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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
JANUARY 27, 1998
(Date of Report - Date of earliest event reported)
NATIONAL AUTO CREDIT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11513 34-1816760
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File No.) Identification No.)
30000 Aurora Road, Solon, Ohio 44139
(Address of principal executive offices and zip code)
(440) 349-1000
(Registrant's telephone number, including area code)
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Item 5. Other Events
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On January 27, 1998, the Company issued the following press release:
National Auto Credit, Inc. (NYSE:NAK) announced that it had reached an agreement
with its banks to defer until February 5, 1998 a $7.5 million principal payment
due under its credit agreement on January 21, 1998. In connection with that
agreement the Company agreed not to borrow additional funds under the revolving
line of credit portion of the credit agreement until February 5, 1998 and such
time as it engages a new independent auditor. The Company is in the process of
soliciting proposals from several auditing firms but is not yet able to estimate
when new independent auditors might be engaged. The Company's former auditors,
Deloitte & Touche, LLP, resigned last week based on its assertion that it could
no longer rely on management's representations. In addition, a separate loan to
the Company in the amount of $2.3 million was reduced to $800,000 when a
creditor applied funds on deposit, with the balance due on February 5, 1998. The
Company will operate on internally generated funds until the Company's use of
its line of credit is restored or alternative sources of capital are secured.
The Company also announced the engagement of Winthrop, Stimson, Putnam &
Roberts, a law firm, and Zolfo Cooper, LLC, a financial advisory consulting
firm. Winthrop, Stimson, Putnam & Roberts and Zolfo Cooper, LLC were engaged by
the Special Committee of the Board of Directors of the Company to investigate
information provided to the Company by Deloitte & Touche, LLP, its former
auditors, concerning potentially improper activities that might affect the
Company's financial accounting records. The information, which allegedly came
from current and former employees of the Company, was not investigated by the
Company's former auditors. During the pendency of the investigation, the
executive responsibilities of the Company's chairman and president and chief
executive officer have been delegated to the Special Committee. Zolfo Cooper,
LLC has also been advising and assisting the Special Committee in assessing the
Company's current financial condition and negotiating with the Company's
lenders. The investigation, which began last week, is focusing on the Company's
fiscal year ending January 31, 1998, and particularly the Company's reserve for
loan losses and the reserve for insurance claims against discontinued operations
of the Company.
Although year-end results are not available, the Company currently expects to
substantially increase the size of its loan loss reserve for fiscal 1998. The
amount of any increase cannot be determined at this time, but the Company
believes that an increase in the reserve could place the Company in default of
its loan covenants when it reports fiscal year-end results. The Company has not
yet had discussions with its lenders about this potential default and cannot
predict the outcome of those discussions. The Company was in default of certain
financial covenants at the end of its third fiscal quarter. Waivers for those
defaults for the third quarter were received from lenders.
The statements contained in this release that are not purely historical are
forward looking statements within the meaning of the Securities and Exchange Act
of 1934. Among the factors that could cause actual results to differ materially
from the forward looking statements are the potential for greater than
anticipated non-performing contracts, the potential for lower than anticipated
recoverability of amounts advanced to the Company's member dealers, availability
of funds under the Company's financing arrangements, and other factors as
discussed in the Company's reports filed with the Securities and Exchange
Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL AUTO CREDIT, INC.
(Registrant)
Date: January 28, 1998 BY: /s/ Raymond A. Varcho
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Vice President, General Counsel
and Secretary
