-----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, Ap3PTOLw4GIw1GcIofpdoMBIfCynAsuG6Pnh3KiXz6YoJa0MpGj/YMt8SvI+zXdO /5hIaatRso0esqzu5Gq1TQ== 0000950144-99-013988.txt : 19991214 0000950144-99-013988.hdr.sgml : 19991214 ACCESSION NUMBER: 0000950144-99-013988 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19991213 SUBJECT COMPANY: 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: 0430 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48653 FILM NUMBER: 99773265 BUSINESS ADDRESS: STREET 1: 5200 S WASHINGTON AVE CITY: TITUSVILLE STATE: FL ZIP: 32780 BUSINESS PHONE: 4072690834 MAIL ADDRESS: STREET 1: 5200 S WASHINGTON AVE CITY: TITUSVILLE STATE: FL ZIP: 32780 FORMER COMPANY: FORMER CONFORMED NAME: ECKLER INDUSTRIES INC DATE OF NAME CHANGE: 19950912 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CROWN GROUP INC /TX/ CENTRAL INDEX KEY: 0000799850 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 630851141 STATE OF INCORPORATION: TX FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 9727173423 MAIL ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: CROWN CASINO CORP DATE OF NAME CHANGE: 19931104 FORMER COMPANY: FORMER CONFORMED NAME: SKYLINK AMERICA INC DATE OF NAME CHANGE: 19920703 SC 13D 1 SMART CHOICE AUTOMOTIVE GROUP, INC. 1 =============================================================================== SCHEDULE 13D - INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13D-2(A).* - ---------- * As amended by Releases No. 34-15457, dated January 4, 1979, effective February 14, 1979 (as corrected by Release No. 34-15457A, dated February 25, 1979) and No. 34-14384, dated November 29, 1979, effective January 5, 1980. - Editor. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __)* SMART CHOICE AUTOMOTIVE GROUP, INC. (Name of Issuer) COMMON STOCK, $.01 PAR VALUE ---------------------------- (Title of Class of Securities) 831686 20 9 ----------- (CUSIP Number) EDWARD R. MCMURPHY PRESIDENT AND CHIEF EXECUTIVE OFFICER CROWN GROUP, INC. 4040 NORTH MACARTHUR BOULEVARD SUITE 100 IRVING, TEXAS 75038 (972) 717-3423 - ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) DECEMBER 1, 1999 ------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), (f) or (g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes.) (Continued on following pages) Page 1 of 8 Pages 2 - ------------------------- --------------------- CUSIP No. 831686 20 9 13D Page 2 of 8 Pages - ------------------------- --------------------- - ------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON CROWN GROUP, INC. - ------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] N/A - ------------------------------------------------------------------------------- 3. SEC USE ONLY - ------------------------------------------------------------------------------- 4. SOURCE OF FUNDS* WC AND OO - ------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING [ ] IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) N/A - ------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION TEXAS - ------------------------------------------------------------------------------- NUMBER 7. SOLE VOTING POWER OF SHARES BENEFICIALLY 139,108,147 OWNED BY ------------------------------------------------------------------ EACH 8. SHARED VOTING POWER REPORTING PERSON 0 WITH ------------------------------------------------------------------ 9. SOLE DISPOSITIVE POWER 139,108,147 ------------------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 139,108,147 - ------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* N/A - ------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 74.2% (SEE ALSO ITEM 5(A)) - ------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! 3 SCHEDULE 13D OF CROWN GROUP, INC. RESPECTING THE SECURITIES OF SMART CHOICE AUTOMOTIVE GROUP, INC. ITEM 1. SECURITY AND ISSUER. This filing relates to the acquisition of shares of the $.01 par value common stock (the "Common Stock") of Smart Choice Automotive Group, Inc., a Florida corporation (the "Issuer" or "Smart Choice"), whose principal executive offices are located at 5200 South Washington Avenue, Titusville, Florida 33780. ITEM 2. IDENTITY AND BACKGROUND. This statement is filed by Crown Group, Inc., a Texas corporation ("Crown"), which is a diversified holding company which owns and operates, among other businesses, vertically integrated used car sales and finance companies in the Mid- and Southwestern and Southeastern regions of the United States. Crown's principal business and office address is 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038. Crown has not been convicted of a criminal proceeding during the last five years, nor has Crown during the last five years been a party to any civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activity subject to, federal or state securities laws or finding any violation with respect to such laws. The executive officers and directors of Crown, and/or any person controlling Crown, are identified below: (1) Edward R. McMurphy, a citizen of the United States, is Chairman of the Board, President and Chief Executive Officer and a significant shareholder of Crown. His business address is the same as that of the principal offices of Crown. (2) Tilman J. Falgout, III, a citizen of the United States, is Executive Vice President and General Counsel, a director and a significant shareholder of Crown through a corporate entity. His business address is the same as that of the principal offices of Crown. (3) Mark D. Slusser, a citizen of the United States, is Vice President Finance, Chief Financial Officer and Secretary of Crown. His business address is the same as that of the principal offices of Crown. (4) John David Simmons, a citizen of the United States, is President of Simmons & Associates, Inc., a real estate development company, and Management Resources Company, a management consulting firm, and he is a director and a shareholder Page 3 of 8 4 of Crown. His business and residence address is 2656 Foothills Drive, Birmingham, Alabama 35226. (5) David J. Douglas, a citizen of the United States, is Managing Director of Tuesday Afternoon, Inc. (an investment company), and he is a director and a shareholder of Crown. His business address is 1701 North Collins Boulevard, Suite 2000, Richardson, Texas 75081. (6) Gerald L. Adams, a citizen of the United States, is an entrepreneur in the shipping, trucking and real estate industries and he is a director and a significant shareholder of Crown. His business address is 1225 East 9th Street, Lockport, Illinois 60441. (7) Gerard M. Jacobs, a citizen of the United States, is President of Huntington AluTech, Inc., a holding company engaged in the consolidation of the aluminum forging industry, and he is a director and a shareholder of Crown. His business address is 5302 Oceanus Drive, Huntington Beach, California 92649. (8) Robert J. Kehl, a citizen of the United States, is an entrepreneur in the riverboat construction, gaming, riverboat touring and restaurant industries. He is a director of Crown and his family is a significant shareholder of Crown through a corporate entity. His residence address is 8259 Turtle Creek Circle, Las Vegas, Nevada 89113. None of the foregoing persons has been convicted in a criminal proceeding during the last five years nor has any such person during the last five years been a party to any civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS FOR OTHER CONSIDERATION. On December 1, 1999, Crown acquired voting control of Smart Choice via the merger of a wholly-owned Smart Choice subsidiary into Crown's 85%-owned subsidiary, Paaco Automotive Group, Inc. ("PAACO"), and a $3 million cash investment by Crown in Smart Choice. The cash portion of the transaction was funded by Crown with working capital. The consideration for the foregoing was the issuance by Smart Choice of shares of a new class of Series E Convertible Preferred Stock ("Preferred Stock") to Crown. The Preferred Stock is convertible into Common Stock of Smart Choice at any time at the election of Crown on the basis of 100 shares of Common Stock for each share of Preferred Stock owned by Crown. In addition, each share of Preferred Stock votes with the holders of Common Stock on an "as converted" basis; that is, each share of Preferred Stock carries 100 votes. Page 4 of 8 5 The Series E Convertible Preferred Stock owned by Crown represents approximately 74.2% of Smart Choice's Common Stock (as computed pursuant to Rule 13d-3(d)(1)), and represents voting power equal to 70.0% of the voting securities of Smart Choice. Contemporaneously with Crown's equity investment and the merger of its Paaco subsidiary with the Smart Choice subsidiary, an additional $4.5 million of Smart Choice debt, acquired by Crown for approximately $2.3 million in cash, was converted into shares of Series E Convertible Preferred Stock. Approximately $15.0 million of Smart Choice outstanding debt and preferred stock held by others was converted into shares of Smart Choice Common Stock. Following this transaction, Smart Choice has approximately $2.6 million of subordinated debt outstanding. In connection with the transaction, the combined subsidiary company obtained a restructured and restated $160 million senior finance receivables and inventory credit facility, which contains more favorable terms than the facilities it replaced. The minority shareholders of Paaco received shares of Series E Convertible Preferred Stock representing 5% of Smart Choice's outstanding voting securities. The holders of certain converted Smart Choice debt and preferred stock received shares of Smart Choice Common Stock equivalent to approximately 20.7% of the outstanding voting securities. Previously existing Smart Choice shareholders now own approximately 4.3% of the outstanding Smart Choice voting securities. The holders of the shares of Smart Choice Common Stock issued in connection with the transaction and Crown and other holders of Series E Convertible Preferred Stock have certain registration rights. Effective December 1, 1999, James E. Ernst was appointed President and Chief Executive Officer of Smart Choice. Mr. Ernst has had a long association with Crown and has recently been responsible for the restructuring of PAACO's operations. He is a Certified Public Accountant and was formerly President and Chief Executive Officer of both Casino Magic Corp. and Casino America, Inc. Gary Smith will continue to manage the Florida-based operations of Smart Choice, as President of First Choice, while Larry Lange will remain responsible for the new combined company's Texas-based operations, as President of PAACO. Joe Cavalier has joined Smart Choice as its new Chief Financial Officer, and Ron Anderson will have principal responsibility for finance receivable activities. Smart Choice's board of directors includes Edward R. McMurphy, as Chairman, and Tilman J. Falgout, III, both senior executives and directors of Crown. Robert Abrahams, James E. Ernst, Gary Smith and Larry Lange comprise the remainder of the board of directors of Smart Choice. Page 5 of 8 6 ITEM 4. PURPOSE OF TRANSACTION. The purpose of the transactions effected by Crown and Smart Choice described in Item 3 was to transfer voting and management control of the Issuer to Crown. Crown, by virtue of its beneficial ownership of the equity securities and voting securities of the Issuer, has the power in the future to cause the occurrence of any of the acts listed in Item 4(a) through (g) of Schedule 13D. With respect to subparagraph (h) of Item 4, the Issuer's securities are not currently listed with any national securities exchange or interdealer quotation system of a registered national securities association. Following the changes to the board of directors and management of the Issuer which were effected in connection with the transactions described in Item 3, Crown does not presently have intentions to cause any acts or events described in Item 4 to occur; however, Crown may in the future determine to proceed with one or more such actions. ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER. (a) Crown beneficially owns in the aggregate 139,108,147 shares of the Issuer's Common Stock, which includes a currently exercisable warrant to purchase 1,950,000 shares of Common Stock and 1,371,581.47 shares of Series E Convertible Preferred stock of Smart Choice (which is convertible into Common Stock on the basis of 100 shares of Common Stock for each share of Preferred Stock). Crown beneficially owns approximately 74.2% of the Common Stock of the Issuer, as determined in accordance with Rule 13d-3(d)(1). Because the Series E Convertible Preferred Stock votes on an "as converted" basis with the Common Stock of Smart Choice, Crown has voting power equal to 70.0% of the outstanding voting securities of Smart Choice. (b) Crown possesses sole voting and dispositive powers with respect to all of the securities of the Issuer beneficially owned by it. (c) See Item 3. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. There are no contracts, arrangements, understandings or relationships among the persons named in Item 2 and between such persons and any person with respect to any securities of the Issuer. Page 6 of 8 7 ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. The following exhibits are hereby filed: (1) Stock Purchase Agreement dated December 1, 1999 by and between Crown Group, Inc. and Smart Choice Automotive Group, Inc.; and (2) Warrant to purchase 1,950,000 shares of common stock of Smart Choice Automotive Group, Inc. issued to Crown Group, Inc. Page 7 of 8 8 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: December 13, 1999 /s/ Edward R. McMurphy ----------------------------------------- Edward R. McMurphy President and Chief Executive Officer Page 8 of 8 EX-99.(1) 2 STOCK PURCHASE AGREEMENT 1 EXHIBIT (1) STOCK PURCHASE AGREEMENT BY AND BETWEEN CROWN GROUP, INC. AND SMART CHOICE AUTOMOTIVE GROUP, INC. 2 TABLE OF CONTENTS 1. Sale and Purchase of the Shares......................................................................... 1 2. Purchase and Payment.................................................................................... 2 (a) Purchase Price. ............................................................................... 2 (b) Further Assurances. ........................................................................... 2 3. Representations and Warranties of the Company........................................................... 2 (a) Organization and Standing of the Company....................................................... 2 (b) Subsidiaries................................................................................... 2 (c) Capital Stock.................................................................................. 3 (d) Corporate Proceedings of the Company........................................................... 4 (e) Financial Statements........................................................................... 4 (f) Absence of Certain Changes or Events........................................................... 5 (g) Tax Matters.................................................................................... 8 (h) Title to Properties and Related Matters........................................................ 9 (i) Consents and Approvals......................................................................... 10 (j) Receivables.................................................................................... 10 (k) Litigation and Proceedings..................................................................... 10 (l) Insurance Coverage............................................................................. 11 (m) Employee Benefits.............................................................................. 12 (n) Employee Relations............................................................................. 14 (o) Patents, Trademarks and Licenses............................................................... 14 (p) Approvals, Authorizations and Regulations...................................................... 14 (q) Inventory...................................................................................... 15 (r) Guarantees, Etc................................................................................ 15 (s) OSHA........................................................................................... 16 (t) No Defaults.................................................................................... 16 (u) No Conflicts................................................................................... 16 (v) Brokers........................................................................................ 17 (w) Environmental Matters.......................................................................... 17 (x) Permits, Licenses, Etc......................................................................... 19 (y) Software....................................................................................... 20 (z) Disclosure..................................................................................... 20 4. Representations and Warranties of the Purchaser......................................................... 20 (a) Organization, Standing and Authority of the Purchaser.......................................... 20 (b) No Violation................................................................................... 21 (c) Corporate Proceedings of the Purchaser......................................................... 21 (d) Financial Statements........................................................................... 21 (e) Brokers........................................................................................ 22 (f) Accredited Investor/Investment................................................................. 22 (g) Due Diligence.................................................................................. 22 (h) No Knowledge of Breach......................................................................... 23
i 3 5. Closing Actions......................................................................................... 23 (a) Resignations................................................................................... 23 (b) Opinion of the Company's Counsel............................................................... 24 (c) Opinion of Purchaser's Counsel................................................................. 25 (d) Ready Finance Debt............................................................................. 26 (e) Conversion of Other Company Debt............................................................... 26 (f) High Capital Funding, LLC...................................................................... 26 (g) Conversion of Company Preferred Stock.......................................................... 26 (h) Merger of Paaco Automotive Group, Inc.......................................................... 27 (i) Grant to the Purchaser of Options, Warrants, Etc............................................... 27 (j) Finova Capital Corporation..................................................................... 28 (k) No Material Adverse Changes.................................................................... 28 (l) Consents....................................................................................... 28 (m) Certified Resolutions of the Company........................................................... 28 (n) Certified Resolutions of the Purchaser......................................................... 29 (o) Hart-Scott-Rodino Filing and Approval.......................................................... 29 (p) Employment/Consulting Agreements............................................................... 29 (q) Settlement of Existing Litigation.............................................................. 30 (r) Bankers Insurance Company Investment........................................................... 30 6. The Closing............................................................................................. 30 7. Nature and Survival of Representations and Warranties................................................... 30 (a) Nature of Statements........................................................................... 30 (b) Survival of Representations and Warranties..................................................... 30 8. Indemnification by Company and Related Matters.......................................................... 31 9. Indemnification by the Purchaser and Related Matters.................................................... 32 10. Expenses................................................................................................ 33 11. Notices................................................................................................. 34 12. Miscellaneous........................................................................................... 35 (a) Assignment..................................................................................... 35 (b) Section and Paragraph Headings................................................................. 35 (c) Amendment...................................................................................... 35 (d) Entire Agreement............................................................................... 35 (e) Knowledge...................................................................................... 35 (f) Public Announcements........................................................................... 35 (g) Counterparts................................................................................... 36 (h) Governing Law.................................................................................. 36 (i) Material Adverse Effect........................................................................ 36
ii 4 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT dated on or as of December 1, 1999, by and between CROWN GROUP, INC., a Texas corporation (the "Purchaser" or "Crown Group"), and SMART CHOICE AUTOMOTIVE GROUP, INC., a Florida corporation (the "Company" or "Smart Choice"). W I T N E S S E T H: WHEREAS, the Purchaser desires to purchase 150,000 shares of the Series E Convertible Preferred Stock, $.01 par value per share, of the Company (herein referred to as the "Shares"), and the Company desires to sell the Shares to the Purchaser, all upon the terms and conditions set forth herein; and WHEREAS, this Agreement sets forth the terms and conditions to which the parties have agreed and further contemplates the execution and delivery of certain collateral agreements and the consummation of certain related transactions hereinafter described; NOW, THEREFORE, in consideration of the mutual promises and covenants of the parties, the parties agree as follows: 1. Sale and Purchase of the Shares. The Company hereby sells, assigns and conveys to the Purchaser on the Closing Date (as hereinafter defined), free and clear of all security interests, pledges, liens, charges and encumbrances, the Shares and transfers and delivers to the Purchaser the certificates evidencing the Shares. The Purchaser hereby purchases and accepts the Shares for the consideration set forth in Section 2(a) hereof. 1 5 2. Purchase and Payment. (a) Purchase Price. The total purchase price (the "Purchase Price") for the Shares is Three Million ($3,000,000) Dollars, payable by the Purchaser to the Company at Closing (as hereinafter defined), by wire transfer funds. (b) Further Assurances. The Company hereby agrees to execute and deliver from time to time at the request of the Purchaser and without further consideration, such additional instruments of conveyance and transfer and to take such other action as the Purchaser may reasonably require to more effectively convey, assign, transfer and deliver the Shares to the Purchaser. 3. Representations and Warranties of the Company. The Company represents and warrants to and agrees with the Purchaser that: (a) Organization and Standing of the Company. The Company and each of the Company Subsidiaries (as hereinafter defined) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. The Company and the Company Subsidiaries have all requisite corporate power and authority to conduct their respective businesses as they are now being conducted. The Company has delivered to the Purchaser complete and correct copies of the Articles of Incorporation (duly certified by the Secretary of State of the respective states of incorporation) and By-Laws (certified by the Secretary of the Company or the Company Subsidiaries, as the case may be) of the Company and the Company Subsidiaries as in effect on the date hereof. (b) Subsidiaries. All direct and indirect subsidiaries of the Company (individually, a "Company Subsidiary," and collectively, the "Company 2 6 Subsidiaries") are listed on Schedule 3(b) attached hereto. Except for the Company Subsidiaries, the Company does not own, directly or indirectly, any of the outstanding capital stock or securities convertible into capital stock of any other corporation, or own, directly or indirectly, any participating interest in any partnership, joint venture or other business enterprise. (c) Capital Stock. The total authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $.01 par value per share (the "Company Common Stock"), of which as of August 16, 1999, 7,782,277 shares have been issued and are outstanding, and 5,000,000 shares of Preferred Stock, $.01 par value per share, (the "Company Preferred Stock"), of which (i) 440 shares of Series A Convertible Preferred Stock (the "Company Series A Preferred Stock"), have been issued and no shares are outstanding, (ii) 220 shares of Series B Convertible Preferred Stock (the "Company Series B Preferred Stock"), have been issued and are outstanding, (iii) 24.98 shares of Series C Convertible Preferred Stock (the "Company Series C Preferred Stock"), have been issued and are outstanding, (iv) 350 shares of Series D Convertible Preferred Stock (the "Company Series D Preferred Stock"), have been issued and are outstanding, and (v) no shares of Series E Convertible Preferred Stock (the "Company Series E Preferred Stock"), have been issued and are outstanding. A true and correct copy of the Sixth Articles of Amendment to the Articles of Incorporation of the Company authorizing the designation of the Company Series E Preferred Stock is attached hereto as Exhibit "A." Except as set forth in Schedule 3(c) attached hereto, there are no existing options, warrants, calls, commitments or other rights of any character (including 3 7 conversion or preemptive rights) relating to the acquisition of any issued or unissued capital stock or other securities of the Company (collectively, the "Existing Options"). (d) Corporate Proceedings of the Company. The execution, delivery and performance of this Agreement has been authorized by the Board of Directors of the Company and this Agreement constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and the availability of equitable remedies may be limited by equitable principles of general applicability. (e) Financial Statements. The Company has delivered to the Purchaser correct and complete copies of the Company's and the Company Subsidiaries' consolidated unaudited monthly financial statements consisting of consolidated balance sheets of the Company and the Company Subsidiaries as of the end of each month from January 1999 through September 1999 and the related statements of income for the periods then ended. The Company has also delivered to the Purchaser correct and complete copies of financial statements consisting of the consolidated balance sheets of the Company and the Company Subsidiaries as of December 31, 1998 and the related consolidated statements of income, stockholders' equity and cash flows for the period then ended, all of which have been audited by the firm of BDO Seidman, LLP (the "Audited Financial Statements"). All such unaudited financial statements and the Audited Financial Statements are referred to herein collectively as the "Financial Statements." The Financial Statements are in 4 8 accordance with the books and records of the Company and the Company Subsidiaries in all material respects, and there have not been any material transactions that have not been recorded in the accounting records underlying such Financial Statements. In addition, The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied and present accurately, in all material respects, the financial position of the Company and the Company Subsidiaries as of the dates thereof, and the results of their operations for the periods then ended, provided, however, that the unaudited financial statements may be subject to year-end adjustments and such unaudited financial statements lack footnotes and other presentation items. The balance sheet of the Company and the Company Subsidiaries as of September 30, 1999 is referred to herein as the "Company Balance Sheet," and the date thereof is referred to as the "Company Balance Sheet Date." (f) Absence of Certain Changes or Events. Except as set forth in Schedule 3(f) or except as contemplated by this Agreement, since the Company Balance Sheet Date, none of the Company and the Company Subsidiaries has: (i) issued, delivered or agreed to issue or deliver any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury) or granted or agreed to grant any options, warrants or other rights calling for the issuance thereof; (ii) except as otherwise permitted herein, borrowed or agreed to borrow any funds or incurred, or become subject to, any obligation 5 9 or liability (absolute or contingent) except in the ordinary course of business in customary amounts; (iii) paid any obligation or liability (absolute or contingent) except in the ordinary course of business in customary amounts; (iv) paid any obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the Financial Statements (or the notes thereto) and obligations or liabilities incurred since the date thereof and permitted to be so incurred by the foregoing clause (ii) of this Section 3(f); (v) declared or made, or agreed to declare or make, any payment of dividends or distribution of any assets of any kind whatsoever to the Company or affiliates of the Company, or purchased or redeemed any shares of its capital stock; (vi) sold or transferred, or agreed to sell or transfer, any of its assets, properties or rights (except sales in the ordinary course of business) or cancelled or agreed to cancel, any debts or claims; (vii) entered or agreed to enter into any agreement or arrangement granting any preferential rights to purchase substantially all of the assets, properties or rights of the Company or the Company Subsidiaries (including management and control thereof), or requiring the consent of any party to the transfer and assignment of such assets, properties or rights (or changes in management or control thereof), or providing for the merger or consolidation of the Company or the 6 10 Company Subsidiaries with or into another corporation, other than as described in this Agreement and the documents contemplated hereby; (viii) waived any rights of material value; (ix) except in the ordinary course of business, made or permitted any amendment or termination of any material contract, agreement or license to which it is a party; (x) made any accrual or arrangement for the payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (xi) increased the rate of compensation payable or to become payable by it to any of its officers or key employees compensated at a rate in excess of $50,000 per annum; or made any increase in any profit sharing, bonus, incentive, deferred compensation, insurance, pension, retirement or other employee benefit plan, payment or arrangement made to, for or with any such officers or key employees; (xii) committed to purchase inventories, parts, supplies or other items in excess of its normal, ordinary and usual requirements or at excessive prices, all computed based on historical practices of the Company and the Company Subsidiaries; (xiii) experienced any significant labor trouble; or (xiv) suffered any material losses or any damage, destruction or loss, whether or not covered by insurance, which materially and adversely affects its assets or business, or had any material adverse 7 11 change in the business, of the Company or the Company Subsidiaries, in each case, which would reasonably be expected to have a Material Adverse Effect on the Company or the Company Subsidiaries. (g) Tax Matters. All United States, state, county and local and other taxes, including without limitation, income taxes, payroll taxes, corporate franchise taxes, sales, excise and use taxes and ad valorem taxes, due and payable by the Company and the Company Subsidiaries for the periods ended prior to the date hereof, have been paid or accrued and there is no further liability (whether or not disclosed on their respective tax returns) for any taxes relating to such periods, and no interest or penalties have accrued or are accruing with respect thereto, except for taxes that are being contested in good faith by appropriate proceedings and as to which adequate reserves have been reflected on the Financial Statements and established (and through and including the Closing Date will establish) reserves that are adequate for the payment of all taxes not yet due and payable with respect to the results of operations through the Closing Date. The Company and the Company Subsidiaries have timely filed in materially correct form all tax returns and reports required to be filed by them on or before the date of this Agreement with all such taxing authorities, except as otherwise set forth on Schedule 3(g). The liability for Federal, state and local taxes reflected on the most recent Company's Financial Statements, if any, represents at the date thereof, reasonable and adequate provision for the payment of all accrued and unpaid Federal, state and local taxes of the Company and the Company Subsidiaries. No assessments of deficiencies have been made against the Company or the Company Subsidiaries, and no extensions of time 8 12 are in effect for the filing of any returns or the assessment of deficiencies. To the Company's knowledge, no examinations by the Internal Revenue Service of the Federal income tax returns of the Company or the Company Subsidiaries for any taxable year are presently pending. The Company has delivered to the Purchaser true and complete copies of all of the Company's and the Company Subsidiaries' Federal and state Income Tax Returns and payroll tax returns for each of their fiscal years from 1995 through 1998. (h) Title to Properties and Related Matters. The assets reflected in the Financial Statements were at the date thereof, and, except for assets consumed or disposed of in the ordinary course of business since the date thereof, are now owned by the Company or the Company Subsidiaries by good title, free and clear from all security interests, mortgages, liens, claims, defects and encumbrances except liens, charges or encumbrances discussed or referred to in the Financial Statements, the related notes or schedules thereto or in Schedule 3(h) delivered to the Purchaser pursuant to this Section 3. Except as disclosed in Schedule 3(h), all such assets are in good operating condition and repair, subject to ordinary wear and tear. All of such assets have been properly maintained, with no extraordinary maintenance planned or anticipated, and are adequate and sufficient for the operation of the Company's and the Company Subsidiaries' business as historically operated by the Company and the Company Subsidiaries. There are no material capital expenditures currently contemplated or necessary to maintain the current operation of the Company's and the Company Subsidiaries' business. The Nissan and Volvo new car dealerships owned by the Company have been sold and all indebtedness related thereto or 9 13 secured by the assets thereof, has been released, or will be released promptly after Closing. (i) Consents and Approvals. No notification, authorization, permit, consent or approval of, or notice to, or filing with, any governmental or regulatory authority or other third party is required to be obtained, given or made, or waiting period required to expire as a condition to the lawful execution and delivery of this Agreement, the consummation by the Company of the transaction contemplated herein, or the fulfillment of the terms and compliance with the provisions hereof, except for such permits, consents, licenses, approvals or authorizations or declarations, exemptions, filings or registrations (a) disclosed in Schedule 3(i) or (b) the failure of which to obtain or make do not and will not (A) affect the validity and enforceability of this Agreement or (B) either individually or in the aggregate reasonably be expected to have a Material Adverse Effect. (j) Receivables. All notes receivable, contracts receivable and accounts receivable (collectively, the "Receivables") are properly reflected on the Company's and the Company Subsidiaries' books and records are valid and have arisen in the ordinary course of business. None of such Receivables has been the subject of any factoring by the Company or the Company Subsidiaries. (k) Litigation and Proceedings. Except as described in Schedule 3(k), there are no actions, suits or proceedings pending or, to the knowledge of the Company or the Company Subsidiaries, threatened against or affecting the Company or the Company Subsidiaries, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or 10 14 foreign, or before any arbitrator of any kind, which would be reasonably expected to result in any judgment or liability not fully covered by casualty or liability insurance (less applicable deductible or retention, if any) and have a Material Adverse Effect. Neither the Company nor the Company Subsidiaries are in default with respect to any judgment, order, writ, injunction, decree, award, or, to the Company's knowledge, in default with respect to any rule or regulation of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality which default would reasonably be expected to have a Material Adverse Effect. (l) Insurance Coverage. With respect to each such insurance policy owned by the Company and the Company Subsidiaries: (A) the policy is legal, valid, binding, enforceable, except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and the availability of equitable remedies may be limited by equitable principles of general applicability, and in full force and effect with respect to the periods and risks which such policy purports to insure; (B) the policy will continue to be legal, valid, binding, enforceable and in full force and effect in accordance with its terms on the same terms immediately following the consummation of the transactions contemplated hereby; (C) neither the Company nor the Company Subsidiaries are in breach or default (including with respect to the payment of premiums or the giving of notices) of any material term thereto, and to the Company's knowledge, no event has occurred which, with notice or the lapse of time, would reasonably be expected to constitute such a breach or default, or permit termination, modification or acceleration under the policy; and (D) to the Company's 11 15 knowledge, no party to the policy has repudiated any provision thereof. To the knowledge of the Company, the Company and the Company Subsidiaries have been covered during the past five years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during such period. The Company and the Company Subsidiaries do not have any self-insurance arrangements affecting the Company and the Company Subsidiaries. "Self insurance arrangements" means any arrangement by which the Company and the Company Subsidiaries have assumed risks in scope and amount customarily insured by businesses in the Company's and the Company Subsidiaries' industry and geographic region. (m) Employee Benefits. (i) The Company and the Company Subsidiaries have complied and currently are in compliance, both as to form and operation, in all material respects with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"), respectively, with respect to each "employee benefit plan" as defined under Section 3(3) of ERISA, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect. (ii) Neither the Company nor the Company Subsidiaries have ever maintained, adopted or established, contributed or been required to contribute to, or otherwise participated or been required to 12 16 participate in, a "multiemployer plan" (as defined in Section 3(37) of ERISA). No amount is due or owing from the Company or any Company Subsidiary on account of any withdrawal therefrom. (iii) Neither the Company nor the Company Subsidiaries have incurred any liability with respect to a Plan, including, without limitation, under ERISA, (including, without limitation, Title I or Title IV of ERISA, other than liability for premiums due to the Pension Benefit Guaranty Corporation ("PBGC")), the Code or other applicable law, which has not been satisfied in full and, to the knowledge of the Company, no event has occurred, and there exists no known condition or set of circumstances, which would reasonably be expected to result in the imposition of any liability with respect to a Plan, including, without limitation, under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law with respect to the Plan, wherein any such liability, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (iv) Except as set forth in Schedule 3(m) attached hereto, neither the Company nor the Company Subsidiaries have any outstanding commitments to provide or to cause to be provided any severance or other post-employment benefit, salary continuation, termination, disability, death, retirement, health or medical benefit or similar benefit to any person (including, without limitation, any 13 17 former or current employee) that has not been reflected in the Company's Financial Statements. (n) Employee Relations. The Company and the Company Subsidiaries are in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours of employees, and there is no labor strike, dispute, slowdown or representation campaign or work-stoppage pending or, to the Company's knowledge, threatened with respect to employees of the Company or the Company Subsidiaries. Except as disclosed in Schedule 3(n), there is not, pending or, to the Company's knowledge, threatened, any unfair labor practice complaint against the Company or the Company Subsidiaries pending before any relevant authority or union representation petition respecting the employees of the Company or the Company Subsidiaries. (o) Patents, Trademarks and Licenses. Neither the Company nor the Company Subsidiaries have any patents or patent applications pending. Schedule 3(o) contains an accurate and complete list of all trademarks, trade names, service marks and copyrights of the Company. None of the foregoing is registered nor have any applications for such registration been made. Neither the Company nor the Company Subsidiaries have received any notice of any claim of infringement or other complaint that its operations conflict with or infringe upon the patents, trade names, trademarks, trade secrets, copyrights or product formulas of others. (p) Approvals, Authorizations and Regulations. Except as disclosed in Schedule 3(p), the Company's and the Company Subsidiaries' business is being 14 18 conducted in compliance with all applicable laws, ordinances, rules and regulations of all governmental authorities, and neither the Company, the Company Subsidiaries, nor any officer, director, stockholder, agent or employee has violated any law, ordinance, rule or regulation in connection with the Company's and the Company Subsidiaries' business, except for such violations as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Further, other than as disclosed on Schedule 3(p), neither the Company nor the Company Subsidiaries have received any notice (written or otherwise) from any governmental authority asserting or investigating any alleged failure to comply with any applicable law, ordinance or regulation, except for such failure as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (q) Inventory. None of the used vehicle inventories of the Company and the Company Subsidiaries are obsolete, defective or otherwise not saleable or usable in the ordinary course of business in any material respects, except to the extent of the inventory reserve reflected in the unaudited financial statements for the month ended September 30, 1999. (r) Guarantees, Etc. Except as disclosed in Schedule 3(r), neither the Company nor the Company Subsidiaries have given any guarantee, indemnity, warranty or bond, or incurred any other similar obligation or created any security for or in respect of, liabilities, actual or contingent, of any other person that remains outstanding. All guaranties of the Company and the Company Subsidiaries on behalf of any person other than another Company Subsidiary (excluding the Company Subsidiaries that owned the Nissan and Volvo dealerships) have been terminated. 15 19 (s) OSHA. Neither the Company nor the Company Subsidiaries have received notice of any violation by the Company or the Company Subsidiaries, and to the Company's knowledge, neither the Company nor any Company Subsidiary is in violation of and has not been in violation of, the Occupational Safety and Health Act of 1970, including rules and regulations thereunder, or any other federal, state, local or foreign laws, including rules and regulations thereunder, regulating or otherwise affecting employee health and safety which would reasonably be expected to have a Material Adverse Effect. (t) No Defaults. Except as set forth on Schedule 3(t) attached hereto, neither the Company nor the Company Subsidiaries are in default under, nor has any event occurred which with notice or lapse of time or both, would reasonably be expected to result in a waiver (except caused by the statute of limitations) of any material right or default under, any outstanding indenture, mortgage, lease, contract or agreement to which the Company or any of the Company Subsidiaries is a party or by which the Company, the Company Subsidiaries or their assets may be bound, or under any provision of the Company's or the Company Subsidiaries' Articles of Incorporation or By-Laws, which would reasonably be expected to have a Material Adverse Effect. (u) No Conflicts. The execution and performance of this Agreement by the Company and the Company Subsidiaries in accordance with its terms and the transactions contemplated hereby will not violate any provision of or result in a breach of or constitute a default under the Articles of Incorporation or By-Laws of the Company and the Company Subsidiaries, or under any order, writ, injunction or 16 20 decree of any court, governmental agency or arbitration tribunal, or under any contract, agreement or instrument to which the Company or any Company Subsidiary is a party or by which its properties may be bound, or under any law, statute or regulation, except where the violation, conflict, breach or default would not reasonably be expected to have a Material Adverse Effect. (v) Brokers. The Company is not a party to nor in any way obligated under a contract or other agreement, and there are no outstanding claims against any of them, for the payment of any broker's or finder's fees in connection with the origin, negotiation, execution or performance of this Agreement. (w) Environmental Matters. (i) For the purposes of this Agreement, the following definitions shall apply: Environment: Ambient air, surface water, groundwater, soil, sediment and land. Environmental Conditions: Any environmental contamination of any kind or nature resulting from the presence of Hazardous Materials in the surface soils, subsurface soils, surface waters or groundwater. Environmental Laws: All existing federal, state or local laws or ordinances and any regulations, rules, or administrative or judicial rulings issued or promulgated thereunder and common law relating to (a) Releases or threatened Releases of Hazardous Materials or materials containing Hazardous Materials; the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Materials or materials containing Hazardous Materials; or otherwise relating to the protection of human health or the Environment, including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., ("RCRA"), the Clean Water Act, 33-U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Toxic 17 21 Substances Control Act, 15 U.S.C. ss. 2601 et seq., ("TSCA"), and all state analogues and counterparts to any of the foregoing. Facilities: The real property and improvements located at the locations owned or leased by the Company or the Company Subsidiaries. Hazardous Materials: Any substance defined as "Hazardous Waste", "Hazardous Substance", "Hazardous Material", pollutant or contaminant under any existing Environmental Laws. Hazardous Materials include, without limitation, asbestos, polychlorinated biphenyls and petroleum products. Release: Any spilling, leaking, pumping, pouring, leaching, emitting, emptying, discharging, injecting, escaping, dumping or disposing of Hazardous Materials or materials containing Hazardous Materials into the Environment. (ii) Except as would not reasonably be expected to have a Material Adverse Effect or as disclosed in Schedule 3(w), there are no Environmental Conditions on, at, under or emanating from the Facilities. (iii) Except as would not reasonably be expected to have a Material Adverse Effect or as disclosed in Schedule 3(w), neither the Company nor any Company Subsidiary has received any notice claiming or alleging that the Company or any Company Subsidiary has violated any applicable Environmental Laws; or is responsible or potentially responsible for any remedial or removal action under any applicable Environmental Laws, and to the Company's knowledge, no such claim is threatened. (iv) Except as would not reasonably be expected to have a Material Adverse Effect or as disclosed in Schedule 3(w): 18 22 (1) the Company and the Company Subsidiaries have all Permits required under applicable Environmental Laws that are necessary to conduct the business of the Company and the Company Subsidiaries as presently conducted, the absence of which would have a material adverse effect on the Company or the Company Subsidiaries (the "Material Environmental Permits"), and has provided copies of all the Material Environmental Permits to the Purchaser; (2) all the Material Environmental Permits are in full force and effect and neither the Company nor any Company Subsidiary is in material default of any thereof; (3) there is no threatened suspension, cancellation or non-renewal of any of the Material Environmental Permits or any basis for such suspension, cancellation or non-renewal; and (4) the Company and the Company Subsidiaries shall renew all the Material Environmental Permits that shall expire on or before Closing. (v) PCB Items. Except as would not reasonably be expected to have a Material Adverse Effect or as disclosed in Schedule 3(w), none of the assets of the Company or the Company Subsidiaries is a PCB Item (as defined in 40 C.F.R. ss. 761.3). (x) Permits, Licenses, Etc. The Company and the Company Subsidiaries have all Permits (except for Environmental Permits, which are the subject of specific representations and warranties in Section 3(x) hereof), that are required in order to carry on the Company's and the Company Subsidiaries' business as presently conducted, the absence of which would reasonably be expected to result in a Material Adverse Effect on the Company or the Company Subsidiaries (the "Material Permits"). All Material Permits are in full force and effect, and, to the knowledge of 19 23 the Company, no suspension, cancellation or non-renewal of any Material Permit is threatened, nor, to the best of the Company's knowledge, does there exist any basis for such suspension, cancellation or non-renewal. (y) Software. To the Company's knowledge, all operating and applications computer programs and data bases (the "Software") which the Company and the Company Subsidiaries use is owned outright by the Company and the Company Subsidiaries or if any Software is not owned by the Company or the Company Subsidiaries, the Company and the Company Subsidiaries have the right to use the same pursuant to existing leases or licenses therefor. To the knowledge of the Company, none of the Software presently used by the Company and the Company Subsidiaries, and no present use thereof, infringes upon or violates any patent, copyright, trade secret or other proprietary right of anyone else and no claim with respect to any such infringement or violation is known to be threatened. (z) Disclosure. No representation or warranty by the Company or the Company Subsidiaries contained in this Agreement, including the Schedules attached hereto, taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein and therein not misleading. 4. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company that: (a) Organization, Standing and Authority of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, and has full corporate power and authority to 20 24 conduct its business as it is now being conducted, to enter into and carry out the provisions of this Agreement. (b) No Violation. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will violate any provision of the Articles of Incorporation or By-Laws of the Purchaser, violate any provision of any agreement or other obligation to which the Purchaser is a party or by which the Purchaser is bound or to which its assets are subject, or violate or result in a breach of, constitute a default under, any judgment, order, decree, rule or regulation of any court or governmental agency to which the Purchaser is subject. (c) Corporate Proceedings of the Purchaser. The execution, delivery and performance of this Agreement has been authorized by the Board of Directors of the Purchaser and this Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and the availability of equitable remedies may be limited by equitable principles of general applicability. (d) Financial Statements. The Purchaser has delivered to the Company (i) the audited consolidated balance sheet of the Purchaser at April 30, 1999 and the related consolidated statements of operations, cash flows and changes in stockholder's equity for the Purchaser, all for the year then ended, together with the related notes thereto, as certified by PricewaterhouseCoopers, LLP, Certified Public Accountants, and (ii) the unaudited consolidated balance sheet of the Purchaser at July 31, 1999 (the "Crown Financial Statement Date") and the related unaudited 21 25 consolidated statements of operations and cash flows for the Purchaser, all for the three (3) months then ended, as certified by the Chief Financial Officer of the Purchaser (hereinafter collectively called the "Crown Financial Statements"). The Crown Financial Statements (x) are in accordance with the books of account and records of the Purchaser and fairly present the consolidated financial position of the Purchaser at the dates indicated, (y) contain and reflect reserves for all material liabilities and (z) were prepared in accordance with GAAP on a basis consistent with prior accounting periods. (e) Brokers. The Purchaser is not a party to or in any way obligated under a contract or other agreement, and there are no outstanding claims against it, for the payment of any broker's or finder's fees in connection with the origin, negotiation, execution or performance of this Agreement. (f) Accredited Investor/Investment. The Purchaser is an "accredited investor" as that term is defined under Regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. The Shares will be acquired for investment and not with a view to distribution thereof, nor with any intention of distributing or selling or otherwise disposing of the Shares. (g) Due Diligence. The Purchaser is an informed and sophisticated person and is experienced in the evaluation and purchase of companies such as the Company and the Company Subsidiaries. In making the decision to enter into this Agreement and consummate the transactions contemplated hereby, and the documents related thereto, the Purchaser has relied on its own independent investigation of the Company and the Company Subsidiaries as of this date and upon 22 26 the representations and warranties and covenants in this Agreement and has relied on the investigations conducted by the Purchaser's agents. The Purchaser acknowledges that the Company and the Company Subsidiaries have made no representation or warranty as to the prospects, financial or otherwise, of the Company and the Company Subsidiaries. The Purchaser has conducted its own inspection and examination of the Company and the Company Subsidiaries conducted by the Purchaser's agents and is not relying on representations or warranties of any nature made by or on behalf of or imputed to the Company and the Company Subsidiaries except as expressly set forth in this Agreement. Notwithstanding the foregoing, no investigation by the Purchaser heretofore or hereafter made shall affect the representations and warranties of the Company, and each such representation and warranty shall survive any such investigation. (h) No Knowledge of Breach. Neither the Purchaser nor the Purchaser's agents know of any breach of warranty or any misrepresentation by the Company or the Company Subsidiaries hereunder. 5. Closing Actions. The following actions have taken place prior to the Closing Date or are taking place on the Closing Date contemporaneously with the Closing: (a) Resignations. The Company hereby delivers to the Purchaser the resignations of those officers and directors of the Company and the Company Subsidiaries (effective on the Closing Date) as may be requested by the Purchaser, and the remaining directors of the Company have elected the persons designated by the Purchaser to the Board of Directors of the Company. The By-Laws of the Company are also being amended in a manner satisfactory to the Purchaser. 23 27 (b) Opinion of the Company's Counsel. The Purchaser is receiving the opinion of Robert J. Downing, Chief Legal Officer for the Company and the Company Subsidiaries, dated the Closing Date, to the effect that: (i) each of the Company and the Company Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has corporate power to carry on its business as it is now being conducted; (ii) to such counsel's knowledge, the authorized capital stock and the outstanding shares of the Company and the Company Subsidiaries are as set forth herein, and the Shares are duly and validly issued, fully paid, non-assessable and outstanding; (iii) the consummation of the transactions contemplated by this Agreement will not result in the breach of or constitute a default under the Articles of Incorporation or By-Laws of the Company and the Company Subsidiaries, or, to such counsel's knowledge, any loan, credit or similar agreement or any court decree to which the Company or the Company Subsidiaries are a party or by which the Company or the Company Subsidiaries, or their respective properties may be bound; and (iv) this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable in accordance with its terms (except as otherwise limited by bankruptcy, insolvency, reorganization, 24 28 moratorium and similar laws affecting creditors' rights and except that such counsel need not express an opinion as to whether any covenant contained herein is specifically enforceable). (c) Opinion of Purchaser's Counsel. The Company is receiving the opinion of T. J. Falgout, III, General Counsel for the Purchaser, dated the Closing Date, to the effect that: (i) the Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has corporate power to carry on its business as it is now being conducted. (ii) this Agreement has been duly authorized, executed and delivered by the Purchaser, and (assuming valid execution and delivery by the other parties hereto) is, or will be upon such execution, the valid and binding obligation of the Purchaser in accordance with its terms (except as otherwise limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights, and except that such counsel need not express an opinion as to whether any covenant contained herein or therein is specifically enforceable); and (iii) to such counsel's knowledge, the consummation of the transactions contemplated by this Agreement will not result in the breach of or constitute a default under the Articles of Incorporation or By-Laws of the Purchaser, or any loan, credit or similar agreement 25 29 or any court decree to which the Purchaser is a party or by which the Purchaser or its properties may be bound. (d) Ready Finance Debt. The Purchaser has acquired from Ready Finance, Inc. ("Ready Finance") two promissory notes issued by the Company having a principal amount of approximately $4,300,000 plus accrued and unpaid interest (the "Ready Finance Debt"). The Ready Finance Debt is being converted into shares of Company Series E Preferred Stock at a conversion price of $39.00 for each dollar of such Ready Finance Debt. (e) Conversion of Other Company Debt. The indebtedness of the Company to the creditors listed on Schedule 5(e) attached hereto is being converted into shares of Company Common Stock at the conversion prices set forth on Schedule 5(e) for each dollar of such debt, and there shall be no more than $2,601,760.31 of such indebtedness outstanding at Closing. (f) High Capital Funding, LLC. The indebtedness of the Company to High Capital Funding, LLC ("High Capital") in the aggregate principal amount of $2,000,000 plus accrued interest (the "High Capital Debt") has been modified and amended such that $1,000,000 of the High Capital Debt is being paid at Closing, with $275,000 of the balance being due and payable six (6) months after the Closing Date and $725,000 of the balance being due and payable two (2) years after the Closing Date. The deferred amount shall bear interest at the rate of ten (10%) percent per annum, payable monthly. (g) Conversion of Company Preferred Stock. All of the outstanding Preferred Stock of the Company and all accumulated dividends with respect thereto 26 30 is being converted into shares of Company Common Stock at the conversion price set forth on Schedule 5(g) for each dollar of Company Preferred Stock (including accumulated dividends) outstanding. (h) Merger of Paaco Automotive Group, Inc. A subsidiary of the Company is merging (the "Merger") with Paaco Automotive Group, Inc., a Texas corporation ("Paaco") in exchange for the number of shares of Company Series E Preferred Stock such that at Closing, as a result of the Merger, the Purchaser shall own, in conjunction with the shares of Company Series E Preferred Stock issued to the Purchaser hereunder and pursuant to Section 5(d) hereof, not less than seventy (70%) percent of the issued and outstanding capital stock of the Company (the "Purchaser's Percentage Ownership"). The number of shares of Company Series E Preferred Stock to be issued to the Purchaser as a result of the Merger is 1,105,046.44, subject to adjustment at Closing, as set forth in the immediately preceding sentence, so that the Purchaser will own the Purchaser's Ownership Percentage. The Merger is being consummated in accordance with the terms and provisions of the Merger Agreement between Paaco and the Company (or a subsidiary thereof), in substantially the form of the Merger Agreement attached hereto as Exhibit "B." (i) Grant to the Purchaser of Options, Warrants, Etc. The Purchaser is being granted options or warrants (the "Purchaser's Warrants") to purchase shares of Common Stock of the Company on the same terms and conditions that any options or warrants are issued by the Company on or prior to the Closing Date, such that the Purchaser shall have the right to maintain the Purchaser's Percentage Ownership by 27 31 exercising the Purchaser's Warrants. The Purchaser's Warrants grant to the Purchaser the right to purchase 1,950,000 shares of Common Stock of the Company at the purchase price of $.20 per share. (j) Finova Capital Corporation. The senior debt facilities of the Company and Paaco with Finova Capital Corporation have been modified in a manner acceptable to the Purchaser, and an amendment to the respective loan agreements of the Company and Paaco with Finova Capital Corporation evidencing such modifications has been entered into on or before the Closing Date. (k) No Material Adverse Changes. Prior to the Closing Date, there has been no material adverse change in the business, operations, financial condition or properties of the Company and the Company Subsidiaries, taken in the aggregate, since the Company Balance Sheet Date, and the Purchaser has received a certificate dated the Closing Date, signed by the President or a Vice President of the Company to the effect that such is the case. (l) Consents. The Company has obtained all approvals and consents which must be obtained in order to effectuate the transaction contemplated hereby and to satisfy the terms and conditions of this Agreement, other than those approvals and consents, the failure of which to obtain would not reasonably be expected to have a Material Adverse Effect. (m) Certified Resolutions of the Company. The Purchaser has received resolutions of the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company, authorizing the execution, delivery and 28 32 performance of this Agreement and the issuance to the Purchaser of shares of Company Series E Preferred Stock as set forth herein. (n) Certified Resolutions of the Purchaser. The Company has received resolutions of the Board of Directors of the Purchaser, certified by the Secretary or an Assistant Secretary of the Purchaser, authorizing the execution, delivery and performance of this Agreement. (o) Hart-Scott-Rodino Filing and Approval. The Purchaser and the Company (and any other required parties) have made all necessary filings with the Federal Trade Commission required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the required waiting periods thereunder have expired or early termination thereof has been granted, and the parties have not received any objection to the consummation of the transactions contemplated by this Agreement. (p) Employment/Consulting Agreements. Each of the employment or consulting agreements listed on Schedule 5(p) attached hereto (which Schedule shall include all agreements requiring the payment by the Company of more than $50,000) have been terminated (except as stated in Schedule 5(p)) without liability to the Company, and the Company has entered into (i) new employment agreements with Gary R. Smith and Ronald W. Anderson, (ii) an agreement for the continuation of employment with Robert J. Downing, and (iii) an agreement for the continuation of consulting with Robert Abrahams, all of which shall be on terms acceptable to the Purchaser. 29 33 (q) Settlement of Existing Litigation. The Company has settled, or reached agreements to settle, the lawsuits listed on Schedule 5(q) attached hereto for the respective amounts set forth on Schedule 5(q). (r) Bankers Insurance Company Investment. Bankers Insurance Company has purchased shares of Company Common Stock for the aggregate purchase price of $1,000,000. 6. The Closing. The execution and delivery of this Agreement and the instruments, certificates and other documents required hereunder (the "Closing") is taking place at the offices of Crown Group, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038, at 10:00 a.m. local time on December 1, 1999. The date and time of such execution and delivery is herein called the "Closing Date", and the effective date of the Closing shall be 12:01 a.m., Dallas, Texas time on the Closing Date. On the Closing Date, certificates representing the Shares are being delivered by the Company against delivery of the Purchase Price pursuant to Section 2 hereof, and Closing shall be deemed to have occurred when such deliveries have been made by the Purchaser and the Company in accordance with the terms hereof. 7. Nature and Survival of Representations and Warranties. (a) Nature of Statements. All statements contained in any schedule or any certificate or other instrument delivered by or on behalf of the Company or the Purchaser pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed representations and warranties made by the Company or the Purchaser, as the case may be. (b) Survival of Representations and Warranties. All representations, warranties, covenants, agreements and undertakings contained herein or in any 30 34 Schedule, certificate or other document shall remain operative and in full force and effect, and shall survive the Closing Date and the delivery of all consideration and documents pursuant to this Agreement, and shall continue in effect for a period of two (2) years after the Closing Date and, as to representations made by the Company concerning or affecting any tax liability of the Company or the Company Subsidiaries, until a date which is six (6) months after the statute of limitations has run against the Federal, state and local government; provided, however, that any such representation, warranty, covenant, agreement or undertaking as to which a bona fide claim shall have been asserted during such survival period shall continue in effect until such time as such claim shall have been resolved in accordance with the terms of this Agreement. 8. Indemnification by Company and Related Matters. (a) Indemnification by Company. The Company agrees to defend, indemnify and hold harmless the Purchaser and its successors and assigns, from, against and in respect of any and all loss or damage resulting from: (i) the breach by the Company of any of its warranties, representations, covenants, agreements or undertakings contained herein; and (ii) any liability arising out of any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal and accounting fees) incident to any of the foregoing (collectively, the "Losses"), provided that the Purchaser makes a written claim for indemnification against the Company 31 35 within the applicable survival period and further provided that neither the Company nor the Company Subsidiaries will have any obligation to indemnify the Purchaser from and against any Losses until the Purchaser has suffered Losses by reason of all such breaches in excess of a $50,000 aggregate deductible (the "Indemnification Threshold") (and after the Indemnification Threshold is reached, the Company will be obligated to only indemnify the Purchaser from and against further such Losses, that is, for amounts greater than $50,000) or thereafter to the extent of the Losses the Purchaser has suffered by reason of all such breaches exceeds a $5,000,000 aggregate ceiling (after which point neither the Company nor the Company Subsidiaries will have any obligation to indemnify the Purchaser from and against further such Losses. 9. Indemnification by the Purchaser and Related Matters. (a) Indemnification by the Purchaser. The Purchaser agrees to defend, indemnify and hold harmless the Company, its successors and assigns from, against and in respect of any and all loss or damage resulting from: (i) the breach by the Purchaser of any of its warranties, representations, covenants, agreements or undertakings contained herein; and (ii) any liability arising out of any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal and accounting fees) incident to any of the 32 36 foregoing (collectively, the "Losses"), provided that the Company or the Company Subsidiaries make(s) a written claim for indemnification against the Purchaser within the applicable survival period and further provided that the Purchaser will not have to indemnify the Company and the Company Subsidiaries from and against any Losses until the Company and the Company Subsidiaries have suffered Losses by reason of all such breaches in excess of a $50,000 aggregate deductible (the "Indemnification Threshold") (and after the Indemnification Threshold is reached, the Purchaser will be obligated to only indemnify the Company and the Company Subsidiaries from and against further such Losses, that is, for amounts greater than $50,000) or thereafter to the extent of the Losses the Company and the Company Subsidiaries have suffered by reason of all such breaches exceeds a $500,000 aggregate ceiling (after which point the Purchaser will have not any obligation to indemnify the Company and the Company Subsidiaries against further such Losses. 10. Expenses. The Company and the Purchaser shall pay their or its own expenses (including without limitation counsel and accounting fees and expenses) incident to the preparation and carrying out of this Agreement and the consummation of the transactions contemplated hereby. The Purchaser and the Company shall each pay one half (1/2) of the filing fee related to the Hart- Scott-Rodino notification and report. 33 37 11. Notices. All notices, demands and requests which may be given or which are required to be given by either party to the other, and any exercise of a right of termination provided by this Agreement, shall be in writing and shall be deemed effective when either: personally delivered to the intended recipient; sent by certified or registered mail, return receipt requested, addressed to the intended recipient at the address specified below; delivered in person to the address set forth below for the party to which the notice was given; deposited into the custody of a nationally recognized overnight delivery service such as Federal Express Corporation, Emery or Purolator, addressed to such party at the address specified below; or sent by facsimile, telegram or telex, provided that receipt for such facsimile, telegram or telex is verified by the sender and followed by a notice sent in accordance with one of the other provisions set forth above. Notices shall be effective on the date of delivery or receipt, of, if delivery is not accepted, on the earlier of the date that delivery is refused or four (4) days after the date the notice is mailed. For purposes of this Section, the addresses of the parties for all notices are as follows (unless changes by similar notice in writing are given by the particular person whose address is to be changed): (a) if to the Company, to Smart Choice Automotive Group, Inc., 5200 South Washington Avenue, Titusville, Florida 32780; Attention: Gary R. Smith, President and Chief Executive Officer; Fax 407-269-1880; With a copy to Robert J. Downing, Chief Legal Officer, Smart Choice Automotive Group, Inc., 5200 South Washington Avenue, Titusville, Florida 32780; Fax 407-264-0376; (b) or if to the Purchaser, to Crown Croup, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention: Edward R. McMurphy, President; Fax 972-717-0973; 34 38 With a copy to T. J. Falgout, III, Executive Vice President and General Counsel, Crown Croup, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Fax 972-717-0973. Any party hereto may designate a different address by written notice given to the other parties. 12. Miscellaneous. (a) Assignment. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties. (b) Section and Paragraph Headings. The Section and Paragraph headings of this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (c) Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto. (d) Entire Agreement. This Agreement and the Exhibits, Schedules, certificates and documents referred to herein constitute the entire agreement of the parties, and supersede all understandings with respect to the subject matter hereof. (e) Knowledge. "Knowledge" of a natural person means actual knowledge of such natural person, and "knowledge" of a corporate person means actual knowledge of the directors and executive officers of such corporate person, in each case (unless otherwise specifically set forth to the contrary) after reasonable inquiry and investigation. (f) Public Announcements. No publication and/or press release of any nature shall be issued pertaining to this Agreement or the transaction contemplated 35 39 hereby without the prior written approval of the Purchaser and the Company, except as may be required by law. (g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (h) Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, AND VENUE FOR ANY DISPUTE ARISING HEREUNDER SHALL BE IN DALLAS COUNTY, TEXAS, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS. (i) Material Adverse Effect. "Material Adverse Effect" means a material adverse effect on the business of the Company and the Company Subsidiaries, taken as a whole. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties on or as of the date and year first above written. PURCHASER: CROWN GROUP, INC. By: /s/ Edward R. McMurphy ----------------------------------------- Edward R. McMurphy, President COMPANY: SMART CHOICE AUTOMOTIVE GROUP, INC. By: /s/ Gary R. Smith ----------------------------------------- Gary R. Smith, President 36 40 SCHEDULES AND EXHIBITS
SCHEDULE DESCRIPTION - -------- ----------- 3(b) Subsidiaries 3(c) Warrants, Options, Etc. 3(f) Certain Changes or Events 3(g) Tax Matters 3(h) Title to Properties and Related Matters 3(i) Consents and Approvals 3(k) Litigation and Proceedings 3(m) Certain Employee Benefits in Case of Termination, Death, Disability, Severance, Etc. 3(n) Employee Relations 3(o) Patents, Trademarks and Licenses 3(p) Approvals, Authorizations and Regulations 3(r) Guaranties 3(t) Company Defaults 3(w) Environmental Matters 5(e) Other Company Creditors 5(g) Conversion of Company Preferred Stock 5(p) Employment/Consulting Agreements to be Terminated 5(q) Existing Litigation to be Settled
EXHIBIT DESCRIPTION - ------- ----------- "A" Sixth Articles of Amendment to the Articles of Incorporation of the Company "B" Merger Agreement
37 EX-99.(2) 3 WARRANT TO PURCHASE 1 EXHIBIT (2) WARRANT TO PURCHASE 1,950,000 SHARES OF COMMON STOCK WARRANT TO PURCHASE COMMON STOCK OF SMART CHOICE, AUTOMOTIVE GROUP, INC., A FLORIDA CORPORATION This certifies that, for value received, CROWN GROUP, INC. or its transferees or assigns, is entitled upon exercise of this Warrant, subject to the terms set forth below, to purchase from SMART CHOICE AUTOMOTIVE GROUP, INC. (hereinafter defined as the "Association") up to One Million Nine Hundred Fifty Thousand (1,950,000) shares of fully paid and nonassessable shares of common stock, $.01 par value, of the Association ("Common Stock") at the purchase price per share (the "Exercise Price") of Twenty Hundredths Dollars ($0.20). The price and number of shares to which the Warrant holder is entitled are subject to adjustment as provided in this Warrant at any time or from time to time from the date of this Warrant until the Expiration Date indicated below. THE WARRANT AND RIGHTS TO PURCHASE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. Expiration Date: The Warrant represented by this Warrant Certificate may be exercised on or after date of issuance, and shall expire, and become wholly void and of no value, at 5:00 p.m., Dallas, Texas time, on November 30, 2004, unless sooner terminated as provided in this Warrant. 1. Definitions. As used in this Warrant Certificate, the following terms, unless the context otherwise requires, have the following meanings: (a) "Association" shall mean Smart Choice Automotive Group, Inc., formerly known as Eckler Industries, Inc., a Florida corporation, and any association or corporation which shall succeed to or assume the obligations of the Association under this Warrant. 2 (b) "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (c) "Common Stock" when used with reference to stock of the Association, means all shares, now or hereafter authorized, of the class of the common stock of the Association, $0.01 par value. (d) "Exercise Price" shall mean Twenty Hundredths Dollars ($0.20) per share, as adjusted from time to time pursuant to the provisions of Section 4 hereof. (e) "Maximum Exercise Payment" shall mean the number of shares for which the Warrant is from time to time exercisable (originally multiplied by the Exercise Price then in effect). (f) "Restricted Securities" shall mean the securities of the Association required to bear the legend set forth in Section 5.2 hereof. (g) "Securities Act" shall mean the Securities Act Of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (h) "Shares" shall mean shares of Common Stock. (i) "Warrant Certificate" or "Certificate" shall mean this certificate. (j) "Warrantholder", "holder of Warrant", "holder", or similar terms when the context refers to a holder of this Warrant shall mean any person who shall at the time be the holder of this Warrant Certificate. (k) "Warrant" means all of those securities, representing rights to purchase shares of Common Stock, which are evidenced by this Warrant Certificate. (l) "Warrant Shares" means the Shares of Common Stock which are purchasable by the Warrant holder upon surrender of this Warrant Certificate and exercise of the Warrant. 2. Exercise Provisions. (a) The holder of this Warrant Certificate may exercise the Warrant represented hereby in whole or in part at any time by surrendering the Certificate, with the purchase form attached hereto duly executed by the holder, to the Association at its principal office, accompanied by payment in the amount obtained by multiplying (i) the number of Shares designated in the purchase form by (ii) the Exercise Price. (b) Payment may be in cash or by certified or official bank check or wire funds payable to the order of the Association. 2 3 (c) On partial exercise hereof, the Association shall promptly issue and deliver to the holder of this Certificate a new Certificate or Certificates of like tenor in the name of that holder providing for the right to purchase that number of Warrant Shares as to which this Certificate has not been exercised. (d) The rights represented hereby may be exercised any time prior to the expiration date, and shall expire at 5:00 p.m., Dallas, Texas time, on November 30, 2004, unless sooner terminated pursuant to paragraph 6 hereof. 3. Delivery of Stock Certificate As soon as possible after full or partial exercise of this Warrant, the Association at its expense will cause to be issued in the name of and delivered to the holder hereof, a certificate or certificates for the number of fully paid and non-assessable Shares to which that holder shall be entitled upon such exercise (each a "Warrant Share"), together with any other securities and property to which that holder is entitled upon such exercise under the terms hereof. No fractional Shares will be issued upon exercise of rights to purchase; if upon any such exercise a fraction of a Share results, the Association will pay the cash value of that fractional Share, calculated on the basis of the fair market value as of the date of exercise. 4. Anti-dilution Provisions. The Exercise Price and number of Warrant Shares purchasable upon exercise shall be subject to adjustment from time to time as follows: (a) Stock Dividends and Splits. In the event the Association shall at any time or from time to time after the date hereof fix a record date for the effectuation of a split or subdivision of the outstanding Shares or the determination of holders of Shares entitled to receive a dividend or other distribution payable in additional Shares, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the number of Warrant Shares issuable on exercise of this Warrant shall be increased in proportion to such increase of outstanding Shares, and concurrently therewith the Exercise Price shall be proportionately decreased (i.e., by adjusting such Price downward by multiplying it by the inverse of the proportion or multiple by which the number of Warrant Shares issuable upon exercise was increased). (b) Decreases in Shares. If the number of Shares outstanding at any time after the date of this Agreement is decreased by a combination or reverse split of the outstanding Shares, then, as of the record date of such combination, the number of Shares for which the Warrant represented by this Certificate may be exercised shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased. (c) Other Distributions. In the event the Association shall declare a distribution to all holders of its Common Stock payable in securities of other persons, evidences of indebtedness 3 4 issued by the Association or other persons, or assets (excluding cash dividends), then, in each such case for the purpose of this paragraph 4(c), the Warrantholders shall, upon the exercise of its right to purchase Warrant Shares hereunder after the record date for such distribution or, in the absence of a record date, after the date of such distribution, receive, in addition to the Warrant Shares subscribed for, the amount of such securities, evidences of indebtedness or assets (or, at the option of the Association, a sum equal to the value thereof at the time of distributions as determined by the Board of Directors of the Association) which would have been distributed to such Warrantholder if he had exercised his right to purchase Warrant Shares hereunder immediately prior to the record date for such distribution or, in the absence of a record date, immediately prior to the date of such distribution. (d) Reorganizations, Mergers, Consolidations or Sale of Assets. If at any time there shall be (i) a recapitalization or reorganization of the Association's capital structure involving, or affecting the book value or voting rights of, the Shares or (ii) a merger or consolidation of the Association with or into another corporation, or (iii) the sale of the Association's properties and assets as, or substantially as, an entirety to any other person (each of the occurrences in (i), (ii) and (iii) referred to herein as an "Event"), then, as a part of such Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant evidenced by this Certificate prior to the Expiration Date and upon payment of the Exercise Price, the number of Warrant Shares or other securities or property of the Association, or of the successor corporation resulting from such Event, to which such Warrantholder would have been entitled in such Event if the Warrant evidenced hereby had been exercised and the corresponding Warrant Shares issued immediately before such Event. In any such case, appropriate adjustment (as determined by the Association's Board of Directors) shall be made in the application of the provisions of this Warrant Certificate with respect to the rights and interests of the Warrantholder after any such Event, such that the provisions of this Section 4 (including adjustment of the Exercise Price then in effect and the number of Warrant Shares purchasable upon exercise of the Warrant) shall be applicable after such Event, as near as reasonably may be, in relation to any Warrant Shares, other securities or property deliverable after that Event upon exercise of the Warrant. The Association shall, within thirty (30) days after making such adjustment, give written notice (by certified mail, postage prepaid) to the registered holder of this Certificate at the address of that holder shown on the Association's books. That notice shall set forth, in reasonable detail, the Event requiring the adjustment and the method by which the adjustment was calculated, and specify the Exercise Price then in effect after the adjustment and the increased or decreased number of Warrant Shares purchasable upon exercise of the Warrant evidenced hereby. When appropriate, that notice may be given in advance and be included as part of the notice required under other provisions hereof. (e) No Impairment. The Association will not, by amendment of its Certificate of Incorporation nor through any reorganization, recapitalization. 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 Association, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary appropriate in order to protect the respective rights of the holders of the Warrant against impairment. 4 5 (f) No Fractional Shares. No fractional Shares shall be issued upon exercise of the Warrant. In lieu of fractional Shares, the Association shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock, as determined by the Board of Directors. Whether or not fractional shares would be issuable upon such exercise shall be determined on the basis of the total number of Warrant Shares issuable at the time of exercise of the Warrant. (g) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Exercise Price pursuant to this Section 4, the Association, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Warrant holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Association shall, within a reasonable time following the written request at any time of the Warrant holder, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment and readjustment, (ii) the Exercise Price at the time in effect, and (iii) the number of Warrant Shares and the amount, if any, of other securities or property that at the time would be received upon the exercise of Warrant. (h) Notice of Record Date. In the event of any taking by the Association of a record of its Stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend on its Shares (other than a cash dividend) or other distribution, or in respect of its Shares in connection with the dissolution, liquidation or winding up of the Association, any right to subscribe for, purchase or otherwise acquire any shares of any class or any other securities or property, or to receive any other right, the Association shall mail to each Warrant holder, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (i) Reservation of Shares Issuable Upon Exercise. The Association shall at all times reserve, keep available out of its authorized but unissued Shares, solely for the purpose of effecting the exercise of the Warrant such number of its Shares as shall from time to time be sufficient to effect the exercise of the Warrant; and if at any time the number of authorized but unissued Shares shall not be sufficient to effect the exercise or the Warrant then outstanding, the Association will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Shares to such number of Shares as shall be sufficient for such purposes. Warrant holder acknowledges, that as of the date of issuance of this Warrant, that the Association does not have sufficient unissued Shares available, but will take all necessary actions to increase its authorized but unissued Shares immediately available. (j) Notices. Any notice required by the provisions of this Section to be given to the Warrant holder, shall be deemed to be delivered when deposited in the United States mail, postage prepaid, registered or certified, and addressed to each holder of record at its address appearing on the stock transfer books of the Association. 5 6 5. Restrictions on Transferability of Securities: Compliance with Securities Act. 5.1 Restriction on Transferability. The Warrant and the Warrant Shares shall not be sold, assigned, transferred, or pledged except upon the conditions specified in this Section 5, which conditions are intended to insure compliance with the provisions of the Securities Act and all applicable state and federal regulatory agencies. Each Warrant holder will cause any proposed purchaser, assignee, transferee, or pledgee of the Warrant held by such Warrant holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 5. 5.2 Restrictive Legend. Each certificate representing (i) the Warrant, (ii) the Warrant Shares, or (iii) any other securities issued in respect to the Warrant or Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section 5.3 below) he stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws); THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES ACT. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE ASSOCIATION RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACTS. COPIES OF THE APPLICABLE PORTION OF THE AGREEMENT RESTRICTING THE TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ASSOCIATION AT THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF THE ASSOCIATION. The Warrant holder consents to the Association making a notation on its records and giving instructions to any transfer agent of the Warrant or the Common Stock in order to implement the restrictions on transfer established in this Section 5. 5.3 Notice of Proposed Transfers. Each holder of Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 5.3. Prior to any proposed sale, assignment, transfer, or pledge of any Restricted Securities (other than a transfer not involving a change in beneficial ownership), unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Association of such holder's intention to effect such transfer, sale, assignment, or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment, or pledge in sufficient detail, and shall be accompanied, at such holder's expense, by either (i) an unqualified written opinion of legal counsel who shall be, and whose 6 7 legal opinion shall be, reasonably satisfactory to the Association, addressed to the Association, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act or any applicable state securities laws, or (ii) a "no action" letter from the Commission, and the securities administrator of any state whose securities acts may be applicable, to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission, and the securities administrator of any state whose securities acts might be applicable, that action be taken with respect thereto. Thereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Association. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made to a non-affiliate of the Association pursuant to Commission Rule 144, the appropriate restrictive legend set forth in Section 5.2 above, except that, such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and of counsel for the Association such legend is not required in order to establish compliance with the provisions of the Securities Act or any applicable state securities laws. 6. Registration Rights. (a) Association Registration. Whenever the Association proposes to register any of its Common Stock under the Securities Act for a public offering for cash, whether as a primary or secondary offering (or pursuant to registration rights granted to holders of other securities of the Association), but excluding a registration on form S-4, S-8 or other comparable registration in respect of mergers or acquisitions or employee benefit plans, the Association shall, each such time, give the holder written notice of its intent to do so. Upon the written request of the holder given within thirty (30) days after receipt of any such notice, the Association shall use its best efforts to cause to be included in such registration all of the Warrant Shares (the "Registration Shares") which the holder requested to be registered; provided (i) the Holder agrees to sell Warrant Shares in the same manner and on the same terms and conditions as the other Common Stock which the Association proposes to register, including any "lock-up" agreements required of other selling stockholders of the Association, and (ii) if the registration is to include Common Stock to be sold for the account of the Association, the proposed managing underwriter does not advise the Association that in its opinion the inclusion of the holder's Shares is likely to affect adversely the success of the offering by the Association or the price it would receive. (b) Obligations of the Association. Whenever required under subsections 7(a) or 7(b) to use its best efforts to effect the registration of any of the Warrant Shares, the Association shall, as expeditiously as reasonably possible, but subject to the holder providing such information and customary indemnities as reasonably requested by the Association or its underwriters: (i) Prepare and file with the Commission a Registration Statement with respect to such Shares and use its best efforts to cause such Registration Statement to become and remain effective; provided, however, that in connection with any proposed registration intended to permit an offering of any securities from time to time (i.e., a so called "shelf registration"), the Association shall in no event be obligated to cause any such registration to remain effective for more than one hundred and eighty (180) days. 7 8 (ii) Prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to permit the disposition of all securities covered by such Registration Statement. (iii) Furnish to the holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of Shares owned by it. (iv) Use its best efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered by the Registration Statement, provided that the Association shall not be required in connection therewith or as a condition thereto to qualify to do business in any such states or jurisdictions, to subject itself to taxation therein or to submit to the general jurisdiction thereof. (c) Expenses of Registration. All expenses incurred in connection with any registration pursuant to this section 6, including without limitation all registration and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Association, but excluding underwriting discounts and commissions (the "Registration Expenses"), shall be borne by the Association. Each selling shareholder shall bear the fees and costs of its own counsel, if different from counsel for the Association. 7. Miscellaneous Provisions (a) Lost Certificate. On receipt of evidence reasonably satisfactory to the Association of the loss, theft, destruction, or mutilation of this Certificate and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Association or, in the case of mutilation, on surrender and cancellation of this Certificate, the Association at its expense will execute and deliver, in lieu of this Certificate, a new Certificate of like tenor. (b) Exchange and Transfer. On surrender of this Warrant Certificate for exchange, properly endorsed on the form of assignment attached hereto, and subject to the provisions herein regarding compliance with the Securities Act, the Association at its expense will issue to or on the order of the holder of this Certificate a new Certificate or Certificates of like tenor, in the name of that holder or as that holder (on payment by that holder of any applicable transfer taxes), may direct, evidencing in the aggregate on the face or faces of such Certificate or Certificates for the number of Warrant Shares called for on the face hereof. (c) No Rights as Stockholder. No holder of this Certificate, as such, shall be entitled to vote or receive dividends or be considered a stockholder of the Association far any purpose, nor shall anything in this Certificate be construed to confer on any holder of this Certificate as 8 9 such, any rights of a stockholder of the Association or any right to vote, give or withhold consent to any corporate action, or except as otherwise specified herein, to receive notice of meeting of stockholders, to receive dividends, or to receive subscription rights except as otherwise specified herein, or otherwise. (d) Holder Deemed Owner. The holder hereof may be treated by the Association, any warrant agent, and all other persons dealing with the Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby. (e) Negotiability. Title to this Certificate may be transferred by endorsement (by the holder of this Certificate executing the form of assignment attached hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. (f) Modification. This Warrant Certificate and any of its terms may be changed, waived, or terminated only by a written instrument signed by the party against whom enforcement of that change, waiver, or termination is sought. (g) Governing Law. This Warrant Certificate shall be governed by and construed and enforced in accordance with the laws of the State of Arizona. Dated: December 1, 1999 ASSOCIATION: SMART CHOICE AUTOMOTIVE GROUP, INC. By: /s/ Ed Ernst --------------------------------------------------- Ed Ernst, President and Chief Executive Officer HOLDER: CROWN GROUP, INC. By: /s/ Edward R. McMurphy --------------------------------------------------- Edward R. McMurphy, President 9 10 ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of Shares of Common Stock set forth below: Name and Address of Assignee Number of Shares of Common Stock - ------------------------------------------------------------------------------- and does hereby irrevocably constitute and appoint___________________________ attorney to register such transfer on the books of Association maintained for the purpose, with full power of substitution in the premises. Dated: ----------------------------- --------------------------------- - ----------------------------------- Witness NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. The signature to this assignment must be guaranteed by a bank or trust company having an office or correspondent in ________________________________________, ________________________________or by a firm having membership on the New York Stock Exchange. 10 -----END PRIVACY-ENHANCED MESSAGE-----