THIRD ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SMART CHOICE AUTOMOTIVE GROUP, INC.
Pursuant to the provision of Sections 607.1006 and 607.0602 of the Florida
Business Corporation Act, the Corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST:
ARTICLE V
Article V of the Articles of Incorporation of the Corporation is hereby
amended by inserting the following words at the end of such article:
Series B Convertible Preferred Stock
Three hundred (300) shares of the authorized and unissued shares of $0.01
par value per share Preferred Stock of the Corporation are hereby designated
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock") with the
following powers, preferences and rights, and the qualifications, limitations
and restrictions hereon:
Rank. The Series B Preferred Stock shall rank, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of
the Corporation, senior to the Common Stock and any subsequent issues of
stock, whether common or preferred.
Dividends. Each holder of shares of the Series B Preferred Stock ( the
"Holder", collectively, the "Holders") shall be entitled to receive out of
the assets of the Corporation legally available therefor, cumulative cash
dividends at the rate per share (based on the stated value of $10,000.00
per share) of $91.67 per month, accruing from the date of original issuance
("Original Issuance Date") which dividends are due and payable monthly
commencing on the first day of the month following the Original Issuance
Date. Such dividends shall accrue from the Original Issuance Date. In the
event that a Holder is not paid dividends on a timely basis in accordance
with the foregoing, such Holder shall be entitled to accrue interest on the
accrued and unpaid dividends at the rate per share (based on the stated
value of $10,000.00 per share) of 15% per annum, until all accrued
dividends have been paid. If the Corporation remains in default on the
monthly dividend payments to the Holders for a period of greater than
ninety (90) days, and such default is continuing for a period of thirty
(30) days after written notice of such default is sent by a Holder the
Corporation, and further provided that the Holders of at least seventy-five
(75%) percent of the then outstanding Series B Preferred Stock so agree, a
Holder may, at its option, receive an amount which is equal to (i) the
number of shares of Series B Preferred Stock which have not been converted
by such Holder as of such date, times, (ii) $10,000.00, plus all unpaid and
accrued dividends and interest in exchange for such shares of Series B
Preferred Stock. Unless full cumulative dividends on the Series B Preferred
Stock to which Holders are entitled have been paid or are declared and a
sum sufficient for the payment thereof has been set apart for the payment
of such unpaid dividends, no dividend shall be declared or paid or set
aside for payment or other distribution declared or made upon the Common
Stock of the Corporation or on any other stock of the Corporation ranking
junior to or on parity with the Series B Preferred Stock as to dividends or
upon liquidation be redeemed, purchased or otherwise acquired for any
consideration or any monies to be paid to or made available for a sinking
fund for the redemption of any share of such stock by the Corporation.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation,
the Holders are entitled to receive, out of the assets of the Corporation
available for distribution to stockholders, before any distribution of
assets is made to holders of Common Stock, or any other holders of stock
ranking junior to the Series B Preferred Stock, liquidating distributions
in the amount of $10,000.00 per share plus accrued and unpaid dividends.
If, upon any liquidation, dissolution, or winding up of the Corporation,
the amounts payable to the Holders are not paid in full, then the entire
assets of the Corporation shall be distributed ratably among the Holders.
After payment of the full amount of the liquidating distribution to which
they are entitled, the Holders shall not be entitled to any further
participation in any distribution of assets by the Corporation. A
consolidation or merger of the Corporation, with or into any other
corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this section.
Conversion. The Holders shall have conversion rights as follows (the
"Conversion Rights"):
(i) Right to Convert. At any time or times after the Original Issuance
Date of the shares of Series B Preferred Stock, any Holder shall be
entitled to convert his shares of Series B Preferred Stock into shares
of Common Stock of the Corporation at the Conversion Rate, as herein
defined, without the payment of any additional consideration by the
Holder thereof, at the office of the Corporation or any transfer agent
for such shares.
(ii) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each of the shares of Series B Preferred Stock shall
be determined according to the following formula (the "Conversion
Rate"):
Conversion Amount
Conversion Price
For purposes of this section of Article V, the following terms
shall have the following meanings:
(a) "Conversion Price" means (A) the average last closing sale
price per share of the Common Stock on the NASDAQ SmallCap Market
("Market Price") for the ten (10) consecutive trading days immediately
preceding the Original Issuance Date, plus (B) $.50. If any shares of
Series B Preferred Stock (other than the shares authorized hereby) are
issued at a price per share that is less than the Conversion Price
applicable on the earliest Original Issuance Date, the Conversion
Price shall be reduced to that lower price.
(b) "Conversion Amount" means the amount equal to (A) the number
of shares of Series B Preferred Stock that the Holder is converting
times (B) $10,000.
(iii) Mechanics of Conversion. The Board of Directors may
determine in its sole discretion whether fractional shares of Common
Stock will be issued upon any conversion of the Series B Preferred
Stock. If the Board of Directors determines not to issue fractional
shares of Common Stock at the conversion, the Corporation will pay, in
lieu of any fractional shares to which the Holder would otherwise be
entitled, cash equal to such fraction multiplied by the Conversion
Price then in effect. Before any Holder shall be entitled to convert
the Series B Preferred Stock into full shares of Common Stock, he
shall surrender the certificate or certificates of Series B Preferred
Stock for shares of Common Stock to be issued in that conversion. The
Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such Holder, or to his nominee or nominees,
a certificate or certificates for the number of shares of Common Stock
and/or fractional shares of Common Stock, if any, to which he shall be
entitled as aforesaid, together with cash in lieu of any fraction of a
share, if any, to which the Holder may be entitled. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of the Series B
Preferred Stock to be converted and the person or persons entitled to
receive the shares of Commons Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on such date. Any unpaid and accrued dividends
and interest due and payable at conversion shall be paid to a Holder
by the Corporation in cash or its equivalent or other mutually
agreeable form.
(iv) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or Bylaws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of this section
and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holders
against impairment.
(v) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number
of shares of Common Stock as shall from time to time be sufficient to
effect conversion of all issued and outstanding shares of the Series B
Preferred Stock.
(5) Unauthorized Distributions. Notwithstanding any other provision of
these Articles, the Corporation will not make any payment due with respect to
the Series B Preferred Stock if (a) after giving effect to that payment, the
Corporation would not be able to pay its debts as they become due in the usual
course of business; or (b) after giving effect to that payment, the
Corporation's total assets would be less than the sum of its total liabilities
plus (unless the Corporation's articles of incorporation permit otherwise) the
amount that would be needed, if the Corporation were to be dissolved at the time
of the payment, to satisfy the preferential rights upon dissolution of any
shareholders whose preferential rights are superior to the Holders of Series B
Preferred Stock; or (c) the Corporation is otherwise prohibited (under then
existing laws) from making any payment due with respect to the Series B
Preferred Stock. Nothing contained herein shall amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series A
Preferred Shares.
(6) Redemption by Corporation. At any time or times more than eighteen (18)
months after the Original Issuance Date of Series B Preferred Stock, the
Corporation may at its option and in the sole discretion of the Corporation's
Board of Directors, (i) call any or all then outstanding shares of Series B
Preferred Stock for cash at the price of $10,000.00 per share plus any unpaid
and accrued dividends and interest as provided above, or (ii) convert any or all
of the then outstanding shares of Series B Preferred Stock into shares of Common
Stock of the Corporation as provided above; provided however, that in no event
may the Corporation convert the Series B Preferred Stock unless and until (a)
the Corporation gives the Holder thirty (30) days prior written notice of its
intent to call or convert, and (b) the Market Price of the Common Stock equals
or exceeds one and one-half (1.5) times the Conversion Price for a period of at
least twenty (20) consecutive trading days prior to the date of such notice, and
(c) the shares of Common Stock into which the shares of Series B Preferred Stock
are to be so called or converted have been registered as provided herein. Upon
any such call or conversion such Holder shall surrender the certificate or
certificates for the shares of Series B Preferred Stock so called or converted.
If the Corporation elects to convert, the Corporation shall issue such Holder
shares of Common Stock for the shares of Series B Preferred Stock so converted.
If a Holder has elected not to register its shares of Common Stock after notice
from the Corporation, as contemplated hereby, then the restrictions set forth in
subsection (c) of this Section on the Corporation's ability to call or convert
that Holder's Series B Preferred Stock shall not apply.
(7) Voting Rights. Except as expressly required by applicable law, the
Holders will not be entitled to vote. However, upon conversion of shares of
Series B Preferred Stock as provided above, the holder of the Common Stock
received pursuant to such conversion shall be entitled to one vote for each
share of Common Stock received upon such conversion.
(8) Certain Adjustments. If the outstanding shares of Common Stock of the
Corporation are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Corporation or of another
corporation or entity or shares of a different par value or without par value
through a recapitalization, stock dividend, stock split, reverse stock split or
a reorganization under which the Corporation is not the surviving entity, an
appropriate or proportionate adjustment shall be made in the number and/or kind
of securities allocated to the Series B Preferred Stock.
(9) Term. If a Holder has not converted all its shares of Series B
Preferred Stock within twenty-four (24) months after the Original Issuance Date,
and such shares have not otherwise been redeemed by the Corporation, then such
Holder may, at its option, receive an amount which is equal to (i) the number of
shares of Series B Preferred Stock which have not been converted or redeemed by
the Corporation as of such date times (ii) $10,000.00, plus all unpaid and
accrued dividends. Exercise of these rights is subject to the consent of the
Company, which shall not be unreasonably withheld.
(10) Registration Rights.
(a) Piggyback Rights.
(i) If the Corporation at any time after the Original Issuance
Date elects or proposes to register any of its shares of Common Stock
(the "Registration Shares") under the 1933 Act on Forms S-1, S-2 or S-3
or any other form in effect at such time for the registration of
securities to be sold for cash (a "Registration Statement") with the
Securities and Exchange Commission (the "SEC") pursuant to which shares
of Common Stock owned by any other shareholder of the Corporation are
to be registered, the Corporation shall give prompt written notice (the
"Registration Notice") to the Holders of its intention to register the
Registration Shares.
(ii) Within fifteen (15) days after a Holder may give written
notice to the Corporation of exercise of all, or a portion, of its
right to convert the Series B Preferred Stock (the "Conversion
Notice"), stating the number of shares such Holder elects to be
included among the Registration Shares (which number may include shares
held by Holder as a result of prior exercises of its right to convert
the Series B Preferred Stock, or otherwise) (the "Holder's Included
Shares").
(iii) The Corporation shall use reasonable efforts to register
the Holder's Included Shares under the Securities Act of 1933 and any
applicable state securities acts, if necessary, designated by such
Holder in the Conversion Notice. The Corporation shall have the right
to withdraw and discontinue registration of the Holder's Included
Shares at any time prior to the effective date of such Registration
Statement if the registration of the Registration Shares is withdrawn
or discontinued.
(iv) The Corporation shall not be required to include any of a
Holder's Included Shares in any Registration Statement unless such
Holder agrees, if so requested by the Corporation, to: (i) offer and
sell the Holder's Included Shares to or through an underwriter selected
by the Corporation and, to the extent possible, on substantially the
same terms and conditions under which the Registration Shares are to be
offered and sold; (ii) comply with any arrangements, terms and
conditions with respect to the offer and sale of the Holder's Included
Shares to which the Corporation may be required to agree; and (iii)
enter into any underwriting agreement containing customary terms and
conditions. The foregoing shall not require the Holder to sell the
Holder's Included Shares at the time of registration through such
underwriter.
(v) If the offering of the Registration Shares by the
Corporation is, in whole or in part, an underwritten public offering,
and if the managing underwriter determines and advises the Corporation
in writing that the inclusion in such Registration Statement of all of
a Holder's Included Shares, together with the stock of other persons
who have a right to include their stock in the Registration Statement
(collectively referred to as the "Aggregate Shares"), would adversely
affect the marketability of the offering of the Registration Shares,
then such Holder and such other holders shall be entitled to register
the portion of such number of Aggregate Shares as the managing
underwriter determines may be included without such adverse effects
(collectively, "Aggregate Underwriter Shares"), subject to the terms,
exceptions and conditions of this section.
(vi) The Corporation shall bear all costs and expenses of
registration of the Registration Shares, including Holder's Included
Shares.
(vii) It shall be a condition precedent to the Corporation's
obligation to register any of a Holder's Included Shares that such
Holder provide the Corporation with all information and documents, and
shall execute, acknowledge, seal and deliver all documents reasonably
necessary, to enable the Corporation to comply with the 1933 Act, any
applicable state securities acts, and all applicable laws, rules and
regulations of the SEC or of any state securities law authorities.
(b) Demand Right.
(i) If at any time on or after nine (9) months after the
Original Issuance Date the Corporation shall receive from the Holders
of at least seventy-five (75%) of the then outstanding Series B
Preferred Stock, a written request that the Corporation effect any
registration with respect to such Holders' Holder's Included Shares,
the Corporation will, as soon as practicable, use its best efforts to
effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance
with the 1933 Act) and as would permit or facilitate the sale and
distribution of all or such portion of Holder's Included Shares as are
specified in such request. The Corporation shall be required to effect,
pursuant to this Section 10(b), only one (1) registration of Holder's
Included Shares pursuant to this Section 10(b).
(ii) Proviso. The Corporation shall not be obligated to
effect, or to take any action to effect, any such registration pursuant
to this Section 10(b):
(a) in any particular jurisdiction in which the
Corporation would be required to execute a general consent to service
of process in effecting such registration, qualification, or
compliance, unless the Corporation is already subject to service in
such jurisdiction and except as may be required by the 1933 Act; or
(b) during the period starting with the date fifteen
(15) days prior to the Corporation's good faith estimate of the date of
filing of, and ending on a date ninety (90) days after the effective
date of, a Corporation-initiated registration, provided that the
Corporation is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective.
(iii) Deferral of Registration. The Corporation shall file a
registration statement covering Holder's Included Shares so requested
to be registered as soon as practicable after receipt of the request of
the Holder; provided, however, that if (a) in the good faith judgment
of the Board of Directors of the Corporation such registration would be
materially detrimental to the Corporation because there exist bona fide
financing, acquisition or other activities of the Corporation and the
Board of Directors of the Corporation concludes, as a result, that it
is essential to defer the filing of such registration statement at such
time, and (b) the Corporation shall furnish to the Holder a certificate
signed by the President of the Corporation stating that in the good
faith judgment of the Board of Directors of the Corporation, it would
be materially detrimental to the Corporation for such registration
statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the
Corporation shall have the right to defer such filing (except as
provided in subsection 10(ii)(b) above) for a period of not more than
ninety (90) days after receipt of the request of the Holder, and,
provided further, that the Corporation shall not defer its obligation
in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of
the Holder may, subject to the provisions of Section 10(a) and 10(b)
hereof, include other securities of the Corporation, with respect to
which registration rights have been granted, and may include securities
of the Corporation being sold for the account of the Corporation,
provided all the Holder's Included Shares for which the Holder has
requested registration shall be covered by such registration statement
before any other securities are included.
(iv) Procedures. In any registration pursuant to this Section
10(b), if the Corporation shall request inclusion of securities to be
sold for its own account, or if other persons entitled to incidental
registrations shall request inclusion in such registration, the Holder
shall offer to include such securities in the underwriting and may
condition such offer on the acceptance by the Corporation or such other
persons of the further applicable provisions hereof. The Corporation
shall (together with all such other persons proposing to distribute
their securities through such underwriting) enter into an agreement in
customary form with the representative of the underwriter or
underwriters acceptable to the Corporation. Notwithstanding any other
provision of this Section, if the representative of the underwriters
advises the Holder of the need to offer for sale only the Aggregate
Underwriter Shares, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in Section
10(a)(v) hereof.
(11) Limitations on Issuances of Additional Shares of Series A Redeemable
Convertible Preferred Stock and Series B Preferred Stock and Other Convertible
Preferred Stock. The Corporation will not (i) issue or re-issue any additional
shares of Series A Redeemable Convertible Preferred Stock, including without
limitation, any such shares which have been converted to shares of Common Stock,
nor (ii) issue or re-issue shares of Series B Preferred Stock such that the
number of issued and outstanding shares of Series B Preferred Stock would exceed
Four Hundred and Twenty (420) (based on a stated value per share of $10,000.00),
nor (iii) issue any shares of Convertible Preferred Stock which rank, with
respect to dividend rights and rights upon liquidation, dissolution and winding
up of the corporation, senior to the Series B Preferred Stock, provided however
that if either (a) at least seventy-five (75%) percent of the shares of Series B
Preferred Stock issued on the Original Issuance Date have been converted, called
or otherwise redeemed as provided above, or are no longer outstanding or (b) if
the shares of Series B Preferred Stock issued on the Original Issuance Date to
James W. Walter have been converted, called or otherwise redeemed, or are no
longer outstanding, the restrictions set forth in Section 11 (ii) shall no
longer apply.
SECOND:
Pursuant to Section 607.0602 of the Florida Business Act, the Board of
Directors adopted this Amendment to Article V of the Articles of Incorporation
effective as of May 5, 1998 without shareholder action.
IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation
has executed this instrument this 5th day of May, 1998.
/s/ Joseph E. Mohr
-------------------------------
Joseph E. Mohr
Executive Vice President and
Chief Financial Officer