Smart Choice Automotive Group, Inc.
Subordinated Loan Agreement
Dated as of January 31, 1999
BORROWER: Smart Choice Automotive Group, Inc. ("SMCH" or
"Company")
LENDERS: High Capital Funding, LLC and other purchasers
(collectively "Purchaser(s)"). All Purchaser(s)
shall be "accredited investors" as defined by Rule
501 of Regulation D.
NOTES: Subordinated notes maturing on January 31, 2000.
The subordinated notes will be issued in one series
designated as "Smart Choice Automotive Group, Inc.
1999 Series A Subordinated Notes (the "Note(s)").
The Note(s) will be substantially in the form
(except for the security and collateral provisions)
of the Promissory Note dated September 30, 1997
between SMCH's subsidiary ▇▇▇▇▇▇ Industries, Inc.
and ▇▇▇▇▇▇▇▇ Inc.
INVESTMENT SIZE: $3,000,000. $2,000,000 of Notes shall be purchased
at the Initial Closing and an additional $1,000,000
may be purchased on or before April 30, 1999.
INTEREST: 15% annual rate, payable monthly in arrears in
cash. Interest shall be payable on the first day of
each month. The interest rate shall increase to
18% on May 1, 1999 and to 22% on October 1, 1999.
SUBORDINATION: The Note(s) shall be subordinated to the Senior
Debt listed on the Schedule of Senior Debt attached
hereto.
GUARANTORS: The Note(s) shall be guaranteed by SMCH's
subsidiaries, First Choice Auto Finance, Inc.
and SC Holdings, Inc. The guarantee will be
substantially (except for the security and
collateral provisions) in the form of the
guarantee used in the loan transaction between
SMCH's subsidiary ▇▇▇▇▇▇ Industries, Inc. and
▇▇▇▇▇▇▇▇ Inc. on September 30, 1997.
PREPAYMENT: The Notes may be prepaid in whole or in part at any
time or times, without premium or penalty.
TRANSFERABILITY: The Notes shall be freely transferable by
Purchaser(s) or any subsequent holder(s)
("Holders") provided such transfer is in compliance
with applicable United States and state securities
laws, and further provided that the Purchaser(s),
and any subsequent Holders, represent and warrant
that they have acquired the Notes for investment
purposes only, and not with a view toward making a
public offering.
ESCROW OF NOTE(S): To facilitate the delivery of the Note(s)
upon receipt of payment from Purchaser(s), the
Company shall deliver to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.,
as escrow agent (the "Escrow Agent") within
one (1) day of the mutual execution of this
Term Sheet, twent-five (25) Notes which have
been duly executed by the Company but which are
blank as to name and address of the Purchaser(s),
principal amount and date of issuance ("Issue
Date").
The Escrow Agent shall upon receipt of good funds
for the purchase of a Note fill in the name and
address of the Purchaser(s), principal amount and
Issue Date. The Escrow Agent shall deliver the
completed Note to the Purchaser(s) and the escrowed
funds together with a copy of the completed Note to
the Company. Upon issuance of the entire $3,000,000
of Notes, the Escrow Agent shall return any
remaining unissued blank Notes to the Company.
REPRESENTATIONS,
WARRANTIES AND COVENANTS
OF SMCH: SMCH makes the following representations and
warranties to the Purchaser(s):
(a) ORGANIZATION, GOOD STANDING AND POWER. The
Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the
State of Florida and has the requisite corporate
power to own, lease and operate its properties and
assets and to conduct its business as it is now
being conducted.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the
requisite corporate power and authority to enter
into and perform this Subordinated Loan Agreement
and the Escrow Agreement and to issue and sell the
Note(s) in accordance with the terms hereof. The
execution, delivery and performance of this
Subordinated Loan Agreement and the Escrow
Agreement by the Company and the consummation by it
of the transactions contemplated hereby and thereby
have been duly and validly authorized by all
necessary corporate action on behalf of the
Company, and no further consent or authorization of
the Company or its Board of Directors or
stockholders is required. This Subordinated Loan
Agreement has been duly executed and delivered by
the Company. Each of this Subordinated Loan
Agreement and the Escrow Agreement constitutes, or
shall constitute when duly executed and delivered
by all parties thereto, a valid and binding
obligation of the Company enforceable against the
Company in accordance with its terms, except as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally
the enforcement of, creditor's rights and remedies
or by other equitable principles of general
application.
(c) SENIOR INDEBTEDNESS. SMCH represents and
warrants that the Schedule of Senior Indebtedness
attached hereto is full and complete in all
material respects and that there is no indebtedness
to which the Notes will be subordinated not
listed on such schedule.
(d) ISSUANCE OF NOTE(S). The Note(s) to be
delivered to the Escrow Agent have been duly
authorized by all necessary corporate action.
(e) INVENTORY MAINTENANCE. The SMCH "DAILY
INV-DRAFT REPORT" (the "Report") as of the date
hereof, is attached to this Subordinated Loan
Agreement. SMCH agrees to maintain an inventory of
used cars ("Inventory") of not less than
$13,000,000 (as listed under the "Accounting"
column of the Report) while any Note(s) are
outstanding. SMCH agrees to fax to HCF a copy of
the Report for each day any Note(s) remain
outstanding. If at any time, or from time to time,
the value of the Inventory is less than
$13,000,000, HCF, on behalf of Holder(s), shall
have the right on seven (7) days prior written
notice (the "Mandatory Prepayment Notice") to
require SMCH to reduce the aggregate principal
amount of Note(s) then outstanding by the amount by
which the Inventory is less than $13,000,000
("Mandatory Prepayment"). SMCH shall remit to the
Escrow Agent the amount of the Mandatory Prepayment
within such seven (7) day period. HCF shall notify
the Escrow Agent in writing (with a copy to SMCH)
within two days of Escrow Agent's receipt of any
such Mandatory Prepayment as to the allocation of
the aggregate Mandatory Prepayment among the
Holders, and the Escrow Agent shall make payments
to the Holders in accordance with such allocation.
The failure by SMCH to make a Mandatory Prepayment
to the Escrow Agent in accordance with a Mandatory
Prepayment Notice shall be a material default
resulting in immediate acceleration of all
principal and interest under the Note(s).
REPRESENTATIONS, HCF hereby makes the following representations and
WARRANTIES AND COVENANTS warranties to the Company:
OF HCF:
(a) ACCREDITED PURCHASER. HCF and each of the
other Purchasers of the Notes is an "accredited
investor" as defined in Regulation D promulgated
under the Securities Act.
(b) ORGANIZATION, GOOD STANDING AND POWER. HCF is
a limited liability company organized, validly
existing and in good standing under the laws of the
State of Delaware and has the requisite power to
own, lease and operate its properties and assets
and to conduct its business as it is now being
conducted.
(c) AUTHORIZATION; ENFORCEMENT. HCF has the
requisite power and authority to enter into and
perform this Subordinated Loan Agreement and the
Escrow Agreement and to purchase the Note(s) in
accordance with the terms hereof. The execution,
delivery and performance of this Subordinated Loan
Agreement and the Escrow Agreement by HCF and the
consummation by it of the transactions contemplated
hereby and thereby have been duly and validly
authorized by all necessary action, and no further
consent or authorization of HCF, its manager or its
members is required. This Subordinated Loan
Agreement has been duly executed and delivered by
HCF. Each of this Subordinated Loan Agreement and
the Escrow Agreement constitutes, or shall
constitute when duly executed and delivered by
all parties thereto, a valid and binding obligation
of HCF enforceable against HCF in accordance with
its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation,
conservatorship, receivership or
similar laws relating to, or affecting generally
the enforcement of, creditor's rights and remedies
or by other equitable principles of general
application.
EVENT OF DEFAULT: Normal and customary events of default:
non-payment of interest, bankruptcy, breach of
representations and warranties, etc. Failure of
SMCH to maintain an inventory of used cars of not
less than $13,000,000. Failure of SMCH to make any
Mandatory Prepayment.
PURCHASE OF NOTE(S): (a) Purchaser(s) shall deposit with the Escrow
Agent $2,000,000 for the purchase of the first
Note(s) ("Initial Note(s)") within two business
days of the mutual execution of this Subordinated
Loan Agreement. The Escrow Agent shall wire to the
Company the $2,000,000 purchase price for the
Initial Note(s) within one business day of the
later of (i) the receipt from SMCH of the twenty
(20) executed Note(s); (ii) the receipt from
Purchaser(s) of the initial $2,000,000; and (iii)
the receipt of the legal opinion of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq., Chief Legal Counsel of SMCH,
satisfactory in form and substance to HCF and its
counsel, to the matters set forth in subsections
(a), (b), (c) and (d) of the above SMCH
Representations, Warranties and Covenants section.
(b) Purchaser(s) may deposit with the Escrow Agent
up to an additional $1,000,000 on or before March
31, 1999.
NO DEBT OR SECURITIES
ISSUANCE OR REPURCHASE: (a) SMCH shall not incur any indebtedness nor issue
any debt securities in an amount greater than
$100,000 in any transaction or series of
transactions, except to existing lenders or holders
of its debt securities, including without
limitation floor plan financing, without the prior
written consent of HCF. SMCH shall not issue any
equity securities generally (except upon the
exercise or conversion of presently outstanding
options, warrants, convertible notes or convertible
preferred stock, or except to employees or
directors, or except to consultants pursuant to
shareholder approved plans or agreements) while the
Note(s) is outstanding without the prior written
consent of HCF.
(b) SMCH shall not repurchase any of its
outstanding securities or prepay any outstanding
indebtedness which is pari passu or subordinate to
the Note(s) while there is any principal or
interest outstanding under the Note(s).
JURISDICTION AND CHOICE
OF LAW: This Subordinated Loan Agreement, the Note(s) and
the Escrow Agreement shall be governed by the laws
of the state of Georgia and all of the parties to
such agreements and Note(s) agree to submit to the
personal jurisdiction of the state and Federal
courts located in ▇▇▇▇▇▇ County, Georgia.
LEGAL: FEES: SMCH shall pay the fees of HCF's outside
counsel not to exceed $5,000.
BINDING AGREEMENT: The parties shall be
legally bound by the above terms and shall execute
such further documents as may be required to
implement the provisions of this Subordinated Loan
Agreement, including without limitation the
Note(s), the Guarantee Agreements and the Escrow
Agreement.
Agreed to and Accepted by:
Smart Choice Automotive Group, Inc.
MARCH 19, 1999 as of
BY: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ JANUARY 31, 1999
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Date
Assistant Secretary
High Capital Funding, LLC
MARCH 19, 1999 as of
BY: /s/ Latrobe ▇▇▇▇▇▇▇ JANUARY 31, 1999
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Latrobe ▇▇▇▇▇▇▇ Date
Director of Operations
MARCH 19, 1999 as of
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ JANUARY 31, 1999
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq. Date
Escrow Agent