<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1996
REGISTRATION NO. 333-13667
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NATIONAL AUTO FINANCE COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6141 65-0688619
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
621 N.W. 53RD STREET, SUITE 200
BOCA RATON, FLORIDA 33487
(561) 997-2747
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEITH B. STEIN
VICE CHAIRMAN
NATIONAL AUTO FINANCE COMPANY, INC.
621 N.W. 53RD STREET, SUITE 200
BOCA RATON, FLORIDA 33487
(561) 997-2747
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
HOWARD CHATZINOFF, ESQ. JORGE L. FREELAND, ESQ.
WEIL, GOTSHAL & MANGES LLP GREENBERG, TRAURIG, HOFFMAN, LIPOFF,
767 FIFTH AVENUE ROSEN & QUENTEL, P.A.
NEW YORK, NEW YORK 10153 1221 BRICKELL AVENUE
(212) 310-8000 MIAMI, FLORIDA 33131
(305) 579-0500
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION DATED NOVEMBER 25, 1996
2,000,000 SHARES
NATIONAL AUTO FINANCE COMPANY, INC.
COMMON STOCK
------------------------
The shares of Common Stock offered hereby are being issued and sold by
National Auto Finance Company, Inc. (the 'Company'). Application will be made
for listing of the Common Stock on the NASDAQ National Market under the trading
symbol 'NAFI.' Prior to this offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $ and $ . See 'Underwriting' for a discussion
of factors to be considered in determining the initial public offering price.
------------------------
SEE 'RISK FACTORS' ON PAGES 8 THROUGH 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------ ------------------ ---------------
<S> <C> <C> <C>
Per Share.... $ $ $
Total(3)..... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriting.'
(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.
(3) The Company has granted to the Underwriter a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
as the securities offered hereby solely to cover over-allotments, if any. If
the option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ , respectively. See 'Underwriting.'
------------------------
The shares of Common Stock are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to other
conditions including the right of the Underwriter to withdraw, cancel, modify or
reject any order in whole or in part. It is expected that delivery of the shares
will be made on or about , 1996 at the offices of Raymond
James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1996.
<PAGE>
[MAP OF U.S. MARKETS SERVED BY THE COMPANY]
CURRENT MARKETS: Arkansas, California, Connecticut, Florida, Georgia, Indiana,
Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi,
New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina,
Tennessee, Texas, Vermont, Virginia, Wisconsin.
NEW MARKETS 1996: Delaware, Illinois, New Hampshire.
CORPORATE HEADQUARTERS: Boca Raton, Florida.
------------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise specified, all information in
this Prospectus assumes (i) the consummation of the Reorganization (as described
in 'The Reorganization') and (ii) no exercise of the Underwriter's
over-allotment option.
THE COMPANY
National Auto Finance Company, Inc. ('NAFCO' or the 'Company') is a
specialized consumer finance company engaged in the purchase, securitization and
servicing of motor vehicle retail installment sale contracts ('Loans')
originated by automobile dealers ('Dealers') for Non-Prime Consumers (i.e.,
borrowers with limited financial resources or past credit problems). The Company
purchases Loans principally from manufacturer-franchised Dealers in connection
with their sale of new and used automobiles. The Company's strategy is to
develop a network of Dealers throughout the United States that will refer
Non-Prime Consumer Loan applications to the Company. To implement this strategy,
the Company offers to Dealers products and services designed to enhance their
ability to sell vehicles to Non-Prime Consumers. The Company markets these
products and services to Dealers through the efforts of its direct sales force
and through a strategic referral and marketing alliance with a financial
institution which has established relationships with Dealers.
Automobile financing is the second largest sector, by dollar amount, of
consumer installment debt in the United States. According to the United States
Federal Reserve Board, approximately $350 billion of automobile installment
credit was outstanding at the end of 1995. The Company estimates that the
outstanding automobile installment credit attributable to Non-Prime Consumers is
in excess of $60 billion. The Company believes that the portion of the
automobile finance market attributable to Non-Prime Consumers has grown
significantly in recent years and is poised for further growth. Factors
contributing to such growth include the rise of personal bankruptcy filings over
the past ten years, the rise of total consumer debt service payments as a
percentage of disposable income over the past three years, the increase in the
supply of used cars relative to new cars and the increased awareness among
Dealers of Non-Prime Consumer financing opportunities. Historically, the market
for Non-Prime Consumer credit has been highly fragmented, with no one company
controlling more than 3% of the market. The Company believes that it is
well-positioned to gain an increasing share of this market through its emphasis
on Dealer support and service.
Since the commencement of the Company's operations in October 1994, the
Company has established contractual relationships with over 1,000 Dealers. The
Company attributes its success in rapidly establishing its Dealer base to the
following:
o Dealer Products and Services--The Company seeks to differentiate itself
from its competitors by introducing products and services designed to
enhance the ability of Dealers to sell vehicles to Non-Prime Consumers.
In developing such products and services, the Company relies on its
senior management's extensive experience in automobile finance as well as
on ideas the Company solicits and receives from Dealers. The Company is
constantly seeking to improve its existing products and services and
develop new ones in order to respond to changing market conditions and
serve specific niches in the Non-Prime Consumer market.
o Dealer Assistance--The Company believes that a Dealer's ability to sell
automobiles is enhanced if a Dealer understands the product and service
offerings, underwriting criteria and financing capabilities of its
financing sources. Accordingly, the Company employs regional salespersons
located in strategic geographic areas ('Dealer Relations Managers') who
spend considerable time on-site with Dealers in order to augment Dealers'
understanding of the Non-Prime Consumer market and the Company's products
and services.
o Experienced Senior Management--Each of the Company's four senior
operating executives has over 14 years of direct experience in automobile
finance. The Company believes that this experienced management team
provides it with the ability to maintain acceptable credit quality,
supervise its operations, further expand its business in existing markets
and penetrate new markets.
3
<PAGE>
o Timely Communication of Credit Decisions--In the Company's experience, a
rapid response to Dealers' requests for financing is critical to
developing strong relationships with Dealers and having frequent
opportunities to purchase Loans from Dealers. The Company believes that
it provides this timely response to Dealers for their Non-Prime
Consumers. The Company typically communicates its credit decisions to
Dealers within 75 minutes of receipt of a Loan application and provides
next-day funding after the submission of completed Loan documentation.
o Centralized Underwriting--The Company maintains centralized control over
the underwriting and Loan approval functions. The Company believes that
this centralized control ensures consistent and efficient underwriting
and Loan approval functions. The Company's centralized underwriting
policy has enabled the Company to purchase a portfolio of Loans which
management believes will allow the Company to maintain acceptable credit
quality as its Loan portfolio grows.
o Underwriting Consistency--The Company employs a proprietary credit
scoring system and well-defined underwriting criteria to ensure
consistency in the underlying credit risks associated with the Loans it
purchases. The Company believes that this consistency enhances the
efficiency of the financing process from a Dealer's perspective by
enabling a Dealer to gauge accurately which of its Non-Prime Consumer
Loan applications will be approved by the Company.
o Financing Strategy--The Company currently finances its purchases of Loans
primarily through an asset securitization program that involves (i) the
securitized warehousing of all of its Loans through their daily sale
('Revolving Securitization') to a bankruptcy remote master trust (the
'Master Trust'), followed by (ii) the refinancing of such warehoused
Loans, from time to time, through their transfer by the Master Trust to a
discrete trust ('Permanent Securitization'), thereby creating additional
availability of capital from the Master Trust. Specifically, pursuant to
the Revolving Securitization, the Company sells Loans that it has
purchased from Dealers on a daily basis to a special purpose subsidiary,
which then sells the Loans to the Master Trust in exchange for certain
residual interests in future excess cash flows from the Master Trust. The
capacity of the Revolving Securitization is dependent, in part, upon the
subsequent refinancings of Loans pursuant to Permanent Securitizations.
In November 1995, the Master Trust refinanced $42 million of its
receivables in a private placement of asset-backed securities through a
Permanent Securitization rated AAA and Aaa by Standard & Poor's Rating
Services ('S&P') and Moody's Investor Service, Inc. ('Moody's'),
respectively. In November 1996, the Master Trust refinanced $68 million
of its receivables in a public offering of asset-backed securities
through a Permanent Securitization also rated AAA and Aaa by S&P and
Moody's, respectively.
The Company expects to increase the number of Loans that it purchases,
securitizes and services by (i) utilizing its Dealer Relations Managers to
market the Company's products and services directly to Dealers (including
Dealers with which the Company currently does not have a contractual
relationship) and (ii) forming strategic referral and marketing alliances with
financial institutions which have established relationships with Dealers.
Although the Company is currently doing business with Dealers in 26 states,
approximately 75% of the principal balance of the Company's Loan portfolio was
purchased through Dealers located in Georgia, North Carolina, South Carolina and
Virginia. The Company intends to increase its volume of business in the states
in which it currently operates and to expand into additional states.
In April 1996, the Company entered into its first strategic referral and
marketing alliance (the 'First Union Strategic Alliance'), with First Union
National Bank of North Carolina and certain of its national bank affiliates
(collectively, 'First Union'). The First Union Strategic Alliance provides for
(i) joint marketing of the Company's products and services by the Company's
sales force and the sales personnel in First Union's indirect sales finance
division ('FUSF') to the approximately 1,800 Dealers throughout seven
southeastern states and the District of Columbia (the 'Southeastern Franchise')
with which FUSF has an existing relationship, and (ii) exclusive referral by
FUSF to the Company of all applications for Non-Prime Consumer Loans falling
below certain established credit guidelines. The First Union Strategic Alliance
significantly enhances the Company's ability to further its market penetration
and increase the size of its Dealer base through the marketing assistance,
support and exclusive referrals provided by FUSF. Though still in the
introductory phase, through September 30, 1996, the Company has established
relationships with over 400 additional Dealers through the First Union
4
<PAGE>
Strategic Alliance and financed approximately 1,571 Loans having an aggregate
principal balance of $18.9 million.
IronBrand Capital, LLC, a subsidiary of First Union National Bank of North
Carolina (the 'First Union Partner'), is a limited partner of National Auto
Finance Company L.P., a Delaware limited partnership organized in October 1994
(the 'NAFCO Partnership'). Upon consummation of this offering (this 'Offering'),
the NAFCO Partnership will own approximately 63.1% of the Common Stock of the
Company. As a limited partner of the NAFCO Partnership, the First Union Partner
has an economic interest with respect to approximately 15% of the Common Stock
of the Company held by the NAFCO Partnership (or 9.5% of the outstanding shares
of Common Stock upon consummation of the Offering). Based upon several factors,
including the overall performance of the First Union Strategic Alliance and the
total market value of the Company over a specified time period, the First Union
Partner may obtain an economic interest with respect to an approximate
additional 34% of the Common Stock held by the NAFCO Partnership. Any such
increase would be non-dilutive to the public stockholders of the Company. The
national banks comprising the First Union Strategic Alliance are subsidiaries of
First Union Corporation, a bank holding company headquartered in Charlotte,
North Carolina. As of June 30, 1996, First Union Corporation was the nation's
sixth largest bank holding company in terms of total assets.
For the fiscal year ended December 31, 1995, which was the Company's first
full year of operations, the Company generated revenues of $7.8 million and
pre-tax income of $3.28 million on annual Loan volume of $43.5 million. Through
the end of fiscal 1995, the Company had purchased 3,886 Loans with aggregate
gross receivables of $73.6 million and net receivables of $49.8 million, as
adjusted for unearned finance charges and before taking into account Dealer
discounts and allowance for possible Loan losses.
For the nine months ended September 30, 1996, the Company generated
revenues of approximately $9.9 million and pre-tax income of approximately $3.1
million on Loan volume of approximately $56.1 million. Through September 30,
1996, the Company had purchased 8,423 Loans with aggregate gross receivables of
approximately $157 million and net receivables of approximately $105.9 million,
as adjusted for unearned finance charges and before taking into account Dealer
discounts and allowance for possible Loan losses.
National Auto Finance Company, Inc. was incorporated in Delaware in October
1996. The NAFCO Partnership and Auto Credit Clearinghouse L.P., a Delaware
limited partnership organized in September 1995 (the 'ACCH Partnership' and
together with the NAFCO Partnership, the 'Partnerships'), are affiliated
entities that are the predecessors to the business of the Company. Unless the
context otherwise requires, references in this Prospectus to 'NAFCO' and the
'Company' refer to National Auto Finance Company, Inc., and the business
previously conducted by the Partnerships. See 'The Reorganization.' The
Company's executive offices are located at 621 N.W. 53rd Street, Suite 200, Boca
Raton, Florida 33487 and its telephone number is (561) 997-2747.
THE OFFERING
Common Stock offered hereby............... 2,000,000 shares
Common Stock to be outstanding after this
offering................................ 6,700,000 shares
Use of Proceeds........................... To support securitizations and other
long-term financing arrangements; to
repay a portion of the subordinated
indebtedness held by certain
affiliates of the Company; and for
working capital and other general
corporate purposes. See 'Use of
Proceeds.'
Proposed NASDAQ National Market symbol.... NAFI
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------- SEPTEMBER 30,
(THREE MONTHS) ----------------------------
1994 1995 1995 1996
-------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gain on sales of Loans................................... $ 0 6,487 4,920 8,189
Gain on securitization of Loans purchased prior to
January 16, 1995(1).................................... 0 639 639 0
Deferred gain on sales of Loans.......................... 0 241 140 491
Deferred servicing income................................ 0 219 109 587
Deferred income from 1995-1
securitization......................................... 0 0 0 479
Interest income from cash investments.................... 32 11 8 56
Other income............................................. 0 32 31 54
Finance charges earned................................... 95 0 0 0
Provision for credit losses(2)........................... (182) 182 0 0
------- ------- ----------- -----------
Total revenue............................................ (55) 7,811 5,847 9,856
Operating expenses....................................... (420) (4,530) (3,098) (6,754)
------- ------- ----------- -----------
Total expenses........................................... (420) (4,530) (3,098) (6,754)
------- ------- ----------- -----------
Net income (loss) before pro forma income tax expense.... (475) 3,281 2,749 3,102
Pro forma income taxes(3)................................ 0 (1,066) (865) (1,167)
------- ------- ----------- -----------
Pro forma net income (loss).............................. $ (475) 2,215 1,884 1,935
------- ------- ----------- -----------
------- ------- ----------- -----------
Pro forma earnings per share:(4).........................
Net income (loss)........................................
Pro forma weighted average shares outstanding............
</TABLE>
- ------------------
(1) Represents $639,000 gain on sale for Loans purchased between October 12,
1994 and January 16, 1995 and sold to the Master Trust on January 16, 1995
in connection with the Revolving Securitization.
(2) Approximately 5% or $182,000 of the $3.6 million of Loans funded during the
three months ended December 31, 1994 was set aside as a provision for
possible Loan losses. This reserve was reversed when these Loans were sold
to the Master Trust on January 16, 1995 in connection with the Revolving
Securitization. Subsequently, all reserves for Loan losses have been
accounted for by the Master Trust.
(3) The pro forma income taxes reflect the application of a combined federal and
state income tax rate of approximately 40% as if the Company had been taxed
as a C corporation for all periods presented.
(4) Pro forma per share data assumes the issuance of 2,000,000 shares at
$ per share.
6
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(5)(6) ADJUSTED(5)(7)
------- --------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................................ $28,446 28,446 39,723
Senior Subordinated Notes............................................... 12,000 12,000 12,000
Junior Subordinated Notes............................................... 7,218 7,218 2,934
Total liabilities....................................................... 20,292 22,525 18,191
Partners' preferred equity.............................................. 2,251 0 0
Partners' equity........................................................ 5,903 0 0
Stockholders' equity.................................................... 0 5,921 21,532
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------ SEPTEMBER 30,
(THREE MONTHS) ------------------
1994 1995 1995 1996
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
LOAN PORTFOLIO INFORMATION:
Number of Loans purchased during period (not in thousands).... 300 3,586 2,718 4,537
Principal balance of Loans purchased.......................... $3,820 45,972 34,594 56,152
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------
1994 1995 1995 1996
-------------- ------- ------- --------
<S> <C> <C> <C> <C>
Aggregate number of Loans purchased (not in thousands)........ 300 3,886 3,018 8,423
Aggregate principal balance of Loans purchased................ $3,820 49,792 38,414 105,944
Number of outstanding Loans (not in thousands)(8)............. 300 3,586 2,884 7,286
Principal balance of Loans outstanding(8)..................... $3,800 43,145 35,064 82,792
Net charge-offs as a percentage of aggregate principal balance
of Loans purchased(8)....................................... 0.00% 1.31% 0.55% 2.43%
</TABLE>
- ------------------
(5) Pro forma amounts are unaudited.
(6) Reflects the Reorganization as if it had occurred on September 30, 1996. See
'The Reorganization' and 'Unaudited Pro Forma Financial Statements.'
(7) Reflects the Reorganization and the issuance of shares in the Offering,
all as if they had occurred on September 30, 1996. See 'Certain
Transactions--Senior Subordinated Indebtedness' and 'Unaudited Pro Forma
Financial Statements.'
(8) Represents amounts related to loans sold by the Company to the Master Trust.
7
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
together with the other information contained in this Prospectus, before
purchasing the shares offered hereby.
CREDITWORTHINESS OF NON-PRIME CONSUMERS; ECONOMIC FACTORS AFFECTING
DELINQUENCIES AND DEFAULTS.
The Non-Prime Consumer automobile finance market is comprised of customers
who are deemed to be relatively high credit risks due to various factors,
including, among other things, the manner in which they have handled previous
credit, the absence or limited extent of their prior credit history and/or their
limited financial resources. Consequently, the Loans acquired by the Company
have a higher probability of delinquency and default and greater servicing costs
than Loans made to consumers who pose lesser credit risks. The Company's
profitability depends in part upon its ability to properly evaluate the
creditworthiness of Non-Prime Consumers and efficiently service its Loans. There
can be no assurance that satisfactory credit performance of a Non-Prime Consumer
will be maintained or that the rate of future defaults and/or losses will be
consistent with prior experience or at levels that will allow the Company to
maintain its profitability. Most borrowers' ability to remit payments in
accordance with the terms of the Loans is dependent on their continued
employment. An economic downturn resulting in increased unemployment could cause
a significant rise in delinquencies and defaults, which could materially
adversely affect the Company's financial condition and results of operations.
Moreover, increases in the delinquency and/or loss rates in the Company's Loan
portfolio could adversely affect the Company's ability to obtain or maintain its
financing sources. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Loan Loss and Delinquency Experience' and
'Business-- Credit Underwriting and Administration.'
LIMITED OPERATING HISTORY
The Company commenced operations in October 1994. Because of the Company's
limited operating history, most of the Loans in its portfolio are unseasoned.
The Company considers a Loan to be 'seasoned' when it has been aged for an
average of 18 to 24 months. The Company believes that delinquency and loss rates
in its Loan portfolio may not fully reflect the rates that would apply when such
average holding period for Loans has been achieved or when there are larger
numbers of seasoned Loans in the portfolio. Additionally, there can be no
assurance that the Company will be able to continue to successfully implement
its business strategy, or that revenues or profitability will continue to
increase in the future. The Company's prospects must be considered in light of
the risks, expenses, difficulties and delays frequently encountered in the
establishment of a new business in an industry characterized by intense
competition and an increasing number of market participants. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Historical Development and Growth' and 'Business--Competition.'
ABILITY OF THE COMPANY TO MAINTAIN ITS GROWTH STRATEGY
The successful implementation of the Company's growth strategy is dependent
upon its ability to increase the number of Loans it purchases that meet its
underwriting criteria while maintaining favorable interest rate spreads. The
Company's ability to increase Loan purchases will depend largely on the ability
of the Company to: (i) maintain existing relationships with Dealers and to
establish new relationships with additional Dealers, both in existing markets
and in markets where the Company intends to expand; (ii) successfully implement
the First Union Strategic Alliance and form similar strategic referral and
marketing alliances with other financial institutions; (iii) retain qualified
employees and attract additional qualified employees to manage the Company's
expected growth; (iv) obtain adequate financing on favorable terms to fund its
growth strategy, including the securitization of its Loans; and (v) maintain
appropriate procedures, policies and systems to ensure that the Company
purchases Loans within acceptable levels of credit risk and loss. The Company's
growth strategy will also be subject to factors beyond the Company's control,
including economic downturns, changes in the automobile market and the level of
competition in the automobile finance market. The Company's inability to
successfully implement its growth strategy and increase Loan purchases could
have a material adverse effect on the Company's financial condition and results
of operations. See 'Business--Marketing Strategy' and 'Business--Credit
Underwriting and Administration.'
8
<PAGE>
NEED FOR ADDITIONAL CAPITAL
The Company's ability to continue to increase the number of Loans it
purchases is dependent, in part, upon its ability to continue to effect
securitization transactions or to establish alternative long-term financing
arrangements and to obtain sufficient financing upon acceptable terms under
interim credit facilities. These transactions and facilities will, in turn,
require the Company to obtain additional subordinated debt and/or equity
financing. If the Company is unable to obtain such financing, its ability to
purchase Loans will be inhibited. The Company believes that the net proceeds of
this Offering, together with the net proceeds of recent subordinated debt
borrowings from certain affiliates of the Company and third-party institutional
investors, will be sufficient to meet the Company's cash requirements and fund
operations for approximately twelve months following this Offering, assuming the
Company completes regular securitizations during such twelve month period.
Thereafter, the Company could be required to issue additional subordinated debt
or equity, which could dilute the interests of stockholders of the Company. No
assurance can be given, however, that the Company will have access to the
capital markets in the future for debt or equity issuances or for
securitizations, or that financing through borrowings or other means will be
available on terms acceptable to the Company, to satisfy the Company's cash
requirements needed to implement its business strategy. The Company's inability
to access the capital markets or obtain financing on acceptable terms could have
a material adverse effect on the Company's financial condition and results of
operations. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
DEPENDENCE ON SECURITIZATION TRANSACTIONS
The Company currently finances its purchases of Loans primarily through an
asset securitization program that involves (i) the securitized warehousing of
all of its Loans through their daily sale to the Master Trust pursuant to the
Revolving Securitization, followed by (ii) the refinancing of such warehoused
Loans, from time to time, through Permanent Securitizations, thereby creating
additional availability of capital from the Master Trust. The timing of any
future Permanent Securitization could be affected by several factors, some of
which are beyond the Company's control. Such factors include, among others,
conditions in the securities market generally, conditions in the asset-backed
securitization market specifically and approval by certain third parties of the
terms of the transactions. During the nine months ended September 30, 1996, the
Company sold $56.1 million of the Company's Loans to the Master Trust pursuant
to the Revolving Securitization facility, and gains from the sale of such Loans
represented approximately 83% of the Company's revenues. The capacity of the
Revolving Securitization is dependent, in part, upon the subsequent refinancing
of Loans pursuant to Permanent Securitizations. In the Company's first Permanent
Securitization, completed in November 1995, the asset-backed securities issued
were credit enhanced by a financial guaranty insurance policy issued by
Financial Security Assurance Inc. ('FSA'), which was a significant factor in
enabling S&P and Moody's to rate the senior securities issued in such
transaction AAA and Aaa, respectively. Failure to obtain such credit enhancement
in connection with future Permanent Securitizations would most likely result in
increased costs to the Company and could affect the timing of, or the ability to
consummate, future Permanent Securitizations. If the Company were unable to
securitize Loans under the Revolving Securitization, refinance such Loans
pursuant to subsequent Permanent Securitizations, or otherwise obtain
alternative sources of capital in the future, the Company's revenues and income
could be significantly impaired and it could experience a significant change in
the timing of reported income. Further, there can be no assurance that the
Company will realize gains on future securitizations consistent with its gains
on previous securitizations.
A significant deterioration in the performance of Loans held in the Master
Trust or those held in a discrete trust pursuant to a Permanent Securitization
could result in the retention by such trusts of funds otherwise distributable to
the Company in respect of residual interests held by the Company and, under
certain circumstances, termination of the Master Trust's ability to purchase
additional Loans from the Company. A significant decline in the performance of
the Company's Loan portfolio could, therefore, have a material adverse effect on
both the Company's cash flows and reported net income, and could require the
Company to obtain alternative financing sources. There can be no assurance that
any alternative financing source would be available, or if, available, that such
financing could be effected at a cost that would enable the Company to operate
profitably.
The Company's gains on sale from securitizations have been calculated using
estimates concerning borrowing costs and future loss, prepayment and present
value discount rates on securitized Loans that are
9
<PAGE>
consistent with the Company's and its industry's experience and that the Company
believes would be applied by unrelated purchasers of similar streams of
estimated cash flows. The actual rates of default and/or prepayment on such
Loans or cost of financing such Loans may exceed those estimated, necessitating
write downs in the Company's excess spread receivable and decreases in cash flow
which could materially, adversely affect the Company's financial condition and
results of operations. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources.'
The Company has accounted for the Loans securitized to date as asset sales
in accordance with FAS No. 77 and relevant pronouncements of the Emerging Issues
Task Force of the Financial Accounting Standards Board (the 'FASB'). In June
1996, the FASB issued Statement of Financial Accounting Standards No. 125 ('FAS
125'), 'Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities.' FAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on a financial-components approach that focuses on control.
FAS 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996 and is to be
prospectively applied. The Company's assessment of the adoption of FAS No. 125
indicates that the accounting for the Revolving Securitization will not change
materially from the present accounting. The Company believes that its
securitization process meets the requirements for surrender of control over the
securitized assets. Additionally, the Company believes that the gain presently
deferred at the time of Permanent Securitization can be recognized under FAS
125.
DEPENDENCE ON REVOLVING SECURITIZATION
The Revolving Securitization facility is a renewable multi-year commitment
with First Union National Bank of North Carolina which expires in June 1999.
However, the Company currently has no other credit facility pursuant to which it
could sell Loans to the Master Trust or otherwise finance the purchase of Loans.
Accordingly, if the Company is unable to finance the purchase of Loans pursuant
to the Revolving Securitization, because of a default by the Company under such
facility or otherwise, or otherwise obtain alternative sources of capital, the
Company's revenues and income could be significantly impaired and it could
experience a significant change in the timing of reported income.
GAINS ON SALE OF LOANS
A substantial portion of the Company's income is derived from the sale of
Loans to the Master Trust pursuant to the Revolving Securitization. The Company
recognized a gain on the sale of Loans of $7,125,849 for the year ended December
31, 1995 (approximately 91% of the Company's total revenue for the year ended
December 31, 1995) and $8,188,473 for the nine months ended September 30, 1996
(approximately 83% of the Company's total revenue for the nine months ended
September 30, 1996). The capacity of the Revolving Securitization is dependent,
in part, upon the subsequent refinancing of Loans pursuant to Permanent
Securitizations. In the Company's two Permanent Securitizations completed to
date, in November 1995 and November 1996, the asset-backed securities issued
were credit enhanced by FSA. Failure to obtain such credit enhancement in
connection with future Permanent Securitizations could affect the Company's
ability to consummate future Permanent Securitizations. If the Company were
unable to purchase new Loans and subsequently sell such Loans to the Master
Trust pursuant to the Revolving Securitization, the Company's revenues and
income could be significantly impaired and the Company could experience a
significant change in the timing of reported income. Further, there can be no
assurance that the Company will recognize gains on future sales of Loans
pursuant to the Revolving Securitization consistent with the Company's gains on
previous sales.
DEPENDENCE UPON FIRST UNION STRATEGIC ALLIANCE
The Company is dependent upon the First Union Strategic Alliance to
penetrate certain markets and significantly increase the number of Loans the
Company purchases. The Company intends to enter into similar strategic referral
and marketing alliances with other financial institutions. However, the First
Union Strategic Alliance is the first such strategic referral and marketing
alliance which the Company has formed, and there can be no assurance that the
Company can profitably purchase a significant number of Loans through the First
Union Strategic Alliance. In addition, the Company's current focus on
implementation of the First Union Strategic Alliance (including the potential
expansion of the scope of such alliance to cover five Northeastern states) and
the
10
<PAGE>
significant involvement of First Union in the Company's business may delay or
impair the Company's ability to consummate additional strategic referral and
marketing alliances. There can be no assurance that the Company will be able to
enter into additional strategic referral and marketing alliances, or that any
such alliance will be profitable to the Company. If the First Union Strategic
Alliance is unsuccessful or if the Company is unable to form additional
strategic referral and marketing alliances, the Company's financial condition
and results of operations may be materially, adversely affected. See 'Business--
Marketing Strategy.'
DEPENDENCE ON KEY PERSONNEL
The Company believes that the development and growth of the Company to date
has been due primarily to the efforts of the Company's senior management.
Although the Company has entered into employment agreements with certain key
personnel, the loss of services of one or more of the Company's senior
management in the future could have a material adverse effect on the Company's
ability to maintain credit quality, supervise its operations, further expand
into existing markets, penetrate new markets, develop its internal servicing
capacity and successfully manage the Company in other areas. See 'Management.'
COMPETITION AND MARKET CONDITIONS
The Non-Prime Consumer automobile finance market is highly competitive. The
level of competition has increased significantly in recent years and this trend
is expected to continue. Historically, commercial banks, savings and loan
associations, credit unions, captive finance subsidiaries of automobile
manufacturers and other consumer lenders, many of which have significantly
greater resources than the Company, have not competed for Non-Prime Consumer
business. To the extent that such lenders expand their activities in the
Non-Prime Consumer market, the Company's financial condition and results of
operations could be materially adversely affected. See 'Business--Competition.'
During the past two years, several companies have devoted considerable resources
to the Non-Prime Consumer market, including well-capitalized public companies.
Specifically, Ford Motor Credit Company has announced that it intends to finance
Non-Prime Consumers, General Electric Capital Corporation established strategic
alliances with several regional Non-Prime Consumer automobile finance companies
and KeyCorp acquired AutoFinance Group, Inc., one of the Company's competitors.
Other companies, including Mellon Bank Corporation and Southern National
Corporation, have also entered the market.
The Company's business is also affected by certain demographic, economic
and industry trends. These trends include increased sales of used cars, rising
new car prices relative to used car prices, stability in Non-Prime Consumers'
demand for used cars, the inability of Non-Prime Consumers to find lower cost
financing from other sources and the overall level of interest rates in general.
A reversal of any of these trends or a change in any of these conditions could
have a material adverse effect on the Company's financial condition and results
of operations. See 'Business--Competition.'
REGULATION AND LITIGATION
The Company's business is subject to extensive regulation and supervision
in the states in which the Company operates. Such regulations, among other
things, require the Company to obtain and maintain licenses and qualifications,
limit interest rates, fees and other charges related to Loans purchased, require
specified disclosures by Dealers to consumers and limit rights to repossess and
sell collateral. Such regulations are primarily for the benefit of consumers,
rather than for the protection of Dealers or finance companies, and could limit
the Company's discretion in operating its business. Noncompliance with any
applicable statutes or regulations could result in suspension or revocation of
any license or registration at issue, as well as the imposition of civil fines
and criminal penalties. The Company's weighted average annual percentage rate on
outstanding Loans sold to the Master Trust is 18.63% with an average yield of
21.75% as of September 30, 1996. At these rates of interest, most of the
Company's Loans bear interest at or near the maximum rate allowed by law in
their respective jurisdictions. To the extent that the rates charged by the
Company are limited by the application of maximum allowable interest rate lower
than currently charged by the Company, the Company will suffer adverse effects
on its profitability. In addition, due to the consumer-oriented nature of the
automobile finance industry, finance companies are frequently named as
defendants in litigation involving alleged violations of federal and state
consumer lending or other laws and regulations. There can be no assurance that
the Company will not become subject to such litigation in the future. A
significant judgment against the Company could have a
11
<PAGE>
material adverse effect on the Company's financial condition and results of
operations. See 'Business--Regulation.'
SENSITIVITY TO INTEREST RATES
A substantial portion of the Company's income is derived from the sale of
Loans to the Master Trust pursuant to the Revolving Securitization. The Company
relies in part on cash flow from the Master Trust to support its operations.
Since the Master Trust's borrowing rates under the Revolving Securitization are
floating and the interest rates charged on the Loans (which are generally at or
near the maximum rates permitted by applicable state laws) are fixed, increases
in the interest rates charged on the Master Trust's borrowings could have a
material adverse effect both on cash flows from the Master Trust to the Company
and on the Company's net income, thereby adversely affecting the Company's
financial condition and results of operations. In order to mitigate the negative
impact of rising interest rates, the Master Trust has entered into interest rate
swap agreements which have the effect of fixing the rates charged on a portion
of the Master Trust's indebtedness. Although these agreements provide the Master
Trust (and, therefore, the Company) some protection against rising interest
rates, these agreements also reduce the benefits to the Master Trust (and,
therefore, the Company) when interest rates decline below the rates set forth in
these agreements. In addition, upon refinancing of Loans through Permanent
Securitizations, the interest spread with respect to such Loans may be fixed.
Although the Company expects the Master Trust to continue to refinance Loans in
the Master Trust through Permanent Securitizations, there can be no assurance
that such securitizations will occur or that the interest rates fixed pursuant
to such securitizations will be consistent with the Company's past experience.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
DEPENDENCE ON SERVICING ARRANGEMENTS
All of the Loans purchased by the Company since it commenced business have
been serviced by Omni Financial Services of America ('World Omni'). The current
servicing agreement between the Company and World Omni contemplates that new
Loans will be accepted for servicing by World Omni until December 31, 1997,
after which date, unless the agreement is extended, World Omni would be
obligated to continue to service only the Loans then under contract for the life
of such Loans. Although the Company currently is considering its options with
respect to developing its own servicing capability, the Company currently does
not have the internal capacity to service all of its Loans. Accordingly, the
failure of World Omni to adequately service the Company's Loans or the
termination of the servicing agreement with World Omni could adversely affect
the Company until arrangements with another third-party servicer could be
implemented or until the Company develops its own servicing capability. While
there are other independent consumer loan servicing organizations that provide
servicing on a contract basis, there can be no assurance that another servicer
could be substituted at a comparable cost and quality of service, or on a timely
basis. Further, there can be no assurance that the Company would be able to
profitably implement an in-house servicing capability. See 'Business--Credit
Underwriting and Administration.'
GEOGRAPHIC CONCENTRATION
As of September 30, 1996, approximately 75% of the current principal
balance of the Company's Loan portfolio was purchased from Dealers located in
Georgia, North Carolina, South Carolina and Virginia. An economic slowdown or
recession, or a change in the regulatory or legal environment in one or more of
these states, could have a material adverse effect on the Company's financial
condition and results of operations. See 'Business--Loan Portfolio Profile.'
BANKING AND OTHER RESTRICTIONS
To facilitate the First Union Partner's compliance with applicable banking
laws, regulations and orders (collectively, the 'Banking Laws'), the Company has
agreed that it will engage solely in activities that are permissible for
national banks as determined by Banking Laws as in effect from time to time. The
First Union Strategic Alliance also generally provides that (i) the Company may
not purchase a Loan through any arrangement with a financial institution if such
Loan is originated by an active First Union Dealer and (ii) until January 15,
1997, the Company may not enter into any other exclusive referral arrangement
with a financial institution involving Dealers in the territory covered by the
First Union Strategic Alliance. Although the Company believes that these
restrictions are reasonable in light of the advantages afforded by the First
Union
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<PAGE>
Strategic Alliance, the effect of these restrictions may be to limit in certain
respects the Company's ability to seek or take advantage of certain business or
marketing opportunities, which may have a material adverse effect on the
Company's financial condition and results of operation. See 'Business--Banking
Regulation.'
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the NAFCO Partnership will own
approximately 63.1% of the Company's outstanding Common Stock (60.4% if the
Underwriter's over-allotment option is exercised in full). In addition, the
First Union Partner, a limited partner of the NAFCO Partnership, currently has
an economic interest with respect to approximately 15% of the Common Stock of
the Company held by the NAFCO Partnership (or 9.5% of the outstanding shares of
Common Stock upon consummation of the Offering). Based upon several factors,
including the overall performance of the First Union Strategic Alliance and the
total market value of the Company over a specified time period, the First Union
Partner may obtain an economic interest with respect to an approximate
additional 34% of the Common Stock held by the NAFCO Partnership. Any such
increase would be non-dilutive to the public stockholders of the Company. As a
result, the principals of National Auto Finance Corporation will be able to
determine the outcome of most day-to-day corporate actions and the NAFCO
Partnership will be able to determine the outcome of most corporate actions
requiring a stockholder vote, including the election of directors and any matter
submitted to the stockholders for approval, including mergers, consolidations
and the sale of all or substantially all of the Company's assets. In addition,
the First Union Partner, as a limited partner of the NAFCO Partnership, may be
able to influence the future operations of the Company. See 'Principal
Stockholders.'
AUTHORIZATION OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue shares of
preferred stock that have preferences over the Common Stock with respect to the
payment of dividends, liquidation, conversion, voting or other rights which
could adversely affect the voting power and ownership percentages of the holders
of Common Stock. The issuance of shares of preferred stock or the issuance of
rights to purchase such shares could have the effect of discouraging, delaying
or preventing a change in control of the Company. See 'Description of Capital
Stock.'
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and By-laws contain certain
provisions which may be deemed to have the effect of delaying, deferring or
preventing a change of control of the Company or a takeover attempt that a
stockholder might consider in its best interest. These provisions include a
classified board of directors and the Company's ability to issue preferred
stock. See 'Description of Capital Stock.'
ABSENCE OF PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public trading market for the
shares of Common Stock. There can be no assurance that an active trading market
for the Common Stock will develop or continue after the Offering. The initial
public offering price of the Common Stock offered hereby has been established
through negotiation between the Company and the Underwriter. See 'Underwriting.'
The market price of the Common Stock may be highly volatile and could be subject
to wide fluctuations in response to quarterly variations in operating results,
changes in financial estimates by securities analysts or other events or
factors. Broad market fluctuations or any failure of the Company's operating
results in a particular quarter to meet market expectations may adversely affect
the market price of the Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 6,700,000 shares of Common Stock. All of the shares sold in the
Offering (plus an additional 300,000 shares if the over-allotment option granted
to the Underwriter is exercised in full) will be freely tradeable without
restriction or further
13
<PAGE>
registration under the Securities Act of 1933, as amended (the 'Securities
Act'), except for any shares purchased by an affiliate of the Company that will
be subject to the resale limitations of Rule 144 under the Securities Act. Upon
the expiration of lock-up agreements between each of the executive officers,
directors and existing stockholders and the Underwriter, 180 days after the date
of this Prospectus (or earlier upon the written consent of Raymond James &
Associates, Inc.), 4,700,000 shares of Common Stock outstanding prior to the
Offering may be sold in the public market by affiliates of the Company, subject
to the limitations and restrictions contained in Rule 144 under the Securities
Act. In addition, options to purchase up to shares of Common Stock will
be reserved for issuance upon completion of the Offering and any shares of
Common Stock issuable upon the exercise of options will be eligible for sale
pursuant to registration on Form S-8 in the future. Sales of substantial amounts
of Common Stock, or the availability of substantial amounts of Common Stock for
future sale, could adversely affect the prevailing market price of the Common
Stock. Certain stockholders of the Company holding shares of Common
Stock have the right to require the Company to register their shares of Common
Stock under the Securities Act, and to include shares of Common Stock in
registrations proposed to be effected by the Company. Such stockholders have
agreed not to exercise their registration rights prior to 180 days from the date
of this Prospectus without the prior written consent of Raymond James &
Associates, Inc. See 'Shares Eligible for Future Sale' and 'Underwriting.'
NO CASH DIVIDENDS
Following this Offering, the Company intends to retain its earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future. See 'Dividend Policy.'
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution per share of Common Stock of $ per share (based upon
an assumed offering price of $ per share) in net tangible book value per
share of Common Stock from the offering price. See 'Dilution.'
14
<PAGE>
THE REORGANIZATION
BACKGROUND
The NAFCO Partnership was formed pursuant to an agreement of limited
partnership, dated as of October 1, 1994 (as amended and restated, the 'NAFCO
Partnership Agreement'). National Auto Finance Corporation, a Delaware
corporation ('National Auto'), is the general partner of the NAFCO Partnership
and holds a 1% general partner interest. The limited partners of the NAFCO
Partnership include The S Associates Limited Partnership ('S Associates'), a
limited partnership controlled by Gary L. Shapiro, Chairman of the Board of
Directors and Chief Executive Officer of the Company, The O Associates Limited
Partnership ('O Associates'), a limited partnership controlled by Edgar A. Otto,
a director of the Company, the First Union Partner and certain other individuals
(collectively, the 'NAFCO Limited Partners'). The NAFCO Limited Partners hold in
the aggregate a 99% partner interest in the NAFCO Partnership.
The ACCH Partnership was formed in September 1995. The general partner of
the ACCH Partnership, National Auto, holds a 1% general partner interest in the
ACCH Partnership. The NAFCO Partnership and two officers of the Company are the
limited partners of the ACCH Partnership (the 'ACCH Limited Partners'). The ACCH
Limited Partners hold in the aggregate a 99% limited partner interest in the
ACCH Partnership.
SENIOR SUBORDINATED DEBT FINANCING
In August 1996, the Company completed a $12 million senior subordinated
debt financing with J.P. Morgan Investment Management, Inc., acting on behalf of
certain institutional investors. The principal amount of such senior
subordinated debt is due in August 2001. In connection with this senior
subordinated debt financing, the Company issued certain deferred additional
interest notes which, immediately prior to consummation of this Offering, were
exchanged for 470,000 shares of Common Stock of the Company (representing 10% of
the outstanding Common Stock of the Company immediately prior to the
consummation of the Offering). See 'Certain Transactions.'
ASSET TRANSFERS
Prior to the sale of the shares of Common Stock offered hereby, the
respective assets and liabilities of the Partnerships will be transferred to the
Company in exchange for all of the Common Stock of the Company then outstanding
(such transaction being referred to herein as the 'Reorganization').
Specifically, the Reorganization will entail the following transfers:
(i) The partners of the ACCH Partnership (other than the NAFCO
Partnership) will transfer all of their partner interests in the
ACCH Partnership to the NAFCO Partnership in exchange for limited
partner interests in the NAFCO Partnership.
(ii) The NAFCO Partnership will transfer all of its assets, subject to
all of its liabilities, to the Company in exchange for Common
Stock.
Upon completion of the Reorganization and immediately prior to this
Offering, all of the Common Stock of the Company will be directly owned by the
NAFCO Partnership and the Morgan Group (as defined in 'Certain Transactions--
Senior Subordinated Indebtedness'). See 'Principal Stockholders.'
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, assuming an initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and expenses payable by the Company, are estimated to be
approximately $ million (approximately $ if the Underwriter's
over-allotment option is exercised in full). The Company anticipates that, of
the net proceeds of this Offering, approximately $ will be used to
support securitizations and other long-term financing arrangements,
approximately $ million will be used to repay a portion of the outstanding
subordinated indebtedness evidenced by the Junior Subordinated Notes (as defined
in 'Certain Transactions-Junior Subordinated Indebtedness') held by certain
affiliates of the Company and the remaining net proceeds will be used for
working capital and other general corporate purposes. As of September 30, 1996,
the Company had outstanding junior subordinated indebtedness, evidenced by such
Junior Subordinated Notes, of approximately $7.2 million which bear interest at
a rate of 8% per annum payable quarterly. This indebtedness was incurred
primarily to support the Company's operations. Immediately prior to the
consummation of this Offering, the Junior Subordinated Notes were amended to
provide (x) for a maturity date of , 2002 and (y) for a provision
allowing the Company to prepay the debt evidenced thereby without penalty or the
payment of any premium. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources' and
'Certain Transactions.'
Pending utilization as described above, the net proceeds of this Offering
will be invested in short-term, high-grade, interest bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends or made cash distributions and
does not anticipate paying cash dividends in the foreseeable future, but intends
to retain any future earnings for reinvestment in its business. The Company is a
party to a Note Purchase Agreement, dated as of August 7, 1996 (the 'Note
Purchase Agreement'), which generally prohibits the Company's payment of
dividends on its Common Stock, subject to certain conditions, following the
consummation of this Offering, so long as any amount remains unpaid on the notes
issued in connection with such Note Purchase Agreement. See 'Certain
Transactions--Senior Subordinated Indebtedness.' Subject to the restrictions
contained in the Note Purchase Agreement, any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth the long-term debt and capitalization of the
Company (i) at September 30, 1996, (ii) at September 30, 1996 to give pro forma
effect to the Reorganization and (iii) at September 30, 1996 on a pro forma
basis as adjusted to reflect receipt and application by the Company of estimated
net proceeds of $ million from the Offering (based upon an assumed initial
public offering price of $ per share) as described under 'Use of
Proceeds.' The information presented below should be read in conjunction with
the financial statements of the Company and the historical and pro forma
financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA (AS ADJUSTED)
------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
8% junior subordinated debt (excluding $71,791 of accrued interest)........ $ 7,218 7,218 2,934
10% senior subordinated debt (excluding $212,085 of accrued interest)...... 12,000 12,000 12,000
------- --------- -------------
Total long-term debt......................................................... 19,218 19,218 14,934
Ownership equity:
Partners' preferred equity................................................. 2,251 0 0
Partners' capital.......................................................... 5,903 0 0
------- --------- -------------
Total Partners' Equity.................................................. 8,154 0 0
Stockholders' Equity(1)......................................................
Common Stock $.01 par value; 20,000,000 shares authorized; (4,700,000 pro
forma; 6,700,000 pro forma as adjusted) shares outstanding.............. 47 67
Preferred Stock $.01 par value; 1,000,000 shares authorized................ 2,251 2,251
Additional paid in capital, pro forma (as adjusted)(1)..................... 53 15,433
Retained earnings............................................................ 3,570 3,782
--------- -------------
Total ownership equity....................................................... 5,921 21,531
------- --------- -------------
Total long-term borrowings and capitalization........................... $27,372 25,139 36,465
------- --------- -------------
------- --------- -------------
</TABLE>
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<PAGE>
DILUTION
After giving effect to the Reorganization, the pro forma net tangible book
value (total assets less deferred costs, and total liabilities) of the Company
as of September 30, 1996 was approximately $ , or approximately $
per share. As used below, 'net tangible book value per share' represents the
quotient obtained by dividing the pro forma net tangible book value of the
Company at September 30, 1996 by the total number of shares of Common Stock that
would have been outstanding at September 30, 1996 had the Reorganization
occurred on such date. After giving effect to the Offering and the application
of the estimated net proceeds to the Company (after deduction of underwriting
discounts and commissions and estimated Offering expenses), the net tangible
book value of the Company at September 30, 1996 would have been $ , or
$ per share. This represents an immediate increase in net tangible book
value per share of $ to existing holders of Common Stock as a result of
the Offering and an immediate dilution of net tangible book value per share of
$ to new investors in the Offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................................... $
Pro forma net tangible book value before the Offering................................. $
Increase in pro forma net tangible book value per share attributable to
new investors......................................................................
-----
Pro forma net tangible book value after the Offering....................................
Dilution in pro forma net tangible book value to new investors.......................... $
-----
-----
</TABLE>
The following table sets forth, on a pro forma basis (after giving effect
to the Reorganization) as of September 30, 1996, the total number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
(before deducting the estimated underwriting discounts and commissions and
Offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 4,700,000 70.1% % $ .02
New Investors............................. 2,000,000 29.9
--------- ------- ----------- -------
Total 6,700,000 100% $ 100%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The income statement data for the three months ended December 31, 1994, the
year ended December 31, 1995, and the nine months ended September 30, 1995 and
1996 and the balance sheet data as of December 31, 1994 and 1995 and September
30, 1995 and 1996 are derived from, and are qualified by reference to, the
financial statements of the Company audited by KPMG Peat Marwick LLP,
independent auditors, which are included elsewhere in this Prospectus, and
should be read in conjunction with those financial statements and the notes
thereto. The results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for any other interim
period or for the full year.
The Company commenced operations in October 1994. Consequently, financial
information with respect to the Company is available only since October 1994.
This information is not necessarily indicative of the Company's future
performance. The data set forth below should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated Financial Statements and the related notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------- SEPTEMBER 30,
(THREE MONTHS) ----------------------------------------------------------
1994 1995 1995 1996
-------------- ------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gain on sales of Loans.................. $ 0 6,487 4,920 8,189
Gain on securitization of Loans
purchased prior to January 16,
1995(1)............................... 0 639 639 0
Deferred gain on sales of Loans......... 0 241 140 491
Deferred servicing income............... 0 219 109 587
Deferred income from 1995-1
securitization........................ 0 0 0 479
Interest income from cash investments... 32 11 8 56
Other income............................ 0 32 31 54
Finance charges earned.................. 95 0 0 0
Provision for credit losses(2).......... (182) 182 0 0
------ ------- -------- --------
Total revenue........................... (55) 7,811 5,847 9,856
Operating expenses...................... (420) (4,530) (3,098) (6,754)
------ ------- -------- --------
Total expenses.......................... (420) (4,530) (3,098) (6,754)
------ ------- -------- --------
Net income (loss) before pro forma
income tax expense.................... (475) 3,281 2,749 3,102
Pro forma income taxes(3)............... 0 (1,066) (865) (1,167)
------ ------- -------- --------
Pro forma net income (loss)............. $ (475) 2,215 1,884 1,935
------ ------- -------- --------
------ ------- -------- --------
Pro forma earnings per Share:(4)
Net income (loss).......................
Pro forma weighted average shares
outstanding...........................
</TABLE>
- ------------------
(1) Represents $639,000 gain on sale for Loans purchased between October 12,
1994 and January 16, 1995 and sold to the Master Trust on January 16, 1995
in connection with the Revolving Securitization.
(2) Approximately 5% or $182,000 of the $3.6 million of Loans purchased during
the three months ended December 31, 1994 was set aside as a provision for
possible Loan losses. This reserve was reversed when these Loans were sold
to the Master Trust on January 16, 1995 in connection with the Revolving
Securitization. Subsequently, all reserves for Loan losses have been
accounted for by the Master Trust.
(3) The pro forma income taxes reflect the application of a combined federal and
state income tax rate of approximately 40% as if the Company had been taxed
as a C corporation for all periods presented.
(4) Pro forma per share data assumes the issuance of shares at $
per share.
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- ------------------
1994 1995 1995 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $5,800 12,003 10,046 28,446
Senior Subordinated Notes payable...................... 0 0 0 12,000
Junior Subordinated Notes payable...................... 5,324 7,556 6,461 7,218
Total liabilities...................................... 5,775 8,556 7,271 20,292
Partners' preferred equity............................. 48 482 400 2,251
Partners' equity....................................... (23) 2,965 2,375 5,903
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------- SEPTEMBER 30,
(THREE MONTHS) ------------------
1994 1995 1995 1996
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
LOAN PORTFOLIO INFORMATION:
Number of Loans purchased during period (not in
thousands)........................................... 300 3,586 2,718 4,537
Principal balance of Loans purchased (during period)... $3,820 45,972 34,594 56,152
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -------------------
1994 1995 1995 1996
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aggregate number of Loans purchased.................... 300 3,886 3,018 8,423
Aggregate principal balance of Loans purchased......... $3,820 49,792 38,414 105,944
Number of outstanding Loans............................ 300 3,586 2,884 7,286
Principal balance of outstanding Loans................. $3,800 43,145 35,064 82,792
Net Charge-offs as a percentage of aggregate principal
balance of Loans purchased........................... 0.00% 1.31% 0.55% 2.43%
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis provides information
regarding the Company's consolidated financial condition as of September 30,
1995 and 1996 and as of December 31, 1995, and its results of operations for the
nine months ended September 30, 1995 and 1996 and the year ended December 31,
1995. A discussion of other periods is not included below because the Company
only commenced its operations in October 1994, and any comparison with the
results of the full 1995 fiscal year would not be analytically useful. This
management's discussion and analysis should be read in conjunction with the
preceding 'Selected Consolidated Financial Data' and the Company's Consolidated
Financial Statements and the notes thereto and the other financial data included
elsewhere in this Prospectus. Data for the nine months ended September 30, 1996
are not necessarily indicative of results expected for the full fiscal year. The
ratios and percentages provided below are calculated using detailed financial
information contained in the Company's Consolidated Financial Statements, the
notes thereto and the other consolidated financial data included elsewhere in
this Prospectus.
OVERVIEW
The Company is a specialized consumer finance company engaged in the
purchase, securitization and servicing of Non-Prime Consumer Loans originated by
Dealers. The Company acquires Loans principally from manufacturer-franchised
Dealers in connection with their sale of new and used automobiles to approved
Non-Prime Consumers. For all periods presented, the Company operated as two
limited partnerships. As such, the income tax effects of all earnings or losses
of the Company were passed directly to the partners and no provisions for income
taxes were required. See 'The Reorganization.'
The Company's plan of operation for the remainder of 1996 and the first six
months of 1997 is to increase the number of Loans that it purchases, securitizes
and services by (i) utilizing its Dealer Relations Managers to market the
Company's products and services directly to Dealers (including Dealers with
which the Company currently does not have a contractual relationship) and (ii)
implementing the First Union Strategic Alliance. The Company believes that the
net proceeds of this Offering, together with the net proceeds (which have been
received) of subordinated debt borrowings from certain affiliates of the Company
and from institutional investors, will be sufficient to meet the Company's cash
requirements and fund operations for approximately twelve months following this
Offering, assuming the Company completes additional Permanent Securitizations
during such twelve month period.
HISTORICAL DEVELOPMENT AND GROWTH
From the inception of the Company in October 1994 through January 16, 1995,
the primary source of revenue for the Company was net interest income on Loans
purchased by the Company. In January 1995, the Company began using a Revolving
Securitization pursuant to which the Company sells its Loans on a daily basis to
the Master Trust. The Revolving Securitization was implemented effective January
16, 1995. On that date, the Company sold to the Master Trust 407 Loans
(approximately $5 million principal amount) that were purchased by the Company
from October 12, 1994 through January 16, 1995. Thereafter, the Company
commenced selling Loans purchased by it to the Master Trust on a daily basis.
The Company's first Permanent Securitization, completed November 22, 1995,
involved the transfer by the Master Trust to the National Auto Finance 1995-1
Trust (the '1995-1 Trust') of Loans with an aggregate principal amount totaling
$42 million. The Company's next Permanent Securitization, completed November 13,
1996, involved the sale by the Master Trust to the National Auto Finance 1996-1
Trust (the '1996-1 Trust') of Loans with an aggregate principal amount totaling
$68 million. The Company retains a residual interest and a cash investment with
respect to each of the Master Trust, the 1995-1 Trust and the 1996-1 Trust,
which are reflected as the 'excess spread receivable' ('ESR') and the 'spread
accounts' on the Company's balance sheet. Since initiation of the Revolving
Securitization, the Company's earnings have been primarily attributable to the
gains recognized on the sale of Loans into the Master Trust. For the nine months
ended September 30, 1996, such gains accounted for approximately 83% of the
Company's revenues.
21
<PAGE>
COMPONENTS OF REVENUE AND EXPENSES
Revenues. The Company derives revenues principally from the purchase and
daily sale of Loans to the Master Trust pursuant to the Revolving
Securitization. In determining its reported gain from these securitization
activities, the Company adds the total interest payments due from borrowers and
the dollar amount of the discount at which the Loans were purchased from
Dealers. The Company then deducts an estimated reserve for future Loan losses,
prepayments, borrowing charges and deferred servicing costs and discounts the
remaining cash flow to its net present value. The resulting amount is reported
as gain on securitization of finance receivables on the Company's income
statement.
In addition to interest income from cash investments, other revenues are
earned primarily from amortization of the deferred servicing costs which are
recognized to offset the direct servicing expenses incurred by the Company.
Additional income is recognized from the monthly amortization of the deferred
gain resulting from the calculation of the net present value of the net cash
flows sold to the Master Trust.
Expenses. The Company's expenses consist of interest and operating
expenses. Interest expense is the interest incurred on notes to certain
affiliates of the Company and notes to certain institutional investors. See
'--Liquidity and Capital Resources' and 'Certain Transactions.'
Operating expenses consist primarily of personnel, general and
administrative and servicing expenses. Depreciation of the Company's capital
expenditures for furniture and equipment that is being recognized over five
years on a straight-line basis is also included in this category.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996, AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995.
Income from Operations. The Company reported income from operations of
$3.1 million for the nine months ended September 30, 1996, an increase of 47%,
as compared to income from operations of $2.1 million for the nine months ended
September 30, 1995, after excluding $639,000 that represented income from Loans
purchased from October 8, 1994 to January 16, 1995 and sold to the Master Trust
in January 1995.
Gain on Securitization of Loans. The Company's Loan purchasing and
servicing operations expanded significantly during the nine months ended
September 30, 1996, as compared to the nine months ended September 30, 1995. The
Company purchased from Dealers and subsequently sold to the Master Trust $56.1
million principal amount of Loans, or 4,537 Loans, during the nine months ended
September 30, 1996, as compared to $34.6 million principal amount of Loans, or
2,718 Loans, purchased from Dealers and subsequently sold to the Master Trust
during the nine months ended September 30, 1995. For the nine months ended
September 30, 1996, the Company recognized a gain on securitization of $8.2
million, representing a 67.3% increase over the $4.9 million of gains recognized
for the nine months ended September 30, 1995, excluding $639,000 from the sale
of Loans purchased in 1994. This increase was primarily the result of a 62.6%
increase in the dollar volume of Loans purchased and subsequently sold to the
Master Trust for the nine months ended September 30, 1996, as compared to the
nine months ended September 30, 1995.
The table below sets forth certain information relating to the Company's
Loan purchasing activities, including specifically the number and aggregate
principal amount of Loans purchased, the aggregate amount
22
<PAGE>
funded to Dealers and the related amount of deferred gain and deferred servicing
revenue from the securitization of such Loans:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ---------------------
1994 1995 1995 1996
------ ------ ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of Loans purchased during period.............................. 300 3,586 2,718 4,537
Principal balance of Loans purchased during period................... $3,820 45,972 34,594 56,152
Amount funded(1)..................................................... $3,596 43,505 32,716 53,216
Percent sold to trusts............................................... 0.00% 100.00% 100.00% 100.00%
Gain on sales of Loans............................................... 0 7,126(2) 5,559 8,188
Amortization of deferred gain and servicing.......................... 0 460 249 1,078
Gain on sale revenue as a percent of total revenue................... 0 91.22% 95.07% 83.08%
</TABLE>
- ------------------
(1) Amount funded represents the price at which the Company purchases a Loan
from a Dealer (i.e., the amount actually paid to a Dealer), calculated as
the principal of the Loan purchased less a negotiated discount.
(2) Includes $639,000 of gain on sale for Loans purchased between October 12,
1994 and January 16, 1995 and sold to the Master Trust in connection with
the Revolving Securitization on January 16, 1995.
Loan Loss Provision
The Company's gain on sale of loans calculation assumes potential
charge-offs from the Loan portfolio securitized. For the nine months ended
September 30, 1996, the provision for Loan losses was approximately $2.7
million, or 5.0% of the amount funded, as compared to approximately $1.7
million, or 5.1% of the amount funded for the nine months ended September 30,
1995. An increase in losses above levels provided for would result in reduced
cash flow to the Company and a possible write-down of the ESR and spread
account.
Loan Prepayment Provision
The Company's gain on sale of loans calculation assumes estimates of
potential prepayments from the Loan portfolio securitized. For the nine months
ended September 30, 1996, the provision for Loan prepayments was approximately
$7.2 million, or 13.55% of the amount funded, as compared to approximately $3.6
million, or 11.12% of the amount funded for the nine months ended September 30,
1995.
Other Income
The Company generated approximately $1.7 million of other income for the
nine months ended September 30, 1996, as compared to $289,000 for the nine
months ended September 30, 1995. The principal sources of the Company's other
income were $491,000 of amortized deferred gain, $587,000 of servicing income
and $110,000 of interest and miscellaneous income for the nine months ended
September 30, 1996 as compared to $140,000, $109,000 and $40,000 respectively
for the nine months ended September 30, 1995. An additional $479,000 was
recognized for the nine months ended September 30, 1996 from the amortization of
additional deferred gain that resulted from the transfer of receivables from the
Master Trust to the 1995-1 Trust. This deferred gain resulted from the fact that
the Permanent Securitization was accomplished at a lower borrowing rate than the
Company assumed in calculating its gain on the sale of such Loans to the Master
Trust.
Operating Expenses
The Company reported operating expenses of $6.4 million (net of
depreciation and amortization expense of approximately $343,000) for the nine
months ended September 30, 1996, as compared to approximately $3.0 million (net
of depreciation and amortization expense of approximately $133,000) for the nine
months ended September 30, 1995. These expenses consisted primarily of interest
on subordinated notes and personnel, general, administrative (including
origination and other operating expenses) and servicing expenses. The increase
in expenses primarily reflected the growth in the amount of Loans purchased and
serviced by the Company and the hiring of additional senior management and the
other start-up costs associated with implementation of the Company's strategic
referral and marketing alliance program.
23
<PAGE>
Personnel expenses for the nine months ended September 30, 1996 were
approximately $2.5 million, as compared to approximately $1.2 million for the
nine months ended September 30, 1995. Personnel expenses consisted primarily of
salaries and wages, performance incentives, employee benefits and payroll taxes.
The increase in expenses primarily reflected the growth in the amount of Loans
purchased and serviced by the Company, the hiring of additional senior
management and the other start-up costs associated with implementation of the
Company's strategic referral and marketing alliance program. The Company's
number of full-time employees increased from 30 as of September 30, 1995, to 67
as of September 30, 1996. The Company expects that its number of full-time
employees will continue to increase commensurate with the growth of the
Company's Loan purchasing and intended future in-house servicing activities.
General and administrative expenses for the nine months ended September 30,
1996 were approximately $2.4 million, as compared to approximately $1.2 million
for the nine months ended September 30, 1995. These expenses consisted primarily
of telecommunications, travel, professional fees, insurance expenses, and
management information systems expenses. The increase in expenses primarily
reflected the growth in the amount of Loans purchased and serviced by the
Company and the hiring of additional senior management and the other start-up
costs associated with implementation of the Company's strategic referral and
marketing alliance program.
Interest expense for the nine months ended September 30, 1996 was $676,000,
as compared to $356,000 for the nine months ended September 30, 1995. This
increase is a result of the interest expense incurred on the Company's sale of
$12,000,000 aggregate principal amount of Senior Subordinated Notes due 2001 (as
defined in 'Certain Transactions--Senior Subordinated Indebtedness') and related
deferred additional interest notes due 2006 (the 'Deferred Additional Interest
Notes' and collectively with the Senior Subordinated Notes, the 'Morgan Notes').
The Junior Subordinated Notes bear interest at a rate of 10% per annum, payable
quarterly in arrears, commencing September 30, 1996. The Senior Subordinated
Notes bear interest at a rate of 10% payable quarterly in arrears, commencing
October 31, 1996.
Servicing expenses for the nine months ended September 30, 1996 were
$778,000, as compared to $203,000 for the nine months ended September 30, 1995.
Servicing expenses consist primarily of a monthly fee to an outside Servicer for
each active Loan. Servicing fees paid to World Omni for the nine months ended
September 30, 1996 were $718,000 as compared to $181,000 for the nine months
ended September 30, 1995. The increase in expenses primarily reflected the
growth in the amount of Loans purchased and serviced by the Company. The
Company's total serviced Loan portfolio was approximately $82.8 million, or
7,286 outstanding Loans, as compared to approximately $35.0 million, or 2,884
outstanding Loans, as of September 30, 1995.
FINANCIAL CONDITION
As of September 30, 1996, the Company had total assets of $28.4 million, as
compared to $12.0 million as of December 31, 1995 and approximately $5.8 million
as of December 31, 1994. For the periods ended September 30, 1996 and December
31, 1995, these assets consisted primarily of cash, subordinated securities and
ESR's from the securitization trusts. For the period ended December 31, 1994,
these assets consisted primarily of cash and Loans held for sale, net of
allowances for Loan losses.
As of September 30, 1996, the Company had cash and cash equivalents
totaling approximately $8.9 million. As of such date, the Company also had
approximately $1.2 million in cash balances held in restricted bank accounts,
representing credit enhancement in the form of Loan loss reserves for the
securitization trusts, which amount was included in the total amount of the
Company's ESRs as of such date.
As of September 30, 1996, the Company retained approximately $10.8 million
of ESRs and approximately $6.8 million of subordinated securities. These assets
represented 62% of the total assets of the Company as of such date. The value of
these assets would be reduced in the event of a material increase in the Loan
loss and prepayment experience relative to the amounts estimated by the Company
for such items at the time of the sale of the related Loans to the Master Trust.
As of September 30, 1996, the principal amount owed by the Company on
Junior Subordinated Notes was approximately $7.3 million (including $72,000 of
accrued interest), which bear interest at an annual rate of 8%. Interest in the
amount of $886,000 accrued on such notes through August 15, 1996 was paid on
such date.
24
<PAGE>
In August 1996, the Company sold $12,000,000 aggregate principal amount of
Senior Subordinated Notes and related Deferred Additional Interest Notes.
Immediately prior to the consummation of the Offering, the Deferred Additional
Interest Notes were exchanged for 470,000 shares of the Common Stock,
representing 10% of the outstanding Common Stock immediately prior to the
consummation of this Offering, and the Senior Subordinated Notes became the
obligation of the Company. The Company also has outstanding certain junior
subordinated indebtedness evidenced by its Junior Subordinated Notes.
LOAN LOSS AND DELINQUENCY EXPERIENCE
The Company regularly reviews the adequacy of its net loss reserves on
Loans. The reserves are set at levels considered to be sufficient to cover the
expected future losses on existing Loans. Changes in reserves are based directly
on the dollar value of the Loans transferred to the Master Trust, historical
loss experience and, to a lesser extent, current economic conditions and other
factors which management deems relevant. Losses are continuously monitored on an
overall portfolio and individual month of purchase pool basis.
The Company's charge-off policy is based upon a Loan-by-Loan review of
delinquent accounts. The Company generally charges off a Loan at the time its
related collateral is liquidated, although certain Loans may be charged off
sooner if management determines them to be uncollectible.
As of September 30, 1996, the loans acquired and sold by the Company had
net charge-offs of $2.6 million or 2.44% of the aggregate principal balance of
Loans purchased since October 1994, as compared to $243,000 or .64% as of
September 30, 1995.
The Company monitors historical loss experience on a static pool basis.
Loans acquired and sold to the Master Trust in each calendar month are
segregated into individual static pools. The Company considers a pool of Loans
to be 'seasoned' when it has been aged for an average of 18 to 24 months. Actual
pool losses are then compared to the estimates for the net loss reserve for each
pool that were established at the pools' inception and adjustments for any
additional losses will be reflected in the current period earnings. As of
September 30, 1996, no such additional loss adjustments have been made. See
'Risk Factors--Limited Operating History.'
The following table summarizes the Trusts' Loan losses and repossession
loss experience:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------ --------------------
1994 1995 1995 1996
------ ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Aggregate number of Loans purchased........................ 300 3,886 3,018 8,423
Aggregate principal balance of Loans purchased............. $3,820 49,792 38,414 105,944
Principal balance of outstanding Loans..................... $3,800 43,145 35,064 82,792
Number of outstanding Loans................................ 300 3,586 2,884 7,286
Gross charge-off principal balance(1)...................... 0 1,447 503 5,734
Liquidation recoveries..................................... 0 (797) (290) (3,163)
------ ------- ------- --------
Net charge-offs............................................ 0 650 213 2,571
------ ------- ------- --------
------ ------- ------- --------
Net charge-offs as a percentage of aggregate principal
balance of Loans purchased............................... 0.00% 1.31% .55% 2.43%
------ ------- ------- --------
------ ------- ------- --------
Principal balance of Loans related to vehicles held in
inventory................................................ $ 0 553 401 1,215
------ ------- ------- --------
------ ------- ------- --------
</TABLE>
- ------------------
(1) Does not include vehicles repossessed and held in inventory.
25
<PAGE>
The Company considers a Loan to be delinquent if the borrower fails to make
any payment substantially in full on or before the due date as specified by the
terms of the Loan. The Company typically initiates contact with borrowers whose
payments are not received by the due date on the fifth day following the due
date. The following table summarizes the delinquency experience with respect to
outstanding Loans sold to the Master Trust:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------- -------------------
1994 1995 1995 1996
-------------- ------- ------- -------
(THREE MONTHS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of Loans....................................... 300 3,586 2,884 7,286
Principal Balance Outstanding......................... $3,800 43,145 35,064 82,792
Period of delinquency
31 to 60 days....................................... $ 0 2,148 794 4,563
61 to 90 days....................................... $ 0 157 145 1,081
91 days or more, average............................ $ 0 46 0 282
------- ------- ------- -------
Total delinquencies................................... $ 0 2,351 939 5,926
Total delinquencies as a percentage of the current
principal balance of outstanding Loans.............. 0% 5.45% 2.68% 7.16%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Management of the Company believes that the payment practices of Non-Prime
Consumers are partially a function of seasonality. Since Non-Prime Consumers
typically have low disposable incomes, they frequently tend to fall behind in
payments on their Loans during the early winter months, when the holiday season
generates demands for their limited disposable income and when these borrowers
encounter weather-related work slow-downs and other seasonal demands on their
disposable income. As a result, absent unforeseen circumstances, management
expects delinquencies to be highest in the first calendar quarter and the fourth
calendar quarter. Generally, there is a 60 to 120 day lag between initial
delinquency and charge-off.
Since October 1994, the Company has maintained, at its own expense,
supplemental vendor's single interest ('VSI') insurance that protects the
Company's interest in Loan collateral against uninsured physical damage
(including total loss) and instances where neither the vehicle nor the borrower
can be found.
LIQUIDITY AND CAPITAL RESOURCES
General
Since inception, the Company has primarily funded its operations and the
growth of its Loan purchasing activities through five principal sources of
capital: (i) cash flows from operating activities; (ii) proceeds from
securitization transactions; (iii) cash flows from servicing fees; (iv) proceeds
from the issuance of senior subordinated debt to institutional investors; and
(v) proceeds from the issuance of junior subordinated debt to, and from the
capital contributions of, certain affiliates of the Company.
The Company's securitization financing activities are capital intensive and
will require significant additional capital to fund the Company's required
equity commitment to the Revolving Securitization facility and related
securitization expenses as the Company's Loan purchasing activities grow in the
future. The Company will use the proceeds of this Offering and the senior
subordinated debt borrowing completed in August 1996 to fund, among other
things, the Company's required equity commitment to the Revolving
Securitization. The Company believes that the net proceeds of this Offering,
together with the net proceeds of the Senior Subordinated Notes from certain
affiliates of the Company and from institutional investors, will be sufficient
to meet the Company's cash requirements and fund operations for approximately
twelve months following the Offering, assuming the Company completes additional
Permanent Securitizations during such twelve month period.
Securitization Program
The Company currently finances its purchases of Loans primarily through an
asset securitization program that involves (i) the securitized warehousing of
all of its Loans through their daily sale to the Master Trust pursuant to the
Revolving Securitization, followed by (ii) the refinancing of such warehoused
Loans, from time to time, through Permanent Securitizations.
26
<PAGE>
Specifically, pursuant to the Revolving Securitization the Company sells
Loans that it has purchased from Dealers on a daily basis to a special purpose
subsidiary, which then sells the Loans to the Master Trust in exchange for
certain residual interests in future excess cash flows from the Master Trust.
The Master Trust, to date, has issued two classes of investor certificates:
'Class B Certificates,' which are variable funding (i.e., revolving)
certificates bearing interest at floating rates, and 'Class C Certificates,'
representing a portion of the residual interest of the Company's special purpose
subsidiary in future excess cash flows from the Master Trust after required
payments to the holders of the Class B Certificates, deposit of funds to a
restricted cash account as a reserve for future Loan losses (which provides
additional credit enhancement for the holders of the Class B Certificates) and
payment of certain other expenses and obligations of the Master Trust. First
Union National Bank of North Carolina currently owns 100% of the outstanding
Class B Certificates.
The Company is required to maintain a minimum equity position in the
Revolving Securitization of 10% of the net serviced receivables. This equity
currently consists of cash invested by the Company and the unamortized dealer
discount. As of September 30, 1996 the Company had an 11.6% equity investment in
the Revolving Securitization.
In November 1995, the Master Trust refinanced $42.0 million of its
receivables in a private placement of asset-backed securities through a
Permanent Securitization rated AAA and Aaa by S&P and Moody's, respectively. In
such transaction, the 1995-1 Trust was formed and issued to various private
investors $42.0 million of asset-backed securities. Payment of principal of, and
interest on, those securities is insured by a payment guaranty issued by FSA. In
November 1996, the Master Trust refinanced $68 million of its receivables in a
public offering of asset-backed securities through a Permanent Securitization
also rated AAA and Aaa by S&P and Moody's, respectively. The proceeds of each of
such Permanent Securitization transactions were used by the Master Trust to
repay the then-outstanding balance of the Class B Certificates. Since such time,
the Master Trust has issued additional beneficial interests in Loans purchased
by the Master Trust, as evidenced by the Class B Certificates, to finance its
purchase of Loans from the Company. The Company expects additional Permanent
Securitizations to be consummated in the future in order to refinance
periodically amounts outstanding under such Class B Certificates.
Collection of the indebtedness evidenced by the Loans in each of the Master
Trust and the 1995-1 Trust and related administration is handled by World Omni.
World Omni is primarily responsible for invoicing customers, and collecting and
processing payments. The Company acts as master servicer for the Loans sold to
each of the trusts and receives monthly fees from the trusts at base rates of 2%
per annum for the 1995-1 Trust and 4% per annum for the Master Trust, plus
certain late fees and prepayment charges received on the securitized Loans.
The Company relies in part on cash flow from the Master Trust to support
its operations. Since the Master Trust's interest rates under the Revolving
Securitization are floating and the interest rates charged on the Loans (which
are generally at or near the maximum rates permitted by applicable state laws)
are fixed, increases in the interest rates incurred with respect to the Class B
Certificates could have a material adverse effect both on cash flows from the
Master Trust and on the Company's net income, thereby adversely affecting the
Company's financial condition and results of operations. In order to mitigate
the negative impact of rising interest rates, the Master Trust has entered into
interest rate swap agreements which have the effect of fixing the rates charged
on a portion of the Master Trust's indebtedness. Although these agreements
provide the Master Trust (and therefore the Company) some protection against
rising interest rates, these agreements also reduce the benefits to the Master
Trust (and therefore the Company) when interest rates decline below the rates
set forth in such agreements. In addition, upon refinancing of Loans through
Permanent Securitizations, the interest spread with respect to such refinanced
Loans may be fixed.
INFLATION
Increases in the rate of inflation of prices in the U.S. economy generally
result in higher interest rates. Typically, higher interest rates result in a
decrease in the Company's net interest margins and a corresponding decrease in
the Company's gain on sale revenue for a given Loan amount; to the extent not
offset by increases in the volume of Loans purchased, inflation can therefor
lead to decreases in the Company's profitability.
27
<PAGE>
BUSINESS
GENERAL
The Company is a specialized consumer finance company engaged in the
purchase, securitization and servicing of Loans originated by Dealers for
Non-Prime Consumers. The Company purchases Loans principally from
manufacturer-franchised Dealers in connection with their sale of new and used
automobiles. The Company's strategy is to develop a network of Dealers
throughout the United States that will refer Non-Prime Consumer Loan
applications to the Company. To implement this strategy, the Company offers to
Dealers products and services designed to enhance their ability to sell vehicles
to Non-Prime Consumers. The Company markets these products and services to
Dealers through the efforts of its direct sales force and through a strategic
referral and marketing alliance with a financial institution which has
established relationships with Dealers.
Since the commencement of the Company's operations in October 1994, the
Company has established contractual relationships with over 1,000 Dealers. The
Company attributes its success in rapidly establishing its Dealer base to the
following:
o Dealer Products and Services--The Company seeks to differentiate itself
from its competitors by introducing products and services designed to
enhance the ability of Dealers to sell vehicles to Non-Prime Consumers.
In developing such products and services, the Company relies on its
senior management's extensive experience in automobile finance as well as
on ideas the Company solicits and receives from Dealers. The Company is
constantly seeking to improve its existing products and services and
develop new ones in order to respond to changing market conditions and
serve specific niches in the Non-Prime Consumer market.
o Dealer Assistance--The Company believes that a Dealer's ability to sell
automobiles is enhanced if a Dealer understands the product and service
offerings, underwriting criteria and financing capabilities of its
financing sources. Accordingly, the Company employs Dealer Relations
Managers who spend considerable time on-site with Dealers in order to
augment Dealers' understanding of the Non-Prime Consumer market and the
Company's products and services.
o Experienced Senior Management--Each of the Company's four senior
operating executives has over 14 years of direct experience in automobile
finance. The Company believes that this experienced management team
provides it with the ability to maintain acceptable credit quality,
supervise its operations, further expand its business in existing markets
and penetrate new markets.
o Timely Communication of Credit Decisions--In the Company's experience, a
rapid response to Dealers' requests for financing is critical to
developing strong relationships with Dealers and having frequent
opportunities to purchase Loans from Dealers. The Company believes that
it provides this timely response to Dealers for their Non-Prime
Consumers. The Company typically communicates its credit decisions to
Dealers within 75 minutes of receipt of a Loan application and provides
next-day funding after the submission of completed Loan documentation.
o Centralized Underwriting--The Company maintains centralized control over
the underwriting and Loan approval functions. The Company believes that
this centralized control ensures the consistent and efficient
underwriting and Loan approval functions of these functions. The
Company's centralized underwriting policy has enabled the Company to
purchase a portfolio of Loans which management believes will allow the
Company to maintain acceptable credit quality as its Loan portfolio
grows.
o Underwriting Consistency--The Company employs a proprietary credit
scoring system and well-defined underwriting criteria to ensure
consistency in the underlying credit risks associated with the Loans it
purchases. The Company believes that this consistency enhances the
efficiency of the financing process from a Dealer's perspective by
enabling a Dealer to gauge accurately which of its Non-Prime Consumer
Loan applications will be approved by the Company.
o Financing Strategy--The Company currently finances its purchases of Loans
primarily through an asset securitization strategy that involves (i) the
securitized warehousing of all of its Loans through their daily sale to
the Master Trust pursuant to the Revolving Securitization, followed by
(ii) the refinancing, from time to time, of such warehoused Loans through
Permanent Securitizations. Specifically, pursuant to the Revolving
Securitization, the Company sells Loans that it has purchased from
Dealers on a daily basis to a
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<PAGE>
special purpose subsidiary, which then sells the Loans to the Master
Trust in exchange for certain residual interests in future excess cash
flows from the Master Trust. The capacity of the Revolving Securitization
is dependent, in part, upon the subsequent refinancings of Loans pursuant
to Permanent Securitizations. In November 1995, the Master Trust
refinanced $42 million of its receivables in a private placement of
asset-backed securities through a Permanent Securitization rated AAA and
Aaa by S&P and Moody's, respectively. In November 1996, the Master Trust
refinanced $68 million of its receivables in a public offering of
asset-backed securities through a Permanent Securitization also rated AAA
and Aaa by S&P and Moody's, respectively.
The Company's plan of operation for the remainder of 1996 and the first six
months of 1997 is to increase the number of Loans that it purchases, securitizes
and services by (i) utilizing its Dealer Relations Managers to market the
Company's products and services directly to Dealers (including Dealers with
which the Company currently does not have a contractual relationship) and (ii)
implementing the First Union Strategic Alliance. The Company believes that the
net proceeds of this Offering, together with the net proceeds of the Senior
Subordinated Notes, will be sufficient to meet the Company's cash requirements
and fund operations for approximately twelve months following this Offering,
assuming the Company completes additional Permanent Securitizations during such
twelve month period.
THE NON-PRIME CONSUMER AUTOMOTIVE FINANCE INDUSTRY
Automobile financing is the second largest sector, by dollar amount, of
consumer installment debt in the United States. According to the United States
Federal Reserve Board, approximately $350 billion of automobile installment
credit was outstanding at the end of 1995. The Company estimates that the
outstanding automobile installment credit attributable to Non-Prime Consumers is
in excess of $60 billion. The Company believes that the portion of the
automobile finance market attributable to Non-Prime Consumers has grown
significantly in recent years and is poised for further growth. Factors
contributing to such growth include the following:
o The number of personal bankruptcy filings in the U.S. has more than
doubled in the past 10 years, with approximately 850,000 such filings
occurring in 1995. For the quarter ended September 30, 1996, there were
over 280,000 personal bankruptcy filings, a 27.5% increase from the
quarter ended September 30, 1995.
o Total consumer debt service payments as a percentage of disposable income
have risen steadily over the past three years, and as of March 31, 1996,
were at their highest level in 15 years.
o According to the American Bankers Association (the 'ABA'), credit card
delinquencies for the quarter ended September 30, 1996 reached 3.66% of
accounts, the highest ratio since the ABA began tracking overdue payments
in 1974.
o Sales of used cars grew at a compounded annual growth rate over two times
as large as the comparable growth rate for sales of new cars during the
period 1991 to 1995.
Historically, the market for Non-Prime Consumer credit has been highly
fragmented, with no one company controlling more than 3% of the market. The
Company believes that it is well positioned to gain an increasing share of this
growth market through its emphasis on Dealer support and service.
DEALER RELATIONSHIPS
As of September 30, 1996, the Company had contractual relationships with
over 1,000 Dealers located in 26 states, including over 400 contractual
relationships established through the First Union Strategic Alliance. The
Company focuses on developing relationships with well-established Dealers. Over
98% of the Company's contractual relationships are with manufacturer-franchised
Dealers, rather than independent Dealers. The Company will not enroll a Dealer
unless (i) it is duly licensed by the state in which it does business, (ii) in
the case of a used car Dealer, it has been in business for a minimum of five
years, (iii) the Dealer's net worth and financial stability are acceptable to
the Company and (iv) the Dealer's reputation in the industry is satisfactory to
the Company.
Each Dealer doing business with the Company enters into a non-exclusive
written agreement with the Company governing the Company's purchases of Loans
from such Dealer. Although these agreements do not obligate a Dealer to sell, or
the Company to purchase, any particular Loan, the agreements set forth the terms
29
<PAGE>
upon which Loans will be purchased by the Company. Additionally, these
agreements contain representations and warranties to be made with respect to
each Loan purchased by the Company, each automobile which serves as collateral
for the Loan (e.g., that it is properly registered and that the Company is the
first lienholder), and compliance with certain laws and regulations. Dealer
agreements generally provide that the Loans are sold to the Company 'without
recourse' (i.e., the Dealer does not assume or retain the credit risk with
respect to any Loan purchased by the Company) unless the Dealer has breached
certain representations and warranties in the agreement.
In the Company's experience, Dealers prefer financing sources which (i)
provide value-added products and services designed to increase Dealers' sales of
vehicles, (ii) maintain regular contact with Dealer finance departments, (iii)
communicate credit decisions in a timely manner, (iv) have consistent
underwriting standards and (v) are well capitalized. The Company's marketing and
operating strategy is designed to meet these needs while assuring that the
Company's delinquency and loss experience remain at acceptable levels.
Management believes that its strategy differentiates it from its competitors.
PRODUCTS AND SERVICES
In its efforts to build a strong Dealer network, the Company provides a
broad array of products and services to Dealers. The most commonly used sales
technique of automobile finance companies is delivery of brochures and rate
cards to Dealers by sales representatives. The Company's Dealer Relations
Managers not only use such material, but also provide services which include (i)
reviewing Dealer inventories to determine adequate inventory levels with
suggestions about Non-Prime Consumer vehicle purchasing, (ii) training Dealer
sales people to identify Non-Prime Consumers who meet the Company's underwriting
criteria, and (iii) working with Dealers to establish separate finance desks
which specifically service the Non-Prime Consumer.
The Company has also developed specific products for Dealers designed to
attract customers and offer flexible financing. For example, Credit
Clinic(Trademark) is a service pursuant to which the Dealer advertises a sale
for the 'credit challenged' and the Company provides an on-site credit counselor
who advises the Non-Prime Consumer on choosing a vehicle with a monthly payment
he or she can manage. The Company believes that this service enhances a Dealer's
sales of automobiles because it encourages Non-Prime Consumers who might
otherwise be apprehensive about their personal credit histories to finance their
acquisition of vehicles.
PCOP (Preferred Customer Option Plan) is a product developed for customers
who demonstrate a greater ability to meet payment requirements, but have
difficulty meeting the payment requirements of the vehicle they would like to
purchase. PCOP enables such a customer to buy the vehicle by reducing the
principal repayment amount until the maturity date of the Loan by up to 20% and
creating a balloon payment for that unpaid amount that is payable at the end of
the loan term. When the balloon payment is due, the customer has the option to
pay the remaining principal balance in cash, refinance the vehicle for up to one
year, or relinquish the vehicle to the Dealer. The Dealer then has the option of
either acquiring the vehicle by paying off the balloon payment or relinquishing
the vehicle to the Company.
In addition to the specific products and services described above, the
Company has other products and services designed to enhance Dealers' sales of
automobiles to Non-Prime Consumers. The Company is constantly seeking to modify
existing products and services and implement new ones in order to respond to
changing market conditions and serve specific niches in the Non-Prime Consumer
market.
MARKETING STRATEGY
General
The Company expects to increase the number of Loans that it purchases,
securitizes and services by (i) utilizing its Dealer Relations Managers to
market the Company's products and services directly to Dealers (including
Dealers with which the Company currently does not have a contractual
relationship) and (ii) forming strategic referral and marketing alliances with
financial institutions which have established relationships with Dealers.
Although the Company is currently doing business with Dealers in 26 states,
approximately 75% of the principal balance of the Company's Loan portfolio was
purchased through Dealers located in Georgia, North Carolina, South Carolina and
Virginia. The Company intends to increase its volume of business in the states
in which it currently operates and to expand opportunistically into additional
states.
30
<PAGE>
The Company's direct marketing strategy is centered around experienced
management and field sales personnel located in key geographic regions. Direct
marketing to Dealers is conducted by Dealer Relations Managers who seek to train
and educate Dealers about the credit profile of the Non-Prime Consumer who meets
the Company's underwriting criteria, familiarize Dealers with the Company's
existing products and services, solicit feedback from Dealers regarding new
products and services which would enhance a Dealer's ability to sell vehicles to
Non-Prime Consumers, and generally provide Dealers with ongoing service and
support. The Company believes that the intensive face-to-face Dealer service
provided by Dealer Relations Managers enhances the effectiveness of the products
and services offered by the Company, strengthens existing Dealer relationships,
and fosters new business.
Through strategic referral and marketing alliances with financial
institutions, the Company expects to increase the number of Loans it purchases
by (i) leveraging a financial institution's existing Dealer relationships and
finance sales force to market the Company's Non-Prime Consumer products and
services and (ii) obtaining the right to review and purchase Non-Prime Consumer
Loans which do not meet a financial institution's underwriting criteria. Through
such strategic referral and marketing alliances, the Company offers financial
institutions the opportunity to provide a broader product offering to Dealers
and to earn additional income based on the number of Loans which are purchased
by the Company as a result of such alliance.
Direct marketing to financial institutions is conducted by senior
management staff and a field service staff of bank relations managers ('Bank
Relations Managers') who are experienced in the Dealer financing policies and
techniques of financial institutions. Generally, senior management seeks to
identify prospective financial institutions suitable for strategic alliances and
negotiate the terms of such alliances. The Bank Relations Managers provide
financial institutions with operating service and support, including training
and education with respect to the Non-Prime Consumer market and the Company's
products and services. Upon consummation of strategic alliances, the Company
expects that financial institution sales personnel will also support the
Company's direct marketing efforts with Dealers.
First Union Strategic Alliance
In April 1996, the Company entered into the First Union Strategic Alliance.
The First Union Strategic Alliance provides for (i) joint marketing of the
Company's products and services by both the Company's sales force and FUSF sales
personnel to the approximately 1,800 Dealers throughout the Southeastern
Franchise with which FUSF has an existing relationship, and (ii) exclusive
referral by FUSF to the Company of all applications for Non-Prime Consumer Loans
received from Dealers located in the Southeastern Franchise falling below
certain established credit guidelines. The First Union Strategic Alliance
significantly enhanced the Company's ability to further its market penetration
and increase the size of its Dealer base through the marketing assistance,
support and exclusive referrals provided by FUSF. Though still in the
introductory phase, through September 30, 1996, the Company has established
relationships with over 400 additional Dealers through the First Union Strategic
Alliance and financed approximately 1,571 Loans having an aggregate principal
balance of $18,905,213. For a description of the referral agreement evidencing
the First Union Strategic Alliance, see 'Certain Transactions--First Union.'
The introduction of the First Union Strategic Alliance to FUSF sales
personnel in the Southeastern Franchise was completed in October 1996. Such
introduction involved the Company's intensive training of FUSF sales personnel
with respect to both the Non-Prime Consumer market and the Company's products
and services, followed by the development of a joint marketing plan for Dealers
in each region served by FUSF. At any time prior to January 15, 1997, First
Union has the option (but not the obligation) to expand the scope of the First
Union Strategic Alliance to include approximately 1,500 Dealers throughout five
northeastern states with which FUSF has existing relationships.
31
<PAGE>
CREDIT UNDERWRITING AND ADMINISTRATION
Target Market and Customer Profile
The Company seeks to identify customers with stable and predictable income,
whose payments will be made in a timely and consistent manner and who fall into
the 'B-', 'C+' and 'C' credit borrower categories. A description of the credit
rating categories used by the Company is set forth below:
CATEGORY DESCRIPTION
- -------- ----------------------------------------------------------------------
'A' A consumer who has a long credit history with no defaults, has been in
the same job for at least 18 months and can easily finance a new car
purchase through a bank or captive finance subsidiary of an automobile
manufacturer.
'B' A Non-Prime Consumer who may have had some minor credit problems in
his or her past, or may not have been employed at his or her current
job for 18 months. To finance a new or late-model used car, the 'B'
credit borrower may not qualify for a loan from a bank, but may have
success borrowing from a captive finance subsidiary and can access
credit through an independent finance company.
'C' A Non-Prime Consumer who may have an inconsistent employment record or
more significant or unresolved problems with credit in the past. To
finance a late-model or older used car purchase, this borrower will
generally not be able to obtain a loan from a captive finance
subsidiary or a bank and will have to access an independent finance
company that lends into this market category.
'D' A consumer who has unfavorable employment history and serious credit
problems, such as multiple personal bankruptcies. This borrower's only
choice is to finance his or her used car purchase, which is often from
an independent as opposed to a franchise dealer, through an
independent finance company that is active in this market segment.
The Company targets Non-Prime Consumers who previously established good credit
records but who have subsequently experienced non-repetitive credit problems
such as a personal bankruptcy due to illness, loss of employment or poor cash
management. The Company's target customer is generally anxious to re-establish
his or her credit and obtain transportation for employment. The Company's
average customer has a gross monthly income of approximately $2,765, has an
average length of employment with their current job of approximately 5.75 years,
and has resided in the same area for approximately 5.8 years.
Credit Evaluation Procedures
The Company applies uniform underwriting standards in purchasing Loans.
These standards have been developed and refined over the course of management's
years of experience in the automobile finance industry. The two most important
criteria the Company uses in evaluating a Loan are the applicant's
creditworthiness and the collateral value of the vehicle. The Dealer submits the
customer's credit application to the Company's headquarters in Boca Raton,
Florida, where the customer's creditworthiness is reviewed. The Company utilizes
a proprietary credit scoring system initially developed by Fair, Issac and
Company, Inc. to assist it in determining a customer's creditworthiness. Among
other requirements, the Company requires that each Non-Prime Consumer make a
minimum 10% down payment on the purchase price of the vehicle. The Company's
senior management regularly reviews credit decisions made by the Company's
employees to assure uniformity in underwriting standards. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations-Loan
Loss and Delinquency Experience' for a numerical analysis of the Company's Loan
loss and delinquency experience.
Approval and Funding Statistics
The table below indicates, since the Company's inception, the number of
applications reviewed by the Company and the percentage of applications
approved, conditionally approved and funded. Conditionally approved applications
are applications by Non-Prime Consumers whose underlying credit is generally
acceptable
32
<PAGE>
to the Company but with respect to which the Company requires a modification of
terms (typically monthly payment levels) prior to final credit approval.
<TABLE>
<CAPTION>
(AS OF SEPTEMBER 30, 1996)
- --------------------------------------------------------------------------------
NUMBER OF % OF APPLICATIONS
APPLICATIONS % OF APPLICATIONS CONDITIONALLY % OF APPLICATIONS
RECEIVED APPROVED APPROVED FUNDED
- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
82,156 21.43% 10.10% 10.25%
</TABLE>
Contract Servicing and Administration
The Company has contracted with World Omni for servicing and administration
of Loans. The servicing procedures have been specifically tailored to Non-Prime
Consumers and include (i) monitoring Loans and related collateral, (ii)
accounting for and posting all payments received, (iii) responding to borrowers'
inquiries, (iv) taking all necessary action to maintain the security interest
granted in the financed automobile, (v) investigating delinquencies and
communicating with borrowers to obtain timely payments, (vi) pursuing
deficiencies on Loans and (vii) when necessary, contracting licensed third party
agents to repossess and dispose of the financed automobile. In addition, the
Company intends to expand its own capability to service Loans.
Collection Policy
The Company employs a stringent collection policy which is implemented by
World Omni on a case-by-case basis. Rather than mailing past due notices, the
Company's policy is to immediately begin a proactive collection effort when the
account becomes five days past due. The extent of the Company's actions with
respect to delinquent Loans is measured against the extent of the delinquency.
Generally, the Company's policy is to work with the customer to permit the
customer to keep the automobile and continue making payments. However, the
Company takes more aggressive action if the customer fails to continue making
payments. Generally, the Company reviews whether to begin the process of
repossession when payments are fifty days past due. Repossessions are handled by
an independent licensed repossession firm engaged by the Company. Generally, the
Company's collection policy permits Loan extensions twice during the term of
financing assuming the borrower meets the following criteria: (i) no extensions
are permitted until the borrower has made the first six full payments on the
contract and (ii) a second extension is permitted if a borrower has made an
additional six payments since the first extension.
Management Information Systems
The Company uses advanced computer systems and software specifically
tailored for use by the Company to automate Loan purchasing and servicing. The
Company enters an applicant's data into the system for review by credit
investigators at the Company's office. Once investigators confirm the
applicant's information and complete the credit file, the application is
forwarded to a Company credit analyst for on-line review. After the analyst
makes a decision about the application, the result is telephoned and faxed to
the submitting Dealer. The Company believes that the capabilities and
flexibility of its application processing and its computer system provide the
Company with a competitive advantage.
The Company maintains a local area network of workstations that has a
dedicated connection to World Omni's computer systems. This integrated system
allows the Company and World Omni to share information about a customer from the
time of Loan origination through any collection and repossession procedures, if
necessary. Such integration allows the Company to monitor its delinquencies on a
'real time' basis. Since World Omni handles collections and repossessions for
the Company, all information about each Loan is already in World Omni's database
if such actions become necessary. The Company's computer systems provide the
ability to track all Loan details, assess losses and identify trends among
customers. This information is valuable in determining which consumers are more
likely to default on Loans and lessening the chance of extending Loans to higher
risk customers.
The Company believes that its management team possesses significant
management information systems expertise which will enable the Company to
develop its own internal servicing capacity. Several of the Company's senior
management personnel each worked at World Omni for in excess of 5 years and have
in-depth knowledge relating to the development and use of management information
systems for the automobile finance
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<PAGE>
industry. The Company currently is considering its options with respect to
developing its own servicing capability and enhancing its management information
systems.
LOAN PORTFOLIO PROFILE
Loan Statistical Profile
The tables below set forth an analysis of Loans purchased by the Company
from inception through the dates specified. The Company has been able to
significantly increase the number of Loans in its portfolio since its inception
while maintaining a consistent profile of key Loan parameters.
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
TOTAL PORTFOLIO 1994 1995 1995 1995 1995 1996 1996 1996
- ------------------------------ ------------ --------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate number of Loans
purchased................... 300 1,095 2,015 3,018 3,886 5,071 6,557 8,423
Average amount funded......... $ 11,986 11,626 11,578 12,025 12,121 12,023 11,942 11,913
Weighted average
initial annual percentage
rate........................ 17.83% 18.38% 18.43% 18.35% 18.31% 18.41% 18.50% 18.63%
Weighted average initial term
(months).................... 54.6 52.1 51.9 52.3 52.5 52.0 53.6 53.7
Weighted average
initial yield............... 21.17% 21.73% 21.78% 21.56% 21.45% 21.50% 21.68% 21.75%
</TABLE>
New vs. Used Automobile Loans
The Company's aggregate principal balance of outstanding Loans as of
September 30, 1996 consisted of 30% new automobile Loans and 70% used automobile
Loans. The Company prefers to finance used automobiles because of the
significant depreciation on new automobiles (in case of repossession) relative
to used automobiles and the higher interest rates the Company is permitted to
charge under certain state laws on used automobile Loans.
<TABLE>
<CAPTION>
(AS OF SEPTEMBER 30, 1996)
--------------------------------------------------------
% OF
PRINCIPAL NUMBER OF PRINCIPAL % OF ACTIVE
BALANCE ACTIVE LOANS BALANCE LOANS
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
New.......... $24,635,861 1,752 29.76% 24.05%
Used......... $58,156,484 5,534 70.24% 75.95%
----------- ------ --------- ------------
Total...... $82,792,345 7,286 100.00% 100.00%
----------- ------ --------- ------------
----------- ------ --------- ------------
</TABLE>
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<PAGE>
Geographic Distribution of Loans
The Company has purchased Loans from Dealers in 26 states. The largest
concentration of business of the Company, based on Loan balance, is in the
States of Georgia (approximately 40%), North Carolina (approximately 17%), South
Carolina (approximately 11%) and Virginia (approximately 8%). The Company's
growth strategy includes expanding its network of Dealers in existing states and
in additional states.
The list below indicates the geographic distribution of Loans outstanding
as of September 30, 1996.
<TABLE>
<CAPTION>
PRINCIPAL PERCENTAGE OF NUMBER OF
STATE BALANCE PRINCIPAL BALANCE ACTIVE LOANS
- ----------------------- ----------- ----------------- ------------
<S> <C> <C> <C>
Georgia................ $32,704,174 39.50% 2,814
North Carolina......... 14,360,301 17.34% 1,211
South Carolina......... 9,098,681 10.99% 840
Virginia............... 6,298,252 7.61% 528
Texas.................. 3,497,183 4.22% 271
Florida................ 3,118,498 3.77% 262
Tennessee.............. 2,118,985 2.56% 168
Maine.................. 1,855,349 2.24% 233
California............. 1,746,223 2.12% 165
Massachusetts.......... 1,566,792 1.89% 177
Maryland............... 1,149,709 1.39% 94
Ohio................... 1,136,046 1.37% 109
Pennsylvania........... 970,504 1.17% 112
All Other States(1).... 3,171,648 3.83% 302
----------- ------- ------
TOTALS................. $82,792,345 100.00% 7,286
----------- ------- ------
----------- ------- ------
</TABLE>
- ------------------
(1) No state other than those listed represents more than one percent of the
principal balance of Loans outstanding.
SECURITIZATION PROGRAM
The Company currently finances its purchases of Loans primarily through an
asset securitization program that involves (i) the securitized warehousing of
all of its Loans through their daily sale to the Master Trust pursuant to the
Revolving Securitization, followed by (ii) the refinancing of such warehoused
Loans from time to time through Permanent Securitizations.
Specifically, pursuant to the Revolving Securitization the Company sells
Loans that it has purchased from Dealers on a daily basis to a special purpose
subsidiary, which then sells the Loans to the Master Trust in exchange for
certain residual interests in future excess cash flows from the Master Trust.
The Master Trust, to date, has issued two classes of investor certificates:
'Class B Certificates,' which are variable funding (i.e., revolving)
certificates bearing interest at floating rates, and 'Class C Certificates,'
representing a portion of the residual interest of the Company's special purpose
subsidiary in future excess cash flows from the Master Trust after required
payments to the holders of the Class B Certificates, deposit of funds to a
restricted cash account as a reserve for future Loan losses (which provides
additional credit enhancement for the holders of the Class B Certificates) and
payment of certain other expenses and obligations of the Master Trust. First
Union National Bank of North Carolina currently owns 100% of the outstanding
Class B Certificates.
In November 1995, the Master Trust refinanced $42 million of its
receivables in a private placement of asset-backed securities through a
Permanent Securitization rated AAA and Aaa by S&P and Moody's, respectively. In
such transaction, the 1995-1 Trust was formed and issued to various private
investors $42 million of asset-backed securities. Payment of principal of, and
interest on, those securities is insured by a payment guaranty issued by FSA.
The proceeds of the transaction were used by the Master Trust to repay the then-
outstanding balance of the Class B Certificates. Since such time, the Master
Trust has issued additional beneficial interests in Loans purchased by the
Master Trust, as evidenced by the Class B Certificates, to finance its purchase
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of Loans from the Company. In November 1996, the Master Trust refinanced $68
million of its receivables in a public offering of asset-backed securities
through a Permanent Securitization also rated AAA and Aaa by S&P and Moody's,
respectively. The Company expects additional Permanent Securitizations to be
consummated in the future in order to refinance periodically amounts outstanding
under such Class B Certificates.
Collection of the indebtedness evidenced by the Loans in each of the Master
Trust and the 1995-1 Trust and related administration is handled by World Omni.
World Omni is primarily responsible for invoicing customers, and collecting and
processing payments. The Company acts as master servicer for the Loans sold to
each of the trusts and receives monthly fees from the trusts at base rates of 2%
per annum for the 1995-1 Trust and 4% per annum for the Master Trust, plus
certain late fees and prepayment charges received on the securitized Loans.
The Company relies in part on cash flow from the Master Trust to support
its operations. Since the Master Trust's interest rates under the Revolving
Securitization are floating and the interest rates charged on the Loans (which
are generally at or near the maximum rates permitted by applicable state laws)
are fixed, increases in the interest rates incurred with respect to the Class B
Certificates could have a material adverse effect both on cash flows from the
Master Trust and on the Company's net income, thereby adversely affecting the
Company's financial condition and results of operations. In order to mitigate
the negative impact of rising interest rates, the Master Trust has entered into
interest rate swap agreements which have the effect of fixing the rates charged
on a portion of the Master Trust's indebtedness. Although these agreements
provide the Master Trust (and therefore the Company) some protection against
rising interest rates, these agreements also reduce the benefits to the Master
Trust (and therefore the Company) when interest rates decline below the rates
set forth in such agreements. In addition, upon refinancing of Loans through
Permanent Securitizations, the interest spread with respect to such refinanced
Loans may be fixed.
COMPETITION
The non-prime credit market is highly fragmented, consisting of a few
national and many regional and local competitors. Existing and potential
competitors include well-established financial institutions, such as commercial
banks, credit unions, savings and loan associations, small loan companies,
leasing companies and captive finance companies owned by automobile
manufacturers and others. Many of these financial institutions do not
consistently solicit business in the Non-Prime Consumer credit market. The
Company believes that captive finance companies generally focus on new car
financing and direct their marketing efforts on the Non-Prime Consumer market
only when inventory control and/or production scheduling requirements of their
parent organization dictate a need to enhance sales volumes, and then exit the
market once such sales volumes are satisfied. The Company also believes that
regulatory oversight and capital requirements imposed by market conditions and
governmental agencies have limited the activities of many banks and savings and
loan associations in the Non-Prime Consumer credit market. As a result, the
Non-Prime Consumer credit market is primarily serviced by smaller finance
companies that solicit business when and as their capital resources permit. Due
to the lack of major, consistent financing sources and the absence of
significant barriers to entry, many companies have entered this market in recent
years, including well-capitalized public companies. Recent entrants include
General Electric Capital Corporation, whose indirect finance program consists of
relationships with several small, regional independent non-prime automobile
finance companies. In addition, Ford Motor Credit Company, Mellon Bank
Corporation, KeyCorp and Southern National Corp. have all recently devoted
resources toward the Non-Prime Consumer market. In addition, there have been
several independent finance companies that have also recently entered the
market.
The Company believes that no one competitor or group of competitors has a
dominant presence in the Non-Prime Consumer market segment of 'B-,' 'C+' and 'C'
credit consumers. The Company's strategy is designed to capitalize on the lack
of a major national financing source in this market niche. The Company believes
that its competitors include: AutoFinance Group, Inc. (recently merged into Key
Auto Inc.), Auto One Acceptance Corp. and First Merchants Acceptance Corp.
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<PAGE>
REGULATION
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. The Company's business
operations are conducted with Dealers located in 26 states and, accordingly, the
laws and regulations of such states govern the Company's operations. Most states
in which the Company purchases Loans (i) limit the interest rate, fees and other
charges that may be imposed by, or prescribe certain other terms of, the Loans
that the Company purchases and (ii) define the Company's rights to repossess and
sell collateral. In addition, the Company is required to be licensed or
registered to conduct its finance operations in 11 of the 26 states in which the
Company currently purchases Loans. As the Company expands its operations into
other states, it will be required to comply with the laws of such states.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and services involved in
automotive financing. Some of the federal laws and regulations include the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Debt Collection Practices Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulation B and Z and the Soldiers'
and Sailors' Civil Relief Act.
In addition, the Federal Trade Commission ('FTC') has adopted a limitation
on the holder-in-due-course rule which has the effect of subjecting persons that
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare, complete and display a Buyer's Guide which explains
the warranty coverage for such automobiles. The Credit Practices Rules of the
FTC impose additional restrictions on sales contract provisions and credit
practices.
Certain states in which the Company operates have adopted motor vehicle
retail installment sales acts or variations thereof. Certain states have adopted
the Uniform Consumer Credit Code, subject to certain variations. This law and
similar laws in the other states in which the Company purchases Loans regulate,
among other things, the interest rate, fees and other charges and terms and
conditions of motor vehicle retail installment loans. These laws also impose
restrictions on consumer transactions and require disclosures in addition to
those required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply. In addition, certain states
impose plain language restrictions on the textual provisions of motor vehicle
retail installment sales contracts in the context of consumer credit
transactions. Furthermore, certain states or municipalities require that a
creditor provide a purchaser of a motor vehicle with a foreign language
translation of the entire motor vehicle retail installment sale contract if the
contract was negotiated in a language other than English. The plain language and
foreign language laws impose specific liabilities on creditors who fail to
comply.
The laws of certain states grant to the purchasers of vehicles certain
rights of rescission under so-called 'lemon laws.' Under such statutes,
purchasers of motor vehicles may be able to seek recoveries from, or assert
defenses against, the Company.
In the event of default by an obligor, the Company has all the remedies of
a secured party under the Uniform Commercial Code ('UCC'), except where
specifically limited by other state laws. The remedies of a secured party under
the UCC include the right to repossession by self-help means, unless such means
would constitute a breach of the peace. In the event of default by the obligor,
some jurisdictions require that the obligor be notified and be given time in
which to cure the default prior to repossession. In addition, courts have
applied general equitable principles to secured parties pursuing repossession or
litigation involving deficiency balances.
The UCC and other state laws require a secured party who has repossessed
collateral to provide an obligor with reasonable notice of the date, time and
place of any public sale and/or the date after which any private sale of the
collateral may be held. The obligor has the right to redeem the collateral prior
to actual sale.
The proceeds from resale of financed vehicles generally will be applied
first to the expenses of repossession and resale and then to the satisfaction of
the Loan. A deficiency judgment can be sought in most states subject to
satisfaction of statutory procedural requirements by the secured party and
certain limitations as to the initial sale price of the motor vehicle. Certain
state laws require the secured party to remit the surplus to any holder of a
lien with respect to the vehicle, or, if no such lienholder exists, the UCC
requires the secured party to remit the surplus to the former owner of the
financed vehicle.
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In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including Federal bankruptcy laws and related state
laws, may interfere with or affect the ability of the Company to realize upon
collateral or enforce a deficiency judgment.
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. Adverse changes in the laws or
regulations to which the Company's business is subject, or in the interpretation
thereof, could have a material adverse effect on the Company's business. Because
the Company generally charges the highest finance charges permitted by law,
reductions in statutory maximum rates could directly impair the Company's
profitability.
BANKING REGULATION
As a result of beneficial ownership in the Company by the First Union
Partner, the Company is subject to Banking Laws. For example, the Company is
subject to the supervision and examination of the Office of the Comptroller of
the Currency (the 'OCC'), one of the principal regulatory bodies having
jurisdiction over First Union and the First Union Partner. The OCC has reviewed
the First Union Strategic Alliance and the terms thereof, and the OCC's written
approval was required in order for the First Union Strategic Alliance to be
consummated (the 'OCC Approval'). To facilitate compliance by First Union and
the First Union Partner with the OCC Approval and other Banking Laws, the
Company has agreed to engage solely in activities that are permissible for
national banks as determined by Banking Laws as in effect from time to time. If
the First Union Partner determines that any proposed activities of the Company
are impermissible for national banks, such affiliate has the right to prevent
the Company from engaging in such activities. Management does not believe,
however, that the Banking Laws will impact significantly the manner in which the
Company intends to conduct or expand its business or product and service
offerings, although there can be no assurance that the Banking Laws will not
have such an effect. See 'Risk Factors--Banking and Other Restrictions.'
FACILITIES
The Company's headquarters are located at 621 N.W. 53rd Street, Suite 200,
Boca Raton, Florida 33487. The Company currently has leases on approximately
17,000 square feet of office space on favorable terms.
EMPLOYEES
At September 30, 1996, the Company had 67 employees, of whom 15 held
marketing positions, 43 held administrative positions and 9 held senior
management positions.
LITIGATION
The Company may be involved from time to time in routine litigation
incidental to its business. However, the Company believes that it is not a party
to any material pending litigation which is likely to have a significant
negative impact on the business, income, assets or operation of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Certain information concerning directors and executive officers of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------- --- -------------------------------------------------
<S> <C> <C>
Gary L. Shapiro..... 46 Chairman of the Board and Chief Executive Officer
Keith B. Stein...... 39 Vice Chairman, Treasurer, Secretary and Director
Roy E. Tipton....... 42 President and Director
William Magro....... 47 Executive Vice President
Blane H. MacDonald.. 39 Vice President and Chief Operating Officer
Kevin G. Adams...... 40 Vice President and Chief Financial Officer
Stephen R. Stack.... 38 Senior Vice President--Sales and Marketing (ACCH)
John A. Blessing.... 42 Vice President--Sales and Marketing
Tim Carter.......... 46 Vice President--Planning and Development
Edgar A. Otto....... 66 Director
</TABLE>
Gary L. Shapiro has been the Chairman and Chief Executive Officer of
National Financial Companies LLC (the successor to National Financial
Corporation) for more than the past five years. Mr. Shapiro has been Chairman
and Chief Executive Officer of National Auto, the general partner of the NAFCO
Partnership, since October 1994 and will continue as Chief Executive Officer and
Chairman of the Board of Directors of the Company. Mr. Shapiro served as a
partner in the firm of Mailman, Ross, Toyes and Shapiro, Certified Public
Accountants, from November 1973 to March 1982. In 1981, Mr. Shapiro founded
National Machine Tool Finance Corporation ('National Tool'), a machine tool
finance company. He served as President of National Tool until 1990.
Keith B. Stein has been the Executive Vice President and Assistant
Secretary of National Auto since January 1995, and a Managing Director of
National Financial Companies LLC since January 1995. Mr. Stein will continue as
Vice Chairman, Secretary, Treasurer and a Director of the Company. Mr. Stein
served from March 1993 to September 1994 as Senior Vice President, Secretary and
General Counsel of WestPoint Stevens Inc. after having served the same company
from October 1992 to February 1993 in the capacity of Acting General Counsel and
Secretary. From May 1989 to February 1993, Mr. Stein was associated with the law
firm of Weil, Gotshal & Manges LLP. Mr. Stein has been a director of DVL, Inc.,
a public company engaged in the real estate finance business, since September
1996.
Roy E. Tipton has been the President of the NAFCO Partnership since May
1994 and will continue as the President and a Director of the Company. Mr.
Tipton served from April 1992 to May 1994 as the President of Stanford
Automotive Financial Company, an automobile finance company. Mr. Tipton served
from April 1991 to April 1992 as a Regional Manager of Primus Auto Company, an
automobile finance company ('Primus'). Mr. Tipton served in several capacities
at each of Ford Motor Credit Company from June 1975 to September 1985 and at
World Omni from September 1985 to February 1990.
William Magro has been the Executive Vice President of the NAFCO
Partnership since September 1994 and will continue as the Executive Vice
President of the Company. Mr. Magro served from January 1985 to August 1994 as a
Director of Collection and Client Services for World Omni. Mr. Magro served from
January 1972 to December 1984 as a Collection Supervisor and a Dealer Relations
Supervisor at General Motors Acceptance Corp.
Blane H. MacDonald has been the Vice President and Chief Operating Officer
of the NAFCO Partnership since July 1994 and will continue as the Vice President
and Chief Operating Officer of the Company. Mr. MacDonald served from February
1994 to July 1994 as a Vice President of Operations of AutoLend Corporation, an
automobile finance concern. Mr. MacDonald served from February 1992 to February
1994 as a Vice President of Operations of Stanford Automotive Financial, an
automobile finance company. Mr. MacDonald served from October 1990 to January
1992 as Sales Representative for the State of Florida at
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Primus. Mr. MacDonald served in various positions from August 1984 to September
1990 at World Omni and from February 1982 to July 1984 at General Motors
Acceptance Corporation.
Kevin G. Adams has been a Vice President and Chief Financial Officer of the
NAFCO Partnership since October 1994 and will continue as a Vice President and
Chief Financial Officer of the Company. Mr. Adams served from December 1992 to
October 1994 as a Vice President of National Finance Companies LLC. Mr. Adams
served from September 1983 to June 1992 as a Vice President and Chief Financial
Officer of National Tool.
Steven R. Stack has been Vice President of the NAFCO Partnership since
December 1995 and will continue as a Senior Vice President of the Company. Mr.
Stack served from March 1990 through September 1995 in various executive
positions (including as executive director) with Alamo Rent-A-Car, Inc., an
automobile rental concession. From 1976 through 1989, Mr. Stack held various
positions with General Motors Acceptance Corporation.
John A. Blessing has been a Vice President of the NAFCO Partnership since
September 1996 and will continue as a Vice President of the Company. Mr.
Blessing served from October 1993 to December 1994 as a Senior Vice President of
GE Capital Fleet Services. Mr. Blessing held various positions with GE Capital
Fleet Services from June 1987 to October 1993.
Tim Carter has been a Vice President of the NAFCO Partnership since
February 1996 and will continue as a Vice President of the Company. Mr. Carter
served from July 1991 to February 1996 as the Director of Development of World
Omni. Mr. Carter held various positions with World Omni from March 1988 to July
1991.
Edgar A. Otto has been a Director of National Auto since October 1994 and
will continue as a Director of the Company. Mr. Otto was a principal of National
Financial Corporation from its inception until April 1996. From 1971 to 1994,
Mr. Otto served as President and Chief Executive Officer of Therma Systems
Corporation, a manufacturing company. He is currently Chairman of National
Healthnet Corporation, a healthcare services provider.
BOARD OF DIRECTORS; COMMITTEES
Pursuant to the Certificate of Incorporation and By-Laws of the Company,
the Board of Directors consists of such number of directors as the Board of
Directors determines from time to time. The Board of Directors has initially set
the number of directors at seven. Currently, the Board of Directors consists of
four directors, and the vacancies will be filled with three independent
directors. The directors are divided into three classes. At the first annual
meeting of stockholders after the Offering, one class will be elected to serve
for a term expiring one year thereafter, the second class will be elected to
serve for a term expiring two years thereafter and the third class will be
elected to serve for a term expiring three years thereafter. After the
expiration of such initial terms, each class will be elected for a three-year
term.
Following the Reorganization, the Board of Directors will form an Audit
Committee, Compensation Committee and Executive Committee. The functions of the
Audit Committee will be to recommend to the Board of Directors independent
auditors for the Company and to analyze the reports and recommendations of such
auditors. The Compensation Committee will review the compensation of the
Chairman and employee benefit and incentive plans and present recommendations
thereon to the Board of Directors and will also administer the Company's 1996
Stock Option Plan. The Compensation Committee will consist of three directors,
two of whom will be 'disinterested' (as defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act')). The function
of the Executive Committee will be to manage the day-to-day business and affairs
of the Company and to act on behalf of the Board of Directors to authorize and
approve actions of the Company's officers and employees.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no remuneration for
services as members of the Board or any committee of the Board. Directors who
are not employed by the Company receive an annual retainer of stock
options automatically granted on the date on which the annual meeting of the
Company's stockholders is held each year plus $1,000 for each meeting of the
Board that he attends and $500 for each meeting of a Committee that he attends,
plus, in each case, expenses incident to his attendance at such
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<PAGE>
meetings. The purchase price of the Common Stock covered by such options is the
fair market value of such Common Stock on the date of grant. These options
become exercisable at the rate of per year commencing one year after the
date of grant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for services rendered
in all capacities during the last fiscal year of the Company to the Company's
Chief Executive Officer and to the four other most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1995 ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION COMPENSATION
- --------------------------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Gary L. Shapiro(2)(3)
Chief Executive Officer...................................... 0 0 0 0
Roy E. Tipton(4)(6)
President.................................................... $106,306 $ 40,000 0 0
William Magro(5)
Executive Vice President..................................... $ 96,277 0 0 0
Blane H. MacDonald(4)(6)
Vice President and Chief Operating Officer................... $ 85,539 $ 27,500 0 0
Kevin G. Adams(4)(6)
Chief Financial Officer and Vice President................... $ 77,761 $ 25,000 0 0
</TABLE>
- ------------------
(1) Bonuses in respect of services rendered in 1994 were determined and paid in
1995 ($33,040 for Mr. Tipton and $15,000 for Mr. Adams).
(2) No compensation was received from the Company in 1995. However, National
Auto, the general partner of the NAFCO Partnership, is paid a fee by the
Company for management services rendered pursuant to a management agreement.
National Financial Companies LLC, a limited liability company controlled by
Mr. Shapiro, is paid a fee by National Auto for management services rendered
to National Auto. See 'Certain Transactions--Management and Services
Agreements.'
(3) Mr. Shapiro is an officer, director and stockholder of National Auto.
(4) Compensation was paid by the NAFCO Partnership.
(5) Compensation was paid by the NAFCO Partnership and the ACCH Partnership.
(6) Bonus amounts were payable at the discretion of the general partner of the
applicable partnership.
No restricted stock awards, stock appreciation rights or long-term
incentive plan awards were awarded to, earned by or paid to the named executive
officers during the fiscal year ended December 31, 1995.
EMPLOYMENT AGREEMENTS
Effective September 16, 1995 and October 19, 1995, the Company entered into
three-year employment agreements with each of Roy E. Tipton, President of the
Company, and Blane H. MacDonald, Vice President and Chief Operating Officer of
the Company, respectively. Mr. Tipton's annual base salary from the effective
date of his agreement through December 31, 1995 was $115,000 and will be (i)
$130,000 from January 1, 1996 to December 31, 1996, (ii) $155,000 from January
1, 1997 to December 31, 1997 and (iii) $180,000 from January 1, 1998 to December
31, 1998. Mr. MacDonald's annual base salary from the effective date of his
agreement through December 31, 1995 was $88,000 and will be (i) $103,000 from
January 1, 1996 to December 31, 1996, (ii) $116,000 from January 1, 1997 to
December 31, 1997 and (iii) $126,000 from January 1, 1998 to December 31, 1998.
Each of Messrs. Tipton and MacDonald will receive from the Company an incentive
bonus based upon the achievement of certain performance goals and payable, in
each case, on or before March 31 of each of 1996, 1997 and 1998. Pursuant to Mr.
Tipton's agreement, the incentive bonus is computed as the lesser of a
prescribed fraction of the Company's net annual pre-tax income and (i) in 1996,
$78,000, (ii) in 1997,
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$96,875 and (iii) in 1998, $117,000. Pursuant to Mr. MacDonald's agreement, the
incentive bonus is computed as the lesser of a prescribed fraction of the
Company's net annual pre-tax income and (i) in 1996, $51,500, (ii) in 1997,
$58,000, and (iii) in 1998, $63,000. Each of the agreements provides for the
participation by Messrs. Tipton and MacDonald in any stock option plan adopted
by the Company or its successors.
Effective July 1, 1996, the Company entered into a three-year employment
agreement with William Magro, Executive Vice President of the Company. Mr.
Magro's annual base salary from the effective date of his agreement through
December 31, 1996 is $110,571 and will be (i) $118,000 from January 1, 1997 to
December 31, 1997, (ii) $127,500 from January 1, 1998 to December 31, 1998 and
(iii) $137,000 from January 1, 1999 to June 30, 1999. Mr. Magro will receive an
incentive bonus based upon the achievement of certain performance goals, payable
on or before March 31 of each of 1996, 1997, 1998 and 1999. The incentive bonus
is computed as the lesser of a prescribed fraction of the Company's net annual
pre-tax income and (i) in 1996, $55,285.50, (ii) in 1997, $64,900, (iii) in 1998
$76,500 and (iv) in 1999, $82,200. Mr. Magro's agreement provides for his
participation in any stock option plan adopted by the Company or its successors.
1996 STOCK OPTION PLAN
As part of the Reorganization, it is anticipated that the Board of
Directors of the Company will adopt a stock option plan (the '1996 Stock Option
Plan'). The 1996 Stock Option Plan is intended to afford certain key employees
and outside directors of the Company who are responsible for the continued
growth of the Company an opportunity to acquire a proprietary interest in the
Company.
The 1996 Stock Option Plan will provide for the granting of options to
purchase an aggregate of 469,000 shares of Common Stock (subject to adjustment
in the event of stock dividends, stock splits and other contingencies). Options
granted under the 1996 Stock Option Plan will not be intended to qualify as
'incentive stock options' within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the 'Code'). The 1996 Stock Option Plan is
intended to be qualified under Rule 16b-3 under the Exchange Act.
The 1996 Stock Option Plan will require the Board of Directors to designate
an option committee (the 'Committee') to administer the 1996 Stock Option Plan,
consisting of no fewer than two directors who are 'non-employee directors'
within the meaning of Rule 16b-3 under the Exchange Act (or any successor rule
or regulation). The Board of Directors may at any time remove members from and
may fill any vacancy on the Committee. The Committee will have the authority, in
its discretion and subject to the express provisions of the 1996 Stock Option
Plan, to determine, among other things, the persons to receive options, the date
of grant of such options, the number of shares to be subject to each option and
the purchase price of each share subject to such options. The Company will
receive no monetary consideration for granting options under the 1996 Stock
Option Plan.
The 1996 Stock Option Plan will also provide for the automatic grant, to
each non-employee director of the Company, of options to purchase shares of
Common Stock on the date on which the annual meeting of the Company's
stockholders is held each year. See '--Compensation of Directors.'
The purchase price of shares of Common Stock issuable upon exercise of each
option granted pursuant to the 1996 Stock Option Plan will be the fair market
value of the shares on the date of grant. The expiration and vesting of options
granted will be determined by the Committee.
In the event of any change in the outstanding shares of Common Stock of the
Company through reorganization, stock dividend, subdivision or combination of
shares, or other like change in capital structure of the Company, appropriate
adjustments will be made by the Committee to each outstanding option under the
1996 Stock Option Plan and to the maximum number of shares of Common Stock which
may be acquired pursuant to the exercise of options, and the price per share
subject to outstanding options shall be proportionately adjusted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Reorganization, there was no Compensation Committee of the
Board of Directors. During fiscal 1995, executive compensation decisions were
made by the Board of Directors of National Auto, the general partner of the
NAFCO Partnership, which consisted of Messrs. Gary L. Shapiro and Edgar A. Otto.
Gary L. Shapiro, Chairman of the Board of Directors and Chief Executive
Officer of the Company, and Edgar A. Otto, a director of the Company, are
directors and officers of National Auto, the general partner of the
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NAFCO Partnership and the ACCH Partnership. The NAFCO Partnership is a limited
partner of the ACCH Partnership. Mr. Shapiro is the general partner of S
Associates which is a limited partner of the NAFCO Partnership. Mr. Otto is the
general partner of O Associates which is a limited partner of the NAFCO
Partnership.
National Auto has entered into a Services Agreement with National Financial
Companies LLC ('National Financial'). Mr. Shapiro is a member and an officer of
National Financial. Mr. Stein is a member and an officer of National Financial
and an officer of National Auto. See 'Certain Transactions--Management and
Services Agreements.'
401(K) PROFIT SHARING PLAN
The Company adopted a 401(k) Profit Sharing Plan (the 'Plan') in August
1996 that is intended to be a tax qualified defined contribution plan
administered by NAFCO. All employees of the Company, other than part time
employees who work less than 1,000 hours per year, are eligible to participate
in the Plan once they have completed six months of continuous service.
A participating employee may contribute up to 15% of his or her
compensation, with a maximum contribution of $9,500 to the Plan on a pre-tax
basis. The Company may make a matching contribution to each employee's account
based on the amount of pre-tax contributions made by the employee. Currently,
the Company is allocating a 50% match of the first 6% contributed by the
employee, subject to certain legal limitations imposed on tax-qualified plans.
Matching contributions by the Company are made irrespective of profits and are
allocated only to qualified participants on a monthly basis.
Contributions to the Plan are invested in a variety of funds as directed by
the Plan participants. All pre-tax employee contributions to the Plan are 100%
vested and matching contributions by the Company are vested at 20% per annum
over a five-year period from the date the employee joined the Plan. All active
full-time employees that had completed 1,000 hours of service as of August 30,
1996 were invited to join the Plan and have matching contribution vested rights
predated to their date of employment.
Generally, employees may not receive distributions from the Plan until
their retirement, death, certain disabilities or termination of employment.
Loans are prohibited by the Plan, although distributions for certain hardship
purposes are allowed in accordance with tax regulations promulgated under the
Code. All distributions for the Plan are made in the form of a single lump sum
distribution.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law (the
'DGCL'), the Company has adopted provisions in its Certificate of Incorporation
which provide that directors of the Company shall not be personally liable for
monetary damages to the Company or its stockholders for a breach of fiduciary
duty as a director, except for liability as a result of (i) a breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) an act related to an unlawful stock repurchase or
payment of a dividend under Section 174 of the DGCL; and (iv) transactions from
which the director derived an improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by means of by-laws,
agreements or otherwise, to the fullest extent permitted under the DGCL. The
Company has entered into separate indemnification agreements with its directors
and officers which are, in some cases, broader than the specific indemnification
provisions contained in the DGCL. The indemnification agreements require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company as to which
indemnification is being sought, nor is the Company aware of any pending or
threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 19, 1996, and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each person who
is known by the Company to own beneficially 5% or more of the Common Stock, (ii)
each director of the Company, (iii) each of the named executive officers and
(iv) all directors and executive officers as a group. Unless otherwise
indicated, the Company believes all persons listed have sole voting power and
investment power with respect to such shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2)(5) AFTER OFFERING(2)(5)
--------------------------- --------------------
NAME AND ADDRESS NUMBER OF NUMBER OF
OF BENEFICIAL OWNER(1) SHARES PERCENT SHARES PERCENT
- ----------------------------------------- ----------------------- ----------------------- --------- -------
<S> <C> <C> <C> <C>
National Auto Finance Company L.P.(2)....
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
The Bank of New York, as trustee......... (3) (3)
One Wall Street
New York, New York 10005
Gary L. Shapiro..........................
Edgar A. Otto............................
Keith B. Stein...........................
Roy E. Tipton............................
William Magro............................
Blane H. MacDonald.......................
Kevin G. Adams...........................
Steven Stack.............................
John A. Blessing.........................
Tim Carter...............................
All directors and executive officers
as a group (8 persons)(2)(4)...........
</TABLE>
- ------------------
(1) The business address of each of the directors and current executive officers
listed in the table above is c/o National Auto Finance Company, Inc., 621
N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487.
(2) The general partner of the NAFCO Partnership is National Auto. National Auto
holds a 1% general partner interest in the NAFCO Partnership. A majority of
the outstanding capital stock of National Auto is owned collectively by
Messrs. Shapiro and Otto. The limited partners of the NAFCO Partnership
include, among others, S Associates, O Associates, the First Union Partner,
Keith B. Stein, Roy E. Tipton, William Magro, Blane H. MacDonald, Steven
Stack and Kevin G. Adams. Mr. Shapiro owns all of the outstanding capital
stock of the general partner of S Associates. Mr. Otto owns all of the
outstanding capital stock of the general partner of O Associates. The First
Union Partner holds a vested 15% limited partner economic interest in the
NAFCO Partnership. The remaining limited partners of the NAFCO Partnership
hold the balance of the limited partner economic interests. The First Union
Partner may earn up to an additional 34% limited partner economic interest,
thus diluting the other limited partners, over a period of time expiring on
January 31, 1999 (the 'Adjustment Period') based upon various factors
specified in the NAFCO Partnership Agreement, including the overall
performance of the First Union Strategic Alliance and the total market value
of the Company over the Adjustment Period (the 'Adjustment Criteria').
Except for the First Union Partner, each limited partner of the NAFCO
Partnership has the right to vote on certain matters specified in the NAFCO
Partnership Agreement commensurate with each such limited partner's
respective economic limited partner interest. In accordance with the NAFCO
Partnership Agreement, the consent of the First Union Partner is generally
required before the NAFCO Partnership may take certain fundamental actions.
Depending on the Adjustment Criteria, the First Union Partner's vested
economic limited partner interest may be increased up to an approximate
additional 34% (or an aggregate of approximately 49% when added to the First
Union Partner's current vested economic limited partner interest (i.e.,
approximately 15%)) of the Common Stock held by the NAFCO Partnership. Any
such increase in the First Union Partner's economic limited partner interest
would be non-dilutive to the public stockholders of the Company.
(3) Includes shares held by a nominee of The Bank of New York, as trustee of
each of the Commingled Pension Fund Trust of Morgan Guaranty Trust Company
of New York and the Multi-Market Special Investment Trust Fund of Morgan
Guaranty Trust Company of New York and as Investment Manager and Agent for
the Alfred P. Sloan Foundation.
(4) Excludes shares held by the NAFCO Partnership.
44
<PAGE>
CERTAIN TRANSACTIONS
GENERAL
The Company, from time to time, has entered into transactions with certain
of its principals and entities in which they have an interest. The Company
believes that each such transactions has been on terms no less favorable to the
Company than could have been obtained in a transaction with an independent third
party.
THE REORGANIZATION
The NAFCO Partnership and the ACCH Partnership were organized in October
1994 and September 1995, respectively, and have conducted the business of the
Company since their inception. Directors and executive officers of the Company
will have a direct and material interest in certain transactions that will
constitute the Reorganization, as described below. The Company believes that the
terms of such transactions will be as favorable as those which could be obtained
from an unaffiliated third party. See 'The Reorganization.'
FIRST UNION
The NAFCO Partnership
The First Union Partner is a limited partner of the NAFCO Partnership and
has an economic interest with respect to approximately 15% of the Common Stock
of the Company held by the NAFCO Partnership (or shares of the Common Stock upon
consummation of the Offering). Based upon several factors, including the overall
performance of the First Union Strategic Alliance and the total market value of
the Company over a specified time period, the First Union Partner may obtain an
economic interest with respect to an approximate additional 34% of the Common
Stock held by the NAFCO Partnership. Any such increase would be non-dilutive to
the public stockholders. See '--Partnership Agreements' and 'Principal
Stockholders.'
The First Union Strategic Alliance
The First Union Strategic Alliance is evidenced by a referral agreement
dated as of April 15, 1996 (the 'Referral Agreement') between the Company and
First Union. Pursuant to the Referral Agreement, First Union will (i) have FUSF
introduce the Company to Dealers in the Southeastern Franchise for which First
Union provides consumer financing and (ii) refer on an exclusive basis to the
Company certain Non-Prime Consumer credit applications for Loans received from
such Dealers. In consideration for such services, First Union receives a fee on
each Loan purchased by the Company as a result of the First Union Strategic
Alliance. Pursuant to the Referral Agreement, funded Loan referrals are without
recourse to First Union. The parties are, however, liable to each other for any
breach of their respective representations, warranties, covenants and
indemnities. The term of the Referral Agreement is for an initial period of
three years from the date of its execution and is renewable by the Company on
each anniversary of such date for an additional year, provided that First Union
consents to such renewal. The agreement contains provisions which preclude the
Company from purchasing Loans from FUSF Dealers through alliances with other
financial institutions and which permit First Union to terminate the agreement
upon, among other things, a 'change of control' of the Company.
Lending
First Union National Bank of North Carolina, a subsidiary of First Union
Corporation, is the sole holder of the Class B Certificates which relate to the
Revolving Securitization. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources.'
Placement Agent and Underwriting
First Union Capital Markets Corporation, a wholly owned subsidiary of First
Union Corporation ('FUCMC'), has served as placement agent for notes issued by
the Company to the Morgan Group. FUCMC has also privately placed asset-backed
securities of the Company in connection with the Company's securitization
transactions and may continue to act as placement agent or underwriter for the
Company's future securitization activities. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resource.'
45
<PAGE>
Registration Rights
At any time after six months following the consummation of this Offering,
the Company shall, promptly after receiving notice from the First Union Partner
requesting the registration of a specific number of shares of the Common Stock,
file with the Securities and Exchange Commission (the 'Commission') a
registration statement with respect to such shares of Common Stock. The First
Union Partner will be entitled to two demand requests.
SENIOR SUBORDINATED INDEBTEDNESS
General
Pursuant to the Note Purchase Agreement, the Company authorized the
issuance and sale of (i) $12 million aggregate principal amount of its senior
subordinated notes (the 'Senior Subordinated Notes') and (ii) the Deferred
Additional Interest Notes to each of Morgan Guaranty Trust Company of New York,
as trustee of the Commingled Pension Fund Trust (Multi-Market Special Investment
Fund II) of Morgan Guaranty Trust Company of New York ('MGTC'), Morgan Guaranty
Trust Company of New York, as Trustee of the Multi-Market Special Investment
Trust Fund of Morgan Guaranty Trust Company of New York ('MGMM') and Morgan
Guaranty Trust Company of New York, as Investment Manager and Agent for the
Alfred P. Sloan Foundation ('MGAS,' and together with MGTC and MGMM, the 'Morgan
Group'). Immediately prior to the consummation of this Offering, the Deferred
Additional Interest Notes were exchanged for 470,000 shares of Common Stock
representing 10% of the outstanding Common Stock of the Company immediately
prior to the consummation of this Offering, and the Senior Subordinated Notes
became the obligation of the Company. The Note Purchase Agreement generally
prohibits the Company's payment of dividends on its Common Stock, subject to
certain conditions, following the consummation of this Offering, so long as any
amount remains unpaid on the Senior Subordinated Notes. The Senior Subordinated
Notes, whose final maturity date is in July 2001, bear interest on the unpaid
principal amount thereof at a rate of 10% per annum; such interest is payable
quarterly in arrears on July 31, October 31, January 31 and April 30 of each
year commencing October 31, 1996.
Registration Rights
Following consummation of this Offering, the Company will, as promptly as
practicable after receiving notice from Morgan Group requesting the registration
of a specific number of shares of the Common Stock, file with the Commission a
registration statement with respect to such shares of Common Stock. Each such
holder will be entitled to two demand requests. In certain limited circumstances
(e.g., if in the Company's reasonable judgment such filing would adversely
affect, among other things, a proposed financing, reorganization or
recapitalization of the Company), the Company may delay the requested filing of
a registration statement.
The Morgan Group has agreed, upon the Underwriter's request, not to sell or
distribute securities of the Company of the same class as or convertible into or
exchangeable or exercisable for the securities included in the registration
statement during the 10-day period prior to and the 180 day period beginning on
the closing date of an underwritten offering made pursuant to such registration
statement. Likewise, the Company agrees not to effect any sale, distribution or
private or public offering of such securities during the aforementioned periods.
JUNIOR SUBORDINATED INDEBTEDNESS
During 1994, Gary L. Shapiro, Edgar A. Otto and Stephen L. Gurba loaned
$1,525,000, $3,675,000 and $123,733 respectively, to the Company. During 1995,
Messrs. Shapiro and Otto loaned $539,000 and 342,000, respectively, to the
Company. During 1995, Nova Financial Corporation and Nova Corporation, each of
which is a privately held corporation controlled by Messrs. Shapiro and Otto,
loaned $100,000 and $1,115,000, respectively, to the Company. During 1996, Nova
Corporation loaned $700,000 to the Company. Also during 1996, $511,000 and
$461,000 was repaid to Messrs. Shapiro and Otto, respectively. All of such loans
were made on a junior subordinated basis and in exchange for promissory notes of
the Company (collectively, the 'Junior Subordinated Notes'). The Company
believes that the terms of each of the Junior Subordinated Notes are as
favorable as could have been obtained from an unaffiliated third party. Each of
the Junior Subordinated Notes bears interest at a rate of 8% per annum. All
accrued interest on the Junior Subordinated Notes accrued through August 15,
1996 was paid in August 1996, and future interest will be paid quarterly in
arrears. Immediately prior to the consummation of this Offering, the Junior
Subordinated Notes were amended to provide (x) for a maturity
46
<PAGE>
date of , 2002 and (y) for a provision allowing the Company to prepay
the debt evidenced thereby without penalty or the payment of any premium.
MANAGEMENT AND SERVICE AGREEMENTS
The Company is party to a management agreement with National Auto pursuant
to which National Auto provides operational, administrative and analytical
nature relating to the management, business operations, assets and interests of
the Company. During fiscal 1995, the Company paid National Auto a fixed fee of
$192,000 for such services. The Company believes that the terms of such
agreement are as favorable as could have been obtained from an unaffiliated
third party for comparable services.
Pursuant to a Service Agreement, dated as of December 29, 1994, between
National Auto and National Financial Companies LLC, as amended, National
Financial Companies LLC provides to National Auto certain legal, accounting,
management and other administrative services necessary to support National
Auto's performance of its obligations under the Management Agreement. The
Services Agreement expires on the earlier of December 31, 2015 or the date on
which National Auto is liquidated and its certificate of incorporation is
cancelled.
PARTNERSHIP AGREEMENTS
The NAFCO Partnership was formed pursuant to the NAFCO Partnership
Agreement. The principal limited partners of the NAFCO Partnership are S
Associates, O Associates, the First Union Partner and Stephen L. Gurba. In
addition, certain members of the management of the Company, and certain
employees of National Financial Companies LLC own minority limited partner
interests in the NAFCO Partnership. All such persons and entities own, in the
aggregate, 99% of the partner interests in the NAFCO Partnership.
The NAFCO Partnership Agreement provides, in part, that upon the occurrence
of certain named events (collectively, the 'Put Events') the First Union Partner
has the right to cause the NAFCO Partnership to redeem the First Union Partner's
partnership interest. The Put Events include: (i) the withdrawal of National
Auto from the NAFCO Partnership or the addition of one or more persons as
general partners thereof (except that such withdrawal and subsequent addition
are not considered a Put Event if any of National Auto, Gary L. Shapiro or Edgar
A. Otto is in control of the then general partner of the NAFCO Partnership);
(ii) any ownership exchanges which have specified tax consequences with respect
to National Auto; (iii) any merger, consolidation or other reorganization of the
NAFCO Partnership or its business (except that no Put Event will be deemed to
have occurred if there is no change in the business of the NAFCO Partnership or
the substantive terms of the NAFCO Partnership Agreement and the First Union
Partner's interests in the NAFCO Partnership are not adversely affected); (iv)
the classification of the NAFCO Partnership as an association taxable as a
corporation or a publicly traded partnership; (v) December 2002; (vi) subject to
certain exceptions, a transfer of partner interests which, when added to all
prior transfers, if any, represents aggregate changes in ownership of more than
29% of the total partner interests; and (vii) the existence of a regulatory
requirement that prevents the First Union Partner from owning its ownership
interest in the NAFCO Partnership. The Partnership Agreement provides further
that upon the NAFCO Partnership's receipt from the First Union Partner of a put
notice pursuant to which First Union requests redemption of its interest in the
NAFCO Partnership, National Auto has the right either to (i) dissolve the NAFCO
Partnership, (ii) sell or exchange one hundred percent of the interests of the
NAFCO Partnership, (iii) sell or exchange one hundred percent of the property of
the NAFCO Partnership or (iv) offer publicly the equity securities of the NAFCO
Partnership.
The Partnership Agreement provides for certain adjustments to the First
Union Partner's interest in the NAFCO Partnership. See '--First Union.'
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 1,000,000 shares of preferred stock, par value $0.01 per
share, issuable in series (the 'Preferred Stock'). The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Certificate of Incorporation and the By-laws of the Company,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
Dividends. The holders of Common Stock will be entitled to receive
dividends when and as dividends are declared by the Board of Directors of the
Company out of funds legally available therefor, provided that if any shares of
the Preferred Stock are at the time outstanding, the payment of dividends on the
Common Stock or other distributions may be subject to the declaration and
payment of full cumulative dividends on outstanding shares of Preferred Stock.
Voting Rights. Holders of Common Stock are entitled to one vote per share
on all matters to be voted upon by the Stockholders.
No Preemptive Rights. The holders of Common Stock are not entitled to
preemptive, conversion or subscription rights.
Dissolution. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
the Preferred Stock, if any, outstanding.
Transfer Agent and Registrar of Common Stock. The transfer agent and
registrar for the Common Stock
is The Bank of Boston.
PREFERRED STOCK
The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of Preferred
Stock and to fix the designation, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of Preferred Stock. Any series of Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
to be distributed upon liquidation, dissolution or winding up. There are no
agreements or understandings for the issuance of Preferred Stock, and the Board
of Directors has no present intent to issue any Preferred Stock. The existence
of authorized but unissued Preferred Stock may enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock to
be issued without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group. The issuance of shares
of Preferred Stock pursuant to the Board of Directors' authority described above
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock and adversely affect the rights and powers, including
voting rights, of such holders and may have the effect of delaying, deferring or
preventing a change in control of the Company.
The Board of Directors has adopted a Certificate of Designation of the
Preferred Stock, Series A (the 'Series A Preferred Stock'). The 2,400
outstanding shares of Series A Preferred Stock have certain dividend,
liquidation and redemption rights. See Note to the financial statements
included herein.
BUSINESS COMBINATION STATUTE
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an 'interested stockholder,' which is defined as a person who,
together with any affiliates and/or associates of that person, beneficially
owns, directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation.
48
<PAGE>
This provision prohibits certain business combinations (defined broadly to
include mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the consolidated assets of the corporation,
and certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation) between an interested
stockholder and a corporation for a period of three years after the date the
interested stockholder acquired its stock, unless (i) the business combination
is approved by the corporation's board of directors prior to the date the
interested stockholder acquired shares; (ii) the interested stockholder acquired
at least 85% of the voting stock of the corporation in the transaction in which
it became an interested stockholder; or (iii) the business combination is
approved by a majority of the board of directors and by the affirmative vote of
two-thirds of the votes entitled to be cast by disinterested stockholders at an
annual or special meeting.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of Common
Stock outstanding and an additional shares of Common Stock authorized for
possible future issuance. The Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for any shares purchased by an 'affiliate' of the Company that will be
subject to the resale limitations of Rule 144 under the Securities Act ('Rule
144'). Sales of substantial amounts of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock.
Under Rule 144, 'restricted securities' that have been held for two years
may be publicly sold, provided that the amount of securities sold within any
three-month period does not exceed the greater of 1% of the then-outstanding
Common Stock or the average weekly trading volume in the Common Stock in
composite trading on all exchanges during the four calendar weeks preceding that
sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and availability of current public information
about the Company. If three years have elapsed since the date of acquisition of
restricted securities from the Company or from any affiliate of the Company, and
the acquirer or subsequent holder thereof is deemed not to have been an
affiliate of the Company for at least three months immediately preceding the
sale, that person may sell those securities under Rule 144 without regard to the
volume and other limitations described above. The foregoing summary of Rule 144
is not intended to be a complete description thereof.
Upon consummation of this Offering, shares of Common Stock will be
entitled to registration rights, which rights will be exercisable within days
from the consummation of this Offering. See 'Certain Transactions--Senior
Subordinated Indebtedness.'
Upon completion of the Offering, shares of Common Stock will be held by the
NAFCO Partnership. The NAFCO Partnership has agreed for a period of 180 days,
without the prior consent of Raymond James & Associates, Inc. not to issue, sell
or contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock or grant options or
warrants to purchase any shares of Common Stock (other than in connection with
employee benefit plans). See 'Underwriting.'
Prior to the Offering there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that sales of shares of
Common Stock under Rule 144 or the future availability of such shares for sale
will have on the market price of the Common Stock prevailing from time to time
following this offering. Nevertheless, sales of substantial amounts of Common
Stock in the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the 'Underwriters'), through their representatives,
Raymond James & Associates, Inc. and (the
'Representatives'), have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------------- ----------
<S> <C>
Raymond James & Associates, Inc...................
----------
TOTAL.............................. 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.
The Underwriters through the Representatives, propose to offer part of the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to certain
other dealers. The Representatives of the Underwriters have advised the Company
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company has granted the Underwriters options exercisable not later than
30 days after the date of this Prospectus, to purchase up to an aggregate of
300,000 additional shares of Common Stock, at the public offering price, less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such options, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
it shown in the above table bears to the total shown, and the Company will be
obligated, pursuant to the options, to sell such shares to the Underwriters. The
Underwriters may exercise their options only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby. If
purchased,
50
<PAGE>
the Underwriters will sell such additional shares on the same terms as those on
which the shares are being offered.
The Company has agreed to indemnify the Underwriter against, or to
contribute to, losses arising out of certain liabilities in connection with this
offering, including liabilities under the Securities Act.
Each of the directors and officers and shareholders of the Company have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of Raymond James & Associates.
Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock was
determined by negotiation between the Company and the Underwriter. Among the
factors considered in such negotiations were the prevailing market conditions,
the value of publicly traded companies believed to be comparable to the Company,
the results of operations of the Company in recent periods, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The foregoing includes a summary of certain principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement that is on file on an exhibit to the
Registration Statement on Form S-1 under the Securities Act filed by the Company
with the Securities and Exchange Commission (the 'Commission') with respect to
the shares of Common Stock offered hereby, of which this Prospectus is a part.
Lynn Dunham-Sirota, a .42% limited partner of the NAFCO Partnership, is the
spouse of a Managing Director of the Underwriter.
51
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Weil, Gotshal & Manges LLP, New York, New York (a
partnership including professional corporations). Certain legal matters will be
passed upon for the Underwriter by Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A.
EXPERTS
The consolidated financial statements of the Company and its subsidiary as
of September 30, 1996, December 31, 1995 and 1994, and for the nine months ended
September 30, 1996 and 1995, the year ended December 31, 1995 and for the period
from October 1, 1994 (date of inception) to December 31, 1994 have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 (the 'Registration Statement') pursuant to the Securities Act covering the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are summaries of the material terms of such contract,
agreement or other document. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibits for a more complete description of the matter involved. The
Registration Statement (including the exhibits and schedules thereto) filed with
the Commission by the Company may be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549 and at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, DC 20549 at
prescribed rates. The Commission also maintains a Web Site at
http://www.sec.gov, which contains reports and other information regarding
registrants that file electronically with the Commission.
The Company is not currently subject to the informational requirements of
the Exchange Act. As a result of the Offering, the Company will become subject
to the informational requirements of the Exchange Act. The Company will fulfill
its obligations with respect to such requirements by filing periodic reports
with the Commission. In addition, the Company intends to furnish to its
stockholders annual reports containing audited financial statements certified by
its independent auditors and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
52
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1996.................................... F-3
Unaudited Pro Forma Statement of Income for the nine-month period ended September 30, 1996................. F-4
Notes to Unaudited Pro Forma Consolidated Financial Statements............................................. F-5
HISTORICAL FINANCIAL STATEMENTS
Independent Auditors' Report............................................................................... F-6
Consolidated Balance Sheets as of September 30, 1996, December 31, 1995
and December 31, 1994.................................................................................... F-7
Consolidated Statements of Income for the nine months ended September 30, 1996 and 1995, and the year ended
December 31, 1995, and the period from October 1, 1994 (inception) to December 31, 1994.................. F-8
Consolidated Statements of Partners' Capital for the nine months ended September 30, 1996, the year ended
December 31, 1995, and the period from October 1, 1994 (inception) to December 31, 1994.................. F-9
Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995, the year ended
December 31, 1995, and the period from October 1, 1994 (inception) to December 31, 1994.................. F-10
Notes to Financial Statements.............................................................................. F-11
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma financial information sets forth historical
information which has been adjusted to reflect the Reorganization which
includes, among other things, (i) certain transactions associated with the
reorganization of the business of the Partnerships into corporate form, (ii) the
income tax effects of the Reorganization assuming the Reorganization occurred on
September 30, 1996, (iii) the issuance by the Company of shares of
Common Stock at an assumed offering price of $ per share in an initial
public offering, net of related fees and expenses and (iv) repayment of the
$4.284 million of subordinated debt. The effects of the Reorganization are
reflected in the first pro forma column in the Unaudited Pro Forma Financial
Statements titled 'NAFCO, Inc. Pro Forma.' The effects of the issuance of Common
Stock by the Company, as well as the effects of the Reorganization, will be
reflected in the last column of the Unaudited Pro Forma Financial Statements
titled 'NAFCO, Inc. Pro Forma (As Adjusted).'
The Unaudited Pro Forma Statements of Income assume the Reorganization took
place at the beginning of the periods presented. The Unaudited Pro Forma Balance
Sheet assumes the Reorganization took place on the date presented. See 'Notes to
Unaudited Pro Forma Financial Statements.' The pro forma information is based on
certain assumptions and estimates that management believes are reasonable in the
circumstances and does not purport to be indicative of the results which
actually would have been attained had the above transactions occurred at the
dates indicated or the results which may be attained in the future. This
information should be read in conjunction with the Company's financial
statements and related notes included elsewhere in this Prospectus.
F-2
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NAFCO REORGANIZATION RECAPITALIZATION NAFCO, INC.
LIMITED PRO FORMA NAFCO, INC. PRO FORMA PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA ADJUSTMENTS (AS ADJUSTED)
----------- -------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...... $ 8,856,036 8,856,036 16,000,000 (4) 20,133,036
(600,000)(5)
(4,284,000)(5)
Net interest spread
receivable................... 10,849,874 10,849,874 161,000 10,849,874
Fixed assets (net of
depreciation)................ 466,133 466,133 466,133
Investment in trusts........... 6,823,764 6,823,764 6,823,764
Deferred financing costs....... 1,003,747 1,003,747 1,003,747
Due from Related Parties....... 185,754 185,754 185,754
Other assets................... 260,855 260,855 260,855
----------- ----------- -------------
Total Assets................. $28,446,163 28,446,163 39,723,163
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND OWNERSHIP EQUITY
Liabilities
Senior subordinated debt....... $12,000,000 12,000,000 12,000,000
Junior subordinated debt....... 7,217,590 7,217,590 (4,284,000)(5) 2,933,590
Subordinated Debt Interest..... 283,876 283,876 283,876
Due to Related Parties......... 75,237 75,237 75,237
Pro forma Deferred Taxes....... 2,233,642 (1) 2,233,642 2,233,642
Accounts payable............... 715,025 (50,000)(8) 665,025 665,025
----------- ----------- -------------
Total Liabilities............ 20,291,728 22,475,370 18,191,370
Ownership Equity
Preferred Equity............... 2,250,668 (2,250,668)(3) -- --
Partners' Equity............... 5,903,767 (5,903,767)(2) -- --
----------- ----------- -------------
Total Partners' Equity....... 8,154,435 -- --
Stockholders' Equity
Common Stock................... 47,000(3)(8) 47,000 20,000(4) 67,000
Preferred Stock................ 2,250,668(3) 2,250,668 2,250,668
Paid-in Capital................ 53,000(2) 53,000 15,380,000(4) 15,433,000
Retained Earnings.............. 3,620,125(1)(2)(3) 3,620,125 161,000(6)(8) 3,781,125
----------- -------------- ----------- -------------
Total Stockholders' Equity... 5,970,793 21,531,793
Total Ownership Equity....... 8,154,435 5,970,793 21,531,793
----------- ----------- -------------
Total Liabilities and
Ownership.................. $28,446,163 28,446,163 39,723,163
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
F-3
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NAFCO REORGANIZATION RECAPITALIZATION NAFCO, INC.
LIMITED PRO FORMA NAFCO, INC. PRO FORMA PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA ADJUSTMENTS (AS ADJUSTED)
----------- -------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue
Gain on sale of loans.................. $ 8,188,473 8,188,473 8,188,473
Interest income from cash
investments......................... 56,412 56,412 56,412
Deferred gain on sales of loans........ 491,286 491,286 491,286
Deferred servicing income.............. 586,985 586,985 586,985
Deferred income from 1995-1
securitization...................... 478,914 478,914 478,914
Other income........................... 53,887 53,887 53,887
----------- ----------- -------------
Total revenues...................... 9,855,957 9,855,957 9,855,957
Operating expenses..................... 6,754,143 50,000(8) 6,704,143 (257,000)(6) 6,447,143
----------- ----------- ---------------- -------------
Total expenses...................... 6,754,143 (50,000) 6,704,143 (257,000) 6,447,143
Net income before taxes............. 3,101,814 50,000 3,151,814 257,000 3,408,814
Pro forma income taxes.............. 1,186,213(1) 1,186,213 96,000 1,282,213
----------- ----------- ---------------- -------------
Net Income.......................... $ 3,101,814 1,965,601 161,000 2,126,601
----------- ----------- ---------------- -------------
----------- ----------- ---------------- -------------
</TABLE>
F-4
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) Adjustment to reflect a deferred income tax liability (assuming an
approximate rate of 40%) as if the Company had operated as a taxable 'C'
corporation from inception.
<TABLE>
<S> <C>
Year ended December 31, 1994................................ $ 0
Year ended December 31, 1995................................ 1,066,429
Nine months ended September 30, 1996........................ 1,167,213
----------
$2,233,642
----------
----------
</TABLE>
(2) Adjustment to reflect the exchange of certain general and limited
partnership interests for 4,700,000 shares of the Common Stock with a par
value of $.01, as part of the Reorganization.
(3) Adjustment to reflect the exchange of certain preferred equity partnership
interests for 2,400 shares of Series 'A' 7% Cumulative Preferred Stock, as
part of the Reorganization.
(4) Adjustment to reflect the $16,000,000 of proceeds obtained through the sale
of 2,000,000 shares of Common Stock with a par value of $.01.
(5) Adjustment to give effect to the use of proceeds from the issuance of the
Common Stock being offered by the Company for the payment of (i) $4,284,000
in Junior Subordinated Debt, and (ii) the payment of $600,000 of costs
associated with the issuance of the Common Stock of the Company.
(6) Adjustment to reflect the reduction in interest expense that would result
from payment of Junior Subordinated Debt described above.
(7) Reflects annual dividend rate of $70/share for 2,400 shares of Series A
Preferred Stock issued to Preferred Equity Partners in conjunction with the
reorganization.
(8) Reflects the exchange of accrued Deferred Additional Interest on Senior
Subordinated Debt of $50,000 for 470,000 shares of common stock in
conjunction with the Reorganization.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Auto Finance Corporation, General Partner
National Auto Finance Company L.P.:
We have audited the accompanying consolidated balance sheets of National Auto
Finance Company L.P. and subsidiary as of September 30, 1996, December 31, 1995
and 1994, and the related consolidated statements of income, and cash flows for
the nine months ended September 30, 1996 and 1995, for the year ended December
31, 1995 and for the period from October 1, 1994 (date of inception) to December
31, 1994 and the related consolidated statements of partners' capital for the
nine months ended September 30, 1996, for the year ended December 31, 1995, and
for the period from October 1, 1994 (date of inception) to December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Auto
Finance Company L.P. and subsidiary as of September 30, 1996 and December 31,
1995 and 1994, and the results of their operations and their cash flows for the
nine months ended September 30, 1996 and 1995, for the year ended December 31,
1995 and for the period from October 1, 1994 (date of inception) to December 31,
1994 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Ft. Lauderdale, Florida
November 15, 1996
F-6
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996, DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 8,856,036 824,388 1,590,021
Loans................................................................ -- -- 3,660,064
Less allowance for credit losses..................................... -- -- (182,000)
------------- ------------ ------------
Net loans....................................................... -- -- 3,478,064
Excess spread receivable............................................. 10,849,874 5,140,006 --
Spread accounts:
Master Trust....................................................... 3,454,469 1,804,469 25,000
1995-1 Trust....................................................... 3,369,295 3,369,295 --
Fixed assets, net.................................................... 466,133 273,330 61,574
Deferred financing costs............................................. 1,003,747 434,135 533,543
Due from National Auto Finance Corporation........................... -- -- 99,500
Due from related parties............................................. 185,754 -- --
Other assets......................................................... 260,855 157,207 12,776
------------- ------------ ------------
Total assets.................................................... $ 28,446,163 12,002,830 5,800,478
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses................................ 715,025 421,434 324,209
Due to National Auto Finance Corporation............................. 75,237 46,744 49,303
Accrued interest payable--related parties............................ 71,791 531,850 77,949
Accrued interest payable--senior subordinated notes.................. 212,085 -- --
Junior subordinated notes--related parties........................... 7,217,590 7,555,991 5,323,733
Senior subordinated notes............................................ 12,000,000 -- --
------------- ------------ ------------
Total liabilities............................................... 20,291,728 8,556,019 5,775,194
------------- ------------ ------------
Total partners' capital......................................... 8,154,435 3,446,811 25,284
------------- ------------ ------------
Total liabilities and partners' capital......................... $ 28,446,163 12,002,830 5,800,478
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995,
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD FROM
OCTOBER 1, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED OCTOBER 1 TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Gain on sales of loans.............................. $ 8,188,473 5,559,234 7,125,849 --
Deferred gain on sales of loans..................... 491,286 139,763 240,869 --
Deferred servicing income........................... 586,985 108,740 218,665 --
Deferred income from 1995-1 securitization.......... 478,914 -- -- --
Interest income from cash investments............... 56,412 7,907 10,828 32,097
Other income........................................ 53,887 31,734 32,768 --
Finance charges earned.............................. -- -- -- 94,729
Provision for credit losses......................... -- -- 182,000 (182,000)
------------- ------------- ------------ ------------
Total revenue.................................... 9,855,957 5,847,378 7,810,979 (55,174)
------------- ------------- ------------ ------------
Expenses:
Interest expense.................................... 676,153 356,008 498,460 77,950
Salaries and employee benefits...................... 2,510,062 1,176,370 1,665,968 222,874
Direct loan acquisition expenses.................... 614,857 328,898 502,064 22,172
Servicing costs..................................... 778,398 203,436 370,506 6,104
Depreciation and amortization....................... 343,108 132,631 182,999 6,841
Other operating expenses............................ 1,831,565 900,630 1,310,156 83,601
------------- ------------- ------------ ------------
Total expenses................................... 6,754,143 3,097,973 4,530,153 419,542
------------- ------------- ------------ ------------
Net income (loss)................................ $ 3,101,814 2,749,405 3,280,826 (474,716)
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Pro forma data (unaudited) (note 10):
Pro forma income (loss) before income taxes......... 3,101,814 2,749,405 3,280,826 (474,716)
Pro forma income taxes.............................. 1,167,213 864,852 1,066,429 --
------------- ------------- ------------ ------------
Pro forma net income............................. $ 1,934,601 1,884,553 2,214,397 (474,716)
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996, FOR THE
YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD FROM
OCTOBER 1, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
PREFERRED
GENERAL LIMITED EQUITY
PARTNER PARTNERS PARTNERS TOTAL
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance as of October 1, 1994 (date of inception)........... $ -- -- -- --
Contributions............................................. 1,000 99,000 400,000 500,000
Net loss.................................................. (38,717) (83,836) (352,163) (474,716)
-------- ---------- ---------- ----------
Balance as of December 31, 1994............................. (37,717) 15,164 47,837 25,284
Contributions............................................. -- -- 140,701 140,701
Net income................................................ 67,375 2,955,308 258,143 3,280,826
Preferred equity earnings................................. -- (35,000) 35,000 --
-------- ---------- ---------- ----------
Balance as of December 31, 1995............................. 29,658 2,935,472 481,681 3,446,811
Contributions............................................. -- -- 1,605,810 1,605,810
Net income................................................ 29,380 2,909,257 163,177 3,101,814
-------- ---------- ---------- ----------
Balance as of September 30, 1996............................ $ 59,038 5,844,729 2,250,668 8,154,435
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995,
THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD FROM
OCTOBER 1, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 3,101,814 2,749,405 3,280,826 (474,716)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Gain on sales of loans........................... (8,188,473) (5,559,234) (7,125,849) --
Depreciation and amortization.................... 217,522 132,631 191,896 6,841
Provision for credit losses...................... -- (87,326) (182,000) 182,000
Loss from the sale of fixed assets............... -- 1,415 1,415 --
Purchases of loans held for sale................. (51,076,666) (32,289,778) (43,146,025) (3,690,004)
Proceeds from sale of loans...................... 51,540,362 31,146,862 41,773,945 29,940
Cash received from spread account................ 3,450,727 1,202,999 2,242,751 --
Deferred gain and servicing...................... (1,078,271) (248,503) (456,811) --
Deferred income from 1995-1 securitization....... (478,914) -- -- --
Amortization of deferred financing costs......... 121,367 -- -- --
Changes in other assets and liabilities:
Due from related parties...................... (185,754) -- -- --
Other assets.................................. (103,648) (2,973) (144,431) (12,776)
Accounts payable and accrued expenses......... 293,591 23,560 97,225 324,209
Accrued interest payable-related parties...... (460,059) 344,866 453,901 77,949
Accrued interest payable-senior subordinated
debt........................................ 212,085 -- -- --
------------- ------------- ------------ -------------
Net cash used in operating activities......... (2,634,317) (2,586,076) (3,013,157) (3,556,557)
------------- ------------- ------------ -------------
Cash flows from investing activities:
Capitalized start-up costs and deferred structuring
fees............................................... (696,594) (35,000) (45,086) (533,543)
Fixed assets purchased............................... (283,343) (207,597) (265,285) (68,415)
Fixed assets sold.................................... -- 13,328 13,328 --
Net received from (invested in) National Financial
Auto Receivable Master Trust....................... (1,650,000) -- 3,186,395 (25,000)
Investment in National Auto Finance 1995-1 Trust..... -- -- (3,369,295) --
Cash received from 1995-1 Trust...................... -- -- 257,567 --
Due from National Auto Finance Corporation........... -- 99,500 99,500 (99,500)
------------- ------------- ------------ -------------
Net cash used in investing activities......... (2,629,937) (129,769) (122,876) (726,458)
------------- ------------- ------------ -------------
Cash flows from financing activities:
Proceeds from senior subordinated debt............... 12,000,000 -- -- --
Proceeds from junior subordinated notes-related
parties............................................ 700,000 1,233,556 2,336,745 5,323,733
Payments of junior subordinated notes-related
parties............................................ (1,038,401) (96,058) (104,487) --
Preferred equity partners' contributions............. 1,605,810 -- 140,701 400,000
General and limited partners' contributions.......... -- -- -- 100,000
Due to National Auto Finance Corporation............. 28,493 (10,000) (2,559) 49,303
------------- ------------- ------------ -------------
Net cash provided by financing activities..... 13,295,902 1,127,498 2,370,400 5,873,036
------------- ------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents... 8,031,648 (1,588,347) (765,633) 1,590,021
Cash and cash equivalents at beginning of period....... 824,388 1,590,021 1,590,021 --
------------- ------------- ------------ -------------
Cash and cash equivalents at end of period............. $ 8,856,036 1,674 824,388 1,590,021
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
Noncash investing and financing activities:
On January 16, 1995, the Company transferred
receivables of $4,875,979 to the spread account.
Cash paid for interest................................. $ 897,578 -- -- --
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business
National Auto Finance Company L.P. (the 'NAFCO Partnership'), a Delaware
limited partnership, was established in October 1994 with approximately
$5,800,000 of partners' equity and junior subordinated debt from certain
partners and affiliates (the 'Junior Subordinated Notes'). The general partner,
National Auto Finance Corporation (the 'General Partner'), a Delaware
corporation, was appointed to manage the businesses. The NAFCO Partnership owns
97% of the limited partnership interest and 100% of the preferred equity
partnership interest in Auto Credit Clearinghouse L.P. (the 'ACCH Partnership'),
a Delaware limited partnership. The general partner of the NAFCO Partnership is
also the general partner of the ACCH Partnership. The ACCH Partnership was
established in September 1995 with approximately $140,000 of partners' equity.
As described below in note (1)(b)(i), the consolidated partnerships are referred
to as the 'Company' in the following notes to the consolidated financial
statements.
The Company purchases non-prime motor vehicle retail installment sales
contracts ('Loans') from manufacturer-franchised automobile dealers on a
nonrecourse basis. As of September 30, 1996, approximately 40% of the
outstanding principal balance of Loans relates to Loans originated in Georgia,
17% in North Carolina, and 11% in South Carolina. No single dealer originates
more than 5% of the Loans.
Through strategic referral and marketing alliances with financial
institutions, the Company seeks to increase the number of Loans it purchases by
(i) leveraging a financial institution's existing dealer relationships and
finance sales force to market the Company's non-prime consumer products and
services and (ii) obtaining the right to review and purchase non-prime consumer
loans which do not meet a financial institution's underwriting criteria. Through
such strategic referral and marketing alliances, the Company offers the
financial institution the opportunity to provide a broader product offering to
dealers and to earn additional income based on the number of Loans which are
purchased by the Company.
In April 1996, the Company entered into its first strategic referral and
marketing alliance (the 'First Union Strategic Alliance'), with First Union
National Bank of North Carolina ('FUNB') and certain of its national bank
affiliates (collectively, 'First Union'). The First Union Strategic Alliance
provides for (i) joint marketing of the Company's products and services by both
the Company's sales force and the marketing and sales personnel in First Union's
indirect sales finance division ('FUSF') to dealers throughout seven
southeastern states and the District of Columbia with whom FUSF has an existing
relationship, and (ii) exclusive referral by FUSF to the Company of all
applications for Non-Prime Consumer Loans falling below certain established
credit guidelines.
As a result of the strategic alliance with FUNB and an affiliate of FUNB
having a beneficial ownership interest in the Company, the Company has agreed to
engage solely in activities that are permissible for national banks. Management
does not believe that the banking laws, orders and regulations significantly
impact the manner in which the Company intends to conduct or expand its business
or product or service offerings, although there can be no assurance that such
laws will not have such an effect. An affiliate of First Union also serves as a
placement agent for the Company's Securitization and Financing Transactions. The
First Union Partner may, under certain circumstances, cause the NAFCO
Partnership to redeem the First Union Partner's interest.
Profits and losses of the ACCH Partnership and the NAFCO Partnership are
allocated to the partners as follows: If a net loss has been previously
incurred, the income in future periods goes first to the preferred equity
partners and then to the general partner up to the amount of their initial
contribution, provided, however, that losses related to the Junior Subordinated
Notes shall be allocated to the partners bearing the risk of loss with respect
to such notes. Next, a seven percent return on the preferred equity partners'
initial investment is allocated to them. Any remainder is allocated based on the
partnership agreement.
F-11
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(b) Summary of Significant Accounting Policies
A description of the significant accounting policies that are followed by
the Company is presented below:
(i) Principles of Consolidation
The consolidated financial statements include the accounts of the
NAFCO Partnership and the ACCH Partnership. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(ii) Cash and Cash Equivalents
The Company considers money market funds and all other highly
liquid debt instruments purchased with an original maturity of less than
three months to be cash equivalents.
(iii) Loans
Loans are held for sale until packaged and sold through
asset-backed securitization. The Loans are carried at the lower of their
principal amount outstanding (amortized cost), or market value. The
Loans, which mature at various dates through 2001, are carried as either
precomputed interest or simple interest Loans. On precomputed (or
discount) Loans, the amount of cash loaned to the borrower is less than
the face amount of the Loan; the difference represents unearned interest
earned by the Company over the life of the loan. The face amount of a
simple interest loan equals the amount of cash advanced to the borrower.
Interest income on simple interest loans is calculated based on the
principal outstanding. Precomputed interest Loans are carried at the
aggregate of receivable payments less unearned finance charges and the
deferred dealer discount. Simple interest Loans are reported at the net
amount advanced plus the accrued unpaid finance charges. All Loans are
at a fixed rate of interest and are secured by vehicles. The Company
provides an allowance for credit losses from the date of purchase to the
date of securitization.
Revenue from Loans is recognized based upon the method of interest
calculation of each loan type. Unearned finance income from precomputed
interest Loans is accreted as interest income using a level-yield
interest method. Interest income from simple interest Loans is
recognized as earned. The related deferred dealer discount income, for
both classifications, is recognized on the actuarial method.
(iv) Securitizations of Loans
The Company sells its Loans to a Master Trust through revolving
asset-backed securitizations and recognizes a gain at the time of sale
of the Loans, based upon the net present value of the excess spread
receivable from the cash flow stream over the life of the Loans. The net
present value calculation is based upon a discount rate which the
Company believes is consistent with industry practice and would be
applied by an unrelated purchaser of similar cash flows. The Company
retains a residual ownership interest in the Loans sold through
securitizations. This residual interest represents the cash flows from
the securitized Loans, including principal and interest, expected to
remain after (i) all amounts passed through to the securitization
investor, (ii) credit losses, (iii) lost interest attributable to
prepayments of Loans over the life of the securitization, (iv) servicing
fees, and (v) recovery of the spread account. The residual interest is
discounted and carried on the balance sheet as excess spread receivable.
Periodically, the Master Trust may sell loans to another trust in a
permanent securitization. At the time of permanent securitization, the
Company calculates an additional gain in the same manner described
above, based upon the terms of the permanent securitization. Such gain
is deferred and amortized over the life of the permanent securitization
using the interest method.
The Company is the master servicer and servicer of record for the
securitized Loans and utilizes an unrelated entity to provide the actual
servicing. A normal servicing fee of 2 percent is assumed in the gain
calculation; this amount is passed through to the servicer of record by
the Master Trust (see note 3).
F-12
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(v) Excess Spread Receivable
The excess spread receivable is established for each securitization
and represents the present value of the gross interest income on the
Loans securitized less the pass-through interest paid to the
securitization investors, less provisions for credit losses and
prepayments over the life of the respective securitization, less normal
servicing fees and recovery of the spread account. The excess spread
receivable consists of the gain recognized on the sale of Loans through
securitization, deferred servicing income and a deferred gain
attributable to the time value of money. Deferred servicing income is
recognized as earned over the life of the related Loans in proportion to
the principal paydown of the Loans outstanding. The deferred gain
attributable to the time value of money is recognized as earned in
relation to the balance of securitized Loans outstanding. The excess
spread receivable is reduced by the receipt of cash from the trusts and
the amortization of the deferred gain and deferred servicing costs.
Deferred servicing costs are amortized over the life of the related
Loans as a percentage of Loans outstanding. Prepayment and loss
experience rates are based upon the nature of the receivables and
historical information available to the Company. Prepayment assumptions
and credit loss provisions are periodically reviewed. Deficiencies, if
any, in excess of estimated reserves, are charged to operations.
Favorable experience is recognized prospectively as realized.
(vi) Spread Account
This account represents an over-collateralization pool of the
securitization facility to protect securitization investors against
credit losses. Funds in excess of specified percentages are available to
be remitted to the Company over the life of the securitization. For each
securitization, there is no recourse to the Company beyond the amounts
maintained in this account. However, the excess spread receivable noted
above is only available to the Company to the extent that there is no
impairment of the spread account that relates to the securitization. The
Company analyzes the spread account quarterly to determine if impairment
exists. Impairment, if any, is charged to operations.
(vii) Fixed Assets, Net
Purchases of capital equipment in excess of $500 are capitalized
and depreciated on a straight-line basis over the estimated life of the
equipment, which is generally five years.
(viii) Deferred Financing Costs
A structuring fee incurred in connection with the placement of a
securitized credit facility was also capitalized and will be amortized
on a straight-line basis over the initial term of the facility, which is
three years.
A structuring fee incurred in connection with the financing of the
Senior Subordinated Debt was also capitalized and will be amortized on a
straight-line basis over the initial term of the debt, which is five
years.
In accordance with Financial Accounting Standards Board Statement
No. 7, 'Development Stage Enterprises,' various organizational expenses
of the Company have been capitalized for these financial statements and
will be amortized over five years on a straight-line basis.
(ix) Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and
is reportable by, the partners individually. The Company's tax returns
are subject to examination by federal and state taxing authorities.
(x) Use of Estimates
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expense. The most significant of the
F-13
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
estimates relate to the components of the excess spread receivable and
the related gain on sales of Loans. Actual results could differ from
these estimates.
(c) New Accounting Pronouncement
(i) Accounting for Stock-Based Compensation
On October 23, 1995, the FASB issued Statement No. 123, 'Accounting
for Stock-Based Compensation' ('FAS 123'). This Statement applies to all
transactions in which an entity acquires goods or services by issuing
equity instruments or by incurring liabilities where the payment amounts
are based on the entity's common stock price. The Statement covers
transactions with employees and nonemployees and is applicable to both
public and nonpublic entities. Entities are allowed (1) to continue to
use the Accounting Principles Board Opinion No. 25 method ('APB 25'), or
(2) to adopt the FAS 123 fair value based method. Once the method is
adopted, an entity cannot change and the method selected applies to all
of an entity's compensation plans and transactions. For entities not
adopting the FAS 123 fair value based method, FAS 123 requires pro forma
net income and earnings per share information as if the fair value based
method has been adopted. For entities not adopting the fair value based
method, the disclosure requirements of FAS 123, including the pro forma
information, are effective for financial statements for fiscal years
beginning after December 15, 1995 (calendar year 1996). The pro forma
disclosures are to include all awards granted in fiscal years that begin
after December 15, 1994 (calendar year 1995). However, the disclosures,
including the pro forma net income and earnings per share disclosures,
for the fiscal year beginning after December 15, 1994 (calendar year
1995) will not be included in that year's financial statements but will
be included in the following year-end (calendar year 1996) financial
statements if the first fiscal year is presented for comparative
purposes. Management has not yet determined the impact of FAS 123 on the
Company.
(ii) Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ('FAS 125'), 'Accounting for Transfers of Servicing of
Financial Assets and Extinguishments of Liabilities.' FAS 125 provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on a
financial-components approach that focuses on control. FAS 125 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is
to be prospectively applied. The Company's assessment of the adoption of
FAS No. 125 indicates that the accounting for the revolving
securitizations will not change materially from the present accounting.
The Company believes that its securitization process meets the
requirements for surrender of control over the securitized assets.
Additionally, the Company believes that the gain presently deferred at
the time of permanent securitization can be recognized under FAS 125.
(2) EXCESS SPREAD RECEIVABLE
The excess spread receivable was as follows at September 30, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
<S> <C> <C>
Present value of expected future cash flows..................... $ 15,210,715 7,038,961
Allowance for credit losses..................................... (4,360,841) (1,898,955)
------------ -----------
$ 10,849,874 5,140,006
------------ -----------
Allowance for credit losses as a percentage of loans serviced... 5.27% 5.30%
------------ -----------
------------ -----------
</TABLE>
F-14
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(2) EXCESS SPREAD RECEIVABLE--(CONTINUED)
Activity in the excess spread receivable is as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
-------------- -------------- ------------
<S> <C> <C> <C>
Balance at beginning of period............... $ 5,140,006 -- --
Gain on sales of loans....................... 8,188,473 5,559,234 7,125,849
Cash received and other reductions during the
period net of amortization................. (2,478,605) (1,122,169) (1,985,843)
-------------- -------------- ------------
Balance at end of period..................... $ 10,849,874 4,437,065 5,140,006
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
(3) SECURITIZATION OF LOANS
In January 1995, the Company began using a revolving securitization
facility pursuant to which the Company sells its Loans on a daily basis to a
bankruptcy remote special purpose subsidiary trust ('Funding Trust I'), which in
turn transfers such Loans to the National Financial Auto Receivables Master
Trust (the 'Master Trust'). The Company retains, through Funding Trust I,
certain residual interests in future excess cash flows from the Master Trust, in
exchange for the transfer of Loans to the Master Trust.
The Master Trust, to date, has issued two classes of investor certificates:
'Class B Certificates,' which are variable funding (i.e., revolving)
certificates, and 'Class C Certificates,' representing a portion of such
residual interest retained by the Company. FUNB owns 100% of the outstanding
Class B Certificates. The Company is required to maintain a minimum equity
position in the Master Trust of 10% of the net serviced receivables. The Company
has pledged a portion of the Class C Certificates and a cash reserve account to
protect against future credit losses.
Interest on the Class B Certificates is charged (i) during the month in
which the Loan is sold to the Master Trust, at FUNB's prime rate of interest,
and (ii) thereafter, based upon a formula of the London Interbank Offered Rate
('LIBOR') plus between 75 and 300 basis points. The amount of funds available
under the Class B Certificates is governed by a borrowing base formula that
provides availability as a multiple of the over-collateralization capital
pledged and is restricted by a number of financial covenants. Since the Master
Trust's borrowing rates under the securitization are floating and the interest
rates charged on the loans are fixed, increases in the interest rates charged on
the Master Trust's borrowings could have an effect both on cash flows from the
Master Trust to the Company and on the Company's reported net income. In order
to mitigate the negative impact of rising interest rates, the Master Trust has
entered into interest rate swap agreements which have the effect of fixing the
rates charged on a portion of the Master Trust's indebtedness.
In November 1995, the Master Trust refinanced $42,000,000 of its
receivables through the transfer of the related Loans to a separate trust, the
National Auto Finance 1995-1 Trust (the '1995-1 Trust'), which issued in a
private placement to various third-party investors $42,000,000 of fixed-rate
asset-backed securities. The payment of the principal and interest on those
securities is insured by a payment guaranty issued by Financial Security
Assurance, Inc. ('FSA'). The proceeds of the transaction were used by the Master
Trust to repay the then outstanding balance of the Class B Certificates. The
Master Trust then commenced re-borrowing against the Class B Certificates to
finance its purchase of additional Loans from the Company through Funding Trust
I.
The 1995-1 Trust securitization was accomplished by Funding Trust I
re-acquiring the Loans and transferring them to the 1995-1 Trust. In addition to
offering fixed-rate financing, the 1995-1 Trust securitization as insured by FSA
offered lower over-collateralization levels than that required by the Master
Trust facility. The
F-15
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(3) SECURITIZATION OF LOANS--(CONTINUED)
Company retains, through a second bankruptcy remote special purpose subsidiary
trust ('Funding Trust II'), certain residual interest in future excess cash
flows from the 1995-1 Trust.
The Master Trust organizational documents required the consent of all
certificate holders to transfer (sell) the Loans. In November 1995,
substantially all eligible Loans in the Master Trust were transferred to the
1995-1 Trust. The 1995-1 Trust acquired the Loans from the Master Trust at par
with the net proceeds of the offering of certificates by the 1995-1 Trust, which
are guaranteed by FSA.
The terms of the transactions between the Company and the Master Trust
which resulted in the issuance of the Class B and Class C Certificates were
negotiated by the Company with FUNB. The terms of the reacquisition of the Loans
from the Master Trust were negotiated with FSA, the certificate holders, and
FUNB at the time of acquisition.
The 1995-1 Trust transaction did not affect the accounting sale treatment
previously extended to the transfers of the Loans to the Master Trust, inasmuch
as the transaction required the consent of all certificate holders as provided
in the Master Trust documents, and therefore was consistent with the sale
treatment.
During the nine months ended September 30, 1996, and 1995, and the year
ended December 31, 1995, the following activity took place with respect to
securitization:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
---------------- ---------------- ------------
<S> <C> <C> <C>
Original customer principal balance of loans sold... $ 91,741,229 38,346,397 49,814,996
---------------- ---------------- ------------
---------------- ---------------- ------------
Gain on sales....................................... $ 8,188,473 5,559,234 7,125,849
---------------- ---------------- ------------
---------------- ---------------- ------------
Remaining principal balance of loans sold since
inception, at period end............................ $ 82,792,345 35,064,001 43,144,670
---------------- ---------------- ------------
---------------- ---------------- ------------
Weighted average coupon rate........................ 19.7% 18.3% 18.3%
---------------- ---------------- ------------
---------------- ---------------- ------------
Weighted average original term (months)............. 54 54 53
---------------- ---------------- ------------
---------------- ---------------- ------------
</TABLE>
Both of the consolidated companies utilize the securitization facilities.
(4) JUNIOR SUBORDINATED NOTES
The debt is payable on demand to principal equity holders of the Company
and certain affiliates and carries interest at 8 percent. Interest expense
recognized for this debt for the period from December 31, 1995 through September
30, 1996, the year ended December 31, 1995 and the period October 1, 1994
(inception) to December 31, 1994 was $332,327, $497,260, and $77,950,
respectively.
(5) SENIOR SUBORDINATED DEBT
In August 1996, the Company completed a $12 million senior subordinated
debt financing with J.P. Morgan Investment Management, Inc., acting on behalf of
certain institutional investors (the 'Morgan Group'). The principal amount of
the Senior Subordinated Debt is due in August 2001 and carries a 10% coupon
payable quarterly. There is also an additional 3% deferred interest coupon that
accrues on a compounded basis and is payable in August 2006, if not earlier
automatically converted into a 10% equity interest in the Company upon the
occurrence of certain events, including the consummation of an intitial public
offering. The Senior Subordinated Debt generally prohibits the payment of
dividends on common stock following consummation of an initial public offering
of common stock so long as any amount remains outstanding on this debt. The
Company has accrued the additional 3% interest. Such amounts totaled
approximately $50,000 at September 30, 1996. If converted to an equity interest,
such accrued amounts would be considered as paid-in capital of the Company.
F-16
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(6) OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------ YEAR ENDED OCTOBER 1 TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Dealer incentives........................... $ 195,769 97,622 169,782 --
Legal expenses.............................. 172,772 56,056 102,706 5,815
Rent expenses............................... 159,416 63,899 93,673 5,404
Travel and entertainment.................... 302,994 140,254 233,061 25,657
Management fees............................. 365,310 257,590 342,428 11,900
Other....................................... 635,304 285,209 368,506 34,825
------------- ------------- ------------ ------------
$ 1,831,565 900,630 1,310,156 83,601
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
Management fees represent fees paid to National Auto Finance Corp., an
affiliate, for operational, legal, administrative and other services provided to
the Company under a management agreement that expires December 21, 2015.
(7) COMMITMENTS AND CONTINGENCIES
The Company has entered into various office and equipment leases for the
NAFCO and ACCH partnerships. Future minimum rental payments as of September 30,
1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES TOTAL
- ---------------------------------------------------------------------- --------- ------- -------
<S> <C> <C> <C>
1996.................................................................. $ 27,256 8,921 36,177
1997.................................................................. 130,182 35,683 165,865
1998.................................................................. 136,694 35,683 172,377
1999.................................................................. 103,089 35,683 138,772
2000.................................................................. 99,836 22,942 122,778
Thereafter............................................................ 42,440 -- 42,440
--------- ------- -------
Total lease commitment................................................ $ 539,497 138,912 678,409
--------- ------- -------
--------- ------- -------
</TABLE>
Capital leases are included as a component of accounts payable and accrued
expenses.
(8) EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) Profit Sharing Plan (the 'Plan') in August
1996 that is intended to be a tax qualified defined contribution plan. All
Employees of the Company, other than employees who work less than 1,000 hours
per year, are eligible to participate in the Plan once they have completed six
months of continuous service.
A participating employee may contribute up to 15 percent of his/her
compensation, with a maximum contribution of $9,500 to the Plan on a pre-tax
basis. The Company may make a matching contribution to each employee's account
based on the amount of pre-tax contributions made by the employee. Currently,
the Company is allocating a 50 percent match of the first 6 percent contributed
by the employee, subject to certain legal limitations imposed on tax-qualified
plans. Matching contributions by the Company are made irrespective of profits
and are allocated only to qualified participants on a monthly basis.
Contributions to the Plan are invested in a variety of funds as directed by
the Plan participants. All pre-tax employee contributions to the Plan are 100
percent vested and matching contributions by the Company are vested at 20
percent per annum over a five-year period from the date the employee joined the
Plan. All active employees
F-17
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(8) EMPLOYEE BENEFIT PLANS--(CONTINUED)
that had completed 1,000 hours of service as of August 30, 1996 were invited to
join the Plan and have matching contribution vested rights predated to their
date of employment.
Generally, employees may not receive distributions from the Plan until
their retirement, death, certain disability or termination of employment. Loans
are prohibited by the Plan, although distributions for certain hardship purposes
are allowed in accordance with tax regulations promulgated under the Code. All
distributions for the Plan are made in the form of a single lumpsum
distribution.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 107, 'Disclosures about Fair Value of Financial Instruments' ('FAS
107') as of January 1, 1995. FAS 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
o Cash and cash equivalents, trade accounts receivables, due from
officers and employees, other current assets, notes payable to
banks, trade accounts payables, due to affiliated company, and
accrued expenses (nonderivatives) have carrying amounts which
approximate fair value because of the short maturity of these
instruments.
o The fair value of notes payable is determined as the present value
of expected future cash flows discounted at the interest rate
currently offered to the Company, which approximates rates currently
offered for loans of similar terms to companies with comparable
credit risk. The carrying amount approximates fair value.
o The fair value of the excess spread receivable: the fair value is
determined by taking the net present value of the expected future
cash flows discounted at a rate which approximates the rate a
willing investor would pay for a comparable interest-only strip. The
carrying amount approximates fair value.
(10) UNAUDITED PRO FORMA INFORMATION
Pro forma adjustments for income taxes represent the difference between
historical income taxes and income taxes that would have been reported had the
companies filed income tax returns as taxable C corporations for each of the
years presented.
F-18
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes historical and pro forma income taxes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
----------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Historical income taxes:
Federal................................... $ -- -- -- --
State and local........................... -- -- -- --
----------------- ----------------- ------------ ------------
-- -- -- --
----------------- ----------------- ------------ ------------
Pro forma income tax adjustments
(unaudited):
Federal................................... $ 1,054,617 773,845 963,555 --
State and local........................... 112,596 91,007 102,874 --
----------------- ----------------- ------------ ------------
1,167,213 864,852 1,066,429 --
----------------- ----------------- ------------ ------------
$ 1,167,213 864,852 1,066,429 --
----------------- ----------------- ------------ ------------
----------------- ----------------- ------------ ------------
</TABLE>
If the Company terminated its partnership status (see note 9), as of
September 30, 1996 the Companies would be required to record a deferred tax
liability for the tax effect of temporary differences between financial
reporting and tax reporting. The tax effect of such temporary differences
existing on September 30, 1996 consist of:
<TABLE>
<S> <C>
Securitized assets sold for financial statement purposes, financed for
income tax purposes................................................. $2,204,127
Fixed assets.......................................................... 9,914
Other................................................................. 19,601
----------
$2,233,642
----------
----------
</TABLE>
Pro forma income taxes differ from the amounts computed by applying Federal
statutory rates due to:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
----------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Pro forma provision computed at Federal
statutory rate of 34%.................. $ 1,054,617 934,798 1,115,481 (161,404)
State income taxes, net of Federal tax
benefit................................ 112,596 99,803 119,094 (17,232)
----------------- ----------------- ------------ ------------
Valuation allowance....................... -- (178,045) (178,045) 178,045
Other..................................... -- 8,296 9,899 591
----------------- ----------------- ------------ ------------
$ 1,167,213 864,852 1,066,429 --
----------------- ----------------- ------------ ------------
----------------- ----------------- ------------ ------------
</TABLE>
F-19
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) PROPOSED INITIAL PUBLIC OFFERING (IPO)
On October 8, 1996, National Auto Finance Company, Inc. ('NAFCO, Inc.')
filed a registration statement with the Securities and Exchange Commission for
an initial public offering of its common stock.
Prior to the sale of the shares of common stock, the respective assets and
liabilities of the NAFCO and ACCH Partnerships will be transferred to NAFCO,
Inc. in exchange for all the common stock of NAFCO, Inc. then outstanding (such
transaction being referred to herein as the 'Reorganization'). Specifically, the
Reorganization will entail the following transfers:
(a) The partners of the ACCH Partnership (other than the NAFCO
Partnership) will transfer all of their partner interests in the
ACCH Partnership to the NAFCO Partnership in exchange for limited
partner interests in the NAFCO Partnership.
(b) The NAFCO Partnership will transfer all of its assets, subject to
all of its liabilities, to the Company in exchange for common
stock.
(c) Upon completion of the Reorganization and immediately prior to
the Offering, all of the common stock of NAFCO, Inc. will be
directly owned by the NAFCO Partnership and the Morgan Group.
As part of the reorganization it is anticipated that the Preferred Equity
Partners of the NAFCO Partnership would become owners of preferred stock of
NAFCO, Inc. The proposed terms of the Preferred Stock are as follows: 7%
cumulative dividend, payable quarterly; callable at par plus accrued dividends
at the option of the Company; non-voting, except under certain circumstances;
and mandatory redemption 8 years from the issue date.
As part of the Reorganization, it is anticipated that the Board of
Directors of the Company will adopt a stock option plan (the '1996 Stock Option
Plan'). The 1996 Stock Option Plan is intended to afford certain key employees
and outside directors of the Company who are responsible for the continued
growth of the Company an opportunity to acquire a proprietary interest in the
Company.
The 1996 Stock Option Plan will provide for the granting of options to
purchase an aggregate of shares of Common Stock (subject to
adjustment in the event of stock dividends, stock splits and other
contingencies). Options granted under the 1996 Stock Option Plan will not be
intended to qualify as 'incentive stock options' within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the 'Code'). The 1996
Stock Option Plan is intended to be qualified under Rule 16b-3 under the
Exchange Act.
The 1996 Stock Option Plan will require the Board of Directors to designate
an option committee (the 'Committee') to administer the 1996 Stock Option Plan,
consisting of no fewer than two directors who are 'non-employee directors'
within the meaning of Rule 16b-3 under the Exchange Act (or any successor rule
or regulation). The Board of Directors may at any time remove members from and
may fill any vacancy on the Committee. The Committee will have the authority, in
its discretion and subject to the express provisions of the 1996 Stock Option
Plan, to determine, among other things, the persons to receive options, the date
of grant of such options, the number of shares to be subject to each option and
the purchase price of each share subject to such options. The Company will
receive no monetary consideration for granting options under the 1996 Stock
Option Plan.
The 1996 Stock Option Plan will also provide for the automatic grant, to
each non-employee director of the Company, of options to purchase shares of
Common Stock on the date on which the annual meeting of the Company's
stockholders is held each year. See '--Compensation of Directors.'
The purchase price of shares of Common Stock issuable upon exercise of each
option granted pursuant to the 1996 Stock Option Plan will be the fair market
value of the shares on the date of grant. The expiration and vesting of options
granted will be determined by the Committee.
F-20
<PAGE>
In the event of any change in the outstanding shares of Common Stock of the
Company through reorganization, stock dividend, subdivision or combination of
shares, or other like change in capital structure of the Company, appropriate
adjustments will be made by the Committee to each outstanding option under the
1996 Stock Option Plan and to the maximum number of shares of Common Stock which
may be acquired pursuant to the exercise of options, and the price per share
subject to outstanding options shall be proportionately adjusted.
(12) SELECTED QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the quarterly results of operations for the
periods indicated.
<TABLE>
<CAPTION>
1996
-----------------------------------------
NINE MONTHS
THREE MONTHS ENDED ENDED
----------------------------------------- SEPTEMBER 30,
MARCH 31 JUNE 30 SEPTEMBER 30 1996
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Gain on sale of loans................... $2,097,247 2,530,932 3,560,294 8,188,473
Other revenue........................... 494,100 513,533 659,851 1,667,484
---------- ---------- ------------- -------------
Total revenue.................... 2,591,347 3,044,465 4,220,145 9,855,957
Total expenses................... 1,789,284 2,178,331 2,786,528 6,754,143
---------- ---------- ------------- -------------
Net income....................... $ 802,063 866,134 1,433,617 3,101,814
---------- ---------- ------------- -------------
---------- ---------- ------------- -------------
Pro forma income before income taxes.... $ 802,063 866,134 1,433,617 3,101,814
Pro forma income taxes.................. 301,816 325,927 539,470 1,167,213
---------- ---------- ------------- -------------
Pro forma net income.................... $ 500,247 540,207 894,147 1,934,601
---------- ---------- ------------- -------------
---------- ---------- ------------- -------------
<CAPTION>
1995
----------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
---------------------------------------------------------- DECEMBER 31,
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1995
---------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Gain on sale of loans................... $1,763,672 1,732,447 2,063,115 1,566,615 7,125,849
Other revenue........................... 17,634 92,249 178,261 396,986 685,130
---------- ---------- ------------- ------------- ------------
Total revenue.................... 1,781,306 1,824,696 2,241,376 1,963,601 7,810,979
Total expenses................... 856,168 1,058,182 1,183,623 1,432,180 4,530,153
---------- ---------- ------------- ------------- ------------
Net income....................... $ 925,138 766,514 1,057,753 531,421 3,280,826
---------- ---------- ------------- ------------- ------------
---------- ---------- ------------- ------------- ------------
Pro forma income before taxes........... 925,138 766,514 1,057,753 531,421 3,280,826
Pro forma income taxes.................. 173,273 293,547 398,032 201,577 1,066,429
---------- ---------- ------------- ------------- ------------
Pro forma net income.................... $ 751,865 472,967 659,721 329,844 2,214,397
---------- ---------- ------------- ------------- ------------
---------- ---------- ------------- ------------- ------------
</TABLE>
F-21
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................. 3
The Company.................................... 3
Risk Factors................................... 8
The Reorganization............................. 15
Use of Proceeds................................ 16
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Consolidated Financial Data........... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 28
Management..................................... 39
Principal Stockholders......................... 44
Certain Transactions........................... 45
Description of Capital Stock................... 48
Shares Eligible for Future Sale................ 49
Underwriting................................... 50
Legal Matters.................................. 52
Experts........................................ 52
Available Information.......................... 52
Index to Consolidated Financial Statements..... F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
SHARES
[NAFCO LOGO]
NATIONAL AUTO FINANCE COMPANY, INC.
COMMON STOCK
------------------------
P R O S P E C T U S
------------------------
RAYMOND JAMES & ASSOCIATES, INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below sets forth the expenses expected to be incurred and borne
solely by the Company in connection with the registration of the Common Stock
offered hereby (other than underwriting commissions and discounts, if any).
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............ $ 4,849
NASD Filing Fee................................................ *
Printing and Engraving Expenses................................ *
Blue Sky Fees and Expenses..................................... 15,000
Legal Fees and Expenses........................................ *
Accountants' Fees and Expenses................................. *
NASDAQ Stock Market Listing Fee................................ *
Transfer Agent and Registrar Fees and Expenses................. *
-------
Miscellaneous.................................................. *
-------
Total..................................................... *
-------
-------
</TABLE>
- ------------------
* To be filed by amendment.
All such fees and expenses have been or will be paid by the Registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-Laws of the Company provides
for the indemnification of its officers and directors to the fullest extent
permitted by the DGCL. Pursuant to Section 145 of the DGCL, a Delaware
corporation generally has the power to indemnify its present and former
directors and officers against expenses incurred by them in connection with any
suit to which such directors and officers are, or are threatened to be made, a
party by reason of their serving in such positions, so long as they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of the corporation for which they served in such positions,
and with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such directors or officers acted in good faith and in
a manner such directors or officers reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such directors' or
officers' conduct was unlawful. Indemnification is not available if such person
is adjudged to be liable to the corporation for which he or she served in such
positions, unless and only to the extent the court in which such action is
brought determines that, despite the adjudication of liability, and in view of
all the circumstances, the person is reasonably and fairly entitled to
indemnification for such expenses as the court shall deem proper. Where a
director or officer is successful on the merits or otherwise in the defense of
any action referred to above or in defense of any claim, issue or matter
therein, the corporation must indemnify such director or officer against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection therewith. The Company has the power to purchase and
maintain insurance for such persons. The statute also expressly provides that
the power to indemnify authorized thereby is not exclusive of any rights granted
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
The above discussion of the Certificate of Incorporation and By-Laws of the
Company and of Section 145 of the DGCL is not intended to be exhaustive and is
qualified in its entirety by such Certificate of Incorporation and By-Laws and
the DGCL.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1996, prior to the filing of the Registration Statement, the
NAPCO Partnership agreed to transfer all of its assets, subject to all of the
liabilities, of the Partnerships to a newly formed corporation in exchange for
shares of Common Stock. As part of the Reorganization described under 'The
Reorganization' in the Prospectus. The transaction was exempt from registration
under Section 4(2) of the Securities Act as not involving a public offering. No
underwriter was involved in the transaction.
Immediately prior to the Consummation of the Offering, the Deferred
Additional Interest Notes were exchanged for shares of the Common Stock
representing 10% of the outstanding Common Stock immediately prior to
consummation of the Offering.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
***1.1 -- Form of Underwriting Agreement.
*3.1 -- Certificate of Incorporation of the Company.
*3.2 -- Form of By-laws of the Company.
***4.1 -- Specimen Certificate of Common Stock.
***5.1 -- Opinion of Weil, Gotshal & Manges LLP with respect to the legality of the Common Stock.
*10.1 -- Second Amended and Restated Agreement of Limited Partnership of National Auto Finance Company
L.P., dated as of September 1, 1995, by and among National Auto Finance Corporation, The S
Associates Limited Partnership, The O Associates Limited Partnership, Stephen L. Gurba, Craig
Schnee, Roy E. Tipton, Blane H. MacDonald, Michael B. Colley, Irwin I. Kent, William G. Magro,
Kevin G. Adams, Kamala R. Chapman, Keith B. Stein, Colleen S. McMillen, Richard H. Steffer, Tim
Rooney, Lynn Dunham-Sirota and IronBrand Capital, LLC.
***10.2 -- Form of 1996 Stock Option Plan.
*10.3 -- Form of 401(k) Plan.
***10.4 -- Employment Agreement, dated as of July 1, 1996, between National Auto Finance Company, Inc. and
William Magro.
***10.5 -- Employment Agreement, dated as of September 16, 1995, between National Auto Finance Company,
Inc. and Roy E. Tipton.
***10.6 -- Employment Agreement, dated as of October 19, 1995, between National Auto Finance Company, Inc.
and Blane H. MacDonald.
*10.7 -- Promissory Note, dated October 31, 1994, payable by National Auto Finance Company L.P. to the
order of Gary L. Shapiro.
*10.8 -- Promissory Note, dated October 6, 1994, payable by National Auto Finance Company L.P. to the
order of Edgar Otto.
*10.9 -- Promissory Note, dated November 8, 1994, payable by National Auto Finance Company L.P. to the
order of Stephen L. Gurba.
*10.10 -- Promissory Note, dated March 27, 1995, payable by National Auto Finance Company L.P. to the
order of Nova Financial Corporation.
*10.11 -- Promissory Note, dated May 1, 1995, payable by National Auto Finance Company L.P. to the order
of Nova Corporation.
**10.12 -- Note Purchase Agreement, dated as of August 9, 1996, between National Auto Finance Company L.P.
and Morgan Guaranty Trust Company of New York, as Trustee of the Commingled Pension Trust Fund
(Multi-Market Special Investment Fund II) of Morgan Guaranty Trust Company of New York, Morgan
Guaranty Trust Company of New York, as Trustee of the Multi-Market Special Investment Trust
Fund of Morgan Guaranty Trust Company of New York and Morgan Guaranty Trust Company, as
investment manager and agent for the Alfred P. Sloan Foundation (Multi-Market Account).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
**10.13 -- Promissory Note (No. 101), dated August 9, 1996, payable by National Auto Finance Company L.P.
to the order of Kelly & Co., as nominee for Morgan Guaranty Trust Company of New York.
**10.14 -- Promissory Note (No. 201), dated August 9, 1996, payable by National Auto Finance Company L.P.
to the order of Kelly & Co., as nominee for Morgan Guaranty Trust Company of New York.
**10.15 -- Promissory Note (No. 102), dated August 9, 1996, payable by National Auto Finance Company L.P.
to the order of Kelly & Co., as nominee for Morgan Guaranty Trust Company of New York.
**10.16 -- Registration Rights Agreement, dated as of August 9, 1996, among National Auto Finance Company
Inc. and Morgan Guaranty Trust Company of New York, as Trustee of the Commingled Pension Trust
Fund (Multi-Market Special Investment Fund II) of Morgan Guaranty Trust Company of New York,
Morgan Guaranty Trust Company of New York, as Trustee of the Multi-Market Special Investment
Trust Fund of Morgan Guaranty Trust Company of New York and Morgan Guaranty Trust Company, as
investment manager and agent for the Alfred P. Sloan Foundation (Multi-Market Account).
*10.17 -- Receivables Purchase Agreement, dated as of December 8, 1994, by and between National Auto
Finance Company L.P., as Seller, and NAFCO Funding Trust, as Purchaser.
*10.18 -- Promissory Note, dated December 8, 1994, payable by NAFCO Funding Trust to the order of
National Auto Finance Company L.P.
*10.19 -- NAFCO Auto Receivables Master Trust Pooling and Administration Agreement, dated as of December
8, 1994, among NAFCO Funding Trust, as Transferor, National Auto Finance Company L.P., as the
Administrator, and Bankers Trust Company, as Trustee.
*10.20 -- Series 1994-R, Class B Supplement, dated as of December 8, 1994, to the Pooling and
Administration Agreement, dated as of December 8, 1994, among NAFCO Funding Trust, as
Transferor, National Auto Finance Company L.P., as the Administrator, and Bankers Trust
Company, as Trustee.
*10.21 -- Trust Agreement, dated as of October 5, 1994, between National Auto Finance Corporation and
Bankers Trust.
*10.22 -- First Amended and Restated Trust Agreement of NAFCO Funding Trust, dated as of December 8,
1994, between National Auto Finance Company L.P., as Depositor, The Chase Manhattan Bank (USA),
as Owner Trustee and Gary L. Shapiro and Edgar Otto, as Co-Trustees.
*10.23 -- Servicing Agreement, dated July 25, 1994, by and between World Omni Financial Corp. and
National Auto Finance Corporation.
*10.24 -- Certificate Purchase Agreement, dated as of December 8, 1994, among NAFCO Funding Trust,
National Auto Finance Company L.P., as initial Administrator and First Union National Bank of
North Carolina.
*10.25 -- Management Agreement, dated as of December 29, 1994, by and between National Auto Finance
Company L.P. and National Auto Finance Corporation.
*10.25-1 -- First Amendment of Management Agreement, dated as of January 1, 1996, by and between National
Auto Finance Company L.P., Auto Credit Clearinghouse L.P. and National Auto Finance
Corporation.
*10.26 -- Services Agreement, dated as of December 29, 1994, by and between National Auto Finance
Corporation and National Financial Corporation.
*10.26-1 -- First Amendment to Services Agreement, dated as of January 1, 1996, by and between National
Auto Finance Corporation and National Financial Corporation.
*10.27 -- Pooling and Servicing Agreement, dated as of October 1, 1995, by and among National Financial
Auto Funding Trust, as Transferor, National Auto Finance Company L.P., as Master Servicer, and
Harris Trust and Savings Bank, as Trustee.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
*10.28 -- Assignment Agreement, dated as of October 1, 1995, between Bankers Trust Company, as Trustee,
and National Financial Auto Funding Trust.
*10.29 -- Transfer Agreement No. 1, dated as of October 1, 1995, between National Financial Auto Funding
Trust and Harris Trust and Savings Bank.
*10.30 -- Insurance and Indemnity Agreement, dated as of November 21, 1995, among Financial Security
Assurance Inc., National Financial Auto Funding Trust, and National Auto Finance Company L.P.
*10.31 -- Indemnification Agreement, dated as of November 21, 1995, among Financial Security Assurance
Inc., National Financial Auto Funding Trust and First Union Capital Markets Corp.
*10.32 -- Master Spread Account Agreement, dated as of November 21, 1995, among National Financial Auto
Funding Trust, Financial Security Assurance Inc. and Harris Trust and Savings Bank, as Trustee
and as Collateral Agent.
*10.33 -- Financial Guaranty Insurance Policy (Policy No.: 50522-N), together with Endorsement No. 1
thereto, dated November 13, 1996, issued by Financial Security Assurance Inc. in favor of
Harris Trust and Savings Bank, as trustee for the benefit of the Certificate Holders.
*10.34 -- Amended and Restated Servicing Agreement, dated as of December 5, 1994, by and between World
Omni Financial Corp. and National Auto Finance Company L.P.
*10.35 -- Assignment and Assumption Agreement, dated as of October 23, 1995, among World Omni Financial
Corp. and Omni Financial Services of America, Inc.
*10.36 -- Supplement to the Amended and Restated Servicing Agreement, dated as of December 5, 1994, as
amended as of October 1, 1995, between World Omni Financial Corp. ('WOFC'), as servicer, and
National Auto Finance Company L.P. ('NAFCO') is made as of November 21, 1995 by and between
Omni Financial Services of America, Inc., as assignee of WOFC ('Servicer'), and NAFCO.
*10.37 -- Custodial Agreement, dated as of November 21, 1995, by and between Omni Financial Services of
America, Inc., as custodian, and National Auto Finance Company L.P. as master servicer.
*10.38 -- Placement Agent Agreement, dated as of November 20, 1995, between First Union Capital Markets
Corp. and National Financial Auto Funding Trust.
*10.39 -- Amendment, dated as of November 21, 1995, to the First Amended and Restated Trust Agreement of
NAFCO Funding Trust, dated as of December 8, 1994, among National Auto Finance Company L.P., as
Depositor, The Chase Manhattan Bank (USA), as Owner Trustee, and Gary L. Shapiro, Edgar Otto
and Andrew Stidd, as Co-Trustees.
***10.40 -- Form of Indemnification Agreement.
*10.41 -- Assignment and Assumption Agreement, dated as of October 7, 1996, between National Auto Finance
Company, Inc., and National Auto Finance Company L.P.
**10.42 -- Pooling and Servicing Agreement, dated as of October 21, 1996, by and among National Financial
Auto Funding Trust, as Transferor, National Auto Finance Company L.P. as Servicer, and Harris
Trust and Savings Bank, as Trustee.
**10.43 -- Purchase and Contribution Agreement, dated as of October 21, 1996, by and between National Auto
Finance Company L.P. and National Financial Auto Funding Trust.
**10.44 -- Assignment Agreement, dated as of October 21, 1996, between Bankers Trust Company and National
Financial Auto Funding Trust II.
**10.45 -- Master Spread Account Agreement, dated as of November 13, 1996, among National Financial Auto
Funding Trust, Financial Security Assurance Inc. and Harris Trust and Savings Bank, as Trustee
and Collateral Agent.
**10.46 -- Insurance and Indemnity Agreement, dated as of November 13, 1996, among Financial Security
Assurance Inc., National Financial Auto Funding Trust, and National Auto Finance Company L.P.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
**10.47 -- Sale Agreement, dated as of October 21, 1996, by and between National Financial Auto Funding
Trust and National Financial Auto Funding Trust II.
**10.48 -- Purchase Agreement, dated as of October 21, 1996, by and between Auto Credit Clearinghouse L.P.
and National Auto Finance Company L.P.
**10.49 -- Supplement to the Amended and Restated Servicing Agreement, dated as of December 5, 1994, as
amended as of October 1, 1995 (the 'Servicing Agreement'), between World Omni Financial Corp
(WOFC) and National Auto Finance Company L.P. (NAFCO) is made as of November 13, 1996 by and
between Omni Financial Services of America, Inc., as assignee of WOFC, and NAFCO.
**10.50 -- Transfer Agreement No. 1, dated as of November 13, 1996, by National Financial Auto Funding
Trust as Transferor to Harris Trust and Savings Bank, as Trustee, pursuant to a Pooling and
Servicing Agreement, dated as of October 21, 1996.
**10.51 -- Form of Financial Guaranty Insurance Policy issued by Financial Security Assurance Inc.
**23.1 -- Consent of KPMG Peat Marwick LLP.
***23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1)
*24.1 -- Power of Attorney (included on the signature page of the Registration Statement).
***27.0 -- Financial Data Schedules.
</TABLE>
- ------------------
* Filed previously
** Filed herewith
*** To be filed by amendment
(b) Financial Statement Schedules:
All Schedules have been omitted because the information is not applicable
or is presented in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boca Raton,
State of Florida on November 25, 1996.
NATIONAL AUTO FINANCE COMPANY, INC.
(Registrant)
By: /s/ KEITH B. STEIN
-------------------------------
Name: Keith B. Stein
Title: Vice Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
* Chief Executive Officer and Chairman of the November 25, 1996
- ------------------------------------------ Board (principal executive officer)
Gary L. Shapiro
* Vice President and Chief Financial Officer November 25, 1996
- ------------------------------------------ (principal financial and accounting
Kevin G. Adams officer)
/s/ KEITH B. STEIN Vice Chairman and Director November 25, 1996
- ------------------------------------------
Keith B. Stein
* Director November 25, 1996
- ------------------------------------------
Edgar A. Otto
* Director November 25, 1996
- ------------------------------------------
Roy E. Tipton
* By: /s/ KEITH B. STEIN
------------------------------
Keith B. Stein
(Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------------- ----------------------------------------------------------------------------------------- -----------
<S> <C> <C>
***1.1 -- Form of Underwriting Agreement.
*3.1 -- Certificate of Incorporation of the Company.
*3.2 -- Form of By-laws of the Company.
***4.1 -- Specimen Certificate of Common Stock.
***5.1 -- Opinion of Weil, Gotshal & Manges LLP with respect to the legality of the Common
Stock.
*10.1 -- Second Amended and Restated Agreement of Limited Partnership of National Auto
Finance Company L.P., dated as of September 1, 1995, by and among National Auto
Finance Corporation, The S Associates Limited Partnership, The O Associates Limited
Partnership, Stephen L. Gurba, Craig Schnee, Roy E. Tipton, Blane H. MacDonald,
Michael B. Colley, Irwin I. Kent, William G. Magro, Kevin G. Adams, Kamala R.
Chapman, Keith B. Stein, Colleen S. McMillen, Richard H. Steffer, Tim Rooney, Lynn
Dunham-Sirota and IronBrand Capital, LLC.
***10.2 -- Form of 1996 Stock Option Plan.
*10.3 -- Form of 401(k) Plan.
***10.4 -- Employment Agreement, dated as of July 1, 1996, between National Auto Finance
Company, Inc. and William Magro.
***10.5 -- Employment Agreement, dated as of September 16, 1995, between National Auto Finance
Company, Inc. and Roy E. Tipton.
***10.6 -- Employment Agreement, dated as of October 19, 1995, between National Auto Finance
Company, Inc. and Blane H. MacDonald.
*10.7 -- Promissory Note, dated October 31, 1994, payable by National Auto Finance Company
L.P. to the order of Gary L. Shapiro.
*10.8 -- Promissory Note, dated October 6, 1994, payable by National Auto Finance Company
L.P. to the order of Edgar Otto.
*10.9 -- Promissory Note, dated November 8, 1994, payable by National Auto Finance Company
L.P. to the order of Stephen L. Gurba.
*10.10 -- Promissory Note, dated March 27, 1995, payable by National Auto Finance Company
L.P. to the order of Nova Financial Corporation.
*10.11 -- Promissory Note, dated May 1, 1995, payable by National Auto Finance Company L.P.
to the order of Nova Corporation.
**10.12 -- Note Purchase Agreement, dated as of August 9, 1996, between National Auto Finance
Company L.P. and Morgan Guaranty Trust Company of New York, as Trustee of the
Commingled Pension Trust Fund (Multi-Market Special Investment Fund II) of Morgan
Guaranty Trust Company of New York, Morgan Guaranty Trust Company of New York, as
Trustee of the Multi-Market Special Investment Trust Fund of Morgan Guaranty Trust
Company of New York and Morgan Guaranty Trust Company, as investment manager and
agent for the Alfred P. Sloan Foundation (Multi-Market Account).
**10.13 -- Promissory Note (No. 101), dated August 9, 1996, payable by National Auto Finance
Company L.P. to the order of Kelly & Co., as nominee for Morgan Guaranty Trust
Company of New York.
**10.14 -- Promissory Note (No. 201), dated August 9, 1996, payable by National Auto Finance
Company L.P. to the order of Kelly & Co., as nominee for Morgan Guaranty Trust
Company of New York.
**10.15 -- Promissory Note (No. 102), dated August 9, 1996, payable by National Auto Finance
Company L.P. to the order of Kelly & Co., as nominee for Morgan Guaranty Trust
Company of New York.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------------- ----------------------------------------------------------------------------------------- -----------
<S> <C> <C>
**10.16 -- Registration Rights Agreement, dated as of August 9, 1996, among National Auto
Finance Company Inc. and Morgan Guaranty Trust Company of New York, as Trustee of
the Commingled Pension Trust Fund (Multi-Market Special Investment Fund II) of
Morgan Guaranty Trust Company of New York, Morgan Guaranty Trust Company of New
York, as Trustee of the Multi-Market Special Investment Trust Fund of Morgan
Guaranty Trust Company of New York and Morgan Guaranty Trust Company, as investment
manager and agent for the Alfred P. Sloan Foundation (Multi-Market Account).
*10.17 -- Receivables Purchase Agreement, dated as of December 8, 1994, by and between
National Auto Finance Company L.P., as Seller, and NAFCO Funding Trust, as
Purchaser.
*10.18 -- Promissory Note, dated December 8, 1994, payable by NAFCO Funding Trust to the
order of National Auto Finance Company L.P.
*10.19 -- NAFCO Auto Receivables Master Trust Pooling and Administration Agreement, dated as
of December 8, 1994, among NAFCO Funding Trust, as Transferor, National Auto
Finance Company L.P., as the Administrator, and Bankers Trust Company, as Trustee.
*10.20 -- Series 1994-R, Class B Supplement, dated as of December 8, 1994, to the Pooling and
Administration Agreement, dated as of December 8, 1994, among NAFCO Funding Trust,
as Transferor, National Auto Finance Company L.P., as the Administrator, and
Bankers Trust Company, as Trustee.
*10.21 -- Trust Agreement, dated as of October 5, 1994, between National Auto Finance
Corporation and Bankers Trust.
*10.22 -- First Amended and Restated Trust Agreement of NAFCO Funding Trust, dated as of
December 8, 1994, between National Auto Finance Company L.P., as Depositor, The
Chase Manhattan Bank (USA), as Owner Trustee and Gary L. Shapiro and Edgar Otto, as
Co-Trustees.
*10.23 -- Servicing Agreement, dated July 25, 1994, by and between World Omni Financial Corp.
and National Auto Finance Corporation.
*10.24 -- Certificate Purchase Agreement, dated as of December 8, 1994, among NAFCO Funding
Trust, National Auto Finance Company L.P., as initial Administrator and First Union
National Bank of North Carolina.
*10.25 -- Management Agreement, dated as of December 29, 1994, by and between National Auto
Finance Company L.P. and National Auto Finance Corporation.
*10.25-1 -- First Amendment of Management Agreement, dated as of January 1, 1996, by and
between National Auto Finance Company L.P., Auto Credit Clearinghouse L.P. and
National Auto Finance Corporation.
*10.26 -- Services Agreement, dated as of December 29, 1994, by and between National Auto
Finance Corporation and National Financial Corporation.
*10.26-1 -- First Amendment to Services Agreement, dated as of January 1, 1996, by and between
National Auto Finance Corporation and National Financial Corporation.
*10.27 -- Pooling and Servicing Agreement, dated as of October 1, 1995, by and among National
Financial Auto Funding Trust, as Transferor, National Auto Finance Company L.P., as
Master Servicer, and Harris Trust and Savings Bank, as Trustee.
*10.28 -- Assignment Agreement, dated as of October 1, 1995, between Bankers Trust Company,
as Trustee, and National Financial Auto Funding Trust.
*10.29 -- Transfer Agreement No. 1, dated as of October 1, 1995, between National Financial
Auto Funding Trust and Harris Trust and Savings Bank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------------- ----------------------------------------------------------------------------------------- -----------
<S> <C> <C>
*10.30 -- Insurance and Indemnity Agreement, dated as of November 21, 1995, among Financial
Security Assurance Inc., National Financial Auto Funding Trust, and National Auto
Finance Company L.P.
*10.31 -- Indemnification Agreement, dated as of November 21, 1995, among Financial Security
Assurance Inc., National Financial Auto Funding Trust and First Union Capital
Markets Corp.
*10.32 -- Master Spread Account Agreement, dated as of November 21, 1995, among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris Trust
and Savings Bank, as Trustee and as Collateral Agent.
*10.33 -- Financial Guaranty Insurance Policy (Policy No.: 50522-N), together with
Endorsement No. 1 thereto, dated November 13, 1996, issued by Financial Security
Assurance Inc. in favor of Harris Trust and Savings Bank, as trustee for the
benefit of the Certificate Holders.
*10.34 -- Amended and Restated Servicing Agreement, dated as of December 5, 1994, by and
between World Omni Financial Corp. and National Auto Finance Company L.P.
*10.35 -- Assignment and Assumption Agreement, dated as of October 23, 1995, among World Omni
Financial Corp. and Omni Financial Services of America, Inc.
*10.36 -- Supplement to the Amended and Restated Servicing Agreement, dated as of December 5,
1994, as amended as of October 1, 1995, between World Omni Financial Corp.
('WOFC'), as servicer, and National Auto Finance Company L.P. ('NAFCO') is made as
of November 21, 1995 by and between Omni Financial Services of America, Inc., as
assignee of WOFC ('Servicer'), and NAFCO.
*10.37 -- Custodial Agreement, dated as of November 21, 1995, by and between Omni Financial
Services of America, Inc., as custodian, and National Auto Finance Company L.P. as
master servicer.
*10.38 -- Placement Agent Agreement, dated as of November 20, 1995, between First Union
Capital Markets Corp. and National Financial Auto Funding Trust.
*10.39 -- Amendment, dated as of November 21, 1995, to the First Amended and Restated Trust
Agreement of NAFCO Funding Trust, dated as of December 8, 1994, among National Auto
Finance Company L.P., as Depositor, The Chase Manhattan Bank (USA), as Owner
Trustee, and Gary L. Shapiro, Edgar Otto and Andrew Stidd, as Co-Trustees.
***10.40 -- Form of Indemnification Agreement.
*10.41 -- Assignment and Assumption Agreement, dated as of October 7, 1996, between National
Auto Finance Company, Inc., and National Auto Finance Company L.P.
**10.42 -- Pooling and Servicing Agreement, dated as of October 21, 1996, by and among
National Financial Auto Funding Trust, as Transferor, National Auto Finance Company
L.P. as Servicer, and Harris Trust and Savings Bank, as Trustee.
**10.43 -- Purchase and Contribution Agreement, dated as of October 21, 1996, by and between
National Auto Finance Company L.P. and National Financial Auto Funding Trust.
**10.44 -- Assignment Agreement, dated as of October 21, 1996, between Bankers Trust Company
and National Financial Auto Funding Trust II.
**10.45 -- Master Spread Account Agreement, dated as of November 13, 1996, among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris Trust
and Savings Bank, as Trustee and Collateral Agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------------- ----------------------------------------------------------------------------------------- -----------
<S> <C> <C>
**10.46 -- Insurance and Indemnity Agreement, dated as of November 13, 1996, among Financial
Security Assurance Inc., National Financial Auto Funding Trust, and National Auto
Finance Company L.P.
**10.47 -- Sale Agreement, dated as of October 21, 1996, by and between National Financial
Auto Funding Trust and National Financial Auto Funding Trust II.
**10.48 -- Purchase Agreement, dated as of October 21, 1996, by and between Auto Credit
Clearinghouse L.P. and National Auto Finance Company L.P.
**10.49 -- Supplement to the Amended and Restated Servicing Agreement, dated as of December 5,
1994, as amended as of October 1, 1995 (the 'Servicing Agreement'), between World
Omni Financial Corp (WOFC) and National Auto Finance Company L.P. (NAFCO) is made
as of November 13, 1996 by and between Omni Financial Services of America, Inc., as
assignee of WOFC, and NAFCO.
**10.50 -- Transfer Agreement No. 1, dated as of November 13, 1996, by National Financial Auto
Funding Trust as Transferor to Harris Trust and Savings Bank, as Trustee, pursuant
to a Pooling and Servicing Agreement, dated as of October 21, 1996.
**10.51 -- Form of Financial Guaranty Insurance Policy issued by Financial Security Assurance
Inc.
**23.1 -- Consent of KPMG Peat Marwick LLP.
***23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit
5.1)
*24.1 -- Power of Attorney (included on the signature page of the Registration Statement).
***27.0 -- Financial Data Schedules.
</TABLE>
- ------------------
* Filed previously
** Filed herewith
*** To be filed by amendment
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P.
NOTE PURCHASE AGREEMENT
$12,000,000
Senior Subordinated Notes
<PAGE>
TABLE OF CONTENTS
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.............................. 1
1.1 Description of Notes.................................................. 1
1.2 Repayment of Principal................................................ 3
1.3 Commitment, Closing Date.............................................. 4
1.4 Other Agreements...................................................... 4
1.5 Paying and Exchange Agents............................................ 4
1.6 Restrictions on Transfer.............................................. 5
SECTION 2. PREPAYMENT AND REDEMPTION OF NOTES............................... 7
2.1 Prepayment at the Election of the Company............................. 7
2.2 Prepayment Following the Occurrence of a Change in Control Event...... 7
2.3 Prepayment Following the Company's Receipt of a Put Notice............ 8
2.4 Notice of Prepayments................................................. 10
2.5 Allocation of Prepayments............................................. 10
2.6 Notes Prepaid in Part................................................. 10
2.7 Direct Payment........................................................ 11
SECTION 3. REPRESENTATIONS.................................................. 11
3.1 Representations of the Company........................................ 11
3.2 Representations of the Purchasers..................................... 17
SECTION 4. CLOSING CONDITIONS................................................ 19
4.1 Purchasers' Conditions................................................ 19
4.2 Company's Conditions.................................................. 21
SECTION 5. COVENANTS........................................................ 21
5.1 Financial and Other Reports........................................... 21
i
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5.2 Books and Records..................................................... 24
5.3 Payments.............................................................. 25
5.4 Company Existence, Etc................................................ 25
5.5 Payment of Taxes...................................................... 25
5.6 Insurance............................................................. 25
5.7 Consolidation, Merger and Sale of Assets.............................. 25
5.8 Limitation on Indebtedness............................................ 26
5.9 Limitation on Liens................................................... 27
5.10 Limitation on Dividends and Other Restricted Payments................ 27
5.11 Limitations on Advances, Investments and Loans....................... 27
5.12 Notice to Holders.................................................... 28
5.13 Compliance with Law.................................................. 29
5.14 Compliance with Agreements........................................... 29
5.15 Environmental Covenant............................................... 29
5.16 Maintenance, Etc..................................................... 29
5.17 Transactions with Affiliates and Related Persons..................... 29
5.18 Use of Proceeds...................................................... 31
5.19 Continuance of Business.............................................. 31
5.20 Governmental Authorizations.......................................... 31
5.21 Further Assurances................................................... 31
5.22 Integration.......................................................... 32
5.23 Rule 10b-6........................................................... 32
5.24 Tangible Net Worth.................................................. 32
5.25 Visitation Rights.................................................... 32
5.26. Plan Assets......................................................... 33
5.27 Qualified Public Offering............................................ 33
ii
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5.28 Put Event Equity Redemption.......................................... 33
5.29 Board of Directors................................................... 34
5.30 Sales of New Insider Equity Interests................................ 34
5.31 Amendments to Partnership Agreement.................................. 34
5.32 Amendments to Certain Other Documents................................ 34
SECTION 6. EXCHANGE OF DEFERRED ADDITIONAL INTEREST NOTES................... 35
6.1 Automatic Exchange.................................................... 35
6.2 Partial Optional Exchange............................................. 36
6.3 Optional Exchange Upon Disposition.................................... 37
6.4 Optional Exchange Upon Non-Qualified Public Offering.................. 38
6.5 Optional Exchange Upon IronBrand Redemption........................... 39
6.6 Exchange Rate and Termination of Exchange Rights...................... 40
6.7 Asset Sales; Liquidation Decisions; Share Sales....................... 41
6.8 Fractional Equity Interests........................................... 43
6.9 Notice of Certain Actions............................................. 43
6.10 Company to Keep Available Equity Interests and Not
to Enter into Restrictive Agreements............................... 43
6.11 Taxes on Exchange.................................................... 44
6.12 Covenant as to Equity Interests...................................... 44
6.13 Cancellation of Exchanged Deferred Additional Interest Notes......... 44
6.14 Reclassification, Reorganization, Consolidation, Merger
or Sale of Assets.................................................. 44
SECTION 7. EVENTS OF DEFAULT AND REMEDIES THEREFOR.......................... 45
7.1 Events of Default..................................................... 45
7.2 Acceleration of Maturities............................................ 47
7.3 Remedies Cumulative................................................... 48
7.4 Remedies Not Waived................................................... 48
7.5 Rescission of Acceleration............................................ 48
7.6 Subordination......................................................... 49
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<PAGE>
SECTION 8. SUBORDINATION OF NOTES........................................... 49
SECTION 9. PREEMPTIVE RIGHTS................................................ 49
9.1 Preemptive Rights with respect to New Insider Equity Interests........ 49
9.2 Preemptive Rights with respect to Pari Passu Indebtedness and
Related Equity Interests............................................ 49
9.3 Preemptive Procedures................................................. 50
9.4 All Necessary Action.................................................. 51
SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS................................ 51
10.1 Consent Required.................................................... 51
10.2 Effect of Amendment or Waiver....................................... 51
10.3 Solicitation of Holders.............................................. 51
SECTION 11. INTERPRETATION OF AGREEMENT; DEFINITIONS........................ 52
11.1 Definitions.......................................................... 52
11.2 Accounting Principles................................................ 71
11.3 Directly or Indirectly............................................... 71
SECTION 12. MISCELLANEOUS................................................... 71
12.1 Effect of Conversion to Corporate Form............................... 71
12.2 Registered Notes..................................................... 71
12.3 Exchange of Notes.................................................... 72
12.4 Loss, Theft, Etc. of Notes........................................... 72
12.5 Treasury Notes....................................................... 73
12.6 Expenses, Stamp Tax Indemnity........................................ 73
12.7 Powers and Rights Not Waived; Remedies Cumulative.................... 73
12.8 Notices.............................................................. 73
12.9 Successors and Assigns............................................... 74
12.10 Survival of Covenants and Representations........................... 74
iv
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12.11 Severability........................................................ 74
12.12 GOVERNING LAW....................................................... 74
12.13 SUBMISSION TO JURISDICTION.......................................... 74
12.14 Captions............................................................ 75
12.15 Indemnification Provisions.......................................... 75
12.16 WAIVER OF JURY TRIAL................................................ 75
12.17 Time of the Essence................................................. 76
12.18 FINAL AGREEMENT..................................................... 76
v
<PAGE>
NATIONAL AUTO FINANCE COMPANY L.P.
NOTE PURCHASE AGREEMENT
$12,000,000
Senior Subordinated Notes
Dated as of
August 9, 1996
To the Purchaser Identified
on the Signature Page hereof
Ladies and Gentlemen:
National Auto Finance Company L.P., a Delaware limited partnership (the
"Company"), hereby agrees with you as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT
1.1 Description of Notes.
(a) The Company has authorized the issuance, sale and delivery of
$12,000,000 aggregate principal amount of its Senior Subordinated Notes (the
"Senior Subordinated Notes," which term includes each Senior Subordinated Note
delivered pursuant to this Agreement and the other Note Purchase Agreements with
the other purchasers named in Schedule I), and the related issuance, sale and
delivery of its Deferred Additional Interest Notes (the "Deferred Additional
Interest Notes," which term includes each Deferred Additional Interest Note
delivered pursuant to this Agreement and the other Note Purchase Agreements with
the other purchasers named in Schedule I; together with the Senior Subordinated
Notes, the "Notes"). The Senior Subordinated Notes and the Deferred Additional
Interest Notes shall be offered and sold to you without being registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance on
the exemption therefrom provided by Section 4(2) thereof. You and the other
purchasers named in Schedule I are hereinafter sometimes referred to as the
"Purchasers". The terms which are capitalized
<PAGE>
herein shall have the meanings set forth in Section 11.1 unless the context
shall otherwise require.
(b) The Senior Subordinated Notes shall be dated the date of issue, shall
bear interest on the unpaid portion of the principal amount thereof (subject to
the last two sentences of Section 1.1(c) and to Section 6), from such date of
issue (or from the date to which interest has been paid) until such unpaid
portion of such principal amount shall have become due and payable (whether on
the Senior Subordinated Note Repayment Date, by acceleration or otherwise). The
rate of interest on the Senior Subordinated Notes shall be equal to the sum of
the Senior Subordinated Interest Rate plus the Deferred Additional Interest Rate
(interest payable on the Senior Subordinated Notes at the Deferred Additional
Interest Rate, "Deferred Additional Interest"), and shall be payable (except for
Deferred Additional Interest, which shall be accrued and added to the unpaid
portion of the principal amount of the related Deferred Additional Interest
Notes, as provided in Section 1.1(c)) quarterly in arrears on the 31st day of
each July, October and January and the 30th day of each April in each year (or
the next succeeding Business Day if such date is not a Business Day), commencing
October 31, 1996 (or the next succeeding Business Day if such date is not a
Business Day) (each an "Interest Payment Date"). Interest on the Senior
Subordinated Notes shall be payable to the persons in whose names the Senior
Subordinated Notes are registered five days prior to any such Interest Payment
Date, until and including July 31, 2001 (unless the principal amount thereof has
been prepaid in its entirety earlier in accordance herewith) and shall bear
interest on overdue principal, on any overdue amounts arising out of a required
or optional prepayment of principal and (to the extent not prohibited by
applicable law) on any overdue installment of interest at the Overdue Rate after
the date on which such amounts are due and payable, whether by acceleration or
otherwise, until paid. The principal amount of the Senior Subordinated Notes
shall be repaid in accordance with Section 1.2(a).
(c) The Company shall, on each Interest Payment Date prior to the exchange
of the Deferred Additional Interest Note issued in connection with such Senior
Subordinated Note in its entirety for Equity Interests, in lieu of paying the
Deferred Additional Interest, add such Deferred Additional Interest otherwise
payable on such related Senior Subordinated Note on such Interest Payment Dates
to the principal balance of such related Deferred Additional Interest Note
(which such amount shall be treated as principal for all purposes thereafter).
After such an exchange, the Deferred Additional Interest Rate shall no longer be
payable on such Senior Subordinated Note and such Senior Subordinated Note shall
bear interest at only the Senior Subordinated Interest Rate. Notwithstanding
anything to the contrary contained in this Agreement or the Notes, upon a
partial exchange other than on an Interest Payment Date of any Deferred
Additional Interest Notes pursuant to Section 6.2, 6.3, 6.4 or 6.5, for purposes
of calculating the amount of Deferred Additional Interest to be added to the
principal amount of the New PAR Note, the New TAG Note, the New NQPO Note or (in
the case of Section 6.5) the unredeemed portion of the Deferred Additional
Interest Note on the Interest Payment Date immediately following the date of
such exchange, the exchange shall be deemed to have been effected on the
Interest Payment Date immediately preceding the date of such exchange.
2
<PAGE>
(d) The Deferred Additional Interest Notes shall be dated the date of
issue, shall bear interest on the unpaid portion of the principal amount thereof
(which principal amount shall include any Deferred Additional Interest added to
such principal amount pursuant to Section 1.1(c) and Deferred Additional
Interest Note Interest added to such principal amount pursuant to this Section
1.1(d)) from such date of issue (or from the date Deferred Additional Interest
Note Interest has been added to the principal balance of the Deferred Additional
Interest Notes (as provided below)) until the earlier of the Deferred Additional
Interest Note Repayment Date or the exchange of such Deferred Additional
Interest Notes for Equity Interests in their entirety pursuant to Section 6, at
the Deferred Additional Interest Rate quarterly in arrears on the Interest
Payment Dates, which interest, in lieu of being paid in cash, shall be added to
the principal balance of the Deferred Additional Interest Notes (which such
amount shall be treated as principal for all purposes thereafter) (such interest
when added to the principal balance of the Deferred Additional Interest Notes,
"Deferred Additional Interest Note Interest"). Deferred Additional Interest Note
Interest shall be due and payable on the Deferred Additional Interest Note
Repayment Date, if the Deferred Additional Interest Notes have not previously
been exchanged for Equity Interests in their entirety pursuant to Section 6, to
the person in whose name the Deferred Additional Interest Note is registered
five days prior to such Deferred Additional Interest Note Repayment Date, and
shall bear interest on overdue principal at the Overdue Rate after the date on
which such principal is due and payable, until paid. The principal amount of the
Deferred Additional Interest Notes shall be repaid in accordance with Section
1.2(b).
(e) The holder of a Deferred Additional Interest Note shall record each
addition to the principal thereof on Schedule I thereto, which such notation
shall be endorsed by the Company.
(f) The Senior Subordinated Notes shall be issuable in registered form
without interest coupons in minimum initial denominations of $100,000 and
integral multiples of $1,000 in excess of such amount and shall be substantially
in the form attached hereto as Exhibit A. The Deferred Additional Interest Notes
shall be issuable in registered form without interest coupons and without
initial denominations and shall be substantially in the form attached hereto as
Exhibit B. Interest on the Notes shall be computed on a 360-day year of twelve
30-day months. The Notes are subject to prepayment or redemption in advance of
the scheduled Senior Subordinated Note Repayment Date on the terms and
conditions and in the amounts and at the price set forth in Section 2 of this
Agreement.
1.2 Repayment of Principal.
(a) The entire principal amount of each Senior Subordinated Note shall be
repaid to each holder of Senior Subordinated Notes, together with any accrued
but unpaid interest thereon, on July 31, 2001 (the "Senior Subordinated Note
Repayment Date").
(b) Payments of principal on the Deferred Additional Interest Notes
(including all Deferred Additional Interest and Deferred Additional Interest
Note Interest added to such principal) shall be repaid to each holder of
Deferred Additional Interest Notes, together with
3
<PAGE>
any accrued but unpaid interest thereon, on July 31, 2006 (the "Deferred
Additional Interest Note Repayment Date" and, together with the Senior
Subordinated Note Repayment Date, the "Repayment Dates"); provided, that if the
Deferred Additional Interest Notes have previously been exchanged in their
entirety for Equity Interests pursuant to Section 6, no such payments shall be
made. The Company shall give written notice to the holders of Deferred
Additional Interest Notes (as such notice is described in Section 12.8) not less
than thirty (30) days nor more than sixty (60) days before the Deferred
Additional Interest Note Repayment Date, which notice shall state (a) such date,
(b) the amount of principal of such Deferred Additional Interest Notes which
such holder shall receive on such date and (c) the aggregate principal amount of
the Deferred Additional Interest Notes held by such holder and the total
principal amount of all Deferred Additional Interest Notes outstanding (in each
case as of the date of such notice).
1.3 Commitment, Closing Date.
(a) Subject to the terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, the Company agrees to
issue and sell to you, and you agree to purchase from the Company, on the
Closing Date hereinafter mentioned, Senior Subordinated Notes and Deferred
Additional Interest Notes in the aggregate principal amounts set forth below
your name in Schedule I, at a price of 100% of the principal amount of such
Senior Subordinated Notes.
(b) Delivery of the Notes shall be made at the offices of Cleary, Gottlieb,
Steen & Hamilton, One Liberty Plaza, New York, New York 10006, against payment
therefor in U.S. Federal or other funds currently and immediately available to
the account of the Company at First Union National Bank, Charlotte, N.C., ABA
#053000219, A/C #2000000717537 (transmitted via wire transfer in accordance with
a letter of instructions to be delivered to you at least one (1) Business Day
prior to the Closing Date), in the amount of the purchase price prior to 5:00
p.m., New York City time, on August 9, 1996 or such date as shall be mutually
agreed upon by the Company and you (the "Closing Date"). The Notes delivered to
you on the Closing Date shall be delivered to you in the form of a Senior
Subordinated Note or Notes and Deferred Additional Interest Note or Notes for
the full amount of your purchase (as you have specified in Schedule I), without
interest coupons and registered in your name or in the name of such nominee (for
your benefit) as you have specified in Schedule I.
1.4 Other Agreements. Simultaneously with the execution and delivery of
this Agreement, the Company is entering into similar agreements with the other
Purchasers under which such other Purchasers agree to purchase from the Company
Senior Subordinated Notes and Deferred Additional Interest Notes, in the
aggregate principal amount(s) set forth below such Purchasers' names in Schedule
I (this Agreement and such other agreements collectively, the "Note Purchase
Agreements"). The obligations of each Purchaser shall be several and not joint,
and no Purchaser shall be liable or responsible for the acts of any other
Purchaser.
1.5 Paying and Exchange Agents1.5 Paying and Exchange Agents. The Company
may appoint an office or agency where Notes may be presented or surrendered for
payment, where Notes may be
4
<PAGE>
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes may be served (the
"Paying Agent"), and the Company may appoint an office or agency where Deferred
Additional Interest Notes may be surrendered in exchange for Equity Interests
(the "Exchange Agent"). If the Company does not appoint a Paying Agent or
Exchange Agent, then the Company shall act as Paying Agent or Exchange Agent, as
the case may be, at its principal executive office located at 621 NW 53rd St.,
Suite 200, Boca Raton, FL 33487. If the Company does appoint a Paying Agent or
Exchange Agent, each such office or agency shall be a state or national bank or
trust company organized under the laws of the United States of America or any
state thereof or the District of Columbia and having capital, surplus and
undivided profits aggregating at least $50,000,000, and shall maintain the
appointed office or agency in the Borough of Manhattan, the City of New York,
New York (or such other major U.S. financial center as shall be agreed by the
Company and, with respect to the Paying Agent, the holders of at least a
majority in the then outstanding principal amount of the Notes and, with respect
to the Exchange Agent, the holders of at least a majority in the then
outstanding principal amount of the Deferred Additional Interest Notes).
The Company may also from time to time designate one or more other offices
or agencies meeting the criteria set forth above where the Notes may be
presented or surrendered for any or all of the foregoing purposes and may from
time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligations set forth in this Section 1.5. The Company shall give prompt written
notice to each holder of the Notes (in the manner provided for in Section 12.8)
of any such designation or rescission and of any change in the location of any
such other office or agency.
1.6 Restrictions on Transfer.
(a) The Deferred Interest Notes shall not be transferable apart from the
related Senior Subordinated Notes and vice versa; provided, however, that a
Deferred Additional Interest Note shall be transferable if the Senior
Subordinated Note issued in connection therewith is no longer outstanding and
vice versa. The Purchasers agree not to sell or transfer the Notes to a Third
Party Investor prior to the first anniversary of the Closing Date. As of and
after such anniversary and subject to Section 1.6(b), a Purchaser or Purchasers
may transfer Notes to a Third Party Investor reasonably acceptable to the
Company; provided, however, that the Notes may be transferred only in amounts
greater than 50% of the aggregate original principal balance of all the Notes,
or equal to 100% of the aggregate outstanding principal balance of the Notes
issued to any Purchaser; and provided, further, that no such transfer of Notes
by means of an interdealer quotation system that regularly disseminates firm buy
or sell quotations by identified brokers or dealers by electronic means or
otherwise shall be permitted if such transfer would result in the creation of a
"publicly traded partnership", as defined in Section 7704 of the Code.
(b) Prior to proposing to sell or transfer Notes to a Third Party Investor,
a holder of Notes shall first offer such Notes to the Company in accordance with
the following provisions:
5
<PAGE>
(i) The holder shall deliver written notice (the "Offer Notice") to
the Company stating (A) its bona fide intention to offer to sell or transfer
such Notes to a Third Party Investor, (B) the aggregate principal amount of each
Note to be offered, (C) the proposed price and other proposed terms and
conditions on which each Note is to be offered and (D) all information which it
proposes to distribute to the offeree(s) of such Notes. Within 30 days after the
mailing of the Offer Notice, the Company may elect to bid for such Notes at a
price determined by the Company (such price, the "Company Bid Price") by
providing such bid in writing to the holder of such Notes.
(ii) If the Company elects to bid for such Notes and the Company Bid
Price is at least equal to the proposed price set forth in the Offer Notice and
the other material terms and conditions of the Company's bid are at least as
favorable to such holder as those in the Offer Notice, such holder shall be
bound to sell such Notes to the Company at such price and terms.
(iii) If the Company elects to bid at a Company Bid Price lower than
the proposed price set forth in the Offer Notice or the other material terms and
conditions of the Company's bid are not at least as favorable to such holder as
those in the Offer Notice, the holder may accept such bid and sell such Notes to
the Company at the Company Bid Price or, for a period of 60 days after receipt
by the holder of the Company's bid, solicit bids from Third Party Investors to
purchase such Notes. If the holder receives bid(s) from one or more Third Party
Investors, the holder shall provide written notice to the Company of the prices
offered in such bid(s) no later than five days after such 60th day. The Company
shall then have the right (unless prohibited by applicable Laws), by providing
written notice to the holder no later than ten days after such 60th day, to
purchase such Notes from the holder (A) at the Company Bid Price, if no bid
price by a Third Party Investor is higher than the Company Bid Price, or (B) at
a price equal to 110% of the highest Third Party Investor bid price, if such
Third Party Investor bid price is higher than the Company Bid Price.
(c) If a Third Party Investor proposes to purchase any Notes from a holder
of Notes (outside of a bidding process conducted under Section 1.6(b)(iii)),
such holder of Notes shall, promptly upon receipt of any such proposal, notify
the Company thereof. If such holder intends to sell or transfer its Notes to
such Third Party Investor, such holder shall, promptly after making its decision
to sell its Notes to such Third Party Investor and in any event prior to
consummating a sale or transfer of such Notes to such Third Party Investor,
offer to sell or transfer such Notes to the Company in accordance with the
following provisions:
(i) The holder shall deliver written notice (the "Sale Notice") to the
Company stating (A) its bona fide intention to sell or transfer such Notes to
such Third Party Investor, (B) the aggregate principal amount of each Note to be
sold or transferred, (C) the price for which and other material terms and
conditions upon which it proposes to sell or transfer such Notes, (D) all
information such holder has provided to the Third Party Investor and (E) the
identity of the Third Party Investor, and shall attach to such notice copies of
any written proposal for such sale or transfer (whether such proposal was
prepared by the holder or the Third Party Investor).
6
<PAGE>
(ii) The Company shall then have the right (unless prohibited by
applicable Laws), by providing written notice to the holder no later than ten
(10) Business Days after receiving such Sale Notice, to elect to purchase such
Notes from the holder at the price for which and in accordance with the other
material terms and conditions upon which the holder proposed to sell or transfer
such Notes to such Third Party Investor. Failure of the Company to give notice
of election of purchase within the required period shall be deemed a waiver of
the Company's right to elect to purchase such Notes with respect only to the
sale or transfer in question.
SECTION 2. PREPAYMENT AND REDEMPTION OF NOTES
No prepayment or redemption of the Notes may be made except to the extent
and in the manner expressly provided in this Section 2.
2.1 Prepayment at the Election of the Company.
(a) The Company may prepay the Senior Subordinated Notes at any time on or
after the earlier to occur of (i) August 9, 1999 and (ii) a Sale Event, in each
case at the option of the Company exercised by written notice to each holder in
accordance with Section 2.4, in whole or from time to time in part in a minimum
amount of $100,000 and in integral multiples of $1,000 in excess of such amount,
by payment of the Prepayment Call Price to each holder of the Senior
Subordinated Notes.
(b) The Deferred Additional Interest Notes may not be prepaid at the
election of the Company at any time.
2.2 Prepayment Following the Occurrence of a Change in Control Event.
(a) Upon the occurrence of a Change in Control Event, the Company shall
prepay such of the Notes or portion of the Notes as the holders thereof shall
have elected prepayment with respect thereto pursuant to this Section 2.2, by
payment of the Change in Control Event Prepayment Price on, subject to the last
sentence of this Section 2.2, the related Change in Control Event Prepayment
Date.
(b) Not later than three (3) Business Days following the date on which the
Company obtains knowledge of the occurrence of a Change in Control Event, the
Company shall give written notice (a "Change in Control Event Notice") by
facsimile or other same-day written communication to all holders of Notes
stating (a) a brief description of the Change in Control Event and of the
prepayment right pursuant to this Section 2.2, (b) the first and last days of
the Change in Control Event Prepayment Period related to the Change in Control
Event, and (c) that the prepayment right may be exercised as to all (or a
portion of) a holder's Notes.
(c) To elect prepayment with respect to any Change in Control Event, the
holder of any Note to be prepaid in whole or in part must give, not less than
ten (10) Business Days after receipt of the Change in Control Event Notice (or
such earlier date as the holders of at
7
<PAGE>
least a majority in the then outstanding principal amount of the Notes give
written notice to the Company that a Change in Control Event has occurred),
written notice to the Company stating that the holder elects to have the Company
prepay such Note in whole or in part. If less than all holders of the Notes
elect prepayment or if any holder elects prepayment of its Notes only in part,
the Company shall, three (3) Business Days after such tenth Business Day, give
same-day written notice thereof to all holders electing partial prepayment of
their Notes, in which event such other holders may then elect full prepayment of
their Notes by giving written notice to the Company not more than five (5)
Business Days after the date of such additional notice, stating that such holder
elects to have the Company prepay such Note in whole. Failure of a holder to
give notice of election of prepayment within the required notice period shall be
deemed a waiver of such holder's right to elect prepayment with respect only to
the Change in Control Event in question. On the Change in Control Event
Prepayment Date the aggregate amount of the Notes as to which the holders
thereof have elected prepayment shall become due and payable at the Change in
Control Event Prepayment Price; provided, however, that in the case of a Change
in Control Event described in clause (ii) of the definition thereof, such Notes
shall become due and payable, and the Company shall be obligated to pay the
Change in Control Prepayment Price, immediately preceding or simultaneously with
the consummation of the transaction that results in a Change in Control Event
pursuant to clause (i) of the definition thereof as contemplated in clause (ii)
of the definition thereof.
(d) For the sake of clarity, if an Automatic Exchange Event is also a
Change in Control Event, Deferred Additional Interest Notes shall not be prepaid
pursuant to Section 2.2, as they will automatically have been exchanged for
Equity Interests pursuant to Section 6.
2.3 Prepayment Following the Company's Receipt of a Put Notice.
(a) Upon the Company's receipt of a Put Notice, the Company shall prepay
the Senior Subordinated Notes and/or the Deferred Additional Interest Notes
pursuant to this Section 2.3, by payment of the Put Event Prepayment Price
immediately preceding any redemption of or any distribution on IronBrand's
Equity Interests.
(b) Not later than two (2) Business Days after the date on which the
Company receives a Put Notice (but in no event not less than two (2) Business
Days before the Company redeems or makes distributions in connection with such
Put Notice on IronBrand's Equity Interests pursuant to Article XI of the
Partnership Agreement), the Company shall give written notice (a "Put Event
Notice") by facsimile or other same-day written communication to all holders of
Notes stating (i) a brief description of the Put Event (as defined in Section
11.5 of the Partnership Agreement) and of the prepayment right pursuant to this
Section 2.3, (ii) whether the Company has decided to redeem IronBrand's Equity
Interests pursuant to Section 11.3 of the Partnership Agreement or cause the
Company to effect a Sale Transaction (as defined in Section 11.6 of the
Partnership Agreement), which such decision shall be binding on the Company and
irrevocable at the time provided in Section 2.3(d) and (iii) that the prepayment
right must be exercised as to all of a holder's Senior Subordinated Notes and/or
Deferred Additional Interest Notes but (A) that a holder's Senior Subordinated
Notes or Deferred Additional Interest Notes will not be so prepaid unless
holders of at least a majority
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of the then outstanding principal amount of the Senior Subordinated Notes or
Deferred Additional Interest Notes, as the case may be, elect such prepayment
and (B) that if such holder does not elect such prepayment, such holder's Senior
Subordinated Notes or Deferred Additional Interest Notes will in any event be so
prepaid if a majority of the then outstanding principal amount of the Senior
Subordinated Notes or Deferred Additional Interest Notes, as the case may be,
elects such prepayment.
(c) (i) To elect prepayment with respect to any Put Event, a holder of
Notes must give, not later than two (2) Business Days after receipt of the Put
Event Notice, written notice to the Company stating that the holder elects to
have the Company prepay all Senior Subordinated and/or Deferred Additional
Interest Notes held by such holder.
(ii) If the holders of at least a majority of the then outstanding
principal amount of the Senior Subordinated Notes or of at least a majority of
the then outstanding principal amount of the Deferred Additional Interest Notes
elect prepayment, all outstanding Senior Subordinated Notes or outstanding
Deferred Additional Interest Notes, as the case may be, shall be prepaid in
accordance with the provisions of this Section 2.3 and the Company shall, within
two (2) Business Days after such second Business Day, give same-day written
notice thereof to all holders of such class of Notes that such Notes shall be so
prepaid.
(iii) If the holders of less than a majority in the then outstanding
principal amount of the Senior Subordinated Notes or less than a majority in the
then outstanding principal amount of the Deferred Additional Interest Notes
elect prepayment, the Company shall, two (2) Business Days after such second
Business Day, give same-day written notice thereof to all holders of such class
of Notes that no such Notes shall be prepaid unless at least such a majority
elects prepayment, in which event such holders not previously electing to have
such Notes prepaid may elect prepayment of their Notes by giving written notice
to the Company not more than two (2) Business Days after the date of such
additional notice, stating that such holder elects to have the Company prepay
all of such holder's Notes. If, after such two (2) Business Days, the holders of
at least a majority in the then outstanding principal amount of the Senior
Subordinated Notes or at least a majority in the then outstanding principal
amount of the Deferred Additional Interest Notes elect prepayment, all
outstanding Senior Subordinated Notes or outstanding Deferred Additional
Interest Notes, as the case may be, shall be prepaid in accordance with the
provisions of this Section 2.3.
(d) If after providing a Put Event Notice and prior to at least the fifth
Business Day preceding any redemption of or distribution on IronBrand's Equity
Interests pursuant to Article XI of the Partnership Agreement, the Company
changes its decision referred to in Section 2.3(b)(ii) (which such decision may
only be changed prior to such fifth day), the Company shall provide same-day
facsimile or other written notice to the holders of all Notes and any holder
may, notwithstanding any other provision of this Section 2.3, change its
decision as to whether to elect prepayment of its Notes by providing same-day
facsimile or other written notice to the Company. After such fifth Business Day,
all of the Senior Subordinated Notes and all of the Deferred Additional Interest
Notes shall be redeemed if the holders of at least a majority of the then
outstanding principal amount of such class of Notes
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has ultimately elected prepayment of such Notes or shall not be redeemed if the
holders of at least a majority of the then outstanding principal amount of such
class of Notes has ultimately not elected prepayment of such Notes. Subject to
the preceding provisions of this Section 2.3(d), the failure of a holder to give
notice of election of prepayment within the required notice period shall be
deemed a waiver of such holder's right to elect prepayment with respect to the
Company's receipt of a Put Notice. Immediately preceding any redemption of or
distribution on IronBrand's Equity Interests pursuant to Article XI of the
Partnership Agreement, the aggregate amount of the Notes as to which the holders
thereof have elected prepayment shall become due and payable at the Put Event
Prepayment Price.
The Company hereby agrees not to redeem IronBrand's Equity Interests
pursuant to Section 11.3 of the Partnership Agreement and not to distribute to
any Persons owning Equity Interests in the Company the net consideration
received by the Company in connection with any Sale Transaction until the end of
the notice process in this Section 2.3 and until the Company has paid in full
the Put Event Prepayment Price to each holder of Notes electing prepayment
pursuant to this Section 2.3, subject to Section 5.28 in respect of any Equity
Interests issued to any holder in exchange for any Deferred Additional Interest
Notes being redeemed pursuant to Section 5.28 in connection herewith.
2.4 Notice of Prepayments. The Company shall give written notice (as such
notice is described in Section 12.8) of any prepayment of the Notes at the
option of the Company pursuant to Section 2.1 or 5.7(b), as the case may be, to
each holder thereof, not less than thirty (30) days nor more than sixty (60)
days before the date fixed for such optional prepayment, specifying (a) such
date (referred to herein as a "Prepayment Date"), (b) the principal amount of
the holder's Notes to be prepaid on such date, (c) the Prepayment Call Price and
(d) the place or places where such Notes are to be surrendered for payment of
the Prepayment Call Price. Notice of prepayment having been so given, the
Prepayment Call Price specified in such notice thereon shall become due and
payable on the Prepayment Date.
2.5 Allocation of Prepayments. Any prepayments of Senior Subordinated Notes
in part pursuant to Sections 2.1 or 5.7(b), as the case may be, shall be applied
on all outstanding Senior Subordinated Notes ratably in accordance with the
unpaid principal amounts thereof, determined as of the date notice is given to
the holders of the Notes pursuant to Section 2.4.
2.6 Notes Prepaid in Part. Any Note which is to be prepaid only in part
shall be surrendered at an office or agency of the Company maintained for that
purpose pursuant to Section 1.5 (with, if the Company so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company duly executed by the holder thereof or his attorney duly authorized in
writing), and the Company shall execute and deliver to the holder of such Note
without service charge, a new Note or Notes, of any denomination requested by
such holder, in an aggregate principal amount equal to and in exchange for the
portion of the principal of the Note so surrendered which has not been prepaid.
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2.7 Direct Payment. Notwithstanding anything to the contrary in Section 1.5
or Section 12.2 or in the Notes, in the case of any Note owned by a Purchaser or
its nominee or owned by any other holder of the Notes who has given written
notice to the Company requesting that the provisions of this Section 2.7 shall
apply, the Company shall promptly and punctually pay or cause any Paying Agent
to pay, when due, the principal thereof, interest thereon, or Prepayment Call
Price or Change in Control Event Prepayment Price with respect thereto, if any,
without any presentment thereof, directly to such Purchaser or such subsequent
holder at the address of such Purchaser set forth in Schedule I or at such other
address as such Purchaser or such subsequent holder may from time to time
designate in writing to the Company or, if a bank account is designated for such
Purchaser on Schedule I hereto or in any written notice to the Company from such
Purchaser or any such subsequent holder, the Company shall make such payments in
current and immediately available funds which at the time of payment shall be
legal tender in the United States of America for the payment of public and
private debts to such bank account, marked for attention as indicated, or in
such other manner or to such other account of such Purchaser or such holder in
any bank in the United States as the Purchaser or any such holder may from time
to time direct in writing; provided, however, that any Note paid or prepaid in
full shall promptly be surrendered to the Company at its principal executive
office at 621 NW 53rd Street, Suite 200, Boca Raton, FL 33487, or, if
applicable, at the office or agency maintained pursuant to Section 1.5, upon
such payment or prepayment. The holder of any Notes to which this Section 2.7
applies agrees that it shall make a notation thereon of all principal, if any,
prepaid in part on such Notes and shall also note thereon the date to which
interest has been paid on such Notes and that if requested by the Company or any
Paying Agent, shall verify to the Company and any Paying Agent such notations on
the Notes by the delivery in the manner contemplated by Section 12.8 of a
photocopy of such notations as they appear on the Notes. With respect to Notes
to which this Section 2.7 applies, the Company shall be entitled to presume
conclusively for all purposes hereunder that the Purchaser or such subsequent
holder as shall have requested the provisions hereof to apply to its Notes
remains the holder of such Notes until (a) the Company shall have received from
the transferor written notice of the transfer of such Notes, and of the name and
address of the transferee, or (b) such Notes shall have been presented to the
Company as evidence of the transfer.
SECTION 3. REPRESENTATIONS
3.1 Representations of the Company. The Company represents and warrants
that as of the date hereof:
(a) (i) The Company and each Subsidiary (other than the Trusts) (A) are
limited partnerships duly organized and validly existing under the Laws of the
respective jurisdictions of their organization, (B) are not in liquidation, (C)
have the requisite partnership powers and governmental licenses, authorizations,
consents and approvals required to own or lease or operate their properties and
to carry on their business as now conducted and as presently proposed to be
conducted, except where the failure to have obtained such licenses,
authorizations, consents or approvals would not have a Material Adverse Effect,
and (D) have been duly qualified to conduct business in each jurisdiction where
required by the conduct of
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their business or their ownership of properties, except where the failure to be
so qualified would not have a Material Adverse Effect.
(ii) The Trusts (A) are trusts validly existing under applicable Laws,
(B) are not in liquidation, (C) have the requisite trust powers and governmental
licenses, authorizations, consents and approvals required to own or lease or
operate their properties and to carry on their business as now conducted and as
presently proposed to be conducted, except where the failure to have obtained
such licenses, authorizations, consents or approvals would not have a Material
Adverse Effect, and (D) have been duly qualified to conduct business in each
jurisdiction where required by the conduct of their business or their ownership
of properties, except where the failure to be so qualified would not have a
Material Adverse Effect.
(b) (i) The Company and each Subsidiary (other than the Trusts) have good
and valid title in fee simple to all real property and good and valid title to
all personal property owned by them, in each case free and clear of all Liens
and defects, except for Permissible Liens and such individual Liens as do not
secure Indebtedness in excess of $100,000, and any real property and buildings
held under lease by the Company and each Subsidiary are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material to the Company and its Subsidiaries taken as a whole. The aggregate
amount of Indebtedness of the Company and its Subsidiaries taken as a whole that
is secured by Liens does not exceed $1,000,000.
(ii) The Trusts have good and valid title to all property owned by
them, in each case free and clear of all Liens and defects, except for Liens
securing debt incurred in connection with securitizations of assets, which such
securitizations were in the ordinary course of business.
(c) The execution, delivery and performance of this Agreement, the Notes
and the Registration Rights Agreement, the exchange of the Deferred Additional
Interest Notes for Equity Interests as provided herein and in the Deferred
Additional Interest Notes and the issuance of such Equity Interests, and the
consummation of the transactions contemplated hereby and thereby are within the
powers of the Company and have been duly authorized by all necessary partnership
action on the part of the Company. On the Closing Date, this Agreement, the
Notes and the Registration Rights Agreement will be valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, subject as to enforcement only to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(d) The Audited Financial Statements and the unaudited consolidated
financial statements of the Group for the six-month period ended June 30, 1996,
have been prepared in accordance with generally accepted accounting principles
and practices applied on a consistent basis and fairly present the financial
condition and the results of operations of the Group at and
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for the periods covered thereby. Since December 31, 1995, there has not been any
material adverse change in the business, condition (financial or otherwise),
operations, liabilities, assets or prospects of the Company or of the Group.
(e) The Company and each of its Subsidiaries (other than the Trusts) have
filed all tax returns or extensions and all information or similar reports
required by law to have been filed by them and have paid all taxes and other
governmental charges which they are required to have paid, other than taxes and
governmental charges the amount of which is being contested in good faith and by
appropriate proceedings and for which appropriate reserves have been taken in
accordance with generally accepted accounting principles.
(f) The Company has taken all action within its powers that is necessary to
reserve a sufficient number of Equity Interests for issuance upon exchange of
the Deferred Additional Interest Notes in accordance with the terms of such
Notes and this Agreement. The Company has taken all action within its powers
that is necessary as of the date hereof to duly and validly authorize the
issuance of such Equity Interests upon such exchange in accordance with all
applicable Laws and the Company's organizational documents. The Equity Interests
initially issuable upon exchange of the Deferred Additional Interest Notes, when
issued and delivered upon exchange of the Deferred Additional Interest Notes in
accordance with the provisions of the Deferred Additional Interest Notes and
this Agreement, will be validly issued, fully paid and nonassessable, and the
issuance of such Equity Interests upon such exchange is not subject to
preemptive or similar rights.
(g) None of the issuance and sale of the Notes, the execution, delivery or
performance of this Agreement by the Company, or the consummation by the Company
of the transactions contemplated hereby or thereby (i) requires any consent,
approval, authorization or other order of or registration or filing with, any
Governmental Authority (except for such consent, approval, authorization or
other order, registration or filing (A) that has been obtained or made, as the
case may be, on or prior to the Closing Date, or (B) that may be required in
connection with future registered offerings pursuant to the Registration Rights
Agreement or (C) that may be required under any federal or state securities law
in connection with the issuance of Equity Interests upon the exchange of the
Deferred Additional Interest Notes), (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, (A) the
certificate of limited partnership or partnership agreement, or other
organizational documents, of the Company or any of its Subsidiaries, or (B)
except for any such conflict, breach or default in respect of which a consent
has been obtained on or prior to the Closing Date, any agreement, indenture,
lease or other instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
properties may be bound, (iii) violates or will violate any existing Law
applicable to the Company or any of its Subsidiaries or any of their properties,
or (iv) results or will result in the creation or imposition of any Lien, upon
any property or assets of the Company or any of its Subsidiaries pursuant to the
terms of any agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries may
be bound or to which any of their property or assets is subject except, in the
case of clauses (ii)(B), (iii) and (iv), for conflicts, violations, breaches or
defaults which individually and in
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the aggregate would neither hinder or impair the transactions contemplated
hereby nor have a Material Adverse Effect.
(h) Neither the Company nor any Subsidiary is in violation of its
certificate of limited partnership or partnership agreement, or other
organizational documents, or in violation in any material respect of any Laws
applicable to it. There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened, against the Company, any of its
Subsidiaries or any officer thereof, or to which the Company or any of its
Subsidiaries or any of its or their properties is subject, that if adversely
determined, would have a Material Adverse Effect.
(i) Neither the Confidential Private Placement Memorandum dated May 1, 1996
(the "Private Placement Memorandum"), including any Exhibits thereto, as amended
or supplemented to the date hereof, nor any other written material provided by
or on behalf of the Company to the Purchasers, its auditors, attorneys,
employees, agents or any other representatives on or prior to the Closing Date,
contained as of its date or contains as of the date hereof any untrue statement
of a material fact or omitted as of its date or omits as of the date hereof to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances in which they were made, not misleading.
(j) Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities to, or solicited any offer to purchase the same
from, or otherwise approached or negotiated in respect thereof with, any Person,
or has taken any other action, which in all cases mentioned above would require
the registration of the Notes under Section 5 of the Securities Act or under the
registration and qualification provisions of any securities or "blue sky" law of
any applicable jurisdiction. The Notes satisfy the eligibility requirements of
Rule 144A(d)(3) under the Securities Act.
(k) The Company is not, and is not directly or indirectly controlled by or
acting on behalf of any person which is, required to register as an "investment
company" under the Investment Company Act of 1940, as amended.
(l) Neither the Company nor any of its Subsidiaries has any contingent
liabilities, including without limitation any Contingent Liabilities and
liabilities under contracts of the type referred to in Section 3.1(r), that
would be material to the Company or to the Company and any of its Subsidiaries
on a consolidated basis and are not disclosed in the financial statements
described in Section 3.1(d).
(m) The Company and its Subsidiaries are and have been in compliance with
all applicable Laws (including, without limitation, Environmental Laws) in
respect of the operation of all properties (including, without limitation,
leased or owned facilities) by the Company and its Subsidiaries and the conduct
of its and their business.
(n) There is no Environmental Condition in respect of the Company and its
Subsidiaries.
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(o) (i) Assuming the accuracy of the representation set forth in Section
3.2(b), the execution and delivery of this Agreement and the issue and purchase
of the Notes hereunder will not, as of the date hereof, involve any transaction
that is prohibited under Section 406(a) of ERISA or which is a "prohibited
transaction" as defined in Section 4975(c)(1) of the Code, in either case for
which a statutory or administrative exemption is not available.
(ii) Neither the Company nor any Subsidiary maintains, contributes to
or has liability (contingent or otherwise) with respect to any Plan or
Multiemployer Plan.
(iii) Neither the Company nor any Subsidiary has any ERISA Affiliates
(other than the Company, its Subsidiaries and National Auto Finance
Corporation).
(iv) Each employee benefit plan (within the meaning of Section 3(3) of
ERISA) maintained by the Company or any of its Subsidiaries complies in all
material respects with the currently applicable provisions of the Code and
ERISA, and the Company and each of its Subsidiaries has timely made all
contributions and other payments required to be made by such Persons to each
such employee benefit plan.
(v) Neither the Company, any of its Subsidiaries nor any employee
benefit plan maintained by any such Person provides post-employment medical or
life insurance benefits that are not accrued as liabilities on the books of the
Company or any of its Subsidiaries in accordance with generally accepted
accounting principles.
(vi) No Person or employee benefit plan maintained by the Company or
any of its Subsidiaries has engaged in a transaction that could, directly or
indirectly, result in any material liability of the Company or any Subsidiary,
individually or taken as a whole, under ERISA (including without limitation
Sections 409, 502(i) and 502(1) thereof) or Section 4975 of the Code or pursuant
to any statute or agreement under which the Company or any of its Subsidiaries
has agreed to indemnify or is required to indemnify any Person against liability
incurred under, or for a violation or failure to satisfy the requirements of,
ERISA or Section 4975 of the Code, as the case may be.
(p) Other than ACCH and the Trusts, the Company has no Subsidiaries,
corporate or otherwise and does not own, directly or through any Subsidiary, any
interest in any partnership, joint venture or other entity.
(q) Set forth in Schedule 3.1(q) of the Disclosure Letter is a list of all
agreements, contracts, commitments, leases and other instruments, documents and
undertakings material to the business or assets of the Company or any of its
Subsidiaries (collectively, the "Contracts"). Each of the Contracts is valid and
enforceable in accordance with its terms except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other similar Laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law). Neither the Company nor any of its
Subsidiaries is, and to the Company's and all of its Subsidiaries' knowledge no
other party thereto is, in default in the performance,
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observance or fulfillment of any material obligation, covenant or condition
contained in any such Contract, and no event has occurred which with or without
the giving of notice or lapse of time, or both, would constitute a material
default thereunder. Furthermore, no such Contract, in the reasonable opinion of
the Company and its Subsidiaries, contains any material contractual requirement
with which there is a reasonable likelihood the Company or any of its
Subsidiaries will be unable to comply.
(r) Except for the Amended and Restated Services Agreement between the
Company and World Omni Financial Corp. dated as of December 5, 1994, a copy of
which has been provided to the Purchasers, neither the Company nor any of its
Subsidiaries has entered into, is a party to, or has any obligations under, any
material contract for the purchase of materials, supplies or other property or
services, if such contract requires that payment be made by it regardless of
whether or not delivery is ever made of such materials, supplies or other
property or services.
(s) All of the Company's transactions and relationships with its
Subsidiaries and the Company's and its Subsidiaries' transactions and
relationships with Affiliates are on fair and reasonable terms comparable to
those that would be obtained in an arm's-length transaction between unrelated
third parties and have been disclosed to the Purchasers, it being understood
that the transactions and relationships set forth in Schedule 3.1(s) to the
Disclosure Letter shall be considered fair and on reasonable terms comparable to
those that would be obtained in an arm's length transaction between unrelated
third parties.
(t) Except for a fee payable to First Union Capital Markets Corporation as
placement agent (the "Placement Agent") in connection with the issuance and sale
of the Notes, no broker's or finder's fee or commission will be payable by the
Company or any of its Subsidiaries with respect to the issuance and sale of the
Notes or the transactions contemplated hereby. The Company shall hold the
holders of the Notes harmless from any claim, demand or liability for any such
broker's or finder's fees or commission alleged to have been incurred by,
through or on behalf of the Company in connection herewith.
(u) From the date of the formation of the Company and each Subsidiary
through the Closing Date, there have been no strikes or other labor disputes or
grievances against the Company or any of its Subsidiaries which have had, either
in any case or in the aggregate, a Material Adverse Effect. Neither the Company
nor any Subsidiary has ever been subject to the provisions of any collective
bargaining agreement.
(v) No Default or Event of Default has occurred and is continuing on the
date hereof. Neither the Company nor any Subsidiary is in default in the payment
of principal or interest on any Indebtedness and is not otherwise in default
under any instrument or instruments or agreements under and subject to which any
Indebtedness has been incurred. No event has occurred and is continuing under
the provisions of any such instrument or agreement that with the passage of time
or the giving of notice, or both, would constitute an event of default
thereunder.
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(w) Except as set forth in the Partnership Agreement, neither the Company
nor any Subsidiary has entered into or agreed to any side letter or similar
arrangement or other agreement with any holder or prospective holder of any
securities of the Company or any of its Subsidiaries providing for registration
rights with respect to the securities of the Company or any of its Subsidiaries
that confers rights or benefits more favorable than the rights and benefits to
be conferred upon the holders of the Registrable Securities under the
Registration Rights Agreement.
(x) The Company and its Subsidiaries own, possess or have the right to use
(as such use is described in the Private Placement Memorandum) all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and similar rights
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures, trademarks, service marks and
tradenames) which are described in the Private Placement Memorandum as being
owned, possessed or used (as so described) by them or which are reasonably
necessary for the conduct of their business, and neither the Company nor any of
its Subsidiaries is aware of any infringing uses that would have a Material
Adverse Effect.
(y) Exhibit C sets forth the number and type of all existing Equity
Interests and the holders thereof.
(z) Except for the Partnership Agreement, there are no existing agreements,
options, commitments or rights with, of or to any third party to acquire any of
the Company's or any of its Subsidiaries' assets (other than any of the Trusts'
assets), except for those arising in the ordinary course of business and those
not material to the Company and its Subsidiaries taken as a whole.
3.2 Representations of the Purchasers.
(a) You represent and warrant to the Company, and in entering into this
Agreement the Company understands, that (i) you (or any investor or investors
for whom you are acting as a fiduciary or agent in purchasing the Notes) are an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, (ii) you are acquiring the Notes for your own account (or for the account
of one or more investors for whom you are acting as a fiduciary or agent), for
investment purposes only and not with a view to distribution (as such term is
used under Section 2(11) of the Securities Act) thereof (provided, that the
disposition of your property shall at all times be and remain within your
control), and (iii) JPMIM retained no broker or finder in connection with the
issuance and sale of the Notes, no broker's or finder's fee or commission is
payable by JPMIM with respect to the issuance and sale of the Notes or the
transactions contemplated hereby and the holders of the Notes shall hold the
Company harmless from any claim, demand or liability for any such broker's or
finder's fees or commission alleged to have been incurred by, through or on
behalf of JPMIM in connection herewith. Without limiting the foregoing, you
acknowledge that the Notes and the Equity Interests issuable upon exchange of
the Deferred Additional Interest Notes have not and will not be registered under
the Securities Act and you agree that you shall only re-offer or resell
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the Notes purchased by you under this Agreement and the Equity Interests
issuable upon exchange of Deferred Additional Interest Notes, (x) pursuant to an
effective registration statement under the Securities Act and applicable state
securities laws, (y) in compliance with the requirements of Rule 144 or
Regulation S promulgated under the Securities Act or (z) in accordance with any
other available exemption from the requirements of Section 5 of the Securities
Act and from any applicable state securities laws. Each Purchaser acknowledges
that upon issuance of the Notes, and until such time, if any, as the Company
shall agree that it is no longer necessary or advisable, the Notes shall bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS, SUBJECT IN ANY SUCH CASE TO THE
RIGHT OF EACH HOLDER TO CONTROL THE DISPOSITION OF THE HOLDER'S
PROPERTY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY PURSUANT TO SECTIONS 3.2(a) AND 12.2 OF THE NOTE
PURCHASE AGREEMENT DATED AS OF AUGUST 9, 1996 BETWEEN NATIONAL AUTO
FINANCE COMPANY L.P. (THE "COMPANY") AND THE PURCHASER LISTED ON THE
SIGNATURE PAGE THEREOF. A COMPLETE AND CORRECT CONFORMED COPY OF SUCH
NOTE PURCHASE AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
EXECUTIVE OFFICE OF THE COMPANY AND WILL BE FURNISHED TO THE HOLDER OF
THIS NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE."
If you are purchasing the Notes as fiduciary or agent for one or more investors,
you represent and warrant that you are acting in the capacity specified on the
signature page hereof.
(b) You further represent and warrant to the Company that, with respect to
each source of funds to be used by you to purchase Notes hereunder (each being
referred to as the "Source"), at least one of the following statements is now
and will be accurate as of the Closing Date:
(i) the Source is not the assets of any "plan" (as such term is
defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code,
or any "employee benefit plan" (as such term is defined in Section 3(3) of
ERISA) subject to Section 406 of ERISA (each such plan and employee benefit
plan, being referred to as a "Benefit Plan") or otherwise out of "plan assets"
within the meaning of United States Department of Labor regulation Section
2510.3-101, 29 CFR Section 2510.3-101 or other applicable law;
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(ii) the Source is the assets of a "governmental plan" (as such term
is defined in Section 3(32) of ERISA);
(iii) you are a bank and the Source is assets of a collective
investment fund as defined in Section IV(e) of Prohibited Transaction Class
Exemption ("PTCE") 91-38 and you have disclosed to the Company in writing (x)
the identity of each Benefit Plan whose assets in such collective investment
fund exceed or are expected to exceed 10% of the total assets of such collective
investment fund or (y) that no Benefit Plan has assets in such separate account
which exceed 10% of the total assets of such separate account as of the Closing
Date (for purposes of this clause (iii), all Benefit Plans maintained by the
same employer or employee organization are deemed to be a single plan);
(iv) the Source is assets of an "investment fund" managed by a
"qualified professional asset manager" or "QPAM" (as such terms are defined in
Part V of PTCE 84-14), and the conditions set forth in Sections I(c), (d), (e)
and (g) of PTCE 84-14 have been satisfied; or
(v) the Source is assets of a Benefit Plan or a separate account
comprised of Benefit Plans, which Benefit Plans have been identified in writing
to the Company pursuant to this clause (v).
(c) You further represent and warrant to the Company that, the execution
and delivery of this Agreement are within your powers and have been duly
authorized by all necessary action on your part and that, on the Closing Date,
this Agreement will be your valid and legally binding obligation enforceable
against you in accordance with its terms, subject as to enforcement only to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar Laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
SECTION 4. CLOSING CONDITIONS
4.1 Purchasers' Conditions. Your obligation to purchase the Notes on the
Closing Date shall be subject to the truth and accuracy of the representations
and warranties contained in Section 3.1 on and as of the Closing Date, to the
performance by the Company of its agreements hereunder which by the terms hereof
are to be performed at or prior to the time of delivery of the Notes and to the
following further conditions precedent:
(a) Company's Closing Certificate. Concurrently with the delivery of Notes
to you on the Closing Date, you shall have received a certificate signed by an
Executive Officer of the Company to the effect that the representations and
warranties of the Company contained in Sections 3.1 and 9.3 are true on and as
of the Closing Date, that no Default or Event of Default has occurred and is
continuing and that the Company has complied with the Note Purchase Agreement
and satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date.
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(b) Legal Opinion. Concurrently with the delivery of Notes to you on the
Closing Date, you shall have received from counsel to the Company, certain
opinions, each dated the Closing Date, in the forms attached hereto as Exhibit
D.
(c) You shall have received the Company's Audited Financial Statements
together with the auditor's report thereon from KPMG Peat Marwick, and you shall
receive the Company's unaudited financial statements for the six-month period
ended June 30, 1996.
(d) Event of Default. No Default or Event of Default shall have occurred
and be continuing.
(e) Provision of Documents. You shall have received a copy (executed or
certified as may be appropriate) of all legal documents or proceedings taken in
connection with the consummation of the transactions contemplated by this
Agreement, and your counsel shall have received such documents as they
reasonably require, including, without limitation, (i) evidence of all necessary
action having been taken (including without limitation all necessary consents by
the holders of Equity Interests), in form and substance reasonably satisfactory
to them, authorizing the execution, delivery and performance of this Agreement
(including without limitation the authorization of the exchange of the Deferred
Additional Interest Notes for Equity Interests and the taking of all action
within the Company's powers that is necessary to reserve a sufficient number of
Equity Interests to be issued upon such exchange), the Registration Rights
Agreement, and the Notes and any other documents contemplated hereby, and (ii) a
certificate from an Executive Officer of the Company, as of the Closing Date,
(A) certifying the actions referred to in clause (i) and stating that such
actions thereby certified have not been amended, modified, revoked or rescinded
as of the date of such certificate, (B) attaching the certificate of limited
partnership and the limited partnership agreement of the Company and certifying
that each such document is a true and correct copy of such document as in effect
on the Closing Date and (C) certifying that each person who, as a representative
of the Company, signed any of the Note Purchase Agreements, Notes or
Registration Rights Agreement and any other instrument or certificate delivered
on the date thereof or prior thereto in connection with the sale of the Notes
was, at the respective time of such signing and delivery, and is as of the
Closing Date, duly appointed, qualified and acting as such representative and
the signatures appearing on such documents are their genuine signatures. Without
limiting the foregoing, (i) this Agreement shall have been executed by the
Company and delivered to you and (ii) the Registration Rights Agreement shall
have been executed by the Company and delivered to you.
(f) Legality. On the Closing Date (i) the Notes to be purchased by you
hereunder shall be a legal investment for you under the Laws of each
jurisdiction to which you may be subject, (ii) the purchase of and payment for
said Notes shall not violate any applicable Laws and shall not subject you to
any tax, penalty, liability or other onerous condition under or pursuant to any
applicable Laws (as to which the Company makes no representation), and (iii) you
shall have received such certificates or other evidence as you may reasonably
request demonstrating the legality of such purchase under such Laws.
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(g) Fees. The Company shall have paid (subject to later adjustment to
reflect the actual amount) the estimate of reasonable legal fees and expenses
incurred by the Purchasers in connection with the sale and purchase of the
Notes; provided, that an estimate of such fees and expenses shall have been
submitted by the Purchasers to the Company at least one (1) Business Day prior
to closing.
(h) Waiver of Conditions. If on the Closing Date the Company fails to
tender to you the Notes to be sold to you on such date or if the conditions
specified in this Section 4 have not been fulfilled, you may thereupon elect to
be relieved of all further obligations, including the making of payment for the
Notes, under this Agreement. Without limiting the foregoing, if the conditions
specified in this Section 4 have not been fulfilled, you may waive compliance by
the Company with any such conditions to such extent as you may in your sole
discretion determine. Nothing in this Section 4.1(h) shall operate to relieve
the Company of any of its obligations hereunder (including, without limitation,
its obligations under Section 12.6) or to waive any of your rights against the
Company.
4.2 Company's Conditions. The Company's obligations to sell the Notes on
the Closing Date and to otherwise perform its obligations hereunder shall be
subject (a) to the truth and accuracy of the representations and warranties of
the Purchaser set forth in Section 3.2 on and as of the Closing Date, (b) to
payment for the Notes having been received pursuant to Section 1.3(b)
concurrently with the delivery of the Notes by the Company to the Purchasers and
(c) at or prior to the time of delivery of the Notes, to the conditions
precedent (subject to the right of the Company, in its sole discretion, to waive
compliance with such conditions) that (i) the Company shall have received a copy
(executed or certified as may be appropriate) of all legal documents or
proceedings taken by the Purchaser in connection with the consummation of the
transactions contemplated by this Agreement and (ii) the Company's counsel shall
have received such documents as they reasonably require.
SECTION 5. COVENANTS
From and after the Closing Date and continuing so long as, unless otherwise
specifically provided for below, any amount remains unpaid on any Note:
5.1 Financial and Other Reports.
(a) The Company shall furnish to each holder of Notes (i) as promptly as
practicable upon publication, and in any event within 90 days after the end of
each of the Company's fiscal years, the audited consolidated financial
statements of the Group for such fiscal year, prepared in accordance with
generally accepted accounting principles, together with the reports of the
general partner of the Company and the Auditors' reports thereon; (ii)
quarterly, promptly upon publication, and in any event within 45 days after the
end of the period covered thereby, unaudited interim consolidated financial
statements for the Group; (iii) until such time as an Initial Public Offering is
consummated, monthly, promptly upon publication, and in any event within 30 days
after the end of the period covered thereby, unaudited financial statements for
the Group prepared in accordance with generally accepted accounting principles;
and (iv) until such time as an Initial Public Offering is consummated, no
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later than November 30 of each year a proposed operating budget for the Company
and the Group for the following fiscal year prepared on a monthly and
year-to-date basis (including income and expense projections) and no later than
December 31 of each year a final operating budget for the Company and the Group
for the following fiscal year, which shall set forth in reasonable detail the
projected operating expenses, capital expenditures, cash flow and income
projections for the following fiscal year for the Company and the Group on
projected monthly and year-to-date bases;
(b) The Company shall file with the Commission, and transmit to holders of
Notes, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Exchange Act at the times and in the
manner provided pursuant to such Act. The Company shall transmit to the holders
of Notes copies of each communication from the Company to holders of Equity
Interests in the Company generally at the same time as the Company makes such
communication;
(c) Within the periods provided in clauses (a)(i) and (a)(ii) above, the
Company shall furnish to each holder of Notes a certificate of an Executive
Officer (i) stating, with respect to such year or quarter, as the case may be,
that such officer has reviewed the provisions of this Agreement and setting
forth whether there existed as of the date of such financial statements and
whether, to the best of such Executive Officer's knowledge, there exists on the
date of the certificate or existed at any time during the period covered by such
financial statements, any Default or Event of Default, and, if any such
condition or event exists on the date of the certificate, specifying the nature
and period of existence thereof and the action the Company is taking or proposes
to take with respect thereto, and (ii) containing a full description of all
events with respect to such year or quarter, alone or taken as a whole together
with all past events, that have had or would have with the passage of time a
Material Adverse Effect;
(d) Simultaneously with the delivery of each set of financial statements
referred to in subsection (a)(i) above, the Company shall, for only so long as
any Senior Subordinated Note is outstanding, furnish to each holder of Notes a
statement of the firm of independent certified public accountants that reported
on such statements (i) stating that their audit examination has included a
review of this Agreement and the Notes as they relate to financial or accounting
matters, (ii) confirming the mathematical accuracy of any notice received by the
holders of Notes from an Executive Officer pursuant to Section 5.8 during the
time period covered by such set of financial statements, and (iii) stating
whether anything has come to their attention to cause them to believe that there
existed on the date of such statements any Default or Event of Default;
(e) The Company shall furnish to each holder of Notes promptly after
receipt thereof, copies of each report submitted to the Company by independent
certified public accountants in connection with any annual, interim or special
audit made by them of the books of the Company, including, without limitation,
each report submitted to the Company concerning its accounting practices and
systems and any final comment letter submitted by such accountants to management
in connection with the annual audit of the Company;
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(f) Within 15 days after (i) the formation, activation or acquisition of
any Material Subsidiary of the Company and (ii) any change in the list of its
respective Material Subsidiaries and, additionally, at the time of delivery of
the reports described in Sections 5.1(a) and 5.1(b), the Company shall, for only
so long as any Senior Subordinated Note is outstanding, furnish to each holder
of Notes a written report of any changes in the list of its respective Material
Subsidiaries (including the identity of the other general partners in any such
partnership and the identity of the participants in any such joint venture);
(g) The Company shall, for only so long as any Senior Subordinated Note is
outstanding and, after such time, if the Company adopts a Plan and the holders
of at least a majority in the then outstanding principal amount of the Deferred
Additional Interest Notes requests in writing, furnish the following to each
holder of Notes:
(i) as soon as possible and in any event (A) within 20 days after the
Company, any Subsidiary or any ERISA Affiliate knows or has reason to know that
any Termination Event described in clause (i) of the definition of Termination
Event with respect to any Plan has occurred and (B) within 10 days after the
Company, any Subsidiary or any ERISA Affiliate knows or has reason to know that
any other Termination Event with respect to any Plan has occurred, a statement
of the chief financial officer of the Company describing such Termination Event
and the action, if any, that the Company, such Subsidiary or such ERISA
Affiliate proposes to take with respect thereto;
(ii) promptly and in any event within two Business Days after
application therefor by the Company, any Subsidiary or any ERISA Affiliate,
copies of any application for a waiver of the minimum funding standard under
Section 412 of the Code;
(iii) promptly and in any event within two Business Days after receipt
thereof by the Company, any Subsidiary or any ERISA Affiliate, copies of each
notice received by the Company, any Subsidiary or any ERISA Affiliate from the
PBGC stating its intention to administer any Plan or to have a trustee appointed
to administer any Plan or to impose any liability (other than for premiums under
Section 4007 of ERISA) in respect of any Plan;
(iv) promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Plan;
(v) at the time notice is given or required to be given to the PBGC
under Section 302(f)(4)(A) of ERISA or Section 412(n)(4)(A) of the Code of the
failure to make timely payments to a Plan, a copy of any such notice filed and a
statement of the chief financial officer of the Company setting forth (A)
sufficient information necessary to determine the amount of the lien under
Section 302(f)(3) of ERISA or Section 412(n)(3) of the Code, (B) the reason for
the failure to make the required payments and (C) the action, if any, which the
Company, any Subsidiary or its ERISA Affiliate proposes to take with respect
thereto; and
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(vi) promptly and in any event within five Business Days after receipt
thereof by the Company, any Subsidiary or any ERISA Affiliate from the sponsor
of a Multiemployer Plan, a copy of each notice received by the Company, any
Subsidiary or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability by a Multiemployer Plan, (B) the determination that a Multiemployer
Plan is, or is expected to be, insolvent or in reorganization within the meaning
of Title IV of ERISA, (C) the termination of a Multiemployer Plan within the
meaning of Title IV of ERISA or (D) the amount of liability incurred, or
expected to be incurred, by the Company, any Subsidiary or any ERISA Affiliate
in connection with any event described in clause (A), (B) or (C) above; and
(h) on or prior to the Closing Date and within 90 days after the
commencement of each fiscal year, (i) a complete and accurate list of the
officers and directors of the Company and (ii) within 30 days of any change in
the identity of any such officer or director, a notice specifying such change in
personnel.
5.2 Books and Records. The Company shall keep, and shall cause each of its
Subsidiaries to keep, proper accounting records in accordance with generally
accepted accounting principles. Each Purchaser and each subsequent holder of
Notes shall have the right to receive such financial and other information
relating to the Company or the performance by the Company of its obligations
under the Note Purchase Agreements and Notes, including without limitation
information concerning the Company's and its Subsidiaries' loan receivables
portfolios and the Master Trust, as such holder shall reasonably deem necessary
and such holder shall, upon prior request, subject to reasonable notice, during
regular business hours and without interfering with the normal conduct of the
Company's business or operations, have the right to visit the headquarters of
the Company or arrange a telephone conference call or video conference in order
to discuss the affairs, finances and financial statements of the Company or any
of its Subsidiaries with the appropriate officers of the Company and, in the
presence or with the participation of a representative of the Company, with its
auditors. All expenses incurred by any holder of Notes in connection with the
foregoing shall be solely for the account of such holder; provided, however,
that if any Default shall have occurred and be continuing, all such expenses
shall be for the account of the Company in accordance with Section 12.5.
You and each other holder of any Note by its acceptance hereof agree that
any information obtained by such Person pursuant to this Section 5.2 shall be
treated as confidential; provided, however, that nothing herein contained shall
limit or impair the right or obligation of any holder of the Notes to disclose
such information: (i) with notice to the Company, to such holder's auditors,
attorneys, employees or agents; provided, that such holder's auditors,
attorneys, employees or agents shall have agreed for the benefit of the Company
to keep such information confidential subject to the exceptions set forth in
this paragraph; (ii) with notice to the Company, when required by any Law,
governmental investigation or any regulatory authority request; provided, that
such Person shall request confidential treatment for such information; (iii)
with notice to the Company, as may be required in any report, statement or
testimony required by Law to be submitted to any Governmental Authority having
or claiming to have jurisdiction over such holder or similar
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organizations or their successors; provided that such Person shall request
confidential treatment for such information; (iv) which is publicly available or
which is received by any holder of the Notes from a Person which is under no
duty to keep the same confidential; (v) with notice to the Company, in
connection with any proceeding, case or matter pending before any Governmental
Authority; provided, that such Person shall request confidential treatment for
such information; or (vi) with at least five days prior written notice to the
Company, to the extent necessary in connection with any contemplated transfer of
any of the Notes by a holder thereof (it being understood and agreed that any
such prospective transferee which purchases such Notes shall have agreed in
writing to be bound by the terms and provisions hereof upon transfer of any of
the Notes to such transferee); provided, that such disclosure shall not be made
if the Company reasonably objects to such disclosure within such five-day
period.
5.3 Payments. The Company shall duly and punctually pay the principal of,
interest on or applicable Prepayment Call Price or Change in Control Event
Prepayment Price with respect to, and any other amounts payable in respect of,
the Notes in accordance with their terms and the terms hereof.
5.4 Company Existence, Etc. The Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its existence and
that of its Material Subsidiaries, and to maintain all licenses, franchises and
permits necessary to the conduct of its or their business and the ownership of
its or their properties, except where the failure to maintain such licenses,
franchises and permits would not have a Material Adverse Effect; provided,
however, that the provisions of this Section 5.4 shall not prevent the Company
from effecting any transaction permitted pursuant to Section 5.7.
5.5 Payment of Taxes. The Company shall timely file, and shall cause all of
its Subsidiaries (other than the Trusts) to timely file, all tax returns or
extensions and all information or similar reports required by law to be filed by
them, and shall pay all applicable taxes and other governmental charges required
to be paid.
5.6 Insurance. For only so long as any Senior Subordinated Note is
outstanding, the Company shall carry and maintain in full force and effect, and
shall cause all of its Subsidiaries to carry and maintain in full force and
effect, at all times with financially sound and reputable institutions,
insurance in such forms and amounts and against such risks as may be reasonable
and prudent in the circumstances for a group of companies of established
reputation engaged in the same or a similar business and owning and operating
properties similar to those of the Company and any of its Subsidiaries and in
any event as may be required by applicable Laws.
5.7 Consolidation, Merger and Sale of Assets.
(a) The Company shall not, and shall not permit any of its Subsidiaries to,
consolidate with or merge into another Person or sell, convey, transfer or lease
its properties or assets substantially as an entirety to any Person, unless:
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(i) the Person formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as an entirety
shall be a corporation or a partnership, shall be organized and validly existing
under the Laws of the United States of America, any State thereof or the
District of Columbia (or any other jurisdiction if the Company shall have
obtained and furnished to the holders of Notes an opinion of Independent Legal
Counsel that organization in such jurisdiction would have no material adverse
U.S. tax consequences to the holders of the Notes) and shall expressly assume
the due and punctual payment of the principal of, interest on or applicable
Prepayment Call Price (if any) or Change In Control Event Prepayment Price (if
any) with respect to the Notes (and the payment of any other amounts payable in
respect thereof pursuant to the terms hereof) and the performance of every other
covenant of the Company under the Notes, this Agreement and the Registration
Rights Agreement;
(ii) immediately after giving effect to such transaction, no Event of
Default and no Default shall have occurred and be continuing; and
(iii) immediately after giving effect to such transaction, for only so
long as any Senior Subordinated Note is outstanding, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
its assets would be able to incur at least one dollar of additional Senior
Indebtedness pursuant to Section 5.8.
(b) For only so long as any Senior Subordinated Note is outstanding, except
(i) to effect the Conversion, (ii) for sales of automobile loan receivables to
the Trusts, (iii) for mergers, consolidations or the Company's or any
Subsidiary's sale, conveyance, transfer or lease of its properties or assets
substantially as an entirety to any Person permitted by Section 5.7(a), (iv) for
an Asset Sale or (v) for a Sale Transaction in connection with a Put Notice, the
Company shall not, and shall not permit any Subsidiary to, dispose of all or any
part of its interest in any material asset, unless such sale or disposition is
both (i) on an arm's length basis and (ii) either in the ordinary course of
business or, if not in the ordinary course of business, the proceeds of such
sale or disposition are, within 180 days of such sale or disposition, either (A)
reinvested in businesses that are related, incidental or complimentary to the
business in which the Company or such Subsidiary is currently engaged, or (B)
used to prepay, first, Senior Indebtedness of the Company to the extent required
by the holders of such Senior Indebtedness and, second, the Senior Subordinated
Notes by payment of the Prepayment Call Price in accordance with Sections 2.4,
2.5, 2.6 and 2.7; provided, however, that the Trusts shall be permitted to sell
assets in connection with any securitization of receivables.
5.8 Limitation on Indebtedness. The Company shall not, and shall not permit
any of its Subsidiaries (other than the Trusts) to, incur, for only so long as
any Senior Subordinated Note is outstanding, (i) any Senior Indebtedness other
than any Senior Indebtedness, secured or otherwise, existing as of the date
hereof, and any amendments, modifications, restatements, replacements and
refinancings thereof and (ii) any other Indebtedness other than (A) warehousing
facilities secured by Non-Prime Loans, capital leases
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or purchase money debt, in each case incurred in the ordinary course of
business; (B) Indebtedness incurred by the Company or any Subsidiary to finance
the purchase, lease or improvement of personal property, fixtures or equipment
reasonably necessary for the conduct of the Company's or such Subsidiary's
business and in the ordinary course thereof and (C) subject to Section 9, other
Indebtedness pari passu with the Senior Subordinated Notes or other Subordinated
Indebtedness; provided, that, upon the incurrence of such other Indebtedness
pursuant to clause (C), (x) the amount of all outstanding obligations of the
Company under such Indebtedness pari passu with the Senior Subordinated Notes or
other Subordinated Indebtedness does not exceed the Debt Limit and (y) the sum
of the amount of the Senior Subordinated Notes and all other Indebtedness pari
passu with the Senior Subordinated Notes does not exceed 50% of the Debt Limit.
For the sake of clarity, there shall be no limit on the Company's ability to
incur any amount of Indebtedness described in clause (ii)(A) and (B) above.
5.9 Limitation on Liens. For only so long as any Senior Subordinated Note
is outstanding, except for Permissible Liens, the Company shall not, and shall
not permit any Subsidiary to, create or permit to be created or suffer to exist
any Lien on any of the Company's or any Subsidiary's present or future
properties or revenues to secure Indebtedness of the Company, any Subsidiary or
any other Person unless, simultaneously therewith, all obligations and
liabilities of the Company under this Agreement shall be equally and ratably
secured.
5.10 Limitation on Dividends and Other Restricted Payments. The Company
shall not, and shall not permit any of its Subsidiaries (other than the Trusts)
to make any Restricted Payment prior to the exchange of the Deferred Additional
Interest Notes in their entirety for Equity Interests pursuant to Section 6.
Without limiting the preceding sentence, following the consummation of an
Initial Public Offering, so long as any amount remains unpaid on any Note, the
Company shall not, and shall not permit any of its Subsidiaries (other than the
Trusts) to, make any Restricted Payment if, after making such Restricted
Payment, the aggregate amount of such Restricted Payments from and after such
consummation would exceed (a) 50% of the aggregate net income of the Group for
each fiscal year or portion thereof following the first day of the calendar
quarter in which such consummation occurs minus (b) 100% of the losses of the
Group for each fiscal year or portion thereof following the first day of the
calendar quarter in which such consummation occurs; provided, however, that
notwithstanding the above, the Company may use the aggregate net proceeds to the
Company of an Initial Public Offering and subsequent Public Offerings, in an
amount equal to the lesser of $6,000,000 and 30% of such net proceeds, to make
payments of principal on the Partner Promissory Notes. For purposes of this
Section 5.10, net income means the difference of revenues minus (a) expenses and
(b) taxes, only if such difference is a positive number; and losses means the
absolute value of the difference of revenues minus (a) expenses and (b) taxes,
only if such difference is a negative number, in each case calculated in
accordance with generally accepted accounting principles.
5.11 Limitations on Advances, Investments and Loans. Except as necessary to
effect the Conversion, and only for so long as any Senior Subordinated Note is
outstanding,
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the Company shall not, and shall not permit any of its Subsidiaries to, lend
money or credit or make advances to any Person, or purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any Person, except:
(a) investments in Cash and Eligible Investments;
(b) investments having been made prior to the Closing Date;
(c) receivables owing to the Company or any of its Subsidiaries and
advances to customers, suppliers, auto dealers and referral salesmen, in each
case if created, acquired or made in the ordinary course of business, payable or
dischargeable in accordance with customary trade terms and in accordance with
past practice;
(d) fees payable pursuant to the Referral Agreement, the Management
Agreement and the Services Agreement;
(e) investments in the lines of business of the Company or any of its
Subsidiaries as of the Closing Date or businesses that are related, incidental
or complimentary thereto;
(f) investments received in connection with the bankruptcy or
reorganization of customers, suppliers, auto dealers and referral salesmen and
in settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(g) advances made by the Company to its employees, officers or directors in
the ordinary course of business not to exceed $20,000 in the aggregate
outstanding at any one time;
(h) advances, investments and loans made in connection with the formation
of a Trust; and
(i) acquisitions of obligations by a Trust in the ordinary course of its
business.
5.12 Notice to Holders. Upon the Company obtaining knowledge of (a) a
Default or an Event of Default, (b) the existence of any pending or threatened
actions, suits, investigations, litigation, or other judicial or administrative
proceedings which, if adversely determined, would reasonably be expected to have
a Material Adverse Effect, (c) the default by the Company or any of its
Subsidiaries under any instrument pursuant to which the Company or any such
Subsidiary, as the case may be, incurred Indebtedness of at least $1,000,000, or
(d) the amendment of any instrument pursuant to which the Company or any of its
Subsidiaries incurred Indebtedness and which Indebtedness, amendment or
instrument is material to the business, assets, operations, prospects,
liabilities or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, the Company shall deliver promptly (and in any
event within five Business Days after the obtaining of such knowledge) to each
holder of any Note a certificate of an Executive Officer of the Company, with
respect to clauses (a), (b) and (c), specifying the nature and period of
existence thereof and what
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action the Company proposes to take with respect thereto and, with respect to
clause (d), attaching a copy of the amendment and specifying the effect such
amendment is expected to have on the business, assets, operations, prospects,
liabilities and condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
5.13 Compliance with Law. The Company shall, and shall cause each
Subsidiary to, comply with all applicable Laws in respect of the operation of
all properties (including without limitation leased or owned facilities) by them
and the conduct of their business (including, without limitation, Laws with
respect to ERISA and Environmental Laws) other than any such non-compliance
which would not have a Material Adverse Effect.
5.14 Compliance with Agreements. The Company shall comply with all of the
provisions of, and perform each of its obligations under, the Registration
Rights Agreement.
5.15 Environmental Covenant. The Company shall, and shall cause each
Subsidiary to, use its best efforts to avoid the occurrence of any Environmental
Condition either on the properties (including leased facilities) operated by it
or them or otherwise related in any way to the Company, its Subsidiaries or
their activities. In the event any such Environmental Condition occurs, the
Company shall take prompt action to respond to and rectify such Environmental
Condition. The Company shall, and shall cause each Subsidiary to, treat,
dispose, or arrange for treatment or disposal of Hazardous Materials only at
third-party treatment and disposal facilities which to the best of the Company's
knowledge, after reasonably diligent inquiry, maintain valid permits and are
operating in compliance with all applicable Environmental Laws and permits.
5.16 Maintenance, Etc. The Company shall, in all material respects,
maintain, preserve and keep, and cause each Subsidiary to maintain, preserve and
keep, its or their properties which are used or useful in the conduct of its or
their business (whether owned in fee or a leasehold interest) in good repair and
working order (ordinary wear and tear excepted) and from time to time shall make
all necessary repairs, replacements, renewals and additions so that at all times
the economic efficiency thereof shall be maintained, in each case, in the
ordinary course of business. The Company shall maintain, preserve and keep, and
shall cause each Subsidiary to maintain, preserve and keep, its or their rights
under or in all material patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures, trademarks, service marks and tradenames) which are described in
the Private Placement Memorandum as being owned by them or which are reasonably
necessary for the conduct of their business, and the Company shall protect and
defend, and cause each Subsidiary to protect and defend, such rights against any
infringing uses that would have a Material Adverse Effect.
5.17 Transactions with Affiliates and Related Persons
(a) The Company shall not, and shall not permit any Subsidiary to, enter
into or be a party to any transaction or arrangement with First Union or its
Affiliates, any Affiliate of
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the Company, Related Person of the Company or Related Person of any Affiliate of
the Company (including without limitation, the purchase from, sale to or
exchange of property with, or the rendering of any service by or for, any such
parties) (all such transactions or arrangements other than Insider Compensation
Increases, "Related Party Transactions"), with the exception of transactions or
arrangements under (i) the Management Agreement, (ii) the Services Agreement,
(iii) the Referral Agreement (subject, however, to Section 5.17(d)), (iv) the
Partner Promissory Notes and (v) the agreements between the Company and the
Trusts set forth in Schedule 3.1(s) to the Disclosure Letter, unless (x) the
Related Party Transaction is in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would be obtained in a comparable arm's-length transaction between
unrelated third parties and (y) if the fair market value of the property to be
transferred or service to be rendered is greater than $25,000, such Related
Party Transaction has been approved by the Board of Directors; provided,
however, that the Company may, and may permit any Subsidiary to, enter into or
be a party to any Related Party Transaction with the prior written consent of
the holders of at least a majority in the then outstanding principal amount of
the Notes; and provided, further, that, in any event, any arrangements with
First Union or its Affiliates for commercial banking, investment banking,
placement agency, underwriting and any other financial advisory services shall
not require such consent and shall be excluded for purposes of clause (y) above.
(b) Without limitation of Section 5.17(a), the Company shall not, and shall
not permit any Subsidiary (other than the Trusts) to, increase the salary, fee,
bonus or other compensation or amount payable to any director or officer (such
increases, "Insider Compensation Increases"), unless (A) the Insider
Compensation Increase is given in the ordinary course of business and, in
respect of amounts and timing, in accordance with past or industry practice, (B)
the Insider Compensation Increase has been approved by the Board of Directors
and (C) the aggregate amount of all Insider Compensation Increases in the fiscal
year in which such increase is made is less than $250,000 in 1996, $300,000 in
1997, $400,000 in 1998, $450,000 in 1999 and $500,000 in 2000 and thereafter;
provided, however, that the Company may, and may permit any Subsidiary to, make
any Insider Compensation Increase with the prior written consent of the holders
of at least a majority in the then outstanding principal amount of the Notes;
and provided, further, that compensation that will not be reported on such
director's or officer's Form W-2 shall not be included for purposes of clause
(C).
(c) Without limitation of Section 5.17(a) or 5.17(b), the Company shall
not, and shall not permit any Subsidiary to, pay fees to National Auto Finance
Corporation or any of its Affiliates in any calendar year pursuant to the
Management Agreement or in connection with the Services Agreement in an
aggregate amount greater than $540,000 in 1996, which such amount may increase
by no more than 12% per year thereafter if such increase is approved by the
Board of Directors and described in a resolution of the Board of Directors.
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(d) The Company shall not amend the Referral Agreement unless such
amendment is pursuant to the reasonable requirements of the Company's business
and the result of arm's length negotiations between the parties thereto.
5.18 Use of Proceeds. None of the proceeds of the sale of the Notes shall
be used, directly or indirectly, for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System (herein called "margin stock") or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently margin stock or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or shall take any action which might cause this Agreement or the Notes to
violate Regulation G, Regulation T, Regulation U or Regulation X of the Board of
Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case
as in effect now or as the same may hereafter be in effect. The proceeds from
the sale of the Notes by the Company shall be used to fund the purchase and/or
financing of Non-Prime Loans for the Company and its Subsidiaries, to provide
for working capital requirements of the Company and its Subsidiaries and to pay
fees and expenses in connection with the issuance and sale of the Notes. The
Company shall invest the unused balance of such net proceeds in Eligible
Investments. This Section 5.18 shall apply for only so long as any Senior
Subordinated Note is outstanding.
5.19 Continuance of Business. The Company shall, and shall cause each
Subsidiary to, limit itself to, and continue to conduct, the businesses in which
the Company and such Subsidiaries are engaged as of the Closing Date; provided,
however, that the Company and its Subsidiaries shall not be prohibited from
entering businesses that are related, incidental or complementary to the
businesses in which the Company or its Subsidiaries are engaged as of the
Closing Date; and provided, further, that the Company shall be permitted to
consummate the Conversion as contemplated in Section 12.1; and provided,
further, that the provisions of this Section 5.19 shall not prevent the Company
from effecting any transaction permitted pursuant to Section 5.7(a).
5.20 Governmental Authorizations. The Company shall obtain, make and keep
in full force and effect, and shall cause each Subsidiary to obtain, make and
keep in full force and effect, all authorizations from and registrations with
Governmental Authorities that may be required for the validity or enforceability
against it of this Agreement and the Notes and for the operation of its
business, as conducted now or as will be conducted in the future, except where
the failure to do so would not have a Material Adverse Effect.
5.21 Further Assurances. The Company shall promptly execute and deliver all
further instruments and documents, and take all further action that may be
necessary or that the Purchasers, or any subsequent holders of any Notes or
Registrable Securities, individually or collectively, may reasonably request in
order more fully to give effect to the provisions of this Agreement.
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5.22 Integration. For only so long as any Senior Subordinated Note is
outstanding, the Company shall take all actions that are appropriate or
necessary to assure that its offerings of securities other than the Notes will
not be integrated for purposes of the Securities Act with the offerings of Notes
by the Company to the Purchasers contemplated hereby in any manner that would
require the registration of such securities under the Securities Act.
5.23 Rule 10b-6 For only so long as any Senior Subordinated Note is
outstanding, the Company shall not take any action prohibited by Rule 10b-6
under the Exchange Act, in connection with the distribution of the Notes by the
Company to the Purchasers contemplated hereby.
5.24 Tangible Net Worth. The Company shall maintain at all times, but only
so long as any Senior Subordinated Note is outstanding, a Tangible Net Worth
equal to or exceeding the sum of (a) $2,100,000, (b) (i) prior to the Company
becoming a Corporate Company, 50% of the aggregate net income of the Company, as
reduced by 50% of any distributions to partners in the Company required in order
to permit such partners to pay federal income taxes, to the extent that such
distributions are not in excess of the amount of cash distributed pursuant to
Section 9.2(A)(1) of the Partnership Agreement, in each case measured from June
30, 1996 to the end of the most recent preceding fiscal quarter or (ii) as of
and after the Company has become a Corporate Company, 50% of aggregate net
income (after-tax) of the Company measured from June 30, 1996 to the end of the
most recent preceding fiscal quarter, plus (c) 50% of the Net Proceeds of any
offering by the Company.
5.25 Visitation Rights. The Company shall provide the holders of the
Deferred Additional Interest Notes with notice of, and a representative of each
such holder shall have the right to attend (in person or by telephone) and
participate in, all meetings of the Board of Directors, whether such meetings
occur in person or by telephone or similar means authorized by the Company's
organizational documents and shall have the same confidentiality obligation with
respect to such meetings as if each such representative were a director;
provided, however, that such representatives shall have no right to vote at such
meetings. The Company shall pay all expenses of the such representatives in
connection with their attendance at such meetings. Notice of action proposed to
be taken by written consent of the Board of Directors without a meeting shall be
given to the holders of the Deferred Additional Interest Notes at the same time
as to the members of the Board of Directors, and notice of the effectiveness of
any such action shall be given to such holders promptly following the taking of
such action. The Company shall also send to each holder any materials made
available to the members of the Board of Directors. Notwithstanding anything to
the contrary above, the Company may, in its reasonable discretion, determine
that an issue to be discussed at a meeting of the Board of Directors or a
written consent of the Board of Directors would involve a conflict of interest
for a holder of the Deferred Additional Interest Notes and exclude such holder
from attending such meeting or participating in such written consent, as the
case may be; provided, that in such an event, the Company shall provide to such
holders the minutes of each such meeting or a copy of each such consent, as the
case may be.
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5.26. Plan Assets.
(a) Unless required to the contrary by changes in law after the date
hereof, the Company shall treat the Notes as indebtedness of the Company for
U.S. federal income tax purposes, and, in the event of a challenge to such
treatment, shall assert such position in good faith.
(b) The Company shall not take any action after the occurrence of an
Automatic Exchange Event described in clause (v) of the definition thereof that
would cause the assets of the Company to be considered the assets of any
employee benefit plan that holds, directly or indirectly, an Equity Interest for
purposes of Part 4 of Title I of ERISA, except to the extent the Company is
required to redeem an Equity Interest pursuant to the Partnership Agreement as
in effect on the date hereof. The Company and the Purchasers represent to one
another that they have conferred with their respective counsel and, as of the
Closing Date, will treat the Notes as debt for purposes of the plan asset
regulations of the Department of Labor under ERISA.
5.27 Qualified Public Offering. The Company shall use its reasonable best
efforts to, and shall cause each underwriter participating in any Public
Offering to use its reasonable best efforts to, cause any Public Offering to be
a Qualified Public Offering.
5.28 Put Event Equity Redemption. If the Company receives a Put Notice
pursuant to Section 11.1 of the Partnership Agreement after the exchange of any
Deferred Additional Interest Note (in whole or in part) for Equity Interests,
not later than two (2) Business Days after the date on which the Company
receives a Put Notice, the Company shall give written notice by facsimile or
other same day written communication to all holders of Equity Interests
previously issued in exchange for Deferred Additional Interest Notes stating (a)
a brief description of the Put Event (as defined in Section 11.5 of the
Partnership Agreement), (b) that such holders may elect to put their Equity
Interests previously issued in exchange for Deferred Additional Interest Notes
on the same basis as IronBrand if any such holder so elects by providing written
notice to the Company and (c) that the put right must be exercised as to all of
a holder's Equity Interests previously issued in exchange for Deferred
Additional Interest Notes but (A) that a holder's Equity Interests will not be
so prepaid unless holders of at least a majority of the Equity Interests
previously issued in exchange for Deferred Additional Interest Notes elect such
put and (B) that if such holder does not elect such prepayment, such holder's
Equity Interests will in any event be so put if the holders of a majority of the
Equity Interests previously issued in exchange for Deferred Additional Interest
Notes elects such put. The following procedures shall apply with respect to such
redemptions of such Equity Interests.
(i) To put its Equity Interests, a holder of such Equity Interests
must give, not later than two (2) Business Days after receipt of the Company's
notice with respect to the Put Event, written notice to the Company stating that
the holder elects to put such Equity Interests on the same terms as IronBrand.
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(ii) If the holders of at least a majority of such Equity Interests
elect such put, all such outstanding Equity Interests shall be deemed to have
been put on such terms and the Company shall give same-day facsimile or other
written notice thereof to all holders of such Equity Interests that such Equity
Interests have been deemed to have been so put.
(iii) If the holders of less than a majority of such Equity Interests
elect such put, the Company shall, two (2) Business Days after such second
Business Day, give same-day written notice thereof to all holders of such Equity
Interests, in which event such holders not previously electing to put such
Equity Interests may so put such Equity Interests by giving written notice to
the Company not more than two (2) Business Days after the date of such
additional notice, stating that such holder elects to put such Equity Interests.
If, after such two (2) Business Days, the holders of at least a majority of such
Equity Interests so elect to put such Equity Interests, all such outstanding
Equity Interests shall be deemed to have been so put. If such an election is
made, the Company shall cause no redemption of or distributions to be made to
IronBrand pursuant to Article XI of the Partnership Agreement unless pro rata
redemptions of such Equity Interests or pro rata distributions are made to the
holders holding such Equity Interests, as the case may be.
5.29 Board of Directors. The Company shall, at all times after December 31,
1996, (i) if the Board of Directors has greater than seven members, cause at
least one-third of the members of the Board of Directors to be Persons who are
not Affiliates of the Company, Related Persons of the Company or Related Persons
of Affiliates of the Company (in each case, other than by reason of being a
director of the Company) or employees of any of the foregoing; provided that
such one-third of the members may include one director that is a designee of
First Union or any of its Affiliates, and (ii) if the Board of Directors has
seven or less members, cause at least two of such members to be Persons who are
not Affiliates of the Company, Related Persons of the Company or Related Persons
of Affiliates of the Company (in each case, other than being a director of the
Company) or employees of any of the foregoing.
5.30 Sales of New Insider Equity Interests. The Company shall not issue any
New Insider Equity Interests, unless the Independent Review Committee approves
the terms and conditions (including, without limitation, price) of such
issuance; provided, however, that such approval shall not be required if holders
of at least a majority of the then outstanding principal amount of Deferred
Additional Interest Notes agree in writing that the material terms and
conditions of such issuance are acceptable.
5.31 Amendments to Partnership Agreement. The Company shall not permit any
amendments to the Partnership Agreement that would adversely affect the holders
of the Notes without obtaining the prior written consent of the holders of at
least a majority of the then outstanding principal amount of the Notes.
5.32 Amendments to Certain Other Documents. The Company shall not permit
any amendments to the Partner Promissory Notes that would adversely affect the
holders of the
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Notes without obtaining the prior written consent of the holders of at least a
majority of the then outstanding principal amount of the Notes.
SECTION 6. EXCHANGE OF DEFERRED ADDITIONAL INTEREST NOTES
6.1 Automatic Exchange.
(a) (i) The Company shall notify the holders of the Deferred Additional
Interest Notes in writing of an impending Automatic Exchange Event immediately
upon the Company obtaining knowledge that such an Event is likely to occur.
Immediately preceding the consummation of an Automatic Exchange Event described
in clauses (i) or (iii) of the definition thereof or immediately following the
consummation of an Automatic Exchange Event described in clause (v) of the
definition thereof or, in either case, as soon thereafter as is reasonably
practicable, the holder of a Deferred Additional Interest Note shall surrender
such Note, duly endorsed or assigned to the Company or in blank, at the office
of the Exchange Agent or at such other office or agency of the Company as may be
maintained for exchange pursuant to Section 1.5, in exchange for Equity
Interests in accordance with Section 6.6.
(ii) Immediately following the consummation of an Automatic Exchange
Event described in clause (ii) or (iv) of the definition thereof, the holder of
a Deferred Additional Interest Note shall surrender such Note, duly endorsed or
assigned to the Company or in blank, at the office of the Exchange Agent or at
such other office or agency of the Company as may be maintained for exchange
pursuant to Section 1.5, in exchange for a note (a "Liquidating Note") with the
terms described pursuant to Section 6.7.
(b) An exchange of Deferred Additional Interest Notes for Equity Interests
shall be deemed to have occurred immediately preceding the consummation of an
Automatic Exchange Event described in clauses (i), (iii) or (v) of the
definition thereof, and an exchange of Deferred Additional Interest Notes for
Liquidating Notes shall be deemed to have occurred immediately following the
consummation of an Automatic Exchange Event described in clauses (ii) or (iv) of
the definition thereof, whether or not the holders have yet physically
surrendered all of the Deferred Additional Interest Notes, and at such time the
rights of the holders of such Deferred Additional Interest Notes as holders of
Deferred Additional Interest Notes shall cease, the Person or Persons entitled
to receive the Equity Interests or Liquidating Notes, as the case may be,
issuable upon such exchange shall be treated for all purposes as the record
holder or holders of such Equity Interests or Liquidating Notes, as the case may
be, as of and after such time and, as promptly as practicable on or after the
exchange date and in any event within two Business Days, the Company shall issue
and deliver at the office of the Exchange Agent or at such other office or
agency the Equity Interests or Liquidating Notes, as the case may be, issuable
upon exchange but only, in the case of Equity Interests, if such Equity
Interests are certificated Equity Interests; provided, however, that, in the
case of an Automatic Exchange Event described in clause (i) or (iii) thereof, if
such Automatic Exchange Event is not consummated, such exchange shall be revoked
and rescinded, the Company shall execute and deliver (and shall be deemed to
have executed and delivered) to the holders of Deferred Additional Interest
Notes who so surrendered such Notes new Deferred Additional
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Interest Notes of denominations in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Notes, the issuance of such
Equity Interests shall be void and of no effect and such holders shall return
the Equity Interests, if such Equity Interests are certificated Equity Interests
and have been previously delivered pursuant to this Section 6.1(b), to the
office of the Exchange Agent or to such other office or agency; and provided,
further, that any such voidance shall not prejudice the rights of the holders of
the Deferred Additional Interest Notes subsequently to exchange such Deferred
Additional Interest Notes for Equity Interests pursuant to this Section 6 and
such Notes shall be automatically exchanged upon the occurrence of an Automatic
Exchange Event as set forth in this Section 6.1 regardless of how soon after
such voidance such Automatic Exchange Event occurs.
6.2 Partial Optional Exchange
(a) The Company shall notify the holders of the Deferred Additional
Interest Notes in writing of an impending Partial Optional Exchange Event
immediately upon the Company obtaining knowledge that such an Event is likely to
occur. Immediately upon the consummation of a Partial Optional Exchange Event,
or as soon thereafter as is reasonably practicable, a holder of Deferred
Additional Interest Notes may, so long as the holder has provided at least ten
(10) Business Days' prior written notice to the Company, surrender all such of
its Notes ("Exchanged PAR Notes") that could be exchanged for Equity Interests
pursuant to such Partial Option Exchange Event without (i) the Company's assets
being treated as Plan assets for purposes of Title I of ERISA or Section 4975 of
the Code or (ii) income with respect to such Equity Interests being taxable as
unrelated business taxable income with respect to any tax exempt holder, other
than due to any debt of the holder, at the office of the Exchange Agent or at
such other office or agency of the Company as may be maintained for exchange
pursuant to Section 1.5, in exchange for Equity Interests in accordance with
Section 6.6. If there is more than one holder whose exchange of Deferred
Additional Interest Notes would be limited to less than all of such holder's
Notes pursuant to the preceding sentence, then the amount of such Notes eligible
for such exchange shall be apportioned among such holders pro rata to the
respective principal amounts of their Notes. In the event that a holder is able
to exchange only part of such holder's Notes, then the Company shall execute and
deliver to such holder without expense to the holder, a new Deferred Additional
Interest Note (a "New PAR Note") in an aggregate principal amount equal to the
product of (A) the aggregate principal amount of the Exchanged PAR Note
immediately preceding its exchange and (B) the applicable Partial Reduction
Fraction.
(b) If a holder exchanges a Deferred Additional Interest Note pursuant to
Section 6.3(a) for less than all of the Equity Interests issuable upon an
exchange of such Note in full, the Senior Subordinated Note issued in connection
with such Exchanged PAR Note shall bear interest, notwithstanding the provisions
of Section 1.1(b), (i) on the entire unpaid portion of the principal amount of
such Senior Subordinated Note from the date of such exchange until such unpaid
portion of such principal amount shall have become due and payable, at the
Senior Subordinated Interest Rate, and (ii) on the unpaid portion of the
principal amount thereof equal to the product of (A) the unpaid principal amount
of such Note times (B) the PAR Reduction Fraction, at the Deferred Additional
Interest Rate, and the interest borne pursuant to clauses (i)
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and (ii) shall be payable or accrued and added to the unpaid portion of the
principal amount of the New PAR Note, respectively, as provided in Section
1.1(c).
6.3 Optional Exchange Upon Disposition.
(a) Immediately preceding the consummation of a Disposition, the holder of
a Deferred Additional Interest Note may, so long as the holder has provided at
least ten (10) Business Days prior written notice to the Company, surrender such
Note (an "Exchanged TAG Note"), duly endorsed or assigned to the Company or in
blank, at the office of the Exchange Agent or at such other office or agency of
the Company as may be maintained for exchange pursuant to Section 1.5, in
exchange for Equity Interests in accordance with Section 6.6; provided, however,
that such exchange shall only be for that number of Equity Interests that such
holder has elected to sell pursuant to the Tag Along Agreement as part of the
Disposition, and the Company shall execute and deliver to such holder, without
expense to the holder, a new Deferred Additional Interest Note (a "New TAG
Note") in an aggregate principal amount equal to the product of (A) the
aggregate principal amount of the Exchanged TAG Note immediately preceding its
exchange and (B) the applicable Tag Along Reduction Fraction.
(b) If a holder exchanges a Deferred Additional Interest Note pursuant to
Section 6.3(a) for less than all of the Equity Interests issuable upon an
exchange of such Note in full, the Senior Subordinated Note issued in connection
with such Exchanged TAG Note shall bear interest, notwithstanding the provisions
of Section 1.1(b), (i) on the entire unpaid portion of the principal amount of
such Senior Subordinated Note from the date of such exchange until such unpaid
portion of such principal amount shall have become due and payable, at the
Senior Subordinated Interest Rate, and (ii) on the unpaid portion of the
principal amount thereof equal to the product of (A) the unpaid principal amount
of such Note times (B) the Tag Along Reduction Fraction, at the Deferred
Additional Interest Rate, and the interest borne pursuant to clauses (i) and
(ii) shall be payable or accrued and added to the unpaid portion of the
principal amount of the New TAG Note, respectively, as provided in Section 1.1.
(c) An exchange of any Deferred Additional Interest Note or portion thereof
with respect to which notice has been provided to the Company pursuant to
Section 6.3(a) for Equity Interests in connection with a Disposition shall be
deemed to have occurred immediately preceding the consummation of such
Disposition, whether or not the holder has yet physically surrendered such
Deferred Additional Interest Note, and at such time the rights of the holder of
such Deferred Additional Interest Note or portion thereof as holder of such
Deferred Additional Interest Note or portion thereof shall cease, the Person or
Persons entitled to receive the Equity Interests issuable upon such exchange
shall be treated for all purposes as the record holder or holders of such Equity
Interests as of and after such time and, as promptly as practicable on or after
the exchange date and in any event within two Business Days, the Company shall
issue and deliver at the office of the Exchange Agent or at such other office or
agency the Equity Interests issuable upon exchange, if such Equity Interests are
certificated Equity Interests; provided, however, that if such Disposition is
not consummated, such exchange shall be revoked and rescinded, the Company shall
execute and deliver (and shall be deemed to have so executed and delivered) to
such holder of a Deferred Additional Interest
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Note who so surrendered such Note a new Deferred Additional Interest Note of a
denomination in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note, the issuance of such Equity Interests shall be
void and of no effect and such holder shall return the Equity Interests, if such
Equity Interests are certificated Equity Interests and have been previously
delivered pursuant to this Section 6.3(c), to the office of the Exchange Agent
or at such other office or agency; and provided, further, that any such voidance
shall not prejudice the rights of such holder subsequently to exchange such
Deferred Additional Interest Note for Equity Interests pursuant to this Section
6 and such Note may be exchanged upon a Disposition as set forth in this Section
6.3 regardless of how soon after such voidance such Disposition occurs.
6.4 Optional Exchange Upon Non-Qualified Public Offering.
(a) Immediately preceding the consummation of a Public Offering that is not
a Qualified Public Offering, a holder of a Deferred Additional Interest Note who
has elected to exercise its registration rights pursuant to Section 1(a) or 1(b)
of the Registration Rights Agreement with respect to such Public Offering may
surrender such Note (an "Exchanged NQPO Note"), duly endorsed or assigned to the
Company or in blank, at the office of the Exchange Agent or at such other office
or agency of the Company as may be maintained for exchange pursuant to Section
1.5, in exchange for Equity Interests in accordance with Section 6.6.
(b) An exchange of any Deferred Additional Interest Note with respect to
which notice has been provided pursuant to Section 6.4(a) shall be deemed to
have occurred immediately preceding the consummation of such Public Offering,
whether or not the holder has yet physically surrendered such Deferred
Additional Interest Note, and at such time the rights of the holder of such
Deferred Additional Interest Note as holder of such Deferred Additional Interest
Note shall cease, the Person or Persons entitled to receive the Equity Interests
issuable upon such exchange shall be treated for all purposes as the record
holder or holders of such Equity Interests as of and after such time and, as
promptly as practicable on or after the exchange date and in any event within
two Business Days, the Company shall issue and deliver at the office of the
Exchange Agent or at such other office or agency the Equity Interests issuable
upon exchange, if such Equity Interests are certificated Equity Interests;
provided, however, that if such Public Offering is not consummated, such
exchange shall be revoked and rescinded and the Company shall execute and
deliver (and shall be deemed to have so executed and delivered) to such holder
of a Deferred Additional Interest Note who so surrendered such Note a new
Deferred Additional Interest Note of a denomination in aggregate principal
amount equal to the aggregate principal amount of such surrendered Note and such
holder shall return the Equity Interests, if the Equity Interests are
certificated Equity Interests and have been previously delivered pursuant to
this Section 6.4(b), to the office of the Exchange Agent or at such other office
or agency; and provided, further, that if the underwriter elects not to purchase
all of such holder's Equity Interests pursuant to Section 1(c)(iii) of the
Registration Rights Agreement, such exchange shall be revoked and rescinded with
respect to the Equity Interests not purchased by such underwriter and the
Company shall execute and deliver to such holder, without expense to the holder,
a new Deferred Additional
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Interest Note (a "New NQPO Note") in an aggregate principal amount equal to the
product of (A) the aggregate principal amount of the Exchanged NQPO Note
immediately preceding its exchange and (B) the NQPO Reduction Fraction; and
provided, further, that any such voidance described in the first proviso above
shall not prejudice the rights of such holder to exchange such Note for Equity
Interests pursuant to this Section 6 and such Note may be exchanged upon a
Public Offering as set forth in this Section 6.4 regardless of how soon after
such voidance such Public Offering occurs.
(c) If a holder receives a New NQPO Note in an aggregate principal amount
less than the Exchanged NQPO Note pursuant to Section 6.4(b), the Senior
Subordinated Note issued in connection with such Exchanged NQPO Note shall bear
interest, notwithstanding the provisions of Section 1.1(b), (i) on the entire
unpaid portion of the principal amount of such Senior Subordinated Note from the
date of such exchange until such unpaid portion of such principal amount shall
have become due and payable, at the Senior Subordinated Interest Rate, and (ii)
on the unpaid portion of the principal amount thereof equal to the product of
(A) the unpaid principal amount of such Note times (B) the NQPO Reduction
Fraction, at the Deferred Additional Interest Rate, and the interest borne
pursuant to clauses (i) and (ii) shall be payable or accrued and added to the
unpaid portion of the principal amount of the New NQPO Note, respectively, as
provided in Section 1.1(c).
6.5 Optional Exchange Upon IronBrand Redemption.
(a) If the Company intends to redeem IronBrand's Equity Interests pursuant
to Section 11.3 of the Partnership Agreement in connection with a Put Notice (as
defined in Section 11.2 of the Partnership Agreement), the Company shall notify
the holders of Deferred Additional Interest Notes in accordance with Section
2.3.
(b) Immediately preceding any redemption of IronBrand's Equity Interests
pursuant to Section 11.3 of the Partnership Agreement, the holder of a Deferred
Additional Interest Note may, so long as the holder has provided notice in
accordance with Section 2.3, surrender such Note, duly endorsed or assigned to
the Company or in blank, at the office of the Exchange Agent or at such other
office or agency of the Company as may be maintained for exchange pursuant to
Section 1.5 in exchange for Equity Interests in accordance with Section 6.6, and
the Company shall, immediately after such exchange and simultaneously and pro
rata with the redemption of IronBrand's Equity Interests and other Equity
Interests redeemed pursuant to Section 5.28, redeem such Equity Interests, the
redemption price for which Equity Interests shall be an amount equal to the sum
of (i) the product of (A) the Percentage Interest (as defined in the Partnership
Agreement) of such holder of the Company immediately following such exchange
multiplied by (B) the value of the Company determined pursuant to and in
accordance with the procedures set forth in Section 11.3 of the Partnership
Agreement.
(c) An exchange of Deferred Additional Interest Notes with respect to which
notice has been provided to the Company pursuant to Section 6.5(b) shall be
deemed to have occurred immediately preceding the redemption of the Equity
Interests for which such Notes
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are exchanged, whether or not the holder has yet physically surrendered such
Deferred Additional Interest Note, and at such time the rights of the holder of
such Deferred Additional Interest Note as holder of such Deferred Additional
Interest Note shall cease and the Person or Persons entitled to receive the
Equity Interests issuable upon such exchange shall be treated for all purposes
as the record holder or holders of such Equity Interests as of and after such
time.
6.6 Exchange Rate and Termination of Exchange Rights.
(a) (i) The Company shall issue an aggregate number of Equity Interests in
exchange for all of the Deferred Additional Interest Notes as provided in this
Section 6, which such number shall be equal to ten (10) percent of the
then-outstanding Applicable Fully Diluted Equity Interests (the "Exchange
Rate"); provided, however, that if any such exchange shall occur after the
Conversion, the holders of Deferred Additional Interest Notes exchanging such
Notes shall be entitled to receive that number of Equity Interests in the
Corporate Company as if such holders had exchanged such Notes for Equity
Interests immediately prior to the Conversion and then exchanged the Equity
Interests so received for Equity Interests of the Corporate Company upon
Conversion; and provided further, that if less than 100% of the assets of the
Company were transferred to the Corporate Company in effecting the Conversion,
an appropriate and equitable adjustment shall be made to such number to ensure
that the economic interest such holders would have received in the assets of the
Company had such holders exchanged their Deferred Additional Interest Notes
prior to the Conversion is not diluted; provided, further, that such number
shall be increased by an amount of Equity Interests equal to 10% of any Fully
Diluted Equity Interests issued after the Conversion and prior to the exchange
to directors, officers or other management officials of the Company or any
Subsidiary as compensation for services.
(ii) For the sake of clarity, it is understood that the intent of the
exchange mechanisms included in this Agreement is to provide the Purchasers with
the right to acquire, collectively, 10% of the fully diluted equity interests in
the Company as of the Closing Date (including all equity interests that would be
or are convertible into equity interests and including the equity interests into
which the Deferred Additional Interest Notes are exchangeable in full) and that
the Purchaser's right to acquire 10% of the Applicable Fully Diluted Equity
Interests is subject to dilution from Equity Interests issued after the Closing
Date except in the case of Equity Interests issued to management as
compensation. It is also understood that, upon the Conversion of the Company
into a corporate form, the intent of the exchange mechanism is to provide the
Purchasers with the right to acquire stock in the Corporate Company that would
have the same economic value as if the Purchasers had acquired Equity Interests
in the Company immediately prior to the Conversion, taking into account that
less than 100% of the assets of the Company may be transferred to the Corporate
Company.
(b) Upon any exchange of Deferred Additional Interest Notes for Equity
Interests prior to the Conversion, any Equity Interests received by the holder
of such Notes shall be limited partnership interests in all respects,
notwithstanding the fact that the Exchange Rate will be applied to all general
partnership and limited partnership Equity Interests.
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(c) The exchange rights provided for in this Section 6 shall expire, as to
any Deferred Additional Interest Note, upon the prepayment or repayment in full
of such Note, whether on the Deferred Additional Interest Note Repayment Date or
otherwise.
(d) In any exchange of Deferred Additional Notes for Equity Interests, the
aggregate amount of Equity Interests shall be allocated among the holders of
such Notes participating in such exchange in proportion to the respective
unconverted portions of such holder's entitlements thereto as of the Closing
Date.
6.7 Asset Sales; Liquidation Decision; Share Sales.
(a) (i) The Company shall not consummate an Automatic Exchange Event
described in the definition thereof in clause (ii) (an "Asset Sale") or (iv) (a
"Liquidation Decision") without the Board of Directors determining in good faith
the net asset value of the Company (which, for purposes of this Section 6.7,
shall be deemed to be the fair value of the assets of the Company minus the fair
value of the liabilities of the Company minus reasonable reserves to be retained
by the Company to pay the expenses of winding down, liquidating and dissolving
the Company in the case of a Liquidation Decision only) immediately following
the Asset Sale or at the time of the Liquidation Decision; provided, however,
that in the case of a Liquidation Decision, the fair value of the Company's
assets on the date of the Liquidation Decision may be the price at which the
Company sells its assets in the course of effecting the winding down,
liquidation and dissolution contemplated thereby.
(ii) Upon an Asset Sale or a Liquidation Decision, the Company shall
issue and deliver to the holder of a Deferred Additional Interest Note, pursuant
to Section 6.1(a)(ii) in substitution therefor, a Liquidating Note in a
principal amount equal to the product of (A) the percentage of the Fully Diluted
Equity Interests represented by the Applicable Fully Diluted Equity Interests
for which such Note would be exchangeable in the event of any other Automatic
Exchange Event times (B) the net asset value of the Company, as determined
pursuant to Section 6.7(a)(i), which Liquidating Note shall have a maturity as
agreed upon by the Company and the holders of at least a majority of the then
outstanding principal amount of the Deferred Additional Interest Notes being so
exchanged but, in no event greater than 180 days, and which Note shall bear
interest for such period at a rate equal to the rate on U.S. Treasury Securities
for the same term of the Note, which such principal and interest shall be due
and payable by the Company upon the maturity date of such Liquidating Note (or
the next succeeding Business Day if such a day is not a Business Day)
(iii) The Company shall pay the principal and accrued interest on the
Liquidating Notes with the same consideration as is distributed to all other
holders of Equity Interests receiving distributions in connection with such
Asset Sale or Liquidation Decision; provided, however, that (A) the
consideration for the Liquidating Notes to be received (x) in the Asset Sale is
either cash, securities that will be listed and freely tradeable on any
nationally recognized securities exchange or on the NASDAQ national market
system within 180 days of such payment or a combination of cash and such
securities and if any such securities received as consideration do not become so
listed and freely tradeable, the Company shall purchase,
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within five (5) Business Days of such 180th day, such securities at their fair
value at the time originally distributed to the holders of Liquidating Notes,
from the holders of Deferred Additional Interest Notes which were exchanged for
the Equity Interests sold in such Asset Sale, at such fair value as determined
by a valuation firm or investment bank or national bank of national reputation
and reasonably acceptable to the holder and (y) in connection with a Liquidation
Decision is either cash, securities that will be listed and freely tradeable on
any nationally recognized securities exchange or on the NASDAQ national market
system or a combination of cash and such securities and (B) if the consideration
for Equity Interests to be received in the Asset Sale or in connection with the
Liquidation Decision includes securities, either (x) the Company has delivered
an opinion of Independent Legal Counsel to such holders to the effect that the
receipt by such holders of such securities would not result in the assets of the
issuer of such securities being Plan assets or (y) the Company has ensured that
such holders will receive cash in lieu of such securities, which such cash
amount shall be the fair market value of such securities for which cash will be
instead received, and such fair market value has been determined by the Board of
Directors in good faith.
(b) The Company shall not consummate an Automatic Exchange Event described
in clause (iii) of the definition thereof (a "Share Sale") until the Company
causes the following conditions to be met:
(i) all Equity Interests received by the holders of Deferred
Additional Interest Notes pursuant to Section 6.1 shall be Transferred as a part
of such Automatic Exchange Event;
(ii) the holders of Deferred Additional Interest Notes shall receive,
subject to Section 6.7(b)(iv) below, the same per-Equity Interest consideration
(payable in the same manner and upon the same terms) as all other Equity
Interest holders participating in the Share Sale;
(iii) the consideration for Equity Interests to be received in the
Share Sale is, subject to Section 6.7(b)(iv) below, either cash, securities that
will be listed and freely tradable on any nationally recognized securities
exchange or on the NASDAQ national market system within 180 days of the Share
Sale or a combination of cash and such securities; provided, that if any
securities received as consideration do not become so listed and freely
tradable, the Company shall purchase, within five (5) Business Days of such
180th day, such securities at their fair market value, from the holders of
Deferred Additional Interests Notes which were exchanged for the Equity
Interests sold in such Share Sale, as such fair market value is determined by a
valuation firm or investment bank of national reputation and reasonably
acceptable to the holder; and
(iv) if the consideration for Equity Interests to be received in the
Share Sale includes securities, either (x) the Company has delivered an opinion
of Independent Legal Counsel to the holders of Deferred Additional Interest
Notes to the effect that the receipt by such holders of such securities would
not result in the assets of the issuer of such securities being Plan assets or
(y) the Company has ensured that such holders will receive cash in lieu of
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such securities, which such cash amount shall be the fair market value of such
securities for which cash will be instead received, and such fair market value
has been determined by the Board of Directors in good faith.
6.8 Fractional Equity Interests. If Equity Interests shall not then exist
in fractions, no fractional Equity Interests or scrip representing fractional
Equity Interests shall be issued upon the exchange of the Deferred Additional
Interest Notes. In lieu of any fractional share of an Equity Interest which
would otherwise be issuable upon the exchange of any Deferred Additional
Interest Note or Notes (or specified portions thereof) pursuant to the
immediately preceding sentence, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction calculated to
the nearest $.01 of the fair market value of such Equity Interest (as determined
in good faith by the Board of Directors) at the close of business on the day of
exchange.
6.9 Notice of Certain Actions.
In the event that the Company:
(i) shall authorize the granting to the holders of its Equity
Interests of options, rights or warrants to subscribe for or purchase any Equity
Interests of the Company; or
(ii) effects any capital reorganization or reclassification of the
Equity Interests (other than a subdivision or combination of the outstanding
Equity Interests) or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any holders of Equity Interests of
the Company is required, or of the sale or transfer of all or substantially all
of the assets of the Company; or
(iii) effects any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(iv) alters the number or kind of Equity Interests issuable upon an
exchange of Deferred Additional Interest Notes;
then the Company shall cause to be mailed to the holder, at least ten
(10) Business Days prior to the applicable record, effective or expiration date
hereinafter specified, a notice stating (x) the date on which such
reorganization, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Equity Interests of record shall
be entitled to exchange their shares of Equity Interests for securities, cash or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (y) the date on which such purchase of outstanding Equity Interests shall
take place, the consideration offered and the other material terms thereof.
6.10 Company to Keep Available Equity Interests and Not to Enter into
Restrictive Agreements. The Company shall at all times take all action within
its powers that
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is necessary to reserve and keep available, the issuance of which upon exchange
of the Deferred Additional Interest Notes into such Equity Interests will be
free from preemptive rights, out of the authorized but unissued Equity Interests
or out of the Equity Interests held in treasury, for the purpose of effecting
the exchange of the Deferred Additional Interest Notes, the full number of
Equity Interests then issuable upon the exchange of all Deferred Additional
Interest Notes.
Until the date when no Deferred Additional Interest Notes remain
outstanding, the Company shall not enter into or become bound by any indenture,
lease, mortgage, deed of trust, loan agreement or other agreement or instrument
that would restrict, limit or impose conditions on the issuance of Equity
Interests to be issued upon exchange of the Deferred Additional Interest Notes
in accordance with this Section 6.
6.11 Taxes on Exchange. The Company shall pay any and all transfer, stamp,
documentary and other similar taxes and duties as may be payable in respect of
the issuance or delivery of Equity Interests with respect to Deferred Additional
Interest Notes exchanged pursuant hereto, and a holder exchanging a Deferred
Additional Interest Note for Equity Interests shall not be required to pay any
such transfer, stamp, documentary or other similar taxes or duties payable in
respect of the issue or delivery of the Equity Interests; provided, however,
that the holder shall be required to pay any such transfer tax or duty which may
be payable in respect of any transfer involved in the issue or delivery of the
Equity Interests in a name other than that of the holder of the Deferred
Additional Interest Note.
6.12 Covenant as to Issuance of Equity Interests. The Company covenants
that all Equity Interests which may be issued upon exchange of Deferred
Additional Interest Notes will upon issue be fully paid and nonassessable.
6.13 Cancellation of Exchanged Deferred Additional Interest Notes. All
Deferred Additional Interest Notes delivered for exchange shall be delivered to
the Company to be canceled by or at the direction of the Company,
notwithstanding that such Notes may have been deemed to have been cancelled
pursuant to this Section 6.
6.14 Reclassification, Reorganization, Consolidation, Merger or Sale of
Assets. In case of any Reorganization Transaction, the Company shall, as a
condition precedent to such transaction, cause effective provisions to be made
so that the holders of Deferred Additional Interest Notes shall have the right
thereafter, by exchanging such Notes, to receive the kind and amount of shares
of stock and other securities and property receivable upon such Reorganization
Transaction by a holder of the number of Equity Interests that might have been
received upon exchange of such Deferred Additional Interest Notes immediately
prior to such Reorganization Transaction. Any such provision shall include
provision for adjustments in respect of such shares of stock and other
securities and property that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Agreement. The foregoing provisions of
this Section 6.14 shall similarly apply to successive Reorganization
Transactions. For purposes of this Section 6.14, "Reorganization Transaction"
shall mean any reclassification, capital reorganization or other change of
outstanding Equity Interests of the
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Company or any consolidation or merger of the Company with or into another
corporation (other than a merger with a Subsidiary in which merger the Company
is the continuing corporation and that does not result in any reclassification,
capital reorganization or other change of outstanding Equity Interests of the
class issuable upon exchange of the Deferred Additional Interest Notes) or any
sale, lease, transfer or conveyance to another corporation of all or
substantially all of the assets of the Company; provided, however, that for
purposes hereof the Conversion shall not be a Reorganization Transaction.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES THEREFOR
7.1 Events of Default. Any one or more of the following shall constitute an
"Event of Default" as the term is used herein:
(a) except as provided for in Section 7.2(b), default shall occur in the
payment of interest on any Note on any Interest Payment Date which is not
remedied within five Business Days after such Interest Payment Date or default
shall occur in the making of the payment of the principal of any Note or of any
applicable Prepayment Call Price or Change in Control Event Prepayment Price on
the applicable scheduled Repayment Date or at any Prepayment Date or Change in
Control Event Prepayment Date or any accelerated date on which any of such
amounts are due and payable; or
(b) (i) default shall occur in the observance or performance of any
covenant set forth in Sections 5.7(a), 5.8, 5.9 (other than as set forth in
Section 7.1(b)(ii)) or 5.10 or the Company shall fail to comply with its
obligations under Section 9 of the Note Purchase Agreements or its obligations
under the Registration Rights Agreement; or
(ii) default shall occur in the observance or performance of any
covenant set forth in Section 5.9 with respect to involuntary Liens that are
suffered to exist which is not remedied within 30 days after the earlier of: (A)
receipt by the Company of written notice from a holder of Notes requiring the
same to be remedied and (B) the date on which the Company shall have obtained
knowledge of the occurrence of such Default; or
(c) default shall occur in the observance or performance of any other
obligation, covenant, undertaking, condition or provision in respect of the
Notes or contained in the Note Purchase Agreements which is not remedied within
30 days after the earlier of: (i) receipt by the Company of written notice from
a holder of Notes requiring the same to be remedied and (ii) the date on which
the Company shall have obtained knowledge of the occurrence of any Default; or
(d) the Company or any Subsidiary (i) defaults (beyond any applicable grace
period) on any payment of principal or of interest on any Indebtedness in excess
of $1,000,000 individually or in the aggregate or (ii) defaults (beyond any
applicable grace period) in the performance or observance of any provision
contained in any agreement which shall result in any Indebtedness in excess of
$1,000,000 individually or in the aggregate being declared to be due and payable
before its stated maturity; or
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(e) there shall be entered in any court of competent jurisdiction, any
final judgment ordering the Company or any Subsidiary to pay money in excess of
$100,000 or the equivalent thereof in another currency, and such judgment shall
remain undismissed, undischarged, or unstayed pending appeal and in effect for a
period of 60 days from the entry thereof; or
(f) any representation or warranty made by the Company herein in connection
with the consummation of the issuance and delivery of the Notes shall prove to
have been false or incorrect in any respect as of the date of the making
thereof; or
(g) the Company or any Subsidiary shall become insolvent or unable to pay
its debts as they fall due, or shall stop, suspend or threaten to stop or
suspend payment of all or a material part of its debts or shall propose or make
a general assignment or an arrangement or composition with or for the benefit of
its creditors, or a moratorium shall be agreed or declared in respect of or
affecting all or a material part of the Indebtedness of the Company or any
Subsidiary; or
(h) there shall be entered an order by any competent court, or a resolution
passed, for the winding up or dissolution of the Company or any Subsidiary, save
for the purposes of reconstruction, amalgamation or reorganization on terms
approved by the holders of at least a majority in the then outstanding principal
amount of the Notes or otherwise permitted by this Agreement; or
(i) the Company or any Subsidiary shall initiate or consent to judicial
proceedings relating to itself under any applicable liquidation, bankruptcy,
insolvency, composition, reorganization or other similar Laws (including a
proceeding to appoint a receiver, trustee, custodian or other similar official
for it or for all or any material part of its assets), or there shall be
commenced against the Company or any Subsidiary any such proceeding that results
in the entry of an order for relief or remains undismissed, unbonded or unstayed
pending appeal and in effect for a period of 60 days from the date of entry
thereof; or the Company or any Subsidiary shall make a conveyance or assignment
for the benefit of, or shall enter into any composition or other arrangement
with, its creditors generally, save for the purposes of reconstruction,
amalgamation or reorganization on terms approved by holders of at least a
majority in the then outstanding principal amount of the Notes; or
(j) the Company shall take any action authorizing, or in furtherance of, or
indicating its consents to, approval of, or acquiescence in, any of the acts set
forth above in clauses (g) through (i); or
(k) any Termination Event with respect to a Plan shall have occurred and
the sum (determined as of the date of occurrence of such Termination Event) of
the Insufficiency of such Plan and the Insufficiency of any and all other Plans
with respect to which a Termination Event shall have occurred and be continuing
(or in the case of a Multiple Employer Plan with respect to which a Termination
Event described in clause (ii) of the definition of Termination Event shall have
occurred and be continuing, the liability of the Company, the Subsidiaries and
the ERISA Affiliates related thereto) is equal to or greater than $100,000; or
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(l) the Company, any Subsidiary or any ERISA Affiliate shall fail to pay
when due any amount or amounts equal to or greater than $100,000 that it is
obligated to pay under Title IV of ERISA; or
(m) the Company, any Subsidiary or any ERISA Affiliate shall have committed
a failure described in Section 302(f)(1) of ERISA or Section 412(n)(1) of the
Code and the amount determined under Section 302(f)(3) of ERISA or Section
412(n)(3) of the Code in respect of such failure shall be equal to or greater
than $100,000; or
(n) the Company, any Subsidiary or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated with all
other amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liabilities (determined as of the date of such notification), exceeds
$500,000 or requires annual payments which exceed by more than $100,000 the
annual payments required to be made by the Company, such Subsidiary or such
ERISA Affiliate to such Multiemployer Plan immediately prior to the incurrence
of such Withdrawal Liability; or
(o) the Company, any Subsidiary or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
insolvent or in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if as a result of such insolvency, reorganization or
termination the aggregate annual contributions of the Company, the Subsidiaries
and the ERISA Affiliates to all Multiemployer Plans that are then insolvent, in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan years
that include the date hereof by an amount exceeding $100,000; or
(p) the aggregate amount of the Insufficiencies as of the last day of any
Plan year in respect of all Plans having any Insufficiency as of such date shall
exceed $1,000,000; or
(q) the Company or any Subsidiary is required to register as an "investment
company" under the Investment Company Act of 1940, as amended.
7.2 Acceleration of Maturities.
(a) Upon the occurrence and during the continuation of an Event of Default
under Section 7.1(a) above, the holder of a Note as to which such Event of
Default occurred may declare such Note to be immediately due and payable at a
price equal to the Prepayment Call Price with respect to such Note. Upon the
occurrence and during the continuation of any Event of Default other than under
Section 7.1(a) above, the holders of at least a majority in the then outstanding
principal amount of the Senior Subordinated Notes, if any, and the holders of at
least a majority in the then outstanding principal amount of the Deferred
Additional Interest Notes, may declare all Senior Subordinated Notes or all
Deferred Additional Interest Notes, as the case may be, to be immediately due
and payable at a price equal to the Prepayment Call Price with respect to such
Notes.
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(b) Upon the occurrence and during the continuance of an event of default
by the Company of (i) the payment of any principal of or interest on any Senior
Indebtedness which results in such Senior Indebtedness being declared to be due
and payable before its stated maturity or occurs at such stated maturity or (ii)
a material covenant of the Company (other than those referenced in clause (i))
in any instrument evidencing Senior Indebtedness with respect to which the
holders of such Senior Indebtedness have provided written notice to the Company
and to the holders of the Senior Subordinated Notes specifying such event of
default, the Company may elect (the right to make such an election, the "Block
Right") not to make any payment of principal of or interest on the Notes prior
to the earlier of (x) the 179th calendar day following such event of default and
(y) the curing of such event of default to the satisfaction of the holders of
such Senior Indebtedness (such period, the "Standstill Period") and the
nonpayment of principal and interest on the Notes during the Standstill Period
shall not constitute an Event of Default under Section 7.1(a) if the Company
pays in full all such amounts that became due and payable under this Agreement
during the Standstill Period within five (5) Business Days following the end of
the Standstill Period. The Company may elect to use its Block Right no more than
once in any consecutive 365 day period.
7.3 Remedies Cumulative. No remedy herein conferred upon the holder of any
Note is intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
7.4 Remedies Not Waived. Except for such waiver or waivers as may have been
agreed to in writing in accordance with Section 10, no course of dealing between
the Company and the holder of any Note and no delay or failure in exercising any
rights hereunder or under any Note in respect thereof shall operate as a waiver
of any of the rights of any holder of such Note.
7.5 Rescission of Acceleration. The provisions of Section 7.2 are subject
to the condition that if the principal of and accrued but unpaid interest on all
or any outstanding Notes have been declared or have become immediately due and
payable by reason of the occurrence of any Event of Default described in Section
7.1, (i) with respect to an Event of Default under Section 7.1(a), the holder of
such Note or Notes who declared such Note or Notes to be due and payable, and
(ii) with respect to an Event of Default other than under Section 7.1(a), the
holders of at least a majority in the then outstanding principal amount of all
the Senior Subordinated Notes or Deferred Additional Interest Notes, as the case
may be, may, in each case by written instrument filed with the Company, rescind
and annul such declaration and the consequences thereof with respect to such
Note or Notes; provided, that at the time such declaration is annulled and
rescinded:
(a) no judgment or decree has been entered for the payment of any monies
due pursuant to the applicable Notes or this Agreement;
(b) all arrears of interest upon all the applicable Notes and all other
sums payable under the applicable Notes and under this Agreement (except any
principal or interest on the
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Notes which has become due and payable solely by reason of such declaration
under Section 7.2) shall have been duly paid; and
(c) each and every other Event of Default shall have been cured or waived
pursuant to Section 10.1;
and provided, further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default.
7.6 Subordination. The rights of the holders arising under this Section 7
are not subject to the provisions of Section 8; provided, however, that any
right to payment to the holders pursuant to Section 7.2 shall be subject to such
Section 8.
SECTION 8. SUBORDINATION OF NOTES
The Company covenants and agrees, and each holder of a Note, by his
acceptance thereof, likewise covenants and agrees, that the indebtedness
represented by the Notes and the payment of the principal of, interest on or
applicable Prepayment Call Price or Change in Control Event Prepayment Price
with respect to each and all of the Notes including any other payment on account
of the Notes, are hereby expressly made subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness.
SECTION 9. PREEMPTIVE RIGHTS
9.1 Preemptive Rights with respect to New Insider Equity Interests. The
Company hereby grants to each Purchaser the right, subject to the provisions of
this Section 9, to purchase its pro rata share of any New Insider Equity
Interests which the Company may, from time to time, propose to issue and sell to
any person described in the definition of New Insider Equity Interests on the
same terms and conditions as offered to such persons. A Purchaser's pro rata
share of any New Insider Equity Interests, for purposes of this right, is the
ratio of (i) the Equity Interests for which the Deferred Additional Interest
Notes held by such Purchaser are exchangeable pursuant to Section 6 and the
Equity Interests held by such Purchaser to (ii) the Applicable Fully Diluted
Equity Interests. Each Purchaser electing its pre-emptive rights pursuant hereto
also shall have a right of over-allotment such that if any other Purchaser fails
to exercise its right hereunder to purchase its pro rata share of such New
Insider Equity Interests, the electing Purchasers may purchase the
non-purchasing Purchaser's portion on a pro rata basis relative to each other
within five Business Days from the end of the 10 Business Day period referred to
in Section 9.3.
The rights of each Purchaser under this Section 9.1 shall be freely
transferable by such Purchaser separately from the Deferred Additional Interest
Notes and Equity Interests to which they relate.
9.2 Preemptive Rights with respect to Pari Passu Indebtedness and Related
Equity Interests. The Company hereby grants to the Purchasers holding Senior
Subordinated Notes, for so long as such Purchasers hold collectively at least
50% of the aggregate
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outstanding principal amount of the Senior Subordinated Notes, the right to
purchase, at the Purchasers' option and in accordance with the provisions of
Section 9.3, up to and including 50% of (a) any Indebtedness that is proposed to
be issued by the Company and is pari passu with the Senior Subordinated Notes
and (b) any Equity Interests or Convertible Interests issued by the Company in
connection with the proposed issuance of such Indebtedness, pro rata among the
Purchasers; provided, that if no such Convertible Interests or Equity Interests
are to be issued by the Company in connection with any such proposed issuance of
pari passu Indebtedness, the Purchasers shall still have the option to purchase
such Indebtedness. A Purchaser's pro rata share, for purposes of this right, is
the ratio of (i) the outstanding principal balance of Senior Subordinated Notes
held by such Purchaser to (ii) the aggregate outstanding principal balance of
the Senior Subordinated Notes held by all of the Purchasers. Each Purchaser
shall have a right of over-allotment such that if any Purchaser fails to
exercise his right hereunder to purchase his pro rata portion of such
Indebtedness, Equity Interests or Convertible Interests, the other Purchasers
may purchase the non-purchasing Purchaser's portion on a pro rata basis within 5
Business Days from the end of the 10 Business-Day period referred to in Section
9.3.
The rights of each Purchaser under this Section 9.2 are not transferable or
assignable.
9.3 Preemptive Procedures.
(a) In the event the Company proposes to undertake an issuance of Subject
Securities, it shall give the Purchasers entitled to the rights under Section
9.1 or 9.2 written notice of its intention, describing the Subject Securities,
the price and the general terms upon which the Company proposes to issue the
same. Each Purchaser shall have 10 Business Days from the date of receipt of any
such notice to agree to purchase such Purchaser's pro rata share of such Subject
Securities for the price and upon the same terms specified in the notice by
giving written notice to the Company and, if so agreed, stating therein the
quantity of such Subject Securities to be purchased (which quantity shall be
such Purchaser's pro rata share only in the case of the right under Section
9.1).
(b) In the event such Purchasers fail to exercise the rights under Section
9.1 or 9.2 within said 10-Business Day period, the Company shall have 150 days
thereafter to sell or enter into an agreement (pursuant to which the sale of
such Subject Securities covered thereby shall be closed, if at all, within 150
days from the date of said agreement) to sell such Subject Securities respecting
which such Purchasers' right was not exercised, at a price and upon material
terms not more favorable to the purchasers thereof than specified in the
Company's Notice. In the event the Company has not sold the subject securities
within said 150-day period or entered into an agreement to sell such Subject
Securities within said 150-day period (or sold and issued such Subject
Securities in accordance with the foregoing within 150 days from the date of
said agreement), the Company shall not thereafter issue or sell any such Subject
Securities without first offering such Subject Securities to such Purchasers in
the manner provided above.
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9.4 All Necessary Action. The Company hereby represents and warrants that,
as of the date hereof, the Company has taken all necessary action required to
provide the Purchasers holding Senior Subordinated Notes with all the rights
provided to such Purchasers under this Section 9 and all the benefits of the
obligations incurred by the Company under this Section 9.
SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS
10.1 Consent Required. Any term, covenant, agreement or condition of this
Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of (unless otherwise provided herein) at least a
majority in the then outstanding principal amount of the Notes; provided, that
no such waiver or amendment shall be effective (a) which will change the time of
payment of the principal of, interest on or applicable Prepayment Call Price or
Change in Control Event Prepayment Price with respect to any Note or reduce the
principal amount thereof, or interest thereon, or applicable Prepayment Call
Price or Change in Control Event Prepayment Price with respect thereto, (b)
which will change any of the provisions of Section 2.1, or (c) which will change
the percentage of holders of the Notes required to consent to any such waiver or
amendment of any of the provisions of this Section 10, or Section 7, in each
case without the consent of each holder of the Notes affected thereby; and
provided, further, that no such waiver or amendment shall be effective which
will change any of the rights or obligations of holders of Deferred Additional
Interest Notes or Registrable Securities without the consent of each holder of
Deferred Additional Interest Notes and Registrable Securities, as the case may
be, affected thereby. Executed or true and correct copies of any waiver or
amendment to this Agreement shall be delivered by the Company to each holder of
outstanding Notes or Registrable Securities forthwith following the date on
which the same shall have been executed and delivered by the holder or holders
of the requisite percentage of outstanding Notes and by the holder or holders of
the Deferred Additional Interest Notes and/or Registrable Securities, as the
case may be.
10.2 Effect of Amendment or Waiver. Any amendment or waiver effected in
accordance with Section 10.1 shall apply equally to all of the holders of the
Notes or Registrable Securities and shall be binding upon them, upon each future
holder of any Note or Registrable Security and upon the Company, whether or not
such Note or Registrable Security shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
10.3 Solicitation of Holders. The Company shall not solicit, request or
negotiate for or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or the Notes unless each holder of the Notes
(irrespective of the amount of Notes then owned by it) and Registrable
Securities, as applicable, shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with
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respect thereto. The Company shall not, directly or indirectly, pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, to any holder of the Notes or Registrable Securities, as
applicable, as consideration for or as an inducement to the entering into by any
holder of the Notes or Registrable Securities, as applicable, of any waiver or
amendment of any of the terms and provisions of this Agreement unless such
remuneration is concurrently paid, on the same terms, ratably to the holders of
all of the Notes and Registrable Securities, as applicable, then outstanding or,
if not so paid to any such holder, was offered to be paid to such holder and
such holder declined such payment.
SECTION 11. INTERPRETATION OF AGREEMENT; DEFINITIONS
11.1 Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein or any Exhibit shall have the following
meanings and the following definitions shall be equally applicable to both the
singular and plural forms of any of the terms herein defined.
"ACCH" means Auto Credit Clearinghouse L.P., a limited partnership
organized under the Laws of the State of Delaware.
"Affiliate" means, as to any Person, a Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the first Person; provided, however, that none of First
Union or its Affiliates shall be deemed to be an Affiliate of the Company or of
any Subsidiary thereof for purposes of this Agreement. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
"Agreement" means this Agreement and all Schedules and Exhibits hereto, as
amended, extended, restated, supplemented or otherwise modified or replaced from
time to time in accordance with the terms hereof.
"Applicable Fully Diluted Equity Interests" means, at any time, the Fully
Diluted Equity Interests; provided, however, that Applicable Fully Diluted
Equity Interests shall not include Equity Interests or Convertible Interests
that are issued after the Closing Date in accordance with this Agreement; and,
provided, further, notwithstanding the preceding proviso, Applicable Fully
Diluted Equity Interests shall include Fully Diluted Equity Interests issued to
directors, officers or other management officials of the Company or any
Subsidiary as compensation for the services of such persons.
"Asset Sale" has the meaning assigned in Section 6.7(a).
"Audited Financial Statements" means the audited consolidated financial
statements of the Group for the two fiscal years ended December 31, 1994 and
1995.
"Automatic Exchange Event" means any of (i) a Qualified Public Offering
following the conversion of the Company into a Corporate Company or into a
publicly traded partnership
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for tax purposes as defined in Section 7704 of the Code, (ii) the sale, lease or
conveyance by the Company or any Subsidiary of all or substantially all of the
assets of the Company to any other Person, including by consolidation with or
merger into such other Person other than in connection with a Conversion as
contemplated in Sections 5.7(a) and 12.1, (iii) the sale or conveyance of all or
substantially all of the Equity Interests of the Company to any other Person,
including by consolidation with or merger into such other Person, (iv) the
decision by the Board of Directors to liquidate, wind-down or dissolve the
Company, and (v) any other event such that if the holders of the Deferred
Additional Interest Notes exchanged such Notes for Equity Interests, (A) the
Company's assets would not be treated as Plan assets for purposes of Title I of
ERISA or Section 4975 of the Code, (B) any income with respect to such Equity
Interests would not be taxable as unrelated business taxable income with respect
to any tax exempt holder, other than due to any debt of the holder, and (C) an
Independent Legal Counsel provides an opinion to the effect of clauses (A) and
(B) above; provided, however, that if the holders of at least a majority in the
then outstanding principal amount of the Deferred Additional Notes reasonably
determine, based on the written opinion of an Independent Legal Counsel that an
event listed in any of clauses (i), (ii), (iii) or (iv) would result in (x) the
Company's assets being treated as Plan Assets for purposes of Title I of ERISA
or Section 4975 of the Code or (y) income with respect to such Equity Interests
would be taxable as unrelated business taxable income with respect to any tax
exempt holder, other than due to any debt of the holder, such event shall not be
an Automatic Exchange Event for purposes hereof.
"Benefit Plan" has the meaning assigned in Section 3.2(b)(i).
"Block Right" has the meaning assigned in Section 7.2(b).
"Board of Directors" means (i) prior to the Company becoming a Corporate
Company, either the board of directors of the Company's general partner (or
other body fulfilling a substantially similar function) or any duly authorized
committee of that board and (ii) after the Company becomes a Corporate Company,
either the board of directors of the Company (or other body fulfilling a
substantially similar function) or any duly authorized committee of that board.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banks in New York, New York are required by law to close or are
customarily closed.
"Cash" means such coin or currency of the United States of America as at
the time shall be legal tender for payment of all public and private debts.
"Change in Control Event" means any of the following events that occur on
or prior to July 31, 2006:
(i) (a) prior to the consummation of an Initial Public Offering, the
Controlling Group shall cease to own at least 50% of the total voting power of
all classes of Equity Interests or (b) as of or after the consummation of an
Initial Public Offering, any person or group, within the meaning of Section
13(d)(3) of the Exchange Act (other than the
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Controlling Group) together with any Affiliates and Related Persons of any
thereof, shall beneficially own, within the meaning of Rule 13d-3 under the
Exchange Act, more than 35% of the total voting power of all classes of Equity
Interests of the Company entitled to vote generally in the election of directors
of the Company; or
(ii) the Company, the general partner of the Company, the requisite
holders of Equity Interests or any Executive Officer of the Company enters into
or approves any agreement, transaction or proposal that would result in a Change
in Control Event pursuant to clause (i) (including without limitation any
agreement, transaction or proposal that would have such result with the passage
of time, upon the payment of money or other consideration, or upon the
occurrence of any contingency or contingencies).
"Change in Control Event Notice" has the meaning assigned in Section 2.2.
"Change in Control Event Prepayment Date" means, with respect to a Change
in Control Prepayment Period, the final day thereof or, if such day is not a
Business Day, the next succeeding Business Day.
"Change in Control Event Prepayment Period" means, with respect to any
Change in Control Event, the period beginning on the date on which the Company
gives the holders of Notes a Change in Control Event Notice (or such earlier
date as the holders of at least a majority in the then outstanding principal
amount of the Notes give written notice to the Company that a Change in Control
Event has occurred) and ending on the 30th day thereafter.
"Change in Control Event Prepayment Price" for the prepayment of any Note
or portion of a Note under the previsions of Section 2.2, means the sum of (i)
the accrued interest in respect of the principal amount prepaid as of the Change
in Control Event Prepayment Date plus (ii) the principal amount prepaid.
"Closing Date" has the meaning assigned in Section 1.3(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Exchange Act, then the Person performing
such duties at such time.
"Company" has the meaning assigned in the first paragraph of this
Agreement.
"Company Bid Price" has the meaning defined in Section 1.6(b)(ii).
"Contingent Liability" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable (by direct or indirect agreement, contingent or otherwise, or by
operation of law, to provide funds for payment, to supply funds to, or otherwise
to invest in, a debtor, or otherwise to assure a
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creditor against loss) upon or for (i) the indebtedness, obligation or any other
liability of any other Person (other than by endorsements of instruments in the
ordinary course of collection), (ii) the payment of dividends or other
distributions upon the shares or other securities of any other Person or (iii)
any undertaking of any other Person (whether by agreement to purchase any
obligations, stocks, assets, goods or services, or to supply or advance any
funds, assets, goods or services, or otherwise). For the purposes of all
computations made under this Agreement, a Contingent Liability with respect to
any Indebtedness shall be deemed to be Indebtedness equal to the principal
amount of such Indebtedness, and a Contingent Liability in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Contracts" has the meaning assigned in Section 3.1(q).
"Controlling Group" means the Initial Equityholders, their Affiliates and
Related Persons and, after a conversion of the Company to a Corporate Company,
shall include National Auto Finance Company L.P.; provided, that whenever a
Change in Control Event occurs subsequent to the Closing Date, if any Senior
Subordinated Note remains outstanding after the Change in Control Event
Prepayment Date related to such Change in Control Event, Controlling Group shall
mean any person or group, within the meaning of Section 13(d)(3) of the Exchange
Act, together with Affiliates and Related Persons of any thereof, that
beneficially owns, within the meaning of Rule 13d-3 under the Exchange Act, more
than 50% of the total voting power of all classes of Equity Interests
immediately after the occurrence of such Change in Control Event.
"Conversion" has the meaning assigned in Section 12.1.
"Convertible Interest" means any securities or other interests that are
convertible or exchangeable (in each case with or without consideration) into,
directly or indirectly, whether at the time of issuance or upon the passage of
time or the occurrence of some future event, Equity Interests, including any
warrants, options or other rights to subscribe for or purchase any Equity
Interests.
"Convertible Preferred Interest" means any securities or other interests
that are convertible or exchangeable (in each case with or without
consideration) into, directly or indirectly, whether at the time of issuance or
upon the passage of time or the occurrence of some future event, Preferred
Equity Interests, including any warrants, options or other rights to subscribe
for or purchase any Preferred Equity Interests.
"Corporate Company" has the meaning assigned in Section 12.1.
"Debt Limit" means the product of (x) the Equity of the Company and (y) (i)
2, from the Closing Date to and including December 31, 1996; (ii) 1.25, from
January 1, 1997 to and including December 31, 1997; (iii) .9, from January 1,
1998 to and including December 31, 1998; (iv) .8, from January 1, 1999 to and
including December 31, 1999; and (v) .7, from and after January 1, 2000.
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"Default" means any event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, constitute an Event of
Default under Section 7.
"Deferred Additional Interest" has the meaning assigned in Section 1.1(b).
"Deferred Additional Interest Note Interest" has the meaning assigned in
Section 1.1(d).
"Deferred Additional Interest Note Repayment Date" has the meaning assigned
in Section 1.2(b).
"Deferred Additional Interest Notes" has the meaning assigned in Section
1.1(a).
"Deferred Additional Interest Rate" means 3% per annum; provided, however,
that in the event that any amount hereunder is determined to be interest in
excess of the maximum interest rate permitted by applicable law, "Deferred
Additional Interest Rate" shall mean such permitted maximum.
"Disclosure Letter" means the letter from the Company of even date
herewith, addressed to the Purchasers listed on Schedule I hereof, and attaching
schedules relating to certain representations and warranties contained in
Section 3.1 hereof, and shall include any exhibits, schedules or attachments to
such letter.
"Discount Rate" means, as of any date of determination, the arithmetic mean
of the yields set forth in the most recent Statistical Release published prior
to the date of determination under the respective headings "This Week" and "Last
Week" under the caption "Treasury Constant Maturities" for the maturity (rounded
to the nearest month) corresponding to the Life to Maturity. If no maturity so
published exactly corresponds to such Life to Maturity, yields for the two
published maturities most closely corresponding to such Life to Maturity shall
be determined in the manner specified in the immediately preceding sentence and
the Discount Rate shall be interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of such relevant periods to the nearest
month.
"Disposition" has the meaning assigned in the Tag Along Agreement.
"Dollars" or "$" means the lawful currency of the United States of America.
"Eligible Investments" means any one or more of the following obligations
or securities:
(a) direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America or any agency or instrumentality of the
United States of America, the obligations of which are expressly backed by the
full faith and credit of the United States of America;
(b) demand and time deposits in, certificates of deposit of, or banker's
acceptances issued by any depository institution or trust company incorporated
under the laws
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of the United States of America or any state thereof and subject to supervision
and examination by federal and/or state banking authorities; provided, that the
commercial paper and/or short-term debt obligations of such depository
institution at the time of such investment or contractual commitment providing
for such investment has received a rating of at least "A-1" from S&P or at least
"P-1" from Moody's (or, in the case of the principal depository institution in a
holding company system, the long-term debt obligations of such holding company
at the time of such investment or contractual commitment providing for such
investment have received a rating of at least "AA" from S&P or at least "Aa-2"
from Moody's);
(c) repurchase obligations pursuant to a written agreement with respect to
(i) any security described in clause (a) above or (ii) any other security issued
or guaranteed by an agency or instrumentality of the United States of America,
in either case entered into with an entity whose debt obligations are assigned
the highest credit rating by both Rating Agencies;
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
state thereof whose long term unsecured debt obligations are assigned the
highest credit rating by both Rating Agencies at the time of such investment or
contractual commitment providing for such investment;
(e) commercial paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand or on a specified
date not more than one year after the date of issuance thereof) which have been
assigned the highest credit rating by both Rating Agencies at the time of such
investment; and
(f) certificates or receipts representing ownership interests in future
interest or principal payments on obligations described in clause (a) above
which are held by a custodian on behalf of the holders of such certificates or
receipts.
"Environment" means any ambient air, workplace air, indoor air, surface
water, drinking water, groundwater, land surface strata, river sediment, plant
or animal life, natural resources, workplace, and real property and the physical
buildings, structures and fixtures thereon, including without limitation sewer,
septic and waste treatment, storage or disposal systems.
"Environmental Condition" means the release, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the Environment of any Hazardous Material or the presence of
any Hazardous Substance at, in or on the Environment (whether or not upon the
real property which is owned or leased by the Company or any Subsidiary or other
property of the Company or any Subsidiary and whether or not such pollution
constituted at the time thereof a violation of any Environmental Laws) as a
result of which the Company or any Subsidiary may become liable to any Person,
may become subject to a requirement for investigation or remediation or by
reason of which the real property which is owned or leased by the Company or any
Subsidiary or any of their assets reasonably may suffer or be subjected to any
Lien.
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"Environmental Laws" means all applicable Laws relating to health, safety,
industrial hygiene, Hazardous Material or the Environment or imposing liability
or standards of conduct concerning any Hazardous Material.
"Equity" of the Company means, as of the date Equity is determined, the
amounts set forth on its consolidated balance sheet, prepared in accordance with
generally accepted accounting principles, calculated as the sum of (i) the
nominal or stated value of all outstanding equity interests (including for
purposes hereof only, any Preferred Equity Interests, but excluding any equity
interest by its terms redeemable prior to the Senior Subordinated Note Repayment
Date), (ii) capital surplus and cumulative undistributed net earnings plus (iii)
all Indebtedness represented by the Partner Promissory Notes; provided, however,
that if the latest auditors' report with respect to its balance sheet is in any
way qualified, there shall be deducted from such sum the amount which such
auditors certify to be the difference between the actual amount shown in such
balance sheet and the amount which such auditors consider, in their reasonable
opinion, to present a true and fair view of the relevant entry in such balance
sheet; and provided, further, that to the extent Deferred Additional Interest or
Deferred Additional Interest Note Interest that is added to the principal
balance of the Deferred Additional Interest Notes would be required to be
deducted from such sum in accordance with generally accepted accounting
principles, such amount shall not be so deducted.
"Equity Interest" means any partnership interests, shares of stock, limited
liability company interests or membership interests or other equity interests in
the Company, other than Preferred Equity Interests.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute, and the regulations
promulgated and the rulings issued thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which, together with the Company, is treated as a single employer
under Title IV of ERISA or Section 414 of the Code.
"Event of Default" has the meaning assigned in Section 7.1
"Exchange Act" has the meaning assigned in Section 5.18.
"Exchange Agent" has the meaning given to such term in Section 1.5.
"Exchange Rate" has the meaning assigned in Section 6.6(a).
"Exchanged NQPO Note" has the meaning assigned in Section 6.4(a).
"Exchanged PAR Note" has the meaning assigned in Section 6.2(a)
"Exchanged TAG Note" has the meaning assigned in Section 6.3(a).
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"Executive Officer" means the chief executive officer, chief financial
officer, executive vice president or secretary of the Company.
"First Union" means First Union Corporation.
"Fully Diluted Equity Interests" means, at any time, the then outstanding
Equity Interests and Equity Interests issuable, whether at such time or upon the
passage of time or the occurrence of future events, upon the exercise,
conversion or exchange of all then outstanding Convertible Interests.
"Governmental Authority" means any federal, state, local, foreign or other
political subdivision or any agency, department or governmental or
administrative (including self-regulatory) body, instrumentality, department or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body, whether now or
hereafter in existence, or any officer or official thereof.
"Group" means the Company and its consolidated Subsidiaries (not including
the Trusts).
"Hazardous Material" means any flammable, explosive or radioactive
material, hazardous, toxic or solid waste, hazardous, toxic or deleterious
substance or other such material and any other substance or material defined or
identified as a hazardous, toxic or deleterious substance, material or waste
pursuant to any Environmental Law, including without limitation:
(i) Those substances included within the definition of "hazardous
substances," "hazardous materials," "toxic substances" or "solid waste" in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act of 1976, as amended, and the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as
amended, and in the regulations promulgated thereunder;
(ii) Those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and all amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and all amendments thereto);
(iii) Such other substances, materials and wastes which are or become
regulated under applicable local, state or federal Laws; and
(iv) Any material, waste or substance which is (A) petroleum or any
fraction thereof, (B) asbestos, (C) polychlorinated biphenyls or (D) designated
as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33
U.S.C. Sections 1251 et seq. (33 U.S.C. Section 1321 (A)(14)) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), all as amended.
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"Hedging Obligations" means, with respect to any Person, all liabilities of
such Person under interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, and all other agreements or arrangements
entered into by such Person to protect such Person against fluctuations in
interest rates or currency exchange rates.
"Indebtedness" means, with respect to any Person and without duplication,
(a) all obligations of such Person for borrowed money and all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments;
(b) all obligations, contingent or otherwise, relative to the face amount of all
letters of credit, whether or not drawn, and banker's acceptances issued for the
account of such Person; (c) all obligations of such Person as lessee under
leases that have been or should be, in accordance with generally accepted
accounting principles, recorded as capitalized lease obligations; (d) whether or
not so included as liabilities in accordance with generally accepted accounting
principles, net liabilities of such Person under all Hedging Obligations; (e)
whether or not so included as liabilities in accordance with generally accepted
accounting principles, all obligations of such Person to pay the deferred
purchase price of property or services other than in the ordinary course of
business, and indebtedness (excluding prepaid interest thereon) secured by a
Lien on property owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements), whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse; (f) all contingent liabilities, including without limitation
guarantees, of such Person in respect of any of the foregoing; and (g)
amendments, renewals, extensions, modifications and refundings of any of (a)
through (f). For all purposes of this Agreement, the Indebtedness of any Person
shall include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer.
"Independent Legal Counsel" means any legal counsel of recognized national
stature mutually agreed upon by the Company and all holders of Deferred
Additional Interest Notes.
"Independent Review Committee" means a committee of the Board of Directors
comprised of all directors of the Company who (i) are Related Persons of
IronBrand or of IronBrand's Affiliates or (ii) are not Related Persons of the
Company or (other than being a Related Person of the Company as a result of
being a director of the Company) of its Affiliates or employees of any of the
foregoing.
"Initial Equityholder" means those Persons owning Equity Interests in the
Company as of the Closing Date.
"Initial Public Offering" means the first Public Offering.
"Insider Compensation Increases" has the meaning assigned in Section
5.17(b).
"Insufficiency" means, at any time with respect to any Plan, the amount, if
any, by which (i) the present value of all benefits under such Plan (determined
as of such date on the basis of assumptions prescribed by the PBGC for purposes
of Section 4044 of ERISA),
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exceeds (ii) the fair market value (as of such date) of all assets of such Plan
allocable to such benefits (excluding any accrued but unpaid contributions).
"Interest Payment Date" has the meaning assigned in Section 1.1(b).
"IronBrand" means IronBrand Capital LLC, a North Carolina limited liability
company, and any successors or permitted assignees of any of IronBrand's rights
under the Partnership Agreement.
"JPMIM" means J.P. Morgan Investment Management Inc. or any Affiliate
thereof.
"Laws" means all laws, statutes, ordinances, regulations, requirements,
interpretations, judgments, rulings, orders, decrees, permits, authorizations,
licenses, variances or waivers of Governmental Authorities.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement (excluding normal banking transactions),
encumbrance, lien (statutory or otherwise), charge against or interest in
property to secure payment of a debt or performance of an obligation, or other
priority or preferential arrangement of any kind or nature whatsoever.
"Life to Maturity" of the principal amount of any Note means, with respect
to the calculation of the Prepayment Premium, the number of years (calculated to
the nearest one-twelfth) which will elapse between the date on which it was
declared due and payable and the Senior Subordinated Note Repayment Date or the
Deferred Additional Note Repayment Date, as the case may be.
"Liquidation Decision" has the meaning assigned in Section 6.7(a)(i).
"Liquidating Notes" has the meaning assigned in Section 6.1(a).
"Management Agreement" means that certain Management Agreement dated as of
December 29, 1994, by and between National Auto Finance Corporation and the
Company, as amended by the First Amendment of Management Agreement dated as of
January 1, 1996, and as further amended, extended, restated, supplemented or
otherwise modified or replaced from time to time in accordance with the terms
thereof and Section 5.32 of this Agreement.
"Master Trust" means the trust established pursuant to the Pooling and
Administration Agreement, dated as of December 8, 1994, as supplemented and
amended, among NAFCO Funding Trust, the Company and Bankers Trust Company.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, operations, prospects, liabilities or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, (ii) the
Company's ability to pay the Notes in accordance with the terms hereof and
thereof, or (iii) the Purchasers' rights and remedies under the Note Purchase
Agreements and the Notes.
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"Material Subsidiary" means any Subsidiary which (i) has total assets or
total liabilities (determined in accordance with generally accepted accounting
principles) in excess of $1,000,000, (ii) has annual revenues in excess of
$1,000,000, or (iii) is otherwise material to the business, condition (financial
or otherwise), operations, liabilities, assets or prospects of the Company or of
the Company and its consolidated Subsidiaries taken as a whole.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means, at any time, a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Company, any of its Subsidiaries or
any ERISA Affiliate is then making or accruing an obligation to make
contributions or has within any of the preceding five plan years made or accrued
an obligation to make contributions, including for these purposes any Person
which ceased to be an ERISA Affiliate during such five-year period.
"Multiple Employer Plan" means, at any time, an employee benefit plan,
other than a Multiemployer Plan, subject to Title IV of ERISA to which the
Company and any of its Subsidiaries or any ERISA Affiliate and more than one
employer other than the Company, any of its Subsidiaries or any ERISA Affiliate
is then making or accruing an obligation to make contributions, has within any
of the preceding five plan years made or accrued an obligation to make
contributions or, in the event that any such plan has been terminated, to which
the Company, any of its Subsidiaries or any ERISA Affiliate made or accrued an
obligation to make contributions during any of the five plan years preceding the
date of termination of such plan, including for these purposes any Person which
ceased to be an ERISA Affiliate during such five-year period.
"NQPO Reduction Fraction" means, with respect to an exchange of an
Exchanged NQPO Note in connection with a non-Qualified Public Offering pursuant
to Section 6.4, a fraction, the denominator of which equals the number of Equity
Interests for which such Exchanged NQPO Note was exchanged and the numerator of
which equals the number of Equity Interests for which such Exchanged NQPO Note
was exchanged that were not purchased by the underwriter and with respect to
which a New NQPO Note is issued.
"Net Proceeds" means the net proceeds realized by the Company from all
offerings by the Company as of or after the Company's inception, of any equity
interests of the Company that are not subject to any right of redemption (other
than by the Company), reduced by the amount of any cash or other consideration
provided to the holders of any equity interests of the Company as of or after
the Company's inception to redeem, repurchase, return, cancel or otherwise in
consideration of such interests.
"New Insider Equity Interests" means any Equity Interests, Convertible
Interests, Preferred Equity Interests or Convertible Preferred Interests which
the Company issues or proposes to issue after the date hereof (except any such
Interests issued to directors, officers or other management officials of the
Company or of any Subsidiary as compensation for the services of such persons)
to any of the Initial Equityholders, Related Persons of the Initial
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Equityholders, Affiliates of the Initial Equityholders and Related Persons of
the Company or Affiliates of the Company.
"New NQPO Note" has the meaning assigned in Section 6.4(b).
"New PAR Note" has the meaning assigned in Section 6.2(a).
"New TAG Note" has the meaning assigned in Section 6.3(b).
"Non-Prime Loans" means retail installment contracts originated by
automobile dealers in connection with their sale of used and new automobiles,
vans and light duty trucks to borrowers with limited credit histories, low
incomes or identifiable past credit problems.
"Note Purchase Agreements" has the meaning assigned in Section 1.4.
"Note Register" has the meaning assigned in Section 12.2.
"Notes" has the meaning assigned in Section 1.1(a).
"Offer Notice" has the meaning assigned in Section 1.6(b)(i).
"Overdue Rate" means a rate per annum equal to the Senior Subordinated
Interest Rate or the Deferred Additional Interest Rate, as the case may be, plus
2%.
"PAR Reduction Fraction" means with respect to an exchange of an Exchange
PAR Note for Equity Interests in connection with a Partial Optional Exchange
Event pursuant to Section 6.2, a fraction, the denominator of which equals the
number of Equity Interests for which such Exchanged PAR Note was exchanged and
the numerator of which equals the number of Equity Interests not redeemed by the
Company and with respect to which a New PAR Note is issued.
"Partial Optional Exchange Event" means any event such that if the holders
of the Deferred Additional Interest Notes exchanged some but not all (when
otherwise required or permitted to sell all) of such Notes for Equity Interests,
(A) the Company's assets would not be treated as Plan assets for purposes of
Title I of ERISA or Section 4975 of the Code, (B) any income with respect to
such Equity Interests would not be taxable as unrelated business taxable income
with respect to any tax exempt holder, other than due to any debt of the holder,
and (C) an Independent Legal Counsel provides an opinion to the effect of
clauses (A) and (B) above.
"Partner Promissory Notes" means those certain Promissory Notes set forth
in Schedule 3.1(s) to the Disclosure Letter, as amended, extended, restated or
otherwise modified or replaced from time to time in accordance with the terms
thereof and Section 5.32 of this Agreement.
"Partnership Agreement" means the Second Amended and Restated Agreement of
Limited Partnership of National Auto Finance Company L.P. dated as of September
1, 1995.
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"Paying Agent" has the meaning assigned in Section 1.5.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto, or, if at any time such corporation or successor is not
existing and performing the function now assigned to it, then the Person
performing such function at such time.
"Permissible Liens" means (i) Liens securing Senior Indebtedness of the
Company permitted pursuant to Section 5.8, (ii) Liens upon any property incurred
to secure the purchase price of such property or to secure Indebtedness incurred
for the purpose of financing the acquisition of such property and any renewal or
extension of any such Lien which is limited to the original property covered
thereby and which secures any renewal or extension of the original secured
financing that are not in the aggregate material to the Company and its
Subsidiaries taken as a whole, (iii) Liens created as a result of the
capitalization of leases that are not in the aggregate material to the Company
and its Subsidiaries taken as a whole, (iv) Liens for current taxes, assessments
or other governmental charges not yet delinquent or the amount of which is being
contested in good faith and by appropriate proceedings, (v) Liens created in
connection with the issuance of trust certificates by the Trusts or warehousing
facilities secured by Non-Prime Loans, capital leases or purchase money debt, in
each case incurred in the ordinary course of business; (vi) Liens on
Indebtedness incurred to finance the purchase, lease or improvement of personal
property, fixtures or equipment reasonably necessary for the conduct of the
Company's or any Subsidiary's business and in the ordinary course thereof; and
(vii) Liens arising in or incidental to the ordinary course of business
(including without limitation mechanics' and materialmens' Liens) that are not
in the aggregate material to the Company and its Subsidiaries taken as a whole.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Placement Agent" has the meaning assigned in Section 3.1(t).
"Plan" means, at any time, an employee benefit plan, other than a
Multiemployer Plan, which is subject to Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code or Section 302 of ERISA,
and either (i) is maintained for employees of the Company, any of its
Subsidiaries or any ERISA Affiliate or in which any such employees participate
or to which contributions are made by the Company, any of its Subsidiaries or
any ERISA Affiliate, or (ii) has at any time within the preceding six years been
maintained for employees of the Company, and of its Subsidiaries or any ERISA
Affiliate or any Person which was at such time an ERISA Affiliate or in which
any such employees participated at such time, or (iii) with respect to which the
Company, any of its Subsidiaries or any ERISA Affiliate could be subjected to
any liability under Title IV of ERISA (including without limitation Section 4069
of ERISA) in the event that such plan has been or were to be terminated.
"Preferred Equity Interest" means any equity interest of the Company having
any preference as to dividends or other distributions, including in respect of
any payment or other distribution upon the liquidation, winding-up or
dissolution of the Company.
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"Prepayment Call Price" for the prepayment or acceleration of any Note or
portion of a Note under the provisions of Section 2.1 or 7.2, as the case may
be, means the sum of (i) the accrued interest in respect of the principal amount
prepaid as of the Prepayment Date, (ii) the principal amount prepaid plus (iii)
the Prepayment Premium.
"Prepayment Date" has the meaning assigned in Section 2.4.
"Prepayment Premium" means for the prepayment or acceleration of any Note
or portion of a Note under the provisions of Section 2.1, 5.7(b) or 7.2, as the
case may be, the excess, if any, of (i) the net present value of the remaining
scheduled principal and interest payments on the Note declared due and payable
(calculated from the date on which the unpaid principal amount of the Note is
declared due and payable), discounted at a rate equal to the sum of the Discount
Rate (determined as of the date of such declaration) and 0.50%, over (ii) the
outstanding principal amount of the Note declared due and payable; provided,
however, that, in the case of a Senior Subordinated Note, the Prepayment Premium
shall not exceed an amount such that, after taking into account (i) all interest
paid in cash on such Senior Subordinated Note or portion thereof (not including
any Deferred Additional Interest) and (ii) either (A) the value of the Equity
Interests for which the pro rata portion of the Deferred Additional Interest
Note issued in connection with such Senior Subordinated Note or portion thereof
would be exchangeable pursuant to Section 6 or (B), if such Deferred Additional
Interest Note has been exchanged for Equity Interests pursuant to Section 6, the
value of the pro rata portion of such Equity Interests corresponding to such
Senior Subordinated Note or portion thereof, the holder of such Senior
Subordinated Note would achieve a greater than 30% internal rate of return on
its investment in the Senior Subordinated Note or portion thereof being prepaid
pursuant to Section 2.1, 5.7(b) or 7.2, as the case may be.
"Private Placement Memorandum" has the meaning assigned in Section 3.1(i).
"Prospectus" means the prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"PTCE" has the meaning assigned in Section 3.2(b)(iii).
"Public Offering" means a public offering of the Company's equity
securities pursuant to an effective Registration Statement filed by the Company
with the Commission.
"Purchasers" has the meaning assigned in Section 1.1(a).
"Put Event Notice" has the meaning assigned in Section 2.3.
"Put Event Prepayment Price" means, for the prepayment of any Note under
the provisions of Section 2.3, the sum of (i) the accrued interest in respect of
the principal amount prepaid as of the Put Event Prepayment Date plus (ii) the
principal amount prepaid.
"Put Notice" has the meaning assigned in the Partnership Agreement.
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"Qualified Public Offering" means a Public Offering as a result of which
Offering the Company has at least 100 "beneficial owners" of its equity
securities who are "independent" of the Company. For purposes hereof,
"beneficial owners" has the meaning assigned to such term in Rule 13d-3 under
the Exchange Act. For purposes hereof, "independent" means any Person who or
which is not (i) an officer, director or employee of the Company or any
Subsidiary of the Company, (ii) a Subsidiary of the Company or (iii) a Person
whose investment decision in connection with the purchase by such Person of the
Company's equity securities pursuant to such Public Offering was controlled by
the Company.
"Rating Agencies" means Moody's and S&P.
"Referral Agreement" means that certain Referral Agreement dated as of
April 15, 1996, by and between First Union and ACCH, as amended, extended,
restated, supplemented or otherwise modified or replaced from time to time in
accordance with the terms thereof.
"Registrable Equity Interests" means units of Equity Interests issued or
issuable upon exchange of the Deferred Additional Interest Notes in accordance
with the terms of the Deferred Additional Interest Notes and the Note Purchase
Agreements.
"Registrable Securities" means each Registrable Equity Interest until it
has been (i) transferred in a public offering registered under the Securities
Act or (ii) transferred in a sale made through a broker, dealer or market-maker
pursuant to Rule 144 under the Securities Act.
For all purposes of this Agreement, whenever any Person holds Deferred
Additional Interest Notes exchangeable for Registrable Equity Interests in
accordance with the terms of the Deferred Additional Interest Notes and the Note
Purchase Agreements (but disregarding any restrictions or limitations upon the
exchange of such Deferred Additional Interest Notes), whether or not such
exchange has actually been effected, such Person shall be deemed to be a holder
of such number of Registrable Securities as such Person would hold upon such
exchange at the relevant time.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Closing Date among the Company and the Purchasers and attached
hereto as Exhibit E.
"Registration Statement" means a registration statement of the Company,
filed with the Commission on an appropriate form, including any registration
statement filed pursuant to the provisions of the Registration Rights Agreement,
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
"Related Party Transactions" has the meaning assigned in Section 5.17(a).
"Related Person" of any Person means (a) a director, nominee for election
as a director, or executive officer of such Person, (b) if such Person is a
natural person, a member of the immediate family of such Person or of a Related
Person of such Person or a trust established for the benefit of an immediate
family member of such Person, (c) one who is a
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director or executive officer of, or has an equity interest of greater than 10%
in, any business or professional entity that, during any of the three years
prior to the date on which the status of "Related Person" is being determined,
(i) has made payments for property or services to such Person in excess of 5% of
(A) such Person's consolidated gross revenues for any such year or (B) the other
entity's consolidated gross revenues for any such year, (ii) has received from
such Person payments for property or services in excess of 5% of (A) such
Person's consolidated gross revenues for any such year or (B) the other entity's
consolidated gross revenues for any such year, or (iii) was the obligee of
indebtedness of such Person in excess of 5% of such Person's consolidated gross
revenues for any such year; provided, however, that none of First Union or its
Affiliates shall be deemed to be a Related Person of the Company or of any
Subsidiary thereof for purposes of this Agreement.
"Reorganization Transaction" has the meaning assigned in Section 6.14.
"Repayment Dates" has the meaning assigned in Section 1.2(b).
"Restricted Payment" means (a) the payment of any dividend or distribution
on any Equity Interest, (b) the repurchase, redemption or reduction of shares of
any equity interest or any warrants, rights or options to purchase or acquire
any shares of any equity interest, (c) the prepayment, payment, purchase or
redemption of the principal amount of any indebtedness pari passu or
subordinated to the Notes, (d) the payment of any amounts in respect of any
partnership or similar interest (other than under clauses (a) and (b) hereof) or
in respect of any joint venture or other interest or in respect of any
contractual or other claim (whether arising by joint venture agreement or
otherwise) (other than payments to the Company or any Subsidiary or payments
incurred in the ordinary course of business) or (e) the setting aside of funds
for any of the foregoing purposes; provided, however, that (i) if the Company
has not yet become a Corporate Company, the distributions pursuant to and in
accordance with Section 9.2(A)(1) of the Partnership Agreement, (ii) the
repurchase of equity interests in the Company from departing management
employees of the Company made by the Company as part of such management
employees' severance arrangements shall not be deemed to be a Restricted Payment
so long as (A) there is no Default or Event of Default with respect to the
Company's obligations under this Agreement as a result of such repurchase, (B)
the Company is able to incur at least one additional dollar of Indebtedness
pursuant to Section 5.8 after such repurchase and (C) the sum of the amount of
such repurchases from the Closing Date to and including such date of repurchase
does not exceed $375,000, and (iii) the redemption of IronBrand's Equity
Interests pursuant to Article XI of the Partnership Agreement shall not be
deemed to be Restricted Payments.
For the sake of clarity, notwithstanding anything to the contrary contained
herein, none of (i) payments of fees to First Union pursuant to the Referral
Agreement, (ii) payments of commercial banking, investment banking, placement
agency, underwriting or other financial advisory fees to First Union or its
Affiliates permitted by Section 5.17 or (iii) payments of fees to National
Financial Corporation or its Affiliates pursuant to the Management Agreement or
Services Agreement, shall be deemed to be a Restricted Payment.
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"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc.
"Sale Event" means any of the following events that occur after the Closing
Date and on or prior to July 31, 2001: (i) a Change in Control Event or (ii) the
consummation of an underwritten Public Offering in connection with which the
Company has received net proceeds of not less than $15,000,000.
"Sale Notice" has the meaning assigned in Section 1.6(c)(i).
"Securities Act" has the meaning assigned in Section 1.1(a).
"Security" has the same meaning as in Section 2(1) of the Securities Act.
"Senior Indebtedness" means the principal of (and premium, if any), and
interest on (a) all Indebtedness of the Company (including Indebtedness of
others guaranteed by the Company) other than the Notes, which is (i) for money
borrowed or (ii) evidenced by a note or similar instrument given in connection
with the acquisition of any businesses, properties or assets of any kind and (b)
amendments, renewals, extensions, modifications and refundings of any such
indebtedness or obligation, whether any such indebtedness or obligation
described in (a) or (b) is outstanding on the date hereof or hereafter created,
incurred or assumed, but only if the instrument creating or evidencing any such
indebtedness or obligation pursuant to which the same is outstanding expressly
provides that such indebtedness or obligation is superior in right of payment to
the Notes.
"Senior Subordinated Interest Rate" means 10% per annum; provided, however,
that in the event that any amount hereunder is determined to be interest in
excess of the maximum interest rate permitted by applicable law, "Senior
Subordinated Interest Rate" shall mean such permitted maximum.
"Senior Subordinated Note Repayment Date" has the meaning assigned in
Section 1.2(a).
"Senior Subordinated Notes" has the meaning assigned in Section 1.1(a).
"Services Agreement" means that certain Services Agreement dated as of
December 29, 1994, by and between National Auto Finance Corporation and National
Financial Corporation, as amended by the First Amendment of Services Agreement
dated as of January 1, 1996, and as further amended, extended, restated,
supplemented or otherwise modified or replaced from time to time in accordance
with the terms thereof.
"Share Sale" has the meaning assigned in Section 6.7(b).
"Source" has the meaning assigned in Section 3.2(b).
"Standstill Period" has the meaning assigned in Section 7.2(b).
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"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded U.S. Government
Securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination hereunder, then such other
reasonably comparable index, which shall be designated by holders of 50% in
aggregate principal amount of the Senior Subordinated Notes then outstanding.
"Subject Securities" means (i) any New Insider Equity Interests and (ii)(a)
any Indebtedness that is issued by the Company and is pari passu with the Senior
Subordinated Notes and (b) any Equity Interests or Convertible Interests issued
by the Company in connection with the issuance of such Indebtedness referred to
in the immediately preceding clause (ii)(a).
"Subordinated Indebtedness" means the principal of (and premium, if any),
and interest on (a) all Indebtedness of the Company (including Indebtedness of
others guaranteed by the Company) other than the Notes and Senior Indebtedness,
which is (i) for money borrowed or (ii) evidenced by a note or similar
instrument given in connection with the acquisition of any businesses,
properties or assets of any kind and (b) amendments, renewals, extensions,
modifications and refundings of any such indebtedness or obligation, whether any
such indebtedness or obligation described in (a) or (b) is outstanding on the
date hereof or hereafter created, incurred or assumed, but only if the
instrument creating or evidencing any such indebtedness or obligation pursuant
to which the same is outstanding expressly provides that such indebtedness or
obligation is due after the Senior Subordinated Repayment Date.
"Subsidiary" means any corporation, partnership, joint venture,
association, company, business trust or other entity in which the Company
directly or indirectly (i) beneficially owns or controls, directly or
indirectly, a majority of the outstanding voting securities having by the terms
thereof ordinary voting power to elect a majority of the board of directors (or
other body fulfilling a substantially similar function) of such entity
(irrespective of whether or not at the time any class or classes of such voting
securities shall have or might have voting power by reason of the happening of
any contingency) or (ii) in the case of an entity which does not have a board of
directors (or other body fulfilling a substantially similar function) has the
authority to control the policies of such entity (including any partnership or
joint venture of or in which the Company or a Subsidiary is a general partner or
joint venture participant or owns or has the right to obtain a majority of
limited partnership interests).
"Tag Along Agreement" means the Agreement dated as of August 9, 1996 by and
among the Purchasers and certain Initial Equityholders and attached hereto as
Exhibit F.
"Tag Along Reduction Fraction" means, with respect to an exchange of an
Exchanged TAG Note in connection with a Disposition pursuant to Section 6.3, a
fraction, the denominator of which equals the number of Equity Interests for
which such Exchanged TAG Note would have been exchanged if exchanged in full
immediately preceding such Disposition and the numerator of which equals the
number of such Equity Interests for which such Exchanged TAG Note was not so
exchanged.
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"Tangible Net Worth" of the Company means, as of the date Tangible Net
Worth is determined, the amounts set forth on its consolidated balance sheet,
prepared in accordance with generally accepted accounting principles, calculated
as (a) the sum of (i) the nominal or stated value of all outstanding equity
interests (excluding any equity interest by its terms redeemable prior to the
Senior Subordinated Note Repayment Date) plus (ii) capital surplus and
cumulative undistributed net earnings, less (b) (i) any amount by which the
market value of any asset is less than its book value in such balance sheet,
(ii) goodwill, (iii) licenses, patents, trademarks, trade names, copyrights,
leasehold improvements not recoverable at the expiration of a lease, and
deferred charges (including, but not limited to, unamortized debt discount and
expense, organization expenses, and experimental and development expenses) and
(iv) all other items which are properly classified as intangible under generally
accepted accounting principles; provided, however, that if the latest auditors'
report with respect to its balance sheet is in any way qualified, there shall be
further deducted from the amounts described in clause (a) the amount which such
auditors certify to be the difference between the actual amount shown in such
balance sheet and the amount which such auditors consider, in their reasonable
opinion, to present a true and fair view of the relevant entry in such balance
sheet; and provided, further, that to the extent Deferred Additional Interest or
Deferred Additional Interest Note Interest that is added to the principal
balance of the Deferred Additional Interest Notes would be required to be
deducted from the amounts described in clause (a) in accordance with generally
accepted accounting principles, such amount shall not be so deducted.
"Termination Event" means (i) a "reportable event," as such term is
described in Section 4043 of ERISA (other than a "reportable event" not subject
to the provision for 30-day notice to the PBGC), or an event described in
Section 4062(e) of ERISA, (ii) the withdrawal of the Company, any of its
Subsidiaries, or any ERISA Affiliate from a Multiple Employer Plan during a plan
year in which it was a "substantial employer" (as such term is defined in
Section 4001(a)(2) of ERISA) or the incurrence of liability by the Company, any
of its Subsidiaries, or any ERISA Affiliate under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan, (iii) the filing of a notice of intent
to terminate any Plan under Section 4041 of ERISA, other than in a standard
termination within the meaning of Section 4041 of ERISA, or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA, or (iv) the
institution by the PBGC of proceedings to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or cause a trustee
to be appointed to administer, any Plan.
"Third Party Investor" means a Person or account over which the Company,
JPMIM and the Purchasers do not exercise discretionary control or fiduciary
power and which the Company, JPMIM and the Purchasers do not directly or
indirectly control through, or is not directly or indirectly controlled by, a
subsidiary or Affiliate.
"Trusts" means any special purpose business trust or other similar entity
existing or hereafter created by the Company in connection with a securitization
of Non-Prime Loans, which securitization is in the ordinary course of business
and consistent with the Company's past practices with respect to such
securitizations, including without limitation National
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Financial Auto Funding Trust, National Financial Auto Funding Trust II, National
Financial Auto Receivables Master Trust and National Auto Finance 1995-1 Trust.
"Withdrawal Liability" has the meaning given to such term under Part I of
Subtitle E of Title IV of ERISA.
11.2 Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with the
generally accepted accounting principles in effect from time to time, to the
extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement including without limitation the
definitions set out in Section 11.1.
11.3 Directly or Indirectly. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
SECTION 12. MISCELLANEOUS
12.1 Effect of Conversion to Corporate Form. The Company has advised the
Purchasers that, in connection with an Initial Public Offering, it intends to
"convert" the Company and ACCH to corporate form in a transaction or
transactions meeting the requirements of Section 5.7(a) (any such transaction or
transactions for the purpose of the foregoing, collectively, the "Conversion,"
and the entity created by such Conversion, the "Corporate Company"). The Company
shall not consummate any such Conversion unless, upon the consummation of the
Conversion, the Corporate Company expressly assumes, as set forth in Section
5.7(a), all right, title and interest of the Company in, and all of the
Company's obligations and liabilities under, this Agreement, the Notes and the
Registration Rights Agreement. After such Conversion, all such right, title and
interest and obligations and liabilities shall apply to the Corporate Company,
mutatis mutandis, and any predecessor of the Company as well as National Auto
Finance Company L.P. (and its partners) shall no longer have any such interest
in, or obligations and liabilities under, this Agreement, the Notes, the
Registration Rights Agreement and the Tag Along Agreement; provided, however,
that after the Conversion, if the Company still exists, it shall be the
Company's obligation to redeem IronBrand's Equity Interests pursuant to Section
11.3 of the Partnership Agreement, and it shall be the Corporate Company's
obligation to purchase the Purchaser's Notes or Equity Interests pursuant to
Sections 5.28 and 6.4, respectively. Notwithstanding anything to the contrary in
this Agreement other than Section 5.7(a), the Company shall be permitted to
effect the Conversion and to take any and all actions necessary or appropriate
in connection therewith.
12.2 Registered Notes. The Company shall cause to be kept at its principal
executive office located at 621 NW 53rd Street, Suite 200, Boca Raton, FL 33487
or at the office of any Paying Agent appointed pursuant to Section 1.5, a
register for the registration
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and transfer of the Notes (the "Note Register"), and the Company shall register
or transfer or cause to be registered or transferred, as hereinafter provided
and under such reasonable regulations as it may prescribe, any Note issued
pursuant to this Agreement.
At any time and from time to time the registered holder of any Note which
has been duly registered as hereinabove provided may, subject to compliance with
applicable securities laws and the provisions of Sections 1.5 and 3.2, transfer
such Note upon surrender thereof at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in writing;
provided, however, any such transfer must be consistent with the provisions of
Section 1.6.
The Person in whose name any registered Note shall be registered shall be
deemed as the owner and holder for all purposes of this Agreement,
notwithstanding any notice to the contrary. Payment of or on account of the
principal of, interest on or applicable Prepayment Call Price or Change in
Control Event Prepayment Price with respect to any registered Note shall be made
to or upon the written order of such registered holder.
12.3 Exchange of Notes. At any time and from time to time, upon not less
than three Business Days' notice to that effect given by the holder of any Note
initially delivered or of any Note substituted therefor pursuant to Section
12.2, this Section 12.3 or Section 12.4, and, upon surrender of such Note at its
office, the Company shall deliver in exchange therefor, without expense to the
holder, Notes for the same aggregate principal amount as the then unpaid
principal amount of the Note so surrendered, in integral multiples of $1,000
(or, with respect to the Deferred Additional Interest Notes, less if any such
Note's principal balance is less than $1,000) as such holder shall specify,
dated as of the date to which interest has been paid on the Note then dated as
of the date of issue, payable to such Person or Persons, or registered assigns,
as may be designated by such holder, and otherwise of the same form and tenor as
the Notes so surrendered for exchange.
12.4 Loss, Theft, Etc. of Notes. Upon receipt of evidence satisfactory to
the Company of the loss, theft, mutilation or destruction of any Note, and in
the case of any such loss, theft or destruction upon delivery of a bond of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company, or in the event of such mutilation upon surrender and cancellation of
the Note, the Company shall make and deliver at the reasonable expense of the
holder thereof, a new Note, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Note. If the Purchaser or any subsequent institutional
holder is the owner of any such lost, stolen or destroyed Note, then the
affidavit of an authorized officer of such owner, setting forth the fact of
loss, theft or destruction and of its ownership of the Note at the time of such
loss, theft or destruction shall be accepted as satisfactory evidence thereof
and an unsecured agreement of indemnity submitted to the Company by the
Purchaser or any subsequent institutional holder shall satisfy the requirement
of a bond of indemnity.
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12.5 Treasury Notes. In determining whether holders of the required
principal amount of Notes have concurred in any direction, waiver or consent,
Notes owned by the Company, a Subsidiary or an Affiliate of any thereof shall be
disregarded.
12.6 Expenses, Stamp Tax Indemnity. Whether or not the transactions herein
contemplated shall be consummated, the Company agrees to pay directly all of
your out-of-pocket expenses reasonably incurred, in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of your legal counsel, duplicating and printing costs and all such
expenses reasonably incurred, relating to any amendments, waivers or consents
pursuant to the provisions hereof (whether or not the same are actually executed
and delivered), including, without limitation, any amendments, waivers or
consents resulting from any work-out, restructuring, enforcement or similar
proceedings relating to the performance by the Company of its obligations under
this Agreement and the Notes. The Company also agrees that it shall pay all
initial and ongoing fees and all out-of-pocket expenses of any Paying Agent or
Exchange Agent and shall pay and save you harmless against any and all liability
with respect to transfer, stamp, documentary or other similar taxes, if any,
which may be payable or which may be determined to be payable in connection with
the execution and delivery of this Agreement or the Notes, whether or not any
Notes are then outstanding.
12.7 Powers and Rights Not Waived; Remedies Cumulative. No delay or failure
on the part of the holder of any Note in the exercise of any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
the same preclude any other or further exercise thereof, or the exercise of any
other power or right, and the rights and remedies of the holder of any Note are
cumulative to and are not exclusive of any rights or remedies any such holder
would otherwise have, and no waiver or consent, given or extended pursuant to
Section 10 or otherwise, shall extend to or affect any obligation or right not
expressly waived or consented to.
12.8 Notices. All communications provided for hereunder shall be in writing
and delivered by hand or mailed by first class mail or by overnight courier or
transmitted by facsimile communication (confirmed in writing by first class mail
or by overnight courier), in each case prepaid and addressed or transmitted (a)
if to you, at your address or to your facsimile number appearing on Schedule I
to this Agreement or such other address or facsimile number as you may designate
to the Company in writing, (b) if to any other holder of any Note, at such
address or facsimile number as such holder shall have designated to the Company
in writing, or, until any such holder so furnishes the Company an address or
facsimile number, then at the address or to the facsimile number of the last
holder of such Note who has so furnished such information, except in the case of
(a) or (b) as otherwise provided in Section 2.7 with respect to payments on
Notes held by you or any holder of Notes, or (c) if to the Company at 621 NW
53rd St., Suite 320, Boca Raton, FL 33487, attention: Keith B. Stein, with a
copy to Howard Chatzinoff, Esq., Weil, Gotshal & Manges LLP, 767 Fifth Avenue,
New York, NY 10153 or at such other address or to such facsimile number, or to
the attention of such other officer, as the Company shall have furnished to you
in writing or (d) if to the Paying or Exchange Agent, at its address furnished
to the holders of the Notes
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pursuant to Section 1.5. Any communication so addressed and so delivered, mailed
or transmitted shall be deemed to be given when received (except as provided in
Section 12.13, and except that a facsimile communication shall be deemed to be
given upon oral confirmation of receipt if written confirmation of such receipt
shall be received by the sender within two Business Days thereof).
12.9 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to your benefit and to
the benefit of your successors and assigns, including each successive holder or
holders of any Notes.
12.10 Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
closing, shall survive the closing and the delivery of this Agreement and the
Notes. Sections 5.28, 9.1, 9.3, 9.4, 12.1 and 12.12 shall survive the payment in
full of all the Notes.
12.11 Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
12.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES ISSUED OR SOLD HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF,
EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
12.13 SUBMISSION TO JURISDICTION. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, WITH RESPECT TO ALL ACTIONS OR PROCEEDINGS RELATING TO
THIS AGREEMENT AND THE NOTES, AND THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR
MESSENGER DIRECTED TO IT AT THE ADDRESS OF THE COMPANY SET FORTH IN SECTION 12.8
ABOVE, AND THAT SERVICE SO MADE, SHALL BE DEEMED TO BE COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT AND FIVE BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO THE COMPANY'S ADDRESS, AS THE CASE MAY BE, IN ACCORDANCE HEREWITH. THE
COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER
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JURISDICTIONS BY SUIT ON THE JUDGMENT (IF SUCH A PROCEDURE IS AVAILABLE UNDER
APPLICABLE LAW) OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING CONTAINED IN
THIS SECTION SHALL AFFECT THE RIGHT OF ANY HOLDER OF NOTES TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR
PROCEEDING IN THE COURTS OF ANY JURISDICTION AGAINST THE COMPANY OR TO ENFORCE A
JUDGMENT OBTAINED IN THE COURTS OF ANY OTHER JURISDICTION.
12.14 Captions. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
12.15 Indemnification Provisions. The Company hereby agrees to indemnify
each of the holders of the Notes or Registrable Securities and their respective
directors, officers, agents and employees from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses actually
incurred by any of them, including attorneys' fees, arising out of or by reason
of (i) any action, suit, investigation, litigation, settlement, or other
administrative or judicial proceeding related to any use made or proposed to be
made by the Company of the proceeds of the Notes or the Company's issuance
thereof; (ii) any breach of a representation or warranty of the Company to the
Purchasers contained herein or in any certificate delivered pursuant to the
provisions hereof; (iii) the failure of the Company or its Subsidiaries to
perform any agreement set forth herein; (iv) any action, suit, investigation,
litigation, settlement, or other administrative or judicial proceeding related
to: (a) any environmental cleanup, assessment, containment, removal, testing,
monitoring or audit, (b) non-compliance with any Environmental Laws, or (c)
other matters relating to the protection of the Environment, in each case
arising from or alleged to arise from acts or omissions of, or circumstances or
conditions related to, the Company or any of its Subsidiaries; or (v) an actual
or alleged Environmental Condition involving the Company or any Subsidiary
thereof, regardless of whether caused by, or within the control of, the Company
or such Subsidiary (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified). If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby agrees to
make the maximum contribution to the payment and satisfaction of each of such
losses, liabilities, claims, damages, expenses, fees and disbursements which is
permissible under applicable Laws.
12.16 WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE PURCHASERS WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH
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ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
12.17 Time of the Essence. Time is of the essence in interpreting and
performing this Agreement and each Note issued pursuant to this Agreement.
12.18 FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF.
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinbefore set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together constituting a single agreement.
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation
Its: General Partner
By: _________________________
Name:
Title:
Accepted as of August 9, 1996
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Trustee of the Commingled Pension Trust Fund (Multi-Market
Special Investment Fund II) of Morgan Guaranty Trust Company
of New York
By:________________________
Name:
Title:
<PAGE>
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF.
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinbefore set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together constituting a single agreement.
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation
Its: General Partner
By: _________________________
Name:
Title:
Accepted as of August 9, 1996
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Trustee of the Multi-Market Special Investment Trust Fund
of Morgan Guaranty Trust Company of New York
By:____________________________
Name:
Title:
<PAGE>
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF.
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinbefore set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together constituting a single agreement.
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation
Its: General Partner
By: _________________________
Name:
Title:
Accepted as of August 9, 1996
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Investment Manager and Agent for The Alfred P. Sloan Foundation
(Multi-Market Account)
By:_______________________________
Name:
Title:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS, SUBJECT IN ANY SUCH CASE TO THE
RIGHT OF EACH HOLDER TO CONTROL THE DISPOSITION OF THE HOLDER'S
PROPERTY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY PURSUANT TO SECTIONS 1.6, 3.2(a) AND 12.2 OF THE NOTE
PURCHASE AGREEMENTS DATED AS OF AUGUST 9, 1996 BETWEEN NATIONAL AUTO
FINANCE COMPANY L.P. AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES
THEREOF. A COMPLETE AND CORRECT CONFORMED COPY OF SUCH NOTE PURCHASE
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL EXECUTIVE
OFFICE OF NATIONAL AUTO FINANCE COMPANY L.P. AND WILL BE FURNISHED TO
THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
FOR PURPOSES OF THIS PARAGRAPH, THE TERM "THIS SECURITY" WILL MEAN THE
AGGREGATION OF THE SECURITY REPRESENTED BY THIS CERTIFICATE AND THE
DEFERRED ADDITIONAL INTEREST NOTE ISSUED IN CONJUNCTION HEREWITH. THE
FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF APPLYING THE
U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS
SECURITY. THE ISSUE DATE OF THIS SECURITY IS AUGUST 9, 1996. THE ISSUE
PRICE OF THIS SECURITY IS 100% OF ITS INITIAL PRINCIPAL AMOUNT. THE
ANNUAL YIELD TO MATURITY OF THIS SECURITY IS 12.10%. THIS SECURITY HAS
BEEN ISSUED WITH NO MORE THAN $683.47 OF ORIGINAL ISSUE DISCOUNT PER
$1,000 OF INITIAL PRINCIPAL AMOUNT.
NATIONAL AUTO FINANCE COMPANY L.P.
Senior Subordinated Note
No. 101 August 9, 1996
$9,300,000.00 Final Maturity: July 31, 2001
NATIONAL AUTO FINANCE COMPANY L.P., a Delaware
limited partnership (the "Company"), for value received, hereby
promises to pay to KELLY & CO.
or registered assigns,
the principal amount of
nine million three hundred thousand U.S. dollars (U.S. $9,300,000) on
the Senior Subordinated Note Repayment Date set forth in Section
1.2(a) of the Note Purchase Agreements referred to below and to pay
(subject to the following two paragraphs) interest (computed on the
basis of a 360-day year of twelve 30-day months) on the principal
amount from time to time remaining unpaid hereon at an interest rate
equal to the sum of the Senior Subordinated Interest Rate plus the
Deferred Additional Interest Rate from the date hereof (or from the
latest date to which interest has been paid) until such unpaid portion
of such principal amount shall have become due and payable (whether on
the Senior Subordinated Note Repayment Date, by acceleration or
otherwise), payable (subject to the following paragraph) quarterly on
the 31st day of each July, October and January and the 30th day of
each April in each year commencing October 31, 1996 to the person in
whose name this Senior Subordinated
<PAGE>
Note is registered on the fifth day prior to such Interest Payment
Date, until and including July 31, 2001 (unless earlier prepaid in
full in accordance with the Note Purchase Agreements). The Company
agrees to pay interest on overdue principal, on any overdue amounts
arising out of a required or optional prepayment, and (to the extent
not prohibited by applicable law) on any overdue installment of
interest at the Overdue Rate after the date on which such amounts are
due and payable, whether by acceleration or otherwise, until paid.
The Company shall, on each Interest Payment Date
prior to the exchange of the Deferred Additional Interest Note issued
together herewith (and which is attached hereto as Exhibit 1) in its
entirety for Equity Interests, in lieu of paying the Deferred
Additional Interest, add such Deferred Additional Interest otherwise
payable on this Senior Subordinated Note on such Interest Payment Date
to the principal balance of such Deferred Additional Interest Note
(which such amount shall be treated as principal for all purposes
thereafter). After the occurrence of such an exchange, the Deferred
Additional Interest Rate shall no longer be payable on this Senior
Subordinated Note and this Senior Subordinated Note shall bear
interest at only the Senior Subordinated Interest Rate.
If, pursuant to Section 6.2, 6.3, 6.4 or 6.5 of the
Note Purchase Agreements, the holder of the Deferred Additional
Interest Note issued in connection with this Senior Subordinated Note
exchanges such Deferred Additional Interest Note for less than all the
Equity Interests issuable upon an exchange of such Deferred Additional
Interest Note in its entirety, this Senior Subordinated Interest Note
shall bear interest, notwithstanding the provisions of the preceding
paragraph, (i) on the entire unpaid portion of the principal amount of
this Senior Subordinated Note, from the date of such partial exchange
until such unpaid portion of such principal amount shall have become
due and payable, at the Senior Subordinated Note Interest Rate and
(ii) on the unpaid portion of the principal amount thereof equal to
the product of (A) the unpaid principal amount of this Senior
Subordinated Note times (B) the fraction representing that portion of
such Deferred Additional Interest Note that was not exchanged in such
partial exchange as set forth in the Note Purchase Agreements, at the
Deferred Additional Interest Rate, and the interest borne pursuant to
clauses (i) and (ii) shall be payable or accrued and added to the
unpaid portion of the principal amount of the new Deferred Additional
Interest Note issued upon such partial exchange, as provided in the
preceding paragraph.
Principal hereof and interest hereon are payable as
provided in the Note Purchase Agreements referred to below, in coin or
currency of the United States of America which at the time of payment
shall be legal tender for the payment of public and private debts. If
any amount of principal, prepayment amount or interest on or in
respect of this Senior Subordinated Note becomes due and payable on
any date which is not a Business Day, such amount shall be payable on
the immediately succeeding Business Day.
This Senior Subordinated Note is one of the Senior
Subordinated Notes (the "Senior Subordinated Notes") of the Company in
an aggregate principal amount of $12,000,000 issued or to be issued
under and pursuant to the terms and provisions of separate and several
Note Purchase Agreements, each dated as of August 9, 1996 (the "Note
Purchase Agreements"), entered into by the Company with the original
purchasers therein referred to, and this Senior Subordinated Note and
the holder hereof are entitled equally and ratably with the holders of
all other Senior Subordinated Notes outstanding under the Note
Purchase Agreements to all the benefits provided for thereby or
referred to therein, to which Note Purchase Agreements reference is
hereby made for the statement thereof. A copy of the Note Purchase
Agreements may be obtained from the principal executive office of the
Company located at 621 NW 53rd Street, Suite 200, Boca Raton, FL
33487. Capitalized terms not defined in this Senior Subordinated Note
shall have the meanings given them in the Note Purchase Agreements.
This Senior Subordinated Note and the other Senior
Subordinated Notes outstanding under the Note Purchase Agreements may
be declared due prior to the Senior Subordinated Note Repayment Date,
in the events, on the terms and in the manner and amounts as provided
in the Note Purchase Agreements.
The Senior Subordinated Notes are subject to
prepayment at the option of the Company prior to the Senior
Subordinated Note Repayment Date, at any time on or after the earlier
to occur of (i) August 9, 1999 and (ii) a Sale Event, on the terms and
conditions and in the amounts and at the Prepayment Call Price as set
forth in the Note Purchase Agreements. Any prepayment of Senior
Subordinated Notes in part shall be applied on all
2
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outstanding Senior Subordinated Notes ratably in accordance with the
unpaid principal amounts thereof, determined as of the date notice is
given to the holders of the Senior Subordinated Notes pursuant to
Section 2.4 of the Note Purchase Agreements.
This Senior Subordinated Note is subject to
prepayment in whole or in part, at the option of the holder hereof,
following the occurrence of a Change in Control Event and is subject
to prepayment in whole, at the option of the holders of at least a
majority in the then outstanding principal balance of the Senior
Subordinated Notes, following the Company's receipt of a Put Notice,
upon compliance with the terms set forth in Section 2 of the Note
Purchase Agreements.
The indebtedness evidenced by this Senior
Subordinated Note is, to the extent provided in the Note Purchase
Agreements, subordinate and subject in right of payment to the prior
payment of all amounts owing to holders of Senior Indebtedness, and
this Senior Subordinated Note is issued subject to the provisions of
the Note Purchase Agreements with respect thereto. Each holder of this
Senior Subordinated Note, by accepting the same, agrees to and shall
be bound by such provisions.
This Senior Subordinated Note is registered on the
books of the Company and is transferable only by surrender hereof at
the principal executive office of the Company located at 621 NW 53rd
Street, Suite 320, Boca Raton, FL 33487 or at the office of any Paying
Agent appointed pursuant to Section 1.5 of the Note Purchase
Agreements, duly endorsed or accompanied by a written instrument of
transfer duly executed by the registered holder of this Senior
Subordinated Note or its attorney duly authorized in writing. By its
acceptance hereof, the holder of this Senior Subordinated Note agrees
that, in the absence of the registration of the Senior Subordinated
Notes under the Securities Act of 1933, as amended (the "Securities
Act"), it shall only transfer this Senior Subordinated Note (i)
pursuant to an effective registration statement under the Securities
Act and applicable state securities laws, (ii) in compliance with the
requirements of Rule 144 or Regulation S promulgated under the
Securities Act or (iii) in accordance with any other available
exemption from the requirements of Section 5 of the Securities Act and
from any applicable state securities laws. If the Deferred Additional
Interest Note issued together with this Senior Subordinated Note
remains outstanding, this Senior Subordinated Note is not transferable
apart from such Deferred Additional Interest Note. This Senior
Subordinated Note is subject to other restrictions on transfer set
forth in Section 1.6 of the Note Purchase Agreements. Payment of or on
account of principal of, interest on, or Prepayment Call Price, Change
in Control Event Prepayment Price or Put Event Prepayment Price with
respect to this Senior Subordinated Note shall be made only to or upon
the order in writing of the registered holder hereof, except as
otherwise provided in Section 2.7 of the Note Purchase Agreements.
3
<PAGE>
THIS SENIOR SUBORDINATED NOTE AND SAID NOTE PURCHASE
AGREEMENTS ARE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAW PRINCIPLES THEREOF, EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation
Its: General Partner
By: /s/ Keith B. Stein
-------------------------------
Name: Keith B. Stein
Title:
4
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS, SUBJECT IN ANY SUCH CASE TO THE
RIGHT OF EACH HOLDER TO CONTROL THE DISPOSITION OF THE HOLDER'S
PROPERTY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY PURSUANT TO SECTIONS 1.6, 3.2(a) AND 12.2 OF THE NOTE
PURCHASE AGREEMENTS DATED AS OF AUGUST 9, 1996 BETWEEN NATIONAL AUTO
FINANCE COMPANY L.P. AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES
THEREOF. A COMPLETE AND CORRECT CONFORMED COPY OF SUCH NOTE PURCHASE
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL EXECUTIVE
OFFICE OF NATIONAL AUTO FINANCE COMPANY L.P. AND WILL BE FURNISHED TO
THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
FOR PURPOSES OF THIS PARAGRAPH, THE TERM "THIS SECURITY" WILL MEAN THE
AGGREGATION OF THE SECURITY REPRESENTED BY THIS CERTIFICATE AND THE
SENIOR SUBORDINATED NOTE ISSUED IN CONJUNCTION HEREWITH. THE FOLLOWING
INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF APPLYING THE U.S.
FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS
SECURITY. THE ISSUE DATE OF THIS SECURITY IS AUGUST 9, 1996. THE ISSUE
PRICE OF THIS SECURITY IS 100% OF ITS INITIAL PRINCIPAL AMOUNT. THE
ANNUAL YIELD TO MATURITY OF THIS SECURITY IS 12.10%. THIS SECURITY HAS
BEEN ISSUED WITH NO MORE THAN $683.47 OF ORIGINAL ISSUE DISCOUNT PER
$1,000 OF INITIAL PRINCIPAL AMOUNT.
NATIONAL AUTO FINANCE COMPANY L.P.
Deferred Additional Interest Note
No. 201 August 9, 1996
Final Maturity: July 31, 2006
NATIONAL AUTO FINANCE COMPANY L.P., a Delaware
limited partnership (the "Company"), for value received, hereby
promises to pay to KELLY & CO.
or registered assigns,
any Deferred Additional Interest that has accrued on the related
Senior Subordinated Note issued together with this Deferred Additional
Interest Note and has been added to the principal amount hereof
pursuant to Section 1.1(c) of the Note Purchase Agreements referred to
below and Deferred Additional Interest Note Interest that has been
added to such principal amount pursuant to Section 1.1(d) of the Note
Purchase Agreements, on the Deferred Additional Interest Note
Repayment Date set forth in Section 1.2(b) of the Note Purchase
Agreements and to pay interest (computed on the basis of a 360-day
year of twelve 30-day months) on the principal amount from time to
time remaining unpaid hereon, which such principal amount shall
include any Deferred Additional Interest added to the
<PAGE>
principal amount pursuant to Section 1.1(c) of the Note Purchase
Agreements and any Deferred Additional Interest Note Interest added to
the principal amount pursuant to Section 1.1(d) of the Note Purchase
Agreements, from the date hereof (or from the latest date Deferred
Additional Interest Note Interest has been added to the principal
balance of this Deferred Additional Interest Note) until the earlier
of the Deferred Additional Note Interest Repayment Date or the
exchange of this Note in its entirety for Equity Interests pursuant to
Section 6 of the Note Purchase Agreements, at the Deferred Additional
Interest Rate quarterly in arrears on the 31st day of each July,
October and January and the 30th day of each April in each year
commencing October 31, 1996, which interest, in lieu of being paid,
shall be added to the principal balance of this Deferred Additional
Interest Note and shall be due and payable on the Deferred Additional
Interest Note Repayment Date, if this Deferred Additional Interest
Note shall not previously have been exchanged in its entirety for
Equity Interests pursuant to Section 6 of the Note Purchase
Agreements, to the person in whose name this Deferred Additional
Interest Note is registered five days prior to such Deferred
Additional Interest Note Repayment Date. The Company agrees to pay
interest on overdue principal at the Overdue Rate after the date such
principal is due and payable, whether by acceleration or otherwise,
until paid.
Principal hereof and interest hereon are payable as
provided in the Note Purchase Agreements, in coin or currency of the
United States of America which at the time of payment shall be legal
tender for the payment of public and private debts. If any amount of
principal, prepayment amount or interest on or in respect of this
Deferred Additional Interest Note becomes due and payable on any date
which is not a Business Day, such amount shall be payable on the
immediately succeeding Business Day.
This Deferred Additional Interest Note is one of the
Deferred Additional Interest Notes (the "Deferred Additional Interest
Notes") of the Company issued together with the Company's Senior
Subordinated Notes and under and pursuant to the terms and provisions
of separate and several Note Purchase Agreements, each dated as of
August 9, 1996 (the "Note Purchase Agreements"), entered into by the
Company with the original purchasers of the Company's Senior
Subordinated Notes therein referred to, and this Deferred Additional
Interest Note and the holder hereof are entitled equally and ratably
with the holders of all other Deferred Additional Interest Notes
outstanding under the Note Purchase Agreements to all the benefits
provided for thereby or referred to therein, to which Note Purchase
Agreements reference is hereby made for the statement thereof. A copy
of the Note Purchase Agreements may be obtained from the principal
executive office of the Company located at 621 NW 53rd Street, Suite
200, Boca Raton, Florida 33487. Capitalized terms not defined in this
Deferred Additional Interest Note shall have the meanings given them
in the Note Purchase Agreements.
This Deferred Additional Interest Note and the other
Deferred Additional Interest Notes outstanding under the Note Purchase
Agreements may be declared due prior to the Deferred Additional
Interest Note Repayment Date, in the events, on the terms and in the
manner and amounts as provided in the Note Purchase Agreements.
This Deferred Additional Interest Note is not
subject to prepayment at the option of the Company at any time.
This Deferred Additional Interest Note is subject to
prepayment in whole or in part, at the option of the holder hereof,
following the occurrence of a Change in Control Event and is subject
to prepayment in whole, at the option of the holders of at least a
majority in the then outstanding principal balance of the Deferred
Additional Interest Notes, following the Company's receipt of a Put
Notice, upon compliance with the terms set forth in Section 2 of the
Note Purchase Agreements.
Subject to and upon compliance with the provisions
of the Note Purchase Agreements, an exchange of this Deferred
Additional Interest Note for Equity Interests will be deemed to have
occurred immediately preceding the consummation of an Automatic
Exchange Event described in clauses (i) or (iii) of the definition
thereof in the Note Purchase Agreements or immediately following the
consummation of an Automatic Exchange Event described in clause (v) of
the definition thereof in the Note Purchase Agreements. At such time,
or as soon thereafter as is reasonably practicable, the holder of this
Deferred Additional Interest Note shall surrender such Note, duly
endorsed or assigned to the Company or in blank, at the office of the
Exchange Agent or at such other office or agency of the Company as may
be maintained for exchange pursuant to Section 1.5 of the Note
Purchase Agreements, accompanied by written notice to the Company in
the form provided as Exhibit 1 to this Deferred Additional Interest
Note (or such other notice as is acceptable to the Company) in
exchange for a
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number of fully paid and nonassessable Equity Interests, as determined
in accordance with Section 6.6 of the Note Purchase Agreements.
Subject to and upon compliance with the provisions
of the Note Purchase Agreements, an exchange of this Deferred
Additional Interest Note for a Liquidating Note will be deemed to have
occurred immediately following the consummation of an Automatic
Exchange Event described in clauses (ii) or (iv) of the definition
thereof in the Note Purchase Agreements. At such time, the holder of
this Deferred Additional Interest Note shall surrender such Note, duly
endorsed or assigned to the Company or in blank, at the office of the
Exchange Agent or at such other office or agency of the Company as may
be maintained for exchange pursuant to Section 1.5 of the Note
Purchase Agreements, accompanied by written notice to the Company in
the form provided as Exhibit 1 to this Deferred Additional Interest
Note (or such other notice as is acceptable to the Company) in
exchange for a Liquidating Note having the terms described in Section
6.7 of the Note Purchase Agreements.
Subject to and upon compliance with the provisions
of the Note Purchase Agreements, the holder of this Deferred
Additional Interest Note is entitled, at his or her option, to
exchange this Deferred Additional Interest Note for a number of fully
paid and nonassessable Equity Interests, as determined in accordance
with Section 6.6 of the Note Purchase Agreements, immediately
preceding the consummation of a Disposition, the consummation of a
non-Qualified Public Offering and any redemption of IronBrand's Equity
Interests pursuant to Section 11.3 of the Partnership Agreement by
surrender of this Deferred Additional Interest Note, duly endorsed or
assigned to the Company or in blank, at the office of the Exchange
Agent or at such other office or agency maintained for exchange
pursuant to Section 1.5 of the Note Purchase Agreements, accompanied
by written notice to the Company in the form provided as Exhibit 1 to
this Deferred Additional Interest Note (or such other notice as is
acceptable to the Company) that the holder elects to exchange this
Deferred Additional Interest Note.
Subject to and upon compliance with the provisions
of the Note Purchase Agreements, the holder of this Deferred
Additional Interest Note is entitled, at his or her option, to
exchange all or part of this Deferred Additional Note for a number of
fully paid and nonassessable Equity Interests, as determined in
accordance with Section 6.6 of the Note Purchase Agreements,
immediately upon the consummation of a Partial Optional Exchange Event
by surrender of all or part of this Deferred Additional Interest Note,
duly endorsed or assigned to the Company or in blank, at the office of
the Exchange Agent or at such other office or agency maintained for
exchange pursuant to Section 1.5 of the Note Purchase Agreements,
accompanied by written notice to the Company in the form provided as
Exhibit 1 to this Deferred Additional Interest Note (or such other
notice as is acceptable to the Company) that the holder elects to
exchange all or part of this Deferred Additional Interest Note.
Notwithstanding anything to the contrary contained
in this Note or the Note Purchase Agreements, upon a partial exchange
other than on an Interest Payment Date of any Deferred Additional
Interest Notes pursuant to Section 6.2, 6.3, 6.4 or 6.5 of the Note
Purchase Agreements, for purposes of calculating the amount of
Deferred Additional Interest to be added to the principal amount of
the New PAR Note, the New TAG Note, the New NQPO Note or (in the case
of Section 6.5 of the Note Purchase Agreements) the unredeemed portion
of this Deferred Additional Interest Note on the Interest Payment Date
immediately following the date of such exchange, the exchange shall be
deemed to have been effected on the Interest Payment Date immediately
preceding the date of such exchange.
If Equity Interests shall not then exist in
fractions, no fractional Equity Interests or scrip representing
fractional Equity Interests shall be issued upon the exchange of this
Deferred Additional Interest Note. In lieu of any fractional share of
an Equity Interest which would otherwise be issuable upon the exchange
of this Deferred Additional Interest Note (or specified portion
hereof) pursuant to the immediately preceding sentence, the Company
shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction calculated to the nearest $.01 of the fair
market value of such Equity Interest (as determined in good faith by
the Board of Directors) at the close of business on the day of
exchange. In addition, the Note Purchase Agreements provide that in
case of certain consolidations or mergers to which the Company is a
party or the sale
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<PAGE>
or transfer of all or substantially all of the assets of the Company,
this Deferred Additional Interest Note, if then outstanding, shall be
exchangeable thereafter only into the kind and amount of securities,
cash and other property receivable upon the consolidation, merger,
sale or transfer by a holder of the number of Equity Interests into
which this Deferred Additional Interest Note might have been exchanged
immediately prior to such consolidation, merger, sale or transfer.
The indebtedness evidenced by this Deferred
Additional Interest Note is, to the extent provided in the Note
Purchase Agreements, subordinate and subject in right of payment to
the prior payment of all amounts owing to holders of Senior
Indebtedness, and this Deferred Additional Interest Note is issued
subject to the provisions of the Note Purchase Agreements with respect
thereto. Each holder of this Deferred Additional Interest Note, by
accepting the same, agrees to and shall be bound by such provisions.
This Deferred Additional Interest Note is registered
on the books of the Company and is transferable only by surrender
hereof at the principal executive office of the Company located at 621
NW 53rd Street, Suite 320, Boca Raton, Florida 33487 or at the office
of any Paying Agent appointed pursuant to Section 1.5 of the Note
Purchase Agreements, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of this
Deferred Additional Interest Note or its attorney duly authorized in
writing. By its acceptance hereof, the holder of this Deferred
Additional Interest Note agrees that, in the absence of the
registration of the Deferred Additional Interest Notes under the
Securities Act of 1933, as amended (the "Securities Act"), it shall
only transfer this Deferred Additional Interest Note (i) pursuant to
an effective registration statement under the Securities Act and
applicable state securities laws, (ii) in compliance with the
requirements of Rule 144 or Regulation S promulgated under the
Securities Act or (iii) in accordance with any other available
exemption from the requirements of Section 5 of the Securities Act and
from any applicable state securities laws. If the Senior Subordinated
Note issued together with this Deferred Additional Interest Note
remains outstanding, this Deferred Additional Interest Note is not
transferable apart from such Senior Subordinated Note. This Deferred
Additional Interest Note is subject to other restrictions on transfer
set forth in Section 1.6 of the Note Purchase Agreements. Payment of
or on account of principal of, interest on, or Prepayment Call Price,
Change in Control Event Prepayment Price or Put Event Prepayment Price
with respect to this Deferred Additional Interest Note shall be made
only to or upon the order in writing of the registered holder hereof,
except as otherwise provided in Section 2.7 of the Note Purchase
Agreements.
Any additions of Deferred Additional Interest or
Deferred Additional Interest Note Interest to the principal amount of
this Deferred Additional Interest Note made pursuant to the Note
Purchase Agreements and/or the Senior Subordinated Note issued
together with this Deferred Additional Interest Note and any reduction
in the principal amount of this Deferred Additional Interest Note
pursuant to Section 6.2, 6.3, 6.4 or 6.5 of the Note Purchase
Agreements shall be recorded by the holder hereof and shall be
endorsed by the Company on Schedule I attached hereto, which such
Schedule is a part of this Deferred Additional Interest Note.
4
<PAGE>
THIS DEFERRED ADDITIONAL INTEREST NOTE AND SAID NOTE
PURCHASE AGREEMENTS ARE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF, EXCEPT SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW.
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation
Its: General Partner
By:______________________________________
Name: Keith B. Stein
Title:
5
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS, SUBJECT IN ANY SUCH CASE TO THE
RIGHT OF EACH HOLDER TO CONTROL THE DISPOSITION OF THE HOLDER'S
PROPERTY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY PURSUANT TO SECTIONS 1.6, 3.2(a) AND 12.2 OF THE NOTE
PURCHASE AGREEMENTS DATED AS OF AUGUST 9, 1996 BETWEEN NATIONAL AUTO
FINANCE COMPANY L.P. AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES
THEREOF. A COMPLETE AND CORRECT CONFORMED COPY OF SUCH NOTE PURCHASE
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL EXECUTIVE
OFFICE OF NATIONAL AUTO FINANCE COMPANY L.P. AND WILL BE FURNISHED TO
THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
FOR PURPOSES OF THIS PARAGRAPH, THE TERM "THIS SECURITY" WILL MEAN THE
AGGREGATION OF THE SECURITY REPRESENTED BY THIS CERTIFICATE AND THE
DEFERRED ADDITIONAL INTEREST NOTE ISSUED IN CONJUNCTION HEREWITH. THE
FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF APPLYING THE
U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS
SECURITY. THE ISSUE DATE OF THIS SECURITY IS AUGUST 9, 1996. THE ISSUE
PRICE OF THIS SECURITY IS 100% OF ITS INITIAL PRINCIPAL AMOUNT. THE
ANNUAL YIELD TO MATURITY OF THIS SECURITY IS 12.10%. THIS SECURITY HAS
BEEN ISSUED WITH NO MORE THAN $683.47 OF ORIGINAL ISSUE DISCOUNT PER
$1,000 OF INITIAL PRINCIPAL AMOUNT.
NATIONAL AUTO FINANCE COMPANY L.P.
Senior Subordinated Note
No. 102 August 9, 1996
$1,350,000.00 Final Maturity: July 31, 2001
NATIONAL AUTO FINANCE COMPANY L.P., a Delaware
limited partnership (the "Company"), for value received, hereby
promises to pay to KELLY & CO.
or registered assigns,
the principal amount of
one million three hundred fifty thousand U.S. dollars (U.S.
$1,350,000) on the Senior Subordinated Note Repayment Date set forth
in Section 1.2(a) of the Note Purchase Agreements referred to below
and to pay (subject to the following two paragraphs) interest
(computed on the basis of a 360-day year of twelve 30-day months) on
the principal amount from time to time remaining unpaid hereon at an
interest rate equal to the sum of the Senior Subordinated Interest
Rate plus the Deferred Additional Interest Rate from the date hereof
(or from the latest date to which interest has been paid) until such
unpaid portion of such principal amount shall have become due and
payable (whether on the Senior Subordinated Note Repayment Date, by
acceleration or otherwise), payable (subject to the following
paragraph) quarterly on the 31st day of each July, October and January
and the 30th day of each April in each year commencing October 31,
1996 to the person in whose name this Senior Subordinated
<PAGE>
Note is registered on the fifth day prior to such Interest Payment
Date, until and including July 31, 2001 (unless earlier prepaid in
full in accordance with the Note Purchase Agreements). The Company
agrees to pay interest on overdue principal, on any overdue amounts
arising out of a required or optional prepayment, and (to the extent
not prohibited by applicable law) on any overdue installment of
interest at the Overdue Rate after the date on which such amounts are
due and payable, whether by acceleration or otherwise, until paid.
The Company shall, on each Interest Payment Date
prior to the exchange of the Deferred Additional Interest Note issued
together herewith (and which is attached hereto as Exhibit 1) in its
entirety for Equity Interests, in lieu of paying the Deferred
Additional Interest, add such Deferred Additional Interest otherwise
payable on this Senior Subordinated Note on such Interest Payment Date
to the principal balance of such Deferred Additional Interest Note
(which such amount shall be treated as principal for all purposes
thereafter). After the occurrence of such an exchange, the Deferred
Additional Interest Rate shall no longer be payable on this Senior
Subordinated Note and this Senior Subordinated Note shall bear
interest at only the Senior Subordinated Interest Rate.
If, pursuant to Section 6.2, 6.3, 6.4 or 6.5 of the
Note Purchase Agreements, the holder of the Deferred Additional
Interest Note issued in connection with this Senior Subordinated Note
exchanges such Deferred Additional Interest Note for less than all the
Equity Interests issuable upon an exchange of such Deferred Additional
Interest Note in its entirety, this Senior Subordinated Interest Note
shall bear interest, notwithstanding the provisions of the preceding
paragraph, (i) on the entire unpaid portion of the principal amount of
this Senior Subordinated Note, from the date of such partial exchange
until such unpaid portion of such principal amount shall have become
due and payable, at the Senior Subordinated Note Interest Rate and
(ii) on the unpaid portion of the principal amount thereof equal to
the product of (A) the unpaid principal amount of this Senior
Subordinated Note times (B) the fraction representing that portion of
such Deferred Additional Interest Note that was not exchanged in such
partial exchange as set forth in the Note Purchase Agreements, at the
Deferred Additional Interest Rate, and the interest borne pursuant to
clauses (i) and (ii) shall be payable or accrued and added to the
unpaid portion of the principal amount of the new Deferred Additional
Interest Note issued upon such partial exchange, as provided in the
preceding paragraph.
Principal hereof and interest hereon are payable as
provided in the Note Purchase Agreements referred to below, in coin or
currency of the United States of America which at the time of payment
shall be legal tender for the payment of public and private debts. If
any amount of principal, prepayment amount or interest on or in
respect of this Senior Subordinated Note becomes due and payable on
any date which is not a Business Day, such amount shall be payable on
the immediately succeeding Business Day.
This Senior Subordinated Note is one of the Senior
Subordinated Notes (the "Senior Subordinated Notes") of the Company in
an aggregate principal amount of $12,000,000 issued or to be issued
under and pursuant to the terms and provisions of separate and several
Note Purchase Agreements, each dated as of August 9, 1996 (the "Note
Purchase Agreements"), entered into by the Company with the original
purchasers therein referred to, and this Senior Subordinated Note and
the holder hereof are entitled equally and ratably with the holders of
all other Senior Subordinated Notes outstanding under the Note
Purchase Agreements to all the benefits provided for thereby or
referred to therein, to which Note Purchase Agreements reference is
hereby made for the statement thereof. A copy of the Note Purchase
Agreements may be obtained from the principal executive office of the
Company located at 621 NW 53rd Street, Suite 200, Boca Raton, FL
33487. Capitalized terms not defined in this Senior Subordinated Note
shall have the meanings given them in the Note Purchase Agreements.
This Senior Subordinated Note and the other Senior
Subordinated Notes outstanding under the Note Purchase Agreements may
be declared due prior to the Senior Subordinated Note Repayment Date,
in the events, on the terms and in the manner and amounts as provided
in the Note Purchase Agreements.
The Senior Subordinated Notes are subject to
prepayment at the option of the Company prior to the Senior
Subordinated Note Repayment Date, at any time on or after the earlier
to occur of (i) August 9, 1999 and (ii) a Sale Event, on the terms and
conditions and in the amounts and at the Prepayment Call Price as set
forth in the Note Purchase Agreements. Any prepayment of Senior
Subordinated Notes in part shall be applied on all
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<PAGE>
outstanding Senior Subordinated Notes ratably in accordance with the
unpaid principal amounts thereof, determined as of the date notice is
given to the holders of the Senior Subordinated Notes pursuant to
Section 2.4 of the Note Purchase Agreements.
This Senior Subordinated Note is subject to
prepayment in whole or in part, at the option of the holder hereof,
following the occurrence of a Change in Control Event and is subject
to prepayment in whole, at the option of the holders of at least a
majority in the then outstanding principal balance of the Senior
Subordinated Notes, following the Company's receipt of a Put Notice,
upon compliance with the terms set forth in Section 2 of the Note
Purchase Agreements.
The indebtedness evidenced by this Senior
Subordinated Note is, to the extent provided in the Note Purchase
Agreements, subordinate and subject in right of payment to the prior
payment of all amounts owing to holders of Senior Indebtedness, and
this Senior Subordinated Note is issued subject to the provisions of
the Note Purchase Agreements with respect thereto. Each holder of this
Senior Subordinated Note, by accepting the same, agrees to and shall
be bound by such provisions.
This Senior Subordinated Note is registered on the
books of the Company and is transferable only by surrender hereof at
the principal executive office of the Company located at 621 NW 53rd
Street, Suite 320, Boca Raton, FL 33487 or at the office of any Paying
Agent appointed pursuant to Section 1.5 of the Note Purchase
Agreements, duly endorsed or accompanied by a written instrument of
transfer duly executed by the registered holder of this Senior
Subordinated Note or its attorney duly authorized in writing. By its
acceptance hereof, the holder of this Senior Subordinated Note agrees
that, in the absence of the registration of the Senior Subordinated
Notes under the Securities Act of 1933, as amended (the "Securities
Act"), it shall only transfer this Senior Subordinated Note (i)
pursuant to an effective registration statement under the Securities
Act and applicable state securities laws, (ii) in compliance with the
requirements of Rule 144 or Regulation S promulgated under the
Securities Act or (iii) in accordance with any other available
exemption from the requirements of Section 5 of the Securities Act and
from any applicable state securities laws. If the Deferred Additional
Interest Note issued together with this Senior Subordinated Note
remains outstanding, this Senior Subordinated Note is not transferable
apart from such Deferred Additional Interest Note. This Senior
Subordinated Note is subject to other restrictions on transfer set
forth in Section 1.6 of the Note Purchase Agreements. Payment of or on
account of principal of, interest on, or Prepayment Call Price, Change
in Control Event Prepayment Price or Put Event Prepayment Price with
respect to this Senior Subordinated Note shall be made only to or upon
the order in writing of the registered holder hereof, except as
otherwise provided in Section 2.7 of the Note Purchase Agreements.
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<PAGE>
THIS SENIOR SUBORDINATED NOTE AND SAID NOTE PURCHASE
AGREEMENTS ARE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAW PRINCIPLES THEREOF, EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation
Its: General Partner
By: /s/ Keith B. Stein
---------------------------------
Name: Keith B. Stein
Title:
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of August 9, 1996, by
and among National Auto Finance Company L.P., a Delaware limited partnership
(the "Company"), and the Persons set forth on Schedule I attached hereto (the
"Investors").
The Investors intend to purchase the Company's Deferred Additional
Interest Notes. The execution and delivery of this Agreement is a condition to
the Investors' purchase of the Deferred Additional Interest Notes. Capitalized
terms used herein shall have the meanings set forth in Section 9 below.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. Registration Statements.
(a) Demand Registration. (i) At any time after the consummation of an
Initial Public Offering, (A) if no Automatic Exchange Event has occurred, upon
each notice to the Company by the Sloan Foundation or the New York Trust, or (B)
if an Automatic Exchange Event (including without limitation a Qualified Public
Offering) has occurred, upon each notice to the Company by the holders of
Registrable Securities then constituting at least a majority of the Registrable
Securities, requesting, in the case of either (A) or (B), the registration of a
specified number of Registrable Securities, the Company shall, as promptly as
practicable and in any event not later than 90 days after the Company's receipt
of such notice, prepare and file with the Commission under the Securities Act a
Registration Statement with respect to the Registrable Securities to which such
notice relates, and shall use its reasonable best efforts to cause such
Registration Statement to be declared effective at the earliest practicable date
and to prepare and make available a Prospectus meeting the requirements of
Section 10(a) of the Securities Act and providing for the method of disposition
determined pursuant to Section 1(a)(iii) for such period as may be required by
the Securities Act, but in no event beyond the period reasonably required by the
underwriter(s) in any Underwritten Offering permitted pursuant to Section 7;
provided, that the Company will not be required to effect any such registration
within the period beginning on the effective date of a Registration Statement
filed by the Company on its behalf covering a firm commitment Underwritten
Offering and ending on the later of (A) 90 days after such effective date and
(B) the expiration of any lock-up period required by the underwriters, if any,
in connection therewith; and provided, further, that the Company shall use its
reasonable best efforts to, and shall cause each underwriter participating in
such registration and disposition to use its reasonable best efforts to, cause
any registration and disposition of Registrable Securities requested pursuant to
Section 1(a)(i)(A) to constitute a Qualified Public Offering. Two requests for
registration may
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be made pursuant to this Section 1(a)(i); provided, that the number of such
permissible requests shall be increased as set forth in Sections 1(c)(ii)(A) and
1(c)(iv).
(ii) At any time that is both after the fifth anniversary of the
Closing Date and prior to the consummation of an Initial Public Offering, (A) if
no Automatic Exchange Event has occurred, upon each notice to the Company by the
Sloan Foundation or the New York Trust, or (B) if an Automatic Exchange Event
(other than a Qualified Public Offering) has occurred, upon each notice to the
Company by the holders of Registrable Securities then constituting at least a
majority of the Registrable Securities, requesting, in the case of either (A) or
(B), the registration of a specified number of Registrable Securities, the
Company shall, as promptly as practicable and in any event not later than 90
days after the Company's receipt of such notice, prepare and file with the
Commission under the Securities Act a Registration Statement with respect to the
Registrable Securities to which such notice relates, and shall use its
reasonable best efforts to cause such Registration Statement to be declared
effective at the earliest practicable date and to prepare and make available a
Prospectus meeting the requirements of Section 10(a) of the Securities Act and
providing for the method of disposition determined pursuant to Section 1(a)(iii)
for such period as may be required by the Securities Act, but in no event beyond
the period reasonably required by the underwriter(s) in any Underwritten
Offering permitted pursuant to Section 7; provided, that the Company will not be
required to effect any such registration within the period beginning on the
effective date of a Registration Statement filed by the Company on its behalf
covering a firm commitment Underwritten Offering and ending on the later of (A)
90 days after such effective date and (B) the expiration of any lock-up period
required by the underwriters, if any, in connection therewith; and provided,
further, that the Company shall use its reasonable best efforts to, and shall
cause each underwriter participating in such registration and disposition to use
its reasonable best efforts to, cause any registration and disposition of
Registrable Securities requested pursuant to Section 1(a)(ii)(A) to constitute a
Qualified Public Offering. One request for registration may be made pursuant to
this Section 1(a)(ii).
(iii) If a request for registration is made pursuant to Section
1(a)(i) or 1(a)(ii), the Company shall promptly give written notice of such
request to all holders of Registrable Securities who did not participate in such
request; and each of such holders shall have the right, by giving written notice
to the Company promptly (and in any event within 30 days after such notice is
given by the Company), to join in such request and to have included in the
Registration Statement to be filed by the Company pursuant to such request such
number of Registrable Securities as such holder shall specify in such notice;
and the method of distribution of the Registrable Securities to be included in
such Registration Statement under Section 1(a)(i) or 1(a)(ii) shall be selected
by the holders of a majority of the Registrable Securities with respect to which
the request for registration was made under Section 1(a)(i) and this Section
1(a)(iii), collectively, or under Section 1(a)(ii) and this Section 1(a)(iii),
collectively;
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(iv) The Company may delay the filing of a Registration Statement
requested pursuant to this Section 1(a) if, in its reasonable judgment, (A) the
filing of such Registration Statement at such time would adversely affect a
proposed financing, reorganization or recapitalization, or pending negotiations
relating to a merger, consolidation, acquisition or similar transaction, or
otherwise adversely affect the Company; or (B) financial statements meeting the
requirements of Regulation S-X are not available at such time because of any
such pending proposal or negotiations; provided, however, that the right of the
Company pursuant to this subsection (iv) to delay the filing of a Registration
Statement shall not extend for more than 135 days from the date that notice is
given pursuant to Section 1(a)(i) or 1(a)(ii), as the case may be, requesting
registration.
(b) Incidental Registration. (i) In addition to, and independent of the
rights afforded by Section 1(a), prior to filing with the Commission any
Registration Statement (other than a Registration Statement on Form S-4 or S-8
or any successor forms to such Forms) with respect to (A) any public offering by
and for the account of the Company of its equity securities or any securities
convertible into or exchangeable or exercisable for such equity securities or
(B) any public offering by the Company for the account of IronBrand, or any
other holders of equity securities of the Company, of the Company's equity
securities or any securities convertible into or exchangeable or exercisable for
such equity securities, the Company shall notify each holder of the Registrable
Securities of such proposed filing, specifying whether such offering is to be an
Underwritten Offering and if so, the price range at which the shares are
expected to be offered pursuant thereto. Any such holder wishing to have any of
such holder's Registrable Securities included in such Registration Statement
shall promptly (and in any event within 30 days after such notice is given by
the Company) give written notice to the Company requesting registration of such
holder's Registrable Securities, specifying the number of Registrable Securities
requested to be registered and describing the proposed method of disposition
thereof, and if the proposed offering is to be an Underwritten Offering and such
holder wishes to participate therein, specifying the number of Registrable
Securities which such holder wishes to dispose of pursuant to such Underwritten
Offering.
(ii) If the proposed public offering as to which notice is given by
the Company pursuant to Section 1(b)(i) is other than an Underwritten Offering,
the Company shall use its reasonable best efforts to register the Registrable
Securities requested to be included in its Registration Statement and, in
connection therewith, to prepare and make available a Prospectus meeting the
requirements of Section 10(a) of the Securities Act for such period as may be
required by the Securities Act.
(iii) At any time prior to the time that a Registration Statement as
to which notice has been given by the Company pursuant to Section 1(b) has been
filed by the Company or, if filed, has been declared effective, the Company may
determine not to file, or may withdraw, such Registration Statement, in either
of which events the Company shall have no
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obligation pursuant to this Section 1(b) to register any Registrable Securities
in connection with such proposed Registration Statement.
(c) Underwritten Offerings. If the proposed method of disposition of
Registrable Securities as to which notice is given by the holders of Registrable
Securities under, as applicable, either Sections 1(a)(i) and 1(a)(iii),
collectively, or Sections 1(a)(ii) and 1(a)(iii), collectively, or the proposed
public offering as to which notice is given by the Company pursuant to Section
1(b)(i) is to be an Underwritten Offering:
(i) the Company shall request the underwriter(s) participating in such
offering to purchase and sell all Registrable Securities the disposition of
which pursuant to such Underwritten Offering shall have been requested by the
holders thereof in notices given pursuant to Section 1(a)(i), 1(a)(ii),
1(a)(iii) or 1(b)(i), as the case may be;
(ii) (A) each holder of Registrable Securities giving a notice
pursuant to Section 1(a)(i), 1(a)(ii) or 1(a)(iii), as the case may be, agrees
that, by the giving of such notice, if the underwriter(s) desire(s) to purchase
any of the Registrable Securities requested by such holder to be purchased, such
holder shall sell such Registrable Securities to such underwriter(s) pursuant to
an underwriting agreement to be entered into by and among the Company, the
underwriter(s), such holder and any other holders of securities of the Company
participating in such Underwritten Offering, unless, upon written notice to the
Company and the managing underwriter given at least five Business Days prior to
the date that the Registration Statement with respect to such offering is
proposed to become effective (or any later proposed effective date), such holder
withdraws its Registrable Securities from such Underwritten Offering; provided,
that, if the holders of Registrable Securities constituting a majority of such
Registrable Securities covered by a notice pursuant to Section 1(a)(i) or
1(a)(iii) (with respect to a registration requested under Section 1(a)(i))
withdraw the Registrable Securities requested by such holders pursuant to
Section 1(a)(i) or 1(a)(iii) (with respect to a registration requested under
Section 1(a)(i)) to be included in such Underwritten Offering because the
underwriter(s) have advised the Company in writing that the number of
Registrable Securities requested to be included in such registration exceeds the
number of such securities that can be sold in such offering within a price range
acceptable to such holders, then such request for registration shall be
withdrawn as to all holders of Registrable Securities, the number of requests
for registration that may be made pursuant to Section 1(a)(i) shall be increased
by one, and notwithstanding anything to the contrary in this Agreement, all of
the costs incurred by such holders in connection with such registration shall be
paid by the Company; and, provided, further, if any holder of Registrable
Securities requesting registration of such securities pursuant to Section
1(a)(i), 1(a)(ii) or 1(a)(iii) withdraws its request for registration for any
reason that is not based on such advice from the underwriter(s), then,
notwithstanding anything to the contrary in this Agreement, any expenses
incident to the Company's preparation in accordance with this Agreement for the
registration of such Registrable Securities so withdrawn shall be borne entirely
by the holders of such Registrable
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Securities, pro rata among such holders requesting such withdrawal, in the
proportion that the number of Registrable Securities requested by each such
holder to be included in such Underwritten Offering and so withdrawn bears to
the total number of Registrable Securities requested to be included in such
Underwritten Offering and so withdrawn.
(B) each holder of Registrable Securities giving a notice
pursuant to Section 1(b)(i) agrees that, by the giving of such notice, if the
underwriter(s) desire(s) to purchase any of the Registrable Securities requested
by such holder to be purchased, such holder shall sell such Registrable
Securities to such underwriter(s) pursuant to an underwriting agreement to be
entered into by and among the Company, the underwriter(s), such holder and any
other holders of securities of the Company participating in such Underwritten
Offering, unless, upon written notice to the Company and the managing
underwriter given at least five Business Days prior to the date that the
Registration Statement with respect to such offering is proposed to become
effective (or any later proposed effective date), such holder withdraws its
Registrable Securities from such Underwritten Offering.
(iii) if the underwriter(s) elect(s) to purchase less than all
securities (including Registrable Securities) which it is requested to purchase
in connection with such offering (or if, in the judgment of the Company, on the
written advice of such underwriter(s), the inclusion of all such securities in
such Underwritten Offering would adversely affect the proposed public offering
by and for the account of the Company), the Company shall use its reasonable
best efforts to cause purchases, if any, by such underwriter(s), (A) if such
Underwritten Offering is the result of a request for registration pursuant to
Section 1(a)(i) or 1(b)(i)(B), first, of securities to be offered for the
account of holders of Registrable Securities and IronBrand, to be made pro rata
according to the number of securities requested by each such holder and
IronBrand to be included in the Underwritten Offering, second, of securities to
be offered for the account of the Company, and third, of securities to be
offered for the account of Persons other than (1) the Company, (2) IronBrand and
(3) the holders of Registrable Securities, to be made pro rata according to the
number of securities requested by such other Persons to be included in the
Underwritten Offering and (B) if such Underwritten Offering is the result of a
request for registration pursuant to Section 1(a)(ii) or 1(b)(i)(A), first, of
securities to be offered for the account of the Company, second, of securities
to be offered for the account of holders of Registrable Securities and
IronBrand, to be made pro rata according to the number of securities requested
by each such holder and IronBrand to be included in the Underwritten Offering,
and third, of securities to be offered for the account of Persons other than (1)
the Company, (2) IronBrand and (3) the holders of Registrable Securities, to be
made pro rata according to the number of securities requested by such other
Persons to be included in the Underwritten Offering.
(iv) if (A) pursuant to Section 1(c)(iii), any of the Registrable
Securities requested by holders of Registrable Securities to be disposed of
pursuant to any Underwritten Offering shall not have been purchased by the
underwriter(s) thereunder and (B) the
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Underwritten Offering is the result of a request for registration pursuant to
Section 1(a)(i), then the number of permissible requests for registration that
may be made pursuant to such Section 1(a)(i) shall be increased by one.
(d) Restrictions on Public Sale by Holder. Each holder whose Registrable
Securities are covered by a Registration Statement filed pursuant to this
Section 1 agrees, upon the request of the underwriter(s) in any Underwritten
Offering permitted pursuant to Section 8, not to effect any public sale or
distribution of securities of the Company of the same class as the securities,
or any security convertible into or exchangeable or exercisable for such
securities, included in such Registration Statement, including a sale pursuant
to Rule 144 under the Securities Act (except as part of such registration),
during the 10-day period prior to, and during the 90-day period (or such longer
period, not exceeding 180 days, as is required by the underwriter(s)) beginning
on, the closing date of any such Underwritten Offering made pursuant to such
Registration Statement, to the extent timely notified in writing by the Company
or such underwriter(s); provided, that all other Persons selling securities in
such Underwritten Offering and all officers and directors of the Company shall
enter into agreements providing for the same restriction on a public sale as
described herein.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute, regulation or
preexisting contractual or fiduciary duty from entering into any such agreement.
(e) Restrictions on Sale of Securities by the Company. The Company agrees
not to effect any public or private offer, sale or distribution of its equity
securities or any security convertible into or exchangeable or exercisable for
such equity security, including a sale pursuant to Regulation D under the
Securities Act, during the 10-day period prior to, and during the 90-day period
(or such longer period, not exceeding 180 days, as is required by the
underwriter(s)) beginning on, the closing date of each Underwritten Offering
permitted pursuant to Section 8, to the extent timely and reasonably so
requested in writing by the underwriter(s) (except as part of such registration,
if permitted, or pursuant to registrations on Form S-4 or S-8 or any successor
forms to such Forms or pursuant to an issuance of equity securities of the
Company where such equity securities are exempted from the Securities Act
pursuant to Section 3(a)(10) thereof).
(f) Amendments. Upon the occurrence of any event that would cause any
Registration Statement (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities during
the period that such Registration Statement is required to be effective and
usable, the Company shall promptly file an amendment to the Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), using its reasonable
best efforts to cause such amendment to be declared effective and such
Registration Statement to become usable as soon as practicable thereafter.
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2. Registration Procedures.
In connection with any Registration Statement and subject to the provisions
of Section 1 the Company shall use its reasonable best efforts to effect such
registration to permit the sale of the Registrable Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement relating
to the registration on any appropriate form under the Securities Act, which form
shall be available for the sale of the Registrable Securities being sold in
accordance with the intended method or methods of distribution thereof and shall
include all financial statements required by the Commission to be filed
therewith (including, if required by the Securities Act or any regulation
thereunder, financial statements of any Subsidiary of the Company which shall
have guaranteed any indebtedness of the Company), cooperate and assist in any
filings required to be made with the NASD and use its reasonable best efforts to
cause such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the selling
holders to consummate the disposition of such Registrable Securities; provided,
that before filing a Registration Statement or any Prospectus, or any amendments
or supplements thereto, the Company shall (i) furnish to the holders of the
Registrable Securities and the underwriter(s), if any, copies of all such
documents proposed to be filed, which documents shall be subject to the review
of such holders and (ii) make the Company's representative available for
discussion of such documents; and provided, further, that in connection with any
registration of Registrable Securities pursuant to Section 1(a), the Company
shall not file any Registration Statement or amendment thereto or any Prospectus
or any supplement thereto to which the holders of a majority of Registrable
Securities covered by such Registration Statement or the underwriter(s), if any,
shall reasonably object within 10 Business Days after the receipt thereof; and
provided, further, that in connection with any registration pursuant to Section
1(b)(i), if the holders of a majority of Registrable Securities covered by a
Registration Statement in connection therewith reasonably object within 10
Business Days after the receipt of such Registration Statement or amendment
thereto or any Prospectus or any supplement thereto, the Company shall provide
written notice not more than five Business Days after the end of the 10
Business-Day period referred to above to such holders as to whether or not the
Company plans on filing such document, notwithstanding such objection (which
such notice shall bind the Company), and if the Company notifies such holders
that it plans on filing such document, any holder of Registrable Securities to
be registered under such Registration Statement may withdraw its Registrable
Securities from such Registration Statement and the offering in connection
therewith and, if such holder makes such a withdrawal, it shall have no further
obligations in connection with such Registration Statement or offering. For
purposes of the preceding provisos, an objection made by a holder of the
Registrable Securities or an underwriter, if any, shall be deemed to be
reasonable if, including without limitation, the Registration Statement,
amendment, Prospectus or
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supplement, as applicable, as filed or proposed to be filed, contains, in the
reasonable judgment of the holder of Registrable Securities or underwriter, a
material misstatement or omission;
(b) prepare and file with the Commission such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period set forth in Section
1, or such shorter period which will terminate when all Registrable Securities
covered by such Registration Statement have been sold;
(c) if requested by the holders of a majority of the Registrable Securities
being sold in an Underwritten Offering permitted by Section 7 or the
underwriter(s) thereof, promptly incorporate in a Prospectus, Prospectus
supplement or post-effective amendment such information as such underwriter(s)
and the holders of a majority of the Registrable Securities being sold agree
should be included therein relating to the plan of distribution of the
Registrable Securities, including, without limitation, information with respect
to the number of Registrable Securities being sold to such underwriter(s), the
purchase price being paid therefor and with respect to any other terms of the
offering of the Registrable Securities to be sold in such offering; and make any
required filings of such Prospectus, Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters to
be incorporated in such Prospectus, Prospectus supplement or post-effective
amendment;
(d) advise the underwriter(s), if any, and holders of the Registrable
Securities promptly and, if requested by such Persons, confirm such advice in
writing:
(i) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has become effective;
(ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information relating thereto;
(iii) if at any time the representations and warranties of the Company
contemplated by clause (l)(i) below cease to be true and correct;
(iv) if the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances in
which they were made, not misleading; and
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(v) of the issuance by the Commission of any stop order or other order
suspending the effectiveness of the Registration Statement, or any order issued
by any state securities commission or other regulatory authority suspending the
qualification or exemption from qualification of such Registrable Securities
under state securities or "blue sky" laws. If at any time the Company shall
receive any such stop order suspending the effectiveness of the Registration
Statement, or any such order from a state securities commission or other
regulatory authority, the Company shall use its reasonable best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.
(e) furnish to each holder of the Registrable Securities and each of the
underwriter(s), if any, without charge, at least one complete conformed copy of
the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(f) deliver to each holder of the Registrable Securities and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each of the holders of the
Registrable Securities and each of the underwriter(s), if any, in connection
with the offering and the sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, cooperate with
the holders of the Registrable Securities, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions as the holders of the Registrable Securities or underwriter(s) may
reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement, except that the Company shall
not for any such purpose be required to (i) qualify generally to do business as
a foreign corporation in any jurisdiction wherein it would not, but for the
requirements of this clause (g), be obligated to so qualify or to consent to any
general service of process in any such jurisdiction or (ii) subject itself to
taxation in respect of doing business in any jurisdiction in which it would not
otherwise be so subject;
(h) cooperate with the holders of the Registrable Securities and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold without bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as such holders or the
underwriter(s), if any, may request;
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(i) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Registrable Securities;
(j) if any fact or event contemplated by clause (d)(iv) above shall exist
or have occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
(k) provide a transfer agent and registrar (which may include the Company)
and CUSIP number for all Registrable Securities not later than the effective
date of the Registration Statement;
(l) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith as may be reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities pursuant to the Registration Statement, and in connection with any
such underwriting agreement entered into by the Company:
(i) make such representations and warranties to the holders of the
Registrable Securities and the underwriter(s), in form, substance and scope as
are customarily made by issuers to underwriters in primary underwritten
offerings;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the underwriter(s) and the holders of the Registrable Securities
being sold), addressed to the underwriter(s) covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may reasonably be requested by such holders and underwriters; and use its
reasonable best efforts to have such opinions addressed to each such selling
holder;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants, addressed to the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by underwriters in connection
with primary underwritten offerings; and use its reasonable best efforts to have
such letters and updates addressed to each selling holder of Registrable
Securities;
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(iv) set forth in full or incorporate by reference in the underwriting
agreement the indemnification provisions and procedures of Section 4 with
respect to all parties to be indemnified pursuant to said Section; and
(v) deliver such documents and certificates as may be reasonably
requested by the holders of the Registrable Securities being sold or the
underwriter(s) of such Underwritten Offering to evidence compliance with
subclause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company pursuant
to this clause (l).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder;
(m) make available for inspection by a representative of the selling
holders of the Registrable Securities, any underwriter participating in any
disposition pursuant to the Registration Statement, and any attorney, accountant
or other professional retained by such holders or any of the underwriters,
subject to reasonable notice and during regular business hours, all financial
and other records, pertinent corporate documents and properties of the Company,
provided, that all expenses incurred by any party requesting such access shall
be paid by such party, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such holder, underwriter,
attorney, accountant or other professional in connection with such Registration
Statement subsequent to the filing thereof and prior to its effectiveness,
except that the aforementioned advisors may be required to sign a reasonably
acceptable confidentiality agreement;
(n) otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to the
holders of the Registrable Securities, as soon as practicable, a consolidated
earnings statement (which need not be audited) for the 12-month period (A)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm or best efforts Underwritten Offering or (B) if
not sold to underwriters in such an offering, beginning with the first month of
the Company's first fiscal quarter commencing after the effective date of the
Registration Statement; provided, however, that such reporting obligations shall
be in addition to and not in place of the obligations imposed on the Company by
Section 5 of the Note Purchase Agreements;
(o) use its reasonable best efforts to cause all Registrable Securities to
be listed on each securities exchange, if any, on which equity securities issued
by the Company are then listed; and
(p) use its reasonable best efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby.
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The Company may require each holder of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as is required by applicable
laws and regulations.
Each holder of the Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company
pursuant to Section 2(d)(iv), or notice of a stop order or suspension described
in Section 2(d)(v), such holder shall forthwith discontinue disposition of
Registrable Securities and cease to use the Prospectus in use under such
Registration Statement. Each holder of Registrable Securities also agrees that
if in an Underwritten Offering effected pursuant to this Agreement it is
required to deliver a signed opinion of counsel to the underwriter(s) under the
underwriting agreement, it will cause its counsel to address and deliver a copy
of such opinion to the Company. The Company shall, as promptly as practicable,
provide each holder with copies of the supplemented or amended Prospectus
contemplated by Section 2(j), or advise the holders in writing that the use of
the Prospectus may be resumed, and provide each holder with copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus. If so directed by the Company, each such holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
3. Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement shall be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation:
(i) all registration and filing fees and expenses (including filings
made with the NASD);
(ii) fees and expenses of compliance with federal securities and state
"blue sky" or securities laws;
(iii) expenses of printing (including printing certificates for the
Registrable Securities and Prospectuses), messenger and delivery services and
telephone;
(iv) fees and disbursements of counsel for the Company and one
counsel, and one local counsel for each local jurisdiction where it is
reasonably necessary, for the holders of the Registrable Securities selling such
securities pursuant to a Registration Statement (subject to the provisions of
Section 3(b));
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(v) all application and filing fees in connection with listing the
Registrable Securities on a national securities exchange or automated quotation
system pursuant to the requirements hereof;
(vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance);
(vii) any reasonable out-of-pocket expenses of the holders of the
Registrable Securities (or the agents and fiduciaries who manage their
accounts); and
(viii) such other reasonable and customary expenses as may be at such
time (A) associated with underwritten offerings and (B) customarily borne by the
issuer, which such reasonable and customary expenses shall not be deemed to
include any underwriter discounts, commissions or applicable transfer taxes
attributable to the sale of Registrable Securities.
The Company shall, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, rating
agency fees and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement, the Company shall
reimburse the holders of the Registrable Securities for the reasonable fees and
disbursements of not more than one counsel chosen by the holders of a majority
of the Registrable Securities covered by such Registration Statement and of all
local counsel that is reasonably necessary. Notwithstanding the provisions of
this Section 3, each holder shall pay registration expenses if and to the extent
required by applicable law.
4. Indemnification.
(a) The Company agrees to indemnify and hold harmless each holder of the
Registrable Securities and each Person, if any, who controls such holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses (including, without limiting the foregoing but subject to Section 4(c),
the reasonable legal and other expenses incurred in connection with any action,
suit or proceeding or any claim asserted) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except to the extent that such
losses, claims, damages,
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<PAGE>
liabilities or expenses are the result of an untrue statement or omission
contained in information relating to such holder, furnished in writing to the
Company by or on behalf of such holder expressly for use therein. In connection
with any Underwritten Offering permitted by Section 8, the Company shall also
indemnify underwriters, if any, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the holders, if requested
in connection with any Registration Statement.
(b) As a condition to the inclusion of its Registrable Securities in any
Registration Statement pursuant to this Agreement, each holder thereof shall
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus and each
such holder agrees to indemnify and hold harmless, severally and not jointly,
the Company and its directors, its officers who sign such Registration
Statement, and any Person controlling the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the indemnity from the Company to each holder and Persons controlling such
holder, but only with reference to information relating specifically to such
holder furnished in writing by or on behalf of such holder expressly for use in
such Registration Statement or the Prospectus or any preliminary prospectus
included therein, and of which none of the Company, its directors or officers
has actual knowledge independent of such holder; provided, however, that such
holder of Registrable Securities shall not be liable in any such case to the
extent that the holder has furnished in writing to the Company reasonably in
advance of the filing of any such Registration Statement, Prospectus or
preliminary prospectus information with the Commission expressly for use in such
Registration Statement, Prospectus or preliminary prospectus which corrected or
made not misleading information previously furnished to the Company, and the
Company failed to include such information therein. In case any action shall be
brought against the Company, any of its directors, any such officer, or any such
controlling Person based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
one or more of the holders, such holders shall have the rights and duties given
to the Company by Section 4(c) (except that if the Company as provided in
Section 4(c) shall have assumed the defense thereof such holders shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof but all the fees and expenses of such counsel shall be at
such holder's expense and not at the expense of the Company) and the Company and
its directors, any such officers, and any such controlling Person shall have the
rights and duties given to the holders by Section 4(c). In no event shall the
liability of any selling holder hereunder be greater than the net proceeds
(i.e., proceeds net of underwriting discounts, fees, commissions and any other
expenses payable by such selling holder) received by such holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
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<PAGE>
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought against any current or
former holder of the Registrable Securities or any Person controlling such
holder, with respect to which indemnity may be sought against the Company
pursuant to Section 4(a), such holder or such Person controlling such holder
shall promptly notify the Company in writing and the Company shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such holder and payment of all fees and expenses relating thereto. Such holder
and such Persons controlling such holder shall have the right to employ separate
counsel in any such action or proceeding and participate in the defense thereof,
but all the fees and expenses of such counsel shall be at such holder's expense
and not at the expense of the Company unless (i) the employment of such counsel
has been specifically authorized in writing by the Company, which authorization
shall not be unreasonably withheld, (ii) the Company has not assumed the defense
and employed counsel reasonably satisfactory to such holder within 15 days after
written notice of any such action or proceeding, or (iii) the named parties to
any such action or proceeding (including any impleaded parties) include both
such holder or any Person controlling such holder and the Company and such
holder or any Person controlling such holder shall have been advised by such
counsel that there may be one or more legal defenses available to such holder or
Person controlling such holder that are different from or additional to those
available to the Company and, in the reasonable opinion of such counsel, could
not be asserted by the Company's counsel without creating a conflict of interest
(in which case the Company shall not have the right to assume the defense of
such action or proceeding on behalf of such holder or controlling Person, it
being understood, however, that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to all local counsel which is necessary, in the good
faith opinion of both counsel for the indemnifying party and counsel for the
indemnified party in order to adequately represent the indemnified parties) for
all such holders and controlling Persons, which firm shall be designated in
writing by the holders of a majority of the Registrable Securities currently or
formerly held by such holders and that all such reasonable fees and expenses
shall be reimbursed as they are incurred upon written request and presentation
of invoices). The Company shall not be liable for any settlement of any such
action effected without the written consent of the Company (which consent shall
not be unreasonably withheld), but if settled with the written consent of the
Company or if there is a final judgment for the plaintiff, the Company agrees to
indemnify and hold harmless such holder and all Persons controlling such holder
from and against any loss or liability by reason of such settlement or judgment.
The Company shall not, without the prior written consent of the holder, effect
any settlement of any pending or threatened proceeding in respect of which any
holder or any Person controlling such holder is a party and indemnity has been
sought hereunder by such holder or any Person controlling such holder unless
such settlement includes an unconditional release of such holder or such
controlling Person from all liability on claims that are the subject matter of
such proceeding.
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<PAGE>
(d) If the indemnification provided for in this Section 4 is unavailable to
an indemnified party under paragraphs (a), (b) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the holders of the Registrable Securities on the other hand
from the original sale by the Company of the Registrable Securities, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and such holders on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and such holders on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company on the one hand or
by such holders on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(e) The Company and the holders of the Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 4 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in subsection
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in subsection (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding any other provision of this Agreement, no holder of
the Registrable Securities shall be required to contribute an amount greater
than the net proceeds received by such holder with respect to the sale of
Registrable Securities giving rise to any indemnification or contribution
obligation under this Section 4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
5. Rule 144A. The Company hereby agrees with each holder of the Registrable
Securities for so long as any of the Deferred Additional Interest Notes or
Registrable Securities remain outstanding and during any period in which the
Company is not subject to Section 13
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or 15(d) of the Exchange Act, to make available to any Purchaser or beneficial
owner of Deferred Additional Interest Notes or Registrable Securities in
connection with any sale thereof and any prospective purchaser of such Deferred
Additional Interest Notes or Registrable Securities from such Purchaser or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act.
6. Rule 144. After the earliest of (i) the closing date of the sale of
securities of the Company pursuant to a Registration Statement, (ii) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees with each
holder of Registrable Securities to:
(a) comply with the requirements of Rule 144(c) under the Securities Act
with respect to current public information about the Company;
(b) use its reasonable best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time it has become subject to such
reporting requirements); and
(c) furnish to any holder of Registrable Securities upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
7. Participation In Underwritten Offerings. No holder of the Registrable
Securities may participate in any Underwritten Offering hereunder unless such
holder (a) agrees to sell such holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided, that no holder of Registrable Securities included in any
Underwritten Offering shall be required to make any representations or
warranties to the Company or the underwriter(s) other than representations and
warranties regarding such holder and such holder's intended method of
distribution.
8. Selection of Underwriters.
(a) Demand Registration.
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(i) In any Underwritten Offering of Registrable Securities covered by
a Registration Statement under Section 1(a)(i), the investment banker(s) and
manager(s) that will administer the offering shall be selected by the holders of
a majority of the Registrable Securities with respect to which the request for
registration was made under Sections 1(a)(i) and 1(a)(iii), collectively;
provided, that such investment banker(s) and manager(s) must be of national
stature and reasonably acceptable to the Company.
(ii) In any Underwritten Offering of Registrable Securities covered by
a Registration Statement under Section 1(a)(ii), the investment banker(s) and
manager(s) that will administer the offering shall be selected by the Company;
provided, that such investment banker(s) and manager(s) must be acceptable to
the holders of a majority of the Registrable Securities with respect to which
the request for registration was made under Sections 1(a)(ii) and 1(a)(iii),
collectively.
(b) Incidental Registration. In any Underwritten Offering of Registrable
Securities covered by a Registration Statement under Section 1(b), the
investment banker(s) and manager(s) that will administer the offering shall be
selected by the Company.
9. Interpretation of Agreement; Definitions.
(a) Definitions. Capitalized terms used and not defined herein but defined
in the Note Purchase Agreements shall have the meanings given to such terms in
the Note Purchase Agreements. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined.
"Agreement" means this Registration Rights Agreement and all Schedules
hereto.
"Closing Date" means August 6, 1996.
"Commission" means the Securities and Exchange Commission as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Exchange Act, then the Person performing
such duties at such time.
"Company" has the meaning assigned in the first paragraph of this
Agreement.
"Deferred Additional Interest Notes" means the Company's Deferred
Additional Interest Notes issued pursuant to the Note Purchase Agreements.
"Equity Interest" means any partnership interests, shares of stock, limited
liability company interests or membership interests or other equity interests in
the Company.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initial Public Offering" means the first Public Offering.
"Investors" means, collectively, the Persons listed on Schedule I, and any
successors or permitted assignees of any of their rights hereunder that hold
Registrable Securities.
"IronBrand" means IronBrand Capital, LLC, a North Carolina limited
liability company, and any successors or permitted assignees of any of its
rights under the Partnership Agreement.
"Material Adverse Effect" means a material adverse effect on the business,
assets, operations, prospects, liabilities or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole.
"NASD" means National Association of Securities Dealers, Inc.
"New York Trust" means the Multi-Market Special Investment Trust Fund of
Morgan Guaranty Trust Company of New York, or any successor or assignee thereof
with respect to the Deferred Additional Interest Notes.
"Note Purchase Agreements" means the agreements, dated as of August 9,
1996, between the Company and the purchasers of its Senior Subordinated Notes
and Deferred Additional Interest Notes.
"Partnership Agreement" means the Second Amended and Restated Agreement of
Limited Partnership of National Auto Finance Company L.P. dated as of September
1, 1995.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"Public Offering" means a public offering of the Company's equity
securities pursuant to an effective Registration Statement filed by the Company
with the Commission.
"Qualified Public Offering" means a Public Offering as a result of which
Offering the Company has at least 100 "beneficial owners" of its equity
securities who are "independent" of the Company. For purposes hereof,
"beneficial owners" has the meaning
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assigned to such term in Rule 13d-3 under the Exchange Act. For purposes hereof,
"independent" means any Person who or which is not (i) an officer, director or
employee of the Company or any Subsidiary of the Company, (ii) a Subsidiary of
the Company or (iii) a Person whose investment decision in connection with the
purchase by such Person of the Company's equity securities pursuant to such
Public Offering was not controlled by the Company.
"Registrable Equity Interests" means units of Equity Interests issued or
issuable upon exchange of the Deferred Additional Interest Notes in accordance
with the terms of the Note Purchase Agreements.
"Registrable Securities" means each Registrable Equity Interest until it
has been (i) transferred in a public offering registered under the Securities
Act or (ii) transferred in a sale made through a broker, dealer or market-maker
pursuant to Rule 144 or Rule 144A under the Securities Act.
For all purposes of this Agreement, whenever any Person holding Deferred
Additional Interest Notes has the right to acquire Registrable Equity Interests
upon exchange of such Deferred Additional Interest Notes (but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such exchange has actually been effected, such Person shall be deemed to be a
holder of such number of Registrable Securities as such Person would hold upon
such exchange, at the relevant time.
"Registration Statement" means a registration statement of the Company,
filed with the Commission on an appropriate form, including any registration
statement filed pursuant to the provisions of this Agreement, including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Securities Act" means the Securities Act of 1933, as amended.
"Side Arrangement" has the meaning assigned in Section 10(c).
"Sloan Foundation" means The Alfred P. Sloan Foundation (Multi-Market
Account), or any successor or assignee thereof with respect to the Deferred
Additional Interest Notes.
"Subsidiary" means any corporation, partnership, joint venture,
association, company, business trust or other entity in which the Company
directly or indirectly (i) beneficially owns or controls, directly or
indirectly, a majority of the outstanding voting securities having by the terms
thereof ordinary voting power to elect a majority of the board of directors (or
other body fulfilling a substantially similar function) of such entity (other
than by reason of the happening of any contingency) or (ii) in the case of an
entity which does not have a board of directors (or
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other body fulfilling a substantially similar function) has the authority to
control the policies of such entity (including any partnership or joint venture
of or in which the Company or a Subsidiary is a general partner or joint venture
participant or owns or has the right to obtain a majority of limited partnership
interests).
"Underwritten Offering" means a Public Offering in which securities of the
Company are sold to an underwriter for reoffering to the public.
(b) Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with the
generally accepted accounting principles in effect from time to time, to the
extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement including without limitation the
definitions set out in Section 9.
(c) Directly or Indirectly. Where any provision in this Agreement refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
10. Miscellaneous.
(a) Remedies. Each holder of the Registrable Securities, in addition to
being entitled to exercise all rights provided herein, and granted by law,
including recovery of damages, shall be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company shall not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to such holders of the Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Except for the agreement with IronBrand set forth in Article VI of the
Partnership Agreement, the rights granted to the holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any other agreements.
(c) Comparable Agreements. Except for the agreement with IronBrand set
forth in Article VI of the Partnership Agreement, the Company hereby represents
and warrants that it has not entered into or agreed to any side letter or
similar arrangement or other agreement with
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any other holder or prospective holder of any securities of the Company
providing for registration rights with respect to the securities of the Company
that confers rights or benefits more favorable than the rights and benefits
conferred upon the holders of the Registrable Securities hereunder (such a
letter, arrangement or agreement, whether or not it confers such more favorable
rights or benefits, a "Side Arrangement"). The Company shall not enter into or
amend any Side Arrangement unless, in each case, each of the holders of the
Registrable Securities have been notified in writing and been provided with a
copy of such proposed Side Arrangement or amendment at least 20 Business Days
prior to the effective date of such Side Arrangement or amendment and have been
given the opportunity to receive the rights and benefits in such Side
Arrangement or amendment as of the date of such Side Arrangement or amendment.
(d) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the written consent of the Company and each of the Investors.
(e) Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery. Such notices, demands and other communications will be sent to any
Investor at the address indicated on Schedule I, to any other holder of
Registrable Securities at such holder's address of record appearing on the
Company's books and to the Company at the address indicated below:
National Auto Finance Company L.P.
c/o National Auto Finance Corporation, General Partner
621 NW 53rd Street, Suite 320
Boca Raton, FL 33487
Attention: Keith B. Stein
Telecopier: 407-241-7797
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
such notices, demands and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; upon receipt, if
mailed postage prepaid; when answered back, if telexed; when receipt is
acknowledged, if telecopied; or at the time delivered, if delivered by an air
courier guaranteeing overnight delivery.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties,
including without limitation and without the need for an express assignment,
Affiliates of the Investors. In addition, whether or not any express assignment
has been made, the provisions of this
22
<PAGE>
Agreement which are for the benefit of purchasers or holders of Registrable
Securities are also for the benefit of, and enforceable by, any subsequent
holder of Registrable Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Governing Law. THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL
ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND ITS SECURITY HOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF, EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.
(i) Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
(j) Submission to Jurisdiction. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, WITH RESPECT TO ALL ACTIONS OR PROCEEDINGS RELATING TO
THIS AGREEMENT, AND THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON
IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY
SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED
TO IT AT THE ADDRESS OF THE COMPANY SET FORTH IN SECTION 10(e) ABOVE, AND THAT
SERVICE SO MADE, SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT AND FIVE BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE
COMPANY'S ADDRESS, AS THE CASE MAY BE, IN ACCORDANCE HEREWITH. THE COMPANY
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
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THE JUDGMENT (IF SUCH A PROCEDURE IS AVAILABLE UNDER APPLICABLE LAW) OR IN ANY
OTHER MANNER PROVIDED BY LAW. NOTHING CONTAINED IN THIS SECTION SHALL AFFECT THE
RIGHT OF ANY INVESTOR TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY JURISDICTION
AGAINST THE COMPANY OR TO ENFORCE A JUDGMENT OBTAINED IN THE COURTS OF ANY OTHER
JURISDICTION.
(k) Captions. The descriptive headings of the various Sections or parts of
this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
(l) Waiver of Jury Trial. EACH OF THE COMPANY AND THE INVESTORS WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
(m) Effectiveness of Agreement. This Agreement shall become effective upon
execution by the Company and delivery hereof by the Company to at least one
Investor and the execution by such Investor and delivery hereof by such Investor
to the Company, notwithstanding the fact that any other potential Investors
listed in Schedule I have not so executed and delivered this Agreement.
(n) Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
or caused this Agreement to be duly executed on its behalf, as of the date first
written above.
NATIONAL AUTO FINANCE COMPANY L.P.
By: _____________________________
Name:
Title:
[Signatures of Investors are contained in Schedule I.]
<PAGE>
================================================================================
POOLING AND SERVICING AGREEMENT
by and among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
AS TRANSFEROR,
NATIONAL AUTO FINANCE COMPANY L.P.
AS SERVICER,
and
HARRIS TRUST AND SAVINGS BANK
NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS TRUSTEE
------------------------------------
Dated as of October 21, 1996
-------------------------------------
National Auto Finance 1996-1 Trust
6.33% Automobile Receivables-Backed Certificates
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions
Section 1.01. Definitions........................................ 1
Section 1.02. Calculations as to Principal and
Interest in Respect of
Contracts.................................................... 21
Section 1.03. Material Adverse Effect............................ 21
ARTICLE II
Creation of Trust;
Transfer of Trust Estate;
Original Issuance of Certificates
Section 2.01. Creation of Trust: Transfer of Trust Estate........ 21
Section 2.02. Acceptance by Trustee.............................. 23
Section 2.03. Representations, Warranties and
Covenants of the Servicer and the Transferor................. 24
Section 2.04. Execution and Authentication of Certificates....... 33
Section 2.05. Restriction on Transfer of Transferor Interest..... 34
Section 2.06. Transfers of Additional Contracts.................. 34
ARTICLE III
Administration and Servicing of Contracts;
Establishment and Administration of Accounts
Section 3.01. Servicer to Act as Servicer........................ 36
Section 3.02. Subservicing Agreements between Servicer and the
Subservicers................................................. 39
Section 3.03. Obligations of the Servicer........................ 40
Section 3.04. No Contractual Relationship between a
Subservicer and Trustee or Certificateholders................ 40
Section 3.05. Assumption or Termination of
Subservicing Agreement by
Trustee...................................................... 40
Section 3.06. Collection of Contract Payments.................... 41
Section 3.07. Maintenance of Comprehensive and Collision
Insurance.................................................... 42
Section 3.08. Realization upon Defaulted Contracts............... 42
Section 3.09. Master Servicing and Other Compensation............ 42
Section 3.10. The Collection Account............................. 42
Section 3.11. The Certificate Account............................ 44
Section 3.12. Pre-Funding Period Reserve Account................. 45
Section 3.13. The Revolving Account.............................. 46
Section 3.14. Pre-Funding Account................................ 46
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Section 3.15. Administration of Accounts......................... 47
Section 3.16. [Reserved]......................................... 48
Section 3.17. Reports to the Trustee and the
Transferor Certificate Account
Statements; Reports to the Servicer, the
Certificate Insurer and
Transferor......................................... 48
Section 3.18. Annual Statement as to Compliance;
Notice of Servicer
Default...................................................... 49
Section 3.19. Custodial Arrangements............................. 49
Section 3.20. Annual Independent Accountants' Report............. 49
Section 3.21. Access to Certain Documentation and
Information Regarding
Contracts.................................................... 50
Section 3.22. Retention and Termination of Servicer.............. 50
ARTICLE IV
Payments to Certificateholders
Section 4.01. Distributions...................................... 51
Section 4.02. Statements to Certificateholders................... 52
Section 4.03. Specification of Certain Tax Matters............... 52
Section 4.04. Withdrawals from Spread Account; Claims
Under Certificate
Policy....................................................... 53
Section 4.05. Preference Claims.................................. 55
Section 4.06. Retirement of Certificates......................... 56
Section 4.07. Spread Account..................................... 56
ARTICLE V
The Certificates
Section 5.01. The Certificates................................... 56
Section 5.02. Registration of Transfer and Exchange of
Certificates ................................................ 56
Section 5.03. Mutilated, Destroyed Lost or Stolen Certificates... 57
Section 5.04. Persons Deemed Owner............................... 57
Section 5.05. Appointment of Paying Agent........................ 58
Section 5.06 Book-Entry Certificates............................ 58
Section 5.07 Notices to Clearing Agency......................... 59
Section 5.08 Definitive Certificates............................ 59
ARTICLE VI
The Transferor and the Servicer
Section 6.01. Respective Liabilities of the Transferor
and the Servicer ............................................ 59
Section 6.02. Existence of Transferor and Servicer;
Merger or Consolidation of the Servicer;
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Assignment of Rights and Delegation of Duties by
Servicer..................................................... 59
Section 6.03. Limitation on Liability of the
Transferor, the Servicer and
Others....................................................... 60
Section 6.04. Transfer of Duties of Servicer..................... 62
Section 6.05. Servicer May Own Certificates...................... 62
ARTICLE VII
Default
Section 7.01. Servicer Defaults.................................. 62
Section 7.02. Trustee to Act; Appointment of Successor........... 64
Section 7.03. Notification to Certificateholders................. 65
Section 7.04. Waiver of Past Defaults............................ 66
ARTICLE VIII
Concerning the Trustee
Section 8.01. Duties of Trustee.................................. 66
Section 8.02. Certain Matters Affecting the Trustee.............. 67
Section 8.03. Trustee Not Liable for Certificates or Contracts... 69
Section 8.04. Trustee May Own Certificates....................... 69
Section 8.05. Eligibility Requirements for Trustee............... 70
Section 8.06. Resignation and Removal of the Trustee............. 70
Section 8.07. Successor Trustee.................................. 71
Section 8.08. Merger or Consolidation of Trustee................. 71
Section 8.09. Appointment of Co-Trustee or Separate Trustee...... 72
Section 8.10. Appointment of Office or Agency.................... 73
Section 8.11. Trustee's Compensation and Reimbursement........... 73
Section 8.12. Trustee May Enforce Claims Without
Possession Of
Certificates................................................. 74
Section 8.13. Suits for Enforcement.............................. 74
Section 8.14. Rights of Direct Trustee........................... 74
ARTICLE IX
Termination
Section 9.01. Termination upon Retransfer to the
Transferor or Liquidation of All Contracts................... 75
Section 9.02. Disposition of Contracts upon Bankruptcy Event..... 77
ARTICLE X
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Miscellaneous Provisions
Section 10.01. Amendment............................................. 79
Section 10.02. Recordation of Agreement.............................. 80
Section 10.03. Limitation on Rights of Certificateholders............ 80
Section 10.04. GOVERNING LAW......................................... 81
Section 10.05. Notices............................................... 81
Section 10.06. Intention of the Parties.............................. 82
Section 10.07. Severability of Provisions............................ 82
Section 10.08. Protection of Title to Interest....................... 82
Section 10.09. Assignment............................................ 83
Section 10.10. Certificates Nonassessable and Fully Paid............. 83
Section 10.11. Third-party Beneficiaries............................. 83
Section 10.12. Financial Security as Controlling Party............... 84
Section 10.13. Limitation of Liability of Trustee.................... 84
Section 10.14. Limitation of Liability of Chase...................... 84
Section 10.15. Matters Relating to Purchase Agreements............... 84
Section 10.16. No Petition........................................... 85
Section 10.17. Submission to Jurisdiction............................ 85
Section 10.18. Waiver of Jury Trial.................................. 85
Section 10.19. Counterparts.......................................... 86
Exhibit 2.01 Form of Transfer Agreement
Exhibit 2.06A Officer's Certificate of National Auto Finance Company L.P.
Exhibit 2.06B Officer's Certificate of the Transferor
Exhibit 3.17 Form of Servicer Report
Exhibit 4.02 Form of Distribution Date Report
Exhibit 5.01 Form of Certificate
Exhibit A Form of Subservicing Agreement
Exhibit B Form of Purchase and Contribution Agreement
Exhibit C Form of Financial Guaranty Insurance Policy
Exhibit D Form of Insurance and Indemnity Agreement
Exhibit E Form of Spread Account Agreement
Exhibit F DTC Letter of Representations
Schedule 1 Contract Schedule
Schedule 2 Trustee's Fee Schedule
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This Pooling and Servicing Agreement is entered into effective as of
October 21, 1996, among NATIONAL FINANCIAL AUTO FUNDING TRUST, as Transferor,
NATIONAL AUTO FINANCE COMPANY L.P., as Servicer, and HARRIS TRUST AND SAVINGS
BANK, an Illinois banking corporation, not in its individual capacity but solely
as Trustee (the "Trustee").
W I T N E S S E T H T H A T
In consideration of the mutual agreements herein contained, the
Transferor, the Servicer and the Trustee agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions.
Whenever used in this Agreement, the following words and phrase, unless
the context otherwise requires, shall have the meanings specified in this
Article.
ACCH: Auto Credit Clearinghouse L.P., a Delaware limited partnership of
which NAFCO is the sole general partner and the majority limited partner.
Account Property: The moneys and Permitted Investments held in the
Accounts from time to time.
Accounts: The Collection Account, the Certificate Account, the Pre-Funding
Account, the Pre-Funding Period Reserve Account and the Revolving Account.
Actuarial Method: The method of allocating a fixed level payment between
principal and interest, pursuant to which the portion of such payment that is
allocated to interest is the product of the fixed rate of interest multiplied by
the unpaid principal balance multiplied by the fixed period of time (expressed
as a fraction of a year) between scheduled payments.
Additional Contract: Each Contract transferred and assigned to the Trust
on a Subsequent Transfer Date pursuant to the procedures set forth in Section
2.06.
Additional Contract Transfer Percentage: (x) 91%, in the case of
Additional Contracts with respect to which funds were released therefor from the
Pre-Funding Account, and (y) 100%, in the case of Additional Contracts with
respect to which funds were released therefor from the Revolving Account.
<PAGE>
Agreement: This Pooling and Servicing Agreement, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms hereof.
Amortization Event: The occurrence of (i) any event described in Section
5.01(a) through (e) or Section 5.01(i) through (j) of the Insurance Agreement,
or (ii) a withdrawal from the Spread Account pursuant to Section 4.04(a) hereof.
Assignment: With respect to a Contract, collectively the original
instrument of assignment of such Contract and all other documents securing such
Contract made by the Person originating such Contract to NAFCO or ACCH, as the
case may be, which is in a form sufficient under the laws of the jurisdiction in
which the related Financed Vehicle is located to permit the assignee to exercise
all rights granted by the Obligor under such Contract and such other documents
and all rights available under applicable law to the obligee under such Contract
and which, in each case, may, to the extent permitted by the laws of the state
in which the related Financed Vehicle is located, be a blanket instrument of
assignment covering other Contracts as well.
Assignment Agreement: The Assignment Agreement, dated of even date
herewith, between the Master Trust and Funding Trust II, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.
Available Amount: With respect to any Distribution Date, an amount equal
to (i) the amount on deposit in the Certificate Account on the preceding
Distribution Date after giving effect to all withdrawals therefrom on such
preceding Distribution Date, plus (ii) the amount, if any, to be transferred by
the Trustee to the Certificate Account from the Pre-Funding Period Reserve
Account, the Revolving Account and/or the Pre-Funding Account on such
Distribution Date pursuant to Section 3.12(b), Section 3.13(b) or Section
3.14(b), as applicable, plus (iii) the amount to be transferred by the Trustee
to the Certificate Account from the Collection Account on such Distribution Date
pursuant to Section 3.10(b), plus (iv) any amounts paid by the Certificate
Insurer to the Trustee pursuant to Section 4.04(e) hereof for distribution to
the Certificateholders on such Distribution Date.
Average Default Rate: With respect to any Distribution Date, the
arithmetic average of the Default Rates for each of the three Due Periods
immediately preceding the Due Period in which such Distribution Date occurs.
Average Delinquency Ratio: With respect to any Distribution Date, the
arithmetic average of the Delinquency Ratios for each of the three Due Periods
immediately preceding the Due Period in which such Distribution Date occurs.
Average Net Loss Rate: With respect to any Distribution Date, the
arithmetic average of the Net Loss Rates for each of
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the three Due Periods immediately preceding the Due Period in which such
Distribution Date occurs.
Bankruptcy Event: The occurrence of either of the following with respect
to either NAFCO or the Transferor:
(a) a case or other proceeding shall be commenced, without the application
or consent of such Person, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or composition or
readjustment of debts of such Person, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator or the like for such Person or for
any substantial part of its assets, or any similar action with respect to such
Person under any law (foreign or domestic) relating to bankruptcy, insolvency,
receivership, reorganization, winding up or composition or adjustment of debts,
and such case or proceeding shall continue undismissed, or unstayed and in
effect, for a period of 60 (sixty) days or an order for relief in respect of
such Person shall be entered in an involuntary case under the federal bankruptcy
laws or other similar laws (foreign or domestic) now or hereafter in effect; or
(b) such Person shall commence a voluntary case or other proceeding under
any applicable bankruptcy, insolvency, receivership, reorganization, debt
arrangement, dissolution or other similar law now or hereafter in effect, or
shall consent to the appointment of or taking possession by a trustee, receiver,
custodian, liquidator, assignee, sequestrator or the like for such Person or for
any substantial part of its assets, or shall make any general assignment for the
benefit of creditors, or shall fail to, or admit in writing its inability to,
pay its debts generally as they become due.
Bankruptcy Loss: With respect to a Contract, if a court of appropriate
jurisdiction in a bankruptcy or insolvency proceeding shall have issued an order
reducing the amount owed on a Contract or otherwise modifying or restructuring
the scheduled payments to be made on a Contract, an amount equal to the excess
of the principal balance of such Contract immediately prior to such order over
the principal balance of such Contract as so reduced or the net present value
(using as the discount rate the higher of the Contract Rate on such Contract or
the rate of interest, if any, specified by the court in such order) of the
scheduled payments as so modified or restructured. A "Bankruptcy Loss" shall be
deemed to have occurred on the date of issuance of such order.
Beneficial Owner: With respect to a Book-Entry Certificate, the Person who
is the beneficial owner of the undivided interest represented thereby, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly or as an indirect
participant, in accordance with the rules of such Clearing Agency).
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Book-Entry Certificates: Beneficial interests in the Certificates,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 5.06; provided that after the occurrence
of a condition whereupon book-entry registration and transfer are no longer
permitted and Definitive Certificates are issued to the Beneficial Owners, such
Definitive Certificates shall replace Book-Entry Certificates.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which commercial banks in Florida, Illinois or the state in which the
Subservicer Account is maintained are authorized or obligated by law or
executive order to be closed.
Certificate: Any one of the Certificates executed by the Trust and
authenticated by the Trustee in substantially the form set forth in Exhibit 5.01
hereto evidencing a fractional undivided interest in the Trust Estate.
Certificate Account: The segregated account created and maintained by the
Trustee in its Corporate Trust Office for the benefit of the Certificateholders
and the Certificate Insurer in accordance with Section 3.11.
Certificate Balance: Initially, the aggregate principal amount of
Certificates issued on the Closing Date and, thereafter, such principal amount
reduced by all amounts distributed to the Certificateholders in respect of the
Certificate Principal Distributable Amount.
Certificate Distributable Amount: On any Distribution Date, the sum of the
Certificate Principal Distributable Amount and the Certificate Interest
Distributable Amount.
Certificate Factor: As of any Distribution Date, a fraction, expressed as
a decimal carried to seven places, the numerator of which is the Certificate
Balance as of such Distribution Date (after giving effect to any distributions
reducing the Certificate Balance of the Certificates on such Distribution Date)
and the denominator of which is the aggregate principal amount of Certificates
issued on the Closing Date.
Certificate Insurer: Financial Security Assurance Inc., a monoline
insurance company incorporated under the laws of the State of New York, or any
successor thereto, as issuer of the Certificate Policy.
Certificate Insurer Default: Any one of the following events shall have
occurred and be continuing:
(i) the Certificate Insurer fails to make a payment required under
the Certificate Policy in accordance with its terms;
(ii) the Certificate Insurer (A) files a petition or commences any
case or proceeding under any provision or
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chapter of the United States Bankruptcy Code or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, (B) makes a general assignment for the
benefit of its creditors, or (C) has an order for relief entered against
it under the United States Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation
or reorganization which is final and nonappealable; or
(iii) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority enters a final and
nonappealable order, judgment or decree (1) appointing a custodian,
trustee, agent or receiver for the Certificate Insurer or for all or any
material portion of its property or (2) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Certificate
Insurer (or the taking of possession of all or any material portion of the
property of the Certificate Insurer).
Certificate Interest Carryover Shortfall: With respect to any Distribution
Date, the excess of (a) the Certificate Interest Distributable Amount for the
preceding Distribution Date plus any outstanding Certificate Interest Carryover
Shortfall with respect to the preceding Distribution Date over (b) the amount of
interest that the holders of the Certificates actually received on such
preceding Distribution Date.
Certificate Interest Distributable Amount: For any Distribution Date, the
sum of (i) thirty (30) days of interest (or, in the case of the initial
Distribution Date, the number of days from and including the Closing Date to but
not including such initial Distribution Date) at the Certificate Rate on the
Certificate Balance on such Distribution Date (before reduction of the
Certificate Balance by any distributions made on such Distribution Date), (ii)
the Certificate Interest Carryover Shortfall and (iii) interest on the
Certificate Interest Carryover Shortfall at the Certificate Rate from the
preceding Distribution Date through the current Distribution Date, to the extent
permitted by law.
Certificate Percentage: 91%.
Certificate Policy: The financial guaranty insurance policy number
__________ issued by the Certificate Insurer to the Trustee for the benefit of
the Certificateholders on the Closing Date, including any endorsements thereto.
Certificate Principal Carryover Shortfall: With respect to any
Distribution Date, the excess of (i) the Certificate Principal Distributable
Amount for the preceding Distribution Date plus any outstanding Certificate
Principal Carryover Shortfall with respect to the preceding Distribution Date
over
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(ii) the amount of principal that the holders of the Certificates actually
received on such preceding Distribution Date.
Certificate Principal Distributable Amount: With respect to (i) any
Distribution Date prior to the Final Scheduled Distribution Date, the sum of (a)
the Certificate Percentage of the Principal Distributable Amount, (b) amounts
transferred from the Pre-Funding Account to the Certificate Account on such
Distribution Date, if any, pursuant to Section 3.14(b) less any undistributed
income or gain from investments on deposit in the Pre-Funding Account so
transferred, and (c) the Certificate Principal Carryover Shortfall with respect
to such Distribution Date, and (ii) the Final Scheduled Distribution Date, the
Certificate Balance (before giving effect to any distribution on the
Certificates on such Final Scheduled Distribution Date).
Certificate Rate: 6.33% per annum, any regular monthly computation of
interest at such rate being based upon annual interest at such rate on the
applicable amount divided by twelve.
Certificate Register: The register maintained pursuant to Section 5.02.
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Transferor, the Servicer or any affiliate thereof shall be deemed
not to be outstanding and the Percentage Interest evidenced thereby shall not be
taken into account in determining whether the requisite amount of Percentage
Interests necessary to effect any such consent has been obtained; provided
however, that for purposes of determining whether the Trustee shall be protected
in conclusively relying upon any such consent, only Certificates which a
Responsible Officer of the Trustee actually knows are so registered shall not be
so taken into account.
Chase: The Chase Manhattan Bank USA, N.A. as owner trustee of the
Transferor and Funding Trust II.
Clearing Agency: An organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, or
any successor provision thereto. The initial Clearing Agency shall be the
Depository Trust Company ("DTC").
Clearing Agency Participant: A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
Closing Date: The date on which the Certificates are originally issued.
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Collateral Agent: Harris Trust and Savings Bank, not in its individual
capacity but solely as collateral agent under the Spread Account Agreement, or
any successor thereto acting as such under the Spread Account Agreement.
Collection Account: The segregated account created and maintained by the
Trustee in its trust capacity for the benefit of Certificateholders and the
Certificate Insurer in accordance with Section 3.10.
Contract: Each motor vehicle retail installment sale contract and security
agreement (including any and all rights to receive payments thereunder on and
after the applicable Cut-off Date and security interests in the Financed Vehicle
securing such contract or note) assigned and transferred to the Trustee
hereunder as of the Closing Date or a Subsequent Transfer Date, as the case may
be, and not reassigned, retransferred or otherwise released from the Trust
Estate in accordance herewith, each such Contract being identified in a Contract
Schedule attached to a Transfer Agreement.
Contract Documents: With respect to a Contract, all Contract papers and
documents (including those contained in the Contract File) and all other papers
and records (including computerized data) of whatever kind or description,
whether developed or originated by NAFCO, ACCH, a Dealer, the Servicer or
another Person, required to document the Contract or to service the Contract.
Contract File: With respect to a Contract, the fully executed original of
such Contract; the Assignment of such Contract; the original Title Document or
UCC financing statement evidencing that the security interest in a financed
vehicle granted to NAFCO or ACCH, as the case may be, under such Contract has
been perfected under applicable state law (except for any Title Documents or UCC
financing statements not returned from the applicable public records office, in
which case the Transferor or Servicer will deliver, on the Closing Date or the
applicable Subsequent Transfer Date, as the case may be, an Officer's
Certificate indicating that the original of such Title Document has been applied
for at, or the original of such UCC financing statement was delivered to, such
public office and shows NAFCO, or ACCH, as the case may be, as agent, as the
lienholder or secured party and that the Transferor or Servicer will deliver the
originals thereof when returned from such office); the original of any
assumption agreement or any modification, extension or refinancing and
agreement; and the original application of the related Obligor to obtain the
financing extended by such Contract, fully executed by such Obligor.
Contract Rate: The annual percentage rate (as such term is used with
respect to the federal Truth-in-Lending Act) of interest borne by, and indicated
on, a Contract.
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Contract Schedule: The schedule of Contracts delivered concurrently with
the execution and delivery of a Transfer Agreement to the Trustee and attached
thereto as Schedule 1, such schedule identifying each Contract being transferred
and assigned to the Trust pursuant to such Transfer Agreement by the name of the
Obligor and setting forth as to each such Contract its Individual Sold Balance
as of the applicable Cut-off Date, loan number, Contract Rate, scheduled monthly
payment of principal and interest, final maturity date and original principal
amount.
Conveyance: As defined in Section 2.3(b) of the Purchase and Contribution
Agreement.
Conveyance Agreements: The Purchase Agreements, the Sale Agreement and the
Assignment Agreement.
Corporate Trust Office: The principal office of the Trustee in the City of
Chicago, Illinois at which at any particular time its corporate business shall
be administered, which office at the date of the execution of this instrument is
located at 311 West Monroe Street, 12th Floor, Chicago, Illinois 60606,
Attention: Indenture Trust Division.
Custodial Agreement: The Custodial Agreement, dated as of November 13,
1996, between NAFCO and OFSA, as assigned to the Trust pursuant to Section 3.19
hereof.
Custodian: OFSA or any successor custodian for the Contract Files
appointed pursuant to Section 3.19.
Cut-off Date: With respect to an Initial Contract, the Initial Cut-off
Date, and with respect to any Additional Contract, the related Subsequent
Cut-off Date.
Dealer: A retail motor vehicle dealer that originated one or more
Contracts and sold the respective Contract to NAFCO or ACCH, as the case may be.
Dealer Agreement: Each of the respective agreements entered into by a
Dealer and NAFCO or ACCH, as the case may be, whereby the Dealer sold Contracts
to NAFCO or ACCH, as the case may be.
Default Rate: With respect to any Due Period, the product of (i) twelve
and (ii) the quotient, expressed as a percentage, obtained by dividing (a) the
sum of (x) the aggregate Outstanding Principal Balance of all Defaulted
Contracts which became Defaulted Contracts during such Due Period and (y) the
Outstanding Principal Balance of all Contracts that became Retransferred
Contracts during such Due Period and were 30 days or more past due as of the
date such Contracts were retransferred hereunder by (b) the arithmetic average
of the Pool Outstanding Principal Balance as of the end of such Due Period and
the Pool Outstanding Principal Balance as of the end of the preceding Due
Period.
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Defaulted Contract: With respect to any Due Period, a Contract with
respect to which any of the following has occurred during such Due Period: (i)
all or a part of any scheduled payment is 90 days or more delinquent as of the
end of such Due Period, (ii) such Contract is in default and the Servicer (or a
Subservicer) has in good faith determined that payments thereunder are not
likely to be resumed or (iii) the Financed Vehicle that secures the Contract has
been repossessed without reinstatement of the Contract on or before the last day
of such Due Period and any applicable redemption period has expired.
Deficiency Notice: as defined in Section 4.04(a) hereof.
Deficiency Claim Amount: as defined in Section 4.04(a) hereof.
Definitive Certificates: as defined in Section 5.06 hereof.
Delinquency Ratio: With respect to any Due Period, the quotient, expressed
as a percentage, obtained by dividing (a) the aggregate Outstanding Principal
Balance of all Contracts in the Trust Estate on which a scheduled payment is 30
or more days past due as of the end of such Due Period, by (b) the Pool
Outstanding Principal Balance as of the end of such Due Period.
Delivery: When used with respect to Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC (other
than certificated securities) and are susceptible of physical delivery,
transfer thereof to the Trustee by physical delivery to the Trustee,
indorsed to, or registered in the name of, the Trustee or its nominee or
indorsed in blank and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of ownership
of any such Account Property to the Trustee free and clear of any adverse
claims, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to a "certificated security" (as defined in Section
8-102(1)(a) of the UCC), transfer thereof:
(i) by physical delivery of such certificated security to the
Trustee, provided that if the certificated security is in registered form,
it shall be indorsed to, or registered in the name of, the Trustee or
indorsed in blank;
(ii) by physical delivery of such certificated security to a
"financial intermediary" (as defined in Section 8-313(4) of the UCC) of
the Trustee specially indorsed to or issued in the name of the Trustee;
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(iii) by the sending by a financial intermediary, not a "clearing
corporation" (as defined in Section 8-102(3) of the UCC), of a
confirmation of the purchase and the making by such financial intermediary
of entries on its books and records identifying as belonging to the
Trustee of (A) a specific certificated security in the financial
intermediary's possession, (B) a quantity of securities that constitute or
are part of a fungible bulk of certificated securities in the financial
intermediary's possession, or (C) a quantity of securities that constitute
or are part of a fungible bulk of securities shown on the account of the
financial intermediary on the books of another financial intermediary; or
(iv) by the making by a clearing corporation of appropriate entries
on its books reducing the appropriate securities account of the transferor
and increasing the appropriate securities account of the Trustee or a
person designated by the Trustee by the amount of such certificated
security, provided that in each case: (A) the clearing corporation
identifies such certificated security for the sole and exclusive account
of the Trustee or the person designated by the Trustee, (B) such
certificated security shall be subject to the clearing corporation's
exclusive control, (C) such certificated security is in bearer form or
indorsed in blank or registered in the name of the clearing corporation or
custodian bank or a nominee of either of them, (D) custody of such
certificated security shall be maintained by such clearing corporation or
a "custodian bank" (as defined in Section 8-102(4) of the UCC) or the
nominee of either subject to the control of the clearing corporation and
(E) such certificated security is shown on the account of the transferor
thereof on the books of the clearing corporation prior to the making of
such entries; and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of ownership
of any such Account Property to the Trustee free and clear of any adverse
claims, consistent with changes in applicable law or regulations or the
interpretation thereof;
(c) with respect to any security issued by the U.S. Treasury, the Federal
Home Loan Mortgage Corporation or by the Federal National Mortgage Association
that is a book-entry security held through the Federal Reserve System pursuant
to Federal book entry regulations, the following procedures, all in accordance
with applicable law, including applicable federal regulations and Articles 8 and
9 of the UCC: book-entry registration of such property to an appropriate
book-entry account maintained with a Federal Reserve Bank by a financial
intermediary which is also a "depositary" pursuant to applicable federal
regulations and issuance by such financial intermediary of a deposit advice or
other written confirmation of such book-entry registration to the Trustee of the
purchase by the financial intermediary on behalf of the Trustee of such
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book-entry security; the making by such financial intermediary of entries in its
books and records identifying such book-entry security held through the Federal
Reserve System pursuant to Federal book-entry regulations as belonging to the
Trustee and indicating that such financial intermediary holds such book-entry
security solely an agent for the Trustee; and such additional or alternative
procedures as may hereafter become appropriate to effect complete transfer of
ownership of any such Account Property to the Trustee free of any adverse
claims, consistent with changes in applicable law or regulations or the
interpretation thereof;
(d) with respect to any item of Account Property that is an
"uncertificated security" (as defined in Section 8-102(1)(b) of the UCC) and
that is not governed by clause (c) above, transfer thereof:
(i) by registration of the transfer thereof to the Trustee, on the
books and records of the issuer thereof;
(ii) by the sending of a confirmation by a financial intermediary of
the purchase, and the making by such financial intermediary of entries on
its books and records identifying as belonging to the Trustee (A) a
quantity of securities which constitute or are part of a fungible bulk of
uncertificated securities registered in the name of the financial
intermediary or (B) a quantity of securities which constitute or are part
of a fungible bulk of securities shown on the account of the financial
intermediary on the books of another financial intermediary; or
(iii) by the making by a clearing corporation of appropriate entries
on its books reducing the appropriate account of the transferor and
increasing the account of the Trustee or a person designated by the
Trustee by the amount of such uncertificated security, provided that in
each case: (A) the clearing corporation identifies such uncertificated
security for the sole and exclusive use of the Trustee or the person
designated by the Trustee, (B) such uncertificated security is registered
in the name of the clearing corporation or a custodian bank or a nominee
of either, and (C) such uncertificated security is shown on the account of
the transferor on the books of the clearing corporation prior to the
making of such entries; and
(e) in each case of delivery contemplated herein, the Trustee shall make
appropriate notations on its records, and shall cause same to be made of the
records of its nominees, indicating that such securities are held in trust
pursuant to and as provided in this Agreement.
Depository Agreement: The agreement among the Transferor, the Trustee and
the initial Clearing Agency, dated as of November 13, 1996, substantially in the
form attached hereto as Exhibit F hereto.
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Determination Date: With respect to a Distribution Date, the last day of
the related Due Period.
Distribution Date: The 21st day of any month, commencing November 21,
1996, or, if such 21st day is not a Business Day, the Business Day immediately
following.
Draw Date: With respect to a Distribution Date, the fourth Business Day
immediately preceding such Distribution Date.
Due Date: With respect to a Contract, the date in each Due Period on which
a scheduled payment on such Contract is due.
Due Period: With respect to a Distribution Date, the period from and
including the first day of the calendar month preceding the month in which such
Distribution Date occurs to and including the last day of the calendar month
preceding the month of such Distribution Date.
Eligible Account: (i) A segregated trust account that is maintained with
the corporate trust department of a depository institution or trust company
acceptable to the Certificate Insurer (unless a Certificate Insurer Default has
occurred and is continuing, in which case such institution shall be one subject
to regulations regarding fiduciary funds on deposit substantially similar to 12
CFR ss.9.10(b)), or (ii) a segregated direct deposit account maintained with a
depository institution or trust company organized under the laws of the United
States of America, or any of the States thereof, or the District of Columbia,
having a certificate of deposit, short-term deposit or commercial paper rating
of at least "A-1+" from Standard & Poor's and "P-1" from Moody's and (unless a
Certificate Insurer Default has occurred and is continuing) acceptable to the
Certificate Insurer.
Eligible Servicer: The Servicer, the Standby Servicer or another Person
that, at the time of its appointment as Servicer, (i) is servicing a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans, (ii) is legally qualified and has the capacity to service the
Contracts and (iii) has demonstrated the ability professionally and competently
to service a portfolio of motor vehicle retail installment sales contracts
and/or motor vehicle installment loans similar to the Contracts with reasonable
skill and care.
Final Scheduled Distribution Date: The Distribution Date occurring in
December __, 2002.
Financed Vehicle: The new or used automobile, light-duty truck, van or
minivan, together with all accessories thereto, securing the indebtedness of the
Obligor under the related Contract.
First Union: First Union Capital Markets Corp.
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Funding Trust II: National Auto Funding Trust II, a Delaware business
trust.
Governmental Authority: (a) Any federal, state, county, municipal or
foreign government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to the jurisdiction of which such Person has consented.
Grant: To grant, bargain, sell, warrant, alienate, devise, release,
convey, assign, transfer, mortgage, pledge, create and grant a security interest
in and right of set-off against, deposit, set over and confirm.
Guaranteed Distributions: As defined in the Certificate Policy.
Indemnification Agreement: The Indemnification Agreement dated as of
October 21, 1996 among the Certificate Insurer, the Transferor and First Union,
as the same may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
Individual Sold Balance: With respect to any Contract, the original
principal balance of such Contract reduced by the portion of each payment
received thereon before the applicable Cut-off Date that would represent
principal if such payments were allocated to the principal of and interest on
such Contract based on the amortization method provided in such Contract.
Initial Contract: Each Contract transferred and assigned to the Trust on
the Closing Date.
Initial Cut-off Date: October 21, 1996.
Initial Spread Account Deposit: As defined in the Spread Account
Agreement.
Insurance Agreement: The Insurance and Indemnity Agreement, dated as of
October 21, 1996, among the Transferor, NAFCO and the Certificate Insurer, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
Insurance Agreement Event of Default: An "Event of Default" as defined in
the Insurance Agreement.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any insurance
policy covering a Financed Vehicle or the related Obligor.
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Internal Revenue Code: The Internal Revenue Code of 1986, as amended.
Liquidated Contract: With respect to any Due Period, a Contract with
respect to which any of the following has occurred during such Due Period: (i)
90 days have elapsed since Repossession of the related Financed Vehicle, (ii)
the Servicer (or a Subservicer) has in good faith determined that all amounts
that it expects to recover under such Contract have been received, or (iii) 90%
of any scheduled payment on such Contract is 120 days or more (or, if the
related Obligor is a debtor under Chapter 13 of the U.S. Bankruptcy Code, 180
days or more) delinquent as of the end of such Due Period.
Liquidation Expenses: Reasonable out-of-pocket expenses which are incurred
by the Servicer or any Subservicer in connection with the liquidation of any
Defaulted Contract. Such expenses shall include, without limitation, legal fees
and expenses, any unreimbursed amount expended by the Servicer or any
Subservicer pursuant to Section 3.08 (to the extent such amount is reimbursable
under the terms of Section 3.08) respecting the related Contract, and any
related and unreimbursed expenditures for property restoration or preservation.
Liquidation Proceeds: With respect to a Liquidated Contract, all amounts
(including, without limitation, Insurance Proceeds) realized with respect to
such Contract net of amounts that are required to be refunded to the Obligor on
such Contract; provided however, that the Liquidation Proceeds with respect to
any Contract shall in no event be less than zero.
Lockbox Account: Any bank account maintained at a Lockbox Bank into which
collections under the Contracts are deposited in accordance with Section 3.06.
Lockbox Agreement: A letter agreement among a Lockbox Bank, the
Transferor, NAFCO, the Trustee, the Servicer and, if applicable, any
Subservicer, relating to one or more Lockbox Accounts, as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time in accordance with the terms thereof. So long as no Certificate Insurer
Default shall have occurred and be continuing, any Lockbox Agreement is also
required to be acceptable to the Certificate Insurer.
Lockbox Bank: Any bank at which a Lockbox Account is maintained from time
to time and whose short-term debt securities are rated A-1+ by S&P and P-1 by
Moody's. So long as no Certificate Insurer Default shall have occurred and be
continuing, any Lockbox Bank is also required to be acceptable to the
Certificate Insurer.
Master Trust: National Financial Auto Receivables Master Trust.
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Monthly Interest: For any Distribution Date, thirty (30) days of interest
at the Certificate Rate on the Certificate Balance on such Distribution Date
(before reduction of the Certificate Balance by any distributions made on such
Distribution Date).
Moody's: Moody's Investors Service, Inc., a corporation organized and
existing under the laws of the State of Delaware, its successors and their
assigns, and if such corporation shall for any reason no longer perform the
functions of a securities rating agency, Moody's shall be deemed to refer to any
other nationally recognized statistical rating organization designated by the
Certificate Insurer.
NAFCO: National Auto Finance Company L.P., a Delaware limited partnership.
Net Loss Rate: With respect to any Due Period, the product, expressed as a
percentage, of (i) twelve and (ii) a fraction, the numerator of which equals the
excess of (A) the sum of (1) the aggregate Outstanding Principal Balances of all
Contracts that became Liquidated Contracts in such Due Period and (2) accrued
and unpaid interest on such Outstanding Principal Balances at the related
Contract Rates through the end of such Due Period and (3) the amount of any
Bankruptcy Losses, over (B) the Liquidation Proceeds received by the Trust
during such Due Period with respect to all Liquidated Contracts in the Trust
(including Liquidated Contracts that became Liquidated Contracts in a prior Due
Period) less all Liquidation Expenses incurred during such Due Period and the
denominator of which equals the arithmetic average of the Pool Outstanding
Principal Balance as of the end of such Due Period and the Pool Outstanding
Principal Balance as of the last day of the preceding Due Period.
Non-Simple Interest Contract: A Contract which is not a Simple Interest
Contract.
Notice of Claim: The notice required to file a claim under the Certificate
Policy.
Obligor: The purchaser or the co-purchasers of the Financed Vehicle and
any other Person or Persons who are primarily or secondarily obligated to make
the payments required by a Contract.
Officer's Certificate: A certificate signed by a Co-Trustee of the
Transferor or Funding Trust II, as the case may be, or the Chairman of the
Board, President, Executive Vice President, Senior Vice President, Vice
President, or Assistant Vice President of the Custodian, NAFCO, ACCH or by a
Servicing Official, as the case may be, and delivered to the Trustee, as
required by this Agreement.
OFSA: Omni Financial Services of America, Inc., a Florida corporation, or
any substitute Subservicer performing
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substantially the same services on behalf of the Servicer as OFSA performs
pursuant to the Amended Restated Servicing Agreement, dated as of December 8,
1994, between the Servicer and World Omni Financial Corp. ("WOFCO"), as such
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof and the terms of this Agreement, and the
Assignment and Assumption Agreement dated as of October 23, 1995 between WOFCO
and OFSA pursuant to which WOFCO assigned its subservicing duties to OFSA.
Opinion of Counsel: A written opinion in form reasonably satisfactory to
the Trustee (and the Certificate Insurer if such opinion is addressed to the
Certificate Insurer) of counsel reasonably satisfactory to the Trustee (and the
Certificate Insurer if such opinion is addressed to the Certificate Insurer).
Any such counsel may be counsel to the Transferor.
Original Pool Outstanding Principal Balance: The aggregate Individual Sold
Balances of all of the Contracts as of their respective Cut-off Dates.
Outstanding Principal Balance: As of any date and with respect to any
Contract, the outstanding principal balance of such Contract as of such date
which shall be computed by reducing the Individual Sold Balance thereof on the
applicable Cut-off Date (i) by the principal portion of each payment applied to
such Contract on or after the applicable Cut-off Date in accordance with the
terms of such Contract and processed by the Servicer or a Subservicer on or
before such date and (ii) by any Bankruptcy Loss in respect of such Contract;
provided however, that for any date following the Due Period in which the
remaining principal balance of such Contract was included in the Principal
Distributable Amount as a Liquidated Contract or was subject to a Principal
Prepayment in Full (including a retransfer pursuant to Sections 2.02, 2.03 or
3.01), the Outstanding Principal Balance for such Contract shall be zero.
Paying Agent: The Person, if any, appointed as such pursuant to Section
5.05.
Percentage Interest: As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made with respect to the
Certificates, such percentage interest being equal to the percentage obtained by
dividing the denomination of such Certificate by the aggregate of the
denominations of all Certificates.
Permitted Investments: One or more of the following:
(a) (i) direct interest-bearing obligations of, and interest-bearing
obligations guaranteed as to timely payment of principal and interest by,
the United States or any agency or instrumentality of the United States
the obligations of which are backed by the full faith and credit of the
United States; or (ii) direct interest-bearing
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obligations of, and interest-bearing obligations guaranteed as to timely
payment of principal and interest by, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation, but only if, at
the time of investment, such obligations are assigned the highest credit
rating by each Rating Agency;
(b) demand or time deposits in, certificates of deposit of, or
bankers' acceptances issued by any depository institution or trust company
organized under the laws of the United States or any State and subject to
supervision and examination by federal and/or State banking authorities
(including, if applicable, the Trustee or any agent of the Trustee acting
in its commercial capacities); provided that the short-term unsecured debt
obligations of such depository institution or trust company at the time of
such investment, or contractual commitment providing for such investment,
are assigned the highest credit rating by each Rating Agency;
(c) repurchase obligations pursuant to a written agreement (i) with
respect to any obligation described in clause (a) above, where the Trustee
has taken actual or constructive delivery of such obligation, and (ii)
entered into with the corporate trust department of a depository
institution or trust company organized under the laws of the United States
or any State thereof, the deposits of which are insured by the Federal
Deposit Insurance Corporation and the short-term unsecured debt
obligations of which are rated "A-1+" by Standard & Poor's and "P-1" by
Moody's (including, if applicable, the Trustee or any agent of the Trustee
acting in its respective commercial capacities);
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any State
whose long-term unsecured debt obligations are assigned the highest credit
rating by each Rating Agency at the time of such investment or contractual
commitment providing for such investment; provided however, that
securities issued by any particular corporation will not be Permitted
Investments to the extent that an investment therein will cause the then
outstanding principal amount of securities issued by such corporation and
held in the Accounts to exceed 10% of the Permitted Investments held in
the Accounts (with Permitted Investments held in the Accounts valued at
par);
(e) commercial paper that (i) is payable in United States dollars
and (ii) is rated in the highest credit rating category by each Rating
Agency; and
(f) (i) money market mutual funds rated in the highest rating
category of each Rating Agency and investing only in other Permitted
Investments, any such market funds which provide for demand withdrawals
being conclusively deemed to satisfy any maturity requirements for
Permitted Investments
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set forth in this Agreement, and (ii) any other demand or time deposit,
obligations security or investment, provided in the case of either (i) or
(ii) such investments shall be acceptable to the Certificate Insurer, as
evidenced by the prior written consent of the Certificate Insurer (or if a
Certificate Insurer Default has occurred and is continuing, each Rating
Agency), as may from time to time be confirmed in writing to the Trustee
by the Certificate Insurer or the Rating Agencies, as applicable.
Person: Any individual, corporation, partnership, limited liability
company, limited liability partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
Physical Property: The "instruments" and "certificated securities"
described in subparagraphs (a) and (b) of the definition of "Delivery" in this
Article I.
Policy Claim Amount: As defined in Section 4.04(b).
Pool Outstanding Principal Balance: As to any Distribution Date, the
aggregate Outstanding Principal Balances of the Contracts at the end of the Due
Period preceding such Distribution Date and, as of the Initial Cut-off Date, the
aggregate Individual Sold Balances of the Initial Contracts on the Initial
Cut-off Date.
Pre-Funding Account: The segregated account created and maintained by the
Trustee in its trust capacity for the benefit of the Certificateholders in
accordance with Section 3.14.
Pre-Funding Period: The period from the Closing Date until the earliest of
(i) the occurrence of an Amortization Event, (ii) the date on which the balance
of funds on deposit in the Pre-Funding Account is reduced to zero and (iii) the
close of business on January 31, 1997.
Pre-Funding Period Reserve Account: The segregated account created and
maintained by the Trustee in its trust capacity for the benefit of the
Certificateholders in accordance with Section 3.12.
Preference Claim: As defined in Section 4.05(b).
Principal Distributable Amount:
(i) With respect to any Distribution Date following the calendar month in
which the Revolving Period terminates (other than the Final Scheduled
Distribution Date), the sum of (a) that portion of all collections on the
Contracts (other than Liquidated Contracts, Retransferred Contracts and, to the
extent included in clause (d) below, Retransfer Default Contracts) allocable to
principal, including all full and partial principal
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prepayments, on deposit in the Collection Account at the close of business of
the last day of the related Due Period, (b) the Outstanding Principal Balance of
all Contracts that became Liquidated Contracts during the related Due Period
(other than Liquidated Contracts that became Retransferred Contracts during such
Due Period and, to the extent included in clause (d) below, the Outstanding
Principal Balance of Retransfer Default Contracts), (c) the portion of the
Retransfer Amount allocable to principal of all Contracts that became
Retransferred Contracts on or prior to the related Reporting Date and subsequent
to the preceding Reporting Date, (d) in the sole discretion of the Certificate
Insurer, the Outstanding Principal Balance as of the related Reporting Date of
all Retransfer Default Contracts, (e) the aggregate amount of Bankruptcy Losses
that occurred during the related Due Period, (f) the amount, if any, transferred
by the Trustee to the Certificate Account from the Revolving Account pursuant to
Section 3.13(b).
(ii) With respect to any Distribution Date occurring prior to or during
the calendar month in which the Revolving Period terminates, the amount, if any,
transferred by the Trustee to the Certificate Account from the Revolving Account
on such Distribution Date pursuant to Section 3.13(b).
Principal Prepayment in Full: Any prepayment of the entire principal
balance of a Contract. Contracts required to be retransferred to the Transferor
pursuant to Section 2.02 or 2.03 during a Due Period shall be deemed to have
been subject to a Principal Prepayment in Full during such Due Period.
Purchase Agreement: The Purchase Agreement, dated as of October 21, 1996,
between ACCH and NAFCO, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
Purchase Agreements: (i) The Purchase Agreement and (ii) the Purchase and
Contribution Agreement.
Purchase and Contribution Agreement: The Purchase and Contribution
Agreement, dated as of October 21, 1996 between NAFCO and the Transferor, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
Rating Agencies: Standard & Poor's and Moody's.
Record Date: With respect to any Distribution Date, the last day of the
preceding calendar month.
Registrar of Titles: The agency, department or office having the
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.
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Reporting Date: With respect to a Distribution Date, the earlier of (i)
the 15th day of the calendar month in which such Distribution Date occurs and
(ii) the fourth Business Day preceding such Distribution Date.
Repossession: Any action taken or to be taken pursuant to the UCC or other
applicable laws in connection with recovery on a defaulted Contract (including
any Liquidated Contract), including repossession of the related Financed Vehicle
with or without judicial proceedings, sale of such Financed Vehicle at public or
private sale, retention of such Financed Vehicle in satisfaction of the
Obligor's obligations under such defaulted Contract, or a levy on and sheriff's
sale of the related Financed Vehicle in enforcement of a judgment on such
defaulted Contract or by voluntary surrender or otherwise.
Required Reserve Amount: With respect to any Distribution Date, an amount
equal to the product of (i) a per annum rate equal to the Certificate Rate less
250 basis points (2.50%), (ii) the amount of funds on deposit in the Pre-Funding
Account after giving effect to any withdrawals therefrom on such Distribution
Date and (iii) a fraction, the numerator of which is the number of days from and
including such Distribution Date to (but excluding) the Distribution Date
immediately following the Pre-Funding Period, and the denominator of which is
360.
Requisite Amount: As defined in the Spread Account Agreement.
Responsible Officer: With respect to the Trustee, any officer within the
Corporate Trust Office of the Trustee including any Vice President, Assistant
Vice President, Secretary or Assistant Secretary, or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also, with respect to a particular matter, any
other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
Retransfer Amount: With respect to any Contract required to be
retransferred to the Transferor pursuant to Section 2.02 or 2.03 or the Servicer
pursuant to Section 3.01, an amount equal to the sum of (i) 100% of the
Outstanding Principal Balance thereof on the date of retransfer and (ii) unpaid
accrued interest at the applicable Contract Rate on the Outstanding Principal
Balance thereof on the date of retransfer from the date to which interest was
last paid by the Obligor to the Due Date in the Due Period in which such
retransfer occurs. For purposes of determining the Retransfer Amount of any
Contract, the Outstanding Principal Balance thereof on the date of retransfer
shall not be reduced to zero as a result of its classification as a Liquidated
Contract.
Retransferred Contract: Any Contract retransferred to the Transferor or
the Servicer pursuant to Section 2.02, Section 2.03 or Section 3.01 hereof.
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Retransfer Default Contract: Any Contract with respect to which the
Transferor or the Servicer is required to deposit in the Collection Account the
related Retransfer Amount pursuant to Section 2.02, Section 2.03 or Section 3.01
and has not so deposited such amount on the Reporting Date on which it is
required to repurchase such Contract following receipt of notice from the
Trustee that such Contract is required to be retransferred.
Revolving Account: The segregated account created and maintained by the
Trustee in its trust capacity for the benefit of the Certificateholders and the
Certificate Insurer in accordance with Section 3.13.
Revolving Period: The period from and including the Closing Date until the
earlier of (i) the date on which an Amortization Event occurs and (ii) the close
of business on April 30, 1997.
Sale Agreement: The Sale Agreement, dated of even date herewith, between
Funding Trust II and the Transferor, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
Servicer: NAFCO, or its successor in interest, or any successor Servicer
appointed as provided in Section 7.01 or 7.02.
Servicer Default: As defined in Section 7.01.
Servicer Termination Side Letter: The letter from Financial Security
Assurance Inc. to the Trustee and NAFCO dated as of the date hereof with regard
to the renewal term of the Servicer, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
Servicing Fee: As to any Due Period, the monthly fee payable to the
Servicer, which, as long as either NAFCO or the Standby Servicer is the
Servicer, shall be equal to 1/12 of the product of (i) 2.0 percent and (ii) the
Pool Outstanding Principal Balance as of the close of business on the last
Business Day of the preceding Due Period. The Servicing Fee for any successor
Servicer other than the Standby Servicer shall be determined as provided in
Section 7.02.
Servicing Official: Any employee of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of servicing employees furnished to the Trustee and the
Certificate Insurer by the Servicer, as such list may from time to time be
amended.
Simple Interest Method: The method of allocating a fixed level payment
between principal and interest, pursuant to which the portion of such payment
that is allocated to interest is the product of a fixed rate of interest
multiplied by the unpaid principal balance multiplied by the period of time
(expressed as a fraction of a year) between (a) the date such payment is
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received and (b) the date the prior scheduled payment was received, or in the
case of the first payment, the date of the Contract.
Spread Account: The Spread Account established and maintained pursuant to
the Spread Account Agreement. The Spread Account shall in no event be deemed
part of the Trust Estate.
Spread Account Agreement: The Master Spread Account Agreement, dated as of
the Closing Date, among the Transferor, the Certificate Insurer, the Collateral
Agent and the Trustee substantially in the form attached hereto as Exhibit E, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
Standard & Poor's: Standard & Poor's Ratings Service, a division of
McGraw-Hill, Inc., its successors and their assigns, and if Standard & Poor's
Ratings Service shall for any reason no longer perform the functions of a
securities rating agency, "Standard & Poor's" shall be deemed to refer to any
other nationally recognized statistical rating organization designated by the
Certificate Insurer.
Standby Servicer: Harris Trust and Savings Bank, or any successor thereto
under the Standby Servicing Agreement.
Subsequent Cut-off Date: With respect to any Subsequent Transfer Date, the
third Business Day prior thereto.
Subsequent Transfer Date. Any day on which Additional Contracts are
transferred and assigned to the Trust pursuant to Section 2.06.
Subservicer: Any Person that is subservicing a Contract pursuant to a
Subservicing Agreement pursuant to Section 3.02.
Subservicer Account: The account maintained by OFSA with Mellon Financial
Services to which Obligors have been or will be instructed to remit payments in
respect of the Contracts.
Subservicing Agreement: The written contract between the Servicer and any
Subservicer relating to the servicing and/or administration of certain Contracts
as provided in Section 3.02.
Supplemental Servicing Fee: With respect to any Due Period, any payments
received from an Obligor or a Dealer in connection with any application fees,
tax processing fees, wire transfer fees, express mail fees, insurance premiums,
late charges, taxes, fees or other charges imposed by any Governmental
Authority.
Taxes: Motor vehicle registration fees or taxes, personal property or
other ad valorem taxes, and all other similar fees and taxes imposed by a
governmental unit with respect to the ownership or use of a Financed Vehicle.
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Title Documents: With respect to any Financed Vehicle, the actual motor
vehicle title or certificate of title for such Financed Vehicle issued by the
Registrar of Titles or other government agency in the jurisdiction in which such
Financed Vehicle is registered; alternatively, in those certain jurisdictions
whose law requires that the original of the actual motor vehicle title or
certificate of title be possessed by the Obligor, then, in lieu of the actual
title or certificate of title, Title Documents shall mean such duplicate titles,
certificates or other documents as are permitted, required and/or contemplated
to be possessed by the secured party under the laws of such jurisdiction.
Total Retransfer Amount: As defined in Section 9.01.
Transaction Documents: This Agreement, the Servicer Termination Side
Letter, the Assignment Agreement, the Sale Agreement, the Purchase Agreements,
the Certificates, the Insurance Agreement, the Indemnification Agreement, each
Conveyance, the Spread Account Agreement, the Underwriting Agreement, the
Custodial Agreement, the Premium Letter and any Transfer Agreement.
Transfer Agreement: As defined in Section 2.01(b).
Transferor: National Financial Auto Funding Trust, a Delaware business
trust.
Transferor Interest: The interest in the Trust held by the Transferor
evidencing the right of the Transferor to all distributions pursuant to Section
4.01(b)(xi) hereof and to any assets remaining in the Trust upon termination of
this Agreement and the Insurance Agreement.
Transferor Trust Agreement: The First Amended and Restated Trust
Agreement, dated as of December 8, 1994, as amended as of the Closing Date
between the Transferor and The Chase Manhattan Bank (USA), as trustee.
Trigger Event: As defined in the Spread Account Agreement.
Trust: The National Auto Finance 1996-1 Trust created by this Agreement.
Trust Estate: The corpus of the Trust, consisting of (i) the Contracts,
(ii) all monies paid or payable thereunder on or after the Cut-off Date, (iii)
the Contract Files, (iv) such assets as shall from time to time be identified as
deposited in the Collection Account, the Certificate Account, the Pre-Funding
Account, the Pre-Funding Period Reserve Account and the Revolving Account, (v)
property that secured a Contract and that has been acquired by Repossession or
otherwise, (vi) all rights to Insurance Proceeds and Liquidation Proceeds, (vii)
the Transferor's right, title and interest in, to and under the Conveyance
Agreements, (viii) the Certificate Policy, (ix)
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NAFCO's and ACCH's rights against Dealers under the Dealer Agreements in respect
of the representations and warranties made by the Dealers thereunder with regard
to the related Contracts and (x) the proceeds of the foregoing and the rights to
enforce the foregoing.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
Underwriting Agreement: The Underwriting Agreement, dated as of November
13, 1996, between First Union and the Transferor, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
Unearned Finance Charge: With respect to any Contract, the amount of the
add-on finance charge that, under the term of such Contract, would be required
to be refunded or credited to the related Obligor in accordance with such
Contract if such Contract were then prepaid in full.
Section 1.02. Calculations as to Principal and Interest in Respect of
Contracts. For all purposes of this Agreement the allocation of a payment on a
Contract between principal and interest shall be made based upon the
amortization method provided in such Contract. For purposes of allocating a
pay-ahead payment on a Contract between principal and interest, the pay-ahead
shall be deemed to have been received on the date it was actually due. For all
purposes of this Agreement, no amount shall be treated as collected under a
Contract until such amount has been deposited into the Collection Account.
Section 1.03. Material Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Certificateholders (or any similar or analogous determination), such
determination shall be made without taking into account the insurance provided
by the Certificate Policy.
ARTICLE II
Creation of Trust;
Transfer of Trust Estate;
Original Issuance of Certificates
Section 2.01. Creation of Trust: Transfer of Trust Estate.
(a) The Trust hereby is created. The Transferor hereby appoints the
Trustee as trustee of the Trust effective as of the Closing Date, and the
Trustee hereby acknowledges and accepts such appointment. The Trust shall be
administered pursuant to the provisions of this Agreement for the benefit of the
Certificateholders, the Certificate Insurer and the Transferor. The Trustee is
hereby specifically empowered to conduct any business dealings
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with the Transferor and the Servicer on behalf of the Trust, and shall have all
the rights, powers and duties of the Trustee set forth in this Agreement. The
parties hereto intend that the Trust constitute a trust under the laws of the
State of New York.
(b) The Transferor does hereby transfer, assign, set-over and
otherwise convey to the Trustee, without recourse (except as otherwise
specifically provided in this Agreement), and does hereby grant to the Trustee,
in trust for the exclusive use and benefit of all present and future
Certificateholders and the Certificate Insurer, all the right, title and
interest of the Transferor in and to the Contracts and all other items in the
Trust Estate (other than the Certificate Policy), whether now owned or hereafter
acquired. The foregoing transfer and assignment does not constitute and is not
intended to result in an assumption by the Trustee, any Certificateholder or the
Certificate Insurer of any obligation of the Transferor, ACCH or the Servicer to
the Obligors, Dealers, insurers or any other Person in connection with the
Contracts, the Contract Files, or the insurance policies or any agreements or
instruments relating to any of them. In connection with each transfer of
Contracts by the Transferor to the Trust, the Transferor agrees, at its own
expense, on or before the Closing Date or the applicable Subsequent Transfer
Date, to deliver to the Trustee and the Certificate Insurer a written assignment
(including an acceptance by the Trustee on behalf of the Trust) covering such
Contracts in substantially the form of Exhibit 2.01 (each, a "Transfer
Agreement").
(c) The Transferor intends that the transfer and assignment of
Contracts by the Transferor to the Trust constitute an absolute transfer to the
Trust of all the Transferor's right, title, and interest in and to the Contracts
and the remainder of the Trust Estate (other than the Certificate Policy);
provided that, in the event that, notwithstanding the intent of the Transferor,
the transfer is not held to be a sale, then it is intended that the conveyance
shall be deemed to be a grant of a security interest in the Contracts and the
remainder of the Trust Estate. By the transfer, assignment and set-over
contemplated by this Section 2.01, the Transferor further grants and transfers
to the Trustee, for the benefit of all Certificateholders, and the Certificate
Insurer a first priority, perfected security interest, as their respective
interests appear in Section 4.01, in all of the Transferor's right, title and
interest in, to and under the Contracts and the remainder of the Trust Estate,
whether now existing or hereafter acquired, and agrees that this Agreement shall
also constitute a security agreement under applicable law. On or prior to the
Closing Date, the Transferor shall have filed a UCC financing statement or
statements, appropriate under the applicable UCC, to reflect the assignment of
the Contracts and the remainder of the Trust Estate (other than the Certificate
Policy) by the Transferor to the Trustee and the Certificate Insurer and to
protect the Certificateholders' and the Certificate
Insurer's interest in the Contracts, their proceeds and the Financed Vehicles,
against all other Persons and
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shall thereafter file any appropriate continuation statements in respect
thereof. During the term of this Agreement, the Transferor shall not change its
name, identity or structure or relocate its chief executive office or principal
place of business without first giving at least 30 days' advance written notice
to the Trustee, the Servicer and the Certificate Insurer; provided however, that
the Trustee, the Servicer and the Certificate Insurer shall, subject to the last
sentence of this paragraph, have no right or power to prohibit a change in the
Transferor's name, identity or structure or a relocation of, its chief executive
office or principal place of business. If any change in the Transferor's name,
identity or structure or the relocation of its chief executive office or
principal place of business would make any financing or continuation statement
or notice of lien filed in connection with this Agreement misleading within the
meaning of applicable provisions of the UCC or any title statute, the
Transferor, promptly but in no event later than thirty days after the effective
date of such change, shall file such amendments or take such other actions as
may be required to preserve and protect the Trustee's interest in the Contract
and proceeds thereof and the Financed Vehicles and the remainder of the Trust
Estate. Promptly after filing such amendments or taking such other action, the
Transferor shall deliver to the Trustee and the Certificate Insurer an Opinion
of Counsel stating that all financing statements, continuation statements or
amendments thereto necessary to continue the perfection of the interest of the
Trustee in the Trust Estate have been filed and reciting the details thereof.
(d) The Servicer shall be responsible for maintaining, and shall
maintain and cause the respective Subservicers, if any, to maintain, a complete
set of books and records (including tapes and disks for computer use) for each
Contract to the extent that such books and records were delivered to the
Servicer or such Subservicer or were developed by it during the course of
servicing such Contract. The Servicer shall, and shall cause the respective
Subservicers to, maintain such books of account and other records as will enable
the Trustee to determine the ownership status of each Contract; provided
however, that neither the Servicer nor any Subservicer shall be required to
physically mark or segregate any Contracts or other Contract Documents to
indicate such ownership status. Promptly after the Closing Date and each
Subsequent Transfer Date, the Transferor and the Servicer shall deliver to the
Custodian all Contract Documents in its possession or under its control, and
shall promptly deliver to the Custodian any Contract Documents that subsequently
come into its possession or within its control. NAFCO hereby warrants,
represents and covenants to and with the Trustee and the Certificate Insurer
that recordation of the name of NAFCO as lienholder in the Title Documents
respecting any Financed Vehicle as well as such lien itself is maintained by
NAFCO as agent for the Trustee for the benefit of the Trust and NAFCO has no
equitable ownership in the Contracts, except as it may have by virtue of
ownership of a Certificate or an equity interest in the Transferor or any
Certificateholder.
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(e) On the Closing Date, the Transferor shall deliver to the Trustee
for deposit in the Collection Account, or to the extent received by the Servicer
or any Subservicer, cause the Servicer to deliver or cause to be delivered to
the Trustee for deposit in the Collection Account, all payments received on the
Contracts on or after the Initial Cut-off Date and on or before the second
Business Day preceding the Closing Date. Within two Business Days after a
Subsequent Transfer Date, the Transferor shall deliver to the Trustee for
deposit in the Collection Account, or to the extent received by the Servicer or
any Subservicer, cause the Servicer to deliver or cause to be delivered to the
Trustee for deposit in the Collection Account, all payments received on the
Contracts on or after the applicable Cut-off Date and on or before such
Subsequent Transfer Date.
Section 2.02. Acceptance by Trustee. The Trustee, based solely upon the
representations of the Custodian, acknowledges receipt by the Custodian as of
the Closing Date and each Subsequent Transfer Date, as the case may be, of a
Contract File relating to each Contract. It is understood and agreed that OFSA
makes no representation as to the contents of the Contract File. If the Servicer
or any such Subservicer subsequently finds any document or documents
constituting a part of a Contract File to be missing or defective in any
material respect, the Servicer or such Subservicer shall promptly so notify the
Trustee, the Certificate Insurer and the Transferor in writing, and the Servicer
shall add such item to the exceptions list. The Transferor shall use best
efforts to cure each such omission or defect on the exceptions list. If the
Transferor does not correct or cure any such omission or defect within sixty
(60) days from the date the Trustee was notified of such omission or defect,
then the Transferor shall promptly accept a retransfer of the related Contract
from the Trustee. The Retransfer Amount for the retransferred Contract shall be
delivered by the Transferor to the Trustee for deposit in the Collection Account
and upon receipt of the Retransfer Amount by the Trustee and its receipt of
written notice thereof, the Trustee shall cause the Custodian to release to the
Transferor the related Contract File and the Trustee shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
shall be reasonably necessary to vest in the Transferor or its designee any
Contract released pursuant hereto. It is understood and agreed that the
obligation of the Transferor to accept a retransfer of any Contract as to which
a material defect in or omission of a constituent document exists shall
constitute the sole remedy respecting such defect or omission available to
Certificateholders or the Trustee on behalf of Certificateholders.
Section 2.03. Representations, Warranties and Covenants of the Servicer
and the Transferor. (a) The Servicer hereby represents, warrants and covenants
to the Trustee and the Certificate Insurer that as of the Closing Date and each
Subsequent Transfer Date:
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(i) the Servicer is duly organized, validly existing and in good
standing under the laws of the state of its organization and is qualified
to transact business in and is in good standing under the laws of each
state in which it is necessary for it to be so qualified in order to carry
on its business as now being conducted and has all licenses necessary to
carry on its business as now being conducted; the Servicer has the full
power and authority to own its property, to carry on its business as
presently conducted, and to execute, deliver and perform each of the
Transaction Documents to which it is a party; the execution, delivery and
performance of each of the Transaction Documents to which it is a party
(including all instruments of transfer to be delivered pursuant to any
such Transaction Documents to which it is a party) by the Servicer and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized; each of the Transaction Documents to which it
is a party evidences the valid, binding and enforceable obligation of the
Servicer (subject to applicable bankruptcy and insolvency laws and other
similar laws affecting the enforcement of creditors' rights generally and
to general principles of equity, regardless of whether enforcement is
sought in a proceeding in equity or at law) and all requisite partnership
action has been taken by the Servicer to make each of the Transaction
Documents to which it is a party valid and binding upon the Servicer
(subject as aforesaid in the preceding clause);
(ii) the Servicer is not required to obtain the consent of any other
party or obtain the consent, license, approval or authorization of, or
make any registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery, performance,
validity or enforceability of each of the Transaction Documents to which
it is a party;
(iii) the consummation of the transactions contemplated by the
Transaction Documents will not result in the breach of any term or
provision of the partnership agreement of the Servicer or result in the
breach of any term or provision of, or conflict with or constitute a
default (with or without notice, lapse of time or both) under or result in
the acceleration of any obligation under, any agreement, indenture or loan
or credit agreement or other instrument to which the Servicer or its
property is subject, or result in the creation or imposition of any Lien
upon any of the properties pursuant to the terms of any such agreement
indenture or loan or credit agreement or other instrument (aside from the
lien created pursuant to this Agreement) or result in the violation of any
law, rule, regulation, order, judgment or decree to which the Servicer or
its property or the Contracts are subject;
(iv) the Servicer is not a party to, bound by or in breach or
violation of any indenture or other agreement or
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instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and
adversely affects, or may in the future materially and adversely affect,
the ability of the Servicer to perform its obligations under this
Agreement or the interest of the Certificateholders, the Trust or the
Certificate Insurer in any material respect;
(v) there are no actions, suits, proceedings or investigations
pending or, to the Servicer's knowledge, threatened against the Servicer,
before any court, regulatory body, administrative agency or other tribunal
or governmental instrumentality (A) asserting the invalidity of this
Agreement or any of the Transaction Documents, (B) seeking to prevent the
issuance of the Certificates or the consummation of any of the
transactions contemplated by the Transaction Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the validity or
enforceability of, this Agreement or any of the Transaction Documents, (D)
involving the Servicer and which might adversely affect the federal income
tax or other federal, state or local tax attributes of the Certificates,
or (E) that could have a material adverse effect on the Contracts. To the
Servicer's knowledge, there are no proceedings or investigations pending
or threatened against the Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality
having jurisdiction over the Servicer or its properties relating to the
Servicer which might adversely affect the federal income tax or other
federal, state or local tax attributes of the Certificates;
(vi) the chief executive office of the Servicer is located at One
Park Place, 621 NW 53rd Street, Boca Raton, Florida 33487; and
(vii) the Subservicing Agreement is enforceable against the Servicer
and has been duly authorized by all necessary corporate action of the
Servicer and has been duly executed and delivered by the Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 2.03(a) shall survive delivery of the respective Contract
Files to the Custodian and the Subservicers, if any, on behalf of the Trustee
and shall survive as long as any Certificate shall be outstanding or this
Agreement has not been terminated. Upon discovery by the Transferor, the
Servicer or a Responsible Officer of the Trustee of a breach of any of the
representations and warranties set forth in this Section 2.03(a) which
materially and adversely affects the interests of the Certificateholders or the
Certificate Insurer in any Contract, the party discovering such
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breach shall give prompt written notice thereof to the other parties and to the
Certificate Insurer. In addition to the foregoing, the Servicer shall indemnify
the Transferor, the Trustee, the Certificate Insurer, the Trust and the
Certificateholders against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to a breach of the covenants or
representations and warranties set forth in Section 2.03(a).
(b) The Transferor hereby represents, warrants and covenants to the
Trustee, the Certificate Insurer and the Servicer that as of the Closing Date
and each Subsequent Transfer Date:
(i) the Transferor is a Delaware business trust duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and has all licenses and approvals necessary to carry on its
business as now being conducted and shall appoint and employ agents or
attorneys in each jurisdiction where it shall be necessary to take action
under this Agreement and the other Transaction Documents; the Transferor
has the full power and authority to own its property, to carry on its
business as presently conducted, and to execute, deliver and perform this
Agreement (including all instruments of transfer to be delivered pursuant
to this Agreement) and the other Transaction Documents by the Transferor
and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized; this Agreement evidences the valid,
binding and enforceable obligations of the Transferor (subject to
applicable bankruptcy and insolvency laws and other similar laws affecting
the enforcement of creditors' rights generally whether enforcement is
sought in a proceeding in equity or at law); and all requisite action has
been taken by the Transferor to make this Agreement and the other
Transaction Documents valid and binding upon the Transferor (subject as
aforesaid in the preceding clause);
(ii) the Transferor is not required to obtain the consent of any
other party or obtain the consent, license, approval or authorization of,
or make any registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement or any other Transaction
Documents;
(iii) the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents will not result in the
breach of any term or provision of the trust agreement of the Transferor
or result in the breach of any term or provision of, or conflict with or
constitute a default (with or without notice, lapse of time or both) under
or result in the acceleration of any obligation under,
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any agreement, indenture or loan or credit agreement or other instrument
to which the Transferor or its property is subject or result in the
creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such agreement, indenture or loan or credit agreement or
other instruments (aside from the lien created pursuant to this
Agreement), or result in the violation of any law (including, without
limitation, any bulk transfer or similar law), rule, regulation, order,
judgment or decree to which the Transferor or its property or the
Contracts are subject;
(iv) no statement, report or other document furnished or to be
furnished pursuant to this Agreement or in connection with the transaction
contemplated hereby contains or will, when furnished, contain any untrue
statement of a material fact or omits or will, when furnished, omit to
state a material fact necessary to make the statements contained therein
not misleading, in light of the circumstances under which they were made;
(v) neither the Transferor nor any of its subsidiaries or
affiliates is a party to, bound by or in breach or violation of any
indenture or other agreement or instrument, or subject to or in violation
of any statute, order or regulation of any court, regulatory body,
administrative agency or governmental body having jurisdiction over it,
which materially and adversely affects, or may in the future materially
and adversely affect, the ability of the Transferor to perform its
obligations under this Agreement or any other Transaction Document;
(vi) this Agreement and each Transfer Agreement, when duly executed
and delivered, shall effect a valid sale, transfer and assignment of the
Contracts and the remaining Trust Estate, enforceable against the
Transferor and creditors of and purchasers from the Transferor;
(vii) there are no proceedings or investigations pending or, to the
Transferor's knowledge, threatened against the Transferor or NAFCO, before
any court, regulatory body, administrative agency or other tribunal or
governmental instrumentality having jurisdiction over the Transferor or
its properties (a) asserting the invalidity of this Agreement or any of
the Transaction Documents, (b) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated
by this Agreement or any of the Transaction Documents, (c) seeking any
determination or ruling that might materially and adversely affect the
performance by the Transferor of its obligations under, or the validity or
enforceability of, this Agreement or any of the Transaction Documents, (d)
involving the Transferor and which might adversely affect the federal
income tax or other federal, state or local tax attributes of the
Certificates, or (e) that could have a material adverse effect on the
Contracts.
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(viii) the Transferor has obtained or made all necessary consents,
approvals, waivers and notifications of creditors, lessors and other
non-governmental persons, in each case, in connection with the execution
and delivery of this Agreement and the other Transaction Documents, and
the consummation of all the transactions herein and therein contemplated;
(ix) the Transferor shall not take any action to impair the
Trustee's rights on behalf of the Certificateholder and the Certificate
Insurer in any Contract;
(x) the Transferor has filed all federal, state, county, local and
foreign income, franchise and other tax returns required to be filed by it
through the date hereof, and has paid all taxes reflected as due thereon;
(xi) since the date of its organization, the Transferor has
maintained its chief executive office in the State of Florida or the State
of Delaware, and there have been no other locations of the Transferor's
chief executive office during the four (4) months preceding the Closing
Date;
(xii) Transferor is solvent and will not become insolvent after
giving effect to the transactions contemplated hereunder; Transferor is
paying its debts as they become due; Transferor, after giving effect to
the contemplated transactions, will have adequate capital to conduct its
business;
(xiii) since February 1995, "National Financial Auto Funding Trust" is
the only trade name under which the Transferor has operated its business
and, prior to such date, NAFCO Funding Trust was the only trade name under
which the Transferor operated its business;
(xiv) the Transferor shall not engage in any business or activity
other than in connection with or relating to the purchase of auto loan
receivables and the issuance of securities secured by, or evidencing
beneficial interests in, such auto loan receivables;
(xv) the Transferor is not and shall not be involved in the
day-to-day or other management of its parent or any of its affiliates;
(xvi) the Transferor's financial statements shall reflect its
separate legal existence from any of its affiliates;
(xvii) the Transferor shall maintain records and books of account of
the Transferor and shall not commingle such records and books of account
with the records and books of account of any Person;
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(xviii) the Transferor shall act solely in its own name and through
the duly authorized trustees or agents in the conduct of its business, and
shall conduct its business so as not to mislead others as to the identity
of the entity with which they are concerned;
(xix) at all times, except in the case of a temporary vacancy, which
shall promptly be filled, the Transferor shall have at least one trustee
who qualifies as an "Independent Trustee" as such term is defined in the
Transferor Trust Agreement as in effect on the date hereof.
The Transferor shall indemnify the Trustee, the Certificate Insurer, the
Servicer, and each Certificateholder and hold each of them harmless against any
and all damages (including all expenses and legal fees) resulting from a breach
of the representations and warranties set forth in this Section 2.03(b).
(c) The Transferor hereby represents and warrants to the Trustee on
behalf of the Certificateholders and the Certificate Insurer as of the Closing
Date with respect to the Initial Contracts transferred to the Trust on the
Closing Date and as of each Subsequent Transfer Date with respect to the
Additional Contracts transferred to the Trust on such Subsequent Transfer Date
(unless another date or time period is otherwise specified or indicated in the
particular representation or warranty):
(i) immediately prior to the Closing Date or the Subsequent Transfer
Date, at the case may be, the Transferor had a valid and enforceable
security interest in the related Financed Vehicle, and such security
interest had been duly perfected and was prior to all other present and
future liens and security interests (except future tax liens and liens
that, by statute, may be granted priority over previously perfected
security interests) that now exist or may hereafter arise, and the
Transferor had the full right to assign such security interest to the
Trustee;
(ii) on and after the Closing Date or the Subsequent Transfer Date,
as the case may be, there shall exist under the Contract a valid,
subsisting and enforceable first priority perfected security interest in
the Financed Vehicle securing such Contract (other than, as to the
priority of such security interest, any statutory lien arising by
operation of law after the Closing Date or the Subsequent Transfer Date,
as the case may be, which is prior to such interest) and at such time as
enforcement of such security interest is sought there shall exist a valid,
subsisting and enforceable first priority perfected security interest in
such Financed Vehicle in favor of the Trustee (other than, as to the
priority of such security interest, any statutory lien arising by
operation of law after the Closing Date or the Subsequent Transfer Date,
as the case may be, which is prior to such interest);
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(iii) no Contract has been sold, assigned or pledged to any other
Person other than an endorsement to the Servicer for purposes of servicing
or any such pledge has been released; immediately prior to the transfer
and assignment herein contemplated, the Transferor has good and marketable
title thereto free and clear of any lien, encumbrance, equity, pledge,
charge, claim or security interest and is the sole owner thereof and has
full right to transfer such Contract to the Trustee. No Dealer has a
participation in, or other right to receive, proceeds of any Contract.
None of NAFCO, ACCH, the Master Trust, Funding Trust II nor the Transferor
has taken any action to convey any right to any Person that would result
in such Person having a right to payments received under the related
insurance policies or Dealer Agreements or to payments due under such
Contract;
(iv) upon the transfers pursuant to Section 2.01, the Trustee will
have a first priority ownership or security interest in each such Contract
free and clear of any encumbrance, lien, pledge, charge, claim, security
interest or rights of others; the purchase of each such Contract by NAFCO
or ACCH, as the case may be, from a Dealer was not an extension of
financing to such Dealer;
(v) no such Contract is delinquent for more than thirty days in
payment as to any scheduled payment;
(vi) there is no lien against any related Financed Vehicle for
delinquent taxes;
(vii) there is no right of rescission, offset, defense or
counterclaim to the obligation of the related Obligor to pay the unpaid
principal or interest due under such Contract; the operation of the terms
of such Contract or the exercise of any right thereunder will not render
such Contract unenforceable in whole or in part or subject to any right of
rescission, offset, defense or counterclaim, and no such right of
rescission, offset, defense or counterclaim has been asserted;
(viii) no Contract is assumable by another Person in a manner which
would release the Obligor thereon from such Obligor's obligations to the
Transferor with respect to such Contract;
(ix) there are no prior liens or claims for work, labor or material
affecting any related Financed Vehicle which are or may become a lien
prior to or equal with the security interest granted by such Contract;
(x) each such Contract, and the sale of the Financed Vehicle
securing such Contract, where applicable, complied, at the time it was
made and as of the Closing Date or related Subsequent Transfer Date, as
applicable, in all material respects with applicable state and federal
laws
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(and regulations thereunder), including, without limitation, usury,
disclosure and consumer protection laws, equal credit opportunity, fair
credit reporting, truth-in-lending or other similar law, the Federal Trade
Commission Act, and applicable state laws regulating retail installment
sales contracts and loans in general and motor vehicle retail installment
sales contracts and loans in particular, and the transfer of such Contract
to the Trust will not violate any such laws;
(xi) each such Contract is a legal, valid and binding obligation of
the Obligor thereunder and is enforceable in accordance with its terms,
except only as such enforcement may be limited by laws affecting the
enforcement of creditors' rights generally whether enforcement is sought
in a proceeding in equity or at law, and all parties to such Contract had
full legal capacity to execute such Contract and all documents related
thereto and to grant the security interest purported to be granted thereby
at the time of execution and grant;
(xii) as of the Closing Date or such Subsequent Transfer Date, as
the case may be, the terms of each such Contract have not been impaired,
waived, altered or modified in any respect, except by written instruments
that are part of the Contract Documents, and no such Contract has been
satisfied, subordinated or rescinded;
(xiii) at the time of origination of each such Contract, the
proceeds of such Contract were fully disbursed, there is no requirement
for future advances thereunder, and all fees and expenses in connection
with the origination of such Contract have been paid;
(xiv) there is no default, breach, violation or event of
acceleration existing under any such Contract (except payment
delinquencies permitted by subparagraph (v) above) and no event which,
with the passage of time or with notice or with both, would constitute a
default, breach, violation or event of acceleration under any such
Contract or would otherwise affect the value or marketability of such
contract; NAFCO, ACCH, and the Transferor have not waived any such
default, breach, violation or event of acceleration; and as of the
applicable Cut-Off Date, the related Financed Vehicle has not been
repossessed;
(xv) at the origination date of each such Contract, the related
Financed Vehicle was covered by a comprehensive and collision insurance
policy (i) in an amount at least equal to the lesser of (a) the actual
cash value of the related Financed Vehicle or (b) the unpaid balance owing
of such Contract, less the related Unearned Finance Charge, (ii) naming
NAFCO or ACCH, as the case may be, as a loss payee and (iii) insuring
against loss and damage due to fire, theft, transportation, collision and
other risks generally
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covered by comprehensive and collision coverage; each Contract requires
the Obligor to maintain physical loss and damage insurance, naming NAFCO
or ACCH, as the case may be, as an additional insured party;
(xvi) each such Contract was acquired by NAFCO or ACCH, as the case
may be, from a Dealer with which it ordinarily does business; such Dealer
had full right to assign to NAFCO or ACCH, as the case may be, such
Contract and the security interest in the related Financed Vehicle and the
Dealer's assignment thereof to NAFCO or ACCH, as the case may be, is
legal, valid and binding and NAFCO or ACCH, as the case may be, had full
right to assign to the Transferor such Contract and the respective
security interest in the related Financed Vehicle and NAFCO's or ACCH's
respective assignment thereof to the Transferor is legal, valid and
binding;
(xvii) each such Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the related Financed Vehicle of the
benefits of the security;
(xiii) scheduled payments under each such Contract are due monthly
(or, in the case of the first payment, no later than the forty-fifth day
after the date of the Contract) in substantially equal amounts to maturity
(other than with respect to those Contracts designated as balloon
contracts on the related Contract Schedule), and will be sufficient to
fully amortize such Contract at maturity, assuming that each scheduled
payment is made on its Due Date; such scheduled payments are applicable
only to payment of principal and interest on such Contract and not to the
payment of any insurance premiums (although the proceeds of the extension
of credit on such Contract may have been used to pay insurance premiums);
and the original term to maturity of each such Contract was not more than
60 months;
(xix) the collection practices used with respect to each such
Contract have been in all material respects legal, proper, prudent and
customary in the automobile installment sales contract or installment loan
servicing business;
(xx) there is only one original of each such Contract, the Servicer
or a Subservicer is currently in possession of the Contract Documents for
such Contract and there are no custodial agreements in effect adversely
affecting the rights of the Transferor to make the deliveries required
hereunder on the Closing Date or the Subsequent Transfer Date, as the case
may be;
(xxi) as of the Cut-off Date or Subsequent Cut-off Date, as
applicable, no Obligor was the subject of a current bankruptcy proceeding;
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(xxii) with respect to each Due Period, the aggregate of the
interest due on all the Contracts in such Due Period from scheduled
payments is in excess of the sum of (i) the Servicing Fee due and any fees
due to the Trustee and the Certificate Insurer, each with respect to such
Due Period and (ii) the amount of interest payable on the Certificates
with respect to such Due Period, in each case assuming that each scheduled
payment is made on its Due Date;
(xxiii) the Contracts constitute "chattel paper" within the meaning
of the UCC as in effect in the applicable jurisdiction and all filings
(including without limitation, UCC filings) required to be made and all
actions required to be taken or performed by any Person in any
jurisdiction to give the Trustee a first priority perfected lien on, or
ownership interest in, the Contracts and the proceeds thereof and the
remaining Trust Estate have been made, taken or performed;
(xxiv) the information regarding such Contracts set forth in the
applicable Contract Schedule is true and correct in all material respects
at the applicable Cut-off Date and the Closing Date or Subsequent Closing
Date, as applicable; each Contract was originated in the United States of
America and at the time of origination, materially conformed to all
requirements of the NAFCO underwriting policies and guidelines then in
effect; and no Obligor is the United States of America or any state or any
agency, department, subdivision or instrumentality thereof;
(xxv) by the Closing Date and prior to each Subsequent Transfer
Date, as applicable, NAFCO will have caused the portions of NAFCO's
servicing records relating to the Contracts to be clearly and
unambiguously marked to show that the Contracts constitute part of the
Trust Estate and are owned by the Trust in accordance with the terms of
this Agreement;
(xxvi) the computer tape or listing made available by NAFCO to the
Trustee on the Closing Date and on each Subsequent Transfer Date was
complete and accurate as of the applicable Cut-off Date, and includes a
description of the same Contracts that are described in the applicable
Contract Schedule;
(xxvii) no Contract was originated in, or is subject to the laws of,
any jurisdiction the laws of which would make unlawful, void or voidable
the sale, transfer and assignment of such Contract under this Agreement or
the Transfer Agreement, as applicable, or pursuant to transfers of the
Certificates. The Transferor has not entered into any agreement with any
account debtor that prohibits, restricts or conditions the assignment of
any portion of the Contracts;
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(xxviii) no selection procedures adverse to the Certificateholders
or to the Certificate Insurer have been utilized in selecting such
Contract from all other similar Contracts originated by NAFCO or ACCH; and
(xxix) as of the Initial Cut-off Date, the weighted average annual
percentage rate, as such term is used with respect to the Federal
Truth-in-Lending Act ("APR") of the Initial Contracts was approximately
18.88% and the weighted average remaining scheduled maturity on the
Initial Contracts was approximately 50.27 months and the percentage of the
aggregate outstanding balance of the Initial Contracts relating to the
financing of used Financed Vehicles was 75.05%. The final scheduled
payment date on the Initial Contract with the latest maturity is November
1, 2001. Each Contract amortizes based on a Simple Interest Method or
Actuarial Method; and
(xxx) No Contract provides for a prepayment penalty.
The representations and warranties set forth in this Section 2.03(c) shall
survive assignment of the Contracts to the Trustee and shall survive as long as
any Certificate shall be outstanding or this Agreement has not been terminated.
Upon discovery by the Transferor, the Servicer, a Responsible Officer of the
Trustee or any Subservicer of a breach of any of the representations and
warranties set forth in this section 2.03(c) which materially and adversely
affects the interests of the Certificateholders or the Certificate Insurer in
the related Contract, the party discovering such breach shall give prompt
written notice thereof to the other parties and the Certificate Insurer (any
Subservicer being so obligated under a Subservicing Agreement). In addition,
with respect to any Contract in respect of which the Title Document was being
applied for on the Closing Date or the related Subsequent Transfer Date, as
applicable, if such Title Document has not been received by the Servicer within
180 days after the Closing Date or such Subsequent Transfer Date, as applicable,
the Servicer shall give the Trustee, the Certificate Insurer and Transferor
written notice of such fact. If the Transferor does not correct or cure such
breach (including delivery of such Title Document, if applicable) by the
Reporting Date occurring during the second full calendar month following the
calendar month in which the Trustee was notified or the Transferor, Servicer or
Subservicer became aware, if earlier, of such breach (including failure to
deliver such Title Document), then the Transferor shall promptly accept a
retransfer of such Contract from the Trust. Any such retransfer by the
Transferor shall be in exchange for the delivery by the Transferor to the Trust
of the Retransfer Amount and shall be accomplished in the manner set forth in
Section 2.02. Except as expressly provided in Section 6.03, it is understood and
agreed that the obligation of the Transferor to accept a retransfer of any
Contract as to which such a breach has occurred and is continuing as described
above shall constitute the sole remedy respecting such breach available to the
Servicer,
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Certificateholders, the Certificate Insurer or the Trustee on behalf of
Certificateholders.
In addition to the foregoing and notwithstanding whether the related
Contract shall have been purchased by the Transferor or NAFCO, the Transferor
shall indemnify the Trustee, the Certificate Insurer and the Certificateholders
against all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
incurred by any of them as a result of third party claims arising out of the
events or facts giving rise to a breach of the representations and warranties
set forth in Section 2.03(c)(vii) and (x).
Section 2.04. Execution and Authentication of Certificates. The Trustee
acknowledges the assignment to it of the Initial Contracts and the remainder of
the Trust Estate, on behalf of the Certificateholders and the Certificate
Insurer, and, concurrently with such delivery, has caused to be authenticated
and delivered to or upon the order of the Transferor, in exchange for the
Initial Contracts and the remainder of the Trust Estate, Certificates in
authorized denominations evidencing an undivided interest in the entire Trust
Estate.
Section 2.05. Restriction on Transfer of Transferor Interest. The
Transferor and any subsequent transferee under this Section 2.05 may not and
shall not transfer or assign the Transferor Interest unless (i) the Transferor
shall have given each Rating Agency, the Certificate Insurer and the Trustee
prior written notice of such proposed transfer, (ii) the Certificate Insurer
shall have consented in writing thereto (or, if a Certificate Insurer Default
shall have occurred and be continuing, each Rating Agency shall have notified
the Transferor and the Trustee that such proposed transfer will not result in
the downgrading or withdrawal of the rating then assigned by such Rating Agency
to the Certificates) and (iii) the Transferor shall have delivered to the
Trustee and the Certificate Insurer a ruling of the Internal Revenue Service or
an Opinion of Counsel, which, in either case, shall be to the effect that the
proposed transfer (A) will not result in the arrangement contemplated by this
Agreement being treated as an association taxable as a corporation under the
Internal Revenue Code and (B) will not have an adverse effect on the federal
income taxation of the Trust or the Certificateholders. Further, no transfer of
the Transferor Interest or any interest therein shall be made unless the
transferee thereof shall have given the Trustee a written certification that
such transferee is not, and is not purchasing such Transferor Interest or any
interest therein directly or indirectly on behalf of, (i) an employee benefit
plan or other retirement arrangement, individual retirement account or keogh
plan subject to either Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975 of the Code (each, a "Plan"), or (ii)
an entity whose assets are deemed to include Plan assets as a result of a Plan's
investment in such
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entity under Department of Labor Regulation Section 2510.3-101. (each, a "Plan
Entity").
Section 2.06. Transfers of Additional Contracts. (a) During the Revolving
Period, upon the Transferor's written direction to the Trustee and the Servicer
from time to time (but not more often than once during each calendar month or as
more frequently consented to in writing by the Certificate Insurer) and subject
to the terms and conditions hereof, amounts on deposit in the Revolving Account
shall be transferred to the Transferor pursuant to Section 3.13(b) in exchange
for the transfer and assignment of Additional Contracts and related Trust Estate
to the Trust. In addition, during the Pre-Funding Period, upon the Transferor's
written direction to the Trustee and the Servicer from time to time (but not
more often than once each calendar month or as more frequently consented to in
writing by the Certificate Insurer) and subject to the terms and conditions
hereof, amounts on deposit in the Pre-Funding Account shall be transferred to
the Transferor pursuant to Section 3.14(b) in exchange for the transfer and
assignment of Additional Contracts and related Trust Estate to the Trust. Not
later than 10 days prior to each Subsequent Transfer Date, the Transferor shall
give the Trustee, the Rating Agencies, the Certificate Insurer and the Servicer
written notice of the proposed transfer and assignment of Additional Contracts
to the Trust on such Subsequent Transfer Date, specifying the aggregate
Individual Sold Balances of the Additional Contracts to be transferred and
assigned to the Trust on such Subsequent Transfer Date as of the applicable
Cut-off Date. On the related Subsequent Transfer Date, the Trust will release
funds in the Revolving Account and/or the Pre-Funding Account, as specified in
the Transferor's written direction to the Trustee and the Servicer, to the
Transferor in an amount equal to the product of (i) the Additional Contract
Transfer Percentage and (ii) the aggregate Individual Sold Balance of the
Additional Contracts so transferred as of the related Subsequent Cut-Off Date,
and the Transferor will transfer and assign to the Trust, without recourse, the
Transferor's entire right, title and interest in and to such Additional
Contracts and related Trust Estate pursuant to the related Transfer Agreement.
(b) Any transfer of Additional Contracts and related Trust Estate to
the Trust on a Subsequent Transfer Date shall be subject to the following
conditions:
(i) the representations and warranties made by the Servicer and the
Transferor in Sections 2.01(e), 2.03(a) and 2.03(b) shall be true and
correct on and as of such Subsequent Transfer Date and the representations
and warranties made by the Transferor in Section 2.03(c) with respect to
each such Additional Contract being transferred to the Trust on such
Subsequent Transfer Date shall be true and correct on and as of such
Subsequent Transfer Date and the representations and warranties made by
NAFCO in Section 4.1 of the Purchase and Contribution Agreement and by
ACCH
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in Section 4.1 of the Purchase Agreement shall be true and correct on and
as of such Subsequent Transfer Date;
(ii) no Amortization Event shall have occurred and be continuing on
and as of such Subsequent Transfer Date;
(iii) the Contracts then in the Trust, together with the Additional
Contracts to be transferred to the Trust on such Subsequent Transfer Date,
shall meet the following criteria (computed based on the characteristics
of the Initial Contracts as of the Initial-Cut-off Date and the
characteristics of any Additional Contracts as of the applicable
Subsequent Cut-off Date): (A) the weighed average Contract Rate of the
Contracts shall not be less than 18%, (B) the weighted average remaining
term of the Contracts shall not be greater than 55 months, and (C) not
more than 80% of the aggregate Outstanding Principal Balance Contracts
shall represent loans to finance the purchase of used Financed Vehicles
and (D) the final scheduled payment date on the Contract with the latest
maturity shall not be later than April 30, 2002;
(iv) the Transferor shall have delivered the Contract Schedule for
the Additional Contracts to be transferred to the Trust on such Subsequent
Transfer Date to each Rating Agency and the Certificate Insurer at least
three Business Days prior to such Subsequent Transfer Date, and the
Trustee and the Certificate Insurer shall have received, prior to 10:00
a.m., New York City time, on such Subsequent Transfer Date, written notice
from each Rating Agency to the effect that such transfer will result in
the downgrade or withdrawal of the rating then assigned by such Rating
Agency to the Certificates;
(v) the Certificate Insurer (so long as a Certificate Insurer
Default shall not have occurred and be continuing) shall, in its sole and
absolute discretion, have given its prior written approval to the transfer
of such Additional Contracts to the Trust and shall have received an
executed Transfer Agreement; and
(vi) on or before such Subsequent Transfer Date, the Transferor
shall deliver to the Trustee (with copies to the Certificate Insurer) (A)
an Officer's Certificate of NAFCO substantially in the form attached
hereto as Exhibit 2.06A, (B) an Officer's certificate of the Transferor
substantially in the form attached hereto as Exhibit 2.06B, (C) a Transfer
Agreement executed by the Transferor and including, as an attachment
thereto, a Contract Schedule identifying the Additional Contracts being
transferred and assigned to the Trust on such Subsequent Transfer Date.
(vii) on or before such Subsequent Transfer Date, the Transferor
shall have provided any information reasonably
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requested by the Rating Agencies, the Certificate Insurer or the Trustee
with respect to such Additional Contracts.
(c) Within ten Business Days after the later of the last day of the
Pre-Funding Period and the last day of the Revolving Period, the Transferor
shall, at its cost and expense, cause KPMG Peat Marwick or such other nationally
recognized firm of public accountants as may be acceptable to the Certificate
Insurer to deliver to the Certificate Insurer a report covering the Contracts
then in the Trust and addressing such procedures as the Transferor and the
Certificate Insurer may agree upon.
ARTICLE III
Administration and Servicing of Contracts;
Establishment and Administration of Accounts
Section 3.01. Servicer to Act as Servicer.
(a) The Servicer shall service and administer the Contracts on behalf of
the Trust and shall have full power and authority, acting alone and/or through
Subservicers as provided in Section 3.02, to do any and all things which it may
deem necessary or desirable in connection with such servicing and administration
and which are consistent with this Agreement. Consistent with the terms of this
Agreement, the Servicer may waive, modify or vary any term of any Contract or
consent to the postponement of strict compliance with any such term or in any
manner, grant indulgence to any Obligor if, in the Servicer's sole
determination, which shall be conclusive and binding, such waiver, modification,
postponement or indulgence is not materially adverse to the Certificateholders
or the Certificate Insurer; provided however, that the Servicer may not permit
any modification with respect to any Contract that would change its Contract
Rate, defer the payment of any principal or interest (except to the extent
permitted by Section 3.06(a)), reduce the outstanding principal balance (except
for actual payments of principal), or extend (except to the extent permitted by
Section 3.06(a)) the final maturity date on such Contract. Without limiting the
generality of the foregoing, the Servicer in its own name or in the name of the
Transferor is hereby authorized and empowered by the Trustee when the Servicer
believes it appropriate in its best judgment to execute and deliver, on behalf
of the Trust, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge and all other comparable instruments, with
respect to the Contracts and with respect to the Financed Vehicles; provided
however, that notwithstanding the foregoing, the Servicer shall not, except
pursuant to an order from a Court of competent jurisdiction, release an Obligor
from payment of any unpaid amount under any Contract or waive the right to
collect the unpaid balance of any Contract from the Obligor, except that the
Servicer may forego collection efforts if the amount subject to collection is de
minimis and if it would forego collection in accordance with its customary
procedures. If any Contract
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contains a "due-on-sale" provision allowing the holder thereof to accelerate the
Contract upon sale of the Financed Vehicle financed thereunder, the Servicer
shall take reasonable steps under the circumstances to enforce such due on sale
provision if a Financed Vehicle is sold as soon as practicable after determining
that such Financed Vehicle has been sold; provided however, that the Servicer
shall not be obligated to take any legal action to enforce such provision.
(b) The Servicer shall service and administer the Contracts by employing
procedures (including collection procedures) and a degree of care consistent
with prudent industry standards and as are customarily employed by servicers in
servicing and administering motor vehicle retail installment sales contracts and
notes comparable to the Contracts. The Servicer shall take all actions (other
than those required to be taken by the Transferor pursuant to this Agreement)
that are necessary or desirable to maintain continuous perfection and first
priority of security interests granted by the obligors in the Financed Vehicles
to NAFCO or ACCH, as the case may be, and to maintain continuous perfection of
the security interest created by each Contract in the related Finance Vehicle on
behalf of the Trustee, including, but not limited to, using reasonable efforts
to obtain execution by the Obligors and the recording, registering, filing,
re-recording, re-registering and refiling of all Title Documents (it being
understood that Title Documents have not been and need not be endorsed or
delivered to the Trustee and do not and need not identify the Trustee as the
secured party or lienholder with respect to the Contracts), security agreements,
financing statements, continuation statements or other instruments as are
necessary to maintain the security interests granted by the Obligors under the
respective Contracts on behalf of the Trustee; provided however, that the
Servicer is not required to expend any of its own funds to remove any security
interest, lien or other encumbrance on any Financed Vehicle. The Servicer shall
not take any action to impair the Trust's rights in any Contract, except to the
extent allowed pursuant to this Agreement or required by law. The Financed
Vehicle securing each Contract shall not be released in whole or in part from
the security interest granted by the Contract, except upon payment in full of
the Contract or as otherwise contemplated herein. The Servicer shall not extend
or otherwise amend the terms of any Contract, except in accordance with Section
3.01(a). Upon discovery by either the Servicer, a Responsible Officer of the
Trustee or any Subservicer of a default by the Servicer in the performance of
its obligations under this Section 3.01(b) which materially and adversely
affects the interests of the Certificateholders or the Certificate Insurer in
the related Contract, the party discovering such breach shall give prompt
written notice thereof to the other parties and the Certificate Insurer. If the
Servicer does not correct or cure such default by the Reporting Date occurring
during the second full calendar month following the calendar month in which the
Trustee was notified or the Servicer, the Trustee or the Subservicer became
aware, if earlier, of such default, then the Servicer shall promptly purchase
such Contract
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from the Trust. Any such purchase by the Servicer shall be in exchange for the
delivery by the Servicer to the Trust of the Retransfer Amount and shall be
accomplished in the manner set forth in Section 2.02. Except as expressly
provided in Section 6.03 and subject to Section 7.01, it is understood and
agreed that the obligation of the Servicer to repurchase any Contract as to
which such a default has occurred and is continuing as described above shall
constitute the sole remedy respecting such default available to the Transferor,
Certificateholders, the Certificate Insurer or the Trustee on behalf of
Certificateholders.
(c) So long as a Certificate Insurer Default shall not have occurred and
be continuing, upon the occurrence of an Insurance Agreement Event of Default
pursuant to Section 5.01(b), (c), (d), (e) or (i) of the Insurance Agreement,
the Certificate Insurer may instruct the Trustee and the Servicer to take or
cause to be taken such action as may, in the opinion of counsel to the
Certificate Insurer, be necessary to perfect or re-perfect the security
interests in the Financed Vehicles securing the Contracts in the name of the
Trustee on behalf of the Trust by amending the title documents of such Financed
Vehicles or by such other reasonable means as may, in the opinion of counsel to
the Certificate Insurer, be necessary or prudent. If a Certificate Insurer
Default shall have occurred and be continuing, upon the occurrence of a Servicer
Default, the Trustee and the Servicer shall take or cause to be taken such
action as may, in the opinion of counsel to the Trustee, be necessary to perfect
or re-perfect the security interests in the Financed Vehicles securing the
Contracts in the name of the Trustee on behalf of the Trust by amending the
title documents of such Financed Vehicles or by such other reasonable means as
may, in the opinion of counsel to the Trustee, be necessary or prudent. NAFCO
hereby agrees to pay all expenses related to such perfection or re-perfection
and to take all action necessary therefor. In addition, prior to the occurrence
of an Insurance Agreement Event of Default, the Certificate Insurer may (unless
a Certificate Insurer Default shall have occurred and be continuing) instruct
the Trustee and the Servicer to take or cause to be taken such action as may, in
the opinion of counsel to the Certificate Insurer, be necessary to perfect or
re-perfect the security interest in the Financed Vehicles underlying the
Contracts in the name of the Trustee, including by amending the title documents
of such Financed Vehicles or by such other reasonable means as may, in the
opinion of counsel to the Certificate Insurer, be necessary or prudent; provided
however, that (unless a Certificate Insurer Default shall have occurred and be
continuing) if the Certificate Insurer requests that the title documents be
amended prior to the occurrence of an Insurance Agreement Event of Default, the
out-of-pocket expenses of the Servicer or the Trustee in connection with such
action shall be reimbursed to the Servicer or the Trustee, as applicable, by the
Certificate Insurer.
(d) The Servicer may perform any of its duties pursuant to this Agreement,
including those delegated to it by the Trustee
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pursuant to this Agreement, through Persons appointed by the Servicer. Such
Persons may include affiliates of the Servicer and may include the Transferor
and its affiliates. Notwithstanding any such delegation of a duty, the Servicer
shall remain obligated and liable for the performance of such duty as if the
Servicer were performing such duty.
(e) Upon the execution and delivery of this Agreement, the Servicer shall
deliver to the Trustee and the Certificate Insurer a list of officers and
employees of the Servicer, upon which the Trustee may conclusively rely,
involved in, or responsible for, the administration and servicing of the
Contracts, which list shall from time to time be updated by the Servicer as
additional officers and employees of the Servicer become involved, or
responsible for, the administration and servicing of the Contracts or officers
or employees of the Servicer previously identified on any such list become
disassociated with the administration and servicing of the Contracts.
(f) The Servicer may take such actions as are necessary to discharge its
duties as Servicer in accordance with this Agreement, including the power to
execute and deliver on behalf of the Trust such instruments and documents as may
be customary, necessary or desirable in connection with the performance of the
Servicer's duties under this Agreement (including consents, waivers and
discharges relating to the Contracts and the Financed Vehicles and such
instruments or documents as may be necessary to effect foreclosure or other
conversion of the ownership of any Financed Vehicle). In furtherance thereof,
the Trustee hereby irrevocably appoints the Servicer as its attorney-in-fact,
such appointment being coupled with an interest, to execute on its behalf such
documents or instruments as are necessary to effect the Repossession of Financed
Vehicles, to deliver applicable Contract Documents, Title Documents and the
Contract Files to the Transferor upon the transfer of a Contract to the
Transferor under this Agreement and to deliver applicable Contract Documents,
Title Documents and the Contract Files upon liquidation or final payment of a
Contract. The Trustee, upon receipt of a certificate of a Servicing Official
requesting the same be accepted by the Trustee and certifying as to the reasons
such documents are required, shall furnish the Servicer with any other powers of
attorney or other documents reasonably necessary or appropriate which the
Trustee may legally execute to enable the Servicer to carry out its servicing
and administrative duties hereunder. Neither the Servicer nor any of its
directors, officers, employees or agents will be under any liability to the
Trust, the Trustee, the Certificate Insurer, any Certificateholder, or the
Transferor for the consequences of any delay resulting from having to obtain
such documents from the Trustee, provided that the Servicer furnished such
certificate to the Trustee reasonably promptly after determining the necessity
therefor in the particular instance.
(g) The Servicer warrants, represents and covenants to and with the
Trustee that recordation of the name of the Servicer as
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lienholder in Title Documents respecting any Financed Vehicle is maintained by
the Servicer as agent for the Trust and that the Servicer has no equitable
ownership in the Contracts, except as it may have by virtue of ownership of a
Certificate or an equity interest in the Transferor or any Certificateholder.
The Servicer acknowledges that it is holding the Contract Documents coming into
its possession and any other property constituting a part of the Trust Estate
held by it, in trust, for the benefit of the Certificateholders and the
Certificate Insurer.
Section 3.02. Subservicing Agreements between Servicer and the
Subservicers. The Servicer may enter into Subservicing Agreements with one or
more Subservicers for the servicing and administration of certain of the
Contracts; provided however, that the Servicer shall not enter into any such
Subservicing Agreement with any Subservicer other than OFSA, without the prior
written consent of the Certificate Insurer (so long as a Certificate Insurer
Default shall not have occurred and be continuing), which consent shall not be
unreasonably withheld; provided further that the Servicer shall not amend any
Subservicing Agreement without (i) with respect to a material amendment, the
consent of the Certificate Insurer and (ii) with respect to all other
amendments, upon five (5) days prior written notice of such amendment.
References in this Agreement to actions taken or to be taken by the Servicer in
servicing the Contracts include actions taken or to be taken by a Subservicer on
behalf of the Servicer. Each Servicing Agreement shall be upon such terms and
conditions as are not inconsistent with this Agreement and as the Servicer and
the Subservicer have agreed. Each Subservicing Agreement shall require that the
related Subservicer acknowledge that it is holding the Contract Documents for
the related Contracts coming into its possession and any other property
constituting a part of the Trust Estate held by it, in trust, for the benefit of
the Certificateholders and the Certificate Insurer. The Servicer and a
Subservicer may enter into amendments thereto; provided however, that any such
amendments or different forms shall be consistent with and not violate the
provisions of this Agreement. The Servicer shall notify each Rating Agency, the
Trustee and the Certificate Insurer upon entering into any Subservicing
Agreement.
Section 3.03. Obligations of the Servicer. Notwithstanding any
Subservicing Agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer or a Subservicer or reference to
actions taken through a Subservicer or otherwise, the Servicer shall remain
obligated for the servicing and administering of the Contracts in accordance
with the provisions of Section 3.01 and this Agreement without diminution of
such obligation or liability by virtue of such Subservicing Agreements or
arrangements or by virtue of indemnification from a Subservicer and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Contracts. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer,
and nothing contained in this
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Agreement shall be deemed to limit or modify such indemnification.
Section 3.04. No Contractual Relationship between a Subservicer and
Trustee or Certificateholders. Any Subservicing Agreement that may be entered
into and any other transactions or services relating to the Contracts involving
a subservicer in its capacity as such and not as an originator shall be deemed
to be between a Subservicer and the Servicer alone and the Trustee, the Trust,
the Certificate Insurer and Certificateholders shall not be deemed parties
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to a Subservicer except as expressly set forth in Section 3.05 or
in the applicable Subservicing Agreement; provided that, if the Servicer is
deemed terminated, the Subservicer may be terminated. Servicer shall promptly
provide to the Trustee and the Certificate Insurer any notice received from a
Subservicer.
Section 3.05. Assumption or Termination of Subservicing Agreement by
Trustee. In the event the Servicer shall for any reason no longer be the
servicer of the Contracts (including by reason of a Servicer Default), the
Trustee, its designee or any successor Servicer will thereupon assume all of the
rights and obligations of the Servicer under one or more Subservicing Agreements
that may have been entered into by giving notice of such assumption to the
related Subservicer or Subservicers within ten (10) Business Days of the
termination of the Servicer as servicer of the Contracts. Upon the giving of
such notice, the Trustee, its designee or the successor Servicer, shall be
deemed to have assumed all of the Servicer's interest therein and to have
replaced the Servicer as a party to the Subservicing Agreement to the same
extent as if the Subservicing Agreement had been assigned to the assuming party
except that the Servicer and the Subservicer, if any, shall not thereby be
relieved of any accrued liability or obligations under the Subservicing
Agreement and the Subservicer, if any, shall not be relieved of any liability or
obligation to the Servicer that survives the assignment or termination of the
Subservicing Agreement. The Trustee shall notify each Rating Agency and the
Certificate Insurer if any Subservicing Agreement is assumed by the Trustee, its
designee or the successor Servicer.
The Servicer shall, upon request of the Trustee but at the expense of the
Servicer, deliver to the assuming party all documents and records relating to
the Subservicing Agreement and the Contracts then being serviced and an
accounting of amounts collected and held by it and otherwise use its reasonable
efforts to effect the orderly and efficient transfer of the Subservicing
Agreement to the assuming party.
Section 3.06. Collection of Contract Payments. (a) The Servicer shall
proceed diligently to collect all payments called for under the terms and
provisions of the Contracts, and shall service the Contracts in a manner
consistent with the servicing standards and procedures generally accepted in the
financial
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services industry for similar contracts, and as otherwise expressly provided by
this Agreement. Consistent with the foregoing, the Servicer may in its
discretion (i) waive any late payment charge and (ii) extend the then current
maturity date of a Contract by two months once during each calendar year at the
request of the related Obligor on account of the Obligor's adverse financial
circumstances that affect the Obligor's ability to make payments under such
Contract; provided however, that the Servicer may not so extend the then current
maturity date of Contract more than twice during the life of such Contract;
provided further, that the aggregate number of contracts that have been so
extended during any twelve month period shall not exceed the product of (i) 3.5%
(0.035) and (i) the aggregate number of outstanding Contracts as of the
beginning of such twelve month period.
(b) The Servicer shall instruct (or shall cause the Subservicer to
instruct) all Obligors to make all payments due in respect of the Contracts to
the Subservicer Account. The Servicer shall, pursuant to the Subservicing
Agreement, cause the Subservicer to use any amounts other than collections in
respect of motor vehicle financing obligations serviced by the Subservicer. The
Servicer shall cause the Subservicer to use its best efforts to transfer to the
Collection Account all collected funds on deposit in the Subservicer Account
that constitute part of the Trust Estate within one Business Day, and in any
event within two Business Days of receipt thereof. If the Servicer, the
Transferor, NAFCO, ACCH or any Subservicer receives collections under or other
payments in respect of the Contracts, each such Person shall as soon as
practicable, but no later than two Business Days following receipt of such item
by such Person, cause such payment to be remitted to the Trustee for deposit to
the Collection Account. If the Servicer determines that any amount that is not a
part of the Trust Estate has been deposited in any Account, the Servicer shall
promptly instruct the Trustee by facsimile (with prompt telephone confirmation)
to segregate such amount, and shall therein direct the Trustee to turn over such
amounts to the Person entitled thereto within two Business Days. A copy of any
such direction shall be delivered by the Servicer to the Certificate Insurer.
(c) The Servicer shall cause OFSA to maintain the Subservicer Account or a
comparable account, and shall cause any other Subservicer to maintain an account
comparable to the Subservicer Account, to which Obligors shall have been
directed to remit payments in respect of the Contracts. If the Subservicer
Account or any comparable account maintained by a Subservicer is terminated for
any reason prior to the establishment of, and notification to Obligors to remit
payments to, a replacement servicing account comparable to the Subservicer
Account, the Servicer shall promptly, and in any event within 30 days of
termination of such Subservicer Account or comparable account, establish a
Lockbox Account pursuant to a Lockbox Agreement and notify all Obligors to remit
payments in respect of the Contracts to such Lockbox Account.
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(d) Notwithstanding any Lockbox Agreement, or any of the provisions of
this Agreement relating to a Lockbox Agreement, a Lockbox Bank or a Lockbox
Account, the Servicer shall remain obligated and liable to the Trustee and the
certificateholders for servicing and administering the Contracts and the rest of
the Trust Estate in accordance with the provisions of this Agreement without
diminution of such obligations or liability by virtue thereof.
Section 3.07. Maintenance of Comprehensive and Collision Insurance. The
Servicer shall use its reasonable efforts to cause each Obligor to maintain on
the related Financed Vehicle a comprehensive and collision policy providing
coverage at least equal to the lesser of (i) the actual cash value of such
Financed Vehicle and (ii) the unpaid balance owing on the related Contract, less
Unearned Finance Charges; provided however, that the Servicer shall not be
obligated to expend its own funds to pay any insurance premiums or obtain or
maintain any such policy. Pursuant to Section 3.06, any amounts collected by the
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Financed Vehicles or amounts released to
the Obligor in accordance with the Servicer's normal servicing procedures) shall
be deposited in the Collection Account. All policies required by this paragraph
shall be endorsed with clauses providing for loss payable to the Servicer or the
related Subservicer and its successors and assigns. Servicer shall maintain and
keep in place a vendor's single interest insurance policy.
Section 3.08. Realization upon Defaulted Contracts. In the event that a
Contract becomes and continues to be a Defaulted Contract, the Servicer shall
take all reasonable and lawful steps necessary for Repossession; provided
however, that the Servicer shall not be obligated to institute any action for
Repossession through judicial proceedings unless it determines in its good faith
judgment, which determination will be conclusive and binding, that Insurance
Proceeds or Liquidation Proceeds that would be realized in connection therewith
or amounts payable pursuant to the last sentence of this Section 3.08 would be
sufficient for the reimbursement in full of its out-of-pocket expenses pursuant
to this Agreement. In connection with such Repossession, the Servicer shall
follow such practices and procedures required by Section 3.01 and make advances
of its own funds for any out-of-pocket expenses incurred. The Servicer shall be
reimbursed for Liquidation Expenses (including advances) by retention of the
required reimbursement from the first Liquidation Proceeds or Insurance Proceeds
received with respect to such Defaulted Contract. The Servicer shall be entitled
to receive the following amounts, which shall be distributable pursuant to
Sections 3.11(b)(i) with respect to any Contract the Obligor of which has filed
bankruptcy or against whom a petition for involuntary bankruptcy has been filed:
a one time fee of $200 in respect of those Contracts not referred to outside
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legal counsel, or, in the case of those Contracts that are so referred,
reimbursement of the reasonable fees and expenses of outside legal counsel, if
their retention was necessary in the reasonable judgment of the Servicer.
Section 3.09. Master Servicing and Other Compensation. The Servicer, as
compensation for its activities hereunder, shall be entitled to receive the
Servicing Fee and amounts, if any, described in Section 3.11(b)(ii). The
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of the fees and expenses
of any Subservicer) and shall not be entitled to reimbursement therefor except
as specifically provided in Sections 3.08, 3.11 and 4.01, 6.03 and 10.01.
Section 3.10. The Collection Account. (a) The Trustee shall establish and
shall thereafter maintain the Collection Account for the Trust. The Collection
Account shall be an Eligible Account. The Collection Account shall be entitled
"Harris Trust and Savings Bank, as Trustee, for the benefit of registered
holders of National Auto Finance 1996-1 Trust and the Certificate Insurer." The
Trustee shall deposit the following amounts into the Collection Account upon
receipt:
(i) All amounts withdrawn by a Subservicer from the
Subservicer Account and all amounts received by the Servicer, the
Transferor, NAFCO, ACCH or any Subservicer and transferred to the Trustee
pursuant to Section 3.06(b);
(ii) The Retransfer Amount received in respect of any
Retransferred Contracts pursuant to Sections 2.02, 2.03 and 3.01;
(iii) All income and gain from investments of funds in the
Collection Account; and
(iv) All Liquidation Proceeds (net of Liquidation Expenses
retained by the Servicer or Subservicer) and other amounts with respect to
the Trust Estate, if any, received from the Transferor, the Servicer or
any Subservicer.
(b) No later than each Distribution Date, the Trustee shall, at the
written direction of the Servicer, withdraw from the Collection Account and
deposit in the Certificate Account the amount on deposit in the Collection
Account as of the close of business on the related Determination Date and any
amount deposited to the Collection Account in respect of Retransferred Contracts
on or prior to the related Reporting Date and subsequent to the preceding
Reporting Date, less the sum of (i) the Supplemental Servicing Fee collected
with respect to the Contracts on deposit in the Collection Account as of such
Determination Date, (ii) any income and gain on investments of deposits in the
Collection Account as of such Determination Date, (iii) the amount, if any,
required to be transferred by the Trustee from the Collection Account to the
Revolving Account pursuant to the last sentence of this Section 3.10(b) and (iv)
any collection or other amounts deposited to the Collection
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Account in respect of Retransferred Contracts other than the related Retransfer
Amounts. In addition, on each Distribution Date, the Trustee shall, at the
written direction of the Servicer, withdraw from the Collection Account and
shall pay (i) to the Transferor any income and gain on investments then on
deposit in the Collection Account and all late payment fees then on deposit in
the Collection Account and (ii) to pay to the Transferor with respect to each
Contract or property acquired in respect thereof that has been retransferred to
the Transferor pursuant to Sections 2.02, 2.03 or 9.01, all amounts received
thereon and not distributed as of, or received after, the date on which the
related Outstanding Principal Balance or Retransfer Amount is determined. On or
prior to the close of business on each Business Day during the Revolving Period
and on the first Business Day thereafter, the Trustee, at the written direction
of the Servicer or a Subservicer pursuant to Section 3.17(a), shall withdraw
from the Collection Account and transfer to the Revolving Account all amounts
representing principal collections and other recoveries of principal received on
the Contracts deposited into the Collection Account during the previous Business
Day together (without duplication) with an amount equal to the Outstanding
Principal Balance of all Contracts that became Liquidated Contracts during the
Revolving Period.
(c) In the event the Servicer, any Subservicer or the Trustee shall
deposit in the Collection Account any amount in error and such amount is not
required to be deposited therein, the Trustee may withdraw at any time, on its
own behalf if the erroneous deposit was made by the Trustee and on behalf of the
Servicer or Subservicer if the erroneous deposit was made by the Servicer or
Subservicer promptly after receipt of an Officer's Certificate setting forth the
reason for such withdrawal, such amount from the Collection Account, any
provision herein to the contrary notwithstanding.
Section 3.11. The Certificate Account. (a) The Trustee shall establish and
thereafter maintain the Certificate Account for the Trust. The Certificate
Account shall be an Eligible Account. The Certificate Account shall be entitled
"Harris Trust and Savings Bank, as Trustee, for the benefit of registered
holders of National Auto Finance 1996-1 Trust Automobile Receivables-Backed
Certificates, and the Certificate Insurer-Certificate Account." The Trustee
shall deposit the following amounts into the Certificate Account upon receipt:
(i) Amounts received, if any, from the Transferor for deposit
in the Certificate Account;
(ii) Amounts received, if any, from the Servicer or any
Subservicer for deposit in the Certificate Account;
(iii) Any withdrawals made from the Pre-Funding Period Reserve
Account or Spread Account for deposit in the Certificate Account pursuant
to Section 3.12(b) or Section 4.04;
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(iv) All proceeds of any Contracts or property acquired in
respect thereof, received by the Trustee, pursuant to Section 9.01 or
Section 9.02;
(v) All income and gain from investments of funds in the
Certificate Account;
(vi) Any withdrawals made from the Collection Account for
deposit in the Certificate Account pursuant to Section 3.10(b);
(vii) All amounts received from the Certificate Insurer (A) in
respect of claims made under the Certificate Policy and required to be
deposited therein pursuant to Section 4.04(a) or 4.05 or (B) pursuant to
Section 4.04(e) and required by such Section 4.04(e) to be deposited
therein; and
(viii) Any withdrawal from the Revolving Account or
Pre-Funding Account for deposit in the Certificate Account pursuant to
Section 3.13(b) or Section 3.14(b).
(b) On each Distribution Date, the Trustee shall, at the written direction
of the Servicer, make withdrawals from the Certificate Account for the following
purposes:
(i) to make payments as provided in Section 4.01;
(ii) upon the final Distribution Date, to clear and terminate
the Certificate Account pursuant to Section 9.01.
Distributions of amounts withdrawn from the Certificate Account under this
Section 3.11 shall be made in accordance with the priorities set forth in
Section 4.01.
Since, in connection with withdrawals pursuant to subclauses (ii) and
(iii), the Servicer's or Transferor's entitlement thereto is limited to
collections or other recoveries on the related Contract, the Servicer shall keep
and maintain a separate accounting, on a Contract by Contract basis, for the
purpose of justifying any withdrawal from the Certificate Account pursuant to
such subclauses (ii) and (iii).
(c) In the event the Servicer, any Subservicer or the Trustee shall
deposit in the Certificate Account any amount in error and such amount is not
required to be deposited therein, the Trustee may withdraw at any time, on its
own behalf if the erroneous deposit was made by the Trustee and on behalf of the
Servicer or Subservicer if the erroneous deposit was made by the Servicer or
Subservicer promptly after receipt of an Officer's Certificate setting forth the
reason for such withdrawal, such amount from the Certificate Account, any
provision herein to the contrary notwithstanding.
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Section 3.12. Pre-Funding Period Reserve Account. (a) The Trustee shall
establish and thereafter maintain the Pre-Funding Period Reserve Account for the
Trust. The Pre-Funding Period Reserve Account shall be an Eligible Account. The
Pre-Funding Period Reserve Account shall be entitled "Harris Trust and Savings
Bank", as Trustee, for the benefit of registered holders of National Auto
Finance 1996-1 Trust Automobile Receivables-Backed Certificates, and the
Certificate Insurer -- Pre-Funding Period Reserve Account." On the Closing Date,
the Transferor shall deliver to the Trustee for deposit in the Pre-Funding
Period Reserve Account immediately available funds in the amount of $161,856.71.
The Trustee shall deposit the foregoing amount in the Pre-Funding Period Reserve
Account immediately upon its receipt thereof. In addition, on each Distribution
Date during the Pre-Funding Period, the Trustee shall deposit into the
Pre-Funding Period Reserve Account the amount required to be deposited therein
pursuant to Section 4.01(b). The Trustee also shall deposit into the Pre-Funding
Period Reserve Account any income or gain earned from the investment of amounts
on deposit in the Pre- Funding Period Reserve Account as received.
(b) On each Distribution Date occurring on or prior to the Distribution
date next succeeding Termination of the Pre-Funding Period, the Trustee will
withdraw from the Pre- Funding Period Reserve Account and transfer to the
Certificate Account an amount equal to the excess,if any, of (i) the product of
(a) 1/12th, (b) the Certificate Rate and (c) the average daily balance of funds
on deposit in the Pre-Funding Account from and including the preceding
Distribution Date (or, in the case of the first Distribution Date, the Closing
Date) to but not including the current Distribution Date, over (ii) the amount
of interest accrued on Permitted Investments on deposit in the Pre-Funding
Account from and including the preceding Distribution Date (or, in the case of
the first Distribution Date, the Closing Date) to but not including the current
Distribution Date. If after making any required transfer from the Pre- Funding
Period Reserve Account to the Certificate Account on any Distribution Date the
amount of funds on deposit in the Pre-Funding Period Reserve Account exceeds the
Required Reserve Amount, the Trustee shall withdraw such excess amount and
distribute it to the Transferor. On the first Distribution Date related to the
Reporting Date next succeeding termination of the Pre- Funding Period after
payment on the Certificates on such date the Trustee shall withdraw from the
Pre-Funding Period Reserve Account and distribute to the Transferor the balance
of any funds on deposit therein.
Section 3.13. The Revolving Account. (a) The Trustee shall establish and
thereafter maintain the Revolving Account. The Revolving Account shall be a
segregated trust account created and maintained by the Trustee in its corporate
trust department for the benefit of the Certificateholders and the Certificate
Insurer, and shall be an Eligible Account. The Revolving Account shall be
entitled "Harris Trust and Savings Bank, as Trustee, for the benefit of the
registered holders of National Auto Finance 1996-1 Trust Automobile
Receivables-Backed Certificates, and the
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Certificate Insurer -- Revolving Account." On each Business Day during the
Revolving Period and on the first Business Day thereafter, the Trustee shall
deposit into the Revolving Account the amount withdrawn by the Trustee from the
Collection Account for deposit therein on such Business Day pursuant to Section
3.10(b). The Trustee also shall deposit into the Revolving Account any income or
gain earned from the investment of amount on deposit in the Revolving Account as
received.
(b) On each Subsequent Transfer Date, upon satisfaction of each of the
conditions set forth in Section 2.06 with respect to the transfer of Additional
Contracts to the Trust on such Subsequent Transfer Date, the Trustee shall
withdraw from the Revolving Account and pay to the Transferor the amount
designated in the Transferor's written direction to the Trustee and the Servicer
delivered pursuant to Section 2.06. On each Distribution Date, any income and
gain earned from the investment of amounts on deposit in the Revolving Account
since the previous Distribution Date (or the Closing Date, in the case of the
first Distribution Date) shall be deposited to the Certificate Account. On the
Distribution Date relating to the Reporting Date next succeeding the termination
of the Revolving Period, the Trustee shall withdraw from the Revolving Account
and deposit in the Certificate Account the amount on deposit in the Revolving
Account as of the close of business on the first Business Day following the end
of the Revolving Period. In addition, the Trustee shall on or prior to each
Distribution Date occurring during the Revolving Period withdraw from the
Revolving Account and deposit in the Certificate Account the amount, if any, by
which the amount on deposit in the Revolving Account at the close of business on
the last day of the preceding calendar month, less any undistributed income or
gain from investments on deposit therein, exceeds $3,000,000.
Section 3.14. Pre-Funding Account. (a) The Trustee shall establish and
shall thereafter maintain the Pre-Funding Account. The Pre-Funding Account shall
be an Eligible Account. The Pre-Funding Account shall be entitled "Harris Trust
and Savings Bank, as Trustee, for the benefit of registered holders of National
Auto Trust Automobile Receivables-Backed Certificates, and the Certificate
Insurer -- Pre-Funding Account." On the Closing Date, the Transferor shall
deliver $15,524,168.66 to the Trustee for deposit in the Pre-Funding Account and
the Trustee shall deposit such amount therein upon its receipt thereof. The
Trustee also shall deposit into the Pre-Funding Account any income or gain
earned from the investment of amounts on deposit in the Pre-Funding Account as
received.
(b) On each Subsequent Transfer Date, upon satisfaction of each of the
conditions set forth in Section 2.06 with respect to the transfer of Additional
Contracts to the Trust on such Subsequent Transfer Date, the Trustee shall
withdraw from the Pre-Funding Account and pay to the Transferor the amount
designated in the Transferor's written direction to the Trustee and the Servicer
delivered pursuant to Section 2.06. On each
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Distribution Date, any income and gain earned from the investment of amounts on
deposit in the Pre-Funding Account since the previous Distribution Date (or the
Closing Date, in the case of the first Distribution Date) shall be deposited to
the Certificate Account. On the Distribution Date related to the Reporting Date
next succeeding termination of the Pre-Funding Period, the Trustee shall
withdraw from the Pre-Funding Account and deposit in the Certificate Account the
amount on deposit in the Pre-Funding Account as of the close of business on the
last day of the Pre-Funding Period.
Section 3.15. Administration of Accounts. (a) Funds deposited in the
Accounts other than the Pre-Funding Account and the Revolving Account shall be
invested by the Trustee pursuant to written instructions from the Transferor in
Permitted Investments that mature no later than the Business Day next preceding
the Distribution Date next succeeding the date of such investment (or on such
Distribution Date if such Permitted Investment in an obligation of the
institution maintaining the Account), and no such investment shall be sold prior
to its maturity. Funds deposited in the Pre-Funding Account and the Revolving
Account shall be invested by the Trustee pursuant to written instructions from
the Transferor in Permitted Investments that mature no later than the Business
Day next preceding the earlier of the date on which such funds are expected to
be needed and the Distribution Date next succeeding the date of such investment
(or on such date or such Distribution Date, as the case may be, if such
Permitted Investment is an obligation of the institution maintaining such
Account), and no such investment shall be sold prior to its maturity.
(b) Any Account Property that is held in deposit accounts shall be held
solely in the name of the Trustee in its trust capacity in an Eligible Account.
Each such deposit account shall be subject to the exclusive custody and control
of the Trustee, and the Trustee shall have sole signature authority with respect
thereto. Any Account Property that constitutes Physical Property shall be
delivered to the Trustee in accordance with paragraph (a) or (b) of the
definition of "Delivery" and shall be held, pending maturity or disposition, in
the State of Illinois solely by the Trustee or shall be held in the State of
Illinois or the State of New York through a financial intermediary or clearing
corporation (as defined and described in paragraph (b) of the definition of
"Delivery") or the clearing corporation's nominee, in each case acting for the
Trustee. Any Account Property that is a book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations shall be
delivered in accordance with paragraph (c) of the definition of
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"Delivery" and shall be maintained by the Trustee, pending maturity or
disposition, through continued book-entry registration of such Account Property
as described in such paragraph. Any Account Property that is an "uncertificated
security" (as defined in Section 8- 102(1)(b) of the UCC) and that is not
governed by the third sentence of this Section 3.15(b) shall be delivered and
held in accordance with paragraph (d) of the definition of "Delivery" and shall
be maintained by the Trustee, pending maturity or disposition. The Trustee, or
any agent of the Trustee acting in the name of and on behalf of the Trustee,
shall have absolute control over each investment of funds in the applicable
Account, the income thereon and the proceeds thereof. The proceeds of an
investment at maturity or upon demand shall be remitted by the issuer thereof or
its agent directly to the Trustee or its agent for deposit in the applicable
Account and all earnings on such investments shall be added to the corpus of the
applicable Account and distributed as provided herein.
(c) Effective upon Delivery of any Account Property in the form of
Physical Property, book-entry securities, or uncertificated securities, the
Trustee shall represent that at the time it submitted the purchase order for
such Account Property a Responsible Officer of the Trustee had no actual notice
of any adverse claim with respect thereto; provided that if a Responsible
Officer of the Trustee has actual notice of an adverse claim prior to submitting
the purchase order, the Trustee shall notify the Transferor and request that the
adverse claim be resolved prior to any such purchase. Additionally, each
instruction as to Permitted Investments to the Trustee from the Transferor shall
be accompanied by a statement from the Transferor to the effect that the
proposed purchase is made in good faith, for value and without any notice of
adverse claim thereto. As used herein, the term "notice" shall have the meaning
ascribed to it in the UCC.
(d) The Trustee shall not enter into any subordination or intercreditor
agreement with respect to the Account Property.
Section 3.16. [Reserved].
Section 3.17. Reports to the Trustee and the Transferor Certificate
Account Statements; Reports to the Servicer, the Certificate
Insurer and Transferor.
(a) Not later than the Reporting Date, the Servicer shall forward to the
Collateral Agent, the Trustee, each Rating Agency, the Certificate Insurer and
the Transferor a statement substantially in the form attached hereto as Exhibit
3.17 (as such form may be modified from time to time by agreement between the
Trustee and Servicer with the prior written consent of the Certificate Insurer),
certified by an officer of the Servicer. In addition to the information required
by Exhibit 3.17, the Servicer shall include in the copy of such statement
delivered to the Certificate Insurer (i) the Delinquency Ratio, Average
Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate and Average
Net Loss Rate for such Reporting Date, (ii) whether any Trigger Event has
occurred as of such Reporting Date, (iii) whether any Trigger Event that may
have occurred as of a prior Reporting Date is deemed cured as of such Reporting
Date, and (iv) whether to the knowledge of the Servicer an Insurance Agreement
Event of Default has occurred.
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(b) On the first Business Day after each Determination Date, the Trustee
shall forward by telecopier to the Servicer, the Certificate Insurer and the
Transferor a statement (and shall also mail a copy to the Servicer, the
Certificate Insurer and the Transferor) setting forth the amount, if any, on
deposit in the Collection Account, the Certificate Account, the Pre-- Funding
Account, the Revolving Account and the Pre-Funding Reserve Account as of such
Determination Date. Not later than the close of business on the fourth Business
Day prior to each Distribution Date, the Trustee shall forward by telecopier to
the Collateral Agent and the Certificate Insurer a copy of the statement
required to be delivered to Certificateholders on such Distribution Date
pursuant to Section 4.02, prepared assuming that the Certificate Insurer will
not exercise its right under Section 4.04(e). Not later than five days after
each Determination Date, the Trustee shall forward to the Servicer, the
Certificate Insurer and the Transferor a statement showing, for the previous
Distribution Date, the aggregate of withdrawals from the Certificate Account for
each category of withdrawal specified in Section 3.11(b) and the withdrawals
from and deposits to the Spread Account.
Section 3.18. Annual Statement as to Compliance; Notice of Servicer
Default. (a) The Servicer will deliver to each Rating Agency the Trustee and the
Certificate Insurer on or before April 30 of each year, beginning with the first
April 30 that occurs at least six months after the Initial Cut-off Date, an
Officer's Certificate stating, that (i) a review of the activities of the
Servicer during the preceding calendar year and of performance under this
Agreement has been made under such officer's supervision, (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof and (iii) to the
best of such officer's knowledge, each Subservicer has fulfilled its obligations
under its Subservicing Agreement in all material respects, or if there has been
a material default in the fulfillment of such obligations, specifying such
default known to such employee and the nature and status thereof.
(b) The Servicer shall deliver to the Trustee, the Certificate Insurer,
the Certificateholders and each Rating Agency, promptly after having obtained
knowledge thereof, but in no event later than two Business Days thereafter,
written notice in an Officer's Certificate of any event which with the giving of
notice or lapse of time, or both, would become a Servicer Default under Section
7.01.
Section 3.19. Custodial Arrangements. (a) The Custodian shall maintain
custody and possession of the Contract Files as custodian and bailee for in
accordance with and pursuant to the Custodial Agreement dated as of the Closing
Date by and between the Servicer and OFSA. The Servicer hereby assigns all of
its
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right, title and interest in and to such Custodial Agreement to the Trustee.
To the extent the Servicer receives any notices with respect to the Custodial
Agreement, the Servicer will forward a copy of such notice to the Trustee and
the Certificate Insurer.
Section 3.20. Annual Independent Accountants' Report. (a) The Servicer
shall, at its expense, cause a firm of nationally recognized independent
certified public accountants (the "Independent Accountants"), who may also
render other services to the Servicer or to the Transferor, to deliver to the
Trustee, the Certificate Insurer, and each Rating Agency, on or before March 30
(or 90 days after the end of the Servicer's fiscal year, if other than March 30)
of each year, beginning on the first March 30 (or other applicable date) after
the date that is six months after the Closing Date with respect to the twelve
months ended the immediately preceding December 31 (or other applicable date), a
statement (the "Accountant's Report") addressed to the general partner of the
Servicer, to the Trustee, and the Certificate Insurer, to the effect that such
firm has audited the financial statements of the Servicer and issued its report
thereon and that such audit (1) was made in accordance with generally accepted
auditing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as such firm considered necessary in
the circumstances; (2) included an examination of documents and records relating
to the servicing of automobile installment sales contracts under pooling and
servicing agreements substantially similar one to another (such Accountant's
Report to have attached thereto a schedule setting forth the pooling and
servicing agreements covered thereby, including this Agreement); (3) included an
examination of the delinquency and loss statistics relating to the Trust's
portfolio of automobile installment sales contracts; and (4) except as described
in the Accountant's Report, disclosed no exceptions or errors in the records
relating to the automobile and light truck loans serviced that, in the firm's
opinion, generally accepted auditing standards requires such firm to report. The
Accountants' Report shall further state that (1) a review in accordance with
agreed upon procedures was made of three randomly selected Servicer's
Certificates for the Trust; and (2) except as disclosed in the Report, no
exceptions or errors in the Servicer's Certificates so examined were found.
(b) The Accountants' Report shall also indicate that the firm is
independent of the Transferor and the Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
(c) A copy of the Accountants' Report may be obtained by any
Certificateholder by a request in writing to the Trustee addressed to its
Corporate Trust Office.
Section 3.21. Access to Certain Documentation and Information Regarding
Contracts. The Servicer shall provide to representatives of the Trustee and the
Certificate Insurer
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reasonable access to the documentation regarding the Contracts. Each of the
Transferor and Servicer will permit any authorized representative or agent
designated by the Certificate Insurer to visit and inspect any of the properties
of the Transferor or Servicer, as the case may be, to examine the corporate
books and financial records of the Transferor or Servicer, as the case may be,
its records relating to the Contracts, and make copies thereof or extracts
therefrom and to discuss the affairs, finances, and accounts of the Transferor
or Servicer, as the case may be, with its principal officers, as applicable, and
its independent accountants. Any expense incident to the exercise by the
Certificate Insurer of any right under this Section 3.21 shall be borne by
NAFCO, so long as NAFCO is the Servicer. In each case, such access shall be
afforded without charge but only upon reasonable request and during normal
business hours.
Section 3.22. Retention and Termination of Servicer. The Servicer hereby
covenants and agrees to act as such under the Agreement for an initial term,
commencing on the Closing Date and ending on December 31, 1996, which term shall
be extendible by the Certificate Insurer for successive quarterly terms ending
on each successive March 31, June 30, September 30 and December 31 (or, pursuant
to revocable written standing instructions from time to time to the Servicer and
the Trustee, for any specified number of terms greater than one), until the
termination of the Trust. Each such notice (including each notice pursuant to
standing instructions, which shall be deemed delivered at the end of successive
quarterly terms for so long as such instructions are in effect) (a "Servicer
Extension Notice") shall be delivered by the Certificate Insurer to the Trustee
and the Servicer. The Servicer hereby agrees that, as of the date hereof and
upon its receipt of any such Servicer Extension Notice, the Servicer shall
become bound, for the initial term beginning on the date hereof and for the
duration of the term covered by such Notice, to continue as the Servicer subject
to and in accordance with the other provisions of this Agreement. Until such
time as a Certificate Insurer Default shall have occurred and be continuing, the
Trustee agrees that if as of the fifteenth day prior to the last day of any term
of the Servicer the Trustee shall not have received any Servicer Extension
Notice from the Certificate Insurer, the Trustee will, within five days
thereafter, give written notice of such non-receipt to the Certificate Insurer,
and the Servicer and the Servicer's terms shall not be extended unless a
Servicer Extension Notice is received on or before the last day of such term.
ARTICLE IV
Payments to Certificateholders
Section 4.01. Distributions.
(a) The Trustee shall, based upon a certificate delivered to the Trustee
and the Certificate Insurer by the Servicer not
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later than the Reporting Date, calculate the Available Amount and the
Certificate Distributable Amount for the related Distribution Date and, based
upon such determinations and the distributions to be made on such Distribution
Date, as described below, the amount of any withdrawal required to be made from
the Spread Account and/or any Policy Claim Amount, in each case with respect to
such Distribution Date.
(b) On each Distribution Date the Trustee will, to the extent of the
Available Amount together with (i) funds withdrawn from the Spread Account, if
any, (ii) the Policy Claim Amount, if any, and (iii) any amount deposited to the
Certificate Account pursuant to Section 4.04(e) (such amounts so deposited to be
applied only as directed by the Certificate Insurer) make the following payments
(in case of the withdrawals from the Spread Account, for payments of the
Servicing Fee and the Certificate Distributable Amount, only, and in the case of
the Policy Claim Amount, for Guaranteed Distributions only) from the Certificate
Account in the following order of priority:
(i) first, to the Servicer, the amount of the Servicing Fee payable
in respect of the related Due Period and any unpaid Servicing Fees from
prior Due Periods to the extent not previously paid;
(ii) second, accrued and unpaid fees owing to the Trustee,
Collateral Agent to the standby Servicer or the Custodian, to the extent
not paid by the Servicer;
(iii) to the Certificateholders, to be applied first to the
Certificate Interest Distributable Amount and then to the Certificate
Principal Distributable Amount, the Certificate Distributable Amount;
(iv) fourth, to the Certificate Insurer (or any designee thereof),
any amounts then due to the Certificate Insurer under the Insurance
Agreement or this Agreement;
(v) fifth, to the Collateral Agent for deposit in the Spread
Account, the amount, if any, required to cause the balance deposited
therein to equal the Requisite Amount;
(vi) sixth, to the Pre-Funding Period Reserve Account, the amount by
which the Required Reserve Amount exceeds the amount of funds on deposit
therein after giving effect to any withdrawals from the Pre-Funding Period
Reserve Account on such Distribution Date;
(vii) seventh, to the Trustee to reimburse the Trustee for any
unreimbursed expenses incurred by it under this Agreement and to pay any
indemnities owed by the Transferor to the Trustee under Section 2.03(b),
Section 6.03 and Section 8.11;
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(viii) eighth, to reimburse the Servicer any expense of an Opinion
of Counsel described in Section 10.01, and any expenses described in the
last sentence of Section 3.08;
(ix) ninth, to reimburse the Standby Servicer for expenses incurred
by the Standby Servicer and to reimburse the Servicer for expenses
incurred by and reimbursable, or any indemnities payable by the
Transferor, to the Servicer pursuant to Sections 2.03(b), 6.03 and 7.01;
(x) tenth, to reimburse the Transferor for expenses incurred by and
reimbursable to the Transferor pursuant to Section 6.03; and
(xi) eleventh, to the holder of the Transferor Interest, the balance
of any funds remaining in the Certificate Account after application
pursuant to the preceding clauses (i) through (x).
(c) Distributions to Certificateholders on a Distribution Date shall be
made on the basis of the Percentage Interests evidenced by Certificates held by
the Holders and shall be made to each Certificateholder of record on the next
preceding Record Date (other than as provided in Section 9.01 respecting the
final distribution), either in immediately available funds (by wire transfer or
otherwise) to the account of such Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder holds
Book-Entry Certificates or Definitive Certificates having an aggregate
denomination of at least $1,000,000.00 and has provided appropriate wire or
other transfer information to the Trustee, or, if such Certificateholder does
not hold Certificates with such aggregate denomination or holds such aggregate
denomination but does not so notify the Trustee, by check mailed to such
Certificateholder at the address of such Holder appearing in the Certificate
Register.
Section 4.02. Statements to Certificateholders. Concurrently with each
distribution charged to the Certificate Account, the Trustee shall forward by
mail to each Holder of a Certificate, the Transferor, the Servicer, the
Certificate Insurer and each Rating Agency a written statement prepared by the
Servicer substantially in the form attached hereto as Exhibit 4.02.
Section 4.03. Specification of Certain Tax Matters.
(a) Each Certificateholder shall provide the Trustee with a completed and
executed Form W-9 prior to purchasing a Certificate. The Trustee shall comply
with all requirements of the Internal Revenue Code, and applicable state and
local law with respect to the withholding from any distributions made to any
Certificateholder of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith. The
Transferor and each
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Certificateholder, by acceptance of its Certificate, agree for purposes of such
withholding (and for all other federal, state, and local income and franchise
tax purposes) to recognize and treat the Certificates as indebtedness of the
Transferor.
(b) On or before the last day of February of each calendar year beginning
with calendar year 1997, the Servicer shall furnish to each Person who at any
time during the preceding calendar year was Certificateholder a statement
prepared by the Servicer setting forth the amount of interest and principal
distributed to such Person during the preceding calendar year and such other
information required to be provided by an issuer of indebtedness under the
Internal Revenue Code and such other customary information (consistent with the
treatment of the Certificates as debt, as provided in Section 10.06) as the
Servicer deems necessary or desirable to enable the Certificateholders to
prepare their tax returns. Such obligations of the Servicer shall be deemed to
have been satisfied to the extent that substantially comparable information
shall be provided to the Certificateholder by the Transferor pursuant to any
requirements of the Internal Revenue Code.
Section 4.04. Withdrawals from Spread Account; Claims Under Certificate
Policy.
(a) The Servicer shall determine on the Business Day prior to each Draw
Date whether the sum of (i) the Available Amount for the related Distribution
Date and (ii) the amount, if any, to be paid by the Certificate Insurer to the
Trustee with respect to such Distribution Date pursuant to Section 4.04(e), is
sufficient to pay the amounts required to be distributed on the related
Distribution Date pursuant to clauses (i) through (iii), inclusive, of
subsection 4.01(b) and shall send written notice of such determination to the
Trustee and the Certificate Insurer on such Business Day. The Trustee
independently shall verify the accuracy of such determination, and in the event
that such sum is not sufficient to pay such amounts required to be distributed
pursuant to clauses (i) through (iii), inclusive, of subsection 4.01(b), the
Trustee shall, for the benefit of the Certificateholders, deliver to the
Collateral Agent, the Certificate Insurer and the Servicer, no later than 12:00
noon, New York City time, on the day preceding such Draw Date, a written notice
(a "Deficiency Notice") specifying the amount of the shortfall (the amount of
any such shortfall being hereinafter referred to as the "Deficiency Claim
Amount"). Such Deficiency Notice shall direct the Collateral Agent to remit such
Deficiency Claim Amount (to the extent of the funds available to be distributed
pursuant to the Spread Account Agreement) to the Trustee. Amounts paid by the
Collateral Agent to the Trustee pursuant to a claim submitted under this Section
4.04(a) shall be deposited by the Trustee into the Certificate Account for
payment to Certificateholders on the related Distribution Date.
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(b) In the event that the Trustee has delivered a Deficiency Notice with
respect to any Distribution Date, the Trustee shall determine on the related
Draw Date whether the sum of (i) the Available Amount for the related
Distribution Date, and (ii) the amount of the Deficiency Claim Amount, if any,
to be delivered by the Collateral Agent to the Trustee pursuant to a Deficiency
Notice delivered with respect to such Distribution Date would be insufficient to
pay the Guaranteed Distributions for the related Distribution Date. In the event
the Trustee determines that the amounts described in clauses (i) through (iii),
inclusive, of the preceding sentence would be insufficient to pay the Guaranteed
Distributions for the related Distribution Date, then in such event the Trustee
shall furnish to the Certificate Insurer no later than 12:00 noon, New York City
time, on such Draw Date, a completed Notice of Claim in the amount of the
shortfall the amount of such shortfall being hereinafter referred to as the
"Policy Claim Amount"). Any notice delivered by the Trustee to the Certificate
Insurer shall specify the Policy Claim Amount claimed under the Certificate
Policy and shall constitute a "Notice of Claim" under the Certificate Policy. In
accordance with the provisions of the Certificate Policy, the Certificate
Insurer is required to pay to the Trustee the Policy Claim Amount properly
claimed thereunder by 12:00 noon, New York City time, on the later of (i) the
third Business Day (as defined in the Certificate Policy) following receipt on a
Business Day (as defined in the Certificate Policy) of the Notice of Claim, and
(ii) the applicable Distribution Date. Any payment made by the Certificate
Insurer under the Certificate Policy shall be applied solely to the payment of
the Guaranteed Distributions, and for no other purpose.
(c) The Trustee shall (i) receive as attorney-in-fact of each
Certificateholder any Policy Claim Amount from the Certificate Insurer and (ii)
deposit the same in the Certificate Account for disbursement to the
Certificateholders as set forth in Section 4.01(b)(iii). Any and all Policy
Claim Amounts disbursed by the Trustee from claims made under the Certificate
Policy shall not be considered payment by the Trust or from the Spread Account
with respect to such Certificates, and shall not discharge the obligations of
the Trust to make such payment. The Certificate Insurer shall, to the extent it
makes any payment with respect to the Certificates, become subrogated to the
rights of the recipients of such payment, to the extent of such payments.
Subject to and conditioned upon any payment with respect to the Certificates by
or on behalf of the Certificate Insurer, the Trustee shall assign to the
Certificate Insurer all rights to the payment of interest or principal with
respect to the Certificates which are then due for payment to the extent of all
payments made by the Certificate Insurer and the Certificate Insurer may
exercise any option, vote, right, power or the like with respect to the
Certificates to the extent that it has made payment pursuant to the Certificate
Policy. The Trustee agrees that the Certificate Insurer shall be subrogated to
all of the rights of payment of the Certificateholders or in relation thereto to
the extent that any such payment was made to such
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Certificateholders with payments made under the Certificate Policy. To evidence
such subrogation, the Trustee shall note the Certificate Insurer's rights as
subrogee upon the Certificate Register upon receipt from the Certificate Insurer
of proof of payment by the Certificate Insurer of any Guaranteed Distributions.
(d) The Trustee shall be entitled to enforce on behalf of the
Certificateholders the obligations of the Certificate Insurer under the
Certificate Policy. Notwithstanding any other provision of this Agreement, the
Certificateholders are not entitled to institute proceedings directly against
the Certificate Insurer.
(e) The Certificate Insurer shall have the right, but not the obligation,
to pay to the Trustee for deposit into the Certificate Account with respect to
any Distribution Date all or any part of the amount, distributable pursuant to
clauses (i) through (iii), inclusive, of subsection 4.01(b) for such
Distribution Date. To exercise such right, the Certificate Insurer must cause
written notice thereof to be delivered to the Trustee prior to the close of
business on the second Business Day prior to the applicable Distribution Date
and must cause the amount to be paid to be delivered (in immediately available
funds) to the Trustee on or prior to 12:00 noon, New York City time, on the
applicable Distribution Date. Any amount so paid to the Trustee shall be
deposited by the Trustee in the Certificate Account.
(f) The Certificate Insurer shall have the right, but not the obligation,
to pay to the Trustee from time to time for deposit in the Spread Account an
amount equal to the amount, if any, by which the Requisite Amount exceeds the
amount on deposit in the Spread Account at the time. To exercise such right, the
Certificate Insurer or its designee must deliver to the Collateral Agent the
amount to be paid, in immediately available funds, and written notice to deposit
such amount in the Spread Account. Any amount so paid to the Collateral Agent
shall be deposited by the Collateral Agent in the Spread Account.
Section 4.05. Preference Claims.
(a) In the event that the Trustee has received a certified copy of an
order of an appropriate court that any Guaranteed Distributions paid on a
Certificate has been avoided in whole or in part as a preference payment under
applicable bankruptcy law, the Trustee shall so notify the Certificate Insurer,
shall comply with the provisions of the Certificate Policy to obtain payment by
the Certificate Insurer of such avoided payment, and shall, at the time it
provides notice to the Certificate Insurer notify Holders of the Certificates by
mail that, in the event that any Certificateholder's payment is so recoverable,
such Certificateholder will be entitled to payment pursuant to the terms of the
Certificate Policy. Pursuant to the terms of the Certificate Policy, the
Certificate Insurer will make such payment on behalf of the Certificateholder to
the receiver,
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conservator, debtor-in-possession or trustee in bankruptcy named in the Order
(as defined in the Certificate Policy) and not to the Trustee or any
Certificateholder directly (unless a Certificateholder has previously paid such
payment to the receiver, conservator, debtor- in-possession or trustee in
bankruptcy, in which case the Certificate Insurer will make such payment to the
Trustee for distribution to such Certificateholder upon proof of such payment
reasonably satisfactory to the Certificate Insurer).
(b) The Trustee shall promptly notify the Certificate Insurer of any
proceeding or the institution of any action (of which a Responsible Officer of
the Trustee has actual knowledge) seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership, rehabilitation
or similar law (a "Preference Claim") of any distribution made with respect to
the Certificates. Each Holder, by its purchase of Certificates, and the Trustee
hereby agree that so long as a Certificate Insurer Default shall not have
occurred and be continuing, the Certificate Insurer may at any time during the
continuation of any proceeding relating to a Preference Claim direct all matters
relating to such Preference Claim including, without limitation, (i) the
direction of any appeal of any order relating to any Preference Claim and (ii)
the posting of any surety, supersede or performance bond pending any such appeal
at the expense of the Certificate Insurer, but subject to reimbursement as
provided in the Insurance Agreement. In addition, and without limitation of the
foregoing, as set forth in Section 4.04(c), the Certificate Insurer shall be
subrogated to, and each Certificateholder and the Trustee hereby delegate and
assign, to the fullest extent permitted by law, the rights of the Trustee and
each Certificateholder in the conduct of any proceeding with respect to a
Preference Claim, including, without limitation, all rights of any party to an
adversary proceeding action with respect to any court order issued in connection
with any such Preference Claim.
Section 4.06. Retirement of Certificates. The Trustee, upon termination of
the Trust Estate pursuant to Section 9.01 or Section 9.02, shall furnish to the
Certificate Insurer a notice of such termination, and, upon retirement of the
Certificates and the expiration of the term of the Certificate Policy, shall
surrender the Certificate Policy to the Certificate Insurer for cancellation.
Section 4.07. Spread Account. The Transferor agrees, simultaneously with
the execution and delivery of this Agreement, to execute and deliver the Spread
Account Agreement, and pursuant to the terms thereof, to deposit the Initial
Spread Account Deposit in the Spread Account.
ARTICLE V
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The Certificates
Section 5.01. The Certificates. The Certificates shall be substantially in
the form set forth in Exhibit 5.01 attached hereto and shall, on original issue,
be executed by the Trustee on behalf of the Trust and authenticated and
delivered by the Trustee upon receipt by the Servicer and the Subservicers, on
behalf of the Trustee, of the documents specified in Section 2.01. The
Certificates shall be issuable in the aggregate original Certificate Balance of
$62,098,000 in denominations of $20,000, and in integral multiples of $1,000 in
excess thereof. The Certificates shall be executed by manual or facsimile
signature on behalf of the Trust by an authorized officer of the Trustee under
its seal imprinted thereon. No Certificate shall be entitled to any benefit
under this Agreement, or be valid for any purpose, unless such Certificate shall
have been authenticated by the Trustee by manual signature of an authorized
signatory of the Trustee and such authentication shall be conclusive evidence,
and the only evidence, that such Certificate has been duly delivered and
entitled to the benefits hereof. All Certificates shall be dated the date of
their authentication.
Section 5.02. Registration of Transfer and Exchange of Certificates. (a)
The Trustee shall cause to be kept at one of its offices or agencies in Chicago,
Illinois a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The office of Harris Trust and Savings Bank, 311 West Monroe Street, 11th floor,
Chicago, Illinois 60606, Attention: Bond Services Unit, is initially appointed
such office for the purpose of registering Certificates and transfers and
exchanges of Certificates as herein provided.
(b) [Reserved].
(c) No transfer of any Certificate or interest therein shall be made to
any transferee or purchaser who is a Plan or Plan Entity or who is purchasing
such Certificate or interest therein directly or indirectly on behalf of any
Plan or Plan Entity. Any prospective transferee shall be deemed to represent
that it is not purchasing directly or indirectly on behalf of a Plan or Plan
Entity and the Transferor, the Trustee and Servicer shall be entitled to
conclusively rely thereon.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Trustee maintained for such purpose pursuant to this
Section 5.02 and upon satisfaction of the conditions set forth below, the
Transferor shall execute and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of a like aggregate Percentage Interest.
At the option of the Certificateholders, Certificates may be exchanged for
other Certificates of authorized denomination of a
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like aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange, the Transferor shall execute and the Trustee shall
authenticate and deliver the Certificates which the Certificateholder making the
exchange is entitled to receive. Every Certificate presented or surrendered for
transfer or exchange shall (if so required by the Trustee) be duly endorsed by,
or be accompanied by a written instrument of transfer in form satisfactory to
the Trustee duly executed by, the Holder thereof or his attorney-in-fact duly
authorized in writing.
No service charge shall be made for any transfer or exchange of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of certificates.
All Certificates surrendered for transfer and exchange shall be cancelled
and returned to the Transferor.
Section 5.03. Mutilated, Destroyed Lost or Stolen Certificates. If (i) any
mutilated Certificate is surrendered to the Trustee or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee and the Transferor such
security or indemnity as may be required by the Transferor or the Trustee to
hold them harmless, then, in the absence of written notice to the Trustee that
such Certificate has been acquired by a bona fide purchaser, the Transferor
shall execute and the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and Percentage Interest. Upon the issuance of any new
Certificate under this Section, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee and the Transferor) connected therewith. Any duplicate Certificate
issued pursuant to this Section shall constitute complete and indefeasible
evidence of ownership in the Trust Estate, as if originally issued, whether or
not the lost, stolen or destroyed Certificate shall be found at any time. The
Trustee may appoint an affiliate of the Servicer to perform its duties under
this Section, subject to the agreement of such affiliate (including as to
compensation indemnity and the other terms of such appointment).
Section 5.04. Persons Deemed Owner. Prior to due presentation of a
Certificate for registration of transfer, the Transferor, the Servicer, the
Trustee and any agent of the Transferor, the Servicer, or the Trustee may treat
the Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 4.01
and for all other purposes whatsoever, and neither the Transferor, the Servicer,
the Trustee nor any agent
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of the Transferor, the Servicer or the Trustee shall be affected by notice to
the contrary.
Section 5.05. Appointment of Paying Agent. The Transferor may appoint a
Paying Agent, which shall be acceptable to the Transferor and the Certificate
Insurer (unless a Certificate Insurer Default has occurred and is continuing),
for the purpose of making distributions to Certificateholders pursuant to
Section 4.01. In the event of any such appointment, on or prior to each
Distribution Date, the Trustee shall deposit or cause to be deposited with the
Paying Agent a sum sufficient to make the payments to Certificateholders in the
amounts and in the manner provided for in Section 4.01, such sum to be held, in
trust, for the benefit of Certificateholders. The Transferor hereby initially
appoints the Trustee as Paying Agent for the Certificates.
The Trustee shall cause each Paying Agent to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee
that such Paying Agent will hold all sums held by it for the payment to
Certificateholders, in trust, for the benefit of the Certificateholders entitled
thereto until such sums shall be paid to such Certificateholders.
Section 5.06 Book-Entry Certificates. The Certificates, upon original
issuance, shall be issued in the form of typewritten Certificates representing
the Book-Entry Certificates, to be delivered to The Depository Trust Company,
the initial Clearing Agency, by, or on behalf of, the Transferor. The
Certificates shall initially be registered on the Certificate Register in the
name of CEDE & Co., the nominee of the Clearing Agency, and no Beneficial Owner
will receive a definitive certificate representing such Beneficial Owner's
interest in the Investor Certificates, except as provided in Section 5.08.
Unless and until definitive, fully registered Certificates ("Definitive
Certificates") have been issued to Beneficial Owners pursuant to Section 5.08:
(i) the provision of this Section 5.06 shall be in full force and
effect;
(ii) the Transferor, the Servicer, the Paying Agent, if any, and the
Trustee may deal with the Clearing Agency for all purposes (including the
making of distributions on the Certificates) as the authorized
representatives of the Beneficial Owners;
(iii) to the extent that the provisions of this Section 5.06
conflict with any other provisions of this Agreement, the provisions of
this Section 5.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law and
agreements between such
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Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants. Pursuant to the Depository Agreement, unless and until
Definitive Certificates are issued pursuant to Section 5.08, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principal and
interest on the Certificates to such Participants; and
(v) whenever this Agreement requires or permits actions to be taken
based upon instructions or directions of Certificateholders evidencing a
specified Percentage Interest, the Clearing Agency shall be deemed to
represent such percentage only to the extent that it has received
instructions to such effect from Beneficial Owners and/or Clearing Agency
Participants owning or representing, respectively, such required
percentage of the beneficial interest in the Certificates and has
delivered instructions to the Trustee reflecting such instructions.
Section 5.07 Notices to Clearing Agency. Whenever notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Certificates shall have been issued to Beneficial Owners
pursuant to Section 5.08, the Trustee shall give all such notices and
communications specified herein to be given to Holders of the Certificates to
the Clearing Agency.
Section 5.08 Definitive Certificates. If (i)(A) the Servicer advises the
Trustee in writing that the Clearing Agency is no longer willing or able to
discharge properly its responsibilities under the Depository Agreement, and (B)
the Servicer is unable to locate a qualified successor, (ii) the Servicer, at
its option, advises the Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of a
Servicer Default, Beneficial Owners representing beneficial interests
aggregating not less than 50% of the Percentage Interests, advise the Trustee
and the Clearing Agency through the Clearing Agency Participants in writing that
the continuation of a book-entry system through the Clearing Agency is no longer
in the best interests of the Beneficial Owners, the Trustee shall notify all
Beneficial Owners, through the Clearing Agency, of the occurrence of any such
event and of the availability of Definitive Certificates to Beneficial Owners
requesting the same. Upon surrender to the Trustee of the Certificates by the
Clearing Agency, accompanied by registration instructions from the Clearing
Agency for registration, the Transferor shall execute and the Trustee shall
authenticate and deliver at its Corporate Trust Office the Definitive
Certificates. Neither the Transferor nor the Trustee shall be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be protected in relying on, such instructions. Upon the issuance of Definitive
Certificates the Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder. The
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Trustee shall not be liable if the Trustee or the Transferor is unable to locate
a qualified successor Clearing Agency.
ARTICLE VI
The Transferor and the Servicer
Section 6.01. Respective Liabilities of the Transferor and the Servicer.
The Transferor and the Servicer shall each be liable in accordance herewith only
to the extent of the obligations specifically and respectively imposed upon and
undertaken by the Transferor and the Servicer herein and the representations
made by the Transferor or the Servicer.
Section 6.02. Existence of Transferor and Servicer; Merger or
Consolidation of the Servicer; Assignment of Rights and Delegation of Duties by
Servicer. Subject to the following paragraph, the Transferor and the Servicer
each will keep in full effect its existence, rights and franchises under the
laws of the jurisdiction of its organization, and each will obtain and preserve
its qualification to do business, or employ agents qualified to do business, in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Certificates or
any of the Contracts and to perform its respective duties under this Agreement.
The Servicer may be merged or consolidated with or into any Person, or
transfer substantially all of its assets to any Person, in which case any Person
resulting from any merger or consolidation to which the Servicer shall be a
party, or any Person succeeding to the business of the Servicer, shall be the
successor of the Servicer hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided however, that the successor or
surviving person to the Servicer shall be an Eligible Servicer and each
successor to the Servicer by virtue of its acquisition of substantially all of
the Servicer's assets shall be deemed to have made the representations and
warranties set forth in Section 2.03(a) hereof and shall agree in writing to be
bound by each of the Servicer's obligations hereunder; provided further, that,
(i) no representation or warranty of the Servicer is breached at the time of
merger, (ii) no event has occurred that, after notice or lapse of time or both,
would be an Insurance Agreement Event of Default and (iii) an opinion of counsel
to the effect that all conditions precedent to merger have been satisfied and a
security interest opinion have been provided. The Servicer shall provide notice
of any such merger, consolidation or transfer of substantially all of its assets
to the Certificate Insurer, the Trustee and the Rating Agencies. The Transferor
may not be merged or consolidated with or into any Person or transfer
substantially all of its assets to any Person.
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Section 6.03. Limitation on Liability of the Transferor, the Servicer and
Others. The Servicer will defend and indemnify the Trustee, the Certificate
Insurer and their respective officers, directors, employees and agents and the
Certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation, arising out of or resulting from the use or operation of any
Financed Vehicle by the Servicer or any Subservicer. In addition, the Servicer
will defend and indemnify the Trustee, the Certificate Insurer and their
respective officers, directors, employees and agents and the Certificateholders
against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation,
arising from a breach of its obligations to service the Contracts in accordance
with this Agreement; provided however, that the Servicer shall not be liable for
any such costs, expenses, losses, damages, claims or liabilities to the extent
that any thereof resulted from the negligence or willful misconduct of the
Trustee, its officers, directors, employees and agents; and provided further
that the Servicer will not be liable for any such amount that resulted from any
act or omission to act by it done in conformity with the written instruction of
the Trustee. If the Servicer or Transferor has made any indemnity payments to
the Certificateholders or the Trustee, the Certificate Insurer or their
respective officers, directors, employees or agents pursuant to this paragraph,
and the Trustee, the Certificate Insurer or their respective officers,
directors, employees or agents thereafter collects any of the amounts which gave
rise to such indemnity payments from others or any such amounts are received by
the Trustee or its officers, directors, employees or agents, the Trustee or its
officers, directors, employees or agents shall repay such amounts collected to
the Servicer or Transferor who made such indemnity payment. These indemnities of
the Servicer and the Transferor will survive any transfer of the respective
rights, duties and obligations of the Servicer or the Transferor hereunder to
another Person, the termination of this Agreement pursuant to Section 9.01
hereof, any Servicer Default, the termination of the Trust Estate or the
resignation or replacement of the Trustee for acts accruing prior to the
transfer, termination of the Trust Estate or the resignation or replacement of
the Trustee, but will not cover actions or omissions of any successor Servicer
after a Servicer Default. Neither the Servicer nor any of its directors,
officers, employees or agents shall be under any liability to the Trust Estate,
the Trustee, any Certificateholder, the Certificate Insurer or the Transferor
for any action taken by the Servicer in its capacity as such (and not in any
other capacity) in good faith or for errors in judgment except for any action
taken or errors committed which caused a breach of a representation or warranty
of the Servicer under Section 2.03(a). The Transferor, the Servicer and any
director, officer, employee or agent of any Transferor or the Servicer may rely
in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
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The Transferor, the Servicer and any director, officer, employee or agent
of the Transferor or the Servicer shall be indemnified by the Trust Estate and
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense for which the Transferor or Servicer provides an
indemnity as provided in the preceding paragraph (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this
Agreement). Neither the Transferor nor the Servicer shall be under any
obligation to appear in, prosecute or defend any legal action which is not in
its reasonable judgment incidental to its respective duties under this Agreement
and which in its reasonable judgment may subject it to any expense or liability;
provided however, that the Servicer may in its discretion undertake any such
action which it may deem necessary or desirable in respect to this Agreement and
the rights and duties of the parties hereto and the interest of the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Estate, and the Servicer shall be entitled to be
reimbursed therefor out of the Certificate Account as provided by Section
3.11(b) and Section 4.01(b)(ix). The rights of the Servicer to indemnity,
reimbursement or limitation on its liability pursuant to this Section 6.03 shall
survive the transfer of the rights, duties and obligations of the Servicer to
another Person or any Servicer Default.
The Servicer shall defend, indemnify and hold harmless the Trust, the
Trustee, the Certificate Insurer, their respective officers, directors, agents
and employees, and the Certificateholders from and against any taxes that may at
any time be asserted against the Trust, the Trustee or the Certificateholders
with respect to the transactions contemplated in this Agreement, including,
without limitation, any sales, gross receipts, general corporation, tangible
personal property, privilege or license taxes (but not including any taxes
asserted with respect to, and as of the date of, the sale of the Contracts and
the other Trust Estate to the Trustee or the issuance and original sale of the
Certificates, or asserted with respect to ownership of the Contracts, or federal
or other income taxes arising out of distributions on the Certificates) and
costs and expenses in defending against the same.
The Servicer shall indemnify, defend and hold harmless the Trust, the
Trustee, the Certificate Insurer, their respective officers, directors, agents
and employees and the Certificateholders from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage, or liability arose out of, or was imposed upon the
Trustee, the Trust, the Certificate Insurer or the Certificateholders through
the breach of this Agreement, the negligence, willful misfeasance, or bad faith
of the Servicer in the performance of its duties under this Agreement or by
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reason of reckless disregard of its obligations and duties under this Agreement.
Section 6.04. Transfer of Duties of Servicer. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
imposed on it by this Agreement as Servicer except upon a determination that by
reason of a change in legal requirements the performance of its duties under
this Agreement would cause it to be in violation of such legal requirements in a
manner which would have a material adverse effect on the Servicer, and the
Certificate Insurer (which shall be required so long as a Certificate Insurer
Default shall not have occurred and be continuing) does not elect to waive the
obligation of the Servicer to perform the duties which render it legally unable
to act or to delegate those duties to another Person. Any such determination
permitting the resignation of the Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered and acceptable to the Trustee and the
Certificate Insurer (unless a Certificate Insurer Default shall have occurred
and be continuing). No resignation of the Servicer shall become effective until,
so long as no Certificate Insurer Default shall have occurred and be continuing,
the Standby Servicer, or an entity acceptable to the Certificate Insurer shall
have assumed the responsibilities and obligations of the Servicer or, if a
Certificate Insurer Default shall have occurred and be continuing, a Person that
is an Eligible Servicer shall have assumed the responsibilities and obligations
of the Servicer.
Section 6.05. Servicer May Own Certificates. The Servicer in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not the Servicer. The Servicer
shall notify the Trustee and the Certificate Insurer promptly after it becomes
the owner or pledgee of a Certificate.
ARTICLE VII
Default
Section 7.01. Servicer Defaults. "Servicer Default," wherever used herein,
means any one of the following events (whatever the reason for such Servicer
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the Servicer shall fail, or fail to cause any Subservicer, to deliver
to the Trustee for distribution to Certificateholders or deposit in the Spread
Account any proceeds or payments required to be so delivered by the Servicer or
Subservicer under the terms of the Certificates or this Agreement (including
deposits of the Retransfer Amounts) and such failure
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shall continue unremedied for two Business Days after written notice is received
by the Servicer from the Trustee or (unless a Certificate Insurer Default shall
have occurred and be continuing) the Certificate Insurer or after discovery of
such failure by a Servicing Official; or
(b) the Servicer shall fail to observe or perform any other of the
covenants or agreements on the part of the Servicer in this Agreement, which
failure (i) materially and adversely affects the rights of Certificateholders
(determined without regard to the availability of funds under the Certificate
Policy) or of the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), and (ii) continues unremedied for a
period of thirty days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Certificate Insurer (or, if a
Certificate Insurer Default has occurred and is continuing, Certificateholders
evidencing in the aggregate not less than 25% of the Percentage Interest); or
(c) there shall have occurred a Bankruptcy Event with respect to the
Servicer; or
(d) the Servicer shall have breached any of the representations and
warranties set forth in this Agreement which breach materially and adversely
affects the interests of the Certificateholders in any Contract determined
without regard to the availability of funds under the Certificate Policy or of
the Certificate Insurer (or, if NAFCO is the Servicer, the Transferor) and the
Servicer shall have failed to cure such breach in all material respects within
thirty days of its receipt of a notice of such breach; or
(e) there shall have occurred an Insurance Agreement Event of Default or
an event of default under any other insurance agreement to which the Certificate
Insurer and NAFCO and/or the Transferor are party; or
(f) a claim is made under the Certificate Policy; or
(g) the Servicer fails to deliver the report required to be delivered by
the Servicer pursuant to Section 3.17 and such failure remains unremedied for a
period of five days.
(h) so long as a Certificate Insurer Default shall not have occurred and
be continuing, the Certificate Insurer shall not have delivered a Servicer
Extension Notice pursuant to Section 3.22.
If a Servicer Default shall occur, then, and in each and every such case,
so long as such Servicer Default shall not have been remedied, the Trustee may,
with the written consent of the Certificate Insurer (unless a Certificate
Insurer Default has occurred and is continuing), and at the written direction of
the
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Certificate Insurer (or, if a Certificate Insurer Default has occurred and
is continuing, Certificateholders evidencing in the aggregate not less than 51%
of the Percentage Interests), the Trustee shall, by notice in writing to the
Servicer, the Transferor and the Standby Servicer, (i) terminate all of the
rights and obligations of the Servicer under this Agreement and in and to any
Contracts and the proceeds thereof, subject to compensation, rights of
reimbursement, indemnity and limitation on liability to which the Servicer is
then entitled and the rights of indemnity to which the Trustee and the
Certificate Insurer are then entitled pursuant to Section 6.03 hereof, and (ii)
subject to 7.02, appoint the Standby Servicer as the successor Servicer. Such
notice shall specify, to the extent possible, the timing and method of
transition of the servicing of the Contracts from the Servicer to the Standby
Servicer or another successor Servicer appointed pursuant to Section 7.02. On
and after the receipt by the Servicer of such written notice and upon the
effective date of the transfer to the Standby Servicer or such other successor
Servicer specified in such notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Certificates or the Contracts or
otherwise, shall pass to and be vested in the Standby Servicer or such other
successor Servicer, pursuant to and under this Section; and, without limitation,
such Person is hereby authorized and empowered to execute and deliver, on behalf
of the Servicer, an attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Contracts and related
documents, or otherwise. The Servicer agrees to cooperate with such Person in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to such party for
administration by is of all cash amounts which shall thereafter be received with
respect to the Contracts.
The Trustee shall not be charged with knowledge of any event referred to
in clauses (a) through (d) above unless a Responsible Officer of the Trustee at
the Corporate Trust Office obtains actual knowledge of such event or receives
written notice of such event from the Servicer, the Certificate Insurer or from
a Certificateholder. The Trustee promptly shall send written notice to each
Rating Agency and the Certificate Insurer of each Servicer Default of which it
is charged with knowledge in accordance with the preceding sentence.
If the Servicer is terminated pursuant to this Section 7.01, then the
Servicer shall bear all of the costs and expenses of transferring the duties and
obligations of the Servicer to a successor Servicer and except as otherwise
agreed by the Certificate Insurer such costs and expenses shall not be
reimbursable from the Trust Estate nor payable by the Transferor or the Trustee.
To the extent not borne by the Servicer as described above, such costs and
expenses (including attorney's
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fees and expenses) shall be borne by the Trust Estate in accordance with Section
4.01(b)(ix).
Section 7.02. Trustee to Act; Appointment of Successor. On and after the
time the Servicer receives a notice of termination pursuant to Section 7.01, the
Standby Servicer shall be the successor in all respects to the Servicer in its
capacity as Servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof; provided however, that in the event that the Standby Servicer refuses or
is unable to act as successor Servicer, the Trustee or a successor Servicer
appointed pursuant to this Section 7.02 shall be the successor Servicer
hereunder and provided further, however, that if no Certificate Insurer Default
shall have occurred and be continuing the Certificate Insurer, by written notice
to the Trustee, the Transferor, the Servicer and the Standby Servicer, may
designate another Person to act as successor Servicer hereunder. As compensation
therefor, the Trustee, its designee, or other successor Servicer, as the case
may be, shall be entitled to all funds relating to the Contracts which the
Servicer would have been entitled to charge to the Certificate Account if the
Servicer had continued to act hereunder. If the Standby Servicer refuses or is
unable to act as successor Servicer hereunder, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act, appoint, or petition a
court of competent jurisdiction to appoint, any experienced servicer of motor
vehicle installment sales contracts and notes having a net worth of not less
than $10,000,000 as the successor to the Servicer hereunder in the assumption of
all or any part of the responsibilities, duties or liabilities of the Servicer
hereunder. The Trustee shall obtain the prior written consent of the Certificate
Insurer (unless a Certificate Insurer Default has occurred and is continuing)
before appointing a successor Servicer other than the Standby Servicer, and any
successor Servicer other than the Standby Servicer shall be satisfactory to the
Certificate Insurer (unless a Certificate Insurer Default has occurred and is
continuing). Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Contracts as it and such
successor shall agree; provided however, that no such compensation to the
Trustee shall be in excess of that permitted the Servicer hereunder unless (A)
the Trustee and the Certificate Insurer (or if a Certificate Insurer Default has
occurred and is continuing, holders of Certificates evidencing a majority in
Percentage Interests of the Certificates) agree in writing to a larger Servicing
Fee and (B) each Rating Agency delivers a letter to the Trustee to the effect
that such larger Servicing Fee will not result in a reduction or the withdrawal
of the rating assigned by such Rating Agency to the Certificates; and provided
further, however, that the Servicing Fee to a successor Servicer, including the
Trustee,
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shall not exceed a monthly fee equal to 1/12th of the product of (i) the
aggregate amount of the Outstanding Principal Balances of all Contracts
outstanding as of the last day of the related Due Period and (ii) two percent
(2%). The Transferor, the Trustee, any Subservicer and such successor shall take
such action, consistent with this Agreement, as shall be necessary to effectuate
any such succession.
If the Trustee shall succeed to the Servicer's duties as Servicer of the
Contracts as provided herein, it shall do so in its individual capacity and not
in its capacity as Trustee and, accordingly, the provisions of Article VIII
shall be inapplicable to the Trustee and its duties in its capacity as a
successor Servicer to the Servicer and the servicing of the Contracts. In the
event that the Trustee shall not seek to appoint a successor Servicer within
three months of its succession to the Servicer's duties as servicer, it shall
resign as Trustee pursuant to Section 8.06 and the Transferor shall, with the
written consent of the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), appoint, or the Trustee shall petition a
court to appoint, a successor trustee pursuant to such Section 8.06. To the
extent a successor Servicer is appointed, the Trustee shall not be liable for
the acts or omissions of such successor Servicer.
Section 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to the
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register.
(b) Within 60 days after the occurrence of any Servicer Default, the
Trustee shall transmit by mail to all Holders of Certificates notice of each
such Servicer Default hereunder actually known to a Responsible Officer of the
Trustee, unless such Servicer Default shall have been cured or waived.
Section 7.04. Waiver of Past Defaults. The Certificate Insurer (or, if a
Certificate Insurer Default shall have occurred and be continuing, the Holders
of Certificates representing in the aggregate at least 51% of the Percentage
Interests) may, on behalf of all Holders of Certificates, waive any default by
the Servicer in the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
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ARTICLE VIII
Concerning the Trustee
Section 8.01. Duties of Trustee. The Trustee, prior to the occurrence of a
Servicer Default of which a Responsible Officer of the Trustee has actual
knowledge and after the curing of all Events of Default and Servicer Defaults
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. In case an Event of Default or
Servicer Default has occurred of which a Responsible Officer of the Trustee has
actual knowledge (and which has not been cured), the Trustee shall exercise such
of the rights and powers vested in it by this Agreement, and use the same degree
of care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own bad faith or willful misconduct; provided however, that:
(i) Prior to the occurrence of a Servicer Default, and after
the curing of all such Events of Default and Servicer Defaults which
may have occurred, the duties and obligations of the Trustee shall
be determined solely by the express provisions of this Agreement,
the Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Agreement, no implied covenant or obligation shall be read into this
Agreement against the Trustee and, in the absence of bad faith or
willful misconduct on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect
to any action taken, suffered or
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omitted to be taken by it in good faith in accordance with the
direction of the Certificate Insurer (or, if a Certificate Insurer
Default has occurred and is continuing, Certificateholders holding
Certificates which evidence not less than 25% of the Percentage
Interests) as to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Agreement,
so long as the Trustee shall not have received directions in a
timely manner to the contrary from a larger Percentage Interest; and
(iv) The Trustee shall not, except as expressly authorized
under this Agreement, take any action reasonably likely to impair
the security interests created or existing under any Contract or
Financed Vehicle or to impair the value of any Contract or Financed
Vehicle.
Section 8.02. Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 8.01:
(i) The Trustee may conclusively rely and shall be protected
in acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document believed by it to
be genuine and to have been signed or presented to it by the proper
party or parties;
(ii) The Trustee may consult with counsel and any Opinion of
Counsel or advice of such counsel shall be full and complete
authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel or advice;
(iii) The Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Agreement or to
institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of the Certificate Insurer
or any of the Certificateholders, pursuant to the provisions of this
Agreement, unless the Certificate Insurer or such Certificateholders
shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred
therein or thereby; nothing contained herein shall, however, relieve
the Trustee of the obligation, upon the occurrence of a Servicer
Default of which a Responsible Officer has actual knowledge (which
has not been cured), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same
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degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own
affairs;
(iv) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
(v) Prior to the occurrence of a Servicer Default hereunder
and after the curing of all Servicer Defaults which may have
occurred, the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, direction, note,
request, consent, order, approval, bond or other paper or document,
unless requested in writing to do so by the Certificate Insurer or,
after a Certificate Insurer Default, Holders of Certificates
evidencing not less than 25% of the Percentage Interests; provided
however, that if the prompt payment to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms
of this Agreement, the Trustee may require indemnity satisfactory to
it against such expense or liability as a condition to so
proceeding. The reasonable expense of every such examination shall
be paid by the Transferor, if a Servicer Default shall have occurred
and is continuing, and otherwise by the Certificate Insurer or the
Certificateholder requesting the investigation;
(vi) The Trustee shall not be required to expend or risk its
own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any
of its rights or powers, if there is any ground for believing that
the repayment of such funds or adequate indemnity against such risk
or liability is not assured to it, and none of the provisions
contained in this Agreement shall in any event require the Trustee
to perform, or be responsible for the manner of performance of, any
obligations of the Servicer under this Agreement except during such
time, if any, as the Trustee shall be the successor to, and be
vested with the rights, duties, powers and privileges of, the
Servicer in accordance with the terms of this Agreement;
(vii) Whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, offering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
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prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officer's Certificate; and
(viii) The Trustee may execute any of the trusts or powers
hereunder by or through agents, attorneys, custodians or nominees or
perform any duties hereunder either directly or by or through
agents, attorneys, custodians or nominees and the Trustee shall not
be responsible for any misconduct or negligence on the part of any
agent, attorney, custodian or nominee appointed with due care by it
hereunder.
Specifically, and not by way of limitation of the foregoing, the Trustee
may consult with counsel as to the limitations, if any, on interest to be
computed with respect to interest shortfalls in respect of prior distribution
dates, if any, and any Opinion of Counsel with respect thereto shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted to be taken with respect thereto by it in good faith and in
accordance with such Opinion of Counsel.
Section 8.03. Trustee Not Liable for Certificates or Contracts. The
recitals contained herein and in the Certificates (other than the certification
of authentication on the Certificates) shall be taken as the statements of the
Transferor or the Servicer, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Agreement or of the Certificates (except
that the Certificates shall be duly and validly authenticated by it) or of any
Contract or related document. The Trustee shall not be accountable for the use
or application by the Transferor, the Servicer or any Subservicers of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid pursuant hereto to the Transferor, the Servicer or
any Subservicers in respect of the Contracts or deposited in any Account (or any
other account hereafter established to effectuate the transactions contemplated
herein and in accordance with the terms hereof) by the Transferor, the Servicer
or any Subservicers. Subject to Article VII and Sections 8.01 and 8.02, the
Trustee shall have no responsibility or liability for or with respect to the
validity of any security interest in any Financed Vehicle, the perfection of any
such security interest (whether as of the date hereof or at any future time),
the maintenance of or the taking of any action to maintain such perfection, the
existence or validity of any Contract, the validity of the assignment of any
Contract to the Trust Estate or of any intervening assignment, the review of any
Contract or any Contract File (it being understood that the Trustee has not
reviewed and does not intend to review such matters), the completeness of any
Contract File, the receipt by its custodian of any Contract or Contract File,
the performance or enforcement of any Contract (subject to Section 3.01), the
compliance by the Servicer or the Transferor with any covenant or the breach by
the
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Servicer or the Transferor of any warranty or representation made hereunder or
in any related document or the accuracy of any such warranty or representation,
the acts or omissions of the Servicer or any Obligor or Dealer, any action of
the Servicer or any Subservicer taken in the name of the Trustee or any action
by the Trustee taken at the instruction of the Transferor, the Servicer or any
Subservicer.
Section 8.04. Trustee May Own Certificates. The Trustee in its individual
or any other capacity may become the owner or pledgee of Certificates with the
same rights it would have if it were not Trustee.
Section 8.05. Eligibility Requirements for Trustee. The Trustee hereunder
shall at all times be a corporation organized and doing business under the laws
of the United States of America or any state thereof, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000 and subject to supervision or examination by federal or State
authority. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 8.06.
Section 8.06. Resignation and Removal of the Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Transferor and the Certificate Insurer. Upon
receiving such notice of resignation, the Transferor shall with the written
consent of the Certificate Insurer (unless a Certificate Insurer Default has
occurred and is continuing), promptly appoint a successor trustee by written
instrument, in triplicate, one copy of which instrument shall be delivered to
the resigning Trustee, one copy to the Certificate Insurer and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted appointment within thirty (30) days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. If the Trustee shall
resign voluntarily, for any reason, except lack of eligibility, then the Trustee
shall bear all of its costs and expenses (including without limitation its
attorneys' fees) of transferring the trusteeship to a successor trustee and such
costs and expenses shall not be reimbursable from the Trust Estate nor payable
by the Transferor or the Servicer.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.05 and shall fail to resign after written request
therefor by the Transferor, or if at
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any time the Trustee shall become incapable of acting, or shall be adjudged a
bankrupt or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Transferor may with the written consent of the Certificate
Insurer (unless a Certificate Insurer Default has occurred and is continuing),
remove the Trustee and appoint a successor trustee by written instrument, in
triplicate, one copy of which instrument shall be delivered to the Trustee so
removed, one copy to the Certificate Insurer and one copy to the successor
trustee.
The Certificate Insurer (or if a Certificate Insurer Default shall have
occurred and be continuing, Certificateholders holding Certificates evidencing
in the aggregate a majority of Percentage Interests) at any time may remove the
Trustee and appoint a successor trustee by written instrument or instruments, in
triplicate, signed by the Certificate Insurer or such Holders, as the case may
be, or their attorneys-in-fact duly authorized, one complete set of which
instruments shall be delivered to the Transferor, one complete set to the
Trustee so removed and one complete set to the successor trustee so appointed.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section shall become effective
only upon acceptance of appointment by the successor trustee as provided in
Section 8.07. Upon resignation or removal of the Trustee and appointment of a
successor trustee, the predecessor trustee shall transfer the Certificate Policy
to the successor trustee by delivering the Certificate Policy to the successor
trustee.
The respective obligations of the Transferor and the Servicer as set forth
in this Agreement; provided that, such obligations include upon any removal
shall survive the removal or resignation of the Trustee as provided in this
Section (the obligation to pay any amounts owed to the Trustee pursuant to
Section 8.11 of this Agreement which amount shall be due and payable. No Trustee
under this Agreement shall be liable for any acts or omissions of any successor
trustee.
Section 8.07. Successor Trustee. Any successor trustee appointed as
provided in Section 8.06 shall execute, acknowledge and deliver to the
Transferor, the Servicer, the Certificate Insurer and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee and the appointment of such
successor trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with the like
effect as if originally named as trustee herein. The predecessor trustee upon
payment of its then unpaid charges, if any, shall execute and deliver an
instrument transferring to such successor trustee
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all of the rights, powers and trusts of the predecessor trustee, and shall duly
assign, transfer and deliver to such successor trustee all property and money
held by such predecessor trustee and the Transferor, the Servicer and the
predecessor trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in the successor trustee all such rights, powers, duties and
obligations.
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of Section 8.05.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the successor trustee shall mail notice of the succession of such
trustee hereunder to each Rating Agency and all Holders of Certificates at their
addresses as shown in the Certificate Register. If the successor trustee fails
to mail such notice within ten days after acceptance of appointment by the
successor trustee, the Servicer shall cause such notice to be mailed at the
expense of the successor trustee.
Section 8.08. Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be eligible under the provisions of
Section 8.05, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding. The Trustee or its successor hereunder shall provide the
Servicer and the Certificate Insurer with prompt notice of any such transaction.
Section 8.09. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Estate or property securing the same may at the time be located, the
Transferor, the Certificate Insurer (unless a Certificate Insurer Default shall
have occurred and be continuing) and the Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee to act as co-trustee or co-trustees, jointly
with the Trustee, or separate trustee or separate trustees, of all or any part
of the Trust Estate, and to vest in such Person or Persons, in such capacity and
for the benefit of the Certificateholders, such title to the Trust Estate, or
any part thereof, and, subject to the other provisions of this Section 8.09,
such powers, duties, obligations, rights and trusts as the Transferor, the
Certificate Insurer and the Trustee may consider necessary or desirable. If the
Transferor and the Certificate Insurer shall not have joined in such appointment
within fifteen (15) days after the receipt by it of a request so to do, or a
Certificate
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Insurer Default shall have occurred and be continuing, the Trustee alone shall
have the power to make such appointment. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 8.05 hereunder and no notice to Holders of Certificates of
the appointment of a co-trustee or separate trustee shall be required under
Section 8.07.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.09, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood at such separate trustee or co-trustee is not
authorized to act without the Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed (whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties and obligations (including
the holding of title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed by such separate trustee or
co-trustee at the direction of the Trustee.
No trustee hereunder shall be liable by reason of any act or omission of
any other trustee hereunder. The Servicer, the Trustee and, provided no
Certificate Insurer Default shall have occurred, the Certificate Insurer acting
jointly may at any time accept the resignation of or remove any separate trustee
or co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall
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vest in and be exercised by the Trustee, to the extent permitted by law, without
the appointment of a new or successor trustee.
Section 8.10. Appointment of Office or Agency. The Trustee will maintain
an office at the address stated in Section 10.05(c) hereof where notices and
demands to or upon the Trustee in respect of the Certificates may be served.
Section 8.11. Trustee's Compensation and Reimbursement.
(a) The Transferor and NAFCO jointly and severally agree:
(i) to pay the Trustee compensation in any amount computed in
accordance with the Trustee's fee schedule attached hereto as
Schedule 2 (which compensation shall not be limited by any provision
of law relating to the compensation of a trustee of an express
trust);
(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances (including, without limitation, expenses
incurred in connection with notices or other communications to
Certificateholders) incurred or made by the Trustee in accordance
with any provision of this Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or willful misconduct; and
(iii) to indemnify the Trustee and its officers, directors,
employees and agents for, and to hold them harmless against, any
loss, liability, expense or tax (but not including taxes measured by
income or revenues) incurred without negligence or willful
misconduct on their part, arising out of or in connection with (A)
the acceptance of the Trustee's duties under, or administration of
the Trust Estate in accordance with the terms of, this Agreement,
including the costs and expenses of counsel to defend themselves
against any claim or liability in connection with the exercise or
performance of any of their powers or duties hereunder, or (B) the
Transferor's violation of any federal or state securities laws in
connection with the offering and sale of the Certificates, provided
that:
(A) with respect to any such claim, the Trustee shall have
given the Transferor written notice thereof promptly after the
Trustee shall have knowledge thereof;
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(B) while maintaining absolute control over its own defense,
the Trustee shall, unless its interests are adverse to that of the
Transferor, cooperate and consult fully with the Transferor in
preparing such defense;
(C) notwithstanding any other provision of this Section
8.11(a) the Transferor shall not be liable for settlement of any
such claim by the Trustee entered into without the prior written
consent of the Transferor; and
(D) the Trustee and its agents, as a group, shall be entitled
to counsel separate from the Transferor to the extent the
Transferor's interests are adverse to the Trustee's or the interests
of such agents (to be determined in the sole discretion of the
Trustee).
(b) Notwithstanding that the Transferor and NAFCO agree to pay the
Trustee the amounts set forth in Section 8.11(a), the Trustee shall distribute
to itself its fee described in Section 8.11(a)(i) pursuant to Section 3.11(b)
and Section 4.01 and shall distribute to itself its expenses and amounts
described in Section 8.11(a)(ii) and (iii) pursuant to Section 4.01. To the
extent that amounts are available to pay the Trustee as provided herein, the
Transferor and NAFCO shall not be liable to the Trustee. To the extent that
amounts are not available to pay the Trustee as provided herein, NAFCO, whether
or not it then is acting as Servicer, shall pay the Trustee such amounts.
Section 8.12. Trustee May Enforce Claims Without Possession Of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceedings instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after the payment in full of compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, be for the ratable benefit of the
Certificateholders in respect of which such judgment has been obtained.
Section 8.13. Suits for Enforcement. If a Servicer Default shall occur and
be continuing, the Trustee, in its sole discretion, may proceed to protect and
enforce its rights and the rights of the Certificateholders under this Agreement
by suit, action or proceeding in equity or at law or otherwise, whether for the
specific performance of any covenant or agreement contained in this Agreement or
in aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy as the Trustee, being
advised by counsel, shall deem most effectual to protect and enforce any of the
rights of the Trustee or the Certificateholders. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or
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adopt on behalf of any Certificateholder any plan of reorganization,
arrangement, adjustment or composition affecting the Certificates or the rights
of any Holder, thereof, or authorize the Trustee to vote in respect of the claim
of any Certificateholder in any such proceeding.
Section 8.14. Rights of Direct Trustee. The Certificate Insurer or, if a
Certificate Insurer Default shall have occurred and be continuing, the Holders
of Certificates evidencing in the aggregate not less than a majority of the
Percentage Interests of the Certificates (the "Majority Certificateholders"),
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee; provided however, that the Trustee may decline
to follow any such direction if the Trustee, being advised by counsel,
determines that the action so directed may not lawfully be taken, or if the
Trustee shall determine, in good faith, that the proceedings so directed would
be illegal or involve the Trustee in personal liability or, only if a
Certificate Insurer Default shall have occurred and be continuing, be unduly
prejudicial to the rights to the Certificateholders not giving such direction or
that reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred has not been offered to it; and, provided further that
nothing in this Agreement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and which is not inconsistent with such
direction of the Certificate Insurer or Majority Certificateholders.
ARTICLE IX
Termination
Section 9.01. Termination upon Retransfer to the Transferor or Liquidation
of All Contracts. The respective obligations and responsibilities of the
Servicer, the Transferor and the Trustee created hereby (other than the
obligation of the Trustee to make final payments to Certificateholders, the
Servicer and the Transferor as herein set forth) shall terminate upon (i) the
retransfer to the Transferor of all Contracts and all property acquired in
respect of any Contract remaining in the Trust Estate in exchange for the
delivery to the Trustee of an amount (the "Total Retransfer Amount") equal to
the sum of (A) 100% of the Certificate Balance as of the Distribution Date upon
which the proceeds of any retransfer are to be distributed, plus (B) one month's
interest at the Certificate Rate on the Certificate Balance on the Distribution
Date upon which the proceeds of any retransfer are to be distributed, (ii) the
sale, liquidation or disposal of the Contracts pursuant to Section 9.02 upon the
occurrence of a Bankruptcy Event with respect to the Transferor or (iii) five
months after the later of the final payment or other liquidation of the last
Contract remaining in the Trust Estate or the disposition of all property
acquired upon Repossession of any Financed Vehicle; provided however, that in
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no event shall the trust created hereby continue beyond the expiration of
twenty-one years from the death of the last survivor of the descendants of
Joseph P. Kennedy, former ambassador to the Court of St. James, living on the
Closing Date.
The right of the Transferor to require the retransfer to it of all
Contracts pursuant to (i) above is conditioned upon (a) the Pool Outstanding
Principal Balance as of the Distribution Date upon which the proceeds of such
repurchase are to be distributed being less than ten percent (10%) of the
Original Pool Outstanding Principal Balance, (b) delivery by the Transferor of
written notice of such retransfer to the Trustee and the Servicer not later than
the fifteenth day of the month next preceding the month in which such retransfer
will occur and (c) receipt of the prior written consent of the Certificate
Insurer if such retransfer would result in a claim on the Certificate Policy on
such Distribution Date or any Distribution Date thereafter or would result in
any amount owing to the Certificate Insurer under the Insurance Agreement
remaining unpaid. If such right is exercised, the Servicer shall cooperate fully
with the Transferor in effecting the retransfer of the Contracts and related
Contract Files and records to the Transferor. In addition, the Trustee and any
Subservicer shall promptly release to the Transferor the Contract Files
pertaining to the Contracts being retransferred.
Notice of any termination pursuant to clause (i) above specifying
the Distribution Date (the "Payment Date") upon which the Certificateholders may
surrender their Certificates to the Trustee for payment of the final
distribution and cancellation, shall be given promptly by the Trustee by letter
to Certificateholders mailed not earlier than the twenty first (21st) day and
not later than the twenty-fifth day of the month next preceding the month of
such final distribution specifying (A) the Distribution Date upon which final
payment of the Certificates will be made upon presentation and surrender of
Certificates at the office or agency appointed by the Trustee for that purpose
at the Corporate Trust Office, (B) the amount of any such final payment and (C)
that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee therein specified. The
Trustee shall give such notice to the Servicer, the Certificate Insurer and the
Transferor at the time such notice is given to Certificateholders. The
Transferor shall deposit in the Certificate Account at least one Business Day
prior to the date on which such notice is given an amount equal to the amount
necessary to make the amount on deposit in the Certificate Account on the
Payment Date equal to the Total Retransfer Amount for the Contracts computed as
above provided. Upon presentation and surrender of the Certificates, the Trustee
shall cause to be distributed to Certificateholders the Guaranteed Distribution
Amount. If the Transferor has deposited the Total Retransfer Amount in the
Certificate Account in
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accordance with this paragraph, no interest shall be payable in respect of the
Certificates after the Payment Date.
If the Trustee is unable to apply any funds in accordance with this
Section by reason of any legal proceeding or by reason of any order or judgment
of any court or governmental authority enjoining, or restraining or otherwise
prohibiting such application, the obligations under this Agreement and the
Certificates shall be revived and restated as though no deposit of funds had
occurred pursuant to this Section and the Transferor shall promptly reassign the
Contracts and Contract Files to the Trustee until such time as the Trustee is
permitted to apply all such funds in accordance with this Section or the
obligations with respect to the Certificates are otherwise satisfied.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the time specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto.
Upon final termination of the Trust Estate, the Accounts shall be
terminated and any amounts on deposit therein in excess of those lawfully due
and payable to any Person shall be paid to the Transferor.
Notwithstanding any termination of the Trust Estate pursuant to Section
9.01, the Trustee shall remain obligated to distribute to the Certificateholders
or former Certificateholders entitled thereto any amounts paid by the
Certificate Insurer to the Trustee as Preference Claims pursuant to the
Certificate Policy.
Section 9.02. Disposition of Contracts upon Bankruptcy Event. (a) Upon the
occurrence of a Bankruptcy Event with respect to the Transferor, the Transferor
shall promptly give written notice to the Trustee and the Certificate Insurer of
the occurrence of such Bankruptcy Event and, if the Revolving Period has not
terminated shall immediately cease transferring Additional Contracts to the
Trust. Notwithstanding any cessation of the transfer of Additional Contracts to
the Trust, Contracts transferred to the Trust prior to the occurrence of such
Bankruptcy Event and collections in respect thereof, whenever collected or
accrued on such Contracts, shall continue to be a part of the Trust. Within 15
days after receipt by the Trustee of notice of the occurrence of a Bankruptcy
Event, the Trustee shall (i) publish a notice in either The Wall Street Journal
or The New York Times that a Bankruptcy Event has occurred with respect to
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the Transferor and that the Trustee intends to sell, dispose of or otherwise
liquidate the Contracts on commercially reasonable terms and in a commercially
reasonable manner and (ii) give notice to Certificateholders and the Certificate
Insurer describing the provisions of this Section and requesting instructions
from such Holders. If after 90 days from the day notice pursuant to clause (i)
of the preceding sentence is first published (the "Publication Date"), the
Trustee shall not have received written instructions of (x) Holders of
Certificates representing a majority of the Percentage Interests to the effect
that such Certificateholders disapprove of the liquidation of the Contracts, and
(y) the Certificate Insurer to such effect, the Trustee shall, subject to
9.02(c) below, promptly sell, dispose of or otherwise liquidate the Contracts
(other than any Contracts assigned to the Certificate Insurer pursuant to clause
(c) below) in a commercially reasonable manner and on commercially reasonable
terms, which shall include the solicitation of competitive bids. The Trustee
shall promptly notify the Certificate Insurer upon accepting an offer for the
Contracts. The Trustee may obtain a prior determination from any conservator,
receiver or liquidator that the terms and manner of any proposed sale,
disposition or liquidation are commercially reasonable. The provisions of
Section 9.01 and 9.02 shall not be deemed to be mutually exclusive.
(b) The proceeds from any sale, disposition or liquidation of the
Contracts pursuant to Section 9.01 or subsection (a) above shall be treated as
collections on the Contracts and shall immediately be deposited in the
Collection Account. The Trustee shall determine conclusively the amount of such
proceeds which are deemed to be principal collections and finance charge
collections. Such proceeds and all amounts on deposit in the Collection Account,
the Pre-Funding Account, the Pre-Funding Period Reserve Account and the
Revolving Account shall be distributed pursuant to Section 4.01 on the
Distribution Date following the Due Period in which such sale, liquidation or
disposition occurs and the Trust shall terminate immediately thereafter.
(c) In the event that, based on offers to purchase the Contracts accepted
by the Trustee, the Certificate Insurer would not be reimbursed in full for all
amounts due to it under the Insurance Agreement following the distribution of
the proceeds of such sale and all funds on deposit in the Collection Account,
the Revolving Account, the Pre-Funding Account, the Certificate Account and the
Pre-Funding Reserve Account to the Certificateholders pursuant to Section
9.02(b) of this Agreement, the Certificate Insurer shall be permitted to request
an assignment of Contracts and all funds on deposit in the Revolving Account,
the Pre-Funding Account, the Certificate Account and the Pre-Funding Reserve
Account to it or its designee (including any liquidating or grantor trust
designated by it) in lieu of such a distribution of such sale proceeds. In the
event that the Certificate Insurer elects to request such an assignment,
promptly following receipt by the Trustee of notice of such
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request, the Trustee shall file with the Certificate Insurer a Notice of Claim
in accordance with the Certificate Policy in respect of the principal amount, if
any, of the Certificates that are unpaid on the Distribution Date immediately
preceding the date of the receipt by the Trustee of such notice plus accrued
interest thereon. All amounts received by the Trustee from the Certificate
Insurer pursuant to this Section 9.02(c) shall be distributed to the
Certificateholders. Immediately upon payment by the Certificate Insurer of all
amounts required to be paid by the Certificate Insurer pursuant to this Section
9.02(c), the Trustee shall be deemed to have assigned the Contracts and all
funds on deposit in the Revolving Account, the Pre-Funding Account, the
Collection Account, the Certificate Account and the Pre-Funding Reserve Account
to the Certificate Insurer or its designee. To effect such deemed assignment,
the Trustee shall do and perform any reasonable acts and execute any further
instruments reasonably requested by the Certificate Insurer.
ARTICLE X
Miscellaneous Provisions
Section 10.01. Amendment. This Agreement may be amended from time to time
by the Servicer, the Transferor and the Trustee, without the consent of any of
the Certificateholders but with the prior written consent of the Certificate
Insurer (unless a Certificate Insurer Default has occurred and is continuing),
to cure any ambiguity, to correct or supplement any provisions herein which may
be inconsistent with any other provisions herein or therein, or to make any
other provisions with respect to matters or questions arising under this
Agreement which shall not be materially inconsistent with the provisions of this
Agreement, provided that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of any
Certificateholder or the Certificate Insurer.
In executing or accepting the additional trusts created by any amendment
to this Agreement permitted by this Section, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by this
Agreement. The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this agreement or otherwise. The Servicer may, but shall not be obligated to,
enter into any amendment which affects the Servicer's own rights, duties or
immunities under this Agreement or otherwise.
This Agreement may also be amended from time to time, with the written
consent of the Certificate Insurer (unless a Certificate Insurer Default has
occurred and is continuing), by the Servicer, the Transferor and the Trustee
with the consent of the Holders of Certificates evidencing in the aggregate not
less than a 662/3 Percentage Interest of the Certificates for the
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purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Certificateholders; provided however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Contracts which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate, or (ii) reduce the aforesaid level of
Percentage Interests the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all Certificates then
outstanding. Promptly after the execution of any amendment pursuant to this
paragraph, the Trustee shall furnish written notification of the substance of
such amendment to each Certificateholder. If a Certificate Insurer Default shall
have occurred and be continuing, no amendment to this Agreement that would
materially and adversely affect the interests of the Certificate Insurer shall
be effected without the Certificate Insurer's prior written consent.
It shall not be necessary for the consent of Certificateholders under this
Section 10.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe. The Transferor shall notify each
Rating Agency prior to executing any amendment of this agreement pursuant to
this Section 10.01.
The expenses of any Opinion of Counsel delivered hereunder shall be paid
for by the Person requesting the opinion and, in the case of the Trustee and the
Certificate Insurer, shall be considered an expense reimbursable as otherwise
provided herein and, in the case of the Servicer, shall be reimbursable under
Sections 3.11(b) and 4.01(b).
Section 10.02. Recordation of Agreement. To the extent permitted by
applicable law, this Agreement is subject to recordation in any appropriate
public recording office or elsewhere, such recordation to be effected by the
Transferor and at its expense upon direction by the Trustee, but only upon
direction accompanied by an Opinion of Counsel at the Transferor's expense to
the effect that such recordation materially and beneficially affects the
interests of the Certificateholders and the Certificate Insurer. The Trustee
shall have no duty to determine whether the recordation of this Agreement is
necessary under applicable law to perfect the interests of the
Certificateholders and the Certificate Insurer in the Trust Estate.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an
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original, and such counterparts shall constitute but one and the same
instrument.
Section 10.03. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Estate, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Estate, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as provided in
this Agreement) or in any manner otherwise control the operation and management
of the Trust Estate, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Certificates, be
construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor, to the extent permitted by law,
shall any Certificateholder be under any liability to any third person by reason
of any action taken by the parties to this Agreement pursuant to any provision
hereof.
So long as no Certificate Insurer Default has occurred and is continuing,
whenever Certificateholder action, consent or approval is required under this
Agreement, such action, consent or approval shall be deemed to have been taken
or given on behalf of, and shall be binding upon, all Certificateholders if the
Certificate Insurer agrees to take such action or give such consent or approval.
No Certificateholder shall have any right by virtue of any provision of this
Agreement to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Agreement, unless (i) a Certificate Insurer
Default shall have occurred and be continuing and (ii) such Holder previously
shall have given to the Trustee a written notice of default and of the
continuance thereof, as hereinbefore provided, and unless also the
Certificateholders evidencing in the aggregate not less than 25% of the
Percentage Interests shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for sixty days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Certificateholders shall have any right in any manner whatever by
virtue of any provision of this Agreement to affect, disturb or prejudice the
rights of the Holders of any other of such Certificates, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of Certificateholders.
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For the protection and enforcement of the provisions of this Section, each and
every Certificateholder and the Trustee shall be entitled to such relief as can
be given either at law or in equity.
Nothing in this Agreement shall be construed as giving the
Certificateholders any right to make a claim under the Certificate Policy.
Section 10.04. GOVERNING LAW. THIS AGREEMENT AND THE CERTIFICATES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL, SUBSTANTIVE LAWS OF
THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED THAT THE
IMMUNITIES, STANDARD OF CARE, RIGHTS AND OBLIGATIONS OF THE TRUSTEE IN
CONNECTION WITH THE PERFORMANCE OF ITS DUTIES HEREUNDER SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION IN WHICH ITS CORPORATE
TRUST OFFICE IS LOCATED.
Section 10.05. Notices. All demands and notices hereunder shall be in
writing and shall be deemed to have been duly given if personally delivered at
or mailed by first class mail, postage prepaid, or delivered by facsimile
transmission, promptly confirmed in writing, to (a) in the case of the
Transferor, One Park Place, Suite 200, 621 NW 53rd Street, Boca Raton, Florida
33407, or such other address as may hereafter be furnished to the Servicer and
the Trustee in writing by the Transferor, (b) in the case of the Servicer, One
Park Place, Suite 200, 621 NW 53rd Street, Boca Raton, Florida 33487, or such
other address as may be hereafter furnished to the Transferor and the Trustee by
the Servicer in writing, (c) in the case of the Trustee, 311 West Monroe Street,
12th Floor, Chicago, Illinois 60606, or such other address as may hereafter be
furnished to the Transferor and the Servicer in writing by the Trustee, (d) in
the case of the Certificate Insurer, to its address at 350 Park Avenue, New
York, New York 10022 or its fax number at (212) 339-3518, Attention:
Surveillance Department Re: National Auto Finance 1996-1 Trust, 6.33% Automobile
Receivables-Backed Certificates, or such other address or fax number as may
hereafter be furnished to the Transferor, the Servicer and the Trustee in
writing by the Certificate Insurer and (e) in the case of the Collateral Agent,
to its address at 311 West Monroe Street, 12th Floor, Chicago, Illinois 60606,
or such other address as may hereafter be furnished to the Transferor, the
Servicer and the Trustee in writing by the Collateral Agent. Any notice required
or permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the Certificate
Register. Any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
Section 10.06. Intention of the Parties. The Transferor intends that the
Certificates constitute indebtedness of the
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Transferor for federal, state and local income and franchise tax purposes. The
Transferor, the Servicer and each Certificateholder, by acceptance of its
Certificate, agrees to recognize and report the Certificates as indebtedness of
the Transferor for purposes of federal, state and local income or franchise
taxes and any other tax imposed on or measured by income, and to report all
receipts and repayments relating thereto in a manner that is consistent with
such characterization. The powers granted and obligations undertaken in this
Agreement shall be construed so as to further such intent.
Section 10.07. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
Section 10.08. Protection of Title to Interest. (a) The Transferor or the
Servicer or both shall execute and file such financing statements and cause to
be executed and filed such continuation and other statements, all in such manner
and in such places as may be required by law fully to preserve, maintain and
protect the interest of the Trust, the Trustee and the Certificate Insurer under
this Agreement in the Trust Estate and in the proceeds thereof. The Transferor
or the Servicer or both shall deliver (or cause to be delivered) to the Trustee
and the Certificate Insurer file-stamped copies of, or filing receipts for, any
document filed as provided above, as soon as available following such filing.
(b) Neither the Transferor nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed by the Transferor in
accordance with paragraph (a) above seriously misleading within the meaning of
Section 9-402(7) of the UCC, unless it shall have given the Trustee and the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) at least 30 days prior written notice thereof, and
shall promptly file appropriate amendments to all previously filed financing
statements and continuation statements.
(c) Each of the Transferor and the Servicer shall give the Trustee and the
Certificate Insurer at least 30 days prior written notice of any relocation of
its principal executive office if, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement. The Servicer shall at all times maintain each office from which it
services Contracts and its principal executive office within the United States
of America.
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(d) If at any time the Transferor or the Servicer proposes to sell, grant
a security interest in, or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they refer in any manner whatsoever to any Contract, indicate
clearly that such contract has been sold and is owned by the Trust unless such
Contract has been paid in full or repurchased by NAFCO, the Transferor or the
Servicer.
(e) The Servicer shall permit the Trustee, the Certificate Insurer, the
Transferor and their respective agents, at any time to inspect, audit and make
copies of and abstracts from the Servicer's records regarding any Contracts or
any other portion of the Trust Estate.
(f) The Servicer shall furnish to the Trustee, the Transferor and the
Certificate Insurer at any time upon request a list of all Contracts then held
as part of the Trust, together with a reconciliation of such list to the
Contract Schedules and to each of the Servicer's statements furnished before
such request indicating removal of Contracts from the Trust. The Trustee shall
hold any such list and Contract Schedules for examination by interested parties
during normal business hours at the Corporate Trust Office upon reasonable
notice by such Persons of their desire to conduct an examination.
(g) The Transferor and Servicer shall deliver to the Trustee and the
Certificate Insurer simultaneously with the execution and delivery of this
Agreement and of each amendment thereto and upon the occurrence of the events
giving rise to an obligation to give notice pursuant to Section 10.08(b) or (c),
an Opinion of Counsel (a) stating that, in the opinion of such Counsel, all
financing statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the Trustee in
the Contracts and the Trust Estate, and reciting the details of such filing or
referring to prior Opinions of Counsel in which such details are given, (b)
stating that, in the opinion of such counsel, no such action is necessary to
preserve and protect such interest, or (c) stating in the opinion of such
counsel, any action which is necessary to preserve and protect such interest
during the following 12-month period.
(h) The Servicer shall deliver to the Trustee and the Certificate Insurer,
within 90 days after the beginning of each calendar year beginning with calendar
year 1996, an Opinion of Counsel, either (a) stating that, in the opinion of
such counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the interest
of the Trustee in the Contracts and the Trust Estate, and reciting the details
of such filings or referring to prior Opinions of Counsel in which such details
are
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given, (b) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
Section 10.09. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may not be assigned by any of the
parties hereto without the prior written consent of the Trustee and the
Certificate Insurer.
Section 10.10. Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust,
the interests in the Trust represented by the Certificates shall be
nonassessable for any losses or expenses of the Trust or for any reason
whatsoever, and Certificates upon authentication thereof by the Trustee pursuant
to Section 5.01 are and shall be deemed fully paid.
Section 10.11. Third-party Beneficiaries. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successor and permitted assigns. Except as otherwise provided in this Section
10.11, no other Person shall have any right or obligation hereunder. The
Certificate Insurer and its successors and assigns shall be a third-party
beneficiary to the provisions of this Agreement, and shall be entitled to rely
upon and directly enforce such provisions of this Agreement so long as no
Certificate Insurer Default shall have occurred and be continuing. Except as
expressly stated otherwise herein or in the Transaction Documents, any right of
the Certificate Insurer to direct, appoint, consent to, approve of, or take any
action under this Agreement, shall be a right exercised by the Certificate
Insurer in its sole and absolute discretion. The Certificate Insurer may
disclaim any of its rights and powers under this Agreement (but not its duties
and obligations under the Certificate Policy) upon delivery of a written notice
to the Trustee.
Section 10.12. Financial Security as Controlling Party. Each
Certificateholder by purchase of the Certificates held by it acknowledges that
the Trustee on behalf of the Trust, as partial consideration of the issuance of
the Policy, has agreed that the Certificate Insurer shall have certain rights
hereunder for so long as no Certificate Insurer Default shall have occurred and
be continuing. So long as a Certificate Insurer Default has occurred and is
continuing, any provision giving the Certificate Insurer the right to direct,
appoint or consent to, approve of, or take any action under this Agreement shall
be inoperative during the period of such Certificate Insurer Default and such
right shall instead vest in the Trustee acting at the direction of the Holders
of Certificates. The Certificate Insurer may disclaim any of its rights and
powers under this Agreement (but not its duties and obligations under the
Certificate Policy) upon delivery of a written notice to the Trustee. The
Certificate Insurer may give or withhold any consent hereunder in its sole and
absolute discretion.
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Section 10.13. Limitation of Liability of Trustee. Notwithstanding
anything contained herein to the contrary (i) this Agreement has been accepted
by Harris Trust and Savings Bank not in its individual capacity but solely as
Trustee and in no event shall Harris Trust and Savings Bank have any liability
for the representations, warranties, covenants, agreements or other obligations
of the Transferor hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Transferor, and (ii) under no circumstances shall Harris Trust
and Savings Bank be personally liable for the payment of any indebtedness or
expenses arising in connection with this Agreement to the Certificates or
otherwise. Notwithstanding the foregoing, the Trustee shall remain and be liable
for any breach of its duties and obligations hereunder.
Section 10.14. Limitation of Liability of Chase. Notwithstanding anything
contained herein to the contrary (i) this Agreement has been accepted by Chase
not in its individual capacity but solely as owner trustee of the National
Financial Auto Funding Trust and in no event shall Chase have any liability for
the representations, warranties, covenants, agreements or other obligations of
the Transferor hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Transferor, and (ii) under no circumstances shall Chase be
personally liable for the payment of any indebtedness or expenses arising in
connection with this Agreement to the Certificates or otherwise. Notwithstanding
the foregoing, Chase shall remain and be liable for any breach of its duties and
obligations hereunder.
Section 10.15. Matters Relating to Purchase Agreements. To the extent that
it has rights against NAFCO and ACCH under the Purchase Agreements, the Trustee
shall, subject to Article VIII, diligently pursue and enforce such rights;
provided however, that the Trustee shall not be obligated to file any suit or
incur any expense in connection therewith unless there are sufficient funds
available to reimburse the Trustee in accordance with Section 4.01 or unless the
Trustee receives satisfactory indemnity for such expenses.
Section 10.16. No Petition. Each of the Servicer, the Trustee and the
Certificateholders hereby agree for the benefit of the Trust that it will not
institute against the Transferor, or join any other Person is instituting
against the Transferor, any bankruptcy or insolvency proceeding under any
applicable state or federal law so long as any Certificate remains outstanding
or there shall have not elapsed one year plus one day since the date of the
final payment on the Certificates. The foregoing shall not limit the right of
the Servicer or the Trustee to file any claim in or otherwise take any action
with respect to any bankruptcy or insolvency proceeding that was instituted
against the Transferor by any Person other than the Trustee or the Servicer.
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Section 10.17. Submission to Jurisdiction. EACH PARTY HERETO HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW
YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT, AND HEREBY (A) IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT; (B) IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING; AND (C) IN THE CASE OF THE TRANSFEROR,
IRREVOCABLY APPOINTS NATIONAL FINANCIAL CORP. (THE "PROCESS AGENT"), WITH AN
OFFICE ON THE DATE HEREOF AT 1 PARK AVENUE, NEW YORK, NEW YORK 10016, UNITED
STATES OF AMERICA, AS ITS AGENT TO RECEIVE ON BEHALF OF IT AND ITS PROPERTY
SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY
BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING
OR DELIVERING A COPY OF SUCH PROCESS TO THE TRANSFEROR IN CARE OF THE PROCESS
AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND TRANSFEROR HEREBY IRREVOCABLY
AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF.
NOTHING IN THIS SECTION 10.13 SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO
BRING ANY ACTION OR PROCEEDING AGAINST ANY OR ALL OF THE OTHER PARTIES HERETO OR
ANY OF THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION.
Section 10.18. Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
ACTIONS OF ANY OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
Section 10.19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee
have caused their names to be signed hereto by their respective officers
thereunto duly authorized, all as of the day and year first above written.
NATIONAL FINANCIAL AUTO FUNDING
TRUST, as Transferor
By: CHASE MANHATTAN BANK USA,
N.A., not in its individual capacity but
solely as Owner Trustee of the National
Financial Auto Funding Trust
By:_________________________________________
NATIONAL AUTO FINANCE COMPANY L.P.,
as Servicer
By: NATIONAL AUTO FINANCE
CORPORATION, its General Partner
By:_________________________________________
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity
but solely as Trustee
By:_________________________________________
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- ------------------------------------------------------------------------------
PURCHASE AND CONTRIBUTION AGREEMENT
between
National Auto Finance Company L.P.
and
National Financial Auto Funding Trust
_____________________
Dated as of October 21, 1996
- ------------------------------------------------------------------------------
<PAGE>
PURCHASE AND CONTRIBUTION AGREEMENT
PURCHASE AND CONTRIBUTION AGREEMENT, dated as of October 21, 1996,
by and between National Auto Finance Company L.P., a Delaware limited
partnership ("NAFCO"), and National Financial Auto Funding Trust, a Delaware
business trust ("National Financial").
W I T N E S E T H:
In consideration of the mutual covenants herein contained, NAFCO and
National Financial agree as follows:
ARTICLE I
DEFINITIONS
1.1 Incorporation of Definitions. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement"), dated as of October 21, 1996,
by and among National Financial, as Transferor, NAFCO, as Servicer, and Harris
Trust and Savings Bank, not in its individual capacity but solely as Trustee
(the "Trustee").
1.2 Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Contract Assets: The assets sold, transferred, conveyed and assigned
by NAFCO to National Financial pursuant to this Agreement, which consist of (i)
all Contracts identified in the Contract Schedules attached to the Conveyances
delivered hereunder on each Subsequent Transfer Date; (ii) all monies paid or
payable thereunder on or after the related Cut-Off Date; (iii) the Contract
Files relating to such Contracts; (iv) property which secured any such Contract
and which has been acquired by Repossession or otherwise; (v) all rights to
Insurance Proceeds and Liquidation Proceeds with respect to any such Contract;
(vi) NAFCO's rights against Dealers under the Dealer Agreements in respect of
the representations and warranties made by the Dealer thereunder with regard to
the related Contracts; (vii) NAFCO's right, title and interest in and to the
Purchase Agreement, dated as of October 21, 1996 between NAFCO and Auto Credit
Clearinghouse L.P. ("ACCH") and (viii) the proceeds of the foregoing and the
rights to enforce the foregoing.
Contract Documents: With respect to a Contract, all Contract papers
and documents (including those contained in the Contract File) and all other
papers and records (including computerized data) of whatever size or
description, whether developed or originated by NAFCO, ACCH, a Dealer or another
Person, required to document the Contract or to service the Contract.
<PAGE>
Contract File: With respect to a Contract, the fully executed
original of such Contract; the assignment of such Contract by a Dealer to NAFCO
or ACCH, as the case may be; the original Title Document or UCC financing
statement evidencing that the security interest in a Financed Vehicle granted to
NAFCO or ACCH, as the case may be, under such Contract has been perfected under
applicable state law (except for any Title Documents or UCC financing statements
not returned from the applicable public records office, in which case NAFCO will
deliver to National Financial, on the Closing Date or the Subsequent Transfer
Date, as the case may be, an Officer's Certificate of NAFCO indicating that the
original of such Title Document has been applied for at, or the original of such
UCC financing statement was delivered to, such public office and shows NAFCO or
ACCH, as the case may be, as the lienholder or secured party and that NAFCO will
deliver the originals thereof when returned from such office); the original of
any assumption agreement or any modification, extension or refinancing
agreement; and the original application of the related Obligor to obtain the
financing extended by such Contract.
Contract Schedule: The schedule of Contracts attached as Schedule 1
to any Conveyance delivered hereunder, such schedule identifying each Contract
by name of the Obligor and setting forth as to each Contract its Individual Sold
Balance as of the Cut-off Date, loan number, Contract Rate, scheduled monthly
payment of principal and interest, final maturity date and original principal
amount.
Conveyance: As defined in Section 2.3(b).
Purchase Price: As defined in Section 2.1.
ARTICLE II
PURCHASE, SALE AND CONTRIBUTION
2.1 Purchase and Contribution. (a) Subject to and on the terms and
conditions set forth herein, NAFCO hereby agrees to sell, transfer , convey and
assign, without recourse except as expressly provided herein, all of its right,
title and interest in and to the Contract Assets to National Financial on each
Subsequent Transfer Date. National Financial agrees to pay to NAFCO on each
Subsequent Transfer Date as the purchase price (the "Purchase Price") for the
Contract Assets sold hereunder on such date an amount equal to 100% of the
aggregate Outstanding Principal Balance of the Contracts included in such
Contract Assets as of the related Cut-off Date.
(b) NAFCO may, from time to time during the term of this Agreement
and in its sole discretion, elect to contribute capital to National Financial in
the form of Contracts and Contract Assets conveyed hereunder, in an amount equal
to the excess of (i) the Outstanding Principal Balance of Contracts included in
Contract Assets conveyed on any Subsequent Transfer Date over (ii) the amount of
the cash Purchase Price paid by National Financial to NAFCO on such Subsequent
Transfer Date.
2.2 Filings. On or prior to the Closing Date, NAFCO shall have filed
in the office of the Secretary of State of Florida a UCC financing statement,
appropriate under the
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applicable UCC, to reflect the transfer of the Contract Assets from NAFCO to
National Financial and to protect National Financial's interest in the Contract
Assets against all other Persons. NAFCO shall thereafter file any appropriate
continuation statements in respect thereof.
2.3 Sales. (a) During the Revolving Period and the Pre-Funding
Period, National Financial shall, to the extent permitted by the Pooling and
Servicing Agreement, use funds on deposit in the Revolving Account and the
Pre-Funding Account established under the Pooling and Servicing Agreement to
purchase Additional Contracts and other Contract Assets from NAFCO. On or prior
to each Subsequent Transfer Date, NAFCO shall notify National Financial in
writing of the outstanding principal amount of eligible Contracts included in
Contract Assets available to be sold and conveyed by NAFCO to National Financial
on such Subsequent Transfer Date pursuant to this Agreement, and subject to the
terms and conditions of this Agreement, NAFCO shall, on the applicable
Subsequent Transfer Date, sell and convey to National Financial eligible
Contracts and other Contract Assets having an aggregate outstanding principal
amount equal to the amount specified in such written notice. Each Subsequent
Transfer Date shall be on the date and at the time and place mutually agreed
upon by National Financial and NAFCO. Payment of the Purchase Price for the
Additional Contracts and other Contract Assets sold and conveyed on a Subsequent
Transfer Date shall be made by National Financial to NAFCO in immediately
available funds to an account at a bank designated to National Financial by
NAFCO. National Financial's obligation to purchase Additional Contracts and
other Contract Assets shall be limited by the amount of funds available for such
purchase in the Revolving Account and the Pre-Funding Account pursuant to the
Pooling and Servicing Agreement and shall be subject to the satisfaction of the
conditions in the Pooling and Servicing Agreement.
(b) On or prior to any Subsequent Transfer Date, NAFCO shall (i)
deliver to National Financial a conveyance instrument substantially in the form
attached hereto as Exhibit A (a "Conveyance") with respect to the Contract
Assets sold and conveyed hereunder on such Subsequent Transfer Date, (ii)
deliver to National Financial or such other Person as National Financial shall
direct the original motor vehicle retail installment sale contracts, duly
endorsed by NAFCO or ACCH, as the case may be, and the Contract Files with
respect to each Additional Contract included in the Contract Assets then being
sold to National Financial, (iii) deliver to National Financial or such other
Person as National Financial shall direct cash equal to all payments received by
NAFCO on such Additional Contracts on or after the applicable Cut-off Date and
on or before two Business Days prior to such Subsequent Transfer Date. Within
two Business Days after such Subsequent Transfer Date, NAFCO shall deliver to
National Financial or such other Person as National Financial shall direct all
other payments received by NAFCO on such Additional Contracts on or after the
applicable Cut-off Date and on or before such Subsequent Transfer Date. National
Auto hereby directs NAFCO to deliver the materials referenced in the preceding
clause (ii) of the second preceding sentence to OFSA, as Custodian, and hereby
directs NAFCO to remit any payments received by NAFCO and referenced in the
preceding sentence or in clause (iii) of the second preceding sentence to the
Collection Account.
2.4 No Recourse. Except as specifically provided in this Agreement,
the sale and purchase of Contracts and the other Contract Assets under this
Agreement shall be without recourse to NAFCO; provided that NAFCO shall be
liable to National Financial for all representations, warranties and covenants
made by NAFCO pursuant to the terms of this
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Agreement, it being understood that such obligations of NAFCO do not constitute
recourse for the credit risk of the Obligors.
2.5 True Sales. NAFCO and National Financial intend that the
transactions contemplated hereby be true sales of Contracts and other Contract
Assets by NAFCO to National Financial providing National Financial with the full
benefits of ownership of the Contracts and other Contract Assets free and clear
of any Liens, and neither NAFCO nor National Financial intends the transactions
contemplated hereby to be, or for an purpose to be characterized as, a loan from
National Financial to NAFCO. NAFCO shall reflect sales of the Contract Assets
hereunder on its balance sheet and other financial statements as sales of
assets, and shall treat such sales as sales for all purposes. NAFCO will respond
to third party inquiries by indicating that the Contracts have been sold.
2.6 Receipt of Payments after Closing Date and Subsequent Transfer
Dates. National Financial shall be entitled to all payments received or
receivable with respect to any Contract or Additional Contract sold and conveyed
by NAFCO to National Financial hereunder that are received on and after the
applicable Cut-off Date. If NAFCO receives any payment on a Contract belonging
to the Trust, NAFCO promptly shall turn such payment over to the Trustee not
later than two Business Days after receipt for deposit in the Collection
Account.
2.7 Servicing of Contracts. Consistent with National Financial's
ownership of the Contract Assets, National Financial shall have the sole right
to service, administer and collect the Contracts, to assign such right and to
delegate such right to others. In consideration of National Financial's purchase
of the Contract Assets, NAFCO agrees to cooperate fully with National Financial
to facilitate the full and proper performance of such duties and obligations for
the benefit of National Financial.
2.8 Other Sales. Prior to the later of the end of the Pre-Funding
Period and the end of the Revolving Period, NAFCO shall not sell, transfer,
convey or assign any motor vehicle retail installment sale contract originated
or purchased by it, except as follows: (i) NAFCO may sell, transfer, convey and
assign any such motor vehicle retail installment sale contract to National
Financial pursuant to this Agreement; (ii) NAFCO may sell, transfer, convey and
assign to any Person, without limitation, any such motor vehicle retail
installment sale contract that does not comply with the representations and
warranties set forth in Section 4.1(b) or otherwise would result in a violation
of clause (v) of Article III; and (iii) NAFCO may sell, transfer, assign and
convey such motor vehicle retail installment sale contract to any Person,
without limitation, pursuant to a warehouse lending, repurchase or other similar
arrangement for the financing of the Contract Assets pending transfer to
National Auto hereunder on the next Subsequent Transfer Date.
2.9 Protection of Title to Interest. (a) NAFCO shall execute and
file such financing statements and cause to be executed and filed such
continuation and other statements, all in such manner and in such places as may
be required by law fully to preserve, maintain and protect the interest of
National Financial, the Trustee and the Certificate Insurer under this Agreement
in the Trust Estate and in the proceeds thereof. NAFCO shall deliver (or cause
to be delivered) to National Financial and the Certificate Insurer file-stamped
copies of, or filing receipts for, any document filed as provided above, as soon
as available following such filing.
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(b) NAFCO shall not change its name, identity or corporate structure
in any manner that would, could or might make any financing statement or
continuation statement filed by the Transferor in accordance with paragraph (a)
above seriously misleading within the meaning of Section 9-402(7) of the UCC,
unless it shall have given the Trustee and the Certificate Insurer (so long as a
Certificate Insurer Default shall not have occurred and be continuing) at least
60 days prior written notice thereof, and shall promptly file appropriate
amendments to all previously filed financing statements and continuation
statements as may be required to preserve and protect National Financial's
interest in the Contract Assets, which filings shall be made no later than 30
days after the effective date of any such change.
(c) NAFCO shall give National Financial, the Trustee and the
Certificate Insurer at least 60 days prior written notice of any relocation of
its principal executive office if, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement, and shall promptly file appropriate amendments to all previously
filed financing statements and continuation statements as may be required to
preserve and protect National Financial's interest in the Contract Assets, which
filings shall be made no later than 30 days after the effective date of any such
change. NAFCO shall at all times maintain each office from which it services
Contracts and its principal executive office within the United States of
America.
(d) If at any time NAFCO proposes to sell, grant a security interest
in, or otherwise transfer any interest in automotive receivables to any
prospective purchaser, lender or other transferee, NAFCO shall give to such
prospective purchaser, lender or other transferee computer tapes, records or
printouts (including any restored from backup archives) that, if they refer in
any manner whatsoever to any Contract, indicate clearly that such contract has
been sold and is owned by the Trust unless such Contract has been paid in full
or repurchased by NAFCO, the Transferor or the Servicer.
(e) NAFCO shall permit National Financial, the Trustee, the
Certificate Insurer, their respective agents, at any time to inspect, audit and
make copies of and abstracts from NAFCO's records regarding any Contracts or any
other portion of the Trust Estate.
(f) NAFCO shall furnish to National Financial, the Trustee and the
Certificate Insurer at any time upon request a list of all Contracts then held
as part of the Trust, together with a reconciliation of such list to the
Contract Schedules and to each of the Servicer's statements furnished before
such request indicating removal of Contracts from the Trust. The Trustee shall
hold any such list and Contract Schedules for examination by interested parties
during normal business hours at the Corporate Trust Office upon reasonable
notice by such Persons of their desire to conduct an examination.
ARTICLE III
CONDITIONS PRECEDENT
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National Financial's obligation to purchase Contract Assets
hereunder on each Subsequent Transfer Date shall be subject to the execution,
delivery and effectiveness of the Pooling and Servicing Agreement and the
delivery of the purchase price for the Certificates to National Financial by the
initial purchasers thereof. In addition, the obligation of National Financial to
purchase Contract Assets hereunder on each Subsequent Transfer Date shall be
further subject to the satisfaction of the following conditions on or before the
Closing Date or such Subsequent Transfer Date, as the case may be:
(i) all representations and warranties of NAFCO contained in Section
4.1(a) shall be true and correct and all representations and warranties of NAFCO
in Section 4.1(b) shall be true and correct with respect to the Contracts sold
transferred, conveyed and assigned to National Financial on the Subsequent
Transfer Date, in each case, on and as of such Subsequent Transfer Date, as the
case may be;
(ii) on such Subsequent Transfer Date, NAFCO shall have duly
completed and executed and delivered to National Financial a Conveyance
conforming to the requirements of Section 2.3(b) or 2.4(b), as applicable;
(iii) on or before such Subsequent Transfer Date, (a) NAFCO shall
have delivered to National Financial or such other Person as National Financial
shall direct the original motor vehicle retail installment sale contract, duly
endorsed by ACCH or NAFCO, as the case may be, to National Financial, and the
Contract Files that relate to each Contract included in the Contract Assets then
being sold by NAFCO to National Financial and (b) NAFCO shall have performed all
other obligations then required to be performed by it pursuant to this
Agreement, including, without limitation, Sections 2.2 and 2.3(b) or 2.4(b), as
applicable;
(iv) no Bankruptcy Event or Servicer Default shall have occurred and
be continuing on and as of such Subsequent Transfer Date;
(v) as of such Subsequent Transfer Date, the Contracts then in the
Trust, together with the Additional Contracts to be transferred to National
Financial on such Subsequent Transfer Date, shall meet the following criteria
(computed based on the characteristics of the Additional Contracts as of the
applicable Subsequent Cut-off Date): (A) the weighed average Contract Rate of
the Contracts shall not be less than 18.0%, (B) the weighted average remaining
term of the Contracts shall not be greater than 55 months, and (C) not more than
80% of the aggregate Outstanding Principal Balance Contracts shall represent
loans to finance the purchase of used Financed Vehicles and (D) the final
scheduled payment date on the Contract with the latest maturity shall not be
later than April 30, 2002; and
(vi) all conditions precedent in Section 2.06 of the Pooling and
Servicing Agreement to the transfer and assignment of such Additional Contracts
to the Trust pursuant to the Pooling and Servicing Agreement shall have been
satisfied.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
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4.1 (a) NAFCO hereby represents, warrants and covenants to National
Financial on and as of the Closing Date and each Subsequent Transfer Date that:
(i) NAFCO is a Delaware limited partnership duly organized, validly
existing, and in good standing under the laws of the state of its incorporation
and has all licenses necessary to carry on its business as now being conducted
and shall appoint and employ agents or attorneys in each jurisdiction where it
shall be necessary to take action under this Agreement; NAFCO has the full power
and authority to own its property, to carry on its business as presently
conducted, and to execute, deliver and perform this Agreement (including all
instruments of transfer to be delivered pursuant to this Agreement) by NAFCO and
the consummation of the transaction contemplated hereby have been duly and
validly authorized; this Agreement evidences the valid, binding and enforceable
obligation of NAFCO (subject to applicable bankruptcy and insolvency laws and
other similar laws affecting the enforcement of creditors' rights generally);
and all requisite partnership action has been taken by NAFCO to make this
Agreement valid and binding upon NAFCO;
(ii) NAFCO is not required to obtain the consent of any other party
or obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement except for those which have been obtained;
(iii) the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of the
partnership agreement of NAFCO or result in the breach of any term or provision
of, or conflict with or constitute a default (with or without notice, lapse of
time, or both) under or result in the acceleration of any obligation under, any
material agreement, indenture or loan or credit agreement or other instrument to
which NAFCO or its property is subject, or result in the violation of any law
(including, without limitation, any bulk transfer or similar law), rule,
regulation, order, judgment or decree to which NAFCO or its property or the
Contracts are subject;
(iv) no statement, report or other document furnished or to be
furnished pursuant to this Agreement or in connection with the transaction
contemplated hereby contains or will, when furnished, contain any untrue
statement of a material fact or omits or will, when furnished, omit to state a
material fact necessary to make the statements contained therein not misleading,
in light of the circumstances under which they were made;
(v) neither NAFCO nor any of its subsidiaries or affiliates is a
party to, bound by or in breach or violation of any indenture or other agreement
or instrument, or is subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or governmental
body having jurisdiction over it, which materially and adversely affects, or may
in the future materially and adversely affect, the ability of NAFCO to perform
its obligations under this Agreement
(vi) there are no actions, suits or proceedings pending or, to the
knowledge of NAFCO, threatened against NAFCO, before or by any court, regulatory
body, administrative agency, arbitrator or governmental body with respect to any
of the transactions contemplated by
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<PAGE>
this Agreement, which will, if determined adversely to NAFCO, affect the
validity or enforceability hereof or materially and adversely affect NAFCO's
ability to perform its obligations under this Agreement;
(vii) NAFCO has obtained or made all necessary consents, approvals,
waivers and notifications of creditors, lessors and other non-governmental
persons, in each case, in connection with the execution and delivery of this
Agreement, and the consummation of all the transactions herein contemplated;
(viii) NAFCO shall not take any action to impair National
Financial's rights in any Contract; and
(ix) NAFCO is solvent and will not become insolvent after giving
effect to the transactions contemplated hereunder and under the Transaction
Documents; NAFCO is paying its debts as they become due; NAFCO, after giving
effect to the contemplated transactions, will have adequate capital to conduct
its business.
NAFCO shall indemnify National Financial and the Certificate Insurer
and hold National Financial and the Certificate Insurer harmless against any
loss and damages resulting from a breach of the representations and warranties
set forth in Section 4.1(a).
(b) NAFCO hereby represents and warrants to National Financial as of
the Closing Date with respect to the Initial Contracts sold and conveyed to
National Financial on the Closing Date by National Financial Auto Funding Trust
II ("Funding Trust II") and as of each Subsequent Transfer Date with respect to
the Additional Contracts sold and conveyed to National Financial on such
Subsequent Transfer Date by NAFCO (unless another date or time period is
otherwise specified or indicated in the particular representation or warranty):
(i) the information regarding such Contracts set forth in the
applicable Contract Schedule or Receivables Schedule is true and
correct in all material respects at the applicable Cut-off Date;
each Contract was originated in the United States of America and no
Obligor in the United States of America or any state or any agency,
department, subdivision or instrumentality thereof;
(ii) immediately prior to the Closing Date or such Subsequent
Transfer Date, as the case may be, Funding Trust II or NAFCO, as the
case may be, had a valid and enforceable security interest in the
related Financed Vehicle, and such security interest had been duly
perfected and was prior to all other present and future liens and
security interests (except future tax liens and liens that, by
statute, may be granted priority over previously perfected security
interests) that exist or may hereafter arise, and Funding Trust II
or NAFCO, as applicable, had the full right to assign such security
interest to National Financial;
(iii) on and after the Closing Date or such Subsequent
Transfer Date, as the case may be, there shall exist under the
Contract a valid, subsisting and enforceable first priority
perfected security interest in the Financed Vehicle securing such
Contract (other than, as to the priority of such security interest,
any
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<PAGE>
statutory lien arising by operation of law after the Closing Date or
the Subsequent Transfer Date, as the case may be, which is prior to
such interest) and at such time as enforcement of such security
interest is sought there shall exist a valid, subsisting and
enforceable first priority perfected security interest in such
Financed Vehicle in favor of National Financial or its assigns
(other than, as to the priority of such security interest, any
statutory lien arising by operation of law after the Closing Date or
such Subsequent Transfer Date which is prior to such interest);
(iv) (a) if such Contract was originated in a state in which
notation of a security interest on the Title Document for the
Financed Vehicle securing such Contract is required or permitted to
perfect such security interest, the Title Document for such Financed
Vehicle shows, or if a new or replacement Title Document is being
applied for with respect to such Financed Vehicle the Title Document
will show NAFCO or ACCH, as the case may be, as sole original holder
of a security interest in such Financed Vehicle and (b) if such
Contract was originated in a state in which the filing of a
financing statement under the UCC is required to perfect a security
interest in motor vehicles, such filings or recordings have been
duly made and show NAFCO or ACCH, as the case may be, as the sole
holder of a security interest in such Financed Vehicle;
(v) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, each such Contract has not been sold, assigned
or pledged to any other Person other than an endorsement to the
Servicer for purposes of servicing or any such pledge has been
released, and NAFCO or National Financial Auto Funding Trust II, as
applicable, has good and marketable title to each such Contract free
and clear of any encumbrance, equity, pledge, charge, claim or
security interest and is the sole owner thereof and has full right
to transfer each such Contract to National Financial and, upon the
transfers pursuant to Article II or the Sale Agreement, as
applicable, National Financial will have good and marketable title
to each such Contract and will be the sole owner of each such
Contract free and clear of any encumbrance, lien, pledge, charge,
claim, security interest or rights of others; the purchase of each
such Contract by NAFCO or ACCH, as the case may be, from a Dealer
was not an extension of financing to such Dealer. No Dealer has a
participation in, or other right to receive, proceeds of any
Contract. NAFCO, ACCH, Funding Trust II, the Master Trust and
National Financial have not taken any action to convey any right to
any Person that would result in such Person having a right to
payments received under the related insurance policies or Dealer
Agreements or to payments due under such Contract;
(vi) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, no such Contract is delinquent for more than
thirty days in payment as to any scheduled payment;
(vii) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, there is no lien against any related Financed
Vehicle for delinquent taxes;
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(viii) as of the Closing Date or such Subsequent Transfer
Date, as the case may be, there is no right of rescission, offset,
defense or counterclaim to the obligation of the related Obligor to
pay the unpaid principal or interest due under such Contract; the
operation of the terms of such Contract or the exercise of any right
thereunder will not render such Contract unenforceable in whole or
in part or subject to any right of rescission, offset, defense or
counterclaim, and no such right of rescission, offset, defense or
counterclaim has been asserted;
(ix) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, there are no prior liens or claims for work,
labor or material affecting any related Financed Vehicle which are
or may become a lien prior to or equal with the security interest
granted by such Contract;
(x) each such Contract, and the sale of the Financed Vehicle
securing such Contract, where applicable, complied, at the time it
was made and as of the Closing Date or related Subsequent Transfer
Date, as applicable, in all material respects with applicable state
and federal laws (and regulations thereunder), including, without
limitation, usury, disclosure and consumer protection laws, equal
credit opportunity, fair-credit reporting, truth-in-lending or other
similar laws, the Federal Trade Commission Act, and applicable state
laws regulating retail installment sales contracts and loans in
general and motor vehicle retail installment sales contracts and
loans in particular, and the receipt of interest on, and the
ownership of, such Contract by National Financial will not violate
any such laws;
(xi) each such Contract is a legal, valid and binding
obligation of the Obligor thereunder and is enforceable in
accordance with its terms, except only as such enforcement of
creditors' rights generally, and all parties to such Contract had
full legal capacity to execute such Contract and all documents
related thereto and to grant the security interest purported to be
granted thereby;
(xii) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, the terms of each such Contract have not been
impaired, waived, altered or modified in any respect, except by
written instruments that are part of the Contract Documents, and no
such Contract has been satisfied, subordinated or rescinded;
(xiii) at the time of origination of each such Contract, the
proceeds of such Contract were fully disbursed, there is no
requirement for future advances thereunder, and all fees and
expenses in connection with the origination of such Contract have
been paid;
(xiv) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, there is no default, breach, violation or event
of acceleration existing under any such Contract (except payment
delinquencies permitted by subparagraph (vi) above) and no event
which, with the passage of time or with notice or with both, would
constitute a default, breach, violation or event of acceleration
under
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<PAGE>
any such Contract or would otherwise affect the value or
marketability of such contract; and NAFCO, ACCH, Funding Trust II or
the Master Trust have not waived any such default, breach, violation
or event of acceleration and as of the applicable Cut-Off Date, the
related Finance Vehicle has not been repossessed;
(xv) at the origination date of each such Contract, the
related Financed Vehicle was covered by a comprehensive and
collision insurance policy (i) in an amount at least equal to the
lesser of (a) the actual cash value of the related Financed Vehicle
or (b) the unpaid balance owing on such Contract, less the related
Unearned Finance Charge, (ii) naming NAFCO or ACCH, as the case may
be, as a loss payee and (iii) insuring against loss and damage due
to fire, theft, transportation, collision and other risks generally
covered by comprehensive and collision coverage; each Contract
requires the Obligor to maintain physical loss and damage insurance,
naming NAFCO or ACCH, as the case may be, as an additional insured
party;
(xvi) each such Contract was acquired by NAFCO or ACCH, as the
case may be, from a Dealer with which it ordinarily does business;
such Dealer had full right to assign to NAFCO or ACCH, as the case
may be, such Contract and the security interest in the related
Financed Vehicle and the Dealer's assignment thereof to NAFCO or
ACCH, as the case may be, is legal, valid and binding and the Master
Trust or ACCH, as the case may be, had full right to assign to NAFCO
or Funding Trust II, as the case may be, such Contract and the
security interest in the related Financed Vehicle and NAFCO or
Funding Trust II, as the case may be, had full right to assign to
National Financial such Contract and the security interest in the
related Financed Vehicle and NAFCO's or Funding Trust II's
assignment thereof to National Financial is legal, valid and
binding;
(xvii) each such Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the related Financed
Vehicle of the benefits of the security;
(xviii) scheduled payments under each such Contract are due
monthly (or, in the case of the first payment, no later than the
forty-fifth day after the date of the Contract) in substantially
equal amounts to maturity (other than with respect to those
Contracts designated as balloon contracts on the related Contract
Schedule), and will be sufficient to fully amortize such Contract at
maturity, assuming that each scheduled payment is made on its Due
Date; such scheduled payments are applicable only to payment of
principal and interest on such Contract and not to the payment of
any insurance premiums (although the proceeds of the extension of
credit on such Contract may have been used to pay insurance
premiums); the original term to maturity of such Contract was not
more than 60 months;
(xix) the collection practices used with respect to each such
Contract have been in all material respects legal, proper, prudent
and customary in the automobile installment sales contract or
installment loan servicing business;
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(xx) there is only one original of each such Contract, the
Servicer is currently in possession of the Contract Documents for
such Contract and there are no custodial agreements in effect
adversely affecting the rights of NAFCO to make the deliveries
required hereunder on the Closing Date or such Subsequent Transfer
Date;
(xxi) as of the Cut-off Date or Subsequent Cut-off Date, as
applicable, no Obligor was the subject of a current bankruptcy
proceeding;
(xxii) with respect to each Due Period, the aggregate of the
interest due on all the Contracts in such Due Period from scheduled
payments is in excess of the sum of (i) Servicing Fee due and any
fees due to the Trustee and the Certificate Insurer, each in such
Due Period and (ii) the amount of interest payable on the
Certificates with respect to such Due Period, in each case assuming
that each scheduled payment is made on its Due Date; and
(xxiii) the Contracts constitute "chattel paper" within the
meaning of the UCC as in effect in the States of Florida, New York
and Delaware, and all filings (including without limitation, UCC
filings) required to be made and all actions required to be taken or
performed by any Person in any jurisdiction to give National
Financial an ownership interest in the Contracts and the proceeds
thereof and the remaining Trust Estate have been made, taken or
performed.
(xxiv) by the Closing Date and prior to each Subsequent
Transfer Date, as applicable, NAFCO will have caused the portions of
NAFCO's servicing records relating to the Contracts to be clearly
and unambiguously marked to show that the Contracts constitute part
of the Trust Estate and are owned by the Trust in accordance with
the terms of this Agreement;
(xxv) the computer tape or listing made available by NAFCO to
the Trustee on the Closing Date and on each Subsequent Transfer Date
was complete and accurate as of the applicable Cut-off Date, and
includes a description of the same Contracts that are described in
the applicable Contract Schedule;
(xxvi) no Contract was originated in, or is subject to the
laws of, any jurisdiction the laws of which would make unlawful,
void or voidable the sale, transfer and assignment of such contract
under this Agreement or the Transfer Agreement, as applicable, or
pursuant to transfers of the Certificates. National Financial has
not entered into any agreement with any account debtor that
prohibits, restricts or conditions the assignment of any portion of
the Contracts; and
(xxvii) no selection procedures adverse to the
Certificateholders or to the Certificate Insurer have been utilized
in selecting such Contract from all other similar Contracts
originated by NAFCO or ACCH, as the case may be.
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(xxix) as of the Initial Cut-off Date, the weighted average
annual percentage rate, as such term is used with respect to the
Federal Truth-in-Lending Act ("APR") of the Initial Contracts was
approximately 18.88% and the weighted average remaining scheduled
maturity on the Initial Contracts was approximately 50.27 months and
the percentage of the aggregate outstanding balance of the Initial
Contracts relating to the financing of used Financed Vehicles was
75.05%. The final scheduled payment date on the Initial Contract
with the latest maturity is November 1, 2001. Each Contract is a
Simple Interest or Actuarial Contract.
In the event NAFCO has breached any of the foregoing representations
and warranties and National Financial has accepted a retransfer or is required
to accept a retransfer of the affected Contract pursuant to the Pooling and
Servicing Agreement, NAFCO shall, upon demand, repurchase such Contract from
National Financial. In addition, with respect to any Contract in respect of
which the Title Document was being applied for on the Closing Date or the
applicable Subsequent Transfer Date, as the case may be, if such Title Document
has not been received by National Financial or its transferee within 180 days
after the Closing Date or such Subsequent Transfer Date, as the case may be and
National Financial is required to accept a retransfer of such Contract pursuant
to the Pooling and Servicing Agreement, NAFCO shall, upon demand by National
Financial, repurchase such Contract. Any such repurchases by NAFCO shall be at a
repurchase price equal to the Retransfer Amount determined in the manner
provided in the Pooling and Servicing Agreement. Such repurchase price shall be
paid by NAFCO at the direction of National Financial and upon receipt of such
repurchase price, National Financial shall release, or cause to be released, to
NAFCO the related Contract File and National Financial or its transferee shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest in NAFCO or its designee any
Contract released pursuant thereto. Except as expressly provided in the next
sentence, it is understood and agreed that the obligation of NAFCO to purchase
any Contract as to which such a breach has occurred and is continuing as
described above shall constitute the sole remedy respecting such breach
available to National Financial. NAFCO shall indemnify, defend and hold National
Financial harmless from and against any and all losses, damages, claims,
expenses and liabilities arising out of or relating to a breach by NAFCO of its
representations and warranties in clauses (viii) and (x) of this Section 4.1(b).
Notwithstanding Section 5.1, it is understood and agreed that the
representations, warranties and covenants set forth in this Section 4.1 shall
survive until the date upon which the Trust terminates pursuant to Section 9.01
of the Pooling and Servicing Agreement.
ARTICLE V
MISCELLANEOUS
5.1 Term. This Agreement shall commence as of the Closing Date and
shall continue in full force and effect until the close of business on the last
day of the Revolving Period.
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5.2 Notices. All notices, demands and requests that may be given or
that are required to be given hereunder shall be sent by United States certified
mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as follows:
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If to NAFCO: National Auto Finance Company L.P.
One Park Place
Suite 200
Boca Raton, Florida 33487
Attention: President
Telecopy No: (800) 787-6232
Confirmation: (407) 997-2747
If to National Financial:
National Financial Auto Funding Trust
c/o Chase Manhattan Bank USA, N.A.
1201 N. Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopy No: (302) 575-5467
Confirmation: (302) 575-5099
with a copy to: The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust Administration
Telecopy No: (718) 242-3529
Confirmation: (718) 242-7283
If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopy No: (312) 461-3525
Confirmation: (312) 461-4662
15
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If to the Certificate Insurer:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Telecopier No: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100
Re: NAFCO Auto Finance 1996-1 Trust,
6.33% Automobile Receivables-Backed
Certificates
5.3 Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of New York and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
5.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
5.5 Amendment. This Agreement may be amended from time to time by
NAFCO and National Financial to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other provisions herein or
therein, or to make any other provisions with respect to matters or questions
arising under this agreement which shall not be materially inconsistent with the
provisions of this Agreement, provided that such action shall not, as evidenced
by an Opinion of Counsel delivered to the Trustee, adversely affect in any
material respect the interests of the Certificateholders and provided further
that such action shall be consented to in writing by the Certificate Insurer
(unless a Certificate Insurer Default shall have occurred and be continuing).
5.6 Severability of Provisions. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
5.7 Assignment. This Agreement may not be assigned by NAFCO or
National Financial except as contemplated by this Section and the Pooling and
Servicing Agreement; provided however, that simultaneously with the execution
and delivery of this Agreement, National Financial shall assign all of its
right, title and interest under Section 4.1 to the Trustee on behalf of the
Certificateholders and the Certificate Insurer as provided in Section 2.01 of
the Pooling and Servicing Agreement, to which NAFCO hereby expressly consents.
NAFCO agrees to perform its obligations hereunder for the benefit of the Trust
and further agrees that the Trustee or the Certificate Insurer may (but shall
have no obligation to) enforce the provisions of Section 4.1 and exercise the
rights of National Financial to enforce the obligations of NAFCO
16
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under Section 4.1 on behalf of the Trust and the Certificateholders without the
consent of National Financial.
5.8 Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto, and the Trustee for the
benefit of the Certificateholders and the Certificate Insurer, which shall be
considered to be third-party beneficiaries and shall be entitled to rely on and
directly enforce the provisions of this Agreement. The Certificate Insurer may
disclaim any of its rights and powers under this Agreement upon delivery of a
writt7en note to NAFCO and National Financial. Except as otherwise provided in
this Agreement, no other Person will have any right or obligation hereunder.
5.9 No Petition. NAFCO hereby agrees that it will not institute
against National Financial, or join any other Person instituting against
National Financial, any bankruptcy or insolvency proceeding under any applicable
state or federal law so long as any Certificate issued pursuant to the Pooling
and Servicing Agreement remains outstanding or there shall have not elapsed one
year plus one day since the date of the final payment on the Certificates issued
pursuant to the Pooling and Servicing Agreement. The foregoing shall not limit
the right of NAFCO to file any claim in or otherwise take any action with
respect to any bankruptcy or insolvency proceeding that was instituted against
National Financial by any Person other than NAFCO.
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IN WITNESS WHEREOF, the parties hereto have executed this Purchase
and Contribution Agreement as of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By: CHASE MANHATTAN BANK USA, N.A.
not in its individual capacity but
solely as Owner Trustee of the
National Financial Auto Funding Trust
By: ____________________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY L.P.
By: NATIONAL AUTO FINANCE
CORPORATION, as General Partner
By: ____________________________________
Name:
Title:
18
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Conveyance to
be duly executed and delivered by their respective duly authorized officers as
of the day and year first above written.
NATIONAL AUTO FINANCE COMPANY L.P.
By: NATIONAL AUTO FINANCE CORPORATION,
its General Partner
By:_______________________________________________
Name:_________________________
Title:________________________
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: CHASE MANHATTAN BANK USA, N.A.
not in its individual capacity but solely as Owner
Trustee of the National Financial Auto Funding
Trust
By:_______________________________________________
Name:_________________________
Title:________________________
A-3
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- ------------------------------------------------------------------------------
ASSIGNMENT AGREEMENT
between
BANKERS TRUST COMPANY,
as Trustee of the National Financial
Auto Receivables Master Trust
and
NATIONAL FINANCIAL AUTO FUNDING TRUST II
_____________________
Dated as of October 21, 1996
- ------------------------------------------------------------------------------
<PAGE>
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated as of October 21, 1996, by and between
NATIONAL FINANCIAL AUTO FUNDING TRUST II, a Delaware business trust ("Funding
Trust II") and BANKERS TRUST COMPANY ("Bankers Trust" or the "Trustee"), not in
its individual capacity but solely as Trustee of the National Financial Auto
Receivables Master Trust (the "Master Trust") under the Pooling and
Administration Agreement, dated as of December 8, 1994 (the "Pooling and
Administration Agreement"), among Funding Trust II, as Transferor, National Auto
Finance Company L.P. ("NAFCO"), as Administrator, and Bankers Trust Company, as
Trustee.
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, Funding
Trust II and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
1.1 Incorporation of Definitions. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Pooling and
Administration Agreement.
1.2 Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Cut-off Date: As defined in Section 2.1.
Closing Date: means November 13, 1996.
Outstanding Principal Balance: As of any date and with respect to
any Receivable, the outstanding principal balance of such Receivable as of such
date, which shall be computed by reducing the original principal balance of such
Receivable by the principal portion of each payment received and processed by
the Servicer on or before such date.
Purchase Price: As defined in Section 2.1.
Receivable Assets: The assets described in clauses (i) through
(vii), inclusive, of subsection 2.1 hereof.
Related Security: means, with respect to any Receivable, the
interest of the Seller in (i) the security interest in the Financed Vehicles
granted by the Obligors of the Receivables and any accessions thereto and (ii)
physical damage, credit life, credit disability or other
<PAGE>
insurance policies covering Financed Vehicles or Obligors (including any blanket
vendor's single interest insurance policy).
Receivables Schedule: The schedule of Receivables attached as
Schedule 1 hereto, such schedule identifying each Receivable by name of the
Obligor and setting forth as to each Receivable its Outstanding Principal
Balance as of the Cut-off Date, loan number, interest rate, scheduled monthly
payment of principal and interest, final maturity date and original principal
amount.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase. Subject to and on the terms and conditions set forth
herein, the Trustee hereby sells, transfers, conveys and assigns, on behalf of
the Master Trust, without representation, warranty or recourse, except as
specifically set forth herein all of its right, title and interest in and to (i)
the Receivables identified on the Receivables Schedule attached hereto as
Schedule I, (ii) all monies paid or payable thereunder on or after October 21,
1996 (the "Cutoff Date"), (iii) the Related Security with respect to each such
Receivable, (iv) all proceeds of the foregoing, including all Collections or
Related Security with respect to such Receivables, or other recoveries applied
to repay or discharge any such Receivable received on or after the Cutoff Date
(including net proceeds of sale or other disposition of repossessed Financed
Vehicles that were the subject of any such Receivable) or other collateral or
property of any Obligor or any other party directly or indirectly liable for
payment of such Receivables, (v) all of its right, title and interest in the
Seller Transaction Documents, (vi) all Records relating to any of the foregoing,
(vii) any other Trust Assets relating to the Receivables Assets and (viii) the
proceeds of the foregoing. Funding Trust II agrees to pay to the Trustee on the
Closing Date as the purchase price (the "Purchase Price") for the Receivable
Assets sold hereunder on such date an amount equal to 100% of the aggregate
Outstanding Principal Balance of the Receivables as of the Cut-off Date in
immediately available funds to an account at a bank designated by the Trustee to
Funding Trust II.
2.2 Filings. (a) On or prior to the Closing Date, the Trustee shall
have filed in the office of the Secretary of State of New York, the office of
the Secretary of State of Florida and the office of the Secretary of State of
Delaware, a UCC financing statement or statements, appropriate under the Uniform
Commercial Code in effect in New York, Florida or Delaware to reflect the
transfer of the Receivables Assets from the Trustee to Funding Trust II and to
protect Funding Trust II's interest in the Receivables Assets against all other
Persons. During the term of this Agreement, the Trustee shall not change its
name, identity or structure or relocate its chief executive office or principal
place of business without first giving 60 days prior written notice to Funding
Trust II and Financial Security Assurance Inc. (for so long as any policy issued
Financial Security Assurance Inc. is in effect with respect to any securities
issued by Funding Trust II or any trust of which Funding Trust II is depositor
or transferor); provided, however, that
2
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Funding Trust II has no right or power to prohibit a change in the Trustee's
name, identity or structure or, subject to the last sentence of this paragraph,
a relocation of, its chief executive office. If any change in the Trustee's
name, identity or structure or the relocation of its chief executive office or
principal place of business would make any financing or continuation statement
or notice of lien filed in connection with this Agreement seriously misleading
within the meaning of applicable provisions of the UCC or any title statute,
Funding Trust II, shall after the effective date of such change, promptly file
or cause to be filed such amendments as may be required to preserve and protect
Funding Trust II's interest in the Receivables Assets.
(b) On or prior to the Closing Date, the Trustee shall deliver to
Funding Trust II or such other Person as Funding Trust II shall direct cash
equal to all payments received on such Receivables on or after the Cut-off Date
and on or before two Business days prior to the Closing Date. Within two
Business Days after the Closing Date, the Trustee shall deliver to Funding Trust
II or such other Person as Funding Trust II shall direct all other payments
received on such Receivables on or after the Cut-off Date and on or before the
Closing Date.
2.3 No Recourse. The sale and purchase of Receivables and the other
Receivables Assets under this Agreement shall be without recourse to the Trustee
or the Master Trust.
2.4 True Sales. The Trustee and Funding Trust II intend that the
transactions contemplated hereby be true sales of the Receivables and other
Receivables Assets by the Trustee to Funding Trust II providing Funding Trust II
with the full benefits of ownership of the Receivables and other Receivables
Assets free and clear of any liens, and neither the Trustee nor Funding Trust II
intends the transactions contemplated hereby to be, or for any purpose to be
characterized as, a loan from Funding Trust II to the Trustee. The Trustee shall
reflect sales of the Receivables Assets hereunder on the books and records
maintained by the Trustee with respect to the Master Trust as sales of assets,
and shall treat such sales as sales for all purposes.
2.5 Receipt of Payments after Closing Date. Funding Trust II shall
be entitled to all payments received or receivable with respect to any
Receivable sold and conveyed by the Trustee to Funding Trust II hereunder that
are received on and after the Cut-off Date. If the Trustee knowingly receives
any payment on a Receivable belonging to Funding Trust II, the Trustee promptly
shall turn such payment over to Harris Trust and Savings Bank ("Harris Trust"),
as trustee under the Pooling and Servicing Agreement, dated as of October 21,
1996 (the "Pooling and Servicing Agreement"), among National Financial Auto
Funding Trust ("Funding Trust I"), NAFCO and Harris Trust.
ARTICLE III
MISCELLANEOUS
3.1 Notices. All notices, demands and requests that may be given or
that are
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required to be given hereunder shall be sent by United States certified mail,
postage prepaid, return receipt requested, to the parties at their respective
addresses as follows:
If to the Trustee:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attn: Corporate Trust and Agency Group -
Structured Finance
Telecopier No: (212) 250-6439
Confirmation: (212) 250-6652
If to Funding Trust II:
National Financial Auto Funding Trust II
c/o Chase Manhattan Bank USA, N.A., as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attn: Corporate Trust Administration Department
Telecopier No.: (302) 575-5467
Confirmation: (302) 428-3375
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Re: NAFCO Auto Finance 1996-1 Trust, 6.33% Automobile
Receivables-Backed Certificates
Attention: Surveillance Department
Telecopier No.: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100
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<PAGE>
If to Harris Trust and Savings Bank:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier: (312) 461-3525
Confirmation: (312) 461-4662
3.2 Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of New York and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
3.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
3.4 Assignment. This Agreement may not be assigned by the Trustee or
Funding Trust II except as contemplated by this Section; provided, however, that
simultaneously with the execution and delivery of this Agreement, (i) Funding
Trust II shall assign all of its right, title and interest hereunder to Funding
Trust I pursuant to that certain Sale Agreement, dated as of October 21, 1996
between Funding Trust II and Funding Trust I, and (ii) Funding Trust I shall
assign all of such right, title and interest to Harris Trust under the Pooling
and Servicing Agreement, as provided in Section 2.01 of the Pooling and
Servicing Agreement, to which the Trustee hereby expressly consents.
3.5 Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto, Funding Trust I, and Harris
Trust for the benefit of the Certificateholders and the Certificate Insurer,
which shall be considered to be third-party beneficiaries of this Agreement and
shall be entitled to rely upon and directly enforce the provisions of this
Agreement. Except as otherwise provided in this Agreement, no other Person will
have any right or obligation hereunder. The Certificate Insurer may disclaim any
of its rights and powers under this Agreement upon delivery of a written note to
the Trustee and Funding Trust II.
3.6 No Petition. The Trustee hereby agrees not to cause the filing
of a petition in bankruptcy against Funding Trust II until one year and one day
after the maturity of any securities issued pursuant to the Pooling and
Servicing Agreement.
3.7 Further Assurances. It is the Trustee's intention to convey its
entire rights, title and interest in the Receivables Assets or other assets
related thereto acquired from Funding Trust II pursuant to the Pooling and
Administration Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING
TRUST II
By: CHASE MANHATTAN BANK USA, N.A.
not in its individual capacity but
solely as Owner Trustee of the National
Financial Auto Funding Trust II
By: ____________________________________
Name:
Title:
NATIONAL FINANCIAL AUTO RECEIVABLES
MASTER TRUST
By: BANKERS TRUST COMPANY, not in its
individual capacity but solely as
Trustee of National Financial Auto
Receivables Master Trust
By: ____________________________________
Name:
Title:
6
<PAGE>
EXECUTION COPY
MASTER SPREAD ACCOUNT AGREEMENT,
dated as of November 13, 1996
among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
FINANCIAL SECURITY ASSURANCE INC.
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee and as Collateral Agent
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions................................................. 2
Section 1.02. Rules of Interpretation..................................... 9
ARTICLE II.
REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. Reversionary Holders........................................ 9
Section 2.02. Series Supplements.......................................... 10
Section 2.03. Creation and Grant of Security Interest by the
Transferor............................................. 11
Section 2.04. Priority.................................................... 12
Section 2.05. Transferor Remains Liable................................... 12
Section 2.06. Maintenance of Collateral................................... 12
Section 2.07. Termination and Release of Rights........................... 13
Section 2.08. Non-Recourse Obligations of Transferor and the
Reversionary Holders................................... 14
ARTICLE III.
SPREAD ACCOUNTS
Section 3.01. Establishment of Spread Accounts; Initial Deposits
into Spread Accounts................................... 15
Section 3.02. Investments................................................. 16
Section 3.03. Distributions; Priority of Payments......................... 17
Section 3.04. General Provisions Regarding Spread Accounts................ 20
Section 3.05. Reports by the Collateral Agent............................. 21
ARTICLE IV.
THE COLLATERAL AGENT
Section 4.01. Appointment and Powers...................................... 22
Section 4.02. Performance of Duties....................................... 22
Section 4.03. Limitation on Liability..................................... 22
Section 4.04. Reliance upon Documents..................................... 23
Section 4.05. Successor Collateral Agent.................................. 24
Section 4.06. Indemnification............................................. 26
Section 4.07. Compensation and Reimbursement.............................. 26
Section 4.08. Representations and Warranties of the Collateral
Agent.................................................. 27
Section 4.09. Waiver of Setoffs........................................... 27
<PAGE>
Section 4.10. Control by the Controlling Party............................ 27
ARTICLE V.
COVENANTS OF THE Transferor
Section 5.01. Preservation of Collateral.................................. 28
Section 5.02. Opinions as to Collateral................................... 28
Section 5.03. Notices..................................................... 29
Section 5.04. Waiver of Stay or Extension Laws; Marshalling of
Assets................................................. 29
Section 5.05. Noninterference, etc........................................ 29
Section 5.06. Transferor Changes.......................................... 30
ARTICLE VI.
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. Appointment of Controlling Party............................ 30
Section 6.02. Controlling Party's Authority............................... 31
Section 6.03. Rights of Secured Parties................................... 32
Section 6.04. Degree of Care.............................................. 32
ARTICLE VII.
REMEDIES UPON DEFAULT
Section 7.01. Remedies upon a Default..................................... 33
Section 7.02. Waiver of Default........................................... 33
Section 7.03. Restoration of Rights and Remedies.......................... 33
Section 7.04. No Remedy Exclusive......................................... 34
ARTICLE VIII.
MISCELLANEOUS
Section 8.01. Further Assurances.......................................... 34
Section 8.02. Waiver...................................................... 34
Section 8.03. Amendments, Waivers......................................... 34
Section 8.04. Severability................................................ 35
Section 8.05. Nonpetition Covenant........................................ 35
Section 8.06. Notices..................................................... 36
Section 8.07. Term of this Agreement...................................... 38
Section 8.08. Assignments, Third-Party Rights; Reinsurance................ 38
Section 8.09. Consent of Controlling Party................................ 39
Section 8.10. Trial by Jury Waived........................................ 39
Section 8.11. Governing Law............................................... 39
Section 8.12. Consents to Jurisdiction.................................... 40
Section 8.13. Limitation of Liability..................................... 40
Section 8.14. Determination of Adverse Effect............................. 41
Section 8.15. Counterparts................................................ 41
<PAGE>
Section 8.16. Headings.................................................... 41
<PAGE>
MASTER SPREAD ACCOUNT AGREEMENT
MASTER SPREAD ACCOUNT AGREEMENT, dated as of November 13, 1996 (the
"Agreement"), by and among NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware
business trust (the "Transferor"), FINANCIAL SECURITY ASSURANCE INC., a New York
stock insurance company ("Financial Security"), and HARRIS TRUST AND SAVINGS
BANK, an Illinois banking corporation, in its capacities as Trustee under each
Securitization Agreement referred to below, in such capacity as agent for the
Certificateholders and Financial Security with respect to the related Series
(the "Trustee") and as Collateral Agent (as defined below).
RECITALS
1. National Auto Finance 1996-1 Trust (the "Series 1996-1 Trust") was
formed pursuant to a Pooling and Servicing Agreement dated as of October 21,
1996, as such agreement may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof (the "Series 1996-1
Securitization Agreement") among the Transferor, National Auto Finance Company
L.P., a Delaware limited partnership ("NAFCO"), in its capacity as Servicer (the
"Servicer"), and the Trustee, in its capacities as Trustee, Standby Servicer and
Collateral Agent.
2. Pursuant to the Series 1996-1 Securitization Agreement, the Transferor
assigned to the Trustee all of its right, title and interest in and to the
Contracts and certain other property of the Series 1996-1 Trust Estate.
3. The Transferor requested that Financial Security issue the Series
1996-1 Policy to the Trustee to guarantee payment of the Guaranteed
Distributions (as defined in such Policy) on each Distribution Date in respect
of the Series 1996-1 Certificates.
4. In partial consideration of the issuance of the Series 1996-1 Policy,
the Transferor has agreed that Financial Security shall have certain rights as
Controlling Party, to the extent set forth herein with respect to the Contracts
and the Series 1996-1 Trust Estate.
5. In order to secure the performance of the Secured Obligations, the
Transferor, as the Reversionary Holder, has agreed to pledge the Collateral to
the Collateral Agent for the benefit of Financial Security and for the benefit
of the Trustees on behalf of the Trusts, upon the terms and conditions set forth
herein.
6. It is contemplated that NAFCO and/or the Transferor and/or any other
Affiliate of NAFCO may in the future enter into
<PAGE>
one or more additional Securitization Agreements pursuant to which the
Transferor, NAFCO and/or such other Affiliate of NAFCO will sell or pledge all
or a portion of its right, title and interest in and to pools of Contracts
and/or other financial assets or property to a Trust or other Person and in
connection therewith Financial Security in its discretion may in the future
issue additional Policies with respect to certain guaranteed distributions or
scheduled payments with respect to the corresponding additional Series. In
connection with any such issuance of additional Policies, it is contemplated
that Financial Security will obtain certain Controlling Party rights with
respect to the related Series, and that, in connection with each such additional
Series, the parties hereto will enter into a Series Supplement hereto pursuant
to which NAFCO and/or the Transferor and/or any other Affiliate of NAFCO will
assign, or cause to be assigned, additional Collateral pursuant to the terms
hereof.
AGREEMENTS
In consideration of the premises, and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions. Unless defined in this Agreement, capitalized
terms used in this Agreement shall have the meaning given such terms in the
applicable Securitization Agreement or Series Supplement, as identifiable from
the context in which such term is used. The following terms shall have the
following respective meanings:
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities Act
of 1933, as amended.
"Agreement" means this Master Spread Account Agreement, as amended,
supplemented as otherwise modified from time to time in accordance with the
terms hereof.
"Authorized Officer" means, (i) with respect to Financial Security, the
Chairman of the Board, the President, the Executive Vice President or any
Managing Director of Financial Security,
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(ii) with respect to the Trustees or the Collateral Agent, any Vice President or
Trust Officer thereof, and (iii) with respect to the Transferor, any Co-Trustee
thereof.
"Certificateholders" means the holders of the Certificates of a Series as
more particularly described in the Securitization Agreement with respect to such
Series.
"Certificates" means the "certificates", "notes" or other obligations
issued or arising under a Securitization Agreement.
"Collateral" means the Series 1996-1 Collateral, and with respect to any
other Series, all collateral delivered hereunder with respect to each of such
Series, as specified in the related Series Supplement.
"Collateral Agent" means, initially, Harris Trust and Savings Bank, in its
capacity as collateral agent on behalf of the Secured Parties, including its
successors in interest, until a successor Person shall have become the
Collateral Agent pursuant to Section 4.05 hereof, and thereafter "Collateral
Agent" shall mean such successor Person.
"Collateral Agent Fee" means, with respect to the Series 1996-1
Certificates, the annual fee payable to the Collateral Agent for services
rendered as the Collateral Agent, which Collateral Agent Fee is included in the
fees paid to Harris Trust and Savings Bank pursuant to the Series 1996-1
Securitization Agreement.
"Collection Account" means the Collection Account applicable to any
Series, as specified in the related Securitization Agreement.
"Controlling Party" means, with respect to a Series, at any time, the
Person designated as the Controlling Party at such time pursuant to Section 6.01
hereof.
"Deemed Cured" means, as of a Reporting Date, with respect to a Trigger
Event that has occurred with respect to a Series, that no Trigger Event with
respect to such Series shall have occurred as of such Reporting Date or as of
any of the two consecutively preceding Reporting Dates.
"Default" means with respect to any Series, at any time, (i) if Financial
Security is then the Controlling Party with respect to such Series, any
Insurance Agreement Event of Default with respect to such Series, and (ii) if
the Trustee is then the Controlling Party with respect to such Series, any
Servicer Default with respect to such Series.
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<PAGE>
"Delinquency Claim Date" means, with respect to any Distribution Date, the
fourth Business Day preceding such Distribution Date.
"Delivery" shall have the meaning set forth in the Series 1996-1
Securitization Agreement.
"Final Termination Date" means, with respect to a Series, the date that is
the later of (i) the Insurer Termination Date with respect to such Series and
(ii) the Trustee Termination Date with respect to such Series.
"Financial Security Default" means, with respect to any Series, any one of
the following events shall have occurred and be continuing:
(a) Financial Security shall have failed to make a payment required
under the related Policy;
(b) Financial Security shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization,
(ii) made a general assignment for the benefit of its creditors, or (iii)
had an order for relief entered against it under the United States
Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization
which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for Financial Security or for all or
any material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of Financial
Security (or the taking of possession of all or any material portion of
the property of Financial Security).
"Guaranteed Distributions" shall have the meaning set forth in the related
Policy.
"Harris Trust and Savings Bank" means Harris Trust and Savings Bank, an
Illinois banking corporation.
"Initial Spread Account Deposit" means, with respect to the Series 1996-1
Certificates, an amount equal to $682,395.60.
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<PAGE>
"Insurance Agreement" means, with respect to any Series, the Insurance and
Indemnity Agreement among Financial Security and/or NAFCO and/or the Transferor
and such other parties as may be named therein, pursuant to which Financial
Security issued a Policy to the Trustee.
"Insurer Secured Obligations" means, with respect to a Series, all amounts
and obligations which may at any time be owed to or on behalf of Financial
Security (or any agents, accountants or attorneys for Financial Security) under
the Insurance Agreement related to such Series or under any Transaction Document
in respect of such Series, regardless of whether such amounts are owed now or in
the future, whether liquidated or unliquidated, contingent or noncontingent.
"Insurer Termination Date" means, with respect to any Series, the date
which is the latest of (i) the date of the expiration of all Policies issued in
respect of such Series, (ii) the date on which Financial Security shall have
received payment and performance in full of all Insurer Secured Obligations with
respect to such Series and (iii) the latest date any payment referred to above
could be avoided as a preference or otherwise under the United States Bankruptcy
Code or any other similar Federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization, as specified in an
Opinion of Counsel delivered to the Collateral Agent and the Trustee.
"Lien" means any security interest, lien, change, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and any
liens that attach by operation of the law.
"Monthly Period" means, with respect to a Reporting Date or a Distribution
Date, the calendar month immediately preceding the month in which such Reporting
Date or Distribution Date occurs (such calendar month being referred to as the
"related" Monthly Period with respect to such Reporting Date or Distribution
Date).
"NAFCO" means National Auto Finance Company L.P., a Delaware limited
partnership.
"Non-Controlling Party" means with respect to a Series at any time, the
Secured Party that is not the Controlling Party at such time.
"Opinion of Counsel" means a written opinion of counsel acceptable, as to
form, substance and issuing counsel, to the Controlling Party.
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<PAGE>
"Policy" means the Series 1996-1 Policy and any insurance policy
subsequently issued by Financial Security with respect to a Series.
"Requisite Amount" means, with respect to Series 1996-1, as of any
Reporting Date after giving effect to any distributions of the Certificate
Distributable Amount to be made on the related Distribution Date, the greater of
(a) the lesser of (i) $1,364,791.20 and (ii) the greater of (A) the Certificate
Balance as of such Reporting Date and (B) $100,000, and (b) (i) if a Trigger
Event shall have occurred as of such Reporting Date (and until such Trigger
Event is Deemed Cured) and no Insurance Agreement Event of Default shall have
occurred as of such Reporting Date, 7% of the Series 1996-1 Balance as of such
Reporting Date; or (iii) if an Insurance Agreement Event of Default shall have
occurred as of such Reporting Date, an unlimited amount.
"Reversionary Holder" has the meaning specified in Section 2.01 hereof.
"Scheduled Payments" shall have the meaning set forth in the related
Policy.
"Secured Obligations" means, with respect to each Series the Insurer
Secured Obligations with respect to such Series and the Trustee Secured
Obligations with respect to such Series.
"Secured Parties" means Financial Security and the Trustee.
"Securitization Agreement" means, with respect to the Series 1996-1
Certificates, the Series 1996-1 Securitization Agreement and, for each other
Series created pursuant to a Securitization Agreement, the "Pooling and
Servicing Agreement", "Sale and Servicing Agreement", "Indenture", "Purchase and
Contribution Agreement" or any other financing document related to such Series.
"Security Interests" means, with respect to the Series 1996-1
Certificates, the security interests and Liens in the Series 1996-1 Collateral
granted pursuant to Section 2.03 hereof, and, with respect to any other Series,
the security interests and Liens in the related Collateral granted pursuant to
the related Series Supplement.
"Series 1996-1 Balance" means with respect to any Reporting Date, the sum
of the Pool Outstanding Principal Balance as of the related Distribution Date,
the amount on deposit in the Pre-Funding Account, if any, on such date and the
amount on deposit in the Revolving Account, if any, on such date.
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<PAGE>
"Series 1996-1 Certificates" means the Series of Certificates issued
pursuant to the Series 1996-1 Securitization Agreement.
"Series 1996-1 Collateral" has the meaning specified in Section 2.03(a)
hereof.
"Series 1996-1 Initial Balance" means $62,098,000.
"Series 1996-1 Insurance Agreement" means the Insurance Agreement related
to the Series 1996-1 Certificates.
"Series 1996-1 Insurer Secured Obligations" means the Insurer Secured
Obligations with respect to the Series 1996-1 Certificates.
"Series 1996-1 Policy" means the Policy issued with respect to the Series
1996-1 Certificates.
"Series 1996-1 Reversionary Holder" has the meaning specified in Section
2.01 hereof.
"Series 1996-1 Secured Obligations" means the Secured Obligations related
to the Series 1996-1 Certificates.
"Series 1996-1 Securitization Agreement" has the meaning set forth in the
first recital to this Agreement.
"Series 1996-1 Spread Account" has the meaning specified in Section
3.01(a) hereof.
"Series 1996-1 Trust" has the meaning provided in the first recital to
this Agreement.
"Series 1996-1 Trust Estate" means the Trust Estate with respect to the
Series 1996-1 Series, as described in the Series 1996-1 Securitization
Agreement.
"Series of Certificates" or "Series" means the Series 1996-1 Certificates
or, as the context may require, any other series of Certificates issued or
arising as described in Section 2.02 hereof, or collectively, all such series.
"Series Supplement" means a supplement hereto executed by the parties
hereto in accordance with Section 2.02 hereof.
"Servicer Termination Side Letter" shall have the meaning set forth in the
Insurance Agreement.
"Spread Account" has the meaning specified in Section 3.01(a) hereof.
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<PAGE>
"Spread Account Permitted Investments" means Permitted Investments held by
the Collateral Agent in a Spread Account and with respect to which the
Collateral Agent has taken Delivery.
"Spread Account Shortfall" means, with respect to any Series and any
Reporting Date with respect to which the Requisite Amount for such Series is 7%
of the Series 1996-1 Balance or unlimited, the excess, if any, of (a) the
greater of 7% of the Series 1996-1 Balance and the amount determined by
reference to clause (a) of the definition of Requisite Amount with respect to
such Distribution Date over (b) the amount on deposit in the related Spread
Account after making any withdrawals therefrom required by priorities FIRST,
SECOND, and THIRD of Section 3.03(b) hereof.
"Transaction Documents" means, with respect to a Series, this Agreement,
each of the applicable Securitization Agreement, the Servicer Termination Side
Letter, the Insurance Agreement, the Indemnification Agreement, the Purchase
Agreement, the Premium Letter, the Assignment Agreement, if any, the Custodial
Agreement, any Conveyance related to such Series, any Transfer Agreement related
to such Series and any other financing document related to such Series.
"Trigger Event" means, with respect to Series 1996-1, that as of any
Reporting Date with respect to Series 1996-1 that any one of the following
events shall have occurred and shall not have terminated: (a) the Average
Delinquency Ratio as of such Reporting Date is equal to or greater than 8.25%;
or (b) the Average Default Rate as of such Reporting Date (i) occurring on or
before October 15, 1998 is equal to or greater than 18.0 and (ii) occurring
subsequent to October 15, 1998 is equal to or greater than 14.0%; or (c) the
Average Net Loss Rate as of such Reporting Date (i) occurring on or before
October 15, 1998 is equal to or greater than 8.0% and (ii) occurring subsequent
to October 15, 1998 is equal to or greater than 6.0%.
"Trust" means a trust formed pursuant to a Securitization Agreement.
"Trust Estate" with respect to any Series means the property assigned to
the Trustee or other Person or held in the estate of the Trust, in each case
pursuant to the related Securitization Agreement.
"Trustee" means with respect to any Series, the Trustee named in the
related Securitization Agreement.
"Trustee Secured Obligations" means, with respect to a Series, all amounts
and obligations which NAFCO or the Transferor may at any time owe to or on
behalf of the Trustee, the Trust or
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the Certificateholders under the Securitization Agreement with respect to such
Series.
"Trustee Termination Date" means, with respect to any Series, the date
which is the latest of (i) the date on which the Trustee shall have received, as
Trustee for the holders of the Certificates of such Series, payment and
performance in full of all Trustee Secured Obligations arising out of or
relating to such Series, (ii) the date on which all payments in respect of the
Certificates shall have been made and the related Trust shall have been
terminated pursuant to the terms of the related Securitization Agreement and
(iii) the latest date any payment referred to above could be avoided as a
preference or otherwise under the United States Bankruptcy Code or any other
similar Federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, as specified in an Opinion of Counsel delivered
to the Collateral Agent and the Trustee.
"Uniform Commercial Code" or "UCC" means the Uniform Commercial Code in
effect in the relevant jurisdiction, as the same may be amended from time to
time.
"Unreimbursed Amounts" has the meaning specified in Section 3.03(b)
hereof.
Section 1.02. Rules of Interpretation. The terms "hereof," "herein" or
"hereunder," unless otherwise modified by more specific reference, shall refer
to this Agreement in its entirety. Unless otherwise indicated in context, the
terms "Article," "Section," "Appendix," "Exhibit" or "Annex" shall refer to an
Article or Section of, or Appendix, Exhibit or Annex to, this Agreement. The
definition of a term shall include the singular, the plural, the past, the
present, the future, the active and the passive forms of such term. A term
defined herein and used herein preceded by a Series designation, shall mean such
term as it relates to the Series designated.
ARTICLE II.
REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. Reversionary Holders. It is anticipated that each
Securitization Agreement will require that certain amounts be deposited into a
Spread Account. With respect to any Series, the Person or Persons who will
ultimately be entitled to receive distributions of amounts released from the
related Spread Account are the "Reversionary Holders" with respect to such
Spread Account and Series and may be classified into different classes of
Reversionary Holders pursuant to the applicable Securitization
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Agreement and Section 3.03 hereof. With respect to the Series 1996-1
Certificates, the Reversionary Holder (the "Series 1996-1 Reversionary Holder")
shall be the Transferor.
It is intended by the parties hereto that the Collateral shall constitute
property held in trust by the Collateral Agent, to provide for the payment of
the Secured Obligations, and that such Collateral and any property rights
appurtenant thereto shall vest in the related Reversionary Holders only when
such Collateral is released to such Reversionary Holders in accordance with
Section 3.03(b) hereof.
Notwithstanding the foregoing, each Reversionary Holder may treat the
deposit of the related Collateral into the related Spread Account as the receipt
by such Reversionary Holder of such Collateral for Federal and state income
taxes, as may be required by law.
Each Securitization Agreement in which the Transferor is not itself the
sole Reversionary Holder shall provide that the Transferor shall be deemed to be
the agent of the related Reversionary Holders for the purpose of perfecting the
Collateral Agent's Security Interest in the related Collateral. Each
Securitization Agreement shall additionally provide that the Reversionary
Holders agree to execute and deliver such instruments of conveyance, assignment,
grant, confirmation, etc., as well as any financing statements, in each case, as
the Controlling Party shall consider reasonably necessary in order to perfect
the Collateral Agent's Security Interest in the related Collateral.
Section 2.02. Series Supplements. The parties hereto agree that the
Transferor will have the option to enter into a Series Supplement hereto with
respect to each Series, the Secured Obligations with respect to which are to be
secured by Collateral held pursuant to the provisions of this Agreement. The
parties will enter into a Series Supplement only if the following conditions
shall have been satisfied:
(i) The Transferor shall have sold or pledged all or a portion of
its right, title and interest in and to a pool of Contracts and/or other
financial assets or property to a Trust or other Person pursuant to a
Securitization Agreement;
(ii) Financial Security shall have issued a Policy in respect of the
Guaranteed Distributions or Scheduled Payments, as the case may be, with
respect to the senior class of the Series issued or arising pursuant to
such Securitization Agreement; and
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(iii) Pursuant to the related Series Supplement the related
Collateral specified herein shall be administered by the Collateral Agent
substantially on the terms set forth in Section 2.03 hereof.
Section 2.03. Creation and Grant of Security Interest by the Transferor.
(a) To secure the performance of the Series 1996-1 Secured Obligations and
the Secured Obligations with respect to each other Series to the extent provided
herein, the Transferor, including in its capacity as agent on behalf of the
Reversionary Holders, hereby pledges, assigns, grants, transfers and conveys to
the Collateral Agent, on behalf of and for the benefit of the Secured Parties, a
lien on and security interest in (which lien and security interest is intended
to be prior to all other Liens), all of its right, title and interest in and to
the following (all being collectively referred to herein as the "Series 1996-1
Collateral" and constituting Collateral hereunder):
(i) the amounts distributed to the Series 1996-1 Spread Account
pursuant to Sections 4.01(b)(v) and 4.01(b)(xi) of the Series 1996-1
Securitization Agreement and all rights and remedies that the Series
1996-1 Reversionary Holder may have to enforce such distributions, whether
under the Series 1996-1 Securitization Agreement or otherwise;
(ii) the Series 1996-1 Spread Account established pursuant to
Section 3.01 hereof, and each other account established by the Transferor
and maintained by the Collateral Agent (including, without limitation, the
Initial Spread Account Deposit related thereto and all additional monies,
checks, securities, investments and other documents from time to time held
in or evidencing any such accounts);
(iii) all of the Transferor's right, title and interest in its
capacity as the Series 1996-1 Reversionary Holder, in and to investments
made with proceeds of the property described in clauses (i) and (ii) above
or made with amounts on deposit in the Series 1996-1 Spread Account; and
(iv) all distributions, revenues, products, substitutions, benefits,
profits and proceeds, in whatever form, of any of the foregoing.
(b) To effectuate the provisions and purposes of this Agreement, including
for the purpose of perfecting the security interests granted hereunder, the
Transferor represents and
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warrants that it has, prior to the execution of this Agreement, executed and
filed an appropriate Uniform Commercial Code financing statement in the State of
Illinois sufficient to assure that the Collateral Agent, as agent for the
Secured Parties, has a first priority perfected security interest in all Series
1996-1 Collateral which can be perfected by the filing of a financing statement.
Section 2.04. Priority. The Transferor intends the security interests in
favor of the Collateral Agent, for the benefit of the Secured Parties, to be
prior to all other Liens in respect of the Collateral, and the Transferor shall
take all actions necessary to obtain and maintain, in favor of the Collateral
Agent, for the benefit of the Secured Parties, a first lien on and a first
priority perfected security interest in the Collateral. Subject to the
provisions hereof specifying the rights and powers of the Controlling Party from
time to time to control certain specified matters relating to the Collateral,
each Secured Party shall have all of the rights, remedies and recourse with
respect to the Collateral afforded a secured party under the Uniform Commercial
Code, and all other applicable law in addition to, and not in limitation of, the
other rights, remedies and recourse granted to such Secured Parties by this
Agreement or any other law relating to the creation and perfection of liens on,
and security interests in, the Collateral.
Section 2.05. Transferor Remains Liable. The Security Interests are
granted as security only and shall not (i) transfer or in any way affect or
modify, or relieve the Transferor from, any obligation to perform or satisfy,
any term, covenant, condition or agreement to be performed or satisfied by the
Transferor under or in connection with this Agreement, the Insurance Agreement
or any other Transaction Document to which it is a party or (ii) impose any
obligation on any of the Secured Parties or the Collateral Agent to perform or
observe any such term, covenant, condition or agreement or impose any liability
on any of the Secured Parties or the Collateral Agent for any act or omission on
its part relative thereto or for any breach of any representation or warranty on
its part contained therein or made in connection therewith, except, in each
case, to the extent provided herein and in the other Transaction Documents.
Section 2.06. Maintenance of Collateral.
(a) Safekeeping. The Collateral Agent agrees to (i) maintain the
Collateral (other than Spread Account Permitted Investments) received by it and
all records and documents relating thereto at the office of the Collateral Agent
specified in Section 8.06 hereof or such other address within the State of
Illinois (unless all filings have been made to continue the
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perfection of the security interest in the Collateral to the extent such
security interest can be perfected by filing a financing statement, as evidenced
by an Opinion of Counsel delivered by the Transferor to the Controlling Party),
as may be approved by the Controlling Party and (ii) take Delivery of and
maintain the Spread Account Permitted Investments and all records and documents
relating thereto at its offices within the State of New York. The Collateral
Agent shall keep all Collateral and related documentation in its possession
separate and apart from all other property that it is holding in its possession
and from its own general assets and shall maintain accurate records pertaining
to the Spread Account Permitted Investments and Spread Accounts included in the
Collateral in such a manner as shall enable the Collateral Agent and the Secured
Parties to verify the accuracy of such record-keeping. The Collateral Agent's
books and records shall at all times show that the Collateral is held by the
Collateral Agent as agent of the Secured Parties and is not the property of the
Collateral Agent. The Collateral Agent will promptly report to each Secured
Party and the Transferor any failure on its part to hold the Collateral as
provided in this Section 2.06(a) and will promptly take appropriate action to
remedy any such failure.
(b) Access. The Collateral Agent shall permit each of the Secured Parties,
the Reversionary Holders or their respective duly authorized representatives,
attorneys, auditors or designees, to inspect the Collateral in the possession of
or otherwise under the control of the Collateral Agent pursuant hereto at such
reasonable times during normal business hours as any such Secured Party or
Reversionary Holder may reasonably request upon not less than two Business Days'
prior written notice. The costs and expenses associated with any such inspection
will be paid by the party making such inspection.
Section 2.07. Termination and Release of Rights.
(a) On the Insurer Termination Date relating to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon Financial
Security pursuant to this Agreement in respect of the Collateral related to such
Series (and, to the extent provided herein, in respect of Collateral related to
other Series) shall terminate and be of no further force and effect and all
rights, remedies, powers, duties, authority and obligations of Financial
Security with respect to such Collateral shall be automatically released;
provided that any indemnity provided to or by Financial Security herein shall
survive such Insurer Termination Date. If Financial Security is acting as
Controlling Party with respect to a Series on the related Insurer Termination
Date, Financial Security agrees, at the expense of the Transferor, to execute
and deliver such instruments as the successor Controlling Party may reasonably
request to effect such
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release, and any such instruments so executed and delivered shall be fully
binding on Financial Security and any Person claiming by, through or under
Financial Security.
(b) On the Trustee Termination Date related to a Series, the rights,
remedies, powers, duties, authority and obligations, if any, conferred upon the
Trustee pursuant to this Agreement in respect of the Collateral related to such
Series (and, to the extent provided herein, in respect of Collateral related to
other Series) shall terminate and be of no further force and effect and all such
rights, remedies, powers, duties, authority and obligations of the Trustee with
respect to such Collateral shall be automatically released; provided that any
indemnity provided to the Trustee herein shall survive such Trustee Termination
Date. If the Trustee is acting as Controlling Party with respect to a Series on
the related Trustee Termination Date, the Trustee agrees, at the expense of the
Transferor, to execute and deliver such instruments as the Transferor may
reasonably request to effectuate such release, and any such instruments so
executed and delivered shall be fully binding on the Trustee.
(c) On the Final Termination Date with respect to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon the
Collateral Agent and each Secured Party pursuant to this Agreement shall
terminate and be of no further force and effect and all rights, remedies,
powers, duties, authority and obligations of the Collateral Agent and each
Secured Party with respect to the Collateral related to such Series (and, to the
extent provided herein, in respect of Collateral related to other Series) shall
be automatically released, subject to the application of such amounts for
indemnity payments and all other amounts due and payable hereunder. On the Final
Termination Date with respect to a Series, the Collateral Agent agrees, and each
Secured Party agrees, at the expense of the Transferor, to execute such
instruments of release, in recordable form if necessary, in favor of the
Transferor as the Transferor may reasonably request, to deliver any Collateral
related to such Series in its possession to the Transferor or as otherwise
provided in the related Securitization Agreement, and to otherwise release the
lien of this Agreement and release and deliver to the Transferor or as otherwise
provided in the related Securitization Agreement the Collateral related to such
Series.
Section 2.08. Non-Recourse Obligations of Transferor and the Reversionary
Holders. Notwithstanding anything herein or in the other Transaction Documents
to the contrary, the parties hereto agree that the obligations of the Transferor
and the Reversionary Holders hereunder shall be recourse only to the extent of
amounts deposited in the Spread Accounts. The Transferor agrees that it shall
not declare or make payment of
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(i) any dividend or other distribution on or in respect of any beneficial
interests in the Transferor or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (x) any beneficial interest in the
Transferor or (y) any option, warrant or other right to acquire any beneficial
interest in the Transferor or (z) any payment of any loan made by NAFCO to the
Transferor, unless (in each case) at the time of such declaration or payment
(and after giving effect thereto) no amount payable by the Transferor or any
Reversionary Holder under any Transaction Document is then due and owing but
unpaid.
ARTICLE III.
SPREAD ACCOUNTS
Section 3.01. Establishment of Spread Accounts; Initial Deposits into
Spread Accounts.
(a) On or prior to the Closing Date relating to Series 1996-1, the
Collateral Agent shall establish with respect to such Series, at its office or
at another depository institution or trust company an Eligible Account,
designated, "Spread Account National Auto Finance Series 1996-1 Trust - Harris
Trust and Savings Bank, as Collateral Agent for Financial Security Assurance
Inc. and another Secured Party" (the "Spread Account", and, with respect to the
Series 1996-1 Certificates, the "Series 1996-1 Spread Account"). All Spread
Accounts established under this Agreement from time to time shall be maintained
at the same depository institution (which depository institution may be changed
from time to time in accordance with this Agreement). If any Spread Account
maintained or established with respect to a Series ceases to be an Eligible
Account, the Collateral Agent shall, within five Business Days, establish a new
Eligible Account for such Series.
(b) No withdrawals may be made of funds in any Spread Account except as
provided in Section 3.03 of this Agreement. Except as specifically provided in
this Agreement, funds in a Spread Account established with respect to a Series
shall not be commingled with funds in a Spread Account established with respect
to another Series or with any other moneys. All moneys deposited from time to
time in such Spread Account and all investments made with such moneys shall be
held by the Collateral Agent as part of the Collateral with respect to such
Series.
(c) On the Closing Date with respect to a Series, the Collateral Agent
shall deposit the Initial Spread Account Deposit with respect to such Series, if
any, received from the Transferor
into the related Spread Account.
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(d) Each Spread Account shall be separate from each Trust, and amounts on
deposit therein will not constitute a part of the Trust Estate of any Trust.
Each Spread Account shall be maintained by the Collateral Agent at all times
separate and apart from any other account of the Transferor, the Servicer or the
Trust. All income or loss on investments of funds in any Spread Account shall be
reported by the applicable Reversionary Holder as taxable income or loss of such
Reversionary Holder.
Section 3.02. Investments.
(a) Funds which may at any time be held in the Spread Account established
with respect to a Series shall be invested and reinvested by the Collateral
Agent, at the written direction (including, subject to the provisions hereof,
general standing instructions) of the Transferor (unless a Default actually
known to a Authorized Officer of the Collateral Agent shall have occurred and be
continuing, in which case at the written direction of the Controlling Party) or
its designee received by the Collateral Agent by 1:00 P.M. New York City time on
the Business Day prior to the date on which such investment shall be made, in
one or more Spread Account Permitted Investments in the manner specified in
Section 3.02(c) hereof. If no written direction with respect to any portion of
such Spread Account is received by the Collateral Agent, the Collateral Agent
shall invest such funds overnight in such Permitted Investments as the
Collateral Agent may select, provided that the Collateral Agent shall not be
liable for any loss or absence of income resulting from such investments or for
investments made pursuant to written instructions received in accordance with
this Section 3.02(a).
(b) Each investment made pursuant to this Section 3.02 on any date shall
mature not later than the Business Day immediately preceding the Distribution
Date next succeeding the day such investment is made, except that any investment
made on the day preceding a Distribution Date shall mature on such Distribution
Date; provided that any investment of funds in any Spread Account maintained
with the Collateral Agent (which shall be qualified as a Spread Account
Permitted Investment) in any investment as to which the Collateral Agent is the
obligor, if otherwise qualified as an Permitted Investment (including any
repurchase agreement on which the Collateral Agent in its commercial capacity is
liable as principal) may mature on the Distribution Date next succeeding the
date of such investment.
(c) Subject to the other provisions hereof, the Collateral Agent shall
have sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall be
delivered directly to the Collateral Agent or its agent, together with each
document of transfer, if any, necessary to transfer title to such
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investment to the Collateral Agent in a manner complying with Section 2.06
hereof and the requirements of the definition of "Spread Account Permitted
Investments."
(d) If amounts on deposit in any Spread Account are at any time invested
in a Spread Account Permitted Investment payable on demand, the Collateral Agent
shall (i) consistent with any notice required to be given thereunder, demand
that payment thereon be made on the last day such Spread Account Permitted
Investment is permitted to mature under the provisions hereof and (ii) demand
payment of all amounts due thereunder promptly upon receipt of written notice
from the Controlling Party to the effect that such investment does not
constitute a Spread Account Permitted Investment.
(e) All moneys on deposit in a Spread Account together with any deposits
or securities in which such moneys may be invested or reinvested, and any gains
from such investments, shall constitute Collateral hereunder with respect to the
related Series subject to the Security Interests of the Secured Parties.
(f) Subject to Section 4.03 hereof, the Collateral Agent shall not be
liable by reason of any insufficiency in any Spread Account resulting from any
loss on any Permitted Investment included therein except for losses attributable
to the Collateral Agent's failure to make payments on Permitted Investments as
to which the Collateral Agent, in its commercial capacity, is obligated to make.
Section 3.03. Distributions; Priority of Payments.
(a) On or before each Delinquency Claim Date with respect to any Series,
the Collateral Agent will make the following calculations on the basis of
information (including, without limitation, the amount of any Deficiency Claim
Amount with respect to any Series) received pursuant to Section 3.17 of the
applicable Securitization Agreement (or other section referenced in the related
Series Supplement), with respect to each such Series from the Servicer
thereunder; provided, however, that if the Collateral Agent receives notice from
Financial Security of the occurrence of an Insurance Agreement Event of Default
with respect to any Series, such notice shall be determinative for the purposes
of determining the Requisite Amount for such Series:
FIRST, determine the amounts to be on deposit in the respective
Spread Accounts (taking into account amounts to be deposited into the
related Spread Accounts) on the next succeeding Distribution Date which
will be available to satisfy any Deficiency Claim Amount.
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SECOND, determine (i) the amounts, if any, to be distributed from
each Spread Account related to each Series with respect to which there
exists a Deficiency Claim Amount, and (ii) whether, following distribution
from the related Spread Accounts to the respective Trustees for deposit
into the respective Certificate Account with respect to which there exists
a Deficiency Claim Amount, a Deficiency Claim Amount will continue to
exist with respect to one or more Series.
THIRD, if a Deficiency Claim Amount will continue to exist with
respect to one or more Series other than the Series 1996-1 Certificates
following the distributions from the related Spread Accounts contemplated
by paragraph SECOND above, determine the amount, if any, to be distributed
to the Trustee with respect to each Series from unrelated Spread Accounts
other than the Series 1996-1 Spread Account in respect of such Deficiency
Claim Amount(s). This determination shall be made in accordance with the
distribution priority scheme set forth in Section 3.03(b) below.
On such Delinquency Claim Date related to a Series, the Collateral Agent
shall deliver a certificate to each Trustee in respect of which the Collateral
Agent has received a Deficiency Notice stating the amount, if any, to be
distributed to such Trustee on the next Distribution Date in respect of such
Deficiency Claim Amount.
(b) On each Distribution Date, following the deposit into the respective
Spread Accounts of the amounts required to be deposited therein pursuant to the
respective Securitization Agreements and if the Trustee has received a
Deficiency Notice with respect to one or more such Series, or with respect to
priority SIXTH below to the extent the amount referred to therein is due and
owing, the Collateral Agent shall make the following distributions in the
following order of priority:
FIRST, if with respect to any Series there exists a Deficiency Claim
Amount, from the Spread Account related to such Series, to the Trustee for
deposit in the related Certificate Account the amount of such Deficiency
Claim Amount.
SECOND, if with respect to any Series other than the Series 1996-1
Certificates there continues to exist a Deficiency Claim Amount after
deposit into the Certificate Account of amounts distributed pursuant to
priority FIRST of this Section 3.03(b), from amounts, if any, on deposit
in each unrelated Spread Account other than the Series 1996-1 Spread
Account in excess of the related Requisite Amount, an
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amount in the aggregate up to the aggregate of the Deficiency Claim
Amounts for all Series other than the Series 1996-1 Certificates, for
deposit in the respective Certificate Accounts pro rata in accordance with
the respective Deficiency Claim Amounts.
THIRD, if with respect to any Series other than the Series 1996-1
Certificates there continues to exist a Deficiency Claim Amount after
deposit into the Certificate Account of amounts distributed pursuant to
priority FIRST and SECOND of this Section 3.03(b), from each unrelated
Spread Account other than the Series 1996-1 Spread Account pro rata in
accordance with amounts on deposit therein, an amount up to the aggregate
of the remaining Deficiency Claim Amounts for all Series other than the
Series 1996-1 Certificates, to the respective Trustees for deposit in the
respective Certificate Accounts pro rata in accordance with the respective
Deficiency Claim Amounts.
FOURTH, if with respect to one or more Series other than the Series
1996-1 Certificates there exists a Spread Account Shortfall, from amounts,
if any, (1) on deposit in each Spread Account other than the Series 1996-1
Spread Account in excess of the related Requisite Amount or (2) on deposit
in any Spread Account other than the Series 1996-1 Spread Account with
respect to which the Final Termination Date shall have occurred on such
Distribution Date or a prior Distribution Date, an amount in the aggregate
up to the aggregate of the Spread Account Shortfalls for all Series other
than the Series 1996-1 Certificates for deposit into each Spread Account
other than the Series 1996-1 Spread Account pro rata in accordance with
the respective Spread Account Shortfalls.
FIFTH, if with respect to one or more Series, amounts have been
withdrawn from the related Spread Account pursuant to priority THIRD of
this Section 3.03(b) on such Distribution Date and/or prior Distribution
Dates and such amounts have not been redeposited in full into such Spread
Account pursuant to this priority FIFTH (such amounts in the aggregate for
a Series "Unreimbursed Amounts"), from amounts, if any, (1) on deposit in
each Spread Account other than the Series 1996-1 Spread Account in excess
of the related Requisite Amount; or (2) on deposit in any Spread Account
other than the Series 1996-1 Spread Account with respect to which the
Final Termination Date shall have occurred on such Distribution Date or a
prior Distribution Date, an amount up to the aggregate of the Unreimbursed
Amounts for all such Series for deposit into each Spread Account other
than the Series 1996-1 Spread Account with
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respect to which there exist Unreimbursed Amounts pro rata in accordance
with the respective Unreimbursed Amounts.
SIXTH, if any amounts are owed to the Trustee, Collateral Agent or
Standby Servicer for reasonable out-of-pocket expenses in connection with
the administration of the Trust, including the expenses incurred in the
transition to a successor Servicer and such amounts have not been paid,
then from amounts (if any) on deposit in the related Spread Account, an
amount up to the amount so owed, to be paid to the Trustee, the Collateral
Agent and the Standby Servicer.
SEVENTH, any funds in a Spread Account in excess of the applicable
Requisite Amount and any funds in a Spread Account with respect to a
Series for which the Final Termination Date shall have occurred after
distribution pursuant to priorities FIRST through SIXTH will be released
to the Reversionary Holders as provided in the related Securitization
Agreement (or, if the related Securitization Agreement does not so
provide, to the Transferor), in each case, free and clear of the Lien
established hereunder.
Section 3.04. General Provisions Regarding Spread Accounts.
(a) Promptly upon the establishment (initially or upon any relocation) of
a Spread Account hereunder, the Collateral Agent shall advise the Transferor and
each Secured Party in writing of the name and address of the depository
institution or trust company where such Spread Account has been established (if
not Harris Trust and Savings Bank or any successor Collateral Agent in its
commercial banking capacity), the name of the officer of the depository
institution responsible for overseeing such Spread Account, the account number
and the individuals whose names appear on the signature cards for such Spread
Account. The Transferor shall cause each such depository institution or trust
company to execute a written agreement, in form and substance satisfactory to
the Controlling Party, waiving, and the Collateral Agent by its execution of
this Agreement hereby waives (except to the extent expressly provided herein),
in each case to the extent permitted under applicable law, (i) any banker's or
other statutory or similar Lien, and (ii) any right of set-off or other similar
right under applicable law with respect to such Spread Account, and any other
Spread Account, and agreeing, and the Collateral Agent by its execution of this
Agreement hereby agrees, to notify the Transferor, the Collateral Agent, and
each Secured Party of any charge or claim against or with respect to such Spread
Account. The Collateral Agent shall give the Transferor and each Secured Party
at least ten (10) Business Days' prior written notice of any change in the
location of such Spread Account or in any related account information. If the
Collateral Agent changes the location of any Spread Account, it
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shall change the location of the other Spread Accounts, so that all Spread
Accounts shall at all times be located at the same depository institution.
Anything herein to the contrary notwithstanding, unless otherwise consented to
by the Controlling Party in writing, the Collateral Agent shall have no right to
change the location of any Spread Account.
(b) Upon the written request of the Controlling Party, the Transferor, or
any Reversionary Holder, the Collateral Agent shall cause, at the expense of the
Transferor, the depository institution at which any Spread Account is located to
forward to the requesting party copies of all monthly account statements for
such Spread Account.
(c) If at any time any Spread Account ceases to be an Eligible Account,
the Collateral Agent shall notify the Controlling Party of such fact and shall
establish within five (5) Business Days of such determination in accordance with
paragraph (a) of this Section, a successor Spread Account thereto, which shall
be an Eligible Account, at another depository institution or trust company
acceptable to the Controlling Party and shall establish successor Spread
Accounts with respect to all other Spread Accounts, each of which shall be an
Eligible Account, at the same depository institution. The Transferor shall cause
such depository institution to execute a written agreement under terms provided
for in paragraph (a) of this Section.
(d) No passbook, certificate of deposit or other similar instrument
evidencing a Spread Account shall be issued, and all contracts, receipts and
other papers, if any, governing or evidencing a Spread Account shall be held by
the Collateral Agent.
Section 3.05. Reports by the Collateral Agent. The Collateral Agent shall
report to the Transferor, Financial Security, the Trustee and the Servicer on a
monthly basis no later than each Distribution Date with respect to the amount on
deposit in each Spread Account and the identity of the investments included
therein as of the last day of the related Monthly Period, and shall provide
accountings of deposits into and withdrawals from the Spread Accounts, and of
the investments made therein, upon the request of the Transferor, Financial
Security or the Servicer.
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ARTICLE IV.
THE COLLATERAL AGENT
Section 4.01. Appointment and Powers. Subject to the terms and conditions
hereof, each of the Secured Parties hereby appoints Harris Trust and Savings
Bank as the Collateral Agent with respect to the Series 1996-1 Collateral and
the related Collateral subsequently specified in a Series Supplement, and Harris
Trust and Savings Bank hereby accepts such appointment and agrees to act as
Collateral Agent with respect to the Series 1996-1 Collateral, and upon
execution of any Series Supplement, shall be deemed to accept such appointment,
and agree to act as Collateral Agent with respect to such Collateral, in each
case, for the Secured Parties, to maintain custody and possession of such
Collateral (except as otherwise provided hereunder) and to perform the other
duties of the Collateral Agent in accordance with the provisions of this
Agreement. Each Secured Party hereby authorizes the Collateral Agent to take
such action on its behalf, and to exercise such rights, remedies, powers and
privileges hereunder, as the Controlling Party may direct and as are
specifically authorized to be exercised by the Collateral Agent by the terms
hereof, together with such actions, rights, remedies, powers and privileges as
are reasonably incidental thereto. The Collateral Agent shall act upon and in
compliance with the written instructions of the Controlling Party delivered
pursuant to this Agreement promptly following receipt of such written
instructions; provided, however, that the Collateral Agent shall not act in
accordance with any instructions (i) which are not authorized by, or in
violation of the provisions of, this Agreement, (ii) which are in violation of
any applicable law, rule or regulation or (iii) for which the Collateral Agent
has not received reasonable indemnity. Receipt of such instructions shall not be
a condition to the exercise by the Collateral Agent of its express duties
hereunder, except where this Agreement provides that the Collateral Agent is
permitted to act only following and in accordance with such instructions.
Section 4.02. Performance of Duties. The Collateral Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement
and the other Transaction Documents to which the Collateral Agent is a party as
Collateral Agent or as directed by the Controlling Party in accordance with this
Agreement. The Collateral Agent shall not be required to take any discretionary
actions hereunder except at the written direction and with the indemnification
of the Controlling Party.
Section 4.03. Limitation on Liability. Neither the Collateral Agent nor
any of its directors, officers or employees, shall be liable for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith,
except that the
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Collateral Agent shall be liable for its gross negligence, bad faith or willful
misconduct; nor shall the Collateral Agent be responsible for the validity,
effectiveness, value, sufficiency or enforceability against the Transferor of
this Agreement or any of the Collateral (or any part thereof). Notwithstanding
any term or provision of this Agreement, the Collateral Agent shall incur no
liability to the Transferor or the Secured Parties for any action taken or
omitted by the Collateral Agent in connection with the Collateral, except for
the negligence, bad faith or willful misconduct on the part of the Collateral
Agent, and, further, shall incur no liability to the Secured Parties except for
negligence, bad faith or willful misconduct in carrying out its duties to the
Secured Parties. Subject to Section 4.04 hereof, the Collateral Agent shall be
protected and shall incur no liability to any such party in relying upon the
accuracy, acting in reliance upon the contents, and assuming the genuineness of
any notice, demand, certificate, signature, instrument or other document
reasonably believed by the Collateral Agent to be genuine and to have been duly
executed by the appropriate signatory, and (absent actual knowledge to the
contrary) the Collateral Agent shall not be required to make any independent
investigation with respect thereto. The Collateral Agent shall at all times be
free independently to establish to its reasonable satisfaction, but shall have
no duty to independently verify, the existence or nonexistence of facts that are
a condition to the exercise or enforcement of any right or remedy hereunder or
under any of the Transaction Documents. The Collateral Agent may consult with
counsel, and shall not be liable for any action taken or omitted to be taken by
it hereunder in good faith and in accordance with the written advice of such
counsel. The Collateral Agent shall not be under any obligation to exercise any
of the remedial rights or powers vested in it by this Agreement or to follow any
direction from the Controlling Party unless it shall have received reasonable
security or indemnity satisfactory to the Collateral Agent against the costs,
expenses and liabilities which might be incurred by it in the exercise thereof.
Section 4.04. Reliance upon Documents. In the absence of negligence, bad
faith or willful misconduct on its part, the Collateral Agent shall be entitled
to conclusively rely on any communication, instrument, paper or other document
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons and shall have no liability in acting, or
omitting to act, where such action or omission to act is in reliance upon any
statement or opinion contained in any such document or instrument.
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Section 4.05. Successor Collateral Agent.
(a) Merger. Any Person into which the Collateral Agent may be converted or
merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Collateral Agent hereunder) be and become a
successor Collateral Agent hereunder and be vested with all of the title to and
interest in the Collateral and all of the trusts, powers, discretions,
immunities, privileges and other matters as was its predecessor without the
execution or filing of any instrument or any further act, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding, except to the extent, if any, that any such action is necessary
to perfect, or continue the perfection of, the security interest of the Secured
Parties in the Collateral.
(b) Resignation. The Collateral Agent and any successor Collateral Agent
may resign only (i) upon a determination that by reason of a change in legal
requirements, the performance of its duties under this Agreement would cause it
to be in violation of such legal requirements in a manner which would result in
a material adverse effect on the Collateral Agent, and the Controlling Party
does not elect to waive the Collateral Agent's obligation to perform those
duties which render it legally unable to act or elect to delegate those duties
to another Person, or (ii) with the prior written consent of the Controlling
Party. The Collateral Agent shall give not less than 60 days' prior written
notice of any such permitted resignation by registered or certified mail to the
other Secured Party and the Transferor; provided, that such resignation shall
take effect only upon the date which is the latest of (i) the effective date of
the appointment of a successor Collateral Agent and the acceptance in writing by
such successor Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the provisions hereof, (ii)
delivery of the Collateral to such successor to be held in accordance with the
procedures specified in Article II hereof, and (iii) receipt by the Controlling
Party of an Opinion of Counsel to the effect described in Section 5.02 hereof.
Notwithstanding the preceding sentence, if, by the contemplated date of
resignation specified in the written notice of resignation delivered as
described above, no successor Collateral Agent or temporary successor Collateral
Agent has been appointed Collateral Agent or becomes the Collateral Agent
pursuant to subsection (d) hereof, the resigning Collateral Agent may petition a
court of competent jurisdiction in New York, New York for the appointment of a
successor.
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(c) Removal. The Collateral Agent may be removed by the Controlling Party
at any time, with or without cause, by an instrument or concurrent instruments
in writing delivered to the Collateral Agent, the other Secured Party and the
Transferor. A temporary successor may be removed at any time to allow a
successor Collateral Agent to be appointed pursuant to subsection (d) below. Any
removal pursuant to the provisions of this subsection (c) shall take effect only
upon the date which is the latest of (i) the effective date of the appointment
of a successor Collateral Agent and the acceptance in writing by such successor
Collateral Agent of such appointment and of its obligation to perform its duties
hereunder in accordance with the provisions hereof, (ii) delivery of the
Collateral to such successor to be held in accordance with the procedures
specified in Article II hereof and (iii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 5.02 hereof.
(d) Acceptance by Successor. The Controlling Party shall have the sole
right to appoint each successor Collateral Agent. Every temporary or permanent
successor Collateral Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor and to each Secured Party and the Transferor an
instrument in writing accepting such appointment hereunder and the relevant
predecessor shall execute, acknowledge and deliver such other documents and
instruments as will effectuate the delivery of all Collateral to the successor
Collateral Agent to be held in accordance with the procedures specified in
Article II hereof, whereupon such successor, without any further act, deed or
conveyance, shall become fully vested with all the estates, properties, rights,
powers, duties and obligations of its predecessor. Such predecessor shall,
nevertheless, on the written request of either Secured Party or the Transferor,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor hereunder. In the
event that any instrument in writing from the Transferor or a Secured Party is
reasonably required by a successor Collateral Agent to more fully and certainly
vest in such successor the estates, properties, rights, powers, duties and
obligations vested or intended to be vested hereunder in the Collateral Agent,
any and all such written instruments shall, at the request of the temporary or
permanent successor Collateral Agent, be forthwith executed, acknowledged and
delivered by the Transferor. The designation of any successor Collateral Agent
and the instrument or instruments removing any Collateral Agent and appointing a
successor hereunder, together with all other instruments provided for herein,
shall be maintained with the records relating to the Collateral and, to the
extent required by applicable law, filed or recorded by the successor Collateral
Agent in each place where such filing or recording is necessary to effect the
transfer of
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the Collateral to the successor Collateral Agent or to protect or continue the
perfection of the security interests granted hereunder.
(e) Any resignation or removal of a Collateral Agent and appointment of a
successor Collateral Agent shall be effected with respect to this Agreement and
all Series Supplements simultaneously, so that at no time is there more than one
Collateral Agent acting hereunder and under all Series Supplements.
Section 4.06. Indemnification. The Transferor shall indemnify the
Collateral Agent, its directors, officers, employees and agents for, and hold
the Collateral Agent, its directors, officers, employees and agents harmless
against, any loss, liability or expense (including the costs and expenses of
defending against any claim of liability) arising out of or in connection with
the Collateral Agent's acting as Collateral Agent hereunder, except such loss,
liability or expense as shall result from the negligence, bad faith or willful
misconduct of the Collateral Agent or its officers or agents. The obligation of
the Transferor under this Section shall survive the termination of this
Agreement and the resignation or removal of the Collateral Agent. The Collateral
Agent covenants and agrees that the obligations of the Transferor hereunder and
under Section 4.07 hereof shall be limited to the extent provided in Section
2.08 hereof, and further covenants not to take any action to enforce its rights
to indemnification hereunder with respect to the Transferor and to payment under
Section 4.07 hereof except in accordance with the provisions of Section 8.05
hereof, or otherwise to assert any Lien or take any other action in respect of
the Collateral or the Trust Estate of a Series until the applicable Final
Termination Date.
Section 4.07. Compensation and Reimbursement. The Transferor agrees for
the benefit of the Secured Parties and as part of the Secured Obligations (a) to
pay to the Collateral Agent, on each Distribution Date, the Collateral Agent Fee
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a collateral
trustee); and (b) to reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any provision of, or carrying out its duties
and obligations under, this Agreement (including the reasonable compensation and
fees and the expenses and disbursements of its agents, any independent certified
public accountants and independent counsel), except any expense, disbursement or
advances as may be attributable to negligence, bad faith or willful misconduct
on the part of the Collateral Agent.
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Section 4.08. Representations and Warranties of the Collateral Agent. The
Collateral Agent represents and warrants to the Transferor and to each Secured
Party as follows:
(a) Due Organization. The Collateral Agent is an Illinois banking
corporation, duly organized, validly existing and in good standing under the
laws of the State of Illinois, and is duly authorized and licensed under
applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Collateral Agent has all requisite right, power
and authority to execute and deliver this Agreement and to perform all of its
duties as Collateral Agent hereunder.
(c) Due Authorization. The execution and delivery by the Collateral Agent
of this Agreement and the other Transaction Documents to which it is a party,
and the performance by the Collateral Agent of its duties hereunder and
thereunder, have been duly authorized by all necessary corporate proceedings and
no further approvals or filings, including any governmental approvals, are
required for the valid execution and delivery by the Collateral Agent, or the
performance by the Collateral Agent, of this Agreement and such other
Transaction Documents.
(d) Valid and Binding Agreement. The Collateral Agent has duly executed
and delivered this Agreement and each other Transaction Document to which it is
a party, and each of this Agreement and each such other Transaction Document
constitutes the legal, valid and binding obligation of the Collateral Agent,
enforceable against the Collateral Agent in accordance with its terms, except as
(i) such enforceability may be limited by bankruptcy, insolvency, reorganization
and similar laws relating to or affecting the enforcement of the rights of
creditors of federally insured depository institutions, rights generally and
(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
Section 4.09. Waiver of Setoffs. The Collateral Agent hereby expressly
waives any and all rights of setoff that the Collateral Agent may otherwise at
any time have under applicable law with respect to any Spread Account and agrees
that amounts in the Spread Accounts shall at all times be held and applied
solely in accordance with the provisions hereof.
Section 4.10. Control by the Controlling Party. The Collateral Agent shall
comply with notices and instructions given by the Transferor only if accompanied
by the written consent of the Controlling Party, except that if any Default
shall have occurred and be continuing, the Collateral Agent shall act upon
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and comply with notices and instructions given by the Controlling Party alone in
the place and stead of the Transferor.
ARTICLE V.
COVENANTS OF THE Transferor
Section 5.01. Preservation of Collateral. Subject to the rights, powers
and authorities granted to the Collateral Agent and the Controlling Party in
this Agreement, the Transferor, on behalf of itself and as the agent of the
Reversionary Holders, shall take such action as is necessary and proper with
respect to the Collateral in order to preserve and maintain such Collateral. The
Transferor will do, execute, acknowledge and deliver, or cause to be done by the
Reversionary Holders, or others, executed, acknowledged and delivered, such
instruments of transfer or take such other steps or actions as may be necessary,
or required by the Controlling Party, to perfect the Security Interests granted
hereunder in the Collateral, to ensure that such Security Interests rank prior
to all other Liens and to preserve the priority of such Security Interests and
the validity and enforceability thereof. Upon any delivery or substitution of
Collateral, the Transferor, on behalf of itself and as the agent of the
Reversionary Holders, shall be obligated to execute such documents and perform
such actions (or cause the Reversionary Holders to so execute and perform) as
are necessary to create in the Collateral Agent for the benefit of the Secured
Parties a valid first priority Lien on, and valid and perfected, first priority
security interest in, the Collateral so delivered and to deliver such Collateral
to the Collateral Agent, free and clear of any other Lien, together with
satisfactory assurances thereof, and to pay any reasonable costs incurred by any
of the Secured Parties or the Collateral Agent (including its agents) or
otherwise in connection with such delivery.
Section 5.02. Opinions as to Collateral. Not more than 90 days nor less
than 30 days prior to (i) each anniversary of the date hereof during the term of
this Agreement and (ii) each date on which the Transferor proposes to take any
action contemplated by Section 5.06 hereof, the Transferor shall, at its own
cost and expense, furnish to each Secured Party and the Collateral Agent an
Opinion of Counsel with respect to each Series either (a) stating that, in the
opinion of such counsel, such action has been taken with respect to the
execution and filing of any financing statements and continuation statements and
other actions as are necessary to perfect, maintain and protect the lien and
security interest of the Collateral Agent (and the priority thereof), on behalf
of the Secured Parties, with respect to such Collateral against all creditors
of, and purchasers from, the Transferor and the Reversionary Holders and
reciting the
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details of such action, or (b) stating that, in the opinion of such counsel, no
such action is necessary to maintain such perfected lien and security interest.
Such Opinion of Counsel shall further describe each execution and filing of any
financing statements and continuation statements and such other actions as will,
in the opinion of such counsel, be required to perfect, maintain and protect the
lien and security interest of the Collateral Agent, on behalf of the Secured
Parties, with respect to such Collateral against all creditors of, and
purchasers from, the Transferor and the Reversionary Holders for a period,
specified in such Opinion, continuing until a date not earlier than eighteen
months from the date of such Opinion.
Section 5.03. Notices. In the event that the Transferor acquires knowledge
of the occurrence and continuance of any Insurance Agreement Event of Default or
Servicer Default or of any event of default or like event, howsoever described
or called, under any of the Transaction Documents, the Transferor shall
immediately give notice thereof to the Collateral Agent and each Secured Party.
Section 5.04. Waiver of Stay or Extension Laws; Marshalling of Assets. The
Transferor, on behalf of itself and as agent for the Reversionary Holders,
covenants, to the fullest extent permitted by applicable law, that neither it
nor any Reversionary Holder will at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension or redemption law wherever enacted, now or at any
time hereafter in force, in order to prevent or hinder the enforcement of this
Agreement or any absolute sale of the Collateral or any part thereof, or the
possession thereof by any purchaser at any sale under Article VII of this
Agreement; and the Transferor, on behalf of itself and as agent for the
Reversionary Holders, to the fullest extent permitted by applicable law, for
itself, each Reversionary Holder, and all who may claim under it or them, hereby
waives the benefit of all such laws, and covenants that neither it nor any
Reversionary Holder will hinder, delay or impede the execution of any power
herein granted to the Collateral Agent, but will suffer and permit the execution
of every such power as though no such law had been enacted. The Transferor, for
itself, each Reversionary Holder, and all who may claim under it or them,
waives, to the fullest extent permitted by applicable law, all right to have the
Collateral marshalled upon any foreclosure or other disposition thereof.
Section 5.05. Noninterference, etc. The Transferor, on behalf of itself
and as agent for the Reversionary Holders, agrees that neither the Transferor
nor any Reversionary Holder shall (i) waive or alter any of its rights under the
Collateral (or any agreement or instrument relating thereto) without the
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prior written consent of the Controlling Party; or (ii) fail to pay any tax,
assessment, charge or fee levied or assessed against the Collateral, or to
defend any action, if such failure to pay or defend may adversely affect the
priority or enforceability of the Transferor's or any Reversionary Holder's
right, title or interest in and to the Collateral or the Collateral Agent's lien
on, and security interest in, the Collateral for the benefit of the Secured
Parties; or (iii) take any action, or fail to take any action, if such action or
failure to take action would interfere with the enforcement of any rights under
the Transaction Documents.
Section 5.06. Transferor Changes.
(a) Change in Name, Structure, etc. The Transferor shall not change its
name, identity or corporate structure unless it shall have given each Secured
Party and the Collateral Agent at least 60 days' prior written notice thereof,
shall have effected any necessary or appropriate assignments or amendments
thereto and filings of financing statements or amendments thereto, and shall
have delivered to the Collateral Agent and each Secured Party an Opinion of
Counsel of the type described in Section 5.02 hereof.
(b) Relocation of the Transferor. Neither NAFCO nor the Transferor shall
change its principal executive office unless it gives each Secured Party and the
Collateral Agent at least 90 days' prior written notice of any relocation of its
principal executive office. If the Transferor relocates its principal executive
office or principal place of business from Florida, the Transferor shall give
prior notice thereof to the Controlling Party and the Collateral Agent and shall
effect such appropriate recordations and filings as are necessary and shall
provide an Opinion of Counsel to the Controlling Party and the Collateral Agent,
to the effect that, upon the recording of any necessary assignments or
amendments to previously-recorded assignments and filing of any necessary
amendments to the previously filed financing or continuation statements or upon
the filing of one or more specified new financing statements, and the taking of
such other actions as may be specified in such opinion, the security interests
in the Collateral shall remain, after such relocation, valid and perfected and
first in priority.
ARTICLE VI.
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. Appointment of Controlling Party. From and after the Closing
Date of a Series until the Insurer Termination Date related to such Series,
Financial Security shall be the
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Controlling Party with respect to such Series and shall be entitled to exercise
all the rights given the Controlling Party hereunder with respect to such
Series. From and after the Insurer Termination Date related to such Series until
the Trustee Termination Date related to such Series, the Trustee shall be the
Controlling Party with respect to such Series. Notwithstanding the foregoing, in
the event that a Financial Security Default shall have occurred and be
continuing, the Trustee shall be the Controlling Party with respect to such
Series until the applicable Trustee Termination Date. If prior to an Insurer
Termination Date, the Trustee shall have become the Controlling Party with
respect to a Series as a result of the occurrence of a Financial Security
Default and either such Financial Security Default is cured or for any other
reason ceases to exist or the Trustee Termination Date with respect to a Series
occurs, then upon such cure or other cessation or on such Trustee Termination
Date, as the case may be, Financial Security shall, upon notice thereof being
duly given to the Collateral Agent, again be the Controlling Party with respect
to such Series.
Section 6.02. Controlling Party's Authority.
(a) The Transferor hereby irrevocably appoints the Controlling Party, and
any successor to the Controlling Party appointed pursuant to Section 6.01
hereof, its true and lawful attorney, with full power of substitution, in the
name of the Transferor, the Secured Parties or otherwise, at the expense of the
Transferor, to the extent permitted by law to exercise, at any time and from
time to time while any Insurance Agreement Event of Default has occurred and is
continuing, any or all of the following powers with respect to all or any of the
Collateral related to the relevant Series: (i) to demand, sue for, collect,
receive and give acquittance for any and all monies due or to become due upon or
by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto, (iii) to direct the Collateral Agent
to sell, transfer, assign or otherwise deal with the same or the proceeds
thereof as fully and effectively as if the Collateral Agent were the absolute
owner thereof, and (iv) to extend the time of payment of any or all thereof and
to make any allowance or other adjustments with respect thereto.
(b) With respect to each Series and the related Collateral, each Secured
Party hereby irrevocably and unconditionally constitutes and appoints the
Controlling Party with respect to such Series, and any successor to such
Controlling Party appointed pursuant to Section 6.01 hereof from time to time,
as the true and lawful attorney-in-fact of such Secured Party for so long as
such Secured Party is the Non-Controlling Party, with full power of
substitution, to execute, acknowledge and deliver any notice, document,
certificate, paper, pleading or instrument
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and to do in the name of the Controlling Party as well as in the name, place and
stead of such Secured Party such acts, things and deeds for and on behalf of and
in the name of such Secured Party under this Agreement with respect to such
Series which such Secured Party could or might do or which may be necessary,
desirable or convenient in such Controlling Party's sole discretion to effect
the purposes contemplated hereunder and, without limitation, exercise full
right, power and authority to take, or defer from taking, any and all acts with
respect to the administration of the Collateral related to such Series, and the
enforcement of the rights of the Secured Parties hereunder with respect to such
Series, on behalf of and for the benefit of such Controlling Party and such
Non-Controlling Party, as their interests may appear.
Section 6.03. Rights of Secured Parties. With respect to each Series of
Certificates and the related Collateral, the Non-Controlling Party at any time
expressly agrees that it shall not assert any rights that it may otherwise have,
as a Secured Party with respect to the Collateral, to direct the maintenance,
sale or other disposition of the Collateral or any portion thereof,
notwithstanding the occurrence and continuance of any Insurance Agreement Event
of Default or Servicer Default with respect to such Series or any
non-performance by the Transferor or any Reversionary Holder of any obligation
owed to such Secured Party hereunder or under any other Transaction Document,
and each party hereto agrees that the Controlling Party shall be the only Person
entitled to assert and exercise such rights.
Section 6.04. Degree of Care.
(a) Controlling Party. Notwithstanding any term or provision of this
Agreement, the Controlling Party shall incur no liability to the Transferor or
any Reversionary Holder for any action taken or omitted by the Controlling Party
in connection with the Collateral, except for any gross negligence, bad faith or
willful misconduct on the part of the Controlling Party and, further, shall
incur no liability to the Non-Controlling Party except for a breach of the terms
of this Agreement or for gross negligence, bad faith or willful misconduct in
carrying out its duties, if any, to the Non-Controlling Party. The Controlling
Party shall be protected and shall incur no liability to any such party in
relying upon the accuracy, acting in reliance upon the contents and assuming the
genuineness of any notice, demand, certificate, signature, instrument or other
document believed by the Controlling Party to be genuine and to have been duly
executed by the appropriate signatory, and (absent manifest error or actual
knowledge to the contrary) the Controlling Party shall not be required to make
any independent investigation with respect thereto. The Controlling Party shall,
at all times, be free independently to establish to its reasonable satisfaction
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the existence or nonexistence, as the case may be, of any fact the existence or
nonexistence of which shall be a condition to the exercise or enforcement of any
right or remedy under this Agreement or any of the Transaction Documents.
(b) The Non-Controlling Party. The Non-Controlling Party shall not be
liable to the Transferor or any Reversionary Holder for any action or failure to
act by the Controlling Party or the Collateral Agent in exercising, or failing
to exercise, any rights or remedies hereunder.
ARTICLE VII.
REMEDIES UPON DEFAULT
Section 7.01. Remedies upon a Default. If a Default with respect to a
Series has occurred and is continuing, the Collateral Agent shall, at the
written direction of the Controlling Party, take whatever action at law or in
equity as may appear necessary or desirable in the judgment of the Controlling
Party to collect and satisfy all Secured Obligations, including, but not limited
to, foreclosure upon the Collateral and all other rights available to secured
parties under applicable law or to enforce performance and observance of any
obligation, agreement or covenant under any of the Transaction Documents related
to such Series.
Section 7.02. Waiver of Default. The Controlling Party shall have the sole
right, to be exercised in its complete discretion, to waive any Default by a
writing setting forth the terms, conditions and extent of such waiver signed by
the Controlling Party and delivered to the Collateral Agent, the other Secured
Party and the Transferor. Any such waiver shall be binding upon the
Non-Controlling Party and the Collateral Agent. Unless such writing expressly
provides to the contrary, any waiver so granted shall extend only to the
specific event or occurrence which gave rise to the Default so waived and not to
any other similar event or occurrence occurring subsequent to the date of such
waiver.
Section 7.03. Restoration of Rights and Remedies. If the Collateral Agent
has instituted any proceeding to enforce any right or remedy under this
Agreement, and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to such Collateral Agent, then and in
every such case the Transferor, the Collateral Agent and each of the Secured
Parties and each Reversionary Holder shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter
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all rights and remedies of the Secured Parties shall continue as though no such
proceeding had been instituted.
Section 7.04. No Remedy Exclusive. No right or remedy herein conferred
upon or reserved to the Collateral Agent, the Controlling Party or either of the
Secured Parties is intended to be exclusive of any other right or remedy, and
every right or remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law, in equity or otherwise (but, in each case, shall be subject to
the provisions of this Agreement limiting such remedies), and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time and as often and in such order as may be
deemed expedient by the Controlling Party, and the exercise of or the beginning
of the exercise of any right or power or remedy shall not be construed to be a
waiver of the right to exercise at the same time or thereafter any other right,
power or remedy.
ARTICLE VIII.
MISCELLANEOUS
Section 8.01. Further Assurances. Each party hereto shall take such action
and deliver such instruments to any other party hereto, in addition to the
actions and instruments specifically provided for herein, as may be reasonably
requested or required to effectuate the purpose or provisions of this Agreement
or to confirm or perfect any transaction described or contemplated herein.
Section 8.02. Waiver. Any waiver by any party of any provision of this
Agreement or any right, remedy or option hereunder shall only prevent and estop
such party from thereafter enforcing such provision, right, remedy or option if
such waiver is given in writing and only as to the specific instance and for the
specific purpose for which such waiver was given. The failure or refusal of any
party hereto to insist in any one or more instances, or in a course of dealing,
upon the strict performance of any of the terms or provisions of this Agreement
by any party hereto or the partial exercise of any right, remedy or option
hereunder shall not be construed as a waiver or relinquishment of any such term
or provision, but the same shall continue in full force and effect.
Section 8.03. Amendments, Waivers. No amendment, modification, waiver or
supplement to this Agreement or any provision of this Agreement shall in any
event be effective unless the same shall have been made or consented to in
writing
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by each of the parties hereto and each Rating Agency shall have confirmed in
writing that such amendment will not cause a reduction or withdrawal of a rating
on any Series; provided, however, that, for so long as Financial Security shall
be the Controlling Party with respect to a Series, amendments, modifications,
waivers or supplements hereto relating to such Series, the related Collateral or
Spread Account or any requirement hereunder to deposit or retain any amounts in
such Spread Account or to distribute any amounts therein as provided in Section
3.03 hereof shall be effective if made or consented to in writing by Financial
Security, the Transferor and the Collateral Agent (the consent of which shall
not be withheld or delayed with respect to any amendment that does not adversely
affect the Collateral Agent) but shall in no circumstances require the consent
of the Trustee or the Certificateholders related to such Series or any other
Series or any Reversionary Holder.
Section 8.04. Severability. In the event that any provision of this
Agreement or the application thereof to any party hereto or to any circumstance
or in any jurisdiction governing this Agreement shall, to any extent, be invalid
or unenforceable under any applicable statute, regulation or rule of law, then
such provision shall be deemed inoperative to the extent that it is invalid or
unenforceable, and the remainder of this Agreement, and the application of any
such invalid or unenforceable provision to the parties, jurisdictions or
circumstances other than to whom or to which it is held invalid or
unenforceable, shall not be affected thereby nor shall the same affect the
validity or enforceability of any other provision of this Agreement. The parties
hereto further agree that the holding by any court of competent jurisdiction
that any remedy pursued by the Collateral Agent, or any of the Secured Parties,
hereunder is unavailable or unenforceable shall not affect in any way the
ability of the Collateral Agent or any of the Secured Parties to pursue any
other remedy available to it or them (subject, however, to the provisions of
this Agreement limiting such remedies).
Section 8.05. Nonpetition Covenant. Notwithstanding any prior termination
of this Agreement, each of the parties hereto agrees that it shall not, prior to
one year and one day after the Final Scheduled Distribution Date with respect to
each Series, acquiesce, petition or otherwise invoke or cause the Transferor or
the Trust to invoke the process of the United States of America, any State or
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government for the purpose of commencing or sustaining a case by or against
the Transferor or the Trust under a Federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator,
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<PAGE>
assignee, trustee, custodian, sequestrator or other similar official of the
Transferor or the Trust or all or any part of their respective properties or
assets or ordering the winding up or liquidation of the affairs of the
Transferor or the Trust. The parties agree that damages will be an inadequate
remedy for breach of this covenant and that this covenant may be specifically
enforced.
Section 8.06. Notices. All notices, demands, certificates, requests and
communications hereunder ("notices") shall be in writing and shall be effective
(a) upon receipt when sent through the U.S. mails, registered or certified mail,
return receipt requested, postage prepaid, with such receipt to be effective the
date of delivery indicated on the return receipt, or (b) one Business Day after
delivery to an overnight courier, or (c) on the date personally delivered to an
Authorized Officer of the party to which sent, or (d) on the date transmitted by
legible telecopier transmission with a confirmation of receipt, in all cases
addressed to the recipient as follows:
(i) If to the Transferor:
National Financial Auto Funding Trust
c/o The Chase Manhattan Bank (USA)
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopier No.: (302) 575-5467
Confirmation No.: (302) 575-5099
with a copy to:
The Chase Manhattan Bank (USA)
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust Administration
Telecopier No.: (718) 242-3529
Confirmation No.: (718) 242-7283
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<PAGE>
(ii) If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: National Auto Finance 1996-1 Trust
6.33% Asset Backed Certificates
Telecopier No.: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100
(in each case in which notice or other communication to
Financial Security refers to a Default or a claim on the
Policy or in which failure on the part of Financial Security
to respond shall be deemed to constitute consent or
acceptance, then with a copy to the attention of the Senior
Vice President Surveillance)
(iii) If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation No.: (312) 461-4662
(iv) If to the Collateral Agent:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation No.: (312) 461-4662
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<PAGE>
(v) If to Moody's:
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Telecopier No.: (212) 553-0344
(vi) If to Standard & Poor's:
Standard & Poor's Ratings Group
26 Broadway
New York, New York 10004
Telecopier No.: (212) 208-1582
A copy of each notice given hereunder to any party hereto shall also be given to
(without duplication) Financial Security, the Transferor, the Trustee and the
Collateral Agent. Each party hereto may, by notice given in accordance herewith
to each of the other parties hereto, designate any further or different address
to which subsequent notices shall be sent.
Section 8.07. Term of this Agreement. This Agreement shall take effect on
the Closing Date of the Series 1996-1 Certificates and shall continue in effect
until the last Final Termination Date to occur with respect to each Series. On
such Final Termination Date, this Agreement shall terminate, all obligations of
the parties hereunder shall cease and terminate and the Collateral, if any, held
hereunder and not to be used or applied in discharge of any obligations of the
Transferor or NAFCO in respect of the Secured Obligations or otherwise under
this Agreement, shall be released to and in favor of the related Reversionary
Holders, or, if not otherwise identified, to the Transferor, provided that the
provisions of Sections 4.06, 4.07 and 8.05 hereof shall survive any termination
of this Agreement and the release of any Collateral upon such termination.
Section 8.08. Assignments, Third-Party Rights; Reinsurance.
(a) This Agreement shall be a continuing obligation of the parties hereto
and shall (i) be binding upon the parties and their respective successors and
assigns, and (ii) inure to the benefit of and be enforceable by each Secured
Party and the Collateral Agent, and by their respective successors, transferees
and assigns. The Transferor shall not assign this Agreement, or delegate any of
its duties hereunder, without the prior written consent of the Controlling
Party.
(b) Financial Security shall have the right (unless a Financial Security
Default shall have occurred and be continuing)
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<PAGE>
to give participations in its rights under this Agreement and to enter into
contracts of reinsurance with respect to any Policy issued in connection with a
Series of Certificates and each such participant or reinsurer shall be entitled
to the benefit of any representation, warranty, covenant and obligation of each
party (other than Financial Security) hereunder as if such participant or
reinsurer was a party hereto and, subject only to such agreement regarding such
reinsurance or participation, shall have the right to enforce the obligations of
each such other party directly hereunder; provided, however, that no such
reinsurance or participation agreement or arrangement shall relieve Financial
Security of its obligations hereunder, under the Transaction Documents to which
it is a party or under any such Policy, or shall change the status of Financial
Security as a "Controlling Party". In addition, nothing contained herein shall
restrict Financial Security from assigning to any Person pursuant to any
liquidity facility or credit facility any rights of Financial Security under
this Agreement or with respect to any real or personal property or other
interests pledged to Financial Security, or in which Financial Security has a
security interest, in connection with the transactions contemplated hereby. The
terms of any such assignment or participation shall contain an express
acknowledgment by such Person of the condition of this Section and the
limitations of the rights of Financial Security hereunder.
Section 8.09. Consent of Controlling Party. In the event that the
Controlling Party's consent is required under the terms hereof or under the
terms of any Transaction Document, it is understood and agreed that, except as
otherwise provided expressly herein, the determination whether to grant or
withhold such consent shall be made solely by the Controlling Party in its sole
discretion.
Section 8.10. Trial by Jury Waived. Each of the parties hereto waives, to
the fullest extent permitted by law, any right it may have to a trial by jury in
respect of any litigation arising directly or indirectly out of, under or in
connection with this Agreement, any of the other Transaction Documents or any of
the transactions contemplated hereunder or thereunder. Each of the parties
hereto (a) certifies that no representative, agent or attorney of any other
party has represented, expressly or otherwise, that such other party would not,
in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it has been induced to enter into this Agreement and the other
Transaction Documents to which it is a party, by among other things, this
waiver.
Section 8.11. Governing Law. This Agreement shall be governed by and
construed, and the obligations, rights and
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<PAGE>
remedies of the parties hereunder shall be determined, in accordance with the
laws of the State of New York.
Section 8.12. Consents to Jurisdiction. Each of the parties hereto
irrevocably submits to the jurisdiction of the United States District Court for
the Southern District of New York, any court in the state of New York located in
the city and county of New York, and any appellate court from any thereof, in
any action, suit or proceeding brought against it and related to or in
connection with this Agreement, the other Transaction Documents or the
transactions contemplated hereunder or thereunder or for recognition or
enforcement of any judgment and each of the parties hereto irrevocably and
unconditionally agrees that all claims in respect of any such suit or action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action, suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. To the extent permitted by applicable law,
each of the parties hereby waives and agrees not to assert by way of motion, as
a defense or otherwise in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such courts, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or any of the
other Transaction Documents or the subject matter hereof or thereof may not be
litigated in or by such courts. The Transferor hereby irrevocably appoints and
designates Harris Trust and Savings Bank as its true and lawful attorney and
duly authorized agent for acceptance of service of legal process. The Transferor
agrees that service of such process upon such Person shall constitute personal
service of such process upon it. Subject to Section 8.05 hereof, nothing
contained in this Agreement shall limit or affect the rights of any party hereto
to serve process in any other manner permitted by law or to start legal
proceedings relating to any of the Transaction Documents against NAFCO or the
Transferor or their respective property in the courts of any jurisdiction.
Section 8.13. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) Harris Trust and Savings Bank is executing
this Agreement not in its individual capacity but solely in its capacities as
collateral agent and trustee of the Trusts pursuant to the Securitization
Agreements and (b) in no case whatsoever shall Harris Trust and Savings Bank be
personally or corporately liable on, or for any loss in respect of, any of the
statements, representations, warranties, covenants, agreements or obligations of
the Trust hereunder, all such liability, if any, being expressly waived by the
parties hereto.
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<PAGE>
Section 8.14. Determination of Adverse Effect. Any determination of an
adverse effect on the interest of the Secured Parties or the Certificateholders
shall be made without consideration of the availability of funds under the
Policies.
Section 8.15. Counterparts. This Agreement may be executed in two or more
counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 8.16. Headings. The headings of sections and paragraphs and the
Table of Contents contained in this Agreement are provided for convenience only.
They form no part of this Agreement and shall not affect its construction or
interpretation.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth on the first page hereof.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By_____________________________________
Name:
Title:____________________ of
Chase Manhattan Bank USA, N.A.
as trustee for National Financial Auto
Funding Trust
FINANCIAL SECURITY ASSURANCE INC.
By_____________________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By_____________________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
as Collateral Agent
By_____________________________________
Name:
Title:
<PAGE>
EXECUTION COPY
================================================================================
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST,
and
NATIONAL AUTO FINANCE COMPANY L.P.
Dated as of November 13, 1996
National Auto Finance 1996-1 Trust
6.33% Automobile Loan Receivables-Backed Certificates
$62,098,000
================================================================================
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of November 13, 1996, by and
among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL
FINANCIAL AUTO FUNDING TRUST (the "Transferor") and NATIONAL AUTO FINANCE
COMPANY L.P. ("NAFCO", and in its capacity as Servicer, the "Servicer").
INTRODUCTORY STATEMENTS
A. On the Closing Date, (i) the Master Trust will sell all of its right,
title and interest in and to the Initial Contracts and certain other property
related thereto to Funding Trust II pursuant to the Assignment Agreement, (ii)
Funding Trust II will simultaneously sell all of its right, title and interest
in and to the Initial Contracts and such other property related thereto to the
Transferor pursuant to the Sale Agreement and (iii) the Transferor will
simultaneously sell all of its right, title and interest in and to the Initial
Contracts and such other property related thereto to the Trust pursuant to the
Pooling and Servicing Agreement.
B. Subsequent to the Closing Date, the Transferor proposes to acquire
Additional Contracts and certain other property related thereto from NAFCO
pursuant to the Purchase and Contribution Agreement (certain of such Additional
Contracts and other property related thereto NAFCO proposes to acquire from ACCH
pursuant to the Purchase Agreement), and to simultaneously sell to the Trust all
of its right, title and interest in and to such Additional Contracts and such
other property related thereto pursuant to the Pooling and Servicing Agreement.
C. The Securities will evidence in the aggregate an undivided ownership
interest of 91% of the Trust. The Transferor has requested that Financial
Security issue a financial guaranty insurance policy guarantying certain
distributions of the principal of and interest on the Securities (including any
such distributions subsequently avoided as a preference under applicable
bankruptcy law) upon the terms and subject to the conditions provided herein.
D. It is contemplated that NAFCO and/or ACCH and/or the Transferor and/or
any other Affiliate of NAFCO may in the future enter into one or more pooling
and servicing agreements, sale and servicing agreements, indentures, receivables
purchase agreements or other financing documents (each, a "Securitization
Agreement") pursuant to which NAFCO, Funding Trust II, the Transferor and/or
such other Affiliate of NAFCO will sell, pledge or otherwise transfer all or a
portion of its right, title and interest in and
<PAGE>
to pools of Contracts and/or other financial assets or property to a trust or
other Person and in connection therewith Financial Security in its discretion
may in the future issue additional policies with respect to certain guaranteed
distributions or scheduled payments with respect to the corresponding
securities, certificates, notes or other obligations issued or arising under
such Securitization Agreements.
E. The parties hereto desire to specify the conditions precedent to the
issuance of the Policy, the terms of payment of premium in respect of the
Policy, the indemnity and reimbursement to be provided to Financial Security in
respect of amounts paid by Financial Security under the Policy or otherwise and
certain other matters.
In consideration of the premises and of the agreements herein contained,
Financial Security, NAFCO and the Transferor hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions. All terms defined in the Pooling and Servicing
Agreement or in the Spread Account Agreement shall have the same meanings in
this Insurance Agreement. Unless otherwise specified, if a word or phrase
defined in the Pooling and Servicing Agreement or in the Spread Account
Agreement can be applied with respect to one or more Series, such a word or
phrase shall be used herein as applied to Series 1996-1. In addition,
capitalized terms used herein shall have the meanings provided in Appendix I
hereto unless the context otherwise requires.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of NAFCO and the Transferor.
NAFCO represents, warrants and covenants, as of the date hereof, the Date of
Issuance and each Subsequent Transfer Date with respect to itself, with respect
to the Transferor and otherwise as follows, and the Transferor represents,
warrants and covenants, as of the date hereof, the Date of Issuance and each
Subsequent Transfer Date, with respect to itself and otherwise, as follows:
(a) Due Organization and Qualification. NAFCO is a limited
partnership, duly organized, validly existing and in
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<PAGE>
good standing under the laws of the state of Delaware. The Transferor is a
business trust, duly organized, validly existing and in good standing
under the laws of the state of Delaware. Each of NAFCO and the Transferor
is duly qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Offering Document and the
performance of its obligations under the Transaction Documents and, with
respect to NAFCO, the Subservicing Agreement, in each jurisdiction in
which the failure to be so qualified or to obtain such approvals would
render any Contract unenforceable in any respect or would otherwise have a
material adverse effect upon the Transaction.
(b) Power and Authority. Each of NAFCO and the Transferor has all
necessary power and authority to conduct its business as currently
conducted and as described in the Offering Document, to execute, deliver
and perform its obligations under the Transaction Documents and, with
respect to NAFCO, the Subservicing Agreement and to consummate the
Transaction.
(c) Due Authorization. The execution, delivery and performance of
the Transaction Documents by each of NAFCO and the Transferor and the
Subservicing Agreement by NAFCO have been duly authorized by all necessary
action and do not require any additional approvals or consents or other
action by or any notice to or filing with any Person.
(d) Noncontravention. None of the execution and delivery of the
Transaction Documents by the Transferor or NAFCO or the Subservicing
Agreement by NAFCO, the consummation of the transactions contemplated
thereby or the satisfaction of the terms and conditions of the Transaction
Documents or the Subservicing Agreement,
(i) conflicts with or results in any breach or violation of
any provision of the trust agreement or agreement of limited
partnership of the Transferor or of NAFCO, respectively, or any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award currently in effect having applicability to
the Transferor or NAFCO, as the case may be, or any of their
respective properties, including regulations issued by an
administrative agency or other governmental authority having
supervisory powers over the Transferor or NAFCO, as the case may be,
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<PAGE>
(ii) constitutes a default by the Transferor or NAFCO, as the
case may be, under or a breach of any provision of any loan
agreement, mortgage, indenture or other agreement or instrument to
which the Transferor or NAFCO, as the case may be, or any of their
respective Subsidiaries or Affiliates is a party or by which it or
any of its or their properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or
in respect of any of the assets of the Transferor or NAFCO or any of
their respective Subsidiaries or Affiliates except as otherwise
expressly contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or
investigation by or before any court, governmental or administrative
agency or arbitrator against or affecting all or any of the Contracts,
NAFCO, the Transferor or any of their respective Subsidiaries or
Affiliates, or any properties or rights of NAFCO, the Transferor or any of
their respective Subsidiaries or Affiliates, pending or threatened, which,
in any case, if decided adversely, would result in a Material Adverse
Change with respect to NAFCO, the Transferor or any Contract.
(f) Valid and Binding Obligations. Each of the Transaction Documents
to which either NAFCO or the Transferor is a party when executed and
delivered by NAFCO or by the Transferor, as the case may be, and the
Subservicing Agreement when executed and delivered by NAFCO, will
constitute the legal, valid and binding obligations of such Person,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles. The Securities, when executed, authenticated
and delivered in accordance with the Pooling and Servicing Agreement, will
be validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement and, together with the Transferor
Interest, will evidence the entire beneficial ownership interest in the
Trust.
(g) Financial Statements. The Financial Statements of each of the
Transferor and NAFCO, copies of which have been furnished to Financial
Security, (i) are, as of the dates and for the periods referred to
therein, complete and correct in all material respects, (ii) present
fairly the financial condition and results of operations of each of the
Transferor and NAFCO as of the dates and for the periods
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<PAGE>
indicated and (iii) have been prepared in accordance with generally
accepted accounting principles consistently applied, except as noted
therein (subject as to interim statements to normal year-end adjustments).
Since the date of the most recent Financial Statements, there has been no
material adverse change in such financial condition or results of
operations. Except as disclosed in the Financial Statements, neither the
Transferor nor NAFCO is subject to any contingent liabilities or
commitments that, individually or in the aggregate, have a material
possibility of causing a Material Adverse Change in respect of the
Transferor or NAFCO, as the case may be.
(h) ERISA. Each of the Transferor and NAFCO is in compliance with
ERISA and has not incurred and does not reasonably expect to incur any
liabilities to the PBGC under ERISA in connection with any Plan or
Multiemployer Plan or to contribute now or in the future in respect of any
Plan or Multiemployer Plan.
(i) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to NAFCO, the Transferor or
the Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to NAFCO or to the Transferor, that would render any of the Provided
Documents untrue or misleading in any material respect. There is no fact
known to NAFCO or to the Transferor which has a material possibility of
causing a Material Adverse Change with respect to NAFCO, the Transferor or
the Contracts.
(j) Compliance With Securities Laws. The offer and sale of the
Securities comply in all material respects with all requirements of law,
including all applicable registration requirements of securities laws.
Without limitation of the foregoing, the Offering Document does not
contain any untrue statement of a material fact and does not omit to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they
were made, not misleading; provided that no representation is made with
respect to information included in an Offering Document and furnished by
Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that, in respect of the Offering
Document, the Financial Security Information is limited to the information
included under the caption "The Certificate Insurer", or such additional
information as may be deemed to be included
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<PAGE>
in the Offering Document pursuant to the second paragraph under the
heading "Incorporation of Certain Documents by Reference" on page S-2 of
the Offering Document. Neither the Trust nor the Trust Estate is required
to be registered as an "investment company" under the Investment Company
Act. The Pooling and Servicing Agreement is not required to be qualified
under the Trust Indenture Act.
(k) Transaction Documents. Each of the representations and
warranties of NAFCO or of the Transferor contained in the Transaction
Documents is true and correct in all material respects and each of NAFCO
and the Transferor hereby makes each such representation and warranty made
by it to, and for the benefit of, Financial Security as if the same were
set forth in full herein.
(l) No Consents. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required in connection with the execution,
delivery and performance by NAFCO or by the Transferor of this Insurance
Agreement or of any other Transaction Document to which such Person is a
party or by NAFCO of the Subservicing Agreement, except (in each case)
such as have been obtained and are in full force and effect.
(m) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by NAFCO or by the Transferor in the
conduct of their respective businesses violates any law, regulation,
judgment, agreement, order or decree applicable to it which, if enforced,
would result in a Material Adverse Change with respect to such Person.
(n) Special Purpose Entity.
(i) The capital of the Transferor is adequate for the business
and undertakings of the Transferor.
(ii) Other than with respect to the purchase by NAFCO and its
Affiliates of all of the beneficial ownership interests of the
Transferor and the transactions as provided in (a) the Sale
Agreement, (b) the Purchase Agreement, (c) the Purchase and
Contribution Agreement, (d) each Conveyance, (e) the Pooling and
Servicing Agreement and (f) each Transfer Agreement, the Transferor
is not engaged in any business transactions with NAFCO or any of its
Affiliates other than Funding Trust II.
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<PAGE>
(iii) At least one co-trustee of the Transferor shall be a
person who is not, and will not be, a director, officer, employee or
holder of any partnership interests or equity securities of NAFCO or
any of its Affiliates.
(iv) The Transferor's funds and assets are not, and will not
be, commingled with the funds of any other person.
(v) The trust agreement of the Transferor requires it to
maintain (A) correct and complete books and records of account, and
(B) minutes of the meetings and other proceedings of its holders of
beneficial ownership interests and trustees (including any
co-trustees).
(o) Solvency; Fraudulent Conveyance. Each of NAFCO and the
Transferor is solvent and will not be rendered insolvent by the
Transaction and, after giving effect to such Transaction, neither NAFCO
nor the Transferor will be left with an unreasonably small amount of
capital with which to engage in its business. Neither NAFCO nor the
Transferor intends to incur, or believes that it has incurred, debts
beyond its ability to pay such debts as they mature. Neither NAFCO nor the
Transferor is contemplating the commencement of insolvency, bankruptcy,
liquidation or consolidation proceedings or the appointment of a receiver,
liquidator, conservator, trustee or similar official in respect of NAFCO
or the Transferor, as the case may be, or any of their respective assets.
The amount of consideration being received by the Transferor upon the sale
of the Securities constitutes reasonably equivalent value and fair
consideration for the interest in the portion of the Trust Estate
evidenced by the Securities. The amount of consideration being received by
the Master Trust upon the sale of the Initial Contracts and related Other
Trust Property to Funding Trust II constitutes reasonably equivalent value
and fair consideration for such Contracts and related Other Trust
Property. The amount of consideration being received by Funding Trust II
upon the sale of the Initial Contracts and related Other Trust Property to
the Transferor constitutes reasonably equivalent value and fair
consideration for such Contracts and related Other Trust Property. The
amount of consideration being received by NAFCO upon the sale of any
Additional Contracts and related Other Trust Property by NAFCO to the
Transferor constitutes reasonably equivalent value and fair consideration
for such Additional Contracts and related Other Trust Property. The amount
of consideration being received by ACCH upon the sale of any Additional
Contracts
-7-
<PAGE>
and related Other Trust Property by ACCH to NAFCO constitutes reasonably
equivalent value and fair consideration for such Additional Contracts and
related Other Trust Property. None of (i) the Master Trust, with respect
to the Initial Contracts and related Other Trust Property transferred by
it to Funding Trust II, (ii) Funding Trust II, with respect to the Initial
Contracts and related Other Trust Property transferred by it to the
Transferor, (iii) ACCH, with respect to any Additional Contracts and
related Other Trust Property transferred by it to NAFCO, and (iv) NAFCO,
with respect to any Additional Contracts and related Other Trust Property
transferred by it to the Transferor, is transferring any of the
above-mentioned Contracts and related Other Trust Property or interests
with any intent to hinder, delay or defraud any of their respective
creditors. The Transferor is not transferring the Contracts and related
Other Trust Property to the Trust or selling the Securities, as provided
in the Transaction Documents, with any intent to hinder, delay or defraud
any of the Transferor's creditors.
(p) Investment Company Act Compliance. Neither NAFCO nor the
Transferor is required to be registered as an "investment company" under
the Investment Company Act.
(q) Good Title; Valid Transfer; Absence of Liens; Security Interest.
Immediately prior to the sale of the Initial Contracts and related Other
Trust Property to the Trust pursuant to the Pooling and Servicing
Agreement and the related Transfer Agreement on the Closing Date and
immediately prior to the sale of Additional Contracts and related Other
Trust Property to the Trust pursuant to the Pooling and Servicing
Agreement and the related Transfer Agreement on any Subsequent Transfer
Date, the Transferor was the owner of, and had good and marketable title
to, such property free and clear of all Liens and Restrictions on
Transferability, and had full right, power and lawful authority to assign,
transfer and pledge such Contracts and related Other Trust Property. The
Pooling and Servicing Agreement and the related Transfer Agreement
constitute a valid sale, transfer and assignment of the Initial Contracts
and related Other Trust Property to the Trust, and the Pooling and
Servicing Agreement and each related Transfer Agreement constitute a valid
sale, transfer and assignment of the Additional Contracts and related
Other Trust Property to the Trust, in each case enforceable against
creditors of and purchasers of the Transferor. In the event that, in
contravention of the intention of the parties, the transfer of such
Contracts and related Other Trust Property by the Transferor to the Trust
is characterized as other than a sale, such transfer shall be
characterized as a secured
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financing, and the Trust shall have a valid and perfected first priority
security interest in the Contracts and related Other Trust Property free
and clear of all Liens and Restrictions on Transferability other than
Restrictions on Transferability imposed by the Pooling and Servicing
Agreement.
(r) Perfection of Liens and Security Interest. On the Closing Date,
the Lien and security interest in favor of the Trustee with respect to the
Trust Estate will be perfected by the delivery of the Contracts to the
Custodian, which Contracts the Custodian will hold on behalf of the
Trustee, the filing of financing statements on Form UCC-1 in each
jurisdiction where such recording or filing is necessary for the
perfection of the security interest in favor of the Trustee and the
establishment of the Collection Account, the Certificate Account, the
Pre-Funding Period Reserve Account, the Pre-Funding Account and the
Revolving Account in accordance with the provisions of the Transaction
Documents, and no other filings in any jurisdiction or any other actions
(except as expressly provided herein) are necessary to perfect the
Trustee's first priority Lien on and security interest in the Trust Estate
as against any third parties.
(s) Security Interest in Funds and Investments. Assuming the
retention of funds in the Trust Accounts and the acquisition of Permitted
Investments in accordance with the Transaction Documents, such funds and
Permitted Investments will be subject to a valid and perfected, first
priority security interest in favor of the Trustee. Assuming the retention
of funds in the Spread Account and the acquisition of Permitted
Investments in accordance with the Spread Account Agreement, such funds
and Permitted Investments will be subject to a valid and perfected, first
priority security interest in favor of the Collateral Agent on behalf of
Financial Security and the Trustee.
(t) Taxes. Each of NAFCO and the Transferor have and each of their
respective Subsidiaries have filed all Federal and state tax returns which
are required to be filed and paid all taxes, including any assessments
received by it, to the extent that such taxes have become due. Any taxes,
fees and other governmental charges payable by the Transferor or NAFCO in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of the Securities have been paid or
shall have been paid at or prior to the Date of Issuance.
(u) Additional Contracts. With respect to the transfer by NAFCO of
Additional Contracts and related Other Trust Property on any Subsequent
Transfer Date, immediately
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prior to the sale of such Additional Contracts and related Other Trust
Property to the Transferor pursuant to the Purchase and Contribution
Agreement and the related Conveyance, NAFCO was the owner of, and had good
and marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, corporate power and
lawful authority to assign, transfer and pledge such Additional Contracts
and related Other Trust Property. The Purchase and Contribution Agreement
and the related Conveyance constitute a valid sale, transfer and
assignment of the related Additional Contracts and related Other Trust
Property to the Transferor enforceable against creditors of and purchasers
of NAFCO. In the event that, in contravention of the intention of the
parties, the transfer of such Additional Contracts and related Other Trust
Property by NAFCO to the Transferor is characterized as other than a sale,
such transfer shall be characterized as a secured financing, and the
Transferor shall have a valid and perfected first priority security
interest in such Additional Contracts and related Other Trust Property
free and clear of all Liens and Restrictions on Transferability.
(v) Registration Statement; Prospectus. The Transferor has filed
with the Commission a registration statement on Form S-3 (No. 33-80813),
including a preliminary prospectus and prospectus supplement for the
registration of the Securities under the Securities Act, has filed such
amendments thereto, and such amended preliminary prospectuses and
prospectus supplements as may have been required to the date hereof, and
will file such additional amendments thereto and such amended prospectuses
and prospectus supplements as may hereafter be required. Such registration
statement (as amended, if applicable) and the prospectus, together with
the prospectus supplement relating to the Securities, constituting a part
thereof (including in each case all documents, if any, incorporated by
reference therein and the information, if any, deemed to be part thereof
pursuant to the rules and regulations of the Commission under the
Securities Act, as from time to time amended or supplemented pursuant to
the Securities Act or otherwise), are hereinafter referred to as the
"Registration Statement" and the "Prospectus", respectively, except that
if any revised prospectus or prospectus supplement shall be provided by
the Transferor for use in connection with the offering of the Securities
which differs from the Prospectus filed with the Commission pursuant to
Rule 424 of the rules and regulations under the Securities Act (whether or
not such revised prospectus is required to be filed by the Transferor
pursuant to such rules and regulations), the term "Prospectus" shall refer
to such revised prospectus and
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prospectus supplement from and after the time it is first provided to the
Underwriter for such use. The Registration Statement at the time it became
effective complied, and at each time that the Prospectus is provided to
the Underwriter for use in connection with the offering or sale of any
Securities will comply, in all material respects with the requirements of
the Securities Act and the rules and regulations thereunder. The
Registration Statement and the Prospectus at the time the Registration
Statement became effective did not and on the date hereof does not,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and the Prospectus at the time it was first
provided to the Underwriter for use in connection with the offering of the
Securities did not, and on the date hereof does not, contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein in light of the circumstances under which they
were made not misleading.
Section 2.02. Affirmative Covenants of NAFCO and the Transferor. NAFCO
hereby agrees with respect to itself and with respect to the Transferor, and the
Transferor hereby agrees with respect to itself, that during the Term of the
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
(a) Compliance With Agreements and Applicable Laws. Each of the
Transferor and NAFCO shall perform each of its respective obligations
under the Transaction Documents and the Subservicing Agreement and shall
comply with all material requirements of, and the Securities shall be
offered and sold in accordance with, any law, rule or regulation
applicable to it or thereto, or that are required in connection with its
performance under any of the Transaction Documents or the Subservicing
Agreement.
(b) Financial Statements; Accountants' Reports; Other Information.
Each of NAFCO and the Transferor shall keep or cause to be kept in
reasonable detail books and records of account of its assets and business
and, in the case of NAFCO, shall clearly reflect therein the transfer of
Additional Contracts to the Transferor, and, in the case of the
Transferor, shall clearly reflect therein the transfer of the Contracts to
the Trust. NAFCO shall cause the Master Trust to keep in reasonable detail
books and records of account of its assets and business and to clearly
reflect therein the transfer of the Initial Contracts to Funding Trust II.
NAFCO shall cause Funding Trust II to keep in reasonable detail books and
records of account of its assets and business and to clearly reflect
therein the transfer of
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the Initial Contracts to the Transferor. Each of NAFCO and the Transferor
shall furnish or cause to be furnished to Financial Security:
(i) Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of each fiscal year of
NAFCO and the Transferor, the audited balance sheets of NAFCO and
the Transferor, as the case may be, as of the end of such fiscal
year and the audited statements of income, changes in equity and
cash flows of NAFCO and the Transferor, as the case may be, for such
fiscal year, all in reasonable detail and stating in comparative
form the respective figures for the corresponding date and period in
the preceding fiscal year, prepared in accordance with generally
accepted accounting principles, consistently applied, and
accompanied by the certificate of NAFCO's and the Transferor's
independent accountants (who shall be, in each case, a nationally
recognized firm or otherwise acceptable to Financial Security) and
by the certificate specified in Section 2.02(c) hereof.
(ii) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after the close of each of the first
three quarters of each fiscal year of NAFCO and the Transferor, as
the case may be, the unaudited balance sheets of NAFCO and the
Transferor, as the case may be, as of the end of such quarter and
the unaudited statements of income, changes in equity and cash flows
of NAFCO and the Transferor, as the case may be, for the portion of
the fiscal year then ended, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date
and period in the preceding fiscal year, prepared in accordance with
generally accepted accounting principles, consistently applied
(subject to normal year-end adjustments), and accompanied by the
certificate specified in Section 2.02(c) hereof if such certificate
is required to be provided pursuant to such Section.
(iii) Accountants' Reports. If a Special Event has occurred,
copies of any reports submitted to NAFCO or the Transferor by their
respective independent accountants in connection with any
examination of the financial statements of NAFCO or the Transferor,
promptly upon receipt thereof.
(iv) Other Information. Promptly upon receipt thereof, copies
of all reports, statements, certifications, schedules, or other
similar items
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delivered to or by NAFCO or the Transferor pursuant to the terms of
the Transaction Documents and, promptly upon request, such other
data as Financial Security may reasonably request; provided,
however, that neither NAFCO nor the Transferor shall be required to
deliver any such items if provision by some other party to Financial
Security is required under the Transaction Documents unless such
other party wrongfully fails to deliver such item. NAFCO and the
Transferor shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (A) to inspect the books
and records of NAFCO and the Transferor as they may relate to the
Securities, the Contracts and the Other Trust Property, the
obligations of NAFCO or of the Transferor under the Transaction
Documents, the Transaction and, but only following the occurrence of
a Special Event, NAFCO's business; (B) to discuss the affairs,
finances and accounts of NAFCO or the Transferor with its respective
Chief Operating Officer and Chief Financial Officer, no more
frequently than annually, unless a Special Event has occurred; and
(C) to discuss the affairs, finances and accounts of NAFCO or the
Transferor with its independent accountants, provided that an
officer of NAFCO or the Transferor, as the case may be, shall have
the right to be present during such discussions. Such inspections
and discussions shall be conducted during normal business hours and
shall not unreasonably disrupt the business of NAFCO or the
Transferor, as the case may be. In addition, NAFCO shall promptly
(but in no case more than 30 days following issuance or receipt by a
Commonly Controlled Entity) provide to Financial Security a copy of
all correspondence between a Commonly Controlled Entity and the
PBGC, IRS, Department of Labor or the administrators of a
Multiemployer Plan relating to any Reportable Event or the
underfunded status, termination or possible termination of a Plan or
a Multiemployer Plan. The books and records of NAFCO and the
Transferor will be maintained at the respective addresses designated
herein for receipt of notices, unless NAFCO or the Transferor shall
otherwise advise the parties hereto in writing.
(v) NAFCO shall provide or cause to be provided to Financial
Security an executed original copy of each document executed in
connection with the Transaction within 10 days after the date of
closing.
(vi) Promptly after the filing or sending thereof, copies of
all proxy statements, financial
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statements, reports and registration statements which NAFCO or the
Transferor files, or delivers to, the IRS, the Commission, or any
other Federal, state or foreign government agency, authority or body
which supervises the issuance of securities by NAFCO or the
Transferor or any national securities exchange.
(c) Compliance Certificate. Each of NAFCO and the Transferor shall
deliver to Financial Security concurrently with the delivery of the
financial statements required pursuant to Section 2.02(b)(i) hereof and
concurrently with the delivery of the financial statements required
pursuant to Section 2.02(b)(ii) hereof, a certificate signed by the Chief
Financial Officer of each of NAFCO and the Transferor stating that:
(i) a review of NAFCO's and the Transferor's respective
performance under the Transaction Documents and the Subservicing
Agreement during such period has been made under such officer's
supervision;
(ii) to the best of such individual's knowledge, no Special
Event, Default or Event of Default has occurred, or if a Special
Event, Default or Event of Default has occurred, specifying the
nature thereof and, if NAFCO or the Transferor has a right to cure
any such Default or Event of Default pursuant to Section 5.01,
stating in reasonable detail the steps, if any, being taken by NAFCO
or the Transferor, as the case may be, to cure such Default or Event
of Default or to otherwise comply with the terms of the agreement to
which such Default or Event of Default relates; and
(iii) the attached financial reports submitted in accordance
with Section 2.02(b)(i) or (ii) hereof, as applicable, are complete
and correct in all material respects and present fairly the
financial condition and results of operations of NAFCO or the
Transferor, as the case may be, as of the dates and for the periods
indicated, in accordance with generally accepted accounting
principles consistently applied (subject as to interim statements to
normal year-end adjustments).
(d) Notice of Material Events. Each of NAFCO and the Transferor
shall promptly inform (unless, in the case of clause (i) only, prohibited
by applicable law) Financial Security in writing of the occurrence of any
of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or
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judicial investigation (A) against NAFCO or the Transferor
pertaining to the Contracts in general, (B) with respect to a
material portion of the Contracts or (C) in which a request has been
made for certification as a class action (or equivalent relief) that
would involve a material portion of the Contracts;
(ii) any change in the location of NAFCO's or the Transferor's
principal office or any change in the location of NAFCO's or of the
Transferor's books and records;
(iii) the occurrence of any Default, Event of Default or
Special Event; or
(iv) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material
Adverse Change in respect of NAFCO or of the Transferor.
(e) Further Assurances. Each of NAFCO and the Transferor will file
or cause to be filed all necessary financing statements, assignments or
other instruments, and any amendments or continuation statements relating
thereto, necessary to be kept and filed in such manner and in such places
as may be required by law to preserve and protect fully the Lien on and
first priority security interest in, and all rights of the Trustee for the
benefit of the Certificateholders and Financial Security with respect to
the Contracts and Other Trust Property, under the Pooling and Servicing
Agreement. In addition, each of NAFCO and the Transferor shall, upon the
request of Financial Security, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, within ten
(10) days of such request, such amendments hereto and such further
instruments and take such further action as may be reasonably necessary to
effectuate the intention, performance and provisions of the Transaction
Documents or to protect the interest of the Trustee, for the benefit of
the Certificateholders and Financial Security, in the Contracts and Other
Trust Property, free and clear of all Liens and Restrictions on
Transferability except the Lien in favor of the Trustee, for the benefit
of the Certificateholders and Financial Security, and the Restrictions on
Transferability imposed by the Pooling and Servicing Agreement. In
addition, each of NAFCO and the Transferor agrees to cooperate with S&P
and Moody's in connection with any review of the Transaction which may be
undertaken by S&P and Moody's after the date hereof.
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(f) Retirement of Securities. NAFCO or the Transferor shall cause
the Trustee, upon retirement of the Securities pursuant to the Pooling and
Servicing Agreement or otherwise, to furnish to Financial Security a
notice of such retirement, and, upon retirement of the Securities and the
expiration of the term of the Policy, to surrender the Policy to Financial
Security for cancellation.
(g) Third-Party Beneficiary. Each of NAFCO and the Transferor agrees
that Financial Security shall have all rights of a third-party beneficiary
in respect of the Pooling and Servicing Agreement, the Purchase Agreement,
the Purchase and Contribution Agreement, each Transfer Agreement, the Sale
Agreement, the Assignment Agreement, the Custodial Agreement and each
Conveyance and hereby incorporates and restates its representations,
warranties and covenants as set forth therein for the benefit of Financial
Security.
(h) Corporate Existence. Except as provided in Section 2.03(h), each
of NAFCO and the Transferor shall maintain its existence as a limited
partnership and as a business trust, respectively, and shall at all times
continue to be duly organized under the laws of the jurisdiction of its
formation and duly qualified and duly authorized (as described in Sections
2.01(a), (b) and (c) hereof) and shall conduct its business in accordance
with the terms of its agreement of limited partnership or trust agreement,
as the case may be.
(i) Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of
a dividend to its stockholders. No consideration is given by the New
York State Insurance
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Department to financial statements prepared in accordance with
generally accepted accounting principles in making such
determinations.
(2) Each Offering Document delivered with respect to the Securities
subsequent to the Date of Issuance shall be in form and substance
satisfactory to Financial Security in its sole discretion as evidenced by
Financial Security's prior written consent to the use thereof.
(j) Special Purpose Entity.
(i) The Transferor shall conduct its business solely in its
own name through its duly authorized officers or agents so as not to
mislead others as to the identity of the entity with which those
officers are concerned, and particularly will use its best efforts
to avoid the appearance of conducting business on behalf of NAFCO or
any Affiliate thereof or that the assets of the Transferor are
available to pay the creditors of NAFCO or any Affiliate thereof.
Without limiting the generality of the foregoing, all oral and
written communications, including, without limitation, letters,
invoices, purchase orders, contracts, statements and loan
applications, will be made solely in the name of the Transferor.
(ii) The Transferor shall maintain records and books of
account separate from those of NAFCO and the Affiliates thereof. The
Transferor's books and records shall clearly reflect the transfer of
the Contracts to the Trust and the sale of the Securities each as a
sale of the Transferor's interest in the Contracts (other than the
Transferor Interest). The books and records of the Transferor will
be maintained at the address designated herein for receipt of
notices, unless the Transferor shall otherwise advise the parties
hereto in writing.
(iii) The Transferor shall obtain proper authorization of all
action requiring approval of the co-trustees or holders of
beneficial ownership interests of the Transferor, as the case may
be. Meetings of the holders of beneficial ownership interests of the
Transferor shall be held not less frequently than one time per annum
and copies of each such authorization and the minutes of each such
meeting shall be delivered to Financial Security within two weeks of
such authorization or meeting, as the case may be.
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(iv) Although the organizational expenses of the Transferor
have been paid by NAFCO, operating expenses and liabilities of the
Transferor shall be paid from its own funds.
(v) The annual financial statements of the Transferor shall
disclose the effects of the Transferor's transactions in accordance
with generally accepted accounting principles and shall disclose
that the assets of the Transferor are not available to pay creditors
of NAFCO or any Affiliate thereof.
(vi) The resolutions, agreements and other instruments of the
Transferor underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Transferor as official records of the Transferor
separately identified and held apart from the records of NAFCO and
each Affiliate thereof.
(vii) The Transferor shall maintain an arm's-length
relationship with NAFCO and the Affiliates thereof and will not hold
itself out as being liable for the debts of NAFCO or any Affiliate
thereof.
(viii) The Transferor shall keep its assets and its
liabilities wholly separate from those of all other entities,
including, but not limited to NAFCO and the Affiliates thereof.
(k) Maintenance of Licenses. NAFCO and the Transferor shall each
maintain all licenses, permits, charters and registrations which are
material to the performance by NAFCO or the Transferor, as the case may
be, of its business or of its respective obligations under this Insurance
Agreement and each other Transaction Document.
Section 2.03. Negative Covenants of NAFCO and the Transferor. NAFCO hereby
agrees with respect to itself and with respect to the Transferor and the
Transferor hereby agrees with respect to itself that during the Term of the
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
(a) Restrictions on Liens. Neither NAFCO nor the Transferor shall
(i) create, incur or suffer to exist, or agree to create, incur or suffer
to exist, or consent to cause or permit in the future (upon the happening
of a contingency or otherwise) the creation, incurrence or existence of
any Lien or Restriction on Transferability on the Contracts or the Other
Trust Property except for the Lien in favor of the Trustee, for the
benefit of the
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Certificateholders and Financial Security, and the Restrictions on
Transferability imposed by the Pooling and Servicing Agreement or (ii)
with respect to the Contracts or the Other Trust Property, sign or file
under the Uniform Commercial Code of any jurisdiction any financing
statement which names either NAFCO or the Transferor as a debtor, or sign
any security agreement authorizing any secured party thereunder to file
such financing statement, except in each case any such instrument solely
securing the rights and preserving the Lien of the Trustee, for the
benefit of the Certificateholders and Financial Security.
(b) Impairment of Rights. Neither NAFCO nor the Transferor shall
take any action, or fail to take any action, if such action or failure to
take action may (i) interfere with the enforcement of any rights under the
Transaction Documents that are material to the rights, benefits or
obligations of the Trustee, the Certificateholders or Financial Security,
(ii) result in a Material Adverse Change in respect of the Contracts or
(iii) impair the ability of NAFCO or of the Transferor to perform its
obligations under the Transaction Documents, including any consolidation
or merger with any Person or any transfer of all or any material amount of
NAFCO's or the Transferor's assets to any other Person if such
consolidation, merger or transfer would materially impair the net worth of
NAFCO or the Transferor or any successor Person obligated, after such
event, to perform NAFCO's or the Transferor's obligations under the
Transaction Documents.
(c) Waiver, Amendments, Etc. Neither NAFCO nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or
amendment of, any of the provisions of any of the Transaction Documents or
the Subservicing Agreement or the Transferor's trust agreement.
(d) Successors. Neither NAFCO nor the Transferor shall terminate or
designate, or consent to the termination or designation of, the Servicer,
the Custodian, the Standby Servicer, the Trustee, any Subservicer, or the
Collateral Agent or any successor thereto without the prior written
approval of Financial Security.
(e) Creation of Indebtedness; Guarantees. Other than as permitted in
the Transaction Documents, the Transferor shall not create, incur, assume
or suffer to exist any indebtedness other than indebtedness guaranteed or
approved in writing by Financial Security. Without the prior written
consent of Financial Security, the Transferor shall not assume guarantee,
endorse or otherwise be or become directly
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or contingently liable for the obligations of any Person by, among other
things, agreeing to purchase any obligation of another Person, agreeing to
advance funds to such Person or causing or assisting such Person to
maintain any amount of capital.
(f) Subsidiaries. The Transferor shall not form, or cause to be
formed, any Subsidiaries.
(g) Issuance of Additional Beneficial Ownership Interests. The
Transferor shall not issue or allow the issuance of any additional
beneficial ownership interests or securities convertible into or
exchangeable for beneficial ownership interests in the Transferor.
(h) No Mergers. (a) The Transferor shall not consolidate with or
merge into any Person or transfer all or any material portion of its
assets to any Person or liquidate or dissolve; and (b) NAFCO shall not
consolidate with or merge into any Person unless it complies with the
procedures set forth in Section 6.02 of the Pooling and Servicing
Agreement with respect to the merger or consolidation of the Servicer or
transfer all or any material portion of its assets to any Person or
liquidate or dissolve.
(i) Other Activities. The Transferor shall not:
(i) sell, transfer, exchange or otherwise dispose of any of
its assets except as permitted under the Transaction Documents; or
(ii) engage in any business or activity other than in
connection with the Pooling and Servicing Agreement, the Purchase
Agreement, the Purchase and Contribution Agreement, each Transfer
Agreement, each Conveyance, the Sale Agreement, the Assignment
Agreement and the Spread Account Agreement and as permitted under
its trust agreement.
(j) Insolvency. Neither NAFCO nor the Transferor shall commence with
respect to the Transferor any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to the bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, corporation or other relief with respect to it
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial
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part of its assets, or make a general assignment for the benefit of its
creditors. Neither NAFCO nor the Transferor shall take any action in
furtherance of, or indicating the consent to, approval of, or acquiescence
in any of the acts set forth above. The Transferor shall not admit in
writing its inability to pay its debts.
(k) ERISA. The Transferor shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any
Plan or Multiemployer Plan.
(l) Distributions. The Transferor shall not declare or make payment
of (i) any distribution on or in respect of any of its beneficial
ownership interests, or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of any option, warrant or other
right to acquire its beneficial ownership interests unless (in each case)
at the time of such declaration or payment (and after giving effect
thereto) no amount payable by the Transferor under any Transaction
Document with respect to any Series is then due and owing but unpaid.
(m) Transfer of the Transferor Interest. The Transferor shall not
sell, transfer, assign, convey or pledge the Transferor Interest to any
Person (including, without limitation, NAFCO).
Section 2.04. Representations and Warranties of NAFCO and the Transferor
with respect to the Master Trust, Funding Trust II and ACCH. Each of the
Transferor and NAFCO represents, warrants and covenants, as of the date hereof,
as of the Date of Issuance and as of each Subsequent Transfer Date, with respect
to itself, with respect to the Master Trust, with respect to Funding Trust II,
with respect to ACCH and otherwise, as follows:
(a) Good Title; Valid Transfer; Absence of Liens; Security Interest.
Immediately prior to the sale of the Initial Contracts and related Other
Trust Property to Funding Trust II pursuant to the Assignment Agreement on
the Closing Date, the Master Trust was the owner of, and had good and
marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Contracts and related Other
Trust Property. Immediately prior to the sale of the Initial Contracts and
related Other Trust Property to the Transferor pursuant to the Sale
Agreement on the Closing Date, Funding Trust II was the owner of, and had
good and marketable title to, such property free and clear of all Liens
and Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Contracts and
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related Other Trust Property. Immediately prior to the sale of Additional
Contracts and related Other Trust Property to NAFCO pursuant to the
Purchase Agreement and the related Conveyance on any Subsequent Transfer
Date, ACCH was the owner of, and had good and marketable title to, such
property free and clear of all Liens and Restrictions on Transferability,
and had full right, power and lawful authority to assign, transfer and
pledge such Additional Contracts and the related Other Trust Property. The
Assignment Agreement constitutes a valid sale, transfer and assignment of
the Initial Contracts and related Other Trust Property to Funding Trust
II, enforceable against creditors of and purchasers of the Master Trust.
The Sale Agreement constitutes a valid sale, transfer and assignment of
the Initial Contracts and the related Other Trust Property to the
Transferor, enforceable against creditors of and purchasers of Funding
Trust II. The Purchase Agreement and the related Conveyance constitute a
valid sale, transfer and assignment of the related Additional Contracts
and the related Other Trust Property to the Transferor enforceable against
creditors of and purchasers of ACCH. In the event that, in contravention
of the intention of the parties, (i) the transfer of the Initial Contracts
and related Other Trust Property by the Master Trust to Funding Trust II,
(ii) the transfer of the Initial Contracts and related Other Trust
Property by Funding Trust II to the Transferor or (iii) the transfer of
Additional Contracts and related Other Trust Property by ACCH to NAFCO is
characterized as other than a sale, such transfer shall be characterized
as a secured financing, and Funding Trust II, the Transferor or NAFCO, as
applicable, shall have a valid and perfected first priority security
interest in such Contracts and related Other Trust Property free and clear
of all Liens and Restrictions on Transferability other than as imposed by
the Transaction Documents.
(b) Compliance With Agreements and Applicable Laws. Each of the
Master Trust, Funding Trust II and ACCH has performed each of its
obligations under the Assignment Agreement, the Sale Agreement and the
Purchase Agreement, respectively, and is in compliance with all material
requirements of, any law, rule or regulation applicable to it, or that are
required in connection with its performance under the Assignment
Agreement, the Sale Agreement and the Purchase Agreement, respectively.
Each of the Master Trust, Funding Trust II and ACCH has not taken any
action that would interfere with the enforcement of any rights under the
Assignment Agreement, the Sale Agreement and the Purchase Agreement,
respectively.
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Section 2.05. Affirmative Covenants of NAFCO and the Transferor with
respect to the Master Trust, Funding Trust II and ACCH. Each of NAFCO and the
Transferor hereby agrees with respect to itself, with respect to the Master
Trust, with respect to Funding Trust II, with respect to ACCH and otherwise,
that during the Term of the Agreement, unless Financial Security shall otherwise
expressly consent in writing:
(a) Notice of Material Events. Each of NAFCO and the Transferor
shall promptly inform Financial Security in writing of the occurrence of
any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Master Trust, Funding Trust II or ACCH, as the case may
be, (B) with respect to any of the Contracts transferred by the
Master Trust to Funding Trust II, by Funding Trust II to the
Transferor or by ACCH to NAFCO, or (C) in which a request has been
made for certification as a class action (or equivalent relief) that
would involve any of the Contracts transferred by the Master Trust
to Funding Trust II, Funding Trust II to the Transferor or by ACCH
to NAFCO; or
(ii) any other event, circumstance or condition that has
resulted in a material adverse change in the ability of the Master
Trust, Funding Trust II or ACCH to perform its obligations under the
Assignment Agreement, the Sale Agreement or the Purchase
Agreement, respectively.
(b) Further Assurances. Each of NAFCO and the Transferor will file,
or cause to be filed, all necessary termination statements, assignments or
other instruments, and any amendments or continuation statements relating
thereto, necessary to be kept and filed in such manner and in such places
as may be required by law to release the Lien and security interest of (i)
the Master Trust in any Contracts transferred by the Master Trust to
Funding Trust II, (ii) Funding Trust II in any Contracts transferred by
Funding Trust II to the Transferor or (iii) ACCH in any Contracts
transferred by ACCH to NAFCO. In addition, each of NAFCO and the
Transferor shall, upon the written request of Financial Security, from
time to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within ten (10) days of such request, such
further instruments and take such further action as may be reasonably
commercially necessary to protect the interest of the Transferor in the
Contracts transferred by the Master Trust to Funding Trust II, by
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Funding Trust II to the Transferor and by ACCH to NAFCO, free and clear of
all Liens and Restrictions on Transferability created by or for the
benefit of the Master Trust, Funding Trust II or ACCH, as the case may be.
(c) Third-Party Beneficiary. The Transferor and NAFCO agree that
Financial Security shall have all rights of a third-party beneficiary in
respect of the Assignment Agreement, the Sale Agreement and the Purchase
Agreement and each of NAFCO and the Transferor hereby restates the
representations, warranties and covenants of the Master Trust, Funding
Trust II and ACCH as set forth therein for the benefit of Financial
Security.
Section 2.06. Negative Covenants of NAFCO and the Transferor with respect
to the Master Trust, Funding Trust II and ACCH. Each of NAFCO and the Transferor
hereby agrees with respect to itself, with respect to the Master Trust, with
respect to Funding Trust II, with respect to ACCH and otherwise that during the
Term of the Agreement, unless Financial Security shall otherwise expressly
consent in writing:
(a) Restrictions on Liens. Neither NAFCO nor the Transferor shall
permit the execution or filing under the Uniform Commercial Code of any
jurisdiction any financing statement naming the Master Trust, Funding
Trust II or ACCH as a debtor, or the execution of any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Contracts transferred by the Master Trust to Funding
Trust II, by Funding Trust II to the Transferor and by ACCH to NAFCO,
except in each case any such instrument solely securing the rights and
preserving the Lien of the Trustee, for the benefit of the
Certificateholders and Financial Security.
ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy. Financial Security agrees to issue
the Policy subject to satisfaction of the conditions precedent set forth in
Appendix II hereto.
Section 3.02. Payment of Fees and Premium.
(a) Inducement Letter Fees and Expenses. On the Date of Issuance,
NAFCO and the Transferor agree to pay or cause to be paid the amounts
specified with respect to fees, expenses and disbursements in the
Inducement Letter unless otherwise agreed between NAFCO and Financial
Security.
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(b) Legal Fees. On the Date of Issuance, NAFCO shall pay or cause to
be paid legal fees and disbursements incurred by Financial Security in
connection with the issuance of the Policy.
(c) Rating Agency Fees. The initial fees of S&P and Moody's with
respect to the Securities and the transactions contemplated hereby shall
be paid by the Transferor in full on the Date of Issuance, or otherwise
provided for to the satisfaction of Financial Security. All periodic and
subsequent fees of S&P or Moody's with respect to, and directly allocable
to, the Securities shall be for the account of, and shall be billed to,
the Transferor. The fees for any other rating agency shall be paid by the
party requesting such other agency's rating, unless such other agency is a
substitute for S&P or Moody's in the event that S&P or Moody's is no
longer rating the Securities, in which case the cost for such agency shall
be paid by the Transferor.
(d) Auditors' Fees. The Transferor shall pay on demand any
additional fees of Financial Security's auditors payable in respect of any
Offering Document that are incurred after the Date of Issuance. It is
understood that Financial Security's auditors shall not incur any
additional fees in respect of future Offering Documents except at the
request of or with the consent of the Transferor.
(e) Premium. In consideration of the issuance by Financial Security
of the Policy, Financial Security shall be entitled to receive the Premium
as and when due in accordance with the terms of the Premium Letter (i) in
the case of Premium due on or before the Date of Issuance, directly from
the Transferor and (ii) in the case of Premium due after the Date of
Issuance, first, from monies available for such payment in accordance with
Section 4.01 of the Pooling and Servicing Agreement and second, to the
extent that such monies are insufficient, from NAFCO. The Premium paid
hereunder or under the Pooling and Servicing Agreement shall be
nonrefundable without regard to whether Financial Security makes any
payment under the Policy or any other circumstances relating to the
Securities or provision being made for payment of the Securities prior to
maturity. Although the Premium is fully earned by Financial Security as of
the Closing Date, the Premium shall be payable in periodic installments as
provided in the Premium Letter. Anything herein or in any of the
Transaction Documents notwithstanding, upon the occurrence of an Event of
Default, the entire outstanding balance of further installments of the
Premium shall be immediately due and payable. All payments of Premium
shall be made by wire transfer to an
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account designated from time to time by Financial Security by written
notice to the Transferor and NAFCO.
Section 3.03. Reimbursement Obligation. Notwithstanding any of the
following provisions of this Section 3.03 to the contrary, the payment
obligations set forth in Sections 3.03(a), (b) (other than in respect of amounts
due from NAFCO), (c) (other than in respect of amounts due from NAFCO and other
amounts that, after due notice and any required passage of time, would not be
payable as a "Guaranteed Distribution" under the Policy), and (d)(v) shall be
non-recourse obligations with respect to NAFCO, the Transferor or any Affiliate
of either (other than the Trust) and shall be payable only from monies available
for such payment in accordance with Section 4.01 of the Pooling and Servicing
Agreement (except to the extent that any such payment obligation arises from a
failure to perform or default of NAFCO, the Transferor or any Affiliate thereof
under any Transaction Document or by reason of negligence, willful misconduct or
bad faith on the part of NAFCO or the Transferor in the performance of its
duties and obligations thereunder or reckless disregard by NAFCO or the
Transferor of its duties and obligations thereunder). NAFCO and the Transferor
agree to pay to Financial Security the following amounts as and when incurred:
(a) a sum equal to the total of all amounts paid by Financial
Security under the Policy;
(b) interest on any and all amounts described in this Section 3.03
or Section 3.02(e) from the date due to Financial Security pursuant to the
provisions hereof until payment thereof in full, payable to Financial
Security at the Late Payment Rate per annum;
(c) any payments made by Financial Security on behalf of, or
advanced to, NAFCO, in its capacity as Servicer, the Trust or the Trustee,
including, without limitation, any amounts payable by NAFCO, in its
capacity as Servicer, the Trust or the Trustee pursuant to the Securities
or any other Transaction Documents or the Subservicing Agreement; and any
payments made by Financial Security as, or in lieu of, any servicing,
management, trustee, custodial or administrative fees payable, in the sole
discretion of Financial Security to third parties in connection with the
Transaction; and
(d) any and all out-of-pocket charges, fees, costs and expenses
which Financial Security may reasonably pay or incur, including, but not
limited to, attorneys' and accountants' fees and expenses, in connection
with (i) in the event of payments under the Policy, any accounts
established to facilitate payments under the Policy, to the extent
Financial Security has not been immediately
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reimbursed on the date that any amount is paid by Financial Security under
the Policy, or other administrative expenses relating to such payments
under the Policy, (ii) the administration, enforcement, defense or
preservation of any rights in respect of any of the Transaction Documents,
including defending, monitoring or participating in any litigation or
proceeding (including any insolvency or bankruptcy proceeding in respect
of any Transaction participant or any Affiliate thereof) relating to any
of the Transaction Documents, any party to any of the Transaction
Documents or the Transaction, (iii) any amendment, waiver or other action
with respect to, or related to, any Transaction Document whether or not
executed or completed, (iv) any review or investigation made by Financial
Security in those circumstances where its approval or consent is sought
under any of the Transaction Documents, (v) the foreclosure against, sale
or other disposition of any collateral securing any obligations under any
of the Transaction Documents or otherwise in the discretion of Financial
Security, or pursuit of any other remedies under any of the Transaction
Documents, to the extent such costs and expenses are not recovered from
such foreclosure, sale or other disposition, (vi) preparation of bound
volumes of the Transaction Documents (vii) the transfer of Additional
Contracts to the Trust and (viii) any Federal, state or local tax (other
than taxes payable in respect of the gross income of Financial Security)
or other governmental charge imposed in connection with the issuance of
the Policy.
Section 3.04. Indemnification.
(a) Indemnification by NAFCO and the Transferor. In addition to any
and all rights of reimbursement, indemnification, subrogation and any
other rights pursuant hereto or under law or in equity, each of NAFCO and
the Transferor, jointly and severally, agrees to pay, and to protect,
indemnify and save harmless, Financial Security and its officers,
directors, shareholders, employees, agents and each Person, if any, who
controls Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act from and
against any and all claims, losses, liabilities (including penalties),
actions, suits, judgments, demands, damages, costs or expenses (including,
without limitation, fees and expenses of attorneys, consultants and
auditors and reasonable costs of investigations) of any nature arising out
of or relating to the transactions contemplated by the Transaction
Documents by reason of:
(i) any statement, omission or action (other than of or by
Financial Security) in connection with the
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offering, issuance, sale, remarketing or delivery of the Securities;
(ii) the negligence, bad faith, willful misconduct,
misfeasance, malfeasance or theft committed by any director,
officer, employee or agent of the Transferor or NAFCO, as the case
may be;
(iii) the breach by the Transferor or NAFCO, as the case may
be, of any representation, warranty or covenant under any of the
Transaction Documents (other than a representation or warranty set
forth in Section 2.03(c), for which the remedy with respect to a
breach thereof is set forth in the Pooling and Servicing Agreement)
or the occurrence, in respect of the Transferor or NAFCO, as the
case may be, under any of the Transaction Documents of any "event of
default" or any event which, with the giving of notice or the lapse
of time or both, would constitute any "event of default";
(iv) the violation by the Transferor or NAFCO of any Federal,
state or foreign law, rule or regulation, or any judgment, order or
decree applicable to it; or
(v) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any
Offering Document or in any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such claims arise out of
or are based upon any untrue statement or omission in the Financial
Security Information, it being understood that in respect of the
Offering Document, the Financial Security Information is limited to
information included under the caption "The Certificate Insurer", or
such additional information as may be deemed to be included in the
Offering Document pursuant to the second paragraph under the heading
"Incorporation of Certain Documents by Reference" on page S-2 of the
Offering Document.
(b) Conduct of Actions or Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted
against Financial Security, any officer, director, shareholder, employee
or agent of Financial Security or any Person controlling Financial
Security (individually, an "Indemnified Party" and, collectively, the
"Indemnified Parties") in respect of which indemnity may be sought from
the Transferor and NAFCO (the
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"Indemnifying Party") hereunder, Financial Security shall promptly notify
the Indemnifying Party in writing, and the Indemnifying Party shall assume
the defense thereof, including the employment of counsel satisfactory to
Financial Security and the payment of all expenses. An Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof at the expense of the Indemnified
Party; provided, however, that the fees and expenses of such separate
counsel shall be at the expense of the Indemnifying Party if (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party shall have failed to assume the defense of such action
or proceeding and employ counsel satisfactory to Financial Security in any
such action or proceeding or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party shall have
been advised by counsel that (A) there may be one or more legal defenses
available to it which are different from or additional to those available
to the Indemnifying Party and (B) the representation of the Indemnifying
Party and the Indemnified Party by the same counsel would be inappropriate
or contrary to prudent practice (in which case, if the Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Party, it being
understood, however, that the Indemnifying Party shall not, in connection
with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys
at any time for the Indemnified Parties, which firm shall be designated in
writing by Financial Security). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without its
written consent to the extent that any such settlement shall be
prejudicial to the Indemnifying Party but, if settled with its written
consent, or if there be a final judgment for the plaintiff in any such
action or proceeding with respect to which the Indemnifying Party shall
have received notice in accordance with this subsection (b), the
Indemnifying Party agrees to indemnify and hold the Indemnified Parties
harmless from and against any loss or liability by reason of such
settlement or judgment.
(c) Contribution. To provide for just and equitable contribution if
the indemnification provided by the
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Indemnifying Party is determined to be unavailable for any Indemnified
Party (other than due to application of this Section), the Indemnifying
Party shall contribute to the losses incurred by the Indemnified Party on
the basis of the relative fault of the Indemnifying Party, on the one
hand, and the Indemnified Party, on the other hand.
Section 3.05. Subrogation. Subject only to the priority of payment
provisions of the Pooling and Servicing Agreement, each of the Transferor and
NAFCO acknowledges that, to the extent of any payment made by Financial Security
pursuant to the Policy, Financial Security is to be fully subrogated to the
extent of such payment and any additional interest due on any late payment, to
the rights of the Certificateholders to any moneys paid or payable in respect of
the Securities under the Transaction Documents or otherwise. Each of the
Transferor and NAFCO agrees to such subrogation and, further, agrees to execute
such instruments and to take such actions as, in the sole judgment of Financial
Security, are necessary to evidence such subrogation and to perfect the rights
of Financial Security to receive any moneys paid or payable in respect of the
Securities under the Transaction Documents or otherwise.
ARTICLE IV.
FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement. This Insurance Agreement
shall take effect on the Date of Issuance and shall remain in effect until the
later of (a) such time as Financial Security is no longer subject to a claim
under the Policy and the Policy shall have been surrendered to Financial
Security for cancellation and (b) all amounts payable to Financial Security and
the Certificateholders under the Transaction Documents and under the Securities
have been paid in full; provided, however, that the provisions of Sections 3.02,
3.03 and 3.04 hereof shall survive any termination of this Insurance Agreement.
Section 4.02. Obligation Absolute. (a) The payment obligations of the
Transferor and NAFCO hereunder shall be absolute and unconditional, and shall be
paid strictly in accordance with this Insurance Agreement under all
circumstances irrespective of the following:
(i) any lack of validity or enforceability of, or any amendment or
other modifications of, or waiver with respect to, any of the Transaction
Documents, the Securities or the Policy;
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(ii) any exchange or release of any other obligations hereunder;
(iii) the existence of any claim, setoff, defense, reduction,
abatement or other right which the Transferor or NAFCO may have at any
time against Financial Security or any other Person;
(iv) any document presented in connection with the Policy proving to
be forged, fraudulent, invalid or insufficient in any respect, including
any failure to strictly comply with the terms of the Policy, or any
statement therein being untrue or inaccurate in any respect;
(v) any failure of the Transferor to receive the proceeds from the
sale of the Securities;
(vi) any breach by the Transferor or NAFCO of any representation,
warranty or covenant contained in any of the Transaction Documents; or
(vii) any other circumstances, other than payment in full, which
might otherwise constitute a defense available to, or discharge of the
Transferor or NAFCO in respect of any Transaction Document.
(b) The Transferor and NAFCO and any and all others who are now or may
become liable for all or part of the obligations of the Transferor or NAFCO
under this Insurance Agreement agree to be bound by this Insurance Agreement and
(i) to the extent permitted by law, waive and renounce any and all redemption
and exemption rights and the benefit of all valuation and appraisement
privileges against the indebtedness, if any, and obligations evidenced by any
Transaction Document or by any extension or renewal thereof; (ii) waive
presentment and demand for payment, notices of nonpayment and of dishonor,
protest of dishonor and notice of protest; (iii) waive all notices in connection
with the delivery and acceptance hereof and all other notices in connection with
the performance, default or enforcement of any payment hereunder except as
required by the Transaction Documents; (iv) waive all rights of abatement,
diminution, postponement or deduction, or to any defense other than payment, or
to any right of setoff or recoupment arising out of any breach under any of the
Transaction Documents, by any party thereto or any beneficiary thereof, or out
of any obligation at any time owing to the Transferor or NAFCO; (v) agree that
any consent, waiver or forbearance hereunder with respect to an event shall
operate only for such event and not for any subsequent event; (vi) consent to
any and all extensions of time that may be granted by Financial Security with
respect to any payment hereunder or other provisions hereof and to the
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release of any security at any time given for any payment hereunder, or any part
thereof, with or without substitution, and to the release of any Person or
entity liable for any such payment; and (vii) consent to the addition of any and
all other makers, endorsers, guarantors and other obligors for any payment
hereunder, and to the acceptance of any and all other security for any payment
hereunder, and agree that the addition of any such obligors or security shall
not affect the liability of the parties hereto for any payment hereunder.
(c) Nothing herein shall be construed as prohibiting NAFCO or the
Transferor from pursuing any rights or remedies it may have against any Person
other than Financial Security in a separate legal proceeding.
Section 4.03. Assignments; Reinsurance; Third-Party Rights. (a) This
Insurance Agreement shall be a continuing obligation of the parties hereto and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither the Transferor nor NAFCO
may assign its rights under this Insurance Agreement, or delegate any of its
duties hereunder, without the prior written consent of Financial Security. Any
assignment made in violation of this Insurance Agreement shall be null and void.
(b) Financial Security shall have the right to give participations in its
rights under this Insurance Agreement and to enter into contracts of reinsurance
with respect to the Policy upon such terms and conditions as Financial Security
may in its discretion determine; provided, however, that no such participation
or reinsurance agreement or arrangement shall relieve Financial Security of any
of its obligations hereunder or under the Policy.
(c) In addition, Financial Security shall be entitled to assign or pledge
to any bank or other lender providing liquidity or credit with respect to the
Transaction or the obligations of Financial Security in connection therewith any
rights of Financial Security under the Transaction Documents, or with respect to
any real or personal property or other interests pledged to Financial Security,
or in which Financial Security has a security interest, in connection with the
Transaction.
(d) Except as provided herein with respect to participants and reinsurers,
nothing in this Insurance Agreement shall confer any right, remedy or claim,
express or implied, upon any Person, including, particularly, any
Certificateholder, other than Financial Security, against the Transferor or
NAFCO, and all the terms, covenants, conditions, promises and agreements
contained herein shall be for the sole and exclusive benefit of the parties
hereto and their successors and permitted assigns. Neither the
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Trustee nor any Certificateholder shall have any right to payment from any
premiums paid or payable hereunder or from any other amounts paid by NAFCO or
the Transferor pursuant to Section 3.02, 3.03 or 3.04 hereof.
Section 4.04. Liability of Financial Security. Neither Financial Security
nor any of its officers, directors or employees shall be liable or responsible
for: (a) the use which may be made of the Policy by the Trustee or for any acts
or omissions of the Trustee in connection therewith or (b) the validity,
sufficiency, accuracy or genuineness of documents delivered to Financial
Security (or its Fiscal Agent) in connection with any claim under the Policy, or
of any signatures thereon, even if such documents or signatures should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged
(unless Financial Security had actual knowledge thereof). In furtherance and not
in limitation of the foregoing, Financial Security (or its Fiscal Agent) may
accept documents that appear on their face to be in order, without
responsibility for further investigation.
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) any demand for payment shall be made under the Policy;
(b) any representation or warranty made by the Transferor, the
Servicer or NAFCO under any of the Transaction Documents, or in any
certificate or report furnished under any of the Transaction Documents,
shall prove to be untrue or incorrect in any material respect; provided,
however, that if the Transferor, the Servicer or NAFCO effectively cures
any such defect in any representation or warranty under any Transaction
Document, or certificate or report furnished under any Transaction
Document, within the time period specified in the relevant Transaction
Document as the cure period therefor, such defect shall not in and of
itself constitute an Event of Default hereunder;
(c) (i) the Transferor, the Servicer or NAFCO shall fail to pay when
due any amount payable by the Transferor, the Servicer or NAFCO under any
of the Transaction Documents, unless such amounts are paid in full within
any
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applicable cure period explicitly provided for under the relevant
Transaction Document; (ii) the Transferor, the Servicer or NAFCO shall
have asserted that any of the Transaction Documents to which it is a party
is not valid and binding on the parties thereto; or (iii) any court,
governmental authority or agency having jurisdiction over any of the
parties to any of the Transaction Documents or any property thereof shall
find or rule that any material provision of any of the Transaction
Documents is not valid and binding on the parties thereto;
(d) the Transferor, the Servicer, or NAFCO shall fail to perform or
observe any other covenant or agreement contained in any of the
Transaction Documents (except for the obligations described under clause
(c) above) and such failure shall continue for a period of 30 days after
written notice given to the Transferor, the Servicer or NAFCO, as the case
may be;
(e) NAFCO, the Servicer or the Transferor shall fail to pay its
debts generally as they come due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or shall institute any proceeding seeking to
adjudicate it insolvent or seeking a liquidation, or shall take advantage
of any insolvency act, or shall commence a case or other proceeding naming
it as debtor under the United States Bankruptcy Code or similar law,
domestic or foreign, or a case or other proceeding shall be commenced
against any of NAFCO, the Servicer or the Transferor under the United
States Bankruptcy Code or similar law, domestic or foreign, or any
proceeding shall be instituted against any of NAFCO, the Servicer or the
Transferor seeking liquidation of its assets and such Person shall fail to
take appropriate action resulting in the withdrawal or dismissal of such
proceeding within 30 days or there shall be appointed or any of NAFCO, the
Servicer or the Transferor shall consent to, or acquiesce in, the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of such Person or the whole or any substantial part of
its properties or assets or such Person shall take any corporate action in
furtherance of any of the foregoing;
(f) the Average Delinquency Ratio as of any Reporting Date shall
have been equal to or greater than 11.0%;
(g) the Average Default Rate as of any Reporting Date (i) occurring
on or prior to October 15, 1998, is equal to or greater than 25.0% and
(ii) occurring subsequent to October 15, 1998, is equal to or greater than
17.0%;
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(h) the Average Net Loss Rate as of any Reporting Date (i) occurring
on or prior to October 15, 1998, is equal to or greater than 11.0% and
(ii) occurring subsequent to October 15, 1998, is equal to or greater than
8.0%;
(i) the occurrence of a Servicer Default under the Pooling and
Servicing Agreement; and
(j) the occurrence of an "Event of Default" under and as defined in
any Insurance and Indemnity Agreement or similar agreement among (x)
Financial Security and (y) NAFCO and/or the Transferor and/or any other
Affiliate of NAFCO, entered into with respect to another Series.
Section 5.02. Remedies; Waivers. (a) Upon the occurrence of an Event of
Default, Financial Security may exercise any one or more of the rights and
remedies set forth below:
(i) declare the Premium Supplement to be immediately due and
payable, and the same shall thereupon be immediately due and payable,
whether or not Financial Security shall have declared an "Event of
Default" or shall have exercised, or be entitled to exercise, any other
rights or remedies hereunder;
(ii) exercise any rights and remedies available under the
Transaction Documents in its own capacity or in its capacity as the Person
entitled to exercise the rights of the Certificateholders in respect of
the Securities; or
(iii) take whatever action at law or in equity may appear necessary
or desirable in its judgment to enforce performance of any obligation of
the Transferor or NAFCO under the Transaction Documents.
(b) Unless otherwise expressly provided, no remedy herein conferred upon
or reserved is intended to be exclusive of any other available remedy, but each
remedy shall be cumulative and shall be in addition to other remedies given
under the Transaction Documents or existing at law or in equity. No delay or
failure to exercise any right or power accruing under any Transaction Document
upon the occurrence of any Event of Default or otherwise shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle Financial Security to exercise any remedy
reserved to Financial Security in this Article, it shall not be necessary to
give any notice, other than such notice as may be expressly required in this
Article.
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(c) If any proceeding has been commenced to enforce any right or remedy
under this Insurance Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to Financial
Security, then and in every such case the parties hereto shall, subject to any
determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.
(d) Financial Security shall have the right, to be exercised in its
complete discretion, to waive any covenant, Default or Event of Default by a
writing setting forth the terms, conditions and extent of such waiver signed by
Financial Security and delivered to the Transferor and NAFCO. Any such waiver
may only be effected in writing duly executed by Financial Security, and no
other course of conduct shall constitute a waiver of any provision hereof.
Unless such writing expressly provides to the contrary, any waiver so granted
shall extend only to the specific event or occurrence so waived and not to any
other similar event or occurrence.
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Amendments, Etc. This Insurance Agreement may be amended,
modified or terminated only by written instrument or written instruments signed
by the parties hereto. No act or course of dealing shall be deemed to constitute
an amendment, modification or termination hereof.
Section 6.02. Notices. All demands, notices and other communications to be
given hereunder shall be in writing (except as otherwise specifically provided
herein) and shall be mailed by registered mail or personally delivered or
telecopied to the recipient as follows:
(a) To Financial Security: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: NAFCO Auto Finance 1996-1
Trust, 6.33% Automobile Loan Asset
Backed Certificates
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518,
(212) 339-3529
(in each case in which notice or
other communication to Financial
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<PAGE>
Security refers to an Event of
Default, a claim on the Policy or with
respect to which failure on the part
of Financial Security to respond shall
be deemed to constitute consent or
acceptance, then a copy of such notice
or other communication should also be
sent to the attention of each of the
General Counsel and the Head-Financial
Guaranty Group and shall be marked to
indicate "URGENT MATERIAL ENCLOSED.")
(b) To the Transferor: National Financial Auto Funding
Trust
c/o The Chase Manhattan Bank (USA)
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust
Administration
Telecopy No: (302) 575-5467
Confirmation: (302) 575-5099
with a copy to: The Chase Manhattan Bank (USA)
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust
Administration
Telecopy No: (718) 242-3529
Confirmation: (718) 242-7283
(c) To NAFCO: National Auto Finance
Company L.P.
One Park Place
621 N.W. 53rd Street
Boca Raton, Florida 33487
Attention: President
Telecopy No: (800) 787-6232
Confirmation: (407) 997-2747
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.
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<PAGE>
Section 6.03. Payment Procedure. In the event of any payment by Financial
Security for which it is entitled to be reimbursed or indemnified as provided
above, each of the Transferor and NAFCO agrees to accept the voucher or other
evidence of payment as prima facie evidence of the propriety thereof and the
liability therefor to Financial Security. All payments to be made to Financial
Security under this Insurance Agreement shall be made to Financial Security in
lawful currency of the United States of America in immediately available funds
to the account number provided in the Premium Letter before 1:00 p.m. (New York,
New York time) on the date when due or as Financial Security shall otherwise
direct by written notice to the Transferor and NAFCO. In the event that the date
of any payment to Financial Security or the expiration of any time period
hereunder occurs on a day which is not a Business Day, then such payment or
expiration of time period shall be made or occur on the next succeeding Business
Day with the same force and effect as if such payment was made or time period
expired on the scheduled date of payment or expiration date. Payments to be made
to Financial Security under this Insurance Agreement shall bear interest at the
Late Payment Rate from the date due to the date paid.
Section 6.04. Confidentiality. Any information obtained by Financial
Security pursuant to this Insurance Agreement shall be held in confidence by
Financial Security unless (i) such information has become available to the
public other than as a result of a disclosure by or through Financial Security,
(ii) such information was available to Financial Security on a nonconfidential
basis prior to its disclosure to Financial Security hereunder, (iii) Financial
Security shall be required in connection with any legal or regulatory proceeding
to disclose such information, or (iv) Financial Security, in its sole
discretion, deems it necessary to disclose such information to the Rating
Agencies; provided, that, in any such instance, Financial Security will use its
best efforts to notify the Transferor or NAFCO of its intention to make any such
disclosure prior to making any such disclosure and, in the case of disclosure to
a Rating Agency, Financial Security shall notify such Rating Agency that such
information is confidential and should be treated as such by such Rating Agency.
Section 6.05. Severability. In the event that any provision of this
Insurance Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render unenforceable any other provision hereof. The parties
hereto further agree that the holding by any court of competent jurisdiction
that any remedy pursued by any party hereto is unavailable or unenforceable
shall not affect in any way the ability of such party to pursue any other remedy
available to it.
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<PAGE>
Section 6.06. Governing Law. THIS INSURANCE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.07. Consent to Jurisdiction. (a) THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED
IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR,
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE
THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.
(b) To the extent permitted by applicable law, the parties hereto shall
not seek and hereby waive the right to any review of the judgment of any such
court by any court of any other nation or jurisdiction which may be called upon
to grant an enforcement of such judgment.
(c) Each of the Transferor and NAFCO hereby irrevocably appoints and
designates CT Corporation System, whose address is 1633 Broadway, New York, New
York 10019, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process. Each of the Transferor and NAFCO agrees
that service of such process upon such Person shall constitute personal service
of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect Financial
Security's right to serve process in any other manner permitted by law or to
start legal proceedings relating to any of the Transaction Documents against the
Transferor or NAFCO or its respective property in the courts of any
jurisdiction.
Section 6.08. Consent of Financial Security. In the event that Financial
Security's consent is required under any of the
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Transaction Documents, the determination whether to grant or withhold such
consent shall be made by Financial Security in its sole discretion without any
implied duty towards any other Person, except as otherwise expressly provided
therein.
Section 6.09. Counterparts. This Insurance Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.
Section 6.10. Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION
WITH ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.
Section 6.11. Limited Liability. No recourse under any Transaction
Document shall be had against, and no personal liability shall attach to, any
officer, employee, director, Affiliate or shareholder of any party hereto, as
such, by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise in respect of any of the
Transaction Documents, the Securities or the Policy, it being expressly agreed
and understood that each Transaction Document is solely a corporate obligation
of each party hereto, and that any and all personal liability, either at common
law or in equity, or by statute or constitution, of every such officer,
employee, director, Affiliate or shareholder for breaches by any party hereto of
any obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Insurance Agreement.
Section 6.12. Entire Agreement. This Insurance Agreement, the Premium
Letter, the Inducement Letter and the Policy set forth the entire agreement
between the parties with respect to the subject matter thereof, and this
Insurance Agreement supersedes and replaces any agreement or understanding that
may have existed between the parties prior to the date hereof in respect of such
subject matter.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Insurance Agreement, all as of the day and year first above written.
FINANCIAL SECURITY ASSURANCE INC.
By:____________________________
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:____________________________
Name:
Title: __________________of
Chase Manhattan Bank USA, N.A.
as trustee for National
Financial Auto Funding Trust
NATIONAL AUTO FINANCE COMPANY
L.P.
By:____________________________
Name:
Title:
<PAGE>
APPENDIX I
DEFINITIONS
"ACCH" means Auto Credit Clearinghouse L.P., a Delaware limited
partnership.
"Accumulated Funding Deficiency" has the meaning provided in Section 412
of the Code and Section 302 of ERISA, whether or not waived.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities
Act.
"Assignment Agreement" means the Assignment Agreement, dated as of October
21, 1996, between the Master Trust and Funding Trust II, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.
"Business Day" means any day other than (a) a Saturday or Sunday or (b) a
day on which banking institutions in the City of New York, Chicago, Illinois or
the State of Florida are authorized or obligated by law or executive order to be
closed.
"Certificateholders" means registered holders of the Securities.
"Code" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Commission" means the Securities and Exchange Commission.
"Commonly Controlled Entity" means the Transferor or NAFCO and each
entity, whether or not incorporated, which is affiliated with the Transferor or
NAFCO pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Contracts" has the meaning provided in the Pooling and Servicing
Agreement.
"Custodial Agreement" means the Custodial Agreement, dated as of November
13, 1996, between NAFCO and Omni Financial Services of America, Inc. as
custodian, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
Appendix I
1
<PAGE>
"Date of Issuance" means the date on which the Policy is issued as
specified therein.
"Default" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Event of Default" means any event of default specified in Section 5.01 of
the Insurance Agreement.
"Expiration Date" means the final date of the Term of the Policy, as
specified in the Policy.
"Financial Security" means Financial Security Assurance Inc., a New York
stock insurance company, its successors and assigns.
"Financial Security Information" has the meaning provided in Section
2.01(j) of the Insurance Agreement.
"Financial Statements" means with respect to NAFCO and the Transferor, as
the case may be, the balance sheet as of December 31, 1995 and the statements of
income, retained earnings and cash flows for the 12-month period then ended and
the notes thereto and the balance sheet as of June 30, 1996 and the statement of
income, retained earnings and cash flows for the six months then ended and the
notes thereto.
"Fiscal Agent" means the Fiscal Agent, if any, designated pursuant to the
terms of the Policy.
"Funding Trust II" means National Financial Auto Funding Trust II, a
business trust formed by NAFCO under the laws of the State of Delaware.
"Indemnification Agreement" means the Indemnification Agreement dated as
of November 13, 1996 among Financial Security, the Transferor and the
Underwriter, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
"Inducement Letter" means that letter dated November 21, 1995 from NAFCO
to Financial Security.
"Insurance Agreement" means the Insurance and Indemnity Agreement, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
Appendix I
2
<PAGE>
"Investment Company Act" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
"Late Payment Rate" means the lesser of (a) the greater of (i) the per
annum rate of interest, publicly announced from time to time by Chase Manhattan
Bank at its principal office in the City of New York, as its prime or base
lending rate (any change in such rate of interest to be effective on the date
such change is announced by Chase Manhattan Bank) plus 3%, and (ii) the then
applicable highest rate of interest on the Securities and (b) the maximum rate
permissible under applicable usury or similar laws limiting interest rates. The
Late Payment Rate shall be computed on the basis of the actual number of days
elapsed over 360 days.
"Lien" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting or making available the same for the
payment of debt or performance of any other obligation in priority to the
payment of the general, unsecured creditors of such Person.
"Master Trust" means National Financial Auto Receivables Master Trust, a
trust formed by the Transferor under the laws of the State of New York.
"Material Adverse Change" means, (a) in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations
or properties of such Person or any of its Subsidiaries or Affiliates, or (ii)
the ability of such Person to perform its obligations under any of the
Transaction Documents to which it is a party and (b) in respect of any Contract,
a material adverse change in (i) the value or marketability of such Contract, or
(ii) the probability that amounts now or hereafter due in respect of such
Contract will be collected on a timely basis.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation,
and any successor thereto, and, if such corporation shall for any reason no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized rating agency designated by
Financial Security.
Appendix I
3
<PAGE>
"Multiemployer Plan" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"NAFCO" means National Auto Finance Company L.P., a Delaware limited
partnership.
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Exhibit A to Endorsement No. 1 to the Policy.
"Offering Document" means the Prospectus and any other offering document
of the Transferor or an Affiliate thereof in respect of the Securities that
makes reference to the Policy.
"Other Trust Property" means the Trust Estate exclusive of the Policy.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Person" means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, business or owner trust, partnership,
limited liability company or limited liability partnership or other organization
or entity (whether governmental or private).
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Policy" means the financial guaranty insurance policy, including any
endorsements thereto, issued by Financial Security with respect to the
Securities, substantially in the form attached as Annex I to the Insurance
Agreement.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of October 21, 1996 among the Transferor, the Servicer, and
the Trustee on behalf of the Certificateholders, pursuant to which the
Securities are to be issued and the Contracts are to be serviced and
administered, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Premium" means the premium payable in accordance with Section 3.02 of the
Insurance Agreement and the Premium Supplement, if any.
Appendix I
4
<PAGE>
"Premium Letter" means the side letter among Financial Security, NAFCO,
the Transferor and the Trustee dated November 13, 1996 in respect of the premium
payable in consideration of the issuance of the Policy.
"Premium Supplement" means a non-refundable premium, in addition to the
premium payable in accordance with Section 3.02 of the Insurance Agreement,
payable to Financial Security in monthly installments commencing on the first
Distribution Date following the Premium Supplement Commencement Date and on each
Distribution Date thereafter in accordance with the terms set forth in the
Premium Letter.
"Premium Supplement Commencement Date" means the date of occurrence of the
Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of the Insurance
Agreement.
"Prospectus" has the meaning provided in Section 2.01(v) of the Insurance
Agreement.
"Provided Documents" means the Transaction Documents and any documents,
agreements, instruments, schedules, certificates, statements, cash flow
schedules, number runs or other writings or data furnished to Financial Security
by or on behalf of the Transferor or NAFCO with respect to itself, its
Subsidiaries or Affiliates or the Transaction.
"Purchase Agreement" means the Purchase Agreement dated as of October 21,
1996 between ACCH and NAFCO, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Purchase and Contribution Agreement" means the Purchase and Contribution
Agreement dated as of October 21, 1996 between NAFCO and the Transferor, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Registration Statement" has the meaning provided in Section 2.01(v) of
the Insurance Agreement.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"Restrictions on Transferability" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to
Appendix I
5
<PAGE>
sell, assign, transfer or otherwise liquidate such property or assets in a
commercially reasonable time and manner or which would otherwise materially
deprive such Person or any transferee therefrom of the benefits of ownership of
such property or assets.
"Sale Agreement" means the Sale Agreement, dated as of October 21, 1996,
between the Transferor and Funding Trust II, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Securities" means the $62,098,000 of National Auto Finance 1996-1 Trust,
6.33% Automobile Loan Receivables Backed Certificates issued pursuant to the
Pooling and Servicing Agreement.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Securitization Agreement" has the meaning provided in paragraph D of the
Introductory Statements to the Insurance Agreement.
"Series 1996-1" means the Series of Certificates issued on the date hereof
pursuant to the Pooling and Servicing Agreement.
"Series of Certificates" or "Series" means Series 1996-1 or any, or as the
context may require, all, additional series of securities, certificates, notes
or other obligations issued or arising as described in paragraph D of the
Introductory Statements hereto.
"Servicer Termination Side Letter" means the letter from Financial
Security to the Trustee and NAFCO dated as of November 13, 1996, with regard to
the renewal term of the Servicer.
"S&P" means Standard & Poor's Ratings Group, division of McGraw Hill,
Inc., and any successor thereto, and, if such entity shall for any reason no
longer perform the functions of a securities rating agency, "S&P" shall be
deemed to refer to any other nationally recognized rating agency designated by
Financial Security.
"Special Event" means the occurrence of any one of the following: (a) an
Event of Default under the Insurance
Appendix I
6
<PAGE>
Agreement has occurred and is continuing, (b) a Trigger Event has occurred and
is continuing, (c) any legal proceeding or binding arbitration is instituted
with respect to the Transaction or (d) any governmental or administrative
investigation, action or proceeding is instituted that would, if adversely
decided, result in a Material Adverse Change in respect of NAFCO, the Transferor
or the Contracts.
"Spread Account Agreement" means the Master Spread Account Agreement,
dated as of November 13, 1996 among the Transferor, the Collateral Agent named
therein and Financial Security, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent or (b) that is, at the time any
determination is being made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Term of the Agreement" shall be determined as provided in Section 4.01 of
the Insurance Agreement.
"Term of the Policy" has the meaning provided in the Policy.
"Transaction" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Offering Document.
"Transaction Documents" means the Insurance Agreement, the Custodial
Agreement, the Indemnification Agreement, the Pooling and Servicing Agreement,
the Premium Letter, the Inducement Letter, the Purchase Agreement, the Purchase
and Contribution Agreement, the Sale Agreement, the Assignment Agreement, the
Servicer Termination Side Letter, each Transfer Agreement, each Conveyance, the
Underwriting Agreement and the Spread Account Agreement.
"Transferor" means National Financial Auto Funding Trust, a business trust
formed by NAFCO under the laws of the State of Delaware.
"Trust" means the trust created under the Pooling and Servicing Agreement.
Appendix I
7
<PAGE>
"Trust Accounts" means the Collection Account, the Certificate Account,
the Revolving Account, the Pre-Funding Account and Pre-Funding Period Reserve
Account.
"Trust Indenture Act" means the Trust Indenture Act of 1939, including,
unless the context otherwise requires, the rules and regulations thereunder, as
amended from time to time.
"Trustee" means Harris Trust and Savings Bank, an Illinois banking
corporation, as trustee under the Pooling and Servicing Agreement, and any
successor thereto as trustee under the Pooling and Servicing Agreement.
"Underfunded Plan" means any Plan that has an Underfunding.
"Underfunding" means, with respect to any Plan, the excess, if any, of (a)
the present value of all benefits under the Plan (based on the assumptions used
to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"Underwriter" means First Union Capital Markets Corp.
"Underwriting Agreement" means the Underwriting Agreement dated as of
November 7, 1996 by and among the Transferor and the Underwriter, with respect
to the offer and sale of the Securities, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
Appendix I
8
<PAGE>
APPENDIX II
TO INSURANCE AND INDEMNITY AGREEMENT
CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY
(a) Payment of Initial Premium and Expenses; Premium Letter. Financial
Security shall have been paid, by or on behalf of NAFCO, a nonrefundable Premium
and shall have been reimbursed, by or on behalf of NAFCO, for other fees and
expenses identified in Section 3.02 of the Insurance Agreement as payable at
closing and Financial Security shall have received a fully executed copy of the
Premium Letter.
(b) Transaction Documents. Financial Security shall have received a copy
of each of the Transaction Documents and the Subservicing Agreement, in form and
substance satisfactory to Financial Security, duly authorized, executed and
delivered by each party thereto. Without limiting the foregoing, the provisions
of the Pooling and Servicing Agreement relating to the payment to Financial
Security of the Premium due on the Policy and the reimbursement to Financial
Security of amounts paid under the Policy shall be in form and substance
acceptable to Financial Security in its sole discretion.
(c) Certified Documents and Resolutions. Financial Security shall have
received a copy of (i) the trust agreement for each of the Transferor and
Funding Trust II and agreement of limited partnership for each of NAFCO and
ACCH, and (ii) the consent, if necessary, of the limited partners and/or general
partners of each of NAFCO and ACCH and the consent, if necessary, of the
co-trustees and/or holders of beneficial interests of each of the Transferor and
Funding Trust II, each such consent authorizing the issuance of the Securities
and the execution, delivery and performance by the Transferor, Funding Trust II,
NAFCO and ACCH of the Transaction Documents and, with respect to NAFCO, the
Subservicing Agreement, and the transactions contemplated thereby, certified by
a Secretary or Assistant Secretary of the Transferor, Funding Trust II, NAFCO
and ACCH (which certificate shall state that such trust agreement and agreement
of limited partnership, as the case may be, are in full force and effect without
modification on the Date of Issuance).
(d) Incumbency Certificate. Financial Security shall have received a
certificate of a Secretary or Assistant Secretary of each of the Transferor and
NAFCO, respectively, certifying the name and signatures of the officers of the
Transferor and NAFCO, as the case may be, authorized to execute and deliver the
Transaction Documents and that all consents necessary to execute and deliver
such documents have been obtained.
Appendix II
1
<PAGE>
(e) Representations and Warranties; Certificate. The representations and
warranties of the Transferor and NAFCO, as the case may be, in the Insurance
Agreement shall be true and correct as of the Date of Issuance with respect to
such Person as if made on the Date of Issuance and Financial Security shall have
received a certificate of an appropriate officer of the Transferor and NAFCO, as
the case may be, to that effect.
(f) Opinions of Counsel. Financial Security shall have received opinions
of counsel addressed to Financial Security, Moody's and S&P in respect of the
Transferor, NAFCO, Funding Trust II, ACCH, the other parties to the Transaction
Documents and the Transaction in form and substance satisfactory to Financial
Security, addressing such matters as Financial Security may reasonably request,
including without limitation, the items set forth in Appendix A hereto, and the
counsel providing each such opinion shall have been instructed by its client to
deliver such opinion to the addressees thereof.
(g) Approvals, Etc. Financial Security shall have received true and
correct copies of all approvals, licenses and consents, if any, including,
without limitation, the approval of the co-trustees of each of the Transferor
and Funding Trust II, the holders of beneficial ownership interests in each of
the Transferor and Funding Trust II, the limited partners of each of NAFCO and
ACCH, and the general partners of each of NAFCO and ACCH, required in connection
with the Transaction.
(h) No Litigation, Etc. No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents or the consummation of the
Transaction.
(i) Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents, illegal or otherwise prevent the consummation
thereof.
(j) Satisfaction of Conditions of the Underwriting Agreement. All
conditions in the Underwriting Agreement to the Underwriter's obligation to
purchase the Securities (other than the issuance of the Policy) shall have been
satisfied.
(k) Issuance of Ratings. Financial Security shall have received
confirmation that the risk secured by the Policy constitutes an investment grade
risk by S&P and an insurable risk
Appendix II
2
<PAGE>
by Moody's and that the Securities, when issued, will be rated "AAA" by S&P and
"Aaa" by Moody's.
(l) Maintenance of Contract Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the Contract
Files are being maintained by and held in the custody of the Custodian pursuant
to the Pooling and Servicing Agreement; (ii) all filings necessary to perfect
the interest of the Trust in the Contracts and the Other Trust Property have
been made; and (iii) all taxes, fees and other changes payable in connection
with such filings shall have been paid.
(m) No Default. No Default or Event of Default shall have occurred.
(n) Absence of Liens. Financial Security shall have received evidence
satisfactory to it in its sole discretion that all Liens of Funding Trust II and
the Master Trust and Restrictions on Transferability relating to the Initial
Contracts transferred by the Master Trust to Funding Trust II and by Funding
Trust II to the Transferor have been released or removed on or prior to the Date
of Issuance.
(o) Additional Items. Financial Security shall have received such other
documents, instruments, approvals or opinions requested by Financial Security as
may be reasonably necessary to effect the Transaction, including but not limited
to evidence satisfactory to Financial Security that all conditions precedent, if
any, in the Transaction Documents have been satisfied.
Appendix II
3
<PAGE>
ANNEX I
TO
INSURANCE AND INDEMNITY AGREEMENT
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions............................................... 2
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of NAFCO and the
Transferor.............................................. 2
Section 2.02. Affirmative Covenants of NAFCO and the
Transferor.............................................. 11
Section 2.03. Negative Covenants of NAFCO and the Transferor............ 18
Section 2.04. Representations and Warranties of NAFCO and the
Transferor with respect to the Master Trust,
Funding Trust II and ACCH............................... 21
Section 2.05. Affirmative Covenants of NAFCO and the
Transferor with respect to the Master Trust,
Funding Trust II and ACCH............................... 23
Section 2.06. Negative Covenants of NAFCO and the Transferor
with respect to the Master Trust, Funding Trust
II and ACCH............................................. 24
ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy.................................... 24
Section 3.02. Payment of Fees and Premium............................... 24
Section 3.03. Reimbursement Obligation.................................. 26
Section 3.04. Indemnification........................................... 27
Section 3.05. Subrogation............................................... 30
ARTICLE IV.
FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement......................... 30
Section 4.02. Obligation Absolute....................................... 30
Section 4.03. Assignments; Reinsurance; Third-Party Rights.............. 32
Section 4.04. Liability of Financial Security........................... 33
-i-
<PAGE>
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default......................................... 33
Section 5.02. Remedies; Waivers......................................... 35
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Amendments, Etc........................................... 36
Section 6.02. Notices................................................... 36
Section 6.03. Payment Procedure......................................... 38
Section 6.04. Confidentiality........................................... 38
Section 6.05. Severability.............................................. 38
Section 6.06. Governing Law............................................. 39
Section 6.07. Consent to Jurisdiction................................... 39
Section 6.08. Consent of Financial Security............................. 40
Section 6.09. Counterparts.............................................. 40
Section 6.10. Trial by Jury Waived...................................... 40
Section 6.11. Limited Liability......................................... 40
Section 6.12. Entire Agreement.......................................... 40
Appendix I Definitions
Appendix II Conditions Precedent to Issuance of the Policy
Annex I Form of Financial Guaranty Insurance Policy
Appendix A Opinions of Counsel
-ii-
<PAGE>
- ------------------------------------------------------------------------------
SALE AGREEMENT
between
NATIONAL FINANCIAL AUTO FUNDING TRUST II
and
NATIONAL FINANCIAL AUTO FUNDING TRUST
_____________________
Dated as of October 21, 1996
- ------------------------------------------------------------------------------
<PAGE>
SALE AGREEMENT
SALE AGREEMENT, dated as of October 21, 1996, by and between
NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware business trust ("Funding Trust
I") and NATIONAL FINANCIAL AUTO FUNDING TRUST II, a Delaware business trust
("Funding Trust II").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, Funding
Trust I and Funding Trust II agree as follows:
ARTICLE I
DEFINITIONS
1.1 Incorporation of Definitions. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Pooling and
Administration Agreement dated as of December 8, 1994 (the "Pooling and
Administration Agreement"), among Funding Trust II, as transferor, National Auto
Finance Company L.P. ("NAFCO"), as Administrator, and Bankers Trust Company, as
Trustee.
1.2 Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Cut-off Date: As defined in Section 2.1.
Closing Date: means November 13, 1996.
Outstanding Principal Balance: As of any date and with respect to
any Receivable, the outstanding principal balance of such Receivable as of such
date, which shall be computed by reducing the original principal balance of such
Receivable by the principal portion of each payment received and processed by
the Servicer on or before such date.
Purchase Price: As defined in Section 2.1.
Receivable Assets: The assets described in clauses (i) through
(vii), inclusive, of subsection 2.1 hereof.
Related Security: means, with respect to any Receivable, the
interest of the Seller in (i) the security interest in the Financed Vehicles
granted by the Obligors of the Receivables and any accessions thereto and (ii)
physical damage, credit life, credit disability or other insurance policies
covering Financed Vehicles or Obligors (including any blanket vendor's single
<PAGE>
interest insurance policy).
Receivables Schedule: The schedule of Receivables attached as
Schedule 1 hereto, such schedule identifying each Receivable by name of the
Obligor and setting forth as to each Receivable its Outstanding Principal
Balance as of the Cut-off Date, loan number, interest rate, scheduled monthly
payment of principal and interest, final maturity date and original principal
amount.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase. Subject to and on the terms and conditions set forth
herein, Funding Trust II hereby sells, transfers, conveys and assigns, without
representation, warranty or recourse, except as specifically set forth herein,
all of its right, title and interest in and to (i) the Receivables identified on
the Receivables Schedule attached hereto as Schedule I, (ii) all monies paid or
payable thereunder on or after October 21, 1996 (the "Cut-off Date"), (iii) the
Related Security with respect to each such Receivable, (iv) all proceeds of the
foregoing, including all Collections or Related Security with respect to such
Receivables, or other recoveries applied to repay or discharge any such
Receivable received on or after the Cut-off Date (including net proceeds of sale
or other disposition of repossessed Financed Vehicles that were the subject of
any such Receivable) or other collateral or property of any Obligor or any other
party directly or indirectly liable for payment of such Receivables, (v) the
Seller Transaction Documents and the Assignment Agreement, dated as of October
21, 1996 between Funding Trust II and Bankers Trust Company, as Trustee of the
National Financial Auto Receivables Master Trust (the "Assignment Agreement"),
(vi) all Records relating to any of the foregoing, (vii) any other Trust Assets
relating to the Receivables Assets and (viii) the proceeds of the foregoing.
Funding Trust I agrees to pay to Funding Trust II on the Closing Date as the
purchase price (the "Purchase Price") for the Receivable Assets sold hereunder
on such date an amount equal to 100% of the aggregate Outstanding Principal
Balance of the Receivables as of the Cut-off Date in immediately available funds
to an account at a bank designated by Funding Trust II to Funding Trust I.
2.2 Filings. (a) On or prior to the Closing Date, Funding Trust II
shall have filed in the office of the Secretary of State of Delaware and the
Office of the Secretary of State of Florida UCC financing statements,
appropriate under the Uniform Commercial Code in effect in Delaware and Florida
to reflect the transfer of the Receivables Assets from Funding Trust II to
Funding Trust I and to protect Funding Trust I's interest in the Receivables
Assets against all other Persons, naming Funding Trust II as debtor, Funding
Trust I as secured party and Harris Trust and Savings Bank ("Harris Trust") as
assignee. During the term of this Agreement, Funding Trust II shall not change
its name, identity or structure or relocate its chief executive office or
principal place of business without first giving 60 days prior written notice to
Funding Trust I and Financial Security Assurance Inc. (for so long as any policy
issued Financial Security
2
<PAGE>
Assurance Inc. is in effect with respect to any securities issued by Funding
Trust I or any trust of which Funding Trust I is depositor or transferor);
provided, however, that Funding Trust I has no right or power to prohibit a
change in Funding Trust II's name, identity or structure or, subject to the last
sentence of this paragraph, a relocation of, its chief executive office. If any
change in Funding Trust II's name, identity or structure or the relocation of
its chief executive office or principal place of business would make any
financing or continuation statement or notice of lien filed in connection with
this Agreement seriously misleading within the meaning of applicable provisions
of the UCC or any title statute, Funding Trust II, shall after the effective
date of such change, promptly file or cause to be filed such amendments as may
be required to preserve and protect Funding Trust I's interest in the
Receivables Assets.
(b) On or prior to the Closing Date, Funding Trust II shall deliver
to Funding Trust I or such other Person as Funding Trust I shall direct cash
equal to all payments received on such Receivables on or after the Cut-off Date
and on or before two Business days prior to the Closing Date. Within two
Business Days after the Closing Date, Funding Trust II shall deliver to Funding
Trust I or such other Person as Funding Trust I shall direct all other payments
received on such Receivables on or after the Cut-off Date and on or before the
Closing Date.
2.3 No Recourse. The sale and purchase of Receivables and the other
Receivables Assets under this Agreement shall be without recourse to Funding
Trust II.
2.4 True Sales. Funding Trust II and Funding Trust I intend that the
transactions contemplated hereby be true sales of the Receivables and other
Receivables Assets by Funding Trust II to Funding Trust I providing Funding
Trust I with the full benefits of ownership of the Receivables and other
Receivables Assets free and clear of any liens, and neither Funding Trust II nor
Funding Trust I intends the transactions contemplated hereby to be, or for any
purpose to be characterized as, a loan from Funding Trust I to Funding Trust II.
Funding Trust II shall reflect sales of the Receivables Assets hereunder on the
books and records maintained by Funding Trust II as sales of assets, and shall
treat such sales as sales for all purposes.
2.5 Receipt of Payments after Closing Date. Funding Trust I shall be
entitled to all payments received or receivable with respect to any Receivable
sold and conveyed by Funding Trust II to Funding Trust I hereunder that are
received on and after the Cut-off Date. If Funding Trust II receives any payment
on a Receivable belonging to Funding Trust I, Funding Trust II promptly shall
turn such payment over to Harris Trust, as trustee under the Pooling and
Servicing Agreement, dated as of October 21, 1996 (the "Pooling and Servicing
Agreement"), among Funding Trust I, NAFCO and Harris Trust.
3
<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 Notices. All notices, demands and requests that may be given or
that are required to be given hereunder shall be sent by United States certified
mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as follows:
If to Funding Trust II:
National Financial Auto Funding Trust II
c/o Chase Manhattan Bank USA, N.A., as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attn: Corporate Administration Trust Department
Telecopier No: (302) 575-5467
Confirmation: (302) 428-3375
If to Funding Trust I:
National Financial Auto Funding Trust I
c/o Chase Manhattan Bank USA, N.A., as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attn: Corporate Administration Trust Department
Telecopier No: (302) 575-5467
Confirmation: (302) 428-3375
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Re: NAFCO Auto Finance 1996-1 Trust, 6.33% Automobile
Receivables Backed Certificates
Attention: Surveillance Department
Telecopier No: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100
4
<PAGE>
If to Harris Trust:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No: (312) 461-3525
Confirmation: (312) 461-4662
3.2 Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of New York and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
3.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
3.4 Assignment. This Agreement may not be assigned by Funding Trust
II or Funding Trust I except as contemplated by this Section; provided, however,
that simultaneously with the execution and delivery of this Agreement, Funding
Trust I shall assign all of its right, title and interest hereunder to Harris
Trust, as trustee under the Pooling and Servicing Agreement, and the
Certificateholders (as defined in the Pooling Agreement, the
"Certificateholders") and the Certificate Insurer (as defined in the Pooling
Agreement, the "Certificate Insurer") as provided in Section 2.01 of the Pooling
Agreement, to which Funding Trust II hereby expressly consents.
3.5 Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto and Harris Trust for the
benefit of the Certificateholders and the Certificate Insurer, which shall be
considered to be third-party beneficiaries of this Agreement and shall be
entitled to rely upon and directly enforce the provisions of this Agreement.
Except as otherwise provided in this Agreement, no other Person will have any
right or obligation hereunder. The Certificate Insurer may disclaim any of its
rights and powers under this Agreement upon delivery of a written note to
Funding Trust II and Funding Trust I.
3.6 No Petition. Funding Trust II hereby agrees not to cause the
filing of a petition in bankruptcy against Funding Trust I until one year and
one day after the maturity of any securities issued pursuant to the Pooling and
Servicing Agreement.
3.7 Further Assurances. It is Funding Trust II's intention to convey
its entire rights, title and interest in the Receivables Assets or other assets
related thereto acquired from National Financial Auto Receivables Master Trust
pursuant to the Assignment Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING
TRUST II
By: CHASE MANHATTAN BANK USA, N.A.
not in its individual capacity but solely
as Owner Trustee of the National
Financial Auto Funding Trust II
By:____________________________________
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By: CHASE MANHATTAN BANK USA, N.A.
not in its individual capacity but
solely as Owner Trustee of the National
Financial Auto Funding Trust
By:____________________________________
Name:
Title:
6
<PAGE>
- ------------------------------------------------------------------------------
PURCHASE AGREEMENT
between
Auto Credit Clearinghouse L.P.
and
National Auto Finance Company L.P.
_____________________
Dated as of October 21, 1996
- ------------------------------------------------------------------------------
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of October 21, 1996, by and between
Auto Credit Clearinghouse L.P., a Delaware limited partnership ("ACCH") and
National Auto Finance Company L.P., a Delaware limited partnership ("NAFCO").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, ACCH and
NAFCO agree as follows:
ARTICLE I
DEFINITIONS
1.1 Incorporation of Definitions. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement"), dated as of October 21, 1996,
by and among National Financial Auto Funding Trust (the "Funding Trust"), as
Transferor, NAFCO, as Servicer, and Harris Trust and Savings Bank, not in its
individual capacity but solely as Trustee (the "Trustee").
1.2 Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Contract Assets: The assets sold, transferred, conveyed and assigned
by ACCH to NAFCO pursuant to this Agreement, which consist of (i) all Contracts
identified in the Contract Schedules attached to the Conveyances delivered
hereunder on each Subsequent Transfer Date; (ii) all monies paid or payable
thereunder on or after the related Cut-Off Date, (iii) the Contract Files
relating to such Contracts; (iv) property which secured any such Contract and
which has been acquired by Repossession or otherwise; (v) all rights to
Insurance Proceeds and Liquidation Proceeds with respect to any such Contract;
(vi) ACCH's rights against Dealers under the Dealer Agreements in respect of the
representations and warranties made by the Dealer thereunder with regard to the
related Contracts and (vii) the proceeds of the foregoing and the rights to
enforce the foregoing.
Contract Documents: With respect to a Contract, all Contract papers
and documents (including those contained in the Contract File) and all other
papers and records (including computerized data) of whatever size or
description, whether developed or originated by ACCH, a Dealer or another
Person, required to document the Contract or to service the Contract.
Contract File: With respect to a Contract, the fully executed
original of such Contract; the assignment of such Contract by a Dealer to ACCH;
the original Title Document or UCC financing statement evidencing that the
security interest in a Financed Vehicle granted to
<PAGE>
ACCH under such Contract has been perfected under applicable state law (except
for any Title Documents or UCC financing statements not returned from the
applicable public records office, in which case ACCH will deliver to NAFCO, on
the Closing Date or the Subsequent Transfer Date, as the case may be, an
Officer's Certificate of ACCH indicating that the original of such Title
Document has been applied for at, or the original of such UCC financing
statement was delivered to, such public office and shows ACCH as the lienholder
or secured party and that ACCH will deliver the originals thereof when returned
from such office); the original of any assumption agreement or any modification,
extension or refinancing agreement; and the original application of the related
Obligor to obtain the financing extended by such Contract.
Contract Schedule: The schedule of Contracts attached as Schedule 1
to any Conveyance delivered hereunder, such schedule identifying each Contract
by name of the Obligor and setting forth as to each Contract its Individual Sold
Balance as of the applicable Cutoff Date, loan number, Contract Rate, scheduled
monthly payment of principal and interest, final maturity date and original
principal amount.
Conveyance: As defined in Section 2.3(b).
Purchase Price: As defined in Section 2.1.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Contribution. Subject to and on the terms and
conditions set forth herein, ACCH hereby agrees to sell, transfer , convey and
assign, without recourse except as expressly provided herein, all of its right,
title and interest in and to the Contract Assets to NAFCO on each Subsequent
Transfer Date. NAFCO agrees to pay to ACCH on each Subsequent Transfer Date as
the purchase price (the "Purchase Price") for the Contract Assets sold hereunder
on such date an amount equal to 100% of the aggregate Outstanding Principal
Balance of the Contracts included in such Contract Assets as of the related
Cut-off Date.
2.2 Filings. On or prior to the Closing Date, ACCH shall have filed
in the office of the Secretary of State of Florida a UCC financing statement or
statements, appropriate under the applicable UCC, to reflect the transfer of the
Contract Assets from ACCH to NAFCO and to protect NAFCO's interest in the
Contract Assets against all other Persons. ACCH shall thereafter file any
appropriate continuation statements in respect thereof.
2.3 Sales. (a) On or prior to each Subsequent Transfer Date, ACCH
shall notify NAFCO in writing of the outstanding principal amount of eligible
Contracts included in Contract Assets available to be sold and conveyed by ACCH
to NAFCO on such Subsequent Transfer Date pursuant to this Agreement, and
subject to the terms and conditions of this Agreement, ACCH shall, on the
applicable Subsequent Transfer Date, sell and convey to NAFCO eligible Contracts
and other Contract Assets having an aggregate outstanding principal amount equal
to the amount specified in such written notice. Each Subsequent Transfer Date
shall be on the date and at the time and place mutually agreed upon by NAFCO and
ACCH. Payment
2
<PAGE>
of the Purchase Price for the Additional Contracts and other Contract Assets
sold and conveyed on a Subsequent Transfer Date shall be made by NAFCO to ACCH
in immediately available funds to an account at a bank designated to NAFCO by
ACCH.
(b) On or prior to any Subsequent Transfer Date, ACCH shall (i)
deliver to NAFCO a conveyance instrument substantially in the form attached
hereto as Exhibit A (a "Conveyance") with respect to the Contract Assets sold
and conveyed hereunder on such Subsequent Transfer Date, (ii) deliver to NAFCO
or such other Person as NAFCO shall direct the original motor vehicle retail
installment sale contracts, duly endorsed by ACCH, and the Contract Files with
respect to each Additional Contract included in the Contract Assets then being
sold to NAFCO, (iii) deliver to NAFCO or such other Person as NAFCO shall direct
cash equal to all payments received by ACCH on such Additional Contracts on or
after the applicable Cut-off Date and on or before two Business Days prior to
such Subsequent Transfer Date. Within two Business Days after such Subsequent
Transfer Date, ACCH shall deliver to NAFCO or such other Person as NAFCO shall
direct all other payments received by ACCH on such Additional Contracts on or
after the applicable Cut-off Date and on or before such Subsequent Transfer
Date. NAFCO hereby directs ACCH to deliver the materials referenced in the
preceding clause (ii) of the second preceding sentence to OFSA, as Custodian,
and hereby directs ACCH to remit any payments received by ACCH and referenced in
the preceding sentence or in clause (iii) of the second preceding sentence to
the Collection Account.
2.4 No Recourse. Except as specifically provided in this Agreement,
the sale and purchase of Contracts and the other Contract Assets under this
Agreement shall be without recourse to ACCH; provided that ACCH shall be liable
to NAFCO for all representations, warranties and covenants made by ACCH pursuant
to the terms of this Agreement, it being understood that such obligations of
ACCH do not constitute recourse for the credit risk of the Obligors.
2.5 True Sales. ACCH and NAFCO intend that the transactions
contemplated hereby be true sales of Contracts and other Contract Assets by ACCH
to NAFCO providing NAFCO with the full benefits of ownership of the Contracts
and other Contract Assets free and clear of any Liens, and neither ACCH nor
NAFCO intends the transactions contemplated hereby to be, or for an purpose to
be characterized as, a loan from NAFCO to ACCH. ACCH shall reflect sales of the
Contract Assets hereunder on its balance sheet and other financial statements as
sales of assets, and shall treat such sales as sales for all purposes. ACCH will
respond to third party inquiries by indicating that the Contracts have been
sold.
2.6 Receipt of Payments after Closing Date and Subsequent Transfer
Dates. NAFCO shall be entitled to all payments received or receivable with
respect to any Contract or Additional Contract sold and conveyed by ACCH to
NAFCO hereunder that are received on and after the applicable Cut-off Date. If
ACCH receives any payment on a Contract belonging to the Trust, ACCH promptly
shall turn such payment over to the Trustee not later than two Business Days
after receipt for deposit in the Collection Account.
2.7 Servicing of Contracts. Consistent with NAFCO's ownership of the
Contract Assets, NAFCO shall have the sole right to service, administer and
collect the Contracts, to assign such right and to delegate such right to
others. In consideration of NAFCO's purchase
3
<PAGE>
of the Contract Assets, ACCH agrees to cooperate fully with NAFCO to facilitate
the full and proper performance of such duties and obligations for the benefit
of NAFCO.
2.8 Protection of Title to Interest. (a) ACCH shall execute and file
such financing statements and cause to be executed and filed such continuation
and other statements, all in such manner and in such places as may be required
by law fully to preserve, maintain and protect the interest of NAFCO under this
Agreement in the Contract Assets and in the proceeds thereof. ACCH shall deliver
(or cause to be delivered) to NAFCO file-stamped copies of, or filing receipts
for, any document filed as provided above, as soon as available following such
filing.
(b) ACCH shall not change its name, identity or corporate structure
in any manner that would, could or might make any financing statement or
continuation statement filed by NAFCO in accordance with paragraph (a) above
seriously misleading within the meaning of Section 9-402(7) of the UCC, unless
it shall have given the Trustee and the Certificate Insurer (so long as a
Certificate Insurer Default shall not have occurred and be continuing) and NAFCO
at least 60 days prior written notice thereof, and shall promptly file
appropriate amendments to all previously filed financing statements and
continuation statements as may be required to preserve and protect NAFCO's
interest in the Contract Assets, which filings shall be made no later than 30
days after the effective date of any such change.
(c) ACCH shall give NAFCO at least 30 days prior written notice of
any relocation of its principal executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement, and shall promptly file appropriate amendments to all
previously filed financing statements and continuation statements as may be
required to preserve and protect NAFCO's interest in the Contract Assets, which
filings shall be made no later than 30 days after the effective date of any such
change. ACCH shall at all times maintain each office from which it services
Contracts and its principal executive office within the United States of
America.
(d) If at any time ACCH proposes to sell, grant a security interest
in, or otherwise transfer any interest in automotive receivables to any
prospective purchaser, lender or other transferee, ACCH shall give to such
prospective purchaser, lender or other transferee computer tapes, records or
printouts (including any restored from backup archives) that, if they refer in
any manner whatsoever to any Contract, indicate clearly that such contract has
been sold and is owned by the Trust unless such Contract has been paid in full
or repurchased by ACCH, the Transferor or the Servicer.
(e) ACCH shall permit NAFCO, the Trustee, the Certificate Insurer
and their respective agents, at any time to inspect, audit and make copies of
and abstracts from ACCH's records regarding any Contracts or any other portion
of the Contract Assets.
4
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT
3.1 NAFCO's obligation to purchase Contract Assets hereunder on each
Subsequent Transfer Date shall be subject to the execution, delivery and
effectiveness of the Pooling and Servicing Agreement and the delivery of the
purchase price for the Certificates to Funding Trust by the initial purchasers
thereof. In addition, the obligation of NAFCO to purchase Contract Assets
hereunder on each Subsequent Transfer Date shall be further subject to the
satisfaction of the following conditions on or before the Closing Date or such
Subsequent Transfer Date, as the case may be:
(i) all representations and warranties of ACCH contained in Section
4.1(a) shall be true and correct and all representations and warranties of ACCH
in Section 4.1(b) shall be true and correct with respect to the Contracts sold
transferred, conveyed and assigned to NAFCO on such Subsequent Transfer Date, in
each case, on and as of such Subsequent Transfer Date;
(ii) on such Subsequent Transfer Date, ACCH shall have duly
completed and executed and delivered to NAFCO a Conveyance conforming to the
requirements of Section 2.3(b);
(iii) on or before such Subsequent Transfer Date, as the case may
be, (a) ACCH shall have delivered to NAFCO or such other Person as NAFCO shall
direct the original motor vehicle retail installment sale contract, duly
endorsed by ACCH to NAFCO or such other Person as NAFCO shall direct, and the
Contract Files that relate to each Contract included in the Contract Assets then
being sold by ACCH to NAFCO and (b) ACCH shall have performed all other
obligations then required to be performed by it pursuant to this Agreement,
including, without limitation, Sections 2.2 and 2.3(b);
(iv) no Bankruptcy Event or Servicer Default shall have occurred and
be continuing on and as of such Subsequent Transfer Date;
(v) as of such Subsequent Transfer Date, the Contracts then in the
Trust, together with the Additional Contracts to be transferred to NAFCO on such
Subsequent Transfer Date, shall meet the following criteria (computed based on
the characteristics of the Additional Contracts as of the applicable Subsequent
Cut-off Date): (A) the weighed average Contract Rate of the Contracts shall not
be less than 18.0%, (B) the weighted average remaining term of the Contracts
shall not be greater than 55 months, and (C) not more than 80% of the aggregate
Outstanding Principal Balance of the Contracts shall represent loans to finance
the purchase of used Financed Vehicles and (D) the final scheduled payment date
on the Contract with the latest maturity shall not be later than April 30, 2002;
and
(vi) all conditions precedent in Section 2.06 of the Pooling and
Servicing Agreement to the transfer and assignment of such Additional Contracts
to the Trust pursuant to the Pooling and Servicing Agreement shall have been
satisfied.
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ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 (a) ACCH hereby represents, warrants and covenants to NAFCO on
and as of the Closing Date and each Subsequent Transfer Date that:
(i) ACCH is a Delaware limited partnership duly organized, validly
existing, and in good standing under the laws of the state of its incorporation
and has all licenses necessary to carry on its business as now being conducted
and shall appoint and employ agents or attorneys in each jurisdiction where it
shall be necessary to take action under this Agreement; ACCH has the full power
and authority to own its property, to carry on its business as presently
conducted, and to execute, deliver and perform this Agreement (including all
instruments of transfer to be delivered pursuant to this Agreement) by ACCH and
the consummation of the transaction contemplated hereby have been duly and
validly authorized; this Agreement evidences the valid, binding and enforceable
obligation of ACCH (subject to applicable bankruptcy and insolvency laws and
other similar laws affecting the enforcement of creditors' rights generally);
and all requisite partnership action has been taken by ACCH to make this
Agreement valid and binding upon ACCH;
(ii) ACCH is not required to obtain the consent of any other party
or obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement except for those which have been obtained;
(iii) the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of the
partnership agreement of ACCH or result in the breach of any term or provision
of, or conflict with or constitute a default under or result in the acceleration
of any obligation under, any material agreement, indenture or loan or credit
agreement or other instrument to which ACCH or its property is subject, or
result in the violation of any law (including, without limitation, any bulk
transfer or similar law), rule, regulation, order, judgment or decree to which
ACCH or its property or the Contracts are subject;
(iv) no statement, report or other document furnished or to be
furnished pursuant to this Agreement or in connection with the transaction
contemplated hereby contains or will, when furnished, contain any untrue
statement of a material fact or omits or will, when furnished, omit to state a
material fact necessary to make the statements contained therein not misleading,
in light of the circumstances under which they were made;
(v) neither ACCH nor any of its subsidiaries or affiliates is a
party to, bound by or in breach or violation of any indenture or other agreement
or instrument, or is subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or governmental
body having jurisdiction over it, which materially and adversely affects, or may
in the future materially and adversely affect, the ability of ACCH to perform
its obligations under this Agreement
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(vi) there are no actions, suits or proceedings pending or, to the
knowledge of ACCH, threatened against ACCH, before or by any court, regulatory
body, administrative agency, arbitrator or governmental body with respect to any
of the transactions contemplated by this Agreement, which will, if determined
adversely to ACCH, affect the validity or enforceability hereof or materially
and adversely affect ACCH's ability to perform its obligations under this
Agreement;
(vii) ACCH has obtained or made all necessary consents, approvals,
waivers and notifications of creditors, lessors and other non-governmental
persons, in each case, in connection with the execution and delivery of this
Agreement, and the consummation of all the transactions herein contemplated;
(viii) ACCH shall not take any action to impair NAFCO's rights in
any Contract; and
(ix) ACCH is solvent and will not become insolvent after giving
effect to the transactions contemplated hereunder and under the Transaction
Documents; ACCH is paying its debts as they become due; ACCH, after giving
effect to the contemplated transactions, will have adequate capital to conduct
its business.
ACCH shall indemnify NAFCO and hold NAFCO harmless against any loss
and damages resulting from a breach of the representations and warranties set
forth in Section 4.1(a).
(b) ACCH hereby represents and warrants to NAFCO as of the Closing
Date with respect to the Initial Contracts originated by ACCH and sold and
conveyed to NAFCO on the Closing Date by ACCH and as of each Subsequent Transfer
Date with respect to the Additional Contracts originated by ACCH and sold and
conveyed to NAFCO on such Subsequent Transfer Date by ACCH (unless another date
or time period is otherwise specified or indicated in the particular
representation or warranty):
(i) the information regarding such Contracts set forth in the
applicable Contract Schedule or Receivables Schedule is true and
correct in all material respects at the applicable Cut-off Date;
each Contract was originated in the United States of America and no
Obligor in the United States of America or any state or any agency,
department, subdivision or instrumentality thereof;
(ii) immediately prior to the Closing Date or such Subsequent
Transfer Date, as the case may be, ACCH had a valid and enforceable
security interest in the related Financed Vehicle, and such security
interest had been duly perfected and was prior to all other present
and future liens and security interests (except future tax liens and
liens that, by statute, may be granted priority over previously
perfected security interests) that exist or may hereafter arise, and
ACCH had the full right to assign such security interest to NAFCO;
(iii) on and after the Closing Date or such Subsequent
Transfer Date, as the case may be, there shall exist under the
Contract a valid, subsisting and enforceable first priority
perfected security interest in the Financed Vehicle
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securing such Contract (other than, as to the priority of such
security interest, any statutory lien arising by operation of law
after the Closing Date or the Subsequent Transfer Date, as the case
may be, which is prior to such interest) and at such time as
enforcement of such security interest is sought there shall exist a
valid, subsisting and enforceable first priority perfected security
interest in such Financed Vehicle in favor of NAFCO or its assigns
(other than, as to the priority of such security interest, any
statutory lien arising by operation of law after the Closing Date or
such Subsequent Transfer Date which is prior to such interest);
(iv) (a) if such Contract was originated in a state in which
notation of a security interest on the Title Document for the
Financed Vehicle securing such Contract is required or permitted to
perfect such security interest, the Title Document for such Financed
Vehicle shows, or if a new or replacement Title Document is being
applied for with respect to such Financed Vehicle the Title Document
will show ACCH, as sole original holder of a security interest in
such Financed Vehicle and (b) if such Contract was originated in a
state in which the filing of a financing statement under the UCC is
required to perfect a security interest in motor vehicles, such
filings or recordings have been duly made and show ACCH as the sole
holder of a security interest in such Financed Vehicle;
(v) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, each such Contract has not been sold, assigned
or pledged to any other Person other than an endorsement to the
Servicer for purposes of servicing or any such pledge has been
released, and ACCH has good and marketable title to each such
Contract free and clear of any encumbrance, equity, pledge, charge,
claim or security interest and is the sole owner thereof and has
full right to transfer each such Contract to NAFCO and, upon the
transfers pursuant to Article II, NAFCO will have good and
marketable title to each such Contract and will be the sole owner of
each such Contract free and clear of any encumbrance, lien, pledge,
charge, claim, security interest or rights of others; the purchase
of each such Contract by ACCH from a Dealer was not an extension of
financing to such Dealer. No Dealer has a participation in, or other
right to receive, proceeds of any Contract. ACCH has not taken any
action to convey any right to any Person that would result in such
Person having a right to payments received under the related
insurance policies or Dealer Agreements or to payments due under
such Contract;
(vi) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, no such Contract is delinquent for more than
thirty days in payment as to any scheduled payment;
(vii) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, there is no lien against any related Financed
Vehicle for delinquent taxes;
(viii) as of the Closing Date or such Subsequent Transfer
Date, as the case may be, there is no right of rescission, offset,
defense or counterclaim to the obligation of the related Obligor to
pay the unpaid principal or interest due under
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such Contract; the operation of the terms of such Contract or the
exercise of any right thereunder will not render such Contract
unenforceable in whole or in part or subject to any right of
rescission, offset, defense or counterclaim, and no such right of
rescission, offset, defense or counterclaim has been asserted;
(ix) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, there are no prior liens or claims for work,
labor or material affecting any related Financed Vehicle which are
or may become a lien prior to or equal with the security interest
granted by such Contract;
(x) each such Contract, and the sale of the Financed Vehicle
securing such Contract, where applicable, complied, at the time it
was made and as of the Closing Date or related Subsequent Transfer
Date, as applicable, in all material respects with applicable state
and federal laws (and regulations thereunder), including, without
limitation, usury, disclosure and consumer protection laws, equal
credit opportunity, fair-credit reporting, truth-in-lending or other
similar laws, the Federal Trade Commission Act, and applicable state
laws regulating retail installment sales contracts and loans in
general and motor vehicle retail installment sales contracts and
loans in particular, and the receipt of interest on, and the
ownership of, such Contract by NAFCO will not violate any such laws;
(xi) each such Contract is a legal, valid and binding
obligation of the Obligor thereunder and is enforceable in
accordance with its terms, except only as such enforcement of
creditors' rights generally, and all parties to such Contract had
full legal capacity to execute such Contract and all documents
related thereto and to grant the security interest purported to be
granted thereby;
(xii) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, the terms of each such Contract have not been
impaired, waived, altered or modified in any respect, except by
written instruments that are part of the Contract Documents, and no
such Contract has been satisfied, subordinated or rescinded;
(xiii) at the time of origination of each such Contract, the
proceeds of such Contract were fully disbursed, there is no
requirement for future advances thereunder, and all fees and
expenses in connection with the origination of such Contract have
been paid;
(xiv) as of the Closing Date or such Subsequent Transfer Date,
as the case may be, there is no default, breach, violation or event
of acceleration existing under any such Contract (except payment
delinquencies permitted by subparagraph (vi) above) and no event
which, with the passage of time or with notice or with both, would
constitute a default, breach, violation or event of acceleration
under any such Contract or would otherwise affect the value or
marketability of such contract; and ACCH has not waived any such
default, breach, violation or event of acceleration and as of the
applicable Cut-Off Date, the related Finance Vehicle has not been
repossessed;
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(xv) at the origination date of each such Contract, the
related Financed Vehicle was covered by a comprehensive and
collision insurance policy (i) in an amount at least equal to the
lesser of (a) the actual cash value of the related Financed Vehicle
or (b) the unpaid balance owing on such Contract, less the related
Unearned Finance Charge, (ii) naming ACCH as a loss payee and (iii)
insuring against loss and damage due to fire, theft, transportation,
collision and other risks generally covered by comprehensive and
collision coverage; each Contract requires the Obligor to maintain
physical loss and damage insurance, naming ACCH as an additional
insured party;
(xvi) each such Contract was acquired by ACCH from a Dealer
with which it ordinarily does business; such Dealer had full right
to assign to ACCH such Contract and the security interest in the
related Financed Vehicle and the Dealer's assignment thereof to ACCH
is legal, valid and binding and ACCH had full right to assign to
NAFCO such Contract and the security interest in the related
Financed Vehicle and ACCH's assignment thereof to NAFCO is legal,
valid and binding;
(xvii) each such Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the related Financed
Vehicle of the benefits of the security;
(xviii) scheduled payments under each such Contract are due
monthly (or, in the case of the first payment, no later than the
forty-fifth day after the date of the Contract) in substantially
equal amounts to maturity, and will be sufficient to fully amortize
such Contract at maturity, assuming that each scheduled payment is
made on its Due Date; such scheduled payments are applicable only to
payment of principal and interest on such Contract and not to the
payment of any insurance premiums (although the proceeds of the
extension of credit on such Contract may have been used to pay
insurance premiums); the original term to maturity of such Contract
was not more than 60 months;
(xix) the collection practices used with respect to each such
Contract have been in all material respects legal, proper, prudent
and customary in the automobile installment sales contract or
installment loan servicing business;
(xx) there is only one original of each such Contract, the
Servicer is currently in possession of the Contract Documents for
such Contract and there are no custodial agreements in effect
adversely affecting the rights of ACCH to make the deliveries
required hereunder on the Closing Date or such Subsequent Transfer
Date;
(xxi) as of the Cut-off Date or Subsequent Cut-off Date, as
applicable, no Obligor was the subject of a current bankruptcy
proceeding;
(xxii) the Contracts constitute "chattel paper" within the
meaning of the UCC as in effect in the State of Florida, and all
filings (including without
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limitation, UCC filings) required to be made and all actions
required to be taken or performed by any Person in any jurisdiction
to give NAFCO an ownership interest in the Contracts and the
proceeds thereof and the remaining Contract Assets have been made,
taken or performed;
(xxiii) by the Closing Date and prior to each Subsequent
Transfer Date, as applicable, ACCH will have caused the portions of
ACCH's servicing records relating to the Contracts to be clearly and
unambiguously marked to show that the Contracts constitute part of
the Trust Estate and are owned by the Trust in accordance with the
terms of this Agreement;
(xxiv) no Contract was originated in, or is subject to the
laws of, any jurisdiction the laws of which would make unlawful,
void or voidable the sale, transfer and assignment of such contract
under this Agreement. ACCH has not entered into any agreement with
any account debtor that prohibits, restricts or conditions the
assignment of any portion of the Contracts;
(xxv) no selection procedures adverse to the
Certificateholders or to the Certificate Insurer have been utilized
in selecting such Contract from all other similar Contracts
originated by ACCH; and
(xxvi) The final scheduled payment date on the Initial
Contract with the latest maturity is November 1, 2001. Each Contract
is a Simple Interest or Actuarial Contract.
In the event ACCH has breached any of the foregoing representations
and warranties and NAFCO has accepted a retransfer or is required to accept a
retransfer of the affected Contract pursuant to the Purchase and Contribution
Agreement, ACCH shall, upon demand, repurchase such Contract from NAFCO. In
addition, with respect to any Contract in respect of which the Title Document
was being applied for on the Closing Date or the applicable Subsequent Transfer
Date, as the case may be, if such Title Document has not been received by NAFCO
or its transferee within 180 days after the Closing Date or such Subsequent
Transfer Date, as the case may be and NAFCO is required to accept a retransfer
of such Contract pursuant to the Purchase and Contribution Agreement, ACCH
shall, upon demand by NAFCO, repurchase such Contract. Any such repurchases by
ACCH shall be at a repurchase price equal to the Retransfer Amount determined in
the manner provided in the Pooling and Servicing Agreement. Such repurchase
price shall be paid by ACCH at the direction of NAFCO and upon receipt of such
repurchase price, NAFCO shall release, or cause to be released, to ACCH the
related Contract File and NAFCO or its transferee shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in ACCH or its designee any Contract released pursuant
thereto. Except as expressly provided in the next sentence, it is understood and
agreed that the obligation of ACCH to purchase any Contract as to which such a
breach has occurred and is continuing as described above shall constitute the
sole remedy respecting such breach available to NAFCO. ACCH shall indemnify,
defend and hold NAFCO harmless from and against any and all losses, damages,
claims, expenses and liabilities arising out of or relating to a breach by ACCH
of its representations and warranties in clauses (viii) and (x) of this Section
4.1(b).
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Notwithstanding Section 5.1, it is understood and agreed that the
representations, warranties and covenants set forth in this Section 4.1 shall
survive until the date upon which the Trust terminates pursuant to Section 9.01
of the Pooling and Servicing Agreement.
ARTICLE V
MISCELLANEOUS
5.1 Term. This Agreement shall commence as of the Closing Date and
shall continue in full force and effect until the close of business on the last
day of the Revolving Period.
5.2 Notices. All notices, demands and requests that may be given or
that are required to be given hereunder shall be sent by United States certified
mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as follows:
If to NAFCO: National Auto Finance Company L.P.
One Park Place
Suite 200
621 N.W. 53rd Street
Boca Raton, Florida 33487
Attention: President
Telecopy No: (800) 787-6232
Confirmation: (407) 997-2747
If to ACCH: Auto Credit Clearinghouse L.P.
One Park Place, Suite 550
621 N.W. 53rd Street
Boca Raton, Florida 33487
Attention: __________
Telecopy No: __________
Confirmation: _________
If to Financial Security Assurance Inc.:
Financial Security Assurance, Inc.
350 Park Avenue
New York, New York 10022
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Attention: Surveillance Department
Re: National Auto Finance 1996-1 Trust,
6.33% Automobile Receivables-
Backed Certificates
Telecopy No: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100
If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier: (312) 461-3525
Confirmation: (312) 461-4662
5.3 Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of New York and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
5.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
5.5 Amendment. This Agreement may be amended from time to time by
ACCH and NAFCO to cure any ambiguity, to correct or supplement any provisions
herein which may be inconsistent with any other provisions herein or therein, or
to make any other provisions with respect to matters or questions arising under
this agreement which shall not be materially inconsistent with the provisions of
this Agreement, provided that such action shall not, as evidenced by an Opinion
of Counsel delivered to the Trustee, adversely affect in any material respect
the interests of the Certificateholders and provided further that such action
shall be consented to in writing by the Certificate Insurer (unless a
Certificate Insurer Default shall have occurred and be continuing).
5.6 Severability of Provisions. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
5.7 Assignment. This Agreement may not be assigned by ACCH or NAFCO
except as contemplated by this Section, the Purchase and Contribution Agreement
and the Pooling and Servicing Agreement; provided however, that simultaneously
with the execution and delivery of this Agreement, NAFCO shall assign all of its
right, title and interest under Section 4.1 to the Trustee on behalf of the
Certificateholders and the Certificate Insurer, to which ACCH hereby
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<PAGE>
expressly consents. ACCH agrees to perform its obligations hereunder for the
benefit of the Trust and further agrees that the Trustee or the Certificate
Insurer may (but shall have no obligation to) enforce the provisions of Section
4.1 and exercise the rights of NAFCO to enforce the obligations of ACCH under
Section 4.1 on behalf of the Trust and the Certificateholders without the
consent of NAFCO.
5.8 Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto, and the Trustee for the
benefit of the Certificateholders and the Certificate Insurer, which shall be
considered to be third-party beneficiaries of this Agreement and shall be
entitled to rely on and directly enforce the provisions of this Agreement. The
Certificate Insurer may disclaim any of its rights and powers under this
Agreement upon delivery of a written note to ACCH and NAFCO. Except as otherwise
provided in this Agreement, no other Person will have any right or obligation
hereunder.
5.9 No Petition. ACCH hereby agrees that it will not institute
against NAFCO, or join any other Person instituting against NAFCO, any
bankruptcy or insolvency proceeding under any applicable state or federal law so
long as any Certificate issued pursuant to the Pooling and Servicing Agreement
remains outstanding or there shall have not elapsed one year plus one day since
the date of the final payment on the Certificates issued pursuant to the Pooling
and Servicing Agreement. The foregoing shall not limit the right of ACCH to file
any claim in or otherwise take any action with respect to any bankruptcy or
insolvency proceeding that was instituted against NAFCO by any Person other than
ACCH.
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IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the day and year first written above.
NATIONAL AUTO FINANCE COMPANY L.P.
By: NATIONAL AUTO FINANCE
CORPORATION, as General Partner
By: ____________________________________
Name:
Title:
AUTO CREDIT CLEARINGHOUSE L.P.
By: NATIONAL AUTO FINANCE
CORPORATION, as General Partner
By: ____________________________________
Name:
Title:
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SUPPLEMENT TO AMENDED AND RESTATED SERVICING AGREEMENT
THIS SUPPLEMENT (this "Supplement") of the Amended and Restated Servicing
Agreement dated as of December 5, 1994, as amended as of October 1, 1995 (the
"Servicing Agreement"), between WORLD OMNI FINANCIAL CORP. ("WOFC"), as servicer
and NATIONAL AUTO FINANCE COMPANY L.P. ("NAFCO") is made as of November 13, 1996
by and between OMNI FINANCIAL SERVICES OF AMERICA, INC. as assignee of WOFC (the
"Servicer" or "OFSA") and NAFCO.
RECITALS
A. National Financial Auto Funding Trust ("Auto Funding"), a Delaware
business trust, 100% of the beneficial ownership interest in which is held by
NAFCO or affiliates of NAFCO, intends to assign the accounts designated in
Schedule 1 hereto (the "Assigned Accounts") to National Auto Finance 1996-1
Trust (the "1996-1 Trust") pursuant to the Pooling and Servicing Agreement,
dated as of October 21, 1996 (the "Pooling and Servicing Agreement"), by and
among Auto Funding, NAFCO and Harris Trust and Savings Bank, as trustee (the
"Trustee").
B. NAFCO and OFSA have agreed to further amend the Servicing Agreement as
set forth below to provide for the servicing of the Assigned Accounts following
assignment of the Assigned Accounts by Auto Funding to the 1996-1 Trust.
C. Capitalized terms used but not defined herein shall have the same
meanings ascribed thereto in the Servicing Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for good and valuable consideration, NAFCO and OFSA, as
assignee of WOFC hereby amend and supplement the Servicing Agreement solely with
respect to the Assigned Accounts, as follows:
1. The Preamble is hereby deleted in its entirety and the following
inserted in lieu thereof:
This Amended and Restated Servicing Agreement is hereby made
effective as of the 5th day of December 1994 by and between World
Omni Financial Corp. (the "Servicer" or "WOFC") and National Auto
Finance Company L.P. (the "Company" or "NAFCO").
2. Section 6 of Article I is hereby deleted and the following inserted in
lieu thereof:
6. Company Account. The Collection Account designated in the Pooling
and Servicing Agreement into which are deposited amounts received by the
Servicer on behalf of the Company which may include deduction of certain
amounts due the Servicer
<PAGE>
pursuant to Article II, paragraph 5 of this Agreement. The wiring address
for such account is Harris Trust and Savings Bank ABA #_____________ A/C
#______________ For Further Credit: NAFCO 96-A #______________ Attention:
K. Richardson - Ext. 2647.
3. The second sentence of Section 1 of Article II is hereby deleted and
following inserted in lieu thereof: "The Servicer shall service and administer
the Accounts by employing procedures (including collection procedures) and a
degree of care consistent with prudent industry standards and as are customarily
employed by servicers in servicing and administering motor vehicle retail
installment sales contracts comparable to the Accounts."
4. The following is hereby inserted at the end of the second sentence of
Section 3 of Article II the following: "provided, however, that Servicer shall
be permitted to extend the then current maturity date of an Account provided
that (i) a period of at least six months takes place between each such
extension, and (ii) each such extension is not more than two months; provided,
further, Servicer shall in no event extend the maturity date of an Account
beyond August 31, 2002."
5. Notwithstanding Section 4 of Article II, Servicer shall, as custodian
for the 1996-1 Trust, retain possession of the Loan File for each Assigned
Account in accordance with the Custodial Agreement dated as of November 13, 1996
by and between OFSA, as custodian and NAFCO; provided, however, that this
Section 5 of this Amendment shall not be construed to amend or modify the
obligation of the Servicer to service or continue to service any Account; and
provided, further, that NAFCO will indemnify and hold Servicer harmless against
any liability of Servicer for not returning the Loan File with respect to an
Assigned Account to NAFCO in accordance with such Section 4 to the extent
Servicer retained such Loan File in accordance with its obligations as
Custodian.
6. The fourth sentence of Section 7 of Article II is hereby deleted and
the following inserted in lieu thereof: "Servicer shall have no obligation to
determine whether the actual motor vehicle title is received in those states
which permit the Borrower, rather than the lienholder, to have possession of the
actual motor vehicle title."
7. The first sentence of Section 2 of Article III is hereby deleted and
the following inserted in lieu thereof: "Company shall pay monthly on the
twenty-first day of each month or, if such date is not a Business Day, the next
succeeding Business Day, the Servicing Fees as well as any other expenses or
charges due the Servicer pursuant to this Agreement; provided that, to the
extent such amounts are not paid by the Company on such twenty-first day (for
any reason other than errors of transmission), Servicer may withdraw and apply
the amount of such Servicing Fees owed but not paid from the $5000 reserve
account maintained for such purpose."
8. Article III is hereby amended by adding the following Section after
Section 4: "5. The Company shall provide Servicer with written notice of any
transfer of an Account to the 1996-1 Trust five calendar days prior to any such
transfer."
9. Section 7 of Article V is hereby deleted in its entirety (solely with
respect to the Assigned Accounts).
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<PAGE>
10. Subsection (b) of Section 14 of Article X is hereby deleted and the
following inserted in lieu thereof: "(b) the Company shall, at the request of
the Servicer, execute and deliver or cause to be executed and delivered such
further instruments (including any powers of attorney or similar instruments
from Auto Funding or 1996-1 Trust) and take or cause to be taken such further
actions as Servicer may reasonably deem necessary to carry out the terms and
provisions of this Agreement."
11. Article VIII, is hereby amended by inserting the following language at
the end of Section 1 thereof:
"g. If (i)(A) the Company fails to remit timely to the Servicer the
Servicing Fees in accordance with Section 2 of Article III and such failure to
pay continues for a period of three Business Days and (B) there are insufficient
funds in the Reserve Account to cover payment of any Servicing Fees owed and not
paid or (ii) the Company does not receive first priority payment of
distributions in accordance with Section 4.01 of the Pooling and Servicing
Agreement."
12. This Amendment amends the Amended and Restated Servicing Agreement and
supersedes the Amended and Restated Servicing Agreement solely with respect to
the Assigned Accounts and the subject matter hereof. This amendment is not
intended to amend or modify, and shall not be construed to amend or modify in
any respect, the servicing by the Servicer pursuant to the Amended and Restated
Servicing Agreement of Accounts other than the Assigned Accounts, and the
provisions of the Amended and Restated Servicing Agreement, as such provisions
appear in the Amended and Restated Servicing Agreement dated as of December 5,
1994, as amended as of October 1, 1995, shall remain in full force and effect
with respect to all Accounts (including, except as amended hereby, the Assigned
Accounts).
13. This Amendment shall become effective upon the assignment of the
Assigned Accounts to the 1996-1 Trust.
14. Except as the terms and provisions of the Amended and Restated
Servicing Agreement shall have been amended and superseded hereby, the Amended
and Restated Servicing Agreement shall remain in full force and effect.
15. This Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this amendment
as of the date first provided above.
OMNI FINANCIAL SERVICES OF AMERICA, INC.
By:_____________________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, L.P.
By: NATIONAL AUTO FINANCE CORPORATION,
its general partner
By:_____________________________________
Name:
Title:
-4-
<PAGE>
TRANSFER AGREEMENT
TRANSFER AGREEMENT No. 1, dated as of November 13, 1996, by National
Financial Auto Funding Trust, a Delaware business trust (the "Transferor"), to
Harris Trust and Savings Bank, an Illinois banking corporation, not in its
individual capacity but solely as trustee (the "Trustee), pursuant to the
Pooling and Servicing Agreement referred to below.
WITNESSETH:
WHEREAS, the Transferor, National Auto Finance Company L.P., as Servicer,
and the Trustee are parties to the Pooling and Servicing Agreement, dated as of
October 21, 1996 (as such agreement may have been, or may from time to time be,
amended, supplemented or otherwise modified, the "Pooling and Servicing
Agreement");
WHEREAS, pursuant to the Pooling and Servicing Agreement, the Transferor
wishes to transfer Contracts to the Trustee on behalf of the Trust as part of
the corpus of the Trust Estate (as each such capitalized term is defined in the
Pooling and Servicing Agreement); and
WHEREAS, the Trustee on behalf of the Trust is willing to accept such
transfer subject to the terms and condition hereof.
NOW THEREFORE, the Transferor and the Trustee hereby agree as follows:
1. Defined Terms. All capitalized term used but not defined herein shall
have meanings ascribed to them in the Pooling and Servicing Agreement.
Closing Date shall mean, with respect to the Initial Contracts
transferred hereby, November 13, 1996.
2. Transfer of Contracts. (a) For value received, the Transferor hereby
transfers, assigns, sets-over and conveys to the Trust, without recourse except
as set forth in the Pooling and Servicing Agreement, and with the
representations, warranties and covenants set forth in the Pooling and Servicing
Agreement, on and after the Closing Date, all right, title and interest of the
Transferor in, to and under all Contracts listed in Schedule 1 hereto, all
monies paid or payable thereunder on or after the applicable Cut-off Date, all
Contract Files related thereto, property which secured any such Contract and
which has been acquired by Repossession or otherwise, all rights to Insurance
Proceeds and Liquidation Proceeds relating thereto and all proceeds of any of
the foregoing and all rights to enforce the foregoing.
3. Delivery of Contract Schedule. The Transferor does hereby deliver to
the Trustee on behalf of the Trust herewith a Contract Schedule containing a
true and complete list of each Initial Contract being transferred hereby as of
the Closing Date. Such Contract Schedule is marked as Schedule 1 to this
Transfer Agreement and is hereby incorporated in and made a part
<PAGE>
of this Transfer Agreement and the Pooling and Servicing Agreement.
4. Contract Files. The Transferor does hereby deliver to the Custodian the
original motor vehicle retail installment sales contracts and Contract Files for
each Contract identified in the Contract Schedule.
5. Acceptance and Acknowledgement by Trustee. The Trustee hereby
acknowledges its acceptance on behalf of the Trust of all right, title and
interest of the Transferor in, to and under the Contracts and other assets
transferred hereby, and declares that it shall hold such right, title and
interest upon the trust set forth in the Pooling and Servicing Agreement.
6. Conditions Precedent; Representations and Warranties. The Transferor
hereby represents and warrants to the Trustee that all applicable requirements
of Section 2.06 of the Pooling and Servicing Agreement with respect to the
transfer of the Contracts transferred hereby have been fully satisfied and that
all representations and warranties of the Transferor set forth in Section
2.03(b) of the Pooling and Servicing Agreement are true and correct on and as of
the date hereof and all representations and warranties of the Transferor set
forth in Section 2.03(c) of the Pooling and Servicing Agreement are true and
correct with respect to the Contracts transferred by the Transferor to the Trust
hereby. The aggregate outstanding principal balance of the Contracts transferred
by the Transferor to the Trust hereby as of the applicable Cut-Off Date is
$51,180,034.44.
7. The Pooling and Servicing Agreement. The Pooling and Servicing
Agreement shall continue to be, and shall remain, in full force and effect in
accordance with its terms, and hereby is ratified and confirmed in all respects.
8. Counterpart. This Transfer Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument
9. Limitation of Liability of Trustee. Notwithstanding anything contained
herein to the contrary (i) this Transfer Agreement has been accepted by Harris
Trust and Savings Bank not in it individual capacity but solely as Trustee and
in no event shall Harris Trust and Savings Bank have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Transferor hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Transferor, and (ii) under no circumstances shall Harris Trust
and Savings Bank be personally liable for the payment of any indebtedness or
expenses arising in connection with this Transfer Agreement or the Certificates
or otherwise. Notwithstanding the foregoing, the Trustee shall remain and be
liable for any breach of its duties and obligations hereunder and under the
Pooling and Servicing Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Transfer Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the day and year first above written.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: CHASE MANHATTAN BANK USA, N.A., not in
its individual capacity but solely as Owner
Trustee of the National Financial Auto
Funding Trust
By: ___________________________________
Name:
Title:
NATIONAL AUTO FINANCE 1996-1 TRUST
HARRIS TRUST AND SAVINGS BANK, not
in its individual capacity but solely as Trustee
of the National Auto Finance 1996-1 Trust
By: __________________________________
Name:
Title:
<PAGE>
FINANCIAL GUARANTY
INSURANCE POLICY
Trust: National Auto Finance 1996-1 Trust Policy No.: 50522-N
Certificates: $62,098,000 6.33% Automobile Loan Date of Issuance: 11/13/96
Receivables-Backed Certificates
FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), for consideration
received, hereby UNCONDITIONALLY AND IRREVOCABLY GUARANTEES to the Trustee for
the benefit of each Holder, subject only to the terms of this Policy (which
includes each endorsement hereto), the full and complete payment of Guaranteed
Distributions with respect to the Certificates of the Trust referred to above.
For the further protection of each Holder, Financial Security irrevocably
and unconditionally guarantees payment of the amount of any distribution of
principal or interest with respect to the Certificates made during the Term of
this Policy to such Holder that is subsequently avoided in whole or in part as a
preference payment under applicable law.
Payment of any amount required to be paid under this Policy will be made
following receipt by Financial Security of notice as described in Endorsement
No. 1 hereto.
Financial Security shall be subrogated to the rights of each Holder to
receive distributions with respect to each Certificate held by such Holder to
the extent of any payment by Financial Security hereunder.
Except to the extent expressly modified by Endorsement No. 1 hereto, the
following terms shall have the meanings specified for all purposes of this
Policy. "Holder" means the registered owner of any Certificate as indicated on
the registration books maintained by or on behalf of the Trustee for such
purpose or, if the Certificate is in bearer form, the holder of the Certificate.
"Trustee", "Guaranteed Distributions" and "Term of this Policy" shall have the
meanings set forth in Endorsement No. 1 hereto.
This Policy sets forth in full the undertaking of Financial Security, and
shall not be modified, altered or affected by any other agreement or instrument,
including any modification or amendment thereto. Except to the extent expressly
modified by an endorsement hereto, the premiums paid in respect of this Policy
are nonrefundable for any reason whatsoever. This Policy may not be canceled or
revoked during the Term of this Policy. An acceleration payment shall not be due
under this Policy unless such acceleration is at the sole option of Financial
Security. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In witness whereof, FINANCIAL SECURITY ASSURANCE INC. has caused this
Policy to be executed on its behalf by its Authorized Officer.
FINANCIAL SECURITY ASSURANCE INC.
By________________________________
AUTHORIZED OFFICER
A subsidiary of Financial Security
Assurance Holdings Ltd.
350 Park Avenue, New York, N.Y. 10022-6022 (212) 826-0100
Form 101NY (5/89)
<PAGE>
ENDORSEMENT NO. 1 TO FINANCIAL GUARANTY INSURANCE POLICY
FINANCIAL SECURITY 350 Park Avenue
ASSURANCE INC. New York, New York 10022
TRUST: NATIONAL AUTO FINANCE 1996-1 TRUST
CERTIFICATES: $62,098,000 6.33% Automobile Loan Receivables-Backed Certificates
POLICY NO.: 50522-N
DATE OF
ISSUANCE: November 13, 1996
1. Definitions. For all purposes of this Policy, the terms specified below
shall have the meanings or constructions provided below. Capitalized terms used
herein and not otherwise defined herein shall have the meanings provided in the
Pooling and Servicing Agreement unless the context shall otherwise require.
"Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in the City of New York, Chicago, Illinois or
any other location of any successor Servicer, successor Trustee or successor
Collateral Agent are authorized or obligated by law or executive order to be
closed.
"Guaranteed Distributions" means, with respect to (i) each Distribution
Date, the Monthly Interest payable on such Distribution Date, and (ii) the Final
Scheduled Distribution Date, any principal of the Certificates remaining unpaid
on such Final Scheduled Distribution Date, in each case in accordance with the
original terms of the Certificates when issued and without regard to any
amendment or modification of the Certificates or the Pooling and Servicing
Agreement except amendments or modifications to which the Certificate Insurer
has given its prior written consent; payments of principal of the Certificates
which become due prior to the Final Scheduled Distribution Date as a result of
any cause do not constitute "Guaranteed Distributions" unless the Certificate
Insurer elects, in its sole discretion, to make such payments of principal of
the Certificates prior to the Final Scheduled Distribution Date. Guaranteed
Distributions shall not include, nor shall coverage be provided under this
Policy in respect of, any interest on overdue interest on the Certificates
payable on any Distribution Date, or any taxes, withholding or other charge
imposed by any governmental authority due in connection with the payment of any
Guaranteed Distribution to a Holder.
"Policy" means this Financial Guaranty Insurance Policy and includes each
endorsement thereto.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of October 21, 1996 among National Financial Auto Funding Trust, as
Transferor, National
<PAGE>
Auto Finance Company L.P., as Servicer, and Harris Trust and Savings Bank, as
Trustee, as amended from time to time in accordance with its terms.
"Receipt" and "Received" mean actual delivery to the Certificate Insurer
and to the Fiscal Agent (as defined below), if any, prior to 12:00 noon, New
York City time, on a Business Day; delivery either on a day that is not a
Business Day, or after 12:00 noon, New York City time, shall be deemed to be
receipt on the next succeeding Business Day. If any notice or certificate given
hereunder by the Trustee is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and the
Certificate Insurer or its Fiscal Agent shall promptly so advise the Trustee and
the Trustee may submit an amended notice.
"Term of This Policy" means the period from and including the Date of
Issuance to and including the date on which (i) the principal balance of the
Certificates has been reduced to zero and all distributions of Monthly Interest
have been paid on the Certificates, (ii) any period during which any payment on
the Certificates could have been avoided in whole or in part as a preference
payment under applicable bankruptcy, insolvency, receivership or similar law has
expired, and (iii) if any proceedings requisite to avoidance as a preference
payment have been commenced prior to the occurrence of (i) and (ii), a final and
nonappealable order in resolution of each such proceeding has been entered.
"Trustee" means Harris Trust and Savings Bank in its capacity as Trustee
under the Pooling and Servicing Agreement and any successor in such capacity.
2. Notices and Conditions to Payment in Respect of Guaranteed
Distributions. Following Receipt by the Certificate Insurer of a notice and
certificate from the Trustee in the form attached as Exhibit A to this
Endorsement, the Certificate Insurer will pay any amount payable hereunder in
respect of Guaranteed Distributions out of the funds of the Certificate Insurer
on the later to occur of (a) 12:00 noon, New York City time, on the third
Business Day following such Receipt; and (b) 12:00 noon, New York City time, on
the Distribution Date to which such claim relates. Payments due hereunder in
respect of Guaranteed Distributions will be disbursed by wire transfer of
immediately available funds to the Trustee.
The Certificate Insurer shall be entitled to pay any amount hereunder in
respect of Guaranteed Distributions, including any acceleration payment, whether
or not any notice and certificate shall have been Received by the Certificate
Insurer as provided above. Guaranteed Distributions insured hereunder shall not
include interest, in respect of principal paid hereunder on an accelerated
basis, accruing from after the date of such payment of principal. The
Certificate Insurer's obligations hereunder in respect of Guaranteed
Distributions shall be discharged to the extent funds are disbursed by the
Certificate Insurer as provided herein whether or not such funds are properly
applied by the Trustee.
3. Notices and Conditions to Payment in Respect of Guaranteed Distributions
Avoided as Preference Payments. If any distribution of principal or interest
with respect to the Certificates is avoided as a preference payment under
applicable bankruptcy, insolvency, receivership or
2
<PAGE>
similar law, the Certificate Insurer will pay such amount out of the funds of
the Certificate Insurer on the later of (a) the date when due to be paid
pursuant to the Order referred to below or (b) the first to occur of (i) the
fourth Business Day following Receipt by the Certificate Insurer from the
Trustee of (A) a certified copy of the order (the "Order") of the court or other
governmental body which exercised jurisdiction to the effect that the Holder is
required to return the amount of any Guaranteed Distributions distributed with
respect to the Certificates during the Term of this Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (B) a certificate of the Holder that the Order has been entered and is not
subject to any stay and (C) an assignment duly executed and delivered by the
Holder, in such form as is reasonably required by the Certificate Insurer and
provided to the Holder by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Holder relating to or arising
under the Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment or (ii) the date of Receipt by
the Certificate Insurer from the Trustee of the items referred to in clauses
(A), (B) and (C) above if, at least four Business Days prior to such date of
Receipt, the Certificate Insurer shall have Received written notice from the
Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or any Holder directly (unless a Holder has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order, in which case such payment shall be disbursed
to the Trustee for distribution to such Holder upon proof of such payment
reasonably satisfactory to the Certificate Insurer). In connection with the
foregoing, the Certificate Insurer shall have the rights provided pursuant to
Section 4.04(c) of the Pooling and Servicing Agreement.
4. Governing Law. This Policy shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
5. Fiscal Agent. At any time during the Term of this Policy, the
Certificate Insurer may appoint a fiscal agent (the "Fiscal Agent") for purposes
of this Policy by written notice to the Trustee at the notice address specified
in the Pooling and Servicing Agreement specifying the name and notice address of
the Fiscal Agent. From and after the date of receipt of such notice by the
Trustee, (i) copies of all notices and documents required to be delivered to the
Certificate Insurer pursuant to this Policy shall be simultaneously delivered to
the Fiscal Agent and to the Certificate Insurer and shall not be deemed Received
until Received by both and (ii) all payments required to be made by the
Certificate Insurer under this Policy may be made directly by the Certificate
Insurer or by the Fiscal Agent on behalf of the Certificate Insurer. The Fiscal
Agent is the agent of the Certificate Insurer only and the Fiscal Agent shall in
no event be liable to any Holder for any acts of the Fiscal Agent or any failure
of the Certificate Insurer to deposit, or cause to be deposited, sufficient
funds to make payments due under this Policy.
6. Waiver of Defenses. To the fullest extent permitted by applicable law,
the Certificate Insurer agrees not to assert, and hereby waives, for the benefit
of each Holder, all rights (whether
3
<PAGE>
by counterclaim, setoff or otherwise) and defenses (including, without
limitation, the defense of fraud), whether acquired by subrogation, assignment
or otherwise, to the extent that such rights and defenses may be available to
the Certificate Insurer to avoid payment of its obligations under this Policy in
accordance with the express provisions of this Policy.
7. Notices. All notices to be given hereunder shall be in writing (except
as otherwise specifically provided herein) and shall be mailed by registered
mail or personally delivered or telecopied to the Certificate Insurer as
follows:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President - Surveillance
Telecopy No.: (212) 339-3518
Confirmation: (212) 826-0100
The Certificate Insurer may specify a different address or addresses by writing
mailed or delivered to the Trustee.
8. Priorities. In the event any term or provision of the face of this
Policy is inconsistent with the provisions of this Endorsement, the provisions
of this Endorsement shall take precedence and shall be binding.
9. Exclusions From Insurance Guaranty Funds. This Policy is not covered by
the Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law. This Policy is not covered by the Florida Insurance Guaranty
Association created under Part II of Chapter 631 of the Florida Insurance Code.
In the event the Certificate Insurer were to become insolvent, any claims
arising under this Policy are excluded from coverage by the California Insurance
Guaranty Association, established pursuant to Article 14.2 of Chapter 1 of Part
2 of Division 1 of the California Insurance Code.
10. Surrender of Policy. The Holder shall surrender this Policy to the
Certificate Insurer for cancellation upon expiration of the Term of this Policy.
IN WITNESS WHEREOF, FINANCIAL SECURITY ASSURANCE INC. has caused this
Endorsement No. 1 to be executed by its Authorized Officer.
FINANCIAL SECURITY ASSURANCE INC.
By ______________________________
Authorized Officer
4
<PAGE>
Consent of Independent Auditors' Report
The Partners
National Auto Finance Company L.P.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
November 19, 1996
