SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) November 9, 2001
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Smart Choice Automotive Group, Inc.
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(Exact name of registrant as specified in its charter)
Florida 1-14082 59-1469577
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1555 Semoran Boulevard, Winter Park, Florida 32792
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(Address of principal executive offices)
Registrant's telephone number, including area code (407) 671-1200
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(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 8, 2001, Smart Choice Automotive Group, Inc. ("Smart Choice") and
certain of its subsidiaries entered into a forbearance agreement with Finova
Capital Corporation ("Finova"), the primary lender to Smart Choice's
subsidiaries, that has resulted in the foreclosure of receivables and inventory
of certain Florida-based subsidiaries of Smart Choice (the "Florida Finance
Group"), and the probable sale of Smart Choice's wholly owned subsidiaries,
Paaco Automotive Group, L.P. and Premium Auto Acceptance Corporation
(collectively, "Paaco"), to Finova.
Prior to November 9, 2001, the Florida Finance Group sold and financed used cars
and trucks in Florida. Paaco sells and finances used cars and trucks in Texas.
The Florida Finance Group had, and Paaco continues to have, a revolving credit
facility with Finova. Prior to November 9, 2001, the Florida Finance Group was
over-advanced on its revolving credit facility, which constituted an event of
default under the facility, and as of September 30, 2001, was over-advanced by
approximately $25 million.
Pursuant to the forbearance agreement, on November 9, 2001, the collateral for
the Florida Finance Group's credit facility with Finova, which consisted
principally of receivables and inventory, was sold at a public foreclosure sale
to Finova for $55 million. Prior to the foreclosure sale, the Florida Finance
Group owed Finova $88.4 million. Thus, after applying the proceeds from the
foreclosure sale, the Florida Finance Group owes Finova $33.4 million (the
"Deficiency").
Further, as part of the forbearance agreement, Smart Choice has granted Finova
(i) an option to purchase Paaco (the "Paaco Option") for an amount equal to the
Deficiency, subject to shareholder approval and an appraisal indicating the
value of Paaco is not greater than the Deficiency, and (ii) an option to
purchase up to 100% of Smart Choice's remaining shares of authorized but
unissued common stock (approximately 39 million shares) (the "Smart Choice Stock
Option") at a price of $0.30 per share. The Smart Choice Stock Option will
terminate upon the closing of the exercise of the Paaco Option. Smart Choice
expects Finova will purchase Paaco pursuant to the Paaco Option. Both the Paaco
Option and the Smart Choice Stock Option will expire on March 8, 2002.
As a result of the Finova agreement and the lack of other available capital, on
November 9, 2001 Smart Choice began to wind-down its Florida-based operations.
If Paaco is sold to Finova pursuant to the exercise of the Paaco Option as is
expected, Smart Choice's remaining assets would consist of certain improved and
unimproved real estate in Titusville, Florida, including a 35,000 square-foot
office facility, and certain other current and fixed assets. Further assuming
the sale of Paaco, management presently anticipates that Smart Choice's
remaining assets will likely be sold by Smart Choice in an effort to realize the
maximum value for these assets and repay its obligations to unsecured creditors
to the extent possible.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b). Pro Forma financial information.
The following pro forma financial information of Smart Choice Automotive Group,
Inc. is hereby filed with this report:
Introduction to Pro Forma Financial Information
Pro Forma Consolidated Condensed Balance Sheet (Unaudited) as of
July 31, 2001
Notes to Pro Forma Consolidated Condensed Balance Sheet
(c). Exhibits.
Exhibit
Number Description of Exhibit
10.27 Forbearance Agreement dated as of November 8, 2001 by and
between Smart Choice Automotive Group, Inc. and certain of
its subsidiaries, and Finova Capital Corporation.
99.1 Press release of the registrant dated November 9, 2001.
ITEM 9. REGULATION FD DISCLOSURE.
On November 9, 2001, the Registrant issued a press release announcing that the
Registrant had entered into a Forbearance Agreement with Finova Capital
Corporation. A copy of the press release is furnished herewith as Exhibit 99.1.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
SMART CHOICE AUTOMOTIVE GROUP, INC.
By: /s/ James Ed Ernst
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James Ed Ernst
Chief Executive Officer
Dated: November 26, 2001
SMART CHOICE AUTOMOTIVE GROUP, INC.
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
FORECLOSURE OF FLORIDA FINANCE GROUP ASSETS AND SALE OF PAACO
On November 8, 2001, Smart Choice Automotive Group, Inc. ("Smart Choice") and
certain of its subsidiaries entered into a forbearance agreement with Finova
Capital Corporation ("Finova"), the primary lender to Smart Choice's
subsidiaries, that has resulted in the foreclosure of receivables and inventory
of certain Florida-based subsidiaries of Smart Choice (the "Florida Finance
Group"), and the probable sale of Smart Choice's wholly owned subsidiaries,
Paaco Automotive Group, L.P. and Premium Auto Acceptance Corporation
(collectively, "Paaco"), to Finova.
Prior to November 9, 2001, the Florida Finance Group sold and financed used cars
and trucks in Florida. Paaco sells and finances used cars and trucks in Texas.
The Florida Finance Group had, and Paaco continues to have, a revolving credit
facility with Finova. Prior to November 9, 2001, the Florida Finance Group was
over-advanced on its revolving credit facility, which constituted an event of
default under the facility, and as of September 30, 2001, was over-advanced by
approximately $25 million.
Pursuant to the forbearance agreement, on November 9, 2001, the collateral for
the Florida Finance Group's credit facility with Finova, which consisted
principally of receivables and inventory, was sold at a public foreclosure sale
to Finova for $55 million. Prior to the foreclosure sale, the Florida Finance
Group owed Finova $88.4 million. Thus, after applying the proceeds from the
foreclosure sale, the Florida Finance Group owes Finova $33.4 million (the
"Deficiency").
Further, as part of the forbearance agreement, Smart Choice has granted Finova
(i) an option to purchase Paaco (the "Paaco Option") for an amount equal to the
Deficiency, subject to shareholder approval and an appraisal indicating the
value of Paaco is not greater than the Deficiency, and (ii) an option to
purchase up to 100% of Smart Choice's remaining shares of authorized but
unissued common stock (approximately 39 million shares) (the "Smart Choice Stock
Option") at a price of $0.30 per share. The Smart Choice Stock Option will
terminate upon the closing of the exercise of the Paaco Option. Smart Choice
expects Finova will purchase Paaco pursuant to the Paaco Option. Both the Paaco
Option and the Smart Choice Stock Option will expire on March 8, 2002.
As a result of the Finova agreement and the lack of other available capital, on
November 9, 2001 Smart Choice began to wind-down its Florida-based operations.
If Paaco is sold to Finova pursuant to the exercise of the Paaco Option, Smart
Choice's remaining assets would consist of certain improved and unimproved real
estate in Titusville, Florida, including a 35,000 square-foot office facility,
and certain other current and fixed assets. Further assuming the sale of Paaco,
management presently anticipates that Smart Choice's remaining assets will
likely be sold by Smart Choice in an effort to realize the maximum value for
these assets and repay its obligations to unsecured creditors to the extent
possible.
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Consolidated Condensed Balance Sheet of Smart Choice as
of July 31, 2001 gives effect to (i) the sale of certain of the Florida Finance
Group's receivables and inventory to Finova at a public foreclosure sale for $55
million, (ii) the expected sale of Paaco to Finova for the Deficiency pursuant
to Finova's exercise of the Paaco Option, and (iii) the adjustment of Smart
Choice assets to net realizable value, as if such transactions and actions had
occurred on that date.
P-1
Pro Forma Consolidated Statements of Operations of Smart Choice for the year
ended April 30, 2001 and the three months ended July 31, 2001 have not been
presented because after (i) the sale of certain of the Florida Finance Group's
receivables and inventory to Finova at a public foreclosure sale, and (ii) the
expected sale of Paaco to Finova pursuant to Finova's exercise of the Paaco
Option, Smart Choice essentially will have no ongoing operations and is not
expected to generate any revenues. Following the sale of Paaco, management
presently anticipates that Smart Choice's remaining assets will likely be sold
by Smart Choice in an effort to realize the maximum value for these assets and
repay its obligations to unsecured creditors to the extent possible.
The pro forma information is based on the historical financial statements of
Smart Choice giving effect to the transactions and actions described above and
in the accompanying Notes to Pro Forma Consolidated Condensed Balance Sheet and
may not be indicative of the results that would have occurred had the
transactions and actions taken place on the date indicated.
P-2
SMART CHOICE AUTOMOTIVE GROUP, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
UNAUDITED
JULY 31, 2001
(IN THOUSANDS)
Foreclosure Adjust
of Certain Smart Choice
Florida Assets to
Historical Finance Group Sale of Net Realizable Pro Forma
Smart Choice Assets(a) Paaco(b) Value(c) Smart Choice
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Assets:
Cash and cash equivalents $ 851 $ (707) $ 144
Other receivables 1,539 (1,044) 495
Intercompany receivable (payable) $ (6,123) 6,123
Finance receivables, net 143,653 (63,845) (79,808)
Inventory 9,065 (4,384) (4,681)
Prepaid and other assets 710 (375) $ (150) 185
Deferred tax assets, net 16,510 (3,681) (12,829)
Property and equipment, net 12,012 (6,345) (2,417) 3,250
Goodwill, net 2,084 (2,084)
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$ 186,424 $ (74,352) $ (90,518) $ (17,480) $ 4,074
========= ========= ========= ========= =========
Liabilities and stockholders' equity (deficit):
Accounts payable and accrued liabilities $ 8,977 $ (4,942) $ 4,035
Income taxes payable 1,140 (1,140)
Revolving credit facilities 147,442 $ (55,000) (92,442)
Other borrowings 9,690 (5,660) 4,030
Deferred sales tax 4,957 (4,957)
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Total liabilities 172,206 (55,000) (109,141) 8,065
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Redemption value of put options 454 454
Stockholders' equity (deficit) 13,764 (19,352) 18,623 $ (17,480) (4,445)
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$ 186,424 $ (74,352) $ (90,518) $ (17,480) $ 4,074
========= ========= ========= ========= =========
The accompanying notes are an integral part of this pro forma consolidated
condensed balance sheet.
P-3
SMART CHOICE AUTOMOTIVE GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
a - Reflects the sale of the Florida Finance Group's finance receivables,
inventory, and an intercompany receivable from Paaco at a public
foreclosure auction where Finova purchased such assets for $55.0
million.
b - Reflects the sale of Paaco to Finova for an amount equal to the
Deficiency ($33.4 million) on the Florida Finance Group's revolving
credit facility with Finova.
c - To reduce Smart Choice's and the Florida Finance Group's remaining
assets to net realizable value.
P-4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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10.27 Forbearance Agreement dated as of November 8, 2001 by and
between Smart Choice Automotive Group, Inc. and certain of
its subsidiaries, and Finova Capital Corporation.
99.1 Press release of the registrant dated November 9, 2001.