SMART CHOICE HOLDINGS, INC.
625 MAIN STREET
SUITE 25
WINDERMERE, FLORIDA 34786
October 28, 1996
VIA FACSIMILE
Eckler Industries, Inc.
5200 S. Washington Avenue
Titusville, Florida 32780
Re: Stock for Stock Transaction
Dear Ralph:
This letter will confirm various discussions that Smart Choice Holdings,
Inc. (hereinafter "SCHI") has had with Eckler Industries, Inc. (hereinafter
"Eckler") relative to a stock for stock exchange more particularly described
below. The objective of our discussions has been the execution and
consummation, as soon as feasible, of a formal definitive Stock Exchange
Agreement between SCHI and Eckler, said Agreement providing among other things
as follows:
1. STOCK FOR STOCK EXCHANGE. The holders of SCHI's outstanding common
stock ("SCHI Common") and holders of SCHI preferred stock, SCHI warrants and
SCHI options shall exchange their shares and/or rights to acquire SCHI Common
for 6,500,000 shares of Eckler Class A common stock ("Eckler Common"); provided
however that to the extent Eckler does not have enough Eckler Common authorized,
unissued and unreserved Eckler shall issue one-half share of Eckler Class B
Common Stock for every share of Eckler Common that it is not able to issue as a
result of such unavailability. SCHI shall cause all of its holders of preferred
stock now issued or issued prior to the closing of the stock for stock exchange
to agree that their preferred stock will be convertible into Eckler Common.
SCHI shall cause any holders of its warrants now issued or issued and
outstanding as of the date of the closing of the stock for stock exchange, to
agree that their shares will be exercised for Eckler Common. Similarly, SCHI
shall cause any holders of its options, now issued or issued and outstanding as
of the date of the closing of the stock for stock exchange, to agree that their
shares will be exercised for Eckler Common. Eckler will agree that such SCHI
preferred stock, warrants and options will be convertible and exercisable into
Eckler Common (or Eckler Class B Common Stock in the ratio described above in
the case of Eckler Common unavailability). The 6,500,000 Eckler Common to be
issued shall be allocated among the holders of SCHI Common, SCHI preferred, SCHI
warrants and SCHI options in a manner so as to reflect the common
stock equivalents of each. Following the closing the parties hereto would seek
to change the name of Eckler to a name selected by SCHI.
2. RALPH ECKLER. Upon the effectiveness of the closing, Ralph Eckler
shall surrender any and all Eckler warrants or options that he (i.e., options to
acquire 150,000 shares at $2.50 and 320,000 shares at $5.00 and warrants to
acquire 200,000 shares of Eckler Common at 2-7/8 per share) holds and relinquish
any and all contract rights related thereto and in exchange therefor shall
accept the issuance of 5-year options to acquire 100,000 shares of Eckler Common
at $8.75 and 5-year options to acquire 50,000 shares of Eckler Common at $10.00.
Notwithstanding the foregoing, Ralph Eckler shall be entitled to retain the
option for 10,000 shares granted at current prices prior to the execution hereof
(a total of 40,000 shares having been then issued). Also upon closing Mr.
Eckler's employment agreement shall be modified to relinquish any and all
existing salary and bonus provisions and in lieu thereof Mr. Eckler shall be
entitled to receive the following: (i) $800,000 (200,000 of which shall be
placed in escrow and made payable January 15, 1997, the balance will be payable
upon the earlier of the completion of a secondary offering or April 30, 1997)
and an annual (fiscal year) salary of $125,000 through September 30, 1998 and
$150,000 for each fiscal year beginning October 1, 1998 and ending September 30,
2002 and a performance bonus equal to 4% of "Eckler Division" (operations
customarily conducted by Eckler and specifically excluding operations conducted
by SCHI) profits, before deductions for interest, depreciation and taxes. SCHI
shall cause 200,000 shares of SCHI Common (and Eckler Common exchangeable
therefor) to be placed in escrow to secure the aforementioned $600,000 balance
owed to Ralph Eckler (with registration rights in the event of loan default).Mr.
Eckler will continue to serve as the chairman of the Eckler Division, it being
understood that operations customarily conducted by Eckler will be carried out
by a newly-formed subsidiary. Appropriate one-year non-compete provisions will
be put into place.
Upon the consummation and completion of the stock exchange set forth in
Section 1, above, the Board of Directors of Eckler shall consist of seven
directors. For a period of ninety (90) days from the closing, SCHI shall have
the right to appoint three directors (and their substitutes appointed by SCHI
representatives) to the Board, and Eckler shall have the right to appoint three
directors (and their substitutes appointed by Eckler representatives) to the
Board. Such directors shall elect the seventh director. SCHI shall have the
right to select and appoint the new executive officers of Eckler after the stock
for stock exchange. Ralph Eckler will be permitted to sell (pursuant to SEC
registration) 100,000 shares of Eckler Common in the planned secondary offering
of Eckler, and will be permitted to sell pursuant to SEC registration up to an
additional 50,000 shares per quarter thereafter. SCHI shall also indemnify
Ralph Eckler against liabilities arising as a result of his guaranties of Eckler
loans and shall cause Ralph Eckler to be released from the liability thereon on
or before May 30, 1997. The 200,000 shares escrowed shall also serve as
security for SCHI's obligation with respect to the foregoing sentence. Ralph
Eckler shall be entitled to his already existing 2% guaranty fee for the
duration of the continued existence of his loan guaranties.
3. ACCESS TO INFORMATION. All parties agree to provide reasonable access
to their books, records, properties and personnel prior to Closing, and agree to
fully cooperate by making necessary introductions and assisting in the
collection of whatever
information is required. In addition, all parties shall execute appropriate
confidentiality agreements prior to the exchange of information.
4. RESPONSIBILITY FOR EXPENSES. No party shall be responsible for any of
the other's expenses in connection with the negotiations and due diligence
contemplated hereby.
5. CLOSING. The parties agree that the definitive Stock Exchange
Agreement contemplated herein will close (the "Closing") no later than December
31, 1996 (the "Closing Date").
6. ADDITIONAL TERMS AND CONDITIONS. The transaction is subject to the
following terms and conditions:
(a) A definitive Stock Exchange Agreement on terms acceptable to all
parties shall be negotiated and executed by SCHI and Eckler on or before
November 30, 1996. The definitive Agreement shall, among other things, require
opinions of counsel and contain representations of SCHI and Eckler, and other
matters as are customary and usual in a transaction of the nature contemplated
herein.
(b) Eckler and SCHI shall each have received reports satisfactory to
them from their respective investment bankers as required and as to the fairness
of the transaction from a financial point-of-view to the shareholders of each.
SCHI shall reimburse Eckler for any expenses incurred by Eckler in securing the
services of a financial advisor to render a fairness opinion.
(c) The approval and consent of the Board of Directors of SCHI and
Eckler shall have been obtained prior to execution of the Stock Exchange
Agreement.
(d) All necessary filings with, or approvals by, state and federal
governmental agencies or regulatory bodies shall be made by each party.
(e) Prior to the closing of the transaction contemplated herein,
there shall not have been any material adverse change (or event or condition
likely to result in such a change) in the financial condition operations or
business of either SCHI or Eckler.
(f) Eckler shall be satisfied that SCHI shall have the ability to
close upon and acquire substantially all of the assets and businesses concerning
which it has letters of intent and/or agreements to purchase as of the date
hereof (or assets or businesses substantially equivalent in content and value
thereto), it being understood that these businesses are as follows: Stuart
Nissan, Stuart Motorcars, the CMAC/DUCC Group, the FFG/Suncoast Group, the
Miracle Mile Group, Dealer Insurance Services, Inc. and Dealer Development
Services, Inc.
(g) Eckler shall have received the consent of Barnett Bank of Central
Florida, N.A. as to the consummation of the exchange transaction contemplated
herein.
(h) Eckler and SCHI shall have approved any employment agreements
executed by Eckler between the date hereof and the closing, including three
employment
agreements between the newly formed subsidiary of Eckler and three former
executive officers of Eckler.
7. EXCLUSIVITY. Pending execution of the definitive Stock Exchange
Agreement, and during the term of this letter, neither the management of Eckler
nor the directors and/or shareholders of Eckler will discuss or negotiate with
any other corporation, firm or person, or entertain or consider any inquiries of
proposals relating to the possible sale of a material portion of its stock or
their stock, assets or businesses.
8. ANNOUNCEMENTS. Public announcements by a party hereto concerning the
execution of this letter and the transactions contemplated hereby shall be
submitted for prior review and approval (such approval not to be unreasonably
withheld) by the other party.
9. RESTRICTIVE COVENANTS.
(a) Between the date hereof and December 31, 1996 Eckler and SCHI
shall each operate their businesses only in the ordinary course of business.
(b) Between the date hereof and the closing Eckler shall make no
changes in its capital structure and in such regard shall issue no warrants,
options or stock except pursuant to the exercise of warrants or options existing
as of the date hereof and then only in accordance with the terms of such
instruments as they exist as of the date hereof.
10. OBLIGATION OF GOOD FAITH. Eckler and SCHI shall proceed forward and be
obligated in good faith to negotiate the definitive Stock Exchange Agreement and
other transactional documents.
11. NOTICES. All notices, consents, requirements, approvals and other
communications provided herein shall be in writing, and shall be deemed given
when delivered personally or mailed by certified mail, postage prepaid:
(a) As to SCHI SMART CHOICE HOLDINGS, INC.
Attention: Tom Conlan
625 Main Street, Suite 25
Windermere, Florida 34786
Telephone: (407) 876-6617
(b) As to Eckler ECKLER INDUSTRIES, INC.
Attention: Ralph Eckler
5200 South Washington Avenue
Titusville, Florida 32780
Telephone: (407) 269-9680
12. ACCEPTANCE. If the foregoing is acceptable to you, please indicate
your acceptance by signing and returning the enclosed copy of this letter,
whereupon SCHI will initiate the preparation of the definitive Stock Exchange
Agreement.
13. LETTER OF INTENT. No party shall bear any liability to the other in
the event a definitive Stock Exchange Agreement is not executed by all parties
on or before
November 30, 1996. Notwithstanding the fact that this is a letter of intent,
Sections 7, 8, 9 and 10 hereof shall be binding upon the parties hereto until
December 31, 1996.
Sincerely,
SMART CHOICE HOLDINGS, INC.
By: /s/ Thomas E. Conlan
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Its: Secretary/Treasurer
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Date: October 28, 1996
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AGREED AND ACCEPTED:
Eckler Industries, Inc.
By: /S/ Ralph H. Eckler
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Its: President/Chairman
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Date: October 28, 1996
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