SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
-------------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange act of 1934
Date of Report: December 10, 1997
(Date of earliest event reported)
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SMART CHOICE AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Florida 1-14082 59-1469577
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
5200 South Washington Avenue, Titusville, Florida 32780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 269-9680
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<PAGE>
Item 5. Other Events.
Effective December 10, 1997, the Registrant secured $1,000,000 in equity
funding from certain accredited investor buyers represented by, among others,
Promethean Investment Group, LLC, in a private placement with such buyers of (i)
100 shares of its Series A Redeemable Convertible Preferred Stock ("Preferred
Stock") at $10,000 per share pursuant to that certain Securities Purchase
Agreement between the Registrant and the buyers and (ii) a total of 30,000
common stock purchase warrants. The Preferred Stock is convertible into shares
of Common Stock of the Registrant ("Common Stock") at a conversion price which,
at the option of the buyers, is either fixed at a rate of 135% of the market
price of such Common Stock on the date of issuance of the Preferred Stock, or
floating at a rate of 100% of the market price of such Common Stock if converted
during the period 90 days after the issuance date of the Preferred Stock and 90%
of the market price if converted at any time after 90 days for a period of five
years; such conversion rate is also subject to anti-dilution protections in
favor of the buyers. The shares of Common Stock issuable upon exercise of the
warrants may be purchased by the holders for a purchase price of $5.2313 per
share, subject to adjustment pursuant to certain anti-dilution protections
stated therein. The Preferred Stock has no voting rights. The Preferred Stock
has registration rights pursuant to a Registration Rights Agreement. The
foregoing summary of the transaction is qualified in its entirety by the more
detailed information contained in the copies of the Second Articles of Amendment
to the Articles of Incorporation, the Securities Purchase Agreement, the form of
Warrant and the Registration Rights Agreement attached as Exhibits 3.1, 10.6,
10.7 and 10.8, respectively, to this Current Report.
Effective January 23, 1998, the Registrant secured on behalf of Eckler
Industries, Inc., its wholly-owned subsidiary ("Eckler"), a $3,000,000 term loan
from Stephens Inc. ("Stephens") (the "Stephens Loan"), and in connection
therewith entered into an Amendment to Guaranty Agreement with Stephens amending
an existing Guaranty Agreement between the Registrant and Stephens, pursuant to
which the Registrant unconditionally guarantees the Stephens Loan, and an
Amendment to Pledge and Security Agreement, amending an existing Pledge and
Security Agreement between the Registrant and Stephens, pursuant to which the
Registrant pledged to Stephens a first lien and security interest in and to all
of the issued and outstanding capital stock of Eckler. In addition, the Stephens
Loan was secured by all of the personal property assets of Eckler pursuant to a
separate Amendment to Security Agreement between Stephens and Eckler. The
Stephens Loan bears interest at a rate of 10% per annum. Such summary of the
transaction is qualified in its entirety by the more detailed information
contained in the copies of the Promissory Note, Amendment to Guaranty Agreement,
and Amendment to Pledge and Security Agreement attached as Exhibits 10.1, 10.4
and 10.5, respectively, to this Current Report.
The Registrant's Common Stock is listed on the Nasdaq SmallCap Market
("Nasdaq"). Effective February 23, 1998 Nasdaq issued new requirements for
maintaining listing on the SmallCap Market. These new requirements include
maintaining any one of the following: (i) net tangible assets of at least $2
million; (ii) net income of at least $500,000 in two of the last three years; or
(iii) market capitalization of at least $35 million. The Registrant does not
meet requirement (i) because of the goodwill that appears on the Registrant's
balance sheet as a result of acquisitions by the Registrant, which is not
eligible for pooling of interests accounting due primarily to change of control
considerations. The Registrant does not meet requirement (ii) because the
Registrant incurred a loss in 1997 and the Registrant as presently configured
resulted from a combination of companies effective in January of 1997, none of
which individually or in the aggregate had net income under generally accepted
accounting principles of $500,000. As of February 23, 1998 the Registrant's
market capitalization was $22.8 million, and Nasdaq has notified the Registrant
that the Common Stock would be scheduled for delisting unless the Registrant
requested a hearing for an exception to the new requirements. The Registrant
intends to request a hearing for an exception with respect to these requirements
which would stay the delisting.
On February 24, 1998 the Registrant's subsidiary First Choice Auto
Finance, Inc. increased its existing line of credit (the "Manheim Line of
Credit") with Manheim Automotive Financial Services, Inc. ("Manheim") from $3
million to $3.75 million. The Manheim Line of Credit bears interest at 1.5%
above the prime rate and is secured by used automobile inventory of the
Registrant purchased from Manheim. The Promissory Note evidencing the Manheim
Line of Credit is due on demand. The Registrant is guarantor on the Manheim Line
of Credit. Such summary of the transaction is qualified in its entirety by the
more detailed information contained in the copies of the Promissory Note and
Guaranty Agreement attached as Exhibits 10.9 and 10.10, respectively, to this
Current Report.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not Applicable.
(b) Pro Forma Financial Information
Not Applicable
(c ) Exhibits
EXHIBIT DESCRIPTION
3.1 Articles of Amendment to Articles of
Incorporation (set forth as Exhibit 3.1 to the
Registrant's Form 8-K Report dated September 24, 1997
and incorporated herein by reference)
10.1 Promissory Note by Eckler Industries, Inc. in favor
of Stephens Inc.
10.2 Guaranty Agreement by Registrant to Stephens Inc. (set
forth as Exhibit 10.4 to the Registrant's Form 8-K
Report dated September 24, 1997 and incorporated
herein by reference)
10.3 Pledge and Security Agreement between Registrant and
Stephens Inc. (set forth as Exhibit 10.5 to the
Registrant's Form 8-K Report dated September 24, 1997
and incorporated herein by reference)
10.4 Amendment to Guaranty Agreement between Registrant and
Stephens Inc.
10.5 Amendment to Pledge and Security Agreement between
Registrant and Stephens Inc.
10.6 Securities Purchase Agreement between the Registrant
and certain buyers represented by Promethean
Investment Group, L.L.C., among others (set forth as
Exhibit 10.6 to the Registrant's Form 8-K Report
dated September 24, 1997 and incorporated herein by
reference).
10.7 Form of Warrant from Registrant to certain buyers
represented by Promethean Investment Group, L.L.C.,
among others (set forth as Exhibit 10.7 to the
Registrant's Form 8-K Report dated September 24,
1997 and incorporated herein by reference).
10.8 Registration Rights Agreement between Registrant and
certain buyers represented by Promethean Investment
Group, L.L.C., among others (set forth as Exhibit 10.8
to the Registrant's Form 8-K Report dated September 24,
1997 and incorporated herein by reference).
10.9 Promissory Note, dated February 24, 1998, First Choice Auto
Finance, Inc., maker, and Manheim Automotive Financial
Services, Inc., payee
10.10 Guaranty, dated March 21, 1997 from the Registrant in
favor of Manheim Automotive Financial Services, Inc.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 5, 1998 SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ Joseph E. Mohr
-----------------------------
Joseph E. Mohr, Sr. Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
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EXHIBIT DESCRIPTION
10.1 Promissory Note by Eckler Industries, Inc. in favor
of Stephens Inc.
10.4 Amendment to Guaranty Agreement between Registrant and
Stephens Inc.
10.5 Amendment to Pledge and Security Agreement between
Registrant and Stephens Inc.
10.9 Promissory Note, dated February 24, 1998, First Choice Auto
Finance, Inc., maker, and Manheim Automotive Financial
Services, Inc., payee
10.10 Guaranty, dated March 21, 1997 from the Registrant in
favor of Manheim Automotive Financial Services, Inc.
PROMISSORY NOTE
1. DATE AND PARTIES. This Promissory Note ("Note") is dated as of January
23, 1998, and the parties and their mailing addresses and Borrower's tax
identification number are as follows:
BORROWER: Eckler Industries, Inc.
5200 S. Washington Avenue
Titusville, FL 32780
Tax ID Number: 59-3471762
HOLDER: Stephens Inc.
950 East Paces Ferry Road, Suite 310
Atlanta, GA 30326
Attn: David Linch
2. PROMISE TO PAY. For value received, Borrower promises to pay to the
order of Holder, in accordance with the provisions of this Note, at Holder's
office at the address above, or at such other place as Holder may designate, the
principal sum of
Three Million and No/100 Dollars ($3,000,000.00)
plus interest from the date of disbursement on the unpaid principal balance at
the rate of ten percent (10%) per annum.
After the Maturity Date (defined herein), whether by acceleration or
otherwise, the Note shall bear interest at the maximum rate allowed by law until
paid in full. The interest permitted by this Note is limited to the maximum
lawful amount of interest (Maximum Lawful Interest ) permitted under applicable
federal and state laws, whichever is greater. If the interest accrued and
collected exceeds the Maximum Lawful Interest as of the time of collection, such
excess shall be applied to reduce the principal amount outstanding. If or when
no principal amount is outstanding, any excess interest shall be refunded to
Borrower. All fees and charges accrued, assessed, or collected which constitute
interest shall be amortized and pro-rated over the full term of the Note for
purposes of determining the Maximum Lawful Interest.
3. ADVANCE AND FUNDING PROVISIONS.
This Note is a Term Note. No advances will be made after the initial
advance.
4. TERMS OF PAYMENT. All principal advanced under this Note and all
interest accrued under this Note are due and payable to Holder and shall be paid
to Holder as follows:
All unpaid interest then accrued is due and payable in
semi-annual installments on the 30th day of each June and
December prior to maturity, beginning on the 30th day of June,
1998. Principal on this Note is due and payable $1,000,000 on
June 30, 1998 and $2,000,000 on June 30, 1999; provided that
all the outstanding principal hereunder shall be due and
payable on the sale of all or substantially all of the
outstanding stock or assets of the Borrower or the completion
by Smart Choice Automotive Group, Inc., a Florida corporation
and the parent of the Borrower ("Smart Choice"), of an
underwritten public offering of equity securities in which
Smart Choice realizes at least $10 million in gross proceeds.
This Note may be prepaid in whole or in part at any time without
premium or penalty.
COLLATERAL: The collateral (the "Collateral") securing this note
includes but is not limited to:
All accounts receivable now owing or in the future accruing to
Borrower, all inventory, equipment, instruments, documents,
chattel paper and general intangibles now owned by or
hereafter acquired by Borrower as more particularly described
in that certain Security Agreement dated October 3, 1997
between Holder and Borrower, as amended by that certain
Amendment to Security Agreement between the Borrower and the
Holder of even date herewith; and
All of the issued and outstanding capital stock of Eckler
Industries, Inc. on terms and conditions more particularly
described in that certain Pledge and Security Agreement
between Holder and Smart Choice dated September 30, 1997, as
amended by that certain Amendment to Pledge and Security
Agreement between Smart Choice and the Holder of even date
herewith.
This Note is also guaranteed under that certain Guaranty Agreement dated
September 30, 1997 between Smart Choice and Holder, as amended by that certain
Amendment to Guaranty Agreement between the Smart Choice and the Holder of even
date herewith.
5. RECEIPT OF COPY. By signing this Note, Borrower acknowledges that he has
read this entire Note and Exhibits, if any, prior to execution and that it
received a copy (copies) of this Note. Borrower agrees to all provisions of this
Note and undertakes to perform all obligations of Borrower hereunder.
6. EVENTS OF DEFAULT. Borrower shall be in default upon the occurrence of
any of the following events, circumstances or conditions ("Events of Default"):
(a) Failure by Borrower to make any payment to Holder when due;
(b) A default or breach under any of the terms of the Note, or any other
Loan Document (as hereinafter defined);
(c) A default or breach under any of the terms of any note, loan agreement,
security agreement, subordination agreement, mortgage, deed of trust, deed to
secure debt, assignment of beneficial interest, guaranty agreement, trust deed
or any other document or instrument evidencing, guaranteeing, or securing any
other obligations of Borrower;
(d) The making or furnishing of any verbal or written representation,
statement, or warranty to Holder which is false or incorrect in any material
respect or the failure to furnish facts necessary to prevent any statement made
by, or on behalf of Borrower or any guarantor of the Note or other obligations
of Borrower to Holder from being materially misleading;
(e) The death, dissolution, liquidation or insolvency of Borrower, the
appointment of a receiver by or on the behalf of Borrower, the voluntary or
involuntary termination of existence by Borrower or any guarantor or the
commencement under any present or future federal or state insolvency,
bankruptcy, reorganization, composition or debtor relief law by or against
Borrower or any guarantor of the Note or other obligation of Borrower to Holder;
(f) Entry of a judgment against Borrower or any guarantor;
(g) A material adverse change in the financial condition of Borrower or any
guarantor; or a good faith belief by Holder at any time that Holder is insecure,
that the prospect of any payment is impaired, or that any collateral securing
the Note is impaired;
(h) Failure of Borrower or of any guarantor to pay and provide proof of
payment of any tax, assessment, rent, insurance premium, or escrow payment on or
before its due date;
(i) Without the prior written consent of Holder: (i) creation of any lien
or encumbrance on, or any sale, lease or transfer of, or any contract to
transfer, sell or lease, any collateral securing the Note or other obligation of
Borrower to Holder; (ii) transfer of ownership or control of the business of
Borrower or Smart Choice or more than fifty percent (50%) of the ownership of
Borrower or Smart Choice, whether by transfer of shares, partnership interest,
joint venture, pledge or otherwise; or (iii) any action by Borrower or any
guarantor to become a party to any merger or consolidation;
(j) The termination of any guaranty of the Note by any guarantor, or a
default on any debt owed by Borrower or any guarantor to any other creditor;
(k) Use of any portion of the loan proceeds in any transaction which may
cause Holder to directly or indirectly incur any securities or environmental
liability; or
(l) Any charge or indictment against Borrower or any guarantor under a
federal or state law for which forfeiture of any portion of the Collateral is a
potential penalty.
7. REMEDIES ON DEFAULT.
If an Event of Default occurs, then Holder any exercise any one or more of
the following rights and remedies, and any other rights and remedies provided in
any of the Loan Documents as Holder, in its sole discretion, may deem necessary
or appropriate:
(a) declare the unpaid principal of, and all interest then accrued, on the
Loan and the Note, to be forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate or other notice of
any kind, all of which Borrower hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding,
(b) reduce any claim to judgment, and/or
(c) without notice of default or demand, pursue and enforce any of Holder's
rights and remedies under any of the Loan Documents, or otherwise provided under
or pursuant to any applicable law or agreement;
provided however, that if any Event of Default specified in Subsection (e) above
shall occur, the principal of, and all interest then accrued on, the Note and
other liability hereunder shall thereupon become due and payable automatically
and concurrently therewith, without any further action by Holder and without
presentment, demand, protest, notice of default, notice of acceleration or
intention to accelerate or other notice of any kind, all of which Borrower
hereby expressly waives.
8. SET-OFF. Borrower acknowledges and agrees that upon the occurrence of an
Event of Default, Holder may exercise its right to set-off, without demand or
notice to Borrower or any other person or entity, to pay all or any part of the
outstanding principal and accrued interest owed on this Note against any
obligation Holder or any participant in the Note may have, now or hereafter, to
pay money to Borrower, including but not limited to any balances in any account
of Borrower. Where Borrower may obtain payment only with the endorsement or
consent of someone who has not agreed to pay this Note, Holders' right of
set-off will extend to Borrower's interest in the obligation. Holder's right to
set-off will not apply to accounts or obligations in which Borrower's rights are
solely as a fiduciary for another or to accounts exempt by law from the claims
of creditors. Holder's right of set-off may be exercised without regard to the
existence or value of any Collateral securing this Note, and without regard to
the number or creditworthiness of any other persons or entities who have agreed
to pay this Note. Borrower agrees to indemnify and hold Holder harmless from any
person's or entity's claims arising as a result of Holder's exercise of Holders'
right of set-off and the costs and expenses arising from any such claim,
including without limitation, attorney's fees. In addition to the right of
set-off, to further secure payment of the Note, Borrower hereby grants, conveys
and transfers to Holder a continuing security interest in all of Borrower's
accounts with Holder or with any participant in the Note.
9. COLLECTION EXPENSES. Upon a default on this Note, Holder may recover
from Borrower and all guarantors or any of them, all costs and expenses incurred
by Holder in collecting and enforcing this Note and reasonable costs and
expenses in preserving, selling or disposing of collateral and realizing on any
security. Such costs and expenses shall include, but are not limited to,
reasonable filing fees, costs of publication, deposition fees, stenographer
fees, witness fees, attorneys fees, paralegal fees, and any other court costs,
plus costs of collecting and enforcing the Note. Any such reasonable collection
costs and expenses shall be added to the principal amount of the Note and shall
accrue interest at the same rate as the Note.
10. ATTORNEYS' FEES. Borrower indemnifies Holder and holds Holder harmless
for all reasonable attorneys fees incurred by Holder, without limitation, for
the enforcement and collection of the obligations under this Note, if it is
placed in the hands of an attorney for collection, or for the protection of any
collateral or lien which secures this Note.
11. WAIVER AND CONSENT BY BORROWER AND OTHER SIGNERS. In regard to this
Note, Borrower and each guarantor:
(a) Waive protest, presentment for payment, notice of dishonor, notice of
intent to accelerate, and notice of acceleration;
(b) Consent to any one or multiple renewals or extensions of time for
payment on this Note;
(c) Consent to Holder's release of any guarantor, surety, endorser, or
co-signer;
(d) Consent to the release or substitution of any collateral or any failure
by Holder to perfect or continue a security interest in any collateral or any
impairment of any collateral;
(e) Consent to any modification of the terms of this Note or any instrument
securing, guaranteeing, or relating to this Note;
(f) Consent to any and all sales, repurchases, and participations of this
Note to any person or entity in any amount and waive notice of such sales,
repurchases, or participations of this Note; and
(g) Consent to Holder's right of set-off as well as any participating
Holder's right to set-off.
12. ADDITIONAL COLLATERAL. If Holder at any time deems any portion of the
collateral securing this Note to be unsatisfactory because of a decrease or
potential decrease in its value, upon demand, Borrower shall furnish such
additional collateral or make such payment upon the accrued interest and
principal balance of this Note as Holder may request.
13. NO DUTY BY HOLDER. Holder is under no duty to preserve or protect any
collateral until Holder is in actual possession of the collateral. Holder shall
only be deemed to be in "actual" possession of the collateral when Holder has
physical, immediate, and exclusive control over the collateral and has
affirmatively accepted such control.
14. APPLICATION OF PAYMENTS. All payments on this Note, including, but not
limited to, regular payments or prepayments, received by Holder shall be applied
first to costs and expenses, then to accrued interest, and the balance, if any,
to principal. No repayment shall excuse or defer Borrower's subsequent payment
obligations.
15. JOINT AND SEVERAL. Borrower and any other signers shall be jointly and
severally liable under this Note.
16. FINANCIAL STATEMENTS. Until this Note is paid in full, Borrower shall
furnish Holder upon any material change in financial or business condition, upon
Holder's written request, and in the event of no request, at least annually,
current financial statements of the Borrower, which is certified by Borrower and
Borrower's accountant to be true and accurate. The requirements of this
paragraph shall be in addition to any imposed by any security agreement or other
loan documents executed in connection with the Note.
17. NO OBLIGATION TO RENEW. Borrower may repay the entire principal balance
of the Note and unpaid interest when due. The Holder is under no obligation to
renew or extend the Note or to refinance the Loan at any time.
18. NO DEFENSES. Borrower represents and warrants to Holder that as of the
date of this Note, Borrower has no claims or causes of action against the
Holder, nor any defenses, set-offs, or counterclaims to this Note or the
repayment in full according to the terms hereof, and in consideration of the
making hereof or the renewal or extension hereof, Borrower releases all rights
or claims whatsoever of Borrower against Holder.
19. RELEASE OF INFORMATION. Borrower authorizes Holder to disclose, without
any additional consent, information concerning this Note for any one or more of
the following purposes: to complete the transaction contemplated hereby, to
verify and disclose the existence and condition of the account for credit
reporting purposes, to perfect any security interest, or to collect any money
the Holder in good faith believes Borrower owes, to disclose to Holder's
attorneys or collection agents, to disclose to Holder's accountants or auditors
as part of the review of the Holder's business affairs, to verify the accuracy
of any statement made to Holder, as part of the Holder's report to officials of
any governmental authority or self-regulatory organization that regulates the
business or Holder of its affiliates, for the sale or transfer of the Note or an
interest therein, or for any other legitimate business purpose of Holder.
20 GENERAL PROVISIONS.
(a) TIME OF THE ESSENCE. Time is of the essence in Borrower's performance
of all duties and obligations imposed by this Note.
(b) NO WAIVER BY HOLDER. Holder's course of dealing or Holder's forbearance
from, or delay in, the exercise of any of Holder's rights, remedies, privileges,
or right to insist upon Borrower's strict performance of any provisions
contained in this Note or other Loan Documents shall not be construed as a
waiver by Holder, unless any such waiver is in writing and signed by Holder.
(c) AMENDMENT. The provisions contained in this Note may not be amended
except through written amendment signed by Borrower and Holder.
(d) GOVERNING LAW. This Note shall be governed by the laws of the State of
Arkansas, to the extent that such laws are not preempted by federal laws and
regulations.
(e) FORUM AND VENUE, In the event of litigation pertaining to this Note,
the exclusive forum, venue, and place of jurisdiction shall be in the State of
Arkansas, unless otherwise designated in writing by Holder.
(f) SUCCESSORS. This Note shall inure to the benefit of and bind the heirs,
personal representatives, successors, and assigns of the parties.
(g) NUMBER AND GENDER. Whenever used, the singular shall include the
plural, the plural the singular, and the use of any gender shall be applicable
to all genders.
(h) PARAGRAPH HEADINGS. The headings at the beginning of each paragraph and
each sub-paragraph in this Note are for convenience only and shall not be
dispositive in the interpreting or construing this Note or any part thereof.
(i) SEVERABILITY. If any provisions of this Note shall be unenforceable or
void, then such provision shall be deemed severable from the remaining
provisions and shall in no way affect the enforceability of the remaining
provisions nor the validity of this Note.
(j) BORROWER DEFINED. The term "Borrower" includes each and every person
and entity signing this Note as a Borrower, and any co-signers.
(k) HOLDER. The term "Holder" shall include any transferee or assignee of
Holder or any other holder of this Note.
(l) ENTIRE AGREEMENT. This Note, any guaranty agreement, any security
agreement, any pledge agreement, any financing statements and any other
documents or instruments executed in connection with this Note by Borrower and
Smart Choice, or either of them (collectively, the "Loan Documents"), contain
all the terms of the agreement among the parties, and no earlier oral statement
or agreement has any force or effect. If any of the terms or provisions relating
to the indebtedness or the repayment of the indebtedness contained in a security
agreement, mortgage or any of the Loan Documents are inconsistent with the terms
of the Note, the terms of the Note shall be controlling. If any terms or
provisions relating to the collateral contained in any security agreement,
mortgage, or other collateral agreement are inconsistent with the terms of the
Note, the terms of the security agreement, mortgage or other collateral
agreement, shall be controlling. Borrower agrees that Borrower is not relying on
any representation or agreement except those contained in the Loan Documents.
BORROWER:
Eckler Industries, Inc.
By: /s/ James Neal Hutchinson, Jr.
----------------------------------
Title: Vice President
AMENDMENT TO
GUARANTY AGREEMENT
THIS AMENDMENT TO SECURITY AGREEMENT, made and entered into this 23rd
day of January, 1998, by and between Eckler Industries, Inc., a Florida
corporation ("Borrowers"), and Stephens Inc., an Arkansas corporation
("Holder"),
WITNESSETH:
WHEREAS, borrower and Holder have entered into a Guaranty Agreement
dated as of September 30, 1997 (the "Guaranty Agreement");
WHEREAS, the Holder is funding a loan to the Borrower in the principal
amount of $3 million which will be evidenced by a Promissory Note of even date
herewith (the "$3,000,000 Note"),
WHEREAS, the Borrower and the Holder intend for the Note to be
guaranteed under the Guaranty Agreement.
NOW THEREFORE, in consideration of the premises and the agreements set
forth herein, the parties hereto agree as follows:
1. Obligations. Section 2 of the Guaranty Agreement is hereby amended to
provide an additional subsection (g), as follows:
(g) The term "Note" in the Guaranty Agreement shall
include the $3,000,000 Note and the term "Loan" in
the Guaranty Agreement shall include the loan
evidence by the $3,000,000 Note.
2. Representations and Warranties. The representations and warranties set
forth in the Guaranty Agreement are true and correct as of the date hereof as if
made on the date hereof; provided that the Borrower has granted a second lien on
the assets of Borrower to the Huntington National Bank ("Huntington") pursuant
to that certain Security Agreement dated November 3, 1997, between Borrower and
Huntington.
3. Effective Amendment. Except as amended hereby, the Guaranty Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
BORROWER:
Eckler Industries, Inc.
By:/s/ James Neal Hutchinson, Jr.
---------------------------------
Title: Vice President
HOLDER:
Stephens Inc.
By: /s/ Curt Bradbury
----------------------
Title: Chief Operating Officer
AMENDMENT TO
PLEDGE AND SECURITY AGREEMENT
THIS AMENDMENT TO PLEDGE AND SECURITY AGREEMENT, made and entered into this
23rd day of January, 1998, by and between Smart Choice Automotive Group, Inc., a
Florida corporation ("Pledgor"), and Stephens Inc., an Arkansas corporation
("Creditor"),
WITNESSETH:
WHEREAS, Pledgor and Creditor have entered into a Pledge and Security
Agreement dated as of September 30, 1997 (the "Pledge and Security Agreement");
WHEREAS, the Creditor is funding a loan to Eckler Industries, Inc.
("Eckler"), a subsidiary of the Pledgor, in the principal amount of $3 million
which will be evidenced by a Promissory Note of even date herewith (the
"$3,000,000 Note");
WHEREAS, the Pledgor and the Creditor intend for the Note to be secured
under the Pledge and Security Agreement;
NOW THEREFORE, in consideration of the premises and the agreements set
forth herein, the parties hereto agree as follows:
1. Obligations. Section 1.4 of the Pledge and Security Agreement is hereby
amended to provide in its entirety as follows:
1.4 "Obligations" - all present and future indebtedness and
other obligations owing to Creditor, pursuant to (a) that certain
Promissory Note (the "Note") dated October 3, 1997 by Eckler to the
order of Creditor in the face principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000), (b) that certain Promissory Note
(the "$3,000,000 Note") by Eckler to the order of Creditor in the face
principal amount of Three Million Dollars ($3,000,000), (c) this
Agreement, (d) that certain Guaranty Agreement dated September 30, 1997
from Pledgor to Creditor (the "Guaranty"), as amended by that certain
Amendment to Guaranty Agreement from Pledgor to Creditor, (e) that
certain Security Agreement dated September 30, 1997 from Eckler to
Creditor, as amended by that certain Amendment to Security Agreement
from Eckler to Creditor (the "Eckler Security Agreement"), or (f) or
any of them, and all present and future indebtedness and other
obligations owing by Pledgor to Creditor or guaranteed to Creditor by
Pledgor in connection with the Note or the $3,000,000 Note, whether or
not for the payment of money, whether or not evidenced by any note or
other instrument, whether direct or indirect, absolute or contingent,
due or to become due, joint or several, primary or secondary,
liquidated or unliquidated, secured or unsecured, whether arising
before, during, or after the commencement of any case with respect to
Borrower or Pledgor under the United States Bankruptcy Code of any
similar statute, including interest, fees, charges, expenses, and
attorneys' fees chargeable to Pledgor or incurred by Creditor in
connection with this Agreement and/or the transaction(s) related
thereto.
The term "Note" in the Pledge and Security Agreement shall include the
$3,000,000 Note.
2. Representations and Warranties. The representations and warranties set
forth in the Pledge and Security Agreement are true and correct as of the date
hereof as if made on the date hereof.
3. Effect of Amendment. Except as amended hereby, the Pledge and Security
Agreement shall remain in full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
PLEDGOR:
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ James Neal Hutchinson, Jr.
----------------------------------
Title: Vice President
CREDITOR:
STEPHENS INC.
By: /s/ Curt Bradbury
---------------------
Title: Chief Operating Officer
PROMISSORY NOTE
$ 3,750,000
City, State: TITUSVILLE, FL 32780
Date: Month FEBRUARY 24, 1998
FOR VALUE RECEIVED, the undersigned FIRST CHOICE AUTO FINANCE, INC., a
FLORIDA corporation ("Borrower"), promises to pay to Manheim Automotive
Financial Services, Inc.("Lender"), or order, at its place of business at 1400
Lake Hearn Drive, N.E., Atlanta, Georgia 30319, Attention: Manager of Operations
or at such other place as may be designated in writing by the holder of this
Promissory Note ("Note"), so much of the principal sum of THREE MILLION AND
SEVEN HUNDRED FIFTY THOUSAND Dollars ($3,750,000), which has been advanced by
Lender and remains outstanding pursuant to the terms of a Security Agreement
dated as FEBRUARY 24, 1998 between Borrower and Lender (the "Security
Agreement"), together with interest on the unpaid principal balance advanced
hereunder from the date of the Advance until paid, at a fluctuating interest
rate per annum equal to the Index Rate (as hereinafter defined), plus an
applicable percentage as set forth below and provided, however, that amounts
outstanding with respect to the following types of Advances cannot exceed the
limits listed below:
Applicable
Percentage Rate
Types of Advances Amount Over Index Rate
- ----------------- ------ ---------------
Advances for Inventory
Finance Loan $3,750,000 1.5%
The initial Advance, all subsequent Advances and all payments made on
account of principal may be reflected on monthly statements if provided by
Lender to Borrower. The aggregate unpaid principal amount shown on any monthly
statement shall be rebuttable presumptive evidence of the principal amount owing
and unpaid on this Note. The failure to record the date and amount of any
Advance on such monthly statement or provide such monthly statement, shall not,
however, limit or otherwise affect the obligations of the Borrower under the
Security Agreement or under this Note to repay the principal amount of the
Advances together with all interest accruing thereon.
"Index Rate" shall mean the rate quoted as the "Prime Rate" in the column
entitled "Money Rates" published in The Wall Street Journal (in the event no
such rate is published in The Wall Street Journal on such date, the Index Rate
shall be the "Prime Rate" shown in such column for the most recent business day
preceding the last business day of such month on which such rate was published)
or, in the event The Wall Street Journal does not quote a "Prime Rate", the rate
quoted as the "Prime Rate" in a publication as Lender may, from time to time,
hereafter designate in writing. The Index Rate shall initially be determined by
Lender as of the Business Day preceding the date of the Security Agreement and
shall remain in effect for the remainder of such calendar month in which such
date occurs; thereafter, the Index Rate shall be determined by Lender on the
last Business Day of each month and the Interest Rate based on such Index Rate
shall be in effect for the following month. Interest shall be calculated on the
basis of a 360-day year for actual days elapsed.
Principal and interest hereunder shall be due and payable by Borrower on
the dates and in the manner as follows:
(a) Subject to any payment changes resulting from changes in the
Index Rate, Borrower will pay regular monthly installments of
interest only, due as of each payment date, commencing on the
fifteenth (15th) day of MARCH 1998, with all subsequent
payments to be due on the fifteenth (15th) day of each month
thereafter or such other dates as may be specified by the
Lender; and
(b) Any Advance for a Vehicle shall be payable on the earliest of:
(i) forty-eight (48) hours from the time of sale or within
twenty-four (24) hours from the time Borrower receives
payment by or on behalf of the purchaser of such
Vehicle; or
(ii) the Maturity Date (as defined below) for such Advance;
or
(iii) the termination of the Security Agreement.
(c) Payments of principal required from time to time if the
Vehicle is subject to the Lender's curtailment program.
The "Maturity Date" for any Advance shall mean the date upon which an
Advance is due as determined by the Lender, provided however if no such date is
specified by Lender then the advance shall be deemed due upon demand of Lender.
Borrower may prepay at any time all or part of the principal balance under this
Note without penalty. All principal and interest, costs and expenses due
hereunder are payable in lawful money of the United States of America.
This Note has been executed and delivered pursuant to the Security
Agreement. Terms defined in the Security Agreement and not otherwise defined
herein are used herein with the meanings defined for those terms in the Security
Agreement. Upon the occurrence of an Event of Default, the entire principal
balance outstanding hereunder plus accrued interest shall, at the option of
Lender, mature and be immediately due and payable. Any Advance in default shall
bear interest at a rate equal to the Interest Rate plus three percent (3%) until
paid in full.
The obligations under this Note are secured by the Collateral pledged by
the Borrower to the Lender pursuant to the Security Agreement.
Borrower and all others who may become liable for all or any part of this
obligation, hereby agree to be jointly and severally bound, and jointly and
severally waive and renounce presentment, protest, demand and notice of dishonor
and any and all lack of diligence or delays in collection or endorsement hereof,
and expressly consent to any extension of time, release of any party liable for
this obligation or any guaranty of this obligation, release of any security
which may have been or which may hereafter be granted in connection herewith or
any guaranty of this obligation, or any other indulgence or forbearance which
may be made without notice to said party and without in any way affecting the
liability of such party.
Nothing contained herein nor in any transaction related hereto shall be
construed or shall so operate either presently or prospectively (a) to require
the payment of interest at a rate greater than is now lawful in such case to
contract for, but shall require payment of interest only to the extent of such
lawful rate or (b) to require the payment or the doing of any act contrary to
law; but if any clause or provision herein contained shall otherwise so operate
to invalidate this Note and/or the transaction related hereto, in whole or in
part, then such clause(s) and provision(s) only shall be held for naught as
though not contained herein and the remainder of this Note shall remain
operative and in full force and effect.
If for any reason interest in excess of the amount as limited in the
foregoing paragraph shall have been paid hereunder, whether by reason of
acceleration or otherwise, then in that event any such excess interest shall
constitute and be treated as a payment of principal hereunder and shall operate
to reduce such principal by the amount of such excess, or if in excess of the
then principal indebtedness, such excess shall be refunded.
The rights and remedies of Lender as provided in this Note or any document
securing this Note shall be cumulative and concurrent, and may be pursued
singly, successively or together against Borrower, any guarantor of these
obligations or any security for the debt evidenced by this Note, at the
discretion of Lender.
The Borrower agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection, to defend or enforce any of the Lender's
rights hereunder or under any document securing this Note, whether or not
litigation is commenced, Borrower shall pay to Lender its reasonable attorneys'
fees, together with all court costs and other expenses which may be incurred or
paid by Lender in connection therewith.
Failure to exercise any right or option herein given to Lender shall not
constitute a waiver of the right to exercise the same at a later time or upon
the occurrence of any subsequent event permitting such exercise.
This agreement shall be governed by the internal laws of the state of the
principal place of business of the Borrower.
This Note may not be changed, modified, amended or terminated orally, but
may only be changed, modified, amended or terminated by an agreement in writing
signed by both Borrower and Lender, except that this paragraph may not be
changed, modified, amended or terminated under any circumstance.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the date first above written.
FIRST CHOICE AUTO FINANCE, INC.
a FLORIDA Corporation
By: /s/ Richard Todd
-----------------------
Name: Richard Todd
Title: V.P. Special Projects
Acknowledged by:
/s/ Richard Todd
- -----------------
CORPORATE GUARANTY
This GUARANTY is made and entered as of March 21, 1997 ( the "Effective
Date") from SMART CHOICE AUTOMOTIVE GROUP, INC., a FLORIDA corporation, (the
"Guarantor") to MANHEIM AUTOMOTIVE FINANCIAL SERVICES, INC. (together with such
party's successors and assigns, referred to as "Secured Party").
WITNESSETH:
In consideration of any loan or other financial accommodation
heretofore or hereafter at any time made or granted to Dealer (as defined
below), the Guarantor agrees as follows:
1. DEFINITIONS
a. "Dealer" shall mean the entity listed below, including any
subsidiaries or affiliated of such entity, whether now in
existence or hereinafter established or acquired:
FIRST CHOICE AUTO FINANCE, INC., FLORIDA corporation
b. "Indebtedness" shall mean any obligation or indebtedness of any
kind of Dealer to Secured Party, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent,
renewed or extended, or now or hereafter existing or become due.
2. GUARANTY
a. Guaranty Obligations. The Guarantor hereby unconditionally and
absolutely guarantees (i) the full and prompt payment when due,
whether by acceleration or otherwise, and at all times hereafter,
of all Indebtedness and (ii) the full and prompt performance of
all the terms, covenants, conditions and agreements related to
the Indebtedness, The Guarantor further agrees to pay all
expenses, including without limitation, attorneys' fees and court
costs, paid or incurred by Secured Party in endeavoring to
collect the Indebtedness, or any part thereof, and in enforcing
the Guaranty, plus interest on such amounts at the lesser of 12%
per annum or the maximum rate permitted by law. Interest on such
amounts paid or incurred by Secured Party shall be computed from
the date of payment made by Secured Party and shall be payable on
demand.
b. Absolute and Unconditional Nature of the Guaranty. The Guarantor
acknowledges that this Guaranty is a guaranty of payment and not
of collection, and that its obligations hereunder shall be
absolute, unconditional and unaffected by:
(i) the waiver of the performance or observance by Dealer of any
agreement, covenant, term or condition to be performed or
observed by Dealer;
(ii) the extension of time for the payment of any sums owing or
payable with respect to the Indebtedness or the time for
performance of any other obligation arising out of the
Indebtedness;
(iii)the modification, alteration or amendment of any obligation
arising out of the Indebtedness;
(iv) the failure, delay or omission by Secured Party to enforce ,
assert or exercise any right, power or remedy in connection
with the Indebtedness;
(v) the genuineness, validity, or enforceability of the
Indebtedness or any document related thereto;
(vi) the existence, value or condition of, or failure of Secured
Party to perfect its lien against, any security pledged in
connection with the Indebtedness;
(vii)the release of any security pledged in connection with
the Indebtedness or the release, modification, waiver
or failure to enforce any other guaranty, pledge or
security agreement;
(viii)the voluntary or involuntary liquidation,
dissolution, sale of all or substantially all of the
property, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization, arrangement,
composition or readjustment or other similar
application or proceeding affecting Dealer or any
assets of Dealer; or
(ix) the release or discharge of Dealer from the performance
or observance of any agreements, covenants, terms or
conditions in connection with the Indebtedness by
operation of law or otherwise.
c. Continuing and Unlimited Nature of the Guaranty. The obligation of the
Guarantor under this Guaranty shall be continuing and shall cover all
Indebtedness existing as of the Effective Date of this Guaranty and
Indebtedness existing at the time of termination of this Guaranty.
This Guaranty shall be unlimited in amount and shall continue in
effect until the Guaranty is terminated pursuant to Section 3 hereof.
d. Waivers by Guarantor. The Guarantor hereby expressly waives: (i)
notice of the acceptance by Secured Party of this Guaranty; (ii)
notice of the existence or creation or non-payment of all or any of
the Indebtedness; (iii) presentment, demand, notice of dishonor,
protest, and all other notices whatsoever, and (iv) diligence in
collection or protection of or realization upon the Indebtedness, or
any part thereof, any obligation under this Guaranty or any security
for or guaranty or any of the foregoing.
e. Authorization. This Guaranty has been expressly authorized by
Guarantor's Board of Directors pursuant to a Board of Director's
resolution in form and substance satisfactory to Secured Party.
f. Enforcement. In no event shall Secured Party have any obligation to
proceed against Dealer, any other entity or any security pledged in
connection with the Indebtedness before seeking satisfaction from the
Guarantor. Secured Party may, at its option, proceed, prior or
subsequent to, or simultaneously with, the enforcement of its rights
hereunder, to exercise any right or remedy it may have against Dealer,
any other entity or any security pledged in connection with the
Indebtedness.
g. Reinstatement. The Guarantor agrees that if at any time all or any
part of any payment theretofore applied by Secured Party to any of the
Indebtedness is or must be rescinded or returned, by Secured Party for
any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of Dealer), such Indebtedness shall, for
purposes of this Guaranty, to the extent that such payment is or must
be rescinded on returned, be deemed to have continued in existence,
not withstanding such application by Secured Party, and this Guaranty
shall continue to be effective or reinstated, as applicable, as to
such Indebtedness, all as though such application by Secured Party had
not been made.
3. TERMINATION
a. Payment of Indebtedness. This Guaranty shall be terminated upon:
(i) the payment by Dealer or the Guarantor, either jointly or
severally, of the aggregate amount of Indebtedness outstanding,
and (ii) the payment of all obligations by the Guarantor which may
be due to Secured Party under this Guaranty.
b. Revocation. This Guaranty may be revoked by the Guarantor upon
ninety (90) days' written notice to Secured Party, by certified
mail, to the address set forth below in Section 5 (c) or at such
other address as Secured party may from time to time specify. Such
revocation shall in no way terminate or otherwise affect: (i) any
obligations of the Guarantor existing on or prior to the effective
date of such revocation or (ii) any obligations of the Guarantor
arising after the effective date of such revocation with respect
to any Indebtedness incurred by Dealer to Secured Party on or
before the effective date of such revocation.
4. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default hereunder:
a. If Guarantor fails to make any payment hereunder and such failure
shall continue for five (5) days after written notice from
Secured Party;
b. If Guarantor fails to perform or observe any agreement, covenant,
term or condition contained in this Guaranty (other than the
monetary obligations described in Section 4(a) above) and such
failure shall continue for thirty (30) days after written notice
from Secured Party;
c. If Guarantor makes an assignment for the benefit of creditors or
fails to pay its debts as the same become due and payable;
d. If Guarantor petitions or applies to any tribunal for the
appointment of a trustee or receiver of the business, estate or
assets or of any substantial portion of the business, estate or
assets of Guarantor or commences any proceedings relating to
Guarantor under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in effect;
e. If any such petition or application is filed or any such
proceedings are commenced against Guarantor and Guarantor by any
act indicates its approval thereof, consent thereto or
acquiescence therein, or any order is entered appointing any such
trustee or receiver, or declaring Guarantor bankrupt or
insolvent, or approving the petition in any such proceedings; or
f. Any suit or proceeding shall be filed against Dealer or
Guarantor, which if adversely determined could, substantially
impair the ability of the Guarantor or Dealer to perform any of
their obligations with respect to this Guaranty or the
Indebtedness, as determined by Secured Party in its sole and
absolute discretion.
If an Event of Default under this Guaranty shall have
occurred, in addition to pursuing any remedies which may be
available to Secured Party with respect to the Indebtedness,
Secured Party, at its option, may take whatever action at law
or in equity Secured Party may deem necessary, regardless of
whether Secured Party shall have exercised any of its rights
or remedies with respect to any of the Indebtedness, and
Secured Party may demand, at its option, that the Guarantor
pay forthwith the full amount which would be due and payable
hereunder as if all Indebtedness were then due and payable.
5. GENERAL
a. Entire Agreement. This Guaranty contains the entire and only
agreement between the Guarantor and Secured Party with respect to
the guaranty of Indebtedness and any representation, promise,
condition or understanding in connection therewith which is not
expressed in this Guaranty shall not be binding upon the Guarantor
or Secured Party. All prior understandings and agreements related
to the guaranty of the Indebtedness shall be superseded by this
Guaranty as of the Effective Date.
b. Application of Payments; Subrogation. Any amounts received by
Secured Party from any source on account of the Indebtedness may
be applied by it toward the payment of such of the Indebtedness,
and in such order of application, as Secured Party may from time
to time elect, Notwithstanding any payments made by or for the
account of the Guarantor, the Guarantor shall not be subrogated to
any rights of Secured Party until such time as this Guaranty has
been terminated in accordance with Section 3(a) above.
c. Notices. All notices to the Guarantor shall be forwarded by
express mail for overnight delivery to the address set forth below
the Guarantor's signature, or such other address as the Guarantor
may from time to time specify in writing to Secured Party. All
notices to Secured Party shall be forwarded by express mail for
overnight delivery ( except for the notice given pursuant to
Section 3(b) to the following address: Manheim Automotive
Financial Services, Inc., 1400 Lake Hearn Drive, N.E., Atlanta,
Georgia 30319, Attention: Leon L. Lyon, or such other address as
Secured Party may specify to the Guarantor in writing.
d. Governing Law; Severability. This Guaranty shall be governed by
the laws of the state of the principal place of business of
Dealer. Wherever possible, each provision of this Guaranty shall
be prohibited by or invalid under such law, the remaining
provisions of this Guaranty shall remain in full force and effect.
e. Successors and Assigns. All guaranties and agreements contained in
this Guaranty shall bind the successors and assigns of the
Guarantors.
f. References to Guarantor. Each reference to Guarantor herein shall
be deemed to include the officers, employees and agents of the
Guarantor and their respective successors and assigns.
g. Rights and Remedies of Secured Party. No delays on the part of
Secured Party in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any power or right hereunder or the failure to
exercise same in any instance preclude other or further exercise
of any other power or right, nor shall Secured Party be liable for
exercising or failing to exercise any such power or right. The
rights and remedies hereunder are cumulative and not exclusive of
any rights or remedies which Secured Party may or will otherwise
have
h. Financial Statements. Upon Lender's request, Guarantor will
provide lender with Guarantor's audited financial statements as
certified by Guarantor's independent certified public accountant
or such other financial statements and information as Lender may
request from time to time.
i. Amendments. This Guaranty may not be modified or amended except by
a writing duly executed by the Guarantor. Any such modification or
amendment must be expressly consented to in writing by Secured
Party.
WHEREAS, this Guaranty has been executed by the Guarantor as of the
Effective Date.
Guarantor: SMART CHOICE AUTOMOTIVE GROUP, INC.
A FLORIDA corporation
By: /s/ JM Barnes
