<PAGE> 1
========================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 FOR THE PERIOD ENDED DECEMBER 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _________.
Commission file number: 0-26680
NICHOLAS FINANCIAL, INC.
(Exact name of registrant as specified in its Charter)
British Columbia, Canada 8736-3354
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2454 McMullen Booth Road, Building C
Clearwater, Florida 33759
(Address of Principal Executive Offices) (Zip Code)
(727) 726-0763
(Registrant's telephone number, Including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____.
As of January 31st, 2000 there were 2,351,308 shares of common
stock outstanding
This Form 10-QSB consists of 19 pages.
========================================================================
<PAGE> 2
Nicholas Financial, Inc.
Form 10-QSB
Index
Part I. Financial Information Page
- ------------------------------ -------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
as of December 31, 1999.............................3
Condensed Consolidated Statements of
Income for the three and nine months
ended December 31, 1999 and 1998....................4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
December 31, 1999 and 1998..........................5
Notes to the Condensed Consolidated
Financial Statements................................6
Item 2. Management's Discussion and Analysis of
the Financial Condition and Results of
Operations.........................................10
Part II. Other Information
- ----------------------------
Item 1. Legal Proceedings...................................16
Item 2. Changes in Securities...............................16
Item 3. Defaults upon Senior Securities.....................16
Item 4. Submission of Matters to a Vote
of Security Holders................................16
Item 5. Other Information...................................16
Item 6. Exhibits and Reports on Form 8-K....................16
Signatures..........................................17
Index of Exhibits...................................18
<PAGE> 3
<TABLE>
Nicholas Financial, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
<CAPTION>
December 31,
1999
----------------
<S> <C>
Assets
Cash $ 243,553
Finance receivables, net 47,078,092
Accounts receivable 24,565
Prepaid expenses and other assets 448,675
Property and equipment, net 234,321
Deferred income taxes 1,484,336
------------
Total assets $49,513,542
============
Liabilities
Line of credit $35,214,549
Notes payable - related party 1,603,024
Accounts payable 1,878,012
Deferred revenues 444,664
Other liabilities 17,003
------------
39,157,252
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized;none issued and outstanding -
Common stock, no par: 50,000,000 shares
authorized; 2,351,308 shares issued and
outstanding 3,709,785
Retained earnings 6,646,505
------------
10,356,290
------------
Total liabilities and shareholders' equity $49,513,542
============
See accompanying notes.
</TABLE>
<PAGE> 4
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31 December 31
1999 1998 1999 1998
---------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Interest income on
finance receivables $3,486,518 $2,569,082 $9,453,993 $7,029,773
Sales 133,050 121,861 398,498 339,190
---------------------------------------------
3,619,568 2,690,943 9,852,491 7,368,963
Expenses:
Cost of sales 23,230 23,622 61,056 69,302
Marketing 92,262 109,922 279,975 273,450
Administrative 1,357,795 1,092,060 3,694,411 2,898,748
Provision for credit losses 312,571 238,965 787,900 599,234
Depreciation and amortization 22,500 34,351 68,640 88,753
Interest expense 725,309 560,688 2,027,462 1,799,331
---------------------------------------------
2,533,667 2,059,608 6,919,444 5,728,818
---------------------------------------------
Operating income before
income taxes 1,085,901 631,335 2,933,047 1,640,145
Income tax expense (benefit):
Current 451,754 347,238 1,499,730 926,550
Deferred (34,280) (101,434) (375,074) (291,434)
---------------------------------------------
417,474 245,894 1,124,656 635,116
---------------------------------------------
Net Income $668,427 $385,441 $1,808,391 $1,005,029
=============================================
Earnings per share - basic $0.28 $0.16 $0.77 $0.43
=============================================
Earnings per share - diluted $0.26 $0.16 $0.71 $0.41
=============================================
See accompanying notes.
</TABLE>
<PAGE> 5
Nicholas Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended December 31,
1999 1998
----------------------------
<S> <C> <C>
Operating activities
- ---------------------
Net income $ 1,808,391 $ 1,005,029
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation of property and
equipment 68,640 88,753
Provision for credit losses 787,900 599,234
Deferred income taxes (209,280) (291,434)
Changes in operating assets
and liabilities:
Accounts receivable (1,633) (2,371)
Prepaid expenses and other assets (139,831) (266,885)
Deferred revenues 56,720 144,731
Accounts payable 242,318 (112,142)
Other liabilities (4,696) (504)
Income taxes payable (99,662) (81,357)
----------------------------
Net cash provided
by operating activities 2,508,867 1,083,054
Investing activities
- ----------------------
Increase in finance receivables,
net of principal collected (7,942,521) (4,643,306)
Purchase of property and equipment (85,668) (74,936)
----------------------------
Net cash used in investing
activities (8,028,189) (4,718,242)
Financing activities
- -----------------------
Proceeds (repayment) of notes
payable - related party (3,741) -
Net proceeds from line of credit 5,250,000 3,669,955
Sale of common stock 7,198 53,928
----------------------------
Net cash provided by financing
activities 5,253,457 3,723,883
----------------------------
Net decrease in cash (265,865) 88,695
Cash, beginning of period 509,418 303,960
----------------------------
Cash, end of period $243,553 $392,655
============================
See accompanying notes.
</TABLE>
<PAGE> 6
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of Nicholas Financial Inc (the "Company") have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB pursuant to the Securities and Exchange Act of 1934, as
amended in Article 10 of Regulation SB, as amended. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine
months ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended March 31, 2000. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 1999.
2. Earnings Per Share
Basic earnings per share excludes any dilutive effects of common
stock equivalents such as options, warrants, and convertible
securities. Diluted earnings per share includes the effects of
dilutive options, warrants, and convertible securities. Basic and
diluted earnings per share have been computed as follows:
<PAGE> 7
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1999
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1999 1998 1999 1998
----------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per
share - Net income available to
common stockholders $668,427 $385,441 $1,808,391 $1,005,029
Effect of dilutive securities:
Convertible debt 24,909 24,909 74,727 74,727
----------------------------------------------
Numerator for dilutive earnings
per share - income available to
common stockholders after assumed
conversions $693,336 $410,350 $1,883,118 $1,079,756
Denominator:
Denominator for basic earnings per
share - weighted average shares 2,352,608 2,358,733 2,352,040 2,357,589
Effect of dilutive securities: (A)
Employee stock options 59,204 - 47,952 -
Convertible debt 264,798 264,798 264,798 264,798
----------------------------------------------
Dilutive potential common shares 324,002 264,798 312,750 264,798
Denominator for diluted earnings
per share - adjusted weighted-
average shares and assumed
conversions 2,676,610 2,623,531 2,664,790 2,622,387
==============================================
Earnings per share - basic $0.28 $0.16 $0.77 $0.43
==============================================
Earnings per share - diluted $0.26 $0.16 $0.71 $0.41
==============================================
Footnote A:
The following options and warrants
were outstanding but not included in
the computation of diluted earnings per
share because the exercise price was
greater than the average market price
of the common shares and, therefore,
the effect would be antidilutive.
Options - 230,700 - 230,700
Warrants 333,333 333,333 333,333 333,333
</TABLE>
<PAGE> 8
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1999
3. Finance Receivables
Finance receivables consist of automobile finance installment
contracts and direct consumer loans and are detailed as follows:
<TABLE>
<S> <C>
Finance receivables, gross contract $74,951,740
Less:
Unearned interest (17,646,510)
------------
57,305,230
Nonrefundable dealer reserves (8,097,866)
Allowance for credit losses (2,129,272)
------------
Finance receivables, net $47,078,092
============
</TABLE>
The terms of the receivables range from 6 to 60 months and bear a
weighted average effective interest rate of 24%.
4. Line of Credit
The Company has a $45,000,000 line of credit facility (the Line)
which expires on November 30, 2002. Borrowings under the Line bear
interest at the prime rate. The Company also has several LIBOR
pricing options available. If the outstanding balance falls below
$10,000,000 the Line bears interest at the prime rate plus 1.75%.
Pledged as collateral for this credit facility are all of the assets
of Nicholas Financial, Inc. and its subsidiaries.
On May 11, 1999 the Company entered into an interest rate swap with a
notional amount of $10 million at a fixed rate of 5.81%, maturing on
May 24, 2002. On May 21, 1999 the Company entered into two interest
rate swaps with notional amounts of $5 million each, at fixed rates
of 5.81% and 6.08%, maturing on May 24, 2001 and May 24, 2004,
respectively.
On August 18, 1999 the Company terminated a $5 million swap maturing
on May 24, 2004 in exchange for $52,000. In addition the Company
entered into an interest rate swap with a notional amount of $10
million at a fixed rate of 5.80%, provided that 30 day libor does not
exceed 8%, maturing on May 24, 2003. In the event 30 day libor
exceeds 8.00% , the fixed rate of 5.80% would swap back to the
variable rate for all periods where 30 day libor exceeds 8.00%.
On November 1, 1999 the Company successfully renegotiated its credit
facility. The new agreement increases the total facility to $45
million, reduces the effective interest rate charged to the Company
and extends the maturity date to November 1, 2002.
<PAGE> 9
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1999
<TABLE>
<CAPTION>
5. Notes Payable - Related Party
Notes payable consisted of the following:
<S> <C>
Notes payable, due through January 2002, unsecured,
subordinated to the Line, with interest at varying
rates up to 12% with quarterly and semiannual
interest payments. The notes are convertible at the
option of the holder, into common shares at prices
from $4.50 to $6.00 per share. $1,150,000
Notes payable, unsecured interest at 12%, quarterly
interest due through April 2000, at which time the
entire principal balance and unpaid interest is due,
subordinated to the Line. The note is convertible at
the option of the holder, into common shares at
$8.25 per share. 200,000
Note payable, unsecured, interest at 12%, principal
and interest due through March 2000. 245,470
Note payable, unsecured, interest at 12%, quarterly
interest due through August 2000, at which time the
entire principal balance is due. 7,554
-----------
$1,603,024
===========
</TABLE>
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Consolidated net income increased for the three month period ended
December 31, 1999 to $668,427 from $385,441 for the three month
period ended December 31, 1998. Earnings were favorably impacted by
an increase in the outstanding loan portfolio and net portfolio
yield. The Company's NDS subsidiary did not contribute significantly
to consolidated operations in the three month periods ended December
31, 1999 or 1998.
Consolidated net income increased for the nine month period ended
December 31, 1999 to $1,808,391 from $1,005,029 for the nine month
period ended December 31, 1998. Earnings were favorably impacted by
an increase in the outstanding loan portfolio and net portfolio
yield. The Company's NDS subsidiary did not contribute significantly
to consolidated operations in the nine month periods ended December
31, 1999 or 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1999 1998 1999 1998
---------------------------------------------------
<S> <C> <C> <C> <C>
Average Net Finance
Receivables (1) $56,318,153 $43,965,361 $53,101,652 $42,367,190
Average Indebtedness(2) 35,480,572 28,460,477 33,369,289 27,260,625
Total Interest Revenues 3,486,518 2,569,082 9,453,993 7,029,773
Interest Expense 725,309 560,688 2,027,462 1,799,331
---------------------------------------------------
Net Interest Income 2,761,209 2,008,394 7,426,531 5,230,442
Gross Portfolio Yield(3) 24.76% 23.37% 23.74% 22.12%
Average Cost of
Borrowed Funds(2) 8.18% 7.88% 8.10% 8.80%
---------------------------------------------------
Net Interest Spread (4) 16.59% 15.49% 15.64% 13.32%
Net Portfolio Yield (3) 19.61% 18.27% 18.65% 16.46%
Write-off to Liquidation(5) 8.37% 8.87% 7.09% 7.99%
Net Charge-Off Percentage(6) 7.19% 7.68% 6.17% 6.88%
</TABLE>
(1) Average net finance receivables represents the average of net
finance receivables throughout the period. Net finance
receivables represents gross finance receivables less any
unearned finance charges related to those receivables.
(2) Average indebtedness represents the average outstanding
borrowings under the Line of Credit and notes payable-related
party. Average cost of borrowed funds represents interest
expense as a percentage of average indebtedness.
(3) Gross portfolio yield represents total revenues as a percentage
of average net finance receivables. Net portfolio yield
represents net interest income as a percentage of average net
finance receivables.
(4) Net interest spread represents the gross portfolio yield less
the average cost of borrowed funds.
(5) Liquidation is defined as beginning receivable balance plus
current period purchases minus voids and refinances minus
ending receivable balance.
(6) Net charge-off percentage represents net charge-offs divided by
average net finance receivables outstanding during the period.
<PAGE> 11
Three months ended December 31, 1999 compared to three months ended
December 31, 1998
Interest Income and Loan Portfolio
Interest revenue increased 36% to $3.5 million for the period
ended December 31, 1999, from $2.6 million for the period ended
December 31, 1998. The net finance receivable balance totaled $47.1
million at December 31, 1999, an increase of 29% from the $36.5
million at December 31, 1998. The gross finance receivable balance
increased 30% to $75.0 million at December 31, 1999 from $57.8
million at December 31, 1998. The primary reason interest revenue
increased was the increase in the outstanding loan portfolio. The
gross portfolio yield increased from 23.37% for the period ended
December 31, 1998 to 24.76% for the period ended December 31, 1999.
The primary reason that net finance receivables increased was the
opening of two additional offices.
Computer Software Business
Sales for the period ended December 31, 1999 were $133,050
compared to $121,861 for the period ended December 31, 1998, an
increase of 9%. This increase was primarily due to a increase in new
installations during the period ended December 31, 1999.
Operating Expenses
Operating expenses, excluding provision for credit losses and
interest expense, increased to $1,495,787 for the period ended
December 31, 1999 from $1,259,955 for the period ended December 31,
1998. This increase of 19% was primarily attributable to the opening
of two additional branches, increased home office personnel and
increased general operating expenses.
Interest Expense
Interest expense increased to $725,309 for the period ended
December 31, 1999 as compared to $560,688 for the period ended
December 31, 1998. This increase was due to an increase in average
outstanding borrowings from $28.5 million to $35.5 million during the
comparable periods. The average cost of funds borrowed increased from
7.88% for the period ended December 31, 1998 to 8.18% for the period
ended December 31, 1999 .
<PAGE> 12
Nine months ended December 31, 1999 compared to nine months ended
December 31, 1998
Interest Income and Loan Portfolio
Interest revenue increased 34% to $9.5 million for the period
ended December 31, 1999, from $7.0 million for the period ended
December 31, 1998. The net finance receivable balance totaled $47.1
million at December 31, 1999, an increase of 29% from the $36.5
million at December 31, 1998. The gross finance receivable balance
increased 30% to $75.0 million at December 31, 1999 from $57.8
million at December 31, 1998. The primary reason interest revenue
increased was the increase in the outstanding loan portfolio. The
gross portfolio yield increased from 22.12% for the period ended
December 31, 1998 to 23.74% for the period ended December 31, 1999.
The primary reason that net finance receivables increased was the
opening of two additional offices.
Computer Software Business
Sales for the period ended December 31, 1999 were $398,498
compared to $339,190 for the period ended December 31, 1998, a
increase of 17%. This increase was primarily due to a increase in new
installations during the period ended December 31, 1999.
Operating Expenses
Operating expenses, excluding provision for credit losses and
interest expense, increased to $4,104,082 for the period ended
December 31, 1999 from $3,330,253 for the period ended December 31,
1998. This increase of 23% was primarily attributable to the opening
of two additional branches, increased home office personnel and
increased general operating expenses.
Interest Expense
Interest expense increased to $2,027,462 for the period ended
December 31, 1999 as compared to $1,799,331 for the period ended
December 31, 1998. This increase was due to an increase in average
outstanding borrowings from $27.3 million to $33.4 million during the
comparable periods. The average cost of funds borrowed decreased from
8.80% for the period ended December 31, 1998 to 8.10% for the period
ended December 31, 1999
<PAGE> 13
Analysis of Credit Losses
Because of the nature of the borrowers under the Contracts and
its direct consumer loan program, the Company considers the
establishment of adequate reserves for credit losses to be
imperative. The Company segregates its Contracts into pools for
purposes of establishing reserves for losses. Each such pool consists
of the loans purchased by a Company branch office during a three
month period. The average pool consists of 70 Contracts with an
aggregate initial principal amount of approximately $545,000. As of
December 31, 1999, the Company had 230 active pools.
The Company pools Contracts according to branch location because
the branches purchase contracts in different markets located in
Florida, Georgia and North Carolina . All Contracts purchased by a
branch during a fiscal quarter comprise a pool. This method of
pooling by branch and quarter allows the Company to evaluate the
different markets where the branches operate. The pools also allow
the Company to evaluate the different levels of customer income,
stability, credit history, and the types of vehicles purchased in
each market.
A pool retains an amount equal to 100% of the discount into a
reserve for credit losses. In situations where, at the date of
purchase, the discount is determined to be insufficient to absorb all
potential losses associated with the pool, a portion of future
unearned income associated with that specific pool will be added to
the reserves for credit losses until total reserves have reached the
appropriate level. Subsequent to the purchase, if the reserve for
credit losses is determined to be inadequate for a pool which is not
fully liquidated, then a charge to income is used to reestablish
adequate reserves. If a pool is fully liquidated and has any
remaining reserves, the excess reserves are recognized as income.
In analyzing a pool, the Company considers the performance of
prior pools originated by the branch office, the performance of
prior Contracts purchased from the dealers whose Contracts are
included in the current pool, the credit rating of the borrowers
under the Contracts in the pool, and current market and economic
conditions. Each pool is analyzed monthly to determine if the loss
reserves are adequate, and adjustments are made if they are
determined to be necessary. As of December 31, 1999, the Company had
established reserves for losses on Contracts of $9,976,588 or 18.28%
of net outstanding receivables.
<PAGE> 14
The following tables present certain information regarding the
delinquency rates experienced by the Company with respect to
Contracts and under its direct consumer loan program:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, 1999 December 31, 1998
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contracts
Gross Balance Outstanding $71,424,596 $55,955,413
Dollar Dollar
Delinquencies Amount Percent* Amount Percent*
-------- --------- ------- ---------
30 to 59 days $1,681,726 2.35% $1,905,083 3.40%
60 to 89 days 375,087 0.53% 557,096 1.00%
90 + days 110,302 0.15% 328,965 0.59%
---------- ------ --------- ------
Total Delinquencies $2,167,115 $2,791,144
*Total Delinquencies as
percent of outstanding balance 3.03% 4.99%
Direct Loans
Gross Balance Outstanding $ 3,524,161 $ 1,817,050
Delinquencies
30 to 59 days $ 33,402 0.95% $ 15,889 0.87%
60 to 89 days 3,830 0.11% 5,556 0.31%
90 + days 5,761 0.16% 4,419 0.24%
-------- ----- ------ -----
Total Delinquencies $ 42,993 $ 25,864
*Total Delinquencies as a
percent of outstanding balance 1.22% 1.42%
</TABLE>
The provision for credit losses was $312,571 for the three month
period ended December 31, 1999 and $787,900 for the nine month period
ended December 31, 1999 as compared to $238,965 for the three month
period ended December 31, 1998 and $599,234 for the nine month period
ended December 31, 1998. The Company increased its total reserve
percentage from 13.48% for the period ended March 31, 1999 to 13.64%
for the period ended December 31, 1999. Management believes that the
reserve adjustments made during the three and nine month periods
ended December 31, 1999 are consistent with its reserve methodology.
Income Taxes
The Company's effective tax rate remained relatively consistent at
38.44% and 38.34% for the three and nine months ended December 31,
1999, as compared to 38.95% and 38.72% for the three and nine months
ended December 31, 1998, respectively.
<PAGE> 15
Liquidity and Capital Resources
The Company's cash flows for the nine months ended December 31, 1999
and December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Nine months ended
December 31, December 31,
1999 1998
------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operating Activities- $ 2,508,867 $ 1,083,054
Investing Activities-
(primarily purchase of
Contracts) (8,028,189) (4,718,242)
Financing Activities 5,253,457 3,723,883
Net increase(decrease)in cash (265,865) 88,695
</TABLE>
The Company's primary use of working capital during the nine
months ended December 31, 1999 was the funding of the purchase of
Contracts. The Contracts were financed substantially through
borrowings on the Company's Line of credit. The line of credit is
secured primarily by Contracts, and available borrowings are based on
a percentage of qualifying Contracts. As of December 31, 1999 the
Company had approximately $9.8 million available under the line of
credit. Since inception, the Company has also funded a portion of its
working capital needs through cash flows from operating activities.
On November 1, 1999 the Company successfully renegotiated its
credit facility. The new agreement increases the total facility to
$45 million, reduces the effective interest rate charged to the
Company and extends the maturity date to November 1, 2002.
The self-liquidating nature of installment Contracts and other
loans enables the Company to assume a higher debt-to-equity ratio
than in most businesses. The amount of debt the Company incurs from
time to time under these financing mechanisms depends on the
Company's need for cash and it's ability to borrow under the terms of
its line of credit. The Company believes that borrowings available
under the line of credit as well as cash flow from operations and, if
necessary, the issuance of additional subordinated debt and, or the
sale of additional securities in the capital markets or both.
Future Expansion
The Company currently operates sixteen branch locations, twelve
in the State of Florida, three in the State of Georgia and one in the
State of North Carolina. Each office is budgeted {size of branch,
number of employees and location} to handle up to 1,000 accounts and
up to $7,500,000 in outstanding receivables. To date none of our
branches have reached this capacity.
The Company intends to continue its expansion through the
purchase of additional Contracts and the expansion of its direct
consumer loan program. As the branches continue to add customers, the
size of the loan portfolio will continue to grow. With the added
volume in each branch and as the company adds new branches, it will
be necessary for the Company to increase the size of its Line of
Credit.
The Company believes that opportunity for growth continues to
exist in the States of Florida, Georgia and North Carolina and for
the foreseeable future intends generally to concentrate its expansion
activities in these States. The Company has identified Atlanta,
Georgia and West Palm Beach, Florida as areas where it may open
additional branch offices during fiscal 2000.
<PAGE> 16
Forward-Looking Information
This 10-QSB contains various forward-looking statements and
information that are based on management's beliefs and assumptions,
as well as information currently available to management. When used
in this document, the words "anticipate", "estimate", "expect", and
similar expressions are intended to identify forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct.
Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or
expected. Among the key factors that may have a direct bearing on
the Company's operating results are fluctuations in the economy, the
degree and nature of competition, demand for consumer financing in
the markets served by the Company, the Company's products and
services, increases in the default rates experienced on Contracts,
adverse regulatory changes in the Company's existing and future
markets, the Company's ability to expand its business, including its
ability to complete acquisitions and integrate the operations of
acquired businesses, to recruit and retain qualified employees, to
expand into new markets and to maintain profit margins in the face of
increased pricing competition.
Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - See exhibit index following the
signature page.
(b) Reports on Form 8-K - None
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Securities Act of 1934,
the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form 10-QSB and
authorized this Report to be signed on its behalf by the undersigned,
in the City of Clearwater, State of Florida, on February 11, 2000.
NICHOLAS FINANCIAL, INC.
(Registrant)
Date: February 11, 2000 /s/ Peter L. Vosotas
Peter L. Vosotas
Chairman, President,
Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2000 /s/ Ralph T. Finkenbrink
Ralph T. Finkenbrink
(Principal Financial Officer and
Accounting Officer)
<PAGE> 18
EXHIBIT INDEX
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of Nicholas Financial, Inc.
and By-Laws
Incorporated by reference to the Company's Form 10-SB.
File No. 0-26680
4.1 Stock Certificate
Incorporated by reference to Exhibit 4.1 to the
Company's Form 10-SB (File No. 0-26680)
10.1.1 Loan and Security Agreement dated March 31, 1993
between BA Business Credit, Inc. and Nicholas
Financial, Inc.
Incorporated by reference to Exhibit 10.1.1
to the Company's Form 10-SB (File No. 0-26680)
10.1.2 Loan Modification Agreement dated January 14, 1994
Incorporated by reference to Exhibit 10.1.2 to
the Company's Form 10-SB (File No. 0-26680)
10.1.3 Temporary Line Increase Agreement dated Mach 28, 1994
Incorporated by reference to Exhibit 10.1.3 to the
Company's Form 10-SB (File No. 0-26680)
10.1.4 Second Loan Modification Agreement dated June 3, 1994
Incorporated by reference to Exhibit 10.1.4 to the
Company's Form 10-SB (File No. 0-26680)
10.1.5 Amendment No. 3 to Loan Agreement dated July 5, 1994
Incorporated by reference to Exhibit 10.1.5 to the
Company's Form 10-SB (File No. 0-26680)
10.1.6 Amendment No. 4 to Loan Agreement and Security Agreement
Incorporated by reference to Exhibit 10.1.6 to the
Company's Form 10-SB (File No. 0-26680)
10.1.7 Fifth Loan Modification Agreement dated July 13, 1995
Incorporated by reference to Exhibit 10.1.7 to the
Company's Form 10-KSB for the fiscal year ended
March 31, 1996
10.1.8 Sixth Loan Modification Agreement dated May 13, 1996
Incorporated by reference to Exhibit 10.1.8 to the
Company's Form 10-QSB for the three months ended
June 30, 1996
<PAGE> 19
10.1.9 Amendment No. 7 to Loan and Security Agreement dated
July 5, 1997
Incorporated by reference to Exhibit 10.1.9 to the
Company's Form 10-QSB for the three months ended
September 30, 1997
10.2.0 Amendment No. 8 to Loan and Security Agreement
dated September 18, 1998
Incorporated by reference to Exhibit 10.2.0 to the
Company's Form 10-QSB for the three months ended
September 30, 1998
10.2.1 Amendment No. 9 to Loan and Security Agreement
dated November 25, 1998
Incorporated by reference to Exhibit 10.2.1 to the
Company's Form 10-QSB for the three months ended
December 31, 1998
27 Financial Data Schedule (for SEC use only)
(b)Reports on Form 8-K None
29 Employment Contract dated November 22, 1999, between
Nicholas Financial, Inc. and Ralph Finkenbrink, Senior
Vice President of Finance.
Attached as Exhibit 29
<PAGE> 20
Exhibit 29
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 22 day of November, 1999,
by and between NICHOLAS FINANCIAL, INC., a British Columbia, Canada
corporation (the "Company"), and RALPH T. FINKENBRINK (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to assure itself of the
Executive's continued employment in an executive capacity;
WHEREAS, the Company recognizes that circumstances may
arise in which a change in control of the Company occurs, through
acquisition or otherwise, thereby causing uncertainty about the
Executive's future employment with the Company without regard to the
Executive's competence or past contributions, which uncertainty may
result in the loss of valuable services of the Executive to the
detriment of the Company and its shareholders, and the Company and
the Executive wish to provide reasonable security to the Executive
against changes in the Executive's relationship with the Company in
the event of any such change in control;
WHEREAS, the Company and the Executive are desirous that
any proposal for a change in control or acquisition of the Company
will be considered by the Executive objectively and with reference
only to the best interests of the Company and its shareholders;
WHEREAS, the Executive will be in a better position to
consider the Company's best interests if the Executive is afforded
reasonable security, as provided in this Agreement, against altered
conditions of employment which could result from any such change in
control or acquisition; and
WHEREAS, the Executive desires to be employed by the
Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements of the parties contained herein, and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto covenant and agree as
follows:
1. Employment and Duties. Subject to the terms and conditions of
this Agreement, the Company agrees to employ the Executive, and the
Executive hereby agrees to serve the Company, as SENIOR VP, CFO As
SENIOR VP/CFO, the Executive shall report directly to the Company's
[Board of Directors] [Chief Executive Officer] and shall render to
the Company such management [and policy-making] services of the type
customarily performed by persons serving in similar capacities with
other employers that are similar to the Company, together with such
other duties with which he is charged by the Company's By-laws and
subject to the overall direction and control of the Company's Board
of Directors. The Executive accepts such employment and agrees to
devote his best efforts and substantially all of his business time,
skill, labor and attention to the performance of such duties. The
Executive agrees not to engage in or be concerned with any other
commercial duties or pursuits during the Term (as hereinafter
defined) of this Agreement; provided, however, that the Executive may
be involved in a passive capacity in a non-competitive business
subject to the prior written approval of the Company's Board of
Directors. Furthermore, the Executive shall assume and competently
perform such reasonable responsibilities and duties as may be
assigned to him from time to time by the Board of Directors [Chairman
of the Board or Chief Executive Officer] of the Company. To the
extent that the Company shall have any parent, subsidiary, affiliated
corporations, partnerships, or joint venture (collectively "Related
Entities"), the Executive shall perform such duties to promote these
entities and their respective interests to the same extent as the
interests of the Company without additional compensation. At all
times, Executive agrees that he has read and will abide by, and
prospectively will read and abide by, any employee handbook, policy,
or practice that the Company or Related Entities has or hereafter
adopts with respect to its employees generally.
<PAGE> 21
2. Term. Subject to the terms and conditions of this Agreement,
including but not limited to the provisions for termination set forth
in Section 5 hereof, the employment of the Executive under this
Agreement shall commence on the date hereof and shall continue
through and including the close of business on the 1st anniversary of
the date hereof (the "Initial Term"); provided, however, that this
Agreement shall renew automatically on the anniversary of such
termination date for successive 2-year terms (the Initial Term, as
well as any such renewal (s) thereof, shall be referred to herein as
the "Term") unless the Company provides to the Executive, at least
sixty (60) days prior to the expiration of the Initial Term or any
renewal Term, written notification that it intends not to renew this
Agreement; and, provided, further, that this Agreement may be
terminated in accordance with Section 5 hereof (with the exception of
the obligations of the parties hereunder that shall survive any such
termination).
3. Compensation.
(a) Annual Base Salary and Bonus. As compensation for his
services under this Agreement, the Executive shall receive, and the
Company shall pay, an annual base salary of such amount as shall be
determined by the Company's Board of Directors not less than Seventy
Five $75,000 for the first year of the Term, and thereafter during
the Term at such annual base salary as shall be determined by the
Company's CEO. Such annual base salary shall be payable in equal
installments in accordance with the policy then prevailing for the
Company's executives. In addition to such annual base salary, the
Executive shall be entitled, during the Term, to an annual
performance bonus as determined by the Compensation Committee of the
Board of Directors (or other committee performing similar functions),
and to participate in and receive payments from all other bonus and
other incentive compensation plans as may be adopted by the Company
as are made available to other executive officers of the Company.
(b) Payments. All amounts paid pursuant to this Agreement
shall be subject to withholding or deduction by reason of the Federal
Insurance Contribution Act, Federal income tax, state and local
income tax, if any, and comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by
the Company for all reasonable and customary travel and other
business expenses incurred by him in the performance of his duties
hereunder in accordance with the Company's standard policy regarding
expense verification practices. The Executive shall be entitled to
that number of weeks paid vacation per year that is available to
other executive officers of the Company, and shall be eligible to
participate in such pension, life insurance, health insurance,
disability insurance and other employee benefits plans, if any, which
the Company may from time to time make available to its executive
officers generally.
<PAGE> 22
4. Noncompetition and Non-Disclosure Requirements.
(a) Executive acknowledges that his services are of a
special, unique, extraordinary and intellectual character, and his
position with the Company places him in a position of confidence and
trust with customers, suppliers and employees of the Company and
other Related Entities. The Executive further acknowledges that the
rendering of services under this Agreement necessarily requires the
disclosure to him of confidential information (as defined below) of
the Company and/or Related Entities. The Executive and the Company
agree that both prior to and during his course of employment with the
Company, the Executive had, has and will continue to develop personal
relationships with the Company's financiers, customers, suppliers and
employees, and that the Executive holds a position of substantial
trust and confidence. As a consequence, the Executive agrees that it
is reasonable and necessary for the protection of goodwill and
legitimate business interests of the Company and Related Entities
that the Executive make the covenants contained herein, that the
covenants are a material inducement for the Company to employ the
Executive and to enter into this Agreement, and that the covenants
are given as an integral part of and incident to this Agreement.
(b) The Executive covenants and agrees that during his
employment by the Company (whether during the Term hereof or
otherwise), and thereafter for a period of two(2) years following
the termination of the Executive's employment with the Company, he
will not:
I. directly or indirectly engage in, continue in or
carry on the business of the Company or any Related Entity, or
any business substantially similar thereto, including owning or
controlling any financial interest in, any corporation,
partnership, firm or other form of business organization which
competes with or is engaged in or carries on any aspect of such
business or any business substantially similar thereto;
II. directly or indirectly, assist, promote or
encourage any employees or clients, or potential employees or
clients, of the Company or Related Entities to terminate or
discontinue their relationship in order to pursue opportunities
or employment with any competitor of the Company or Related
Entities;
III. consult with, advise or assist in any way, whether
or not for consideration , any corporation, partnership, firm or
other business organization which is now, becomes or may become
a competitor of the Company or any Related Entity in any aspect
of their respective businesses during the Executive's employment
with the Company, including, but not limited to: advertising or
otherwise endorsing the products of any such competitor;
soliciting customers or otherwise serving as an intermediary for
any such competitor; or loaning money or rendering any other
form of financial assistance to or engaging in any form of
business transaction whether or not on an arms' length basis
with any such competitor; or
IV. engage in any practice the purpose of which is to
evade the provisions of this Agreement or to commit any act
which is detrimental to the successful continuation of, or which
adversely affects, the business or the Company; provided,
however, that the foregoing shall not preclude the Executive's
ownership of not more than 5% of the equity securities of a
corporation which has such securities registered under Section
12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
<PAGE> 23
(c) The Executive acknowledges that the inventions,
innovations, software, trade secrets, business plans, financial
strategies, finances, and all other confidential or proprietary
information with respect to the business and operations of the
Company and Related Entities are valuable, special and unique assets
of the Company. The Executive agrees not to, at any time during or
after the Term of this Agreement, disclose, directly or indirectly,
to any person or entity, or use or authorize or propose to authorize
any person or entity to use any confidential or proprietary
information with respect to the Company or Related Entities without
the prior written consent of the Company including, without
limitation, information as to the financial condition, results of
operations, identities of clients or prospective clients, products
under development, acquisition strategies or acquisitions under
consideration, pricing or cost information, marketing strategies
or any other information relating to the Company or any of the
Related Entities which could be reasonably regarded as confidential.
However, this does not include information which is or shall become
generally available to the public other than as a result of
disclosure by the Company or Related Entities or any of their agents,
affiliates or representatives or a person to whom any of them has
provided such information.
(d) The Executive agrees that the geographic scope of this
covenant not to compete shall extend to (i) the states of Florida,
Georgia and North Carolina, which constitute the geographic area in
which the Company has operated its business at some time during the
two years preceding the date of this Agreement; or (ii) such broader
geographic area where the Company conducts business at any time
during the Term of this Agreement.
(e) In the event of any breach of this covenant not to
compete, the Executive recognizes that the remedies at law will be
inadequate and that in addition to any relief at law which may be
available to the Company for such violation or breach and regardless
of any other provision contained in this Agreement, the Company shall
be entitled to equitable remedies (including an injunction) and such
other relief as a court may grant after considering the intent of
this Section 4.
(f) In the event a court of competent jurisdiction
determines that the provisions of this covenant not to compete are
excessively broad as to duration, geographic scope, prohibited
activities or otherwise, the parties agree that this covenant shall
be reduced or curtailed to the extent necessary to render it
enforceable.
5. Termination.
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. If, during the Term, the Executive becomes
physically or mentally disabled in accordance with the terms and
conditions of any disability insurance policy covering the Executive
or, if due to such physical or mental disability, the Executive
becomes unable for a period of more than twelve (12) consecutive
months to perform his duties hereunder on substantially a full-time
basis as determined by the Company in its sole reasonable discretion,
the Company may, at its option, terminate the Executive's employment
hereunder upon not less than thirty (30) days' written notice of
termination.
(c) Cause. The Company may terminate this Agreement at any
time with Cause. As used in this Agreement, "Cause" shall mean the
following: (1) a material violation of the Employer's policies or
practices which reasonably justifies termination; (2) conviction of a
felony or any crime involving moral turpitude, fraud, dishonesty or
misrepresentation, as evidenced by a binding and final judgment,
order or decree of a court of competent jurisdiction; (3) the
commission by the Executive of any act which could reasonably be
expected to materially injure the reputation, business, or business
relationships of the Company or Related Entities; or (4) any material
breach by Executive of this Agreement. The Company may terminate
this Agreement with cause as defined in clauses (1), (2), (3) and (4)
above upon ten (10) days prior written notice (the "Cause
Notification Period") to Executive, but such termination shall only
become effective in the event of Executive's failure to cure the
applicable breach or violation, to the reasonable satisfaction of
Company, prior to the end of the Cause Notification Period. The
Company may terminate this Agreement without notice at any time with
Cause as defined in clause (3) above. In the event of a termination
with Cause, the Company shall be relieved of all its obligations to
the Executive provided for by this Agreement, and all payments to the
Executives hereunder shall immediately cease and terminate.
(d) Involuntary Termination by Executive. The Executive may
terminate his employment hereunder upon (i) a Change of Control of
the Company (as defined in Appendix A), (ii) a good faith
determination by the Executive that there has been a material breach
of the Agreement by the Company, (iii) a material adverse change in
the Executive's working conditions or status or (iv) a significant
relocation of the Executive's principal office (any one of the
preceding constituting "Good Reason"), by delivering written notice
of termination to the Company indicating in reasonable detail the
facts and circumstances alleged to provide a basis for such
termination and shall cease performing the Executive's duties
hereunder on the date which is ten (10) days after delivery of the
notice, which date shall also be the date of termination of the
Executive's employment.
<PAGE> 24
(e) Voluntary Termination by Executive. The Executive
agrees to provide the Company with at least twenty (20) business days
("Termination Notice Period") prior written notice of his intent to
terminate employment voluntarily. Failure to provide such notice
terminates the Executive's entitlement to payment of accrued, unused
benefits, such as vacation. However, the Company reserves the right
to terminate the Executive before the end of the Termination Notice
Period, provided that the Company pays the Executive the salary that
he would have received from the date of the last payroll payment to
the end of the Termination Notice Period. During the Termination
Notice Period, the Executive agrees to make a good faith effort to
perform the duties described hereunder. If, during the Term, the
Executive's voluntarily terminates his employment with the Company,
the Company's obligations, including payment obligations, under this
Agreement shall cease, except that the Company shall pay the
Executive the amount of base salary that he would have received from
the date of the last payroll payment to the end of the Termination
Notice Period.
(f) Severance Payment. In the event of a termination of the
Executive's employment (i) by the Company other than for Cause or
(ii) by the Executive in a manner which satisfies Section 5(d), the
Company shall pay the Executive (subject to the provisions of Section
6 of this Agreement) a one-time, lump-sum severance payment equal TWO
to 2 times the sum of (A) the Executive's annual base salary in
effect at the time of such termination and (B) the Executive's
average annual bonus and other compensation for the TWO (2) full
calendar years immediately preceding such termination ("Severance
Payment"). The Severance Payment shall be paid to the Executive in
cash equivalent not later than ten (10) business days after the date
of termination of the Executive's employment, subject to the
provisions of Section 6 of this Agreement.
(g) Benefits. The following shall apply upon termination of
the Executive's employment:
(i) Notwithstanding anything to the contrary herein
contained, the Executive shall receive all compensation and
other benefits to which he was entitled under this Agreement or
otherwise as an employee of the Company through the termination
date, including payments of base salary accrued hereunder
through the calendar month in which such termination occurs.
[Additional Provision(s)]
6. Tax Provisions.
(a) No Excess Parachute Payment. It is the intention of the
Company and the Executive that no portion of the Severance Payment or
any other payment or benefit under this Agreement, or payments to or
for the benefit of the Executive under any other agreement or plan
(collectively, the "Severance Benefits") be deemed to be an excess
parachute payment as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor provision
thereto. Notwithstanding any other provision of this Agreement, if
any portion of the Severance Benefits would constitute a parachute
payment within the meaning of Section 280G of the Code, such
Severance Benefits shall be reduced to an amount equal to One Dollar
($1.00) less than the maximum amount which the Executive may receive
without becoming subject to the tax imposed by Section 4999 of the
Code (or any successor provision) or which the Company may pay
without loss of deduction under Section 280G(a) of the Code (or any
successor provision).
(b) Opinion. For purposes of this Section, within sixty(60)
days after delivery of a written notice of termination by the
Executive or by the Company pursuant to this Agreement or written
notice by the Company to the Executive of its belief that there is
a payment or benefit due the Executive which will result in an excess
parachute payment as defined in Section 280G of the Code or any
successor provision thereto, the Executive and the Company shall
obtain, at the Company's expense, the opinion (which need not be
unqualified) of nationally recognized tax counsel ("Tax Counsel")
selected by the Company's independent auditors and acceptable to the
Executive, which sets forth (A) the "base amount" within the meaning
of Section 280G;(B) the aggregate present value of the payments in
the nature of compensation to the Executive as prescribed
in Section 280G(b)(2)(A)(ii); and (C) the amount and present value of
any "excess parachute payment" within the meaning of Section 280G
(b)(1). If such an opinion of Tax Counsel is sought, no portion of
the Severance Payment shall be paid to the Executive by the Company
until ten (10) days after the opinion is obtained.
<PAGE> 25
In the event that such opinion determines that there
would be an excess parachute payment, the Severance Benefits shall be
reduced or eliminated as specified by the Executive in a written
notice delivered to the Company within thirty (30) days of his
receipt of such opinion or, if the Executive fails to so notify the
Company then as the Company shall reasonably determine, so that under
the bases of calculation set forth in such opinion there will be no
excess parachute payment. For purposes of such opinion, the value of
any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with
the principles of Sections 280G, which determination shall be
evidenced in a certificate of such auditors addressed to the Company
and the Executive. Such opinion shall be dated as of the date of
termination of the Executive's employment and addressed to the
Company and the Executive and shall be binding upon the Company and
the Executive.
The provisions of this Section 6(b), including the
calculations, notices and opinions provided for herein shall be based
upon the conclusive presumption that the compensation earned by the
Executive pursuant to the Company's compensation programs prior to a
change of control is reasonable, provided, however, that in the event
such Tax Counsel so requests in connection with the opinion required
by this Section 6(b), the Company shall obtain at its expense, and
Tax Counsel may rely on in providing the opinion, the advice of a
firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Executive.
(c) Ruling. The Executive shall have the right to request
that the Company obtain a ruling from the Internal Revenue Service
("IRS") as to whether any or all payments or benefits determined by
such Tax Counsel are, in the view of the IRS, "parachute payments"
under Section 280G. If a ruling is sought pursuant to the Executive's
request, no Severance Benefits payable under this Agreement in excess
of the Section 280G limitation shall be made to the Executive until
after fifteen (15) days from the date of such ruling; however,
Severance Benefits shall continue to be paid during the time up to
the amount of that limitation. For purposes of this Section 6, the
Executive and the Company shall agree to be bound by the IRS's ruling
as to whether payments constitute "parachute payments" under Section
280G. If the IRS declines, for any reason, to provide the ruling
requested, the Tax Counsel's opinion shall control and the period
during which the Severance Benefits may be deferred shall be extended
to a date fifteen (15) days from the date of the IRS's notice
indicating that no ruling would be forthcoming.
(d) Effect of Change in Law. In the event that the
provisions of Sections 280G and 4999 of the Code (or any
successor provisions) are repealed, this Section 6 shall cease to be
effective on the effective date of such repeal. The parties to this
Agreement recognize that final regulations promulgated under Section
280G of the Code may affect the amounts that may be paid under this
Agreement and agree that, upon issuance of such final regulations,
this Agreement may be modified as the parties hereto may in good
faith deem necessary in light of the provisions of such regulations
to achieve the purposes of this Agreement, and that consent to such
modification shall not be unreasonably withheld.
7. Additional Payment.
(a) If, notwithstanding the provisions of Section 6 of this
Agreement, it is ultimately determined by a court or pursuant to a
final determination by the IRS that any portion of the Severance
Benefits is subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code (or any successor provision), then the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment")
such that the net amount retained by the Executive, after deduction
of (i) any Excise Tax; (ii) any federal, state or local income tax,
interest charges or penalties arising in respect of the imposition of
such Excise Tax; and (iii) any federal, state or local income tax or
Excise Tax imposed upon the payment provided for by this Section 7,
shall be equal to the Severance Benefits. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal
rates of taxation in the state and locality of the Executive's
domicile for income tax purposes on the date the Gross-Up Payment is
made, net of the maximum reduction in federal income taxes that could
be obtained from deduction of such state and local taxes.
(b) If legislation is enacted that would require the Company's
stockholders to approve this Agreement, prior to a Change in Control,
due solely to the provision contained in subsection (a) of this
Section 7, then (i) from and after such time as stockholder approval
would be required, until stockholder approval is obtained as required
by such legislation, subsection (a) shall be of no force and effect;
(ii) if the Company seeks stockholder approval of any other agreement
providing similar benefits to any other executive of the Company, the
Company shall seek stockholder approval of this Agreement at the same
stockholders meeting or meetings at which the stockholders consider
any such other agreement; and (iii) the Company and the Executive
shall use their best efforts to consider and agree in writing upon an
amendment to this Section 7 such that, as amended, such Section would
provide the Executive with the benefits intended to be afforded to
the Executive by subsection (a) without requiring stockholder
approval.
8. Successors.
(a) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person or if the
Company merges into or consolidates or otherwise combines (where the
Company does not survive such combination) with any Person (any such
event, a "Sale of Business"), then the Company shall assign all of
its right, title and interest in this Agreement as of the date of
such event to such Person, and the Company shall cause such Person,
by written agreement in form and substance reasonably satisfactory to
the Executive, to expressly assume and agree to perform from and
after the date of such assignment all of the terms, conditions and
provisions imposed by this Agreement upon the Company. Failure of
the Company to obtain such agreement prior to the effective date of
such Sale of Business shall be a material breach of this Agreement.
In case of such assignment by the Company and of assumption and
agreement by such Person, as used in this Agreement, "Company" shall
thereafter mean such Person which executes and delivers the agreement
provided for in this Section 8 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law,
and this Agreement shall inure to the benefit of, and be enforceable
by, such Person. The Executive shall, in the Executive's discretion,
be entitled to proceed against any or all of such Persons, any Person
which theretofore was such a successor to the Company (as defined in
the first paragraph of this Agreement) and the Company (as so
defined) in any action to enforce any rights of the Executive
hereunder. Except as provided in this Subsection, this Agreement
shall not be assignable by the Company. This Agreement shall not be
terminated by the voluntary or involuntary dissolution of the
Company.
<PAGE> 26
(b) This Agreement and all rights of the Executive shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, heirs
and beneficiaries. All amounts payable to the Executive under
Sections 3, 5, and 7 of this Agreement if the Executive had lived
shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs and representatives; provided, however,
that the foregoing shall not be construed to modify any terms of any
benefit plan of the Company, as such terms are in effect on the date
of the Executive's death, that expressly govern benefits under such
plan in the event of the Executive's death.
9. Severability. The provisions of this Agreement shall be
regarded as divisible, and the parties agree that if any of said
provisions or any part hereof shall under any circumstances be deemed
or declared invalid, inoperative or unenforceable, then the validity
and enforceability of the remainder of such provisions or parts
hereof and the applicability thereof shall not be affected thereby.
10. Amendment. This Agreement may not be amended or modified at
any time except by written instrument executed by the Company and
the Executive.
11. Withholding. The Company shall be entitled to withhold from
amounts to be paid to the Executive hereunder any federal, state or
local withholding or other taxes or charges which it is from time to
time required to withhold; provided, that the amount so withheld
shall not exceed the minimum amount required to be withheld by law
(unless the Executive has otherwise indicated in writing). The
Company shall be entitled to rely on an opinion of nationally
recognized tax counsel if any question as to the amount or
requirement of any such withholding shall arise.
12. Notice. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be
deemed to have been duly given when actually received, whether hand-
delivered, sent by telecopier, facsimile transmission or other
electronic means of transmitting written documents (as long as
receipt is acknowledged) or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive, to:
Ralph T. Finkenbrink
310 Cypress Creek Circle
Oldsmar, Fl 34677
727-789-5703
If to the Company, to:
Nicholas Financial, Inc.
2454 McMullen Booth Road
Building C
Clearwater, Florida 33759
Attn: President
<PAGE> 27
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that a notice of
change of address shall be effective only upon receipt.
13. No Waiver; Entire Agreement. No waiver by any party hereto of
any breach of this Agreement by any other party hereto shall be
deemed a waiver of any similar or dissimilar term or condition at the
same or at any prior or subsequent time. This Agreement is the entire
agreement between the parties hereto with respect to the Executive's
employment by the Company and there are no agreements or
representations, oral or otherwise, expressed or implied, with
respect to or related to the employment of the Executive which are
not set forth in this Agreement.
14. No Assignment. Except as expressly set forth herein, no party
shall assign any of his or its rights under this Agreement without
the prior written consent of the other party and any attempted
assignment without such prior written consent shall be null and void
and without legal effect.
15. Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same instrument. This Agreement may be effective upon the execution
and delivery by any party hereto of facsimile copies of signature
pages hereto duly executed by such party; provided, however, that any
party delivering a facsimile signature page covenants and agrees to
deliver promptly after the date hereof two (2) original copies to the
other party hereto.
16. Governing Law.
(a) The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws
of the State of Florida, except that Section 16(b) shall be construed
in accordance with the Federal Arbitration Act if arbitration is
chosen by the Executive as the method of dispute resolution.
(b) Any dispute arising out of this Agreement shall, at the
Executive's election, be determined by either (i) arbitration under
the rules of the American Arbitration Association then in effect (but
subject to any evidentiary standards set forth in this Agreement), in
which both parties shall be bound by the arbitration award, or (ii)
by litigation. Whether the dispute is to be settled by arbitration
or litigation, the venue for the arbitration or litigation shall be
Tampa, Florida. The parties consent to personal jurisdiction in each
trial court in the selected venue having subject matter jurisdiction
notwithstanding their residence or situs, and each party irrevocably
consents to service of process in the manner provided hereunder for
the giving of notices.
17. Certain Rules of Construction. No party shall be considered as
being responsible for the drafting of this Agreement for the purpose
of applying any rule construing ambiguities against the drafter or
otherwise. No draft of this Agreement shall be taken into account in
construing this Agreement. Any provision of this Agreement which
requires an agreement in writing shall be deemed to require that the
writing in question be signed by the Executive and an authorized
representative of the Company.
18 Headings. The headings herein contained are for reference only
and shall not affect the meaning or interpretation of any provision
of this Agreement. IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
NICHOLAS FINANCIAL, INC.
By:/Peter L Vosostas/
Peter L. Vosotas, Chairman of the Board,
President and Chief Executive Officer
EXECUTIVE:
/Ralph T Finkenbrink/
Printed Name: Ralph T. Finkenbrink
<PAGE> 28
APPENDIX A
For purposes of Section 5(d) of this Agreement, a Change of
Control shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:
(a) any person or entity, or group thereof acting in concert (a
"Person") (other than (A) the Company or any of its subsidiaries, (B)
a trustee or other fiduciary holding securities under any employee
benefit plan of the Company or any of its subsidiaries, (C) an
underwriter temporarily holding securities pursuant to an offering of
such securities or (D) a corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of stock in the Company), being or
becoming the "beneficial owner" (as such term is defined in
Securities and Exchange Commission ("SEC") Rule 13d-3 under the
Exchange Act) of securities of the Company which, together with
securities previously owned, confer upon such person, entity or group
the combined voting power, on any matters brought to a vote of
shareholders, of twenty percent (20%) or more of the then outstanding
shares of voting securities of the Company;
(b) or the sale, assignment or transfer of assets of the Company
or any subsidiary or subsidiaries, in a transaction or series of
transactions, if the aggregate consideration received or to be
received by the Company or any such subsidiary in connection with
such sale, assignment or transfer is greater than fifty percent (50%)
of the book value, determined by the Company in accordance with
generally accepted accounting principles, of the Company's assets
determined on a consolidated basis immediately before such
transaction or the first of such transactions;
(c) or the merger, consolidation , share exchange or
reorganization of the Company (or one or more direct or indirect
subsidiaries of the Company) as a result of which the holders of
all of the shares of capital stock of the Company as a group would
receive less than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving or
resulting entity or any parent thereof immediately after such
merger, consolidation, share exchange or reorganization;
(d) or the adoption of a plan of complete liquidation or the
approval of the dissolution of the Company;
(e) or the commencement (within the meaning of SEC Rule
13e-4 under the Exchange Act) of a tender or exchange offer which, if
successful, would result in a Change of Control of the Company;
(f) or a determination by the Board of Directors of the Company,
in view of the then current circumstances or impending events, that a
Change of Control of the Company has occurred or is imminent, which
determination shall be made for the specific purpose of triggering
the operative provisions of this Agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the condensed
consolidated balance sheet at December 31, 1999, and the condensed
consolidated statements of income for the 3 and 9 months ended
December 31, 1999 and 1998. Both are qualified in their entirety by
reference to such.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999 MAR-31-2000 MAR-31-1999
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1999 DEC-31-1998
<CASH> 243,553 0 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 47,078,092 0 0 0
<ALLOWANCES> 10,227,138 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 600,455 0 0 0
<DEPRECIATION> 366,134 0 0 0
<TOTAL-ASSETS> 49,513,542 0 0 0
<CURRENT-LIABILITIES> 39,157,252 0 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 3,709,785 0 0 0
<OTHER-SE> 6,646,505 0 0 0
<TOTAL-LIABILITY-AND-EQUITY>49,513,542 0 0 0
<SALES> 133,050 121,861 398,498 339,190
<TOTAL-REVENUES> 3,619,568 2,690,943 9,852,491 7,368,963
<CGS> 23,230 23,622 61,056 69,302
<TOTAL-COSTS> 1,473,287 1,225,604 4,035,442 3,241,500
<OTHER-EXPENSES> 22,500 34,351 68,640 88,753
<LOSS-PROVISION> 312,571 238,965 787,900 599,234
<INTEREST-EXPENSE> 725,309 560,688 2,027,462 1,799,331
<INCOME-PRETAX> 1,085,901 631,335 2,933,047 1,640,145
<INCOME-TAX> 417,474 245,894 1,124,656 635,116
<INCOME-CONTINUING> 668,427 385,441 1,808,391 1,005,029
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 668,427 385,441 1,808,391 1,005,029
<EPS-BASIC> .28 .16 .77 .43
<EPS-DILUTED> .26 .16 .71 .41
<FN>
<F1> Receivables are presented net of unearned finance charges, non-refundable
dealer reserve and allowance for doubtful accounts.
<F2> Allowances are presented and total reserves for credit losses, comprised
of non-refundable dealer reserve and allowances for doubtful accounts.
</TABLE>
