acquisition of each of these companies as purchases, and their
assets were recorded at their estimated fair values and their results of
operations have been included in the consolidated financial statements of the
Company since their respective dates of acquisition. Thus, the Company's results
of operations for the three months ended March 31, 1997 do not include the
results of operations for the companies acquired on or about the date of the
Eckler Merger for the entire period. In addition, the Company acquired various
other businesses in 1997, the results of operations of which are reflected in
the results of operations for the first quarter of 1998 but not those of the
first quarter of 1997. This factor should be taken into account when comparing
the March 31, 1998 financial statements to the March 31, 1997 financial
statements.
Presentation of Dealership Revenues and Costs and Expenses. Revenues from
new car dealerships include sales of new and used vehicles, as well as revenues
from repairs and finance and insurance commissions. Revenues from used car
dealership operations consist of sales of used cars and income on Finance
Receivables. Costs and expenses of used and new car dealership operations is
comprised of the cost of vehicles and other products sold and the provision for
credit losses on Finance Receivables. The prices at which the Company sells its
used cars at its used car dealerships and the interest rate that it charges to
finance these sales take into consideration that the Company's primary customers
are high-risk borrowers. The provision for credit losses reflects these factors
and is treated by the Company as a cost of both the future finance income
derived on the Finance Contracts originated at the Company's First Choice
dealerships, as well as the cost of the sales of the vehicles themselves.
Accordingly, unlike traditional car dealerships, the Company does not present
gross profits in the Statement of Operations calculated as sales of used cars
less cost of used cars sold.
Operational Changes. Management undertook a comprehensive restructuring of
the Company beginning in late 1997 with the expectation of better meeting future
operational and liquidity needs. Some of the results of that restructuring are
reflected in the three months ended March 31, 1998. Some components of the
restructuring include the following:
Management determined to emphasize used car operations, which tend to have
higher gross margins than new car sales. Acquisition plans for new car
dealerships were curtailed in early December 1997. Management concentrated
on achieving operational efficiencies at the 22 used car dealerships that
the Company had acquired or opened during 1997.
Management took one-time charges in the fourth quarter of 1997 relating to
acquisition expenses and severance payments.
Staff was reduced by 15% in November and December of 1997.
Overhead expenses were reduced over $2 million during late November and
December, 1997 and January, 1998.
A new Chief Financial Officer was retained in September, a new Vice
President of Finance was employed in November, and a significant portion of
the accounting staff was replaced.
A Company-wide budget was prepared and implemented.
"Flash reports" were developed for the Company's divisions beginning
January 15, 1998. These flash reports are used to monitor business
operations and results on a regular basis.
In late 1997, the Company completed a "static pool" analysis that
established a benchmark for analysis of the quality of the Company's
Finance Receivable portfolio. The static pool indicated that the actual
losses (12 %) on the portfolio were substantially less than loss reserves (
17 %).
The Company's finance subsidiary expanded its loan portfolio to $72.2
million while establishing and maintaining underwriting procedures that
have resulted in 93.7% of the Finance Contracts being current (30 days or
fewer past due).
Eckler Industries, Inc. ("Eckler") was restructured to focus on greater
customer service. Inventory carrying costs were reduced by negotiating with
vendors. "Drop ship" delivery is being utilized. As the mail order business
constitutes over 93% Eckler's revenue, two mail order catalogs are now
used, instead of one per year as in the past.
Management also undertook a restructuring of debt obligations in late 1997
and the first quarter of 1998 in order to better meet its foreseeable
liquidity needs. The debt restructuring included expanded financings for
key areas of the business as well as negotiating conversions of some debt
instruments into equity and refinancing obligations with maturities in
1998. See "Liquidity and Capital Resources."
Results of Operations
Revenues. The Company experienced nearly a four-fold increase in revenues
for the three months ended March 31, 1998 compared to the same period in 1997.
The 1997 revenues reflect less than two months of combined operations for the
companies that merged in later January and February, 1997. In contrast, the 1998
revenues reflect a full quarter of operations which included those of the
companies acquired later in 1997 and the opening of new used car sales
locations.
Costs and Expenses. Cost of revenues also increased nearly four-fold for
the quarter ended March 31, 1998 compared to the 1997 period, reflecting the
increased sales discussed above. Cost of revenues, as a percent of revenues,
decreased from approximately 74.5% for the three months ended March 31, 1997 to
approximately 72.4% of revenues for the same period in 1998. The lower
percentage cost of sales reflects management's increased focus on loan quality
and higher margins for car sales in the 1998 period. In the first quarter of
1997, substantial amounts of management time were allocated to analyzing,
negotiating, and assimilating acquisitions. The improved margins in the 1998
period reflected implementation of policies and procedures for the acquired
companies.
Operating Expenses. Operating expenses consist of selling, marketing, and
general and administrative expenses, and depreciation and amortization.
Operating expenses decreased from $8.2 million for the three months ended March
31, 1996 to $8.0 million for the same period in 1997. The first quarter 1997
operating expenses included approximately $3.1 million in expense recognized by
the Company from issuing stock options to key management personnel by an
affiliated trust. Additionally, in the first quarter of 1997, the Company
recognized expense of approximately $1.7 million to settle various consulting
agreements and employment contracts of predecessor companies. Without those two
items, the Company's operating expenses for the three months ended March 31,
1997 would have totaled $3.4 million, or 42.3% of revenues, compared to $8.0
million, or 20.6% of revenues in the same period in 1998. Management believes
that the decreased percentage of costs to revenues reflects economies of scale
and the better utilization of the Company's infrastructure including centralized
marketing, accounting, and management information functions.
Allowance for Credit Losses. The allowance for credit losses (the
"Allowance") was 16.8% of the principal of Finance Receivables as of March 31,
1998. The following table reflects activity in the Allowance, as well as
information regarding charge off activity, on Finance Receivables for three
months ended March 31, 1998.
Three Months Ended
March 31, 1998
-----------------
Allowance Activity: (In thousands)
- -------------------
Balance, beginning of period.......... $ 6,857
Provision for credit losses........... 2,904
Net charge offs..................... (1,268)
------
Balance, end of period................ $ 8,493
=======
Charge Off Activity:
- --------------------
Principal balances:
Collateral repossessed.............. $(2,536)
Recoveries, net....................... 1,268
-----
Net charge offs..................... $(1,268)
=======
Analysis of the portfolio delinquencies is considered in evaluating the
adequacy of the Allowance. The following table reflects the principal balances
of current and delinquent Finance Receivables as a percentage of the total
outstanding Finance Receivable principal balance as of March 31, 1998 and 1997.
March 31,
---------
Aging Percentages: 1998 1997
---- ----
Principal balances current.................... 93.7% 88.7%
Principal balances 31 to 60 days.............. 2.8% 6.3%
Principal balances over 60 days............... 3.5% 5.0%
Management believes that the decrease in the percentage of loans which are
not delinquent reflects the Company's focus on higher quality borrowers in 1998,
its financing only cars sold at its dealerships rather than purchasing loans
from other dealers, and increased collection efforts.
Interest Expense. Interest expense totaled $1.9 million for the three
months ended March 31, 1998 compared to $0.7 million for the same period in
1997, an increase of 176%. The increase resulted primarily from interest on debt
attributable to acquisitions and interest on financing increased Finance
Receivables and inventory as the Company expanded its operations.
Other Income. Other income totaled approximately $919,000 for the three
months ended March 31, 1998 compared to $9,000 for the same period in 1997. The
1998 amount is comprised primarily of sales tax refunds on repossessed cars
($350,000), late fees on delinquent loans ($167,000), and recoupment of prior
year expenses ($165,000).
Liquidity and Capital Resources
The following table sets forth the major components of the increase in the
cash and cash equivalents, in thousands, for the periods ended March 31, 1998
and 1997:
March 31,
---------
1998 1997
---- ----
Net cash provided (used) by operating activities $ 2,272 $ 470
Net cash used by investing activities (12,551) (5,025)
Net cash provided by financing activities 11,606 6,212
------ -------
Net increase in cash and cash equivalents $ 1,327 $ 1,657
========= ========
The Company requires capital to support increases in Finance Receivables,
vehicle inventory, parts and accessories inventory, property and equipment, and
working capital for general corporate purposes. Funding sources available to the
Company include operating cash flow, third party investors, financial
institution borrowings and borrowings against finance receivables. The Company
intends to explore selling (securitizing) its Finance Receivables in the future.
Net cash flows provided by operating activities were approximately $2.3
million and $0.5 million for the three month periods ended March 31, 1998 and
1997, respectively. Net cash provided from operating activities in the first
quarter of 1998 primarily reflects the net income for the period and an increase
in payables. The increase in the first quarter of 1997 reflected the non-cash
stock option compensation which was included as an expense in that period, plus
increases in accounts payable, accrued expenses, other liabilities and the
provision for credit losses.
Cash used investing activities was approximately $12.6 million and $5.0
million during the three month periods ended March 31, 1998 and 1997,
respectively. The 1998 amount primarily reflects increases in Finance
Receivables carried by the Company. The 1997 amount reflects an increase in
Finance Receivables and debt associated with the acquisition of companies during
the first quarter of 1997.
Cash provided by financing activities was approximately $11.6 million and
$6.2 million during 1998 and 1997, respectively. In the first quarter of 1998,
the Company increased its notes payable on finance receivables by $9.5 million
and borrowed $3 million.
In the first quarter of 1997, the Company raised approximately $0.6 million
through the sale of Preferred Stock, and increased its line of credit and
floorplan borrowings by approximately $5.8 million.
Revolving Credit Facilities. The Company's revolving credit facility with
Finova Capital Corporation (the "Finova Revolving Facility") had a maximum
commitment of $35 million at December 31, 1997. The credit line was increased to
a maximum commitment of $42.5 million on March 27, 1998 and $75 million,
effective May 11, 1998. Under the Finova Revolving Facility, the Company may
borrow up to 55% of the gross balance of eligible Finance Contracts. The Finova
Revolving Facility expires in December 2001, at which time its renewal will be
subject to renegotiation. The Finova Revolving Facility is secured by
substantially all of the Company's Finance Receivables. As of December 31, 1997
and March 31, 1998, the principal amount outstanding under the Finova Revolving
Facility was $31.4 million and $40.9 million, respectively. The Finova Revolving
Facility bears interest at the prime rate (currently the Citibank N.A. prime
rate) plus 2.5%.
In 1997 and the first quarter of 1998 the Company financed its used car
inventory through a line of credit with Manheim Automotive Financial Services,
Inc. (the "Manheim Facility") which had an outstanding balance at December 31,
1997 of $2.7 million and $3.5 million at March 31, 1998. The maximum commitment
on the Manheim Facility is $3.75 million. The Manheim Facility is secured by the
Company's buy here-pay here used car inventory and bears interest at 1.5% over
the prime rate. The Company is negotiating with other lenders for an increased
credit line.
The Company finances its new car inventory through manufacturer floorplan
facilities. The Company's floorplan facility with Volvo Finance North America,
Inc. has a maximum commitment of $3.3 million, bears interest at 1% above the
prime rate, and at December 31, 1997 and March 31, 1998 had outstanding balances
of $1.98 million and $2.8 million, respectively. The Company's floorplan
facility with Nissan Motor Acceptance Corporation has a $3 million maximum
commitment, bears interest at 1% above prime, and at December 31, 1997 and March
31, 1998 had outstanding balances of $2.3 million and $2.5 million,
respectively.
Loans. In March and May 1997, Sirrom Capital Corporation ("Sirrom") loaned
the Company a total of $7.5 million. The Company issued Sirrom a $3.5 million
convertible note, convertible until March 12, 1999 at $3.67 per share and a $4.0
million convertible note, convertible at $7.50 per share until May 12, 2002,
subject to adjustment.
In September 1997, the Company completed the private placement of
convertible notes in the aggregate amount of $1,050,000. The notes mature on
April 15, 1998, bear interest at the rate of 8% per annum, and, since December
14, 1997, have been convertible into Common Stock of the Company at a conversion
price of 66 2/3% of the average closing bid price for the five trading days
immediately preceding the effective date of conversion. Nearly $475,000 of the
debt had been converted into common stock by March 31, 1998. In conjunction with
the borrowing, the Company also issued common stock warrants for 52,500 shares
of the Company's Common Stock exercisable at $7.00 per share at any time prior
to August 29, 2002.
In 1997 and 1998, Eckler borrowed a total of $8.5 million from Stephens
Inc. ("Stephens"), the investment banking firm that is the managing underwriter
of the Offering to which this Prospectus relates. The loans bear interest at the
rate of 10% per annum and are secured by all of the assets and common stock of
Eckler. The Company guaranteed the debt. The maturities of the Stephens loans
are as follows: $1.5 million on October 15, 1998, $1.0 million on June 30, 1998,
$2.0 million on June 30, 1999, and $4.0 million on September 30, 1999.
In 1997 the Company completed an offering to institutional investors of 400
units of Series A Redeemable Convertible Preferred Stock and warrants at $10,000
per unit. Proceeds from the offering, net of offering costs, were approximately
$3,965,000. Each unit consisted of one share of Series A Redeemable Convertible
Preferred Stock and a five year warrant to acquire 300 shares of Common Stock
for each preferred share purchased. The exercise price of the warrants are $8.10
for 90,000 shares and $5.23 for 30,000 shares. At March 31, 1998 all but one
share of the Series A Redeemable Convertible Preferred Stock had been converted
into Common Stock.
In May of 1998, the Company sold to a private investment group 220 shares
of the Company's Series B Convertible Preferred Stock for $10,000 per share for
an aggregate of $2,200,000. The Series B Convertible Preferred Stock has an 11%
dividend per year and is convertible into Common Stock at a conversion rate of
$5.00 per share. After November 5, 1999, the Company may, at its option, redeem
the Series B Convertible Preferred Stock for $10,000 per share. In connection
with the issuance of the Series B Convertible Preferred Stock, the Company
agreed to certain limitations on the issuance of additional shares of preferred
stock by the Company.
Mortgage Loan. The Company has a long-term mortgage payable to a bank with
a current principal balance of approximately $2.5 million at a variable rate of
1.5% above prime. The mortgage loan is collateralized by the Company's
headquarters real property and machinery, equipment and fixtures. The loan terms
require monthly principal payments of $13,333, plus interest, and the loan
matures on July 1, 1998, at which time the Company intends to negotiate a later
maturity.
In connection with an acquisition in 1997, the Company acquired
approximately 7.92 acres of undeveloped land in Lake Mary, Florida. The land,
held for resale by the Company, is recorded at $1,050,000 on the Company's
books. The property is subject to a first mortgage in favor of AmSouth Bank and
a second mortgage in favor of Barnett Bank. The AmSouth debt had a principal
balance of $482,202 as of March 31, 1998, an interest rate of 7.75%, and monthly
payments of $8,683 until December 2003. The Barnett Bank note has a principal
balance of $600,000, bears interest at 1% over Barnett's prime interest rate,
and requires quarterly interest payments. The note matured on April 1, 1998. The
Lake Mary property is presently under contract to be sold to an unrelated party
in May 1998 for $1.3 million. Both mortgages will be satisfied when the property
is sold.
Seasonality. Historically, the Company's used car business has experienced
higher revenues in the first two quarters of the calendar year than in the
latter half of the year. Management believes that these results are due to
seasonal buying patterns resulting in part from the fact that many of its
customers receive income tax refunds during the first half of the year, which
are a primary source of down payments on used car purchases.
The Eckler business is also subject to seasonal fluctuations. Historically,
Eckler has realized a higher portion of its revenues in the second and third
quarters of the calendar year and the lowest portion of its revenues in the
fourth quarter. The business of Eckler is particularly dependent on sales to
Corvette enthusiasts during the spring and summer months. This is the time of
year that Corvette enthusiasts are preparing for upcoming car shows that are
held in the late summer and early fall.
Inflation. Increases in inflation generally result in higher interest
rates. Higher interest rates on the Company's borrowings would increase the
interest expense related to the Company's existing debt. The Company cannot seek
to limit this risk by increasing interest rates earned on its Finance Contracts
since the interest charged is at or near the maximum permitted under Florida
law. Instead, the Company will seek to limit this risk, to the extent market
conditions permit, by increasing the profit margin on the cars sold. To date,
inflation has not had a significant impact on the Company's operations.
Recent Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for periods
beginning after December 15, 1997. Adoption of these standards is not expected
to have a material adverse effect on the Company's financial statements.
<PAGE>
PART II
SMART CHOICE AUTOMOTIVE GROUP, INC.
OTHER INFORMATION
-----------------
Item 2. Changes in Securities and Use of Proceeds.
Described below are the sales of securities by the Company during the first
quarter of 1998 that were not registered under the Securities Act of 1933, as
amended (the "1933 Act"). On the issuance of these securities the Company relied
on the exemption from registration under the 1933 Act set forth in Section 4(2)
thereof, based on established criteria for effecting a private offering.,
including the number of offerees for each transaction, access to information
regarding the Company, disclosure of information by the Company, restrictions on
resale of the securities offered, investment representations by the purchasers,
and the qualification of the offerees as "accredited investors."
On various dates during the three months ended March 31, 1998, the Company
issued Common Stock to holders of the Company's Series A Redeemable Convertible
Preferred Stock (the "Series A Preferred Stock"), on conversion of Series A
Preferred Stock. The Company had issued the Series A Preferred Stock in 1997 to
institutional investors. The Series A Preferred Stock was converted into Common
Stock at a conversion price that was based on the market price of the Common
Stock at the time of conversion. A total of 1,265,825 shares of Common Stock
were issued in the first quarter of 1998 on conversion of the Series A Preferred
Stock.
On various dates during the three months ended March 31, 1998, the Company
issued Common Stock to holders of preferred stock of a subsidiary of the Company
(the "Subsidiary Preferred Stock") in exchange for the Subsidiary Preferred
Stock. The holders of the Subsidiary Preferred Stock were accredited investors
who had purchased the Subsidiary Preferred Stock in a private placement in 1996.
The exchange ratio for the exchange of Common Stock for the Subsidiary Preferred
Stock was 2.7 shares of Common Stock for each share of Subsidiary Common Stock,
which was determined based on the market price of the Common Stock for the
period January 21, 1998 through January 30, 1998. A total of 648,00 shares of
Common Stock were issued in the first quarter of 1998 on conversion of the
Subsidiary Preferred Stock.
On various dates during the three months ended March 31, 1998, the Company
issued Common Stock to holders of the Company's 12% convertible notes due April
15, 1998 (the "Notes") on conversion of the Notes. The Company had issued the
Notes in 1997 to institutional and individual accredited investors. The Notes
were converted into Common Stock at a conversion price that was based on the
market price of the Common Stock at the time of conversion. A total of 560,472
shares of Common Stock were issued in the first quarter of 1998 on conversion of
the Notes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not invest or trade in foreign currency or commodity
transactions which would ordinarily be subject to market risk. The interest rate
on the Company's revolving credit facility with Finova Capital Corporation is
based on the prime rate plus 2.5% percent. Accordingly, a significant increase
or decrease in the prime rate could affect the Company's earnings in the future.
The Company believes, however, that its financial instruments are disclosed at
their fair values. Fair value estimates are made at a specific point in time and
are based on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties and matters
of judgment and, therefore, cannot be determined with precision. These estimates
do not reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular instrument. Changes in
assumptions could significantly affect these estimates.
Since fair value estimates are as of a particular date, the amounts that
will actually be realized or paid in settlement of the instruments could be
significantly different.
The carrying amount of cash and cash equivalents is assumed to be the fair
value because of the liquidity of these instruments. The carrying amount is
assumed to be the fair value because of the relative short maturity and
repayment terms of the portfolio as compared to similar instruments. The
carrying amount of accounts payable and accrued expenses approximates fair value
because of the short maturity of these instruments. The terms of the Company's
notes payable approximates the terms in the market place at which they could be
replaced. Therefore, the fair value approximates the carrying value of these
financial instruments.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
List Exhibit Description Filed herewith or Incorporated by reference to:
---- ------------------- -----------------------------------------------
<S> <C> <C>
3.1 Third Articles of Amendment to Articles of Filed herewith.
Incorporation.
10.1 Ninth Amended and Restated Promissory Note Filed herewith.
dated May 11, 1998 between Florida Finance
Group, Inc. ("FFG"), maker, and Finova
Capital Corporation ("Finova") payee.
10.2 Fifth Amended and Restated Schedule to Filed herewith.
Amended and Restated Loan and Security
Agreement, FFG, borrower, Finova, lender.
10.3 Promissory Note by Eckler Industries, Inc. Exhibit 10.1 to Form 8-K filed March 5, 1998.
in favor of Stephens Inc.
10.4 Amendment to Guaranty Agreement between Exhibit 10.4 to Form 8-K filed March 5, 1998.
Registrant and Stephens Inc.
10.5 Amendment to Pledge and Security Agreement Exhibit 10.5 to Form 8-K filed March 5, 1998
between Registrant and Stephens Inc.
10.6 Promissory Note, dated February 24, 1998, Exhibit 10.9 to Form 8-K filed March 5, 1998
First Choice Auto Finance, Inc., maker, and
Manheim Automotive Financial Services, Inc.,
payee.
10.7 Guaranty, dated March 21, 1997 from the Exhibit 10.10 to Form 8-K filed March 5, 1998
Registrant in favor of Manheim Automotive
Financial Services, Inc.
11.0 Statement re computation of per share Filed herewith.
earnings.
27.0 Financial Data Schedule. Filed herewith.
</TABLE>
(b) Report on Form 8-K
In the three months ended March 31, 1998, the Company filed a report on
Form 8-K dated December 10, 1997 reporting information pursuant to Item 5.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on May 15, 1998.
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ Joseph E. Mohr
-------------------------
Joseph E. Mohr
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Joseph E. Mohr Chief Financial Officer, May 15, 1998
- ----------------------- (Principal Financial and
Joseph E. Mohr Accounting Officer)
THIRD ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SMART CHOICE AUTOMOTIVE GROUP, INC.
Pursuant to the provision of Sections 607.1006 and 607.0602 of the Florida
Business Corporation Act, the Corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST:
ARTICLE V
Article V of the Articles of Incorporation of the Corporation is hereby
amended by inserting the following words at the end of such article:
Series B Convertible Preferred Stock
Three hundred (300) shares of the authorized and unissued shares of $0.01
par value per share Preferred Stock of the Corporation are hereby designated
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock") with the
following powers, preferences and rights, and the qualifications, limitations
and restrictions hereon:
Rank. The Series B Preferred Stock shall rank, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of
the Corporation, senior to the Common Stock and any subsequent issues of
stock, whether common or preferred.
Dividends. Each holder of shares of the Series B Preferred Stock ( the
"Holder", collectively, the "Holders") shall be entitled to receive out of
the assets of the Corporation legally available therefor, cumulative cash
dividends at the rate per share (based on the stated value of $10,000.00
per share) of $91.67 per month, accruing from the date of original issuance
("Original Issuance Date") which dividends are due and payable monthly
commencing on the first day of the month following the Original Issuance
Date. Such dividends shall accrue from the Original Issuance Date. In the
event that a Holder is not paid dividends on a timely basis in accordance
with the foregoing, such Holder shall be entitled to accrue interest on the
accrued and unpaid dividends at the rate per share (based on the stated
value of $10,000.00 per share) of 15% per annum, until all accrued
dividends have been paid. If the Corporation remains in default on the
monthly dividend payments to the Holders for a period of greater than
ninety (90) days, and such default is continuing for a period of thirty
(30) days after written notice of such default is sent by a Holder the
Corporation, and further provided that the Holders of at least seventy-five
(75%) percent of the then outstanding Series B Preferred Stock so agree, a
Holder may, at its option, receive an amount which is equal to (i) the
number of shares of Series B Preferred Stock which have not been converted
by such Holder as of such date, times, (ii) $10,000.00, plus all unpaid and
accrued dividends and interest in exchange for such shares of Series B
Preferred Stock. Unless full cumulative dividends on the Series B Preferred
Stock to which Holders are entitled have been paid or are declared and a
sum sufficient for the payment thereof has been set apart for the payment
of such unpaid dividends, no dividend shall be declared or paid or set
aside for payment or other distribution declared or made upon the Common
Stock of the Corporation or on any other stock of the Corporation ranking
junior to or on parity with the Series B Preferred Stock as to dividends or
upon liquidation be redeemed, purchased or otherwise acquired for any
consideration or any monies to be paid to or made available for a sinking
fund for the redemption of any share of such stock by the Corporation.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation,
the Holders are entitled to receive, out of the assets of the Corporation
available for distribution to stockholders, before any distribution of
assets is made to holders of Common Stock, or any other holders of stock
ranking junior to the Series B Preferred Stock, liquidating distributions
in the amount of $10,000.00 per share plus accrued and unpaid dividends.
If, upon any liquidation, dissolution, or winding up of the Corporation,
the amounts payable to the Holders are not paid in full, then the entire
assets of the Corporation shall be distributed ratably among the Holders.
After payment of the full amount of the liquidating distribution to which
they are entitled, the Holders shall not be entitled to any further
participation in any distribution of assets by the Corporation. A
consolidation or merger of the Corporation, with or into any other
corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this section.
Conversion. The Holders shall have conversion rights as follows (the
"Conversion Rights"):
(i) Right to Convert. At any time or times after the Original Issuance
Date of the shares of Series B Preferred Stock, any Holder shall be
entitled to convert his shares of Series B Preferred Stock into shares
of Common Stock of the Corporation at the Conversion Rate, as herein
defined, without the payment of any additional consideration by the
Holder thereof, at the office of the Corporation or any transfer agent
for such shares.
(ii) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each of the shares of Series B Preferred Stock shall
be determined according to the following formula (the "Conversion
Rate"):
Conversion Amount
Conversion Price
For purposes of this section of Article V, the following terms
shall have the following meanings:
(a) "Conversion Price" means (A) the average last closing sale
price per share of the Common Stock on the NASDAQ SmallCap Market
("Market Price") for the ten (10) consecutive trading days immediately
preceding the Original Issuance Date, plus (B) $.50. If any shares of
Series B Preferred Stock (other than the shares authorized hereby) are
issued at a price per share that is less than the Conversion Price
applicable on the earliest Original Issuance Date, the Conversion
Price shall be reduced to that lower price.
(b) "Conversion Amount" means the amount equal to (A) the number
of shares of Series B Preferred Stock that the Holder is converting
times (B) $10,000.
(iii) Mechanics of Conversion. The Board of Directors may
determine in its sole discretion whether fractional shares of Common
Stock will be issued upon any conversion of the Series B Preferred
Stock. If the Board of Directors determines not to issue fractional
shares of Common Stock at the conversion, the Corporation will pay, in
lieu of any fractional shares to which the Holder would otherwise be
entitled, cash equal to such fraction multiplied by the Conversion
Price then in effect. Before any Holder shall be entitled to convert
the Series B Preferred Stock into full shares of Common Stock, he
shall surrender the certificate or certificates of Series B Preferred
Stock for shares of Common Stock to be issued in that conversion. The
Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such Holder, or to his nominee or nominees,
a certificate or certificates for the number of shares of Common Stock
and/or fractional shares of Common Stock, if any, to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a
share, if any, to which the Holder may be entitled. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of the Series B
Preferred Stock to be converted and the person or persons entitled to
receive the shares of Commons Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on such date. Any unpaid and accrued dividends
and interest due and payable at conversion shall be paid to a Holder
by the Corporation in cash or its equivalent or other mutually
agreeable form.
(iv) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or Bylaws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of this section
and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holders
against impairment.
(v) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number
of shares of Common Stock as shall from time to time be sufficient to
effect conversion of all issued and outstanding shares of the Series B
Preferred Stock.
(5) Unauthorized Distributions. Notwithstanding any other provision of
these Articles, the Corporation will not make any payment due with respect to
the Series B Preferred Stock if (a) after giving effect to that payment, the
Corporation would not be able to pay its debts as they become due in the usual
course of business; or (b) after giving effect to that payment, the
Corporation's total assets would be less than the sum of its total liabilities
plus (unless the Corporation's articles of incorporation permit otherwise) the
amount that would be needed, if the Corporation were to be dissolved at the time
of the payment, to satisfy the preferential rights upon dissolution of any
shareholders whose preferential rights are superior to the Holders of Series B
Preferred Stock; or (c) the Corporation is otherwise prohibited (under then
existing laws) from making any payment due with respect to the Series B
Preferred Stock. Nothing contained herein shall amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series A
Preferred Shares.
(6) Redemption by Corporation. At any time or times more than eighteen (18)
months after the Original Issuance Date of Series B Preferred Stock, the
Corporation may at its option and in the sole discretion of the Corporation's
Board of Directors, (i) call any or all then outstanding shares of Series B
Preferred Stock for cash at the price of $10,000.00 per share plus any unpaid
and accrued dividends and interest as provided above, or (ii) convert any or all
of the then outstanding shares of Series B Preferred Stock into shares of Common
Stock of the Corporation as provided above; provided however, that in no event
may the Corporation convert the Series B Preferred Stock unless and until (a)
the Corporation gives the Holder thirty (30) days prior written notice of its
intent to call or convert, and (b) the Market Price of the Common Stock equals
or exceeds one and one-half (1.5) times the Conversion Price for a period of at
least twenty (20) consecutive trading days prior to the date of such notice, and
(c) the shares of Common Stock into which the shares of Series B Preferred Stock
are to be so called or converted have been registered as provided herein. Upon
any such call or conversion such Holder shall surrender the certificate or
certificates for the shares of Series B Preferred Stock so called or converted.
If the Corporation elects to convert, the Corporation shall issue such Holder
shares of Common Stock for the shares of Series B Preferred Stock so converted.
If a Holder has elected not to register its shares of Common Stock after notice
from the Corporation, as contemplated hereby, then the restrictions set forth in
subsection (c) of this Section on the Corporation's ability to call or convert
that Holder's Series B Preferred Stock shall not apply.
(7) Voting Rights. Except as expressly required by applicable law, the
Holders will not be entitled to vote. However, upon conversion of shares of
Series B Preferred Stock as provided above, the holder of the Common Stock
received pursuant to such conversion shall be entitled to one vote for each
share of Common Stock received upon such conversion.
(8) Certain Adjustments. If the outstanding shares of Common Stock of the
Corporation are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Corporation or of another
corporation or entity or shares of a different par value or without par value
through a recapitalization, stock dividend, stock split, reverse stock split or
a reorganization under which the Corporation is not the surviving entity, an
appropriate or proportionate adjustment shall be made in the number and/or kind
of securities allocated to the Series B Preferred Stock.
(9) Term. If a Holder has not converted all its shares of Series B
Preferred Stock within twenty-four (24) months after the Original Issuance Date,
and such shares have not otherwise been redeemed by the Corporation, then such
Holder may, at its option, receive an amount which is equal to (i) the number of
shares of Series B Preferred Stock which have not been converted or redeemed by
the Corporation as of such date times (ii) $10,000.00, plus all unpaid and
accrued dividends. Exercise of these rights is subject to the consent of the
Company, which shall not be unreasonably withheld.
(10) Registration Rights.
(a) Piggyback Rights.
(i) If the Corporation at any time after the Original Issuance
Date elects or proposes to register any of its shares of Common Stock
(the "Registration Shares") under the 1933 Act on Forms S-1, S-2 or S-3
or any other form in effect at such time for the registration of
securities to be sold for cash (a "Registration Statement") with the
Securities and Exchange Commission (the "SEC") pursuant to which shares
of Common Stock owned by any other shareholder of the Corporation are
to be registered, the Corporation shall give prompt written notice (the
"Registration Notice") to the Holders of its intention to register the
Registration Shares.
(ii) Within fifteen (15) days after a Holder may give written
notice to the Corporation of exercise of all, or a portion, of its
right to convert the Series B Preferred Stock (the "Conversion
Notice"), stating the number of shares such Holder elects to be
included among the Registration Shares (which number may include shares
held by Holder as a result of prior exercises of its right to convert
the Series B Preferred Stock, or otherwise) (the "Holder's Included
Shares").
(iii) The Corporation shall use reasonable efforts to register
the Holder's Included Shares under the Securities Act of 1933 and any
applicable state securities acts, if necessary, designated by such
Holder in the Conversion Notice. The Corporation shall have the right
to withdraw and discontinue registration of the Holder's Included
Shares at any time prior to the effective date of such Registration
Statement if the registration of the Registration Shares is withdrawn
or discontinued.
(iv) The Corporation shall not be required to include any of a
Holder's Included Shares in any Registration Statement unless such
Holder agrees, if so requested by the Corporation, to: (i) offer and
sell the Holder's Included Shares to or through an underwriter selected
by the Corporation and, to the extent possible, on substantially the
same terms and conditions under which the Registration Shares are to be
offered and sold; (ii) comply with any arrangements, terms and
conditions with respect to the offer and sale of the Holder's Included
Shares to which the Corporation may be required to agree; and (iii)
enter into any underwriting agreement containing customary terms and
conditions. The foregoing shall not require the Holder to sell the
Holder's Included Shares at the time of registration through such
underwriter.
(v) If the offering of the Registration Shares by the
Corporation is, in whole or in part, an underwritten public offering,
and if the managing underwriter determines and advises the Corporation
in writing that the inclusion in such Registration Statement of all of
a Holder's Included Shares, together with the stock of other persons
who have a right to include their stock in the Registration Statement
(collectively referred to as the "Aggregate Shares"), would adversely
affect the marketability of the offering of the Registration Shares,
then such Holder and such other holders shall be entitled to register
the portion of such number of Aggregate Shares as the managing
underwriter determines may be included without such adverse effects
(collectively, "Aggregate Underwriter Shares"), subject to the terms,
exceptions and conditions of this section.
(vi) The Corporation shall bear all costs and expenses of
registration of the Registration Shares, including Holder's Included
Shares.
(vii) It shall be a condition precedent to the Corporation's
obligation to register any of a Holder's Included Shares that such
Holder provide the Corporation with all information and documents, and
shall execute, acknowledge, seal and deliver all documents reasonably
necessary, to enable the Corporation to comply with the 1933 Act, any
applicable state securities acts, and all applicable laws, rules and
regulations of the SEC or of any state securities law authorities.
(b) Demand Right.
(i) If at any time on or after nine (9) months after the
Original Issuance Date the Corporation shall receive from the Holders
of at least seventy-five (75%) of the then outstanding Series B
Preferred Stock, a written request that the Corporation effect any
registration with respect to such Holders' Holder's Included Shares,
the Corporation will, as soon as practicable, use its best efforts to
effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance
with the 1933 Act) and as would permit or facilitate the sale and
distribution of all or such portion of Holder's Included Shares as are
specified in such request. The Corporation shall be required to effect,
pursuant to this Section 10(b), only one (1) registration of Holder's
Included Shares pursuant to this Section 10(b).
(ii) Proviso. The Corporation shall not be obligated to
effect, or to take any action to effect, any such registration pursuant
to this Section 10(b):
(a) in any particular jurisdiction in which the
Corporation would be required to execute a general consent to service
of process in effecting such registration, qualification, or
compliance, unless the Corporation is already subject to service in
such jurisdiction and except as may be required by the 1933 Act; or
(b) during the period starting with the date fifteen
(15) days prior to the Corporation's good faith estimate of the date of
filing of, and ending on a date ninety (90) days after the effective
date of, a Corporation-initiated registration, provided that the
Corporation is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective.
(iii) Deferral of Registration. The Corporation shall file a
registration statement covering Holder's Included Shares so requested
to be registered as soon as practicable after receipt of the request of
the Holder; provided, however, that if (a) in the good faith judgment
of the Board of Directors of the Corporation such registration would be
materially detrimental to the Corporation because there exist bona fide
financing, acquisition or other activities of the Corporation and the
Board of Directors of the Corporation concludes, as a result, that it
is essential to defer the filing of such registration statement at such
time, and (b) the Corporation shall furnish to the Holder a certificate
signed by the President of the Corporation stating that in the good
faith judgment of the Board of Directors of the Corporation, it would
be materially detrimental to the Corporation for such registration
statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the
Corporation shall have the right to defer such filing (except as
provided in subsection 10(ii)(b) above) for a period of not more than
ninety (90) days after receipt of the request of the Holder, and,
provided further, that the Corporation shall not defer its obligation
in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of
the Holder may, subject to the provisions of Section 10(a) and 10(b)
hereof, include other securities of the Corporation, with respect to
which registration rights have been granted, and may include securities
of the Corporation being sold for the account of the Corporation,
provided all the Holder's Included Shares for which the Holder has
requested registration shall be covered by such registration statement
before any other securities are included.
(iv) Procedures. In any registration pursuant to this Section
10(b), if the Corporation shall request inclusion of securities to be
sold for its own account, or if other persons entitled to incidental
registrations shall request inclusion in such registration, the Holder
shall offer to include such securities in the underwriting and may
condition such offer on the acceptance by the Corporation or such other
persons of the further applicable provisions hereof. The Corporation
shall (together with all such other persons proposing to distribute
their securities through such underwriting) enter into an agreement in
customary form with the representative of the underwriter or
underwriters acceptable to the Corporation. Notwithstanding any other
provision of this Section, if the representative of the underwriters
advises the Holder of the need to offer for sale only the Aggregate
Underwriter Shares, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in Section
10(a)(v) hereof.
(11) Limitations on Issuances of Additional Shares of Series A Redeemable
Convertible Preferred Stock and Series B Preferred Stock and Other Convertible
Preferred Stock. The Corporation will not (i) issue or re-issue any additional
shares of Series A Redeemable Convertible Preferred Stock, including without
limitation, any such shares which have been converted to shares of Common Stock,
nor (ii) issue or re-issue shares of Series B Preferred Stock such that the
number of issued and outstanding shares of Series B Preferred Stock would exceed
Four Hundred and Twenty (420) (based on a stated value per share of $10,000.00),
nor (iii) issue any shares of Convertible Preferred Stock which rank, with
respect to dividend rights and rights upon liquidation, dissolution and winding
up of the corporation, senior to the Series B Preferred Stock, provided however
that if either (a) at least seventy-five (75%) percent of the shares of Series B
Preferred Stock issued on the Original Issuance Date have been converted, called
or otherwise redeemed as provided above, or are no longer outstanding or (b) if
the shares of Series B Preferred Stock issued on the Original Issuance Date to
James W. Walter have been converted, called or otherwise redeemed, or are no
longer outstanding, the restrictions set forth in Section 11 (ii) shall no
longer apply.
SECOND:
Pursuant to Section 607.0602 of the Florida Business Act, the Board of
Directors adopted this Amendment to Article V of the Articles of Incorporation
effective as of May 5, 1998 without shareholder action.
IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation
has executed this instrument this 5th day of May, 1998.
/s/ Joseph E. Mohr
-------------------------------
Joseph E. Mohr
Executive Vice President and
Chief Financial Officer
NINTH AMENDED AND RESTATED
PROMISSORY NOTE
$75,000,000.00 PHOENIX, ARIZONA MAY 11, 1998
FOR VALUE RECEIVED, the undersigned ("MAKER"), hereby unconditionally
promises to pay to the order of FINOVA CAPITAL CORPORATION, a Delaware
corporation ("HOLDER"), at HOLDER's branch address at 13355 Noel Road, Suite
800, Dallas, Texas 75240, or at such other place as HOLDER may designate in
writing, the principal sum of Seventy-Five Million Dollars ($75,000,000.00) or
so much thereof as shall be outstanding from time to time, with interest thereon
at the Stated Interest Rate calculated on the average daily balance outstanding,
as follows:
1. DEFINITIONS. When used herein, the following terms have the meanings
given in this paragraph:
A. Loan Agreement. The term "Loan Agreement" shall mean that
certain First Amended and Restated Loan and Security Agreement, dated
February 4, 1997, entered into by and between FINOVA CAPITAL
CORPORATION, as Lender, and MAKER, as Borrower, and all amendments,
substitutions, renewals and extensions thereof. All capitalized terms
used herein which are not expressly defined herein shall have the
meanings ascribed to them in the Loan Agreement.
B. Maximum Rate. The term "Maximum Rate" shall mean the highest
lawful rate of interest applicable to this NOTE. In determining the
Maximum Rate, due regard shall be given to all payments, fees, charges,
deposits, balances and agreements which may constitute interest or be
deducted from principal when calculating interest.
2. PAYMENT. The principal and interest of this NOTE are payable as follows:
A. Accrued but unpaid interest for each calendar month during the
term hereof shall be due and payable monthly, in arrears, on the
fifteenth (15th) day of the immediately succeeding calendar month
commencing June 15, 1998. All outstanding principal together with all
accrued and unpaid interest shall be due and payable, if not sooner paid
on December 31, 2001. All payments received hereunder shall be applied
as set forth in the Loan Agreement.
B. Notwithstanding the foregoing, principal shall be immediately
due and payable without written notice and demand from Lender in such
amounts so that the outstanding balance hereunder does not, at anytime,
exceed the permitted amount of the Loan as determined pursuant to
Section 2.1 of the Loan Agreement. The amount of such payments shall be
determined by HOLDER pursuant to the terms of the Loan Agreement and
based upon the principal balance of this NOTE then outstanding as
determined pursuant to the Loan Agreement and as shown on the books and
records of HOLDER, maintained in accordance with its usual practice, the
entries of which being prima facie evidence of the existence and amounts
as therein recorded.
C. All of the principal hereunder may be prepaid in full at any
time; however, such voluntary prepayments shall be subject to the
voluntary prepayment provisions set forth in the Loan Agreement.
3. PRINCIPAL BALANCE. The unpaid principal balance of this NOTE at any time
shall be the total amounts loaned or advanced hereunder by HOLDER, less the
amount of payments or prepayments of principal made hereon by or for the account
of MAKER. It is contemplated that by reason of payments or prepayments hereon
there may be times when no indebtedness is owing hereunder; but notwithstanding
such occurrences, this NOTE shall remain valid and shall be in force and effect
as to loans or advances made pursuant to and under the terms of this NOTE
subsequent to each such occurrence. All loans or advances and all payments or
prepayments made hereunder on account of principal or interest may be evidenced
by HOLDER, or any subsequent holder, maintaining in accordance with its usual
practice an account or accounts evidencing the indebtedness of MAKER resulting
from all loans or advances and all payments or prepayments hereunder from time
to time in the amounts of principal and interest payable and paid from time to
time hereunder, in which event, in any legal action or proceeding in respect of
this NOTE, subject to Section 2.9 of the Loan Agreement, the entries made in
such account or accounts shall be prima facie evidence of the existence and
amounts of the obligations of MAKER therein recorded. In the event that the
unpaid principal amount hereof, at any time and for any reason, exceeds the
maximum amount hereinabove specified, MAKER covenants and agrees to pay the
excess principal amount immediately without notice or demand; such excess
principal amount shall in all respects be deemed to be included among the loans
or advances made pursuant to the other terms of this NOTE and shall bear
interest at the rate hereinabove stated.
4. ADVANCES. This Promissory Note is the "Note" referred to in the Loan
Agreement and the Holder is entitled to all the rights, remedies and benefits of
the Lender thereunder. Reference is hereby made to the Loan Agreement for the
terms and conditions under which this Note is to be made and to be repaid.
5. DEFAULT, REMEDIES. Upon the occurrence and during the continuance of any
one or more of the Events of Default set forth in the Loan Agreement, at the
option of the holder of this NOTE, the entire unpaid principal balance and
accrued and unpaid interest hereon shall at once become due and payable without
notice or demand and the Holder may foreclose and enforce all liens and security
interests securing this NOTE.
If this NOTE is not paid when due, whether at maturity or by acceleration,
or if it is collected through a bankruptcy, probate, or other judicial
proceeding, whether before or after maturity, MAKER agrees to pay attorney's
fees, together with all actual expenses of collection and litigation and costs
of court incurred by the Holder, whether or not suit is actually filed or not.
6. WAIVER. MAKER and all other makers, signers, sureties, guarantors and
endorsers of this NOTE waive demand, presentment, notice of dishonor, notice of
intent to demand or accelerate payment hereof, diligence in the collecting,
grace, notice and protest, and agree to one or more extensions for any period or
periods of time and partial payments, before or after maturity, without
prejudice to HOLDER.
7. SECURITY. This NOTE is secured by certain security interests as set
forth in the Loan Agreement.
8. CONTROLLING AGREEMENT. The contracted for rate of interest of the Loan
without limitation, shall consist of the following: (i) the Stated Interest
Rate, calculated and applied to the principal balance of the Note in accordance
with the provisions of this Note and the Loan Agreement; (ii) interest after
Event of Default or due date, calculated and applied to the amounts due under
this Note in accordance with the provisions thereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to this Note, the Loan Agreement or any other documents or instruments in any
way pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in this NOTE, or in any of the documents securing payment hereof or
otherwise relating hereto, in no event shall this NOTE or such documents require
the payment or permit the collection of interest in excess of the maximum
contract rate permitted by the Applicable Usury Law. In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Maker or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the indebtedness evidenced by this NOTE is accelerated in whole or
in part, or (c) all or part of the principal or interest of this NOTE shall be
prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received in connection with the loan evidenced
hereby, would exceed the maximum contract rate permitted by the Applicable Usury
Law, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Maker nor any other person or entity now or hereafter
liable for the payment hereof will be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum contract rate
permitted by the Applicable Usury Law, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount hereof or refunded to Maker, at Holder's option, and (4) the effective
rate of interest will be automatically reduced to the maximum amount of interest
permitted by the Applicable Usury Law. It is further agreed, without limiting
the generality of the foregoing, that to the extent permitted by the Applicable
Usury Law; (x) all calculations of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate permitted
by the Applicable Usury Law shall be made by amortizing, prorating, allocating
and spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise in connection with such loan; and (y) in the event that the
effective rate of interest on the loan should at any time exceed the maximum
contract rate allowed under the Applicable Usury Law, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Holder from time to time, if and when the
effective interest rate on the loan otherwise falls below the maximum amount
permitted by the Applicable Usury Law, to the extent that interest paid to the
date of calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Maker further agrees that should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
prohibited by the Applicable Usury Law, should the maximum contract rate
permitted by the Applicable Usury Law be decreased because of a change in the
law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
9. APPLICABLE LAW. This NOTE shall be construed in accordance with the laws
of the State of Arizona and the laws of the United States applicable to
transactions in the State of Arizona.
10. NO WAIVER. No delay on the part of the HOLDER in the exercise of any
power or right under this NOTE, or under the LOAN AGREEMENT or any other
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any power or right preclude other or
further exercise thereof or exercise of any other power or right. Enforcement by
HOLDER of any security for the payment hereof shall not constitute any election
by it of remedies so as to preclude the exercise of any other remedy available
to it.
11. SUCCESSORS, ASSIGNS. The term "HOLDER" shall include all of HOLDER's
successors and assigns to whom the benefits of this NOTE shall inure.
12. RENEWAL AND EXTENSION. This Ninth Amended and Restated Promissory Note
is executed in conjunction with that certain Ninth Amended and Restated Schedule
to Loan and Security Agreement of even date herewith, by and between HOLDER,
MAKER and Guarantors. This Ninth Amended and Restated Promissory Note is given
in renewal, extension and rearrangement of and not in payment, satisfaction or
extinguishment of that certain Promissory Note in the original principal amount
of Two Million Dollars ($2,000,000.00), dated February 24, 1994, (the "Prior
Note") executed by MAKER in favor of Greyhound Financial Corporation, the same
being amendments, renewals and extensions of prior instruments as referenced in
the Prior Note, that certain Amended and Restated Promissory Note in the
original principal amount of Four Million Dollars ($4,000,000.00), dated June 8,
1995, ("Amended Note") executed by Maker in favor of FINOVA Capital Corporation,
that certain Second Amended and Restated Promissory Note, dated May 13, 1996
("Second Amended Note") in the stated principal amount of Five Million Dollars
($5,000,000.00), executed by Maker in favor of FINOVA Capital Corporation, that
certain Third Amended and Restated Promissory Note, dated October 15, 1996
("Third Amended Note") in the stated principal amount of Five Million Dollars
($5,000,000.00), that certain Fourth Amended and Restated Promissory Note, dated
February 4, 1997 ("Fourth Amended Note") in the stated principal amount of
Twenty Million Dollars ($20,000,000.00), that certain Fifth Amended and Restated
Promissory Note, dated April 22, 1997 ("Fifth Amended Note") in the stated
principal amount of Thirty Five Million Dollars ($35,000,000.00). that certain
Sixth Amended and Restated Promissory Note, dated May 7, 1997 ("Sixth Amended
Note") in the stated principal amount of Thirty-Five Million Dollars
($35,000,000.00), that certain Seventh Amended and Restated Promissory Note,
dated December 30, 1997, in the stated principal amount of Thirty-Five Million
Dollars ($35,000,000.00), and that certain Eighth Amended and Restated
Promissory Note, dated March 27, 1998 ("Eighth Amended Note"), in the stated
principal amount of Forty-Two Million Five Hundred Thousand Dollars
($42,500,000.00). This Ninth Amended and Restated Promissory Note is secured by
liens granted to HOLDER on certain collateral and is a continuation of MAKER'S
obligations to HOLDER and such obligations and liens, mortgages, deeds of trust
or security interests are not extinguished by this Ninth Amended and Restated
Promissory Note, but are hereby renewed, extended, recognized and preserved in
full to secure payment of this Ninth Amended and Restated Promissory Note and
all sums due or to become due and payable under the Loan Documents.
MAKER:
Florida Finance Group, Inc.
a Florida corporation
By: /s/ Gary Smith
------------------
Gary Smith, President
Liberty Finance Company
a Florida corporation
By: /s/ Gary Smith
------------------
Gary Smith, President
Smart Choice Receivables
Holding Company, a Delaware corporation
By: /s/ Gary Smith
------------------
Gary Smith, President
FIFTH AMENDED AND RESTATED SCHEDULE TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Borrower: FLORIDA FINANCE GROUP INC.
LIBERTY FINANCE COMPANY
Address: 5200 S. WASHINGTON
TITUSVILLE, FLORIDA 32780-7316
Borrower: SMART CHOICE RECEIVABLES HOLDING COMPANY
P. O. Box 50102
Henderson, NV 89016
Date: MAY 11, 1998
This Fifth Amended and Restated Schedule ("Fifth Amended Schedule") is
executed in conjunction with a certain Amended and Restated Loan and Security
Agreement ("Agreement") of February 4, 1997, by and between FINOVA Capital
Corporation, as Lender, and the above Borrowers, as Borrower. This Fourth
Amended Schedule is an amendment and restatement of the Schedule to Amended and
Restated Loan and Security Agreement, dated of even date with the Agreement,.
that certain First Amended and Restated Schedule to Amended and Restated Loan
and Security Agreement, dated April 22, 1997, that certain Second Amended and
Restated Schedule to Amended and Restated Loan and Security Agreement, dated May
7, 1997, that certain Third Amended and Restated Schedule to Amended and
Restated Loan and Security Agreement, dated December 30, 1997 and that certain
Fourth Amended and Restated Schedule to Loan and Security Agreement, dated March
27, 1997.
The terms and provisions of this Fifth Amended Schedule shall supersede all
prior schedules. All references to Section numbers herein refer to Sections in
the Agreement.
1.A. BORROWERS (SECTION 1).
All references to "Borrower" in any and all Loan Documents are hereby
modified to include the following Borrower, as co-borrowers, jointly and
severally:
Florida Finance Group, Inc. - "FFG" or "Lead Borrower"
Liberty Finance Company - "Liberty"
Smart Choice Receivables Holding Company "Smart Choice Receivables"
1.13.A. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1.13).
The term "Maximum Amount of an Eligible Receivable" shall mean the sum of
Twenty Thousand Dollars ($20,000.00) remaining due thereon at any date of
determination.
1.13.B. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1.13).
The "Maximum Term of an Eligible Receivable" shall be Forty-Eight (48)
months remaining until the due date of such Eligible Receivable at any date
of determination.
1.13.C. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1.13.)
AGING PROCEDURES FOR A CONTRACTUAL AGING:
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 or more days past due = "60 + day Account"
ELIGIBILITY TEST:
The term "Eligibility Test" shall mean the test to determine the
eligibility of a Receivable for the purposes of Section 1.13 hereof, that
test, being as follows: no payment due on said Receivable remains unpaid
more than sixty (60) days from the specific date on which such payment was
due pursuant to the terms of said Receivable.
1.15 GUARANTOR (WHETHER ONE OR MORE) (SECTION 1.15)
Smart Choice Holdings, Inc.
Smart Choice Automotive Group, Inc.
(formerly known as Eckler Industries, Inc.)
First Choice Auto Finance, Inc.
2.1.A. AMOUNT OF REVOLVING CREDIT LINE (SECTION 2.1):
The Amount of Revolving Credit Line shall be as follows:
(i) If the date of determination is on or before June 30, 1998, then the
Amount of Revolving Credit Line shall be Fifty Million Dollars
($50,000,000.00).
(ii) If the date of determination is on or before December 31, 1998, but
after June 30, 1998, then the Amount of Revolving Credit Line shall be
Sixty Million Dollars ($60,000,000.00).
(iii)If the date of determination is on or before June 30, 1999, but after
December 31, 1998, then the Amount of Revolving Credit Line shall be
Seventy Million Dollars ($70,000,000.00).
(iv) If the date of determination is on or before December 31, 2001, but
after June 30, 1999, then the Amount of Revolving Credit Line shall be
Seventy-Five Million Dollars ($75,000,000.00).
2.1.B. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1):
The "Availability on Eligible Receivables" shall be an amount equal to,
with respect to all Eligible Receivables, on the date of determination, the
sum of the following:
(i) Sixty percent (60%) of the aggregate unmatured and unpaid amount
due to Borrower from the Account Debtor named thereon, including all
unearned finance charges, time price differentials, insurance fees,
discounts, holdbacks and other fees and charges pursuant to the
Eligible Receivables with an origination date on or before June 30,
1998;
(ii) Fifty-five percent (55%) of the aggregate unmatured and unpaid
amount due to Borrower from the Account Debtor named thereon,
including all unearned finance charges, time price differentials,
insurance fees, discounts, holdbacks and other fees and charges
pursuant to the Eligible Receivables with an origination date after
June 30, 1998.
Notwithstanding any provision contained in the Loan Documents to the
contrary, if for the twelve (12) calendar month period immediately prior to
any date of determination, the Collateral Recovery Rate is less than
seventy-two and one-half percent (72.50%), or if on any date of
determination, the Collateral Performance Percentage is greater than ten
percent (10.0%), then in either event, Lender, in its sole and absolute
discretion, may modify the Availability on Eligible advance percentage set
forth above.
2.2. STATED INTEREST RATE (SECTION 2.2).
(i) The lesser of (a) the Governing Rate plus two and one-half percent
(2.50%) per annum; or (b) the Maximum Rate.
(ii) Notwithstanding the foregoing:
(a) if Borrower irrevocably elects to reduce the Availability on
Eligible Receivables advance rate set forth in Section 2.1.B (i)
and (ii) to fifty percent (50%), then the Stated Rate of Interest
shall be the lesser of (1) the Governing Rate plus two and
one-quarter percent (2.25%); or (2) the Maximum Rate.
(b) if Borrower irrevocably elects to reduce the Availability on
Eligible Receivables advance rate set forth in Section 2.1.B (i)
and (ii) to forty percent (40%), then the Stated Rate of Interest
shall be the lesser of (1) the Governing Rate plus one and
one-half percent (1.50%); or (4) (2) the Maximum Rate.
2.3.A. PAYMENTS (SECTION 2.3).
The first paragraph of Section 2.3 shall be deleted in its entirety and the
following substituted in lieu thereof:
2.3 PAYMENTS. All payments to Lender shall be payable at FINOVA
Capital Corporation, File No. 96425, P. O. Box 1067, Charlotte, NC
28201-1067. All payments received pursuant to this Agreement by wire
transfer or other electronic transfer method, where immediate credit
occurs, shall be applied to Borrower's Indebtedness on the Business
Day of actual receipt of such payment by Lender's depository bank,
payments received by any other method shall be applied to Borrower's
Indebtedness three (3) Business Days after the actual receipt of such
payment by Lender's depository bank if such payment is credited to
Lender's account. The Indebtedness shall be due and payable as
follows:
2.3.B. MATURITY DATE (SECTION 2.3.C).
The primary term of this Agreement shall expire on December 31, 2001. If
Borrower desires to extend the primary term or any term thereafter of this
Agreement, Borrower shall give Lender notice of its intent to extend the
term no earlier than one hundred and eighty (180) days and no later than
one hundred and fifty (150) days prior to any expiration date of this
Agreement. Upon the receipt by Lender of Borrower's notice to extend the
term of this Agreement, if Lender desires to renew and extend the term of
this Agreement, Lender shall give Borrower notice of Lender's intent to
extend the term of this Agreement, within sixty (60) days of Lender's
receipt of Borrower's notice to extend. If Lender does not give Borrower
notice of Lender's intent to extend the term of this Agreement within the
sixty (60) days period, then it shall be deemed that Lender does not intend
to renew and extend the term of this Agreement. Notwithstanding the
foregoing, the Borrower's obligation pursuant to this Agreement shall
remain in full force and effect until the Indebtedness due and owing to
Lender has been paid in full.
2.6. LIQUIDATED DAMAGES (SECTION 2.6).
The amount of "Liquidated Damages" shall be as follows:
None.
2.8 INTEREST AFTER DEFAULT (SECTION 2.8)
Section 2.8 of the Agreement is hereby deleted and the following is
substituted in lieu thereof:
"2.8 INTEREST AFTER DEFAULT. Upon the occurrence and during the
continuation of an Event of Default, Borrower shall pay Lender
interest on the daily outstanding balance of Borrower's Indebtedness
at a rate per annum that is the lesser of (i) four percent (4%) in
excess of the rate which would otherwise be applicable thereto
pursuant to the Schedule (Schedule Section 2.2) or (ii) sixteen
percent (16%)."
2.11. FACILITY FEE (SECTION 2.11).
Section 2.11 of the Loan Agreement shall be deleted in its entirety.
2.12 CO-BORROWER PROVISIONS AND TERMINATION FEE (SECTIONS 2.12, 2.13, 2.14 AND
2.15)
The following Sections 2.12, 2.13, 2.14 and 2.15 are hereby added to the
Agreement:
2.12 APPLICATION OF PAYMENTS. All payments and collections shall be
deemed to be comprised of a pro rata remittance or payment made by
each Borrower, based upon the proportion that the Eligible Receivables
of each Borrower bears to the aggregate of all Eligible Receivables of
the Borrowers, as of the date on which such remittance or payment is
received by Lender. In the event such remittance or payment shall be
made by the Lead Borrower, acting as agent or trustee for the other
Borrowers, each Borrower shall be deemed to have made their
proportionate amount of such remittance or payment to Lender by and
through such agent or trustee.
2.13. ADVANCES TO LEAD BORROWER. Borrower does hereby irrevocably
agree that in the event Lender makes advances to Lead Borrower, as
agent or trustee for each of Borrower, as contemplated in Section
2.14, each such advance shall be deemed to be made to each Borrower
based upon a proportion that each Borrower's Eligible Receivables bear
to the aggregate of all Eligible Receivables of Borrower,
notwithstanding any subsequent disbursement of said advance by the
Lead Borrower, acting as agent or trustee for the Borrowers. In the
event that the actual advances, direct or indirect, received by Lead
Borrower or any other Borrower or the balance due to Lender as shown
in the records of any Borrower shall be disproportionate when compared
to the proportion of the Eligible Receivables of each Borrower,
whether by way of subsequent disbursements by Lead Borrower, acting as
agent or trustee, by way of Lender electing to make advances to each
Borrower, as contemplated in Section 2.14 or otherwise, such
disproportionalities shall be deemed to have occurred by virtue of
loans made between and among Borrowers.
2.14 APPOINTMENT OF AGENT. Lender agrees that, in the sole discretion
of Lender, Borrower may, by written notice to Lender, designate a Lead
Borrower to receive advances from Lender, make payments to Lender,
communicate with Lender and generally represent the interests of the
Borrowers with respect to the subject matter of this Agreement;
notwithstanding the foregoing, Lender may, at its sole discretion and
upon notice to each of the Borrowers, make advances directly to each
of the Borrowers, require that payments due hereunder be made to
Lender by each of the Borrowers, require each of the Borrowers to
communicate directly with Lender, for its own account, and generally
deal independently and separately with each of the Borrowers. Until so
notified by Lender, each of the Borrowers hereby agree that any and
all funds advanced by Lender pursuant to the terms of this Agreement,
shall be advanced to the Lead Borrower and may be deposited or
transferred into the general corporate account of Lead Borrower, as
agent and/or trustee for Borrowers. Lead Borrower hereby agrees to
keep detailed and accurate records of all such disbursements made to
any other Borrowers. Lead Borrower hereby agrees to keep detailed and
accurate records of all loans and dealings between or among Lead
Borrower and the other Borrowers. Borrowers agree to furnish copies of
such records to Lender upon request. Each Borrower, other than the
Lead Borrower hereby irrevocably makes, constitutes, designates and
appoints Lead Borrower as its agent and/or trustee with full power to
receive all notices, request all Advances hereunder and to deal
generally with Lender as agent and/or trustee for the Borrowers and
Lead Borrower is hereby granted full power and authority to bind the
Borrowers in respect of any term, condition, covenant or undertaking
embraced in this Agreement. Lender may, without liability or
responsibility to the Borrowers rely upon the instructions or other
communications of Lead Borrower on behalf of each of the Borrowers in
connection with any notifications, requests or communications required
or permitted to be given hereunder with the same force and effect as
if actually given by each Borrower; each Borrower hereby agrees to
indemnify and hold Lender harmless from and against any liability,
claim, suit, action, penalty, fine or damage arising out of or
incurred in connection with Lender's reliance upon communications from
Lead Borrower on behalf of the Borrowers. It is specifically
understood and agreed that any Advance made hereunder by Lender to
Lead Borrower shall be considered and treated as an Advance to the
Borrowers and each Borrower shall be jointly and severally liable
therefor.
2.15. TERMINATION FEE. Borrower agrees to pay Lender a Termination Fee
(Schedule 2.15) upon the termination of the credit facility evidenced
by the Loan Documents. This Termination Fee shall be due and payable
together with the payment in full of the outstanding balance of the
Indebtedness, whether by a voluntary prepayment in full by Borrower
together with a request for Lender to terminate Lender's security
interest in the Collateral, the acceleration of the outstanding
balance of the Indebtedness upon an Event of Default or upon the
expiration of the term hereof. This Termination Fee shall be included
as an Additional Sum as defined in Section 2.7 of the Agreement.
2.15 TERMINATION FEE (SECTION 2.15).
The amount of the "Termination Fee shall be Three Million Dollars
($3,000,000.00).
3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2, 3.6 and 5.1.N.).
All locations are as set forth on the attach List of Locations
3.16 CROSS COLLATERALIZATION PROVISION (SECTION 3.16)
The following Section 3.16 is hereby added to the Agreement:
3.16 CROSS COLLATERALIZATION. Each Borrower agrees that the Collateral
of each Borrower pledged hereunder shall secure all of the obligations
of the Borrowers to Lender hereunder. Upon and after an Event of
Default by any Borrower, Lender may pursue all rights and remedies it
may have against all or any part of the Collateral regardless of the
status of legal title to such Collateral. Each Borrower hereby
acknowledges that this Cross Collateralization of their Collateral is
in consideration of Lender's extending the credit hereunder and
mutually beneficial to each Borrower.
5.1.B. BORROWER'S TRADENAMES (whether one or more) (SECTION 5.1.B.)
As set forth in List of Tradenames attached hereto
6.2.A. LEVERAGE RATIO LIMIT (SECTION 6.2.J).
None.
6.2.B. MINIMUM NET INCOME (SECTION 6.2.K).
(i) The Minimum Net Income for each of Florida Finance Group, Inc., Eckler
Industries, Inc., Smart Cars, Inc., First Choice Stuart 2, Inc., First
Choice Stuart 1, Inc., First Choice Melbourne 1, Inc., Dealer
Development Services, Inc., Dealer Insurance Services, Inc., Easy Pay
Insurance, Inc., and First Choice Auto Finance, Inc., Premium Bonding
& Insurance Services, Inc., Wholesale Acquisitions, Inc., Team
Automobile Sales & Finance, Inc. and Eckler Corvette Sales, Inc. shall
be at least One Dollar ($1.00) in each fiscal quarter, beginning the
fiscal quarter ending June 30, 1998 and
(ii) The consolidated Minimum Income of Smart Choice Automotive Group, Inc.
("SCAG") shall be One Dollar ($1.00) for each fiscal quarter of SCAG,
beginning with fiscal quarter ending June 30, 1998.
6.2.C. DISTRIBUTIONS LIMITATION (SECTION 6.2.L).
No Distributions without the prior written consent of Lender.
6.3.C. ANNUAL FINANCIAL STATEMENTS (SECTION 6.3).
Annual audited financial statements shall be prepared by independent
certified public accountants, reasonably acceptable to Lender.
8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1).
(i) Borrowers shall reimburse Lender an amount not to exceed Fifty
Thousand Dollars ($50,000.00), for legal fees and expenses incurred in
the due diligence with respect to, negotiations, preparation and
closing of this Fifth Amended and Restated Schedule to Amended and
Restated Loan and Security Agreement and the other Loan Documents
executed in connection therewith and the re-documentation and
codification of prior amendments to be prepared and closed into a
Second Amended and Restated Loan and Security Agreement and other Loan
Documents to be executed in connection therewith, within thirty (30)
days after the date of this Fifth Amended and Restated Schedule to
Amended and Restated Loan and Security Agreement.
(ii) Borrowers shall reimburse Lender an amount not to exceed Five Thousand
Dollars ($5,000.00) for audit fees on a quarterly basis beginning June
30, 1998.
9.1. NOTICES (SECTION 9.1).
Lender: FINOVA Capital Corporation
(copy each office below with all notices)
Corporate Finance Office:
FINOVA Capital Corporation
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Attn: John J. Bonano, Senior Vice President
Telephone: (213) 253-1600
Telecopy No.: (213) 625-0268
Corporate Office:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, AZ 85077
Attn: Joseph R. D'Amore, Senior Counsel
Telephone: (602) 207-4900
Telecopy No.: (602) 207-5543
Rediscount Finance Office:
FINOVA Capital Corporation
13355 Noel Road, Suite 800
Dallas, TX 75240
Attn: Douglas M. Fraser (Account Executive)
Telephone: (972) 458-5600
Telecopy No.: (972) 458-5650
Borrower: Florida Finance Group Inc.
Liberty Finance Company
5200 S. Washington
Titusville, Florida 32780-7316
Telephone: 407-269-9680
Telecopy No.:407-269-1880
Borrower: Smart Choice Receivables Holding Company
P. O. Box 50102
Henderson, NV 89016
Telephone: (702) 598-3738
Telecopy No.: (702) 598-3651
Guarantors: Smart Choice Holdings, Inc.
Smart Choice Automotive Group, Inc.
First Choice Auto Finance, Inc.
5200 S. Washington
Titusville, Florida 32780-7316
Telephone: 407-269-9680
Telecopy No.:407-269-1880
9.16. AGENT FOR SERVICE OF PROCESS (SECTION 9.16).
Gary Smith, whose address is 5200 S. Washington, Titusville, Florida
32780-7316 (Agent)
IN WITNESS WHEREOF, the parties have executed this Schedule on the day and
year first set forth above.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ J. Steven Cammack
-------------------------
J. Steven Cammack, Vice President (Date)
BORROWERS:
FLORIDA FINANCE GROUP INC.
By: /s/ Gary R. Smith
---------------------
Gary Smith, President (Date)
LIBERTY FINANCE COMPANY
By: /s/ Gary R. Smith
---------------------
Gary Smith, President (Date)
SMART CHOICE RECEIVABLES HOLDING COMPANY
By: /s/ Gary R. Smith
---------------------
Gary Smith, President (Date)
GUARANTORS:
SMART CHOICE HOLDINGS, INC.
By: /s/ Gary R. Smith
---------------------
Gary Smith, President (Date)
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ Gary R. Smith
---------------------
Gary Smith, President (Date)
FIRST CHOICE AUTO FINANCE, INC.
By: /s/ Gary R. Smith
---------------------
Gary Smith, President (Date)
Earnings (Loss) Per Share
A summary of the reconciliation from basic earnings (loss) per share to
diluted earnings (loss) per share for the three month periods ended March 31,
1998 and 1997 follows:
March 31
1998 1997
---- ----
Net earnings (loss) 1,666,592 (6,902,335)
Preferred stock dividends 77,875 --
--------- -----------
Net income available to common stock holders 1,588,717 (6,902,335)
========= ===========
Basic EPS-weighted average shares outstanding 10,380,260 7,853,134
========== =========
Basic earnings (loss) per share $ 0.15 $ (0.87)
====== ========
Basic EPS-weighted average shares outstanding 10,380,260 --
Effect of diluted securities:
Options and warrants 276,860 --
Convertible preferred stock 569,638 --
-------
Dilutive EPS-weighted average shares outstanding 11,226,758 --
==========
Diluted Earnings (loss) per share $ 0.14 --
======
Convertible debt not included in diluted EPS since
antidilutive 1,801,749 --
=========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-Q for the Quarterly Period Ending March 31, 1998
</LEGEND>
<CIK> 0000949091
<NAME> Smart Choice Automotive Grp Inc
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,394
<SECURITIES> 0
<RECEIVABLES> 54,311
<ALLOWANCES> 8,493
<INVENTORY> 17,429
<CURRENT-ASSETS> 65,641
<PP&E> 13,666
<DEPRECIATION> 4,540
<TOTAL-ASSETS> 104,893
<CURRENT-LIABILITIES> 20,452
<BONDS> 72,060
0
1,492
<COMMON> 123
<OTHER-SE> 10,017
<TOTAL-LIABILITY-AND-EQUITY> 104,893
<SALES> 38,659
<TOTAL-REVENUES> 39,579
<CGS> 28,007
<TOTAL-COSTS> 7,980
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 2,904
<INTEREST-EXPENSE> 1,910
<INCOME-PRETAX> 1,667
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,667
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
