-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SpZAnt6fHPs0EdVwnSnVJH7gfZu7cbqBm8vHJITQIMwXHHjNr2gV/buPPPansbdB vVGWuAAii8Bc7fg2u8kRsg== 0000949091-98-000016.txt : 19980518 0000949091-98-000016.hdr.sgml : 19980518 ACCESSION NUMBER: 0000949091-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMART CHOICE AUTOMOTIVE GROUP INC CENTRAL INDEX KEY: 0000949091 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 591469577 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14082 FILM NUMBER: 98626251 BUSINESS ADDRESS: STREET 1: 5200 S WASHINGTON AVE CITY: TITUSVILLE STATE: FL ZIP: 32780 BUSINESS PHONE: 4072699680 MAIL ADDRESS: STREET 1: PO BOX 5637 CITY: TITUSVILLE STATE: FL ZIP: 32783 FORMER COMPANY: FORMER CONFORMED NAME: ECKLER INDUSTRIES INC DATE OF NAME CHANGE: 19950912 10-Q 1 FORM 10-Q FOR SMART CHOICE AUTO. GROUP, INC. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 -------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ___________________ Commission file number 1-14082 -------- SMART CHOICE AUTOMOTIVE GROUP, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-1469577 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5200 S. Washington Avenue, Titusville, Florida 32780 (Address of principal executive offices) (Zip Code) (407) 269-9680 (Registrant's telephone number, including area code) _____________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes X__ No ______ Indicate number or shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 12, 1998, 12,743,580 shares of the Registrant's Common Stock were issued and outstanding. SMART CHOICE AUTOMOTIVE GROUP, INC. Form 10-Q TABLE OF CONTENTS
PAGE PART I - FINANCIAL STATEMENTS Item 1. Financial Statements. 2 Condensed Consolidated Balance sheets - 3 March 31, 1998 and December 31, 1997 Condensed Consolidated Statements of Operations - 5 Three Months Ended March 31, 1998 and March 31, 1997 Condensed Consolidated Statements of Cash Flow - 6 Three Months ended March 31, 1998 and March 31, 1997 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and 9 Results of Operations Part II OTHER INFORMATION 15 Item 2. Changes in Securities 15 Item 6. Exhibits and Reports on Form 8-K 16
PART I SMART CHOICE AUTOMOTIVE GROUP, INC. FINANCIAL STATEMENTS Item 1. Financial Statements.
SMART CHOICE AUTOMOTIVE GROUP, INC. Condensed Consolidated Balance Sheets - -------------------------------------------------------------------------------------------------------------------------- As of March 31, 1998 As of December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------- (Unaudited) (Audited) Assets Cash and cash equivalents $ 2,394,391 $ 1,066,949 Accounts receivable 3,164,705 1,773,124 Finance receivables Principal balances, net 51,146,019 39,109,368 Less: allowance for credit losses (8,493,306) (6,857,265) - ------------------------------------------------------------------------------------------------------------------------- 42,652,713 32,252,103 Inventories, at cost 17,429,409 15,516,084 Land held for resale 1,064,205 1,050,000 Property and equipment, net 9,126,667 9,214,207 Notes receivable 23,140 46,280 Deferred tax asset 1,000 -- Dferred debt costs 949,330 426,823 Goodwill 25,401,022 25,562,162 Prepaid expenses 1,530,471 1,008,229 Deposits 178,237 170,305 Other assets 977,477 43,681 ------------------------------------------------------------------------------------------------------------------------- $ 104,892,766 $ 89,104,991 ----------------------------------------------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements
SMART CHOICE AUTOMOTIVE GROUP, INC. Condensed Consolidated Balance Sheets - ------------------------------------------------------------------------------------------------------------ As of March 31, 1998 As of December 31, 1997 - ------------------------------------------------------------------------------------------------------------ (Unaudited) (Audited) Liabilities and Stockholders' Equity Liabilities: Accounts payable $ 6,793,434 $ 5,259,903 Accrued expenses 4,152,209 4,633,841 Deferred income 92,861 -- Floorplan payable 9,413,944 8,287,092 Capital lease obligations 869,268 940,280 Notes payable 71,720,664 60,427,058 Deferred income taxes 2,042 -- Convertible debt 340,000 -- Other liabilities -- 94,913 - ---------------------------------------------------------------------------------------------------- Total liabilities 93,384,422 79,643,087 - ---------------------------------------------------------------------------------------------------- Redeemable convertible preferred stock 1,491,834 4,941,834 Stockholders' equity: Common stock 122,595 97,340 Additional paid in capital 27,913,049 24,108,456 Accumulated deficit (18,019,934) (19,685,726) - ----------------------------------------------------------------------------------------------------- Total stockholders' equity 10,016,510 4,520,070 - ----------------------------------------------------------------------------------------------------- $ 104,892,766 $ 89,104,991 - ---------------------------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements
SMART CHOICE AUTOMOTIVE GROUP, INC. Condensed Consolidated Statements of Operations (Unaudited) - -------------------------------------------------------------------------------------------------------------- Three Months Ended Three Months Ended March 31, 1998 March 31, 1997 - -------------------------------------------------------------------------------------------------------------- Vehicle and Related Revenues: Sales of new vehicles $8,123,424 -- Sales of used vehicles 21,845,559 4,785,077 Income on finance receivables 4,146,215 522,939 Income from insurance and training 180,222 262,280 Income from parts and accessories 4,364,037 2,498,753 - -------------------------------------------------------------------------------------------------------------- 38,659,457 8,069,049 - -------------------------------------------------------------------------------------------------------------- Cost of Vehicle and Vehicle Related Revenues: Cost of new vehicles sold 7,187,085 -- Cost of used vehicles sold 15,088,274 3,390,292 Provision for credit losses 2,904,128 1,049,680 Cost of insurance and training 30,757 13,565 Cost of parts and accessories sold 2,796,891 1,561,922 - -------------------------------------------------------------------------------------------------------------- 28,007,135 6,015,459 - -------------------------------------------------------------------------------------------------------------- Net revenues from vehicle sales and vehicle related activities 10,652,322 2,053,590 - -------------------------------------------------------------------------------------------------------------- Expenses: Operating expenses 7,979,811 5,081,660 Compensation expense related to employee stock options -- 3,125,877 - -------------------------------------------------------------------------------------------------------------- 7,979,811 8,207,537 - -------------------------------------------------------------------------------------------------------------- Income (loss) from operations 2,672,511 (6,153,947) - --------------------------------------------------------------------------------------------------------------- Other expense (income): Interest expense 1,909,671 692,617 Other income (919,413) (9,173) Miscellaneous expense 15,661 64,944 - -------------------------------------------------------------------------------------------------------------- 510,705 748,388 - -------------------------------------------------------------------------------------------------------------- Net income (loss) $ 1,666,592 $ (6,902,335) - -------------------------------------------------------------------------------------------------------------- Preferred Stock dividends $ 77,875 -- Net income available to common stock holders $ 1,588,717 $ (6,902,335) - -------------------------------------------------------------------------------------------------------------- Net income (loss) per share - -------------------------------------------------------------------------------------------------------------- - Primary $ 0 .15 $ (0.87) - -------------------------------------------------------------------------------------------------------------- - Fully diluted 0.14 - -------------------------------------------------------------------------------------------------------------- Weighted Average Number of Shares and Share Equivalents Outstanding: - Primary 10,380,260 7,853,134 - Fully diluted 11,226,758 See accompanying notes to condensed consolidated financial statements
SMART CHOICE AUTOMOTIVE GROUP, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) - -------------------------------------------------------------------------------------------------------------------------- Three Months Ended Three Months Ended March 31, 1998 March 31, 1997 - -------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income/ (loss) $ 1,666,592 $ (6,902,335) Adjustments to reconcile net loss to net cash provided by operating activities: Provision for credit losses 2,904,128 681,435 Common stock and options issued for consulting fees -- 150,000 Loss on disposal of fixed assets -- 1,151 Stock option compensation -- 3,125,877 Depreciation and amortization 634,995 245,530 Recoupment of expenses (165,967) -- Cash provided by (used for): Accounts receivable (2,513,545) (70,894) Inventory (1,913,325) (422,499) Prepaid expenses (522,242) (18,974) Other assets -- (1,453) Accounts payable 1,537,063 964,984 Accrued expenses (481,632) 950,891 Deferred income (1,010) 20,772 Other liabilities -- 1,657,444 Customer deposits -- (116,099) Floorplan payable 1,126,852 224,876 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,271,909 470,706 - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Increase in finance receivables (12,329,624) (1,153,486) Cash for acquisitions, net of cash acquired -- (2,797,310) Issuance of notes receivable -- (565,896) Increase in deposits (7,932) (477,300) Increase in other assets (41,210) -- Increase in deferred acquisition costs -- (15,400) Payment of notes receivable 23, 140 -- Purchase of property and equipment (181,034) (56,379) Decrease in other assets -- 40,435 Purchase of land (14,205) -- - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (12,550,935) (5,025,336) - --------------------------------------------------------------------------------------------------------------------------- Continued on next page
SMART CHOICE AUTOMOTIVE GROUP, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued) - --------------------------------------------------------------------------------------------------------------------------- Three Months Ended Three Months Ended March 31, 1998 March 31, 1997 - --------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on notes payable $ (874,242) $ (1,835,310) Proceeds from issuance of Sirrom debt -- 3,500,000 Proceeds from issuance of notes payable 3,000,000 3,996,722 Increase in deferred debt costs -- (256,494) Increase (decrease) in senior secured debt payable 9,500,000 -- Proceeds from issuance of preferred stock -- 590,000 Proceeds from issuance of convertible debentures -- 300,000 Bank overdraft -- (82,884) Payments on capital lease obligations (19,289) -- - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 11,606,469 6,212,034 - --------------------------------------------------------------------------------------------------------------------------- Net increase / (decrease) in cash and cash equivalents 1,327,438 1,657,404 Cash and cash equivalents at beginning of period 1,066,949 0 - --------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,394,391 $ 1,657,404 - --------------------------------------------------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements
SMART CHOICE AUTOMOTIVE GROUP, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) =============================================================================== Note 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Smart Choice Automotive Group, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for a complete financial statement presentation. In the opinion of management, such unaudited interim information reflect all adjustments, consisting only of normal recurring adjustments, necessary to present the Company's financial position and results of operations for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full fiscal year. The Condensed Consolidated Balance Sheet as of December 31, 1997 was derived from audited consolidated financial statements as of that date but does not include all the information and notes required by generally accepted accounting principles. It is suggested that these condensed consolidated financial statements be read in conjunction with the company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Note 2 - Finance Receivables The Company's finance receivables ("Finance Receivables" or "Finance Contracts") are automobile retail installment sale contracts originated by the Company on sales of used cars at its automobile dealerships. The following shows the principal balances of the Company's Finance Receivables as of March 31, 1998: March 31, 1998 -------------- Contractually scheduled payments $50,439,275 Less: allowance for credit losses (8,493,306) ---------- Principal balances, net $41,945,969 =========== Note 3 - Presentation of Dealership Revenues and Cost of Revenues Revenues from Company dealership operations consist of Sales of New Cars, Sales of Used Cars, Income on Finance Receiveables, Income from Insurance and Training, and Income from Parts and Accessories. Cost of Revenues include cost of New Cars Sold, Cost of Used Cars Sold, the Provision for Credit Losses, Costs of Insurance and Training Income and Cost of Parts and Accessories Sold. The prices at which the Company sells its cars and the interest rate that it charges to finance these sales take into consideration that the Company's primary customers are high-risk borrowers, some of whom ultimately default. The Provision for Credit Losses reflects these factors and is treated by the Company as a cost of both the future finance income derived on the finance receivables originated at Company dealerships as well as a cost of the sales of the cars themselves. Note 4 - Common Stock Equivalents Net earnings per common share amounts are based on the weighted average number of common shares and common stock equivalents outstanding as reflected on Exhibit 11 to this Quarterly Report on Form 10-Q. Item No. 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the Company's consolidated financial position and consolidated results of operations should be read in conjunction with the Company's condensed consolidated financial statements and related notes thereto included in Item 1. Forward Looking Statements This report contains forward looking statements. Additional written or oral forward looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. Such forward looking statements are within the meaning of the term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but not be limited to, projections of revenues, income, or loss, estimates of capital expenditures, plans for future operations, products or services, and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward looking statements, which speak only as of the date the statement was made. Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward looking statements. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. The following disclosures, as well as other statements in this Report on Form 10-Q, and in the notes to the Company's condensed consolidated financial statements, describe factors, among others, that could contribute to or cause such differences, or that could affect the Company's stock price. Introduction The Eckler Merger. In January 1997, the Company, then named Eckler Industries, Inc., which had completed an initial public offering in 1995 and had been exclusively in the Corvette parts and accessories business, merged (the "Eckler Merger") with Smart Choice Holdings, Inc. ("SCHI"), which was acquiring various automobile sales and finance companies. In the Eckler Merger, SCHI was the surviving corporation of a merger with an acquisition subsidiary of Eckler Industries, Inc., and SCHI is presently a wholly owned subsidiary of the Company. After the Eckler Merger, the Company's name was changed to Smart Choice Automotive Group, Inc. In the Eckler Merger shareholders of SCHI were issued Common Stock having a majority of the voting rights of the Company. Therefore, the Eckler Merger was accounted for as a purchase of Eckler Industries, Inc. by SCHI (a reverse acquisition in which SCHI is considered the acquirer for accounting purposes). Accordingly, the financial statements of the Company for the periods prior to January 28, 1997 are those of SCHI, which was incorporated on June 21, 1996, and was a development stage company prior to the Eckler Merger. Comparability. From the date of the Eckler Merger and thereafter, the Company acquired various automobile sales and finance companies. The Company recorded the acquisition of each of these companies as purchases, and their assets were recorded at their estimated fair values and their results of operations have been included in the consolidated financial statements of the Company since their respective dates of acquisition. Thus, the Company's results of operations for the three months ended March 31, 1997 do not include the results of operations for the companies acquired on or about the date of the Eckler Merger for the entire period. In addition, the Company acquired various other businesses in 1997, the results of operations of which are reflected in the results of operations for the first quarter of 1998 but not those of the first quarter of 1997. This factor should be taken into account when comparing the March 31, 1998 financial statements to the March 31, 1997 financial statements. Presentation of Dealership Revenues and Costs and Expenses. Revenues from new car dealerships include sales of new and used vehicles, as well as revenues from repairs and finance and insurance commissions. Revenues from used car dealership operations consist of sales of used cars and income on Finance Receivables. Costs and expenses of used and new car dealership operations is comprised of the cost of vehicles and other products sold and the provision for credit losses on Finance Receivables. The prices at which the Company sells its used cars at its used car dealerships and the interest rate that it charges to finance these sales take into consideration that the Company's primary customers are high-risk borrowers. The provision for credit losses reflects these factors and is treated by the Company as a cost of both the future finance income derived on the Finance Contracts originated at the Company's First Choice dealerships, as well as the cost of the sales of the vehicles themselves. Accordingly, unlike traditional car dealerships, the Company does not present gross profits in the Statement of Operations calculated as sales of used cars less cost of used cars sold. Operational Changes. Management undertook a comprehensive restructuring of the Company beginning in late 1997 with the expectation of better meeting future operational and liquidity needs. Some of the results of that restructuring are reflected in the three months ended March 31, 1998. Some components of the restructuring include the following: Management determined to emphasize used car operations, which tend to have higher gross margins than new car sales. Acquisition plans for new car dealerships were curtailed in early December 1997. Management concentrated on achieving operational efficiencies at the 22 used car dealerships that the Company had acquired or opened during 1997. Management took one-time charges in the fourth quarter of 1997 relating to acquisition expenses and severance payments. Staff was reduced by 15% in November and December of 1997. Overhead expenses were reduced over $2 million during late November and December, 1997 and January, 1998. A new Chief Financial Officer was retained in September, a new Vice President of Finance was employed in November, and a significant portion of the accounting staff was replaced. A Company-wide budget was prepared and implemented. "Flash reports" were developed for the Company's divisions beginning January 15, 1998. These flash reports are used to monitor business operations and results on a regular basis. In late 1997, the Company completed a "static pool" analysis that established a benchmark for analysis of the quality of the Company's Finance Receivable portfolio. The static pool indicated that the actual losses (12 %) on the portfolio were substantially less than loss reserves ( 17 %). The Company's finance subsidiary expanded its loan portfolio to $72.2 million while establishing and maintaining underwriting procedures that have resulted in 93.7% of the Finance Contracts being current (30 days or fewer past due). Eckler Industries, Inc. ("Eckler") was restructured to focus on greater customer service. Inventory carrying costs were reduced by negotiating with vendors. "Drop ship" delivery is being utilized. As the mail order business constitutes over 93% Eckler's revenue, two mail order catalogs are now used, instead of one per year as in the past. Management also undertook a restructuring of debt obligations in late 1997 and the first quarter of 1998 in order to better meet its foreseeable liquidity needs. The debt restructuring included expanded financings for key areas of the business as well as negotiating conversions of some debt instruments into equity and refinancing obligations with maturities in 1998. See "Liquidity and Capital Resources." Results of Operations Revenues. The Company experienced nearly a four-fold increase in revenues for the three months ended March 31, 1998 compared to the same period in 1997. The 1997 revenues reflect less than two months of combined operations for the companies that merged in later January and February, 1997. In contrast, the 1998 revenues reflect a full quarter of operations which included those of the companies acquired later in 1997 and the opening of new used car sales locations. Costs and Expenses. Cost of revenues also increased nearly four-fold for the quarter ended March 31, 1998 compared to the 1997 period, reflecting the increased sales discussed above. Cost of revenues, as a percent of revenues, decreased from approximately 74.5% for the three months ended March 31, 1997 to approximately 72.4% of revenues for the same period in 1998. The lower percentage cost of sales reflects management's increased focus on loan quality and higher margins for car sales in the 1998 period. In the first quarter of 1997, substantial amounts of management time were allocated to analyzing, negotiating, and assimilating acquisitions. The improved margins in the 1998 period reflected implementation of policies and procedures for the acquired companies. Operating Expenses. Operating expenses consist of selling, marketing, and general and administrative expenses, and depreciation and amortization. Operating expenses decreased from $8.2 million for the three months ended March 31, 1996 to $8.0 million for the same period in 1997. The first quarter 1997 operating expenses included approximately $3.1 million in expense recognized by the Company from issuing stock options to key management personnel by an affiliated trust. Additionally, in the first quarter of 1997, the Company recognized expense of approximately $1.7 million to settle various consulting agreements and employment contracts of predecessor companies. Without those two items, the Company's operating expenses for the three months ended March 31, 1997 would have totaled $3.4 million, or 42.3% of revenues, compared to $8.0 million, or 20.6% of revenues in the same period in 1998. Management believes that the decreased percentage of costs to revenues reflects economies of scale and the better utilization of the Company's infrastructure including centralized marketing, accounting, and management information functions. Allowance for Credit Losses. The allowance for credit losses (the "Allowance") was 16.8% of the principal of Finance Receivables as of March 31, 1998. The following table reflects activity in the Allowance, as well as information regarding charge off activity, on Finance Receivables for three months ended March 31, 1998. Three Months Ended March 31, 1998 ----------------- Allowance Activity: (In thousands) - ------------------- Balance, beginning of period.......... $ 6,857 Provision for credit losses........... 2,904 Net charge offs..................... (1,268) ------ Balance, end of period................ $ 8,493 ======= Charge Off Activity: - -------------------- Principal balances: Collateral repossessed.............. $(2,536) Recoveries, net....................... 1,268 ----- Net charge offs..................... $(1,268) ======= Analysis of the portfolio delinquencies is considered in evaluating the adequacy of the Allowance. The following table reflects the principal balances of current and delinquent Finance Receivables as a percentage of the total outstanding Finance Receivable principal balance as of March 31, 1998 and 1997. March 31, --------- Aging Percentages: 1998 1997 ---- ---- Principal balances current.................... 93.7% 88.7% Principal balances 31 to 60 days.............. 2.8% 6.3% Principal balances over 60 days............... 3.5% 5.0% Management believes that the decrease in the percentage of loans which are not delinquent reflects the Company's focus on higher quality borrowers in 1998, its financing only cars sold at its dealerships rather than purchasing loans from other dealers, and increased collection efforts. Interest Expense. Interest expense totaled $1.9 million for the three months ended March 31, 1998 compared to $0.7 million for the same period in 1997, an increase of 176%. The increase resulted primarily from interest on debt attributable to acquisitions and interest on financing increased Finance Receivables and inventory as the Company expanded its operations. Other Income. Other income totaled approximately $919,000 for the three months ended March 31, 1998 compared to $9,000 for the same period in 1997. The 1998 amount is comprised primarily of sales tax refunds on repossessed cars ($350,000), late fees on delinquent loans ($167,000), and recoupment of prior year expenses ($165,000). Liquidity and Capital Resources The following table sets forth the major components of the increase in the cash and cash equivalents, in thousands, for the periods ended March 31, 1998 and 1997: March 31, --------- 1998 1997 ---- ---- Net cash provided (used) by operating activities $ 2,272 $ 470 Net cash used by investing activities (12,551) (5,025) Net cash provided by financing activities 11,606 6,212 ------ ------- Net increase in cash and cash equivalents $ 1,327 $ 1,657 ========= ======== The Company requires capital to support increases in Finance Receivables, vehicle inventory, parts and accessories inventory, property and equipment, and working capital for general corporate purposes. Funding sources available to the Company include operating cash flow, third party investors, financial institution borrowings and borrowings against finance receivables. The Company intends to explore selling (securitizing) its Finance Receivables in the future. Net cash flows provided by operating activities were approximately $2.3 million and $0.5 million for the three month periods ended March 31, 1998 and 1997, respectively. Net cash provided from operating activities in the first quarter of 1998 primarily reflects the net income for the period and an increase in payables. The increase in the first quarter of 1997 reflected the non-cash stock option compensation which was included as an expense in that period, plus increases in accounts payable, accrued expenses, other liabilities and the provision for credit losses. Cash used investing activities was approximately $12.6 million and $5.0 million during the three month periods ended March 31, 1998 and 1997, respectively. The 1998 amount primarily reflects increases in Finance Receivables carried by the Company. The 1997 amount reflects an increase in Finance Receivables and debt associated with the acquisition of companies during the first quarter of 1997. Cash provided by financing activities was approximately $11.6 million and $6.2 million during 1998 and 1997, respectively. In the first quarter of 1998, the Company increased its notes payable on finance receivables by $9.5 million and borrowed $3 million. In the first quarter of 1997, the Company raised approximately $0.6 million through the sale of Preferred Stock, and increased its line of credit and floorplan borrowings by approximately $5.8 million. Revolving Credit Facilities. The Company's revolving credit facility with Finova Capital Corporation (the "Finova Revolving Facility") had a maximum commitment of $35 million at December 31, 1997. The credit line was increased to a maximum commitment of $42.5 million on March 27, 1998 and $75 million, effective May 11, 1998. Under the Finova Revolving Facility, the Company may borrow up to 55% of the gross balance of eligible Finance Contracts. The Finova Revolving Facility expires in December 2001, at which time its renewal will be subject to renegotiation. The Finova Revolving Facility is secured by substantially all of the Company's Finance Receivables. As of December 31, 1997 and March 31, 1998, the principal amount outstanding under the Finova Revolving Facility was $31.4 million and $40.9 million, respectively. The Finova Revolving Facility bears interest at the prime rate (currently the Citibank N.A. prime rate) plus 2.5%. In 1997 and the first quarter of 1998 the Company financed its used car inventory through a line of credit with Manheim Automotive Financial Services, Inc. (the "Manheim Facility") which had an outstanding balance at December 31, 1997 of $2.7 million and $3.5 million at March 31, 1998. The maximum commitment on the Manheim Facility is $3.75 million. The Manheim Facility is secured by the Company's buy here-pay here used car inventory and bears interest at 1.5% over the prime rate. The Company is negotiating with other lenders for an increased credit line. The Company finances its new car inventory through manufacturer floorplan facilities. The Company's floorplan facility with Volvo Finance North America, Inc. has a maximum commitment of $3.3 million, bears interest at 1% above the prime rate, and at December 31, 1997 and March 31, 1998 had outstanding balances of $1.98 million and $2.8 million, respectively. The Company's floorplan facility with Nissan Motor Acceptance Corporation has a $3 million maximum commitment, bears interest at 1% above prime, and at December 31, 1997 and March 31, 1998 had outstanding balances of $2.3 million and $2.5 million, respectively. Loans. In March and May 1997, Sirrom Capital Corporation ("Sirrom") loaned the Company a total of $7.5 million. The Company issued Sirrom a $3.5 million convertible note, convertible until March 12, 1999 at $3.67 per share and a $4.0 million convertible note, convertible at $7.50 per share until May 12, 2002, subject to adjustment. In September 1997, the Company completed the private placement of convertible notes in the aggregate amount of $1,050,000. The notes mature on April 15, 1998, bear interest at the rate of 8% per annum, and, since December 14, 1997, have been convertible into Common Stock of the Company at a conversion price of 66 2/3% of the average closing bid price for the five trading days immediately preceding the effective date of conversion. Nearly $475,000 of the debt had been converted into common stock by March 31, 1998. In conjunction with the borrowing, the Company also issued common stock warrants for 52,500 shares of the Company's Common Stock exercisable at $7.00 per share at any time prior to August 29, 2002. In 1997 and 1998, Eckler borrowed a total of $8.5 million from Stephens Inc. ("Stephens"), the investment banking firm that is the managing underwriter of the Offering to which this Prospectus relates. The loans bear interest at the rate of 10% per annum and are secured by all of the assets and common stock of Eckler. The Company guaranteed the debt. The maturities of the Stephens loans are as follows: $1.5 million on October 15, 1998, $1.0 million on June 30, 1998, $2.0 million on June 30, 1999, and $4.0 million on September 30, 1999. In 1997 the Company completed an offering to institutional investors of 400 units of Series A Redeemable Convertible Preferred Stock and warrants at $10,000 per unit. Proceeds from the offering, net of offering costs, were approximately $3,965,000. Each unit consisted of one share of Series A Redeemable Convertible Preferred Stock and a five year warrant to acquire 300 shares of Common Stock for each preferred share purchased. The exercise price of the warrants are $8.10 for 90,000 shares and $5.23 for 30,000 shares. At March 31, 1998 all but one share of the Series A Redeemable Convertible Preferred Stock had been converted into Common Stock. In May of 1998, the Company sold to a private investment group 220 shares of the Company's Series B Convertible Preferred Stock for $10,000 per share for an aggregate of $2,200,000. The Series B Convertible Preferred Stock has an 11% dividend per year and is convertible into Common Stock at a conversion rate of $5.00 per share. After November 5, 1999, the Company may, at its option, redeem the Series B Convertible Preferred Stock for $10,000 per share. In connection with the issuance of the Series B Convertible Preferred Stock, the Company agreed to certain limitations on the issuance of additional shares of preferred stock by the Company. Mortgage Loan. The Company has a long-term mortgage payable to a bank with a current principal balance of approximately $2.5 million at a variable rate of 1.5% above prime. The mortgage loan is collateralized by the Company's headquarters real property and machinery, equipment and fixtures. The loan terms require monthly principal payments of $13,333, plus interest, and the loan matures on July 1, 1998, at which time the Company intends to negotiate a later maturity. In connection with an acquisition in 1997, the Company acquired approximately 7.92 acres of undeveloped land in Lake Mary, Florida. The land, held for resale by the Company, is recorded at $1,050,000 on the Company's books. The property is subject to a first mortgage in favor of AmSouth Bank and a second mortgage in favor of Barnett Bank. The AmSouth debt had a principal balance of $482,202 as of March 31, 1998, an interest rate of 7.75%, and monthly payments of $8,683 until December 2003. The Barnett Bank note has a principal balance of $600,000, bears interest at 1% over Barnett's prime interest rate, and requires quarterly interest payments. The note matured on April 1, 1998. The Lake Mary property is presently under contract to be sold to an unrelated party in May 1998 for $1.3 million. Both mortgages will be satisfied when the property is sold. Seasonality. Historically, the Company's used car business has experienced higher revenues in the first two quarters of the calendar year than in the latter half of the year. Management believes that these results are due to seasonal buying patterns resulting in part from the fact that many of its customers receive income tax refunds during the first half of the year, which are a primary source of down payments on used car purchases. The Eckler business is also subject to seasonal fluctuations. Historically, Eckler has realized a higher portion of its revenues in the second and third quarters of the calendar year and the lowest portion of its revenues in the fourth quarter. The business of Eckler is particularly dependent on sales to Corvette enthusiasts during the spring and summer months. This is the time of year that Corvette enthusiasts are preparing for upcoming car shows that are held in the late summer and early fall. Inflation. Increases in inflation generally result in higher interest rates. Higher interest rates on the Company's borrowings would increase the interest expense related to the Company's existing debt. The Company cannot seek to limit this risk by increasing interest rates earned on its Finance Contracts since the interest charged is at or near the maximum permitted under Florida law. Instead, the Company will seek to limit this risk, to the extent market conditions permit, by increasing the profit margin on the cars sold. To date, inflation has not had a significant impact on the Company's operations. Recent Accounting Pronouncement In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130") and No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. FAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. Both FAS 130 and FAS 131 are effective for periods beginning after December 15, 1997. Adoption of these standards is not expected to have a material adverse effect on the Company's financial statements. PART II SMART CHOICE AUTOMOTIVE GROUP, INC. OTHER INFORMATION ----------------- Item 2. Changes in Securities and Use of Proceeds. Described below are the sales of securities by the Company during the first quarter of 1998 that were not registered under the Securities Act of 1933, as amended (the "1933 Act"). On the issuance of these securities the Company relied on the exemption from registration under the 1933 Act set forth in Section 4(2) thereof, based on established criteria for effecting a private offering., including the number of offerees for each transaction, access to information regarding the Company, disclosure of information by the Company, restrictions on resale of the securities offered, investment representations by the purchasers, and the qualification of the offerees as "accredited investors." On various dates during the three months ended March 31, 1998, the Company issued Common Stock to holders of the Company's Series A Redeemable Convertible Preferred Stock (the "Series A Preferred Stock"), on conversion of Series A Preferred Stock. The Company had issued the Series A Preferred Stock in 1997 to institutional investors. The Series A Preferred Stock was converted into Common Stock at a conversion price that was based on the market price of the Common Stock at the time of conversion. A total of 1,265,825 shares of Common Stock were issued in the first quarter of 1998 on conversion of the Series A Preferred Stock. On various dates during the three months ended March 31, 1998, the Company issued Common Stock to holders of preferred stock of a subsidiary of the Company (the "Subsidiary Preferred Stock") in exchange for the Subsidiary Preferred Stock. The holders of the Subsidiary Preferred Stock were accredited investors who had purchased the Subsidiary Preferred Stock in a private placement in 1996. The exchange ratio for the exchange of Common Stock for the Subsidiary Preferred Stock was 2.7 shares of Common Stock for each share of Subsidiary Common Stock, which was determined based on the market price of the Common Stock for the period January 21, 1998 through January 30, 1998. A total of 648,00 shares of Common Stock were issued in the first quarter of 1998 on conversion of the Subsidiary Preferred Stock. On various dates during the three months ended March 31, 1998, the Company issued Common Stock to holders of the Company's 12% convertible notes due April 15, 1998 (the "Notes") on conversion of the Notes. The Company had issued the Notes in 1997 to institutional and individual accredited investors. The Notes were converted into Common Stock at a conversion price that was based on the market price of the Common Stock at the time of conversion. A total of 560,472 shares of Common Stock were issued in the first quarter of 1998 on conversion of the Notes. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company does not invest or trade in foreign currency or commodity transactions which would ordinarily be subject to market risk. The interest rate on the Company's revolving credit facility with Finova Capital Corporation is based on the prime rate plus 2.5% percent. Accordingly, a significant increase or decrease in the prime rate could affect the Company's earnings in the future. The Company believes, however, that its financial instruments are disclosed at their fair values. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument; they are subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular instrument. Changes in assumptions could significantly affect these estimates. Since fair value estimates are as of a particular date, the amounts that will actually be realized or paid in settlement of the instruments could be significantly different. The carrying amount of cash and cash equivalents is assumed to be the fair value because of the liquidity of these instruments. The carrying amount is assumed to be the fair value because of the relative short maturity and repayment terms of the portfolio as compared to similar instruments. The carrying amount of accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. The terms of the Company's notes payable approximates the terms in the market place at which they could be replaced. Therefore, the fair value approximates the carrying value of these financial instruments. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits
Exhibit List Exhibit Description Filed herewith or Incorporated by reference to: ---- ------------------- ----------------------------------------------- 3.1 Third Articles of Amendment to Articles of Filed herewith. Incorporation. 10.1 Ninth Amended and Restated Promissory Note Filed herewith. dated May 11, 1998 between Florida Finance Group, Inc. ("FFG"), maker, and Finova Capital Corporation ("Finova") payee. 10.2 Fifth Amended and Restated Schedule to Filed herewith. Amended and Restated Loan and Security Agreement, FFG, borrower, Finova, lender. 10.3 Promissory Note by Eckler Industries, Inc. Exhibit 10.1 to Form 8-K filed March 5, 1998. in favor of Stephens Inc. 10.4 Amendment to Guaranty Agreement between Exhibit 10.4 to Form 8-K filed March 5, 1998. Registrant and Stephens Inc. 10.5 Amendment to Pledge and Security Agreement Exhibit 10.5 to Form 8-K filed March 5, 1998 between Registrant and Stephens Inc. 10.6 Promissory Note, dated February 24, 1998, Exhibit 10.9 to Form 8-K filed March 5, 1998 First Choice Auto Finance, Inc., maker, and Manheim Automotive Financial Services, Inc., payee. 10.7 Guaranty, dated March 21, 1997 from the Exhibit 10.10 to Form 8-K filed March 5, 1998 Registrant in favor of Manheim Automotive Financial Services, Inc. 11.0 Statement re computation of per share Filed herewith. earnings. 27.0 Financial Data Schedule. Filed herewith.
(b) Report on Form 8-K In the three months ended March 31, 1998, the Company filed a report on Form 8-K dated December 10, 1997 reporting information pursuant to Item 5. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 15, 1998. SMART CHOICE AUTOMOTIVE GROUP, INC. By: /s/ Joseph E. Mohr ------------------------- Joseph E. Mohr Chief Financial Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/ Joseph E. Mohr Chief Financial Officer, May 15, 1998 - ----------------------- (Principal Financial and Joseph E. Mohr Accounting Officer) EX-3.1 2 THIRD ARTICLES OF AMENDMENT TO ARTICLES OF INC. THIRD ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF SMART CHOICE AUTOMOTIVE GROUP, INC. Pursuant to the provision of Sections 607.1006 and 607.0602 of the Florida Business Corporation Act, the Corporation adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: ARTICLE V Article V of the Articles of Incorporation of the Corporation is hereby amended by inserting the following words at the end of such article: Series B Convertible Preferred Stock Three hundred (300) shares of the authorized and unissued shares of $0.01 par value per share Preferred Stock of the Corporation are hereby designated "Series B Convertible Preferred Stock" (the "Series B Preferred Stock") with the following powers, preferences and rights, and the qualifications, limitations and restrictions hereon: Rank. The Series B Preferred Stock shall rank, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, senior to the Common Stock and any subsequent issues of stock, whether common or preferred. Dividends. Each holder of shares of the Series B Preferred Stock ( the "Holder", collectively, the "Holders") shall be entitled to receive out of the assets of the Corporation legally available therefor, cumulative cash dividends at the rate per share (based on the stated value of $10,000.00 per share) of $91.67 per month, accruing from the date of original issuance ("Original Issuance Date") which dividends are due and payable monthly commencing on the first day of the month following the Original Issuance Date. Such dividends shall accrue from the Original Issuance Date. In the event that a Holder is not paid dividends on a timely basis in accordance with the foregoing, such Holder shall be entitled to accrue interest on the accrued and unpaid dividends at the rate per share (based on the stated value of $10,000.00 per share) of 15% per annum, until all accrued dividends have been paid. If the Corporation remains in default on the monthly dividend payments to the Holders for a period of greater than ninety (90) days, and such default is continuing for a period of thirty (30) days after written notice of such default is sent by a Holder the Corporation, and further provided that the Holders of at least seventy-five (75%) percent of the then outstanding Series B Preferred Stock so agree, a Holder may, at its option, receive an amount which is equal to (i) the number of shares of Series B Preferred Stock which have not been converted by such Holder as of such date, times, (ii) $10,000.00, plus all unpaid and accrued dividends and interest in exchange for such shares of Series B Preferred Stock. Unless full cumulative dividends on the Series B Preferred Stock to which Holders are entitled have been paid or are declared and a sum sufficient for the payment thereof has been set apart for the payment of such unpaid dividends, no dividend shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock of the Corporation or on any other stock of the Corporation ranking junior to or on parity with the Series B Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration or any monies to be paid to or made available for a sinking fund for the redemption of any share of such stock by the Corporation. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holders are entitled to receive, out of the assets of the Corporation available for distribution to stockholders, before any distribution of assets is made to holders of Common Stock, or any other holders of stock ranking junior to the Series B Preferred Stock, liquidating distributions in the amount of $10,000.00 per share plus accrued and unpaid dividends. If, upon any liquidation, dissolution, or winding up of the Corporation, the amounts payable to the Holders are not paid in full, then the entire assets of the Corporation shall be distributed ratably among the Holders. After payment of the full amount of the liquidating distribution to which they are entitled, the Holders shall not be entitled to any further participation in any distribution of assets by the Corporation. A consolidation or merger of the Corporation, with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, shall not be deemed to be a liquidation, dissolution, or winding up within the meaning of this section. Conversion. The Holders shall have conversion rights as follows (the "Conversion Rights"): (i) Right to Convert. At any time or times after the Original Issuance Date of the shares of Series B Preferred Stock, any Holder shall be entitled to convert his shares of Series B Preferred Stock into shares of Common Stock of the Corporation at the Conversion Rate, as herein defined, without the payment of any additional consideration by the Holder thereof, at the office of the Corporation or any transfer agent for such shares. (ii) Conversion Rate. The number of shares of Common Stock issuable upon conversion of each of the shares of Series B Preferred Stock shall be determined according to the following formula (the "Conversion Rate"): Conversion Amount Conversion Price For purposes of this section of Article V, the following terms shall have the following meanings: (a) "Conversion Price" means (A) the average last closing sale price per share of the Common Stock on the NASDAQ SmallCap Market ("Market Price") for the ten (10) consecutive trading days immediately preceding the Original Issuance Date, plus (B) $.50. If any shares of Series B Preferred Stock (other than the shares authorized hereby) are issued at a price per share that is less than the Conversion Price applicable on the earliest Original Issuance Date, the Conversion Price shall be reduced to that lower price. (b) "Conversion Amount" means the amount equal to (A) the number of shares of Series B Preferred Stock that the Holder is converting times (B) $10,000. (iii) Mechanics of Conversion. The Board of Directors may determine in its sole discretion whether fractional shares of Common Stock will be issued upon any conversion of the Series B Preferred Stock. If the Board of Directors determines not to issue fractional shares of Common Stock at the conversion, the Corporation will pay, in lieu of any fractional shares to which the Holder would otherwise be entitled, cash equal to such fraction multiplied by the Conversion Price then in effect. Before any Holder shall be entitled to convert the Series B Preferred Stock into full shares of Common Stock, he shall surrender the certificate or certificates of Series B Preferred Stock for shares of Common Stock to be issued in that conversion. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such Holder, or to his nominee or nominees, a certificate or certificates for the number of shares of Common Stock and/or fractional shares of Common Stock, if any, to which he shall be entitled as aforesaid, together with cash in lieu of any fraction of a share, if any, to which the Holder may be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of the Series B Preferred Stock to be converted and the person or persons entitled to receive the shares of Commons Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. Any unpaid and accrued dividends and interest due and payable at conversion shall be paid to a Holder by the Corporation in cash or its equivalent or other mutually agreeable form. (iv) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or Bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this section and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holders against impairment. (v) Common Stock Reserved. The Corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of all issued and outstanding shares of the Series B Preferred Stock. (5) Unauthorized Distributions. Notwithstanding any other provision of these Articles, the Corporation will not make any payment due with respect to the Series B Preferred Stock if (a) after giving effect to that payment, the Corporation would not be able to pay its debts as they become due in the usual course of business; or (b) after giving effect to that payment, the Corporation's total assets would be less than the sum of its total liabilities plus (unless the Corporation's articles of incorporation permit otherwise) the amount that would be needed, if the Corporation were to be dissolved at the time of the payment, to satisfy the preferential rights upon dissolution of any shareholders whose preferential rights are superior to the Holders of Series B Preferred Stock; or (c) the Corporation is otherwise prohibited (under then existing laws) from making any payment due with respect to the Series B Preferred Stock. Nothing contained herein shall amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series A Preferred Shares. (6) Redemption by Corporation. At any time or times more than eighteen (18) months after the Original Issuance Date of Series B Preferred Stock, the Corporation may at its option and in the sole discretion of the Corporation's Board of Directors, (i) call any or all then outstanding shares of Series B Preferred Stock for cash at the price of $10,000.00 per share plus any unpaid and accrued dividends and interest as provided above, or (ii) convert any or all of the then outstanding shares of Series B Preferred Stock into shares of Common Stock of the Corporation as provided above; provided however, that in no event may the Corporation convert the Series B Preferred Stock unless and until (a) the Corporation gives the Holder thirty (30) days prior written notice of its intent to call or convert, and (b) the Market Price of the Common Stock equals or exceeds one and one-half (1.5) times the Conversion Price for a period of at least twenty (20) consecutive trading days prior to the date of such notice, and (c) the shares of Common Stock into which the shares of Series B Preferred Stock are to be so called or converted have been registered as provided herein. Upon any such call or conversion such Holder shall surrender the certificate or certificates for the shares of Series B Preferred Stock so called or converted. If the Corporation elects to convert, the Corporation shall issue such Holder shares of Common Stock for the shares of Series B Preferred Stock so converted. If a Holder has elected not to register its shares of Common Stock after notice from the Corporation, as contemplated hereby, then the restrictions set forth in subsection (c) of this Section on the Corporation's ability to call or convert that Holder's Series B Preferred Stock shall not apply. (7) Voting Rights. Except as expressly required by applicable law, the Holders will not be entitled to vote. However, upon conversion of shares of Series B Preferred Stock as provided above, the holder of the Common Stock received pursuant to such conversion shall be entitled to one vote for each share of Common Stock received upon such conversion. (8) Certain Adjustments. If the outstanding shares of Common Stock of the Corporation are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Corporation or of another corporation or entity or shares of a different par value or without par value through a recapitalization, stock dividend, stock split, reverse stock split or a reorganization under which the Corporation is not the surviving entity, an appropriate or proportionate adjustment shall be made in the number and/or kind of securities allocated to the Series B Preferred Stock. (9) Term. If a Holder has not converted all its shares of Series B Preferred Stock within twenty-four (24) months after the Original Issuance Date, and such shares have not otherwise been redeemed by the Corporation, then such Holder may, at its option, receive an amount which is equal to (i) the number of shares of Series B Preferred Stock which have not been converted or redeemed by the Corporation as of such date times (ii) $10,000.00, plus all unpaid and accrued dividends. Exercise of these rights is subject to the consent of the Company, which shall not be unreasonably withheld. (10) Registration Rights. (a) Piggyback Rights. (i) If the Corporation at any time after the Original Issuance Date elects or proposes to register any of its shares of Common Stock (the "Registration Shares") under the 1933 Act on Forms S-1, S-2 or S-3 or any other form in effect at such time for the registration of securities to be sold for cash (a "Registration Statement") with the Securities and Exchange Commission (the "SEC") pursuant to which shares of Common Stock owned by any other shareholder of the Corporation are to be registered, the Corporation shall give prompt written notice (the "Registration Notice") to the Holders of its intention to register the Registration Shares. (ii) Within fifteen (15) days after a Holder may give written notice to the Corporation of exercise of all, or a portion, of its right to convert the Series B Preferred Stock (the "Conversion Notice"), stating the number of shares such Holder elects to be included among the Registration Shares (which number may include shares held by Holder as a result of prior exercises of its right to convert the Series B Preferred Stock, or otherwise) (the "Holder's Included Shares"). (iii) The Corporation shall use reasonable efforts to register the Holder's Included Shares under the Securities Act of 1933 and any applicable state securities acts, if necessary, designated by such Holder in the Conversion Notice. The Corporation shall have the right to withdraw and discontinue registration of the Holder's Included Shares at any time prior to the effective date of such Registration Statement if the registration of the Registration Shares is withdrawn or discontinued. (iv) The Corporation shall not be required to include any of a Holder's Included Shares in any Registration Statement unless such Holder agrees, if so requested by the Corporation, to: (i) offer and sell the Holder's Included Shares to or through an underwriter selected by the Corporation and, to the extent possible, on substantially the same terms and conditions under which the Registration Shares are to be offered and sold; (ii) comply with any arrangements, terms and conditions with respect to the offer and sale of the Holder's Included Shares to which the Corporation may be required to agree; and (iii) enter into any underwriting agreement containing customary terms and conditions. The foregoing shall not require the Holder to sell the Holder's Included Shares at the time of registration through such underwriter. (v) If the offering of the Registration Shares by the Corporation is, in whole or in part, an underwritten public offering, and if the managing underwriter determines and advises the Corporation in writing that the inclusion in such Registration Statement of all of a Holder's Included Shares, together with the stock of other persons who have a right to include their stock in the Registration Statement (collectively referred to as the "Aggregate Shares"), would adversely affect the marketability of the offering of the Registration Shares, then such Holder and such other holders shall be entitled to register the portion of such number of Aggregate Shares as the managing underwriter determines may be included without such adverse effects (collectively, "Aggregate Underwriter Shares"), subject to the terms, exceptions and conditions of this section. (vi) The Corporation shall bear all costs and expenses of registration of the Registration Shares, including Holder's Included Shares. (vii) It shall be a condition precedent to the Corporation's obligation to register any of a Holder's Included Shares that such Holder provide the Corporation with all information and documents, and shall execute, acknowledge, seal and deliver all documents reasonably necessary, to enable the Corporation to comply with the 1933 Act, any applicable state securities acts, and all applicable laws, rules and regulations of the SEC or of any state securities law authorities. (b) Demand Right. (i) If at any time on or after nine (9) months after the Original Issuance Date the Corporation shall receive from the Holders of at least seventy-five (75%) of the then outstanding Series B Preferred Stock, a written request that the Corporation effect any registration with respect to such Holders' Holder's Included Shares, the Corporation will, as soon as practicable, use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the 1933 Act) and as would permit or facilitate the sale and distribution of all or such portion of Holder's Included Shares as are specified in such request. The Corporation shall be required to effect, pursuant to this Section 10(b), only one (1) registration of Holder's Included Shares pursuant to this Section 10(b). (ii) Proviso. The Corporation shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 10(b): (a) in any particular jurisdiction in which the Corporation would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Corporation is already subject to service in such jurisdiction and except as may be required by the 1933 Act; or (b) during the period starting with the date fifteen (15) days prior to the Corporation's good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of, a Corporation-initiated registration, provided that the Corporation is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. (iii) Deferral of Registration. The Corporation shall file a registration statement covering Holder's Included Shares so requested to be registered as soon as practicable after receipt of the request of the Holder; provided, however, that if (a) in the good faith judgment of the Board of Directors of the Corporation such registration would be materially detrimental to the Corporation because there exist bona fide financing, acquisition or other activities of the Corporation and the Board of Directors of the Corporation concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (b) the Corporation shall furnish to the Holder a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors of the Corporation, it would be materially detrimental to the Corporation for such registration statement to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the Corporation shall have the right to defer such filing (except as provided in subsection 10(ii)(b) above) for a period of not more than ninety (90) days after receipt of the request of the Holder, and, provided further, that the Corporation shall not defer its obligation in this manner more than once in any twelve-month period. The registration statement filed pursuant to the request of the Holder may, subject to the provisions of Section 10(a) and 10(b) hereof, include other securities of the Corporation, with respect to which registration rights have been granted, and may include securities of the Corporation being sold for the account of the Corporation, provided all the Holder's Included Shares for which the Holder has requested registration shall be covered by such registration statement before any other securities are included. (iv) Procedures. In any registration pursuant to this Section 10(b), if the Corporation shall request inclusion of securities to be sold for its own account, or if other persons entitled to incidental registrations shall request inclusion in such registration, the Holder shall offer to include such securities in the underwriting and may condition such offer on the acceptance by the Corporation or such other persons of the further applicable provisions hereof. The Corporation shall (together with all such other persons proposing to distribute their securities through such underwriting) enter into an agreement in customary form with the representative of the underwriter or underwriters acceptable to the Corporation. Notwithstanding any other provision of this Section, if the representative of the underwriters advises the Holder of the need to offer for sale only the Aggregate Underwriter Shares, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 10(a)(v) hereof. (11) Limitations on Issuances of Additional Shares of Series A Redeemable Convertible Preferred Stock and Series B Preferred Stock and Other Convertible Preferred Stock. The Corporation will not (i) issue or re-issue any additional shares of Series A Redeemable Convertible Preferred Stock, including without limitation, any such shares which have been converted to shares of Common Stock, nor (ii) issue or re-issue shares of Series B Preferred Stock such that the number of issued and outstanding shares of Series B Preferred Stock would exceed Four Hundred and Twenty (420) (based on a stated value per share of $10,000.00), nor (iii) issue any shares of Convertible Preferred Stock which rank, with respect to dividend rights and rights upon liquidation, dissolution and winding up of the corporation, senior to the Series B Preferred Stock, provided however that if either (a) at least seventy-five (75%) percent of the shares of Series B Preferred Stock issued on the Original Issuance Date have been converted, called or otherwise redeemed as provided above, or are no longer outstanding or (b) if the shares of Series B Preferred Stock issued on the Original Issuance Date to James W. Walter have been converted, called or otherwise redeemed, or are no longer outstanding, the restrictions set forth in Section 11 (ii) shall no longer apply. SECOND: Pursuant to Section 607.0602 of the Florida Business Act, the Board of Directors adopted this Amendment to Article V of the Articles of Incorporation effective as of May 5, 1998 without shareholder action. IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation has executed this instrument this 5th day of May, 1998. /s/ Joseph E. Mohr ------------------------------- Joseph E. Mohr Executive Vice President and Chief Financial Officer EX-10.1 3 NINTH AMENDED AND RESTATED PROMISSORY NOTE-FINOVA NINTH AMENDED AND RESTATED PROMISSORY NOTE $75,000,000.00 PHOENIX, ARIZONA MAY 11, 1998 FOR VALUE RECEIVED, the undersigned ("MAKER"), hereby unconditionally promises to pay to the order of FINOVA CAPITAL CORPORATION, a Delaware corporation ("HOLDER"), at HOLDER's branch address at 13355 Noel Road, Suite 800, Dallas, Texas 75240, or at such other place as HOLDER may designate in writing, the principal sum of Seventy-Five Million Dollars ($75,000,000.00) or so much thereof as shall be outstanding from time to time, with interest thereon at the Stated Interest Rate calculated on the average daily balance outstanding, as follows: 1. DEFINITIONS. When used herein, the following terms have the meanings given in this paragraph: A. Loan Agreement. The term "Loan Agreement" shall mean that certain First Amended and Restated Loan and Security Agreement, dated February 4, 1997, entered into by and between FINOVA CAPITAL CORPORATION, as Lender, and MAKER, as Borrower, and all amendments, substitutions, renewals and extensions thereof. All capitalized terms used herein which are not expressly defined herein shall have the meanings ascribed to them in the Loan Agreement. B. Maximum Rate. The term "Maximum Rate" shall mean the highest lawful rate of interest applicable to this NOTE. In determining the Maximum Rate, due regard shall be given to all payments, fees, charges, deposits, balances and agreements which may constitute interest or be deducted from principal when calculating interest. 2. PAYMENT. The principal and interest of this NOTE are payable as follows: A. Accrued but unpaid interest for each calendar month during the term hereof shall be due and payable monthly, in arrears, on the fifteenth (15th) day of the immediately succeeding calendar month commencing June 15, 1998. All outstanding principal together with all accrued and unpaid interest shall be due and payable, if not sooner paid on December 31, 2001. All payments received hereunder shall be applied as set forth in the Loan Agreement. B. Notwithstanding the foregoing, principal shall be immediately due and payable without written notice and demand from Lender in such amounts so that the outstanding balance hereunder does not, at anytime, exceed the permitted amount of the Loan as determined pursuant to Section 2.1 of the Loan Agreement. The amount of such payments shall be determined by HOLDER pursuant to the terms of the Loan Agreement and based upon the principal balance of this NOTE then outstanding as determined pursuant to the Loan Agreement and as shown on the books and records of HOLDER, maintained in accordance with its usual practice, the entries of which being prima facie evidence of the existence and amounts as therein recorded. C. All of the principal hereunder may be prepaid in full at any time; however, such voluntary prepayments shall be subject to the voluntary prepayment provisions set forth in the Loan Agreement. 3. PRINCIPAL BALANCE. The unpaid principal balance of this NOTE at any time shall be the total amounts loaned or advanced hereunder by HOLDER, less the amount of payments or prepayments of principal made hereon by or for the account of MAKER. It is contemplated that by reason of payments or prepayments hereon there may be times when no indebtedness is owing hereunder; but notwithstanding such occurrences, this NOTE shall remain valid and shall be in force and effect as to loans or advances made pursuant to and under the terms of this NOTE subsequent to each such occurrence. All loans or advances and all payments or prepayments made hereunder on account of principal or interest may be evidenced by HOLDER, or any subsequent holder, maintaining in accordance with its usual practice an account or accounts evidencing the indebtedness of MAKER resulting from all loans or advances and all payments or prepayments hereunder from time to time in the amounts of principal and interest payable and paid from time to time hereunder, in which event, in any legal action or proceeding in respect of this NOTE, subject to Section 2.9 of the Loan Agreement, the entries made in such account or accounts shall be prima facie evidence of the existence and amounts of the obligations of MAKER therein recorded. In the event that the unpaid principal amount hereof, at any time and for any reason, exceeds the maximum amount hereinabove specified, MAKER covenants and agrees to pay the excess principal amount immediately without notice or demand; such excess principal amount shall in all respects be deemed to be included among the loans or advances made pursuant to the other terms of this NOTE and shall bear interest at the rate hereinabove stated. 4. ADVANCES. This Promissory Note is the "Note" referred to in the Loan Agreement and the Holder is entitled to all the rights, remedies and benefits of the Lender thereunder. Reference is hereby made to the Loan Agreement for the terms and conditions under which this Note is to be made and to be repaid. 5. DEFAULT, REMEDIES. Upon the occurrence and during the continuance of any one or more of the Events of Default set forth in the Loan Agreement, at the option of the holder of this NOTE, the entire unpaid principal balance and accrued and unpaid interest hereon shall at once become due and payable without notice or demand and the Holder may foreclose and enforce all liens and security interests securing this NOTE. If this NOTE is not paid when due, whether at maturity or by acceleration, or if it is collected through a bankruptcy, probate, or other judicial proceeding, whether before or after maturity, MAKER agrees to pay attorney's fees, together with all actual expenses of collection and litigation and costs of court incurred by the Holder, whether or not suit is actually filed or not. 6. WAIVER. MAKER and all other makers, signers, sureties, guarantors and endorsers of this NOTE waive demand, presentment, notice of dishonor, notice of intent to demand or accelerate payment hereof, diligence in the collecting, grace, notice and protest, and agree to one or more extensions for any period or periods of time and partial payments, before or after maturity, without prejudice to HOLDER. 7. SECURITY. This NOTE is secured by certain security interests as set forth in the Loan Agreement. 8. CONTROLLING AGREEMENT. The contracted for rate of interest of the Loan without limitation, shall consist of the following: (i) the Stated Interest Rate, calculated and applied to the principal balance of the Note in accordance with the provisions of this Note and the Loan Agreement; (ii) interest after Event of Default or due date, calculated and applied to the amounts due under this Note in accordance with the provisions thereof; and (iii) all Additional Sums (as herein defined), if any. Borrower agrees to pay an effective contracted for rate of interest which is the sum of the above-referenced elements. All fees, charges, goods, things in action or any other sums or things of value (other than amounts described in the immediately previous paragraph), paid or payable by Borrower (collectively, the "Additional Sums"), whether pursuant to this Note, the Loan Agreement or any other documents or instruments in any way pertaining to this lending transaction, or otherwise with respect to this lending transaction, that under any applicable law may be deemed to be interest with respect to this lending transaction, for the purpose of any applicable law that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Borrower as, and shall be deemed to be, additional interest and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the inclusion of the Additional Sums. It is the intent of the parties to comply with the usury law ("Applicable Usury Law") applicable pursuant to the terms of the preceding paragraph or such other usury law which is applicable if the law chosen by the parties is not applicable. Accordingly, it is agreed that notwithstanding any provisions to the contrary in this NOTE, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this NOTE or such documents require the payment or permit the collection of interest in excess of the maximum contract rate permitted by the Applicable Usury Law. In the event (a) any such excess of interest otherwise would be contracted for, charged or received from Maker or otherwise in connection with the loan evidenced hereby, or (b) the maturity of the indebtedness evidenced by this NOTE is accelerated in whole or in part, or (c) all or part of the principal or interest of this NOTE shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received in connection with the loan evidenced hereby, would exceed the maximum contract rate permitted by the Applicable Usury Law, then in any such event (1) the provisions of this paragraph shall govern and control, (2) neither Maker nor any other person or entity now or hereafter liable for the payment hereof will be obligated to pay the amount of such interest to the extent that it is in excess of the maximum contract rate permitted by the Applicable Usury Law, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Maker, at Holder's option, and (4) the effective rate of interest will be automatically reduced to the maximum amount of interest permitted by the Applicable Usury Law. It is further agreed, without limiting the generality of the foregoing, that to the extent permitted by the Applicable Usury Law; (x) all calculations of interest which are made for the purpose of determining whether such rate would exceed the maximum contract rate permitted by the Applicable Usury Law shall be made by amortizing, prorating, allocating and spreading during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise in connection with such loan; and (y) in the event that the effective rate of interest on the loan should at any time exceed the maximum contract rate allowed under the Applicable Usury Law, such excess interest that would otherwise have been collected had there been no ceiling imposed by the Applicable Usury Law shall be paid to Holder from time to time, if and when the effective interest rate on the loan otherwise falls below the maximum amount permitted by the Applicable Usury Law, to the extent that interest paid to the date of calculation does not exceed the maximum contract rate permitted by the Applicable Usury Law, until the entire amount of interest which would have otherwise been collected had there been no ceiling imposed by the Applicable Usury Law has been paid in full. Maker further agrees that should the maximum contract rate permitted by the Applicable Usury Law be increased at any time hereafter because of a change in the law, then to the extent not prohibited by the Applicable Usury Law, such increases shall apply to all indebtedness evidenced hereby regardless of when incurred; but, again to the extent not prohibited by the Applicable Usury Law, should the maximum contract rate permitted by the Applicable Usury Law be decreased because of a change in the law, such decreases shall not apply to the indebtedness evidenced hereby regardless of when incurred. 9. APPLICABLE LAW. This NOTE shall be construed in accordance with the laws of the State of Arizona and the laws of the United States applicable to transactions in the State of Arizona. 10. NO WAIVER. No delay on the part of the HOLDER in the exercise of any power or right under this NOTE, or under the LOAN AGREEMENT or any other instrument executed in connection herewith, shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or exercise of any other power or right. Enforcement by HOLDER of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it. 11. SUCCESSORS, ASSIGNS. The term "HOLDER" shall include all of HOLDER's successors and assigns to whom the benefits of this NOTE shall inure. 12. RENEWAL AND EXTENSION. This Ninth Amended and Restated Promissory Note is executed in conjunction with that certain Ninth Amended and Restated Schedule to Loan and Security Agreement of even date herewith, by and between HOLDER, MAKER and Guarantors. This Ninth Amended and Restated Promissory Note is given in renewal, extension and rearrangement of and not in payment, satisfaction or extinguishment of that certain Promissory Note in the original principal amount of Two Million Dollars ($2,000,000.00), dated February 24, 1994, (the "Prior Note") executed by MAKER in favor of Greyhound Financial Corporation, the same being amendments, renewals and extensions of prior instruments as referenced in the Prior Note, that certain Amended and Restated Promissory Note in the original principal amount of Four Million Dollars ($4,000,000.00), dated June 8, 1995, ("Amended Note") executed by Maker in favor of FINOVA Capital Corporation, that certain Second Amended and Restated Promissory Note, dated May 13, 1996 ("Second Amended Note") in the stated principal amount of Five Million Dollars ($5,000,000.00), executed by Maker in favor of FINOVA Capital Corporation, that certain Third Amended and Restated Promissory Note, dated October 15, 1996 ("Third Amended Note") in the stated principal amount of Five Million Dollars ($5,000,000.00), that certain Fourth Amended and Restated Promissory Note, dated February 4, 1997 ("Fourth Amended Note") in the stated principal amount of Twenty Million Dollars ($20,000,000.00), that certain Fifth Amended and Restated Promissory Note, dated April 22, 1997 ("Fifth Amended Note") in the stated principal amount of Thirty Five Million Dollars ($35,000,000.00). that certain Sixth Amended and Restated Promissory Note, dated May 7, 1997 ("Sixth Amended Note") in the stated principal amount of Thirty-Five Million Dollars ($35,000,000.00), that certain Seventh Amended and Restated Promissory Note, dated December 30, 1997, in the stated principal amount of Thirty-Five Million Dollars ($35,000,000.00), and that certain Eighth Amended and Restated Promissory Note, dated March 27, 1998 ("Eighth Amended Note"), in the stated principal amount of Forty-Two Million Five Hundred Thousand Dollars ($42,500,000.00). This Ninth Amended and Restated Promissory Note is secured by liens granted to HOLDER on certain collateral and is a continuation of MAKER'S obligations to HOLDER and such obligations and liens, mortgages, deeds of trust or security interests are not extinguished by this Ninth Amended and Restated Promissory Note, but are hereby renewed, extended, recognized and preserved in full to secure payment of this Ninth Amended and Restated Promissory Note and all sums due or to become due and payable under the Loan Documents. MAKER: Florida Finance Group, Inc. a Florida corporation By: /s/ Gary Smith ------------------ Gary Smith, President Liberty Finance Company a Florida corporation By: /s/ Gary Smith ------------------ Gary Smith, President Smart Choice Receivables Holding Company, a Delaware corporation By: /s/ Gary Smith ------------------ Gary Smith, President EX-10.2 4 FIFTH AMENDED AND RESTATED LOAN AND SECURITY AGMT. FIFTH AMENDED AND RESTATED SCHEDULE TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT Borrower: FLORIDA FINANCE GROUP INC. LIBERTY FINANCE COMPANY Address: 5200 S. WASHINGTON TITUSVILLE, FLORIDA 32780-7316 Borrower: SMART CHOICE RECEIVABLES HOLDING COMPANY P. O. Box 50102 Henderson, NV 89016 Date: MAY 11, 1998 This Fifth Amended and Restated Schedule ("Fifth Amended Schedule") is executed in conjunction with a certain Amended and Restated Loan and Security Agreement ("Agreement") of February 4, 1997, by and between FINOVA Capital Corporation, as Lender, and the above Borrowers, as Borrower. This Fourth Amended Schedule is an amendment and restatement of the Schedule to Amended and Restated Loan and Security Agreement, dated of even date with the Agreement,. that certain First Amended and Restated Schedule to Amended and Restated Loan and Security Agreement, dated April 22, 1997, that certain Second Amended and Restated Schedule to Amended and Restated Loan and Security Agreement, dated May 7, 1997, that certain Third Amended and Restated Schedule to Amended and Restated Loan and Security Agreement, dated December 30, 1997 and that certain Fourth Amended and Restated Schedule to Loan and Security Agreement, dated March 27, 1997. The terms and provisions of this Fifth Amended Schedule shall supersede all prior schedules. All references to Section numbers herein refer to Sections in the Agreement. 1.A. BORROWERS (SECTION 1). All references to "Borrower" in any and all Loan Documents are hereby modified to include the following Borrower, as co-borrowers, jointly and severally: Florida Finance Group, Inc. - "FFG" or "Lead Borrower" Liberty Finance Company - "Liberty" Smart Choice Receivables Holding Company "Smart Choice Receivables" 1.13.A. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1.13). The term "Maximum Amount of an Eligible Receivable" shall mean the sum of Twenty Thousand Dollars ($20,000.00) remaining due thereon at any date of determination. 1.13.B. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1.13). The "Maximum Term of an Eligible Receivable" shall be Forty-Eight (48) months remaining until the due date of such Eligible Receivable at any date of determination. 1.13.C. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1.13.) AGING PROCEDURES FOR A CONTRACTUAL AGING: 1. No payment missed or due = Current. 2. 1 to 30 days past due = "30 day Account". 3. 31 to 60 days past due = "60 day Account". 4. 61 or more days past due = "60 + day Account" ELIGIBILITY TEST: The term "Eligibility Test" shall mean the test to determine the eligibility of a Receivable for the purposes of Section 1.13 hereof, that test, being as follows: no payment due on said Receivable remains unpaid more than sixty (60) days from the specific date on which such payment was due pursuant to the terms of said Receivable. 1.15 GUARANTOR (WHETHER ONE OR MORE) (SECTION 1.15) Smart Choice Holdings, Inc. Smart Choice Automotive Group, Inc. (formerly known as Eckler Industries, Inc.) First Choice Auto Finance, Inc. 2.1.A. AMOUNT OF REVOLVING CREDIT LINE (SECTION 2.1): The Amount of Revolving Credit Line shall be as follows: (i) If the date of determination is on or before June 30, 1998, then the Amount of Revolving Credit Line shall be Fifty Million Dollars ($50,000,000.00). (ii) If the date of determination is on or before December 31, 1998, but after June 30, 1998, then the Amount of Revolving Credit Line shall be Sixty Million Dollars ($60,000,000.00). (iii)If the date of determination is on or before June 30, 1999, but after December 31, 1998, then the Amount of Revolving Credit Line shall be Seventy Million Dollars ($70,000,000.00). (iv) If the date of determination is on or before December 31, 2001, but after June 30, 1999, then the Amount of Revolving Credit Line shall be Seventy-Five Million Dollars ($75,000,000.00). 2.1.B. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1): The "Availability on Eligible Receivables" shall be an amount equal to, with respect to all Eligible Receivables, on the date of determination, the sum of the following: (i) Sixty percent (60%) of the aggregate unmatured and unpaid amount due to Borrower from the Account Debtor named thereon, including all unearned finance charges, time price differentials, insurance fees, discounts, holdbacks and other fees and charges pursuant to the Eligible Receivables with an origination date on or before June 30, 1998; (ii) Fifty-five percent (55%) of the aggregate unmatured and unpaid amount due to Borrower from the Account Debtor named thereon, including all unearned finance charges, time price differentials, insurance fees, discounts, holdbacks and other fees and charges pursuant to the Eligible Receivables with an origination date after June 30, 1998. Notwithstanding any provision contained in the Loan Documents to the contrary, if for the twelve (12) calendar month period immediately prior to any date of determination, the Collateral Recovery Rate is less than seventy-two and one-half percent (72.50%), or if on any date of determination, the Collateral Performance Percentage is greater than ten percent (10.0%), then in either event, Lender, in its sole and absolute discretion, may modify the Availability on Eligible advance percentage set forth above. 2.2. STATED INTEREST RATE (SECTION 2.2). (i) The lesser of (a) the Governing Rate plus two and one-half percent (2.50%) per annum; or (b) the Maximum Rate. (ii) Notwithstanding the foregoing: (a) if Borrower irrevocably elects to reduce the Availability on Eligible Receivables advance rate set forth in Section 2.1.B (i) and (ii) to fifty percent (50%), then the Stated Rate of Interest shall be the lesser of (1) the Governing Rate plus two and one-quarter percent (2.25%); or (2) the Maximum Rate. (b) if Borrower irrevocably elects to reduce the Availability on Eligible Receivables advance rate set forth in Section 2.1.B (i) and (ii) to forty percent (40%), then the Stated Rate of Interest shall be the lesser of (1) the Governing Rate plus one and one-half percent (1.50%); or (4) (2) the Maximum Rate. 2.3.A. PAYMENTS (SECTION 2.3). The first paragraph of Section 2.3 shall be deleted in its entirety and the following substituted in lieu thereof: 2.3 PAYMENTS. All payments to Lender shall be payable at FINOVA Capital Corporation, File No. 96425, P. O. Box 1067, Charlotte, NC 28201-1067. All payments received pursuant to this Agreement by wire transfer or other electronic transfer method, where immediate credit occurs, shall be applied to Borrower's Indebtedness on the Business Day of actual receipt of such payment by Lender's depository bank, payments received by any other method shall be applied to Borrower's Indebtedness three (3) Business Days after the actual receipt of such payment by Lender's depository bank if such payment is credited to Lender's account. The Indebtedness shall be due and payable as follows: 2.3.B. MATURITY DATE (SECTION 2.3.C). The primary term of this Agreement shall expire on December 31, 2001. If Borrower desires to extend the primary term or any term thereafter of this Agreement, Borrower shall give Lender notice of its intent to extend the term no earlier than one hundred and eighty (180) days and no later than one hundred and fifty (150) days prior to any expiration date of this Agreement. Upon the receipt by Lender of Borrower's notice to extend the term of this Agreement, if Lender desires to renew and extend the term of this Agreement, Lender shall give Borrower notice of Lender's intent to extend the term of this Agreement, within sixty (60) days of Lender's receipt of Borrower's notice to extend. If Lender does not give Borrower notice of Lender's intent to extend the term of this Agreement within the sixty (60) days period, then it shall be deemed that Lender does not intend to renew and extend the term of this Agreement. Notwithstanding the foregoing, the Borrower's obligation pursuant to this Agreement shall remain in full force and effect until the Indebtedness due and owing to Lender has been paid in full. 2.6. LIQUIDATED DAMAGES (SECTION 2.6). The amount of "Liquidated Damages" shall be as follows: None. 2.8 INTEREST AFTER DEFAULT (SECTION 2.8) Section 2.8 of the Agreement is hereby deleted and the following is substituted in lieu thereof: "2.8 INTEREST AFTER DEFAULT. Upon the occurrence and during the continuation of an Event of Default, Borrower shall pay Lender interest on the daily outstanding balance of Borrower's Indebtedness at a rate per annum that is the lesser of (i) four percent (4%) in excess of the rate which would otherwise be applicable thereto pursuant to the Schedule (Schedule Section 2.2) or (ii) sixteen percent (16%)." 2.11. FACILITY FEE (SECTION 2.11). Section 2.11 of the Loan Agreement shall be deleted in its entirety. 2.12 CO-BORROWER PROVISIONS AND TERMINATION FEE (SECTIONS 2.12, 2.13, 2.14 AND 2.15) The following Sections 2.12, 2.13, 2.14 and 2.15 are hereby added to the Agreement: 2.12 APPLICATION OF PAYMENTS. All payments and collections shall be deemed to be comprised of a pro rata remittance or payment made by each Borrower, based upon the proportion that the Eligible Receivables of each Borrower bears to the aggregate of all Eligible Receivables of the Borrowers, as of the date on which such remittance or payment is received by Lender. In the event such remittance or payment shall be made by the Lead Borrower, acting as agent or trustee for the other Borrowers, each Borrower shall be deemed to have made their proportionate amount of such remittance or payment to Lender by and through such agent or trustee. 2.13. ADVANCES TO LEAD BORROWER. Borrower does hereby irrevocably agree that in the event Lender makes advances to Lead Borrower, as agent or trustee for each of Borrower, as contemplated in Section 2.14, each such advance shall be deemed to be made to each Borrower based upon a proportion that each Borrower's Eligible Receivables bear to the aggregate of all Eligible Receivables of Borrower, notwithstanding any subsequent disbursement of said advance by the Lead Borrower, acting as agent or trustee for the Borrowers. In the event that the actual advances, direct or indirect, received by Lead Borrower or any other Borrower or the balance due to Lender as shown in the records of any Borrower shall be disproportionate when compared to the proportion of the Eligible Receivables of each Borrower, whether by way of subsequent disbursements by Lead Borrower, acting as agent or trustee, by way of Lender electing to make advances to each Borrower, as contemplated in Section 2.14 or otherwise, such disproportionalities shall be deemed to have occurred by virtue of loans made between and among Borrowers. 2.14 APPOINTMENT OF AGENT. Lender agrees that, in the sole discretion of Lender, Borrower may, by written notice to Lender, designate a Lead Borrower to receive advances from Lender, make payments to Lender, communicate with Lender and generally represent the interests of the Borrowers with respect to the subject matter of this Agreement; notwithstanding the foregoing, Lender may, at its sole discretion and upon notice to each of the Borrowers, make advances directly to each of the Borrowers, require that payments due hereunder be made to Lender by each of the Borrowers, require each of the Borrowers to communicate directly with Lender, for its own account, and generally deal independently and separately with each of the Borrowers. Until so notified by Lender, each of the Borrowers hereby agree that any and all funds advanced by Lender pursuant to the terms of this Agreement, shall be advanced to the Lead Borrower and may be deposited or transferred into the general corporate account of Lead Borrower, as agent and/or trustee for Borrowers. Lead Borrower hereby agrees to keep detailed and accurate records of all such disbursements made to any other Borrowers. Lead Borrower hereby agrees to keep detailed and accurate records of all loans and dealings between or among Lead Borrower and the other Borrowers. Borrowers agree to furnish copies of such records to Lender upon request. Each Borrower, other than the Lead Borrower hereby irrevocably makes, constitutes, designates and appoints Lead Borrower as its agent and/or trustee with full power to receive all notices, request all Advances hereunder and to deal generally with Lender as agent and/or trustee for the Borrowers and Lead Borrower is hereby granted full power and authority to bind the Borrowers in respect of any term, condition, covenant or undertaking embraced in this Agreement. Lender may, without liability or responsibility to the Borrowers rely upon the instructions or other communications of Lead Borrower on behalf of each of the Borrowers in connection with any notifications, requests or communications required or permitted to be given hereunder with the same force and effect as if actually given by each Borrower; each Borrower hereby agrees to indemnify and hold Lender harmless from and against any liability, claim, suit, action, penalty, fine or damage arising out of or incurred in connection with Lender's reliance upon communications from Lead Borrower on behalf of the Borrowers. It is specifically understood and agreed that any Advance made hereunder by Lender to Lead Borrower shall be considered and treated as an Advance to the Borrowers and each Borrower shall be jointly and severally liable therefor. 2.15. TERMINATION FEE. Borrower agrees to pay Lender a Termination Fee (Schedule 2.15) upon the termination of the credit facility evidenced by the Loan Documents. This Termination Fee shall be due and payable together with the payment in full of the outstanding balance of the Indebtedness, whether by a voluntary prepayment in full by Borrower together with a request for Lender to terminate Lender's security interest in the Collateral, the acceleration of the outstanding balance of the Indebtedness upon an Event of Default or upon the expiration of the term hereof. This Termination Fee shall be included as an Additional Sum as defined in Section 2.7 of the Agreement. 2.15 TERMINATION FEE (SECTION 2.15). The amount of the "Termination Fee shall be Three Million Dollars ($3,000,000.00). 3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2, 3.6 and 5.1.N.). All locations are as set forth on the attach List of Locations 3.16 CROSS COLLATERALIZATION PROVISION (SECTION 3.16) The following Section 3.16 is hereby added to the Agreement: 3.16 CROSS COLLATERALIZATION. Each Borrower agrees that the Collateral of each Borrower pledged hereunder shall secure all of the obligations of the Borrowers to Lender hereunder. Upon and after an Event of Default by any Borrower, Lender may pursue all rights and remedies it may have against all or any part of the Collateral regardless of the status of legal title to such Collateral. Each Borrower hereby acknowledges that this Cross Collateralization of their Collateral is in consideration of Lender's extending the credit hereunder and mutually beneficial to each Borrower. 5.1.B. BORROWER'S TRADENAMES (whether one or more) (SECTION 5.1.B.) As set forth in List of Tradenames attached hereto 6.2.A. LEVERAGE RATIO LIMIT (SECTION 6.2.J). None. 6.2.B. MINIMUM NET INCOME (SECTION 6.2.K). (i) The Minimum Net Income for each of Florida Finance Group, Inc., Eckler Industries, Inc., Smart Cars, Inc., First Choice Stuart 2, Inc., First Choice Stuart 1, Inc., First Choice Melbourne 1, Inc., Dealer Development Services, Inc., Dealer Insurance Services, Inc., Easy Pay Insurance, Inc., and First Choice Auto Finance, Inc., Premium Bonding & Insurance Services, Inc., Wholesale Acquisitions, Inc., Team Automobile Sales & Finance, Inc. and Eckler Corvette Sales, Inc. shall be at least One Dollar ($1.00) in each fiscal quarter, beginning the fiscal quarter ending June 30, 1998 and (ii) The consolidated Minimum Income of Smart Choice Automotive Group, Inc. ("SCAG") shall be One Dollar ($1.00) for each fiscal quarter of SCAG, beginning with fiscal quarter ending June 30, 1998. 6.2.C. DISTRIBUTIONS LIMITATION (SECTION 6.2.L). No Distributions without the prior written consent of Lender. 6.3.C. ANNUAL FINANCIAL STATEMENTS (SECTION 6.3). Annual audited financial statements shall be prepared by independent certified public accountants, reasonably acceptable to Lender. 8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1). (i) Borrowers shall reimburse Lender an amount not to exceed Fifty Thousand Dollars ($50,000.00), for legal fees and expenses incurred in the due diligence with respect to, negotiations, preparation and closing of this Fifth Amended and Restated Schedule to Amended and Restated Loan and Security Agreement and the other Loan Documents executed in connection therewith and the re-documentation and codification of prior amendments to be prepared and closed into a Second Amended and Restated Loan and Security Agreement and other Loan Documents to be executed in connection therewith, within thirty (30) days after the date of this Fifth Amended and Restated Schedule to Amended and Restated Loan and Security Agreement. (ii) Borrowers shall reimburse Lender an amount not to exceed Five Thousand Dollars ($5,000.00) for audit fees on a quarterly basis beginning June 30, 1998. 9.1. NOTICES (SECTION 9.1). Lender: FINOVA Capital Corporation (copy each office below with all notices) Corporate Finance Office: FINOVA Capital Corporation 355 South Grand Avenue, Suite 2400 Los Angeles, CA 90071 Attn: John J. Bonano, Senior Vice President Telephone: (213) 253-1600 Telecopy No.: (213) 625-0268 Corporate Office: FINOVA Capital Corporation 1850 N. Central Avenue Phoenix, AZ 85077 Attn: Joseph R. D'Amore, Senior Counsel Telephone: (602) 207-4900 Telecopy No.: (602) 207-5543 Rediscount Finance Office: FINOVA Capital Corporation 13355 Noel Road, Suite 800 Dallas, TX 75240 Attn: Douglas M. Fraser (Account Executive) Telephone: (972) 458-5600 Telecopy No.: (972) 458-5650 Borrower: Florida Finance Group Inc. Liberty Finance Company 5200 S. Washington Titusville, Florida 32780-7316 Telephone: 407-269-9680 Telecopy No.:407-269-1880 Borrower: Smart Choice Receivables Holding Company P. O. Box 50102 Henderson, NV 89016 Telephone: (702) 598-3738 Telecopy No.: (702) 598-3651 Guarantors: Smart Choice Holdings, Inc. Smart Choice Automotive Group, Inc. First Choice Auto Finance, Inc. 5200 S. Washington Titusville, Florida 32780-7316 Telephone: 407-269-9680 Telecopy No.:407-269-1880 9.16. AGENT FOR SERVICE OF PROCESS (SECTION 9.16). Gary Smith, whose address is 5200 S. Washington, Titusville, Florida 32780-7316 (Agent) IN WITNESS WHEREOF, the parties have executed this Schedule on the day and year first set forth above. LENDER: FINOVA CAPITAL CORPORATION, a Delaware corporation By: /s/ J. Steven Cammack ------------------------- J. Steven Cammack, Vice President (Date) BORROWERS: FLORIDA FINANCE GROUP INC. By: /s/ Gary R. Smith --------------------- Gary Smith, President (Date) LIBERTY FINANCE COMPANY By: /s/ Gary R. Smith --------------------- Gary Smith, President (Date) SMART CHOICE RECEIVABLES HOLDING COMPANY By: /s/ Gary R. Smith --------------------- Gary Smith, President (Date) GUARANTORS: SMART CHOICE HOLDINGS, INC. By: /s/ Gary R. Smith --------------------- Gary Smith, President (Date) SMART CHOICE AUTOMOTIVE GROUP, INC. By: /s/ Gary R. Smith --------------------- Gary Smith, President (Date) FIRST CHOICE AUTO FINANCE, INC. By: /s/ Gary R. Smith --------------------- Gary Smith, President (Date) EX-11.1 5 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Earnings (Loss) Per Share A summary of the reconciliation from basic earnings (loss) per share to diluted earnings (loss) per share for the three month periods ended March 31, 1998 and 1997 follows: March 31 1998 1997 ---- ---- Net earnings (loss) 1,666,592 (6,902,335) Preferred stock dividends 77,875 -- --------- ----------- Net income available to common stock holders 1,588,717 (6,902,335) ========= =========== Basic EPS-weighted average shares outstanding 10,380,260 7,853,134 ========== ========= Basic earnings (loss) per share $ 0.15 $ (0.87) ====== ======== Basic EPS-weighted average shares outstanding 10,380,260 -- Effect of diluted securities: Options and warrants 276,860 -- Convertible preferred stock 569,638 -- ------- Dilutive EPS-weighted average shares outstanding 11,226,758 -- ========== Diluted Earnings (loss) per share $ 0.14 -- ====== Convertible debt not included in diluted EPS since antidilutive 1,801,749 -- ========= EX-27.0 6 FDS-SMART CHOCIE AUTOMOTIVE GROUP,INC.
5 Form 10-Q for the Quarterly Period Ending March 31, 1998 0000949091 Smart Choice Automotive Grp Inc 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,394 0 54,311 8,493 17,429 65,641 13,666 4,540 104,893 20,452 72,060 0 1,492 123 10,017 104,893 38,659 39,579 28,007 7,980 16 2,904 1,910 1,667 0 1,667 0 0 0 1,667 0.15 0.14
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