U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report December 1, 1999
Commission file number 1-14082
------------------------------
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) 269-0834
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
SMART CHOICE AUTOMOTIVE GROUP, INC.
Form 8-K
TABLE OF CONTENTS
HEADING PAGE
------- ----
Item 1. Changes in Control of Registrant ..................................3
Item 2. Acquisition or Disposition of Assets ..............................4
Item 4. Changes in Registrant's Certifying Accountant .....................4
Item 7. Change in Fiscal Year .............................................4
Item 8. Exhibits ..........................................................4
SIGNATURES....................................................................5
2
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On December 1, 1999 the Company completed a merger between a wholly-owned Smart
Choice subsidiary and Paaco Automotive Group, Inc. an 85% owned subsidiary of
Crown Group, Inc. (Nasdaq:CNGR). As a result of the merger and a $3 million cash
investment into the Company, Crown Group, Inc. acquired voting control of the
Company.
The Company and Crown Group, Inc. announced on August 27, 1999, that they had
entered into a letter of intent with respect to Crown's proposed acquisition of
a controlling interest in the Company. The terms of the transaction, as
completed, differ substantially from those outlined in the letter of intent.
Contemporaneously with Crown's equity investment and the merger of its Paaco
subsidiary with the Smart Choice subsidiary, approximately $15.0 million of
Smart Choice's outstanding debt and preferred stock was converted into shares of
Smart Choice common stock. An additional $4.5 million of Smart Choice debt,
acquired by Crown for approximately $2.3 million in cash, was converted into
shares of Series E Convertible Preferred Stock. Following this transaction, the
Company has approximately $2.6 million of subordinated debt outstanding. In
connection with the transaction, the combined company obtained a restructured
and restated $160 million senior finance receivables and inventory credit
facility, which contains more favorable terms than the facilities it replaced.
In exchange for its $3 million cash investment, its contribution of Paaco, and
the conversion of certain debt obligations, Crown received shares of Series E
Convertible Preferred Stock representing 70% of the ownership and voting rights
of the Company on an "as converted" basis. The minority shareholders of Paaco
received shares of Series E Convertible Preferred Stock representing 5% of the
Company's outstanding voting securities. The holders of certain converted Smart
Choice debt and preferred stock received shares of the Company's common stock
equivalent to approximately 20.7% of the outstanding voting securities.
Previously existing Smart Choice shareholders now own approximately 4.3% of the
outstanding Smart Choice voting securities. The holders of the shares of Smart
Choice common stock issued in connection with the transaction and Crown and
other holders of Series E Convertible Preferred Stock have certain registration
rights.
For its most recent fiscal year ended December 31, 1998, the Company reported
revenues from continuing operations of $95.4 million and a loss from continuing
operations of $7.3 million. For the nine months ended September 30, 1999, the
Company reported revenues of $71.4 million and a loss from continuing operations
of $24.2 million.
James E. Ernst has been appointed President and Chief Executive Officer of Smart
Choice. Mr. Ernst has a long association with Crown and has recently been
responsible for the restructuring of Paaco's operations. He is a Certified
Public Accountant and was formerly President and Chief Executive Officer of both
Casino Magic Corp. and Casino America, Inc.
Gary Smith will continue to manage the Florida-based operations of Smart Choice,
as President of First Choice, while Larry Lange remains responsible for the
Company's Texas-based operations, as President of Paaco. Joe Cavalier has joined
Smart Choice as its new Chief Financial Officer, and Ron Anderson will have
principal responsibility for the Company's finance receivable activities.
3
<PAGE>
Smart Choice's board of directors includes Edward R. McMurphy as Chairman, and
T. J. Falgout, III - both senior executives of Crown. Robert Abrahams, James E.
Ernst, Gary Smith and Larry Lange comprise the remainder of the Company's board.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 1, 1999 the Company completed a merger between a wholly-owned Smart
Choice subsidiary and Paaco Automotive Group, Inc., an 85% owned subsidiary of
Crown Group, Inc. Paaco was the surviving corporation in the merger and became
the wholly-owned subsidiary of Smart Choice. As described in Item 1, Crown
acquired voting control of Smart Choice through the acquisition of Series E
Convertible Preferred Stock pursuant to the merger of Paaco, Crown's conversion
of certain debt obligations and a $3 million cash investment. Minority
shareholders in Paaco acquired approximately 5% of the Company's outstanding
voting securities.
The combined business, which employs 500 people and operated 22 used car
dealerships in Florida and Texas, will have an aggregate portfolio of finance
receivables totaling approximately $160 million. Headquartered in Dallas, Texas,
Paaco operates 11 dealerships in the Dallas-Ft.Worth Metroplex and the Houston
area. Smart Choice, headquartered in Titusville, Florida currently operates a
network of 11 dealerships in the State of Florida. Both Paaco and Smart Choice
provide installment financing for over 95% of the vehicles purchased by their
respective customers.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On December 1, 1999 the appointment of BDO Seidman, LLP as independent public
accountants for the Company was terminated.
ITEM 7. CHANGE IN FISCAL YEAR
Effective December 1, 1999 the Company elected to change its financial reporting
year end from December 31 to April 30. The Company will file a Form 10-K
covering the transition period.
ITEM 8. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of the business acquired will be provided within
the next sixty (60) days as an amendment to this filing.
(b) Pro Forma Financial Information. The unaudited pro forma condensed
consolidated balance sheet and income statement of the Registrant will be
provided within the next sixty (60) days as an amendment to this filing.
(c) Exhibits filed herewith.
Exhibit
NO. EXHIBIT DESCRIPTION
------- -------------------
10.94 Stock Purchase Agreement dated
December 1, 1999 by and between
Crown Group, Inc. and Smart Choice
Automotive Group, Inc.
4
<PAGE>
Exhibit
NO. EXHIBIT DESCRIPTION
------- -------------------
16.1 Letter from BDO Seidman, LLP
dated December 1, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on December 8, 1999.
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ JAMES E. ERNST
------------------
James E. Ernst, President
and Chief Executive Officer
5
EXHIBIT 10.94
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CROWN GROUP, INC.
AND
SMART CHOICE AUTOMOTIVE GROUP, INC.
<PAGE>
TABLE OF CONTENTS
1. Sale and Purchase of the Shares.......................................1
2. Purchase and Payment..................................................2
(a) Purchase Price. .............................................2
(b) Further Assurances. .........................................2
3. Representations and Warranties of the Company.........................2
(a) Organization and Standing of the Company.....................2
(b) Subsidiaries.................................................2
(c) Capital Stock................................................3
(d) Corporate Proceedings of the Company.........................4
(e) Financial Statements.........................................4
(f) Absence of Certain Changes or Events.........................5
(g) Tax Matters..................................................8
(h) Title to Properties and Related Matters......................9
(i) Consents and Approvals......................................10
(j) Receivables.................................................10
(k) Litigation and Proceedings..................................10
(l) Insurance Coverage..........................................11
(m) Employee Benefits...........................................12
(n) Employee Relations..........................................14
(o) Patents, Trademarks and Licenses............................14
(p) Approvals, Authorizations and Regulations...................14
(q) Inventory...................................................15
(r) Guarantees, Etc.............................................15
(s) OSHA........................................................16
(t) No Defaults.................................................16
(u) No Conflicts................................................16
(v) Brokers.....................................................17
(w) Environmental Matters.......................................17
(x) Permits, Licenses, Etc......................................19
(y) Software....................................................20
(z) Disclosure..................................................20
4. Representations and Warranties of the Purchaser......................20
(a) Organization, Standing and Authority of the Purchaser.......20
(b) No Violation................................................21
(c) Corporate Proceedings of the Purchaser......................21
(d) Financial Statements........................................21
(e) Brokers.....................................................22
(f) Accredited Investor/Investment..............................22
(g) Due Diligence...............................................22
(h) No Knowledge of Breach......................................23
i
<PAGE>
5. Closing Actions......................................................23
(a) Resignations................................................23
(b) Opinion of the Company's Counsel............................24
(c) Opinion of Purchaser's Counsel..............................25
(d) Ready Finance Debt..........................................26
(e) Conversion of Other Company Debt............................26
(f) High Capital Funding, LLC...................................26
(g) Conversion of Company Preferred Stock.......................26
(h) Merger of Paaco Automotive Group, Inc.......................27
(i) Grant to the Purchaser of Options, Warrants, Etc............27
(j) Finova Capital Corporation..................................28
(k) No Material Adverse Changes.................................28
(l) Consents....................................................28
(m) Certified Resolutions of the Company........................28
(n) Certified Resolutions of the Purchaser......................29
(o) Hart-Scott-Rodino Filing and Approval.......................29
(p) Employment/Consulting Agreements............................29
(q) Settlement of Existing Litigation...........................30
(r) Bankers Insurance Company Investment........................30
6. The Closing..........................................................30
7. Nature and Survival of Representations and Warranties................30
(a) Nature of Statements........................................30
(b) Survival of Representations and Warranties..................30
8. Indemnification by Company and Related Matters.......................31
9. Indemnification by the Purchaser and Related Matters.................32
10. Expenses.............................................................33
11. Notices..............................................................34
12. Miscellaneous........................................................35
(a) Assignment..................................................35
(b) Section and Paragraph Headings..............................35
(c) Amendment...................................................35
(d) Entire Agreement............................................35
(e) Knowledge...................................................35
(f) Public Announcements........................................35
(g) Counterparts................................................36
(h) Governing Law...............................................36
(i) Material Adverse Effect.....................................36
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated on or as of December 1, 1999, by
and between CROWN GROUP, INC., a Texas corporation (the "Purchaser" or "Crown
Group"), and SMART CHOICE AUTOMOTIVE GROUP, INC., a Florida corporation (the
"Company" or "Smart Choice").
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase 150,000 shares of the Series
E Convertible Preferred Stock, $.01 par value per share, of the Company (herein
referred to as the "Shares"), and the Company desires to sell the Shares to the
Purchaser, all upon the terms and conditions set forth herein; and
WHEREAS, this Agreement sets forth the terms and conditions to which
the parties have agreed and further contemplates the execution and delivery of
certain collateral agreements and the consummation of certain related
transactions hereinafter described;
NOW, THEREFORE, in consideration of the mutual promises and covenants
of the parties, the parties agree as follows:
1. SALE AND PURCHASE OF THE SHARES. The Company hereby sells, assigns
and conveys to the Purchaser on the Closing Date (as hereinafter defined), free
and clear of all security interests, pledges, liens, charges and encumbrances,
the Shares and transfers and delivers to the Purchaser the certificates
evidencing the Shares. The Purchaser hereby purchases and accepts the Shares for
the consideration set forth in Section 2(a) hereof.
1
<PAGE>
2. PURCHASE AND PAYMENT.
(a) PURCHASE PRICE. The total purchase price (the
"Purchase Price") for the Shares is Three Million ($3,000,000) Dollars,
payable by the Purchaser to the Company at Closing (as hereinafter
defined), by wire transfer funds.
(b) FURTHER ASSURANCES. The Company hereby agrees to
execute and deliver from time to time at the request of the Purchaser
and without further consideration, such additional instruments of
conveyance and transfer and to take such other action as the Purchaser
may reasonably require to more effectively convey, assign, transfer and
deliver the Shares to the Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with the Purchaser that:
(a) ORGANIZATION AND STANDING OF THE COMPANY. The Company
and each of the Company Subsidiaries (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation. The Company and the Company
Subsidiaries have all requisite corporate power and authority to
conduct their respective businesses as they are now being conducted.
The Company has delivered to the Purchaser complete and correct copies
of the Articles of Incorporation (duly certified by the Secretary of
State of the respective states of incorporation) and By-Laws (certified
by the Secretary of the Company or the Company Subsidiaries, as the
case may be) of the Company and the Company Subsidiaries as in effect
on the date hereof.
(b) SUBSIDIARIES. All direct and indirect subsidiaries of
the Company (individually, a "Company Subsidiary," and collectively,
the "Company
2
<PAGE>
Subsidiaries") are listed on Schedule 3(b) attached hereto. Except for
the Company Subsidiaries, the Company does not (i) own, directly or
indirectly, any of the outstanding capital stock or securities
convertible into capital stock of any other corporation, or (ii) own,
directly or indirectly, any participating interest in any partnership,
joint venture or other business enterprise.
(c) CAPITAL STOCK. The total authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock, $.01 par
value per share (the "Company Common Stock"), of which as of August 16,
1999, 7,782,277 shares have been issued and are outstanding, and
5,000,000 shares of Preferred Stock, $.01 par value per share, (the
"Company Preferred Stock"), of which (i) 440 shares of Series A
Convertible Preferred Stock (the "Company Series A Preferred Stock"),
have been issued and no shares are outstanding, (ii) 220 shares of
Series B Convertible Preferred Stock (the "Company Series B Preferred
Stock"), have been issued and are outstanding, (iii) 24.98 shares of
Series C Convertible Preferred Stock (the "Company Series C Preferred
Stock"), have been issued and are outstanding, (iv) 350 shares of
Series D Convertible Preferred Stock (the "Company Series D Preferred
Stock"), have been issued and are outstanding, and (v) no shares of
Series E Convertible Preferred Stock (the "Company Series E Preferred
Stock"), have been issued and are outstanding. A true and correct copy
of the Sixth Articles of Amendment to the Articles of Incorporation of
the Company authorizing the designation of the Company Series E
Preferred Stock is attached hereto as Exhibit "A." Except as set forth
in Schedule 3(c) attached hereto, there are no existing options,
warrants, calls, commitments or other rights of any character
(including
3
<PAGE>
conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of the Company
(collectively, the "Existing Options").
(d) CORPORATE PROCEEDINGS OF THE COMPANY. The execution,
delivery and performance of this Agreement has been authorized by the
Board of Directors of the Company and this Agreement constitutes the
valid and legally binding obligation of the Company, enforceable in
accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(e) FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser correct and complete copies of the Company's and the
Company Subsidiaries' consolidated unaudited monthly financial
statements consisting of consolidated balance sheets of the Company and
the Company Subsidiaries as of the end of each month from January 1999
through September 1999 and the related statements of income for the
periods then ended. The Company has also delivered to the Purchaser
correct and complete copies of financial statements consisting of the
consolidated balance sheets of the Company and the Company Subsidiaries
as of December 31, 1998 and the related consolidated statements of
income, stockholders' equity and cash flows for the period then ended,
all of which have been audited by the firm of BDO Seidman, LLP (the
"Audited Financial Statements"). All such unaudited financial
statements and the Audited Financial Statements are referred to herein
collectively as the "Financial Statements." The Financial Statements
are in
4
<PAGE>
accordance with the books and records of the Company and the Company
Subsidiaries in all material respects, and there have not been any
material transactions that have not been recorded in the accounting
records underlying such Financial Statements. In addition, The
Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied and
present accurately, in all material respects, the financial position of
the Company and the Company Subsidiaries as of the dates thereof, and
the results of their operations for the periods then ended, provided,
however, that the unaudited financial statements may be subject to
year-end adjustments and such unaudited financial statements lack
footnotes and other presentation items. The balance sheet of the
Company and the Company Subsidiaries as of September 30, 1999 is
referred to herein as the "Company Balance Sheet," and the date thereof
is referred to as the "Company Balance Sheet Date."
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in Schedule 3(f) or except as contemplated by this Agreement,
since the Company Balance Sheet Date, none of the Company and the
Company Subsidiaries has:
(i) issued, delivered or agreed to issue or deliver
any stock, bonds or other corporate securities (whether
authorized and unissued or held in the treasury) or granted or
agreed to grant any options, warrants or other rights calling
for the issuance thereof;
(ii) except as otherwise permitted herein, borrowed
or agreed to borrow any funds or incurred, or become subject
to, any obligation
5
<PAGE>
or liability (absolute or contingent) except in the ordinary
course of business in customary amounts;
(iii) paid any obligation or liability (absolute or
contingent) except in the ordinary course of business in
customary amounts;
(iv) paid any obligation or liability (absolute or
contingent) other than current liabilities reflected in or
shown on the Financial Statements (or the notes thereto) and
obligations or liabilities incurred since the date thereof and
permitted to be so incurred by the foregoing clause (ii) of
this Section 3(f);
(v) declared or made, or agreed to declare or make,
any payment of dividends or distribution of any assets of any
kind whatsoever to the Company or affiliates of the Company,
or purchased or redeemed any shares of its capital stock;
(vi) sold or transferred, or agreed to sell or
transfer, any of its assets, properties or rights (except
sales in the ordinary course of business) or cancelled or
agreed to cancel, any debts or claims;
(vii) entered or agreed to enter into any agreement
or arrangement granting any preferential rights to purchase
substantially all of the assets, properties or rights of the
Company or the Company Subsidiaries (including management and
control thereof), or requiring the consent of any party to the
transfer and assignment of such assets, properties or rights
(or changes in management or control thereof), or providing
for the merger or consolidation of the Company or the
6
<PAGE>
Company Subsidiaries with or into another corporation, other
than as described in this Agreement and the documents
contemplated hereby;
(viii) waived any rights of material value;
(ix) except in the ordinary course of business, made
or permitted any amendment or termination of any material
contract, agreement or license to which it is a party;
(x) made any accrual or arrangement for the payment
of bonuses or special compensation of any kind or any
severance or termination pay to any present or former officer
or employee;
(xi) increased the rate of compensation payable or to
become payable by it to any of its officers or key employees
compensated at a rate in excess of $50,000 per annum; or made
any increase in any profit sharing, bonus, incentive, deferred
compensation, insurance, pension, retirement or other employee
benefit plan, payment or arrangement made to, for or with any
such officers or key employees;
(xii) committed to purchase inventories, parts,
supplies or other items in excess of its normal, ordinary and
usual requirements or at excessive prices, all computed based
on historical practices of the Company and the Company
Subsidiaries;
(xiii) experienced any significant labor trouble; or
(xiv) suffered any material losses or any damage,
destruction or loss, whether or not covered by insurance,
which materially and adversely affects its assets or business,
or had any material adverse
7
<PAGE>
change in the business, of the Company or the Company
Subsidiaries, in each case, which would reasonably be expected
to have a Material Adverse Effect on the Company or the
Company Subsidiaries.
(g) TAX MATTERS. All United States, state, county and
local and other taxes, including without limitation, income taxes,
payroll taxes, corporate franchise taxes, sales, excise and use taxes
and ad valorem taxes, due and payable by the Company and the Company
Subsidiaries for the periods ended prior to the date hereof, have been
paid or accrued and there is no further liability (whether or not
disclosed on their respective tax returns) for any taxes relating to
such periods, and no interest or penalties have accrued or are accruing
with respect thereto, except for taxes that are being contested in good
faith by appropriate proceedings and as to which adequate reserves have
been reflected on the Financial Statements and established (and through
and including the Closing Date will establish) reserves that are
adequate for the payment of all taxes not yet due and payable with
respect to the results of operations through the Closing Date. The
Company and the Company Subsidiaries have timely filed in materially
correct form all tax returns and reports required to be filed by them
on or before the date of this Agreement with all such taxing
authorities, except as otherwise set forth on Schedule 3(g). The
liability for Federal, state and local taxes reflected on the most
recent Company's Financial Statements, if any, represents at the date
thereof, reasonable and adequate provision for the payment of all
accrued and unpaid Federal, state and local taxes of the Company and
the Company Subsidiaries. No assessments of deficiencies have been made
against the Company or the Company Subsidiaries, and no extensions of
time
8
<PAGE>
are in effect for the filing of any returns or the assessment of
deficiencies. To the Company's knowledge, no examinations by the
Internal Revenue Service of the Federal income tax returns of the
Company or the Company Subsidiaries for any taxable year are presently
pending. The Company has delivered to the Purchaser true and complete
copies of all of the Company's and the Company Subsidiaries' Federal
and state Income Tax Returns and payroll tax returns for each of their
fiscal years from 1995 through 1998.
(h) TITLE TO PROPERTIES AND RELATED MATTERS. The assets
reflected in the Financial Statements were at the date thereof, and,
except for assets consumed or disposed of in the ordinary course of
business since the date thereof, are now owned by the Company or the
Company Subsidiaries by good title, free and clear from all security
interests, mortgages, liens, claims, defects and encumbrances except
liens, charges or encumbrances discussed or referred to in the
Financial Statements, the related notes or schedules thereto or in
Schedule 3(h) delivered to the Purchaser pursuant to this Section 3.
Except as disclosed in Schedule 3(h), all such assets are in good
operating condition and repair, subject to ordinary wear and tear. All
of such assets have been properly maintained, with no extraordinary
maintenance planned or anticipated, and are adequate and sufficient for
the operation of the Company's and the Company Subsidiaries' business
as historically operated by the Company and the Company Subsidiaries.
There are no material capital expenditures currently contemplated or
necessary to maintain the current operation of the Company's and the
Company Subsidiaries' business. The Nissan and Volvo new car
dealerships owned by the Company have been sold and all indebtedness
related thereto or
9
<PAGE>
secured by the assets thereof, has been released, or will be released
promptly after Closing.
(i) CONSENTS AND APPROVALS. No notification,
authorization, permit, consent or approval of, or notice to, or filing
with, any governmental or regulatory authority or other third party is
required to be obtained, given or made, or waiting period required to
expire as a condition to the lawful execution and delivery of this
Agreement, the consummation by the Company of the transaction
contemplated herein, or the fulfillment of the terms and compliance
with the provisions hereof, except for such permits, consents,
licenses, approvals or authorizations or declarations, exemptions,
filings or registrations (a) disclosed in Schedule 3(i) or (b) the
failure of which to obtain or make do not and will not (A) affect the
validity and enforceability of this Agreement or (B) either
individually or in the aggregate reasonably be expected to have a
Material Adverse Effect.
(j) RECEIVABLES. All notes receivable, contracts
receivable and accounts receivable (collectively, the "Receivables")
are properly reflected on the Company's and the Company Subsidiaries'
books and records are valid and have arisen in the ordinary course of
business. None of such Receivables has been the subject of any
factoring by the Company or the Company Subsidiaries.
(k) LITIGATION AND PROCEEDINGS. Except as described in
Schedule 3(k), there are no actions, suits or proceedings pending or,
to the knowledge of the Company or the Company Subsidiaries, threatened
against or affecting the Company or the Company Subsidiaries, at law or
in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or
10
<PAGE>
foreign, or before any arbitrator of any kind, which would be
reasonably expected to result in any judgment or liability not fully
covered by casualty or liability insurance (less applicable deductible
or retention, if any) and have a Material Adverse Effect. Neither the
Company nor the Company Subsidiaries are in default with respect to any
judgment, order, writ, injunction, decree, award, or, to the Company's
knowledge, in default with respect to any rule or regulation of any
court, arbitrator or governmental department, commission, board,
bureau, agency or instrumentality which default would reasonably be
expected to have a Material Adverse Effect.
(l) INSURANCE COVERAGE. With respect to each such
insurance policy owned by the Company and the Company Subsidiaries: (A)
the policy is legal, valid, binding, enforceable, except as the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally
and the availability of equitable remedies may be limited by equitable
principles of general applicability, and in full force and effect with
respect to the periods and risks which such policy purports to insure;
(B) the policy will continue to be legal, valid, binding, enforceable
and in full force and effect in accordance with its terms on the same
terms immediately following the consummation of the transactions
contemplated hereby; (C) neither the Company nor the Company
Subsidiaries are in breach or default (including with respect to the
payment of premiums or the giving of notices) of any material term
thereto, and to the Company's knowledge, no event has occurred which,
with notice or the lapse of time, would reasonably be expected to
constitute such a breach or default, or permit termination,
modification or acceleration under the policy; and (D) to the Company's
11
<PAGE>
knowledge, no party to the policy has repudiated any provision thereof.
To the knowledge of the Company, the Company and the Company
Subsidiaries have been covered during the past five years by insurance
in scope and amount customary and reasonable for the businesses in
which it has engaged during such period. The Company and the Company
Subsidiaries do not have any self-insurance arrangements affecting the
Company and the Company Subsidiaries. "Self insurance arrangements"
means any arrangement by which the Company and the Company Subsidiaries
have assumed risks in scope and amount customarily insured by
businesses in the Company's and the Company Subsidiaries' industry and
geographic region.
(m) EMPLOYEE BENEFITS.
(i) The Company and the Company Subsidiaries have
complied and currently are in compliance, both as to form and
operation, in all material respects with the applicable
provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), respectively, with respect to
each "employee benefit plan" as defined under Section 3(3) of
ERISA, except where the failure to comply would not reasonably
be expected to have a Material Adverse Effect.
(ii) Neither the Company nor the Company Subsidiaries
have ever maintained, adopted or established, contributed or
been required to contribute to, or otherwise participated or
been required to
12
<PAGE>
participate in, a "multiemployer plan" (as defined in Section
3(37) of ERISA). No amount is due or owing from the Company or
any Company Subsidiary on account of any withdrawal therefrom.
(iii) Neither the Company nor the Company
Subsidiaries have incurred any liability with respect to a
Plan, including, without limitation, under ERISA, (including,
without limitation, Title I or Title IV of ERISA, other than
liability for premiums due to the Pension Benefit Guaranty
Corporation ("PBGC")), the Code or other applicable law, which
has not been satisfied in full and, to the knowledge of the
Company, no event has occurred, and there exists no known
condition or set of circumstances, which would reasonably be
expected to result in the imposition of any liability with
respect to a Plan, including, without limitation, under ERISA
(including, without limitation, Title I or Title IV of ERISA),
the Code or other applicable law with respect to the Plan,
wherein any such liability, individually or in the aggregate,
would reasonably be expected to have a Material Adverse
Effect.
(iv) Except as set forth in Schedule 3(m) attached
hereto, neither the Company nor the Company Subsidiaries have
any outstanding commitments to provide or to cause to be
provided any severance or other post-employment benefit,
salary continuation, termination, disability, death,
retirement, health or medical benefit or similar benefit to
any person (including, without limitation, any
13
<PAGE>
former or current employee) that has not been reflected in the
Company's Financial Statements.
(n) EMPLOYEE RELATIONS. The Company and the Company
Subsidiaries are in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours of employees, and
there is no labor strike, dispute, slowdown or representation campaign
or work-stoppage pending or, to the Company's knowledge, threatened
with respect to employees of the Company or the Company Subsidiaries.
Except as disclosed in Schedule 3(n), there is not, pending or, to the
Company's knowledge, threatened, any unfair labor practice complaint
against the Company or the Company Subsidiaries pending before any
relevant authority or union representation petition respecting the
employees of the Company or the Company Subsidiaries.
(o) PATENTS, TRADEMARKS AND LICENSES. Neither the Company
nor the Company Subsidiaries have any patents or patent applications
pending. Schedule 3(o) contains an accurate and complete list of all
trademarks, trade names, service marks and copyrights of the Company.
None of the foregoing is registered nor have any applications for such
registration been made. Neither the Company nor the Company
Subsidiaries have received any notice of any claim of infringement or
other complaint that its operations conflict with or infringe upon the
patents, trade names, trademarks, trade secrets, copyrights or product
formulas of others.
(p) APPROVALS, AUTHORIZATIONS AND REGULATIONS. Except as
disclosed in Schedule 3(p), the Company's and the Company Subsidiaries'
business is being
14
<PAGE>
conducted in compliance with all applicable laws, ordinances, rules and
regulations of all governmental authorities, and neither the Company,
the Company Subsidiaries, nor any officer, director, stockholder, agent
or employee has violated any law, ordinance, rule or regulation in
connection with the Company's and the Company Subsidiaries' business,
except for such violations as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Further, other than as disclosed on Schedule 3(p), neither the Company
nor the Company Subsidiaries have received any notice (written or
otherwise) from any governmental authority asserting or investigating
any alleged failure to comply with any applicable law, ordinance or
regulation, except for such failure as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect.
(q) INVENTORY. None of the used vehicle inventories of
the Company and the Company Subsidiaries are obsolete, defective or
otherwise not saleable or usable in the ordinary course of business in
any material respects, except to the extent of the inventory reserve
reflected in the unaudited financial statements for the month ended
September 30, 1999.
(r) GUARANTEES, ETC. Except as disclosed in Schedule
3(r), neither the Company nor the Company Subsidiaries have given any
guarantee, indemnity, warranty or bond, or incurred any other similar
obligation or created any security for or in respect of, liabilities,
actual or contingent, of any other person that remains outstanding. All
guaranties of the Company and the Company Subsidiaries on behalf of any
person other than another Company Subsidiary (excluding the Company
Subsidiaries that owned the Nissan and Volvo dealerships) have been
terminated.
15
<PAGE>
(s) OSHA. Neither the Company nor the Company
Subsidiaries have received notice of any violation by the Company or
the Company Subsidiaries, and to the Company's knowledge, neither the
Company nor any Company Subsidiary is in violation of and has not been
in violation of, the Occupational Safety and Health Act of 1970,
including rules and regulations thereunder, or any other federal,
state, local or foreign laws, including rules and regulations
thereunder, regulating or otherwise affecting employee health and
safety which would reasonably be expected to have a Material Adverse
Effect.
(t) NO DEFAULTS. Except as set forth on Schedule 3(t)
attached hereto, neither the Company nor the Company Subsidiaries are
in default under, nor has any event occurred which with notice or lapse
of time or both, would reasonably be expected to result in a waiver
(except caused by the statute of limitations) of any material right or
default under, any outstanding indenture, mortgage, lease, contract or
agreement to which the Company or any of the Company Subsidiaries is a
party or by which the Company, the Company Subsidiaries or their assets
may be bound, or under any provision of the Company's or the Company
Subsidiaries' Articles of Incorporation or By-Laws, which would
reasonably be expected to have a Material Adverse Effect.
(u) NO CONFLICTS. The execution and performance of this
Agreement by the Company and the Company Subsidiaries in accordance
with its terms and the transactions contemplated hereby will not
violate any provision of or result in a breach of or constitute a
default under the Articles of Incorporation or By-Laws of the Company
and the Company Subsidiaries, or under any order, writ, injunction or
16
<PAGE>
decree of any court, governmental agency or arbitration tribunal, or
under any contract, agreement or instrument to which the Company or any
Company Subsidiary is a party or by which its properties may be bound,
or under any law, statute or regulation, except where the violation,
conflict, breach or default would not reasonably be expected to have a
Material Adverse Effect.
(v) BROKERS. The Company is not a party to nor in any way
obligated under a contract or other agreement, and there are no
outstanding claims against any of them, for the payment of any broker's
or finder's fees in connection with the origin, negotiation, execution
or performance of this Agreement.
(w) ENVIRONMENTAL MATTERS.
(i) For the purposes of this Agreement, the following
definitions shall apply: ENVIRONMENT: Ambient air, surface
water, groundwater, soil, sediment and land.
ENVIRONMENTAL CONDITIONS: Any environmental contamination of
any kind or nature resulting from the presence of Hazardous
Materials in the surface soils, subsurface soils, surface
waters or groundwater.
ENVIRONMENTAL LAWS: All existing federal, state or local laws
or ordinances and any regulations, rules, or administrative or
judicial rulings issued or promulgated thereunder and common
law relating to (a) Releases or threatened Releases of
Hazardous Materials or materials containing Hazardous
Materials; (b) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Materials or
materials containing Hazardous Materials; or (c) otherwise
relating to the protection of human health or the Environment,
including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. ' 9601 ET
SEQ., ("CERCLA"), the Resource Conservation and Recovery Act,
42 U.S.C. ' 6901 ET SEQ., ("RCRA"), the Clean Water Act,
33-U.S.C. ' 1251 ET SEQ., the Clean Air Act, 42 U.S.C. ' 7401
ET SEQ., the Toxic Substances Control Act, 15 U.S.C. ' 2601 ET
SEQ.,
17
<PAGE>
("TSCA"), and all state analogues and counterparts to any of
the foregoing.
FACILITIES: The real property and improvements located at the
locations owned or leased by the Company or the Company
Subsidiaries.
HAZARDOUS MATERIALS: Any substance defined as "Hazardous
Waste", "Hazardous Substance", "Hazardous Material", pollutant
or contaminant under any existing Environmental Laws.
Hazardous Materials include, without limitation, asbestos,
polychlorinated biphenyls and petroleum products.
RELEASE: Any spilling, leaking, pumping, pouring, leaching,
emitting, emptying, discharging, injecting, escaping, dumping
or disposing of Hazardous Materials or materials containing
Hazardous Materials into the Environment.
(ii) Except as would not reasonably be expected to
have a Material Adverse Effect or as disclosed in Schedule
3(w), there are no Environmental Conditions on, at, under or
emanating from the Facilities.
(iii) Except as would not reasonably be expected to
have a Material Adverse Effect or as disclosed in Schedule
3(w), neither the Company nor any Company Subsidiary has
received any notice claiming or alleging that the Company or
any Company Subsidiary (1) has violated any applicable
Environmental Laws; or (2) is responsible or potentially
responsible for any remedial or removal action under any
applicable Environmental Laws, and to the Company's knowledge,
no such claim is threatened.
(iv) Except as would not reasonably be expected to
have a Material Adverse Effect or as disclosed in Schedule
3(w):
18
<PAGE>
(1) the Company and the Company Subsidiaries have all
Permits required under applicable Environmental Laws
that are necessary to conduct the business of the
Company and the Company Subsidiaries as presently
conducted, the absence of which would have a material
adverse effect on the Company or the Company
Subsidiaries (the "Material Environmental Permits"),
and has provided copies of all the Material
Environmental Permits to the Purchaser;
(2) all the Material Environmental Permits are in
full force and effect and neither the Company nor any
Company Subsidiary is in material default of any
thereof;
(3) there is no threatened suspension, cancellation
or non-renewal of any of the Material Environmental
Permits or any basis for such suspension,
cancellation or non- renewal; and
(4) the Company and the Company Subsidiaries shall
renew all the Material Environmental Permits that
shall expire on or before Closing.
(v) PCB ITEMS. Except as would not reasonably be
expected to have a Material Adverse Effect or as disclosed in
Schedule 3(w), none of the assets of the Company or the
Company Subsidiaries is a PCB Item (as defined in 40 C.F.R. '
761.3).
(x) PERMITS, LICENSES, ETC. The Company and the Company
Subsidiaries have all Permits (except for Environmental Permits, which
are the subject of specific representations and warranties in Section
3(x) hereof), that are required in order to carry on the Company's and
the Company Subsidiaries' business as presently conducted, the absence
of which would reasonably be expected to result in a Material Adverse
Effect on the Company or the Company Subsidiaries (the "Material
Permits"). All Material Permits are in full force and effect, and, to
the knowledge of
19
<PAGE>
the Company, no suspension, cancellation or non-renewal of any Material
Permit is threatened, nor, to the best of the Company's knowledge, does
there exist any basis for such suspension, cancellation or non-renewal.
(y) SOFTWARE. To the Company's knowledge, all operating
and applications computer programs and data bases (the "Software")
which the Company and the Company Subsidiaries use is owned outright by
the Company and the Company Subsidiaries or if any Software is not
owned by the Company or the Company Subsidiaries, the Company and the
Company Subsidiaries have the right to use the same pursuant to
existing leases or licenses therefor. To the knowledge of the Company,
none of the Software presently used by the Company and the Company
Subsidiaries, and no present use thereof, infringes upon or violates
any patent, copyright, trade secret or other proprietary right of
anyone else and no claim with respect to any such infringement or
violation is known to be threatened.
(z) DISCLOSURE. No representation or warranty by the
Company or the Company Subsidiaries contained in this Agreement,
including the Schedules attached hereto, taken as a whole, contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein and therein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company that:
(a) ORGANIZATION, STANDING AND AUTHORITY OF THE
PURCHASER. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, and
has full corporate power and authority to
20
<PAGE>
conduct its business as it is now being conducted, to enter into and
carry out the provisions of this Agreement.
(b) NO VIOLATION. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any provision of the Articles of Incorporation
or By-Laws of the Purchaser, (ii) violate any provision of any
agreement or other obligation to which the Purchaser is a party or by
which the Purchaser is bound or to which its assets are subject, or
(iii) violate or result in a breach of, constitute a default under, any
judgment, order, decree, rule or regulation of any court or
governmental agency to which the Purchaser is subject.
(c) CORPORATE PROCEEDINGS OF THE PURCHASER. The
execution, delivery and performance of this Agreement has been
authorized by the Board of Directors of the Purchaser and this
Agreement constitutes the valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally
and the availability of equitable remedies may be limited by equitable
principles of general applicability.
(d) FINANCIAL STATEMENTS. The Purchaser has delivered to
the Company (i) the audited consolidated balance sheet of the Purchaser
at April 30, 1999 and the related consolidated statements of
operations, cash flows and changes in stockholder's equity for the
Purchaser, all for the year then ended, together with the related notes
thereto, as certified by PricewaterhouseCoopers, LLP, Certified Public
Accountants, and (ii) the unaudited consolidated balance sheet of the
Purchaser at July 31, 1999 (the "Crown Financial Statement Date") and
the related unaudited
21
<PAGE>
consolidated statements of operations and cash flows for the Purchaser,
all for the three (3) months then ended, as certified by the Chief
Financial Officer of the Purchaser (hereinafter collectively called the
"Crown Financial Statements"). The Crown Financial Statements (x) are
in accordance with the books of account and records of the Purchaser
and fairly present the consolidated financial position of the Purchaser
at the dates indicated, (y) contain and reflect reserves for all
material liabilities and (z) were prepared in accordance with GAAP on a
basis consistent with prior accounting periods.
(e) BROKERS. The Purchaser is not a party to or in any
way obligated under a contract or other agreement, and there are no
outstanding claims against it, for the payment of any broker's or
finder's fees in connection with the origin, negotiation, execution or
performance of this Agreement.
(f) ACCREDITED INVESTOR/INVESTMENT. The Purchaser is an
"accredited investor" as that term is defined under Regulation D
promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The Shares will be acquired for
investment and not with a view to distribution thereof, nor with any
intention of distributing or selling or otherwise disposing of the
Shares.
(g) DUE DILIGENCE. The Purchaser is an informed and
sophisticated person and is experienced in the evaluation and purchase
of companies such as the Company and the Company Subsidiaries. In
making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, and the documents related thereto,
the Purchaser has relied on its own independent investigation of the
Company and the Company Subsidiaries as of this date and upon
22
<PAGE>
the representations and warranties and covenants in this Agreement and
has relied on the investigations conducted by the Purchaser's agents.
The Purchaser acknowledges that the Company and the Company
Subsidiaries have made no representation or warranty as to the
prospects, financial or otherwise, of the Company and the Company
Subsidiaries. The Purchaser has conducted its own inspection and
examination of the Company and the Company Subsidiaries conducted by
the Purchaser's agents and is not relying on representations or
warranties of any nature made by or on behalf of or imputed to the
Company and the Company Subsidiaries except as expressly set forth in
this Agreement. Notwithstanding the foregoing, no investigation by the
Purchaser heretofore or hereafter made shall affect the representations
and warranties of the Company, and each such representation and
warranty shall survive any such investigation.
(h) NO KNOWLEDGE OF BREACH. Neither the Purchaser nor the
Purchaser's agents know of any breach of warranty or any
misrepresentation by the Company or the Company Subsidiaries hereunder.
5. CLOSING ACTIONS. The following actions have taken place prior
to the Closing Date or are taking place on the Closing Date contemporaneously
with the Closing:
(a) RESIGNATIONS. The Company hereby delivers to the
Purchaser the resignations of those officers and directors of the
Company and the Company Subsidiaries (effective on the Closing Date) as
may be requested by the Purchaser, and the remaining directors of the
Company have elected the persons designated by the Purchaser to the
Board of Directors of the Company. The By-Laws of the Company are also
being amended in a manner satisfactory to the Purchaser.
23
<PAGE>
(b) OPINION OF THE COMPANY'S COUNSEL. The Purchaser is
receiving the opinion of Robert J. Downing, Chief Legal Officer for the
Company and the Company Subsidiaries, dated the Closing Date, to the
effect that:
(i) each of the Company and the Company Subsidiaries
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida and has
corporate power to carry on its business as it is now being
conducted;
(ii) to such counsel's knowledge, the authorized
capital stock and the outstanding shares of the Company and
the Company Subsidiaries are as set forth herein, and the
Shares are duly and validly issued, fully paid, non-assessable
and outstanding;
(iii) the consummation of the transactions
contemplated by this Agreement will not result in the breach
of or constitute a default under the Articles of Incorporation
or By-Laws of the Company and the Company Subsidiaries, or, to
such counsel's knowledge, any loan, credit or similar
agreement or any court decree to which the Company or the
Company Subsidiaries are a party or by which the Company or
the Company Subsidiaries, or their respective properties may
be bound; and
(iv) this Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable in accordance with its
terms (except as otherwise limited by bankruptcy, insolvency,
reorganization,
24
<PAGE>
moratorium and similar laws affecting creditors' rights and
except that such counsel need not express an opinion as to
whether any covenant contained herein is specifically
enforceable).
(c) OPINION OF PURCHASER'S COUNSEL. The Company is
receiving the opinion of T. J. Falgout, III, General Counsel for the
Purchaser, dated the Closing Date, to the effect that:
(i) the Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Texas and has corporate power to carry on its
business as it is now being conducted.
(ii) this Agreement has been duly authorized,
executed and delivered by the Purchaser, and (assuming valid
execution and delivery by the other parties hereto) is, or
will be upon such execution, the valid and binding obligation
of the Purchaser in accordance with its terms (except as
otherwise limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights, and
except that such counsel need not express an opinion as to
whether any covenant contained herein or therein is
specifically enforceable); and
(iii) to such counsel's knowledge, the consummation
of the transactions contemplated by this Agreement will not
result in the breach of or constitute a default under the
Articles of Incorporation or By-Laws of the Purchaser, or any
loan, credit or similar agreement
25
<PAGE>
or any court decree to which the Purchaser is a party or by
which the Purchaser or its properties may be bound.
(d) READY FINANCE DEBT. The Purchaser has acquired from
Ready Finance, Inc. ("Ready Finance") two promissory notes issued by
the Company having a principal amount of approximately $4,300,000 plus
accrued and unpaid interest (the "Ready Finance Debt"). The Ready
Finance Debt is being converted into shares of Company Series E
Preferred Stock at a conversion price of $39.00 for each dollar of such
Ready Finance Debt.
(e) CONVERSION OF OTHER COMPANY DEBT. The indebtedness of
the Company to the creditors listed on Schedule 5(e) attached hereto is
being converted into shares of Company Common Stock at the conversion
prices set forth on Schedule 5(e) for each dollar of such debt, and
there shall be no more than $2,601,760.31 of such indebtedness
outstanding at Closing.
(f) HIGH CAPITAL FUNDING, LLC. The indebtedness of the
Company to High Capital Funding, LLC ("High Capital") in the aggregate
principal amount of $2,000,000 plus accrued interest (the "High Capital
Debt") has been modified and amended such that $1,000,000 of the High
Capital Debt is being paid at Closing, with $275,000 of the balance
being due and payable six (6) months after the Closing Date and
$725,000 of the balance being due and payable two (2) years after the
Closing Date. The deferred amount shall bear interest at the rate of
ten (10%) percent per annum, payable monthly.
(g) CONVERSION OF COMPANY PREFERRED STOCK. All of the
outstanding Preferred Stock of the Company and all accumulated
dividends with respect thereto
26
<PAGE>
is being converted into shares of Company Common Stock at the
conversion price set forth on Schedule 5(g) for each dollar of Company
Preferred Stock (including accumulated dividends) outstanding.
(h) MERGER OF PAACO AUTOMOTIVE GROUP, INC. A subsidiary
of the Company is merging (the "Merger") with Paaco Automotive Group,
Inc., a Texas corporation ("Paaco") in exchange for the number of
shares of Company Series E Preferred Stock such that at Closing, as a
result of the Merger, the Purchaser shall own, in conjunction with the
shares of Company Series E Preferred Stock issued to the Purchaser
hereunder and pursuant to Section 5(d) hereof, not less than seventy
(70%) percent of the issued and outstanding capital stock of the
Company (the "Purchaser's Percentage Ownership"). The number of shares
of Company Series E Preferred Stock to be issued to the Purchaser as a
result of the Merger is 1,105,046.44, subject to adjustment at Closing,
as set forth in the immediately preceding sentence, so that the
Purchaser will own the Purchaser's Ownership Percentage. The Merger is
being consummated in accordance with the terms and provisions of the
Merger Agreement between Paaco and the Company (or a subsidiary
thereof), in substantially the form of the Merger Agreement attached
hereto as Exhibit "B."
(i) GRANT TO THE PURCHASER OF OPTIONS, WARRANTS, ETC. The
Purchaser is being granted options or warrants (the "Purchaser's
Warrants") to purchase shares of Common Stock of the Company on the
same terms and conditions that any options or warrants are issued by
the Company on or prior to the Closing Date, such that the Purchaser
shall have the right to maintain the Purchaser's Percentage Ownership
by
27
<PAGE>
exercising the Purchaser's Warrants. The Purchaser's Warrants grant to
the Purchaser the right to purchase 1,950,000 shares of Common Stock of
the Company at the purchase price of $.20 per share.
(j) FINOVA CAPITAL CORPORATION. The senior debt
facilities of the Company and Paaco with Finova Capital Corporation
have been modified in a manner acceptable to the Purchaser, and an
amendment to the respective loan agreements of the Company and Paaco
with Finova Capital Corporation evidencing such modifications has been
entered into on or before the Closing Date.
(k) NO MATERIAL ADVERSE CHANGES. Prior to the Closing
Date, there has been no material adverse change in the business,
operations, financial condition or properties of the Company and the
Company Subsidiaries, taken in the aggregate, since the Company Balance
Sheet Date, and the Purchaser has received a certificate dated the
Closing Date, signed by the President or a Vice President of the
Company to the effect that such is the case.
(l) CONSENTS. The Company has obtained all approvals and
consents which must be obtained in order to effectuate the transaction
contemplated hereby and to satisfy the terms and conditions of this
Agreement, other than those approvals and consents, the failure of
which to obtain would not reasonably be expected to have a Material
Adverse Effect.
(m) CERTIFIED RESOLUTIONS OF THE COMPANY. The Purchaser
has received resolutions of the Board of Directors of the Company,
certified by the Secretary or an Assistant Secretary of the Company,
authorizing the execution, delivery and
28
<PAGE>
performance of this Agreement and the issuance to the Purchaser of
shares of Company Series E Preferred Stock as set forth herein.
(n) CERTIFIED RESOLUTIONS OF THE PURCHASER. The Company
has received resolutions of the Board of Directors of the Purchaser,
certified by the Secretary or an Assistant Secretary of the Purchaser,
authorizing the execution, delivery and performance of this Agreement.
(o) HART-SCOTT-RODINO FILING AND APPROVAL. The Purchaser
and the Company (and any other required parties) have made all
necessary filings with the Federal Trade Commission required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the required
waiting periods thereunder have expired or early termination thereof
has been granted, and the parties have not received any objection to
the consummation of the transactions contemplated by this Agreement.
(p) EMPLOYMENT/CONSULTING AGREEMENTS. Each of the
employment or consulting agreements listed on Schedule 5(p) attached
hereto (which Schedule shall include all agreements requiring the
payment by the Company of more than $50,000) have been terminated
(except as stated in Schedule 5(p)) without liability to the Company,
and the Company has entered into (i) new employment agreements with
Gary R. Smith and Ronald W. Anderson, (ii) an agreement for the
continuation of employment with Robert J. Downing, and (iii) an
agreement for the continuation of consulting with Robert Abrahams, all
of which shall be on terms acceptable to the Purchaser.
29
<PAGE>
(q) SETTLEMENT OF EXISTING LITIGATION. The Company has
settled, or reached agreements to settle, the lawsuits listed on
Schedule 5(q) attached hereto for the respective amounts set forth on
Schedule 5(q).
(r) BANKERS INSURANCE COMPANY INVESTMENT. Bankers
Insurance Company has purchased shares of Company Common Stock for the
aggregate purchase price of $1,000,000.
6. THE CLOSING. The execution and delivery of this Agreement and
the instruments, certificates and other documents required hereunder (the
"Closing") is taking place at the offices of Crown Group, Inc., 4040 North
MacArthur Boulevard, Suite 100, Irving, Texas 75038, at 10:00 a.m. local time on
December 1, 1999. The date and time of such execution and delivery is herein
called the "Closing Date", and the effective date of the Closing shall be 12:01
a.m., Dallas, Texas time on the Closing Date. On the Closing Date, certificates
representing the Shares are being delivered by the Company against delivery of
the Purchase Price pursuant to Section 2 hereof, and Closing shall be deemed to
have occurred when such deliveries have been made by the Purchaser and the
Company in accordance with the terms hereof.
7. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) NATURE OF STATEMENTS. All statements contained in any
schedule or any certificate or other instrument delivered by or on
behalf of the Company or the Purchaser pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties made by the Company or the Purchaser, as
the case may be.
(b) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, covenants, agreements and undertakings
contained herein or in any
30
<PAGE>
Schedule, certificate or other document shall remain operative and in
full force and effect, and shall survive the Closing Date and the
delivery of all consideration and documents pursuant to this Agreement,
and shall continue in effect for a period of two (2) years after the
Closing Date and, as to representations made by the Company concerning
or affecting any tax liability of the Company or the Company
Subsidiaries, until a date which is six (6) months after the statute of
limitations has run against the Federal, state and local government;
provided, however, that any such representation, warranty, covenant,
agreement or undertaking as to which a bona fide claim shall have been
asserted during such survival period shall continue in effect until
such time as such claim shall have been resolved in accordance with the
terms of this Agreement.
8. INDEMNIFICATION BY COMPANY AND RELATED MATTERS.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
defend, indemnify and hold harmless the Purchaser and its successors
and assigns, from, against and in respect of any and all loss or damage
resulting from:
(i) the breach by the Company of any of its
warranties, representations, covenants, agreements or
undertakings contained herein; and
(ii) any liability arising out of any and all
actions, suits, proceedings, claims, demands, judgments, costs
and expenses (including reasonable legal and accounting fees)
incident to any of the foregoing (collectively, the "Losses"),
provided that the Purchaser makes a written claim for
indemnification against the Company
31
<PAGE>
within the applicable survival period and further provided
that neither the Company nor the Company Subsidiaries will
have any obligation to indemnify the Purchaser from and
against any Losses until the Purchaser has suffered Losses by
reason of all such breaches in excess of a $50,000 aggregate
deductible (the "Indemnification Threshold") (and after the
Indemnification Threshold is reached, the Company will be
obligated to only indemnify the Purchaser from and against
further such Losses, that is, for amounts greater than
$50,000) or thereafter to the extent of the Losses the
Purchaser has suffered by reason of all such breaches exceeds
a $5,000,000 aggregate ceiling (after which point neither the
Company nor the Company Subsidiaries will have any obligation
to indemnify the Purchaser from and against further such
Losses.
9. INDEMNIFICATION BY THE PURCHASER AND RELATED MATTERS.
(a) INDEMNIFICATION BY THE PURCHASER. The Purchaser
agrees to defend, indemnify and hold harmless the Company, its
successors and assigns from, against and in respect of any and all loss
or damage resulting from:
(i) the breach by the Purchaser of any of its
warranties, representations, covenants, agreements or
undertakings contained herein; and
(ii) any liability arising out of any and all
actions, suits, proceedings, claims, demands, judgments, costs
and expenses (including reasonable legal and accounting fees)
incident to any of the
32
<PAGE>
foregoing (collectively, the "Losses"), provided that the
Company or the Company Subsidiaries make(s) a written claim
for indemnification against the Purchaser within the
applicable survival period and further provided that the
Purchaser will not have to indemnify the Company and the
Company Subsidiaries from and against any Losses until the
Company and the Company Subsidiaries have suffered Losses by
reason of all such breaches in excess of a $50,000 aggregate
deductible (the "Indemnification Threshold") (and after the
Indemnification Threshold is reached, the Purchaser will be
obligated to only indemnify the Company and the Company
Subsidiaries from and against further such Losses, that is,
for amounts greater than $50,000) or thereafter to the extent
of the Losses the Company and the Company Subsidiaries have
suffered by reason of all such breaches exceeds a $500,000
aggregate ceiling (after which point the Purchaser will have
not any obligation to indemnify the Company and the Company
Subsidiaries against further such Losses.
10. EXPENSES. The Company and the Purchaser shall pay their or its
own expenses (including without limitation counsel and accounting fees and
expenses) incident to the preparation and carrying out of this Agreement and the
consummation of the transactions contemplated hereby. The Purchaser and the
Company shall each pay one half (2) of the filing fee related to the
Hart-Scott-Rodino notification and report.
33
<PAGE>
11. NOTICES. All notices, demands and requests which may be given
or which are required to be given by either party to the other, and any exercise
of a right of termination provided by this Agreement, shall be in writing and
shall be deemed effective when either: (1) personally delivered to the intended
recipient; (2) sent by certified or registered mail, return receipt requested,
addressed to the intended recipient at the address specified below; (3)
delivered in person to the address set forth below for the party to which the
notice was given; (4) deposited into the custody of a nationally recognized
overnight delivery service such as Federal Express Corporation, Emery or
Purolator, addressed to such party at the address specified below; or (5) sent
by facsimile, telegram or telex, provided that receipt for such facsimile,
telegram or telex is verified by the sender and followed by a notice sent in
accordance with one of the other provisions set forth above. Notices shall be
effective on the date of delivery or receipt, of, if delivery is not accepted,
on the earlier of the date that delivery is refused or four (4) days after the
date the notice is mailed. For purposes of this Section, the addresses of the
parties for all notices are as follows (unless changes by similar notice in
writing are given by the particular person whose address is to be changed):
(a) if to the Company, to Smart Choice Automotive Group, Inc.,
5200 South Washington Avenue, Titusville, Florida 32780; Attention:
Gary R. Smith, President and Chief Executive Officer; Fax 407-269-1880;
With a copy to Robert J. Downing, Chief Legal Officer, Smart
Choice Automotive Group, Inc., 5200 South Washington Avenue,
Titusville, Florida 32780; Fax 407-264-0376;
(b) or if to the Purchaser, to Crown Croup, Inc., 4040 North
MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention: Edward
R. McMurphy, President; Fax 972-717-0973;
34
<PAGE>
With a copy to T. J. Falgout, III, Executive Vice President
and General Counsel, Crown Croup, Inc., 4040 North MacArthur Boulevard,
Suite 100, Irving, Texas 75038; Fax 972-717-0973.
Any party hereto may designate a different address by written notice given to
the other parties.
12. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties.
(b) SECTION AND PARAGRAPH HEADINGS. The Section and
Paragraph headings of this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
(c) AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
(d) ENTIRE AGREEMENT. This Agreement and the Exhibits,
Schedules, certificates and documents referred to herein constitute the
entire agreement of the parties, and supersede all understandings with
respect to the subject matter hereof.
(e) KNOWLEDGE. "Knowledge" of a natural person means
actual knowledge of such natural person, and "knowledge" of a corporate
person means actual knowledge of the directors and executive officers
of such corporate person, in each case (unless otherwise specifically
set forth to the contrary) after reasonable inquiry and investigation.
(f) PUBLIC ANNOUNCEMENTS. No publication and/or press
release of any nature shall be issued pertaining to this Agreement or
the transaction contemplated
35
<PAGE>
hereby without the prior written approval of the Purchaser and the
Company, except as may be required by law.
(g) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, AND
VENUE FOR ANY DISPUTE ARISING HEREUNDER SHALL BE IN DALLAS COUNTY,
TEXAS, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION OF
THE COURTS OF THE STATE OF TEXAS.
(i) MATERIAL ADVERSE EFFECT. "Material Adverse Effect"
means a material adverse effect on the business of the Company and the
Company Subsidiaries, taken as a whole. IN WITNESS WHEREOF, this
Agreement has been duly executed by the parties on or as of the date
and year first above written.
PURCHASER:
CROWN GROUP, INC.
By: /s/ EDWARD R. MCMURPHY
------------------------------------------
Edward R. McMurphy, President
COMPANY:
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ GARY R. SMITH
------------------------------------------
Gary R. Smith, President
36
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULE DESCRIPTION
- -------- -----------
3(b) Subsidiaries
3(c) Warrants, Options, Etc.
3(f) Certain Changes or Events
3(g) Tax Matters
3(h) Title to Properties and Related Matters
3(i) Consents and Approvals
3(k) Litigation and Proceedings
3(m) Certain Employee Benefits in Case of Termination, Death,
Disability, Severance, Etc.
3(n) Employee Relations
3(o) Patents, Trademarks and Licenses
3(p) Approvals, Authorizations and Regulations
3(r) Guaranties
3(t) Company Defaults
3(w) Environmental Matters
5(e) Other Company Creditors
5(g) Conversion of Company Preferred Stock
5(p) Employment/Consulting Agreements to be Terminated
5(q) Existing Litigation to be Settled
EXHIBIT DESCRIPTION
- ------- -----------
"A" Sixth Articles of Amendment to the Articles of Incorporation
of the Company
"B" Merger Agreement
37
<PAGE>
EXHIBIT A
SIXTH ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SMART CHOICE AUTOMOTIVE GROUP, INC.
Pursuant to the provisions 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 E CONVERTIBLE PREFERRED STOCK
(a) GENERAL. The Series E Convertible Preferred Stock, par value
$.01 per share (the "Series E Preferred Stock"), shall consist of 2,000,000
shares. All shares of Series E Preferred Stock shall in all respects be equal
and shall have the powers, preferences, voting rights and other special rights,
and the limitations, restrictions and qualifications hereinafter set forth. The
Board of Directors is expressly authorized to cause shares of the Series E
Preferred Stock to be issued from time to time and to determine the
consideration to be received therefor.
(b) DIVIDENDS. The holders of record of the Series E Preferred
Stock shall be entitled to receive dividends in the amount per share equal to
one hundred (100) times the amount per share of dividends paid from time to time
to holders of record of the Common Stock, and no more. The Board of Directors
shall not declare or pay any dividend on the Common Stock unless it declares a
dividend on the Series E Preferred Stock with the same record and payment dates
as such dividend on the Common Stock.
(c) VOTING RIGHTS OF SERIES E PREFERRED STOCK. The holders of
Series E Preferred Stock shall have the right to vote in all matters voted upon
by the holders of the Common Stock, voting together with the holders of the
Common Stock as a single class. Each share of Series E Preferred Stock shall be
entitled to one hundred (100) votes. In all matters in which the holders of
Series E Preferred Stock shall be entitled to vote separately as a single class,
each share of the Series E Preferred Stock shall have one vote.
(d) LIQUIDATION. In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
shares of Series E Preferred Stock shall be entitled to be paid out of the
assets of the Corporation per share of Series E Preferred Stock, before any
distribution or payment is made to or set apart for the holders of any shares of
Common Stock, the greater of (1) $1.00 per share or (2) the aggregate amount
remaining to be
<PAGE>
distributed after all distributions to holders of prior series of preferred
stock divided by the total number of outstanding shares of Series E Preferred
Stock and Common Stock, multiplied times one hundred (100). Neither the merger
or consolidation of the Corporation into or with any other Corporation, nor the
sale of all or substantially all the assets of the Corporation, shall be deemed
a liquidation, dissolution or winding up of the Corporation, voluntary or
involuntary.
(e) CONVERSION RIGHTS.
(i) CONVERSION RATE. On and after the date on which these Articles
of InCorporation are amended to increase the number of authorized shares of
Common Stock to at least 200,000,000, each holder of shares of Series E
Preferred Stock shall have the right, at any time, to convert, subject to the
following provisions, each share of Series E Preferred Stock held by the holder
into one hundred (100) fully paid and nonassessable shares of Common Stock of
the Corporation.
(ii) CONVERSION PROCEDURES. Any holder of shares of Series E
Preferred Stock desiring to convert the same into Common Stock shall surrender
the certificates for such shares of Series E Preferred Stock at the executive
office of the Corporation, with the certificates duly endorsed to the
Corporation or in blank, together with a written request for conversion. The
Corporation will, as soon as practicable after such surrender for conversion,
issue and deliver to the person for whose account such shares of Series E
Preferred Stock were so surrendered certificates for the number of shares of
Common Stock to which the person shall be entitled. Such conversion shall be
deemed to have been made as of the date on which the certificates for shares of
Series E Preferred Stock to be converted and written request were actually
received by the Corporation, and the person entitled to receive the shares of
Common Stock issuable upon the conversion of such shares of Series E Preferred
Stock shall be treated for all purposes as the record holder of such Common
Stock on such date.
(iii) ADJUSTMENT. In the event that the Corporation shall pay a
dividend on its Common Stock in shares of its Common Stock, or subdivide,
combine or reclassify its outstanding shares of Common Stock, the conversion
rate in effect immediately prior thereto shall be proportionately increased or
decreased, by multiplying the rate by a fraction (x) the numerator of which is
the total number of shares of Common Stock outstanding immediately prior to the
payment date for the event and (y) the denominator of which is the total number
of shares of Common Stock outstanding immediately after the payment date for the
event.
(iv) CONSOLIDATION OR MERGER. In case of the consolidation or
merger of the Corporation with or into another Corporation or entity (other than
a merger not involving any reclassification, conversion or exchange of
outstanding Common Stock in which the Corporation is the surviving Corporation),
or in case of the sale, transfer or other disposition of all or substantially
all of the property, assets or business of the Corporation as a result of which
sale, transfer or other disposition, property other than cash shall be payable
or distributable to the holders of the Common Stock, each share of Series E
Preferred Stock shall thereafter be convertible into the number and class or
series of shares or other securities or property of the Corporation, or of the
Corporation resulting from such consolidation or merger or to which such sale,
transfer or other disposition shall have been made, to which the shares of
Common Stock
2
<PAGE>
otherwise issuable upon conversion of such share of Series E Preferred Stock
would have been entitled upon such reorganization, consolidation, merger or
sale, transfer or other disposition if outstanding at the time thereof; and in
any such case appropriate adjustment, as determined by the Board of Directors,
shall be made in the application of the provisions set forth in this Article V
with respect to the conversion rights thereafter of the holders of the Series E
Preferred Stock. Proper provision shall be made as a part of the terms of any
such consolidation, merger, sale, transfer or other disposition whereby the
conversion rights of the holders of Series E Preferred Stock shall be protected
and preserved in accordance with the provisions of this section.
(v) COMMON STOCK AUTHORIZED AND RESERVED. The Board of Directors (1)
shall cause the shareholders of this Corporation, not later than the annual
meeting of shareholders to be held in 2000, to vote upon an amendment to these
Articles of InCorporation to increase the number of authorized shares to at
least 200,000,000 and (2) upon approval of such amendment, shall cause articles
of amendment with respect thereto to be promptly filed with the Florida
Department of State. The Corporation shall at all times after the filing of such
amendment reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the conversion of the shares of Series E
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the shares of Series E
Preferred Stock from time to time outstanding.
(vi) NO FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of shares of Series E Preferred Stock and the holder thereof shall
receive the amount of cash payable in respect of any fractional share of Common
Stock to which the holder shall be entitled. Whether or not fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Series E Preferred Stock the holder is converting into
Common Stock and the number of shares of Common Stock issuable upon such
conversion.
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 November 22, 1999 without shareholder action.
IN WITNESS WHEREOF, the undersigned authorized officer of the
Corporation has executed this instrument this 22nd day of November, 1999.
/s/ GARY R. SMITH
---------------------------------------------------
Gary R. Smith, Director and Chief Executive Officer
3
<PAGE>
EXHIBIT B
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (the "Agreement") dated on or as of
November 23, 1999, by and between PAACO AUTOMOTIVE GROUP, INC., a Texas
corporation (hereinafter referred to as "Paaco"), SMART CHOICE AUTOMOTIVE GROUP,
INC., a Florida corporation (hereinafter referred to as "Smart Choice"), and
PAACO ACQUISITION SUBSIDIARY, INC., a Texas corporation (the "Merger
Subsidiary");
W I T N E S S E T H:
WHEREAS, Paaco, Smart Choice and the Merger Subsidiary wish to provide
for the terms and conditions of the following described business combination in
which the Merger Subsidiary will be merged (the "Merger") with and into Paaco;
and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a plan of reorganization pursuant to Section 368 of
the Code; and
WHEREAS, Article 5.01 of the Texas Business Corporation Act, as
amended, authorizes the merger of the Merger Subsidiary into Paaco as aforesaid
and the conversion of the issued and outstanding capital stock of Paaco into
shares of Series E Convertible Preferred Stock, $.01 par value per share, of
Smart Choice (the "Smart Choice Stock") as herein set forth;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements and covenants contained herein, Paaco, Smart Choice and the Merger
Subsidiary hereby agree, in accordance with Texas law, that the Merger
Subsidiary shall be merged into Paaco as the surviving
<PAGE>
corporation (hereinafter sometimes referred to as the "Surviving Corporation")
and that the terms and conditions of the Merger, the mode of carrying the Merger
into effect, and the method of converting the shares of Paaco into shares of
Smart Choice Stock shall be as follows:
Section 1. SURVIVING CORPORATION. The Merger Subsidiary shall be merged
with Paaco, and Paaco shall be the Surviving Corporation and shall exist by
virtue of and be governed by the laws of the State of Texas.
Section 2. EFFECTIVE TIME PERIOD. The effective time of the intended
Merger will be the date (hereinafter referred to as the "Effective Time") as set
forth in Section 6(d) hereof, subject to fulfillment of all prior conditions as
set forth in this Agreement.
Section 3. MANNER OF CONVERSION OF SHARES. The method of carrying the
Merger into effect and the basis of converting shares of Common Stock, $.01 par
value per share, of Paaco (the "Paaco Stock") into shares of Smart Choice Stock
shall be as follows:
a. The shares of Paaco Stock issued and outstanding
immediately prior to the Effective Time registered in the name of Crown
Group, Inc., such number of shares being 120,568.36, shall, by virtue
of the Merger and without any action on the part of Crown Group, Inc.,
be converted into 1,105,046.44 shares of Smart Choice Stock. The shares
of Paaco Stock issued and outstanding immediately prior to the
Effective Time registered in the name of Larry Lange, such number of
shares being 15,035.49, shall, by virtue of the Merger and without any
action on the part of Larry Lange, be converted into 69,558.77 shares
of Smart Choice Stock. The shares of Paaco Stock issued and outstanding
immediately prior to the Effective Time registered in the name of Ted
Lange, such number of shares being 6,241.15, shall,
2
<PAGE>
by virtue of the Merger and without any action on the part of Ted
Lange, be converted into 28,411.33 shares of Smart Choice Stock. At the
Effective Time, all such shares of Smart Choice Stock issued to the
aforementioned holders of Paaco Stock shall be deemed to be authorized
and outstanding shares of capital stock of Smart Choice, fully paid and
non-assessable.
b. Certificates representing the shares of Smart Choice Stock
to be issued as a result of the Merger shall be issued upon surrender
of the certificates representing shares of Paaco Stock.
c. Each share of Common Stock, $.01 par value per share, of
the Merger Subsidiary (the "Merger Subsidiary Stock") issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into one (1) share of Paaco Stock. At the Effective Time, all
such shares of Paaco Stock issued to the holder of the Merger
Subsidiary Stock shall be deemed to be authorized and outstanding
shares of capital stock of Paaco, fully paid and non-assessable.
d. Certificates representing the shares of Paaco Stock to be
issued as a result of the Merger shall be issued upon surrender of
certificates representing shares of the Merger Subsidiary Stock.
Section 4. EFFECT OF MERGER.
a. The separate existence of the Merger Subsidiary, except to
the extent, if any, continued by applicable statutes, shall cease at
the Effective Time and thereupon Paaco and the Merger Subsidiary shall
become a single corporation,
3
<PAGE>
subject to all the restrictions, disabilities, duties and liabilities
of each corporations so merged. The Surviving Corporation reserves the
right after the Effective Time to amend, alter, change or repeal any
provisions contained in the Articles of Incorporation of the Surviving
Corporation in the manner now or hereafter prescribed by the Texas
Business Corporation Act.
b. The corporate identity, existence, purposes, rights,
privileges, immunities, powers, franchises, of a public as well as a
private nature, and authority of Paaco shall continue unaffected and
unimpaired by the Merger, and the corporate identity, existence,
purposes, rights, privileges, immunities, powers, franchises, of a
public as well as a private nature, and authority of the Merger
Subsidiary shall be merged into Paaco and Paaco shall succeed to and be
fully vested therewith.
c. All the property, assets and business of every description,
whether real, personal or mixed, and every interest therein, and all
debts, liabilities and obligations belonging to or due to the Merger
Subsidiary, on whatever account, including all causes of action
belonging to the Merger Subsidiary shall be taken and be deemed to be
transferred to and vested in the Surviving Corporation without further
act or deed, and all property, rights, privileges, powers, franchises,
and all and every other interest of the Merger Subsidiary shall
thereafter be the property of the Surviving Corporation in the same
manner as they were of the Merger Subsidiary, and the title to any real
estate vested by deed or otherwise in the Merger Subsidiary shall not
revert or be any way impaired as a result of this Merger. The Merger
Subsidiary agrees that from time to time, as and when requested by the
Surviving
4
<PAGE>
Corporation, or its successors or assigns, it will execute and deliver
such instruments and take or cause to be taken such action as may be
necessary or appropriate in order to perfect, confirm or deliver title
and possession to the Surviving Corporation of all the assets of the
Merger Subsidiary and otherwise carry out the purposes of this
Agreement.
d. All rights of creditors of the Merger Subsidiary, and all
liens upon any property owned by the Merger Subsidiary shall be
preserved and unimpaired, and all debts, obligations, liabilities and
duties of the Merger Subsidiary shall be at the Effective Time assumed
by the Surviving Corporation to the same extent as if said debts,
obligations, liabilities and duties had originally been incurred or
contracted by it.
Section 5. ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION.
a. The Articles of Incorporation of Paaco as in effect on the
date hereof shall continue in full force and effect as the Articles of
Incorporation of the Surviving Corporation.
b. Until further altered, amended or repealed by the
shareholders or the Board of Directors of the Surviving Corporation,
the By-Laws of Paaco as they now exist, shall be the By-Laws of the
Surviving Corporation.
Section 6. SHAREHOLDER APPROVAL; EFFECTIVE TIME.
a. The obligations of the Merger Subsidiary under this
Agreement are subject to the approval and adoption by the holders of
not less than two-thirds (2/3) of the outstanding shares of the Merger
Subsidiary Stock at a meeting of the
5
<PAGE>
shareholders of the Merger Subsidiary called for the purpose of
considering the intended Merger, or any adjournment or adjournments of
such meeting.
b. The obligations of Paaco under this Agreement are subject
to the approval and adoption of the holders of not less than two-thirds
(2/3) of the outstanding shares of Paaco Stock at a meeting of the
shareholders of Paaco called for the purpose of considering the
intended Merger, or any adjournment or adjournments of such meeting.
c. If this Agreement is approved and adopted in accordance
with Texas law by the requisite statutory votes of the holders of the
Merger Subsidiary Stock and Paaco Stock, and if the Merger is not
thereafter terminated for any reason, then within thirty (30) business
days following the date on which this Agreement have been so approved
and adopted by the shareholders of the Merger Subsidiary and Paaco,
this Agreement, and/or a summary thereof, if appropriate, together with
other instruments as may be required by applicable Texas statutes,
executed, certified and acknowledged, shall be filed in the Office of
the Secretary of State of the State of Texas and, if required, recorded
in accordance with the laws of the State of Texas.
d. The merger of the Merger Subsidiary into Paaco shall be
effective on, and the Effective Time of the Merger shall be, the date
on which the Secretary of State of the State of Texas issues a
Certificate of Merger with respect to the Merger contemplated by this
Agreement, or, if later, shall be the Effective Time provided for in
this Articles of Merger filed with the Secretary of State of the State
of Texas.
6
<PAGE>
Section 7. TERMINATION. This Agreement may be terminated and the Merger
abandoned prior to the approval and adoption by the shareholders of the Merger
Subsidiary and Paaco at any time prior to the Effective Time by written notice
from the terminating party to the other parties hereto. This Agreement may be
terminated and the Merger abandoned after approval and adoption thereof by the
shareholders of the Merger Subsidiary and Paaco at any time but not later than
the Effective Time, by the mutual written consent of the parties hereto.
Section 8. MISCELLANEOUS.
a. In the event this Agreement is terminated as provided in
Section 7, neither Paaco, Smart Choice nor the Merger Subsidiary shall
have any liability to the other for costs, expenses, loss of
anticipated profits or otherwise.
b. All notices, demands and requests which may be given or
which are required to be given by either party to the other, and any
exercise of a right of termination provided by this Agreement, shall be
in writing and shall be deemed effective when either: (1) personally
delivered to the intended recipient; (2) sent by certified or
registered mail, return receipt requested, addressed to the intended
recipient at the address specified below; (3) delivered in person to
the address set forth below for the party to which the notice was
given; (4) deposited into the custody of a nationally recognized
overnight delivery service such as Federal Express Corporation, Emery
or Purolator, addressed to such party at the address specified below;
or (5) sent by facsimile, telegram or telex, provided that receipt for
such facsimile, telegram or telex is verified by the sender and
followed by a notice sent in accordance with one of the other
provisions set forth above. Notices shall be
7
<PAGE>
effective on the date of delivery or receipt, of, if delivery is not
accepted, on the earlier of the date that delivery is refused or three
(3) days after the date the notice is mailed. For purposes of this
Paragraph, the addresses of the parties for all notices are as follows
(unless changes by similar notice in writing are given by the
particular person whose address is to be changed):
If to Smart Choice, to Smart Choice Automotive Group, Inc.,
5200 South Washington Avenue, Titusville, Florida 32780; Attention:
Gary R. Smith, President and Chief Executive Officer; Fax 407-269-1880;
With a copy to Robert J. Downing, Chief Legal Officer, Smart
Choice Automotive Group, Inc., 5200 South Washington Avenue,
Titusville, Florida 32780; Fax 407-264-0376;
Or if to Paaco, to Paaco Automotive Group, Inc., 605 South
Irving Boulevard, Irving, Texas 75060; Attention: Larry Lange, Chairman
of the Board; Fax 972-445-7011;
With a copy to T. J. Falgout, III, Executive Vice President
and General Counsel, Crown Croup, Inc., 4040 North MacArthur Boulevard,
Suite 100, Irving, Texas 75038; Fax 972-717-0973.
Or if to the Merger Subsidiary, to Paaco Acquisition
Subsidiary, Inc., 5200 South Washington Avenue, Titusville, Florida
32780; Attention: Gary R. Smith, President; Fax 407-269-1880;
8
<PAGE>
With a copy to Robert J. Downing, Chief Legal Officer, Smart
Choice Automotive Group, Inc., 5200 South Washington Avenue,
Titusville, Florida 32780; Fax 407-264-0376.
Any party hereto may designate a different address by written notice given to
the other parties.
c. This instrument contains the entire Agreement between the
parties hereto with respect to the transactions contemplated in this
Agreement.
d. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original.
e. This Agreement may be modified or amended before approval
by the shareholders of each of Paaco and the Merger Subsidiary by
written agreement of all of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
PAACO AUTOMOTIVE GROUP, INC.
By:
------------------------------------------
T. J. Falgout, III, Vice President
SMART CHOICE AUTOMOTIVE GROUP, INC.
By:
------------------------------------------
Robert J. Downing, Senior Vice President
PAACO ACQUISITION SUBSIDIARY, INC.
By:
------------------------------------------
Robert J. Downing, Vice President
9
EXHIBIT 16.1
[BDO SEIDMAN, LLP LETTERHEAD]
December 1, 1999
Mr. Ron Anderson
Smart Choice Automotive Group, Inc.
5200 S. Washington Avenue
PO Box 5637
Titusville, FL 32783
Dear Mr. Anderson:
This is to confirm that the client-auditor relationship between Smart Choice
Automotive Group, Inc. and BDO Seidman, LLP has ceased.
Very truly yours,
/s/ BDO SEIDMAN, LLP
----------------------------------------
BDO Seidman, LLP
cc: Chief Accountant, Securities and Exchange Commission
